FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-8864
USG CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3329400
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 South Franklin Street, Chicago, Illinois 60606-4678
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (312) 606-4000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
As of July 31, 1994, 45,058,760 shares of USG common stock were outstanding.
<PAGE>
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statement of Earnings:
Three Months and Six Months ended June 30, 1994, May 7
through June 30, 1993, April 1 through May 6, 1993 and
January 1 through March 31, 1993
Consolidated Balance Sheet:
As of June 30, 1994 and December 31, 1993
Consolidated Statement of Cash Flows:
Six Months Ended June 30, 1994, May 7 through June 30,
1993 and January 1 through May 6, 1993
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition
Report of Independent Public Accountants
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
<TABLE>
USG CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(Dollars in millions except per share data)
(Unaudited)
<CAPTION>
1994 (a) 1993 (a) 1993
Three Months Six Months May 7 April 1 Three Months
ended ended through through ended
June 30 June 30 June 30 May 6 March 31
<S> <C> <C> <C> <C> <C>
Net Sales $ 562 $ 1,068 $ 315 $ 155 $ 436
Cost of products sold 429 825 252 125 357
Gross Profit 133 243 63 30 79
Selling and administrative expenses 59 116 36 19 52
Amortization of excess
reorganization value 42 84 28 - -
Operating Profit/(Loss) 32 43 (1) 11 27
Interest expense 33 70 22 11 75
Interest income (2) (5) (1) - (2)
Other expense/(income), net 1 2 (2) (1) 7
Reorganization items - - - (778) 69
Earnings/(Loss) Before Taxes on
Income, Extraordinary Gain and
Changes in Accounting Principles - (24) (20) 779 (122)
Taxes on income 17 27 1 10 7
Earnings/(Loss) Before Extraordinary
Gain and Changes in Accounting
Principles (17) (51) (21) 769 (129)
Extraordinary gain, net of taxes - - - 944 -
Cumulative effect of changes in
accounting principles, net - - - - (150)
Net Earnings/(Loss) (17) (51) (21) 1,713 (279)
Average number of common shares (b) 45,057,848 41,672,968 37,157,458
Net Loss Per Common Share (b) $ (0.38) $ (1.23) $ (0.57)
Dividends paid per common share (b) - - -
(a) Due to the Restructuring and implementation of fresh start accounting, financial statements after May 6,
1993 for the restructured company are not comparable to financial statements prior to that date. See "Notes
to Consolidated Financial Statements - Note (3)" for more information on the Restructuring and
implementation of fresh start accounting.
(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 accounting, they are not meaningful.
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
USG CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
(Unaudited)
<CAPTION>
As of As of
June 30, December 31,
1994 1993
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 242 $ 211
Receivables (net of reserves - 1994 $13; 1993 $13) 299 264
Inventories 179 145
Total current assets 720 620
Property, Plant and Equipment (net of reserves for
depreciation and depletion - 1994 $61; 1993 $36) 749 754
Excess Reorganization Value (net of accumulated
amortization - 1994 $197; 1993 $113) 646 735
Other Assets 164 54
Total assets 2,279 2,163
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 134 $ 104
Accrued expenses 209 208
Notes payable 9 2
Long-term debt maturing within one year 8 165
Taxes on income 36 20
Total current liabilities 396 499
Long-Term Debt 1,251 1,309
Deferred Income Taxes 182 180
Other Liabilities 416 309
Stockholders' Equity/(Deficit):
Preferred stock - -
Common stock 5 4
Capital received in excess of par value 221 -
Deferred currency translation (12) (9)
Reinvested earnings/(deficit) (180) (129)
Total stockholders' equity/(deficit) 34 (134)
Total liabilities and stockholders' equity 2,279 2,163
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
USG CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
(Unaudited)
<CAPTION>
Six Months May 7 January 1
ended through through
June 30, June 30, May 6,
1994 (a) 1993 (a) 1993
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings/(loss) $ (51) $ (21) $ 1,434
Adjustments to reconcile net earnings/(loss) to net cash:
Amortization of excess reorganization value 84 28 -
Cumulative effect of accounting changes - - 150
Depreciation, depletion and other amortization 35 12 22
Interest expense on pay-in-kind debentures - - 17
Deferred income taxes 2 - (13)
Net gain/(loss) on asset dispositions - (2) 4
(Increase)/decrease in working capital:
Receivables (35) 21 18
Inventories (34) (3) (8)
Payables 46 4 3
Accrued expenses 1 9 15
(Increase)/decrease in other assets (10) 3 (12)
Increase in other liabilities 8 - 4
Changes due to reorganization items:
Increase in reorganization items - - 65
Net adjustments to fair value - - (759)
Gain on discharge of prepetition liabilities - - (944)
Payment of liabilities net of collection of
letter of credit - - (7)
Other, net (2) (3) (3)
Net cash flows (to)/from operating activities 44 48 (14)
Cash Flows From Investing Activities:
Capital expenditures (21) (7) (12)
Net proceeds from asset dispositions 1 2 -
Net cash flows to investing activities (20) (5) (12)
Cash Flows From Financing Activities:
Issuance of debt 137 10 5
Repayment of debt (354) (13) (142)
Proceeds from public offering of common stock 224 - -
Decrease in restricted assets - - 32
Net cash flows (to)/from financing activities 7 (3) (105)
Net Increase/(Decrease) in Cash and Cash Equivalents 31 40 (131)
Cash and cash equivalents as of beginning of period 211 49 180
Cash and cash equivalents as of end of period 242 89 49
Supplemental Cash Flow Disclosures:
Interest paid 58 12 58
Income taxes paid 8 1 3
(a) Due to the Restructuring and implementation of fresh start accounting, financial statements after May
6, 1993 for the restructured company are not comparable to financial statements prior to that date.
See "Notes to Consolidated Financial Statements - Note (3)" for more information on the Restructuring
and implementation of fresh start accounting.
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
USG CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
(1) The consolidated financial statements of USG Corporation and its
subsidiaries ("the Corporation") 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 June 30, 1994 and December 31, 1993;
results of operations for the three months and six months ended
June 30, 1994, and the periods of May 7 through June 30, 1993,
April 1 through May 6, 1993, and the three months ended March 31,
1993; and cash flows for the six months ended June 30, 1994 and
the periods of May 7 through June 30, 1993 and January 1 through
May 6, 1993. 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 1993 Annual Report on Form 10-K dated March 14,
1994.
(2) In the first quarter of 1994, the Corporation implemented a
refinancing plan which included (i) a public offering 14,375,000
shares of common stock (the "Equity Offering"), of which 7,900,000
shares, yielding net proceeds to the Corporation of $224 million,
were newly issued by the Corporation and 6,475,000 were sold by
Water Street Corporate Recovery Fund I, L.P., a stockholder; (ii)
the issuance of $150 million of 9 1/4% senior notes due 2001 to
certain institutional investors (the "Note Placement") in exchange
for $30 million aggregate principal amount of its outstanding 8%
senior notes due 1996 (the "Senior 1996 Notes"), $35 million
aggregate principal amount of its outstanding 8% senior notes due
1997 (the "Senior 1997 Notes") and $85 million in cash; and (iii)
amendment of the Corporation's bank credit agreement (the "Credit
Agreement") for the second time since the Restructuring. This
amendment (the "Second Amendment" and, together with the Equity
Offering and the Note Placement, the "Transactions") increased the
size of the Corporation's revolving credit facility by $70 million
and amended mandatory bank term loan prepayment provisions to
allow the Corporation, upon the achievement of certain financial
tests, to retain additional free cash flow for capital
expenditures and repayment of its public debt.
The net proceeds from the Equity Offering and Note Placement,
along with $158 million of excess cash as of December 31, 1993 (as
calculated in accordance with the cash sweep mechanism of the
Credit Agreement) are being used by the Corporation to prepay,
redeem or repurchase public and bank debt and for general
corporate purposes, including capital expenditures for cost
reduction, capacity improvement and future growth opportunities.
In the first six months of 1994, the Corporation (i) prepaid $140
million of bank term loans in satisfaction of 1997 and 1998
scheduled payments, (ii) purchased $31 million aggregate principal
amount of Senior 1996 Notes and $24 million aggregate principal
amount of Senior 1997 Notes and (iii) redeemed, at 100% of
principal amount, $75 million of its 8% senior notes due 1995 and
$35 million of its 9% senior notes due 1998.
(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
"Prepackaged Plan"). In accordance with the terms of the
Prepackaged Plan, $1.4 billion of debt and accrued interest was
converted into equity, interest expense was significantly reduced
and the maturities of a substantial portion of its remaining debt
were extended. The Corporation accounted for the Restructuring
using the principles of fresh start accounting 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. Excess
reorganization value, the portion of the reorganization value not
attributable to specific assets, is being amortized over a five-
year period, effective May 7, 1993. In August 1993, the
Corporation completed an exchange offer that converted $138
million of bank debt into senior notes due 2002. See the
Corporation's 1993 Annual Report of Form 10-K dated March 14, 1994
for more information on the Restructuring, implementation of fresh
start accounting and exchange of senior notes for bank debt.
Due to the Restructuring and implementation of fresh start
accounting, financial statements after May 6, 1993 for the
restructured company are not comparable to financial statements
prior to that date. For year-to-year comparability of results,
the following unaudited Pro Forma Consolidated Statement of
Earnings for the six months ended June 30, 1993 has been prepared
giving effect to the consummation of the Prepackaged Plan
including the costs related thereto, in accordance with SOP 90-7,
as if the consummation had occurred on January 1, 1993. The
adjustments set forth under the caption "Pro Forma Adjustments"
reflect the assumed effects of the Restructuring and the adoption
of fresh start accounting prescribed by SOP 90-7.
<PAGE>
<TABLE>
USG CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
Six Months ended June 30, 1993
(unaudited)
(Dollars in millions)
<CAPTION>
Total
Before Pro Forma
Adjustments Adjustments Pro Forma
<S> <C> <C> <C>
Net sales $ 906 $ - $ 906
Cost of products sold 734 - 734
Gross profit 172 - 172
Selling and administrative expenses 107 - 107
Amortization of excess
reorganization value 28 57 (a) 85
Operating profit/(loss) 37 (57) (20)
Interest expense 108 (42) (b) 66
Interest income (3) - (3)
Other expense, net 4 (1) (c) 3
Reorganization items (709) 709 (d) -
Earnings/(loss) before taxes on
income, extraordinary gain and
changes in accounting principles 637 (723) (86)
Taxes on income 18 (16) 2
Earnings/(loss) before
extraordinary gain and changes
in accounting principles 619 (707) (88)
(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 first six months of 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 in the period of January 1 through May 6, 1993. These expenses would have been
recorded in 1992 had the Restructuring occurred on January 1, 1993.
</TABLE>
<PAGE>
(4) A one-time after-tax charge of $150 million was recorded in the
first quarter of 1993 representing the adoption of: (i) Statement
of Financial Accounting Standard ("SFAS") No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," -
$180 million expense; and (ii) SFAS No. 109, "Accounting for
Income Taxes," - $30 million income. Neither of these standards
impact cash flow.
(5) Income tax expense for the three months and six months ended June
30, 1994 amounted to $17 million and $27 million, respectively.
For the period of May 7 through June 30, 1993, income tax expense
amounted to $1 million. These expenses resulted primarily from
tax expense on foreign subsidiary earnings and the inability to
benefit the amortization of excess reorganization value and the
domestic net operating loss carryforwards ("NOL Carryforwards").
For the first quarter of 1993 and the period of April 1 through
May 6, 1993, income tax expense was $7 million and $10 million,
respectively, due to tax expense on foreign subsidiary earnings,
the inability to benefit the NOL Carryforwards as an offset to
deferred taxes and the non-taxable effect of fresh start
accounting.
The Corporation has an NOL Carryforward of $99 million remaining
from 1992. This NOL Carryforward may be used to offset U.S.
taxable income through 2007. The Internal Revenue Code (the
"Code") will limit the Corporation's annual use of its NOL
Carryforward to the lesser of its taxable income or approximately
$30 million plus any unused limit from prior years. Furthermore,
due to the uncertainty regarding the application of the Code to
the exchange of stock for debt, the Corporation's NOL Carryforward
could be further reduced or eliminated. The Corporation has a $4
million minimum tax credit which may be used to offset U.S.
regular tax liability in future years.
(6) As of June 30, 1994, 2,788,350 common shares were reserved for
future issuance in conjunction with stock options. Options for
1,673,000 common shares and 933,000 common shares were granted on
June 1, 1993 and February 9, 1994, respectively, leaving an
additional 182,350 common shares available for future grants.
(7) 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.
Effective January 1, 1994, the Corporation adopted the
requirements of Financial Accounting Standards Board
Interpretation No. 39. In accordance with Interpretation No. 39,
U.S. Gypsum recorded an accrual of $100 million for its
liabilities for asbestos-related matters which are deemed probable
and can be reasonably estimated, and separately recorded an asset
of $100 million, 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 Georgine et
al. v. Amchem Products In., et al is deemed probable) future
Personal Injury Cases, the liability and asset recorded relate
only to pending Personal Injury Cases. The implementation of
Interpretation No. 39 did not impact earnings, cash flow or net
assets. See Part II, Item 1. "Legal Proceedings" for information
on asbestos litigation and definitions of capitalized terms.
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.
(8) 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 for certain debentures
originally issued by U.S. Gypsum. The outstanding balance of such
debentures, which is carried on the holding company's books of
account, totaled $32 million and $36 million as of June 30, 1994
and December 31, 1993, respectively. Summary financial results
for U.S. Gypsum are presented below (dollars in millions):
<PAGE>
<TABLE>
<CAPTION>
1994 (a) 1993 (a) 1993
Three Months Six Months May 7 April 1 Three Months
ended ended through through ended
Summary Statement of Earnings June 30 June 30 June 30 May 6 March 31
<S> <C> <C> <C> <C> <C>
Net sales $ 290 $ 559 $ 161 $ 74 $ 223
Cost and expenses 230 454 142 67 201
Amortization of excess
reorganization value 16 31 10 - -
Operating profit 44 74 9 7 22
Corporate charges 22 46 13 13 39
Reorganization items - - - (295) -
Earnings/(loss) before taxes on income
and change in accounting principle 22 28 (4) 289 (17)
Income tax/(tax benefit) 14 23 3 (1) (6)
Earnings/(loss) before change in
accounting principle 8 5 (7) 290 (11)
Cumulative effect of change in
accounting principle - - - - 28
Net earnings/loss 8 5 (7) 290 17
</TABLE>
<TABLE>
<CAPTION>
As of As of
June 30, December 31,
Summary Balance Sheet 1994 1993
<S> <C> <C>
Current assets $ 257 $ 190
Property, plant and equipment, net 480 483
Excess reorganization value, net 235 265
Other assets 106 3
Total assets 1,078 941
Current liabilities 157 124
Other liabilities and obligations 247 149
Stockholder's equity 674 668
Total liabilities and stockholder's equity 1,078 941
(a) Due to the Restructuring and implementation of fresh start accounting, financial statements
after May 6, 1993 for the restructured company are not comparable to financial statements prior
to that date. See "Notes to Consolidated Financial Statements - Note (3)" for more information
on the Restructuring and implementation of fresh start accounting.
</TABLE>
<PAGE>
(9) The Corporation issued $478 million aggregate principal amount of
10 1/4% senior notes due 2002 (the "10 1/4% Senior Notes") in
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 under 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 any 10 1/4% Senior Notes remain outstanding.
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. and the Corporation's Mexican,
European and Pacific subsidiaries managed by USG International,
Ltd. ("USG International"). The long-term debt of the Combined
Non-Guarantors of $26 million as of June 30, 1994 has restrictive
covenants that restrict, among other things, the payment of
dividends.
The following condensed consolidating information presents:
(i) Condensed financial statements as of June 30, 1994 and
December 31, 1993 and for the three months and six
months ended June 30, 1994 and for the periods of May
7 through June 30, 1993, April 1 through May 6, 1993
and the three months ended March 31, 1993 of (a) the
Corporation on a parent company only basis (the
"Parent Company," which was the only entity of the
Corporation included in the 1993 bankruptcy proceeding
associated with the Restructuring), (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
accounting, the financial statements after May 6, 1993
for the restructured company are not comparable to
financial statements prior to that date. 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.
<PAGE>
<TABLE>
USG CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
(Dollars in millions)
<CAPTION>
Combined
Parent Combined Non-
Company Guarantors Guarantors Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Three Months ended June 30, 1994
Net Sales $ - $ 494 $ 93 $ (25) $ 562
Gross Profit - 113 20 - 133
Operating Profit/(Loss) (10) 41 1 - 32
Equity in net loss of the
Subsidiaries 13 3 - (16) -
Interest expense, net 30 1 - - 31
Corporate service charge (39) 39 - - -
Other expense, net 1 - - - 1
Earnings/(Loss) Before Taxes on
Income (15) (2) 1 16 -
Taxes on income 2 11 4 - 17
Net Loss (17) (13) (3) 16 (17)
Six Months ended June 30, 1994
Net Sales $ - $ 937 $ 181 $ (50) $ 1,068
Gross Profit - 205 38 - 243
Operating Profit/(Loss) (19) 62 - - 43
Equity in net loss of the
Subsidiaries 45 7 - (52) -
Interest expense, net 63 1 1 - 65
Corporate service charge (81) 81 - - -
Other expense, net 2 - - - 2
Loss Before Taxes on Income (48) (27) (1) 52 (24)
Taxes on income 3 18 6 - 27
Net Loss (51) (45) (7) 52 (51)
</TABLE>
<PAGE>
<TABLE>
USG CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
(Dollars in millions)
<CAPTION>
Combined
Parent Combined Non-
Company Guarantors Guarantors Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
May 7 through June 30, 1993
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 expense/(income), 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)
April 1 through May 6, 1993
Net Sales $ - $ 132 $ 28 $ (5) $ 155
Gross Profit 1 23 6 - 30
Operating Profit/(Loss) (3) 12 2 - 11
Equity in net (earnings)/loss
of the Subsidiaries (762) (165) - 927 -
Interest expense, net 10 1 - - 11
Corporate service charge (23) 23 - - -
Other income, net (1) - - - (1)
Reorganization items (16) (597) (165) - (778)
Earnings Before Taxes on Income
and Extraordinary Items 789 750 167 (927) 779
Taxes on income/(income tax
benefit) 20 (12) 2 - 10
Earnings Before Extraordinary Items 769 762 165 (927) 769
Extraordinary gain, net of taxes 944 - - - 944
Net Earnings 1,713 762 165 (927) 1,713
Three Months ended March 31, 1993
Net Sales $ - $ 369 $ 85 $ (18) $ 436
Gross Profit - 61 18 - 79
Operating Profit/(Loss) (8) 27 8 - 27
Equity in net (earnings)/loss
of the Subsidiaries 11 (4) - (7) -
Interest expense, net 70 2 1 - 73
Corporate service charge (69) 69 - - -
Other expense, net 2 5 - - 7
Reorganization items 69 - - - 69
Earnings/(Loss) Before Taxes
on Income and Changes in
Accounting Principles (91) (45) 7 7 (122)
Taxes on income/(income tax
benefit) 17 (12) 2 - 7
Earnings/(Loss) Before Changes
in Accounting Principles (108) (33) 5 7 (129)
Changes in accounting principles (171) 22 (1) - (150)
Net Earnings/(Loss) (279) (11) 4 7 (279)
</TABLE>
<PAGE>
<TABLE>
USG CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
(Dollars in millions)
<CAPTION>
Combined
Parent Combined Non-
As of June 30, 1994 Company Guarantors Guarantors Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 216 $ (9) $ 35 $ - $ 242
Receivables, net 1 281 52 (35) 299
Inventories - 142 41 (4) 179
Total current assets 217 414 128 (39) 720
Property, Plant and Equipment, Net 20 615 114 - 749
Investment in Subsidiaries 1,463 265 - (1,728) -
Excess Reorganization Value, Net - 514 132 - 646
Other Assets (42) 199 13 (6) 164
Total assets 1,658 2,007 387 (1,773) 2,279
Accounts payable and accrued
expenses 98 250 64 (33) 379
Notes payable and LTD maturing
within one year - 3 14 - 17
Total current liabilities 98 253 78 (33) 396
Long-Term Debt 1,191 34 26 - 1,251
Deferred Income Taxes 19 149 14 - 182
Other Liabilities 304 108 4 - 416
Common stock 5 1 6 (7) 5
Capital received in excess
of par value 221 1,472 310 (1,782) 221
Deferred currency translation - - (12) - (12)
Reinvested earnings/(deficit) (180) (10) (39) 49 (180)
Total stockholders' equity/
(deficit) 46 1,463 265 (1,740) 34
Total liabilities and
stockholders' equity 1,658 2,007 387 (1,773) 2,279
As of December 31, 1993
Cash and cash equivalents $ 187 $ (8) $ 32 $ - $ 211
Receivables, net 8 240 44 (28) 264
Inventories - 114 34 (3) 145
Total current assets 195 346 110 (31) 620
Property, Plant and Equipment, Net 21 620 113 - 754
Investment in Subsidiaries 1,511 277 - (1,788) -
Excess Reorganization Value, Net - 582 153 - 735
Other Assets (35) 91 3 (5) 54
Total assets 1,692 1,916 379 (1,824) 2,163
Accounts payable and accrued
expenses 100 207 52 (27) 332
Notes payable and LTD maturing
within one year 158 3 6 - 167
Total current liabilities 258 210 58 (27) 499
Long-Term Debt 1,249 36 24 - 1,309
Deferred Income Taxes 14 151 15 - 180
Other Liabilities 296 8 5 - 309
Common stock 4 1 6 (7) 4
Capital received in excess
of par value - 1,472 310 (1,782) -
Deferred currency translation - - (9) - (9)
Reinvested earnings/(deficit) (129) 38 (30) (8) (129)
Total stockholders' equity/
(deficit) (125) 1,511 277 (1,797) (134)
Total liabilities and
stockholders' equity 1,692 1,916 379 (1,824) 2,163
</TABLE>
<PAGE>
<TABLE>
USG CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(Dollars in millions)
<CAPTION>
Combined
Parent Combined Non-
Six Months ended June 30, 1994 Company Guarantors Guarantors Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Net Cash Flows (To)/From
Operating Activities $ (71) $ 103 $ 12 $ - $ 44
Capital expenditures - (16) (4) - (20)
Net proceeds from asset
dispositions - - - - -
Net Cash Flows To
Investing Activities - (16) (4) - (20)
Issuance of debt 85 - 52 - 137
Repayment of debt (308) (1) (45) - (354)
Proceeds from public offering
of stock 224 - - - 224
Cash dividends (paid)/received - 12 (12) - -
Net cash transfers (to)/from
Corporate 99 (99) - - -
Net Cash Flows (To)/From
Financing Activities 100 (88) (5) - 7
Net Increase/(Decrease) in Cash
& Cash Equivalents 29 (1) 3 - 31
Cash & cash equivalents - beginning 187 (8) 32 - 211
Cash & cash equivalents - end 216 (9) 35 - 242
May 7 through June 30, 1993
Net Cash Flows From
Operating Activities $ 7 $ 39 $ 2 $ - $ 48
Capital expenditures - (5) (2) - (7)
Net proceeds from asset
dispositions - 2 - - 2
Net Cash Flows To
Investing Activities - (3) (2) - (5)
Issuance of debt - - 10 - 10
Repayment of debt (4) - (9) - (13)
Cash dividends (paid)/received - 2 (2) - -
Net cash transfers (to)/from
Corporate 33 (33) - - -
Net Cash Flows (To)/From
Financing Activities 29 (31) (1) - (3)
Net Increase/(Decrease) in Cash
& Cash Equivalents 36 5 (1) - 40
Cash & cash equivalents - beginning 24 (7) 32 - 49
Cash & cash equivalents - end 60 (2) 31 - 89
January 1 through May 6, 1993
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) - -
Deposit of restricted cash 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 &
Cash Equivalents (35) (94) (2) - (131)
Cash & cash equivalents - beginning 59 87 34 - 180
Cash & cash equivalents - end 24 (7) 32 - 49
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Results of Operations
On May 6, 1993, the Corporation completed the Restructuring. Due to the
Restructuring and implementation of fresh start accounting, the Corporation's
financial statements after May 6, 1993 are not comparable to financial
statements prior to that date. See Part I, Item 1. "Financial Statements:
Notes to Consolidated Financial Statements - Note (3)" for information on the
Restructuring and implementation of fresh start accounting.
To facilitate a meaningful year-to-year comparison of the Corporation's
operating performance, 1993 information in the following discussion and
analysis is presented on a second quarter and six months basis. Included in
the following discussion are comparisons of EBITDA (earnings before interest,
taxes, depreciation, depletion and amortization, and, for 1993, reorganization
items, extraordinary gain and the cumulative effect of 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. EBITDA should not be considered by
investors as an alternative to net earnings as an indicator of the
Corporation's operating performance or as a measure of cash flows and overall
liquidity.
<PAGE>
<TABLE>
Consolidated Results (dollars in millions):
<CAPTION>
Three Months ended Six Months ended
June 30 June 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net Sales $ 562 $ 470 $ 1,068 $ 906
Gross Profit 133 93 243 172
% of net sales 23.7% 19.8% 22.8% 19.0%
Selling and administrative expenses 59 55 116 107
% of net sales 10.5% 11.7% 10.9% 11.8%
Amortization of excess reorganization value 42 28 84 28
Operating Profit 32 10 43 37
Calculation of EBITDA:
Operating profit $ 32 $ 10 $ 43 $ 37
Amortization of excess reorganization value 42 28 84 28
Depreciation and depletion 13 13 26 28
Other - 3 - 7
EBITDA 87 54 153 100
% of net sales 15.5% 11.5% 14.3% 11.0%
</TABLE>
Consolidated net sales in the second quarter of 1994 increased $92 million, or
19.6%, over the second quarter of 1993. For the first six months of 1994, net
sales increased $162 million, or 17.9%, over the first six months of 1993.
These increases reflect improved 1994 sales for each of the Corporation's core
businesses, North American Gypsum and Worldwide Ceilings. Net sales for North
American Gypsum increased as a result of rising gypsum wallboard prices and
record levels of shipments for its major product lines. Results for Worldwide
Ceilings benefited from a record level of ceiling tile shipments.
Consolidated gross profit as a percentage of net sales increased to 23.7% and
22.8% in the second quarter and first six months of 1994, respectively, from
19.8% and 19.0% in the prior year periods primarily due to increased prices
for gypsum wallboard.
Selling and administrative expenses for the second quarter of 1994 increased
$4 million, or 7.3%, over the second quarter of 1993 and $9 million, or 8.4%
in the first six months of 1994 over the comparable 1993 period. These
increases were primarily due to higher expenses for compensation and benefits
and for product and marketing programs. As a percentage of net sales,
however, these expenses declined to 10.5% for the second quarter of 1994 and
10.9% for the first six months of 1994 from 11.7% and 11.8% in the respective
1993 periods as a result of the increase in 1994 net sales and the
continuation of expense control efforts.
Effective May 7, 1993, the Corporation began amortizing its excess
reorganization value which was established in accordance with fresh start
accounting rules. This non-cash amortization, which will continue through
April 1998, amounted to $42 million and $84 million in the second quarter and
first six months of 1994, respectively. Because this amortization did not
begin until May 7, 1993, operating profit for the second quarter and first six
months of 1994 is not comparable to the prior year periods.
EBITDA in the second quarter of 1994 increased $33 million, or 61.1%, over the
comparable 1993 period and, for the first six months of 1994, increased $53
million, or 53.0%, over the first six months of 1993. These increases reflect
the improved gross margins in 1994.
<PAGE>
<TABLE>
Industry Segment/Core Business Results (dollars in millions):
<CAPTION>
Three Months ended June 30 Six Months ended June 30
Net Sales EBITDA Net Sales EBITDA
1994 1993 1994 1993 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C>
North American Gypsum:
U.S. Gypsum $ 290 $ 235 $ 66 $ 35 $ 559 $ 458 $ 119 $ 64
CGC (gypsum division) 26 21 3 2 50 44 5 4
Other subsidiaries 22 18 7 5 41 35 12 11
Eliminations (20) (16) - - (38) (30) - -
Total Gypsum Products 318 258 76 42 612 507 136 79
Building Products Distribution 166 131 5 2 305 244 6 2
Eliminations (50) (39) (1) - (95) (75) (1) -
Total North American Gypsum 434 350 80 44 822 676 141 81
Worldwide Ceilings:
USG Interiors 102 90 14 12 198 174 27 23
USG International 48 48 1 3 93 91 2 4
CGC (interiors division) 7 7 1 1 15 15 2 3
Eliminations (9) (10) - - (18) (19) - -
Total Worldwide Ceilings 148 135 16 16 288 261 31 30
Corporate - - (8) (6) - - (18) (11)
Eliminations (20) (15) (1) - (42) (31) (1) -
Total USG Corporation 562 470 87 54 1,068 906 153 100
</TABLE>
North American Gypsum
In the second quarter of 1994, net sales and EBITDA for North American Gypsum
increased $84 million, or 24.0%, and $36 million, or 81.8%, respectively, over
the second quarter of 1993. For the first six months of 1994, net sales and
EBITDA were up $146 million, or 21.6%, and $60 million, or 74.1%,
respectively, over the comparable 1993 period.
For U.S. Gypsum, continuing improvement in gypsum wallboard prices and record
six months shipments of gypsum wallboard, joint compound and DUROCK cement
board contributed to the favorable results. Net sales increased $55 million,
or 23.4%, in the second quarter of 1994 over the prior year period, while
EBITDA increased $31 million, or 88.6%. For the first six months of 1994,
net sales increased $101 million, or 22.1%, and EBITDA increased $55 million,
or 85.9%, versus 1993. U.S. Gypsum shipped 1.821 billion square feet of
gypsum wallboard in the second quarter of 1994, up 5.3% over the second
quarter of 1993 and its gypsum wallboard plants ran at 93% of capacity in the
second quarter of 1994. The average gypsum wallboard selling price increased
to $98.39 per thousand square feet in the second quarter of 1994, up $20.68,
or 26.6%, from the second quarter of 1993 and up $8.86, or 9.9%, from the
first quarter of 1994. This increase represents the ninth consecutive quarter
of improved wallboard prices. For the first six months of 1994, record-
setting gypsum wallboard shipments of 3.686 billion square feet were 5.5%
above the 1993 level. The average gypsum wallboard price of $93.91 per
thousand square feet for the first six months of 1994 was $17.58, or 23.0%,
over the six month 1993 level. Gypsum wallboard unit manufacturing cost in
1994 increased approximately 6% over 1993 cost, primarily due to a higher cost
of purchased waste paper.
Building Products Distribution (L&W Supply) second quarter 1994 net sales were
up $35 million, or 26.7%, over the second quarter of 1993. Net sales in the
first six months of 1994 represented L&W Supply's highest net sales in any
first six month period in its 23-year history and surpassed the comparable
1993 level by $61 million, or 25.0%. EBITDA in the second quarter and first
six months of 1994 amounted to $5 million and $6 million, respectively,
compared with $2 million reported for each 1993 period. These increases
reflect improved results for virtually all of L&W Supply's product lines.
CGC's gypsum division achieved increased net sales and EBITDA in 1994 despite
the impact of the strengthened U.S. dollar when compared to the Canadian
dollar. These favorable results primarily reflect a higher level of CGC
gypsum wallboard shipments largely due to increased exports to the United
States.
Worldwide Ceilings
Second quarter and six months 1994 net sales for Worldwide Ceilings increased
$13 million, or 9.6%, and $27 million, or 10.3%, respectively, over the second
quarter and first six months of 1993. EBITDA for the second quarter of 1994
was unchanged from the year earlier period while increasing $1 million, or
3.3%, in the first six months of 1994 over the first six months of 1993.
USG Interiors' second quarter and first six months 1994 net sales increased
$12 million, or 13.3%, and $24 million, or 13.8%, respectively, over the
corresponding 1993 periods, primarily due to higher U.S. commercial sales.
Shipments of ceiling tile in the second quarter of 1994 continued at a record
pace. As a result, EBITDA increased $2 million, or 16.7%, in the second
quarter and $4 million, or 17.4%, in the first six months of 1994 over the
respective 1993 periods.
USG International's second quarter 1994 net sales were unchanged from the
second quarter of 1993 and EBITDA of $1 million was down from the $3 million
level reported a year ago. For the first six months of 1994, net sales
increased $2 million, or 2.2%, over the corresponding 1993 period, while
EBITDA decreased $2 million, or 50.0%. The decline in 1994 EBITDA was
primarily due to lower margins for non-ceilings product lines.
Other Consolidated Earnings Information
Interest expense of $33 million in the second quarter of 1994, was unchanged
from the second quarter of 1993. For the first six months of 1994, interest
expense of $70 million was down $38 million, or 35.2% from the first six
months of 1993 as a result of the Restructuring. The 1994 amounts include
non-cash amortization of reorganization debt discount amounting to $3 million
in second quarter 1994 and $7 million in the first six months of 1994.
Income tax expense amounted to $17 million and $27 million in the second
quarter and first six months of 1994, respectively, primarily due to the
inability to benefit the amortization of excess reorganization value and the
NOL Carryforwards. In the second quarter and first six months of 1993, income
tax expense amounted to $11 million and $18 million respectively.
In connection with the Restructuring, a one-time reorganization items gain of
$778 million was recorded in the second quarter of 1993, reflecting
adjustments associated with the implementation of fresh start accounting.
Also in the second quarter of 1993, a one-time after-tax extraordinary gain of
$944 million was recorded, primarily reflecting the gain on the exchange of
subordinated debt for common stock. Reorganization items expense of $69
million was recorded in the first quarter of 1993 representing Restructuring
fees and expenses.
A one-time after-tax charge of $150 million was recorded in the first quarter
of 1993 representing the adoption of: (i) SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions," - $180 million expense; and
(ii) SFAS No. 109, "Accounting for Income Taxes," - $30 million income.
Neither of these standards impact cash flow.
Net losses of $17 million and $51 million were recorded in the second quarter
and first six months of 1994, respectively. However, the non-cash
amortization of excess reorganization value and reorganization debt discount
reduced net earnings by $45 million, or $1.00 per common share in the second
quarter of 1994 and $91 million, or $2.18 per common share in the first six
months of 1994. See "Results of Operations - Consolidated Results" above for
more information of amortization of excess reorganization value and its impact
on earnings and the comparability of earnings to prior years.
Liquidity and Capital Resources
In the first quarter of 1994, the Corporation implemented a refinancing plan
which included (i) the Equity Offering, (ii) the Note Placement and (iii) the
Second Amendment. These Transactions were designed, among other things, to
(i) reduce the Corporation's financial leverage through the retirement of
debt, (ii) reduce the amount of debt maturing in 1995 through 1998 and extend
the final maturity of a significant portion of the Corporation's debt, (iii)
improve the Corporation's financial and operating flexibility under the Credit
Agreement and (iv) provide funds for capital expenditures and other general
corporate purposes, including capital expenditures for cost reduction,
capacity improvement and future growth opportunities. Through use of proceeds
from the Transactions and cash generated in 1993, the Corporation has reduced
its domestic debt by $220 million (net of the Note Placement) as of June 30,
1994. See Part I, Item 1. "Financial Statements: Notes to Consolidated
Financial Statements - Note (2)" for additional information on the
Transactions.
On August 11, 1994, the Credit Agreement was amended for the third time since
the Restructuring. In connection with this amendment (the "Third Amendment"),
the Corporation made a prepayment of $25 million of bank term loans, applied
to the bank term loans maturing in 1999, which reduced the outstanding balance
of all such loans to $283 million. This prepayment represents an advance
payment of the mandatory cash sweep prepayment due February 15, 1995. The
Third Amendment provided for the following major revisions to the Credit
Agreement:
(i) Beginning with the January 15, 1995 cash sweep test date, the
Corporation will be entitled to retain 50% of its excess cash
flow, as calculated under the mandatory prepayment provisions of
the Credit Agreement, if the ratio of its debt to EBITDA for the
applicable year is less than 4.0 to 1.0. Such retained cash may
be used for general corporate purposes, including debt repayment.
At such time as the outstanding balance of the bank term loans is
less than $150 million, the mandatory prepayment provisions of the
Credit Agreement will terminate.
(ii) The Corporation is permitted to prepay up to $100 million of 10
1/4% Senior Notes immediately and to employ its share of future
excess cash flow for the same purpose. Such prepayment would be
funded primarily from proceeds of the aforementioned Equity
Offering.
(iii) The Corporation is allowed to enter into a revolving accounts
receivable sale facility for financing up to $150 million. Under
the provisions of the Third Amendment, if such facility matures
before December 31, 2000, the first $60 million of proceeds will
be retained by the Corporation for repayment of 10 1/4% Senior
Notes or other corporate purposes, the next $40 million will be
used to prepay bank term loans and any remaining proceeds will be
retained by the Corporation for uses permitted by the Credit
Agreement.
Other modifications to the Credit Agreement as a result of The Third Amendment
are as follows: (i) The minimum liquidity amount under the mandatory
prepayment provisions was increased to $150 million beginning with January 15,
1996 cash sweep test date. (ii) The Corporation is authorized to prepay its
European project financing (approximately $25 million). (iii) The Corporation
is permitted to issue up to $25 million of new unsecured industrial revenue
bonds, the proceeds to be added to its available liquidity for cash sweep and
general corporate purposes. (iv) CGC is allowed to repurchase from its public
shareholders up to 10% of its total outstanding shares annually. (v) Certain
other changes were made to investment and asset sale covenants to increase the
Corporation's operating flexibility.
The Corporation's liquidity and capital resources were significantly
strengthened by the Transactions and consummation of the Third Amendment. The
Corporation believes that cash generated by operations and the estimated
levels of liquidity available to it will be sufficient 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 and there can be no
assurance that the Corporation's financial resources will be sufficient for it
to satisfy its debt service obligations and other capital requirements under
all circumstances or otherwise permit the Corporation to take advantage of any
appropriate growth opportunity that may arise.
Working Capital
As of June 30, 1994, working capital (current assets less current liabilities)
amounted to $324 million and the ratio of current assets to current
liabilities was 1.82 to 1, versus December 31, 1993 when working capital
amounted to $121 million and the ratio of current assets to current
liabilities was 1.24 to 1.
In the first six months of 1994, cash and cash equivalents increased $31
million to $242 million, primarily due to cash generated from operations and
the net impact of the Transactions. On August 11, 1994, the Corporation used
$25 million of existing cash to prepay bank term loans in connection with the
Third Amendment. The Corporation plans to utilize an additional portion of
existing cash to prepay additional debt or for other uses in accordance with
the Transactions and the Third Amendment described above.
Comparing June 30, 1994 balances with December 31, 1993, accounts receivable
(net) increased $35 million, or 13.3%, to $299 million, inventories increased
$34 million, or 23.4%, to $179 million and accounts payable increased $30
million, or 28.8%, to $134 million. These increases primarily reflect the
increased level of business.
Capital Expenditures
Capital expenditures amounted to $21 million in first six months of 1994, up
$2 million from the first six months of 1993. As a result of the
aforementioned refinancing plan, which generated approximately $92 million for
capital expenditures, the Corporation augmented its capital spending program.
As of June 31, 1994, capital expenditure commitments for the replacement,
modernization and expansion of operations amounted to $58 million compared
with $11 million as of December 31, 1993. In addition, the Corporation
periodically evaluates possible acquisitions or combinations involving other
businesses or companies, generally in businesses and markets related to the
Corporation's current operations, and the Corporation believes that its
available liquidity would be adequate to support any appropriate opportunity.
Litigation
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.
Effective January 1, 1994, the Corporation adopted the requirements of
Financial Accounting Standards Board Interpretation No. 39. In accordance
with Interpretation No. 39, U.S. Gypsum recorded an accrual of $100 million
for its liabilities for asbestos-related matters which are deemed probable and
can be reasonably estimated, and separately recorded an asset of $100 million,
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 Georgine
is deemed probable) future Personal Injury Cases, the liability and asset
recorded in 1994 relate only to pending Personal Injury Cases. The
implementation of Interpretation No. 39 did not impact earnings, cash flow or
net assets.
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
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 Part II, Item 1. "Legal Proceedings" for
more information on legal proceedings.
<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 June 30, 1994, and
the related condensed consolidated statement of earnings for the three-month
and six-month periods ended June 30, 1994 and the condensed consolidated
statement of cash flows for the six months ended June 30, 1994. These
financial statements are the responsibility of the Company's management.
We conducted our review 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 accounting. As such, results
of operations through May 6, 1993 are not comparable with results of
operations subsequent to that date.
Based on our review, 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.
As discussed in Note 7, 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.
As discussed in Note 7, on January 1, 1994, the Corporation changed its method
of accounting for asbestos-related matters.
/s/ Arthur Andersen & Co.
ARTHUR ANDERSEN & CO.
Chicago, Illinois
July 25, 1994
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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 million. Insurers that issued approximately $106 million
of these policies are presently insolvent. After deducting insolvencies and
exhaustion of policies, approximately $625 million of insurance remains
potentially available. 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 property damage and personal injury claims 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 $10.9 million in
1991, $25.8 million in 1992, and $8.2 million in 1993.
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 three 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. (Others were participants in a
class action involving approximately 333 school districts in Michigan, which
was recently settled. Board of Education of the City of Detroit, et al. v.
The Celotex Corp., et al., Circuit Court for Wayne County, MI.) 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., Court 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.). A case pending in state court in South
Carolina, which has not been certified as a class action, purports 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").
The Anderson Case also names the Corporation as a defendant, alleging, 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. In July 1994, the court in the
Anderson Case ruled that claims involving building owners outside South
Carolina cannot be included in the suit. 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 June 30, 1994, 48 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. In addition, approximately 41 property
damage claims have been threatened against U.S. Gypsum.
In total, U.S. Gypsum has settled approximately 87 property damage cases
involving claims of approximately 203 plaintiffs. Twenty-five cases have been
tried to verdict, 16 of which were won by U.S. Gypsum and 5 lost; three other
cases, one won at the trial level and two lost, were settled during appeals.
Another case that was lost at the trial court level was reversed on appeal and
remanded to the trial court, which has now entered judgment for U.S. Gypsum.
Appeals are pending in 5 of the tried cases. In the cases lost, compensatory
damage awards against U.S. Gypsum have totalled $11.5 million. Punitive
damages totalling $5.5 million were entered against U.S. Gypsum in four
trials. Two of the punitive damage awards, totalling $1.45 million, were paid
after appeals were exhausted; and two were settled during the appellate
process.
In 1991, 13 new Property Damage Cases were filed against U.S. Gypsum, eleven
were dismissed before trial, eight were settled, two were closed following
trial or appeal, and 100 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. During 1992, 7 new Property
Damage Cases were filed against U.S. Gypsum, 10 were dismissed before trial,
18 were settled, 3 were closed following trial or appeal, and 76 were pending
at year-end. U.S. Gypsum expended $34.9 million for the defense and
resolution of Property Damage Cases and received insurance payments of $10.2
million in 1992. In 1993, 5 new Property Damage Cases were filed against U.S.
Gypsum, 7 were dismissed before trial, 11 were settled, 1 was closed following
trial or appeal, 2 were consolidated into 1, and 61 were pending at year end;
U.S. Gypsum expended $13.9 million for the defense and resolution of Property
Damage Cases and received insurance payments of $7.6 million in 1993.
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 approximately 51,500 claimants pending as
of June 30, 1994. 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, of which
approximately $262 million remains unexhausted.
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 of Pennsylvania. (Georgine et al. v. Amchem Products Inc., et
al., Case No. 93-CV-0215; hereinafter "Georgine.") 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 the 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 maximum number of claims that must be processed in each year
and the total amount to 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 $7
million is expected to be paid by U.S. Gypsum's insurance carriers.
During 1991, approximately 13,100 Personal Injury Cases were filed against
U.S. Gypsum and approximately 6,300 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,
approximately 20,100 Personal Injury Cases were filed against U.S. Gypsum and
approximately 10,600 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. During 1993, approximately 26,900 Personal
Injury Cases were filed against U.S. Gypsum and approximately 22,900 were
settled or dismissed. U.S. Gypsum incurred expenses of $34.9 million in 1993
with respect to Personal Injury Cases of which $34.0 million was paid by
insurance. As of December 31, 1993, 1992, and 1991, approximately 59,000,
54,000 and 43,000 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 $1,600 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. Through the Center, U.S. Gypsum had reached settlements on
approximately 26,700 Personal Injury Cases pending on December 31, 1993 for
amounts totalling approximately $32 million, to be expended over a three year
period. Approximately 22,000 of such cases remained pending as of June 30,
1994. 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 all asbestos-related Personal
Injury Cases pending against U.S. Gypsum as of December 31, 1993 can be
disposed of for a total amount, including both indemnity costs and legal fees
and expenses, estimated to be between $100 million and $120 million (of which
all but $2 million or $5 million, respectively, is expected to be paid by
insurance). 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; (iii) the committed but
unconsummated settlements described above; and (iv) a small increase in U.S.
Gypsum's historical settlement average.
Assuming that the Georgine 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 and claims resolved as part
of the class action settlement, as well as defense costs and other expenses,
at approximately $262 million, of which approximately $250 million is expected
to be paid by insurance. U.S. Gypsum's additional exposure for claims filed
by persons who have opted out of Georgine would depend on the number of such
claims that are filed, which cannot presently be determined.
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 is likely to take up to a year or more from the date of this report.
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 is 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 of the settling carriers in
the Wellington Agreement, and consumption through December 31, 1993, carriers
providing a total of approximately $90 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 $250 million of coverage that was unexhausted as of December 31,
1993 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. In addition, portions of various policies issued by Lloyd's
and other London market companies between 1966 and 1979 have also become
insolvent; under the Wellington Agreement, U.S. Gypsum must pay these amounts,
which total approximately $12 million.
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 Cases 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 adopted the requirements of
Financial Accounting Standards Board Interpretation No. 39. In accordance
with Interpretation No. 39, U.S. Gypsum recorded an accrual of $100 million
for its liabilities for asbestos-related matters which are deemed probable and
can be reasonably estimated, and separately recorded an asset of $100 million,
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 Georgine
is deemed probable) future Personal Injury Cases, the liability and asset
recorded in 1994 relate only to pending Personal Injury Cases. The
implementation of Interpretation No. 39 did not impact earnings, cash flow 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. 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 sites
but is continuing to review its accruals as additional information becomes
available. Such reserves take into account all known or estimable costs
associated with these sites including site investigations and feasibility
costs, site cleanup and remediation, legal costs, and fines and penalties, if
any. In addition, environmental costs connected with site cleanups on USG-
owned property are also covered by reserves established in accordance with the
foregoing. 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.
Item 4. Submission of Matters to a Vote of Security Holders
(a) In accordance with the Corporation's notice and proxy statement
dated March 31, 1994, the matters set forth in (c) below were
submitted to a vote of stockholders at the annual meeting of
stockholders held on May 11, 1994.
<PAGE>
<TABLE>
<CAPTION>
Votes Abstentions
Votes Withheld and Broker
For or Against Non-Votes
Election of Directors:
<S> <C> <C> <C>
Keith A. Brown 35,889,476 58,814 -
Eugene B. Connolly 35,888,628 59,662 -
James C. Cotting 35,887,295 60,995 -
Philip C. Jackson, Jr. 35,887,679 60,611 -
John B. Schwemm 35,887,418 60,872 -
Ratification of Appointment of Arthur
Andersen & Co. as Independent Auditors 35,843,903 36,409 67,978
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) (10) Third Amendment, dated as of August 11, 1994, 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.
(15) Letter of Arthur Andersen & Co. regarding unaudited
financial information.
(b) There were no reports on Form 8-K filed during the second quarter
of 1994.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
USG CORPORATION
By /s/ Dean H. Goossen
Dean H. Goossen, Corporate Secretary,
USG Corporation
August 12, 1994 By /s/ Raymond T. Belz
Raymond T. Belz, Vice President and
Controller, USG Corporation
Exhibit (10)
THIRD AMENDMENT
Dated as of August 11, 1994
to
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of May 6, 1993
This THIRD AMENDMENT (this "Third Amendment") dated as
of August 11, 1994 is entered into among USG CORPORATION (the
"Company"), USG INTERIORS, INC. ("Interiors") (the Company and
Interiors being sometimes collectively referred to herein as the
"Borrowers"), the FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE
PAGES HEREOF (collectively referred to herein, together with their
respective successors and assigns, as the "Senior Lenders" and
individually as a "Senior Lender"), BANKERS TRUST COMPANY,
CHEMICAL BANK and CITIBANK, N.A. ("Citibank"), in their capacities
as agents for the Senior Lenders hereunder (in such capacities,
the "Agents"), and CITIBANK, in its separate capacity as
administrative agent for the Senior Lenders hereunder (in such
capacity, the "Administrative Agent").
PRELIMINARY STATEMENTS. (1) The Borrowers, the Senior
Lenders, the Agents and the Administrative Agent have entered into
the Amended and Restated Credit Agreement dated as of May 6, 1993
(as amended pursuant to that certain First Amendment dated as of
August 1, 1993 (the "First Amendment") and that certain Second
Amendment dated as of January 31, 1994 (the "Second Amendment"),
the "Credit Agreement") and have agreed to further amend the
Credit Agreement as hereinafter set forth.
(2) Capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed to such terms in
the Credit Agreement. Unless referring to a section of this Third
Amendment, all section references contained herein are references
to section numbers as they appear in the Credit Agreement.
SECTION 1. Amendments to the Credit Agreement. Upon
the occurrence of the "Third Amendment Effective Date" (as defined
in Section 3 below), the Credit Agreement is amended as follows:
1.1. Amendments to Defined Terms.
(a) Section 1.01 of the Credit Agreement is hereby
amended as follows:
(i) The following defined term is inserted in
Section 1.01 immediately following the defined term "Cash
Equivalents":
"Cash Sweep Termination Date" shall have the
meaning ascribed to such term in Section 2.06(b)(i).
(ii) The defined term "Excess Proceeds of Issuance
of Stock or Debt" is amended to delete the parenthetical
phrase in clause (ii) thereof and to substitute therefor the
following:
"(but excluding the net cash proceeds received by the
Company on account of the incurrence of Indebtedness
(a) consisting of unsecured industrial development
revenue bonds permitted under Section 8.01(xvii) hereof
and (b) from and after the Revolving Loan Termination
Date in accordance with the requirements set forth in
Section 8.01(xii) hereof)"
(iii) The defined term "Investment" is amended to
delete the word "other" immediately preceding the word
"Person" in the fourth line thereof.
(b) Section 1.02 of the Credit Agreement is hereby
amended as follows:
(i) The term "Asbestos Adjustment" therein is
deleted in its entirety.
(ii) The following is inserted in Section 1.02
immediately following the term "Cash Available for Sweep":
"Cash Sweep Termination Date".
1.2. Amendments to Mandatory Prepayment of Cash
Available for Sweep. Section 2.06(b)(i) of the Credit Agreement
is amended and restated in its entirety as follows (and the
applicable provisions of the First Amendment and the Second
Amendment, including, without limitation, Section 1.3(a) of the
First Amendment, are accordingly superseded):
(i) Cash Available for Sweep. (A) Within 30 days
after the occurrence of the Test Date in each year (unless
the Cash Sweep Termination Date has occurred on or before
such Test Date), the Company shall prepare and deliver to the
Administrative Agent a work sheet, substantially in the form
of Exhibit 8-A, showing its calculation of Cash Available for
Sweep as of such Test Date, together with a certificate,
substantially in the form of Exhibit 8-B, signed by the chief
accounting officer or chief financial officer of the Company,
and certifying that such calculation is accurate and that
neither the Company nor any Subsidiary of the Company has
made any material prepayments (other than prepayments of
trade payables, mandatory prepayments required under
outstanding credit agreements or indentures, and, to the
extent expressly permitted by the terms of this Agreement,
prepayments of other Indebtedness) out of the ordinary course
of business. On the Sweep Payment Date in each year (unless
the Cash Sweep Termination Date has occurred on or before the
immediately preceding Test Date), the Company shall make or
cause to be made a mandatory prepayment in an amount equal to
the Cash Available for Sweep determined as of the immediately
preceding Test Date, which prepayment shall be applied as
follows:
(1) for any Sweep Payment Date occurring in 1995
or 1996 for which the Sweep Percentage is greater than
50%, such mandatory prepayment shall be applied:
(x) first, up to $7,000,000 in the aggregate
for all such Sweep Payment Dates, to Public Debt
having maturities prior to January 1, 1999 and/or
Term Loans as the Company shall elect in its
discretion, provided, that:
(A) any portion of such $7,000,000 of
Cash Available for Sweep which is not used to
pay such Public Debt prior to the immediately
succeeding Test Date shall be applied by the
Company to the scheduled installments of the
Term Loans in the order of maturity;
(B) if on any such Test Date, the Cash
Available for Sweep on such Test Date exceeds
the then outstanding principal balance of all
of the Public Debt having maturities prior to
January 1, 1999, such excess, up to $7,000,000
less the aggregate amount of Cash Available
for Sweep previously applied under this
Section 2.06(b)(i)(A)(1)(x), shall be applied
90% to the scheduled installments of the Term
Loans in the order of maturity on the Sweep
Payment Date immediately succeeding the
applicable Test Date and 10% to the Company as
Retained Amounts; and
(C) any Investment Premiums paid in
connection with the payment of such Public
Debt shall be subject to the limitations
described in Section 8.03(viii)(C); and
(y) second, following the application of the
amounts described in item (x) above, 66-2/3% to the
scheduled installments of the Term Loans in the
order of maturity on the Sweep Payment Date
immediately succeeding the applicable Test Date and
33-1/3% to the Company as Retained Amounts, until
such Retained Amounts (when added to the Retained
Amounts described in item (x) above) equal
$50,000,000 at which time 100% of such Cash
Available for Sweep shall be applied to the
scheduled installments of the Term Loans in the
order of maturity on the Sweep Payment Date
immediately succeeding the applicable Test Date;
and
(2) for any Sweep Payment Date occurring in 1995
or 1996 for which the Sweep Percentage is 50%, and for
any Sweep Payment Date thereafter, such mandatory
prepayment shall be applied (x) with respect to such
Sweep Payment Dates in 1995 and 1996, in full to the
scheduled installments of the Term Loans in the order of
their maturity, and (y) with respect to such Sweep
Payment Dates occurring in each subsequent year, one-
third (1/3) to the scheduled installments of the Term
Loans in the order of their maturity and two-thirds
(2/3) to the scheduled installments of the Term Loans in
the inverse order of their maturity.
(B) The following terms used in this Section
2.06(b)(i) shall have the following meanings (such meanings
to be applicable, except to the extent otherwise indicated in
a definition of a particular term, both to the singular and
the plural forms of the terms defined):
"Available Liquidity" means, with respect to
any Test Date, (i) the daily average of all domestic
Cash during the Test Period ending on such Test Date
(excluding any Cash which constitutes Excess Proceeds of
Issuance of Stock or Debt and any Cash proceeds of a
revolving accounts receivable sale facility entered into
by the Company and/or one or more of its Subsidiaries
which has been consented to by the Senior Lenders), plus
(ii) the daily average of all Cash of the Company's
Foreign Subsidiaries in excess of the Minimum Foreign
Cash Balances for such Foreign Subsidiaries during such
Test Period (subject to the limitations set forth in
Sections 2.6(b), 8.4 and 9.2 of the National Westminster
Credit Agreement for so long as such Credit Agreement
remains in effect), after subtracting (A) taxes which
would have been incurred had such Cash been repatriated
from such Foreign Subsidiaries, (B) minority interests
in such Foreign Subsidiaries and (C) costs of applicable
Foreign Exchange Contracts, plus (iii) the average daily
amount during such Test Period by which $174,841,297
exceeds the sum of (A) the outstanding principal balance
of the Revolving Loans which constitute Working Capital
Revolving Loans and (B) the Facility Letter of Credit
Obligations. The calculation described in clause (i)
above shall be made assuming that all principal payments
on Term Loans occurring during the Test Period were made
on the date immediately preceding the first day of the
Test Period. The calculation described in clause (ii)
above with respect to Foreign Subsidiaries other than
Restricted Subsidiaries shall be the average of such
excess Cash as of December 16th, December 31st and
January 15th in each Test Period rather than a daily
average. In addition, Available Liquidity will be
adjusted as a result of changes in working capital as
described in Exhibit 9.
"Cash" means, with respect to any Person on
any date, the amount which would be shown as "cash" on a
balance sheet of such Person prepared in accordance with
GAAP as of such date, plus all cash equivalents and
readily marketable securities possessed by such Person.
"Cash Available for Sweep" means, with respect
to each Test Date, an amount equal to the product of (i)
the Sweep Percentage in effect on 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.
"Cash Sweep Termination Date" means the date
on which the aggregate principal amount of outstanding
Term Loans has been reduced to an amount less than
$150,000,000.
"Foreign Exchange Contract" means, with
respect to the Company and its Subsidiaries, any foreign
currency exchange agreements entered into to hedge the
amount of Cash held by the Company or any such
Subsidiary.
"Foreign Subsidiary" means a Subsidiary of the
Company organized under the laws of a jurisdiction other
than the United States or any political subdivision
thereof.
"Minimum Foreign Cash Balance" means the
following amounts for the following Foreign Subsidiaries
(or groups of Foreign Subsidiaries), in each case plus
the then outstanding aggregate balance of loans extended
to the applicable Foreign Subsidiary (or group of
Foreign Subsidiaries) pursuant to one or more revolving
credit facilities in favor of such Foreign Subsidiary
(or group of Foreign Subsidiaries), and minus the
excess, if any, of (i) the cumulative actual Capital
Expenditures made by the applicable Foreign Subsidiary
(or group of Foreign Subsidiaries) during the period
from January 1, 1993 to the end of the Fiscal Year
immediately preceding the applicable Test Date over (ii)
the Projected Foreign Capital Expenditures for such
Foreign Subsidiary (or group of Foreign Subsidiaries) as
of the end of the Fiscal Year immediately preceding the
applicable Test Date; for purposes of the foregoing,
amounts of foreign currencies shall be deemed to be
exchanged into Dollars by using the applicable exchange
rate quoted in the Wall Street Journal on the applicable
Test Date:
Subsidiary (or Group) Minimum Cash Balance
GTL $5,000,000
CGC and Canadian
Mining $10,000,000
All other Foreign
Subsidiaries $35,000,000
"Minimum Liquidity" for each Test Date, shall
be (i) $100,000,000 for the Test Date in 1995 and
$150,000,000 for each Test Date thereafter, plus (ii)
the sum of the Retained Amounts for all prior Test
Dates.
"National Westminster Credit Agreement" shall
mean that certain Credit Agreement dated as of January
29, 1990 among USG Netherlands B.V. and National
Westminster Bank plc, as the same may be amended from
time to time hereafter in accordance with the terms of
Section 8.20 hereof.
"Projected Foreign Capital Expenditures"
means, for the period from January 1, 1993 through the
end of each Fiscal Year, the following amounts for the
following Foreign Subsidiaries (or groups of Foreign
Subsidiaries) for the indicated Fiscal Year:
CGC and Canadian Other Foreign
Fiscal Year GTL Mining Subsidiaries
1993 $0.1mm $ 8.0mm $ 9.0mm
1994 0.2mm 16.5mm 23.0mm
1995 0.3mm 25.5mm 33.0mm
1996 0.4mm 34.5mm 43.0mm
1997 0.5mm 44.0mm 60.0mm
1998 0.6mm 53.5mm 76.5mm
1999 0.7mm 63.0mm 93.0mm
"Retained Amount" means, for any Test Date, an
amount equal to the sum of (i) the product of (a) 100%
minus the Sweep Percentage for such Test Date and (b)
the excess, if any, of the Available Liquidity for such
Test Date over the Minimum Liquidity for such Test Date,
plus (ii) any amounts designated as "Retained Amounts"
in Section 2.06(b)(i)(A)(1) hereof.
"Sweep Payment Date" means each February 15th
in each year, commencing with February 15, 1994.
"Sweep Percentage" means (i) 100% for the Test
Dates occurring in 1995 and 1996, (ii) 90% for each of
the Test Dates occurring in 1997 and 1998, and (iii) 85%
for the Test Date occurring in 1999 and any subsequent
Test Dates; provided, that the Sweep Percentage shall be
50% for any Test Date for which the ratio of Debt to
EBITDA (as such terms are defined in Section 9.01
hereof, but without reference to Section 9.10 hereof) as
of the immediately preceding December 31 was less than
4.0 to 1.0.
"Test Date" means each January 15th in each
year, commencing with January 15, 1994.
"Test Period" means, with respect to any Test
Date, the period commencing on the immediately preceding
December 16th and ending on such Test Date.
1.3. Amendments to Mandatory Prepayment of Excess
Proceeds of Issuance of Stock or Debt. Section 2.06(b)(ii) of the
Credit Agreement is amended and restated in its entirety as
follows (and the applicable provisions of the First Amendment and
the Second Amendment, including, without limitation, Section 5 of
the Second Amendment, are accordingly superseded):
(ii) Excess Proceeds of Issuance of Stock or Debt.
Within one (1) Business Day of the Company's receipt of any
Excess Proceeds of Issuance of Stock or Debt (or, with
respect to the Public Debt, within the time period set forth
in Section 8.03(viii)(A)), the Company shall make or cause to
be made a mandatory prepayment in an amount equal to a
portion of such Excess Proceeds of Issuance of Stock or Debt,
and shall otherwise be entitled to apply such Excess Proceeds
of Issuance of Stock or Debt, as determined as follows:
(A) the Excess Proceeds of Issuance of Stock or
Debt arising from the issuance of common stock by the
Company pursuant to that certain S-1 Registration
Statement filed with the Commission on January 7, 1994
shall be applied to the following, as the Company may in
its sole discretion elect: (1) to the repayment of 10-
1/4% Senior Notes in an aggregate principal amount not
to exceed $70,000,000, (2) to Capital Expenditures
permitted under Section 9.08(ix) hereof, and/or (3) in
accordance with clause (B) below; provided, that all
such amounts not so applied by March 16, 1995 shall
cease to constitute Excess Proceeds of Issuance of Stock
or Debt for all purposes hereunder (and therefore shall
become subject to the calculation of Cash Available for
Sweep, if applicable);
(B) except as applied pursuant to clauses (A)(1)
or (2) above, prior to the payment in full of all Public
Debt having maturity dates prior to January 1, 1999,
100% of the Excess Proceeds of Issuance of Stock or Debt
shall be applied to the repayment of Public Debt having
maturity dates prior to January 1, 1999 and/or the
outstanding Term Loans, as the Company may in its
discretion elect; provided, that to the extent that any
portion of such Excess Proceeds of Issuance of Stock or
Debt are not so applied within the time period set forth
in Section 8.03(viii)(A), then such portion shall cease
to constitute Excess Proceeds of Issuance of Stock or
Debt for all purposes hereunder (and therefore shall
become subject to the calculation of Cash Available for
Sweep, if applicable); and
(C) following the payment in full of all Public
Debt having maturity dates prior to January 1, 1999,
100% of the Excess Proceeds of Issuance of Stock and
Debt shall be applied to the outstanding principal
balance of the Term Loans in the order of their
maturity, but only until and to the extent that the
aggregate outstanding principal balance of the Term
Loans exceeds $150,000,000.
The Company shall have no obligation to make any mandatory
prepayment under this Section 2.06(b)(ii) once the aggregate
outstanding principal balance of the Term Loans is less than
or equal to $150,000,000.
1.4. Amendment to Indebtedness Covenant. Section 8.01
of the Credit Agreement is hereby amended to add the following at
the end thereof:
"(xvii) Indebtedness of the Company or any
Subsidiary consisting of unsecured industrial revenue bonds
issued after the Effective Date which do not in the aggregate
exceed $25,000,000."
1.5. Amendment to Sales of Assets Covenant. Section
8.02(a)(v) of the Credit Agreement is hereby amended and restated
in its entirety as follows:
"(v) any sale for cash by the Company or any of its
Restricted Subsidiaries not described in clauses (i) through
(iv) above, provided, that the Net Cash Proceeds of Sale
received by the Company or any Restricted Subsidiary (x) from
any such individual sale or related group of sales does not
exceed Fifteen Million Dollars ($15,000,000) and (y) from all
such sales in any Fiscal Year of the Company does not exceed
an aggregate amount of Thirty Million Dollars ($30,000,000);
and"
1.6. Amendments to Investments Covenant. Section 8.03
of the Credit Agreement is hereby amended to delete clauses (viii)
through (x) thereof and to substitute therefor the following:
"(viii) Investments in Public Debt having final
maturities prior to January 1, 2003, in order to effectuate
the prepayment (or defeasance, subject to restrictions
acceptable to the Agents) of such Public Debt, made with (A)
Excess Proceeds of Issuance of Stock or Debt within one year
following the receipt of such Excess Proceeds of Issuance of
Stock or Debt (as described in Section 2.06(b)(ii)), (B) to
the extent not used to make Capital Expenditures permitted
hereunder, the amount of Net Cash Proceeds of Sale described
in Section 9.08(iii) (referred to therein as "Excess Sale
Proceeds"), (C) Cash Available for Sweep as described in
Section 2.06(b)(i)(A)(1) hereof, provided, that, to the
extent any such Investment under this clause (C) involves the
payment of a premium in excess of 100% of the face amount of
the applicable Public Debt (such excess being an "Investment
Premium"), such Investment Premium shall be paid using
Unrestricted Retained Amounts, except that up to an aggregate
amount of $10,000,000 of Investment Premiums may be paid when
no Unrestricted Retained Amounts exist at the time such
Investment is made, (D) solely for Investments in Public Debt
having final maturities in 1996 or 1997, proceeds from the
borrowing of Public Debt Revolving Loans, and (E)
Unrestricted Retained Amounts;
(ix) Investments, not otherwise described in
clauses (i) through (viii) above, in 10-1/4% Senior Notes, in
order to effectuate the prepayment (or defeasance, subject to
restrictions acceptable to the Agents) thereof, not exceeding
$30,000,000 in the aggregate amount at any one time
outstanding; and
(x) any other Investments (other than Investments
in Public Debt) not otherwise described in clauses (i)
through (ix) above, not exceeding Forty Million Dollars
($40,000,000) in the aggregate at any one time outstanding;
provided, that Investments in Public Debt under this clause
(x) shall not at any one time exceed an aggregate amount of
$5,000,000."
1.7. Amendment to Restricted Junior Payment Covenant.
Section 8.05 of the Credit Agreement is hereby amended to add the
following at the end thereof:
"(vii) the repurchase or redemption by CGC of its
publicly-owned common stock, in an amount not to exceed 10%
of its total outstanding shares of common stock in any single
calendar year."
1.8. Amendment to Fundamental Changes Covenant.
Section 8.07 of the Credit Agreement is hereby amended to delete
subsection (b) thereof in its entirety.
1.9. Amendment to Prepayment of Indebtedness Covenant.
Section 8.16 of the Credit Agreement is hereby amended to delete
the parenthetical phrase in clause (y) thereof and to substitute
therefor the following:
"(except for the prepayment of the Indebtedness
under the National Westminster Credit Agreement, or as
otherwise expressly permitted pursuant to the terms of this
Agreement, or as otherwise required pursuant to the terms of
the agreements governing such long-term Indebtedness as in
existence on and as of the Effective Date)"
1.10. Amendment to Capital Expenditures Covenant.
Section 9.08 of the Credit Agreement is hereby amended to delete
clause (v) thereof and to substitute therefor the following:
"(v) [Intentionally left blank];"
SECTION 2. Consent to Receivables Sale Facility. The
Requisite Senior Lenders hereby consent to, and waive any conflict
with any provision set forth in Article VIII of the Credit
Agreement with respect to, a revolving accounts receivable sale
facility established by the Company pursuant to which the Company
and/or one or more of its Restricted Subsidiaries sells accounts
receivable and other related assets (or otherwise grants a lien
upon such accounts receivable or other related assets to secure
non-recourse debt); provided, that (i) such facility shall have a
maximum principal/investment amount not in excess of $150,000,000,
and shall otherwise be on terms and conditions reasonably
acceptable to the Agents, (ii) the first $60,000,000 of proceeds
from such facility may be applied by the Company to prepay or
repurchase 10-1/4% Senior Notes or for other permitted corporate
purposes, as the Company may in its discretion elect, (iii) unless
the original stated maturity of such facility (without giving
effect to any renewals thereof) is after December 31, 2000, the
Company shall, upon receipt thereof by the Company or any
Restricted Subsidiary, make a prepayment of the Term Loans, in the
order of maturity, in an amount equal to the lesser of (a)
$40,000,000 and (b) the aggregate proceeds received from such
facility in excess of $60,000,000, and (iv) except for the
prepayment of the 10-1/4% Senior Notes and/or the Term Loans as
described above, the use of the proceeds of such facility shall be
subject to the terms and provisions of Article VIII of the Credit
Agreement. Notwithstanding anything in the Credit Agreement to
the contrary, the proceeds of such a revolving accounts receivable
sale facility shall not be Excess Proceeds of Issuance of Stock or
Debt subject to Section 2.06(b)(ii) thereof.
SECTION 3. Conditions Precedent to Effectiveness. This
Third Amendment shall become effective as of the date (the "Third
Amendment Effective Date") on which each of the following
conditions precedent shall have occurred:
(a) Documentation. The Agents shall have received all
of the following:
(i) Counterparts of this Third Amendment executed by
both of the Borrowers, the Agents, the Administrative Agent and
Senior Lenders whose Term Loans and Revolving Loan Commitments
aggregate 66-2/3% or more of the sum of the then aggregate unpaid
principal balance of the Term Loans and the then aggregate
principal amount of the Revolving Loan Commitments;
(ii) Reaffirmations of Guaranties executed by the
Company and each Subsidiary party to a Subsidiary Guaranty, in
form and substance reasonably satisfactory to the Agents and
counsel for the Agents;
(iii) The opinion of the General Counsel of the Company
and Interiors relating to such matters as the Agents deem
appropriate and in form and substance reasonably satisfactory to
the Agents and counsel for the Agents;
(iv) A certificate of the Secretary or Assistant
Secretary of the Company certifying (A) the names and true
signatures of the incumbent officers of the Company authorized to
sign this Third Amendment and all other Loan Documents executed by
the Company in connection herewith and (B) the resolutions of the
Company's Board of Directors approving and authorizing the
execution, delivery and performance of this Third Amendment and
all other Loan Documents executed by the Company in connection
herewith; and
(v) A certificate of the Secretary or Assistant
Secretary of Interiors certifying (A) the names and true
signatures of the incumbent officers of Interiors authorized to
sign this Third Amendment and all other Loan Documents executed by
Interiors in connection herewith and (B) the resolutions of
Interiors' Board of Directors approving and authorizing the
execution, delivery and performance of this Third Amendment and
all other Loan Documents executed by Interiors in connection
herewith.
(b) Prepayment of Cash Available for Sweep. The
Company shall have paid $25,000,000 to the Administrative Agent,
for the account of the Term Senior Lenders, as a prepayment of the
Term Loans applied in the order of maturity. To the extent that
the Company is required to pay any Cash Available for Sweep to the
Senior Lenders after the Third Amendment Effective Date, the
Company shall be entitled to offset the foregoing payment against
such required payments of Cash Available for Sweep (it being
understood that such calculations of Cash Available for Sweep
shall be made as if such prepayment had not been made and such
amounts remained as Cash held by USG).
(c) No Events of Default. No Event of Default or
Potential Event of Default shall have occurred and be continuing.
SECTION 4. Confirmation of Credit Agreement. Except as
herein expressly amended, the Credit Agreement is ratified and
confirmed in all respects and shall remain in full force and
effect in accordance with its terms. Each reference in the Credit
Agreement to "this Agreement" shall mean the Credit Agreement as
amended by the First Amendment, as further amended by the Second
Amendment, as further amended by this Third Amendment, and as
hereinafter amended or restated.
SECTION 5. Costs and Expenses. Each Borrower agrees to
pay on demand all costs and expenses of the Administrative Agent
and the Agents in connection with the preparation, reproduction,
execution and delivery of this Third Amendment, including the
reasonable fees and out-of-pocket expenses of Sidley & Austin,
counsel for the Agents.
SECTION 6. Successors and Assigns. This Third
Amendment and the other Loan Documents executed in connection
herewith shall be binding upon the parties hereto and thereto and
their respective successors and assigns (including, without
limitation, a receiver, trustee or debtor-in-possession of any of
the Borrowers) and shall inure to the benefit of the parties
hereto and thereto and the successors and permitted assigns of the
Senior Lenders and the Issuing Banks.
SECTION 7. Execution in Counterparts. This Third
Amendment may be executed and delivered in any number of
counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall
be deemed to be an original and all of which taken together shall
constitute one and the same original agreement.
SECTION 8. Governing Law. This Third Amendment shall
be governed by and construed in accordance with the laws of the
State of New York.
SECTION 9. Headings. Section headings in this Third
Amendment are included herein for convenience of reference only
and shall not constitute a part of this Third Amendment for any
other purpose.
[Remainder of page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Third Amendment to be executed by their respective officers
thereunto duly authorized as of the date first above written.
USG CORPORATION
By /s/ Richard H. Fleming
Title:
USG INTERIORS, INC.
By /s/ Richard H. Fleming
Title:
CITIBANK, N.A.,
as Administrative Agent, as an
Agent and as a Senior Lender
By /s/ Barbara A. Cohen
Title:
BANKERS TRUST COMPANY, as an
Agent and as a Senior Lender
By /s/ Mary Jo Jolly
Title:
CHEMICAL BANK, as an Agent
and as a Senior Lender
By /s/ Christopher C. Wardell
Title:
Exhibit (15)
August 12, 1994
USG Corporation
125 South Franklin Street
Chicago, Illinois 60606
Gentlemen:
We are aware that USG Corporation has incorporated by reference
into previously filed Registration Statement Numbers 33-22581,
33-22930, 33-36303, 33-40136 and 33-63554 its Form 10-Q for the
quarter ended June 30, 1994, which includes our report dated July
25, 1994, covering the unaudited condensed financial information
contained therein. Pursuant to Regulation C of the Securities Act
of 1933, these reports are not considered a part of the
registration statement prepared or certified by our firm or reports
prepared or certified by our firm within the meaning of Sections 7
and 11 of the Act.
Very truly yours,
/s/ Arthur Andersen & Co.
ARTHUR ANDERSEN & CO.
