SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10-K
_________________
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For fiscal year ended December 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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 S. Franklin Street, Chicago, Illinois 60606-4678
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (312) 606-4000
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Exchange on
Title of Each Class Which Registered
Common Stock, $0.10 par value New York Stock Exchange
Midwest Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Midwest Stock Exchange
7.875% Sinking Fund New York Stock Exchange
Debentures, due 2004
Warrants New York Stock Exchange
Midwest Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
None
(Title of Class)
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
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 January 31, 1995, the aggregate market value of USG Corporation common
stock held by nonaffiliates (based upon the New York Stock Exchange ("NYSE")
closing prices) was approximately $742,555,000.
As of January 31, 1995, 45,086,248 shares of common stock were outstanding.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Applicable to: Document:
PART IV
Item 14. Exhibits, Financial Statement A list of exhibits incorporated
Schedules and Reports on by reference is contained in
Form 8-K this report.
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceeding
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Item 8. Financial Statements and Supplementary Data:
Restructured Company
Predecessor Company
Selected Quarterly Financial Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
Signatures
<PAGE>
INDEX OF DEFINED TERMS
Anderson Case
Bank Term Loans
Cash Sweep
Center
CGC
Combined Guarantors
Combined Non-Guarantors
Common Stock
Corporation
Coverage Action
Credit Agreement
EBITDA
Equity Offering
FIFO
Georgine
Interpretation 39
L&W Supply
LIFO
Master Trust
NOL Carryforwards
Note Placement
NYSE
Parent Company
Personal Injury Cases
Predecessor Company
Prepackaged Plan
Property Damage Cases
Receivables Facility
Restructured Company
Restructuring
Revolving Credit Facility
Rights
Rights Agreement
SEC
Senior 1996 Notes
Senior 1997 Notes
Senior 2001 Notes
Senior 2002 Notes
SFAS
SOP 90-7
Subsidiary Guarantees
Supporting Insurers
Third Amendment
Transactions
U.S. Gypsum
USG
USG Funding
USG Interiors
USG International
Warrants
Water Street
Wellington Agreement
YPSA
<PAGE>
PART I
Item 1.
BUSINESS
(a) General Development of Business
United States Gypsum Company ("U.S. Gypsum") was incorporated in 1901. USG
Corporation (together with its subsidiaries, called "USG" or the
"Corporation") was incorporated in Delaware on October 22, 1984. By a vote of
stockholders on December 19, 1984, U.S. Gypsum became a wholly owned
subsidiary of the Corporation and the stockholders of U.S. Gypsum became the
stockholders of the Corporation, all effective January 1, 1985.
On May 6, 1993, the Corporation completed a comprehensive restructuring of
its debt (the "Restructuring") through implementation of a "prepackaged" plan
of reorganization under United States bankruptcy law (the "Prepackaged Plan").
The debt impacted by the Restructuring was incurred primarily as a result of a
plan of recapitalization which was implemented in 1988. Subsequent to that
recapitalization, the Corporation was adversely affected by a cyclical
downturn in its construction-based markets which resulted in the Corporation's
inability to achieve projected operating results and service certain debt
obligations in a timely manner. 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." Post-bankruptcy
accounting rules require that financial results of the Corporation occurring
before the Restructuring (the "Predecessor Company") be reported separately
from subsequent results of the Corporation (the "Restructured Company"). As
such, the Corporation's financial statements effective May 7, 1993, are
presented under "Restructured Company" in Part II, Item 8. "Financial
Statements and Supplementary Data," while financial statements for periods
prior to that date are presented under "Predecessor Company." See Part II,
Item 8. "Financial Statements and Supplementary Data - Predecessor Company -
Notes to Financial Statements - Financial Restructuring" note for additional
information on the Restructuring and implementation of fresh start accounting.
In the first quarter of 1994, the Corporation implemented a refinancing
plan which included (i) a public offering of 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., the
Corporation's largest stockholder ("Water Street"); (ii) the issuance of $150
million of 9 1/4% senior notes due 2001 (the "Senior 2001 Notes") 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"). (Collectively, the Equity Offering, the Note Placement
and the amendment to the Credit Agreement are referred to as the
"Transactions.") In addition to the Transactions, other refinancing
activities were implemented in 1994 which resulted in the prepayment of debt,
reduction of interest expense and increased operating flexibility. See Part
II, Item 8. "Financial Statements and Supplementary Data - Restructured
Company - Notes to Financial Statements - Accounts Receivable Facility and
Indebtedness" notes for more information on the Transactions and other 1994
refinancing activities.
On December 30, 1994, USG Interiors, Inc. ("USG Interiors") sold its
domestic access floor systems business (including a manufacturing plant in Red
Lion, Pennsylvania) to Tate Access Floor Incorporated. The Corporation
received $12 million in net proceeds for this sale and no gain or loss on the
sale was recorded. In 1994, this business had net sales of $30 million and an
operating loss of $0.4 million.
(b) Financial Information About Industry Segments
The Corporation operates in two core businesses: North American Gypsum
(which includes the Gypsum Products industry segment in the United States,
Canada and Mexico and the Building Products Distribution industry segment in
the United States) and Worldwide Ceilings (which includes interior systems
operations worldwide). See "(c) Narrative Description of Business" below and
Part II, Item 8. "Financial Statements and Supplementary Data - Notes to
Financial Statements - Industry and Geographic Segments" notes for both the
Restructured Company and the Predecessor Company for financial information and
other related disclosures about the Corporation's industry and geographic
segments.
(c) Narrative Description of Business
Through its subsidiaries, USG is a leading manufacturer of building
materials which produces a wide range of products for use in residential and
non-residential construction, repair and remodeling, as well as products used
in certain industrial processes. USG's operations are organized into two core
businesses: North American Gypsum and Worldwide Ceilings.
North American Gypsum
Business
The North American Gypsum core business, which manufactures and markets
gypsum products in the United States, Canada and Mexico, includes U.S. Gypsum
and L&W Supply Corporation ("L&W Supply") in the United States, the gypsum
business of the Corporation's 76%-owned subsidiary, CGC Inc. ("CGC"), in
Canada and Yeso Panamericano S.A. de C.V. ("YPSA") in Mexico. U.S. Gypsum is
the largest producer of gypsum wallboard in the United States and accounted
for approximately one-third of total domestic gypsum wallboard sales in 1994.
L&W Supply is the country's largest distributor of wallboard and related
products and in 1994 distributed approximately 9% of all gypsum wallboard in
the United States (including approximately 22% of U.S. Gypsum's wallboard
production).
Products
North American Gypsum manufactures and markets building and industrial
products used in a variety of applications. Gypsum panel products are used to
finish the interior walls and ceilings in residential, commercial and mobile
home construction. These products provide aesthetic as well as sound
dampening and fire retarding value. The majority of these products are sold
under the "SHEETROCK" brand name. Also sold under the "SHEETROCK" brand name
is a line of joint compounds used for finishing wallboard joints. The
"DUROCK" line of cement board and accessories is produced to provide
fire-resistant and water damage resistant assemblies for both interior and
exterior construction. The Corporation also produces a variety of plaster
products used to provide a custom finish for residential and commercial
interiors. Like "SHEETROCK" brand wallboard, these products provide aesthetic
and sound dampening and fire retarding value. Plaster products are sold under
the trade names of "RED TOP," "IMPERIAL" and "DIAMOND." The Corporation also
produces gypsum-based products sold to agricultural and industrial customers
for use in a number of applications, including soil conditioning, road repair,
fireproofing and ceramics.
Manufacturing
Gypsum and related products are produced by the Corporation at 41 plants
located throughout the United States, eastern Canada and in central Mexico.
In 1994, the Corporation implemented an incremental wallboard capacity
expansion at nine strategically located plants in the United States. By the
end of 1995, this program is expected to increase U.S. Gypsum's wallboard
capacity by approximately 600 million square feet. Further, the Corporation
increased its capital spending program to maintain and enhance its control of
manufacturing costs.
Gypsum rock is mined or quarried at 14 company-owned locations in the
United States and Canada. In 1994, these facilities provided approximately
95% of the gypsum used by the Corporation's plants in North America. Certain
plants purchase synthetic gypsum or natural gypsum rock instead of or in
addition to gypsum rock from company mines and quarries. Such purchases
accounted for approximately 5% of gypsum used in the Corporation's North
American plants. The Corporation's geologists estimate that recoverable rock
reserves are sufficient for more than 30 years of operation based on the
Corporation's average annual production of crude gypsum during the past five
years. Proven reserves contain approximately 232 million tons, of which
approximately 70% are located in the United States and 30% in Canada.
Additional reserves of approximately 153 million tons exist on three
properties not in operation. The Corporation's total average annual
production of crude gypsum in the United States and Canada during the past
five years was 9.7 million tons.
USG owns and operates seven paper mills located across the United States.
Vertical integration in paper ensures a continuous supply of high quality
paper that is tailored to the specific needs of USG's wallboard production
processes.
USG maintains a research and development facility in Libertyville, Illinois
which conducts fire, structural and acoustical testing and product and process
development. Research and development activities involve technology related
to gypsum, cellulosic fiber and cement as the primary raw materials on which
panel products and systems, such as gypsum board, cement board and ceiling
tile, are based. Related technologies are those pertaining to joint compounds
and textures for wallboard finishing, specialty plaster products for both
construction and industrial applications, coatings and latex polymers.
Marketing and Distribution
Distribution is carried out through L&W Supply, home improvement centers
and other retailers, building material dealers, contractors and distributors.
Sales of gypsum products are seasonal to the extent that sales are generally
greater from spring through the middle of autumn than during the remaining
part of the year. Based on the Corporation's estimates using publicly
available data, internal surveys, and gypsum wallboard shipment data from the
Gypsum Association, management estimates that during 1994, about 49% of total
industry volume demand for gypsum wallboard was generated by new residential
construction activity, 35% of volume demand was generated by residential and
non-residential repair and remodel activity, 9% of volume demand was generated
by new non-residential construction activity and the remaining 7% of volume
demand was generated by other activities such as exports and temporary
construction.
L&W Supply was founded in 1971 by U.S. Gypsum and currently has 139
distribution centers in 34 states. It is a service-oriented organization
that stocks a variety of construction materials and delivers less than
truckload quantities of construction materials to a job site and places them
in areas where work is being done, thereby reducing or eliminating the need
for handling by contractors. Although L&W Supply specializes in distribution
of gypsum wallboard (which accounts for approximately 49% of its total net
sales), joint compound and other products manufactured primarily by U.S.
Gypsum, it also distributes products manufactured by USG Interiors such as
acoustical ceiling tile and ceiling grid and products of other manufacturers,
including drywall metal, insulation, roofing products and accessories. L&W
Supply leases approximately 80% of its facilities from third parties.
Usually, initial leases are from three to five years with a five-year renewal
option.
Competition
The Corporation competes in North America as the largest of 18 producers of
gypsum wallboard products and, in 1994, accounted for approximately one-third
of total gypsum wallboard sales in the United States. Shipments of gypsum
wallboard in the United States totaled 7.7 billion square feet in 1994, the
highest in the Corporation's history, compared with total domestic industry
shipments of 23.7 billion square feet which was also a record level.
Principal competitors in the United States are: National Gypsum Company,
Georgia-Pacific Corporation, Domtar, Inc., The Celotex Corporation, which has
operated under Chapter 11 of the Bankruptcy Code since 1990 and several
smaller, regional competitors. Major competitors in eastern Canada include
Domtar, Inc. and Westroc Industries Ltd. In Mexico, the Corporation's major
competitor is Panel Rey.
L&W Supply's largest competitor, Gypsum Management Supply, is an
independent distributor with approximately 70 locations in the southern,
central and western United States. There are several regional competitors,
such as Gypsum Drywall Management Association in the southern United States
and Strober Building Supply in the northeastern United States. L&W Supply's
many local competitors include lumber dealers, hardware stores, home
improvement centers, acoustical tile distributors and manufacturers.
Worldwide Ceilings
Business
USG's Worldwide Ceilings core business, which manufactures and markets
interiors systems products worldwide, includes USG Interiors, the
international interiors systems businesses managed as USG International ("USG
International") and the interiors systems business of CGC. USG Interiors is a
leading supplier of interior ceiling and wall products used primarily in
commercial applications. In 1994, USG Interiors was the largest producer of
ceiling grid and the second largest producer of ceiling tile in the United
States, accounting for over one-half and approximately one-third of total
domestic sales of such products, respectively.
Products
Worldwide Ceilings manufactures and markets ceiling grid and ceiling tile,
wall systems, mineral wool insulation and soundproofing products and, in
Europe and the Pacific, access floor systems. The Corporation's United States
access floor systems business was sold in 1994. USG's integrated line of
ceiling products provides qualities such as sound absorption, fire
retardation, and convenient access to the space above the ceiling for
electrical and mechanical systems, air distribution and maintenance. USG
Interiors' significant trade names include the "ACOUSTONE" and "AURATONE"
brands of ceiling tile and the "DX," "FINELINE," "CENTRICITEE" and "DONN"
brands of ceiling grid.
USG's wall systems provide the versatility of an open floor plan with the
privacy of floor-to-ceiling partitions which are compatible with leading
office equipment and furniture systems. Wall systems are designed to be
installed quickly and reconfigured easily. In addition, USG manufactures a
line of access floor systems in Europe and the Pacific that permit easy access
to wires and cables for repairs, modifications, and upgrading of electrical
and communication networks as well as convenient movement of furniture and
equipment.
Manufacturing
Worldwide Ceilings products are manufactured at 21 plants located in North
America, Europe, New Zealand and Malaysia, including 5 ceiling tile plants and
9 ceiling grid plants. The remaining plants produce other interior products
and raw materials for ceiling tile and grid. Principal raw materials used in
the production of Worldwide Ceilings products include mineral fiber, steel,
aluminum extrusions and high-pressure laminates. Certain of these raw
materials are produced internally, while others are obtained from various
outside suppliers. Shortages of raw materials used in this segment are not
expected. In 1995, the Corporation plans to initiate a major expansion of its
ceiling tile manufacturing capacity to meet increasing worldwide demand. This
expansion is expected to be completed in 1996.
USG Interiors maintains its own research and development facility in Avon,
Ohio, which provides product design, engineering and testing services in
addition to manufacturing development, primarily in metal forming, with tool
and machine design and construction services. Additional research and
development is carried out at the Corporation's research and development
center in Libertyville, Illinois and at its "Solutions Center"SM in Chicago.
Marketing and Distribution
Worldwide Ceilings products are sold primarily in markets related to the
new construction and renovation of commercial buildings as well as the retail
market for small commercial contractors. Marketing and distribution to large
commercial users is conducted through a network of distributors and
installation contractors as well as through L&W Supply. In recent years,
Worldwide Ceilings has increased its emphasis on the retail market.
Competition
The Corporation estimates that it accounts for approximately one-third of
sales of acoustical ceiling tile to the U.S. market. Principal global
competitors include Armstrong World Industries, Inc. (the largest
manufacturer), OWA Faserplattenwerk GmbH (Odenwald) and The Celotex
Corporation. The Corporation estimates that it is the world's largest
manufacturer of ceiling grid. USG's most significant competitor is Chicago
Metallic Corporation, which participates in the U.S. and European markets.
Other competitors in ceiling grid include W.A.V.E. (a joint venture of
Armstrong World Industries, Inc. and Worthington Industries/National Rolling
Mills).
Other Information
The Corporation's plants are substantial users of thermal energy. Five
major fuel types are used in a mix consisting of 78% natural gas, 10%
electricity, 6% oil, 4% coke and 2% purchased hot air. With few exceptions,
plants which use natural gas are equipped with fuel stand-by systems,
principally oil. Primary fuel supplies have been adequate and no curtailment
of plant operations has resulted from insufficient supplies. Supplies are
likely to remain sufficient for projected requirements. Energy price swap
agreements are used by the Corporation to hedge the cost of certain purchased
fuel. See Part II, Item 8. "Financial Statements and Supplementary Data -
Restructured Company - Notes to Financial Statements - Commitments and
Contingencies" note for more information on energy price swap agreements.
None of the industry segments has any special working capital requirements
or is materially dependent on a single customer or a few customers on a
regular basis. No single customer of the Corporation accounted for more than
4% of the Corporation's 1994 or 1993 consolidated net sales. Because orders
are filled upon receipt, none of the industry segments has any significant
backlog.
Loss of one or more of the patents or licenses held by the Corporation
would not have a major impact on the Corporation's business or its ability to
continue operations. No material part of any of the Corporation's business is
subject to renegotiation of profits or termination of contracts or
subcontracts at the election of the government.
All of the Corporation's products regularly require improvement to remain
competitive. The Corporation also develops and produces comprehensive systems
employing several of its products. In order to maintain its high standards
and remain a leader in the building materials industry, the Corporation has
performed extensive research and development activities and makes the
necessary capital expenditures to maintain production facilities in sufficient
operating condition.
One of the Corporation's subsidiaries, U.S. Gypsum, is a defendant in
asbestos lawsuits alleging both property damage and personal injury.
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 and an intermediate appellate
court in U.S. Gypsum's Coverage Action have so ruled (such ruling may be
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. See Part II, Item 8. "Financial Statements and Supplementary
Data - Restructured Company - Notes to Financial Statements - Litigation" note
for more information on legal proceedings.
(d) Financial Information About Foreign and Domestic Operations and
Export Sales
See Part II, Item 8. "Financial Statements and Supplementary Data - Notes
to Financial Statements - Industry and Geographic Segments" notes for both the
Restructured and Predecessor Companies.
Item 2. PROPERTIES
The Corporation's plants, mines, quarries, transport ships and other
facilities are located in North America, Europe, New Zealand and Malaysia.
Many of these facilities are operating at or near full capacity. All
facilities and equipment are in good operating condition and, in management's
judgment, sufficient expenditures have been made annually to maintain them.
The locations of the production properties of the Corporation's subsidiaries,
grouped by industry segment, are as follows (plants are owned unless otherwise
indicated):
North American Gypsum
Gypsum Board and Other Gypsum Products
United States Canada
Baltimore, MD Norfolk, VA Hagersville, Ontario
Boston (Charlestown), MA Oakfield, NY Montreal, Quebec
Detroit (River Rouge), MI Plaster City, CA St. Jerome, Quebec
East Chicago, IN Plasterco (Saltville), VA (currently idle)
Empire, NV Santa Fe Springs, CA Mexico
Fort Dodge, IA Shoals, IN Puebla, Puebla
Fremont, CA Sigurd, UT
Galena Park, TX Southard, OK
Gypsum, OH Sperry, IA
Jacksonville, FL Stony Point, NY
New Orleans, LA Sweetwater, TX
Joint Compound
Surface preparation and joint treatment products are produced in plants
located at Chamblee, GA; Dallas, TX; East Chicago, IN; Fort Dodge, IA; Gypsum,
OH; Jacksonville, FL; Port Reading, NJ (leased); Sigurd, UT; Tacoma, WA
(leased); Torrance, CA; Hagersville, Ontario, Canada; Montreal, Quebec,
Canada; Puebla, Mexico; and Port Klang, Malaysia (leased).
Gypsum Rock
Gypsum rock is mined or quarried at Alabaster (Tawas City), MI; Empire, NV;
Fort Dodge, IA; Oakfield, NY; Plaster City, CA; Plasterco (Saltville), VA;
Shoals, IN; Sigurd, UT; Southard, OK; Sperry, IA; Sweetwater, TX; Hagersville,
Ontario, Canada; Little Narrows, Nova Scotia, Canada; and Windsor, Nova
Scotia, Canada.
Paper
Paper for gypsum board is manufactured at Clark, NJ; Galena Park, TX;
Gypsum, OH; Jacksonville, FL; North Kansas City, MO; Oakfield, NY; and South
Gate, CA.
Ocean Vessels
Gypsum Transportation Limited, a wholly owned subsidiary of the
Corporation, headquartered in Bermuda, owns and operates a fleet of three
self-unloading ocean vessels. Under contract of affreightment, these vessels
haul gypsum rock from Nova Scotia to the East Coast and Gulf port plants of
U.S. Gypsum. Excess ship time, when available, is offered for charter on the
open market.
Other Products
A mica-processing plant is located at Spruce Pine, NC; perlite ore is
produced at Grants, NM. Metal lath, plaster and drywall accessories and light
gauge steel framing products are manufactured at Puebla, Mexico. Various
other products are manufactured at La Mirada, CA (adhesives); and New Orleans,
LA (lime products).
Worldwide Ceilings
Ceiling Tile
Acoustical ceiling tile and panels are manufactured at Cloquet, MN;
Greenville, MS; Walworth, WI; San Juan Ixhautepec, Mexico; and Aubange,
Belgium.
Ceiling Grid
Ceiling grid products are manufactured at Cartersville, GA; Stockton, CA;
Westlake, OH; Auckland, New Zealand (leased); Dreux, France; Oakville,
Ontario, Canada; Peterlee, England (leased); Port Klang, Malaysia (leased);
and Viersen, Germany. A coil coater and slitter plant used in the production
of ceiling grid is also located in Westlake, OH.
Other Products
Access floor systems products are manufactured at Dreux, France; Peterlee,
England (leased); and Port Klang, Malaysia (leased). Mineral wool products
are manufactured at Birmingham, AL; Red Wing, MN; Tacoma, WA; Wabash, IN;
Walworth, WI; and Weston, Ontario, Canada. Wall system products are
manufactured at Medina, OH (leased). Drywall metal products are manufactured
at Prestice, Czech Republic (leased).
Item 3. LEGAL PROCEEDINGS
See Part II, Item 8. "Financial Statements and Supplementary Data - Notes
to Financial Statements - Litigation" note for information on legal
proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1994.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
(a) See Item 8. "Financial Statements and Supplementary Data - Selected
Quarterly Financial Data" for information with respect to the principal market
on which the Corporation's Common Stock is traded and the range of high and
low closing market prices.
(b) As of January 31, 1995, there were 6,072 stockholders of record of the
Corporation's Common Stock.
(c) There have been no dividends declared since the third quarter of 1988.
The Credit Agreement and certain other debt instruments prohibit or restrict
the payment of cash dividends.
<PAGE>
Item 6. SELECTED FINANCIAL DATA
USG CORPORATION
COMPARATIVE FIVE-YEAR SUMMARY (a) (b) (unaudited)
(Dollars in millions, except per share data)
<TABLE>
<CAPTION>
Year May 7 January 1
ended through through
Dec. 31, Dec. 31, May 6, Years ended December 31
1994 1993 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
Earnings Statement Data:
Net sales $2,290 $1,325 $ 591 $1,777 $1,712 $1,915
Gross profit 517 263 109 317 327 416
Selling and administrative
expenses 244 149 71 218 194 203
Amortization of excess
reorganization value 169 113 - - - -
Operating profit 104 1 38 99 133 195
Interest expense 149 92 86 334 333 292
Interest income (10) (4) (2) (12) (11) (8)
Other (income)/expense, net 3 (8) 6 1 5 5
Reorganization items - - (709) - - -
Earnings/(loss) from
continuing operations before
extraordinary gain/(loss)
and changes in accounting
principles (92) (108) 640 (191) (141) (54)
Extraordinary gain/(loss),
net of taxes - (21) 944 - - -
Cumulative effect of
accounting changes - - (150) - - -
Net earnings/(loss) (92) (129) 1,434 (191) (161) (90)
Net loss per common share (c) (2.14) (3.46)
Balance Sheet Data (as of the end
of the period):
Working capital/(deficit) 189 121 217 (2,608) (2,372) (2,198)
Current ratio 1.42 1.24 1.74 .21 .21 .24
Property, plant and
equipment, net 755 754 767 800 819 825
Total assets 2,124 2,163 2,194 1,659 1,626 1,675
Total debt (d) 1,149 1,531 1,556 2,711 2,660 2,600
Total stockholders'
equity/(deficit) (8) (134) 4 (1,880) (1,680) (1,518)
Other Information:
EBITDA 325 155 63 159 194 280
Capital expenditures 64 29 12 49 49 64
Gross margin % 22.6 19.8 18.4 17.8 19.1 21.7
EBITDA margin % 14.2 11.7 10.7 8.9 11.3 14.6
Market value per common
share (c) 19 1/2 29 1/4
Average number of employees 12,300 11,900 11,750 11,850 11,800 12,700
(a) Results reflect DAP Inc. (sold in 1991) as discontinued operations.
(b) Due to the Restructuring and implementation of fresh start accounting, the financial statements effective
May 7, 1993 for the restructured company are not comparable to financial statements prior to that date.
See Item 8 "Financial Statements & Supplementary Data - Predecessor Company - Notes to Financial
Statements - Financial Restructuring" note for more information on the Restructuring and implementation of
fresh start accounting.
(c) Per-share information for periods prior to May 7, 1993 is omitted because, due to the Restructuring and
implementation of fresh start accounting, it is not meaningful. Market value per common share amounts
shown are the closing stock price on December 31 of the applicable year.
(d) Total debt is shown at principal amounts for all periods presented. The carrying amounts of total debt
(net of unamortized reorganization discount) as reflected on the Corporation's balance sheets as of
December 31, 1994, December 31, 1993 and May 6, 1993 are $1,122 million, $1,476 million and $1,461
million, respectively.
</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Due to the May 6, 1993 Restructuring and implementation of fresh start
accounting, the Corporation's financial statements effective May 7, 1993 are
not comparable to financial statements for periods prior to that date. See
Item 8. "Financial Statements and Supplementary Data - Predecessor Company -
Notes to Financial Statements - Financial Restructuring" note for information
on the Restructuring and implementation of fresh start accounting.
To facilitate a meaningful comparison of the Corporation's operating
performance, the following information includes comparisons of "EBITDA"
(earnings before interest, taxes, depreciation, depletion, amortization, and
for 1993, reorganization items, extraordinary items and changes in accounting
principles). The Corporation believes EBITDA is helpful in understanding cash
flow generated from operations that is available for taxes, debt service and
capital expenditures. In addition, EBITDA facilitates the monitoring of
covenants related to certain long-term debt and other agreements entered into
in conjunction with the Restructuring. EBITDA should not be considered by
investors as an alternative to net earnings as an indicator of the
Corporation's operating performance or to cash flows as a measure of its
overall liquidity. Post-bankruptcy accounting rules require separate
reporting of financial results for the Restructured Company and the
Predecessor Company. However, the following information presents 1993 on an
annual basis to facilitate a meaningful year-to-year comparison.
Consolidated Results (dollars in millions)
<TABLE>
<CAPTION>
Years ended December 31
1994 1993 1992
<S> <C> <C> <C>
Net Sales $2,290 $1,916 $1,777
Gross Profit 517 372 317
% of net sales 22.6% 19.4% 17.8%
Selling and administrative expenses 244 220 218
% of net sales 10.7% 11.5% 12.3%
Amortization of excess reorganization value 169 113 -
Operating Profit 104 39 99
Calculation of EBITDA:
Operating profit $ 104 $ 39 $ 99
Amortization of excess reorganization value 169 113 -
Depreciation and depletion 53 54 58
Other (1) 12 2
EBITDA 325 218 159
% of net sales 14.2% 11.4% 8.9%
</TABLE>
In 1994, improved results in nearly all of the Corporation's businesses led
to increased net sales for the third consecutive year, up $374 million, or
19.5%, over 1993. In 1993, net sales increased $139 million, or 7.8%, over
the 1992 level. EBITDA for 1994 increased $107 million, or 49.1%, over the
1993 level, which was up $59 million, or 37.1%, over 1992. Continued
improvement in gypsum wallboard prices and record shipments of gypsum
wallboard, joint compound, ceiling tile and cement board accounted for these
results. These trends reflect continued strength in building materials
markets despite rising interest rates in 1994. Based on preliminary
information issued by the Bureau of Census, housing starts in the United
States amounted to 1.455 million units in 1994, up 13% over the 1993 level of
1.288 million units. The 1993 level of housing starts was 7% above the 1992
amount of 1.200 million units. New non-residential construction also
improved, the second consecutive year of such growth, and demand from repair
and remodel expenditures continued to grow.
In the fourth quarter of 1994, U.S. Gypsum recorded a $30 million pre-tax
charge to cost of products sold ($17 million after-tax) primarily to cover
the cash portion of two asbestos litigation settlements. Approximately two-
thirds of this amount was paid in 1994 with the remainder payable in 1995 and
1996. See Item 8. "Financial Statements and Supplementary Data -
Restructured Company - Notes to Financial Statements - Litigation" note for
information on these settlements. Despite this charge, gross profit as a
percentage of net sales increased to 22.6% in 1994 from 19.4% in 1993 and
17.8% in 1992 reflecting increased gypsum wallboard prices.
Selling and administrative expenses in 1994 increased $24 million, or
10.9%, over the prior year largely due to increased expenses related to
compensation and benefits and product and marketing programs. As a percent of
net sales, however, these expenses improved to 10.7% in 1994 compared to 11.5%
in 1993 and 12.3% in 1992.
The Corporation began amortizing its excess reorganization value, which was
established in connection with the Restructuring, on May 7, 1993. This non-
cash amortization, which will continue through April 1998, amounted to $169
million and $113 million in 1994 and 1993, respectively, with no counterpart
in 1992. Consequently, operating profit is not comparable for any of the
three years shown in the table above.
Core Business/Industry Segment Results (dollar in millions)
<TABLE>
<CAPTION>
Years ended December 31
Net Sales EBITDA
1994 1993 1992 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
North American Gypsum:
U.S. Gypsum $1,209 $ 970 $ 871 $ 248 $ 148 $ 101
CGC (gypsum division) 110 91 92 15 9 3
Other subsidiaries 90 77 77 28 23 21
Eliminations (84) (63) (66) - - -
Total Gypsum Products 1,325 1,075 974 291 180 125
Building Products
Distribution 659 528 464 15 7 5
Eliminations (204) (160) (142) (2) - -
Total North American
Gypsum 1,780 1,443 1,296 304 187 130
Worldwide Ceilings:
USG Interiors 400 360 354 53 48 47
USG International 202 185 189 6 4 5
CGC (interiors division) 29 30 33 3 4 5
Eliminations (37) (35) (35) - - -
Total Worldwide Ceilings 594 540 541 62 56 57
Corporate - - - (41) (25) (28)
Eliminations (84) (67) (60) - - -
Total USG Corporation 2,290 1,916 1,777 325 218 159
</TABLE>
North American Gypsum
Net sales and EBITDA for North American Gypsum continued to increase in
1994. Net sales increased $337 million, or 23.4%, over the 1993 level, which
was up $147 million, or 11.3%, above 1992. EBITDA increased $117 million, or
62.6%, in 1994 compared with 1993 after increasing $57 million, or 43.8%, from
1992 to 1993. EBITDA for 1994 includes the impact of the aforementioned $30
million charge associated with asbestos litigation settlements.
For U.S. Gypsum, continuing improvement in gypsum wallboard prices and
record shipments of gypsum wallboard, joint compound and DUROCK cement board
led to improved sales and profits. In 1994, net sales and EBITDA increased
$239 million, or 24.6%, and $100 million, or 67.6%, over the respective 1993
amounts. Comparing 1993 to 1992, net sales and EBITDA increased $99 million,
or 11.4%, and $47 million, or 46.5%, respectively. Gypsum wallboard prices
continued to rise from the 14-year low experienced in the first quarter of
1992. For 1994, the average price of wallboard rose 26.6% above 1993, after
increasing 10.5% in 1993 from the 1992 average. U.S. Gypsum's average gypsum
wallboard prices per thousand square feet by quarter for 1992 through 1994
were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
First Quarter $ 89.53 $ 74.97 $ 67.77
Second Quarter 98.39 77.71 72.20
Third Quarter 104.65 80.70 73.03
Fourth Quarter 106.92 82.46 73.35
Total Year 100.08 79.07 71.58
</TABLE>
Shipments of gypsum wallboard in 1994 topped 7.7 billion square feet, the
highest level in the Corporation's history, and up 5% over the previous record
of 7.3 billion square feet in 1993. U.S. Gypsum's wallboard manufacturing
plants operated at 97% of capacity in 1994 compared with 94% in 1993.
In 1994, higher costs for purchased waste paper contributed to increased
unit manufacturing cost for gypsum wallboard. U.S. Gypsum's unit
manufacturing cost for wallboard in 1994 increased 7% over the 1993 level.
Unit manufacturing cost rose 3% in 1993 from the 1992 level primarily due to
higher levels of maintenance expenditures and energy cost.
L&W Supply (which comprises the Corporation's Building Products
Distribution segment) reported its highest annual sales ever, up $131 million,
or 24.8%, from 1993. EBITDA for 1994 increased $8 million, or 114.3%, from
the prior year amount. Comparing 1993 to 1992, net sales and EBITDA increased
$64 million, or 13.8%, and $2 million, or 40.0%, respectively. These
improvements reflect higher gypsum wallboard selling prices and increased
volume, as well as increased sales of other building materials product lines.
CGC's gypsum division experienced improved volume for gypsum wallboard,
particularly in shipments to the United States, and increased prices for
wallboard, primarily due to increased wallboard demand in North America as a
whole. Net sales in 1994 increased $19 million, or 20.9%, over the prior
year, while EBITDA increased $6 million, or 66.7%, in the same period. As a
result of the strengthened U.S. dollar compared with the Canadian dollar, net
sales for 1993 decreased slightly from the 1992 level. EBITDA, however,
tripled from 1992 to $9 million in 1993 due to higher selling prices for
wallboard. Wallboard prices in Canada were positively impacted in 1993 by the
Canadian government's ruling that dumping of U.S.-made wallboard had occurred
and the resulting imposition of duties on gypsum wallboard imported into
Canada from the United States at prices below certain levels. This ruling
will be in effect until January 1998.
Worldwide Ceilings
Net sales and EBITDA for Worldwide Ceilings in 1994 increased $54 million,
or 10.0%, and $6 million, or 10.7%, respectively, over 1993. These
improvements are in contrast to 1992 to 1993 results, when net sales and
EBITDA each decreased $1 million.
USG Interiors experienced record shipments and higher prices for ceiling
tile in 1994, primarily due to recovering non-residential construction
markets, increased sales to retail markets and increased exports. Sales of
ceiling suspension grid also improved in 1994. Compared to the prior year,
1994 net sales and EBITDA increased $40 million, or 11.1%, and $5 million,
or 10.4%, respectively. Net sales and EBITDA for 1993 increased $6 million,
or 1.7%, and $1 million, or 2.1%, respectively, above 1992. These results
reflect increased sales to retail markets, which offset a low level of
non-residential construction in 1993.
USG International's results reflect improved sales in all regions as well
as continued cost improvements in European operations. In 1994, net sales and
EBITDA increased $17 million, or 9.2%, and $2 million, or 50.0%, over the
respective 1993 amounts. Comparing 1993 to 1992, net sales and EBITDA
decreased $4 million, or 2.1%, and $1 million, or 20.0%, respectively. The
1993 results reflect the combined impact of a European recession and a
strengthened U.S. dollar compared with European currencies.
Other Earnings Information
Interest expense continues to decline as a result of the Restructuring and
subsequent debt repayment and refinancing activities. Interest expense
amounted to $149 million in 1994, down $29 million, or 16.3%, from $178
million recorded in 1993. In 1994, interest expense includes a fourth quarter
non-cash pre-tax charge of $16 million for the write-off of reorganization
debt discount primarily in conjunction with the Corporation's plan to
accelerate the payment of bank term loans issued under the Credit Agreement
("Bank Term Loans") and $12 million of additional amortization of
reorganization debt discount. In 1993, interest expense includes $8 million
of amortization of reorganization debt discount and $46 million of interest
expense that was forgiven or converted to equity as a result of the
Restructuring. Interest expense decreased $156 million in 1993 from the 1992
amount of $334 million due to the Restructuring.
The Corporation's income tax expense is computed based on pre-tax earnings
excluding the non-cash amortization of excess reorganization value, which is
not deductible for federal income tax purposes. In 1994, income tax expense
amounted to $54 million compared with $46 million in 1993. The Corporation's
effective tax rate for 1994 was negative 142.1%; however, excluding
amortization of excess reorganization value, the Corporation's effective
tax rate was 41.2%. An income tax benefit of $33 million was recorded in
1992. See Part II, Item 8. "Financial Statements and Supplementary Data -
Notes to Financial Statements - Taxes on Income and Deferred Income Taxes"
notes for both the Restructured and Predecessor Companies for additional
information on income taxes.
A reorganization items gain of $709 million was recorded in the period of
January 1 through May 6, 1993, reflecting fresh start accounting adjustments
totaling $778 million, net of restructuring fees and expenses of $69 million.
In the same period, 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 in connection with the Restructuring. See Part II, Item
8. "Financial Statements and Supplementary Data - Predecessor Company - Notes
to Financial Statements - Reorganization Items and Extraordinary Gain" notes
for additional information on these Restructuring-related items. In the
period of May 7 through December 31, 1993, the Corporation recorded an after-
tax extraordinary loss of $21 million reflecting the write-off of
reorganization discount associated with debt issues which were prepaid,
redeemed or purchased in 1994 with a portion of the proceeds from the Equity
Offering and the Note Placement. See Part II, Item 8. "Financial Statements
and Supplementary Data - Restructured Company - Notes to Financial Statements
- - Indebtedness" note for additional information on the Equity Offering and
Note Placement.
A one-time after-tax net charge of $150 million was recorded in the first
quarter of 1993 representing the cumulative impact of the adoption of
Statement of Financial Accounting Standard ("SFAS") No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and SFAS No. 109,
"Accounting for Income Taxes." See Part II, Item 8. "Financial Statements and
Supplementary Data - Predecessor Company - Notes to Financial Statements -
Taxes on Income and Deferred Income Taxes and Postretirement Benefits" notes
for information related to these accounting changes.
A net loss of $92 million was recorded in 1994. However, this loss
included the: (i) non-cash amortization of excess reorganization value of $169
million; (ii) non-cash amortization of reorganization debt discount of $12
million; (iii) non-cash after-tax write-off of reorganization debt discount
amounting to $9 million primarily associated with the Bank Term Loans; and
(iv) after-tax charge of $17 million associated with asbestos litigation
settlements. Together, these items reduced net earnings by $207 million, or
$4.81 per common share. A net loss of $129 million was recorded in the period
of May 7 through December 31, 1993 after amortization of excess reorganization
value of $113 million, amortization of reorganization debt discount of $8
million, and the after-tax extraordinary loss of $21 million. Net earnings of
$1,434 million were recorded in the period of January 1 through May 6, 1993,
reflecting the reorganization items gain of $709 million and the after-tax
extraordinary gain of $944 million. A net loss of $191 million was recorded
in 1992 primarily due to high levels of interest expense.
Liquidity and Capital Resources
On May 6, 1993, the Corporation completed the Restructuring through
implementation of 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. See Part II, Item 8. "Financial Statements and Supplementary Data
- - Predecessor Company - Notes to Financial Statements - Financial
Restructuring" note for information on the Restructuring and implementation of
fresh start accounting. On August 10, 1993, the Corporation issued an
additional $138 million of its 10 1/4% senior notes due 2002 ("Senior 2002
Notes") in exchange for Bank Term Loans and other debt then outstanding under
the Credit Agreement in order to improve the Corporation's financial
flexibility by replacing near-term maturities of the Bank Term Loans with the
longer term notes. In connection with this exchange, the cash sweep
provisions of the Credit Agreement (the "Cash Sweep") were modified, allowing
the Corporation to apply cash otherwise subject to the Cash Sweep through 1996
to repayment or purchase of senior debt. See Part II, Item 8. "Financial
Statements and Supplementary Data - Restructured Company - Notes to Financial
Statements - Indebtedness" note for additional information on this
transaction.
The Corporation completed several refinancing activities in 1994 to further
reduce debt and interest expense and improve operating flexibility. In the
first quarter, the Corporation completed the Transactions which included the
Equity Offering, yielding net proceeds to the Corporation of $224 million; the
Note Placement, through which $150 million of newly issued Senior 2001 Notes
were exchanged for $30 million of Senior 1996 Notes, $35 million of Senior
1997 Notes and $85 million in cash; and the second amendment to the Credit
Agreement, which increased the size of the Corporation's revolving credit
facility by $70 million (solely for the purchase or repayment of Senior 1996
Notes and Senior 1997 Notes) and further amended the Cash Sweep provisions to
allow the Corporation to retain additional free cash flow for capital
expenditures and repayment of its debt. In the third quarter, the Credit
Agreement was amended for the third time since the Restructuring. In
connection with this amendment (the "Third Amendment"), the Corporation made a
$25 million prepayment of the Cash Sweep due February 15, 1995. Major
revisions to the Credit Agreement provided by the Third Amendment included
further modification of the Cash Sweep provisions, authorization for the
Corporation to immediately prepay certain debt, authorization for the
Corporation to enter into a revolving accounts receivable sale facility and
certain other changes to increase the Corporation's operating flexibility.
Finally, in the fourth quarter of 1994, the Corporation entered into an
accounts receivable facility (the "Receivables Facility") in which USG Funding
Corporation ("USG Funding"), a special purpose subsidiary of the Corporation,
will purchase trade receivables (excluding intercompany receivables owed by
L&W Supply) of U.S. Gypsum and USG Interiors as generated. The purchased
receivables will be held in a master trust (the "Master Trust") for the
benefit of certificate holders in such trust. Under a supplement to the
Master Trust, certificates representing an ownership interest in the Master
Trust of up to $100 million were issued to Citicorp Securities, Inc. The
interest rate on the debt issued under the Receivables Facility is fixed at
approximately 8.9% (including facility costs) through a long-term interest
rate swap. Under a pending amendment to the Receivables Facility, debt issued
under such facility will have a final maturity in 2004 and the Corporation
will have the option to expand the facility up to $130 million. Debt issued
under the facility may be prepaid at any time. Pursuant to the applicable
reserve and eligibility requirements, the maximum amount of debt issuable
under the Receivables Facility as of December 31, 1994 (including $80
million outstanding at such date) was $103 million. Under the relevant
agreements and related documentation, USG Funding is a separate corporate
entity with its own separate creditors which will be entitled to be satisfied
out of USG Funding's assets prior to distribution of any value to its
shareholder. As of December 31, 1994, the outstanding balance of receivables
sold to USG Funding and held under the Master Trust was $151 million and debt
outstanding under the Receivables Facility was $80 million. The proceeds of
this debt issuance were used to make open market purchases of $80 million of
Senior 2002 Notes, generating interest savings of approximately $1 million
annually. Receivables and debt outstanding in connection with the Receivables
Facility remain in receivables and long-term debt, respectively, on the
Corporation's consolidated balance sheet. See Part II, Item 8. "Financial
Statements and Supplementary Data - Restructured Company - Notes to Financial
Statements - Accounts Receivable Facility and Indebtedness" notes for more
information on the Transactions and other 1994 refinancing activities.
Utilizing the net proceeds of the Transactions, the Cash Sweep as of
December 31, 1993, cash generated from operations in 1994 and increased
flexibility provided by other refinancing activities implemented in 1994, the
Corporation reduced the aggregate principal amount of its total debt by $382
million in 1994. As of December 31, 1994, the Cash Sweep amounted to $132
million, of which 50%, or $66 million, was required to be used to pay Bank
Term Loans while the remaining 50% was retained by the Corporation for general
corporate purposes. The portion of the Cash Sweep required to be used to pay
Bank Term Loans included a $25 million prepayment in the third quarter of 1994
and a $41 million payment in January 1995. In February 1995, the Corporation
made a further payment of $50 million to reduce Bank Term Loans outstanding.
Since the May 6, 1993 Restructuring, the Corporation has reduced the aggregate
principal amount of its debt by approximately $500 million. The portion of
the Cash Sweep retained by the Corporation may be used to reduce other
selected debt issues as appropriate. See Part II, Item 8. "Financial
Statements and Supplementary Data - Restructured Company - Indebtedness" note
for more information on 1994 debt reduction.
The Corporation significantly strengthened its liquidity and capital
resources through the Restructuring, the Transactions and other refinancing
activities. In the absence of significant unanticipated cash demands, the
Corporation believes that cash generated by operations and the estimated
levels of liquidity available to it will be sufficient to satisfy its ongoing
debt service and other capital requirements.
Working Capital
As of December 31, 1994, working capital (current assets less current
liabilities) amounted to $189 million and the ratio of current assets to
current liabilities was 1.42 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. Cash and cash equivalents decreased $14 million to
$197 million in 1994 primarily due to the net impact of the Transactions, debt
repayments and capital expenditures, largely offset by cash generated from
operations.
Comparing December 31, 1994 balances with December 31, 1993, receivables
(net) increased $10 million, or 3.8%, to $274 million (including $151 million
of receivables held in the Master Trust), inventories increased $28 million,
or 19.3%, to $173 million, and accounts payable increased $18 million, or
17.3%, to $122 million. These increases primarily reflect the increased level
of business. From year-end 1993, accrued expenses increased $45 million, or
21.6%, to $253 million as of December 31, 1994, primarily due to increased
levels of accrued compensation and benefits and the aforementioned charge
related to asbestos litigation.
Capital Expenditures
The Corporation augmented its capital spending program as a result of the
Transactions. In 1994, capital expenditures amounted to $64 million, up from
$41 million in 1993 ($29 million in the period of May 7 through December 31,
1993 and $12 million in the period of January 1 through May 6, 1993). As of
December 31, 1994, capital expenditure commitments for the replacement,
modernization and expansion of operations amounted to $61 million compared
with $11 million as of December 31, 1993. The Corporation expects that
capital expenditures will exceed $100 million in 1995. In addition, the
Corporation periodically evaluates possible acquisitions or combinations
involving other businesses or companies in businesses and markets related to
the Corporation's current operations, and the Corporation believes that its
available liquidity would be generally adequate to support appropriate
opportunities.
Litigation
One of the Corporation's subsidiaries, U.S. Gypsum, is a defendant in
asbestos lawsuits alleging both property damage and personal injury.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 and an intermediate appellate court in
U.S. Gypsum's Coverage Action have so ruled (such ruling may be appealed).
In view of the limited insurance funding currently available to U.S. Gypsum
for Property Damage Cases resulting from continued resistance by a number of
U.S. Gypsum's insurers to providing coverage, the effect of the asbestos
litigation on the Corporation will depend upon a variety of factors,
including the damages sought in Property Damage Cases that reach trial prior
to the completion of the Coverage Action, U.S. Gypsum's ability to
successfully defend or settle such cases, and the resolution of the Coverage
Action. As a result, management is unable to determine whether an adverse
outcome in the asbestos litigation will have a material adverse effect on the
results of operations or the consolidated financial position of the
Corporation.
The Corporation and certain of its subsidiaries have been notified by state
and federal environmental protection agencies of possible involvement as one
of numerous "potentially responsible parties" in a number of so-called
"Superfund" sites in the United States. The Corporation believes that neither
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 8. "Financial Statements and Supplementary Data -
Restructured Company - Notes to Financial Statements - Litigation" note for
more information on legal proceedings.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Restructured Company: (a)
Consolidated Statement of Earnings - year ended December 31, 1994 and the
period of May 7 through December 31, 1993
Consolidated Balance Sheet - as of December 31, 1994 and 1993
Consolidated Statement of Cash Flows - year ended December 31, 1994 and the
period of May 7 through December 31, 1993
Notes to Financial Statements
Report of Independent Public Accountants
Schedule II, Valuation and Qualifying Accounts
Supplemental Note on Financial Information for United States Gypsum Company
Report of Independent Public Accountants with Respect to Supplemental Note
and Financial Statement Schedule
Predecessor Company: (a)
Consolidated Statement of Earnings - the period of January 1 through May 6,
1993 and the year ended December 31, 1992
Consolidated Balance Sheet - as of May 6, 1993
Consolidated Statement of Cash Flows - the period of January 1 through May
6, 1993 and the year ended December 31, 1992
Notes to Financial Statements
Report of Independent Public Accountants
Schedule II, Valuation and Qualifying Accounts
Supplemental Note on Financial Information for United States Gypsum Company
Report of Independent Public Accountants with Respect to Supplemental Note
and Financial Statement Schedule
Selected Quarterly Financial Data
(a) Post-bankruptcy accounting rules require separate reporting of financial
results for the Restructured company and the Predecessor company. As
such, the Corporation's financial statements effective May 7, 1993 are
presented under "Restructured Company" while financial statements for
periods prior to that date are presented under "Predecessor Company."
Due to the Restructuring and implementation of fresh start accounting,
financial statements for the Restructured Company are not comparable to
those for the Predecessor Company. See "Predecessor Company - Notes to
Financial Statements - Financial Restructuring" note for information on
the Restructuring and implementation of fresh start accounting.
All other schedules have been omitted because they are not applicable, are not
required, or the information is included in the financial statements or notes
thereto.
<PAGE>
USG CORPORATION
(Restructured Company)
CONSOLIDATED STATEMENT OF EARNINGS
(Dollars in millions except per share data)
<TABLE>
<CAPTION>
Year May 7
ended through
December 31, December 31,
1994 1993
<S> <C> <C>
Net Sales $ 2,290 $ 1,325
Cost of products sold 1,773 1,062
Gross Profit 517 263
Selling and administrative expenses 244 149
Amortization of excess reorganization value 169 113
Operating Profit 104 1
Interest expense 149 92
Interest income (10) (4)
Other (income)/expense, net 3 (8)
Loss Before Taxes on Income and Extraordinary Loss (38) (79)
Taxes on income 54 29
Loss Before Extraordinary Loss (92) (108)
Extraordinary loss, net of taxes - (21)
Net Loss (92) (129)
Loss Per Common Share:
Before extraordinary loss $ (2.14) $ (2.90)
Extraordinary loss - (0.56)
Net Loss Per Common Share (2.14) (3.46)
The notes to financial statements are an integral part of this statement.
</TABLE>
<PAGE>
USG CORPORATION
(Restructured Company)
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
<TABLE>
<CAPTION>
As of December 31
1994 1993
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents (primarily time deposits) $ 197 $ 211
Receivables (net of reserves of $14 and $13) 274 264
Inventories 173 145
Total current assets 644 620
Property, Plant and Equipment, Net 755 754
Excess Reorganization Value (net of accumulated
amortization of $282 and $113) 561 735
Other Assets 164 54
Total assets 2,124 2,163
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 122 $ 104
Accrued expenses 253 208
Notes payable 1 2
Long-term debt maturing within one year 44 165
Taxes on income 35 20
Total current liabilities 455 499
Long-Term Debt 1,077 1,309
Deferred Income Taxes 179 180
Other Liabilities 421 309
Stockholders' Equity/(Deficit):
Preferred stock -$1 par value; authorized 36,000,000 shares;
$1.80 convertible preferred stock (initial series);
outstanding - none - -
Common stock -$0.10 par value; authorized 200,000,000 shares;
outstanding 45,083,211 and 37,158,085 shares (after
deducting 33,988 and 27,876 shares held in treasury) 5 4
Capital received in excess of par value 221 -
Deferred currency translation (13) (9)
Reinvested earnings/(deficit) (221) (129)
Total stockholders' equity/(deficit) (8) (134)
Total liabilities and stockholders' equity 2,124 2,163
The notes to financial statements are an integral part of this statement.
</TABLE>
<PAGE>
USG CORPORATION
(Restructured Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
<TABLE>
<CAPTION>
Year May 7
ended through
December 31, December 31,
1994 1993
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (92) $ (129)
Adjustments to reconcile net loss to net cash:
Amortization of excess reorganization value 169 113
Extraordinary loss - 21
Depreciation, depletion and amortization 84 44
Deferred income taxes (1) 22
Net gain on asset dispositions (2) (9)
(Increase)/decrease in working capital:
Receivables (10) 51
Inventories (28) 4
Payables 33 14
Accrued expenses 45 37
(Increase)/decrease in other assets (9) 7
Increase in other liabilities 12 12
Other, net (3) (4)
Net cash flows from operating activities 198 183
Cash Flows from Investing Activities:
Capital expenditures (64) (29)
Net proceeds from asset dispositions 16 29
Net cash flows to investing activities (48) -
Cash Flows from Financing Activities:
Issuance of debt 262 36
Repayment of debt (650) (57)
Proceeds from public offering of common stock 224 -
Net cash flows to financing activities (164) (21)
Net Increase/(Decrease) in Cash and Cash Equivalents (14) 162
Cash and cash equivalents as of beginning of period 211 49
Cash and cash equivalents as of end of period 197 211
Supplemental Cash Flow Disclosures:
Interest paid $ 115 $ 73
Income taxes paid 38 5
The notes to financial statements are an integral part of this statement.
</TABLE>
<PAGE>
USG CORPORATION
(Restructured Company)
NOTES TO FINANCIAL STATEMENTS
(Terms in initial capital letters are defined elsewhere in this Form 10-K)
Principles of Consolidation
The consolidated financial statements include the accounts of the
Corporation and its subsidiaries after elimination of intercompany accounts
and transactions. Revenue is recognized upon the shipment of products. Net
currency translation gains or losses on foreign subsidiaries are included in
deferred currency translation, a component of stockholders' equity.
Excess reorganization value, which was recorded as a result of the
implementation of fresh start accounting, is being amortized through April
1998. The Corporation continues to evaluate whether events and circumstances
have occurred that indicate the remaining estimated useful life of excess
reorganization value may warrant revision or that the remaining balances may
not be recoverable. The Corporation uses an estimate of its undiscounted cash
flows over the remaining life of the excess reorganization value in measuring
whether the asset is recoverable. See "Financial Restructuring" note below
for more information on the implementation of fresh start accounting.
For purposes of the Consolidated Balance Sheet and Consolidated Statement
of Cash Flows, all highly liquid investments with a maturity of three months
or less at the time of purchase are considered to be cash equivalents.
Financial Restructuring
On May 6, 1993, the Corporation completed a comprehensive restructuring of
its debt (the "Restructuring") through implementation of a "prepackaged" plan
of reorganization under United States bankruptcy law (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.
The following unaudited Pro Forma Condensed Consolidated Statement of
Earnings for the year ended December 31, 1993 has been prepared giving effect
to the consummation of the Restructuring, including the implementation of
fresh start accounting, as if the consummation had occurred on January 1,
1993. Due to the Restructuring and implementation of fresh start accounting,
financial statements effective May 7, 1993 for the Restructured Company are
not comparable to financial statements prior to that date for the Predecessor
Company. However, for presentation of this statement, total results for 1993
are shown under the caption "Total Before Adjustments." The adjustments set
forth under the caption "Pro Forma Adjustments" reflect the implementation of
the Prepackaged Plan and the adoption of fresh start accounting as if they had
occurred on January 1, 1993.
<PAGE>
USG CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
Year ended December 31, 1993
(unaudited)
(Dollars in millions)
<TABLE>
<CAPTION>
Total
Before Pro Forma
Adjustments Adjustments Pro Forma
<S> <C> <C> <C>
Net sales $ 1,916 $ - $ 1,916
Cost of products sold 1,544 - 1,544
Gross profit 372 - 372
Selling and administrative expense 220 - 220
Amortization of excess reorganization
value 113 57 (a) 170
Operating profit/(loss) 39 (57) (18)
Interest expense 178 (42) (b) 136
Interest income (6) - (6)
Other (income)/expense, net (2) (1) (c) (3)
Reorganization items (709) 709 (d) -
Earnings/(loss) before taxes on
income, extraordinary gain
and changes in accounting
principles 578 (723) (145)
Taxes on income 46 (16) 30
Earnings/(loss) before extraordinary
gain and changes in accounting
principles 532 (707) (175)
(a) Reflects amortization of excess reorganization value which would have been recorded
during the period of January 1 through May 6, 1993.
(b) Reflects the adjustment to restate interest expense for the period of January 1 through
May 6, 1993 to the amount that would have been recorded.
(c) Represents the reversal of first quarter 1993 amortization of historical capitalized
financing costs which were written off in connection with the Restructuring.
(d) Represents the reversal of actual reorganization items incurred in connection with the
Restructuring and implementation of fresh start accounting. This gain would have been
recorded in 1992 had the Restructuring occurred on January 1, 1993.
</TABLE>
Accounts Receivable Facility
In the fourth quarter of 1994, the Corporation entered into an accounts
receivable facility (the "Receivables Facility") in which USG Funding, a
special purpose subsidiary of the Corporation, formed under Delaware law,
entered into agreements with U.S. Gypsum and USG Interiors. These agreements
provide that USG Funding will purchase trade receivables (excluding
intercompany receivables owed by L&W Supply) of U.S. Gypsum and USG Interiors
as generated, in a transaction designed to be a "true sale" under applicable
law. USG Funding is a party to a Master Trust arrangement (the "Master
Trust") under which the purchased receivables are then transferred to Chemical
Bank as Trustee to be held for the benefit of certificate holders in such
trust. A residual interest in the Master Trust is owned by USG Funding
through subordinated certificates. Under a supplement to the Master Trust,
certificates representing an ownership interest in the Master Trust of up to
$100 million were issued to Citicorp Securities, Inc. The interest rate on
the debt issued under the Receivables Facility is fixed at approximately 8.9%
(including facility costs) through a long-term interest rate swap. Under a
pending amendment to the Receivables Facility, debt issued under such facility
will have a final maturity in 2004 and the Corporation will have the option to
expand such facility up to $130 million. Debt issued under the Receivables
Facility may be prepaid at any time. Pursuant to the applicable reserve and
eligibility requirements, the maximum amount of debt issuable under the
Receivables Facility as of December 31, 1994 (including the $80 million
outstanding at such date) was $103 million. Under the foregoing agreements
and related documentation, USG Funding is a separate corporate entity with its
own separate creditors which will be entitled to be satisfied out of USG
Funding's assets prior to distribution of any value to its shareholder.
As of December 31, 1994, the outstanding balance of receivables sold to USG
Funding and held under the Master Trust was $151 million and debt outstanding
under the Receivables Facility was $80 million. Receivables and debt
outstanding in connection with the Receivables Facility remain in receivables
and long-term debt, respectively, on the Corporation's consolidated balance
sheet.
Extraordinary Loss
In December 1993, the Corporation recorded an extraordinary loss of $21
million, net of related income tax benefit of $11 million, reflecting the
write-off of the reorganization discount associated with debt issues prepaid,
redeemed or purchased in 1994 in connection with the Equity Offering and Note
Placement. See "Indebtedness" and "Stockholders' Equity" notes for more
information on the Equity Offering and Note Placement.
Research and Development
Research and development expenditures are charged to earnings as incurred
and amounted to $17 million in the year ended December 31, 1994 and $10
million in the period of May 7 through December 31, 1993.
<PAGE>
Taxes on Income and Deferred Income Taxes
Earnings/(loss) before taxes on income and extraordinary loss consisted of
the following (dollars in millions):
<TABLE>
<CAPTION>
Year May 7
ended through
December 31, December 31,
1994 1993
<S> <C> <C>
U.S. $ (42) $ (72)
Foreign 4 (7)
Total (38) (79)
</TABLE>
Taxes on income consisted of the following (dollars in millions):
<TABLE>
<CAPTION>
Year May 7
ended through
December 31, December 31,
1994 1993
<S> <C> <C>
Current:
U.S. Federal $ 39 $ 12
Foreign 12 5
State 10 1
61 18
Deferred:
U.S. Federal (7) 11
Foreign - -
State - -
(7) 11
Total 54 29
</TABLE>
<PAGE>
The difference between the statutory U.S. Federal income tax/(benefit) rate
and the Corporation's effective income tax rate is summarized as follows:
<TABLE>
<CAPTION>
Year May 7
ended through
December 31, December 31,
1994 1993
<S> <C> <C>
Statutory U.S. Federal income tax/(benefit) rate (35.0)% (35.0) %
Excess reorganization value amortization 154.8 49.6
Foreign tax rate differential 10.6 11.4
Statutory rate adjustment to historical deferred taxes - 4.0
Valuation allowance adjustment - 3.3
State income taxes 16.7 -
Depletion (7.5) -
Other, net 2.5 3.4
Effective income tax rate 142.1 36.7
</TABLE>
Temporary differences and carryforwards which give rise to current and
long-term deferred tax (assets)/liabilities as of December 31, 1994 and 1993
were as follows (dollars in millions):
<TABLE>
<CAPTION>
As of December 31
1994 1993
<S> <C> <C>
Property, plant and equipment $ 164 $ 164
Debt discount 11 19
Deferred tax liabilities 175 183
Pension and retiree medical benefits (94) (90)
Reserves not deductible until paid (71) (61)
Other (6) (8)
Deferred tax assets before valuation allowance (171) (159)
Valuation allowance 90 90
Deferred tax assets (81) (69)
Net deferred tax liabilities 94 114
</TABLE>
A valuation allowance has been provided for deferred tax assets relating to
pension and retiree medical benefits due to the long-term nature of their
realization. Because of the uncertainty regarding the application of the
Internal Revenue Code to the Corporation's net operating loss carryforwars
(the "NOL Carryforwards") as a result of the Prepackaged Plan, no deferred
tax asset is recorded. Under fresh start accounting rules, any benefit
realized from utilizing predecessor company NOL Carryforwards will not impact
net earnings.
The Corporation has NOL Carryforwards of $49 million remaining from 1992
after using approximately $50 million to offset U.S. taxable income in 1994.
These NOL Carryforwards may be used to offset U.S. taxable income through
2007. The Internal Revenue Code limits the Corporation's annual use of its
NOL Carryforwards 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 Carryforwards to 1994 and later years could be
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.
The Corporation does not provide for U.S. Federal income taxes on the
portion of undistributed earnings of foreign subsidiaries which are intended
to be permanently reinvested. The cumulative amount of such undistributed
earnings totaled approximately $93 million as of December 31, 1994. Any
future repatriation of undistributed earnings would not, in the opinion of
management, result in significant additional taxes.
Inventories
Most of the Corporation's domestic inventories are valued under the
last-in, first-out ("LIFO") method. In accordance with the implementation of
fresh start accounting, inventories were stated at fair market value as of May
6, 1993. As of December 31, 1994, the LIFO values of these inventories were
$121 million and would have been $5 million higher if they were valued under
the first-in, first-out ("FIFO") and average production cost methods. As of
December 31, 1993, inventories valued under the LIFO method totaled $103
million and would have been the same if they were valued under the FIFO and
average production cost methods. The remaining inventories are stated at the
lower of cost or market, under the FIFO or average production cost methods.
Inventories include material, labor and applicable factory overhead costs.
Inventory classifications were as follows (dollars in millions):
<PAGE>
<TABLE>
<CAPTION>
As of December 31
1994 1993
<S> <C> <C>
Finished goods and work-in-process $ 102 $ 84
Raw materials 62 53
Supplies 9 8
Total 173 145
</TABLE>
The LIFO value of U.S. domestic inventories under fresh start accounting
exceeded that computed for U.S. Federal income tax purposes by $30 million and
$25 million as of December 31, 1994 and 1993, respectively.
Property, Plant and Equipment
Property, plant and equipment were stated at fair market value as of May 6,
1993 in accordance with fresh start accounting. Provisions for depreciation
are determined principally on a straight-line basis over the expected average
useful lives of composite asset groups. Depletion is computed on a basis
calculated to spread the cost of gypsum and other applicable resources over
the estimated quantities of material recoverable. Interest during
construction is capitalized on major property additions. Property, plant and
equipment classifications were as follows (dollars in millions):
<TABLE>
<CAPTION>
As of December 31
1994 1993
<S> <C> <C>
Land and mineral deposits $ 56 $ 61
Buildings and realty improvements 230 233
Machinery and equipment 549 496
835 790
Reserves for depreciation and depletion (80) (36)
Total 755 754
</TABLE>
<PAGE>
Leases
The Corporation leases certain of its offices, buildings, machinery and
equipment, and autos under noncancellable operating leases. These leases have
various terms and renewal options. Lease expense amounted to $37 million and
$22 million in the year ended December 31, 1994 and the period of May 7
through December 31, 1993, respectively. Future minimum lease payments, by
year and in the aggregate, under operating leases with initial or remaining
noncancellable terms in excess of one year as of December 31, 1994 were as
follows (dollars in millions):
<TABLE>
<CAPTION>
Minimum
Lease
Payments
<C> <C>
1995 $ 28
1996 24
1997 19
1998 15
1999 12
Thereafter 30
Aggregate minimum payments 128
</TABLE>
<PAGE>
Indebtedness
Total debt, including currently maturing debt, consisted of the following
(dollars in millions):
<TABLE>
<CAPTION>
As of December 31
1994 1993
<S> <C> <C>
Secured Debt:
Bank Term Loans, installments due 1997 through 2000 $ 283 $ 448
Receivables Facility, due 2003 and 2004 80 -
Senior notes and debentures:
8% Senior Notes due 1995 - 75
8% Senior Notes due 1996 28 90
8% Senior Notes due 1997 41 100
9% Senior Notes due 1998 - 35
9 1/4% Senior Notes, due 2001 150 -
10 1/4% Senior Notes due 2002 298 478
7 7/8% Sinking Fund Debentures due 2004 33 36
8 3/4% Sinking Fund Debentures due 2017 190 200
Other secured debt, average interest rate 9.4%
and 8.0%, varying payments through 1999 7 31
Unsecured Debt:
Industrial revenue bonds, 5.9% ranging to 8.0%,
due through 2019 39 38
Total principal amount of debt 1,149 1,531
Less unamortized reorganization discount (27) (55)
Total carrying amount of debt 1,122 1,476
</TABLE>
As of December 31, 1994, the Corporation and its subsidiaries had $1,149
million total principal amount of debt (before unamortized reorganization
discount) on a consolidated basis. Of such total debt, $159 million
represented direct borrowings by the subsidiaries, including $80 million
borrowed under the Receivables Facility, $39 million of industrial revenue
bonds, $33 million of 7 7/8% sinking fund debentures issued by U.S. Gypsum in
1974 and subsequently assumed by the Corporation on a joint and several basis
in 1985, and $7 million of debt incurred by the Corporation's foreign
subsidiaries.
The Bank Term Loans and most other senior debt are secured by a pledge of
all of the shares of the Corporation's major domestic subsidiaries and 65% of
the shares of certain of its foreign subsidiaries including CGC, pursuant to a
collateral trust arrangement controlled primarily by holders of the Bank Term
Loans. The rights of the Corporation and its creditors to the assets of any
subsidiary upon the latter's liquidation or reorganization will be subject to
the prior claims of such subsidiary's creditors, except to the extent that the
Corporation may itself be a creditor with enforceable claims against such
subsidiary.
The fair market value of debt outstanding as of December 31, 1994 was
$1,109 million, based on indicative bond prices as of that date, excluding
other secured debt, which was not practicable to estimate. As of December 31,
1993, the fair market value of debt was $1,481 million, based on indicative
bond prices as of that date, excluding other secured debt, primarily
representing financing for construction of the Aubange plant, which was not
practicable to estimate.
The "other secured debt" category shown in the table above primarily
includes short-term and long-term borrowings from several foreign banks. As
of December 31, 1993, this category primarily included borrowings by USG
International used principally to finance construction of the Aubange, Belgium
ceiling tile plant. This debt, which was repaid in 1994, was secured by a
lien on the assets of the Aubange plant and had restrictive covenants that
restricted, among other things, the payment of dividends. Foreign borrowings
made by the Corporation's international operations are generally allowed,
within certain limits, under provisions of the Credit Agreement.
The weighted average interest rate on outstanding short-term borrowings was
9.2% and 6.6% as of December 31, 1994 and 1993, respectively.
As of December 31, 1994, aggregate scheduled maturities of long-term debt,
excluding amounts classified as current liabilities, were $37 million, $45
million, $4 million and $73 million for the years 1996 through 1999,
respectively.
The Credit Agreement
The Bank Term Loans were issued in connection with the Credit Agreement.
In general, the Credit Agreement restricts, among other things, the incurrence
of additional indebtedness, mergers, asset dispositions, investments,
prepayment of other debt, dealings with affiliates, capital expenditures,
payment of dividends and lease commitments and requires the Corporation,
beginning January 1, 1995, to satisfy certain financial covenants. An
agreement with Water Street also requires the Corporation to satisfy certain
financial covenants.
The average rate of interest on the Bank Term Loans was 6.2% and 5.3% in
the year ended December 31, 1994 and the period of May 7 through December 31,
1993, respectively.
The Credit Agreement provides for a revolving credit facility (the
"Revolving Credit Facility"). As of December 31, 1994, the Revolving Credit
Facility amounted to $245 million, including a $115 million letter of credit
subfacility and $70 million available solely for the purchase or repayment of
Senior 1996 Notes and Senior 1997 Notes. As of December 31, 1993, the
Revolving Credit Facility amounted to $175 million, including the
aforementioned $115 million letter of credit subfacility. Amounts committed
and undrawn under such letter of credit subfacility were $58 million and $60
million as of December 31, 1994 and 1993, respectively. There were no amounts
outstanding under the Revolving Credit Facility as of December 31, 1994 and
1993.
Under the Cash Sweep provision of the Credit Agreement, a portion of excess
cash as of the end of any year, calculated in accordance with the Credit
Agreement, must be used to pay Bank Term Loans. As of December 31, 1994, the
Cash Sweep amounted to $132 million, of which 50%, or $66 million was required
to be used to pay Bank Term Loans while the remaining 50% was retained by the
Corporation for general corporate purposes. The portion of the Cash Sweep
required to be used to pay Bank Term Loans included $25 million which was
prepaid in the third quarter of 1994 and $41 million which was reclassified to
currently maturing long-term debt as of December 31, 1994 and paid in January
1995. In February 1995, the Corporation made a further payment of $50 million
to reduce Bank Term Loans outstanding. This additional payment was applied to
the 1999 maturity of the Bank Term Loans thereby reducing the 1999 aggregate
scheduled maturity shown above.
Debt Refinancing
In the fourth quarter of 1994, the Corporation entered into the Receivables
Facility. As of December 31, 1994, debt issued in connection with the
Receivables Facility totaled $80 million and accounts receivable held in the
Master Trust totaled $151 million. See "Accounts Receivable Facility" note
for more information on the Receivables Facility.
Also during the fourth quarter of 1994, the Corporation decided to pursue
various refinancing alternatives related to its Bank Term Loans. The
Corporation intends to accelerate the payment of such loans in 1995 through a
combination of excess cash flow and proceeds from a potential refinancing. As
a result, the Corporation recorded a non-cash pre-tax charge of $16 million to
interest expense reflecting the write-off of reorganization debt discount
primarily associated with the Bank Term Loans.
In the third quarter of 1994, the Third Amendment to the Credit Agreement
was consummated. In connection with such amendment, the Corporation made the
aforementioned $25 million prepayment of the Cash Sweep. Major revisions to
the Credit Agreement provided by the Third Amendment included modification of
the Cash Sweep provision, authorization for the Corporation to immediately
prepay certain debt, authorization for the Corporation to enter into a
revolving accounts receivable sale facility and certain other changes to
increase the Corporation's operating flexibility.
In the first quarter of 1994, the Corporation implemented a refinancing
plan which included (i) a public offering of 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 Senior 2001 Notes to certain
institutional investors (the "Note Placement") in exchange for $30 million
aggregate principal amount of its outstanding Senior 1996 Notes, $35 million
aggregate principal amount of its outstanding Senior 1997 Notes and $85
million in cash; and (iii) amendment of the Credit Agreement for the second
time since the Restructuring. This amendment, (together with the Equity
Offering and the Note Placement, the "Transactions") increased the size of the
Corporation's revolving credit facility by $70 million (solely for the
purchase or repayment of Senior 1996 Notes and Senior 1997 Notes) and amended
the Cash Sweep provision 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.
In August, 1993, the Corporation issued $138 million of Senior 2002 Notes
in exchange for Bank Term Loans and other debt then outstanding under the
Credit Agreement. The Corporation did not receive any cash proceeds from the
issuance of these securities. In connection with this transaction, an
amendment to the Credit Agreement provided for the elimination of scheduled
Bank Term Loans payments through 1996, prepayment of $9 million of other debt
outstanding under the Credit Agreement and modification of the Cash Sweep
provision.
<PAGE>
Pension Plans
The Corporation and most of its subsidiaries have defined benefit
retirement plans for all eligible employees. Benefits of the plans are
generally based on years of service and employees' compensation during the
last years of employment. The Corporation's contributions are made in
accordance with independent actuarial reports which, for most plans, required
minimal funding in the year ended December 31, 1994 and the period of May 7
through December 31, 1993. Net pension expense included the following
components (dollars in millions):
<TABLE>
<CAPTION>
Year May 7
ended through
December 31, December 31,
1994 1993
<S> <C> <C>
Service cost-benefits earned during the period $ 11 $ 7
Interest cost on projected benefit obligation 31 21
Actual (return)/loss on plan assets 1 (37)
Net amortization/(deferral) (35) 16
Net pension expense 8 7
</TABLE>
The pension plan assets, which consist primarily of publicly traded common
stocks and debt securities, had an estimated fair market value that was lower
than the projected benefit obligation as of December 31, 1994 and 1993. The
following table presents a reconciliation of the total assets of the pension
plans to the projected benefit obligation (dollars in millions):
<TABLE>
<CAPTION>
As of December 31
1994 1993
<S> <C> <C>
Amount of assets available for benefits:
Funded assets of the plans at fair market value $ 370 $ 400
Accrued pension expense 29 25
Total assets of the plans 399 425
Present value of estimated pension obligation:
Vested benefits 300 329
Nonvested benefits 25 27
Accumulated benefit obligation 325 356
Additional benefits based on projected future
salary increases 79 85
Projected benefit obligation 404 441
Projected benefit obligation in excess of assets (5) (16)
</TABLE>
The projected benefit obligation in excess of assets consisted of an
unrecognized net loss in each period due to changes in assumptions and
differences between actual and estimated experience.
The expected long-term rate of return on plan assets was 9% for the year
ended December 31, 1994 and the period of May 7 through December 31, 1993.
The assumed weighted average discount rate used in determining the accumulated
benefit obligation was 8.25% and 7% as December 31, 1994 and 1993,
respectively. The rate of increases in projected future compensation levels
was 5% for both periods.
<PAGE>
Postretirement Benefits
The Corporation maintains plans that provide retiree health care and life
insurance benefits for all eligible employees. Employees generally become
eligible for the retiree benefit plans when they meet minimum retirement age
and service requirements. The cost of providing most of these benefits is
shared with retirees.
The following table summarizes the components of net periodic
postretirement benefit cost for the year ended December 31, 1994 and the
period of May 7 through December 31, 1993 (dollars in millions):
<TABLE>
<CAPTION>
Year May 7
ended through
December 31, December 31,
1994 1993
<S> <C> <C>
Service cost of benefits earned $ 6 $ 4
Interest on accumulated postretirement benefit obligation 12 9
Net periodic postretirement benefit cost 18 13
</TABLE>
The status of the Corporation's accrued postretirement benefit cost as of
December 31, 1994 and 1993 were as follows (dollars in millions):
<TABLE>
<CAPTION>
As of December 31
1994 1993
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 81 $ 123
Fully eligible active participants 11 14
Other active participants 59 66
151 203
Unrecognized net gain/(loss) 42 (2)
Accrued postretirement benefit cost liability recognized
on the Consolidated Balance Sheet 193 201
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 10% and 11% as of December 31, 1994 and
1993, respectively, with a gradually declining rate to 5% by the year 2000 and
remaining at that level thereafter. A one-percentage-point increase in the
assumed health care cost trend rate for each year would increase the
accumulated postretirement benefit obligation by $20 million and $22 million
as of December 31, 1994 and 1993, respectively, and increase the net periodic
postretirement benefit cost by $3 million and $2 million for the year ended
December 31, 1994 and the period of May 7 through December 31, 1993,
respectively. The assumed discount rate used in determining the accumulated
postretirement benefit obligation was 8.25% and 7% as of December 31, 1994 and
1993, respectively.
<PAGE>
Commitments and Contingencies
The Corporation has limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used
primarily to manage well-defined interest rate and energy cost risks as well
as occasional foreign currency exchange exposure. The following table
presents the carrying amounts and estimated fair value of the Corporation's
derivative portfolio as of December 31, 1994 (dollars in millions):
<TABLE>
<CAPTION>
Notional Carrying Fair
Amount Amount Value
<S> <C> <C> <C>
Interest rate contracts $ 545 $ 5 $ 8
Energy price swaps 23 - (1)
</TABLE>
The amounts reported as fair value represent the market value as obtained
from broker quotations. The negative fair value of the energy price swaps is
an estimate of the amounts the Corporation would need to pay as of December
31, 1994 to cancel the contracts or transfer them to other parties.
As of December 31, 1993, the Corporation had approximately $455 million
notional amount of interest rate contracts outstanding, extending up to three
years, and approximately $42 million notional amount and $11 million notional
amount of energy price and foreign currency exchange contracts outstanding,
respectively, extending one year or less. The difference in the value of all
of the aforementioned contracts and the December 31, 1993 market value was not
material.
The Corporation is exposed to credit losses in the event of nonperformance
by the counterparties on all its derivative contracts but has no off-balance
sheet credit risk of accounting loss. All counterparties have investment
grade credit standing and accordingly, the Corporation anticipates that these
counterparties will be able to fully satisfy their obligation under the
contracts. The Corporation does not obtain collateral or other security to
support financial instruments subject to credit risk but monitors the credit
standing of counterparties.
Interest Rate Risk Management
The Corporation purchased prepaid interest rate caps and swap options to
manage the impact of interest rate changes on LIBOR-based bank debt. As of
December 31, 1994, such instruments owned by the Corporation totaled $445
million, which capped the Corporation's expected LIBOR-based bank debt
payments at 5.2% for 1995 ($250 million notional amount), 7% for 1996 ($120
million notional amount) and 7% for 1997 ($75 million notional amount). In
addition, as of December 31, 1994, the Corporation had entered into $100
million of interest rate swap and collar agreements to hedge its Receivables
Facility, under which $80 million was outstanding as of December 31, 1994. In
January 1995, such interest rate swap and collar agreements were terminated at
par and replaced with $80 million of new interest rate swap agreements. Under
the interest rate swap agreements, the Corporation pays a fixed rate of
approximately 8.9% (including facility costs) in exchange for the monthly
commercial paper-based payments due on the Receivables Facility until its
final maturity.
Premiums paid for purchased interest rate cap agreements are amortized to
interest expense over the term of the caps. Unamortized premiums are included
in other assets on the consolidated balance sheet. Amounts receivable under
cap agreements and receivables or payables under swap agreements are accrued
as an increase or decrease to interest expense as appropriate.
Energy Cost Risk Management
The Corporation uses energy price swap agreements to hedge anticipated
purchases of fuel to be utilized in the manufacturing process for gypsum
wallboard. Under these swap agreements, the Corporation receives or makes
payments based on the differential between a specified price and the actual
closing price for the current month's energy price contract. As of December
31, 1994, the Corporation had over-the-counter swap agreements to exchange
monthly payments on notional amounts of energy amounting to $23 million, all
extending one year or less.
Upon settlement of energy price contracts, the resulting gain or loss is
included in cost of products sold, along with the actual spot energy cost of
the corresponding underlying hedged transaction, the combination of which
amounts to the predetermined specified contract price.
Foreign Exchange Risk Management
The Corporation had no foreign currency exchange contracts as of December
31, 1994.
Management Performance Plan
On May 6, 1993, all outstanding stock options were cancelled without
consideration and all shares of restricted and deferred stock were cashed-out
pursuant to "change in control" provisions contained in the Management
Performance Plan except for 25,580 shares of restricted stock and awards for
deferred stock yet to be issued which remained outstanding as a consequence of
certain waivers of the change in control event by senior members of
management. Those shares which remained outstanding on May 6, 1993 were freed
of restrictions in 1994, an acceleration from the original terms which freed
the restrictions on incremental portions of the shares through 1998.
<PAGE>
As permitted by the Prepackaged Plan, a certain number of common shares
were reserved for future issuance in conjunction with stock options. Options
were granted in 1993 and 1994 at an exercise price equal to the mean of the
high and low sales prices for a share of the Corporation's common stock (the
"Common Stock") as reported on the NYSE composite tape on the grant dates.
These options become exercisable at the rate of one-third of the aggregate
grant on each of the first three anniversaries of the date of the grant and
expire on the tenth anniversary of the date of grant except in the case of
retirement, death or disability in which case they expire on the earlier of
the fifth anniversary of such event or the expiration of the original option
term. Stock option activity for the year ended December 31, 1994 and the
period of May 7 through December 31, 1993 was as follows:
<TABLE>
<CAPTION>
Year May 7
ended through
December 31, December 31,
1994 1993
<S> <C> <C>
Outstanding at beginning of period 1,673,000 -
Granted 1,161,500 1,673,000
Exercised (at a price of $10.3125 per share) (23,800) -
Canceled (46,200) -
Outstanding at end of period (at prices ranging
from $10.3125 to $32.5625 per share) 2,764,500 1,673,000
Exercisable at end of period 578,020 -
Available for grant at end of period 50 1,115,350
</TABLE>
Preferred Share Purchase Rights
On May 6, 1993, a rights plan (the "Rights Agreement") was adopted pursuant
to which the Corporation declared a distribution of one right (the "Rights")
upon each share of Common Stock. The Rights, which are intended to protect
stockholders in the event of an unsolicited attempt to acquire the
Corporation, generally become exercisable 10 days following the announcement
of the acquisition of 20% or more of the outstanding Common Stock by someone
other than the Corporation or one of its employee benefit plans (10% in the
case of an acquisition which the Corporation's Board of Directors determines
to represent a threat of acquisition not in the best interests of the
Corporation's stockholders). When exercisable, each of the Rights entitles
the registered holder to purchase one-hundredth of a share of a junior
participating preferred stock, series C, $1.00 par value per share, at a price
of $35.00 per one-hundredth of a preferred share, subject to adjustment. The
Rights also provide for a so-called "flip-in" feature and exchange feature and
certain exemptions permitting certain acquisitions and the continued holding
of common shares by Water Street and its affiliates in excess of the otherwise
specified thresholds.
In the event that the Corporation is the surviving corporation and the
Common Stock remains outstanding and unchanged in a merger or other business
combination with such acquiring party or the acquiring party engages in one of
a number of self-dealing transactions specified in the Rights Agreement, each
holder of a Right other than the acquiring party will thereafter have the
right, subject to the exchange feature, to receive upon exercise thereof that
number of shares of Common Stock having a market value at the time of such
transaction of two times the exercise price of the Right.
Warrants
On May 6, 1993, a total of 2,602,566 warrants, each to purchase a share of
Common Stock at an exercise price of $16.14 per share (the "Warrants"), in
addition to Common Stock, were issued to holders of certain debt which was
converted to equity in the Restructuring. Upon issuance, each of the Warrants
entitled the holder to purchase one share of Common Stock at a purchase price
of $16.14 per share, subject to adjustment under certain events.
The Warrants are exercisable, subject to applicable securities laws, at any
time prior to May 6, 1998. Each share of Common Stock issued upon exercise of
a Warrant prior to the Distribution Date (as defined in the Rights Agreement)
and prior to the redemption or expiration of the Rights will be accompanied by
an attached Right issued under the terms and subject to the conditions of the
Rights Agreement as it may then be in effect. As of December 31, 1994 and
1993, outstanding Warrants amounted to 2,594,181 and 2,601,619, respectively.
<PAGE>
Stockholders' Equity
Changes in stockholders' equity are summarized as follows (dollars in
millions):
<TABLE>
<CAPTION>
Year May 7
ended through
December 31, December 31,
1994 1993
<S> <C> <C>
Common Stock:
Beginning Balance $ 4 $ 4
Public offering of common stock 1 -
Ending Balance 5 4
Capital Received in Excess of Par Value:
Beginning Balance - -
Public offering of common stock 223 -
Other, net (2) -
Ending Balance 221 -
Deferred Currency Translation:
Beginning Balance (9) -
Change during the period (4) (9)
Ending Balance (13) (9)
Reinvested Earnings/(Deficit):
Beginning Balance (129) -
Net loss (92) (129)
Ending Balance (221) (129)
Total stockholders' equity/(deficit) (8) (134)
</TABLE>
There were 33,988 and 27,876 shares of $0.10 par value Common Stock held in
treasury as of December 31, 1994 and 1993, respectively. These shares were
acquired through the forfeiture of restricted stock and the surrender of
shares in settlement of tax withholding obligations.
In the first quarter of 1994, the Corporation completed the Equity Offering
under which 14,375,000 shares of Common Stock was sold to the public,
consisting of 7,900,000 shares newly issued by the Corporation and 6,475,000
sold by Water Street. Net proceeds to the Corporation from the newly issued
shares amounted to $224 million. The Corporation did not receive any proceeds
from the sale of shares by Water Street. See "Indebtedness" note for more
information on the Equity Offering.
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 $550 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 out-of-pocket cash expenditures for all asbestos-
related matters, including property damage, personal injury, insurance
coverage litigation and related expenses, exceeded aggregate insurance
payments by $25.8 million in 1992, $8.2 million in 1993 and $33.4 million in
1994. For the same periods, the Corporation has charged $18 million to
earnings annually for all asbestos-related matters, excluding the $30 million
charge described in "Property Damage Cases" below.
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.
As of December 31, 1994, 41 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
below, involve multiple buildings. In addition, approximately 37 property
damage claims have been threatened against U.S. Gypsum. 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.
U.S. Gypsum is one of many defendants in three pending cases that have been
certified as class actions and others that request such certification. 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.).
In October 1994, U.S. Gypsum executed agreements to settle two other
class actions (one of which has now been closed), subject to court approval
following notice to the respective classes. One suit was 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. The other class action settlement involved approximately
333 school districts in Michigan that had opted out of the nationwide class
action. (Board of Education of the City of Detroit, et al. v. The Celotex
Corp., et al., Circuit Court for Wayne County, MI.) The Corporation took a
$30 million pre-tax charge to earnings in the fourth quarter of 1994 primarily
to cover the cash payments, approximately two-thirds of which was paid in 1994
with the rest payable over the next two years. In addition, U.S. Gypsum will
also issue discount coupons to the school districts in the nationwide class
action for the purchase of plaster products. The coupons, which will be
redeemable over ten years subject to annual "caps," will have an aggregate
face amount of $50 million. No charge against earnings was recorded for
future coupon redemptions. Such redemptions will reduce margins when
redeemed, and although the amount of redemptions cannot be estimated, the
impact on results of operations is expected to be immaterial. The Michigan
settlement was approved by the Court on December 2, 1994, and no appeal was
filed. The settlement of the nationwide class action has not yet been
presented to the Court for approval.
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 other 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. In
July 1994, the court in the Anderson Case ruled that claims involving building
owners outside South Carolina cannot be included in the suit. A case which
has yet to be certified as a class action was filed in federal court in the
Eastern District of Texas on August 8, 1994. (Kirbyville Independent School
District v. U.S. Gypsum, et al., United States District Court for the Eastern
District of Texas, Beaumont Division). The case purports to be a class action
on behalf of all public building owners and political subdivisions of the
State of Texas, including all cities, counties and municipalities. The
damages claimed against U.S. Gypsum in the class action cases are unspecified.
In total, U.S. Gypsum has settled approximately 93 property damage cases,
involving 209 plaintiffs, in addition to the two school class action
settlements referred to above. Twenty-four cases have been tried to verdict,
15 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 3 of the tried cases. In the cases lost, compensatory damage awards
against U.S. Gypsum have totaled $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 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. During 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 1994, 5 new Property Damage Cases were
filed against U.S. Gypsum, 5 were dismissed before trial, 19 were settled, 1
was closed following trial or appeal, and 41 were pending at year-end. U.S.
Gypsum expended $40.6 million for the defense and resolution of Property
Damage Cases (excluding payments not yet due and future credits for coupon
redemption under a 1994 class action settlement) and received insurance
payments of $9 million in 1994.
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 54,000 claimants pending as
of December 31, 1994 although, as discussed below, approximately 22,000 of
such claims are settled but not yet closed. 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 $222 million remains unexhausted.
On January 15, 1993, U.S. Gypsum and the other members of the Center
entered into a class action settlement 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 class of plaintiffs
includes 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. The settlement has been approved by the trial court, and if upheld on
appeal 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. Approximately 250,000 purported class members "opted out," or
elected to be excluded from the settlement, although a substantial portion of
such "opt outs" had previously filed claims or are in groups considered
unlikely to generate significant numbers of future claims. As of December 31,
1994, approximately 10,000 claims naming U.S. Gypsum as a defendant had been
filed by "opt outs." In addition, in each year a limited number of class
members 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.
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 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. During 1994, approximately 14,000 Personal
Injury Cases were filed against U.S. Gypsum, U.S. Gypsum was added as a
defendant in approximately 4,000 cases that had been previously filed, and
approximately 23,000 were settled or dismissed. U.S. Gypsum incurred expenses
of $38 million in 1994 with respect to Personal Injury Cases of which $37.3
million was paid by insurance. As of December 31, 1994, 1993, and 1992,
54,000, 59,000, and 54,000 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 may 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
22,000 Personal Injury Cases pending on December 31, 1994 for amounts
totalling approximately $32 million, to be expended over a three to five year
period. 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,
1994, can be disposed of for a total amount, including both indemnity costs
and legal fees and expenses, estimated to be between $90 million and $100
million (of which all but less than $5 million is expected to be paid by
insurance). The estimated cost of resolving pending claims takes into
account, among other factors, (i) 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 $250 million, of which approximately $235 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 and
severity 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 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 appealed the court's ruling with
respect to the policy years available to cover particular claims, and the
carriers appealed most other aspects of the court's ruling.
On November 4, 1994, the Illinois Appellate Court issued a ruling
affirming the trial court's finding that the eight cases were covered, but
expanding the years of coverage available by holding that all insurance
policies in effect from the date of installation to the date of removal of
asbestos-containing products are obligated to provide coverage (known as the
"continuous trigger" of coverage). The defendant carriers' rehearing petition
was denied by the Appellate Court in January 1995. The defendant carriers
have indicated their intention to seek review by the Illinois Supreme Court,
which is discretionary with the Court. If the Supreme Court accepts the
appeal, the appeal will continue for a year or more. Once the appellate
process has concluded, further proceedings will be necessary in the trial
court with respect to the application of the appellate ruling to all Property
Damage Cases other than the eight cases involved in the earlier trial, as well
as resolution of certain other issues.
The Appellate Court's ruling, if applied to the Property Damage Cases
generally, will allow U.S. Gypsum to access all of its available insurance
coverage for Property Damage Cases, subject to reduction for amounts that are
spent on Personal Injury Cases. Under the ruling, all Property Damage Cases
would be covered by insurance unless or until such insurance becomes
exhausted. U.S. Gypsum is evaluating the impact of the ruling on past
property damage expenditures and, if the ruling is applied to such
expenditures, U.S. Gypsum should be able to recover a substantial portion,
subject to the allocation of costs to insolvent carriers, excess carriers with
no defense cost obligations, and carriers that have previously settled. The
Company is not yet able to estimate the amount of its past property damage
expenditures that it could recover or when such recoveries would occur.
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
agreed to pay all or a substantial portion of their policy limits to U.S.
Gypsum beginning in 1991 and continuing over the following 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. Taking into account the
above settlements, including participation of certain of the settling carriers
in the Wellington Agreement, and consumption through December 31, 1994,
carriers providing a total of approximately $81 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 $210 million of coverage that was unexhausted
as of December 31, 1994 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 continues 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. 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 ("Interpretation
39"). In accordance with Interpretation 39, U.S. Gypsum recorded an accrual
for its liabilities for asbestos-related matters which are deemed probable and
can be reasonably estimated, and separately recorded an asset equal to the
amount of such liabilities that is expected to be paid by uncontested
insurance. Due to management's inability to reasonably estimate U.S. Gypsum's
liability for Property Damage Cases and (until the implementation of Georgine
is deemed probable) future Personal Injury Cases, the liability and asset
recorded in 1994 relate only to pending Personal Injury Cases. As of December
31, 1994, the liability (which is included in other liabilities on the
consolidated balance sheet) and the asset (which is included in other assets
on the consolidated balance sheet) for pending Personal Injury Cases each
amounted to $100 million. This implementation of Interpretation 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.
Industry and Geographic Segments
Transactions between geographic areas are accounted for on an
"arm's-length" basis. No single customer accounted for 4% or more of
consolidated net sales. Export sales to foreign unaffiliated customers
represent less than 10% of consolidated net sales.
Intrasegment and intersegment eliminations largely reflect intercompany
sales. Segment operating profit/(loss) includes all costs and expenses
directly related to the segment involved and an allocation of expenses which
benefit more than one segment. Segment operating profit/(loss) also includes
the non-cash amortization of excess reorganization value which had the impact
of reducing operating profit. Assets for USG Funding, which was established
in 1994, represent the outstanding balance of receivables purchased from U.S.
Gypsum and USG Interiors, net of reserves, and are included in "corporate
identifiable assets" in the table below. As of December 31, 1994, such
receivables, net of reserves, amounted to $123 million, including $84 million
purchased from U.S. Gypsum and $39 million purchased from USG Interiors.
Information for the period of May 7 through December 31, 1993, shown in the
following tables has been restated to conform to the Corporation's current
industry segment organization.
<PAGE>
<TABLE>
<CAPTION>
Amortization Depreciation
Operating of Excess Depletion
Year ended December 31, 1994 Net Profit/ Reorganization and Capital Identifiable
Industry Segments Sales (Loss) Value Amortization Expenditures Assets
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
North American Gypsum:
U.S. Gypsum $ 1,209 $ 158 $ 61 $ 29 $ 37 $ 887
CGC (gypsum division) 110 (6) 18 3 4 120
Other subsidiaries 90 24 - 4 5 56
Eliminations (84) - - - - 1
Total Gypsum Products 1,325 176 79 36 46 1,064
Building Products
Distribution 65 10 3 2 3 147
Eliminations (204) (2) - - - (33)
Total North American
Gypsum 1,780 184 82 38 49 1,178
Worldwide Ceilings:
USG Interiors 400 (28) 71 10 12 403
USG International 202 (13) 16 3 3 189
CGC (interiors division) 29 3 - - - 8
Eliminations (37) - - - - -
Total Worldwide Ceilings 594 (38) 87 13 15 600
Corporate - (42) - 33 - 352
Eliminations (84) - - - - (6)
Total USG Corporation 2,290 104 169 84 64 2,124
Geographic Segments
United States $ 2,008 $ 94 $ 135 $ 74 $ 52 $ 1,770
Canada 164 2 18 5 9 153
Other Foreign 228 8 16 5 3 200
Transfers between geographic
areas (110) - - - - 1
Total USG Corporation 2,290 104 169 84 64 2,124
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Amortization Depreciation
Operating of Excess Depletion
May 7 through December 31, 1993 Net Profit/ Reorganization and Capital Identifiable
Industry Segments Sales (Loss) Value Amortization Expenditures Assets
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
North American Gypsum:
U.S. Gypsum $ 673 $ 48 $ 41 $ 20 $ 17 $ 912
CGC (gypsum division) 61 (8) 12 2 2 145
Other subsidiaries 53 13 - 2 4 61
Eliminations (43) - - - - -
Total Gypsum Products 744 53 53 24 23 1,118
Building Products
Distribution 372 4 2 1 1 125
Eliminations (111) - - - - (25)
Total North American
Gypsum 1,005 57 55 25 24 1,218
Worldwide Ceilings:
USG Interiors 245 (20) 47 6 2 507
USG International 126 (11) 11 2 3 181
CGC (interiors division) 19 1 - 1 - 9
Eliminations (23) - - - - -
Total Worldwide Ceilings 367 (30) 58 9 5 697
Corporate - (26) - 10 - 251
Eliminations (47) - - - - (3)
Total USG Corporation 1,325 1 113 44 29 2,163
Geographic Segments
United States $ 1,147 $ 3 $ 90 $ 36 $ 20 $ 1,789
Canada 95 (6) 12 5 6 178
Other Foreign 143 4 11 3 3 197
Transfers between geographic
areas (60) - - - - (1)
Total USG Corporation 1,325 1 113 44 29 2,163
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year May 7
ended through
December 31, December 31,
Transfers Between Geographic Areas 1994 1993
(Dollars in millions)
<S> <C> <C>
United States $ 44 $ 25
Canada 36 16
Other Foreign 30 19
Total 110 60
</TABLE>
Subsidiary Debt Guarantees
The Corporation had $298 million and $478 million aggregate principal
amount of Senior 2002 Notes outstanding as of December 31, 1994 and 1993,
respectively. Each of U.S. Gypsum, USG Industries, Inc., USG Interiors, USG
Foreign Investments, Ltd., 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, both the obligations of the Corporation under the
Credit Agreement and the Senior 2002 Notes. The Combined Guarantors are
jointly and severally liable under these guarantees (the "Subsidiary
Guarantees"). Holders of 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 Senior 2002
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 Senior 2002 Notes remain unpaid. The
liability of each of the Combined Guarantors on its guarantee is limited to
the greater of (i) 95% of the lowest amount, calculated as of July 13, 1988,
sufficient to render the guarantor insolvent, leave the guarantor with
unreasonably small capital or leave the guarantor unable to pay its debts as
they become due (each as defined under applicable law) and (ii) the same
amount, calculated as of the date any demand for payment under such guarantee
is made, in each case plus collection costs. The guarantees are senior
obligations of the applicable guarantor and rank pari passu with all
unsubordinated obligations of the guarantor.
Subsidiaries other than the Combined Guarantors (the "Combined Non-
Guarantors"), substantially all of which are subsidiaries of guarantors,
primarily include CGC, Gypsum Transportation Limited, USG Canadian Mining
Ltd., and the Corporation's Mexican, European and Pacific subsidiaries. USG
Funding is also a Non-Guarantor. The long-term debt of the Combined Non-
Guarantors of $84 million and $24 million as of December 31, 1994 and 1993,
respectively, has restrictive covenants that restrict, among other things, the
payment of dividends.
The following condensed consolidating information presents:
(i) Condensed financial statements as of December 31, 1994 and
1993, for the year ended December 31, 1994 and for the
period of May 7 through December 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 bankruptcy proceeding); (b) the Combined
Guarantors; (c) the Combined Non-Guarantors; and (d) the
Corporation on a consolidated basis. Due to the
Restructuring and implementation of fresh start
accounting, the financial statements for the restructured
company (periods after May 6, 1993) are not comparable to
those of the predecessor company. Except for the
following condensed financial statements, separate
financial information with respect to the Combined
Guarantors is omitted as such separate financial
information is not deemed material to investors.
(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>
USG CORPORATION
(Restructured Company)
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
(Dollars in millions)
<TABLE>
<CAPTION>
Combined
Parent Combined Non-
Company Guarantors Guarantors Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994
Net sales $ - $2,008 $ 391 $ (109) $ 2,290
Gross profit (2) 432 87 - 517
Operating profit/(loss) (43) 137 10 - 104
Equity in net loss of
the subsidiaries 34 6 - (40) -
Interest expense, net 134 2 3 - 139
Corporate service charge (164) 164 - - -
Other expense/(income) 45 (41) (1) - 3
Earnings/(loss) before
taxes on income (92) 6 8 40 (38)
Taxes on income - 40 14 - 54
Net loss (92) (34) (6) 40 (92)
May 7 through December 31, 1993
Net sales $ - $1,153 $ 238 $ (66) $ 1,325
Gross profit - 216 47 - 263
Operating profit/(loss) (27) 30 (2) - 1
Equity in net loss of
the subsidiaries 291 11 - (302) -
Interest expense, net 84 2 2 - 88
Corporate service charge (106) 106 - - -
Other expense/(income) (197) 188 1 - (8)
Loss before taxes on income and
extraordinary loss (99) (277) (5) 302 (79)
Taxes on income 9 14 6 - 29
Loss before extraordinary loss (108) (291) (11) 302 (108)
Extraordinary loss,
net of taxes (21) - - - (21)
Net loss (129) (291) (11) 302 (129)
</TABLE>
<PAGE>
USG CORPORATION
(Restructured Company)
CONDENSED CONSOLIDATING BALANCE SHEET
(Dollars in millions)
<TABLE>
<CAPTION>
Combined
Parent Combined Non-
Company Guarantors Guarantors Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
As of December 31, 1994
Cash and cash equivalents $ 178 $ (11) $ 30 $ - $ 197
Receivables, net - 135 173 (34) 274
Inventories - 136 43 (6) 173
Total current assets 178 260 246 (40) 644
Property, plant and equipment,
net 15 623 117 - 755
Investment in subsidiaries 1,436 261 - (1,697) -
Excess reorganization value, net - 447 114 - 561
Other assets (227) 426 (28) (7) 164
Total assets 1,402 2,017 449 (1,744) 2,124
Accounts payable and
accrued expenses $ 83 $ 298 $ 63 $ (34) $ 410
Notes payable and long-term debt
maturing within one year 41 2 2 - 45
Total current liabilities 124 300 65 (34) 455
Long-Term Debt 956 37 84 - 1,077
Deferred Income Taxes 9 155 15 - 179
Other Liabilities 308 109 4 - 421
Common stock 5 1 6 (7) 5
Capital received in excess
of par value 221 1,438 364 (1,802) 221
Deferred currency translation - - (13) - (13)
Reinvested earnings/(deficit) (221) (23) (76) 99 (221)
Total stockholders' equity/
(deficit) 5 1,416 281 (1,710) (8)
Total liabilities and
stockholders' equity 1,402 2,017 449 (1,744) 2,124
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 long-term
debt 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>
USG CORPORATION
(Restructured Company)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(Dollars in millions)
<TABLE>
<CAPTION>
Combined
Parent Combined Non-
Company Guarantors Guarantors Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994
Net cash flows (to)/from
operating activities $ (187) $ 296 $ 89 $ - $ 198
Capital expenditures (1) (51) (12) - (64)
Net proceeds from asset
dispositions 4 12 - - 16
Net cash flows (to)/from
investing activities 3 (39) (12) - (48)
Issuance of debt 85 4 173 - 262
Repayment of debt (524) (3) (123) - (650)
Public offering of common
stock 224 - - - 224
Cash dividends (paid)/received 21 28 (49) - -
Net cash transfers (to)/from
Corporate 369 (289) (80) - -
Net cash flows (to)/from
financing activities 175 (260) (79) - (164)
Net decrease in cash
& equivalents (9) (3) (2) - (14)
Cash and cash equivalents
- beginning 187 (8) 32 - 211
Cash and cash equivalents - end 178 (11) 30 - 197
May 7 through December 31, 1993
Net cash flows (to)/from
operating activities $ (27) $ 185 $ 25 $ - $ 183
Capital expenditures - (20) (9) - (29)
Net proceeds from asset
dispositions 16 13 - - 29
Net cash flows (to)/from
investing activities 16 (7) (9) - -
Issuance of debt - - 36 - 36
Repayment of debt (8) (9) (40) - (57)
Cash dividends (paid)/received - 12 (12) - -
Net cash transfers (to)/
from Corporate 182 (182) - - -
Net cash flows (to)/from
financing activities 174 (179) (16) - (21)
Net increase/(decrease) in
cash & equivalents 163 (1) - - 162
Cash and cash equivalents
- beginning 24 (7) 32 - 49
Cash and cash equivalents - end 187 (8) 32 - 211
</TABLE>
<PAGE>
USG CORPORATION
MANAGEMENT REPORT
Management is responsible for the preparation and integrity of the
financial statements and related notes included herein. These statements have
been prepared in accordance with generally accepted accounting principles and,
of necessity, include some amounts that are based on management's best
estimates and judgments.
The Corporation's accounting systems include internal controls designed to
provide reasonable assurance of the reliability of its financial records and
the proper safeguarding and use of its assets. Such controls are based on
established policies and procedures, are implemented by trained personnel, and
are monitored through an internal audit program. The Corporation's policies
and procedures prescribe that the Corporation and its subsidiaries are to
maintain ethical standards and that its business practices are to be
consistent with those standards.
The Audit Committee of the Board, consisting solely of outside Directors of
the Corporation, maintains an ongoing appraisal, on behalf of the
stockholders, of the effectiveness of the independent auditors and management
with respect to the preparation of financial statements, the adequacy of
internal controls and the Corporation's accounting policies.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board
of Directors of USG Corporation:
We have audited the accompanying consolidated balance sheets of USG
Corporation (Restructured Company), a Delaware corporation, and subsidiaries
as of December 31, 1994 and 1993 and the related consolidated statements of
earnings and cash flows for the year ended December 31, 1994 and the period of
May 7 through December 31, 1993. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed in Notes to Financial Statements - "Financial Restructuring"
note, on May 6, 1993, the Corporation completed a comprehensive financial
restructuring through the implementation of a prepackaged plan of
reorganization under Chapter 11 of the United States Bankruptcy Code and
applied fresh start accounting. As such, results of operations through May 6,
1993 (Predecessor Company) are not comparable with results of operations
subsequent to that date.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of USG Corporation and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for the year ended December 31, 1994 and the
period of May 7 through December 31, 1993, in conformity with generally
accepted accounting principles.
As discussed in Notes to Financial Statements - "Litigation" note, 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 Notes to Financial Statements - "Litigation" note, on
January 1, 1994, the Corporation changed its method of accounting for
asbestos-related matters.
/s/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 26, 1995
<PAGE>
USG CORPORATION
(Restructured Company)
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in millions)
<TABLE>
<CAPTION>
Provision Receivables
Charged to Written Off
Beginning Costs and and Discounts Ending
Balance Expenses Allowed Balance
<S> <C> <C> <C>
Year ended December 31, 1994
Doubtful accounts $ 11 $ 7 $ (7) $ 11
Cash discounts 2 26 (25) 3
May 7 through December 31, 1993
Doubtful accounts 11 4 (4) 11
Cash discounts 2 15 (15) 2
</TABLE>
<PAGE>
USG CORPORATION
(Restructured Company)
SUPPLEMENTAL NOTE ON FINANCIAL INFORMATION FOR
UNITED STATES GYPSUM COMPANY
(A SUBSIDIARY OF USG CORPORATION)
USG Corporation, a holding company, owns several operating subsidiaries,
including U.S. Gypsum. On January 1, 1985, all of the issued and outstanding
shares of stock of U.S. Gypsum were converted into shares of USG Corporation
and the holding company became a joint and several obligor for certain
debentures originally issued by U.S. Gypsum. Debentures totaling $33 million
and $36 million were recorded on the holding company's books of account as of
December 31, 1994 and 1993, respectively. Financial results for U.S. Gypsum
are presented below in accordance with disclosure requirements of the
SEC (dollars in millions):
<TABLE>
Summary Statement of Earnings
<CAPTION>
Year May 7
ended through
December 31, December 31,
1994 1993
<S> <C> <C>
Net sales $ 1,209 $ 673
Cost and expenses 990 584
Amortization of excess reorganization value 61 41
Operating profit 158 48
Interest income, net (5) (2)
Other income, net - (1)
Corporate charges 93 60
Earnings/(loss) before taxes on income 70 (9)
Taxes on income 49 15
Net earnings/(loss) 21 (24)
</TABLE>
<TABLE>
Summary Balance Sheet
<CAPTION>
As of December 31
1994 1993
<S> <C> <C>
Current assets $ 345 $ 190
Property, plant and equipment, net 491 483
Excess reorganization value, net 204 265
Other assets 103 3
Total assets 1,143 941
Current liabilities $ 197 $ 124
Other liabilities and obligations 256 149
Stockholder's equity 690 668
Total liabilities and stockholder's equity 1,143 941
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
WITH RESPECT TO SUPPLEMENTAL NOTE AND FINANCIAL STATEMENT SCHEDULE
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of USG Corporation (Restructured
Company) included in this Form 10-K, and have issued our report thereon dated
January 26, 1995. Our report on the consolidated financial statements
includes explanatory paragraphs with respect to the asbestos litigation and
the Corporation's change in its method of accounting for asbestos-related
matters as discussed in Notes to Financial Statements - "Litigation" note.
Our audits were made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The supplemental note and financial
statement schedule on pages 51 and 52 are the responsibility of the
Corporation's management and are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the
consolidated financial statements. The supplemental note and financial
statement schedule have been subjected to the auditing procedures applied in
the audit of the consolidated financial statements and, in our opinion, fairly
state in all material respects the financial data required to be set forth
therein in relation to the consolidated financial statements taken as a whole.
/s/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 26, 1995
<PAGE>
USG CORPORATION
(Predecessor Company)
CONSOLIDATED STATEMENT OF EARNINGS
(Dollars in millions)
<TABLE>
<CAPTION>
January 1 Year
through ended
May 6, December 31,
1993 1992
<S> <C> <C>
Net Sales $ 591 $ 1,777
Cost of products sold 482 1,460
Gross Profit 109 317
Selling and administrative expenses 71 218
Operating Profit 38 99
Interest expense 86 334
Interest income (2) (12)
Other expense, net 6 1
Reorganization items (709) -
Earnings/(Loss) Before Taxes on Income,
Extraordinary Gain and Changes in
Accounting Principles 657 (224)
Taxes on income/(income tax benefit) 17 (33)
Earnings/(Loss) Before Extraordinary Gain and
Changes in Accounting Principles 640 (191)
Extraordinary gain, net of taxes 944 -
Cumulative effect of changes in accounting
principles, net (150) -
Net Earnings/(Loss) 1,434 (191)
Per-share information is omitted because, due to the Restructuring and implementation of fresh start
accounting, it is not meaningful.
The notes to financial statements on are an integral part of this statement.
</TABLE>
<PAGE>
USG CORPORATION
(Predecessor Company)
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
<TABLE>
<CAPTION>
As of
May 6,
1993
<S> <C>
Assets
Current Assets:
Cash and cash equivalents (primarily time deposits) $ 49
Receivables (net of reserves of $13) 315
Inventories 148
Total current assets 512
Property, Plant and Equipment, Net 767
Excess Reorganization Value 851
Other Assets 64
Total assets 2,194
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 96
Accrued expenses 171
Notes payable 6
Long-term debt maturing within one year 9
Taxes on income 13
Total current liabilities 295
Long-Term Debt 1,446
Deferred Income Taxes 170
Other Liabilities 279
Stockholders' Equity:
Preferred stock - $1 par value; authorized 36,000,000 shares; $1.80 convertible
preferred stock (initial series); outstanding - none -
Common stock - $0.10 par value; authorized 200,000,000 shares; outstanding
37,157,458 shares (after deducting 27,556 shares held in treasury) 4
Capital received in excess of par value -
Deferred currency translation -
Reinvested earnings -
Total stockholders' equity 4
Total liabilities and stockholders' equity 2,194
The notes to financial statements are an integral part of this statement.
</TABLE>
<PAGE>
USG CORPORATION
(Predecessor Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
<TABLE>
<CAPTION>
January 1 Year
through ended
May 6, December 31,
1993 1992
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings/(loss) $ 1,434 $ (191)
Adjustments to reconcile net earnings/(loss) to net cash:
Cumulative effect of accounting changes 150 -
Depreciation, depletion and amortization 22 66
Interest expense on pay-in-kind debentures 17 74
Deferred income taxes (13) (25)
Net (gain)/loss on asset dispositions 4 (5)
(Increase)/decrease in working capital:
Receivables 18 (1)
Inventories (8) (3)
Payables 3 (4)
Accrued expenses 15 213
Increase in other assets (12) (23)
Changes due to reorganization items:
Increase in reorganization items 65 -
Net adjustments to fair market value (759) -
Gain on discharge of prepetition liabilities (944) -
Payment of liabilities net of collection of letters of credit (7) -
Increase/(decrease) in other liabilities 4 (2)
Other, net (3) (9)
Net cash flows (to)/from operating activities (14) 90
Cash Flows from Investing Activities:
Capital expenditures (12) (49)
Net proceeds from asset dispositions - 6
Net cash flows to investing activities (12) (43)
Cash Flows from Financing Activities:
Issuance of debt 5 57
Repayment of debt (142) (75)
(Increase)/decrease in restricted assets 32 (4)
Net cash flows to financing activities (105) (22)
Net Increase/(Decrease) in Cash and Cash Equivalents (131) 25
Cash and cash equivalents as of beginning of period 180 155
Cash and cash equivalents as of end of period 49 180
Supplemental Cash Flow Disclosures:
Interest paid $ 58 $ 52
Income taxes paid 3 13
The notes to financial statements are an integral part of this statement.
</TABLE>
<PAGE>
USG CORPORATION
(Predecessor Company)
NOTES TO FINANCIAL STATEMENTS
(Terms in initial capital letters are defined elsewhere in this Form 10-K)
Principles of Consolidation
The consolidated financial statements include the accounts of the
Corporation and its subsidiaries after elimination of intercompany accounts
and transactions. Revenue is recognized upon the shipment of products. For
the period of January 1 through May 6, 1993, net currency translation gains or
losses on foreign subsidiaries are included in deferred currency translation,
a component of stockholders' equity. For the year ended December 31, 1992,
Mexican currency translation losses were charged to earnings. Purchased
goodwill, which was written off in accordance with the implementation of fresh
start accounting, was previously being amortized over a period of 40 years.
For purposes of the Consolidated Balance Sheet and Consolidated Statement
of Cash Flows, all highly liquid investments with a maturity of three months
or less at the time of purchase are considered to be cash equivalents.
Financial Restructuring
On May 6, 1993, the Corporation completed a comprehensive restructuring of
its debt (the "Restructuring") through implementation of a "prepackaged" plan
of reorganization under United States bankruptcy law (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 the Corporation's
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.
The following balance sheet details the adjustments that were made as of
May 6, 1993 to record the Restructuring and implement fresh start accounting:
<PAGE>
USG CORPORATION
(Predecessor Company)
CONSOLIDATED BALANCE SHEET
As of May 6, 1993
(Dollars in millions)
<TABLE>
<CAPTION>
Pre- Post-
Restructuring (a) (b) Restructuring
and Restructuring Fresh Start and
Fresh Start Adjustments Adjustments Fresh Start
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1503 $ (104) $ - $ 49
Receivables, net 281 35 (1) 315
Inventories 122 - 26 148
Restricted cash 99 (99) - -
Total current assets 655 (168) 25 512
Property, Plant and Equipment, Net 792 - (25) 767
Purchased Goodwill, Net 69 - (69) -
Excess Reorganization Value - - 851 851
Other Assets 65 (1) - 64
Total assets 1,581 (169) 782 2,194
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 96 $ - $ - $ 96
Accrued expenses 203 (28) (4) 171
Notes payable 6 - - 6
Revolving Credit Facility 140 (140) - -
Long-term debt maturing within one year 9 - - 9
Long-term debt classified as current 427 (427) - -
Taxes on income 17 - (4) 13
Total current liabilities 898 (595) (8) 295
Long-Term Debt 67 1,473 (94) 1,446
Deferred Income Taxes 111 24 35 170
Other Liabilities 194 - 85 279
Liabilities Subject to Compromise 2,458 (2,458) - -
Stockholders' Equity/(Deficit):
Preferred stock - - - -
Common stock 5 (1) - 4
Capital received in excess of par value 23 444 (467) -
Deferred currency translation (7) - 7 -
Reinvested earnings/(deficit) (2,168) 944 1,224 -
Total stockholders' equity/(deficit) (2,147) 1,387 764 4
Total liabilities and stockholders'
equity 1,581 (169) 782 2,194
(a) To record the consummation of the Prepackaged Plan.
(b) To record the adjustments to state assets and liabilities at their estimated fair market value,
including establishment of Excess Reorganization Value.
</TABLE>
<PAGE>
Reorganization Items
In connection with the Restructuring, the Corporation recorded a one-time
reorganization items gain of $709 million in the period of January 1 through
May 6, 1993. The (income)/expense components of this gain are as follows
(dollars in millions):
<TABLE>
<CAPTION>
January 1
through
May 6,
1993
<S> <C>
Excess reorganization value $ (851)
Other fresh start adjustments 63
Restructuring fees and expenses 57
Write-off of 1988 capitalized financing costs 22
Total reorganization items (709)
</TABLE>
Extraordinary Gain
Also in connection with the Restructuring, the Corporation recorded a one-
time after-tax extraordinary gain of $944 million in the period of January 1
through May 6, 1993. The income/(expense) components of this gain are as
follows (dollars in millions):
<TABLE>
<CAPTION>
January 1
through
May 6,
1993
<S> <C>
Gain on exchange of the Old Senior Subordinated Debentures for stock $ 477
Gain on exchange of the Old Junior Subordinated Debentures for stock
and warrants 456
Write-off of bank debt default interest 49
Tax provision (24)
Management incentive compensation (13)
Other (1)
Total extraordinary items 944
</TABLE>
Cumulative Effect of Changes in Accounting Principles
A one-time after-tax charge of $150 million was recorded in the first
quarter of 1993 representing the adoption of Statement of Financial Accounting
Standard ("SFAS") No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions," - $180 million, partially offset by the adoption of SFAS
No. 109, "Accounting for Income Taxes," - $30 million. See "Postretirement
Benefits" and "Taxes on Income and Deferred Taxes" notes for information on
the adoption of these standards. Neither of these standards impact cash flow.
Research and Development
Research and development expenditures are charged to earnings as incurred
and amounted to $4 million and $14 million in the period of January 1 through
May 6, 1993 and the year ended December 31, 1992, respectively.
Taxes on Income and Deferred Income Taxes
Effective January 1, 1993, the Corporation adopted SFAS No. 109,
"Accounting for Income Taxes." The cumulative effect as of January 1, 1993 of
adopting SFAS No. 109 was a one-time benefit to first quarter 1993 net
earnings of $30 million, primarily due to adjusting deferred taxes from
historical to current tax rates. Financial statements for periods prior to
January 1, 1993 have not been restated to reflect the adoption of this
standard.
<PAGE>
Earnings/(loss) before taxes on income, extraordinary gain and changes in
accounting principles consisted of the following (dollars in millions):
<TABLE>
<CAPTION>
January 1 Year
through ended
May 6, December 31,
1993 1992
<S> <C> <C>
U.S. $ 483 $ (246)
Foreign 174 22
Total 657 (224)
</TABLE>
Taxes on income/(income tax benefit) consisted of the following (dollars in
millions):
<TABLE>
<CAPTION>
January 1 Year
through ended
May 6, December 31,
1993 1992
<S> <C> <C>
Current:
U.S. Federal $ 13 $ (12)
Foreign 2 6
15 (6)
Deferred:
U.S. Federal - (27)
Foreign 2 -
2 (27)
Total 17 (33)
</TABLE>
The difference between the statutory U.S. Federal income tax/(benefit) rate
and the Corporation's effective income tax/(benefit) rate is summarized as
follows:
<TABLE>
<CAPTION>
January 1 Year
through ended
May 6, December 31,
1993 1992
<S> <C> <C>
Statutory U.S. Federal income tax/(benefit) rate 34.0 % (34.0) %
Nontaxable effects of adopting fresh start accounting (41.4) -
Capitalized restructuring fees 2.0 -
Foreign tax rate differential 1.3 7.7
Valuation allowance adjustment 2.3 -
Unbenefited NOL Carryforward 2.3 12.6
Other, net 2.1 (1.3)
Effective income tax/(benefit) rate 2.6 (15.0)
</TABLE>
<PAGE>
Temporary differences and carryforwards which give rise to current and
long-term deferred tax (assets)/liabilities as of May 6, 1993 were as follows
(dollars in millions):
<TABLE>
<CAPTION>
As of
May 6,
1993
<S> <C>
Property, plant and equipment $ 148
Debt discount 32
Deferred tax liabilities 180
Pension and retiree medical benefits (85)
Reserves not deductible until paid (47)
Other (2)
Deferred tax assets before valuation allowance (134)
Valuation allowance 85
Deferred tax assets (49)
Net deferred tax liabilities 131
</TABLE>
A valuation allowance has been provided for deferred tax assets relating to
pension and retiree medical benefits due to the long-term nature of their
realization. Because of the uncertainty regarding the application of the Code
to the Corporation's NOL Carryforwards as a result of the Prepackaged Plan, no
deferred tax asset is recorded.
The Corporation has NOL Carryforwards of $113 million remaining from 1992
after a reduction due to cancellation of indebtedness from the Prepackaged
Plan. These NOL Carryforwards may be used to offset U.S. taxable income
through 2007. The Code will limit the Corporation's annual use of its NOL
Carryforwards 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 Carryforwards could be further reduced or eliminated. The
Corporation has a $3 million minimum tax credit which may be used to offset
U.S. regular tax liability in future years.
<PAGE>
During 1992, deferred income taxes resulted from certain items being
treated differently for financial reporting purposes than for income tax
purposes. The tax effect of such differences is summarized as follows
(dollars in millions):
<TABLE>
<CAPTION>
Year
ended
December 31,
1992
<S> <C>
Tax benefit carryforwards $ (19)
Accelerated tax depreciation (5)
Other, net (3)
Total deferred provision (27)
Classification adjustment of prior years' deferrals 2
Decrease in deferred taxes (25)
</TABLE>
The Corporation does not provide for U.S. Federal income taxes on the
portion of undistributed earnings of foreign subsidiaries which are intended
to be permanently reinvested. The cumulative amount of such undistributed
earnings totaled approximately $75 million as of May 6, 1993. Any future
repatriation of undistributed earnings would not, in the opinion of
management, result in significant additional taxes.
Inventories
In accordance with the implementation of fresh start accounting,
inventories were stated at fair market value as of May 6, 1993. Most of the
Corporation's domestic and Mexican inventories are valued under the LIFO
method. As of May 6, 1993, the LIFO values of these inventories were $103
million and would have been the same if they were valued under the FIFO and
average production cost methods. Inventories include material, labor and
applicable factory overhead costs. Inventory classifications were as follows
(dollars in millions):
<TABLE>
<CAPTION>
As of
May 6,
1993
<S> <C>
Finished goods and work-in-process $ 87
Raw materials 54
Supplies 7
Total 148
</TABLE>
The LIFO value of U.S. domestic inventories under fresh start accounting
exceeded that computed for U.S. Federal income tax purposes by $26 million as
of May 6, 1993.
<PAGE>
Property, Plant and Equipment
Property, plant and equipment were stated at fair market value as of May 6,
1993 in accordance with fresh start accounting. Provisions for depreciation
are determined principally on a straight-line basis over the expected average
useful lives of composite asset groups. Depletion is computed on a basis
calculated to spread the cost of gypsum and other applicable resources over
the estimated quantities of material recoverable. Interest during
construction is capitalized on major property additions. Property, plant and
equipment classifications were as follows (dollars in millions):
<TABLE>
<CAPTION>
As of
May 6,
1993
<S> <C>
Land and mineral deposits $ 61
Buildings and realty improvements 228
Machinery and equipment 478
767
Reserves for depreciation and depletion -
Total 767
</TABLE>
Leases
The Corporation leases certain of its offices, buildings, machinery and
equipment, and autos under noncancellable operating leases. These leases have
various terms and renewal options. Lease expense amounted to $11 million and
$31 million in the period of January 1 through May 6, 1993 and the year ended
December 31, 1992, respectively.
<PAGE>
Indebtedness
Total debt, including currently maturing debt, consisted of the following
(dollars in millions):
<TABLE>
<CAPTION>
As of
May 6,
1993
<S> <C>
Secured Debt:
Bank Debt:
Bank Term Loans, installments due through 2000 $ 540
Capitalized Interest Notes, due through 2000 56
Senior notes and debentures:
8% Senior Notes due 1995 75
8% Senior Notes due 1996 90
8% Senior Notes due 1997 100
9% Senior Notes due 1998 35
10 1/4% Senior Notes due 2002 340
7 7/8% Sinking Fund Debentures due 2004 41
8 3/4% Sinking Fund Debentures due 2017 200
Other secured debt, average interest rates 10.5%, varying payments
through 1999 40
Unsecured Debt:
Industrial revenue bonds, 5.9% ranging to 10.25%, due through 2014 39
Total principal amount of debt 1,556
Less unamortized reorganization discount (95)
Total carrying amount of debt 1,461
</TABLE>
As of May 6, 1993, the Corporation and its subsidiaries had $1,556 million
total principal amount of debt (before unamortized reorganization discount) on
a consolidated basis. Of such total debt, $118 million represented direct
borrowings by the subsidiaries, including $38 million of industrial revenue
bonds, $41 million of 7 7/8% sinking fund debentures issued by U.S. Gypsum in
1974 and subsequently assumed by the Corporation on a joint and several basis
in 1985, $33 million of debt (primarily project financing) incurred by the
Corporation's foreign subsidiaries other than CGC, $4 million of working
capital borrowings by CGC, and $3 million of other long-term borrowings by
CGC.
The Bank Debt and most other senior debt are secured by a pledge of all of
the shares of the Corporation's major domestic subsidiaries and 65% of the
shares of certain of its foreign subsidiaries, including CGC, pursuant to a
collateral trust arrangement controlled primarily by holders of the Bank Term
Loans. The rights of the Corporation and its creditors to the assets of any
subsidiary upon the latter's liquidation or reorganization will be subject to
the prior claims of such subsidiary's creditors, except to the extent that the
Corporation may itself be a creditor with enforceable claims against such
subsidiary. The average rate of interest on the Bank Term Loans, excluding
default interest which was cured or waived in accordance with the Prepackaged
Plan, was 6.5% in the period of January 1 through May 6, 1993. The rate of
interest on certain capitalized interest notes issued under the Credit
Agreement on May 6, 1993 in connection with the provisions of the Prepackaged
Plan was 5.4% based on LIBOR plus 2 1/4%.
The "other secured debt" category shown in the table above primarily
includes short-term and long-term borrowings from several foreign banks by USG
International used principally to finance construction of the Aubange, Belgium
ceiling tile plant. This debt is secured by a lien on the assets of the
Aubange plant and has restrictive covenants that restrict, among other things,
the payment of dividends. Foreign borrowings made by the Corporation's
international operations are generally allowed, within certain limits, under
provisions of the Credit Agreement.
In general, the Credit Agreement restricts, among other things, the
incurrence of additional indebtedness, mergers, asset dispositions,
investments, prepayment of other debt, dealings with affiliates, capital
expenditures, payment of dividends and lease commitments.
The fair market value of debt as of May 6, 1993 was $1,421 million, based
on estimates of fair market value calculated in connection with implementation
of fresh start accounting, excluding other secured debt, primarily
representing financing for construction of the Aubange plant that is secured
by a direct lien on its assets, which was not practicable to estimate.
The weighted average interest rate on outstanding short-term borrowings was
7.3% as of May 6, 1993.
<PAGE>
Pension Plans
The Corporation and most of its subsidiaries have defined benefit
retirement plans for all eligible employees. Benefits of the plans are
generally based on years of service and employees' compensation during the
last years of employment. The Corporation's contributions are made in
accordance with independent actuarial reports which, for most plans, required
minimal funding in the period of January 1 through May 6, 1993 and the year
ended December 31, 1992. Net pension expense included the following
components (dollars in millions):
<TABLE>
<CAPTION>
January 1 Year
through ended
May 6, December 31,
1993 1992
<S> <C> <C>
Service cost-benefits earned during the period $ 3 $ 9
Interest cost on projected benefit obligation 11 29
Actual return on plan assets (15) (14)
Unrecognized prior service cost 1 2
Net amortization/(deferral) 2 (25)
Net pension expense 2 1
</TABLE>
The pension plan assets, which consist primarily of publicly traded common
stocks and debt securities, had an estimated fair market value that equaled
the projected benefit obligation as of May 6, 1993. The following table
presents a reconciliation of the total assets of the pension plans to the
projected benefit obligation (dollars in millions):
<TABLE>
<CAPTION>
As of
May 6,
1993
<S> <C>
Amount of assets available for benefits:
Funded assets of the plans at fair market value $ 379
Accrued pension expense 25
Total assets of the plans 404
Present value of estimated pension obligation:
Vested benefits 298
Nonvested benefits 24
Accumulated benefit obligation 322
Additional benefits based on projected future salary increases 82
Projected benefit obligation 404
Assets in excess of projected benefit obligation -
</TABLE>
For the period of January 1 through May 6, 1993, the expected long-term
rate of return on plan assets was 9%, the assumed weighted average discount
rate used in determining the accumulated benefit obligation was 8% and the
rate of increases in projected future compensation levels was 5.5%.
Postretirement Benefits
The Corporation maintains plans that provide retiree health care and life
insurance benefits for all eligible employees. Employees generally become
eligible for the retiree benefit plans when they meet minimum retirement age
and service requirements. The cost of providing most of these benefits is
shared with retirees.
Effective January 1, 1993, the Corporation adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," for
its retiree benefit plans. Under this accounting standard, the Corporation is
required to accrue the estimated cost of retiree benefit payments during
employees' active service period. The Corporation elected to recognize this
change in accounting principle on the immediate recognition basis. The
cumulative effect as of January 1, 1993 of adopting SFAS No. 106 was a one-
time after-tax charge to first quarter 1993 net earnings of $180 million. The
Corporation previously expensed the cost of these benefits, which principally
relate to health care, as claims were incurred. These costs were $8 million
in the year ended December 31, 1992.
<PAGE>
The following table summarizes the components of net periodic
postretirement benefit cost for the period of January 1 through May 6, 1993
(dollars in millions):
<TABLE>
<CAPTION>
January 1
through
May 6,
1993
<S> <C>
Service cost of benefits earned $ 1
Interest on accumulated postretirement benefit obligation 5
Net periodic postretirement benefit cost 6
</TABLE>
The status of the Corporation's accrued postretirement benefit cost as of
May 6, 1993 was as follows (dollars in millions):
<TABLE>
<CAPTION>
As of
May 6,
1993
<S> <C>
Accumulated postretirement benefit obligation:
Retirees $ 118
Fully eligible active participants 13
Other active participants 62
Accrued postretirement benefit cost liability recognized on the
Consolidated Balance Sheet 193
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 13% as of May 6, 1993 with a gradually
declining rate to 6% by the year 2000 and remaining at that level thereafter.
A one-percentage-point increase in the assumed health care cost trend rate for
each year would increase the accumulated postretirement benefit obligation as
of May 6, 1993 by $18 million and increase the net periodic postretirement
benefit cost for the period of January 1 through May 6, 1993 by $1 million.
The assumed discount rate used in determining the accumulated postretirement
benefit obligation was 8%.
Management Performance Plan
The Management Performance Plan reserved 8,600,000 shares of Common Stock
for issuance in connection with grants of incentive stock options,
nonqualified stock options, stock appreciation rights, restricted stock,
deferred stock, performance shares and performance units.
In accordance with the Prepackaged Plan, all outstanding stock options (for
3,786,575 shares) were cancelled without consideration, 1,016,090 shares of
restricted and deferred stock were cashed-out pursuant to "change in control"
provisions contained in the Management Performance Plan, and 25,580 shares of
restricted stock and awards for deferred stock yet to be issued remained
outstanding as a consequence of certain waivers of the change in control event
by senior members of management.
The Prepackaged Plan limited future awards under the Management Performance
Plan without stockholder approval to options to purchase a number of shares
not to exceed 7.5% of the number of shares of Common Stock outstanding
immediately after implementation of the Prepackaged Plan (2,788,350 shares),
of which options for 4.5% of such number of outstanding shares may be granted
immediately upon consummation of the Prepackaged Plan.
Preferred Share Purchase Rights
On June 6, 1988, the Corporation adopted a Preferred Share Purchase Rights
Plan and pursuant to its provisions declared, subject to the consummation of
the 1988 Recapitalization, the distribution of one Right upon each new share
of Common Stock issued in the 1988 Recapitalization. The 1988
Recapitalization became effective July 13, 1988 and the distribution occurred
immediately thereafter. The Rights contain provisions which are intended to
protect stockholders in the event of an unsolicited attempt to acquire the
Corporation.
The Preferred Share Purchase Rights Plan was terminated in connection with
implementation of the Prepackaged Plan. On May 6, 1993, the Rights Agreement
was adopted with provisions substantially similar to the old rights except
that: (i) the purchase price of the Rights was reset; (ii) the expiration of
the Rights was extended; (iii) a so-called "flip-in" feature and exchange
feature was added; (iv) certain exemptions were added permitting certain
acquisitions and the continued holding of common shares by Water Street and
its affiliates in excess of the otherwise specified thresholds; (v) the
redemption price was reduced; and (vi) the amendment provision was
liberalized.
The Rights generally become exercisable 10 days following the announcement
of the acquisition of 20% or more of the outstanding Common Stock by someone
other than the Corporation or one of its employee benefit plans (10% in the
case of an acquisition which the Corporation's Board of Directors determines
to represent a threat of acquisition not in the best interests of the
Corporation's stockholders). When exercisable, each of the Rights entitles
the registered holder to purchase one-hundredth of a share of a junior
participating preferred stock, series C, $1.00 par value per share, at a price
of $35.00 per one-hundredth of a preferred share, subject to adjustment.
In the event that the Corporation is the surviving corporation and the
Common Stock remains outstanding and unchanged in a merger or other business
combination such acquiring party or the acquiring party engages in one of a
number of self-dealing transactions specified in the Rights Agreement, each
holder of a Right other than the acquiring party will thereafter have the
right to receive upon exercise thereof that number of shares of Common Stock
having a market value at the time of such transaction of two times the
exercise price of the Right.
Warrants
On May 6, 1993, a total of 2,602,566 Warrants, in addition to Common Stock,
were issued to holders of certain debt which was converted to equity in the
Restructuring. Upon issuance, each of the Warrants entitled the holder to
purchase one share of Common Stock at a purchase price of $16.14 per share,
subject to adjustment under certain events.
The Warrants are exercisable, subject to applicable securities laws, at any
time prior to May 6, 1998. Each share of Common Stock issued upon exercise of
a Warrant prior to the distribution date as defined in the Rights Agreement
and prior to the redemption or expiration of the Rights will be accompanied by
an attached Right issued under the terms and subject to the conditions of the
Rights Agreement as it may then be in effect.
<PAGE>
Stockholders' Equity
Changes in stockholders' equity are summarized as follows (dollars in
millions):
<TABLE>
<CAPTION>
January 1 Year
through ended
May 6, December 31,
1993 1992
<S> <C> <C>
Common Stock:
Beginning Balance $ 5 $ 5
Reverse Stock Split (4) -
Issuance of New Common Stock 3 -
Ending Balance 4 5
Capital Received in Excess of Par Value:
Beginning Balance 23 24
Restructuring adjustments 444 -
Fresh start accounting adjustment (467) -
Other, net - (1)
Ending Balance - 23
Deferred Currency Translation:
Beginning Balance (8) -
Change during the period 1 (8)
Fresh start accounting adjustment 7 -
Ending Balance - (8)
Reinvested Earnings/(Deficit):
Beginning Balance (1,900) (1,709)
Net earnings/(loss) 1,434 (191)
Fresh start accounting adjustment 467 -
Other, net (1) -
Ending Balance - (1,900)
Total stockholders' equity/(deficit) 4 (1,880)
</TABLE>
As of May 6, 1993, the Corporation held 27,556 shares of $0.10 par value
common stock in treasury. The treasury shares were acquired through the
forfeiture of restricted stock.
Litigation
Information in the following "Litigation" note is as of May 6, 1993. See
"Restructured Company - Notes to Financial Statements - Litigation" note for
current litigation information.
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. As of May 6, 1993, insurers that issued
approximately $100 million of these policies were insolvent. Because U.S.
Gypsum's insurance carriers initially responded to its claims for defense and
indemnification with various theories denying or limiting coverage and the
applicability of their policies, U.S. Gypsum filed a declaratory judgment
action against them in the Circuit Court of Cook County, Illinois on December
29, 1983. (U.S. Gypsum Co. v. Admiral Insurance Co., et al.) (the "Coverage
Action"). U.S. Gypsum alleges in the Coverage Action that the carriers are
obligated to provide indemnification for settlements and judgments and, in
some cases, defense costs incurred by U.S. Gypsum in personal injury and
property damage cases in which it is a defendant. The current defendants are
ten insurance carriers that provided comprehensive general liability insurance
coverage to U.S. Gypsum between the 1940's and 1984. As discussed below,
several carriers have settled all or a portion of the claims in the Coverage
Action.
U.S. Gypsum's aggregate expenditures for all asbestos-related matters,
including property damage, personal injury, insurance coverage litigation and
related expenses, exceeded aggregate insurance payments by $25.8 million in
the year ended December 31, 1992, and by $3.8 million in the period of January
1 through May 6, 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. As of May 6, 1993, U.S. Gypsum was one of many defendants in four
cases that had been certified as class actions and others that requested such
certification. One class action suit is brought on behalf of owners and
operators of all elementary and secondary schools in the United States that
contain or contained friable asbestos-containing material. (In re Asbestos
School Litigation, U.S.D.C., E.D. Pa.) Approximately 1,350 school districts
opted out of the class, some of which have filed or may file separate
lawsuits or are participants in a state court class action involving
approximately 333 school districts in Michigan. (Board of Education of the
City of Detroit, et al. v. The Celotex Corp., et al., Cir. Ct. for Wayne
County, Mich.) On April 10, 1992, a state court in Philadelphia certified a
class consisting of all owners of buildings leased to the federal government.
(Prince George Center, Inc. v. U.S. Gypsum Co., et al., Ct. of Common Pleas,
Philadelphia, Pa.) On September 4, 1992, a Federal district court in South
Carolina conditionally certified a class comprised of all colleges and
universities in the United States, which certification is presently limited to
the resolution of certain allegedly "common" liability issues. (Central
Wesleyan College, v. W.R. Grace & Co., et al., U.S.D.C., S.C.). On December
23, 1992, a case was filed in state court in South Carolina purporting to be a
"voluntary" class action on behalf of owners of all buildings containing
certain types of asbestos-containing products manufactured by the nine named
defendants, including U.S. Gypsum, other than buildings owned by the federal
or state governments, single family residences, or buildings at issue in the
four above described class actions (Anderson County Hospital v. W.R. Grace &
Co., et al., Court of Common Pleas, Hampton Co., S.C. (the "Anderson Case").
On January 14, 1993, the plaintiff filed an amended complaint that added a
number of defendants, including the Corporation. The amended complaint
alleges, among other things, that the guarantees executed by U.S. Gypsum in
connection with the 1988 Recapitalization, as well as subsequent distributions
of cash from U.S. Gypsum to the Corporation, rendered U.S. Gypsum insolvent
and constitute a fraudulent conveyance. The suit seeks to set aside the
guarantees and recover the value of the cash flow "diverted" from U.S. Gypsum
to the Corporation in an amount to be determined. This case has not been
certified as a class action and no other threshold issues, including whether
the South Carolina Courts have personal jurisdiction over the Corporation,
had been decided as of May 6, 1993. 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 May 6, 1993, 67 Property Damage Cases were pending against U.S.
Gypsum; however, the number of buildings involved is greater than the number
of cases because many of these cases, including the class actions referred to
above, involve multiple buildings. Approximately 40 property damage claims
were threatened against U.S. Gypsum.
In total, as of May 6, 1993, U.S. Gypsum had settled property damage claims
of approximately 187 plaintiffs involved in approximately 71 cases. Twenty-
two cases had been tried to verdict, 13 of which were won by U.S. Gypsum and 7
lost; two other cases, one won at the trial level and one lost, were settled
after appeals. Appeals were pending in 4 of the tried cases. In the cases
lost, compensatory damage awards against U.S. Gypsum totaled $12.5 million.
Punitive damages totaling $5.5 million were entered against U.S. Gypsum in
four trials. Two of the punitive damage awards, totaling $1.45 million, were
paid after appeals were exhausted; a third was settled after the verdict was
reversed on appeal. As of May 6, 1993, the remaining punitive award was on
appeal.
In 1991, 13 new Property Damage Cases were filed against U.S. Gypsum, 11
were dismissed before trial, 8 were settled, 2 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. In 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 the
period of January 1 through May 6, 1993, no new Property Damage Cases were
filed against U.S. Gypsum, 2 were dismissed before trial, 7 were settled, and
67 were pending at the end of the period. U.S. Gypsum expended $7.0 million
for the defense and resolution of Property Damage Cases and received insurance
payments of $3.7 million in the period.
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 57,645 claimants pending as of May 6,
1993. All asbestos bodily injury claims pending in the federal courts,
including approximately one-third of the Personal Injury Cases pending against
U.S. Gypsum, have been consolidated in the United States District Court for
the Eastern District of Pennsylvania.
U.S. Gypsum is a member, together with 19 other former producers of
asbestos-containing products, of the Center for Claims Resolution (the
"Center"). The Center has assumed the handling, including the defense and
settlement, of all Personal Injury Cases pending against U.S. Gypsum and the
other members of the Center. Each member of the Center is assessed a portion
of the liability and defense costs of the Center for the Personal Injury Cases
handled by the Center, according to predetermined allocation formulas. Five
of U.S. Gypsum's insurance carriers that in 1985 signed an Agreement
Concerning Asbestos-Related Claims (the "Wellington Agreement") are supporting
insurers (the "Supporting Insurers") of the Center. The Supporting Insurers
are obligated to provide coverage for the defense and indemnity costs of the
Center's members pursuant to the coverage provisions in the Wellington
Agreement. Claims for punitive damages are defended but not paid by the
Center; if punitive damages are recovered, insurance coverage may be available
under the Wellington Agreement depending on the terms of particular
policies and applicable state law. Punitive damages have not been awarded
against U.S. Gypsum in any of the Personal Injury Cases. Virtually all of
U.S. Gypsum's personal injury liability and defense costs are paid by those of
its insurance carriers that are Supporting Insurers. The Supporting Insurers
provided approximately $350 million of the total coverage referred to above.
On January 15, 1993, U.S. Gypsum and the other members of the Center were
named as defendants in a class action filed in the U.S. District Court for the
Eastern District Pennsylvania (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 and 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, which was awaiting court approval as
of May 6, 1993, will implement for all future Personal Injury Cases, except as
noted below, an administrative compensation system to replace judicial claims
against the defendants, and will provide fair and adequate compensation to
future claimants who can demonstrate exposure to asbestos-containing products
manufactured by the defendants and the presence of an asbestos-related
disease. Class members will be given the opportunity to "opt out," or elect
to be excluded from the settlement, although the defendants reserve the right
to withdraw from the settlement if the number of opt outs is, in their sole
judgment, excessive. In addition, in each year a limited number of claimants
will have certain rights to prosecute their claims for compensatory (but not
punitive) damages in court in the event they reject compensation offered by
the administrative processing of their claim.
The Center members, including U.S. Gypsum, have instituted proceedings
against those of their insurance carriers that had not consented to support
the settlement, seeking a declaratory judgment that the settlement is
reasonable and, therefore, that the carriers are obligated to fund their
portion of it. Consummation of the settlement is contingent upon, among other
things, court approval of the settlement and a favorable ruling in the
declaratory judgment proceedings against the non-consenting insurers. It is
anticipated that appeals will follow the district court's ruling on the
fairness and reasonableness of the settlement.
Each of the defendants has committed to fund a defined portion of the
settlement, up to a stated maximum amount, over the initial ten-year period of
the agreement (which is automatically extended unless terminated by the
defendants). Taking into account the provisions of the settlement agreement
concerning the 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 $13
million or less is expected to be paid by U.S. Gypsum's insurance carriers.
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. In the period of January
1 through May 6, 1993, approximately 8,700 Personal Injury Cases were filed
against U.S. Gypsum and approximately 5,300 were settled or dismissed. U.S.
Gypsum incurred expenses of $10.9 million in the period with respect to
Personal Injury Cases of which $10.8 million was paid by insurance. As of May
6, 1993, December 31, 1992 and December 31, 1991, approximately 58,000, 54,000
and 43,000 Personal Injury Cases were outstanding against U.S. Gypsum,
respectively.
As of May 6, 1993, U.S. Gypsum's average settlement cost for Personal
Injury Cases over the past three years was approximately $1,350 per claim,
exclusive of defense costs. Management anticipated that its average
settlement cost was likely to increase due to such factors as the possible
insolvency of co-defendants, although this increase might be offset to some
extent by other factors, including the possibility for block settlements of
large numbers of cases and the apparent increase in the percentage of
asbestos personal injury cases that appear to have been brought by individuals
with little or no physical impairment. In management's opinion, based
primarily upon U.S. Gypsum's experience in the Personal Injury Cases disposed
of and taking into consideration a number of uncertainties, it was probable
that asbestos-related Personal Injury Cases pending against U.S. Gypsum as of
December 31, 1992, could have been disposed of for an amount estimated to be
between $80 million and $100 million, including both indemnity costs and legal
fees and expenses. The estimated cost of resolving pending claims takes into
account, among other factors, (i) an increase in the number of pending claims;
(ii) the settlements of certain large blocks of claims for higher per-case
averages than have historically been paid; and (iii) a slight increase in U.S.
Gypsum's historical settlement average. No accrual was recorded for this
amount because, pursuant to the Wellington Agreement, U.S. Gypsum's Supporting
Insurers are obligated to pay these costs.
Assuming that the Georgine class action settlement referred to above is
approved substantially in its current form, management estimated, based on
assumptions supplied by the Center, U.S. Gypsum's maximum total exposure as of
May 6, 1993 in Personal Injury Cases during the next ten years (the initial
term of the agreement), including liability for pending claims, claims
resolved as part of the class action settlement, and opt out claims, as well
as defense costs and other expenses, at approximately $271 million, of which
at least $254 million was 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 could not 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 appealed the court's ruling with
respect to the policy years available to cover particular claims, and the
carriers appealed most other aspects of the court's ruling.
U.S. Gypsum's experience in the Property Damage Cases suggests that "first
discovery" dates in the eight cases referred to above (1978 through 1985) are
likely to be typical of most pending cases. U.S. Gypsum's total insurance
coverage for the years 1978 through 1984 totals approximately $350 million
(after subtracting insolvencies and discounts given to settling carriers).
However, some pending cases, as well as some cases filed in the future, may be
found to have first discovery dates later than August 1, 1984, after which
U.S. Gypsum's insurance policies did not provide coverage for asbestos-related
claims. In addition, as described below, the first layer excess carrier for
the years 1980 through 1984 is insolvent and U.S. Gypsum may be required to
pay amounts otherwise covered by those and other insolvent policies.
Accordingly, if the court's ruling is affirmed, U.S. Gypsum will likely be
required to bear a portion of the cost of the property damage litigation.
Eight carriers, including two of the Supporting Insurers, settled U.S.
Gypsum's claims for both property damage and personal injury coverage and were
dismissed from the Coverage Action entirely. Four of these carriers 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, 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, 1992, carriers providing a
total of approximately $97 million of unexhausted insurance had agreed,
subject to the terms of the various settlement agreements, to cover both
Personal Injury Cases and Property Damage Cases. Carriers providing an
additional $276 million of coverage that was unexhausted as of December 31,
1992 had agreed to cover Personal Injury Cases under the Wellington Agreement,
but continued to contest coverage for Property Damage Cases and remained
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.
As of May 6, 1993, insolvency proceedings had been instituted against four
of U.S. Gypsum's insurance carriers. Midland Insurance Company, declared
insolvent in 1986, provided excess insurance ($4 million excess of $1 million
excess of $500,000 primary in each policy year) from February 15, 1975 to
February 15, 1978; Transit Casualty Company, declared insolvent in 1985,
provided excess insurance ($15 million excess of $1 million primary in each
policy year) from August 1, 1980 to December 31, 1985; Integrity Insurance
Company, declared insolvent in 1986, provided excess insurance ($10 million
quota share of $25 million excess of $90 million) from August 1, 1983 to July
31, 1984; and American Mutual Insurance Company, declared insolvent in 1989,
provided the primary layer of insurance ($500,000 per year) from February 1,
1963 to April 15, 1971. It is possible that U.S. Gypsum will be required to
pay a presently indeterminable portion of the costs that would otherwise have
been covered by these policies.
It is not possible to predict the number of additional lawsuits alleging
asbestos-related claims that may be filed against U.S. Gypsum. The number of
Personal Injury Claims pending against U.S. Gypsum has increased in each of
the last several years. In addition, many Property Damage Cases are still at
an early stage and the potential liability therefrom is consequently
uncertain. In view of the limited insurance funding currently available for
the Property Damage Cases resulting from the continued resistance by a number
of U.S. Gypsum's insurers to providing coverage, the effect of the asbestos
litigation on the Corporation will depend upon a variety of factors, including
the damages sought in the Property Damage Cases that reach trial prior to the
completion of the Coverage Action, U.S. Gypsum's ability to successfully
defend or settle such cases, and the resolution of the Coverage Action. As a
result, as of May 6, 1993, management was unable to determine whether an
adverse outcome in the asbestos litigation would have a material adverse
effect on the results of operations or the consolidated financial position of
the Corporation.
Environmental Litigation
The Corporation and certain of its subsidiaries had 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.
Industry and Geographic Segments
Transactions between geographic areas are accounted for on an
"arm's-length" basis. No single customer accounted for 4% or more of
consolidated net sales. Export sales to foreign unaffiliated customers
represent less than 10% of consolidated net sales.
Intrasegment and intersegment eliminations largely reflect intercompany
sales. Segment operating profit/(loss) includes all costs and expenses
directly related to the segment involved and an allocation of expenses which
benefit more than one segment.
<PAGE>
Variations in the levels of corporate identifiable assets primarily reflect
fluctuations in the levels of cash and cash equivalents. Restricted cash of
$88 million, which represents the proceeds from the 1991 sale of DAP Inc.,
formerly a wholly owned subsidiary of the Corporation, is included in
corporate identifiable assets for 1992. Information shown in the following
tables has been restated to conform to the Corporation's current industry
segment organization.
<PAGE>
<TABLE>
<CAPTION>
Operating Depreciation
January 1 through May 6, 1993 Net Profit/ Depletion and Capital Identifiable
Industry Segments Sales (Loss) Amortization Expenditures Assets
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
North American Gypsum:
U.S. Gypsum $ 297 $ 29 $ 10 $ 6 $ 964
CGC (gypsum division) 30 2 1 1 165
Other subsidiaries 24 6 2 - 60
Eliminations (20) - - - -
Total Gypsum Products 331 37 13 7 1,189
Building Products Distribution 156 (1) 1 1 118
Eliminations (49) - - - (22)
Total North American Gypsum 438 36 14 8 1,285
Worldwide Ceilings:
USG Interiors 115 10 5 2 558
USG International 59 1 1 2 204
CGC (interiors division) 11 2 - - 9
Eliminations (12) - - - -
Total Worldwide Ceilings 173 13 6 4 771
Corporate - (11) 2 - 139
Eliminations (20) - - - (1)
Total USG Corporation 591 38 22 12 2,194
Geographic Segments
United States $ 507 $ 28 $ 18 $ 9 $1,776
Canada 48 4 2 1 198
Other Foreign 65 6 2 2 221
Transfers between geographic areas (29) - - - (1)
Total USG Corporation 591 38 22 12 2,194
</TABLE>
<PAGE>
<TABLE>
Operating Depreciation
Year ended December 31, 1992 Net Profit/ Depletion and Capital Identifiable
Industry Segments Sales (Loss) Amortization Expenditures Assets
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
North American Gypsum:
U.S. Gypsum $ 871 $ 70 $ 31 $ 25 $ 653
CGC (gypsum division) 92 - 3 3 67
Other subsidiaries 77 17 4 3 57
Eliminations (66) - - - -
Total Gypsum Products 974 87 38 31 777
Building Products Distribution 464 3 2 3 98
Eliminations (142) - - - (22)
Total North American Gypsum 1,296 90 40 34 853
Worldwide Ceilings:
USG Interiors 354 35 12 11 256
USG International 189 - 5 3 125
CGC (interiors division) 33 4 1 - 8
Eliminations (35) - - - -
Total Worldwide Ceilings 541 39 18 14 389
Corporate - (30) 8 1 423
Eliminations (60) - - - (6)
Total USG Corporation 1,777 99 66 49 1,659
Geographic Segments
United States $1,505 $ 76 $ 53 $ 40 $1,423
Canada 149 7 7 6 96
Other Foreign 208 16 6 3 140
Transfers between geographic areas (85) - - - -
Total USG Corporation 1,777 99 66 49 1,659
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
January 1 Year
through ended
May 6 December 31,
Transfers Between Geographic Areas 1993 1992
(Dollars in millions)
<S> <C> <C>
United States $ 13 $ 35
Canada 8 23
Other Foreign 8 27
Total 29 85
</TABLE>
Subsidiary Debt Guarantees
As of May 6, 1993, $340 million aggregate principal amount of Senior 2002
Notes were outstanding. Each of U.S. Gypsum, USG Industries, Inc., USG
Interiors, USG Foreign Investments, Ltd., 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, both the obligations of the Corporation under the
Credit Agreement and the Senior 2002 Notes. The Combined Guarantors are
jointly and severally liable under these guarantees (the "Subsidiary
Guarantees"). Holders of 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 Senior 2002
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 Senior 2002 Notes remain unpaid. The
liability of each of the Combined Guarantors on its guarantee is limited to
the greater of (i) 95% of the lowest amount, calculated as of July 13, 1988,
sufficient to render the guarantor insolvent, leave the guarantor with
unreasonably small capital or leave the guarantor unable to pay its debts as
they become due (each as defined under applicable law) and (ii) the same
amount, calculated as of the date any demand for payment under such guarantee
is made, in each case plus collection costs. The guarantees are senior
obligations of the applicable guarantor and rank pari passu with all
unsubordinated obligations of the guarantor.
Subsidiaries other than the Combined Guarantors (the "Combined Non-
Guarantors"), substantially all of which are subsidiaries of Guarantors,
primarily included, as of May 6, 1993, CGC, Gypsum Transportation Limited, USG
Canadian Mining Ltd. and the Corporation's Mexican, European and Pacific
subsidiaries. The long-term debt of the Combined Non-Guarantors of $28
million as of May 6, 1993 has restrictive covenants that restrict, among other
things, the payment of dividends.
The following condensed consolidating information presents:
(i) Condensed financial statements as of May 6, 1993 and for the
period of January 1 through May 6, 1993, and the year ended
December 31, 1992: (a) the Corporation on a parent company
only basis (the "Parent Company," which was the only entity
of the Corporation included in the bankruptcy proceeding);
(b) the Combined Guarantors; (c) the Combined Non-Guarantors;
and (d) the Corporation on a consolidated basis. Due to the
Restructuring and implementation of fresh start accounting,
the financial statements for the restructured company
(periods after May 6, 1993) are not comparable to those of
the predecessor company. Except for the following condensed
financial statements, separate financial information with
respect to the Combined Guarantors is omitted as such
separate financial information is not deemed material to
investors.
(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>
USG CORPORATION
(Predecessor Company)
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
(Dollars in millions)
<TABLE>
<CAPTION>
Combined
Parent Combined Non-
Company Guarantors Guarantors Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
January 1 through May 6, 1993
Net sales $ - $ 501 $ 113 $ (23) $ 591
Gross profit 1 84 24 - 109
Operating profit/(loss) (11) 39 10 - 38
Equity in net earnings of the
subsidiaries (751) (169) - 920 -
Interest expense, net 80 3 1 - 84
Corporate service charge (92) 92 - - -
Other expense 1 5 - - 6
Reorganization items 53 (597) (165) - (709)
Earnings before taxes on income,
extraordinary gain and changes
in accounting principles 698 705 174 (920) 657
Taxes on income/(income
tax benefit) 37 (24) 4 - 17
Earnings before extraordinary
gain and changes in
accounting principles 661 729 170 (920) 640
Extraordinary gain, net
of taxes 944 - - - 944
Cumulative effect of changes in
accounting principles (171) 22 (1) - (150)
Net earnings 1,434 751 169 (920) 1,434
Year ended December 31, 1992
Net sales $ - $ 1,503 $ 359 $ (85) $1,777
Gross profit/(loss) (2) 251 68 - 317
Operating profit/(loss) (30) 105 24 - 99
Equity in net (earnings)/loss of
the subsidiaries 230 (17) - (213) -
Interest expense, net 310 10 2 - 322
Corporate service charge (340) 340 - - -
Other expense/(income) (73) 75 (1) - 1
Earnings/(loss) before taxes
on income (157) (303) 23 213 (224)
Taxes on income/(income
tax benefit) 34 (73) 6 - (33)
Net earnings/(loss) (191) (230) 17 213 (191)
</TABLE>
<PAGE>
USG CORPORATION
(Predecessor Company)
CONDENSED CONSOLIDATING BALANCE SHEET
(Dollars in millions)
<TABLE>
<CAPTION>
Combined
Parent Combined Non-
Company Guarantors Guarantors Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
As of May 6, 1993
Cash and cash equivalents $ 24 $ (7) $ 32 $ - $ 49
Receivables, net 55 236 49 (25) 315
Inventories - 111 39 (2) 148
Total current assets 79 340 120 (27) 512
Property, plant and equipment,
net 22 628 117 - 767
Investment in subsidiaries 1,823 312 - (2,135) -
Excess reorganization value - 671 180 - 851
Other assets (103) 159 5 3 64
Total assets 1,821 2,110 422 (2,159) 2,194
Accounts payable and
accrued expenses $ 176 $ 76 $ 52 $ (24) $ 280
Notes payable and long-term
debt maturing within one year 3 1 11 - 15
Total current liabilities 179 77 63 (24) 295
Long-term debt 1,371 47 28 - 1,446
Deferred income taxes - 155 15 - 170
Other liabilities 267 8 4 - 279
Common stock 4 1 6 (7) 4
Capital received in excess
of par value - 1,678 306 (1,984) -
Deferred currency translation - - - - -
Reinvested earnings - 144 - (144) -
Total stockholders' equity 4 1,823 312 (2,135) 4
Total liabilities and
stockholders' equity 1,821 2,110 422 (2,159) 2,194
</TABLE>
<PAGE>
USG CORPORATION
(Predecessor Company)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(Dollars in millions)
<TABLE>
<CAPTION>
Combined
Parent Combined Non-
Company Guarantors Guarantors Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
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) - -
(Increase)/decrease in restricted
assets 44 (12) - - 32
Net cash transfers (to)/from
Corporate 9 (9) - - -
Net cash flows (to)/from financing
activities 55 (161) 1 - (105)
Net decrease in cash & equivalents (35) (94) (2) - (131)
Cash and cash equivalents -
beginning 59 87 34 - 180
Cash and cash equivalents - end 24 (7) 32 - 49
Year ended December 31, 1992
Net cash flows (to)/from operating
activities $ (93) $ 117 $ 66 $ - $ 90
Capital expenditures (1) (39) (9) - (49)
Net proceeds from asset
dispositions - 2 4 - 6
Net cash flows to investing
activities (1) (37) (5) - (43)
Issuance of debt - - 57 - 57
Repayment of debt (4) (2) (69) - (75)
Cash dividends (paid)/received - 56 (56) - -
Increase in restricted assets - (4) - - (4)
Net cash transfers (to)/from
Corporate 121 (121) - - -
Net cash flows (to)/from financing
activities 117 (71) (68) - (22)
Net increase/(decrease) in cash &
equivalents 23 9 (7) - 25
Cash and cash equivalents -
beginning 36 78 41 - 155
Cash and cash equivalents - end 59 87 34 - 180
</TABLE>
<PAGE>
USG CORPORATION
MANAGEMENT REPORT
Management is responsible for the preparation and integrity of the
financial statements and related notes included herein. These statements have
been prepared in accordance with generally accepted accounting principles and,
of necessity, include some amounts that are based on management's best
estimates and judgments.
The Corporation's accounting systems include internal controls designed to
provide reasonable assurance of the reliability of its financial records and
the proper safeguarding and use of its assets. Such controls are based on
established policies and procedures, are implemented by trained personnel, and
are monitored through an internal audit program. The Corporation's policies
and procedures prescribe that the Corporation and its subsidiaries are to
maintain ethical standards and that its business practices are to be
consistent with those standards.
The Audit Committee of the Board, consisting solely of outside Directors of
the Corporation, maintains an ongoing appraisal, on behalf of the
stockholders, of the effectiveness of the independent auditors and management
with respect to the preparation of financial statements, the adequacy of
internal controls and the Corporation's accounting policies.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board
of Directors of USG Corporation:
We have audited the accompanying consolidated balance sheet of USG
Corporation (Predecessor Company), a Delaware corporation, and subsidiaries as
of May 6, 1993 and the related consolidated statements of earnings and cash
flows for the period of January 1 through May 6, 1993 and for the year ended
December 31, 1992. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed in Notes to Financial Statements - "Financial Restructuring"
note, on May 6, 1993, the Corporation completed a comprehensive financial
restructuring through the implementation of a prepackaged plan of
reorganization under Chapter 11 of the United States Bankruptcy Code and
applied fresh start accounting. The restructuring resulted in an
extraordinary gain of $944 million, primarily from the exchange of debt, and
fresh start accounting resulted in a $709 million gain, primarily from
revaluing assets and liabilities to reflect reorganization value. These one-
time credits to income were recorded as of May 6, 1993 by the Predecessor
Company. As such, results of operations through May 6, 1993 (Predecessor
Company) are not comparable with results of operations subsequent to that
date.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of USG Corporation and
subsidiaries as of May 6, 1993 and the results of their operations and their
cash flows for the period of January 1 through May 6, 1993 and for the year
ended December 31, 1992, in conformity with generally accepted accounting
principles.
As discussed in Notes to Financial Statements - "Litigation" note, 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 Notes to Financial Statements - "Cumulative Effect of
Changes in Accounting Principles" note, on January 1, 1993 the Corporation
changed its method of accounting for postretirement benefits other than
pensions and accounting for income taxes.
/s/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 31, 1994
<PAGE>
USG CORPORATION
(Predecessor Company)
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in millions)
<TABLE>
<CAPTION>
Provision Receivables
Charged to Written Off
Beginning Costs and and Discounts Ending
Balance Expenses Allowed Balance
<S> <C> <C> <C> <C>
January 1 through May 6, 1993
Doubtful accounts $ 9 $ 3 $ (1) $ 11
Cash discounts 2 8 (8) 2
Year ended December 31, 1992
Doubtful accounts 7 7 (5) 9
Cash discounts 2 24 (24) 2
</TABLE>
<PAGE>
USG CORPORATION
(Predecessor Company)
SUPPLEMENTAL NOTE ON FINANCIAL INFORMATION FOR
UNITED STATES GYPSUM COMPANY
(A SUBSIDIARY OF USG CORPORATION)
USG Corporation, a holding company, owns several operating subsidiaries,
including U.S. Gypsum. On January 1, 1985, all of the issued and outstanding
shares of stock of U.S. Gypsum were converted into shares of USG Corporation
and the holding company became a joint and several obligor for certain
debentures originally issued by U.S. Gypsum. As of May 6, 1993, debentures
totaling $41 million were recorded on the holding company's books of account.
Financial results for U.S. Gypsum are presented below in accordance with
disclosure requirements of the SEC (dollars in millions):
<TABLE>
Summary Statement of Earnings
<CAPTION>
January 1 Year
through ended
May 6, December 31,
1993 1992
<S> <C> <C>
Net sales $ 297 $ 871
Cost and expenses 268 801
Operating profit 29 70
Interest expense, net - 2
Other income, net - (2)
Corporate charges 52 188
Reorganization items (295) -
Earnings/(loss) before income tax benefit and
change in accounting principle 272 (118)
Income tax benefit (11) (44)
Earnings/(loss) before change in accounting principle 283 (74)
Cumulative effect of change in accounting principle 28 -
Net earnings/(loss) 311 (74)
</TABLE>
<PAGE>
<TABLE>
Summary Balance Sheet
<CAPTION>
As of
May 6,
1993
<S> <C>
Current assets $ 183
Property, plant and equipment, net 486
Excess reorganization value 306
Other assets 9
Total assets 984
Current liabilities $ 33
Other liabilities and obligations 154
Stockholder's equity 797
Total liabilities and stockholder's equity 984
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
WITH RESPECT TO SUPPLEMENTAL NOTE AND FINANCIAL STATEMENT SCHEDULE
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of USG Corporation (Predecessor Company)
included in this Form 10-K, and have issued our report thereon dated January
26, 1995. Our report on the consolidated financial statements includes an
explanatory paragraph with respect to the asbestos litigation as discussed in
Notes to the Financial Statements - "Litigation" note. Our report on the
consolidated financial statements also includes an explanatory paragraph with
respect to the changes in the methods of accounting for postretirement
benefits other than pensions and accounting for income taxes as discussed in
Notes to Financial Statements - "Cumulative Effect of Changes in Accounting
Principles" note. Our audits were made for the purpose of forming an opinion
on the consolidated financial statements taken as a whole. The supplemental
note and financial statement schedule on pages 81 and 82 are the
responsibility of the Corporation's management and are presented for purposes
of complying with the Securities and Exchange Commission's rules and are not
part of the consolidated financial statements. The supplemental note and
financial statement schedule have been subjected to the auditing procedures
applied in the audits of the consolidated financial statements and, in our
opinion, fairly state in all material respects the financial data required to
be set forth therein in relation to the consolidated financial statements
taken as a whole.
/s/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 31, 1994
<PAGE>
USG CORPORATION
SELECTED QUARTERLY FINANCIAL DATA (a) (unaudited)
(Dollars in millions, except per share data)
<TABLE>
<CAPTION>
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
<S> <C> <C> <C> <C> <C>
1994
Net sales $ 506 $ 562 $ 621 $ 601 $ 2,290
Gross profit (b) 110 133 153 121 517
Operating profit (b) (c) 11 32 47 14 104
Net (loss) (b) (c) (34) (17) (6) (35) (92)
Per common share:
Net loss (d) (0.87) (0.38) (0.13) (0.79) (2.14)
Price range (e) - high 36 32 1/4 24 1/2 21 3/4 36
low 27 1/2 17 3/4 18 3/8 17 1/4 17 1/4
EBITDA 66 87 105 67 325
April 1 May 7
First through through Third Fourth
Quarter May 6 June 30 Quarter Quarter
1993
Net sales $ 436 $ 155 $ 315 $ 514 $ 496
Gross profit 79 30 63 105 95
Operating profit/(loss) (c) 27 11 (1) 6 (4)
Net earnings/(loss) (c) (f) (279) 1,713 (21) (25) (83)
Per common share (g):
Net loss - - (0.57) (0.66) (2.23)
Price range (e) - high - - 14 22 5/8 30 1/2
low - - 9 5/8 13 20 1/4
EBITDA 46 17 37 65 53
(a) Due to the Restructuring and implementation of fresh start accounting, the financial statements
effective May 7, 1993 for the Restructured Company are not comparable to financial statements prior to
that date for the Predecessor Company.
(b) Fourth quarter 1994 gross profit, operating profit and net loss reflect a $30 million pre-tax charge
($17 million after-tax) to cost of sales for asbestos litigation settlements. Fourth quarter 1994 net
loss also reflects a $16 million pre-tax charge ($9 million after-tax) for the write-off of
reorganization debt discount.
(c) Effective May 7, 1993, the Corporation began amortizing its excess reorganization value which reduced
operating profit and net earnings. This non-cash amortization amounted to $42 million, $42 million,
$43 million and $42 million in the first through fourth quarters of 1994, respectively. For the
period of May 7 through June 30 and the third and fourth quarters of 1993, amortization of excess
reorganization value amounted to $28 million, $43 million and $42 million, respectively.
(d) As a result of common shares issued in the first quarter of 1994, the sum of the losses per common
share for the four quarters of 1994, which are based on average shares outstanding during each
quarter, does not equal the loss per common share for the year ended December 31, 1994, which is based
on the average shares outstanding during the year.
(e) Stock price ranges are for transactions on the New York Stock Exchange (trading symbol USG), which is
the principal market for these securities. Stockholders of record as of January 31, 1995: Common -
6,072; Preferred - none.
(f) First quarter 1993 net loss reflects a one-time after-tax net charge of $150 million for the
cumulative effect of changes in accounting principles and a pre-tax reorganization items expense of
$69 million. Net earnings in the period of April 1 through May 6, 1993 include a one-time pre-tax
reorganization items gain of $778 million and a one-time after-tax extraordinary gain of $944 million,
both of which were associated with the Restructuring. Net loss in the fourth quarter of 1993 includes
an after-tax extraordinary loss of $21 million related to the Corporation's 1994 Equity Offering and
Note Placement.
(g) Per-share information for periods prior to May 7, 1993 is omitted because, due to the Restructuring
and implementation of fresh start accounting, it is not meaningful.
</TABLE>
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
A Form 8-K reporting a change of accountants has not been filed within 24
months prior to the date of the most recent financial statements.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information about directors has been omitted from this report as it will
be filed with the SEC in a definitive proxy statement pursuant to Regulation
14A, which definitive proxy statement is incorporated herein by reference.
Executive Officers of the Registrant (as of February 1, 1995 except as
specified otherwise)
Has Held
Present
Name, Age Prior Business Experience Position
and Present Position in Past Five Years Since
Eugene B. Connolly, 62 President and Chief January 1994
Chairman and Chief Executive Officer to
Executive Officer May 1990; Chairman of
the Board and Chief
Executive Officer to
March 1993; Chairman,
President and Chief
Executive Officer to
January 1994.
William C. Foote, 43 Senior Vice President January 1994
President and Chief and General Manager
Operating Officer Products Central
Construction Products
Region, United States
Gypsum Company to
November 1990;
Executive Vice President
and Chief Operating
Officer, L&W Supply
Corporation to September
1991; President and
Chief Executive Officer,
L&W Supply Corporation
from September 1991 to
January 1994; President
and Chief Executive
Officer, USG Interiors,
Inc. from January 1993
to January 1994.
J. Bradford James, 48 Director, Corporate January 1995
Group Vice President, Strategic Planning USG
Worldwide Ceilings & Corporation and Vice
International; President, Finance
President and Chief & Administration, USG
Executive Officer USG Interiors,Inc. to
Interiors,Inc. January 1990; Vice
President, Financial
and Strategic Plan-
ning, USG Corporation
to January 1991; Vice
President and Chief
Financial Officer, USG
Corporation to March
1993; Senior Vice Pres-
ident and Chief Financial
Officer, USG Corporation
to January 1994; Vice
President, USG Corpor-
ation, President and
Chief Executive Officer,
USG Interiors, Inc. to
January 1995.
Donald E. Roller, 57 President and Chief January 1995
Group Vice President, Executive Officer, USG
North American Gypsum; Interiors, Inc. to January
President and Chief 1993; Vice President, USG
Executive Officer, Corporation, President and
United States Gypsum Chief Executive Officer,
Company United States Gypsum
Company to January 1995.
Richard H. Fleming, 47 Director, Corporate January 1995
Senior Vice President Finance, to January 1991;
and Chief Vice President and
Financial Officer Treasurer to January 1994;
Vice President and Chief
Financial Office to January
1995.
Arthur G. Leisten, 53 Vice President and General February 1994
Senior Vice President Counsel to January 1990;
and General Counsel Senior Vice President and
General Counsel to March
1993; Senior Vice Presi-
dent, General Counsel and
Secretary to February 1994.
P. Jack O'Bryan, 59 President and Chief August 1994
Senior Vice President, Executive Officer, United
Worldwide Manufacturing States Gypsum Company to
and Technology January 1993; Senior Vice
President and Chief Tech-
nology Officer, USG
Corporation to August 1994.
Harold E. Pendexter, Jr., 60 Vice President, Human January 1991
Senior Vice President Resources and Administration
and Chief Administrative to January 1990; Senior
Officer Vice President, Human Re-
sources and Administration
to January 1991.
Raymond T. Belz, 54 Vice President Finance, January, 1995
Vice President and United States Gypsum
Controller; Vice Company to November 1990;
President and Chief Vice President Financial
Financial Officer, Services and Financial
North American Gypsum Administration, United
States Gypsum Company to
January 1994; Vice Pres-
ident and Controller, USG
Corporation, Vice President
Financial Services, United
States Gypsum Company to
January 1995.
Brian W. Burrows, 55 Same position. March 1987
Vice President, Research
and Development
Matthew P. Gonring, 39 Director, Public Relations March 1993
Vice President, to January 1991; Director,
Corporate Corporate Communications
Communications to March 1993.
John E. Malone, 51 Vice President and Con- January 1994
Vice President and troller, USG Corporation
Treasurer; Vice to December 1993; Vice-
President - Finance, President - Finance, USG
USG International International since March
1993.
James S. Phillips, 65 Vice President, National January 1995
Vice President Accounts to December 1990
Vice President, Corporate
Accounts to January 1995.
Stanley R. Sak, 54 Executive Vice President, January 1994
Vice President; USG Interiors, Inc. to
President and October 1990; President
Chief Executive and Chief Executive Officer,
Officer, USG USG International to
International January 1994; President and
Chief Executive Officer,
CGC Inc., March 1994 to
January 1995
Robert B. Sirgant, 54 Director, Marketing - East January 1995
Vice President, Region, United States
Corporate Accounts Gypsum Company to November
1992; Vice President,
National Accounts and
Marketing - East, United
States Gypsum Company to
July 1994; Vice President,
National Accounts, United
States Gypsum Company to
January 1995.
S. Gary Snodgrass, 43 Director, Corporate Human February 1995
Vice President, Human Resources Planning,
Resources - Operation; USG Corporation and Vice
Vice President, Human President, Human Resources,
Resources, Worldwide USG Interiors, Inc. to
Ceilings November 1990; Director,
Human Resources, USG Corpor-
ation to September 1992;
Vice President, Management
Resources and Employee
Relations to January 1994;
Vice President, Human
Resources - Operations to
February 1995.
Frank R. Wall, 61 Senior Vice President and March 1995
Vice President; General Manager,
President and Western Construction
Chief Executive Products Region, United
Officer, L&W States Gypsum Company
Supply Corporation to January 1990; Senior
Vice President, Operating
Services, United States
Gypsum Company to April
1993; Executive Vice
President and Chief
Operating Officer, L&W
Supply Corporation to
January 1994, President
and Chief Executive Officer,
L&W Supply to March 1995.
Dean H. Goossen, 47 Vice President, General February 1994
Corporate Secretary Counsel and Secretary,
Corporation Xerox Financial Services
Life Insurance Company to
February 1993; Assistant
Secretary, USG to February
1994.
Paul J. Vanderberg, 35 Director, Planning, United January 1995
President and Chief States Gypsum Company to
Executive Officer, February 1990; General
CGC Inc. Manager, Materials Division,
United States Gypsum Company
to February 1992; General
Manager, Durock, United
States Gypsum Company to
March 1994; Director,
Marketing Services and
Planning, United States
Gypsum Company from November
1992 to March 1994; Executive
Vice President and Chief
Operating Officer, CGC
Inc. to January 1995.
Item 11. EXECUTIVE COMPENSATION
The Information required by Item 11 has been omitted from this report as it
will be filed with the SEC in a definitive proxy statement pursuant to
Regulation 14A, which definitive proxy statement is incorporated herein by
reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Information required by Item 12 has been omitted from this report as it
will be filed with the SEC in a definitive proxy statement pursuant to
Regulation 14A, which definitive proxy statement is incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Information required by Item 13 has been omitted from this report as it
will be filed with the SEC in a definitive proxy statement pursuant to
Regulation 14A, which definitive proxy statement is incorporated herein by
reference.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
EXHIBIT INDEX
(a) 1. & 2. Consolidated Financial Statements and Supplemental Financial
Statement Schedules
See Part II, Item 8. "Financial Statements and Supplementary Data" for an
index of the Corporation's consolidated financial statements and supplementary
data schedules.
3. Exhibits (Reg. S-K, Item 601):
Exhibit
No.
3 Articles of incorporation and by-laws:
(a) Restated Certificate of Incorporation of USG Corporation
(incorporated by reference to Exhibit 3.1 of USG
Corporation's Form 8-K, dated May 7, 1993.)
(b) Amended and Restated By-Laws of USG Corporation, dated as of
May 12, 1993 (incorporated by reference to Exhibit 3(b) of
Amendment No. 1 to USG Corporation's Registration Statement
No. 33-61162 on Form S-1, dated June 16, 1993).
4 Instruments defining the rights of security holders, including
indentures:
(a) Indenture dated as of October 1, 1986 between USG
Corporation and Harris Trust and Savings Bank, Trustee
(incorporated by reference to Exhibit 4(a) of USG
Corporation's Registration Statement No. 33-9294 on Form
S-3, dated October 7, 1986).
(b) Resolutions dated December 16, 1986 of a Special Committee
created by the Board of Directors of USG Corporation
(incorporated by reference to Exhibit 4(b) of USG
Corporation's 1993 Annual Report on Form 10-K, dated March
14, 1994).
(c) Resolutions dated March 5, 1987 of a Special Committee
created by the Board of Directors of USG Corporation
(incorporated by reference to Exhibit 4(c) of USG
Corporation's 1993 Annual Report on Form 10-K, dated March
14, 1994).
(d) Resolutions dated March 6, 1987 of a Special Committee
created by the Board of Directors of USG
Corporation(incorporated by reference to Exhibit 4(d) of USG
Corporation's 1993 Annual Report on Form 10-K, dated March
14, 1994).
(e) Consent Resolutions adopted by a Special Committee created
by the Board of Directors of USG Corporation relating to USG
Corporation's 9 1/4% Senior Notes due 2001 (incorporated by
reference to Exhibit 4(f) of USG Corporation's Registration
No. 33-51845 on Form S-1).
(f) Indenture dated as of April 26, 1993 among USG Corporation,
certain guarantors and State Street Bank and Trust Company,
as Trustees, relating to USG Corporation's 10 1/4% Senior
Notes due 2002 (incorporated by reference to Exhibit 4.2 of
USG Corporation's Form 8-K, dated May 7, 1993).
(g) Indenture dated as of August 10, 1993 among USG Corporation,
certain guarantors and State Street Bank and Trust Company,
as Trustee, relating to USG Corporation's 10 1/4% Senior
Notes due 2002, Series B (incorporated by reference to
Exhibit 4(f) of USG Corporation's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993 dated August 12,
1993.
(h) Warrant Agreement dated May 6, 1993 between USG Corporation
and Harris Trust and Savings Bank, as Warrant Agent,
relating to USG Corporation's Warrants (incorporated by
reference to Exhibit 4.3 of USG Corporation's Form 8-K,
dated May 7, 1993).
(i) Form of Warrant Certificate (incorporated by reference to
Exhibit 4(g) of Amendment No. 4 to USG Corporation's
Registration Statement No. 33-40136 on Form S-4, dated
November 12, 1992).
(j) Rights Agreement dated May 6, 1993 between USG Corporation
and Harris Trust and Savings Bank, as Rights Agent
(incorporated by reference to Exhibit 10.1 of USG
Corporation's Form 8-K, dated May 7, 1993).
(k) Form of Common Stock certificate (incorporated by reference
to Exhibit 4.4 to USG Corporation's Form 8-K, dated May 7,
1993).
The Corporation and certain of its consolidated subsidiaries
are parties to long-term debt instruments under which the
total amount of securities authorized does not exceed 10% of
the total assets of the Corporation and its subsidiaries on
a consolidated basis. Pursuant to paragraph (b)(4)(iii)(A)
of Item 601 of Regulation S-K, the Corporation agrees to
furnish a copy of such instruments to the Securities and
Exchange Commission upon request.
10 Material contracts:
(a) Management Performance Plan of USG Corporation (incorporated
by reference to Annex C of Amendment No. 8 to USG
Corporation's Registration Statement No. 33-40136 on Form
S-4, dated February 3, 1993).
(b) Amendment and Restatement of USG Corporation Supplemental
Retirement Plan, effective as of July 1, 1993 and dated
November 30, 1993 (incorporated by reference to Exhibit
10(c) of USG Corporation's Registration No. 33-51845 on Form
S-1).
(c) First Amendment of USG Corporation Supplemental Retirement
Plan, effective as of November 15, 1993 and dated December
2, 1993 (incorporated by reference to Exhibit 10(d) of USG
Corporation's Registration No. 33-51845 on Form S-1).
(d) Termination Compensation Agreements (incorporated by
reference to Exhibit 10(h) of USG Corporation's 1991 Annual
Report on Form 10-K, dated March 5, 1992).
(e) USG Corporation Severance Plan for Key Managers, dated
May 15, 1991 (incorporated by reference to Exhibit 10(i) of
USG Corporation's 1991 Annual Report on Form 10-K, dated
March 5, 1992).
(f) Indemnification Agreements (incorporated by reference to
Exhibit 10(g) of Amendment No. 1 to USG Corporation's
Registration No. 33-51845 on Form S-1).
(g) Form of Change of Control Waiver (incorporated by reference
to Exhibit 10(t) of USG Corporation's 1992 Annual Report on
Form 10-K dated March 26, 1993).
(h) Incentive Recovery Program - Waiver of Full Payment
(incorporated by reference to Exhibit 10(u) of USG
Corporation's 1992 Annual Report on Form 10-K, dated
March 26, 1993).
(i) Amended and Restated Credit Agreement dated as of May 6,
1993 among USG Corporation and USG Interiors, Inc., as
borrowers; the Financial Institutions listed on the
signature pages thereof, as Senior Lenders; Bankers Trust
Company, Chemical Bank and Citibank, N.A., as Agents; and
Citibank, N.A., as Administrative Agent (incorporated by
reference to Exhibit 10.2 of Form 8-K filed by USG
Corporation on May 7, 1993).
(j) First Amendment to Amended and Restated Credit Agreement
(incorporated by reference to Exhibit 4M of USG
Corporation's Registration Statement No. 35-65804 on Form
S-1, dated July 9, 1993).
(k) Second Amendment to Amended and Restated Credit Agreement
(incorporated by reference to 10(n) of Amendment No. 1 to
USG Corporation's Registration No. 33-51845 on Form S-1).
(l) Third Amendment to Amended and Restated Credit Agreement
(incorporated by reference to Exhibit 10 of USG
Corporation's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994 dated August 12, 1994).
(m) Letter of Credit Issuance and Reimbursement Agreement dated
as of May 6, 1993 between USG Interiors, Inc. and Chemical
Bank (incorporated by reference to Exhibit 10.12 of Form 8-K
filed by USG Corporation on May 7, 1993).
(n) Amended and Restated Collateral Trust Agreement dated as of
May 6, 1993 among USG Corporation, USG Interiors, Inc. and
USG Foreign Investments, Ltd., as grantors, and Wilmington
Trust Company and William J. Wade, as Trustees (incorporated
by reference to Exhibit 10.6 of Form 8-K filed by USG
Corporation on May 7, 1993).
(o) Amended and Restated Company Pledge Agreement dated as of
May 6, 1993 among USG Corporation, Wilmington Trust Company
and William J. Wade (incorporated by reference to
Exhibit 10.7 of Form 8-K filed by USG Corporation on May 7,
1993).
(p) Amended and Restated Subsidiary Pledge Agreement dated as of
May 6, 1993 among USG Interiors, Inc., Wilmington Trust
Company and William J. Wade (incorporated by reference to
Exhibit 10.8 of Form 8-K filed by USG Corporation on May 7,
1993).
(q) Amended and Restated Subsidiary Pledge Agreement dated as of
May 6, 1993 among USG Foreign Investments, Ltd., Wilmington
Trust Company and William J. Wade (incorporated by reference
to Exhibit 10.9 of Form 8-K filed by USG Corporation on
May 7, 1993).
(r) Amended and Restated Share Pledge Agreement dated as of
May 6, 1993 among USG Foreign Investments, Ltd., Wilmington
Trust Company and William J. Wade (incorporated by reference
to Exhibit 10.10 of Form 8-K filed by USG Corporation on
May 7, 1993).
(s) Amended and Restated Deed of Charge dated as of May 6, 1993
among USG Foreign Investments, Ltd., Wilmington Trust
Company and William J. Wade (incorporated by reference to
Exhibit 10.11 of Form 8-K filed by USG Corporation on May 7,
1993).
(t) Amended and Restated Company Guaranty dated as of May 6,
1993 made by USG Corporation (incorporated by reference to
Exhibit 10.3 of Form 8-K filed by USG Corporation on May 7,
1993).
(u) Amended and Restated Subsidiary Guaranty dated as of May 6,
1993 made by USG Interiors, Inc. (incorporated by reference
to Exhibit 10.1 of Form 8-K filed by USG Corporation on
May 7, 1993).
(v) Form of Amended and Restated Subsidiary Guaranty dated as of
May 6, 1993 made by each of United States Gypsum Company,
USG Foreign Investments, Ltd., L&W Supply Corporation, USG
Interiors International, Inc., La Mirada Products Co., Inc.,
Westbank Planting Company, American Metals Corporation and
USG Industries, Inc. (incorporated by reference to Exhibit
10.5 of Form 8-K filed by USG Corporation on May 7, 1993).
(w) Consent and Agreement dated as of August 22, 1991 with
respect to the Old Credit Agreement dated as of July 1, 1988
(incorporated by reference to Exhibit 10(ai) of USG
Corporation's Form 8-K, dated August 23, 1991).
(x) First Amendment dated as of March 12, 1993 with respect to
the Consent and Agreement dated as of August 22, 1991
(incorporated by reference to Exhibit 10(ap) of USG
Corporation's 1992 Annual Report on Form 10-K, dated
March 26, 1993).
(y) Deposit Agreement dated as of September 19, 1991
(incorporated by reference to Exhibit 10(aq) of USG
Corporation's 1992 Annual Report on Form 10-K, dated
March 26, 1993).
(z) First Amendment dated as of March 12, 1993 to the Deposit
Agreement (incorporated by reference to Exhibit 10(ar) of
USG Corporation's 1992 Annual Report on Form 10-K, dated
March 26, 1993).
(aa) Agreement, dated August 31, 1992, among USG Corporation and
the Ad Hoc Committee of Holders of 13 1/4% Senior
Subordinated Debentures of USG Corporation due 2000
(incorporated by reference to Exhibit 10(aq) of Amendment
No. 4 to USG Corporation's Registration Statement
No. 33-40136 on Form S-4).
(ab) Letter Agreement dated February 25, 1993 among USG
Corporation, Water Street Corporate Recovery Fund, L.P., the
Goldman Sachs Group, L.P. and Goldman, Sachs & Co.
(incorporated by reference to Exhibit 10(au) of USG
Corporation's 1992 Annual Report on Form 10-K, dated
March 26, 1993).
(ac) Bankruptcy Court Order issued April 23, 1993 confirming USG
Corporation's Prepackaged Plan of Reorganization
(incorporated by reference to Exhibit 28.1 of Form 8-K filed
by USG Corporation on May 7, 1993).
(ad) Consulting Agreement dated July 1, 1990, as amended
March 23, 1992, between USG Corporation and William L. Weiss
(incorporated by reference to Exhibit 10(au) of Amendment
No. 4 to USG Corporation's Registration Statement
No. 33-40136 on Form S-4).
(ae) Consulting Agreement dated August 11, 1993 between USG
Corporation and James W. Cozad (incorporated by reference to
Exhibit 10(aw) in USG Corporation's Registration Statement
33-51845, on Form S-1).
(af) Form of Employment Agreement dated May 12, 1993
(incorporated by reference to Exhibit 10(h) of Amendment
No. 1 to USG Corporation's Registration Statement
No. 33-61152 on Form S-1).
(ag) Amendment of Termination Compensation Agreements
(incorporated by reference to Exhibit 10(j) of Amendment
No. 1 to USG Corporation's Registration Statement
No. 33-61152 on Form S-1).
(ah) Form of Nonqualified Stock Option Agreement (incorporated by
reference to Exhibit 10(l) of Amendment No. 1 on USG
Corporation's Registration Statement No. 33-61152 on Form
S-1).
(ai) Form of First Amendment to Amended and Restated Collateral
Trust Agreement (incorporated by reference to Exhibit 10(w)
of Amendment No. 1 to USG Corporation's Registration
Statement No. 33-61152 on Form S-1).
(aj) Form of First Amendment to Amended and Restated Subsidiary
Guaranty (incorporated by reference to Exhibit 10(ae) of
Amendment No. 2 to USG Corporation's Registration Statement
No. 33-61152 on Form S-1).
(ak) First Amendment to Management Performance Plan, effective
November 15, 1993 and dated February 1, 1994 (incorporated
by reference to Exhibit 10(aq) of Amendment No. 1 of USG
Corporation's Registration Statement No. 33-51845 on Form S-
1).
(al) Modification letter dated February 1, 1994 to Nonqualified
Stock Option Agreement dated June 1, 1993 between USG
Corporation and Eugene B. Connolly (incorporated by
reference to Exhibit 10(ar) of Amendment No. 1 of USG
Corporation's Registration Statement No. 33-51845 on Form
S-1).
(am) 1994 Annual Management Incentive Program - USG Corporation
(an) Letter Agreement dated July 28, 1994 between USG Corporation
and Eugene B. Connolly.
11 Computation of Earnings/(Loss) Per Common Share
22 Subsidiaries
24 Consents of Experts and Counsel
(a) Consent of Arthur Andersen LLP
25 Power of Attorney
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of 1994.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
March 8, 1995
By: /s/ Richard H. Fleming
Richard H. Fleming
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
/s/ Eugene B. Connolly March 8, 1995
EUGENE B. CONNOLLY
Chairman of the Board,
Chief Executive Officer and
Director
(Principal Executive Officer)
/s/ Richard H. Fleming March 8, 1995
RICHARD H. FLEMING
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Raymond T. Belz March 8, 1995
RAYMOND T. BELZ
Vice President and Controller
(Principal Accounting Officer)
ROBERT L. BARNETT, KEITH A. BROWN, ) By:/s/ Richard H. Fleming
W. H. CLARK, JAMES C. COTTING, LAWRENCE ) Richard H. Fleming
M. CRUTCHER, WADE FETZER III, WILLIAM C. ) Attorney-in-fact
FOOTE, DAVID W. FOX, PHILIP C. JACKSON, ) Pursuant to Power of Attorney
JR. MARVIN E. LESSER, JOHN B. SCHWEMM, ) (Exhibit 24 hereto)
JUDITH A. SPRIESER, BARRY L. ZUBROW, ) March 8, 1995
Directors )
EXHIBIT 10(am)
1994 ANNUAL MANAGEMENT INCENTIVE PROGRAM - USG CORPORATION
1994
ANNUAL MANAGEMENT INCENTIVE PROGRAM
USG CORPORATION
<PAGE>
PURPOSE
To enhance USG Corporation's ability to attract, motivate, reward and retain
key employees of the Corporation and its operating subsidiaries and to
strengthen the existing mutuality of interest between such key employees and
the Corporation's stockholders by offering such key employees, who discharge
their accountabilities in a manner which makes a measurable contribution to
the Corporation's earnings, incentive award opportunities.
INTRODUCTION
This Annual Management Incentive Program is in effect from January 1, 1994
through December 31, 1994.
ELIGIBILITY
Individuals eligible for participation in this Program are those officers and
other key employees occupying management positions having 775 or more points
as determined by the Corporation's position evaluation system. Employees who
participate in any other annual incentive program of the Corporation or any of
its subsidiaries are not eligible to participate in this Program.
GOALS
For the 1994 Annual Management Incentive Program, goal income targets for USG
Corporation, Subsidiaries and Profit Centers will be determined by the
Compensation and Organization Committee after considering recommendations
submitted from USG Corporation, Operating Subsidiaries and Profit Centers
respectively. Additionally, cash available for debt paydown targets will be
established. Profit Center goals will be established which are consistent
with Corporate and Operating Subsidiary goals Except in the case of a Named
Executive Officer (as defined in the Administrative Guidelines below), Profit
Center goals may be adjusted by the Chairman & CEO of USG Corporation if
business conditions or other significant unforeseen circumstances beyond the
control of the Profit Center have a major impact on opportunity.
<PAGE>
AWARD VALUES
For the 1994 Annual Management Incentive Program, position par values are
based on level of accountability and are expressed as a percent of approved
position reference point (midpoint). Resulting award opportunities represent
a fully competitive incentive opportunity for 100% (target) achievement of
Corporate, Operating Subsidiary and/or Profit Center goals:
POSITION PAR VALUE
USG CORPORATION
Chairman & CEO - USG Corporation 65% of Reference Point
Vice Chairman - USG Corporation 55% of Reference Point
President & COO - USG Corporation 55% of Reference Point
USG CORPORATION 50% Of Reference Point
Senior Vice President & Chief Technology Officer
Senior Vice President, General Counsel & Secretary
Senior Vice President & Chief Administrative Officer
VICE PRESIDENT, USG CORPORATION;
PRESIDENT & CEO
United States Gypsum Company
USG Interiors, Inc.
USG International, Ltd.
VICE PRESIDENT & CHIEF FINANCIAL OFFICER 45% of Reference Point
USG CORPORATION & OPERATING SUBSIDIARIES 40% of Reference Point
OFFICERS AND MANAGERS
President & CEO, L&W Supply Corporation
President & CEO, CGC, Inc.
Vice President & Treasurer, USG Corporation;
Vice President Finance, USG International, Ltd
Vice President & Controller, USG Corporation;
Vice President Financial Svcs, U.S. Gypsum Co.
Vice President Research
Executive Vice President, USG Interiors, Inc. 35% of Reference Point
Vice President - Manufacturing, U.S. Gypsum Co.
Associate General Counsel, USG Corporation
Vice President Human Resources - Operations, USG Corporation
GENERAL MANAGERS (PROFIT CENTER HEADS)
Sales of $50 Million and over 30% of Reference Point
Sales Under $50 Million 25% of Reference Point
<PAGE>
USG CORPORATION, OPERATING SUBSIDIARIES & PROFIT CENTERS
OFFICERS AND MANAGERS
Position Reference Point: $145,200 and Over 30% of Reference Point
Position Reference Point: $117,900 - $145,199 25% of Reference Point
Position Reference Point: $105,180 - $117,899 20% of Reference Point
Position Reference Point: $ 84,300 - $105,179 15% of Reference Point
Position Reference Point: Below $84,300 10% of Reference Point
AWARDS
Incentive awards for all participants in the 1994 Annual Management Incentive
Program will be reviewed and approved by the Compensation and Organization
Committee of the USG Corporation Board of Directors.
For all participants, the annual incentive award opportunity is the annualized
position reference point (midpoint) in effect at the beginning of the calendar
year multiplied by the applicable position par value percent.
Incentive awards for 1994 will be based on
- Goal income (net sales less cost of sales and selling and
administrative expenses) based on the Corporation's year-end
financial statements.
- Cash available for domestic debt paydown.
- Except in the case of a Named Executive Officer, other appropriate
performance measures as approved by the Compensation and
Organization Committee of the Board of Directors.
1. For participants to qualify for the USG Corporation segment of an award,
USG Corporation must achieve 75% or higher of the Corporation's goal
income target. For Subsidiary and Profit Center participants to qualify
for the Subsidiary/ Profit Center segment of an incentive opportunity,
the respective Subsidiary or Profit Center must achieve 75% or higher of
its goal income target. The Compensation and Organization Committee may
eliminate awards to any participant who fails to receive a personal
performance rating of "Achieved Expectations" (85) or better under the
Corporation's Performance Planning and Review system (PPR).
2. Once the threshold qualifiers for an incentive award are satisfied,
basic incentive award amounts will be determined by Corporate
performance achievement which meets or exceeds 75% of the Corporate goal
income or by Subsidiary or Profit Center achievements which meet or
exceed 75% of their respective goal income targets, according to the
following schedule:
Goal Goal Income Adjustment Factor
Income For Corporate, Subsidiary or
Achievement Profit Center Performance
Below 75% 0%
75% 75%
80% 80%
90% 90%
100% 100%
110% 120%
120% 150%
130% 185%
133% 200%
3. Basic incentive award amounts are adjusted to the extent cash is
available for domestic debt paydown using the formula in ATTACHMENT I.
The goal income/cash available for domestic debt paydown schedule is
included as ATTACHMENT II of this Program.
The maximum incentive award under this Program is 200% of par.
4. Basic incentive award opportunities and calculations of awards for
participants will be based on the achievement of specific Corporate,
Subsidiary and/or Profit Center goal income targets as displayed below
or, except with respect to Named Executive Officers, as otherwise may be
established subject to approval of the Chairman and CEO:
Incentive Award
Participants Opportunity/Calculation
USG Corporation 100% on USG Corporation
Performance
(Threshold-75% of Goal)
U.S. GYPSUM COMPANY
President & CEO 50% USG Corporation Performance
25% North America Gypsum
Performance
25% Subsidiary Performance
(Threshold - 75% of Goal)
<PAGE>
VP Manufacturing 25% USG Corporation Performance
VP National Accts & Mktg East 25% North America Gypsum
Performance
Dir, Market Dev & Plng 50% Subsidiary Performance
VP Marketing - West (Threshold - 75% of Goal)
Dir, Marketing - East
Dir, Manufacturing
General Mgr - IGD 25% USG Corporation Performance
General Mgr - Materials Div 25% Subsidiary Performance
50% Profit Center Performance
(Threshold - 75% of Goal)
USG INTERIORS, INC 50% USG Corporation Performance
President & CEO 25% World-Wide Ceilings
Performance
25% Subsidiary Performance
(Threshold - 75% of Goal)
Executive VP 25% USG Corporation Performance
VP Operations 25% World-Wide Ceilings
Performance
VP Sales 50% Subsidiary Performance
VP Mktg & Business Dev (Threshold - 75% of Goal)
Dir, Operations - Floors 25% USG Corporation Performance
25% Subsidiary Performance
50% Floors Division Performance
(Threshold - 75% of Goal)
Dir, Retail Programs 50% USG Corporation Performance
50% Subsidiary Performance
USG INTERNATIONAL, LTD.
President & CEO 50% USG Corporation Performance
25% North America Gypsum
Performance
& World Wide Ceilings
Performance
25% Subsidiary Performance
(Threshold - 75% of Goal)
VP Pacific Rim & 25% North America Gypsum Performance
General Mgr, Fiberboard & World Wide Ceilings
Performance
VP & Managing Director 25% Subsidiary Performance
50% Regional Performance
(Threshold - 75% of Goal)
L&W SUPPLY CORPORATION
President & CEO 50% USG Corporation Performance
25% North America Gypsum
Performance
25% Subsidiary Performance
(Threshold - 75% of Goal)
<PAGE>
Director, Operations 25% USG Corporation Performance
25% North America Gypsum
Performance
50% Subsidiary Performance
(Threshold - 75% of Goal)
Other Subsidiary Participants 25% USG Corporation Performance
(Threshold - 75% of Goal)
75% Subsidiary Performance
(Threshold - 75% of Goal)
Profit Center Participants 25% Subsidiary Performance
(Subject to subsidiary (Threshold - 75% of Goal)
discretion) 75% Profit Center Performance
(Threshold - 75% of Goal)
CGC INC
President & CEO 25% USG Corporation Performance
25% North America Gypsum
Performance
& World Wide Ceilings
Performance
50% Subsidiary Performance
(Threshold - 75% of Goal)
VP & Gen Mgr - Gypsum
25% North America Gypsum
Performance
25% Subsidiary Performance
50% Division Performance
(Threshold - 75% of Goal)
VP & Gen Mgr - 25% World Wide Ceilings
Performance
Interiors & Industries 25% Subsidiary Performance
50% Division Performance
(Threshold - 75% of Goal)
Other Subsidiary (CGC)
Participants 25% North America Gypsum
Performance
& World Wide Ceilings
Performance
75% Subsidiary Performance
(Threshold - 75% of Goal)
5. SPECIAL AWARDS
In addition to the incentive opportunity provided by this Program, a
special award may be recommended for any participant or non-participant,
other than a Named Executive Officer, who has made an extraordinary
contribution to the Corporation's welfare or earnings.
<PAGE>
GENERAL PROVISIONS
1. The Compensation and Organization Committee of USG Corporation's Board
of Directors shall review and approve the awards recommended for
officers and other employees who are eligible participants in the 1994
Annual Management Incentive Program. The Compensation and Organization
Committee shall submit to the Board of Directors, for their
ratification, a report of the awards for all eligible participants
including corporate officers approved by the Committee in accordance
with the provisions of the Program.
2. The Compensation and Organization Committee shall have full power to
make the rules and regulations with respect to the determination of
achievement of goals and the distribution of awards. No awards will be
made until the Compensation and Organization Committee has certified
goal achievement and applicable awards in writing.
3. The judgement of the Compensation and Organization Committee in
construing this Program or any provisions thereof, or in making any
decision hereunder, shall be final and conclusive and binding upon all
employees of the Corporation and its subsidiaries whether or not
selected as beneficiaries hereunder, and their heirs, executors,
personal representatives and assigns.
4. Nothing herein contained shall limit or affect in any manner or degree
the normal and usual powers of management, exercised by the officers and
the Board of Directors or committees thereof, to change the duties or
the character of employment of any employee of the Corporation or to
remove the individual from the employment of the Corporation at any
time, all of which rights and powers are expressly reserved.
5. No award will be paid to a Program participant who is not a regular
full-time employee in good standing at the end of the calendar year to
which the award applies; except an award which would otherwise be
payable based on goal achievement may be recommended in the event of
retirement, disability or death or in the event the participant is
discharged without cause from the employment of the company during the
year.
6. The awards made to employees shall become a liability of the Corporation
or the appropriate subsidiary as of December 31, 1994 and all payments
to be made hereunder will be made as soon as practicable after said
awards have been approved.
<PAGE>
USG CORPORATION
ANNUAL MANAGEMENT INCENTIVE PROGRAM
1994
ADMINISTRATIVE GUIDELINES
1. Award values will be based on position reference points (midpoints) in
effect for each qualifying position at the beginning of the year. Any
change in duties, dimensions or responsibilities of a current position
resulting in a new evaluation and an increase or decrease in reference
points will be applied for Incentive Program purposes on a prorata
basis with the respective reference point and par value to apply for the
actual number of full months of service at each evaluation except for
such a change with respect to a Named Executive Officer, in which case
any change in reference points and par value, for any reason, shall not
become effective until January 1 of the following year.
2. As provided by the Program, no award is to be paid any participant who
is not a regular full-time employee in good standing at the end of the
calendar year to which the award applies. However, in the event an
eligible participant with three (3) or more months of active service in
the Program year subsequently retires, becomes disabled or dies, or is
discharged from the employment of the Company without cause, the
participant (or beneficiary) will receive an award which would otherwise
be payable based on goal achievement, prorated for the actual months of
active service during the year.
3. Employees participating in any other incentive or bonus program of the
parent Corporation or a Subsidiary who are transferred during the year
to a position covered by the Management Incentive Compensation Program
(other than a Named Executive Officer) will be eligible to receive a
potential award prorated for actual full months of service in the two
positions with the respective incentive program and par values to apply.
For example, a Marketing Manager promoted to Director, Marketing on
August 1, will be eligible to receive a prorata award for seven months
based on the Marketing Manager Plan provisions and values, and for five
months under the Annual Incentive Program provisions and par values.
4. In the event of transfer of an employee (other than a Named Executive
Officer) from an assignment which does not qualify for participation in
any incentive or bonus plan to a position covered by the 1994 Annual
Management Incentive Program, the employee is eligible to participate in
the Annual Incentive Program with any potential award prorated for the
actual months of service in the position covered by the Program during
the year. A minimum of three months of service in the eligible position
is required.
5. Participation during the current Program year for individuals employed
from outside the Corporation is possible with any award to be prorated
for actual full months of service in the eligible position. A minimum
of three full months of service is required for award consideration.
6. Exceptions to established administrative guidelines can only be made by
the Compensation and Organization Committee and only with respect to
participants other than Named Executive Officers.
7. For purposes of this Program, a "NAMED EXECUTIVE OFFICER" will include
any executive officer who is deemed a "named executive officer" for 1994
under Item 402 (a)(3) of Regulation S-K under the Securities Exchange
Act of 1934 and was employed by the Corporation or a Subsidiary on the
last day of the year.
EXHIBIT 10(an)
LETTER AGREEMENT DATED JULY 28, 1994 BETWEEN
USG CORPORATION AND EUGENE B. CONNOLLY
July 28, 1994
Mr. Eugene B. Connolly
25360 Wagon Wheel Court
Barrington, IL 60010
Dear Mr. Connolly:
Reference is made to discussions between you and members of the Compensation
and Organization Committee of the Board of Directors of USG Corporation (the
"Corporation") and others with respect to the potential financial consequences
of your death prior to retirement and to the desire of the Corporation to
prevent the prospect of such event from influencing the timing of your
retirement from the Corporation. In order to promote your retention as an
employee of the Corporation through May 31, 1997, and to allay your concerns
with respect to such potential financial consequences, the Corporation hereby
agrees with you as follows:
1. In the event of your death while in the employ of the Corporation, the
Corporation hereby agrees to pay to your spouse, Dorothy E. Connolly, if
then living, or to your heirs, in the event that you and said spouse
shall both die as the result of a common accident or disaster, an amount
equal in aggregate to the amount, if any, by which (X) is less than (Y),
where (X) equals the aggregate net present value (after tax) of all
amounts payable on account of your death while so employed under (i) the
USG Corporation Retirement Plan and Supplemental Retirement Plan - Part
A, (ii) proceeds of Pre-Retirement Coverage under the USG Executive
Death Benefit Plan, and (iii) the Employment Agreement dated as of May
13, 1993 between you and the Corporation, as the same may be modified,
extended or superseded, together with the net present value (after tax)
on the date of death of all vested options granted to you under the USG
Management Performance Plan, whether or not subsequently transferred in
whole or in part; and (Y) equals the aggregate net present value (after
tax) of all amounts that would have been payable if you had lived and
retired on such date of death ("Assumed Retirement Date") and elected
lump sum distributions under the Corporation's Retirement Plan and
Supplemental Retirement Plan - Part A, plus the net present value (after
tax) of proceeds of Post Retirement Coverage under the USG Executive
Death Benefit Plan, calculated as if you had retired and died one day
after the Assumed Retirement Date, together with the net present value
(after tax) of all vested options granted to you under the USG
Management Performance Plan on the Assumed Retirement Date, whether or
not subsequently transferred in whole or in part.
2. Payments hereunder or under the benefit plans and agreements referred to
herein subject to income taxation, the payment of which is not otherwise
provided for, shall be appropriately increased so as to provide for the
payment of all federal, state and local income taxes payable on account
thereof.
3. In determining the net present value of amounts payable under the plans
and agreements described in paragraph 1, all annuity or annuity-type
payments shall be converted to lump sum values using the actuarial
methods and tables included in the USG Corporation Retirement Plan.
4. Payments made pursuant to this agreement shall not diminish payments to
be made under any other agreement or benefit plan or otherwise affect
the provisions of any thereof.
5. The Corporation has funded a portion of its obligations under this
agreement through the purchase of life insurance on your life. You
agree that you shall cooperate with the Corporation by all reasonable
means in keeping such insurance in force, it being understood that the
Corporation shall be solely responsible for the payment of premiums for
such insurance.
6. This agreement shall terminate upon the earlier of your retirement from
the employ of the Corporation or your voluntary termination of
employment.
If you are in agreement with the foregoing, please sign each of three
originals in the space indicated below and return two fully executed
counterpart originals to the Corporation.
Very truly yours,
USG Corporation
By /s/Harold E. Pendexter, Jr.
Senior Vice President
and Chief Administrative
Officer
Agreed:
/s/Eugene B. Connolly
Eugene B. Connolly
EXHIBIT 11
<TABLE>
COMPUTATION OF EARNINGS/(LOSS) PER COMMON SHARE
(Dollar amounts in millions except per share data)
Primary Earnings/(Loss) Per Share of Common Stock
<CAPTION>
Year May 7
ended through
December 31, December 31,
1994 1993
<S> <C> <C>
Average common shares outstanding. . . . 43,243,497 37,157,672
Loss before extraordinary loss . . . . . $ (92) $ (108)
Primary loss per common share before
extraordinary loss . . . . . . . . . . (2.14) (2.90)
Extraordinary loss, net of taxes . . . . - (21)
Primary loss per common share from
extraordinary loss . . . . . . . . . . - (0.56)
Net loss available to common stockholders. (92) (129)
Primary net loss per common share. . . . (2.14) (3.46)
Computation of earnings/(loss) per common share on a fully-diluted basis is
omitted because the options and warrants have an antidilutive effect.
Information is omitted for periods prior to May 7, 1993 because, due to the
Restructuring and implementation of fresh start accounting, per share data is
not meaningful.
</TABLE>
EXHIBIT 22
SUBSIDIARIES
The companies listed below are the primary subsidiaries of the Corporation.
The financial data for these subsidiaries, as well as for other subsidiaries
which are not considered to be significant and are therefore excluded from
this exhibit, comprised the Corporation's consolidated financial statements.
Organized Under
Name of Company Laws of
Domestic:
United States Gypsum Company(a) . . . Delaware
USG Interiors, Inc.(a). . . . . . . . Delaware
L&W Supply Corporation (a)(b) . . . . Delaware
USG International, Ltd. . . . . . . . Delaware
USG Foreign Investments, Ltd. . . . . Delaware
USG Interiors International, Inc. . . Ohio
USG Funding Corporation . . . . . . . Delaware
La Mirada Products Co., Inc.. . . . . Ohio
USG Foreign Sales Corporation . . . . Virgin Islands
Gypsum Engineering Company. . . . . . Delaware
International:
CGC Inc.(a) . . . . . . . . . . . . . Canada
USG Canadian Mining Ltd.. . . . . . . Ontario
Gypsum Transportation Limited . . . . Bermuda
Yeso Panamericano, S.A. de C.V. . . . Mexico
USG Interiors (Donn) S.A. . . . . . . Belgium
Donn Products GmbH. . . . . . . . . . Germany
Donn Products (U.K.), Ltd.. . . . . . United Kingdom
Donn Products France S.A. . . . . . . France
USG (Netherlands) B.V.. . . . . . . . Netherlands
USG Interiors (Europe) S.A. . . . . . Belgium
USG Interiors Coordination Centre S.A. Belgium
USG Pacific Holdings. . . . . . . . . Singapore
USG Interiors Pacific Ltd.. . . . . . New Zealand
USG Interiors (Australia) Pty. Ltd. . Australia
USG Interiors (Far East) SDN BHD. . . Malaysia
Alabaster Engineering (Nederland) B.V. Netherlands
Red Top Technology (Nederland) B.V. . Netherlands
(a) Accounts for material revenues
(b) As of December 31, 1994, L&W Supply conducted its business out of
139 locations in 34 states using various names registered under
applicable assumed business name statutes.
EXHIBIT 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
WITH RESPECT TO FORM S-8
As independent public accountants, we hereby consent to the incorporation by
reference of our report, dated January 26, 1995, included in this Form 10-K for
the year ended December 31, 1994 into the Corporation's previously filed
Registration Statements Nos. 33-22581, as amended, 33-22930, 33-36303, 33-40136,
33-52715 and 33-63554 on Form S-8.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 7, 1995
EXHIBIT 25
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard H. Fleming, John E. Malone and Raymond
T. Belz and each of them, his or her true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for and in his or
her name, place and stead, in any and all capacities, to sign the Annual
Report on Form 10-K for the year ended December 31, 1994 of USG Corporation,
and any of all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
This power of attorney has been signed as of February 8, 1995 by the
following persons.
\s\Eugene B. Connolly \s\David W. Fox
Eugene B. Connolly David W. Fox
Chairman of the Board, Director
Chief Executive Officer,
and Director
\s\William C. Foote \s\Philip C. Jackson, Jr.
William C. Foote Philip C. Jackson, Jr.
President, Chief Operating Director
Officer and Director
\s\Robert L. Barnett \s\Marvin E. Lesser
Robert L. Barnett Marvin E. Lesser
Director Director
\s\Keith A. Brown \s\John B. Schwemm
Keith A. Brown John B. Schwemm
Director Director
\s\W. H. Clark \s\Judith A. Sprieser
W. H. Clark Judith A. Sprieser
Director Director
\s\James C. Cotting \s\Barry L. Zubrow
James C. Cotting Barry L. Zubrow
Director Director
\s\Lawrence M. Crutcher
Lawrence M. Crutcher
Director
\s\Wade Fetzer III
Wade Fetzer III
Director
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 197
<SECURITIES> 0
<RECEIVABLES> 288
<ALLOWANCES> 14
<INVENTORY> 173
<CURRENT-ASSETS> 644
<PP&E> 843
<DEPRECIATION> 282
<TOTAL-ASSETS> 2124
<CURRENT-LIABILITIES> 455
<BONDS> 1077
<COMMON> 5
0
0
<OTHER-SE> (13)
<TOTAL-LIABILITY-AND-EQUITY> 2124
<SALES> 2290
<TOTAL-REVENUES> 2290
<CGS> 1773
<TOTAL-COSTS> 1773
<OTHER-EXPENSES> 244
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 149
<INCOME-PRETAX> (38)
<INCOME-TAX> 54
<INCOME-CONTINUING> (92)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (92)
<EPS-PRIMARY> (2.14)
<EPS-DILUTED> (2.14)
</TABLE>
