SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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(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, 1996
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
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Securities Registered Pursuant to Section 12(b) of the Act:
Name of Exchange on
Title of Each Class Which Registered
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New York Stock Exchange
Common Stock, $0.10 par value Midwest Stock Exchange
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New York Stock Exchange
Preferred Share Purchase Rights Midwest Stock Exchange
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8.5% Senior Notes, Due 2005 New York Stock Exchange
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New York Stock Exchange
Warrants Midwest Stock Exchange
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Securities Registered Pursuant to Section 12(g) of the Act:
None
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(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, 1997, the aggregate market value of USG Corporation
common stock held by nonaffiliates (based upon the New York Stock Exchange
("NYSE") closing prices) was approximately $1,629,794,000.
As of January 31, 1997, 45,930,559 shares of common stock were outstanding.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Corporation's 1996 Annual Report to Stockholders are
incorporated by reference in Parts I, II and IV of this Form 10-K Report.
2. The Corporation's definitive Proxy Statement for use in connection with
the Annual Meeting of Stockholders to be held on May 14, 1997 is
incorporated by reference in Part III of this Form 10-K Report.
3. A list of exhibits incorporated by reference is presented in this Form
10-K Report beginning on page 13.
TABLE OF CONTENTS
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PART I Page
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Item 1. Business........................................................................................ 3
Item 2. Properties...................................................................................... 8
Item 3. Legal Proceedings............................................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders............................................. 9
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters........................ 10
Item 6. Selected Financial Data......................................................................... 10
Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition........... 10
Item 8. Financial Statements and Supplementary Data..................................................... 10
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............ 10
PART III
Item 10. Directors and Executive Officers of the Registrant.............................................. 11
Item 11. Executive Compensation.......................................................................... 12
Item 12. Security Ownership of Certain Beneficial Owners and Management.................................. 12
Item 13. Certain Relationships and Related Transactions.................................................. 13
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.................................. 13
Signatures.................................................................................................... 21
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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.
In 1988, the Corporation incurred approximately $2.5 billion in debt
primarily to finance a plan of recapitalization in response to an unsolicited
takeover attempt. As a result of high leverage and a severe cyclical downturn in
its construction-based markets, the Corporation initiated a comprehensive
restructuring of its debt (the "Restructuring") in 1990 that was completed on
May 6, 1993, through implementation of a "prepackaged" plan of reorganization
under United States bankruptcy law. In accordance with the prepackaged plan,
$1.4 billion of debt and accrued interest was converted into equity and interest
expense was significantly reduced. 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." Pursuant to such principles,
individual assets and liabilities were adjusted to fair market values as of May
6, 1993. Excess reorganization value, the portion of the reorganization value
not attributable to specific assets, amounted to $851 million and is currently
being amortized over a five-year period through April 1998. Due to the
Restructuring and implementation of fresh start accounting, financial statements
subsequent to May 6, 1993, are not comparable to financial statements through
that date.
In 1994, the Corporation implemented a refinancing that included (i) a
public offering of common stock and (ii) the issuance of $150 million of 9.25%
senior notes due 2001 in exchange for cash and 8.0% senior notes due 1996 and
1997. In 1995, the Corporation completed a refinancing that included: (i) the
establishment of a new seven-year revolving credit facility to replace the
existing bank credit agreement (ii) the sale of $150 million aggregate principal
amount of 8.5% senior notes due 2005 and (iii) the redemption of the
Corporation's 10.25% senior notes due 2002. As a result of refinancings and debt
repayments, the Corporation reduced its principal amount of total debt to $772
million as of December 31, 1996, from $1,556 million as of May 6, 1993.
In the fourth quarter of 1996, the Corporation purchased the minority
interest in its Canadian subsidiary, CGC Inc. ("CGC"). The common shares which
had been publicly held totaled approximately 6 million and were acquired at a
price of $11 (Canadian) per share. The total amount paid in U.S. dollars for the
shares was $49 million.
(b) Financial Information About Industry Segments
Financial information and other related disclosure pertaining to the
Corporation's industry segments set forth under "Notes to Financial Statements -
Note 14. Industry and Geographic Segments" of the Corporation's 1996 Annual
Report to Stockholders is incorporated herein by reference.
(c) Narrative Description of Business
Through its subsidiaries, USG is a leading manufacturer and distributor of
building materials producing a wide range of products for use in new residential
and nonresidential construction and repair and remodel, 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
North American Gypsum, which manufactures and markets gypsum and related
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
CGC in Canada and Yeso Panamericano S.A. de C.V. in Mexico. U.S. Gypsum is the
largest producer of gypsum wallboard in the United States and accounted for
nearly one-third of total domestic gypsum wallboard sales in 1996. L&W Supply is
the country's largest distributor of wallboard and related products and in 1996
distributed approximately 9.5% of all gypsum wallboard in the United States
(including approximately 25% 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 provides 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, 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 for agricultural and industrial
customers to use in a number of applications, including soil conditioning, road
repair, fireproofing and ceramics.
Manufacturing
North American Gypsum's products are manufactured at 43 plants located
throughout the United States, eastern Canada and in central Mexico. In November
1996, the Corporation announced a plan to build a new plant at a cost of $110
million to manufacture SHEETROCK brand wallboard in Bridgeport, Ala., to serve
growing construction markets in the southeastern United States. The Bridgeport
plant, when fully operational, will have annual capacity of 700 million square
feet and will use 100% synthetic gypsum in its production of SHEETROCK
wallboard. It is scheduled to begin operation in 1999 and will replace 350
million square feet of high-cost capacity at the Plasterco, Va., facility, which
will cease wallboard production at that time.
Gypsum rock is mined or quarried at 14 company-owned locations in the
United States and Canada. In 1996, these facilities provided approximately 91%
of the gypsum used by the Corporation's plants in North America. Certain plants
purchase synthetic gypsum or natural gypsum rock from sources other than
company-owned mines and quarries. Such purchases accounted for approximately 9%
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
228 million tons, of which approximately 66% are located in the United States
and 34% in Canada. Additional reserves of approximately 153 million tons are
found 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 9.8 million tons.
The Corporation 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.
The Corporation does research and development at the USG Research and
Technology Center in Libertyville, Ill. The staff at this center provide
specialized technical services to the operating units and do product and process
research and development. The center is especially well-equipped for carrying
out fire, acoustical, structural and environmental evaluations of products and
building assemblies. The center also has an analytical laboratory for chemical
analysis and characterization of materials. Development activities can be taken
to the pilot plant level before being transferred to a full-size plant.
Marketing and Distribution
Distribution is carried out through L&W Supply, building materials dealers,
home improvement centers and other retailers, contractors and specialty
wallboard 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 1996, about 47% of
total industry volume demand for gypsum wallboard was generated by new
residential construction activity, 36% of volume demand was generated by
residential and nonresidential repair and remodel activity, 10% of volume demand
was generated by new nonresidential construction activity and the remaining 7%
of volume demand was generated by other activities such as exports and temporary
construction.
L&W Supply, which was organized in 1971 by U.S. Gypsum, currently has 161
distribution centers in 34 states. It is a service-oriented organization that
stocks a wide range 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 50% 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 87% of its facilities from third parties. Usually, initial leases
run from three to five years with a five-year renewal option.
Competition
The Corporation competes in North America as the largest of 15 producers of
gypsum wallboard products and in 1996 accounted for nearly one-third of total
gypsum wallboard sales in the United States. In 1996, U.S. Gypsum shipped 8.0
billion square feet of wallboard out of total domestic industry shipments
estimated at 25.7 billion square feet. Principal competitors in the United
States are: National Gypsum Company, Georgia-Pacific Corporation, The Celotex
Corporation and several smaller, regional competitors. Major competitors in
Canada include Georgia-Pacific Corporation and BPB Westroc. In Mexico, the
Corporation's major competitor is Panel Rey. In 1996 and early 1997, the
industry experienced some consolidation; the largest was Georgia-Pacific
Corporation's purchase of the gypsum business of Domtar, Inc.
L&W Supply's largest competitor, Gypsum Management Supply, is an
independent distributor with approximately 82 locations in the southern, central
and western United States. There are several regional competitors, such as,
GDMA/RINKER in the southeast (primarily in Florida) and Strober Building Supply
in the northeastern United States. L&W Supply's many local competitors include
lumber dealers, hardware stores, home improvement centers, and acoustical tile
distributors.
Worldwide Ceilings
Business
Worldwide Ceilings, which manufactures and markets interior systems
products worldwide, includes USG Interiors, Inc., the international interior
systems businesses managed as USG International ("USG International") and the
interior systems business of CGC. Worldwide Ceilings is a leading supplier of
interior ceiling products used primarily in commercial applications. In 1996,
Worldwide Ceilings was estimated to be the largest producer of ceiling grid and
the second largest producer of ceiling tile in the world.
Products
Worldwide Ceilings manufactures and markets ceiling grid, ceiling tile, and
wall systems and, in Europe and Asia Pacific, access floor systems. 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 AURATONE and ACOUSTONE brands of
ceiling tile and the DX, FINELINE, CENTRICITEE, CURVATURA and DONN brands of
ceiling grid.
Manufacturing
Worldwide Ceilings' products are manufactured at 19 plants located in North
America, Europe and Asia Pacific, including 5 ceiling tile plants and 10 ceiling
grid plants. The remaining 4 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,
perlite, starch 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 1996, the
Corporation: (i) completed a major expansion of its ceiling tile manufacturing
capacity to meet increasing worldwide demand and (ii) initiated a major
modernization of one of its ceiling tile plants, which will reduce manufactured
costs and add capacity to meet increasing worldwide demand.
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, Ill., and at its "Solutions Center"SM in Chicago, Ill.
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 is the second largest producer/marketer
of acoustical ceiling tile sales in the world. 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. Principal
competitors in ceiling grid include W.A.V.E. (a joint venture of Armstrong World
Industries, Inc. and Worthington Industries/National Rolling Mills) and Chicago
Metallic Corporation.
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, 11%
electricity, 7% oil, 2% coke and 2% purchased hot air. With few exceptions,
plants that 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.
Neither industry segment 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 10% of the
Corporation's 1996 or 1995 consolidated net sales. Because orders are filled
upon receipt, neither industry segment 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 performs on
an on-going basis 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. Information
pertaining to the Corporation's legal proceedings is set forth under "Notes to
Financial Statements - Note 15. Litigation" of the Corporation's 1996 Annual
Report to Stockholders and is incorporated herein by reference.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales
Financial information and other related disclosure pertaining to the
Corporation's foreign and domestic operations and export sales set forth under
"Notes to Financial Statements - Note 14. Industry and Geographic Segments" of
the Corporation's 1996 Annual Report to Stockholders is incorporated herein by
reference.
Item 2. PROPERTIES
The Corporation's plants, mines, quarries, transport ships and other
facilities are located in North America, Europe, and Asia Pacific. 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 Wallboard and Other Gypsum Products
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United States Canada
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Baltimore, Md. Norfolk, Va. Hagersville, Ontario
Boston (Charlestown), Mass. Oakfield, N.Y. Montreal, Quebec
Detroit (River Rouge), Mich. Plaster City, Calif. St. Jerome, Quebec (currently idle)
East Chicago, Ind. Plasterco (Saltville), Va.
Empire, Nev. Santa Fe Springs, Calif. Mexico
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Fort Dodge, Iowa Shoals, Ind. Puebla, Puebla
Fremont, Calif. Sigurd, Utah
Galena Park, Texas Southard, Okla.
Gypsum, Ohio Sperry, Iowa
Jacksonville, Fla. Stony Point, N.Y.
New Orleans, La. Sweetwater, Texas
</TABLE>
Joint Compound
Surface preparation and joint treatment products are produced in plants
located at Chamblee, Ga.; Dallas, Texas; East Chicago, Ind.; Fort Dodge, Iowa;
Gypsum, Ohio; Jacksonville, Fla.; Port Reading, N.J. (leased); Sigurd, Utah;
Tacoma, Wash. (leased); Torrance, Calif.; 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), Mich.; Empire,
Nev.; Fort Dodge, Iowa; Oakfield, N.Y.; Plaster City, Calif.; Plasterco
(Saltville), Va.; Shoals, Ind.; Sigurd, Utah; Southard, Okla.; Sperry, Iowa;
Sweetwater, Texas; Hagersville, Ontario, Canada; Little Narrows, Nova Scotia,
Canada; and Windsor, Nova Scotia, Canada. Synthetic gypsum is processed at
Belledune, New Brunswick, Canada.
Paper
Paper for gypsum wallboard is manufactured at Clark, N.J.; Galena Park,
Texas; Gypsum, Ohio; Jacksonville, Fla.; North Kansas City, Mo.; Oakfield, N.Y.;
and South Gate, Calif.
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
transport 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, N.C.; perlite ore is
produced at Grants, N.M.; and drywall metal products are manufactured at Medina,
Ohio (leased). 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, Calif. (adhesives and finishes); and New Orleans, La.
(lime products).
Worldwide Ceilings
Ceiling Tile
Acoustical ceiling tile and panels are manufactured at Cloquet, Minn.;
Greenville, Miss.; Walworth, Wis.; San Juan Ixhuatepec, Mexico; and Aubange,
Belgium.
Ceiling Grid
Ceiling grid products are manufactured at Cartersville, Ga.; Stockton,
Calif.; Westlake, Ohio; Auckland, New Zealand (leased); Dreux, France; Oakville,
Ontario, Canada; Peterlee, England (leased); Port Klang, Malaysia (leased);
Viersen, Germany; and Taipei, Taiwan. A coil coater and slitter plant used in
the production of ceiling grid is also located in Westlake, Ohio.
Other Products
Access floor systems products are manufactured at Peterlee, England
(leased); and Port Klang, Malaysia (leased). Mineral fiber products are
manufactured at Red Wing, Minn. and Walworth, Wis. Wall system products are
manufactured at Medina, Ohio (leased). Drywall metal products are manufactured
at Prestice, Czech Republic (leased) and Oakville, Ontario, Canada.
In 1996, the Corporation divested its United States insulation
manufacturing business.
Item 3. LEGAL PROCEEDINGS
Information pertaining to the Corporation's legal proceedings set forth
under "Notes to Financial Statements - Note 15. Litigation" of the Corporation's
1996 Annual Report to Stockholders is incorporated herein by reference.
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 1996.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Information with respect to the principal market on which the Corporation's
common stock is traded, the range of high and low market prices and number of
stockholders of record set forth under "Selected Quarterly Financial Data" of
the Corporation's 1996 Annual Report to Stockholders is incorporated herein by
reference.
There have been no dividends declared since the third quarter of 1988. Bank
credit agreements and other debt instruments have previously prohibited or
restricted the payment of cash dividends. Although currently permitted within
certain limits under the Corporation's existing debt agreements, the Corporation
has announced an intention not to consider payment of dividends until it has
achieved investment grade status with respect to its senior public debt issues.
On November 22, 1996, the Corporation entered into a retention agreement
with an employee whereby the Corporation agreed to grant shares of unregistered
common stock, $0.10 par value, having an aggregate value equal to $250,000 in
five separate installments each having a value equal to $50,000 in reliance on
the private offering exemption afforded by Section 4 (2) of the Securities Act
of 1933, as amended. The first grant in the amount of 1,650 shares was made on
the date of the agreement and the remaining grants will be made on each of the
first four anniversaries thereof. The employee has agreed in return to provide
management expertise and advice for five years from the date of the agreement
with respect to certain assets acquired by the Corporation that were previously
owned by a corporation of which the employee was the principal stockholder. The
unregistered common stock is restricted from transfer, resale or other
disposition until November 22, 2001.
Item 6. SELECTED FINANCIAL DATA
Information with respect to selected financial data set forth under
"Comparative Five-Year Summary" of the Corporation's 1996 Annual Report to
Stockholders is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
"Management's Discussion and Analysis of Results of Operations and
Financial Condition" of the Corporation's 1996 Annual Report to Stockholders is
incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to financial statements and supplementary data set
forth under "Consolidated Statement of Earnings," "Consolidated Balance Sheet,"
"Consolidated Statement of Cash Flows," "Notes to Financial Statements" and
"Report of Independent Public Accountants" of the Corporation's 1996 Annual
Report to Stockholders is incorporated herein by reference.
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 Securities and Exchange Commission (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, 1997)
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Has Held
Name, Age Present
and Present Position Prior Business Experience in Past Five Years Position Since
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William C. Foote, 45 President and Chief Executive Officer, L&W Supply Corporation April 1996
Chairman, President and Chief from September 1991 to January 1994; President and Chief
Executive Officer Executive Officer, USG Interiors, Inc. from January 1993 to
January 1994; President and Chief Operating Officer from
January 1994 to January 1996; President and Chief Executive
Officer to April 1996.
P. Jack O'Bryan, 61 President and Chief Executive Officer, United States Gypsum September 1996
Executive Vice President- Company to January 1993; Senior Vice President and Chief
Operations; President and Chief Technology Officer, USG Corporation to August 1994; Senior
Executive Officer, United States Vice President - Worldwide Manufacturing and Technology to
Gypsum Company; President and October 1995; Executive Vice President- Worldwide Ceilings to
Chief Executive Officer, USG September 1996; President and Chief Executive Officer, USG
Interiors, Inc. Interiors, Inc. since October 1995.
J. Bradford James, 50 Vice President and Chief Financial Officer, USG Corporation to November 1996
Executive Vice President-Corporate March 1993; Senior Vice President and Chief Financial Officer,
Development and Distribution USG Corporation to January 1994; Vice President, USG
Corporation, President and Chief Executive Officer, USG
Interiors, Inc. to January 1995; Group Vice President, Worldwide
Ceilings & International, USG Corporation, President and Chief
Executive Officer, USG Interiors, Inc. to October 1995; Executive
Vice President - International Development and Distribution to
November 1996.
Richard H. Fleming, 49 Vice President and Treasurer to January 1994; Vice President and January 1995
Senior Vice President and Chief Chief Financial Officer to January 1995.
Financial Officer
Arthur G. Leisten, 55 Senior Vice President and General Counsel to March 1993; February 1994
Senior Vice President and General Senior Vice President, General Counsel and Secretary to February
Counsel 1994.
Harold E. Pendexter, Jr., 62 Same position. January 1991
Senior Vice President and Chief
Administrative Officer
Raymond T. Belz, 56 Vice President Financial Services and Financial Administration, September 1996
Vice President and Controller; United States Gypsum Company to January 1994; Vice President and
Vice President Financial Controller, USG Corporation, Vice President Financial Services,
Operations, North American United States Gypsum Company to January 1995; Vice President and
Gypsum and Worldwide Ceilings and Chief Financial Officer, North American Gypsum from January
1995 to September 1996; Vice President and Controller since January
1995.
Brian W. Burrows, 57 Same position. March 1987
Vice President, Research and
Technology
Matthew P. Gonring, 42 Director, Corporate Communications to March 1993. March 1993
Vice President, Corporate
Communications
John E. Malone, 53 Vice President and Controller, USG Corporation to January 1994; January 1994
Vice President and Treasurer Vice President - Finance, USG International, From March 1993
to February 1995.
Robert B. Sirgant, 56 Director, Marketing - East Region, United States Gypsum January 1995
Vice President, Corporate Accounts 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, 45 Director, Human Resources, USG Corporation to September April 1996
Vice President, Human Resources- 1992; Vice President, Management Resources and Employee
Operations Relations to January 1994; Vice President, Human Resources -
Operations to February 1995; Vice President, Human Resources -
Operations; Vice President, Human Resources, Worldwide
Ceilings to April 1996.
Dean H. Goossen, 49 Vice President, General Counsel and Secretary, Xerox Financial February 1994
Corporate Secretary Services Life Insurance Company to February 1993; Assistant
Secretary, USG Corporation to February 1994.
</TABLE>
Item 11. EXECUTIVE COMPENSATION
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
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
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.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this 10-K Report:
1. The consolidated financial statements, notes to financial statements
and report of independent public accountants included in the
Corporation's 1996 Annual Report to Stockholders and listed below are
incorporated herein by reference.
Consolidated Statement of Earnings - Years ended December 31, 1996,
1995 and 1994.
Consolidated Balance Sheet - As of December 31, 1996 and 1995.
Consolidated Statement of Cash Flows - Years ended December 31, 1996,
1995 and 1994.
Notes to Financial Statements.
Report of Independent Public Accountants.
2. Supplemental Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts
Report of Independent Public Accountants With Respect to Financial
Statement Schedule.
All other schedules have been omitted because they are not required,
are not applicable, or the information is included in the financial
statements or notes thereto.
3. Exhibits (Reg. S-K, Item 601):
<TABLE>
<S> <C>
Exhibit
No. Page
----
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 March 5, 1987 of a Special Committee
created by the Board of Directors of USG Corporation
relating to USG Corporation's 8.75% Debentures due 2017
(incorporated by reference to Exhibit 4(c) of USG
Corporation's 1993 Annual Report on Form 10-K, dated
March 14, 1994).
(c) Resolutions dated March 6, 1987 of a Special Committee
created by the Board of Directors of USG Corporation
relating to USG Corporation's 8% Senior Notes due 1997
(incorporated by reference to Exhibit 4(d) of USG
Corporation's 1993 Annual Report on Form 10-K, dated
March 14, 1994).
(d) Resolutions dated February 1, 1994 of a Special
Committee created by the Board of Directors of USG
Corporation relating to USG Corporation's 9.25% Senior
Notes due 2001 (incorporated by reference to Exhibit
4(f) of USG Corporation's Registration No. 33-51845 on
Form S-1, dated February 16, 1994).
(e) Resolutions dated August 3, 1995 of a Special Committee
created. by the Board of Directors of USG Corporation
relating to USG Corporation's 8.5% Senior Notes due
2005 (incorporated by reference to Exhibit 4(b) of
Amendment No. 3 to USG Corporation's Registration
Statement No. 33-60563 on Form S-3, dated July 28,
1995).
(f) 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).
(g) 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).
(h) 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).
(i) 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) Form of Nonqualified Stock Option Agreement relating to
stock option grants dated June 1, 1993, February 9, 1994
and August 10, 1994 (incorporated by reference to
Exhibit 10(l) of Amendment No. 1 on USG Corporation's
Registration Statement No. 33-61152 on Form S-1).
(c) 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).
(d) 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).
(e) 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).
(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) Agreement, dated August 31, 1992 among USG Corporation
and the Ad Hoc Committee of Holders of 13.25% 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).
(h) 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).
(i) 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).
(j) 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).
(k) 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).
(l) 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).
(m) Credit Agreement dated as of July 27, 1995 among USG
Corporation and the Banks listed on the signature page
thereto and Chemical Bank as Agent (incorporated by
reference to Exhibit 99(a) of Amendment No. 3 to USG
Corporation's Registration Statement No. 33-60563 on
Form S-3, dated July 28, 1995).
(n) Amendment No. 1, dated as of February 1, 1996 to the
Credit Agreement (incorporated by reference to Exhibit
10(q) of USG Corporation's 1995 Annual Report on Form
10-K, dated February 29, 1996).
(o) Collateral Trust Agreement dated as of July 27, 1995
between USG Corporation, certain of its subsidiaries
and Wilmington Trust Company and William J. Wade, as
Trustee (incorporated by reference to Exhibit 99(b) of
Amendment No. 3 to USG Corporation's Registration
Statement No. 33-60563 on Form S-3, dated July 28,
1995).
(p) Company Pledge Agreement dated as of July 27, 1995
among USG Corporation, as Pledgor, and Wilmington Trust
Company and William J. Wade, as Trustee (incorporated
by reference to Exhibit 99(c) of Amendment No. 3 to USG
Corporation's Registration Statement No. 33-60563 on
Form S-3, dated July 28, 1995).
(q) Stock Compensation Program for Non-Employee Directors of
USG Corporation, dated May 10, 1995 (incorporated by
reference to Exhibit 10(t) of USG Corporation's 1995
Annual Report on Form 10-K, dated February 29, 1996).
(r) 1995 Long-Term Equity Plan of USG Corporation
(incorporated by reference to Annex A to USG
Corporation's Proxy Statement and Proxy dated March 31,
1995).
(s) Form of Nonqualified Stock Option Agreement, pursuant to
the 1995 Long-Term Equity Plan (incorporated by
reference to Exhibit 10(v) of USG Corporation's 1995
Annual Report on Form 10-K, dated February 29, 1996).
(t) Form of Performance-Based Restricted Stock Award
Agreement, pursuant to the 1995 Long-Term Equity Plan
(incorporated by reference to Exhibit 10(w) of USG
Corporation's 1995 Annual Report on Form 10-K, dated
February 29, 1996).
(u) Form of Restricted Stock Award Agreement, pursuant to
the 1995 Long-Term Equity Plan (incorporated by
reference to Exhibit 10(x) of USG Corporation's 1995
Annual Report on Form 10-K, dated February 29, 1996).
(v) 1996 Annual Management Incentive Program - USG
Corporation. 22
11 Computation of Earnings/(Loss) Per Common Share 31
13 Portions of USG Corporation's 1996 Annual Report to
Stockholders. (Such 32 report is not deemed to be filed with the
Commission as part of this Annual Report on Form 10-K, except
for the portions thereof expressly incorporated by reference.) 32
21 Subsidiaries 62
23 Consents of Experts and Counsel 63
24 Power of Attorney 64
27 Financial Data Schedule 66
</TABLE>
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of 1996.
<PAGE>
Index to exhibits filed
with the Annual Report on Form 10-K
for the year ended December 31, 1996
<TABLE>
Exhibit Page
<CAPTION>
<S> <C> <C>
10(v) 1996 Annual Management Incentive Program - USG Corporation 22
11 Computation of Earnings/(Loss) Per Common Share 31
13 Portions of USG Corporation's 1996 Annual Report to Stockholders 32
21 Subsidiaries 62
23 Consent of Experts 63
24 Power of Attorney 64
27 Financial Data Schedule 66
</TABLE>
If you wish to receive a copy of any exhibit, it may be obtained, upon payment
of reasonable expenses, by writing to:
Dean H. Goossen, Corporate Secretary
USG Corporation
Department #188
P.O. Box 6721
Chicago, IL 60680-6721
<PAGE>
<TABLE>
USG CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in millions)
<CAPTION>
Provision Receivables
Charged to Written Off
Beginning Costs and and Discounts Ending
Balance Expenses Allowed Balance
<S> <C> <C> <C> <C>
Year ended December 31, 1996:
Doubtful accounts................................. $ 11 $ 7 $ (4) $ 14
Cash discounts.................................... 3 46 (46) 3
Year ended December 31, 1995:
Doubtful accounts................................. 11 6 (6) 11
Cash discounts.................................... 3 44 (44) 3
Year ended December 31, 1994:
Doubtful accounts................................. 11 7 (7) 11
Cash discounts.................................... 2 40 (39) 3
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
WITH RESPECT TO FINANCIAL STATEMENT SCHEDULE
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in USG Corporation's annual
report to stockholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated January 27, 1997. Our audit was made for the
purpose of forming an opinion on the consolidated financial statements taken as
a whole. The financial statement schedule on page 19 is the responsibility of
the Corporation's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the consolidated
financial statements. The financial statement schedule has been subjected to the
auditing procedures applied in the audit of the consolidated financial
statements and, in our opinion, fairly states 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 27, 1997
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 5, 1997
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/ William C. Foote March 5, 1997
- --------------------
WILLIAM C. FOOTE
Chairman, President and Chief Executive
Officer
(Principal Executive Officer)
/s/ Richard H. Fleming March 5, 1997
- ----------------------
RICHARD H. FLEMING
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Raymond T. Belz March 5, 1997
- -------------------
RAYMOND T. BELZ
Vice President and Controller
(Principal Accounting Officer)
ROBERT L. BARNETT, KEITH A. BROWN, ) By:/s/ Richard H. Fleming
W.H. CLARK, W. DOUGLAS FORD, ) -------------------------
JAMES C. COTTING, LAWRENCE ) Richard H. Fleming
M. CRUTCHER, DAVID W. FOX, ) Attorney-in-fact
PHILIP C. JACKSON, JR., MARVIN E. LESSER, ) Pursuant to Power of Attorney
JOHN B. SCHWEMM, JUDITH A. SPREISER, Directors ) (Exhibit 24 hereto)
) March 5, 1997
EXHIBIT 10v
1996
ANNUAL MANAGEMENT INCENTIVE PROGRAM
USG CORPORATION
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, 1996
through December 31, 1996.
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 1996 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, Working Capital Management 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 of USG Corporation if business
conditions or other significant unforeseen circumstances beyond the control of
the Profit Center have a major impact on opportunity.
AWARD VALUES
For the 1996 Annual Management Incentive Program, position par values are based
on level of accountability and are expressed as a percent of approved annualized
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:
<PAGE>
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------
Position Par Value
USG Corporation
Chairman - USG Corporation 65% of Reference Point
President & CEO - USG Corporation 65% of Reference Point
- -------------------------------------------------------------------------------------------------------------------
Executive Vice President North American Gypsum; 55% of Reference Point
President & CEO, U.S. Gypsum Company
Executive Vice President Worldwide Ceilings;
President & CEO, USG Interiors, Inc.
Executive Vice President International Development
and Distribution, USG Corporation
- -------------------------------------------------------------------------------------------------------------------
USG CORPORATION 50% Of Reference Point
Senior Vice President & General Counsel
Senior Vice President & Chief Administrative Officer
Senior Vice President & Chief Financial Officer
- -------------------------------------------------------------------------------------------------------------------
USG CORPORATION & OPERATING SUBSIDIARIES
OFFICERS AND MANAGERS
Vice President, USG Corporation; 45% of Reference Point
President & CEO, L&W Supply Corporation
President & CEO, CGC, Inc 40 % of Reference Point
Executive Vice President & COO, U.S. Gypsum Company
Vice President & Treasurer, USG Corporation
Vice President & Controller; Chief Financial Officer
North American Gypsum Group, USG Corporation
Vice President Research, 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
- -------------------------------------------------------------------------------------------------------------------
USG CORPORATION, OPERATING SUBSIDIARIES & PROFIT CENTERS
OFFICERS AND MANAGERS
Position Reference Point: $174,120 and over 35% of Reference Point
Position Reference Point: $154,005 - $174,119 30% of Reference Point
Position Reference Point: $125,085 - $154,004 25% of Reference Point
Position Reference Point: $111,600 - $125,084 20% of Reference Point
Position Reference Point: $ 89,400 - $111,599 15% of Reference Point
Position Reference Point: Below $89,400 10% of Reference Point
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
AWARDS
Incentive awards for all participants in the 1996 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 1996 will be based on
o GOAL INCOME: (net sales less cost of sales and selling and administrative
expenses) based on the Corporation's year-end financial statements.
o WORKING CAPITAL MANAGEMENT: average monthly Net Working Capital (net
accounts receivable plus FIFO inventory minus accounts payable) as a percent of
annual net sales.
o Personal Performance (except in the case of the nine (9) most senior
executives whose awards are based solely on achievement of financial results).
o 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 Group, Subsidiary and Profit Center participants to qualify for
the Group/Subsidiary/ Profit Center segment of an incentive opportunity,
the respective Group, 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
Group, 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, Group, Subsidiary
Achievement or Profit Center Performance
- --------------------------------------------------------------------------------
Below 75% 0%
75% 50%
80% 60%
90% 80%
100% 100%
110% 120%
120% 140%
140% 180%
150% 200%
3. Basic incentive award amounts are adjusted to the extent that the
percent of net working capital to net sales is reduced from or exceeded
by the 1995 actual level. Achievement of working capital management
targets will be measured for USG Corporation, North American Gypsum
Group and Worldwide Ceilings Group. Each 0.1 reduction or increase in
the percentage will respectively increase or decrease basic incentive
awards by 2% of par according to the following schedule:
Average Working Capital Percent of Net Sales
Reduction in Increase in
Percentage Award Percentage Award
- ------------ ------------- ------------------- --------------
0.0 0%
0.1 + 2% 0.1 - 2%
0.5 + 10% 0.5 - 10%
1.0 + 20% 1.0 - 20%
2.0 + 40% 2.0 - 40%
3.0 + 60% 3.0 - 60%
4.0 + 80% 4.0 - 80%
5.0 +100% 5.0 -100%
4. Except with respect to the nine (9) most senior executives, including
the Named Executive Officers, whose awards are based solely on
achievement of Goal Income and Working Capital Management Targets,
incentive awards based upon achievement of Goal Income and adjusted for
achievement of Working Capital Management Targets will be further
adjusted based upon the eligible participants' individual Incentive
Performance Rating derived from the accomplishment of incentive
performance targets according to the following schedule:
Individual Personal Performance
Incentive Rating Adjustment Factor
- -------------------- ----------------------------
Distinguished 105.0
- -------------------- ----------------------------
102.5
Excellent 100.0
- -------------------- ----------------------------
97.5
Good 95.0
- -------------------- ----------------------------
The maximum incentive award under this Program is 200% of par.
5. Basic incentive award opportunities and calculations of awards for
participants will be based on the achievement of specific Corporate,
Group, 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:
<TABLE>
<S> <C> <C>
Working Capital
Incentive Award Management
Participants Opportunity/Calculation Measure
- -------------------------------------------------------------------------------------------------------------------
USG Corporation 33 1/3% USG Corporation Performance USG Corp
33 1/3% North American Gypsum Performance NAG
33 1/3% Worldwide Ceilings Performance WWC
- -------------------------------------------------------------------------------------------------------------------
North American Gypsum
Executive VP, North American Gypsum; 33 1/3% USG Corporation Performance USG Corp
President & CEO, U.S. Gypsum Co 33 1/3% North American Gypsum Performance NAG
VP & Controller; CFO North American 33 1/3% Worldwide Ceilings Performance WWC
Gypsum Group, USG Corporation
General Mgr - IGD 20% North American Gypsum Performance NAG
General Mgr - Materials Division 30% Subsidiary Performance NAG
Profit Center Staff 50% Profit Center/Division Performance NAG
VP & General Mgr, CGC, Inc
(Subject to subsidiary discretion)
President & CEO, CGC, Inc 20% USG Corporation Performance USG Corp
President & General Mgr, YPSA 30% North American Gypsum Performance NAG
U.S. Gypsum Staff 50% Subsidiary Performance NAG
CGC, Inc Staff
- -------------------------------------------------------------------------------------------------------------------
Worldwide Ceilings
Executive VP, Worldwide Ceilings; 33 1/3% USG Corporation Performance USG Corp
President & CEO, USG Interiors, Inc 33 1/3% North American Gypsum Performance NAG
33 1/3% Worldwide Ceilings Performance WWC
USG Interiors, Inc Staff 20% USG Corporation Performance USG Corp
USG International, Ltd Staff 30% Worldwide Ceilings Performance WWC
50% Subsidiary/Region Performance WWC
- -------------------------------------------------------------------------------------------------------------------
L&W Supply Corporation
President & CEO 33 1/3% USG Corporation Performance USG Corp
33 1/3% North American Gypsum Performance NAG
33 1/3% Worldwide Ceilings Performance WWC
L&W Supply Corporation Staff 20% USG Corporation Performance USG Corp
30% North American Gypsum Performance NAG
50% Subsidiary Performance NAG
Director Operations 20% North American Gypsum Performance NAG
General Mgr Operations 30% Subsidiary Performance NAG
50% Profit Center/Division Performance NAG
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
6. 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.
7. STRATEGIC TARGETS
In select cases, not including Named Executive Officers and other
Corporate Officers and Subsidiary CEOs, where the participant can make
an individual, measurable and quantifiable contribution which will have
significant impact on the Corporation's financial performance and
profitability, up to 25% of the position par or opportunity may be
allocated to personal performance. Such allocations require approval of
the Chairman of USG Corporation at the beginning of the Program year.
For Corporate, Group, Subsidiary and Profit Center participants with a
25% strategic award allocation, the Incentive Award
Opportunity/Calculation will be determined at the beginning of the
Program year.
The strategic award opportunity which is available for personal
performance will be adjusted to the extent that actual performance
exceeds or fails to meet the targeted goal.
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 1996
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, 1996 and
all payments to be made hereunder will be made as soon as practicable
after said awards have been approved.
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) may 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 Annual Management Incentive 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 1996 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
1996 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 11
<TABLE>
COMPUTATION OF EARNINGS/(LOSS) PER COMMON
SHARE (Dollar amounts in millions except per
share data)
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Primary Earnings/(Loss) Per Share of Common Stock:
Average common shares outstanding including
common stock equivalents (a) 47,510,071 45,120,120 43,243,497
========== ========== ==========
Net earnings/(loss) available to common stockholders $ 15 $ (32) $ (92)
========== ========== ==========
Primary earnings/(loss) per share of common stock $ 0.31 $ (0.71) $ (2.14)
========== ========== ==========
Fully Diluted Earnings/(Loss) Per Share of Common Stock: (b)
Average common shares outstanding excluding
common stock equivalents 45,542,384
Dilutive stock options based on the treasury stock method
using the year-end market price if higher than the
average market price 954,801
Dilutive warrants based on the treasury stock method using
the year-end market price if higher than the
average market price 1,356,820
---------
47,854,005
----------
Net earnings available to common stockholders $ 15
==========
Fully diluted earnings per share of common stock $ 0.30
==========
</TABLE>
(a) Common stock equivalents are excluded from the calculation of primary
earnings/(loss) per share of common stock for the years 1995 and 1994
because the Corporation reported net losses in those years.
(b) The calculation of fully diluted earnings per share of common stock for
1996 is submitted in accordance with Securities Exchange Act of 1934
Release No. 9083 although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3% before
rounding to two decimal places. Computation of earnings/(loss) per common
share on a fully-diluted basis is omitted for the years 1995 and 1994
because the options and warrants had an antidilutive effect.
Financial Review
Management's Discussion and Analysis 23
Consolidated Financial Statements
Statement of Earnings 28
Balance Sheet 29
Statement of Cash Flows 30
Notes to Financial Statements
1. Significant Accounting Policies 31
2. Financing Arrangements 32
3. Debt 33
4. Financial Instruments and Risk Management 34
5. Purchase of Subsidiary Minority Interest 35
6. Writedown of Assets 35
7. Income Taxes 36
8. Inventories 37
9. Property, Plant and Equipment 37
10. Leases 37
11. Employee Retirement Plans 37
12. Stock-Based Compensation 39
13. Stockholders' Equity 40
14. Industry and Geographic Segments 41
15. Litigation 42
Report of Management 48
Report of Independent Public Accountants 49
Selected Quarterly Financial Data 50
Comparative Five-Year Summary 51
Management's Discussion and Analysis of Results of Operations and
Financial Condition
As a result of USG's financial restructuring in 1993 and the restructuring's
continuing effect on financial reporting, USG reports EBITDA (earnings before
interest, taxes, depreciation, depletion, amortization and certain other income
and expense items) to facilitate comparisons of current and historical results.
EBITDA is also helpful in understanding cash flow generated from operations that
is available for taxes, debt service and capital expenditures. 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.
Results of Operations
Consolidated Results
A bar chart entitled "Net Sales (millions of dollars)" on page 23 of the Annual
Report to Stockholders shows that for the years 1994, 1995 and 1996 (shown on
the x-axis) the Corporation had net sales (shown on the y-axis) of $2,290
million, $2,444 million and $2,590 million, respectively.
A bar chart entitled "EBITDA (millions of dollars)" on page 23 of the Annual
Report to Stockholders shows that for the years 1994, 1995 and 1996 (shown on
the x-axis) the Corporation had EBITDA (shown on the y-axis) of $325 million,
$417 million and $437 million, respectively.
Net sales of $2,590 million in 1996 represented the fifth consecutive year of
improved sales and an increase of $146 million, or 6.0%, over 1995. Net sales in
1995 were up 6.7% over 1994. EBITDA, which has improved for the fourth
consecutive year, amounted to $437 million in 1996, representing an increase of
$20 million, or 4.8%, over 1995. EBITDA in 1995 increased 28.3% over 1994. The
improved results in 1996 were primarily attributable to record shipments of
Sheetrock brand gypsum wallboard and other USG products, including ceiling tile,
joint compound and cement board.
Gross profit as a percentage of net sales was 24.9% in 1996 compared with 24.7%
in 1995 and 22.6% in 1994. Gross profit in 1996 was lowered by a $7 million
provision to cost of products sold associated with actions implemented to
improve the operating efficiencies of USG's European businesses by reducing
manufacturing and distribution costs. Gross profit in 1994 was adversely
affected by a $30 million pretax ($17 million after-tax) charge to cost of
products sold recorded by U.S. Gypsum primarily to cover the cash portion of two
asbestos litigation settlements.
Selling and administrative expenses of $268 million increased $24 million, or
9.8%, over 1995, reflecting higher levels of expenses related to compensation
and benefits and a joint initiative by USG's North American Gypsum and Worldwide
Ceilings units to enhance customer service systems by upgrading their order
entry and fulfillment processes. Selling and administrative expenses of $244
million in 1995 were unchanged versus 1994.
Excess reorganization value, which was established in connection with USG's
financial restructuring in May 1993, is currently being amortized over a
five-year period. This noncash amortization, which has no tax impact, reduced
operating profit by $169 million in each of 1996, 1995 and 1994.
Interest expense continued to decline in 1996 as a result of debt repayments.
Interest expense amounted to $75 million in 1996, down $24 million, or 24.2%,
from the 1995 level of $99 million, which was down $50 million, or 33.6%, from
$149 million recorded in 1994. Interest expense in 1994 included a $16 million
pretax ($9 million after-tax) noncash charge for the write-off of reorganization
debt discount primarily in conjunction with the Corporation's accelerated
payment of bank term loans.
In the fourth quarter of 1995, the Corporation recorded a $30 million pretax
($24 million after-tax) charge in connection with the sale of its insulation
manufacturing business in the United States and the closure of its insulation
plant in Canada. Included in this charge was a $15 million noncash
(no-tax-impact) write-off of excess reorganization value associated with these
businesses. The remainder of the charge primarily reflected a writedown of the
assets of these businesses to their net realizable value. The total charge is
reflected in other (income)/expense, net in the Consolidated Statement of
Earnings.
The Corporation's income tax expense is computed based on pretax earnings
excluding the noncash amortization of excess reorganization value, which is not
deductible for federal income tax purposes. In 1996, income tax expense amounted
to $117 million, compared with $97 million in 1995 and $54 million in 1994. The
Corporation's effective tax rates for 1996, 1995 and 1994 were 88.9%, 149.0% and
negative 142.1%, respectively. Excluding the amortization of excess
reorganization value and, in 1995, the aforementioned $15 million write-off of
excess reorganization value, the Corporation's 1996, 1995 and 1994 effective tax
rates were 38.9%, 39.0% and 42.1%, respectively. See "Note 7. Income Taxes" for
additional information.
The Corporation reported net earnings of $15 million, or $0.31 per common share,
in 1996. However, these earnings included: (i) the noncash amortization of
excess reorganization value of $169 million and (ii) the noncash amortization of
reorganization debt discount of $1 million included in interest expense.
Together, these items reduced 1996 net earnings by $170 million, or $3.58 per
common share.
The Corporation recorded a net loss of $32 million, or $0.71 per common share,
in 1995. However, this loss included: (i) the noncash amortization of excess
reorganization value of $169 million (ii) the noncash amortization of
reorganization debt discount of $4 million included in interest expense and
(iii) the $24 million after-tax writedown of the insulation business. Together,
these items reduced 1995 net earnings by $197 million, or $4.38 per common
share.
A net loss of $92 million, or $2.14 per common share, in 1994 included: (i)
noncash amortizations of excess reorganization value and reorganization debt
discount of $169 million and $12 million, respectively (ii) the noncash
after-tax write-off of reorganization debt discount amounting to $9 million
primarily associated with bank term loans and (iii) the after-tax charge of $17
million associated with asbestos litigation settlements. Together, these items
reduced 1994 net earnings by $207 million, or $4.81 per common share.
Construction Markets
Based on preliminary data issued by the U.S. Bureau of the Census, U.S. housing
starts were an estimated 1.475 million units in 1996, up 9% over 1995. Housing
starts of 1.354 million units in 1995 represented a 7% decline from the 1994
level of 1.457 million units. U.S. nonresidential construction grew 12% in 1995
versus 1994, as measured in floor space for which contracts were awarded. This
had a favorable impact on USG's 1996 sales, because finishing of nonresidential
interiors follows contract awards by as much as a year. Repair and remodel
activity continued its upward trend in 1996. Demand for wallboard generated by
this market increased an estimated 7%.
<PAGE>
<TABLE>
Core Business Results
<CAPTION>
NET SALES EBITDA
---------------------------------- -----------------------------------
1996 1995 1994 1996 1995 1994
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
North American Gypsum:
U.S. Gypsum Company $ 1,390 $ 1,309 $ 1,209 $ 347 $ 327 $ 248
L&W Supply Corporation 841 753 659 29 26 15
CGC Inc. (gypsum division) 114 102 110 16 11 15
Other subsidiaries 83 75 90 25 22 28
Eliminations (361) (315) (288) -- -- (2)
- ------------------------------------------ ------- ------- ------- ------- ------- -------
Total 2,067 1,924 1,780 417 386 304
Worldwide Ceilings:
USG Interiors, Inc. 398 385 400 53 58 53
USG International 228 235 202 2 5 6
CGC Inc. (interiors division) 30 28 29 3 4 3
Eliminations (44) (39) (37) -- -- --
- ------------------------------------------ ------- ------- ------- ------- ------- -------
Total 612 609 594 58 67 62
Corporate -- -- -- (38) (36) (41)
Eliminations (89) (89) (84) -- -- --
- ------------------------------------------ ------- ------- ------- ------- ------- -------
Total USG Corporation 2,590 2,444 2,290 437 417 325
===== ===== ===== === === ===
</TABLE>
North American Gypsum
A bar chart entitled "Net Sales (millions of dollars)" on page 25 of the Annual
Report to Stockholders shows that for the years 1994, 1995 and 1996 (shown on
the x-axis) North American Gypsum had net sales (shown on the y-axis) of $1,780
million, $1,924 million and $2,067 million, respectively.
A bar chart entitled "EBITDA (millions of dollars)" on page 25 of the Annual
Report to Stockholders shows that for the years 1994, 1995 and 1996 (shown on
the x-axis) North American Gypsum had EBITDA (shown on the y-axis) of $304
million, $386 million and $417 million, respectively.
Net sales of $2,067 million in 1996 for North American Gypsum represented an
increase of $143 million, or 7.4%, and EBITDA of $417 million improved $31
million, or 8.0%, compared with 1995. For 1995, net sales of $1,924 million
increased $144 million, or 8.1%, while EBITDA of $386 million increased $82
million, or 27.0%, over 1994 EBITDA of $304 million, which included the impact
of the aforementioned $30 million charge associated with asbestos litigation
settlements.
Results improved in 1996 for U.S. Gypsum compared with 1995 primarily due to
record shipments of Sheetrock wallboard that totaled 8.0 billion square feet
compared with 7.6 billion square feet in 1995 and 7.7 billion square feet in
1994. In addition, shipments of nonwallboard products such as Sheetrock joint
compound and Durock cement board also set records in 1996. U.S. Gypsum's average
selling price for Sheetrock wallboard in 1996 was $110.56 per thousand square
feet, a slight increase compared with the 1995 average price of $110.44, which
was up 10.4% over 1994's average price of $100.08. Manufacturing costs for
Sheetrock wallboard were down 3.9% in 1996 largely due to lower furnish prices
for wastepaper, the primary raw material of wallboard paper. Comparing 1995 with
1994, higher wastepaper furnish prices resulted in an aggregate increase of
approximately $28 million in cost of products sold. U.S. Gypsum's plants
operated at 94% of capacity in 1996, which closely approximated the estimated
average rate for the U.S. industry. In 1995, U.S. Gypsum's plants operated at
92% of capacity.
L&W Supply Corporation, USG's building products distribution business, reported
record net sales in 1996 due to record shipments of wallboard and sales of
nonwallboard products. EBITDA for L&W Supply improved significantly in each of
the past three years as a result of gross profit improvements for all of its
product lines. As of December 31, 1996, L&W Supply conducted its business out of
161 distribution centers, up from 156 centers as of year-end 1995, following the
addition of six centers and the closing of one in a consolidation during the
year.
CGC Inc.'s gypsum business experienced higher net sales and EBITDA in 1996 due
to improved wallboard demand and pricing as a result of increased housing starts
in eastern Canada and increased shipments to the United States. Results in 1995,
as compared with 1994, were adversely affected by lower demand caused by the
lowest level of housing starts in eastern Canada in 35 years and by higher unit
costs for wallboard.
Worldwide Ceilings
A bar chart entitled "Net Sales (millions of dollars)" on page 25 of the Annual
Report to Stockholders shows that for the years 1994, 1995 and 1996 (shown on
the x-axis) Worldwide Ceilings had net sales (shown on the y-axis) of $594
million, $609 million and $612 million, respectively.
A bar chart entitled "EBITDA (in millions)" on page 25 of the Annual Report to
Stockholders shows that for the years 1994, 1995 and 1996 (shown on the x-axis)
Worldwide Ceilings had EBITDA (shown on the y-axis) of $62 million, $67 million
and $58 million, respectively.
Net sales in 1996 for Worldwide Ceilings rose $3 million, or 0.5%, to $612
million, while EBITDA of $58 million declined $9 million, or 13.4%, compared
with 1995. The slightly higher sales in 1996 reflect record shipments of ceiling
tile at higher average selling prices and increased shipments of ceiling grid.
These improvements were partially offset by the absence of full-year results for
the insulation manufacturing business in the United States that was sold in
April 1996. The lower level of EBITDA was primarily attributable to: (i) a $7
million provision associated with actions implemented to improve the operating
efficiencies of USG's European businesses by reducing manufacturing and
distribution costs (ii) expenses associated with enhancing customer service
systems and (iii) start-up costs related to a new ceiling tile line placed in
service in 1996 at the Greenville, Miss., plant.
Net sales in 1995 of $609 million reflect an increase of $15 million, or 2.5%,
and EBITDA of $67 million increased $5 million, or 8.1%, compared with 1994.
Excluding results for the domestic floors unit, which was divested in December
1994, Worldwide Ceilings' 1995 net sales improved $45 million, or 8.0%, and
EBITDA increased $5 million, or 8.1%, versus 1994. The improved 1995 results
reflect increased shipments and higher average selling prices for ceiling tile.
Liquidity and Capital Resources
In 1996, the Corporation continued to pursue its strategy of reducing debt and
growing its core gypsum and ceilings businesses through a balanced application
of free cash flow between debt reduction and capital expenditures with a
near-term objective of achieving investment-grade status.
A bar chart entitled "Debt Principal (millions of dollars)" on page 26 of the
Annual Report to Stockholders shows that as of December 31, 1994, 1995 and 1996
(shown on the x-axis) the Corporation's principal amount of total debt (shown on
the y-axis) was $1,149 million, $926 million and $772 million, respectively.
A bar chart entitled "Capital Spending (millions of dollars)" on page 26 of the
Annual Report to Stockholders shows that for the years 1994, 1995 and 1996
(shown on the x-axis) the Corporation had capital spending (shown on the y-axis)
of $64 million, $147 million and $120 million, respectively.
Debt Reduction
As of December 31, 1996, the principal amount of total debt was $772 million,
reflecting a reduction of $154 million, or 16.6%, from a total of $926 million
as of December 31, 1995. The repayments of $150 million of revolving bank loans
and $28 million of outstanding 8.0% senior notes due 1996, the redemption of $22
million of outstanding 7.875% senior debentures due 2004 and short-term net
foreign repayments of $4 million were partially offset by $50 million of debt
incurred to finance the purchase of publicly held shares of CGC common stock.
(See "Note 5. Purchase of Subsidiary Minority Interest" for more information on
this transaction.)
Capital Expenditures
Capital expenditures amounted to $120 million in 1996, compared with $147
million in 1995. For North American Gypsum, capital investments in 1996 included
cost-reduction projects such as the installation of stock cleaning equipment to
utilize lower grades of recycled paper and equipment to further utilize
synthetic gypsum. In the Worldwide Ceilings business, a $35 million project was
started to replace two old production lines with one modern, high-speed line at
its ceiling tile plant in Cloquet, Minn. This project is anticipated to be
completed by mid-1998. In addition, projects completed in 1996 included a new
$45 million Auratone ceiling tile production line at the Greenville, Miss.,
plant and the installation of ceiling suspension grid manufacturing in Saudi
Arabia and Taiwan, all of which have commenced initial operations. As of
December 31, 1996, the Corporation's capital expenditure commitments for the
replacement, modernization and expansion of operations amounted to $173 million
compared with $68 million as of December 31, 1995.
The Corporation periodically evaluates possible acquisitions or combinations
involving other businesses or companies in businesses and markets related to its
current operations. The Corporation believes that its available liquidity would
be generally adequate to support most opportunities and that it has access to
additional financial resources to take advantage of other opportunities. In
November 1996, the Corporation announced a plan to build a new plant at a cost
of $110 million to manufacture Sheetrock brand wallboard in Bridgeport, Ala., to
serve growing construction markets in the southeastern United States. The
Bridgeport plant, when fully operational, will have annual capacity of 700
million square feet and will use 100% synthetic gypsum in its production of
Sheetrock wallboard. It is scheduled to begin operation in 1999 and will replace
350 million square feet of high-cost capacity at the Plasterco, Va., facility,
which will cease wallboard production at that time.
Working Capital
Working capital (current assets less current liabilities) as of December 31,
1996, amounted to $108 million, and the ratio of current assets to current
liabilities was 1.27 to 1. As of December 31, 1995, working capital was $108
million, and the ratio of current assets to current liabilities was 1.28 to 1.
Cash and cash equivalents as of December 31, 1996, amounted to $44 million
compared with $70 million as of December 31, 1995. This decrease reflects 1996
net cash flows to investing and financing activities of $159 million and $154
million, respectively, partially offset by net cash flows from operating
activities of $287 million. Receivables (net of reserves) increased to $274
million as of December 31, 1996, from $246 million as of December 31, 1995,
while inventories increased to $185 million from $175 million, and accounts
payable rose to $141 million from $130 million.
Available Liquidity
The Corporation has additional liquidity available through several financing
arrangements. These include: (i) a revolving credit facility maturing in 2002
that allows the Corporation to borrow up to $500 million, including a $125
million letter of credit subfacility, under which, as of December 31, 1996,
outstanding revolving loans totaled $110 million and letters of credit issued
and outstanding amounted to $47 million, leaving the Corporation with $343
million of unused and available credit (ii) a revolving accounts receivable
facility (see "Note 2. Financing Arrangements"), from which, as of December 31,
1996, the Corporation had additional borrowing capacity of $50 million and (iii)
a shelf registration statement filed with the Securities and Exchange Commission
allowing the Corporation to offer from time to time debt securities, shares of
preferred and common stock or warrants to purchase shares of common stock, all
having an aggregate initial offering price not to exceed $300 million. As of the
filing date of the Corporation's 1996 Annual Report on Form 10-K, no securities
had been issued pursuant to this registration.
Legal Contingencies
One of the Corporation's subsidiaries, U.S. Gypsum, is a defendant in asbestos
lawsuits alleging both property damage and personal injury. (See "Note 15.
Litigation" for information concerning the asbestos litigation.)
In April 1996, U.S. Gypsum reached a $111 million settlement with one of its
insurance carriers for past and future asbestos litigation costs. Under the
terms of the settlement, the carrier reimbursed U.S. Gypsum $62 million for past
asbestos litigation costs, while the remaining $49 million of the settlement
represents coverage in place for future settlements.
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 "Note 15. Litigation" for additional information on environmental
litigation.)
<TABLE>
Consolidated Statement of Earnings
<CAPTION>
Years ended December 31,
------------------------
(dollars in millions, except per share data) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales $ 2,590 $ 2,444 $ 2,290
Cost of products sold 1,945 1,841 1,773
---- ---- ----
Gross profit 645 603 517
Selling and administrative expenses 268 244 244
Amortization of excess reorganization value 169 169 169
---- ---- ----
Operating profit 208 190 104
Interest expense 75 99 149
Interest income (2) (6) (10)
Other (income)/expense, net 3 32 3
---- ---- ----
Earnings/(loss) before income taxes 132 65 (38)
Income taxes 117 97 54
---- ---- ----
Net earnings/(loss) 15 (32) (92)
==== ==== ====
Net earnings/(loss) per common share 0.31 (0.71) (2.14)
==== ===== =====
</TABLE>
The notes to financial statements are an integral part of this statement.
<TABLE>
Consolidated Balance Sheet
<CAPTION>
<S> <C> <C>
(dollars in millions) As of December 31,
------------------
1996 1995
---- ----
Assets
Current assets:
Cash and cash equivalents (primarily time deposits) $ 44 $ 70
Receivables (net of reserves of $17 and $14) 274 246
Inventories 185 175
- ----------- ---- ----
Total current assets 503 491
- -------------------- ---- ----
Property, plant and equipment, net 887 842
Excess reorganization value (net of accumulated amortization
of $635 and $466) 210 379
Other assets 218 178
- ------------ ---- ----
Total assets 1,818 1,890
===== =====
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 141 130
Accrued expenses 200 190
Notes payable 7 7
Current portion of long-term debt 42 35
Taxes on income 5 21
- --------------- ---- ----
Total current liabilities 395 383
- ------------------------- ---- ----
Long-term debt 706 865
Deferred income taxes 192 185
Other liabilities 548 494
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 45,724,561 and 45,262,539 shares (after
deducting 31,488 and 33,988 shares held in treasury) 5 5
Capital received in excess of par value 231 223
Deferred currency translation (10) (6)
Reinvested earnings/(deficit) (249) (259)
- ----------------------------- ---- ----
Total stockholders' equity/(deficit) (23) (37)
- ------------------------------------ ---- ----
Total liabilities and stockholders' equity 1,818 1,890
===== =====
</TABLE>
The notes to financial statements are an integral part of this statement.
<TABLE>
Consolidated Statement of Cash Flows
<CAPTION>
Years ended December 31,
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
(dollars in millions)
Operating Activities:
Net earnings/(loss) $ 15 $ (32) $ (92)
Adjustments to reconcile net earnings/(loss) to net cash:
Amortization of excess reorganization value 169 169 169
Depreciation, depletion and amortization 65 67 84
Deferred income taxes 7 6 (1)
Net (gain)/loss on asset dispositions (2) 27 (2)
(Increase)/decrease in working capital:
Receivables (28) 24 (20)
Inventories (10) (2) (28)
Payables (5) (6) 33
Accrued expenses 14 (27) 27
(Increase)/decrease in other assets (2) (10) 1
Increase in other liabilities 64 30 30
Other, net -- (10) (3)
- ---------------------------------------- ---- ---- ----
Net cash flows from operating activities 287 236 198
- ---------------------------------------- ---- ---- ----
Investing Activities:
Capital expenditures (120) (147) (64)
Net proceeds from asset dispositions 10 7 16
Purchase of subsidiary minority interest (49) -- --
- ---------------------------------------- ---- ---- ----
Net cash flows to investing activities (159) (140) (48)
- ---------------------------------------- ---- ---- ----
Financing Activities:
Issuance of debt 77 576 171
Repayment of debt (231) (804) (558)
Short-term borrowings/(repayments), net -- 5 (1)
Proceeds from public offering of common stock -- -- 224
- --------------------------------------------- ---- ---- ----
Net cash flows to financing activities (154) (223) (164)
- --------------------------------------------- ---- ---- ----
Net Increase/(Decrease) in Cash and Cash Equivalents (26) (127) (14)
Cash and cash equivalents at beginning of period 70 197 211
- ------------------------------------------------ ---- ---- ----
Cash and cash equivalents at end of period 44 70 197
==== ==== ====
Supplemental Cash Flow Disclosures:
Interest paid 74 88 115
Income taxes paid 116 108 38
</TABLE>
The notes to financial statements are an integral part of this statement.
Notes to Financial Statements
1. Significant Accounting Policies
Nature of Operations-Through its subsidiaries, USG Corporation (the
"Corporation") is a leading manufacturer of building materials, producing a wide
range of products for use in new residential and nonresidential construction and
repair and remodel, as well as products used in certain industrial processes.
The Corporation's operations are organized into two core businesses: North
American Gypsum, which manufactures and markets gypsum wallboard and related
products in the United States, Canada and Mexico, and Worldwide Ceilings, which
manufactures and markets ceiling tile, ceiling grid and other interior systems
products worldwide. Distribution is carried out through L&W Supply Corporation,
a wholly owned subsidiary of the Corporation; building materials dealers; home
improvement centers and other retailers; contractors; and specialty wallboard
distributors.
Consolidation-The consolidated financial statements include the accounts of the
Corporation and its subsidiaries. All significant intercompany balances and
transactions are eliminated in consolidation.
Use of Estimates-The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions. These estimates and assumptions affect the reported amounts of
assets, liabilities, revenues and expenses. Actual results could differ from
these estimates.
Reclassifications-Certain amounts in the prior years' financial statements have
been reclassified to conform with the 1996 presentation.
Revenue Recognition-The Corporation recognizes revenue upon the shipment of
products.
Cash and Cash Equivalents-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 classified as cash
equivalents.
Inventory Valuation-Most of the Corporation's domestic inventories are valued
under the last-in, first-out ("LIFO") method. The remaining inventories are
stated at the lower of cost or market under the first-in, first-out ("FIFO") or
average production cost methods. Inventories include material, labor and
applicable factory overhead costs.
Property, Plant and Equipment-Property, plant and equipment are stated at cost,
except for those assets that were revalued under fresh start accounting in May
1993. Provisions for depreciation of property, plant and equipment 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 additions.
Excess Reorganization Value-Excess reorganization value, which was established
in connection with a financial restructuring and the implementation of fresh
start accounting in May 1993, is currently being amortized through April 1998.
The Corporation continues to evaluate whether events and circumstances have
occurred which indicate that the remaining estimated useful life of excess
reorganization value may warrant revision or that the remaining balances may not
be recoverable.
Foreign Currency Translation-Net currency translation gains or losses on foreign
subsidiaries are included in deferred currency translation, a component of
stockholders' equity.
Research and Development-Research and development expenditures are charged to
earnings as incurred and amounted to $19 million, $18 million and $17 million in
the years ended December 31, 1996, 1995 and 1994, respectively.
2. Financing Arrangements
Refinancings-In the third quarter of 1995, the Corporation completed a
refinancing that included: (i) the establishment of a new seven-year revolving
credit facility (the "Revolving Credit Facility") to replace an existing bank
credit agreement that was due to expire in 2000 (ii) the sale of $150 million
aggregate principal amount of 8.5% senior notes due 2005 and (iii) the
redemption of the Corporation's remaining $268 million principal amount of
10.25% senior notes due 2002 using a combination of proceeds from the sale of
the 8.5% senior notes, borrowings under the Revolving Credit Facility and cash
on hand. Under the Revolving Credit Facility, the Corporation can borrow up to
$500 million, including a $125 million letter of credit subfacility, from a
syndicate of banks, which are many of the same banks that had been lenders under
the previous credit agreement. The Revolving Credit Facility provides USG
greater financial flexibility as a result of: (i) less-restrictive covenants
(ii) the letter of credit subfacility (iii) an expiration in 2002 with no
required amortization prior to maturity and (iv) a simplification of the
Corporation's capital structure through the elimination of subsidiary guarantees
on any of its senior indebtedness.
In the first quarter of 1994, the Corporation implemented a refinancing plan
that included: (i) a public offering of 14,375,000 shares of common stock, of
which 7,900,000 shares, yielding net proceeds to the Corporation of $224
million, were issued by the Corporation and 6,475,000 were sold by Water Street
Corporate Recovery Fund I, L.P. ("Water Street"), the Corporation's largest
stockholder at that time (ii) the issuance of $150 million of senior notes due
2001 to certain institutional investors in exchange for $65 million aggregate
principal amount of its outstanding senior notes due 1996 and 1997 and $85
million in cash and (iii) an amendment of the existing bank credit agreement.
Shelf Registration-In the fourth quarter of 1995, the Corporation filed a shelf
registration statement with the Securities and Exchange Commission allowing the
Corporation to offer from time to time: (i) debt securities consisting of notes,
debentures or other evidences of indebtedness in one or more series (ii) shares
of $1.00 par value preferred stock in one or more series (iii) shares of $0.10
par value common stock or (iv) warrants to purchase shares of common stock
(collectively, the "Offered Securities"), all having an aggregate initial
offering price not to exceed $300 million. The Offered Securities may be offered
separately or as units with other Offered Securities. The debt securities may be
(i) senior or subordinated or (ii) secured or unsecured. The Corporation intends
to use the net proceeds from the sale of the Offered Securities for general
corporate purposes that may include the repayment of existing indebtedness and
the financing of capital expenditures and acquisitions. The shelf registration
was declared effective by the Securities and Exchange Commission on January 3,
1996. As of the filing date of the Corporation's 1996 Annual Report on Form
10-K, no securities had been issued pursuant to this registration.
Accounts Receivable Facility-In the fourth quarter of 1994, the Corporation
entered into an accounts receivable facility (the "Receivables Facility") in
which USG Funding Corporation, 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 Chase Manhattan 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 $130 million have been issued to Citicorp Securities, Inc. Debt issued under
the Receivables Facility will have a final maturity in 2004 but may be prepaid
at any time. The interest rate on such debt is fixed at 8.2% through a long-term
interest rate swap. Pursuant to the applicable reserve and eligibility
requirements, the maximum amount of debt issuable under the Receivables Facility
as of December 31, 1996 and 1995, (including $80 million outstanding as of each
date) was $105 million and $98 million, respectively. Under the foregoing
agreements and related documentation, USG Funding is a separate corporate entity
with its own separate creditors that 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, 1996 and 1995, the outstanding balance of receivables sold to
USG Funding and held under the Master Trust was $157 million and $142 million,
respectively, and debt outstanding under the Receivables Facility was $80
million as of each date. Receivables and debt outstanding in connection with the
Receivables Facility remain in receivables and long-term debt, respectively, on
the Consolidated Balance Sheet.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." As required, the
Corporation will adopt SFAS No. 125 on January 1, 1997. The adoption of this
statement will not have any impact on the results of operations or the
consolidated financial position of the Corporation.
3. Debt
<TABLE>
Total debt, including currently maturing debt, as of December 31 consisted of
the following:
<CAPTION>
1996 1995
(dollars in millions) ---- ----
<S> <C> <C>
Secured Debt:
Revolving Credit Facility due 2002 $ 110 $ 260
Receivables Facility due 2003 and 2004 80 80
Senior notes and debentures:
8% senior notes due 1996 -- 28
8% senior notes due 1997 41 41
9.25% senior notes due 2001 150 150
7.875% sinking fund debentures due 2004 -- 22
8.5% senior notes due 2005 150 150
8.75% sinking fund debentures due 2017 140 140
Unsecured Debt:
Canadian credit facility due 1997 50 --
Industrial revenue bonds, 5.9% ranging to 8.8%,
due through 2020 40 41
Other unsecured debt, average interest rate 4.6% and 7.6%,
varying payments through 2006 11 14
---- ----
Total principal amount of debt 772 926
- ------------------------------ ---- ----
Less unamortized reorganization discount (17) (19)
- ---------------------------------------- ---- ----
Total carrying amount of debt 755 907
==== ====
</TABLE>
On July 27, 1995, the Corporation entered into a seven-year $500 million secured
Revolving Credit Facility, which includes a $125 million letter of credit
subfacility, with a syndicate of banks under a credit agreement (the "Credit
Agreement"). The Revolving Credit Facility will not require amortization prior
to maturity in 2002 and is secured by a pledge of the outstanding capital stock
of the Corporation's major domestic subsidiaries, including U.S. Gypsum, USG
Interiors, L&W Supply and USG Foreign Investments, Ltd. However, the security
will be permanently released at such time as the Corporation's senior public
debt is rated investment grade.
The Credit Agreement contains material restrictions on the operation of the
Corporation's business, including, without limitation, covenants pertaining to:
(i) investments (ii) dividends, distributions and repurchases of stock and
subordinated debt, provided that this covenant, as well as the covenant
regarding investments, would no longer apply once the Corporation's senior
public debt rating is investment grade (iii) liens (iv) sale and leaseback
transactions (v) mergers, consolidations and sales of assets with respect to the
Corporation and major subsidiaries (vi) acquisitions of businesses not related
to the building materials industry (vii) use of proceeds, provided that the use
of proceeds arising from the issuance of additional debt and equity will be at
the Corporation's discretion (viii) debt or guarantees thereof (ix) restrictions
in other agreements on the ability of subsidiaries to declare and pay dividends
and (x) financial covenants or events of default in other debt agreements that
are more restrictive than those contained in the Credit Agreement. These
negative covenants contain certain exceptions to the restrictions imposed upon
the operation of the Corporation's business.
As of December 31, 1996, outstanding revolving loans totaled $110 million, and
letters of credit issued and outstanding amounted to $47 million, leaving the
Corporation with $343 million of unused and available credit under the Revolving
Credit Facility. The revolving loans bear interest at the London Interbank
Offered Rate ("LIBOR") as determined from time to time plus an applicable spread
based on the Corporation's net debt to EBITDA ratio (as defined in the Credit
Agreement) for the preceding four quarters. As of December 31, 1996, the
applicable spread was .625%. The average rate of interest on the revolving loans
was 6.3% during the year ended December 31, 1996, and 6.8% during the period of
July 27 through December 31, 1995. The average rate of interest on bank term
loans under the former bank credit agreement was 8.2% during the period of
January 1 through July 26, 1995. (See "Note 4. Financial Instruments and Risk
Management" for information on instruments used by the Corporation to manage the
impact of interest rate changes on LIBOR-based bank debt.)
The $50 million Canadian credit facility due 1997 was classified as long-term
debt on the Consolidated Balance Sheet because it is the Corporation's intent,
and it has the ability, to replace this interim financing facility with a
long-term financing arrangement.
The weighted average interest rate on outstanding short-term borrowings was 4.2%
and 6.2% as of December 31, 1996 and 1995, respectively.
The fair market value of total debt outstanding was $777 million and $928
million as of December 31, 1996 and 1995, respectively, based on indicative bond
prices as of those dates, excluding other unsecured debt, the fair market value
of which was not practicable to estimate.
As of December 31, 1996, aggregate scheduled maturities of long-term debt,
excluding amounts classified as current liabilities, were zero for each of the
years 1998 through 2000 and $150 million for 2001.
4. Financial Instruments and Risk Management
The Corporation has limited involvement with derivative financial instruments
and does not use them for trading purposes. They are used 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:
<TABLE>
(dollars in millions) 1996 1995
---- ----
<S> <C> <C>
Interest Rate Contracts:
Notional amount $ 171 $ 305
Carrying amount -- 3
Fair value (10) (21)
Energy Price Swaps:
Notional amount 43 33
Carrying amount -- --
Fair value 4 2
Foreign Exchange Contract:
Notional amount 15 --
Carrying amount -- --
Fair value -- --
</TABLE>
The amounts reported as fair value represent the market value as obtained from
broker quotations. The negative fair values are estimates of the amounts the
Corporation would need to pay as of December 31, 1996 and 1995, to cancel the
contracts or transfer them to other parties.
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; accordingly, the Corporation anticipates that these counterparties
will be able to satisfy fully their obligations 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 enters into swap agreements and
purchases interest rate caps to manage the impact of interest rate changes on
LIBOR-based bank debt. As of December 31, 1996, the Corporation owned an
interest rate cap that capped the Corporation's expected LIBOR-based interest
payments on $25 million notional principal at 5.6% for 1997. The Corporation
also entered into various interest rate swap agreements whereby the Corporation
pays a fixed rate in exchange for LIBOR. As of December 31, 1996, the
Corporation has agreements in place to pay 7.1% in exchange for LIBOR on $50
million notional principal for the years 1997 through 2000 and on $25 million
notional principal for 2001 and 2002. In addition, the Corporation has entered
into $80 million of interest rate swap agreements to hedge its Receivables
Facility on which the interest payments are based on commercial paper rates.
Under these agreements, the Corporation pays a fixed rate of 8.2% in exchange
for the monthly commercial paper rate due on the Receivables Facility.
The Corporation also has in place an interest rate swap agreement to hedge the
anticipated long-term financing arrangement that will replace the interim
financing facility associated with the purchase of the minority interest in its
Canadian subsidiary, CGC Inc. ("CGC"). (See "Note 5. Purchase of Subsidiary
Minority Interest.") Under this agreement, the Corporation is required to pay
a fixed rate of 5.8% on a notional principal amount of $21 million Canadian ($16
million U.S.) in exchange for three-month Canadian Bankers Acceptance Rates.
This contract became effective on January 22, 1997, and matures on January 22,
2002.
As of December 31, 1995, the Corporation owned interest rate caps that capped
the Corporation's expected LIBOR-based bank debt interest payments on $100
million notional principal at 7.0% for 1996 and 6.7% for 1997. Additionally, as
of December 31, 1995, the Corporation had agreements in place to pay 7.1% in
exchange for LIBOR on $125 million notional principal for the years 1996 through
2000 and on $50 million notional principal for 2001 and 2002. Also, as of
December 31, 1995, the Corporation had $80 million of interest rate swap
agreements to hedge its Receivables Facility.
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
processes for gypsum wallboard and ceiling tile. 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, 1996 and 1995, the Corporation had
over-the-counter swap agreements to exchange monthly payments on notional
amounts of energy amounting to $43 million and $33 million, respectively, 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-As of December 31, 1996, the Corporation had a
foreign exchange forward contract in place to hedge the refinancing of the
purchase of the minority interest in CGC. This contract was for $15 million
(U.S.) and matures in January 1997. The deferred gain on this foreign exchange
hedge was not significant as of December 31, 1996. The Corporation had no
foreign exchange contracts as of December 31, 1995.
5. Purchase of Subsidiary Minority Interest
In the fourth quarter of 1996, the Corporation purchased the minority interest
in its Canadian subsidiary, CGC. The common shares of publicly held stock
totaled approximately 6 million and were acquired at a price of $11 (Canadian)
per share. The total amount paid in U.S. dollars for the shares was $49 million.
This payment was financed initially through an interim Canadian credit facility
due 1997 and was classified as long-term debt on the Consolidated Balance Sheet
and disclosed in "Note 3. Debt." The interim financing facility will be replaced
by a long-term financing arrangement. As a result of this transaction, CGC
recorded goodwill of $41 million (U.S.), which is included in other assets on
the Consolidated Balance Sheet and will be amortized over 40 years.
6. Writedown of Assets
In the fourth quarter of 1995, the Corporation recorded a $30 million pretax
($24 million after-tax) charge in connection with the sale of its insulation
manufacturing business in the United States, which was completed in the second
quarter of 1996, and the closure of its insulation plant in Canada. Included in
this charge is a $15 million noncash (no-tax-impact) write-off of excess
reorganization value associated with these businesses. The remainder of the
charge primarily reflects a writedown of the assets of these businesses to their
net realizable value. The total charge is reflected in other (income)/expense,
net in the Consolidated Statement of Earnings.
7. Income Taxes
<TABLE>
Earnings/(loss) before income taxes consisted of the following:
<CAPTION>
(dollars in millions) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
U.S. $ 138 $ 73 $ (42)
Foreign (6) (8) 4
---- ---- ----
Total 132 65 (38)
==== ==== ====
Income taxes consisted of the following:
(dollars in millions) 1996 1995 1994
---- ---- ----
Current:
Federal $ 90 $ 67 $ 39
Foreign 5 10 12
State 17 15 10
---- ---- ----
112 92 61
---- ---- ----
Deferred:
Federal 3 7 (7)
Foreign 1 (2) --
State 1 -- --
---- ---- ----
5 5 (7)
---- ---- ----
Total 117 97 54
==== ==== ====
</TABLE>
Differences between actual provisions for income taxes and provisions for income
taxes at the U.S. federal statutory rate (35% for the years ended December 31,
1996, 1995 and 1994) were as follows:
<TABLE>
(dollars in millions) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Taxes on income at federal statutory rate $ 46 $ 23 $ (13)
Excess reorganization value amortization 59 64 59
Foreign earnings subject to different tax rates 2 2 4
State income tax, net of federal benefit 12 10 6
Percentage depletion (3) (3) (3)
Other, net 1 1 1
---- ---- ----
Provision for income taxes 117 97 54
- -------------------------- ---- ---- ----
Effective income tax rate 88.9% 149.0% (142.1%)
</TABLE>
Significant components of deferred tax (assets)/liabilities as of December 31
were as follows:
<TABLE>
(dollars in millions) 1996 1995
- --------------------- ---- ----
<S> <C> <C>
Property, plant and equipment $ 171 $ 160
Debt discount 7 8
---- ----
Deferred tax liabilities 178 168
---- ----
Pension and postretirement benefits (97) (92)
Reserves not deductible until paid (106) (86)
Other 1 3
---- ----
Deferred tax assets before valuation allowance (202) (175)
Valuation allowance 90 90
---- ----
Deferred tax assets (112) (85)
- ------------------- ---- ----
Net deferred tax liabilities 66 83
==== ====
</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. Under fresh start accounting rules, any benefit realized from
utilizing $85 million of the valuation allowance does not impact net earnings.
The Corporation used net operating loss carryforwards of $20 million in 1996,
$30 million in 1995 and $50 million in 1994 (the "NOL Carryforwards") to offset
U.S. taxable income in those years. Under fresh start accounting rules, the
benefit realized from these carryforwards does not impact net earnings. Because
of the uncertainty regarding the application of the Internal Revenue Code to the
NOL Carryforwards as a result of USG's financial restructuring in May 1993,
these carryforwards could be reduced or eliminated.
The Corporation does not provide for U.S. income taxes on the portion of
undistributed earnings of foreign subsidiaries that are intended to be
permanently reinvested. The cumulative amount of such undistributed earnings
totaled approximately $138 million as of December 31, 1996. Any future
repatriation of undistributed earnings would not, in the opinion of management,
result in significant additional taxes.
8. Inventories
As of December 31, 1996 and 1995, the LIFO values of domestic inventories were
$141 million and $122 million, respectively, and would have been higher by $7
million each if they were valued under the FIFO and average production cost
methods. 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 as of December 31, 1996 and 1995. Inventory classifications as of
December 31 were as follows:
<TABLE>
(dollars in millions) 1996 1995
---- ----
<S> <C> <C>
Finished goods and work in process $118 $107
Raw materials 58 60
Supplies 9 8
- -------- ---- ----
Total 185 175
==== ====
</TABLE>
9. Property, Plant and Equipment
<TABLE>
Property, plant and equipment classifications as of December 31 were as follows:
<CAPTION>
(dollars in millions) 1996 1995
---- ----
<S> <C> <C>
Land and mineral deposits $ 58 $ 58
Buildings and realty improvements 248 245
Machinery and equipment 758 676
---- ----
1,064 979
Reserves for depreciation and depletion (177) (137)
- --------------------------------------- ---- ----
Total 887 842
==== ====
</TABLE>
10. Leases
The Corporation leases certain of its offices, buildings, machinery and
equipment, and autos under noncancelable operating leases. These leases have
various terms and renewal options. Lease expense amounted to $46 million, $41
million and $37 million in the years ended December 31, 1996, 1995 and 1994,
respectively. Future minimum lease payments required under operating leases with
initial or remaining noncancelable terms in excess of one year as of December
31, 1996, were $34 million in 1997, $30 million in 1998, $25 million in 1999,
$21 million in 2000 and $16 million in 2001. The aggregate obligation subsequent
to 2001 was $21 million.
11. Employee Retirement Plans
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 final years of
employment. The Corporation's contributions are made in accordance with
independent actuarial reports. The Corporation made special fundings of $13
million and $16 million in 1996 and 1995, respectively, to one of its plans. A
normal funding of $5 million also was made in 1995 to one of its plans. Minimal
funding was required for most plans in 1994. Net pension expense included the
following components:
<TABLE>
(dollars in millions) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 12 $ 9 $ 11
Interest cost on projected benefit obligation 35 35 31
Actual (return)/loss on plan assets (62) (72) 1
Net amortization/(deferral) 27 38 (35)
- --------------------------- ---- ---- ----
Net pension expense 12 10 8
==== ==== ====
</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, 1996 and 1995. The
following table presents a reconciliation of the total assets of the pension
plans to the projected benefit obligation as of December 31:
<TABLE>
(dollars in millions) 1996 1995
---- ----
<S> <C> <C>
Amount of assets available for benefits:
Funded assets of the plans at fair market value $ 464 $ 427
Accrued pension expense 26 23
---- ----
Total assets of the plans 490 450
---- ----
Present value of estimated pension obligation:
Vested benefits 349 344
Nonvested benefits 32 31
---- ----
Accumulated benefit obligation 381 375
Additional benefits based on projected future salary increases 111 110
---- ----
Projected benefit obligation 492 485
---- ----
Projected benefit obligation in excess of assets (2) (35)
==== ====
</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 years ended
December 31, 1996 and 1995. The assumed weighted average discount rate used in
determining the accumulated benefit obligation was 7.5% and 7.25% as of December
31, 1996 and 1995, respectively. The rate of increases in projected future
compensation levels was 5% for both years.
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:
<TABLE>
(dollars in millions) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost of benefits earned $ 6 $ 4 $ 6
Interest on accumulated postretirement benefit obligation 16 13 12
Net amortization/(deferral) -- (1) --
---- ---- ----
Net periodic postretirement benefit cost 22 16 18
==== ==== ====
</TABLE>
The status of the Corporation's accrued postretirement benefit cost as of
December 31 was as follows:
<TABLE>
(dollars in millions) 1996 1995
---- ----
Accumulated postretirement benefit obligation:
<S> <C> <C>
Retirees $119 $ 99
Fully eligible active participants 17 15
Other active participants 86 71
---- ----
222 185
Unrecognized net gain/(loss) (7) 16
---- ----
Accrued postretirement benefit cost liability recognized
on the Consolidated Balance Sheet 215 201
==== ====
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 9% as of December 31, 1996 and 1995, with
a rate gradually declining to 5% by 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
$33 million and $20 million as of December 31, 1996 and 1995, respectively, and
would increase the net periodic postretirement benefit cost by $4 million and $2
million for the years ended December 31, 1996 and 1995, respectively. The
assumed discount rate used in determining the accumulated postretirement benefit
obligation was 7.5% and 7.25% as of December 31, 1996 and 1995, respectively.
12. Stock-Based Compensation
The Corporation has issued stock options from two compensation plans: the 1995
Long-Term Equity Plan and the Management Performance Plan.
Under the 1995 Long-Term Equity Plan, options were granted at an exercise price
equal to the market value on the date of grant. All options granted under the
1995 Long-Term Equity Plan have 10-year terms and vest and become fully
exercisable at the end of two years. Under the Management Performance Plan,
options were granted at an exercise price equal to the market value on the date
of grant. 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 10th anniversary of the date of the 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.
The Financial Accounting Standards Board issued SFAS No. 123, "Accounting for
Stock-Based Compensation," which the Corporation adopted on January 1, 1996. As
permitted, the Corporation continued its current method of accounting for
stock-based compensation in accordance with Accounting Principles Board Opinion
No. 25.
In accordance with SFAS No. 123, the fair value of each option grant was
estimated as of the date of grant using an option pricing model. The Corporation
used the Black-Scholes option pricing model with the following weighted-average
assumptions for options granted in 1996: (i) zero dividend yield (ii) expected
volatility of 33% (iii) risk-free interest rate of 5.9% and (iv) expected option
life of 7.4 years. If the Corporation had elected to recognize compensation cost
for stock-based compensation grants consistent with the method prescribed by
SFAS No. 123, net earnings and net earnings per common share for 1996 and 1995
would not have been materially different from the amounts reported in the
Consolidated Statement of Earnings.
<TABLE>
Stock option activity was as follows:
<CAPTION>
1996 1995 1994
----------------------- --------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period 2,560,100 $ 19.19 2,764,500 $ 18.78 1,673,000 $ 10.31
Granted 359,500 29.40 -- -- 1,161,500 30.46
Exercised (343,035) 10.75 (172,555) 10.88 (23,800) 10.31
Canceled (11,150) 28.29 (31,845) 28.33 (46,200) 10.31
- -------- --------- ----- --------- ----- --------- -----
Outstanding at end of period 2,565,415 21.71 2,560,100 19.19 2,764,500 18.78
========= ===== ========= ===== ========= =====
Exercisable at end of period 1,888,715 18.82 1,369,295 16.31 578,020 10.31
Available for grant at end of period 467,045 929,395 50
</TABLE>
The weighted average fair value of options, calculated using the Black-Scholes
option pricing model, granted during the year ended December 31, 1996, was
$14.17. No stock options were granted in 1995. The following table summarizes
information about stock options outstanding as of December 31, 1996:
<TABLE>
Options Outstanding Options Exercisable
--------------------------------------- -------------------------
Weighted- Weighted- Weighted-
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Contractual Life Price Exercisable Price
------ ----------- ---------------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$ 5 to $15 1,103,700 6.4 $ 10.31 1,103,700 $ 10.31
15 to 25 203,300 7.6 21.88 130,700 21.88
25 to 35 1,258,415 7.7 31.68 654,315 32.56
--------- --------- --- ----- ------- -----
Total 2,565,415 1,888,715
========= =========
</TABLE>
13. Stockholders' Equity
<TABLE>
Changes in stockholders' equity are summarized as follows:
<CAPTION>
(dollars in millions) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Common Stock:
Beginning balance $ 5 $ 5 $ 4
Equity offering -- -- 1
- --------------- ---- ---- ----
Ending balance 5 5 5
---- ---- ----
Capital Received in Excess of Par Value:
Beginning balance 223 221 --
Equity offering -- -- 223
Other, net 8 2 (2)
---- ---- ----
Ending balance 231 223 221
---- ---- ----
Deferred Currency Translation:
Beginning balance (6) (13) (9)
Change during the period (4) 7 (4)
---- ---- ----
Ending balance (10) (6) (13)
---- ---- ----
Reinvested Earnings/(Deficit):
Beginning balance (259) (221) (129)
Net earnings/(loss) 15 (32) (92)
Other, net (5) (6) --
----- ----- -----
Ending balance (249) (259) (221)
- -------------- ----- ----- -----
Total stockholders' equity/(deficit) (23) (37) (8)
===== ===== =====
</TABLE>
There were 31,488 and 33,988 shares of $0.10 par value common stock held in
treasury as of December 31, 1996 and 1995, respectively. These shares were
acquired through the forfeiture of restricted stock and the surrender of shares
in settlement of tax withholding obligations.
In 1994, the Corporation implemented an equity offering under which 14,375,000
shares of common stock were sold to the public, consisting of 7,900,000 shares
issued by the Corporation and 6,475,000 sold by Water Street. Net proceeds to
the Corporation from the equity offering amounted to $224 million. The
Corporation did not receive any proceeds from the sale of shares by Water
Street.
Warrants-As of December 31, 1996 and 1995, outstanding warrants amounted to
2,591,091 and 2,592,228, respectively. 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.
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, in addition to common
stock, were issued to holders of certain debt that was converted to equity in
the financial restructuring implemented on that date. 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.
Stockholder Rights Plan-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 the Corporation and its 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 that the Corporation's
Board of Directors determines to represent a threat of acquisition not in the
best interests of the Corporation's stockholders) or 10 business days after
commencement of a tender offer for 30% or more of the outstanding common stock.
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 an exchange feature.
In the event that the Corporation is the surviving corporation and its 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, or in the
event that there is a 10% acquisition that the Board of Directors determines to
represent a threat of acquisition not in the best interests of the Corporation's
stockholders, 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.
14. Industry and Geographic Segments
Transactions between industry and geographic segments are accounted for at
transfer prices that are approximately equal to market value. Intercompany
transfers between industry and geographic segments are not material.
Eliminations reflect intercompany sales between industry segments. No single
customer accounted for 10% or more of consolidated net sales. Export sales to
foreign unaffiliated customers represent less than 10% of consolidated net
sales. Segment operating profit/(loss) includes all costs and expenses directly
related to the segment involved and an allocation of expenses that benefit more
than one segment. Segment operating profit/(loss) also includes the noncash
amortization of excess reorganization value, which had the impact of reducing
operating profit and identifiable assets for North American Gypsum and Worldwide
Ceilings. The decrease in 1995 corporate identifiable assets versus 1994
primarily reflects a $127 million reduction in cash and cash equivalents
primarily because of debt repayments.
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 following
table. As of December 31, 1996, 1995 and 1994, such receivables, net of
reserves, amounted to $121 million, $110 million and $123 million, respectively,
including $89 million, $78 million and $84 million purchased from U.S. Gypsum
and $32 million, $32 million and $39 million purchased from USG Interiors as of
the respective dates.
<TABLE>
Industry Segments
<CAPTION>
North
(dollars in millions) American Worldwide
Gypsum Ceilings Corporate Eliminations Total
------ -------- --------- ------------ -----
<S> <C> <C> <C> <C> <C>
1996
Net sales $2,067 $ 612 $ -- $ (89) $2,590
Amortization of excess reorganization value 82 87 -- -- 169
Operating profit/(loss) 291 (44) (39) -- 208
Depreciation, depletion and amortization 44 15 6 -- 65
Capital expenditures 63 56 1 -- 120
Identifiable assets 1,161 478 184 (5) 1,818
1995
Net sales 1,924 609 -- (89) 2,444
Amortization of excess reorganization value 82 87 -- -- 169
Operating profit/(loss) 262 (34) (38) -- 190
Depreciation, depletion and amortization 42 14 11 -- 67
Capital expenditures 96 49 2 -- 147
Identifiable assets 1,157 531 206 (4) 1,890
1994
Net sales 1,780 594 -- (84) 2,290
Amortization of excess reorganization value 82 87 -- -- 169
Operating profit/(loss) 184 (38) (42) -- 104
Depreciation, depletion and amortization 38 13 33 -- 84
Capital expenditures 49 15 -- -- 64
Identifiable assets 1,178 600 352 (6) 2,124
</TABLE>
<TABLE>
Geographic Segments
<CAPTION>
<PAGE>
Transfers
Between
Other Geographic
(dollars in millions) United States Canada Foreign Areas Total
------------ ------- ------- ----- -----
<S> <C> <C> <C> <C> <C>
1996
Net sales $2,319 $ 169 $ 242 $ (140) $2,590
Amortization of excess reorganization value 135 18 16 -- 169
Operating profit/(loss) 209 1 (2) -- 208
Depreciation, depletion and amortization 53 6 6 -- 65
Capital expenditures 102 13 5 -- 120
Identifiable assets 1,472 177 169 -- 1,818
1995
Net sales 2,161 155 246 (118) 2,444
Amortization of excess reorganization value 135 18 16 -- 169
Operating profit/(loss) 191 (3) 2 -- 190
Depreciation, depletion and amortization 56 6 5 -- 67
Capital expenditures 123 19 5 -- 147
Identifiable assets 1,557 146 187 -- 1,890
1994
Net sales 2,008 164 228 (110) 2,290
Amortization of excess reorganization value 135 18 16 -- 169
Operating profit 94 2 8 -- 104
Depreciation, depletion and amortization 74 5 5 -- 84
Capital expenditures 52 9 3 -- 64
Identifiable assets 1,770 153 200 1 2,124
</TABLE>
15. Litigation
Asbestos Litigation-One of the Corporation's subsidiaries, U.S. Gypsum, is among
numerous defendants in lawsuits arising out of the manufacture and sale of
asbestos-containing building materials. U.S. Gypsum sold certain
asbestos-containing products beginning in the 1930s; 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 asbestos-containing
products in buildings (the "Property Damage Cases"). Other suits seek
compensatory and in many cases punitive damages for personal injury allegedly
resulting from exposure to asbestos and asbestos-containing products (the
"Personal Injury Cases"). It is anticipated that additional personal injury and
property damage cases containing similar allegations will be filed.
As discussed below, U.S. Gypsum had substantial personal injury and property
damage insurance during the years involved in the asbestos litigation. After
deducting insolvencies and amounts already received from carriers, including
approximately $133 million received during 1995 and 1996, approximately $350
million of insurance remained potentially available as of December 31, 1996, of
which approximately $130 million is no longer contested and another $145 million
is in dispute only for property damage coverage. Remaining coverage disputes
with five excess insurance carriers are being litigated in a declaratory
judgment action filed by U.S. Gypsum in the Circuit Court of Cook County, Ill.,
in 1983 (U.S. Gypsum Co. v. Admiral Insurance Co., et al.) (the "Coverage
Action"), described below.
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 $33.4 million in 1994.
However, insurance payments exceeded aggregate asbestos-related costs by
approximately $10 million in 1995 and $41 million in 1996 due to the receipt of
reimbursement for amounts expended in prior years.
Property Damage Cases-The Property Damage Cases have been brought against U.S.
Gypsum by a variety of plaintiffs, including state and local governments,
colleges and universities, and private property owners. As of December 31, 1996,
23 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 23 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.
Class Actions: U.S. Gypsum is one of several defendants in two pending cases
that have been certified as class actions, as well as others that request such
certification. The damages claimed against U.S. Gypsum in the class actions are
unspecified. The two certified class actions are a conditionally certified class
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.),
and a class action on behalf of various public bodies in the State of Texas,
including cities, counties, hospitals, port authorities and colleges (Kirbyville
Independent School District v. U.S. Gypsum Co., et al., U.S.D.C., E.D. Texas).
During 1996, U.S. Gypsum obtained final approval of a $3.6 million settlement of
another class action involving 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.).
A case pending in state court in South Carolina, which has not been certified as
a class action, purports to be a class action on behalf of owners of most
buildings in South Carolina that contain certain types of asbestos-containing
products manufactured by the named defendants, including U.S. Gypsum (Anderson
County Hospital v. W.R. Grace & Co., et al., Court of Common Pleas, Hampton
Co., S.C.). In September 1996, the plaintiff voluntarily dismissed certain
fraudulent conveyance allegations against U.S. Gypsum and the Corporation
relating to the Corporation's 1988 restructuring.
Results to Date: In total, U.S. Gypsum has settled approximately 104 Property
Damage Cases, involving 235 plaintiffs, in addition to 3 class action
settlements. Twenty-four cases have been tried to verdict, 16 of which were won
by U.S. Gypsum and 5 lost; 3 other cases, 1 won at the trial level and 2 lost,
were settled during appeals. In the cases lost, compensatory damage awards
against U.S. Gypsum have totaled $11.5 million. Punitive damages totaling $5.5
million were entered against U.S. Gypsum in four trials. Two of the punitive
damage awards, totaling $1.45 million, were paid, and 2 were settled during the
appellate process.
In 1994, 5 Property Damage Cases were filed against U.S. Gypsum, 5 cases 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 and received insurance payments
of $9 million in 1994. In 1995, 3 Property Damage Cases were filed against U.S.
Gypsum, 7 cases were dismissed before trial, 3 were settled, 2 were closed
following trial or appeal, and 32 were pending at year end. U.S. Gypsum expended
$36 million for the defense and resolution of Property Damage Cases and received
insurance payments of $48.6 million in 1995. During 1996, 2 Property Damage
Cases were filed against U.S. Gypsum, 3 cases were dismissed before trial, 8
were settled, and 23 were pending at year end; U.S. Gypsum expended $33.4
million for the defense and resolution of Property Damage Cases and received
insurance payments of $84 million in 1996. A substantial portion of the
insurance payments was reimbursement for amounts expended in prior years.
Estimated Cost: 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 that are identified in the buildings at issue.
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 Cases involving approximately 59,600 claimants pending as of
December 31, 1996, although approximately 13,000 of such claims are settled but
not yet closed. In addition, 27,000 of such claims are enjoined from proceeding
because they did not "opt out" of the Georgine class action referred to below;
an appellate court has ruled that the class action must be decertified and the
injunction dissolved, although the U.S. Supreme Court is now reviewing that
ruling.
Center for Claims Resolution: 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.
Virtually all of U.S. Gypsum's personal injury liability and defense costs are
paid by those of its insurance carriers that in 1985 signed an Agreement
Concerning Asbestos-Related Claims (the "Wellington Agreement"), obligating them
to provide coverage for the defense and indemnity costs incurred by U.S. Gypsum
in Personal Injury Cases. Punitive damages have never been awarded against U.S.
Gypsum in a Personal Injury Case, but whether such an award would be covered by
insurance under the Wellington Agreement would depend on state law and the terms
of the individual policies.
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 the 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.
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. During 1995,
approximately 13,000 Personal Injury Cases were filed against U.S. Gypsum, and
17,600 were settled or dismissed. U.S. Gypsum incurred expenses of $32.1 million
in 1995 with respect to Personal Injury Cases, of which $30.9 million was paid
by insurance. During 1996, approximately 28,000 Personal Injury Cases were filed
against U.S. Gypsum, and approximately 20,000 were settled or dismissed. U.S.
Gypsum incurred expenses of $28.6 million in 1996 with respect to Personal
Injury Cases, of which $21.6 million was paid by insurance. (The reduction in
the portion of the cost paid by insurance in 1996 was attributable to the impact
of certain insurer insolvencies.) As of December 31, 1996, 1995, and 1994,
approximately 59,600, 50,000, and 54,000 Personal Injury Cases were outstanding
against U.S. Gypsum, respectively.
Georgine Class Action Settlement: 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"). As
noted below, the U.S. Supreme Court is currently reviewing a Court of Appeals
ruling that the class should be decertified and the settlement vacated. However,
the settlement, if implemented, creates an administrative compensation system
that will replace judicial claims for all persons who have been occupationally
exposed to asbestos-containing products manufactured by the defendants, unless
they filed either an asbestos personal injury suit prior to January 24, 1994, or
an "opt out" request (a request to retain the right to file suit in the court
system without regard to the provisions of Georgine). The Georgine settlement
would 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. Each of the
defendants committed to fund a defined portion of the settlement, up to a stated
maximum amount, over the initial 10-year period of the agreement (which is
automatically extended unless terminated by the defendants). In each year, a
limited number of class members would have certain rights to prosecute their
claims for compensatory damages in court if they reject the compensation
provided through the administrative process. In addition, approximately 85,000
individuals opted out of the settlement. (Approximately 33,000 of these
individuals had filed suit as of December 31, 1996, although not all of such
suits named U.S. Gypsum as a defendant.) Claimants who attempt to file suit in
the courts but have not opted out of Georgine, including approximately 27,000 of
the pending Personal Injury Cases, are enjoined from further proceeding against
the Center members in the courts and will be required to pursue such claims
through the Georgine administrative process unless the injunction is vacated.
Final consummation of the settlement is contingent upon, among other things,
court approval of the settlement, and a ruling that the Center members'
insurers, many of which dispute coverage for Georgine, are obligated to fund
their portion of it.
On May 10, 1996, the U.S. Court of Appeals for the Third Circuit ruled that
Georgine does not meet the requirements for class certification and ordered that
the injunction be vacated and that the district court decertify the class.
However, on November 1, 1996, the U.S. Supreme Court agreed to review the Third
Circuit decision. The Third Circuit ruling is stayed until the Supreme Court
issues its decision, which is expected during the first half of 1997. The Center
has continued to process and resolve Georgine administrative claims while the
appeal is pending. As of December 31, 1996, U.S. Gypsum was named in
approximately 5,600 open Georgine claims.
If the Third Circuit ruling is not reversed, the Georgine settlement and
injunction will be dissolved and future Personal Injury Cases will be dealt with
in the court system unless an alternative to Georgine can be negotiated. It is
also expected that plaintiffs in a substantial number of pending personal injury
suits against other companies will amend their complaints to add Center members,
including U.S. Gypsum, as defendants if the Georgine settlement is dissolved.
Filings of Personal Injury Cases increased following the Third Circuit ruling,
although most of the new filings were brought on behalf of individuals who did
not opt out of Georgine, subjecting their cases to dismissal unless the Third
Circuit ruling is affirmed by the Supreme Court.
Estimated Cost: Management has estimated U.S. Gypsum's liability for Personal
Injury Cases based upon information provided by the Center, and taking into
account the experience of U.S. Gypsum and the Center as well as a number of
uncertainties.
Management estimates U.S. Gypsum's probable cost of disposing of all Personal
Injury Cases pending on December 31, 1996, to be between $100 million and $115
million, virtually all of which is expected to be paid by insurance.
If Georgine is implemented in its current form (which would require a reversal
of the Court of Appeals ruling by the Supreme Court), management estimates U.S.
Gypsum's maximum total exposure in all Personal Injury Cases, including both
those currently pending and those filed during the next eight years (other than
cases filed in the future by persons who opted out of the Georgine class
action), to be between $190 million and $200 million, of which all but
approximately $10 million is expected to be paid by insurance. The estimated
cost of Personal Injury Cases if Georgine is implemented is based upon the
maximum number of claims eligible to be processed in each year and the total
amount potentially available to the claimants over the remaining eight years of
the initial 10-year term of Georgine. U.S. Gypsum's actual liability under
Georgine may be lower, depending upon the number and severity of claims that are
filed. As noted, these estimates do not include future opt out Personal Injury
Cases. U.S. Gypsum's additional exposure for opt out cases would depend on the
number and severity of such claims that are filed, which cannot presently be
determined.
If Georgine is not implemented, management is unable to estimate U.S. Gypsum's
liability in future Personal Injury Cases, because liability in such cases would
depend upon the number and severity of such claims that are filed, which cannot
presently be determined.
U.S. Gypsum records an accrual for currently pending Personal Injury Cases, and
separately records an asset in the amount of such liability that is expected to
be paid by uncontested insurance. As of December 31, 1996, this accrual and
asset were each in the amount of $100 million. No reserve has been recorded for
future Personal Injury Cases due to the uncertainty concerning the ultimate
implementation of Georgine and management's current inability to estimate
liability in future Personal Injury Cases if Georgine is dissolved.
Coverage Action-U.S. Gypsum has resolved its coverage disputes with twelve
carriers. Five carriers remain as defendants in the Coverage Action in
connection with coverage for future asbestos-related costs. U.S. Gypsum's only
remaining insurance claims relating to its past expenditures are
against carriers that are now insolvent. (See "Insolvent Carriers" below.)
The property damage phase of the Coverage Action was tried using eight "test"
Property Damage Cases. On November 4, 1994, the Illinois Appellate Court ruled
that the eight "test" cases were covered under all insurance policies in effect
from the date of installation to the date of removal of asbestos-containing
products (known as the "continuous trigger" of coverage). Further proceedings
will be necessary in the trial court to resolve certain other remaining issues,
some of which, if determined adversely to U.S. Gypsum, could reduce the amount
or accessibility of available coverage from carriers that have not yet settled.
No schedule has yet been established for the resolution of these issues.
The continuous trigger ruling will, subject to the resolution of the remaining
issues referred to above, allow U.S. Gypsum to access all of its available
insurance coverage for Property Damage Cases (although the same coverage must
also be used for Personal Injury Cases). Under the continuous trigger, all
Property Damage Cases would be covered by insurance unless or until such
insurance becomes exhausted.
Only three of the remaining defendants in the Coverage Action have not yet
agreed to cover Personal Injury Cases. Personal injury coverage issues as to
these carriers have been stayed while the parties attempt to reach a settlement.
If a settlement cannot be reached, a number of issues regarding personal injury
coverage will need to be litigated in the Coverage Action with respect to their
policies.
Settlements: Twelve carriers have settled U.S. Gypsum's claims for both property
damage and personal injury coverage and are no longer parties in the Coverage
Action. Several of these carriers paid all or a substantial portion of their
policy limits to U.S. Gypsum as reimbursement for past property damage costs. In
April 1996, one of those carriers, which provided $111 million of excess
coverage, paid U.S. Gypsum $62 million as reimbursement for past costs and
agreed to make its remaining $49 million of coverage available in the future for
both bodily injury and property damage costs. In total, U.S. Gypsum received
approximately $133 million from insurance settlements during 1995 and 1996.
These amounts, in addition to U.S. Gypsum's annual accrual of $18 million, have
been added to U.S. Gypsum's additional reserve with respect to asbestos costs.
All out-of-pocket asbestos expenditures are charged against this reserve, which
was approximately $130 million as of December 31, 1996. Five excess carriers
have agreed to provide future coverage for both Property Damage Cases and
Personal Injury Cases, subject to certain limitations and conditions, when and
if underlying policies are exhausted. Two other excess carriers cover Personal
Injury Cases under the Wellington Agreement but have not yet agreed to cover
Property Damage Cases.
Insolvent Carriers: Insolvency proceedings have been instituted against four of
U.S. Gypsum's domestic insurance carriers, as well as underwriters of portions
of various policies issued by Lloyds and other London market companies, that
provided a total of approximately $106 million of coverage. Because these
policies would already have been consumed by U.S. Gypsum's asbestos expenses to
date if the carriers had been solvent, the insolvencies will not adversely
affect U.S. Gypsum's coverage for future asbestos-related costs. However, U.S.
Gypsum is pursuing claims for reimbursement from the insolvent estates and other
sources and expects to recover a presently indeterminable portion of the policy
amounts from these sources. In February 1997, U.S. Gypsum was paid approximately
$11 million by the receiver for one of the insolvent carriers.
Remaining Insurance: Taking into account the above settlements, including
insurance consumption through December 31, 1996, carriers providing a total of
approximately $150 million of insurance that was unexhausted as of December 31,
1996, 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 $145 million of coverage that was unexhausted as of December 31,
1996, 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. An additional $55 million of insurance remains in
dispute for both personal injury and property damage coverage. U.S. Gypsum
continues to seek negotiated resolutions with its carriers in order to minimize
the expense and delays of litigation.
Conclusion-A number of uncertainties continue to exist concerning the impact of
the asbestos litigation on the Corporation, including the number of additional
asbestos-related claims that will be filed against U.S. Gypsum; U.S. Gypsum's
liability in the Property Damage Cases in which exposure information is
currently lacking; the fate of the Georgine settlement; and the outcome of
negotiations with and, if necessary, proceedings against those of U.S. Gypsum's
insurers that continue to deny coverage. Therefore, the effect of the asbestos
litigation on the Corporation will depend upon a variety of factors, including
U.S. Gypsum's ability to successfully defend or settle the Property Damage Cases
that reach trial prior to the completion of the Coverage Action, the outcome of
the appeal of the Georgine settlement, and the resolution of U.S. Gypsum's
claims against the remaining defendants in the Coverage Action. As a result,
management is unable to determine whether an adverse outcome in the asbestos
litigation will have a material adverse effect on the results of operations or
the consolidated financial position of the Corporation.
Environmental Litigation-The Corporation and certain of its subsidiaries have
been notified by state and federal environmental protection agencies of possible
involvement as one of numerous "potentially responsible parties" in a number of
so-called "Superfund" sites in the United States. In most 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 estimated 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.
Report of Management
Management of USG Corporation is responsible for the preparation, integrity and
fair presentation of the financial information included in this report. The
financial statements have been prepared in accordance with generally accepted
accounting principles and necessarily include certain amounts that are based on
management's estimates and judgment.
Management is responsible for maintaining a system of internal accounting
controls to provide reasonable assurance as to the integrity and reliability of
the financial statements, the proper safeguarding and use of assets, and the
accurate execution and recording of transactions. Such controls are based on
established policies and procedures and are implemented by trained personnel.
The system of internal accounting controls is monitored by the Corporation's
internal auditors to confirm that the system is proper and operating
effectively. 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 Corporation's financial statements have been audited by Arthur Andersen LLP,
independent public accountants. Their audit was conducted in accordance with
generally accepted auditing standards and included consideration of the
Corporation's internal control system. Management has made available to Arthur
Andersen LLP all the Corporation's financial records and related data, as well
as minutes of the meetings of the Board of Directors. Management believes that
all representations made to Arthur Andersen LLP were valid and appropriate.
The Board of Directors, operating through its Audit Committee composed entirely
of nonemployee directors, provides oversight to the financial reporting process.
The Audit Committee meets periodically with management, the internal auditors
and Arthur Andersen LLP, jointly and separately, to review financial reporting
matters, internal accounting controls and audit results to assure that all
parties are properly fulfilling their responsibilities. Both Arthur Andersen LLP
and the internal auditors have unrestricted access to the Audit Committee.
/s/ William C. Foote
- --------------------
William C. Foote
Chairman, President and Chief Executive Officer
/s/ Richard H. Fleming
- ----------------------
Richard H. Fleming
Senior Vice President and Chief Financial Officer
/s/ Raymond T. Belz
- -------------------
Raymond T. Belz
Vice President and Controller
January 27, 1997
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
and subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of earnings and cash flows for the years ended December 31, 1996,
1995 and 1994. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of USG Corporation and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the years ended December 31, 1996, 1995 and
1994, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
-----------------------
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 27, 1997
<TABLE>
Selected Quarterly Financial Data (unaudited)
<CAPTION>
(dollars in millions, First Second Third Fourth Total
except per share data) Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
1996
Net sales $ 602 $ 642 $ 678 $ 668 $ 2,590
Gross profit 131 160 179 175 645
Operating profit (a) 22 53 67 66 208
Net earnings/(loss) (a) (15) 4 13 13 15
Per common share:
Net earnings/(loss)(b) (0.32) 0.09 0.26 0.26 0.31
Price range (c) high 30.500 29.000 29.875 34.500 34.500
low 24.000 24.000 25.750 28.125 24.000
EBITDA 79 110 125 123 437
1995
Net sales 598 615 629 602 2,444
Gross profit 152 149 152 150 603
Operating profit (a) 50 47 48 45 190
Net loss (a) (2) (3) (2) (25)(d) (32)
Per common share:
Net loss (0.05) (0.07) (0.04) (0.55) (0.71)
Price range (c) high 24.125 26.875 29.625 31.375 31.375
low 19.250 21.625 23.625 26.875 19.250
EBITDA 106 103 106 102 417
</TABLE>
(a) Excess reorganization value, which was established in connection with a
financial restructuring in May 1993, is currently being amortized over a
five-year period. This noncash amortization, which has no tax impact, reduced
operating profit and net earnings by approximately $42 million in each quarter
during 1996 and 1995.
(b) Net earnings/(loss) per common share is calculated using average shares and,
if applicable, common stock equivalents, outstanding during the period.
Consequently, for 1996, the sum of the four quarters does not equal the total
for the year.
(c) 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, 1997: Common-4,508; Preferred-none.
(d) Fourth-quarter 1995 net loss includes a $30 million pretax ($24 million
after-tax) charge in connection with the sale of the Corporation's insulation
manufacturing business in the United States, which was completed in the second
quarter of 1996, and the closure of its insulation plant in Canada.
<TABLE>
Comparative Five-Year Summary (a) (unaudited)
<CAPTION>
Years ended December 31, May 7- Jan. 1- Year ended
------------------------ Dec. 31, May 6 Dec. 31,
1996 1995 1994 1993 1993 1992
---- ---- ---- -------- ----- --------
(dollars in millions, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Earnings Statement Data:
Net sales $ 2,590 $ 2,444 $ 2,290 $ 1,325 $ 591 $ 1,777
Gross profit 645 603 517 263 109 317
Selling and administrative expenses 268 244 244 149 71 218
Amortization of excess reorganization value 169 169 169 113 -- --
Operating profit 208 190 104 1 38 99
Interest expense 75 99 149 92 86 334
Interest income (2) (6) (10) (4) (2) (12)
Other (income)/expense, net 3 32 3 (8) 6 1
Reorganization items -- -- -- -- (709) --
Earnings/(loss) from continuing
operations before extraordinary items
and changes in accounting principles 15 (32) (92) (108) 640 (191)
Extraordinary gain/(loss), net of taxes -- -- -- (21) 944 --
Cumulative effect of accounting changes -- -- -- -- (150) --
Net earnings/(loss) 15 (32) (92) (129) 1,434 (191)
Net earnings/(loss) per common share (b) 0.31 (0.71) (2.14) (3.46)
Balance Sheet Data (as of the end of the period):
Working capital/(deficit) 108 108 228 132 218 (2,610)
Current ratio 1.27 1.28 1.55 1.28 1.78 0.20
Property, plant and equipment, net 887 842 755 754 767 800
Total assets 1,818 1,890 2,124 2,163 2,194 1,659
Total debt (c) 772 926 1,149 1,531 1,556 2,711
Total stockholders' equity/(deficit) (23) (37) (8) (134) 4 (1,880)
Other Information:
EBITDA 437 417 325 155 63 159
Capital expenditures 120 147 64 29 12 49
Gross margin % 24.9 24.7 22.6 19.8 18.4 17.8
EBITDA margin % 16.9 17.1 14.2 11.7 10.7 8.9
Market value per common share (b) 33.88 30.00 19.50 29.25
Average number of employees 12,500 12,400 12,300 11,900 11,750 11,850
</TABLE>
(a) Due to a financial restructuring and implementation of fresh start
accounting, financial statements for periods subsequent to May 6, 1993, are not
comparable to financial statements for periods through that date. Accordingly, a
vertical line has been added to separate such information.
(b) Per share information for the period of January 1 through May 6, 1993, and
for the year ended December 31, 1992, is omitted because, as a result of the
financial restructuring and implementation of fresh start accounting, it is not
meaningful. Market value per common share reflects the closing stock price on
December 31 of the applicable year.
(c) 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 are $755 million, $907 million,
$1,122 million, $1,476 million and $1,461 million as of December 31, 1996, 1995,
1994 and 1993, and May 6, 1993, respectively.
EXHIBIT 21
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.
<TABLE>
Organized Under
Name of Company Laws of
<CAPTION>
Domestic:
<S> <C>
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. (a)....................................................... 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
Alabaster Assurance Company, Ltd........................................................ Vermont
International:
CGC Inc. (a)............................................................................ Canada
USG Canadian Mining Ltd................................................................. Ontario
Gypsum Transportation Limited........................................................... Bermuda
Yeso Panamericano, S.A. de C.V.......................................................... Mexico
USG Manufacturing Worldwide, Ltd........................................................ Caymans
Panama Gypsum Company................................................................... Panama
USG Interiors (Donn) S.A................................................................ Belgium
Donn Products GmbH...................................................................... Germany
USG Interiors Eastern Manufacturing GmbH................................................ Germany
USG Interiors East Sales GmbH........................................................... Germany
USG (U.K.) Ltd.......................................................................... United Kingdom
USG France S.A.......................................................................... France
USG (Netherlands) B.V................................................................... Netherlands
USG Interiors (Europe) S.A.............................................................. Belgium
USG Interiors Coordination Centre S.A................................................... Belgium
USG Belgium Holdings S.A................................................................ Belgium
USG Asia Pacific Holdings Pty. Ltd...................................................... 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, 1996, L&W Supply conducted its business out of 161
locations in 34 states using various names registered under applicable
assumed business name statutes.
</TABLE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated January 27, 1997, included in this Form 10-K for
the year ended December 31, 1996, into the Corporation's previously filed
Registration Statements Nos. 33-40136 and 33-64217 on Form S-3 and 33-22581, as
amended, 33-22930, 33-36303, 33-52573, 33-52715, 33-63554 and 33-65383 on Form
S-8.
/s/ Arthur Andersen LLP
-----------------------
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 5, 1997
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose name 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 ending December 31, 1996 of USG Corporation and any or 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 substitutes, may
lawfully do or cause to be done by virtue hereof.
This power of attorney has been signed as of the 12th day of February, 1997, by
the following persons:
/s/ William C. Foote /s/ W.H. Clark
- --------------------- ---------------
William C. Foote, W. H. Clark,
Chairman of the Board, President Director
and Chief Executive Officer
/s/ Robert L. Barnett /s/ James C. Cotting
- --------------------- --------------------
Robert L. Barnett, James C. Cotting,
Director Director
/s/ Keith A. Brown /s/ Lawrence M. Crutcher
- ------------------ ------------------------
Keith A. Brown, Lawrence M. Crutcher,
Director Director
/s/ Philip C. Jackson, Jr. /s/ David W. Fox
- --------------------------- -----------------
Philip C. Jackson, Jr., David W. Fox,
Director Director
/s/ Marvin E. Lesser /s/ John B. Schwemm
- --------------------- --------------------
Marvin E. Lesser, John B. Schwemm,
Director Director
/s/ W. Douglas Ford /s/ Judith A. Sprieser
- ------------------- ----------------------
W. Douglas Ford, Judith A. Sprieser,
Director Director
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 44
<SECURITIES> 0
<RECEIVABLES> 291
<ALLOWANCES> 17
<INVENTORY> 185
<CURRENT-ASSETS> 503
<PP&E> 1,064
<DEPRECIATION> 177
<TOTAL-ASSETS> 1,818
<CURRENT-LIABILITIES> 395
<BONDS> 706
0
0
<COMMON> 5
<OTHER-SE> (28)
<TOTAL-LIABILITY-AND-EQUITY> 1,818
<SALES> 2,590
<TOTAL-REVENUES> 2,590
<CGS> 1,945
<TOTAL-COSTS> 1,945
<OTHER-EXPENSES> 268
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73
<INCOME-PRETAX> 132
<INCOME-TAX> 117
<INCOME-CONTINUING> 15
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.30
</TABLE>
