FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-8864
USG CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 36-3329400
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 South Franklin Street, Chicago, Illinois 60606-4678
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (312) 606-4000
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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
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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
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As of March 31, 1998, 47,395,284 shares of USG common stock were outstanding.
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Table of Contents
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Page
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PART I FINANCIAL STATEMENTS
Item 1. Financial Statements:
Consolidated Statement of Earnings:
Three Months Ended March 31, 1998 and 1997 3
Consolidated Balance Sheet:
As of March 31, 1998 and December 31, 1997 4
Consolidated Statement of Cash Flows:
Three Months Ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 10
Report of Independent Public Accountants 18
PART II OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 24
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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USG CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(dollars in millions except per share data)
(Unaudited)
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Three Months
Ended March 31,
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1998 1997
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Net sales $ 735 $ 673
Cost of products sold 539 496
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Gross profit 196 177
Selling and administrative expenses 72 66
Amortization of excess reorganization value - 42
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Operating profit 124 69
Interest expense 13 17
Interest income (1) -
Other expense, net 2 -
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Earnings before income taxes 110 52
Income taxes 43 37
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Net earnings 67 15
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Basic earnings per common share 1.42 0.33
Diluted earnings per common share 1.35 0.32
Dividends paid per common share - -
Average number of common shares 47,125,604 45,946,213
Average diluted number of common shares 49,717,163 48,216,915
See accompanying Notes to Consolidated Financial Statements.
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USG CORPORATION
CONSOLIDATED BALANCE SHEET
(dollars in millions)
(Unaudited)
<CAPTION>
As of As of
March 31, December 31,
1998 1997
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Assets
Current Assets:
Cash and cash equivalents $ 66 $ 72
Receivables (net of reserves - $18 and $17) 339 297
Inventories 217 208
Current and deferred income taxes 29 63
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Total current assets 651 640
Property, plant and equipment (net of reserves
for depreciation and depletion - $249 and $236) 1,021 982
Other assets 301 304
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Total Assets 1,973 1,926
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Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable 163 146
Accrued expenses 186 220
Debt maturing within one year 16 10
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Total current liabilities 365 376
Long-term debt 597 610
Deferred income taxes 161 163
Other liabilities 627 630
Stockholders' Equity:
Preferred stock - -
Common stock 5 5
Capital received in excess of par value 270 258
Deferred currency translation (28) (25)
Reinvested earnings (deficit) (24) (91)
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Total stockholders' equity 223 147
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Total Liabilities and Stockholders' Equity 1,973 1,926
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See accompanying Notes to Consolidated Financial Statements.
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USG CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in millions)
(Unaudited)
<CAPTION>
Three Months
Ended March 31,
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1998 1997
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Operating Activities:
Net earnings $ 67 $ 15
Adjustments to reconcile net earnings to net cash:
Amortization of excess reorganization value - 42
Depreciation, depletion and other amortization 20 17
Current and deferred income taxes 32 23
(Increase) decrease in working capital:
Receivables (42) (27)
Inventories (9) (9)
Payables 17 7
Accrued expenses (34) (35)
(Increase) decrease in other assets 3 (7)
Increase (decrease) in other liabilities (3) 20
Other, net (3) (4)
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Net cash from operating activities 48 42
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Investing Activities:
Capital expenditures (58) (24)
Net proceeds from asset dispositions 1 -
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Net cash to investing activities (57) (24)
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Financing Activities:
Issuance of debt 48 41
Repayment of debt (67) (61)
Short-term borrowings, net 12 -
Issuances of common stock 10 3
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Net cash from (to) financing activities 3 (17)
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Net increase (decrease) in cash & cash equivalents (6) 1
Cash & cash equivalents at beginning of period 72 44
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Cash & cash equivalents at end of period 66 45
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Supplemental Cash Flow Disclosures:
Interest paid 22 26
Income taxes paid 10 16
See accompanying Notes to Consolidated Financial Statements.
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USG CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
(1) The consolidated financial statements of USG Corporation and its
subsidiaries ("USG" or the "Corporation") included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses.
Actual results could differ from those estimates. In the opinion of management,
the statements reflect all adjustments, which are of a normal recurring nature,
necessary to present fairly the Corporation's financial position as of March 31,
1998, and December 31, 1997, and results of operations and cash flows for the
three months ended March 31, 1998 and 1997. Certain amounts in the prior years'
financial statements have been reclassified to conform with the 1998
presentation. While these interim financial statements and accompanying notes
are unaudited, they have been reviewed by Arthur Andersen LLP, the Corporation's
independent public accountants. These financial statements and notes are to be
read in conjunction with the financial statements and notes included in the
Corporation's 1997 Annual Report on Form 10-K dated February 20, 1998.
(2) Basic earnings per share were computed by dividing net earnings by the
weighted average number of common shares outstanding for the period. The
dilutive effect of the potential exercise of outstanding options and warrants to
purchase shares of common stock is calculated using the treasury stock method.
The reconciliation of basic earnings per share to diluted earnings per share is
shown in the following table (dollars in millions except share data).
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Three Months Ended Net Shares Per Share
March 31, Earnings (000) Amount
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1998
Basic earnings $ 67 47,126 $ 1.42
Effect of Dilutive Securities:
Options 949
Warrants 1,642
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Diluted Earnings 67 49,717 1.35
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1997
Basic earnings 15 45,946 0.33
Effect of Dilutive Securities:
Options 870
Warrants 1,401
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Diluted Earnings 15 48,217 0.32
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(3) In the first quarter of 1998, the Corporation adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." Total
comprehensive income, consisting of net earnings and foreign currency
translation adjustments, amounted to $64 million and $6 million for the three
months ended March 31, 1998 and 1997, respectively. There was no tax impact on
the foreign currency translation adjustments.
(4) The Corporation uses derivative instruments to manage well-defined interest
rate, energy cost and foreign currency exposures. The Corporation does not use
derivative instruments for trading purposes. The criteria used to determine if
hedge accounting treatment is appropriate are: (i) the designation of the hedge
to an underlying exposure (ii) whether or not overall uncertainty is being
reduced and (iii) if there is a correlation between the value of the derivative
instrument and the underlying obligation.
Interest Rate Derivative Instruments:
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The Corporation utilizes interest rate swap agreements to manage the impact of
interest rate changes on its underlying floating-rate debt. These agreements are
designated as hedges and qualify for hedge accounting. Amounts payable or
receivable under these swap agreements are accrued as an increase or decrease to
interest expense on a current basis. To the extent the underlying floating-rate
debt is reduced, the Corporation terminates swap agreements accordingly so as
not to be in an overhedged position. In such cases, the Corporation recognizes
gains and/or losses in the period the agreement is terminated.
Energy Cost Derivative Instruments:
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The Corporation uses 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. These contracts are designated as
hedges and qualify for hedge accounting. Amounts payable or receivable under
these swap agreements are accrued as an increase or decrease to cost of products
sold, along with the actual spot energy cost of the corresponding underlying
hedge transaction, the combination of which amounts to the predetermined
specified contract price.
Foreign Currency Derivative Instruments:
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The Corporation has operations in a number of countries and has intercompany
transactions among them and, as a result, is exposed to changes in foreign
currency exchange rates. The Corporation manages most of these exposures on a
consolidated basis, which allows netting of certain exposures to take advantage
of any natural offsets. To the extent the net exposures are hedged, option and
forward contracts are used. The foreign currency options qualify for hedge
accounting, under which the option premium is amortized over the life of the
option. The forward contracts are marked to market on a current basis with gains
and/or losses included in net earnings in the period in which the exchange rates
change.
(5) Excess reorganization value, an intangible asset totaling $851 million, was
recorded in 1993 in connection with a comprehensive restructuring of the
Corporation's debt and the implementation of fresh start accounting as required
by AICPA Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code" ("SOP 90-7").
As of September 30, 1997, the remaining $83 million balance of excess
reorganization value was eliminated. This balance, which would have been
amortized through April 1998, was offset by the elimination of a valuation
allowance in accordance with SOP 90-7. See Note 6 below for additional
information.
(6) Income tax expense amounted to $43 million and $37 million in the three
months ended March 31, 1998 and 1997, respectively. The Corporation's income tax
expense for the first quarter of 1997 was computed based on pre-tax earnings
excluding the noncash amortization of excess reorganization value, which was not
deductible for income tax purposes.
In the third quarter of 1997, a valuation allowance of $90 million, which had
been provided for deferred tax assets relating to pension and retiree medical
benefits prior to the Corporation's financial restructuring in 1993, was
eliminated. The elimination of this allowance reflected a change in management's
judgment regarding the realizability of these assets in future years as a result
of the Corporation's pretax earnings levels and improved capital structure over
the past three years. In accordance with SOP 90-7, the benefit realized from the
elimination of this allowance was used to reduce the balance of excess
reorganization value to zero as of September 30, 1997.
(7) As of March 31, 1998, common shares totaling 2,212,900 were reserved for
future issuance in conjunction with existing stock option grants. In addition,
1,150,645 common shares were reserved for future grants.
(8) One of the Corporation's subsidiaries, United States Gypsum Company ("U.S.
Gypsum"), is a defendant in asbestos lawsuits alleging both property damage and
personal injury. See Part II, Item 1. "Legal Proceedings" for information
concerning the asbestos litigation.
The Corporation and certain of its subsidiaries have been notified by state and
federal environmental protection agencies of possible involvement as one of
numerous "potentially responsible parties" in a number of so-called "Superfund"
sites in the United States. The Corporation believes that neither these matters
nor any other known governmental proceeding regarding environmental matters will
have a material adverse effect upon its earnings or consolidated financial
position. See Part II, Item 1. "Legal Proceedings" for additional information on
environmental litigation.
(9) Under a revolving accounts receivable facility, the trade receivables of
U.S. Gypsum and USG Interiors, Inc. are being purchased by USG Funding
Corporation ("USG Funding") and transferred to a trust administered by Chase
Manhattan Bank as trustee. Certificates representing an ownership interest of up
to $130 million in the trust have been issued to an affiliate of Citicorp North
America, Inc. USG Funding, a special-purpose subsidiary of USG Corporation, 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 any value in USG Funding
becoming available to its shareholder. Receivables and debt outstanding in
connection with the receivables facility remain in receivables and long-term
debt, respectively, on the Corporation's consolidated balance sheet.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
USG Corporation Consolidated Results
Net Sales - First quarter 1998 net sales totaled $735 million, a record level
for any first quarter and a 9% increase compared with net sales of $673 million
in the first quarter of 1997. This increase was attributable to record first
quarter shipments of all major product lines and higher selling prices for
SHEETROCK brand gypsum wallboard.
Gross Profit Margin - Gross profit as a percentage of net sales was 26.7% in the
first quarter of 1998, up slightly from 26.3% in the prior-year period.
Selling and Administrative Expenses - First quarter 1998 selling and
administrative expenses of $72 million increased 9% versus expenses of $66
million in the first quarter of 1997. However, as a percentage of net sales,
these expenses were unchanged at 9.8%. Expense dollars were up in the 1998
period due primarily to information technology initiatives, USG's product
branding program and accruals for USG's performance-based restricted stock
program.
Amortization of Excess Reorganization Value - The noncash amortization of excess
reorganization value reduced operating profit by $42 million in the first
quarter of 1997. As explained in Notes 5 and 6 of this report, the remaining $83
million balance of excess reorganization value, which would have been amortized
through April 1998, was offset by the elimination of a valuation allowance as of
September 30, 1997.
Interest Expense - As a result of debt reduction during the past year, interest
expense in the first quarter of 1998 was $13 million, down 24% from the $17
million incurred in the first quarter of 1997.
Income Tax - Taxes on income amounted to $43 million and $37 million in the
first quarters of 1998 and 1997, respectively. The Corporation's 1997 income tax
expense was computed based on pretax earnings excluding the noncash amortization
of excess reorganization value, which was not deductible for income tax
purposes.
Net Earnings - First quarter 1998 net earnings were $67 million, or $1.35 per
diluted share. First quarter 1997 net earnings, which amounted to $15 million,
or $0.32 per diluted share, were net of the noncash amortization of excess
reorganization value of $42 million, or $0.88 per diluted share.
EBITDA - Earnings before interest, taxes, depreciation, depletion, amortization
and certain other income and expense items ("EBITDA") amounted to $142 million
in the first quarter of 1998, up 12% compared with $127 million for the first
quarter of 1997.
As a result of the amortization of excess reorganization value through September
30, 1997, USG continues to report EBITDA 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.
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USG Corporation Core Business Results
(dollars in millions) Net Sales EBITDA
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Three Months Ended March 31, 1998 1997 1998 1997
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North American Gypsum:
U.S. Gypsum Company $ 408 $ 375 $ 117 $ 105
L&W Supply Corporation 244 221 6 6
CGC Inc. (gypsum) 37 31 7 5
Other subsidiaries 20 20 6 5
Eliminations (110) (100) - -
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Total 599 547 136 121
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Worldwide Ceilings:
USG Interiors, Inc. 107 98 14 13
USG International 57 55 3 3
CGC Inc. (ceilings) 10 8 1 1
Eliminations (14) (13) - -
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Total 160 148 18 17
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Corporate - - (12) (11)
Eliminations (24) (22) - -
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Total USG Corporation 735 673 142 127
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North American Gypsum
First quarter 1998 net sales of $599 million and EBITDA of $136 million
increased 10% and 12%, respectively, over first quarter 1997 levels.
United States Gypsum Company - U.S. Gypsum's net sales in the first quarter of
1998 were the highest ever for a first quarter. Shipments of SHEETROCK brand
gypsum wallboard totaled 2.137 billion square feet, the highest level for any
first quarter and a 4% increase over first quarter 1997 shipments of 2.050
billion square feet. Selling prices on SHEETROCK wallboard averaged $125.31 per
thousand square feet, up 4% from $120.31 for the first quarter of last year.
Manufacturing unit costs for SHEETROCK wallboard were virtually unchanged from
the prior-year period. First quarter 1998 capacity utilization at U.S. Gypsum's
wallboard plants increased to approximately 99% from 97% a year ago. First
quarter shipments of SHEETROCK brand joint compound and DUROCK brand cement
board were the highest for any quarter in the company's history.
L&W Supply Corporation - Net sales for USG's building products distribution
business were a record for any first quarter and were up 10% over the first
quarter of 1997. This performance reflects a new high for quarterly average
selling prices on wallboard and record first quarter sales of wallboard and
complementary building products. As of March 31, 1998, L&W Supply operated 179
locations in the United States after adding four greenfield locations and
consolidating two locations into one during the first quarter of 1998.
CGC Inc. - The gypsum business of CGC Inc., USG's wholly owned Canadian
subsidiary, reported increased sales and EBITDA in the first quarter of 1998.
CGC's performance reflects higher SHEETROCK wallboard volume and prices
resulting from the improving Canadian economy and a continued high level of
shipments to the eastern United States.
Worldwide Ceilings
First quarter 1998 net sales of $160 million increased 8% over the first quarter
of 1997. EBITDA was $18 million in the first quarter of 1998 compared with $17
million in the corresponding 1997 period.
Record first quarter shipments were realized for AURATONE brand ceiling tile,
CONSTELLATION brand ceiling tile and DONN brand ceiling grid. These records were
attributable to strong demand in the U.S. nonresidential construction market
(both new construction and renovation) and growing international demand.
International results reflect sales records in Europe and Latin America,
partially offset by a modest decline in Asia.
Construction Market Outlook
Based on leading indicators, such as new housing starts, existing home sales and
nonresidential construction activity, the outlook for 1998 continues to be
positive. Key drivers of demand for USG's products, such as consumer confidence,
employment rates and interest rates, all remain at favorable levels.
In the United States, we are currently forecasting 1998 housing starts to
approximate 1.450 million units, down slightly from the 1.474 million units
registered in 1997. Record 1997 sales of existing homes of more than 4 million
units will support residential repair and remodeling in 1998. This, combined
with strong nonresidential repair and remodeling, will continue to provide
growth in this market segment. New nonresidential construction in 1997, which
increased by 10% as measured in floor space for which contracts were awarded,
will support increased demand for this segment in 1998 as the finishing of an
interior follows contract awards by about a year or more.
Internationally, construction in Canada and Mexico should maintain their
recoveries. Demand continues to be strong in Eastern Europe and Latin America,
while conditions in Western Europe are showing signs of improvement. Prospects
for the Asian construction market are expected to weaken in 1998; however, this
market represents a relatively minor share of USG's total sales and earnings.
LIQUIDITY AND CAPITAL RESOURCES
Financial and Growth Strategies
At the time of the 1993 debt restructuring, USG implemented a five-year strategy
designed to improve its financial flexibility by reducing debt to a manageable
level and attaining an investment grade rating on its capital structure. The
goals of this strategy were recently achieved when the Corporation reached its
target debt level in October 1997, followed by Standard & Poor's rating increase
to BBB in December 1997 and Moody's rating increase to Baa3 in March 1998.
USG's current strategy focuses on earnings growth. The key drivers of this
strategy are USG's investments in cost-reduction and growth initiatives, which
are supported by the financial flexibility of an investment grade capital
structure. These initiatives involve replacing high-cost manufacturing capacity
with low-cost capacity; adding efficient new capacity to serve customers and
thereby increase market share; and expanding sales internationally through
exports and manufacturing overseas. USG anticipates that these initiatives also
will serve to reduce the impact of cyclicality on its earnings.
Capital Expenditures
Capital spending amounted to $58 million in the first three months of 1998,
compared with $24 million in the corresponding 1997 period. As of March 31,
1998, capital expenditure commitments for the replacement, modernization and
expansion of operations amounted to $468 million compared with $363 million as
of December 31, 1997.
North American Gypsum Projects - In April 1998, USG announced plans for a third
major wallboard capacity replacement project, a $112 million plant to be located
in Aliquippa, Pa. This new facility will provide 700 million square feet of
SHEETROCK brand gypsum wallboard capacity to replace existing high-cost capacity
in the region, improve service and accommodate anticipated strong growth in the
Northeast market. The Aliquippa plant will manufacture SHEETROCK wallboard using
100% synthetic gypsum and is expected to begin operation in early 2000. Ground
was broken in June 1997 for a new $110 million plant in Bridgeport, Ala. This
facility will also manufacture SHEETROCK brand wallboard using 100% synthetic
gypsum and is expected to begin operation in mid-1999. USG is also investing $90
million to rebuild and modernize its wallboard manufacturing line at the East
Chicago, Ind., plant. This new line is expected to begin production by the end
of 1999.
Construction is underway to build a $90 million facility to manufacture gypsum
wood fiber panels at the Gypsum, Ohio, wallboard plant. The new production line
is expected to begin operating by the end of 1999 and will complement the fourth
quarter 1997 acquisition of a gypsum fiber panel plant in Port Hawksbury, Nova
Scotia. USG's gypsum wood fiber products are marketed under the FIBEROCK brand
name.
Additional capital investments include cost-reduction projects, such as the
installation of stock cleaning equipment to utilize lower grades of recycled
paper and the additional installation of processes to accommodate the use of
synthetic gypsum at manufacturing facilities where it is more economical than
natural gypsum rock.
Worldwide Ceilings Projects - A $35 million project that included the
replacement of two old production lines with one modern, high-speed line at the
ceiling tile plant in Cloquet, Minn., was completed during the first quarter.
The start-up process of the new line is currently under way.
Working Capital
Working capital (current assets less current liabilities) as of March 31, 1998,
amounted to $286 million, and the ratio of current assets to current liabilities
was 1.8 to 1. As of December 31, 1997, working capital was $264 million, and the
ratio of current assets to current liabilities was 1.7 to 1.
Receivables increased to $339 million as of March 31, 1998, from $297 million as
of December 31, 1997, while inventories increased to $217 million from $208
million and accounts payable rose to $163 million from $146 million. These
variations reflect normal seasonal fluctuations.
Cash and cash equivalents as of March 31, 1998, amounted to $66 million, down
from $72 million as of December 31, 1997. This decrease reflects first quarter
1998 net cash flows from operating and financing activities of $48 million and
$3 million, respectively, and net cash flows to investing activities of $57
million.
Debt
As of March 31, 1998, total debt amounted to $613 million compared with $620
million as of December 31, 1997. During the first quarter, USG retired $67
million of 8.75% senior debentures, while increasing the borrowing on its U.S.
and Canadian revolving credit facilities by $40 million and $8 million,
respectively. Industrial revenue bonds and seasonal foreign borrowings increased
by a total of $12 million.
During the first quarter, USG issued $44 million of 5.65% fixed-rate industrial
revenue bonds due 2033 to investors, the proceeds of which were deposited into a
construction escrow account. These bonds, together with $45 million of
variable-rate industrial revenue bonds issued last year in a related offering,
will be used to finance the Gypsum, Ohio, gypsum wood fiber project. This debt
is being recorded incrementally on USG's books as funds are drawn from the
escrow accounts throughout the construction process.
Available Liquidity
The Corporation has additional liquidity available through several financing
arrangements. Revolving credit facilities in the United States, Canada and
Europe allow the Corporation to borrow up to an aggregate of $611 million
(including a $125 million letter of credit subfacility in the United States),
under which, as of March 31, 1998, outstanding revolving loans totaled $150
million and letters of credit issued and outstanding amounted to $80 million,
leaving the Corporation with $381 million of unused and available credit. The
Corporation had additional borrowing capacity of $50 million as of March 31,
1998, under a revolving accounts receivable facility. (See Note 9.) A shelf
registration statement filed with the Securities and Exchange Commission allows
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 date of
this report, no securities had been issued pursuant to this registration.
On May 6, 1993, in connection with its debt restructuring, USG issued 2,602,566
warrants. Each warrant entitles the holder to purchase one share of USG common
stock at a price of $16.14 any time prior to May 6, 1998. Through March 31,
1998, 348,191 warrants had been exercised, generating cash proceeds to USG of
approximately $6 million. Assuming exercise of all remaining outstanding
warrants by the termination date, additional cash proceeds to USG in the second
quarter of 1998 would be approximately $36 million. The proceeds from the
exercises will be added to the cash resources of the Corporation to be used for
general corporate purposes.
Stockholder Rights Plan
On March 27, 1998, the Corporation approved the redemption of the preferred
share purchase rights declared under a 10-year rights agreement adopted in May
1993 and adopted a new share purchase rights plan that is designed to strengthen
the previous provisions assuring the fair and equal treatment for all
stockholders in the event of any unsolicited attempt to acquire the Corporation.
The new rights plan, which became effective on April 15, 1998, and will expire
on March 27, 2008, has four basic provisions. First, if an acquiror buys 15% or
more of USG's outstanding common stock, the plan allows other stockholders to
buy, with each right, additional USG shares at a 50% discount. Second, if USG is
acquired in a merger or other business combination transaction, rights holders
will be entitled to buy shares of the acquiring company at a 50% discount.
Third, if an acquiror buys between 15% and 50% of USG's outstanding common
stock, the company can exchange part or all of the rights of the other holders
for shares of the company's stock on a one-for-one basis, or shares of the new
junior preferred stock on a one-for-one-hundredth basis. Fourth, before an
acquiror buys 15% or more of USG's outstanding common stock, the rights are
redeemable for one cent per right at the option of the board of directors. This
provision permits the board to enter into an acquisition transaction that is
determined to be in the best interests of stockholders. The board is authorized
to reduce the 15% threshold to not less than 10%.
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 Part II, Item
1. "Legal Proceedings" for information concerning the asbestos litigation.
The Corporation and certain of its subsidiaries have been notified by state and
federal environmental protection agencies of possible involvement as one of
numerous "potentially responsible parties" in a number of so-called "Superfund"
sites in the United States. The Corporation believes that neither these matters
nor any other known governmental proceeding regarding environmental matters will
have a material adverse effect upon its earnings or consolidated financial
position. See Part II, Item 1. "Legal Proceedings" for additional information on
environmental litigation.
Year 2000
In 1997, USG developed a plan to modify its computer-based systems that are
affected by the year 2000 date change. Anticipated spending for this
modification is not expected to have a material impact on the Corporation's
ongoing results of operations. The Corporation intends to implement its year
2000 compliance plan within the next 12 months to allow sufficient time to test
its systems thoroughly before January 1, 2000.
Forward-Looking Statements
This report contains forward-looking statements related to management's
expectations about future conditions. Actual business or other conditions may
differ significantly from management's expectations and accordingly affect the
Corporation's sales and profitability or other results. Actual results may
differ due to factors over which the Corporation has no control, including
economic activity, such as new housing construction, interest rates, and
consumer confidence; competitive activity such as price and product competition;
increases in raw material and energy costs; and the outcome of contested
litigation. The Corporation assumes no obligation to update any forward-looking
information contained in this report.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of USG Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of USG
CORPORATION (a Delaware corporation) AND SUBSIDIARIES as of March 31, 1998, and
the related condensed consolidated statement of earnings for the three-month
periods ended March 31, 1998 and 1997 and the condensed consolidated statement
of cash flows for the three months ended March 31, 1998 and 1997. These
financial statements are the responsibility of the Corporation's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
Chicago, Illinois
April 22, 1998
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Asbestos and Related Insurance Litigation
One of the Corporation's subsidiaries, U.S. Gypsum, is among many defendants in
lawsuits arising out of the manufacture and sale of asbestos-containing
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 formula by 1972, and no asbestos-containing products were produced
after 1977. Some of these lawsuits seek to recover compensatory and in many
cases punitive damages for costs associated with the maintenance or removal and
replacement of asbestos-containing products in buildings (the "Property Damage
Cases"). Others seek compensatory and in many cases punitive damages for
personal injury allegedly resulting from exposure to asbestos-containing
products (the "Personal Injury Cases"). It is anticipated that additional
asbestos-related suits will be filed.
Summary - The following is a brief summary; see Note 16 to the financial
statements in the Corporation's 1997 Annual Report for additional information on
the asbestos litigation.
U.S. Gypsum is a defendant in 16 Property Damage Cases, many of which involve
multiple buildings. One of the cases is a conditionally certified class action
comprised of all colleges and universities in the United States, which
certification is presently limited to the resolution of certain allegedly
"common" liability issues. (Central Wesleyan College v. W.R. Grace & Co., et
al., U.S.D.C.S.C.). Another class action, brought on behalf of various public
entities in the state of Texas, was settled in August 1997. The settlement
amount will be paid over 12 months and will be partially funded by insurance.
Fifteen additional property damage claims have been threatened against U.S.
Gypsum. During the years 1995-1997, 6 new Property Damage Cases were filed
against U.S. Gypsum while 32 were closed; the Company spent an average of $25
million per year on the defense and settlement of Property Damage Cases, but
received a total of $148 million over the three-year period from insurance
carriers, including reimbursement for expenditures in prior years.
U.S. Gypsum's estimated cost of resolving pending Property Damage Cases is
discussed below. (See "Estimated Cost.")
U.S. Gypsum is also a defendant in Personal Injury Cases brought by
approximately 85,000 claimants, as well as an additional 13,000 claims that have
been settled but will be closed over time. Filings of new Personal Injury Cases
totaled 23,500 claims in 1997, compared to 28,000 claims in 1996 and 14,000 in
1995. Filings of Personal Injury Cases have increased as a result of rulings by
a Federal appellate court and the U.S. Supreme Court rejecting the Georgine v.
Amchem class action settlement, in which U.S. Gypsum had participated as a
member of the Center for Claims Resolution, referred to below. U.S. Gypsum's
average cost to resolve Personal Injury Cases during the past three years has
been approximately $1,600 per claim. Over that period, U.S. Gypsum expended an
average of $30 million per year on Personal Injury Cases, of which an average of
$26 million was paid by insurance.
U.S. Gypsum is a member, together with 19 other former producers of asbestos-
containing products, of the Center for Claims Resolution (the "Center"), which
has assumed the handling of all Personal Injury Cases pending against U.S.
Gypsum and the other members of the Center. Costs of defense and settlement are
shared among the members of the Center pursuant to predetermined sharing
formulae. 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; 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 estimated cost of resolving pending Property Damage Cases is
discussed below. (See "Estimated Cost.")
U.S. Gypsum sued its insurance carriers in 1983 to obtain coverage for asbestos
cases (the "Coverage Action") and has settled all disputes with 12 of its 17
solvent carriers. As of December 31, 1997, after deducting insolvent coverage
and insurance paid out to date, approximately $325 million of potential
insurance remained, including approximately $140 million of insurance from five
carriers that have agreed, subject to certain limitations and conditions, to
cover both property damage and personal injury costs; $140 million from two
carriers that have agreed, subject to certain limitations and conditions, to
cover personal injury but not yet property damage; and approximately $45 million
from three carriers that have not yet agreed to cover either. U.S. Gypsum is
attempting to negotiate a resolution of the Coverage Action with the five
remaining defendant carriers, but may be required to litigate additional issues
in its effort to secure the contested coverage.
Aggregate insurance payments exceeded U.S. Gypsum's total expenditures for all
asbestos-related matters, including property damage, personal injury, insurance
coverage litigation and related expenses, by $2.3 million for 1997, $41 million
in 1996 and $10 million in 1995, due primarily to nonrecurring reimbursement for
amounts expended in prior years.
Estimated Cost - The asbestos litigation involves numerous uncertainties that
affect U.S. Gypsum's ability to estimate reliably its probable liability in the
Personal Injury and Property Damage Cases. In the Property Damage Cases, such
uncertainties include the identification and volume of asbestos-containing
products in the buildings at issue in each case, which is often disputed; the
claimed damages associated therewith; the viability of statute of limitations,
product identification and other defenses, which varies depending upon the facts
and jurisdiction of each case; the amount for which such cases can be resolved,
which has normally (but not uniformly) been substantially lower than the claimed
damages; and the viability of claims for punitive and other forms of multiple
damages. Uncertainties in the Personal Injury Cases include the number,
characteristics and venue of Personal Injury Cases that are filed against U.S.
Gypsum; the Center's ability to continue to negotiate pre-trial settlements at
historical or acceptable levels; the level of physical impairment of claimants;
the viability of claims for punitive damages; and the Center's ability to
develop an alternate claims-handling vehicle that retains the key benefits of
the Georgine settlement. As a result, any estimate of U.S. Gypsum's liability,
while based upon the best information currently available, may not be an
accurate prediction of actual costs and is subject to revision as additional
information becomes available and developments occur.
Pending Cases: Subject to the above uncertainties, and based in part on
information provided by the Center, U.S. Gypsum estimates that it is probable
that Property Damage and Personal Injury Cases pending on December 31, 1997, can
be resolved for an amount totaling between $200 million and $265 million,
including defense costs. These amounts are expected to be expended over the next
three to five years. Significant insurance funding is available for these costs,
as detailed below.
Future Cases: U.S. Gypsum is unable to reasonably estimate the cost of resolving
Property Damage Cases and Personal Injury Cases that will be filed in the
future. The Company anticipates that few additional Property Damage Cases will
be filed, as a result of the operation of statutes of limitations and the impact
of certain other factors, although it is possible that any cases that are filed
may seek substantial damages. It is anticipated that Personal Injury Cases will
continue to be filed in substantial numbers for the foreseeable future, although
the percentage of such cases filed by claimants with little or no physical
impairment is expected to remain high. However, the Company does not believe
that the number and severity of future cases can be predicted with sufficient
accuracy to provide the basis for a reasonable estimate of the liability that
will be associated with such cases.
Accounting for Asbestos Liability: As of December 31, 1997, U.S. Gypsum had
reserved $200 million for liability from pending Property Damage and Personal
Injury Cases (equaling the lower end of the estimated range of costs provided
above). U.S. Gypsum had a corresponding receivable from insurance carriers of
approximately $160 million, the estimated portion of the reserved amount that is
expected to be paid or reimbursed by committed insurance. Additional amounts may
be reimbursed by insurance depending upon the outcome of litigation and
negotiations relating to insurance that is presently disputed.
U.S. Gypsum had an additional reserve of $110 million as of December 31, 1997,
that was available for future asbestos liabilities and asbestos-related
expenses. The Company continues to accrue $18 million per year for asbestos
costs and will periodically compare its estimates of liability to then-existing
reserves and available insurance assets and adjust its reserves as appropriate.
It is possible that U.S. Gypsum will determine in the future that additional
charges to results of operations are necessary, although whether additional
charges will be required and, if so, the timing and amount of such charges,
cannot presently be predicted.
Conclusion - The above estimates and reserves will be reevaluated periodically
as additional information becomes available. It is possible that additional
charges to earnings may be necessary in the future if the amounts reflected
above prove insufficient in light of future events, and that any such charge
could be material to results of operations in the period in which it is taken.
However, it is management's opinion, taking into account all of the above
information and uncertainties, including currently available information
concerning U.S. Gypsum's liabilities, reserves, and probable insurance coverage,
that the asbestos litigation will not have a material adverse effect on the
liquidity or 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.
<TABLE>
Item 6. Exhibits and Reports on Form 8-K
<CAPTION>
<S> <C> <C>
(a) (3) Articles of Incorporation and By-Laws:
(i) Certificate of Designations of Junior Participating
Preferred Stock, Series D, of USG Corporation
(incorporated by reference to Exhibit A of Exhibit 4
to USG Corporation's Form 8-K dated March 27, 1998).
(ii) Amended and Restated By-Laws of USG Corporation,
dated as of March 27, 1998.
(4) Rights Agreement, dated March 27, 1998, between USG
Corporation and Harris Trust and Savings Bank, as Rights Agent
(incorporated by reference to Exhibit 4 to USG Corporation's
Form 8-K dated March 27, 1998).
(15) Letter of Arthur Andersen LLP regarding unaudited financial
information.
(27) Financial Data Schedule.
(b) A report on Form 8-K was filed on March 27, 1998, relating to the
Rights Agreement, dated March 27,1998, between USG Corporation and
Harris Trust and Savings Bank, as Rights Agent.
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
USG CORPORATION
By /s/ Dean H. Goossen
-----------------------------------
Dean H. Goossen, Corporate Secretary,
USG Corporation
By /s/ Raymond T. Belz
May 1, 1998 -----------------------------------
Raymond T. Belz, Vice President and
Controller, USG Corporation
BY-LAWS
OF
USG CORPORATION
(Delaware)
As of March 27, 1998
<PAGE>
BY-LAWS
OF
USG CORPORATION
ARTICLE I
OFFICES
The principal office of the corporation in the State of Delaware shall
be in the City of Wilmington, County of New Castle. The corporation may have
such other offices, either within or without the State of Delaware, as the
business of the corporation may require from time to time.
ARTICLE II
STOCKHOLDERS
Annual Meeting
Section 1. The date and time of the annual meetings of stockholders
shall be determined by or under the authority of the board of directors as
permitted by law for the purpose of electing directors and the transaction of
such other business as may properly come before the meeting. If the election of
directors shall not be held on the date designated for any such annual meeting
or at any adjournment thereof, the board of directors shall cause the election
to be held at a special meeting of the stockholders as soon thereafter as
conveniently may be.
Special Meetings
Section 2. Special meetings of the stockholders may be called at any
time by the chief executive officer of the corporation or by the corporate
secretary upon a request in writing of a majority of the board of directors.
Such request shall state the purpose or purposes of the proposed meeting.
Place of Meetings
Section 3. All meetings of the stockholders for the election of
directors shall be held in the City of Chicago, State of Illinois, or at such
other place as may be fixed from time to time by the board of directors.
Meetings of stockholders for any other purpose may be held at such time and
place, within or without the State of Delaware, as shall be stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
Notice of Meetings
Section 4. Written notice stating the place, day and hour of the
meeting, and in the case of a special meeting the purpose or purposes for which
the meeting is called, shall be given by mail to each stockholder entitled to
vote thereat not less than ten (10) days, nor more than sixty (60) days before
the date of the meeting. Such notice, when mailed, shall be deemed to be
delivered when deposited in the United States mail in a sealed envelope
addressed to the stockholder at his address as it appears on the records of the
corporation, with postage prepaid.
Quorum, Vote and Procedures
Section 5. (a) The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
scheduled.
(b) When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required in which case
such express provision shall govern and control the decision of such question.
(c) The conduct of all meetings of the stockholders generally
shall be in accordance with customary rules of parliamentary procedure. Subject
to the requirements of Sections 11 and 12 of this Article II, any matter to be
presented for consideration and with a view to obtaining a vote thereon at any
such meeting shall be introduced by a motion, and any such motion shall be
seconded before such consideration may begin or before any such vote may be
obtained.
Organization of Meeting
Section 6. The chairman of the board of directors, or in his absence
the president of the corporation, or in his absence the vice chairmen of the
corporation in the chronological order of their election to that office, or in
their absence the executive vice presidents, senior vice presidents, or vice
presidents in that order and in order of their election, shall preside as
chairman of all meetings of the stockholders. In the absence of all such
persons, the meeting shall select, by majority vote, a stockholder present at
the meeting to act as chairman. The corporate secretary of the corporation, or
in his absence an assistant secretary, shall act as secretary of all meetings of
the stockholders, and in the absence of the corporate secretary or an assistant
secretary, the chairman shall appoint some other person to act as secretary of
the meeting.
Voting of Stock
Section 7. On each matter submitted to a vote at a meeting of the
stockholders, each holder of common stock shall be entitled to one vote in
person or by proxy for each share of common stock held by the stockholder. No
proxy shall be voted after three years from its date unless otherwise provided
in the proxy, and, except where the transfer books of the corporation have been
closed or a date has been fixed as a record date for the determination of its
stockholders entitled to vote, no share of stock shall be voted at any election
for directors which has been transferred on the books of the corporation within
twenty (20) days next preceding such election of directors. In all elections for
directors each stockholder shall have the right to vote, in person or by proxy,
the number of shares owned by him for as many persons as there are directors to
be elected.
Voting of Shares By Certain Holders
Section 8. (a) Each share standing in the name of another corporation,
domestic or foreign, may be voted by such officer, agent or proxy as the by-laws
of such corporation may prescribe or, in the absence of such by-law provisions,
as the board of directors of such corporation may determine.
(b) Shares standing in the name of a deceased person may be
voted by his administrator or executor either in person or by proxy. Persons
holding stock in a fiduciary capacity may vote the shares so held in person or
by proxy. Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority so to do
be contained in an appropriate order of the court by which such receiver was
appointed. A stockholder whose shares are pledged shall be entitled to vote such
shares in person or by proxy, unless in the transfer by the pledgor on the books
of the corporation he has expressly empowered the pledgee to vote thereon, in
which case only the pledgee or his proxy may represent the stock and vote
thereon.
(c) Shares of stock of this corporation belonging to the
corporation shall not be voted, directly or indirectly, at any meeting and shall
not be counted in determining the total number of outstanding shares at any
given time, but such shares held by the corporation in a fiduciary capacity may
be voted and shall be counted in determining the total number of outstanding
shares at any given time.
Voting Lists
Section 9. The officer or agent having charge of the stock ledger for
the shares of the corporation shall prepare and make, at least ten (10) days
before each meeting of the stockholders at which directors are to be elected, a
complete list of the stockholders entitled to vote at such meeting, arranged in
alphabetical order with the address of and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of any
stockholder during ordinary business hours for a period of at least ten (10)
days prior to such meeting at the place where the meeting is to be held or at
the office of the corporation in Chicago, Illinois. Such list shall be produced
and kept at the time and place of the meeting during the whole time thereof and
shall be subject to the inspection of any stockholder who may be present. The
original stock ledger shall be prima facie evidence as to who are the
stockholders entitled to examine such stock ledger and to vote at any meeting of
the stockholders.
Closing of Transfer Books
Section 10. The board of directors may close the stock transfer books
of the corporation for a period not exceeding sixty (60) days preceding the date
of any meeting of stockholders or the date of payment of any dividend, or the
date for the allotment of rights or the date when any change or conversion or
exchange of capital stock shall go into effect, or for a period not exceeding
sixty (60) days in connection with obtaining the consent of stockholders for any
purpose. In lieu of closing the stock transfer books as aforesaid, the board of
directors may fix in advance a date, not exceeding sixty (60) days preceding the
date of any meeting of stockholders, or the date of the payment of any dividend,
or the date for the allotment of rights, or the date when any change or
conversion or exchange of capital stock shall go into effect, or a date in
connection with obtaining such consent, as a record date for the determination
of the stockholders entitled to notice of, and to vote at, any such meeting, and
any adjournment thereof, or entitled to receive payment of any such dividend, or
to any such allotment of rights, or to exercise the rights in respect of any
such change, conversion or exchange of capital stock, or to give such consent,
and in such case such stockholders and only such stockholders as shall be
stockholders of record on the date so fixed shall be entitled to such notice of,
and to vote at, such meeting and any adjournment thereof, or to receive payment
of such dividend, or to receive such allotment of rights, or to exercise such
rights, or to give such consent, as the case may be, notwithstanding any
transfer of any stock on the books of the corporation after any such record date
fixed as aforesaid.
Advance Notice of Nominations
Section 11. Subject to such rights of the holders of any class or
series of preferred stock as shall be prescribed in the Restated Certificate of
Incorporation or in the resolutions of the Board of Directors providing for the
issuance of any such class or series, only persons who are nominated in
accordance with the procedures set forth in this Section 11 shall be eligible
for election as, and to serve as, directors. Nominations of persons for election
to the Board of Directors may be made at a meeting of the stockholders at which
directors are to be elected (a) by or at the direction of the Board of Directors
or (b) by any stockholder of the Corporation entitled to vote at such meeting in
the election of directors who complies with the requirements of this Section 11.
Such nominations, other than those made by or at the direction of the Board of
Directors, shall be preceded by timely advance notice in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice shall be
delivered to the Secretary at the principal executive offices of the Corporation
not later than the close of business on the 60th day nor earlier than the close
of business on the 90th day prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event that the date of the
annual meeting is more than 30 days before or more than 60 days after such
anniversary date, notice by the stockholder to be timely must be so delivered
not earlier than the close of business on the 90th day prior to such annual
meeting and not later than the close of business on the later of the 60th day
prior to such annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made by the Corporation. In no
event shall the public announcement of an adjournment of an annual meeting
commence a new time period for the giving of a stockholder's notice as described
above. A stockholder's notice to the Secretary shall set forth (x) as to each
person whom the stockholder proposes to nominate for election or re-election as
a director, (I) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
number of shares of each class of capital stock of the Corporation beneficially
owned by such person, and (iv) the written consent of such person to having such
person's name placed in nomination at the meeting and to serve as a director if
elected, and (y) as to the stockholder giving the notice, (I) the name and
address, as they appear on the Corporation's books, of such stockholder, and
(ii) the number of shares of each class of voting stock of the Corporation which
are then beneficially owned by the stockholder. The presiding officer of the
meeting of stockholders shall determine whether the requirements of this Section
11 have been met with respect to any nomination or intended nomination. If the
presiding officer determines that any nomination was not made in accordance with
the requirements of this Section 11, he or she shall so declare at the meeting
and the defective nomination shall be disregarded.
Advance Notice of Stockholder Proposals
Section 12. At an annual meeting of stockholders, only such business
shall be conducted, and only such proposals shall be acted upon, as shall have
been brought before the annual meeting (a) by or at the direction of the Board
of Directors or (b) by any stockholder of the Corporation who complies with the
requirements of this Section 12 and as shall otherwise be proper subjects for
stockholder action and shall be properly introduced at the meeting. For a
proposal to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely advance notice thereof in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice shall be
delivered to the Secretary at the principal executive offices of the Corporation
not later than the close of business on the 60th day nor earlier than the close
of business on the 90th day prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event that the date of the
annual meeting is more than 30 days before or more than 60 days after such
anniversary date, notice by the stockholder to be timely must be so delivered
not earlier than the close of business on the 90th day prior to such annual
meeting and not later than the close of business on the later of the 60th day
prior to such annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made by the Corporation. In no
event shall the public announcement of an adjournment of an annual meeting
commence a new time period for the giving of a stockholder's notice as described
above. A stockholder's notice to the Secretary shall set forth as to each matter
the stockholder proposes to bring before the annual meeting (w) a description of
the proposal desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (x) the name and address, as
they appear on the Corporation's books, of the stockholder proposing such
business and any other stockholders known by such stockholder to be supporting
such proposal, (y) the class and number of shares of the Corporation's stock
which are beneficially owned by the stockholder on the date of such notice and
(z) any financial interest of the stockholder in such proposal. The presiding
officer of the annual meeting shall determine whether the requirements of this
Section 12 have been met with respect to any stockholder proposal. If the
presiding officer determines that a stockholder proposal was not made in
accordance with the terms of this Section 12, he or she shall so declare at the
meeting and any such proposal shall not be acted upon at the meeting.
At a special meeting of stockholders, only such business shall be acted
upon as shall have been set forth in the notice relating to the meeting or as
shall constitute matters incident to the conduct of the meeting as the presiding
officer of the meeting shall determine to be appropriate.
ARTICLE III
DIRECTORS
General Powers
Section 1. The business and affairs of the corporation shall be managed
by a board of directors which may exercise all the powers of the corporation and
do all such lawful acts and things as are not by statute or by the certificate
of incorporation or by these by-laws directed and required to be exercised or
done by the stockholders.
Number, Classes, and Qualifications
Section 2. The number of directors which shall constitute the whole
board shall be not less than three (3) nor more than seventeen (17) and shall be
divided into three classes, as nearly equal in number as may be. Subject to the
above limits, the number and classes of directors shall be determined from time
to time by resolution of the board of directors. At each annual meeting after
the initial classification and election of directors, directors shall be elected
to fill all seats in the class whose term expires at such annual meeting and
each director so elected shall hold office for a term expiring at the third
annual meeting of stockholders after election as director and until a successor
shall be duly elected and qualified. No non-employee director shall serve as
such beyond the first annual meeting of stockholders following that director's
70th birthday nor while such person is an owner, member, or employee of or
affiliated or associated with a professional firm or enterprise providing legal,
accounting, or auditing services or advice to the corporation or any of its
subsidiaries. A non-employee director shall report to the board or any
appropriate committee thereof any significant change in such director's
principal business, occupation, or position and shall consult with the board or
any such committee concerning the possible effect of such change on continued
service as a director. No officer-director shall serve as a director beyond the
date such person ceases to be an officer. Directors need not be stockholders.
Vacancies
Section 3. Newly created directorships resulting from any increase in
the authorized number of directors and vacancies in the board of directors from
death, resignation, retirement, disqualification, removal from office or other
cause, shall be filled by a majority vote of the directors then in office, and
each director so chosen shall hold office for a term expiring at the annual
meeting of stockholders at which the term of the class to which he or she shall
have been elected expires, and until his or her successor shall be duly elected
and qualified.
Regular Meetings
Section 4. Regular meetings of the board of directors shall be held
immediately after the annual meeting of stockholders in each year and on the
second Wednesday in each of the months of February, August, and November in each
year and also on the fourth Friday in each of the months of March and September
in each year. If the day fixed for any such regular meeting shall be a legal
holiday, the meeting scheduled for that day shall be held on the next succeeding
business day which is not a legal holiday. The date and time of any such regular
meeting may be changed as the Board of Directors may from time to time determine
by resolution.
Special Meetings
Section 5. Special meetings of the board of directors may be called at
any time by the chief executive officer of the corporation, or by the corporate
secretary upon the request of not less than one-third (1/3rd) of the directors
then in office.
Place of Meetings
Section 6. All meetings of the board of directors, whether regular or
special, shall be held at the office of the corporation in Chicago, Illinois;
provided, however, that any meeting, whether regular or special, may be held at
such other place as the board of directors may from time to time determine by
resolution or as may be fixed in a notice of the meeting or as may be fixed in
any waiver of notice signed by all of the directors.
Notice of Meetings
Section 7. No notice of the holding of any regular meeting of the board
of directors is required. Written notice of any special meeting shall be given
by mail to each director not less than five (5) days before the date of the
meeting, or by telegram, cable, telephone facsimile or electronic mail not less
than two (2) days before the date of the meeting, or by telephone not less than
twenty-four (24) hours before the time of the meeting, with confirmation of
notice by telegram, cable, telephone facsimile or electronic mail, to be sent
promptly. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail, in a sealed envelope addressed to the director at his
address as it appears on the records of the corporation, with postage prepaid.
If such notice is given by telegram, cable, telephone facsimile, or electronic
mail, the same shall be deemed to be delivered when delivered to any telegraph
company with charges prepaid and addressed to the director at his address as it
appears on the records of the corporation or when placed on telephone lines for
facsimile transmittal or electronic mail to the director. Attendance of any
director at any special meeting shall constitute a waiver of notice of such
meeting except where a director attends a meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting is
not lawfully called or convened. Neither the business to be transacted at, nor
the purpose of any special meeting of the board of directors need be stated in
the notice or waiver of notice of such meeting.
Quorum
Section 8. A majority of the board of directors shall constitute a
quorum for the transaction of business, but if at any meeting of the board there
shall be less than a quorum present, a majority of those present may adjourn the
meeting from time to time. The affirmative vote of a majority of all directors
shall be necessary for the passage of any resolution unless a greater vote is
required in these by-laws or the certificate of incorporation.
Organization of Meeting
Section 9. At meetings of the board of directors, the chairman of the
board, or in his absence the president, or in his absence the vice chairmen of
the corporation in the chronological order of their election to that office,
shall preside as chairman of the meeting. In the absence of all of them, the
meeting shall elect a director, present at the meeting, to act as chairman. The
corporate secretary of the corporation, or in his absence an assistant
secretary, shall act as secretary of all meetings of the board of directors and,
in the absence of all such persons, the chairman of the meeting shall appoint
some other person to act as secretary of the meeting.
Compensation of Directors
Section 10. Each director not otherwise employed by the corporation or
an affiliated corporation shall be entitled to be paid expenses, if any, of
attendance at such meetings and such remuneration as the board of directors may
from time to time determine.
ARTICLE IV
COMMITTEES OF DIRECTORS
Designation of Standing Committees
Section 1. The corporation shall have the following standing
committees:
(a) An Executive Committee which shall have and may exercise
all the authority of the board of directors during the intervals between
meetings of the board of directors in the management of the business and affairs
of the corporation and may authorize the seal of the corporation to be affixed
to all papers which may require it. The committee shall consist of not less than
four members of the board of directors and shall include the chairman of the
board of directors and the president and/or a vice chairman as members.
(b) A Compensation and Organization Committee which shall have
the duty to review and to make recommendations to the board of directors with
respect to management organization, succession and development programs, the
election of corporate officers and their salaries and incentive compensation or
bonus awards; to make the decisions required by a committee of the board of
directors under all stock option and restricted stock and deferred stock plans;
and to approve and report to the board of directors changes in salary ranges for
all other major position categories and changes in retirement plans, group
insurance plans, investment plans or other benefit plans and management
incentive compensation or bonus plans. The committee shall consist of not less
than four members of the board of directors who are not officers or employees of
the corporation.
(c) An Audit Committee which shall have ongoing
responsibilities with respect to adequacy of financial reporting, compliance
with corporate policies, and efficacy of corporate controls. This committee
shall provide reasonable assurance that the corporation's financial disclosure
fairly portrays its financial condition, results of operations, and long-term
plans and commitments. It likewise shall provide reasonable assurance of
substantial compliance with corporate policies applicable to business conduct.
The committee shall monitor the corporation's system of internal controls for
adequacy and implementation. The Audit Committee additionally shall select and
employ on behalf of the corporation, subject to ratification by stockholders, a
firm of certified public accountants whose duty shall be to audit the books and
accounts of the corporation and its subsidiaries and affiliates for the fiscal
year for which it is appointed. The committee shall confer with such firm on the
scope of such audit and on other services to be provided and on the costs
thereof and shall review with the firm at the conclusion of the audit and prior
to any publication of audited financial statements the findings disclosed in
such audit. The committee periodically shall report and make appropriate
recommendations to the board of directors. It shall consist of not less than
three members of the board of directors who are not officers or employees of the
corporation.
(d) A Committee on Directors which shall study and make
recommendations to the board of directors concerning the size and composition of
the board and committees of the board, recommend nominees for election or
reelection as directors, and consider other matters pertaining to board
membership such as retirement policy and compensation of non-employee directors.
Directors who are not officers or employees of the corporation and whose terms
continue after the next annual meeting will be designated to serve on this
committee.
(e) A Finance Committee which shall provide review and
oversight of and make recommendations to the board of directors on the
corporation's financing requirements and programs to obtain funds; relations
with banks, bondholders and other creditors, and equity holders; forecasting
procedures on revenues, expenses, earnings, and cash flow; operating and capital
expenditure budgets; dividend policy; the adoption of any compensation plan for
key employees which contemplates the issuance of stock of the corporation or
which is a significant cash compensation plan (other than an annual cash bonus
plan consistent with past practice); and acquisitions, divestitures and
significant transactions affecting the corporation's capital structure or
ownership. The Committee shall confer with the Pension and Investment Committee
established under the corporation's retirement plan and report periodically to
the board of directors on the funding of qualified pension plans of the
corporation and its subsidiaries and the investment performance of plan funds
and, on behalf of the board of directors, authorize necessary or desirable
changes in actuarial assumptions for funding the plans. The Committee shall
consider such other matters as may be referred to it from time to time by the
board of directors.
(f) A Corporate Affairs Committee which shall review and
recommend policies and programs which are important in maintaining a sound
position with those various publics whose understanding and goodwill are
necessary to the corporation's success. The committee shall report periodically
to the board of directors on the corporation's activities in fulfilling its
social responsibilities and complying with public policy, including employee
safety and occupational health, equal employment opportunity, product safety,
corporate contributions, and the relationship of the corporation to the
communities in which it operates. The committee shall consist of not fewer than
three members of the board of directors who are not officers or employees of the
corporation.
Other Committees of Directors
Section 2. The board of directors may, by resolution passed by a
majority of the whole board, designate from time to time other committees of the
board of directors of such number of directors and with such powers as the board
of directors may by resolution determine.
Appointment of Committee Members
Section 3. The board of directors at its meeting following the annual
meeting of stockholders shall designate the directors to constitute the
membership of each standing committee and the chairman thereof, and such
directors shall serve until the directors' meeting following the next annual
meeting of stockholders; provided, however, that vacancies during the year on
any standing committee shall be filled by the board of directors so that the
membership of each committee shall be filled at all times; and provided further
that in the absence or disqualification of any member of a committee, the
members of that committee present at any meeting and not disqualified from
voting, whether or not constituting a quorum, may unanimously appoint another
member of the board of directors to act at the meeting in the place of the
absent or disqualified member.
Meetings--Quorum
Section 4. Meetings of each committee may be called by its chairman or
by any two members of the committee or by the chief executive officer of the
corporation or by resolution of the board of directors. Each such committee
shall fix its own rules of procedure. The presence of a majority of the members
of a committee shall be necessary to constitute a quorum for the transaction of
business, and the affirmative vote of a majority of all the members of the
committee shall be necessary for the adoption of any resolution or the taking of
any action. Each committee shall report to the board of directors all actions of
the committee at the next directors' meeting following any meeting of any such
committee. Regular minutes of the proceedings of each committee shall be kept in
a book provided for that purpose.
Remuneration of Committee Members
Section 5. Members of each committee not regularly employed by the
corporation or an affiliated corporation shall be entitled to expenses, if any,
of attendance at such meetings and such remuneration as may be determined by
resolution of the board of directors.
ARTICLE V
OFFICERS
General Provisions
Section 1. The officers of the corporation shall be a chairman of the
board of directors, a president, a treasurer, and a corporate secretary, and
such vice chairmen, executive vice presidents, senior vice presidents, vice
presidents, assistant treasurers, assistant secretaries or other officers as may
be elected or appointed by the board of directors. Either the chairman of the
board of directors or the president shall be the chief executive officer. Either
the president or an executive vice president shall be the chief operating
officer. The chairman of the board of directors, the president, and the vice
chairmen all shall be members of the board of directors. The officers shall have
authority and perform duties as set forth in these by-laws or as prescribed by
resolution adopted by the board of directors. The salaries and other
compensation of officers shall be fixed by the board of directors.
Election
Section 2. The officers of the corporation shall be elected annually by
the board of directors at the first meeting of the board of directors held after
each annual meeting of the stockholders. If the election of officers shall not
be held at such meeting, such election shall be held as soon thereafter as
conveniently may be. Vacancies may be filled or new officers created and filled
at any meeting of the board of directors. Each officer shall hold office until
his successor shall have been elected and shall have qualified or until his
death, resignation or removal in the manner hereinafter provided, or until the
board of directors shall by resolution determine that the office shall be left
unfilled. The chairman of the board and the president shall be chosen from the
members of the board of directors.
Removal
Section 3. Any officer elected by the board of directors may be removed
by the board of directors whenever in its judgment the best interests of the
corporation will be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed.
The Chairman of the Board of Directors
Section 4. The chairman of the board of directors shall have general
responsibility for the business and affairs of the corporation, subject to the
control of the board of directors. Such officer shall preside at all meetings of
the stockholders and of the board of directors of the corporation, shall have
all other responsibilities incident to the office of chairman of the board of
directors, and shall, by virtue of the office, be a member of the Executive
Committee of the board of directors. Such officer additionally may, with the
corporate secretary or an assistant secretary, sign certificates of capital
stock and other securities of the corporation.
The President
Section 5. The president shall have direct and active charge of the
business and affairs of the corporation under the direction of the chairman of
the board of directors and subject to the control of the board of directors.
Such officer shall perform such other duties as may be delegated from time to
time by the board of directors or the chairman thereof and shall have all other
responsibilities incident to the office of president. Such officer additionally
may, with the corporate secretary or an assistant secretary, sign certificates
of capital stock and other securities of the corporation. In the event of the
death or disability of the chairman of the board of directors, the president
shall assume the responsibilities of chairman of the board of directors.
The Vice Chairmen
Section 6. If elected, the vice chairmen shall have the respective
responsibilities incident to any other office or title conferred on them by the
board of directors and such other responsibilities as may be assigned from time
to time by the chairman of the board of directors. In the event of the death or
disability of the chairman of the board of directors and the president, the vice
chairmen in the chronological order of their election to that office shall
assume the responsibilities of chairman of the board of directors.
The Chief Executive Officer and the Chief Operating Officer
Section 7. The chief executive officer shall have authority to approve
basic policies, operating plans, and annual performance goals, subject to
approval of the board of directors as required. Such officer shall assure
uniform interpretation and administration of basic policies by all members of
management and shall have responsibility for such financial, legal, and other
administrative functions directly bearing on general corporate governance as are
determined from time to time by the chairman of the board of directors, subject
to approval of the board of directors as required. The chief operating officer
shall assist the chief executive officer in formulating and implementing overall
plans. Such officer shall have such responsibilities for management of general
manufacturing, sales, product distribution, and directly related staff functions
as are determined from time to time by the chairman of the board of directors.
The Executive Vice Presidents, The Senior Vice Presidents, and The Vice
Presidents
Section 8. If an executive vice president is elected and designated
chief operating officer, such executive vice president shall, in the event of
the death or disability of the president, assume the responsibilities of
president. If no executive vice president is designated chief operating officer,
then in the event of the death or disability of the president, first the
executive vice presidents, then the senior vice presidents, then the vice
presidents, each in chronological order of election, shall assume the
responsibilities of president. The executive vice presidents, the senior vice
presidents, and the vice presidents shall have such responsibilities and such
other powers as the board of directors, the chairman of the board of directors,
or the president from time to time shall prescribe.
The Treasurer and Assistant Treasurers
Section 9. The treasurer shall have charge and custody of all funds and
securities of the corporation, shall keep full and accurate accounts of the
receipts and disbursements in books belonging to the corporation, and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be authorized from time to time by
the board of directors. Such officer shall disburse the funds of the corporation
as may be required in the conduct of the business and shall render to the chief
executive officer and the board of directors, at the regular meetings of said
board or whenever said board may require it, an account of all transactions as
treasurer and of the financial condition of the corporation. If required by the
board of directors, such officer shall give the corporation a bond in such form
and with such surety or sureties as shall be satisfactory to the board of
directors for the faithful performance of the duties of the office. In general,
such officer shall have the authority to perform all acts incident to the office
of treasurer, subject to the control of the board of directors. The assistant
treasurers, in the order of their election, shall, in the event of death or
disability of the treasurer, assume the responsibilities of the treasurer and
shall perform such other duties as the board of directors or the treasurer may
from time to time prescribe or delegate.
The Corporate Secretary and Assistant Secretaries
Section 10. The corporate secretary shall attend all meetings of the
board of directors and all meetings of the stockholders, record all proceedings
of the meetings of the board of directors and the stockholders in books to be
kept for those purposes and shall perform like duties for any committee of the
board of directors when requested. Such officer shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings of the
board of directors and shall be the custodian of corporate records and the seal
of the corporation. Such officer additionally shall have authority to affix the
seal to any instrument requiring it and when so affixed, it may be attested by
signature. The assistant secretaries, in the order of their election, shall, in
the event of death or disability of the corporate secretary, assume the
responsibilities of the corporate secretary and shall perform such other duties
as the corporate secretary or the board of directors may from time to time
prescribe.
Voting Shares of Other Corporations
Section 11. Unless otherwise ordered by the board of directors, the
chairman of the board of directors or such person as he may appoint shall have
full power and authority, on behalf of the corporation, to attend any meetings
of stockholders of any corporation in which this corporation may hold stock and
to vote the shares held by this corporation at any such meeting, and at any such
meeting to possess and exercise any and all rights and powers incident to the
ownership of such shares.
ARTICLE VI
CERTIFICATES OF STOCK - DIVIDENDS
Section 1. (a) Every holder of stock in the corporation shall be entitled to
have a certificate signed in the name of the corporation by the chairman of the
board of directors or the president and the corporate secretary or an assistant
secretary, certifying the number of shares owned by him in the corporation. If
such certificate is countersigned (1) by a transfer agent other than the
corporation or its employee, or (2) by a registrar other than the corporation or
its employee, any other signature on the certificate may be a facsimile. In case
any officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, the
certificate may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
(b) All certificates surrendered to the corporation for
transfer shall be canceled and no new certificate shall be issued until the
former certificate for a like number of shares of the same class has been
surrendered and canceled or properly accounted for in the case of a lost
certificate.
Transfer of Shares
Section 2. Upon surrender to the corporation or transfer agent of the
corporation of a certificate of shares duly endorsed and accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
The board of directors may appoint one or more transfer agents and registrars of
transfer, and may require all stock certificates to bear the signature of a
transfer agent and of a registrar of transfers.
Registered Stockholders
Section 3. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware or elsewhere in these by-laws.
Dividends
Section 4. Dividends upon the capital stock of the corporation, subject
to the provisions, if any, of the certificate of incorporation, may be declared
by the board of directors at any regular or special meeting pursuant to law.
Dividends may be paid in cash, in property, or in shares of capital stock,
subject to the provisions of the certificate of incorporation.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation (i) shall indemnify every person who is or was a
director or officer of the corporation or is or was serving at the corporation's
request as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise; and (ii) shall, if the board of directors so
directs, indemnify any person who is or was an employee or agent of the
corporation or is or was serving at the corporation's request as an employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise to the extent, in the manner, and subject to compliance with the
applicable standards of conduct, provided by Section 145 of the General
Corporation Law of the State of Delaware as the same (or any substitute
provision therefor) may be in effect from time to time. Without limiting the
foregoing, the corporation shall indemnify, and (subject to the receipt of any
required undertaking to repay expenses) advance expenses to, every person who is
a director of the corporation to the fullest extent permitted by law.
Such indemnification (i) shall not be deemed exclusive of any other
rights to which any person seeking indemnification under or apart from this
Article VII may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, and (ii) shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
ARTICLE VIII
GENERAL PROVISIONS
Checks
Section 1. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers, or such other person or persons, as
the board of directors may from time to time designate.
Fiscal Year
Section 2. The fiscal year of the corporation shall begin on the first
day of January of each year and end at the close of the last day of December in
the same year.
Seal
Section 3. The corporate seal shall have inscribed thereon the name of
the corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
Waiver of Notice
Section 4. Whenever any notice whatever is required to be given under
the provisions of the statutes or of the certificate of incorporation or of
these by-laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE IX
AMENDMENTS
These by-laws may be amended or repealed (i) subject to Article TWELFTH
of the corporation's Restated Certificate of Incorporation, by the affirmative
vote of a majority of the total number of directors or (ii) by the affirmative
vote of the holders of 80% of the voting power of the corporation's stock
outstanding and entitled to vote thereon.
May 1, 1998
USG Corporation
125 South Franklin Street
Chicago, Illinois 60606
Gentlemen:
We are aware that USG Corporation has incorporated by reference into previously
filed Registration Statement Numbers 33-40136 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 its Form 10-Q for the quarter ended March 31, 1998, which
includes our report dated April 22, 1998, covering the unaudited condensed
financial information contained therein. Pursuant to Regulation C of the
Securities Act of 1933, these reports are not considered a part of the
registration statement prepared or certified by our firm or reports prepared or
certified by our firm within the meaning of Sections 7 and 11 of the Act.
Very truly yours,
/s/ ARTHUR ANDERSEN LLP
- -----------------------
ARTHUR ANDERSEN LLP
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