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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For fiscal year ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________ to ________.
Commission File Number 1-8864
USG CORPORATION
(Exact name of Registrant as Specified in its Charter)
Delaware 36-3329400
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
125 S. Franklin Street, Chicago, Illinois 60606-4678
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (312) 606-4000
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Securities Registered Pursuant to Section 12(b) of the Act:
Name of Exchange on
Title of Each Class Which Registered
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New York Stock Exchange
Common Stock, $0.10 par value Chicago Stock Exchange
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New York Stock Exchange
Preferred Share Purchase Rights Chicago Stock Exchange
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8.5% Senior Notes, Due 2005 New York Stock Exchange
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New York Stock Exchange
Warrants Chicago Stock Exchange
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Securities Registered Pursuant to Section 12(g) of the Act:
None
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes |X| No |_|
As of January 31, 1998, the aggregate market value of USG Corporation
common stock held by nonaffiliates (based upon the New York Stock Exchange
("NYSE") closing prices) was approximately $2,455,716,000.
As of January 31, 1998, 47,048,720 shares of common stock were outstanding.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Corporation's 1997 Annual Report to Stockholders are
incorporated by reference in Parts I, II and IV of this Form 10-K Report.
2. The Corporation's definitive Proxy Statement for use in connection with
the Annual Meeting of Stockholders to be held on May 13, 1998 is
incorporated by reference in Part III of this Form 10-K Report.
3. A list of exhibits incorporated by reference is presented in this Form
10-K Report beginning on page 13.
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TABLE OF CONTENTS
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PART I Page
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Item 1. Business........................................................................................ 3
Item 2. Properties...................................................................................... 8
Item 3. Legal Proceedings............................................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders............................................. 9
PART II
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Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters........................ 10
Item 6. Selected Financial Data......................................................................... 10
Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition........... 10
Item 8. Financial Statements and Supplementary Data..................................................... 10
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............ 10
PART III
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Item 10. Directors and Executive Officers of the Registrant.............................................. 11
Item 11. Executive Compensation.......................................................................... 12
Item 12. Security Ownership of Certain Beneficial Owners and Management.................................. 12
Item 13. Certain Relationships and Related Transactions.................................................. 12
PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................. 13
Signatures.................................................................................................... 20
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<PAGE>
PART I
Item 1. BUSINESS
(a) General Development of Business
United States Gypsum Company ("U.S. Gypsum") was incorporated in 1901. USG
Corporation (together with its subsidiaries, called "USG" or the "Corporation")
was incorporated in Delaware on October 22, 1984. By a vote of stockholders on
December 19, 1984, U.S. Gypsum became a wholly owned subsidiary of the
Corporation and the stockholders of U.S. Gypsum became the stockholders of the
Corporation, all effective January 1, 1985.
In 1988, the Corporation incurred approximately $2.5 billion in debt
primarily to finance a plan of recapitalization in response to an unsolicited
takeover attempt. As a result of high leverage and a severe cyclical downturn in
its constructionbased markets, the Corporation initiated a comprehensive
restructuring of its debt (the "Restructuring") in 1990 that was completed on
May 6, 1993, through implementation of a "prepackaged" plan of reorganization
under United States bankruptcy law. In accordance with the prepackaged plan,
$1.4 billion of debt and accrued interest was converted into equity and interest
expense was significantly reduced. The Corporation accounted for the
Restructuring using the principles of fresh start accounting as required by
AICPA Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code" ("SOP 90-7"). Pursuant to such
principles, individual assets and liabilities were adjusted to fair market
values as of May 6, 1993. Excess reorganization value, the portion of the
reorganization value not attributable to specific assets, amounted to $851
million and was scheduled to be amortized over five years. Due to the
Restructuring and implementation of fresh start accounting, financial statements
subsequent to May 6, 1993, are not comparable to financial statements through
that date.
Following the Restructuring, the Corporation was engaged in a financial
strategy of reducing debt and growing its gypsum, ceilings and distribution
businesses through a balanced application of free cash flow between debt
reduction and capital expenditures. This strategy had the dual objective of
reaching a target debt level of $650 million within five years and achieving
investment grade status with respect to its senior public debt issues for the
first time since 1988. These objectives were largely realized in 1997. As a
result of refinancings implemented in 1994 and 1995, combined with various debt
repayments since 1993, the Corporation reduced its total debt to $620 million as
of December 31, 1997, from $1,556 million as of May 6, 1993. In the fourth
quarter of 1997, Standard & Poor's raised its rating of USG's debt to investment
grade BBB. As of December 31, 1997, Moody's rating of USG debt was Ba1, one
level below investment grade. In addition to these achievements, the remaining
$83 million balance of excess reorganization value was eliminated as of
September 30, 1997. 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.
USG's financial strategy going forward will be to increase the proportion
of free cash flow it spends on capital projects, while reviewing possible
applications of its cash for other corporate purposes.
(b) Financial Information About Industry Segments
Financial information pertaining to industry segments included in "Notes to
Financial Statements - Note 15. Industry and Geographic Segments" of the
Corporation's 1997 Annual Report to Stockholders is incorporated herein by
reference.
(c) Narrative Description of Business
Through its subsidiaries, USG is a leading manufacturer and distributor of
building materials producing a wide range of products for use in new
residential, new nonresidential and repair and remodel construction, as well as
products used in certain industrial processes. USG's operations are organized
into two core businesses: North American Gypsum and Worldwide Ceilings.
North American Gypsum
Business
North American Gypsum, which manufactures and markets gypsum and related
products in the United States, Canada and Mexico, includes U.S. Gypsum and L&W
Supply Corporation ("L&W Supply") in the United States, the gypsum business of
CGC Inc. ("CGC") in Canada and Yeso Panamericano S.A. de C.V. in Mexico. U.S.
Gypsum is the largest producer of gypsum wallboard in the United States and
accounted for nearly one-third of total domestic gypsum wallboard sales in 1997.
L&W Supply is the country's largest distributor of wallboard and related
products and in 1997 distributed approximately 10% of all gypsum wallboard in
the United States (including approximately 27% of U.S. Gypsum's wallboard
production).
Products
North American Gypsum manufactures and markets building and industrial
products used in a variety of applications. Gypsum panel products are used to
finish the interior walls and ceilings in residential, commercial and
institutional construction. These products provide aesthetic as well as
sound-dampening and fire-retarding value. The majority of these products are
sold under the SHEETROCK brand name. Also sold under the SHEETROCK brand name is
a line of joint compounds used for finishing wallboard joints. The DUROCK line
of cement board and accessories provides fire-resistant and water-damage
resistant assemblies for both interior and exterior construction. The
Corporation also produces a variety of plaster products used to provide a custom
finish for residential and commercial interiors. Like SHEETROCK brand wallboard,
these products provide aesthetic, sound-dampening and fire-retarding value.
Plaster products are sold under the trade names of RED TOP, IMPERIAL and
DIAMOND. The Corporation also produces gypsum-based products for agricultural
and industrial customers to use in a number of applications, including soil
conditioning, road repair, fireproofing and ceramics.
Manufacturing
North American Gypsum's products are manufactured at 44 plants located
throughout the United States, eastern Canada and in central Mexico. In June
1997, ground was broken for the $110 million SHEETROCK wallboard plant in
Bridgeport, Ala., that was first announced in 1996. This facility is scheduled
to begin operation in mid-1999. Construction is also underway to build a $90
million facility to manufacture gypsum wood fiber ("GWF") panels at the Gypsum,
Ohio, plant. This facility will produce high-performance construction panels
from synthetic gypsum, recycled paper and wood fiber using USG's patented GWF
technology. Production is scheduled to begin by the end of 1999. In the fourth
quarter of 1997, the Corporation purchased through CGC a gypsum fiber panel
plant in Port Hawkesbury, Nova Scotia, from Louisiana-Pacific Corporation. This
acquisition complements the GWF business plan. Gypsum wood fiber products
manufactured at both plants will be marketed under the FIBEROCK brand name. The
Corporation also announced in 1997 that it will invest $90 million to rebuild
and modernize its East Chicago, Ind., plant. The existing SHEETROCK wallboard
manufacturing line at the East Chicago plant will be replaced with a new,
state-of-the-art wallboard manufacturing line and warehouse to serve the
Midwest/Great Lakes region. This new wallboard manufacturing line will have an
annual capacity of 550 million square feet, replacing the old production line
that has approximately 200 million square feet of capacity. The new East Chicago
line is expected to begin production by the end of 1999.
Gypsum rock is mined or quarried at 14 company-owned locations in the
United States and Canada. In 1997, these facilities provided approximately 89%
of the gypsum used by the Corporation's plants in North America. Certain plants
purchase synthetic gypsum or natural gypsum rock from various outside sources
which accounted for approximately 11% of the gypsum used in the Corporation's
North American plants. The Corporation's geologists estimate that recoverable
rock reserves are sufficient for more than 30 years of operation based on the
Corporation's average annual production of crude gypsum during the past five
years. Proven reserves contain approximately 209 million tons, of which
approximately 66% are located in the United States and 34% in Canada. Additional
reserves of approximately 153 million tons are found on three properties not in
operation. The Corporation's total average annual production of crude gypsum in
the United States and Canada during the past five years was 9.9 million tons.
The Corporation owns and operates seven paper mills located across the
United States. Vertical integration in paper ensures a continuous supply of
high-quality paper that is tailored to the specific needs of USG's wallboard
production processes.
The Corporation does research and development at the USG Research and
Technology Center in Libertyville, Ill. The staff at this center provides
specialized technical services to the operating units and do product and process
research and development. The center is especially well-equipped for carrying
out fire, acoustical, structural and environmental evaluations of products and
building assemblies. The center also has an analytical laboratory for chemical
analysis and characterization of materials. Development activities can be taken
to the pilot plant level before being transferred to a full-size plant.
Marketing and Distribution
Distribution is carried out through L&W Supply, building materials dealers,
home improvement centers and other retailers, contractors and specialty
wallboard distributors. Sales of gypsum products are seasonal to the extent that
sales are generally greater from spring through the middle of autumn than during
the remaining part of the year. Based on the Corporation's estimates using
publicly available data, internal surveys, and gypsum wallboard shipment data
from the Gypsum Association, management estimates that during 1997, about 44% of
total industry volume demand for gypsum wallboard was generated by new
residential construction activity, 39% of volume demand was generated by
residential and nonresidential repair and remodel activity, 10% of volume demand
was generated by new nonresidential construction activity and the remaining 7%
of volume demand was generated by other activities such as exports and temporary
construction.
L&W Supply, which was organized in 1971 by U.S. Gypsum, currently has 176
distribution locations in 34 states. It is a service-oriented organization that
stocks a wide range of construction materials and delivers less than truckload
quantities of construction materials to a job site and places them in areas
where work is being done, thereby reducing or eliminating the need for handling
by contractors. Although L&W Supply specializes in distribution of gypsum
wallboard (which accounts for approximately 50% of its total net sales), joint
compound and other products manufactured primarily by U.S. Gypsum, it also
distributes products manufactured by USG Interiors such as acoustical ceiling
tile and grid, as well as products of other manufacturers including drywall
metal, insulation, roofing products and accessories. L&W Supply leases
approximately 86% of its facilities from third parties. Usually, initial leases
run from three to five years with a five-year renewal option.
Competition
The Corporation competes in North America as the largest of 14 producers of
gypsum wallboard products and in 1997 accounted for nearly one-third of total
gypsum wallboard sales in the United States. In 1997, U.S. Gypsum shipped 8.4
billion square feet of wallboard, the highest level in the Corporation's
history, out of total U.S. industry shipments (including imports) estimated at
26.5 billion square feet, also a record. Principal competitors in the United
States are: National Gypsum Company, Georgia-Pacific Corporation, James Hardie
Gypsum, The Celotex Corporation, Temple-Inland Forest Products Corporation,
American Gypsum and several smaller, regional competitors. Major competitors in
Canada include BPB Westroc and Georgia-Pacific Corporation. In Mexico, the
Corporation's major competitor is Panel Rey.
L&W Supply's largest competitor, Gypsum Management Supply, is an
independent distributor with locations in the southern, central and western
United States. There are several regional competitors, such as, GDMA/RINKER in
the southeast (primarily in Florida) and Strober Building Supply in the
northeastern United States. L&W Supply's many local competitors include lumber
dealers, hardware stores, home improvement centers and acoustical tile
distributors.
Worldwide Ceilings
Business
Worldwide Ceilings, which manufactures and markets interior systems
products worldwide, includes USG Interiors, Inc., the international interior
systems business managed as USG International ("USG International") and the
ceilings business of CGC. Worldwide Ceilings is a leading supplier of interior
ceiling products used primarily in commercial applications. In 1997, Worldwide
Ceilings was estimated to be the largest producer of ceiling grid and the second
largest producer of ceiling tile in the world.
Products
Worldwide Ceilings manufactures and markets ceiling grid, ceiling tile, and
wall systems and, in Europe and Asia Pacific, access floor systems. USG's
integrated line of ceiling products provides qualities such as sound absorption,
fire retardation, and convenient access to the space above the ceiling for
electrical and mechanical systems, air distribution and maintenance. USG
Interiors' significant trade names include the AURATONE and ACOUSTONE brands of
ceiling tile and the DX, FINELINE, CENTRICITEE, CURVATURA and DONN brands of
ceiling grid.
Manufacturing
Worldwide Ceilings' products are manufactured at 20 plants located in North
America, Europe and Asia Pacific. These include 10 ceiling grid plants, 5
ceiling tile plants, 2 plants that produce other interior products and 3 plants
that produce or prepare raw materials for ceiling tile and grid. Principal raw
materials used in the production of Worldwide Ceilings' products include mineral
fiber, steel, perlite, starch and high-pressure laminates. Certain of these raw
materials are produced internally, while others are obtained from various
outside suppliers. Shortages of raw materials used in this segment are not
expected. In early 1997, construction began on a $35 million project that
includes the replacement of two old production lines with one modern, high-speed
line at its ceiling tile plant in Cloquet, Minn. This project, which is
anticipated to be completed by mid-1998, will reduce manufacturing costs and add
capacity to meet increasing worldwide demand. In 1997, the Corporation acquired
a 60% interest in a joint-venture company operating a ceiling grid manufacturing
facility in Shenzhen, China.
USG Interiors maintains its own research and development facility in Avon,
Ohio, which provides product design, engineering and testing services in
addition to manufacturing development, primarily in metal forming, with tool and
machine design and construction services. Additional research and development is
carried out at the Corporation's research and development center in
Libertyville, Ill., and at its "Solutions Center"SM in Chicago, Ill.
Marketing and Distribution
Worldwide Ceilings' products are sold primarily in markets related to the
new construction and renovation of commercial buildings as well as the retail
market for small commercial contractors. Marketing and distribution to large
commercial users is conducted through a network of distributors and installation
contractors as well as through L&W Supply.
Competition
The Corporation estimates that it is the second largest producer/marketer
of acoustical ceiling tile in the world. Principal global competitors include
Armstrong World Industries, Inc. (the largest manufacturer), OWA
Faserplattenwerk GmbH (Odenwald) and The Celotex Corporation. The Corporation
estimates that it is the world's largest manufacturer of ceiling grid. Principal
competitors in ceiling grid include WAVE (a joint venture between Armstrong
World Industries, Inc. and Worthington Industries) and Chicago Metallic
Corporation.
Other Information
The Corporation's plants are substantial users of energy. Five major fuel
types are used in a mix consisting of 79% natural gas, 10% electricity, 7% oil,
2% coke and 2% purchased hot air. With few exceptions, plants that use natural
gas are equipped with fuel stand-by systems, principally oil. Primary fuel
supplies have been adequate and no curtailment of plant operations has resulted
from insufficient supplies. Supplies are likely to remain sufficient for
projected requirements. Energy price swap agreements are used by the Corporation
to hedge the cost of certain purchased fuel.
Neither industry segment has any special working capital requirements or is
materially dependent on a single customer or a few customers on a regular basis.
No single customer of the Corporation accounted for more than 10% of the
Corporation's 1997 or 1996 consolidated net sales. Because orders are filled
upon receipt, neither industry segment has any significant backlog.
Loss of one or more of the patents or licenses held by the Corporation
would not have a major impact on the Corporation's business or its ability to
continue operations. No material part of any of the Corporation's business is
subject to renegotiation of profits or termination of contracts or subcontracts
at the election of the government.
All of the Corporation's products regularly require improvement to remain
competitive. The Corporation also develops and produces comprehensive systems
employing several of its products. In order to maintain its high standards and
remain a leader in the building materials industry, the Corporation performs
on-going extensive research and development activities and makes the necessary
capital expenditures to maintain production facilities in good operating
condition.
One of the Corporation's subsidiaries, U.S. Gypsum, is a defendant in
asbestos lawsuits alleging both property damage and personal injury. Information
pertaining to legal proceedings included in "Notes to Financial Statements -
Note 16. Litigation" of the Corporation's 1997 Annual Report to Stockholders is
incorporated herein by reference.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales
Financial information pertaining to foreign and domestic operations and
export sales included in "Notes to Financial Statements - Note 15. Industry and
Geographic Segments" of the Corporation's 1997 Annual Report to Stockholders is
incorporated herein by reference.
Item 2. PROPERTIES
The Corporation's plants, mines, quarries, transport ships and other
facilities are located in North America, Europe, and Asia Pacific. Many of these
facilities are operating at or near full capacity. All facilities and equipment
are in good operating condition, and in management's judgment, sufficient
expenditures have been made annually to maintain them. The locations of the
production properties of the Corporation's subsidiaries, grouped by industry
segment, are as follows (plants are owned unless otherwise indicated):
North American Gypsum
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Gypsum Wallboard and Other Gypsum Products
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United States Canada
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Baltimore, Md. Norfolk, Va. Hagersville, Ontario
Boston (Charlestown), Mass. Oakfield, N.Y. Montreal, Quebec
Detroit (River Rouge), Mich. Plaster City, Calif. St. Jerome, Quebec (currently idle)
East Chicago, Ind. Plasterco (Saltville), Va.
Empire, Nev. Santa Fe Springs, Calif.
Fort Dodge, Iowa Shoals, Ind.
Fremont, Calif. Sigurd, Utah
Galena Park, Texas Southard, Okla.
Gypsum, Ohio Sperry, Iowa
Jacksonville, Fla. Stony Point, N.Y.
New Orleans, La. Sweetwater, Texas
Mexico
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Puebla, Puebla
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Joint Compound
Surface preparation and joint treatment products are produced in plants
located at Chamblee, Ga.; Dallas, Texas; East Chicago, Ind.; Fort Dodge, Iowa;
Galena Park, Texas; Gypsum, Ohio; Jacksonville, Fla.; Port Reading, N.J.;
Sigurd, Utah; Tacoma, Wash. (leased); Torrance, Calif.; Hagersville, Ontario,
Canada; Montreal, Quebec, Canada; Puebla, Mexico; and Port Klang, Malaysia
(leased).
Gypsum Rock
Gypsum rock is mined or quarried at Alabaster (Tawas City), Mich.; Empire,
Nev.; Fort Dodge, Iowa; Oakfield, N.Y.; Plaster City, Calif.; Plasterco
(Saltville), Va.; Shoals, Ind.; Sigurd, Utah; Southard, Okla.; Sperry, Iowa;
Sweetwater, Texas; Hagersville, Ontario, Canada; Little Narrows, Nova Scotia,
Canada; and Windsor, Nova Scotia, Canada. Synthetic gypsum is processed at
Belledune, New Brunswick, Canada.
Mining operations at Oakfield, N.Y., are scheduled to be shut down by mid-1998.
Paper
Paper for gypsum wallboard is manufactured at Clark, N.J.; Galena Park,
Texas; Gypsum, Ohio; Jacksonville, Fla.; North Kansas City, Mo.; Oakfield, N.Y.;
and South Gate, Calif.
Ocean Vessels
Gypsum Transportation Limited, a wholly owned subsidiary of the
Corporation, headquartered in Bermuda, owns and operates a fleet of three
self-unloading ocean vessels. Under contract of affreightment, these vessels
transport gypsum rock from Nova Scotia to the East Coast plants of U.S. Gypsum.
Excess ship time, when available, is offered for charter on the open market.
Other Products
A mica-processing plant is located at Spruce Pine, N.C.; perlite ore is
produced at Grants, N.M.; and drywall metal products are manufactured at Medina,
Ohio (leased). Metal lath, plaster and drywall accessories and light gauge steel
framing products are manufactured at Puebla, Mexico. Various other products are
manufactured at La Mirada, Calif. (adhesives and finishes); New Orleans, La.
(lime products); and Port Hawkesbury, Nova Scotia, Canada (gypsum fiber panel
products).
Worldwide Ceilings
Ceiling Tile
Acoustical ceiling tile and panels are manufactured at: Cloquet, Minn.;
Greenville, Miss.; Walworth, Wis.; San Juan Ixhuatepec, Mexico; and Aubange,
Belgium.
Ceiling Grid
Ceiling grid products are manufactured at: Cartersville, Ga.; Stockton,
Calif.; Westlake, Ohio; Auckland, New Zealand (leased); Dreux, France; Oakville,
Ontario, Canada; Peterlee, England (leased); Port Klang, Malaysia (leased);
Viersen, Germany; and Taipei, Taiwan (leased). A coil coater and slitter plant
used in the production of ceiling grid is also located in Westlake, Ohio and a
slitter plant is located in Stockton, Calif. (leased).
Other Products
Access floor systems products are manufactured at: Peterlee, England
(leased); and Port Klang, Malaysia (leased). Mineral fiber products are
manufactured at Red Wing, Minn. and Walworth, Wis. Wall system products are
manufactured at Medina, Ohio (leased). Drywall metal products are manufactured
at Prestice, Czech Republic (leased) and Oakville, Ontario, Canada.
Item 3. LEGAL PROCEEDINGS
Information pertaining to legal proceedings included in "Notes to Financial
Statements - Note 16. Litigation" of the Corporation's 1997 Annual Report to
Stockholders is incorporated herein by reference.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the fourth quarter of 1997.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Information with respect to the principal market on which the Corporation's
common stock is traded, the range of high and low market prices and number of
stockholders of record included in "Selected Quarterly Financial Data" of the
Corporation's 1997 Annual Report to Stockholders is incorporated herein by
reference.
There have been no dividends declared since the third quarter of 1988. Bank
credit agreements and other debt instruments have previously prohibited or
restricted the payment of cash dividends. Although currently permitted within
certain limits under the Corporation's existing debt agreements, the Corporation
is not paying a dividend at this time.
On November 22, 1996, the Corporation entered into a retention agreement
with an employee, formerly the principal stockholder of a corporation certain of
whose assets were purchased by the Corporation, whereby the Corporation agreed
to grant shares of unregistered common stock, $0.10 par value, having an
aggregate value equal to $250,000 in five separate annual installments each
having a value equal to $50,000, in reliance on the private offering exemption
afforded by Section 4 (2) of the Securities Act of 1933, as amended. The second
annual grant in the amount of 1,062 shares was made on November 24, 1997. The
unregistered common stock is restricted from transfer, resale or other
disposition until November 22, 2001.
Item 6. SELECTED FINANCIAL DATA
Selected financial data included in "Comparative Five-Year Summary" of the
Corporation's 1997 Annual Report to Stockholders is incorporated herein by
reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
"Management's Discussion and Analysis of Results of Operations and
Financial Condition" of the Corporation's 1997 Annual Report to Stockholders is
incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data included in "Consolidated
Statement of Earnings," "Consolidated Balance Sheet," "Consolidated Statement of
Cash Flows," "Notes to Financial Statements" and "Report of Independent Public
Accountants" of the Corporation's 1997 Annual Report to Stockholders is
incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information about directors has been omitted from this report as it will be
filed with the Securities and Exchange Commission (the "SEC") in a definitive
proxy statement pursuant to Regulation 14A, which definitive proxy statement is
incorporated herein by reference.
Executive Officers of the Registrant (as of February 1, 1998)
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<TABLE>
Has Held
Name, Age Present
and Present Position Prior Business Experience in Past Five Years Position Since
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William C. Foote, 46 President and Chief Executive Officer, L&W Supply Corporation June 1997
Chairman and Chief Executive from September 1991 to January 1994; President and Chief
Officer Executive Officer, USG Interiors, Inc. from January 1993 to
January 1994; President and Chief Operating Officer
from January 1994 to January 1996; President
and Chief Executive Officer to April 1996;
Chairman, President and Chief Executive
Officer from April 1996 to June 1997.
P. Jack O'Bryan, 62 President and Chief Executive Officer, United States Gypsum June 1997
President and Chief Operating Company to January 1993; Senior Vice President and Chief
Officer; President and Chief Technology Officer, USG Corporation to August 1994; Senior Vice
Executive Officer, United President - Worldwide Manufacturing and Technology to October
States Gypsum Company; President 1995; Executive Vice President- Worldwide Ceilings to September
and Chief Executive Officer, 1996; President and Chief Executive Officer, USG Interiors, Inc.
USG Interiors, Inc. since October 1995; Executive Vice President - Operations to June
1997.
Richard H. Fleming, 50 Vice President and Treasurer to January 1994; Vice President January 1995
Senior Vice President and Chief and Chief Financial Officer to January 1995.
Financial Officer
Arthur G. Leisten, 56 Senior Vice President and General Counsel to March 1993; Senior February 1994
Senior Vice President and General Vice President, General Counsel and Secretary to February 1994.
Counsel
Harold E. Pendexter, Jr., 63 Same position. January 1991
Senior Vice President and Chief
Administrative Officer
Raymond T. Belz, 57 Vice President Financial Services and Financial
Vice President and Controller; Administration, United States Gypsum Company to January 1994; September 1996
Vice President Financial Vice President and Controller, USG Corporation, Vice
Operations, North American Gypsum President Financial Services, United States Gypsum Company to
and Worldwide Ceilings January 1995; Vice President and Chief Financial Officer, North
American Gypsum from January 1995 to September 1996; Vice President
and Controller since January 1995.
Brian W. Burrows, 58 Same position. March 1987
Vice President, Research and
Technology
John E. Malone, 54 Vice President and Controller, USG Corporation to January 1994; January 1994
Vice President and Treasurer Vice President - Finance, USG International, from March 1993 to
February 1995.
Daniel J. Nootens, 59 Vice President Manufacturing, United States Gypsum Company from June 1997
Vice President; Executive November 1990 to July 1994; Executive Vice President & Chief
Vice President, Strategic Operating Officer, United States Gypsum Company from July 1994
Manufacturing & Capital to September 1996; Executive Vice President-Operations, North
Investments, North American American Gypsum from September 1996 tp June 1997.
Gypsum and Worldwide Ceilings
Robert B. Sirgant, 57 Vice President, National Accounts and Marketing - East, United January 1995
Vice President, Corporate States Gypsum Company to July 1994; Vice President, National
Accounts Accounts, United States Company to January 1995.
Dean H. Goossen, 50 Vice President, General Counsel and Secretary, Xerox Financial
Corporate Secretary Services Life Insurance Company to February 1993; Assistant February 1994
Secretary, USG Corporation to February 1994.
</TABLE>
<PAGE>
Item 11. EXECUTIVE COMPENSATION
Information required by Item 11 has been omitted from this report as it will
be filed with the SEC in a definitive proxy statement pursuant to Regulation
14A, which definitive proxy statement is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by Item 12 has been omitted from this report as it
will be filed with the SEC in a definitive proxy statement pursuant to
Regulation 14A, which definitive proxy statement is incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by Item 13 has been omitted from this report as it
will be filed with the SEC in a definitive proxy statement pursuant to
Regulation 14A, which definitive proxy statement is incorporated herein by
reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this 10-K Report:
1. The consolidated financial statements, notes to financial statements
and report of independent public accountants included in the
Corporation's 1997 Annual Report to Stockholders and listed below are
incorporated herein by reference:
Consolidated Statement of Earnings - Years ended December 31, 1997,
1996 and 1995.
Consolidated Balance Sheet - As of December 31, 1997 and 1996.
Consolidated Statement of Cash Flows - Years ended December 31, 1997,
1996 and 1995.
Notes to Financial Statements.
Report of Independent Public Accountants.
2. Supplemental Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts.
Report of Independent Public Accountants With Respect to
Financial Statement Schedule.
All other schedules have been omitted because they are not required,
are not applicable, or the information is included in the financial
statements or notes thereto.
3 Exhibits (Reg. S-K, Item 601):
<TABLE>
Exhibit
No. Page
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<CAPTION>
<S> <C> <C>
3 Articles of incorporation and by-laws:
(a) Restated Certificate of Incorporation of USG Corporation (incorporated
by reference to Exhibit 3.1 of USG Corporation's Form 8-K, dated May 7, 1993).
(b) Amended and Restated By-Laws of USG Corporation, dated as of May 12,
1993 (incorporated by reference to Exhibit 3(b) of Amendment No. 1 to USG
Corporation's Registration Statement No. 33-61162 on Form S-1, dated June 16,
1993).
4 Instruments defining the rights of security holders, including
indentures:
(a) Indenture dated as of October 1, 1986 between USG Corporation and
Harris Trust and Savings Bank, Trustee (incorporated by reference to Exhibit
4(a) of USG Corporation's Registration Statement No. 33-9294 on Form S-3, dated
October 7, 1986).
(b) Resolutions dated March 5, 1987 of a Special Committee created by the
Board of Directors of USG Corporation relating to USG Corporation's 8.75%
Debentures due 2017 (incorporated by reference to Exhibit 4(c) of USG
Corporation's 1993 Annual Report on Form 10-K, dated March 14, 1994).
(c) Resolutions dated February 1, 1994 of a Special Committee created by
the Board of Directors of USG Corporation relating to USG Corporation's 9.25%
Senior Notes due 2001 (incorporated by reference to Exhibit 4(f) of USG
Corporation's Registration No. 33- 51845 on Form S-1, dated February 16, 1994).
(d) Resolutions dated August 3, 1995 of a Special Committee created by the
Board of Directors of USG Corporation relating to USG Corporation's 8.5% Senior
Notes due 2005 (incorporated by reference to Exhibit 4(b) of Amendment No. 3 to
USG Corporation's Registration Statement No. 33-60563 on Form S-3, dated July
28, 1995).
(e) Warrant Agreement dated May 6, 1993 between USG Corporation and Harris
Trust and Savings Bank, as Warrant Agent, relating to USG Corporation's Warrants
(incorporated by reference to Exhibit 4.3 of USG Corporation's Form 8-K, dated
May 7, 1993).
(f) Form of Warrant Certificate (incorporated by reference to Exhibit 4(g)
of Amendment No. 4 to USG Corporation's Registration Statement No. 33-40136 on
Form S-4, dated November 12, 1992).
(g) Rights Agreement dated May 6, 1993 between USG Corporation and Harris
Trust and Savings Bank, as Rights Agent (incorporated by reference to Exhibit
10.1 of USG Corporation's Form 8-K, dated May 7, 1993).
(h) Form of Common Stock certificate (incorporated by reference to Exhibit
4.4 to USG Corporation's Form 8-K, dated May 7, 1993).
The Corporation and certain of its consolidated subsidiaries are parties to
long-term debt instruments under which the total amount of securities authorized
does not exceed 10% of the total assets of the Corporation and its subsidiaries
on a consolidated basis. Pursuant to paragraph (b)(4)(iii)(A) of Item 601 of
Regulation S-K, the Corporation agrees to furnish a copy of such instruments to
the Securities and Exchange Commission upon request.
10 Material contracts:
(a) Management Performance Plan of USG Corporation (incorporated by
reference to Annex C of Amendment No. 8 to USG Corporation's Registration
Statement No. 33-40136 on Form S-4, dated February 3, 1993).
(b) First Amendment to Management Performance Plan, effective November 15,
1993 and dated February 1, 1994 (incorporated by reference to Exhibit 10(aq) of
Amendment No. 1 of USG Corporation's Registration Statement No. 33-51845 on Form
S-1).
(c) Amendment and Restatement of USG Corporation Supplemental Retirement
Plan, effective as of July 1, 1997 and dated August 25, 1997. 21
(d) Termination Compensation Agreements (incorporated by reference to
Exhibit 10(h) of USG Corporation's 1991 Annual Report on Form 10-K, dated March
5, 1992).
(e) Indemnification Agreements (incorporated by reference to Exhibit 10(g)
of Amendment No. 1 to USG Corporation's Registration No. 33-51845 on Form S-1).
(f) Bankruptcy Court Order issued April 23, 1993 confirming USG
Corporation's Prepackaged Plan of Reorganization (incorporated by reference to
Exhibit 28.1 of Form 8-K filed by USG Corporation on May 7, 1993).
(g) Consulting Agreement dated August 11, 1993 between USG Corporation and
James W. Cozad (incorporated by reference to Exhibit 10(aw) in USG Corporation's
Registration Statement 33- 51845, on Form S-1).
(h) Form of Employment Agreement dated May 12, 1993 (incorporated by
reference to Exhibit 10(h) of Amendment No. 1 to USG Corporation's Registration
Statement No. 33-61152 on Form S-1).
(i) Amendment of Termination Compensation Agreements (incorporated by
reference to Exhibit 10(j) of Amendment No. 1 to USG Corporation's Registration
Statement No. 33-61152 on Form (S-1).
(j) Credit Agreement dated as of July 27, 1995 among USG Corporation and
the Banks listed on the signature page thereto and Chase Manhattan Bank
(formerly Chemical Bank) as Agent (incorporated by reference to Exhibit 99(a) of
Amendment No. 3 to USG Corporation's Registration Statement No. 33-60563 on Form
S-3, dated July 28, 1995).
(k) Amendment No. 1, dated as of February 1, 1996 to the Credit Agreement
(incorporated by reference to Exhibit 10(q) of USG Corporation's 1995 Annual
Report on Form 10-K, dated February 29, 1996).
(l) Amendment No. 2, dated as of May 14, 1997, to the Credit Agreement. 38
(m) 1995 Long-Term Equity Plan of USG Corporation (incorporated by
reference to Annex A to USG Corporation's Proxy Statement and Proxy dated March
31, 1995).
(n) 1997 Annual Management Incentive Program - USG Corporation. 47
(o) Omnibus Management Incentive Plan (incorporated by reference to Annex A
to USG Corporation's Proxy Statement and Proxy dated March 28, 1997).
(p) First Amendment to Omnibus Management Incentive Plan, dated as of
November 11, 1997. 55
(q) Amended and Restated Stock Compensation Program for Non-Employee
Directors of USG Corporation, dated July 1, 1997. 56
13 Portions of USG Corporation's 1997 Annual Report to Stockholders. (Such
report is not deemed to be filed with the Commission as part of this Annual
Report on Form 10-K, except for the portions thereof expressly incorporated by
reference.) 64
21 Subsidiaries 90
23 Consents of Experts and Counsel 91
24 Power of Attorney 92
27 Financial Data Schedule 93
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of 1997.
</TABLE>
<TABLE>
Index to exhibits filed
with the Annual Report on Form 10-K
for the year ended December 31, 1997
Exhibit Page
<CAPTION>
<S> <C> <C>
10(c) Amendment and Restatement of USG Corporation Supplemental Retirement Plan 21
10(l) Amendment No. 2 to the Credit Agreement 38
10(n) 1997 Annual Management Incentive Program - USG Corporation 47
10(p) First Amendment to Omnibus Management Incentive Plan 55
10(q) Amended and Restated Stock Compensation Program for Non-Employee Directors 56
13 Portions of USG Corporation's 1997 Annual Report to Stockholders 64
21 Subsidiaries 90
23 Consent of Experts 91
24 Power of Attorney 92
27 Financial Data Schedule 93
</TABLE>
If you wish to receive a copy of any exhibit, it may be obtained, upon payment
of reasonable expenses, by writing to:
Dean H. Goossen, Corporate Secretary
USG Corporation
Department #188
P.O. Box 6721
Chicago, IL 60680-6721
<PAGE>
<TABLE>
USG CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in millions)
Provision Receivables
Charged to Written Off
Beginning Costs and and Discounts Ending
Balance Expenses Allowed Balance
------- -------- ------- -------
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<S> <C> <C> <C> <C>
Year ended December 31, 1997:
Doubtful accounts................................. $ 14 $ 5 $ (5) $ 14
Cash discounts.................................... 3 52 (52) 3
Year ended December 31, 1996:
Doubtful accounts................................. 11 7 (4) 14
Cash discounts.................................... 3 46 (46) 3
Year ended December 31, 1995:
Doubtful accounts................................. 11 6 (6) 11
Cash discounts.................................... 3 44 (44) 3
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
WITH RESPECT TO FINANCIAL STATEMENT SCHEDULE
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in USG Corporation's annual
report to stockholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated January 22, 1998. Our audit was made for the
purpose of forming an opinion on the consolidated financial statements taken as
a whole. The financial statement schedule on page 18 is the responsibility of
the Corporation's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the consolidated
financial statements. The financial statement schedule has been subjected to the
auditing procedures applied in the audit of the consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the consolidated
financial statements taken as a whole.
/s/Arthur Andersen LLP
----------------------
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 22, 1998
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
USG CORPORATION
February 20, 1998
By: /s/ Richard H. Fleming
---------------------------
Richard H. Fleming
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
/s/ William C. Foote February 20, 1998
- --------------------------
WILLIAM C. FOOTE
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ Richard H. Fleming February 20, 1998
- ---------------------------
RICHARD H. FLEMING
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Raymond T. Belz February 20, 1998
- ---------------------------
RAYMOND T. BELZ
Vice President and Controller
(Principal Accounting Officer)
ROBERT L. BARNETT, KEITH A. BROWN, ) By:/s/ Richard H. Fleming
W. H. CLARK, W. DOUGLAS FORD, ) Richard H. Fleming
JAMES C. COTTING, LAWRENCE ) Attorney-in-fact
M. CRUTCHER, DAVID W. FOX, ) Pursuant to Power of Attorney
PHILIP C. JACKSON, JR., MARVIN E. LESSER, ) (Exhibit 24 hereto)
P. JACK O'BRYAN, JOHN B. SCHWEMM, ) February 20, 1998
JUDITH A. SPRIESER, Directors )
EXHIBIT 10(c)
USG CORPORATION SUPPLEMENTAL RETIREMENT PLAN
(As Amended and Restated Effective as of July 1, 1997)
McDermott, Will & Emery
Chicago, Illinois
USG CORPORATION SUPPLEMENTAL RETIREMENT PLAN
SECTION 1
Introduction
1.1. The Plan, the Company. Effective January 1, 1976 UNITED STATES GYPSUM
COMPANY established UNITED STATES GYPSUM COMPANY SUPPLEMENTAL RETIREMENT PLAN
(the "Plan"). On January 1, 1985 UNITED STATES GYPSUM COMPANY became a
wholly-owned subsidiary of USG CORPORATION and effective as of that date USG
CORPORATION was substituted for UNITED STATES GYPSUM COMPANY as the "Company"
under the Plan and the name of the Plan was changed to USG CORPORATION
SUPPLEMENTAL RETIREMENT PLAN. The term "Company" as used in the Plan means
UNITED STATES GYPSUM COMPANY up to January 1, 1985 and USG CORPORATION (and any
successor thereto) on and after that date. The provisions of this subsection and
the following provisions of the Plan constitute an amendment and restatement of
the Plan, as previously amended, effective as of July 1, 1997 (the "New
Effective Date"), subject to any subsequent amendments.
1.2. Employers. Each subsidiary of the Company that is an employer under USG
Corporation Retirement Plan (the "Retirement Plan") or under USG Corporation
Investment Plan (the "Investment Plan") shall be an "Employer" under this Plan
unless specified to the contrary by the Company by writing filed with the
Committee described in subsection 1.4.
1.3. Purpose. The Company and certain of its subsidiaries maintain and are
employers under the Retirement Plan and the Investment Plan, each of which plans
is intended to meet the requirements of a "qualified plan" under Section 401(a)
of the Internal Revenue Code. The purpose of this Plan, a nonqualified plan, is
to provide for eligible employees benefits that could have been earned and paid
under the Retirement and Investment Plans and under any other qualified defined
benefit and defined contribution plans maintained by the controlled group of
corporations of which the Company is a member ("other USG Defined Benefit and
Defined Contribution Plans") but for the following limitations:
(a) Section 401(a)(4) of the Internal Revenue Code requires that
contributions or benefits provided under a qualified plan must not discriminate
in favor of highly compensated employees and therefore amounts deferred by
employees, if any, under the Company's management incentive compensation
programs until their retirement or other termination of employment may not be
considered as a part of their employment compensation in determining the amount
of their contributions, benefits provided with respect to their contributions,
and employer provided benefits under the Retirement and Investment Plans and
other USG Defined Benefit and Defined Contribution Plans.
(b) Sections 401(a)(17) and 404(l) of the Internal Revenue Code limit the
amount of employees' annual compensation that may be taken into account in
determining the benefits that may be paid to them from the Retirement and
Investment Plans and other USG Defined Benefit and Defined Contribution Plans
and the deductible Employer contributions that may be made to those plans to
provide such benefits.
(c) Sections 401(k) and 401(m) of the Internal Revenue Code require that
employees' before-tax contributions and Employer matching contributions under
USG Defined Contribution Plans be tested to prevent discrimination in favor of
highly compensated employees and as a result of such tests employees' before-tax
contributions and shares of Employer matching contributions under such plans may
be limited.
(d) Section 402(g) of the Internal Revenue Code limits the amount of
before-tax contributions that an employee may make under the Investment Plan and
other USG Defined Contribution Plans.
(e) Section 415 of the Internal Revenue Code places limitations on the
amount of benefits that may be paid from and contributions that may be made to
the Retirement Plan and the Investment Plan and other USG Defined Benefit and
Defined Contribution Plans.
The Plan also allows Participants to elect to make before-tax contributions to
the Plan in excess of the amount of contributions permitted under the terms of
the Investment Plan. In no event shall any benefits be payable under this Plan
that would duplicate benefits that become payable under any other qualified or
nonqualified plan maintained by the Company, any other Employer or any other
member of the controlled group of corporations of which the Company is a member.
1.4. Plan Administration. The Plan is administered by the committee (the
"Committee") that is responsible for administration of the Retirement Plan and
the Investment Plan. To the extent appropriate, the Committee has, concerning
Part A Supplemental Benefits and Part A Supplemental Death Benefits described in
Section 3, the same powers, rights, duties and obligations it has as to the
Retirement Plan and, concerning Part B Supplemental Benefits and Part B
Supplemental Death Benefits described in Section 4, the same powers, rights,
duties and obligations it has as to the Investment Plan, including the right to
require the completion of such forms or applications with respect to benefit
payments as it deems appropriate.
1.5. Preservation of Benefits. Benefits shall be provided under the Plan on and
after the New Effective Date to, or with respect to, former employees of the
Company who became entitled to such benefits before that date in accordance with
the terms of the Plan as in effect at the time of their retirement or other
termination of employment. If an employee of an Employer was participating in
the Plan immediately prior to the New Effective Date and continues to
participate in the Plan on and after that date, benefits payable under Section 3
of this Plan to, or with respect to, such employee shall not be less than what
they would have been if the Plan as in effect immediately prior to the New
Effective Date continued in effect on and after that date without change, but
only taking into account for this purpose benefits accrued by the employee under
the Retirement Plan and all other USG Defined Benefit Plans prior to the New
Effective Date, and benefits payable under Section 4 of this Plan to, or with
respect to, such employee shall not be less than his account described in
subsection 4.6 determined as of the New Effective Date and as subsequently
adjusted pursuant to subsection 4.6 to reflect deemed investment of the account.
SECTION 2
Eligibility for Participation
2.1. Covered Employee. A "Covered Employee" means an employee of an Employer
under the Plan who is a highly compensated employee as defined in Section 414(q)
of the Internal Revenue Code, unless the Committee specifies that such employee
shall not be considered as a Covered Employee for any purpose of the Plan by
writing filed with the Secretary of the Company prior to, or within 30 days
after, the date the employee otherwise would become eligible for participation
in the Plan.
2.2. Eligibility. Subject to the conditions and limitations of the Plan, each
employee of an Employer who was a "Participant" in the Plan on June 30, 1997
shall continue as a Participant in the Plan after that date. Subject to the
conditions and limitations of the Plan, each other employee of an Employer shall
become eligible to enroll in this Plan and become a "Participant" on the first
date occurring on or after the New Effective Date on which:
(a) he is a Covered Employee; and
(b) the benefits he accrues, or the contributions he is required to make or
could elect to make, or his share of employer derived contributions under one or
more of the Retirement Plan, the Investment Plan, and other USG Defined Benefit
and Defined Contribution Plans, are less than what they would have been (or, as
to elected contributions, could have been) as a result of the limitations
described in subsection 1.3.
Each employee will be notified of the date he is eligible to enroll in the Plan
and become a Participant and will be notified of the enrollment procedures
established by the Committee.
2.3. Period of Participation. An employee of an Employer who becomes a
Participant in this Plan will continue as a Participant in the Plan in
accordance with its provisions until all benefits to which he is entitled under
the Plan have been distributed to him. However, a Participant will not be
entitled to make contributions or accrue additional benefit entitlements under
this Plan for any period during which he is not a Covered Employee.
SECTION 3
Part A Supplemental Benefits
3.1. Intent. The Employers intend that benefits be provided pursuant to the
provisions of this Section 3 that are actuarially equivalent to the benefits
that would have been provided under the Retirement Plan and other USG Defined
Benefit Plans if the limitations described in subsection 1.3 did not exist, if
before-tax contributions the Participant makes pursuant to subsection 3.3 had
been made under the Retirement Plan and any other applicable USG Defined Benefit
Plan on an after-tax basis, and if amounts deferred under the Company's 1989 and
subsequent management incentive compensation programs or deferred under
subsections 4.3 and 4.4 of the Plan had not been deferred but instead paid at
the proper time and included in employment compensation for purposes of the
Plans, provided that the contribution requirement described in subsection 3.3 is
met.
3.2. Limited Benefits, Unlimited Benefits, Part A Supplemental Benefits and Part
A Supplemental Death Benefits. For purposes of this Section 3, the term "Limited
Benefits" means the benefits that become payable to or with respect to a
Participant under the Retirement Plan and all other USG Defined Benefit Plans.
The term "Unlimited Benefits" means the benefits that would have become payable
to or with respect to a Participant under such Plans if the limitations
described in subsection 1.3 did not exist, if before-tax contributions the
Participant makes pursuant to subsection 3.3 had been made under the Retirement
Plan and any other applicable USG Defined Benefit Plan on an after-tax basis,
and if amounts deferred by the Participant under the Company's 1989 and
subsequent management incentive compensation programs or deferred under
subsections 4.3 and 4.4 of the Plan had not been deferred but instead paid to
the Participant at the proper time during employment and then included in the
Participant's employment compensation for purposes of those Plans. Benefits that
become payable under this Section 3 to a Participant are referred to as "Part A
Supplemental Benefits". Benefits that become payable under this Section 3 to any
person as a result of the death of a Participant are referred to as "Part A
Supplemental Death Benefits".
3.3. Participant Contribution Requirement. A Participant's entitlement to Part A
Supplemental Benefits and Part A Supplemental Death Benefits described in
subsections 3.5 and 3.7 is subject to the Participant making before-tax
contributions under this Plan. Such contributions must equal the after-tax
contributions the Participant would have been required to make under the
Retirement Plan and all other USG Defined Benefit Plans:
(a) if amounts contributed on a before-tax basis under this Plan, deferred
by the Participant under the Company's management incentive compensation
programs, or deferred under subsections 4.3 and 4.4 of the Plan had not been so
contributed or deferred but paid to the Participant at the proper time during
employment and then included in the Participant's employment compensation for
purposes of those plans;
(b) if the annual compensation limitation imposed by Section 401(a)(17) of
the Internal Revenue Code (as described in subparagraph 1.3(b)) did not apply to
the Participant; and
(c) if the limitations imposed under Section 415 of the Internal Revenue
Code (as described in subparagraph 1.3(f)) did not apply to the Participant.
Notwithstanding the foregoing, a Participant may be eligible for and make
after-tax contributions under the Retirement Plan or another USG Defined Benefit
Plan even though the limitations described above in this subsection may prevent
or limit his accrual of benefits under such plans. In such case, the Participant
will accrue benefits under this Plan based on such after-tax contributions as if
they had been made under this Plan on a before-tax basis. The Committee shall
maintain a bookkeeping account in the name of each Participant who makes
before-tax contributions under this subsection to reflect such contributions
and, where required, interest on such contributions. The term "interest" as used
in this Plan with respect to Participants' before-tax contributions made under
this subsection shall mean "interest" as defined in the Retirement Plan with
respect to participant contributions under that plan but shall not include a
higher rate of interest required to be applied under the Retirement Plan for
certain purposes pursuant to Section 411(c)(2) of the Internal Revenue Code.
3.4. Compensation Deferral Elections. A Participant's before-tax contributions
under this Section 3 shall be made pursuant to a compensation deferral election
filed with his Employer prior to the calendar year such contributions are to
begin or, in the case of a Participant who first becomes eligible to make such
contributions during but after the beginning of a calendar year, filed with his
Employer not more than 30 days after so becoming eligible, subject to the
following:
(a) The Participant's election shall apply to employment compensation
otherwise payable after the later to occur of the date the Participant becomes
eligible to make before-tax contributions and the date the election is filed
with his Employer.
(b) Such election shall be automatically revoked if the Participant ceases
to be a Covered Employee and such revocation shall be effective as to employment
compensation the Participant is entitled to receive during the period he ceases
to be a Covered Employee.
(c) Such election may be voluntarily revoked by the Participant before the
beginning of any subsequent calendar year. A voluntary revocation shall be
effective as to employment compensation the Participant is entitled to receive
during that and subsequent calendar years unless prior to the commencement of
any subsequent calendar year the Participant makes another compensation deferral
election. Such later election shall apply as to employment compensation
otherwise payable during calendar years beginning after the election is made.
Any period during which a Participant does not make contributions under the Plan
(and, where applicable, does not elect to make after-tax contributions under the
Retirement Plan or another USG Defined Benefit Plan upon which benefits would
accrue under this Plan) shall be disregarded for purposes of any subsequent
calculation of benefit service (as defined in subsection 4.3 of the Retirement
Plan) or compensation (as described in subsection 3.3 above for purposes of
determining contributions under this Plan) used in determining the Participant's
Unlimited Benefits for a subsequent Plan year.
3.5. Amount of Part A Supplemental Benefits. Subject to the contribution
requirement described in subsection 3.3, Part A Supplemental Benefits shall
become payable under the Plan to a Participant upon the Participant's retirement
or earlier termination of employment with the Company and its subsidiaries. A
Participant's Part A Supplemental Benefits shall be in an amount that is
actuarially equivalent to the amount by which the Participant's Unlimited
Benefits exceed the Participant's Limited Benefits. For purposes of this Section
3, actuarially equivalent benefits shall be calculated on the basis of the
actuarial factors, assumptions and tables applied for that purpose under the
Retirement Plan, to the extent deemed appropriate by the Committee.
3.6. Payment of Part A Supplemental Benefits. Subject to the provisions of this
subsection 3.6, Part A Supplemental Benefits shall be paid in a lump sum within
30 days after such benefits become payable or, if the entire amount of such
benefits cannot be determined by the Committee within that 30 day period,
payment shall be made in one or more installments as determined by the Committee
but with the last payment due by the 30th day following the date the Committee
determines the total amount of such benefits. The Committee in its discretion
may from time to time establish rules incorporating objective standards that
shall govern the form of payment of Part A Supplemental Benefits that initially
become payable during a subsequent calendar year. A copy of such rules,
certified by the Chairman or Secretary of the Committee, shall be filed with the
Secretary of the Company before the beginning of the calendar year for which
they first become effective. Any such rules in effect at the start of a calendar
year may not be modified or rescinded in that calendar year or thereafter with
respect to the form of payment of Part A Supplemental Benefits that initially
become payable to any person under the Plan during that calendar year.
Notwithstanding the foregoing provisions of this subsection:
(a) Payment of a Participant's Part A Supplemental Benefits must be made or
commence not later than February 1 of the calendar year next following the
calendar year in which he attains age 65 years or, if later, his termination of
employment with the Company and its subsidiaries occurs.
(b) If the Committee determines that a Participant whose Part A
Supplemental Benefits are being paid over a period of more than one year has
incurred a severe financial hardship as a result of the occurrence of an
unanticipated event beyond the Participant's control, the Committee may direct
that an advance payment of part or all of the Covered Participant's Part A
Supplemental Benefits be made, but the amount thereof shall not exceed the
amount needed for such financial hardship.
(c) If a Change in Control as determined in accordance with the provisions
of Section 18 of the Retirement Plan as in effect on the New Effective Date
should occur, Part A Supplemental Benefits that initially became payable to a
Participant before the Change in Control but have not been paid or paid in full
shall be distributed in accordance with the same form of payment as in effect
with respect to those benefits immediately prior to the Change in Control, but
any Part A Supplemental Benefits that initially become payable after the Change
in Control shall be distributed in a lump sum to the person entitled thereto
within 30 days after they become payable.
(d) If a Participant's death occurs while employed by the Company or any
subsidiary of the Company or if a Participant's death occurs after he had become
entitled to Part A Supplemental Benefits but before payment of such benefits has
commenced or has been completed, Part A Supplemental Death Benefits shall be
payable with respect to the Participant only if and to the extent provided in
subsection 3.7.
(e) Spousal consent rules that apply under the Retirement Plan or any other
USG Defined Benefit Plan with respect to forms of payment of benefits shall not
apply under this Plan.
3.7. Amount and Payment of Part A Supplemental Death Benefits. Part A
Supplemental Death Benefits shall be payable under the Plan as follows:
(a) If a Participant's death occurs while employed by the Company or a
subsidiary of the Company and if he had an Eligible Spouse (as defined in
subsection 5.1) immediately prior to his death, the Participant's Eligible
Spouse shall be entitled to a lump sum Part A Supplemental Death Benefit under
this Plan which is actuarially equivalent (based on the age of the Eligible
Spouse) to any additional monthly pre-retirement survivor annuity benefits that
would have been payable to the Participant's Eligible Spouse under the
Retirement Plan and all other USG Defined Benefit Plans if the Participant's
Limited Benefits equalled his Unlimited Benefits. The Part A Supplemental Death
Benefit under this subparagraph 3.7(a) shall be paid to the Participant's
Eligible Spouse in a lump sum as soon as practicable after the Participant's
death. If the Participant did not have an Eligible Spouse at the time of his
death, no Part A Supplemental Death Benefits shall be payable under the Plan
with respect to that Participant other than payment to the Participant's
Supplemental Plan Beneficiary (as defined in subsection 5.2) of an amount equal
to the Participant's before-tax contributions under the Plan with interest as
soon as practicable after the Participant's death.
(b) If a Participant's death occurs after he had both retired (or otherwise
terminated employment) and become entitled to Part A Supplemental Benefits but
before payment of such benefits had been made or had commenced, and if he had an
Eligible Spouse at the time of his death, the Participant's Eligible Spouse
shall be entitled to a lump sum Part A Supplemental Death Benefit which is
actuarially equivalent (based on the age of the Eligible Spouse) to any
additional monthly pre-retirement survivor annuity benefits that could have been
payable to the Participant's Eligible Spouse under the Retirement Plan and all
other USG Defined Benefit Plans if the Participant's Limited Benefits equalled
his Unlimited Benefits. The Part A Supplemental Death Benefit under this
subparagraph 3.7(b) shall be paid to the Participant's Eligible Spouse in a lump
sum as soon as practicable after the Participant's Death. If the Participant did
not have an Eligible Spouse at the time of his death, no Part A Supplemental
Death Benefits shall be payable under the Plan with respect to that Participant
other than payment to the Participant's Supplemental Plan Beneficiary of an
amount equal to the Participant's before-tax contributions under this Plan with
interest as soon as practicable after the Participant's death.
(c) If a Participant's death occurs while receiving Part A Supplemental
Benefits, his Supplemental Plan Beneficiary shall be entitled to Part A
Supplemental Death Benefits equal to the death benefits, if any, payable under
the form of payment of his Part A Supplemental Benefits.
SECTION 4
Part B Supplemental Benefits
4.1. Intent. The provisions of this Section 4 are intended to allow a
Participant to elect to make part or all of the additional before-tax
contributions he could have made under the Investment Plan and all other USG
Defined Contribution Plans, and to earn the additional matching contributions
that would have been made by his Employer and credited to his accounts under
those plans as a result of such additional before-tax contributions, if the
limitations described in subsection 1.3 did not exist and if amounts contributed
on a before-tax basis under this Plan or deferred by the Participant under the
Company's 1989 and subsequent management incentive compensation programs had not
been so contributed or deferred but instead paid to the Participant at the
proper time during employment and then included in the Participant's employment
compensation for purposes of those plans. This Section 4 also permits
Participants to make additional before-tax contributions to the Plan in excess
of the amount permitted under the terms of the Investment Plan and to select one
or more deemed investments, the investment experience of which will be the basis
or index by which his accounts will be adjusted under this Plan.
4.2. Part B Supplemental Benefits and Part B Supplemental Death Benefits.
Benefits that become payable under this Section 4 to a Participant are referred
to as "Part B Supplemental Benefits" or as "Supplemental Investment Plan
Benefits." Benefits that become payable under this Section 4 to any person as a
result of the death of a Participant are referred to as "Part B Supplemental
Death Benefits" or as "Supplemental Investment Plan Benefits."
4.3. Elective Participant Contributions. A Participant may elect to make part or
all of the additional before-tax contributions described in subsection 4.1. A
Participant's before-tax contributions under this subsection 4.3 shall be made
by a compensation deferral election that is made in such form and in such manner
as the Committee shall determine; provided any such election shall be made prior
to the calendar year such contributions are to begin, or if a Participant first
becomes eligible to make such contributions after the beginning of any calendar
year, not more than 30 days after so becoming eligible. A Participant's
compensation deferral election under this subsection 4.3 shall apply to
employment compensation otherwise payable after the later to occur of the date
the Participant becomes eligible to make before-tax contributions and the date
the compensation deferral election is made. A Participant's compensation
deferral election may be revoked by the Participant before the beginning of any
subsequent calendar year. The revocation shall be effective as to employment
compensation the Participant is entitled to receive during that and subsequent
calendar years unless prior to the commencement of any subsequent calendar year
the Participant makes another compensation deferral election. Such later
election shall apply as to employment compensation otherwise payable during
calendar years beginning after such later election is made. Notwithstanding the
foregoing, a Participant's compensation deferral election automatically shall be
revoked for any period he ceases to be a highly compensated employee as defined
in Section 414(q) of the Internal Revenue Code.
4.4. Additional Elective Participant Contributions. A Participant who is making
the maximum permitted deferral under subsection 4.3 may elect to make additional
before-tax contributions pursuant to this subsection 4.4. Such additional
contributions shall be a percentage (in whole number increments) of the
Participant's employment compensation which, when added to the percentage of the
Participant's before-tax contributions to this Plan pursuant to subsection 4.3
and to the Investment Plan and all other USG Defined Contribution Plans, shall
not exceed twenty percent. A Participant's before-tax contributions under this
subsection 4.4 shall be made by a compensation deferral election made in such
form and manner as the Committee shall determine; provided any such election
shall be made prior to the calendar year such contributions are to begin, or if
a Participant first becomes eligible to make contributions under this subsection
4.4 after the beginning of any subsequent calendar year, not more than 30 days
after so becoming eligible. A Participant's compensation deferral election under
this subsection 4.4 shall apply to employment compensation otherwise payable
after the later to occur of the date the Participant becomes eligible to make
before-tax contributions and the date the election is made. A Participant may
revoke or reinstate his deferral election under this subsection 4.4 in
accordance with the rules on revocation and reinstatement of deferral elections
found in subsection 4.3.
4.5. Employer Matching Contributions. A Participant who makes before-tax
contributions under subsection 4.3 shall be entitled to "Employer Matching
Contributions" under this Plan equal to the additional "corporation matching
contributions" he would have been entitled to receive under the Investment Plan
if such before-tax contributions were permitted to be made under the Investment
Plan. Employer matching contributions will not be made on any before-tax
contributions made pursuant to subsection 4.4. For purposes of this Section 4,
"corporation matching contributions" means all forms of matching contributions
provided for in Section 4 of the Investment Plan.
4.6. Separate Accounts, Subaccounts, Deemed Investments. The Committee shall
maintain a bookkeeping account in the name of each Participant who makes
before-tax contributions under this Section 4 and shall maintain a separate
bookkeeping account in his name to reflect Employer Matching Contributions
attributable to such before-tax contributions. In accordance with rules
established by the Committee, each Participant's account shall be adjusted to
reflect the investment experience of one or more deemed investments selected by
the Participant from among the investment funds offered in the Investment Plan.
The Committee may maintain such subaccounts as it deems necessary to effect the
immediately preceding sentence. Any reference to a Participant's "account" or
"accounts" shall include all subaccounts established on behalf of the
Participant by the Committee in accordance with this subsection. Each
Participant's accounts and subaccounts shall be adjusted at such time and in
such manner as accounts of participants in the Investment Plan are adjusted to
reflect the balances that would have been in such accounts if they had in fact
been maintained under the Investment Plan as described above. However, as of the
New Effective Date, each Participant's accounts and subaccounts are not charged
the amounts that they would have been charged to represent fees and expenses if
they had in fact been maintained under the Investment Plan. The Committee in its
discretion may elect at some future date to charge all or a portion of such
amounts to the accounts and subaccounts of Participants in accordance with such
rules as it may establish.
4.7. Withdrawals. No withdrawals may be made under this Plan with respect to a
Participant's accounts prior to the Participant's termination of employment with
the Company and all of its subsidiaries other than hardship withdrawals
described below. A Participant may request a hardship withdrawal from the
portion of his account that he would be entitled to receive under subsection 4.8
if he terminated employment with the Company and all subsidiaries on the date of
such withdrawal. A Participant who is receiving installment distributions (if
such are permitted under subsection 4.9) also may request a hardship withdrawal.
Any hardship withdrawal shall be made in the same manner and subject to the same
conditions and limitations as are set forth in the Investment Plan for hardship
withdrawals from participants' before-tax accounts. However, if a Participant
incurs a hardship, he must request a hardship withdrawal under this Plan to the
extent required to satisfy the immediate and heavy financial need caused by such
hardship before he may request a hardship withdrawal under the Investment Plan
or any other USG Defined Contribution Plan. A withdrawal shall be made from the
Plan as soon as practicable after the request for the withdrawal is received and
approved by the Committee and shall be charged to the appropriate account of the
Participant as of the date the withdrawal is actually made pursuant to rules
established by the Committee.
4.8. Vesting of Accounts. Upon a Participant's termination of employment with
the Company and all of its subsidiaries, the Participant (or in the event of his
death, his Supplemental Plan Beneficiary, as defined in subsection 5.2) shall be
entitled to the entire balance in the Participant's account which reflects his
before-tax contributions made under this Section 4 (subject to adjustments
required of such account until complete distribution thereof). The Participant
or Supplemental Plan Beneficiary, as the case may be, shall be entitled to that
portion of the balance in the Participant's account which reflects the
Participant's share of Employer Matching Contributions the Participant or
Supplemental Plan Beneficiary would have been entitled to under the Investment
Plan if such contributions were "corporation matching contributions" made under
the Investment Plan and such account had been maintained as a "corporation
account" under that Plan (subject to adjustments required of such account until
complete distribution of the vested portion thereof).
4.9. Distribution of Accounts. Subject to the provisions of this subsection 4.9,
Part B Supplemental Benefits shall be paid in a lump sum within 30 days after
such benefits become payable or, if the entire amount of such benefits cannot be
determined by the Committee within 30 days, payment shall be made in one or more
installments as determined by the Committee but with the last payment due by the
30th day following the date the Committee determines the total amount of such
benefits. The Committee in its discretion may from time to time establish rules
incorporating objective standards that shall govern the form of payment of Part
B Supplemental Benefits that initially become payable during a subsequent
calendar year. The distribution options for Part B Supplemental Benefits
established by the Committee under this subsection 4.9 may differ from the
distribution options established by the Committee under subsection 3.6 for the
distribution of Part A Supplemental Benefits, but shall be established in the
same manner and subject to the same conditions and limitations as are set forth
in subsection 3.6, except that subparagraph 3.6(d) shall not apply in the event
of the death of a Participant.
SECTION 5
Spouses, Beneficiaries, Funding
5.1. Eligible Spouse. The spouse of a Participant will be considered as an
"Eligible Spouse" as of any date only if at least six months prior thereto the
Participant and his spouse were lawfully married under the laws of the state
where the marriage was contracted and the marriage remains legally effective.
5.2. Supplemental Plan Beneficiary. A "Supplemental Plan Beneficiary" means a
person who has been designated by a Participant as such by writing signed by the
Participant and filed with the Committee prior to the Participant's death. If a
Participant failed to designate a Supplemental Plan Beneficiary or if the person
he designated predeceases the Participant, the Participant's Beneficiary under
the Retirement Plan shall be his Supplemental Plan Beneficiary as to Part A
Supplemental Death Benefits and his Beneficiary under the Investment Plan shall
be his Supplemental Plan Beneficiary as to Part B Supplemental Death Benefits.
5.3. Funding. Benefits payable under this Plan to a Participant or his
Supplemental Plan Beneficiary shall be paid directly by the Employers from their
general assets in such proportions as the Company shall determine to the extent
such benefits are not paid from a Special Retirement Account (established
pursuant to Supplement A of this Plan) or from a so-called "rabbi trust", an
irrevocable grantor trust the assets of which are subject to the claims of
creditors of the Employers in the event of their insolvency. The Employers shall
not be required to segregate on their books or otherwise any amount to be used
for the payment of benefits under this Plan, except as to any amounts paid or
payable to a Special Retirement Account under Supplement A of this Plan or to a
"rabbi trust".
SECTION 6
General Provisions
6.1. Statement of Accounts. The Committee shall furnish each Participant with a
statement of his Part B Supplemental Benefits accounts under this Plan as of
each December 31, and may in its discretion furnish such statements at more
frequent intervals.
6.2. Employment Rights. Establishment of the Plan shall not be construed to give
any Participant the right to be retained in the employ of the Company or any
other Employer or to any benefits not specifically provided by this Plan.
6.3. Interests Not Transferable. Except as to withholding of any tax under the
laws of the United States or any state or municipality, the interests of
Participants and their Supplemental Plan Beneficiaries under the Plan are not
subject to the claims of their creditors and may not be voluntarily or
involuntarily transferred, assigned, alienated or encumbered.
6.4. Controlling Law. The laws of Illinois shall be controlling in all matters
relating to the Plan.
6.5. Gender and Number. Where the context admits, words in the masculine gender
shall include the feminine and neuter genders, the plural shall include the
singular and the singular shall include the plural.
6.6. Action by the Company. Any action required of or permitted by the Company
under the Plan shall be by resolution of its Board of Directors or by a duly
authorized committee of its Board of Directors, or by a person or persons
authorized by resolution of its Board of Directors or such committee.
6.7. Successor to the Company or Any Other Employer. The term "Company" as used
in the Plan shall include any successor to the Company by reason of merger,
consolidation, the purchase or transfer of all or substantially all of the
Company's assets, or otherwise. The term "Employer" as used in the Plan with
respect to the Company or any subsidiary shall include any successor to that
corporation by reason of merger, consolidation, the purchase or transfer of all
or substantially all of the assets of that corporation, or otherwise.
6.8. Facility of Payment. Any amounts payable hereunder to any person under a
legal disability or who, in the judgment of the Committee, is unable to properly
manage his affairs may be paid to the legal representative of such person or may
be applied for the benefit of such person in any manner which the Committee may
select. Any payment made in accordance with the next preceding sentence shall be
a full and complete discharge of any liability for such payment under the Plan.
SECTION 7
Amendment and Termination
While the Employers expect to continue the Plan, the Company must necessarily
reserve and reserves the right to amend the Plan from time to time or to
terminate the Plan at any time. However, no amendment of the Plan nor the
termination of the Plan may cause the reduction or cessation of any benefits
that, but for such amendment or termination, are payable under this Plan or
would become payable under this Plan after the date such amendment is made or
the termination of the Plan occurs with respect to benefits accrued under the
Retirement Plan and all other USG Defined Benefit Plans prior to such date, and
with respect to Participants' before-tax contributions made under this Plan
prior to such date and Employer Matching Contributions attributable to such
before-tax contributions.
SUPPLEMENT A
TO
USG CORPORATION SUPPLEMENTAL RETIREMENT PLAN
A-1. Purpose, Special Retirement Account. The purpose of this Supplement A is to
provide for installment payments of part or all of the accrued benefits under
Part A of the Plan of each Eligible Participant to an individual account (the
"Special Retirement Account") the Participant established in his name with a
bank or trust company designated by the Company pursuant to an agreement between
the Participant and the Company (the "Special Retirement Agreement").
A-2. Eligible Participant. The term "Eligible Participant" as used in this
Supplement A means a Participant in Part A of the Plan who had established a
Special Retirement Account on or before May 1, 1993. No Participant has been
eligible to establish a Special Retirement Account after May 1, 1993.
A-3. Accrued Benefit and Death Benefit Values, After-Tax Accrued Benefit and
Death Benefit Values. The following terms used in this Supplement A shall have
the following meanings:
(a) "Accrued Benefit Value" as of any date means the present value of an
Eligible Participant's Part A Supplemental Benefits under the Plan as of that
date, as determined by the Committee (calculated on the bases of the actuarial
factors, assumptions and tables then applied for that purpose under the
Retirement Plan and benefit limitations imposed by the Internal Revenue Code
then in effect, and assuming that no payments have been made to the Eligible
Participant's Special Retirement Account pursuant to Paragraph A-5 and that the
Eligible Participant will not have any additional service or employment
compensation).
(b) "After-Tax Accrued Benefit Value" as of any date means an Eligible
Participant's Accrued Benefit Value as of that date less Applicable Income
Taxes.
(c) "Accrued Death Benefit Value" means, in the case of an Eligible
Participant whose death occurs prior to receipt of any portion of the
Participant's Part A Supplemental Benefits, the present value as of the date of
the Eligible Participant's death, as determined by the Committee, of the Part A
Supplemental Death Benefits, if any, payable to the Eligible Participant's
Eligible Spouse as of that date (calculated on the basis of the actuarial
factors, assumptions and tables then applied under the Retirement Plan in
determining the present value of accrued death benefits and benefit limitations
imposed by the Internal Revenue Code then in effect, and assuming that no
payments have been made to the Eligible Participant's Special Retirement
Account).
(d) "After-Tax Accrued Death Benefit Value" means, in the case of an
Eligible Participant described in the next preceding sentence, the Accrued Death
Benefit Value as of the date of the Eligible Participant's death less Applicable
Income Taxes.
A-4. Applicable Income Taxes. "Applicable Income Taxes" means, with respect to
any amount, federal, state and local income taxes on such amount (using for this
purpose, and subject to such rules as the Committee may establish, the highest
published applicable individual income tax rate in effect for the calendar year
as to which such taxes are being determined), provided that state and local
income taxes shall be considered net of federal income tax benefits.
A-5. Payments to the Special Retirement Account. Subject to the provisions of
Paragraph A-6, the following payments will be made to the Special Retirement
Account of each Eligible Participant. As of the beginning of each calendar
quarter, the Committee shall determine the Employee's After-Tax Accrued Benefit
Value as well as the amount, if any, by which such value exceeds the fair market
value of all assets of the Special Retirement Account as of the end of the
preceding calendar quarter. If Employee's After-Tax Accrued Benefit Value
exceeds the fair market value of such assets by $100,000 or more, a payment will
be made to the Special Retirement Account equal to the difference between such
values. Payments required to be made to the Special Retirement Account under
this Paragraph A-5 shall be made directly by the Company or from USG Corporation
Deferred Benefit Trust, or from both sources, as soon as practicable after the
amounts of the payments have been determined by the Committee. Pursuant to the
terms of the Special Retirement Agreement, the Company will gross-up the amount
of a payment made to the Special Retirement Account under this Paragraph A-5 so
as to provide funds for the Applicable Income Taxes payable by the Eligible
Participant on such payment and will make payments to (or with respect to) the
Eligible Participant in order to provide funds for the Applicable Income Taxes
payable on investment income earned by the Special Retirement Account.
A-6. Adjustment of Part A Supplemental Benefits and Part A Supplemental Death
Benefits Upon Retirement or Death. For the purpose of determining the amount of
payments to be made to an Eligible Participant's Special Retirement Account
pursuant to Paragraph A-5, it is assumed that no portion of the Part A
Supplemental Benefits he has accrued has been paid under the Plan. However, each
payment made to an Eligible Participant's Special Retirement Account shall
reduce the obligation of the Plan to provide Part A Supplemental Benefits and
Part A Supplemental Death Benefits to or with respect to that Eligible
Participant and thus benefits otherwise payable under the Plan shall be reduced
to reflect such payments. Upon an Eligible Participant's retirement or death
before retirement, the following shall apply:
(a) No further payments need be made under the Plan to the Eligible
Participant's Special Retirement Account.
(b) The Committee shall determine the amount of Part A Supplemental
Benefits or Part A Supplemental Death Benefits that would be payable under the
Plan as a result of such retirement or death if no payments had been made to the
Eligible Participant's Special Retirement Account and also shall determine the
After-Tax Accrued Benefit Value or After-Tax Accrued Death Benefit Value, as the
case may be, of those benefits.
(c) The benefits determined under subparagraph (b) next above shall be
reduced so that their After- Tax Accrued Benefit Value or After-Tax Accrued
Death Benefit Value equals the amount by which the After-Tax Accrued Benefit
Value or After-Tax Accrued Death Benefit Value, determined in accordance with
subparagraph (b) next above, exceeds the fair market value of all assets of the
Eligible Participant's Special Retirement Account as of the date of his
retirement or death, disregarding assets of the Special Retirement Account, if
any, that are required to be paid to the Company. Subject to the provisions of
subparagraph (d) next below, the resulting benefits shall be the actual Part A
Supplemental Benefits or Part A Supplemental Death Benefits that will be paid
under the Plan to, or with respect to, the Eligible Participant.
(d) Subparagraph 3.7(b) of the Plan provides for the payment of Part A
Supplemental Death Benefits to the Eligible Spouse of an Eligible Participant
who dies after retirement but before payment of any portion of the Eligible
Participant's Part A Supplemental Benefits had been made or commenced. However,
if an Eligible Participant retires but dies before all assets in the Eligible
Participant's Special Retirement Account not in excess of the Eligible
Participant's After-Tax Accrued Benefit Value have been distributed to him, the
Special Retirement Agreement requires that the undistributed portion of such
assets be distributed as soon as practicable after the Eligible Participant's
death to the Eligible Participant's Beneficiary under the Special Retirement
Agreement. In this case, Part A Supplemental Death Benefits shall be payable
under subparagraph 3.7(b) of the Plan to the Eligible Spouse of the Eligible
Participant only to the extent, if any, the fair market value of the assets
distributed from the Special Retirement Account to the Eligible Participant
after his retirement and the assets distributed or to be distributed from the
Special Retirement Account to such Beneficiary is less than the After- Tax
Accrued Death Benefit Value of the Part A Supplemental Death Benefits otherwise
payable to the Eligible Spouse under Part A of the Plan.
(e) The actual Part A Supplemental Benefits or Part A Supplemental Death
Benefits determined under subparagraphs (c) and (d) next above shall be paid as
provided in subsection 3.6 or 3.7 of the Plan, whichever applies.
(f) If the fair market value of all assets in the Eligible Participant's
Special Retirement Account as of the date of his retirement or death exceeds the
After-Tax Accrued Benefit Value or the AfterTax Accrued Death Benefit Value,
whichever applies, the Special Retirement Agreement provides that such excess
assets shall be returned to the Company.
A-7. Terms and Provisions of the Plan. All the terms and provisions of the Plan
shall apply to this Supplement A and vice versa, except that where and to the
extent the terms and provisions of the Plan and this Supplement A conflict, the
terms and provisions of this Supplement A shall govern.
EXHIBIT 10(l)
Execution Copy
AMENDMENT NO. 2 dated as of May 14, 1997 (this "Amendment"), among USG
Corporation, a Delaware corporation (the "Borrower"), the financial institutions
parties hereto (the "Lenders") and The Chase Manhattan Bank, a New York banking
corporation, formerly known as Chemical Bank, in its separate capacity as agent
for the Lenders (the "Agent").
PRELIMINARY STATEMENTS. (1) The Borrower, the Lenders, the Issuing Banks and the
Agent have entered into the Credit Agreement dated as of July 27, 1995, as
amended by Amendment No. 1 thereto dated as of February 1, 1996 (the "Credit
Agreement") and have agreed to amend the Credit Agreement as hereinafter set
forth.
(2) Capitalized terms used herein and not otherwise defined herein shall have
the meanings ascribed to such terms in the Credit Agreement.
In consideration of the premises and the agreements, provisions and covenants
herein contained, the parties hereto hereby agree, on the terms and subject to
the conditions set forth herein, as follows:
SECTION 1. Amendment of the Credit Agreement. The Credit Agreement is hereby
amended as follows:
1. Section 1.01 of the Credit Agreement is hereby amended to delete the
definition of "Applicable Commitment Fee" contained therein and to substitute
the following therefor:
"Applicable Commitment Fee" shall mean, for any date, the applicable number of
basis points (expressed as a percentage) set forth below based on the
Debt/EBITDA Ratio as of the last day of the Borrower's most recently ended
period of four consecutive fiscal quarters:
<TABLE>
Debt/EBITDA Ratio Applicable Commitment Fee
----------------- -------------------------
(in basis points)
<CAPTION>
<S> <C>
greater than 3.00 to 1.0 31.25
greater than 2.50 to 1.0 but less
than or equal to 3.00 to 1.0 25.00
greater than 2.00 to 1.0 but less
than or equal to 2.50 to 1.0 22.50
greater than 1.50 to 1.0 but less
than or equal to 2.00 to 1.0 20.00
greater than 1.25 to 1.0 but less
than or equal to 1.50 to 1.0 18.75
greater than 1.00 to 1.0 but less
than or equal to 1.25 to 1.0 15.00
less than or equal to 1.0 to 1.0 12.50
</TABLE>
For purposes of the foregoing, the Applicable Commitment Fee at any time shall
be determined by reference to the Debt/EBITDA Ratio as of the last day of the
Borrower's most recently ended fiscal quarter, provided, that, in calculating
the Debt/EBITDA Ratio for purposes of this definition, Debt shall not include
obligations with respect to letters of credit (including Letters of Credit
issued hereunder) entered into in the ordinary course of business and having an
aggregate outstanding face amount of up to $50,000,000 to the extent such
letters of credit are not drawn on or, if and to the extent drawn on, such
drawing is promptly reimbursed following receipt by the applicable account party
of a demand for reimbursement following payment on the letter of credit.
Following the end of any such fiscal quarter, any change in the Applicable
Commitment Fee shall become effective for all purposes on and after the earlier
of (i) the date of delivery to the Agent of the Debt/EBITDA Ratio Certificate
for such fiscal quarter and (ii) the date of delivery to the Agent of the
Financial Officer's certificate and applicable financial statements described in
Sections 5.07(a), (b) and (c) relating to such fiscal quarter. Notwithstanding
the foregoing, at any time during which the Borrower has failed to deliver the
Financial Officer's certificate and applicable financial statements described in
Sections 5.07(a), (b) and (c) with respect to a fiscal quarter in accordance
with the provisions thereof for more than five days after such certificate and
the applicable financial statements are due, and until such time as such
financial statements are so delivered, the Applicable Commitment Fee shall be
31.25 basis points.
2. Section 1.01 of the Credit Agreement is hereby amended to delete the
definition of "Applicable Eurodollar Margin" contained therein and to substitute
the following therefore:
"Applicable Eurodollar Margin" shall mean, for any date, with respect to the
Revolving Loans comprising any Eurodollar Borrowing, the applicable margin set
forth below based on the Debt/EBITDA Ratio as of the last day of the Borrower's
most recently ended period of four consecutive fiscal quarters:
<TABLE>
Debt/EBITDA Ratio Applicable Commitment Fee
----------------- -------------------------
(in basis points)
<CAPTION>
<S> <C>
greater than 3.00 to 1.0 112.5
greater than 2.50 to 1.0 but less
than or equal to 3.00 to 1.0 75.00
greater than 2.00 to 1.0 but less
than or equal to 2.50 to 1.0 62.50
greater than 1.50 to 1.0 but less
than or equal to 2.00 to 1.0 55.00
greater than 1.25 to 1.0 but less
than or equal to 1.50 to 1.0 45.00
greater than 1.00 to 1.0 but less
than or equal to 1.25 to 1.0 40.00
less than or equal to 1.0 to 1.0 37.50
</TABLE>
For purposes of the foregoing, the Applicable Eurodollar Margin at any time
shall be determined by reference to the Debt/EBITDA Ratio as of the last day of
the Borrower's most recently ended fiscal quarter, provided, that, in
calculating the Debt/EBITDA Ratio for purposes of this definition, Debt shall
not include obligations with respect to letters of credit (including Letters of
Credit issued hereunder) entered into in the ordinary course of business and
having an aggregate outstanding face amount of up to $50,000,000 to the extent
such letters of credit are not drawn on or, if and to the extent drawn on, such
drawing is promptly reimbursed following receipt by the applicable account party
of a demand for reimbursement following payment on the letter of credit.
Following the end of any such fiscal quarter, any change in the Applicable
Eurodollar Margin shall become effective for all purposes on and after the
earlier of (i) the date of delivery to the Agent of the Debt/EBITDA Ratio
Certificate and (ii) the date of delivery to the Agent of the Financial
Officer's certificate and applicable financial statements described in Sections
5.07(a), (b) and (c) relating to such fiscal quarter. Notwithstanding the
foregoing, at any time during which the Borrower has failed to deliver the
Financial Officer's certificate and applicable financial statements described in
Sections 5.07(a), (b) and (c) with respect to a fiscal quarter in accordance
with the provisions thereof for more than five days after such certificate and
the applicable financial statements are due, and until such time as such
financial statements are so delivered, the Applicable Eurodollar Margin shall be
112.50 basis points.
1.3 Section 5.09 of the Credit Agreement (which requires the pledge to the
Collateral Trustee of newly created or acquired domestic Material Subsidiaries)
is hereby deleted in its entirety.
1.4 Section 6.09 of the Credit Agreement is hereby amended to delete the maximum
Debt/EBITDA Ratio of 4.50 to 1.00 set forth in subsection (a) thereof and to
substitute a maximum Debt/EBITDA Ratio of 4.00 to 1.00 therefor.
SECTION 2. Release of Collateral. Pursuant to Section 9.07(c)(ii) of the Credit
Agreement, all of the Lenders hereby direct the Collateral Trustee, and instruct
the Borrower to direct the Collateral Trustee, to release its Lien on all of the
"Collateral" (as defined in the Collateral Trust Agreement) in accordance with
the procedures described in Section 7 of the Collateral Trust Agreement.
SECTION 3. Representations and Warranties. The Borrower represents and warrants
to each of the Lenders and the Agent that:
(a) This Amendment has been duly authorized, executed and delivered by
it and constitutes its legal, valid and binding obligation, enforceable in
accordance with its terms except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other
similar laws affecting creditors' rights generally and by general principles of
equity (regardless of whether such enforceability is considered in a proceeding
at law or in equity).
(b) Before and after giving effect to this Amendment, the
representations and warranties set forth in Article V of the Credit Agreement
are true and correct in all material respects with the same effect as if made on
the date hereof, except to the extent such representations and warranties
expressly relate to an earlier date.
(c) Before or after giving effect to this Amendment, no Event of
Default or Potential Event of Default has occurred and is continuing.
SECTION 4. Condition to Effectiveness. The amendments to the Credit Agreement
set forth in this Amendment shall become effective as of the date first above
written when the Agent shall have received counterparts of this Amendment that,
when taken together, bear the signatures of the Borrower, the Agent and each
Lender.
SECTION 5. Credit Agreement. Except as specifically amended hereby, the Credit
Agreement and each Loan Document shall continue in full force and effect in
accordance with the respective provisions thereof as in existence on the date
hereof. After the date hereof, any reference to the Credit Agreement shall mean
the Credit Agreement as amended hereby.
SECTION 6. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute but one contract.
SECTION 8. Expenses. The Borrower agrees to reimburse the Agent for its
out-of-pocket expenses in connection with this Amendment, including the
reasonable fees, charges and disbursements of Sidley & Austin, counsel for the
Agent.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed by their respective authorized officers as of the day and year first
written above.
USG CORPORATION
By_____________________________
Name:__________________________
Title:_________________________
THE CHASE MANHATTAN BANK,
individually and as Agent
By______________________________
Name:___________________________
Title:__________________________
BANKERS TRUST COMPANY
By______________________________
Name:___________________________
Title:__________________________
CITIBANK, N.A.
By______________________________
Name:___________________________
Title:__________________________
THE BANK OF TOKYO-MITSUBISHI, LTD.,
CHICAGO BRANCH
By______________________________
Name:___________________________
Title:__________________________
BANK OF MONTREAL
By______________________________
Name:___________________________
Title:__________________________
BANQUE PARIBAS, CHICAGO BRANCH
By______________________________
Name:___________________________
Title:__________________________
By______________________________
Name:___________________________
Title:__________________________
THE FIRST NATIONAL BANK OF CHICAGO
By______________________________
Name:___________________________
Title:__________________________
THE FUJI BANK, LIMITED
By______________________________
Name:___________________________
Title:__________________________
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, CHICAGO BRANCH
By______________________________
Name:___________________________
Title:__________________________
LASALLE NATIONAL BANK
By______________________________
Name:___________________________
Title:__________________________
MORGAN GUARANTY TRUST COMPANY OF NEW
YORK
By______________________________
Name:___________________________
Title:__________________________
THE NORTHERN TRUST COMPANY
By______________________________
Name:___________________________
Title:__________________________
THE SANWA BANK, LIMITED, CHICAGO BRANCH
By______________________________
Name:___________________________
Title:__________________________
TORONTO DOMINION (TEXAS), INC.
By______________________________
Name:___________________________
Title:__________________________
ARAB BANKING CORPORATION
By_____________________________
Name:__________________________
Title:_________________________
MITSUBISHI TRUST & BANKING CORPORATION,
CHICAGO BRANCH
By______________________________
Name:___________________________
Title:__________________________
WACHOVIA BANK OF GEORGIA, N.A.
By______________________________
Name:___________________________
Title:__________________________
TRUST COMPANY BANK
By______________________________
Name:___________________________
Title:__________________________
CAISSE NATIONALE DE CREDIT AGRICOLE
By______________________________
Name:___________________________
Title:__________________________
THE MITSUI TRUST & BANKING CO. LTD.,
NEW YORK BRANCH
By______________________________
Name:___________________________
Title:__________________________
THE SUMITOMO BANK, LTD., CHICAGO BRANCH
By______________________________
Name:___________________________
Title:__________________________
EXHIBIT 10(n)
1997
Annual
Management Incentive Program
USG Corporation
PURPOSE
To enhance USG Corporation's ability to attract, motivate, reward and retain key
employees of the Corporation and its operating subsidiaries and to strengthen
the existing mutual interest between such key employees and the Corporation's
stockholders by providing incentive award opportunities to such key employees
who discharge their accountabilities in a manner which makes a measurable
contribution to the Corporation's earnings.
INTRODUCTION
This Annual Management Incentive Program is in effect from January 1, 1997
through December 31, 1997.
ELIGIBILITY
Individuals eligible for participation in this Program are those officers and
other key employees occupying management positions in Broadband 16 or higher
(775 or more points). Employees who participate in any other annual incentive
program of the Corporation or any of its subsidiaries are not eligible to
participate in this Program.
GOALS
For the 1997 Annual Management Incentive Program, Adjusted Net Earnings, Goal
Income and Strategic Targets for USG Corporation, Subsidiaries and Profit
Centers will be determined by the Grants and Awards Subcommittee of the
Compensation and Organization Committee of the USG Board of Directors (the
"Subcommittee") after considering recommendations submitted from USG Corporation
and Operating Subsidiaries. Except in the case of a Named Executive Officer (as
defined in the Administrative Guidelines below), Profit Center goals may be
adjusted by the Chairman of USG Corporation if business conditions or other
significant unforeseen circumstances beyond the control of the Profit Center
have a major impact on opportunity.
AWARD VALUES
For the Annual Management Incentive Program, position target incentive
values are based on level of accountability and are expressed as a percent of
approved annualized salary. (EXCEPTION: For the transition year of 1997, the
target incentive value will be expressed as a percent of approved annualized
salary or annualized reference point, whichever is higher.) Resulting award
opportunities represent a fully competitive incentive opportunity for 100%
(target) achievement of Corporate, Operating Subsidiary and/or Profit Center
goals:
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
Position Target Incentive Value
-------------------------------
<CAPTION>
<S> <C>
Chairman, President & CEO - USG Corporation 65%
- -------------------------------------------------------------------------------------------------------------------
Executive Vice President-Operations, USG Corporation; 60%
President & CEO, U.S. Gypsum Company;
President & CEO, USG Interiors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Executive Vice President International Development 55%
and Distribution, USG Corporation
- -------------------------------------------------------------------------------------------------------------------
USG CORPORATION
Senior Vice President & General Counsel 50%
Senior Vice President & Chief Administrative Officer
Senior Vice President & Chief Financial Officer
- -------------------------------------------------------------------------------------------------------------------
USG CORPORATION & OPERATING SUBSIDIARIES
OFFICERS AND MANAGERS
President & CEO, L&W Supply Corporation 40%
Executive Vice President, USG Interiors, Inc; President & CEO, CGC, Inc.
Executive Vice President - Operations, U.S. Gypsum Company
Executive Vice President Marketing, U.S. Gypsum Company
Executive Vice President, USG International, Ltd.
Vice President & Controller, USG Corporation;
Vice President Financial Services,
North American Gypsum and Worldwide Ceilings
Vice President Research & Technology, USG Corporation
Vice President & Treasurer, USG Corporation
Vice President Human Resources - Operations, USG Corporation
- -------------------------------------------------------------------------------------------------------------------
GENERAL MANAGERS (PROFIT CENTER HEADS)
Sales of $50 Million and over 30%
Sales Under $50 Million 25%
- -------------------------------------------------------------------------------------------------------------------
USG CORPORATION, OPERATING SUBSIDIARIES & PROFIT CENTERS
OFFICERS AND MANAGERS
Position Reference Point: $174,000 and over 35%
Position Reference Point: $154,005 - $173,999 30%
Position Reference Point: $125,085 - $154,004 25%
Position Reference Point: $111,600 - $125,084 20%
Position Reference Point: $ 89,400 - $111,599 15%
Position Reference Point: Below $89,400 10%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
AWARDS
Incentive awards for all participants in the 1997 Annual Management Incentive
Program will be reviewed and approved by the Subcommittee.
The total of all incentive awards paid under this program will not exceed 4.0%
of USG Corporation's 1997 consolidated goal income. In the event that awards
otherwise payable pursuant to the Annual Management Incentive Program exceed
such amount, all awards will be reduced prorata to an aggregate amount equal to
4.0%.
For all participants, the annual incentive award opportunity is the annualized
salary in effect at the beginning of the calendar year (March 1 of the calendar
year for the twenty most senior executives) multiplied by the applicable
position target incentive value percent.
<TABLE>
Incentive awards for 1997 will be based on:
<CAPTION>
<S> <C> <C>
o ADJUSTED NET EARNINGS: 20% - 60% OF INCENTIVE
(net earnings plus amortization of excess reorganization value plus reorganization debt discount, net of taxes)
based on the Corporation's year-end financial statements.
o GOAL INCOME: 20% - 60% OF INCENTIVE
(net sales less cost of sales and selling and administrative expenses) based on the Corporation's year-end
financial statements.
o STRATEGIC FOCUS TARGET: 20% OF INCENTIVE
o PERSONAL PERFORMANCE: 20% OF INCENTIVE
[except in the case of the twenty (20) most senior executives whose awards are based solely on degree of
achievement of Adjusted Net Earnings and/or Goal Income (60%) and Strategic Focus Target (40%) results].
o Except in the case of a Named Executive Officer, other appropriate performance measures as approved by the
Subcommittee.
</TABLE>
1. For participants to qualify for the ADJUSTED NET EARNINGS and/or GOAL
INCOME segment comprising 60% of their award, their respective
organization (e.g. Corporation/Group/ Subsidiary, etc. as described on
page 6) must achieve 75% or higher of its adjusted net earnings or goal
income target.
2. ADJUSTED NET EARNINGS and GOAL INCOME segment award amounts will be
determined according to the following schedule:
<TABLE>
Adjusted Net Earnings/ Adjustment Factor for Corporate, Group,
Goal Income Achievement Subsidiary or Profit Center Performance
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Below 75% 0%
75% 50%
80% 60%
90% 80%
100% 100%
110% 120%
120% 140%
140% 180%
150% 200%
</TABLE>
3. For participants to qualify for the STRATEGIC FOCUS TARGET segment
comprising 20% (40% for the twenty most senior executives) of their
incentive award, their respective organization must achieve a minimum
level of performance related to the specified strategic focus. The
Strategic Focus Targets will be measurable, verifiable and derived from
the formal strategic planning process (e.g., cost reduction, sales
growth, market share gain, margins, etc.). The award adjustment factor
for this segment will range from 0.5 (after achieving minimum
performance levels) to 2.0 for maximum attainment. Participants will
receive schedules of Strategic Focus Targets upon approval by the
Subcommittee.
4. Except with respect to the twenty (20) most senior executives
(including the Named Executive Officers) whose awards are based solely
on achievement of Adjusted Net Earnings, Goal Income and Strategic
Focus Targets, participants will have a third segment comprising 20% of
their incentive award based upon their individual Personal Performance
Rating according to the following schedule:
<TABLE>
<CAPTION>
<S> <C>
Personal
Performance Rating Personal Performance
Adjustment Range
Far Exceeded Expectations 1.70 - 2.00
Exceeded Expectations 1.20 - 1.50
Achieved Expectations 0.80 - 1.10
</TABLE>
The maximum incentive award including all segments of this Program is
200% of the target incentive opportunity.
The Subcommittee may eliminate awards to any participant who fails to
receive a Personal Performance Rating of "Achieved Expectations" or
better under the Corporation's Performance Planning and Review (PPR)
system.
5. Target incentive award opportunities and calculations of awards for
participants will be based on the achievement of specific Corporate,
Group, Subsidiary and/or Profit Center adjusted net earnings, goal
income and strategic focus targets as displayed on the following page
or as otherwise may be established subject to approval of the Chairman:
<PAGE>
<TABLE>
Basis for
Financial Measures Basis for
Incentive Award Strategic Focus
Participants (60% of Target Incentive) Incentive Award
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
USG Corporation
USG Corporation Senior Executive 60% Adjusted Net Earnings, USG Corporation 40%
Management
USG Corporation Staff 60% Adjusted Net Earnings, USG Corporation 20%
- -------------------------------------------------------------------------------------------------------------------
North American Gypsum
Executive VP - Operations, 20% Adjusted Net Earnings, USG Corporation 40% NAG
U.S. Gypsum Company
Executive VP - Marketing, 40% Goal Income, North American Gypsum
U.S. Gypsum Company
General Mgr - IGD 20% Goal Income, Subsidiary 20% Profit Center
General Mgr - Materials Division 40% Goal Income, Profit Center/Division
Profit Center Staff
Executive VP, CGC, Inc 20% Adjusted Net Earnings, USG Corporation 40% NAG
20% Goal Income, North American Gypsum
20% Goal Income, CGC, Inc
President & General Mgr, YPSA 20% Goal Income, North American Gypsum 20% YPSA
40% Goal Income, YPSA
U.S. Gypsum Staff 25% Goal Income, North American Gypsum 20% NAG
35% Goal Income, U.S. Gypsum Company
CGC, Inc Staff 20% Goal Income, North American Gypsum 20% CGC
40% Goal Income, CGC, Inc
- -------------------------------------------------------------------------------------------------------------------
Worldwide Ceilings
Executive VP, USG Interiors, Inc 20% Adjusted Net Earnings, USG Corporation 40% WWC
Executive VP, USG International, Ltd 40% Goal Income, Worldwide Ceilings
USG Interiors, Inc Staff 25% Goal Income, Worldwide Ceilings 20% WWC
35% Goal Income, USG Interiors, Inc
USG International, Ltd Staff 25% Goal Income, Worldwide Ceilings 20% WWC
35% Goal Income, USG International, Ltd
- -------------------------------------------------------------------------------------------------------------------
L&W Supply Corporation
President & CEO 20% Adjusted Net Earnings, USG Corporation 40% L&W
20% Goal Income, North American Gypsum
20% Goal Income, L&W Supply
L&W Supply Corporation Staff 20% Goal Income, North American Gypsum 20% L&W
40% Goal Income, L&W Supply
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
6. SPECIAL AWARDS
In addition to the incentive opportunity provided by this Program, a
special award may be recommended for any participant or
non-participant, other than a Named Executive Officer, who has made an
extraordinary contribution to the Corporation's welfare or earnings.
GENERAL PROVISIONS
- --------------------------------------------------------------------------------
1. The Subcommittee shall review and approve the awards recommended for
officers and other employees who are eligible participants in the 1997
Annual Management Incentive Program. The Subcommittee shall submit to
the Board of Directors, for their ratification, a report of the awards
for all eligible participants including corporate officers approved by
the Subcommittee in accordance with the provisions of the Program.
2. The Subcommittee shall have full power to make the rules and
regulations with respect to the determination of achievement of goals
and the distribution of awards. No awards will be made until the
Subcommittee has certified goal achievement and applicable awards in
writing.
3. The judgement of the Subcommittee in construing this Program or any
provisions thereof, or in making any decision hereunder, shall be final
and conclusive and binding upon all employees of the Corporation and
its subsidiaries whether or not selected as beneficiaries hereunder,
and their heirs, executors, personal representatives and assigns.
4. Nothing herein contained shall limit or affect in any manner or degree
the normal and usual powers of management, exercised by the officers
and the Board of Directors or committees thereof, to change the duties
or the character of employment of any employee of the Corporation or to
remove the individual from the employment of the Corporation at any
time, all of which rights and powers are expressly reserved.
5. No award will be paid to a Program participant who is not a regular
full-time employee in good standing at the end of the calendar year to
which the award applies; except an award which would otherwise be
payable based on goal achievement may be recommended in the event of
retirement, disability or death or in the event the participant is
discharged without cause from the employment of the company during the
year.
6. The awards made to employees shall become a liability of the
Corporation or the appropriate subsidiary as of December 31, 1997 and
all payments to be made hereunder will be made as soon as practicable
after said awards have been approved.
ADMINISTRATIVE GUIDELINES
- --------------------------------------------------------------------------------
1. Award values will be based on annualized salary in effect for each
qualifying participant at the beginning of the year (March 1 for the
twenty most senior executives). Any change in duties, dimensions or
responsibilities of a current position resulting in a new evaluation
and an increase or decrease in reference points will be applied for
Incentive Program purposes on a prorata basis with the respective
reference point and target incentive value to apply for the actual
number of full months of service at each evaluation except for such a
change with respect to a Named Executive Officer, in which case any
change in reference points and target incentive value, for any reason,
shall not become effective until January 1 of the following year.
2. As provided by the Program, no award is to be paid any participant who
is not a regular full-time employee in good standing at the end of the
calendar year to which the award applies. However, in the event an
eligible participant with three (3) or more months of active service in
the Program year subsequently retires, becomes disabled or dies, or is
discharged from the employment of the Company without cause, the
participant (or beneficiary) may receive an award which would otherwise
be payable based on goal achievement, prorated for the actual months of
active service during the year.
3. Employees participating in any other incentive or bonus program of the
parent Corporation or a Subsidiary who are transferred during the year
to a position covered by the Annual Management Incentive Program (other
than a Named Executive Officer) will be eligible to receive a potential
award prorated for actual full months of service in the two positions
with the respective incentive program and target incentive values to
apply. For example, a Marketing Manager promoted to Director, Marketing
on August 1, will be eligible to receive a prorata award for seven
months based on the Marketing Manager Plan provisions and values, and
for five months under the Annual Management Incentive Program
provisions and target incentive values.
4. In the event of transfer of an employee (other than a Named Executive
Officer) from an assignment which does not qualify for participation in
any incentive or bonus plan to a position covered by the 1997 Annual
Management Incentive Program, the employee is eligible to participate
in the Annual Incentive Program with any potential award prorated for
the actual months of service in the position covered by the Program
during the year. A minimum of three months of service in the eligible
position is required.
5. Participation during the current Program year for individuals employed
from outside the Corporation is possible with any award to be prorated
for actual full months of service in the eligible position. A minimum
of three full months of service is required for award consideration.
6. Exceptions to established administrative guidelines can only be made by
the Subcommittee and only with respect to participants other than Named
Executive Officers.
7. For purposes of this Program, a "NAMED EXECUTIVE OFFICER" will include
any executive officer who is deemed a "named executive officer" for
1997 under Item 402 (a)(3) of Regulation S-K under the Securities
Exchange Act of 1934 and was employed by the Corporation or a
Subsidiary on the last day of the year.
EXHIBIT 10(p)
FIRST AMENDMENT
TO
OMNIBUS MANAGEMENT INCENTIVE PLAN
OF USG CORPORATION
FIRST AMENDMENT dated as of November 11, 1997 (this "First Amendment"),
to the Omnibus Management Incentive Plan of USG Corporation (the "Plan"), which
Plan was adopted and approved by the Compensation and Organization Committee
(the "Committee") of the Board of Directors of USG Corporation (the
"Corporation") on February 11, 1997, and approved by the stockholders of the
Corporation on May 14, 1997.
WHEREAS, the Committee has approved an amendment to the Plan to require
stockholder approve of certain modifications of awards under the Plan;
NOW, THEREFORE, in consideration of the premises, the Plan is hereby amended as
set forth below:
Section 5(a)(iv) of the Plan is hereby amended by the addition of the
following sentence at the end thereof:
"Notwithstanding anything in this Plan to the contrary, awards
of Restricted Stock that are not performance-based shall have
restriction periods of not less than three (3) years."
The second paragraph of Section 9(b) of the Plan is hereby amended by
the addition of the following sentence at the end thereof:
"In addition, unless the shareholders of the Corporation shall
have first approved thereof, no amendment of the Plan or any
award agreement thereunder shall be effective which would
permit the re-pricing of outstanding stock options or the
waiver of restrictions on outstanding restricted stock
awards."
3. Except as expressly amended and modified by this First
Amendment, the Plan is hereby ratified and confirmed in all
respects.
IN WITNESS WHEREOF, the Corporation has caused this First Amendment to
be executed by its officers thereunto duly authorized as of the 11th day of
November 1997.
USG CORPORATION
By /s/ Harold E. Pendexter, Jr.
-------------------------------
Harold E. Pendexter, Jr.
Senior Vice President and
Chief Administrative Officer
Attest:
/s/ Dean H. Goossen
- -------------------
Dean H. Goossen
Corporate Secretary
EXHIBIT 10(q)
USG CORPORATION
STOCK COMPENSATION PROGRAM
FOR NON-EMPLOYEE DIRECTORS
(as amended and restated)
Article 1. Establishment, Purpose, and Duration
1.1 Establishment of the Plan. USG Corporation, a Delaware corporation
(the "Corporation"), hereby amends and restates in its entirety the non-employee
director incentive stock compensation plan known as the "USG Corporation Stock
Compensation Program for Non-Employee Directors" (herein, as so amended and
restated, called the "Plan"), as set forth in this document. The Plan provides
for the annual grant of shares of the common stock of the Corporation ("Shares")
to non-employee directors and for the acquisition of Deferred Stock Units (as
herein defined) by non-employee directors, subject to the terms and provisions
set forth herein.
Upon approval by the Board of Directors of the Corporation, the Plan
shall become effective as of July 1, 1997 (the "Effective Date"), and shall
remain in effect as provided in Section 1.3 herein.
The Plan is intended as a replacement for certain compensation
arrangements for non-employee directors in effect prior to the Effective Date,
including the Plan prior to this amendment and restatement, and the
Corporation's Directors' Deferred Fee Plan (collectively, the "Prior Programs").
The Prior Programs will continue to apply in the future only with respect to
applicable compensation earned by non-employee directors for periods of service
prior to July 1, 1997.
1.2. Purpose of the Plan. The purpose of the Plan is to promote the
achievement of long-term objectives of the Corporation by linking the personal
interests of non-employee directors to those of the Corporation's stockholders
and to attract and retain non-employee directors of outstanding competence.
1.3 Duration of the Plan. The Plan will commence as of the Effective
Date and shall remain in effect until terminated or amended by the Board of
Directors pursuant to Article 9.
Article 2. Definitions
In addition to the terms defined in the Plan, these terms shall have
the meanings set forth below:
(a) "Deferred Stock Unit" or "Unit" means an award acquired by a
Participant as a measure of participation under the Plan, and
having a value which changes in direct relation to changes in
the value in the relevant number of Shares during the
applicable period.
(b) "Fair Market Value" shall equal the mean of the high and low
sales prices of a Share on The New York Stock Exchange on the
relevant date, or, if there were no sales on such date, on the
last trading date preceding the relevant date.
Article 3. Administration
3.1 The Committee on Directors. The Plan shall be administered by the
Committee on Directors (the "Committee") of the Board of Directors of the
Corporation, subject to the restrictions set forth in the plan.
3.2 Administration by the Committee. The Committee shall have the full
power, discretion, and authority to interpret and administer the Plan in a
manner which is consistent with the Plan's provisions. In no event, however,
shall the Committee have the power to determine Plan eligibility, or to
determine the number, the value, the vesting period, or the timing of awards to
be made under the Plan (all such determinations being automatic pursuant to the
provisions of the Plan).
3.3 Decisions Binding. All determinations and decisions made by the
Committee pursuant to the Plan, and all related orders or resolutions of the
Committee shall be final, conclusive, and binding on all persons, including the
Corporation, its shareholders, employees, directors, Participants, and their
estates and beneficiaries.
Article 4. Participation.
4.1 Participation. Persons eligible to participate in the Plan are
limited to non-employee directors who are serving on the Board on the date of
each scheduled award under the Plan ("Participants").
Article 5. Annual Equity Grants for Participants.
5.1 Annual Equity Grants. Commencing July 1, 1998, each Participant
shall receive an annual equity grant of five hundred (500) Shares on July 1 each
year, or a proportionate share of such grant based on full months of service as
a non-employee director since the prior July 1. In lieu of issuing fractional
Shares, the Corporation shall round up to the nearest full Share.
5.2 Timing of Payout. Certificates for Shares awarded pursuant to this
Article 5 shall be issued as soon as administratively practicable following July
1 each year.
5.3 Deferral Election. In lieu of receiving his or her annual equity
grant in Shares, any Participant may elect to receive all or a portion of any
such grant in the form of Deferred Stock Units. Any such election shall be made
pursuant to Article 7.
5.4 Biennial Review. The Committee shall conduct a biennial review of
the appropriateness of the annual equity awards granted pursuant to this Article
5. In the event the Committee determines that an adjustment in the amount of
equity awards pursuant to this Article 5 is appropriate, the Committee shall
make a recommendation to the Board for an appropriate amendment.
Article 6. Retainer Share Payments
6.1 Portion of Retainers Paid in Shares. During the term of this Plan,
each Participant shall receive twenty-five percent (25%) of his or her annual
retainer for board service in the form of Shares, payable as the third quarter
installment of such annual retainer.
6.2 Number of Shares Paid. The number of Shares to be issued pursuant
to Section 6.1 will be determined on September 25th of each year (or the next
trading date if such date is not a date on which shares are traded on The New
York Stock Exchange), and shall equal twenty-five percent (25%) of the then
current annual retainer for board service, divided by the Fair Market Value of a
Share on such date. In lieu of issuing fractional Shares, the Corporation shall
round up to the nearest full share.
6.3 Timing of Payout. Certificates for Shares payable pursuant to this
Article 6 shall be issued as soon as administratively practicable following the
conclusion of the third calendar quarter.
Article 7. Annual Deferral Opportunity
7.1 Termination of Prior Programs; Deferral of Retainers and Meeting
Fees. The Prior Programs are hereby terminated. In lieu thereof, any Participant
may elect during the term of this Plan to receive all or a portion of the cash
component of his or her annual retainer or meeting fees for board service in the
form of Deferred Stock Units. Any Participant may also elect to receive all or a
portion of his or her annual equity grant awarded pursuant to Section 5.1 in the
form of Deferred Stock Units. Elections to receive Deferred Stock Units shall be
irrevocable and shall be subject to the provisions of this Article 7 and Article
8.
7.2 Annual Deferral Election. Any election to receive all or a portion
of the cash component of a Participant's annual retainer, meeting fees or annual
equity grant in the form of Deferred Stock Units shall be made by December 1 for
all payments to be made in the succeeding calendar year. Each new Participant
shall make his or her election upon election to the Board. Deferral elections
may only be made in ten percent (10%) increments.
7.3 Number of Deferred Stock Units. The number of Deferred Stock Units
to be granted in connection with an election pursuant to Section 7.2 shall equal
(x) the number of Shares being deferred, in the case of annual equity grants,
and (y) the dollar value of the portion of the annual retainer and meeting fees
being deferred, divided by the Fair Market Value of a Share on the last day of
the applicable quarter, in the case of installments of annual retainers, or the
applicable meeting date, in the case of meeting fees.
7.4 Vesting of Deferred Stock Units. Subject to the terms of this Plan,
all Deferred Stock Units acquired under this Article 7 shall vest upon the
acquisition of such Deferred Stock Units.
Article 8. Deferred Stock Units
8.1 Value of Deferred Stock Units. Each Deferred Stock Unit shall have
a value that is equal to the Fair Market Value of a Share on the relevant
valuation date, it being understood that subsequent to the date of an award or
acquisition of a Deferred Stock Unit, its value shall change in direct
relationship to changes in the Fair Market Value of a Share.
8.2 Dividend Equivalents. Dividend equivalents shall be earned on
Deferred Stock Units provided under this Plan and shall be converted into an
equivalent amount of Deferred Stock Units based upon the value of a Deferred
Stock Unit on the payment date of the related dividend. The converted Deferred
Stock Units will be fully vested upon conversion.
8.3 Timing and Amount of Payout. Except as provided otherwise in the
Plan, the amount payable to a Participant shall be the aggregate value of the
Participant's vested Deferred Stock Units, if any, on the date that the
Participant terminates his or her service on the Board, normally payable in cash
in a lump sum within thirty (30) days following the Participant's termination of
service on the Board. In lieu of a lump sum payment, a Participant may elect, in
a writing filed with the Corporate Secretary of the Corporation prior to
termination of his or her Board service, to receive payment of such amount in
cash in two installments. The first installment, equal to fifty percent (50%) of
such amount, shall be made within thirty (30) days following the Participant's
termination of service on the Board. The second installment, including interest
credited at the prime interest rate of The First National Bank of Chicago in
effect on the date of such termination, shall be made one year after the first
installment.
8.4 Deferred Stock Unit Account. A Deferred Stock Unit Account (the
"Account") shall be established and maintained by the Corporation for each
Participant receiving Deferred Stock Units under the Plan. As the value of each
Deferred Stock Unit changes pursuant to Section 8.1, the Account established on
behalf of each Participant shall be adjusted accordingly. Each Account shall be
the record of the Deferred Stock Units granted to the Participant under Article
7 of the Plan, shall be maintained solely for accounting purposes, and shall not
require a segregation of any Corporation assets.
8.5 Annual Reports. Participants with Deferred Stock Units shall
receive annual reports providing detailed information about their Accounts and
changes in their Accounts during the preceding year.
Article 9. Amendment, Modification, and Termination
9.1 Amendment, Modification, and Termination. The Board may terminate,
amend, or modify the Plan at any time and from time to time.
9.2 Awards Previously Granted. Unless required by law, no termination,
amendment, or modification of the Plan shall in any material manner adversely
affect any award previously provided under the Plan, without the written consent
of the Participant holding such award.
Article 10. Miscellaneous
10.1 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
10.2 Benefit Transfers. The interests of any Participant or beneficiary
entitled to payments hereunder shall not be subject to attachment or garnishment
or other legal process by any creditor of any such Participant or beneficiary
nor shall any such Participant or beneficiary have any right to alienate,
anticipate, commute, pledge, encumber, or assign any of the benefits or rights
which he or she may expect to receive, contingently or otherwise under this Plan
except as may be required by the tax withholding provisions of the Internal
Revenue Code of 1986 ("Code") or of a state's income tax act. Notwithstanding
the foregoing, amounts payable with respect to a Participant hereunder may be
paid as follows:
(a) Payments with respect to a disabled or incapacitated person
may be paid to such person's legal representative for such
person's benefit, to a custodian under the Uniform Gifts or
Transfers to Minors Act of any state, or to a relative or
friend of such person for such person's benefit; and
(b) Transfers by the Participant to a grantor trust established
pursuant to Sections 674, 675, 676 and 677 of the Code for the
benefit of the participant or a person or persons who are
members of his or her immediate family (or for the benefit of
their descendants) shall be recognized and given effect,
provided that any such transfer has not been disclaimed prior
to the payment, and the trustee of such trust certifies to the
Committee that such transfer occurred without any payment of
consideration for such transfer.
10.3 Beneficiary Designation. Each Participant under the Plan may, from
time to time, name any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any benefit under the Plan is to be paid
in the event of his or her death. Each designation will revoke all prior
designations by the same Participant, shall be in a form as provided in Appendix
A hereto, and will be effective only when filed by the Participant in writing
with the Corporate Secretary of the Corporation, acting on behalf of the Board,
during his or her lifetime. In the absence of any such designation, benefits
remaining unpaid at the Participant's death shall be paid to the Participant's
estate.
10.4 No Right of Nomination. Nothing in this Plan shall be deemed to
create any obligation on the part of the Board to nominate any director for
reelection by the Corporation's shareholders.
10.5 Shares Available. The Shares delivered under the Plan may be
either treasury shares, originally issued Shares, or Shares that have been
reacquired by the Corporation, including shares purchased in the open market.
10.6 Stock Splits/Stock Dividends. In the event of any change in the
outstanding Shares of the Company by reason of a stock dividend,
recapitalization, merger, consolidation, split-up, combination, exchange of
Shares, or the like, the aggregate number of and class of Shares and Deferred
Stock Units awarded hereunder may be appropriately adjusted by the Committee,
whose determination shall be conclusive.
10.7 Successors. All obligations of the Corporation under the Plan with
respect to awards granted hereunder shall be binding on any successor to the
Corporation, whether the existence of such successor is the result of a direct
or indirect purchase, merger, consolidation, or otherwise, of all or
substantially all of the business and/or assets of the Corporation.
10.8 Requirements of Law. The granting of awards under the Plan shall
be subject to all applicable laws, rules, and regulations, and to such approvals
by any governmental agencies or national securities exchanges as may be
required.
10.9 Governing Law. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Delaware.
Chicago, Illinois
July 1, 1997
<PAGE>
APPENDIX A
USG CORPORATION
STOCK COMPENSATION PROGRAM
FOR NON-EMPLOYEE DIRECTORS
- --------------------------------------------------------------------------------
Name (Please Print)
In the event of my death, the following person is to receive any benefits
payable under the USG Corporation Stock Compensation Program for Non-Employee
Directors ("Plan").
NOTE: The primary beneficiary(ies) will receive your Plan benefits. If more than
one primary beneficiary is indicated, the benefits will be split among them
equally. If you desire to provide for distribution of benefits among primary
beneficiaries on other than an equal basis, please attach a sheet explaining the
desired distribution in full detail. If the primary beneficiary(ies) is no
longer living, the secondary beneficiary(ies) will receive the benefits, in a
similar manner as described above for the primary beneficiary(ies).
o Primary Beneficiary o Secondary Beneficiary
- --------------------------------------------------------------------------------
Last Name First M.I. Relationship
- --------------------------------------------------------------------------------
Street Address City, State, Zip Code
- --------------------------------------------------------------------------------
Beneficiary Social Security or Tax ID Number
o Primary Beneficiary o Secondary Beneficiary
- --------------------------------------------------------------------------------
Last Name First M.I. Relationship
- --------------------------------------------------------------------------------
Street Address City, State, Zip Code
- --------------------------------------------------------------------------------
Beneficiary Social Security or Tax ID Number
If a trust or other arrangement is listed above, include name, address, and date
of arrangement below:
- --------------------------------------------------------------------------------
Name Address Date
o For additional beneficiary, check here and attach an additional sheet of
paper.
This supersedes any beneficiary designation previously made by me under this
Plan. I reserve the right to change the beneficiary at any time.
- --------------------------- Date: ---------------------------
Sign Your Full Name Here
- ---------------------------
Your Social Security Number
Date received by USG Corporation By: ----------------------
<PAGE>
ANNUAL DEFERRAL ELECTION
USG CORPORATION
STOCK COMPENSATION PROGRAM
FOR
NON-EMPLOYEE DIRECTORS
The undersigned Participant in the USG Corporation Stock Compensation
Program for Non-Employee Directors hereby makes the following election:
(1) Annual equity grant. The amount of percent (to 100% in10% increments)
of my annual equity grant payable to me after January 1, 1998 and through
December 31, 1998 shall be deferred. Such amount shall be credited to a Deferred
Stock Unit Account established and maintained for my benefit under the terms of
the Plan.
(2) Cash annual retainer payments. The amount of percent (to a maximum of
100% in 10% increments) of my director's annual retainer payable to me in cash
after January 1, 1998 and through December 31, 1998 shall be deferred. Such
amount shall be credited to a Deferred Stock Unit Account established and
maintained for my benefit under the terms of the Plan.
(3) Cash meeting fee payments. The amount of percent (to 100% in 10%
increments) of my director's cash meeting fees payable to me after January 1,
1998 and through December 31, 1998 shall be deferred. Such amount shall be
credited to a Deferred Stock Unit Account established and maintained for my
benefit under the terms of the Plan.
I acknowledge that this irrevocable election and my rights hereunder are
subject to the terms and conditions of the USG Corporation Stock Compensation
Program for Non-Employee Directors.
Date:
---------------------------
Signature of Participant:
-------------------------------
Name of Participant:
------------------------------------
- --------------------------------------------------------------------------------
First Middle Last Social Security Number
RETURN THIS ELECTION ALONG WITH THE USG CORPORATION STOCK COMPENSATION PROGRAM
FOR NON-EMPLOYEE DIRECTORS BENEFICIARY FORM TO: DEAN H. GOOSSEN, CORPORATE
SECRETARY.
<PAGE>
EXECUTIVE SUMMARY OF KEY ELEMENTS: STOCK COMPENSATION
PROGRAM FOR NON-EMPLOYEE DIRECTORS
I. Annual Grant of Stock
An annual grant, presently set at 500 shares, will be issued
each July 1st to non-employee directors in service at the time
of the grant. Those directors who have served less than 12
full months, counted from the prior July 1st, will receive a
pro-rated grant as provided by the Plan. Directors will have
the option of deferring all or a portion of the annual grant
by conversion of the deferred portion into "deferred stock
units" on a one Share/one unit basis. Deferred share units
will fluctuate in value and become taxable as described in III
below and be paid out in cash as described in IV below.
Portions of the annual grant not converted into deferred stock
units become taxable compensation at the time the grant is
issued.
II. Annual Retainer
The current annual retainer is $26,000. The new Plan continues
the requirement that one-quarter of this retainer be paid in
the form of USG Shares, payable as the third quarter
installment. These shares are delivered as soon as is
practical following the September 25th valuation date. No
deferral of these shares is permitted and they thus become a
taxable compensation item at the time of their delivery.
III. Annual Deferral Opportunities
The remainder of the annual retainer as well as all meeting
and committee fees are paid in cash but may be deferred, in
part or in whole (in 10% increments) upon your election. If a
deferral election is made, the portion of the cash
compensation so deferred will be converted to "deferred stock
units" whose initial value will be equivalent to the cash
compensation deferred. These deferred stock units will
fluctuate in value exactly as the value of a USG Share
fluctuates. In addition, your deferred stock unit account will
be credited with dividend equivalents. Any compensation
deferred under this plan will not be taxable until actually
paid out (subsequent to retirement).
IV. Timing of Deferred Stock Unit Account Pay-out
Your Deferred Stock Unit account balance will be paid out in
cash in a lump sum within thirty days of your retirement
unless you elect in writing to receive your payment in two
installments. If the installment method is elected, the first
installment equal to fifty percent of such amount will be paid
within thirty days of the date of retirement and the second
installment one year later. During the intervening year your
remaining account balance will be credited with earnings at
the prime rate of The First National Bank of Chicago. You will
have a taxable event upon each payout.
<TABLE>
EXHIBIT 13
USG CORPORATION
FINANCIAL REVIEW
<CAPTION>
<S> <C>
Page
MANAGEMENT'S DISCUSSION AND ANALYSIS 65
CONSOLIDATED FINANCIAL STATEMENTS
Statement of Earnings 70
Balance Sheet 71
Statement of Cash Flows 72
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies 73
2. Earnings Per Share 74
3. Financing Arrangements 74
4. Debt 75
5. Financial Instruments and Risk Management 76
6. Purchase of Subsidiary Minority Interest 77
7. Writedown of Assets 77
8. Income Taxes 77
9. Inventories 78
10. Property, Plant and Equipment 78
11. Leases 78
12. Employee Retirement Plans 78
13. Stock-Based Compensation 79
14. Stockholders' Equity 80
15. Industry and Geographic Segments 81
16. Litigation 83
REPORT OF MANAGEMENT 87
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 87
SELECTED QUARTERLY FINANCIAL DATA 88
FIVE-YEAR SUMMARY 89
</TABLE>
USG CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Overview
1997 was an excellent year for USG Corporation. Strong operating results were
realized by all of USG's businesses. Increased demand led to record levels of
shipments for all major product lines. In pursuit of its goal of improving
financial flexibility, USG achieved its debt reduction objective and was awarded
an investment grade BBB rating by Standard & Poor's. Significant progress also
was made toward the Corporation's strategic objectives of investing for growth
and maintaining operational excellence.
USG continues to report EBITDA (earnings before interest, taxes, depreciation,
depletion, amortization and certain other income and expense items) as a result
of its financial restructuring in 1993 and the restructuring's effect (i.e.,
fresh start accounting charges) on financial reporting through September 30,
1997. While EBITDA is primarily used to facilitate comparisons of current and
historical results, it can also be helpful in understanding cash flow generated
from operations that is available for taxes, debt service and capital
expenditures. However, EBITDA should not be considered by investors as an
alternative to net earnings as an indicator of the Corporation's operating
performance or to cash flows as a measure of its overall liquidity.
Results of Operations
Consolidated Results. A bar chart entitled "Net Sales (millions of dollars)" on
page 19 of the Annual Report to Stockholders shows that for the years 1995, 1996
and 1997 (shown on the x-axis) the Corporation had net sales (shown on the
y-axis) of $2,444 million, $2,590 million and $2,874 million, respectively. A
bar chart entitled "EBITDA (millions of dollars)" on page 19 of the Annual
Report to Stockholders shows that for the years 1995, 1996 and 1997 (shown on
the x-axis) the Corporation had EBITDA (shown on the y-axis) of $417 million,
$437 million and $572 million, respectively.
Net sales of $2,874 million in 1997 represented the sixth consecutive year of
improved sales and an increase of $284 million, or 11%, over 1996. EBITDA
increased for the fifth consecutive year, amounting to $572 million, up $135
million, or 31%, from 1996. The strong results in 1997 were attributable to (i)
records for average selling price and shipments of SHEETROCK brand gypsum
wallboard (ii) record sales of ceiling tile and DONN ceiling grid and (iii)
record shipments of SHEETROCK joint compound and DUROCK cement board. In 1996,
net sales were up 6%, while EBITDA increased 5% versus 1995.
Gross profit as a percentage of net sales was 27.4% in 1997, compared with 24.9%
in 1996, and 24.7% in 1995. Gross profit in 1996 was lowered by a $7 million
provision to cost of products sold associated with actions implemented to
improve the operating efficiencies of USG's European businesses.
In 1997, USG began modifying 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.
Selling and administrative expenses of $281 million in 1997 increased $13
million, or 5%, over 1996. Expenses of $268 million in 1996 were up $24 million,
or 10%, compared with 1995. The increase for each year primarily reflects higher
levels of expenses related to incentive compensation and benefits as well as
costs to consolidate and upgrade customer service functions for the gypsum and
ceilings businesses. As a percent of net sales, selling and administrative
expenses were 9.8% in 1997, 10.3% in 1996 and 10.0% in 1995.
The noncash, no-tax-impact amortization of excess reorganization value reduced
operating profit by $127 million in 1997 and by $169 million in each of 1996 and
1995. Excess reorganization value was established in connection with USG's 1993
financial restructuring that was accounted for using the principles of fresh
start accounting. Excess reorganization value was scheduled to be amortized over
a five-year period through April 1998. However, as of September 30, 1997, the
remaining balance of $83 million was offset by the elimination of a valuation
allowance. See "Note 8. Income Taxes" for additional information.
Interest expense continued to decline in 1997 as a result of debt reduction.
Interest expense of $60 million in 1997 was down 20% from 1996. Interest expense
of $75 million in 1996 declined 24% from the 1995 level of $99 million.
In 1995, the Corporation recorded a $30 million pretax ($24 million after-tax)
charge in connection with the disposal of its insulation manufacturing business.
This charge is reflected in other expense, net in the Consolidated Statement of
Earnings. See "Note 7. Writedown of Assets" for additional information.
The Corporation's income tax expense is computed based on pretax earnings
excluding the noncash amortization of excess reorganization value, which is not
deductible for federal income tax purposes. In 1997, income tax expense amounted
to $172 million, compared with $117 million in 1996 and $97 million in 1995. The
Corporation's effective tax rates for 1997, 1996 and 1995 were 53.9%, 88.9% and
149.0%, respectively. Excluding the amortization of excess reorganization value
and, in 1995, a $15 million write-off of excess reorganization value associated
with the writedown of the insulation business, the Corporation's 1997, 1996 and
1995 effective tax rates were 38.6%, 38.9% and 39.0%, respectively. See "Note 8.
Income Taxes" for additional information.
USG's reported net earnings in 1997 were $148 million, and diluted earnings per
share were $3.03. These earnings were net of the noncash amortization of excess
reorganization value of $127 million, or $2.60 per diluted share.
In 1996, reported net earnings amounted to $15 million, and diluted earnings per
share were $0.31. These earnings were net of (i) the noncash amortization of
excess reorganization value of $169 million and (ii) the noncash amortization of
reorganization debt discount of $1 million included in interest expense.
Together, these items reduced 1996 net earnings by $170 million, or $3.58 per
diluted share.
In 1995, USG reported a net loss of $32 million and a loss per share of $0.71.
This loss included (i) the noncash amortization of excess reorganization value
of $169 million (ii) the noncash amortization of reorganization debt discount of
$4 million included in interest expense and (iii) the $24 million after-tax
writedown of the insulation business. Together, these items reduced 1995 net
earnings by $197 million, or $4.37 per share.
Market Conditions and Outlook. Based on preliminary data issued by the U.S.
Bureau of the Census, U.S. housing starts were an estimated 1.474 million units
in 1997. Housing starts totaled 1.477 million units in 1996 and 1.354 million
units in 1995. Despite the virtually unchanged level of housing starts in 1997
as compared with 1996, the U.S. wallboard market continued to grow in 1997.
Record U.S. industry shipments of wallboard were up 3% versus 1996, due in part
to very strong demand from remodeling and nonresidential markets. Repair and
remodel activity continued its upward trend in 1997. As for new nonresidential
construction, the finishing of nonresidential interiors follows contract awards
by as much as a year. As a result, demand from this market improved in 1997 due
to a 1% increase in U.S. nonresidential construction in 1996 versus 1995 as
measured in floor space for which contracts were awarded.
Barring any major change in the U.S. economy, new residential construction
should continue at a relatively high level in 1998. Demand for USG products from
both residential and nonresidential repair and remodeling is expected to
continue its upward trend in 1998. Nonresidential construction rose 10% in 1997
as compared with 1996. This increase should be beneficial to USG in 1998 due to
the lag in the finishing of nonresidential interiors of roughly one year.
Construction activity in Canada and Mexico is expected to maintain the recovery
begun in 1997. USG's exposure to markets outside North America is primarily
concentrated in Europe but also includes sales to Asia and Latin America. We
anticipate that demand in Eastern Europe and Latin America will continue to
grow, while conditions in Western Europe will remain stable. The prospects for
Asian construction markets are not good, but USG's presence there is relatively
minor.
<TABLE>
USG CORPORATION
Core Business Results
(millions) Net Sales EBITDA
- ---------- ------------------------------- ------------------------------
1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ----
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
North American Gypsum:
U.S. Gypsum Company $ 1,565 $ 1,390 $ 1,309 $ 458 $ 347 $ 327
L&W Supply Corporation 981 841 753 36 29 26
CGC Inc. (gypsum) 124 114 102 20 16 11
Other subsidiaries 95 83 75 28 25 22
Eliminations (427) (361) (315) (3) - -
----- ----- ----- --- --- ---
Total 2,338 2,067 1,924 539 417 386
----- ----- ----- --- --- ---
Worldwide Ceilings:
USG Interiors, Inc. 425 398 385 65 53 58
USG International 229 228 235 13 2 5
CGC Inc. (ceilings) 34 30 28 3 3 4
Eliminations (54) (44) (39) - - -
--- --- --- -- -- --
Total 634 612 609 81 58 67
--- --- --- -- -- --
Corporate - - - (48) (38) (36)
Eliminations (98) (89) (89) - - -
--- --- --- --- --- ---
Total USG Corporation 2,874 2,590 2,444 572 437 417
===== ===== ===== === === ===
</TABLE>
North American Gypsum. A bar chart entitled "Net Sales (millions of dollars)" on
page 21 of the Annual Report to Stockholders shows that for the years 1995, 1996
and 1997 (shown on the x-axis) North American Gypsum had net sales (shown on the
y-axis) of $1,924 million, $2,067 million and $2,338 million, respectively. A
bar chart entitled "EBITDA (millions of dollars)" on page 21 of the Annual
Report to Stockholders shows that for the years 1995, 1996 and 1997 (shown on
the x-axis) North American Gypsum had EBITDA (shown on the y-axis) of $386
million, $417 million and $539 million, respectively.
Net sales of $2,338 million in 1997 were up $271 million, or 13%, and EBITDA of
$539 million rose $122 million, or 29%, compared with 1996. For 1996, net sales
of $2,067 million increased $143 million, or 7%, while EBITDA of $417 million
increased $31 million, or 8%, over 1995.
Strong results in 1997 for United States Gypsum Company primarily reflect
records for average price and shipments of SHEETROCK gypsum wallboard. The
average selling price of SHEETROCK wallboard in 1997 was $122.65 per thousand
square feet, up 11% compared with the 1996 average price of $110.56. The average
price in 1995 was $110.44. Shipments of SHEETROCK wallboard totaled 8.4 billion
square feet, compared with 8.0 billion square feet in 1996 and 7.6 billion
square feet in 1995. In addition, shipments of SHEETROCK joint compound and
DUROCK cement board also set records in 1997. U.S. Gypsum's manufacturing costs
for SHEETROCK wallboard were down slightly in 1997 due to improved operating
efficiencies resulting from cost-reduction projects implemented in 1996 and
1997. Comparing 1996 with 1995, lower furnish prices for wastepaper, the primary
raw material of wallboard paper, resulted in a 4% decrease in manufacturing
costs. U.S. Gypsum's plants operated at 99% of capacity in 1997, compared with
the estimated average rate of 96% for the U.S. industry. In 1996, U.S. Gypsum's
plants operated at 94% of capacity.
L&W Supply Corporation, USG's building products distribution business, reported
record net sales in 1997 due to record shipments of wallboard and record sales
of complementary building materials. EBITDA for L&W Supply improved
significantly in each of the past three years as a result of gross profit
improvements for all of its product lines. As of December 31, 1997, L&W Supply
operated a total of 176 locations in the United States.
CGC Inc.'s gypsum business experienced improved net sales and EBITDA in both
1997 and 1996 primarily due to stronger domestic shipments in eastern Canada and
exports to the United States.
Worldwide Ceilings. A bar chart entitled "Net Sales (millions of dollars)" on
page 22 of the Annual Report to Stockholders shows that for the years 1995, 1996
and 1997 (shown on the x-axis) Worldwide Ceilings had net sales (shown on the
y-axis) of $609 million, $612 million and $634 million, respectively. A bar
chart entitled "EBITDA (millions of dollars)" on page 22 of the Annual Report to
Stockholders shows that for the years 1995, 1996 and 1997 (shown on the x-axis)
Worldwide Ceilings had EBITDA (shown on the y-axis) of $67 million, $58 million
and $81 million, respectively.
Net sales of $634 million in 1997 were up $22 million, or 4%, and EBITDA of $81
million increased $23 million, or 40%, compared with 1996. Adjusting for a $7
million charge taken in 1996 to improve operating efficiencies for USG's
European businesses, EBITDA in 1997 increased 25%. The increase in net sales
reflects record sales of ceiling tile and DONN ceiling grid. These records were
attributable to strong demand in the U.S. nonresidential market (both new
construction and renovation) and growing international demand. EBITDA in 1997
was favorably affected by higher volume and prices, reduced manufacturing costs
and improved international operating efficiencies. USG's international sales,
which are primarily concentrated in Europe, have not been materially affected by
recent economic events in Asia.
Net sales in 1996 for Worldwide Ceilings rose slightly to $612 million, while
EBITDA of $58 million fell $9 million, or 13%, compared with 1995. The slightly
higher sales in 1996 reflect record shipments of ceiling tile at higher average
selling prices and increased shipments of ceiling grid. These improvements were
partially offset by the absence of full-year results for the U.S. insulation
manufacturing business that was sold in April 1996. The lower level of EBITDA
was primarily attributable to (i) a $7 million provision associated with actions
implemented to improve the operating efficiencies of USG's European businesses
(ii) expenses associated with enhancing customer service systems and (iii)
start-up costs related to a new ceiling tile line placed in service in 1996 at
the Greenville, Miss., plant.
Liquidity and Capital Resources
Following its 1993 financial restructuring, USG was engaged in a financial
strategy of reducing debt and growing its gypsum, ceilings and distribution
businesses through a balanced application of free cash flow between debt
reduction and capital expenditures. Two objectives of this strategy involved
reaching a target debt level of $650 million within five years and achieving an
investment grade rating on its capital structure.
As of December 31, 1997, total debt amounted to $620 million, reflecting a net
reduction since May 1993 of $936 million. In the fourth quarter of 1997,
Standard & Poor's raised its rating of USG's debt to investment grade BBB. As of
December 31, 1997, Moody's rating of USG debt was Ba1, one level below
investment grade. Going forward, USG's financial strategy will be to increase
the proportion of free cash flow it spends on capital projects, while reviewing
possible applications of its cash for other corporate purposes.
A bar chart entitled "Debt Principal (millions of dollars)" on page 23 of the
Annual Report to Stockholders shows that as of December 31, 1995, 1996 and 1997
(shown on the x- axis) the Corporation's principal amount of total debt (shown
on the y-axis) was $926 million, $772 million and $620 million, respectively. A
bar chart entitled "Capital Spending (millions of dollars)" on page 23 of the
Annual Report to Stockholders shows that for the years 1995, 1996 and 1997
(shown on the x-axis) the Corporation had capital spending (shown on the y-axis)
of $147 million, $120 million and $172 million, respectively.
Debt Reduction. In 1997, total debt was reduced $152 million, or 20%, from the
December 31, 1996, total of $772 million. Debt repayments during 1997 primarily
consisted of $85 million of revolving bank loans, $48 million of 8.75% senior
debentures due 2017 and $41 million of 8% senior notes due 1997. These
repayments were partially offset by increased borrowing on the Corporation's
Canadian credit facility.
Capital Expenditures. Capital expenditures amounted to $172 million in 1997,
compared with $120 million in 1996. As of December 31, 1997, the Corporation's
capital expenditure commitments for the replacement, modernization and expansion
of operations amounted to $363 million, compared with $173 million as of
December 31, 1996.
In the North American Gypsum business, ground was broken in June 1997 for a new
$110 million plant in Bridgeport, Ala. This facility will manufacture SHEETROCK
brand wallboard using 100% synthetic gypsum and is expected to begin operation
in mid-1999. Construction is also under way to build a $90 million facility to
manufacture gypsum wood fiber panels at the Gypsum, Ohio, plant. The new
production line is expected to begin operating by the end of 1999. Complementing
this investment in the gypsum wood fiber business was the acquisition of a
gypsum fiber panel plant in Port Hawkesbury, Nova Scotia, in late 1997. Gypsum
wood fiber products manufactured at these plants will be marketed under the
FIBEROCK brand name. In October 1997, USG announced that it will invest $90
million to rebuild and modernize its wallboard manufacturing line at the East
Chicago, Ind., plant. This new line is also expected to begin production by the
end of 1999. Additional capital investments in 1997 included cost-reduction
projects such as the installation of stock cleaning equipment to utilize lower
grades of recycled paper and the installation of processes to accommodate the
use of synthetic gypsum at manufacturing facilities where it is more economical
than natural sources of gypsum rock.
In the Worldwide Ceilings business, construction began in early 1997 on a $35
million project that includes the replacement of two old production lines with
one modern, high-speed line at the ceiling tile plant in Cloquet, Minn. This
project will be completed by mid-1998.
The Corporation periodically evaluates possible acquisitions or combinations
involving other businesses or companies in industries and markets related to its
current operations. The Corporation believes that its available liquidity is
generally adequate to support most opportunities and that it has access to
additional financial resources to take advantage of other opportunities.
Working Capital. Working capital (current assets less current liabilities) as of
December 31, 1997, amounted to $264 million, and the ratio of current assets to
current liabilities was 1.7 to 1. As of December 31, 1996, working capital was
$159 million, and the ratio of current assets to current liabilities was 1.4 to
1.
Cash and cash equivalents as of December 31, 1997, amounted to $72 million,
compared with $44 million as of December 31, 1996. This increase reflects 1997
net cash flows from operating activities of $332 million, partially offset by
net cash flows to investing and financing activities of $170 million and $134
million, respectively. Receivables (net of reserves) were $297 million as of
December 31, 1997, up from $274 million as of year-end 1996, while inventories
increased to $208 million from $185 million, and accounts payable rose to $146
million from $141 million. These increases reflect the greater level of business
in 1997.
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 December 31, 1997, outstanding revolving
loans totaled $97 million and letters of credit issued and outstanding amounted
to $84 million, leaving the Corporation with $430 million of available credit.
The Corporation had additional borrowing capacity of $50 million as of December
31, 1997, under a revolving accounts receivable facility (see "Note 3. Financing
Arrangements"). 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 filing date of the Corporation's 1997 Annual Report on
Form 10-K, no securities had been issued pursuant to this registration.
Legal Contingencies. One of the Corporation's subsidiaries, U.S. Gypsum, is a
defendant in asbestos lawsuits alleging both property damage and personal
injury. See "Note 16. Litigation" 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 "Note 16. Litigation" for additional information on environmental
litigation.
Forward-Looking Statements. This Management Discussion and Analysis, "Note 16.
Litigation" and other sections of this report contain 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>
<TABLE>
USG CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(millions, except per share data) Years ended December 31,
- --------------------------------- ------------------------
1997 1996 1995
---- ---- ----
<CAPTION>
<S> <C> <C> <C>
Net sales....................................................... $ 2,874 $ 2,590 $ 2,444
Cost of products sold........................................... 2,087 1,945 1,841
----- ----- -----
Gross profit.................................................... 787 645 603
% of net sales............................................... 27.4 24.9 24.7
Selling and administrative expenses............................. 281 268 244
Amortization of excess reorganization value..................... 127 169 169
--- --- ---
Operating profit................................................ 379 208 190
Interest expense................................................ 60 75 99
Interest income................................................. (3) (2) (6)
Other expense, net.............................................. 2 3 32
--- --- ---
Earnings before income taxes.................................... 320 132 65
Income taxes.................................................... 172 117 97
--- --- ---
Net earnings (loss)............................................. 148 15 (32)
=== === ===
Net Earnings (Loss) Per Common Share:
Basic........................................................ 3.19 0.32 (0.71)
==== ==== =====
Diluted...................................................... 3.03 0.31 (0.71)
==== ==== =====
</TABLE>
The notes to financial statements are an integral part of this statement.
<PAGE>
<TABLE>
USG CORPORATION
CONSOLIDATED BALANCE SHEET
(millions, except share data) As of December 31,
- ----------------------------- ------------------
1997 1996
---- ----
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.................................................... $ 72 $ 44
Receivables (net of reserves of $17 and $17)................................. 297 274
Inventories.................................................................. 208 185
Current and deferred income taxes............................................ 63 46
--- ---
Total current assets.................................................... 640 549
--- ---
Property, plant and equipment, net........................................... 982 887
Excess reorganization value (net of accumulated amortization as
of December 31, 1996 - $635)............................................ - 210
Other assets................................................................. 304 218
--- ---
Total assets............................................................ 1,926 1,864
===== =====
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable............................................................. 146 141
Accrued expenses............................................................. 220 200
Debt maturing within one year................................................ 10 49
--- ---
Total current liabilities............................................... 376 390
--- ---
Long-term debt............................................................... 610 706
Deferred income taxes........................................................ 163 243
Other liabilities............................................................ 630 548
Stockholders' equity (deficit):
Preferred stock - $1 par value; authorized 36,000,000 shares; $1.80
convertible preferred stock (initial series);
outstanding - none......................................... - -
Common stock - $0.10 par value; authorized 200,000,000 shares;
outstanding 46,780,845 and 45,724,561 shares (after
deducting 48,919 and 31,488 shares held in treasury)....... 5 5
Capital received in excess of par value...................................... 258 231
Deferred currency translation................................................ (25) (10)
Reinvested earnings (deficit)................................................ (91) (249)
--- ----
Total stockholders' equity (deficit).................................... 147 (23)
--- ---
Total liabilities and stockholders' equity.............................. 1,926 1,864
===== =====
</TABLE>
The notes to financial statements are an integral part of this statement.
<PAGE>
<TABLE>
USG CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(millions) Years ended December 31,
- ---------- ------------------------
1997 1996 1995
---- ---- ----
<CAPTION>
<S> <C> <C> <C>
Operating Activities:
Net earnings (loss)............................................. $ 148 $ 15 $ (32)
Adjustments to reconcile net earnings (loss) to net cash:
Amortization of excess reorganization value.................. 127 169 169
Depreciation, depletion and amortization..................... 70 65 67
Current and deferred income taxes............................ (2) (8) (8)
Net (gain) loss on asset dispositions........................ - (2) 27
(Increase) decrease in working capital:
Receivables.................................................. (23) (28) 24
Inventories.................................................. (23) (10) (2)
Payables..................................................... 5 10 8
Accrued expenses............................................. 20 14 (27)
Increase in other assets........................................ (10) (2) (10)
Increase in other liabilities................................... 19 64 30
Other, net...................................................... 1 (4) (12)
--- --- ---
Net cash flows from operating activities..................... 332 283 234
--- --- ---
Investing Activities:
Capital expenditures............................................ (172) (120) (147)
Net proceeds from asset dispositions............................ 2 10 7
Purchase of subsidiary minority interest........................ - (49) -
--- --- ---
Net cash flows to investing activities ...................... (170) (159) (140)
---- ---- ----
Financing Activities:
Issuance of debt................................................ 116 77 576
Repayment of debt............................................... (265) (231) (804)
Short-term borrowings (repayments), net......................... (3) - 5
Issuances of common stock....................................... 18 4 2
--- --- ---
Net cash flows to financing activities....................... (134) (150) (221)
---- ---- ----
Net Increase (Decrease) in Cash and Cash Equivalents............ 28 (26) (127)
Cash and cash equivalents at beginning of period................ 44 70 197
--- --- ---
Cash and cash equivalents at end of period...................... 72 44 70
=== === ===
Supplemental Cash Flow Disclosures:
Interest paid................................................... 64 74 88
Income taxes paid............................................... 168 116 108
</TABLE>
The notes to financial statements are an integral part of this statement.
USG CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies
Nature of Operations. Through its subsidiaries, USG Corporation (the
"Corporation") is a leading manufacturer and distributor of building materials,
producing a wide range of products for use in new residential, new
nonresidential and repair and remodel construction, as well as products used in
certain industrial processes. The Corporation's operations are organized into
two core businesses: North American Gypsum, which manufactures and markets
gypsum wallboard and related products in the United States, Canada and Mexico,
and Worldwide Ceilings, which manufactures and markets ceiling tile, ceiling
grid and other interior systems products worldwide. Distribution is carried out
through L&W Supply Corporation, a wholly owned subsidiary of the Corporation;
building materials dealers; home improvement centers and other retailers;
specialty wallboard distributors; and contractors.
Consolidation. The consolidated financial statements include the accounts of the
Corporation and its subsidiaries. All significant intercompany balances and
transactions are eliminated in consolidation.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions. These estimates and assumptions affect the reported amounts of
assets, liabilities, revenues and expenses. Actual results could differ from
these estimates.
Reclassifications. Certain amounts in the prior years' financial statements and
notes thereto have been reclassified to conform with the 1997 presentation.
Revenue Recognition. The Corporation recognizes revenue upon the shipment of
products.
Cash and Cash Equivalents. Cash and cash equivalents primarily consist of time
deposits with original maturities of three months or less.
Inventory Valuation. Most of the Corporation's domestic inventories are valued
under the last-in, first-out ("LIFO") method. The remaining inventories are
stated at the lower of cost or market under the first-in, first-out ("FIFO") or
average production cost methods. Inventories include material, labor and
applicable factory overhead costs.
Property, Plant and Equipment. Property, plant and equipment are stated at cost,
except for those assets that were revalued under fresh start accounting in May
1993. Provisions for depreciation of property, plant and equipment are
determined principally on a straight-line basis over the expected average useful
lives of composite asset groups. Depletion is computed on a basis calculated to
spread the cost of gypsum and other applicable resources over the estimated
quantities of material recoverable.
Excess Reorganization Value. In the third quarter of 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 AICPA Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("SOP 90-7"). See "Note 8. Income Taxes" for additional
information. Excess reorganization value totaling $851 million was recorded in
1993 in connection with a comprehensive restructuring of the Corporation's debt.
The Corporation accounted for the restructuring using the principles of fresh
start accounting as required by SOP 90- 7. Pursuant to these principles,
individual assets and liabilities were adjusted to fair market value. Excess
reorganization value was the portion of the reorganization value not
attributable to specific assets.
Goodwill. Goodwill is amortized on a straight-line basis over a period of 40
years. On a periodic basis, the Corporation estimates the future undiscounted
cash flows of the businesses to which goodwill relates in order to ensure that
the carrying value of goodwill has not been impaired. Goodwill is included in
other assets on the Consolidated Balance Sheet.
Financial Instruments. 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: 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 Derivative Instruments: 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 Exchange Derivative Instruments: 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 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, forward contracts are used. Gains and/or
losses on these foreign currency hedges are included in net earnings in the
period in which the exchange rates change.
Foreign Currency Translation. Net currency translation gains or losses on
foreign subsidiaries are included in deferred currency translation, a component
of stockholders' equity.
Research and Development. Research and development expenditures are charged to
earnings as incurred and amounted to $19 million, $19 million and $18 million in
the years ended December 31, 1997, 1996 and 1995, respectively.
2. Earnings Per Share
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings per Share," basic earnings per share were computed by dividing
net earnings by the weighted average number of shares of common stock
outstanding during the year. The reconciliation of basic earnings per share to
diluted earnings per share is shown in the following table. Computation of the
loss per share for 1995, on a diluted basis, is omitted because options and
warrants have an antidilutive effect.
<TABLE>
(millions, except Net Shares Per Share
share data) Earnings (000) Amount
---------------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
1997
Basic earnings $ 148 46,269 $ 3.19
Effect of Dilutive
Securities:
Options 930
Warrants 1,528
- ----------------------------------------------------------
Diluted earnings 148 48,727 3.03
==========================================================
1996
Basic earnings 15 45,542 0.32
Effect of Dilutive
Securities:
Options 853
Warrants 1,115
- ----------------------------------------------------------
Diluted earnings 15 47,510 0.31
==========================================================
</TABLE>
<TABLE>
As a result of the adoption of SFAS No. 128, the Corporation's reported earnings
per share ("EPS") for 1996 were restated as follows:
<CAPTION>
<S> <C>
Primary EPS as reported $ 0.31
Effect of SFAS No. 128 0.01
- -----------------------------------------------------
Basic EPS as restated 0.32
=====================================================
Fully diluted EPS as reported 0.30
Effect of SFAS No. 128 0.01
- -----------------------------------------------------
Diluted EPS as restated 0.31
=====================================================
</TABLE>
3. Financing Arrangements
Accounts Receivable Facility. The Corporation has an accounts receivable
facility (the "Receivables Facility") in which USG Funding Corporation, a
special-purpose subsidiary of the Corporation formed under Delaware law, entered
into agreements with United States Gypsum Company and USG Interiors, Inc. These
agreements provide that USG Funding purchases trade receivables (excluding
intercompany receivables owed by L&W Supply) of U.S. Gypsum and USG Interiors as
generated, in a transaction designed to be a "true sale" under applicable law.
USG Funding is a party to a Master Trust arrangement (the "Master Trust") under
which the purchased receivables are then transferred to Chase Manhattan Bank as
Trustee to be held for the benefit of certificate holders in such trust. A
residual interest in the Master Trust is owned by USG Funding through
subordinated certificates. Under a supplement to the Master Trust, certificates
representing an ownership interest in the Master Trust of up to $130 million
have been issued to Citicorp Securities, Inc. Debt issued under the Receivables
Facility has a final maturity in 2004 but may be prepaid at any time. The
interest rate on such debt is fixed at 8.2% through a long-term interest rate
swap. Pursuant to the applicable reserve and eligibility requirements, the
maximum amount of debt issuable under the Receivables Facility as of December
31, 1997 and 1996, (including $80 million outstanding as of each date) was $107
million and $105 million, respectively. Under the foregoing agreements and
related documentation, USG Funding is a separate corporate entity with its own
separate creditors that will be entitled to be satisfied out of USG Funding's
assets prior to distribution of any value to its shareholder.
As of December 31, 1997 and 1996, the outstanding balance of receivables sold to
USG Funding and held under the Master Trust was $179 million and $157 million,
respectively, and debt outstanding under the Receivables Facility was $80
million as of each date. Receivables and debt outstanding in connection with the
Receivables Facility remain in receivables and long-term debt, respectively, on
the Consolidated Balance Sheet.
Shelf Registration. In 1996, the Securities and Exchange Commission declared
effective a shelf registration statement that allows the Corporation to offer
from time to time (i) debt securities (ii) shares of $1.00 par value preferred
stock (iii) shares of $0.10 par value common stock and/or (iv) warrants to
purchase shares of common stock, all having an aggregate initial offering price
not to exceed $300 million. As of the filing date of the Corporation's 1997
Annual Report on Form 10-K, no securities had been issued pursuant to this
registration.
4. Debt
<TABLE>
Total debt, including debt maturing within one year, as of
December 31 consisted of the following:
(millions) 1997 1996
- ------------------------------------------------------------
<CAPTION>
<S> <C> <C>
Revolving credit facility due 2002 $ 25 $ 110
Receivables Facility due 2003 and 2004 80 80
8% senior notes due 1997 - 41
9.25% senior notes due 2001 150 150
8.5% senior notes due 2005 150 150
8.75% sinking fund debentures due 2017 92 140
Canadian credit facility due 2002 72 -
Canadian credit facility due 1997 - 50
Industrial revenue bonds 46 40
Other debt 5 11
Less unamortized discount - (17)
- -------------------------------------------------------------
Total 620 755
=============================================================
</TABLE>
The Corporation maintains a $500 million unsecured revolving credit facility,
which includes a $125 million letter of credit subfacility, with a syndicate of
banks under a credit agreement. The revolving credit facility expires in 2002
with no required amortization prior to maturity. As of December 31, 1997,
outstanding revolving loans totaled $25 million, and letters of credit issued
and outstanding amounted to $84 million, leaving the Corporation with $391
million of available credit under the revolving credit facility. The revolving
loans bear interest at the London Interbank Offered Rate ("LIBOR") as determined
from time to time plus an applicable spread based on the Corporation's net debt
to EBITDA ratio (as defined in the credit agreement) for the preceding four
quarters. As of December 31, 1997, the applicable spread was 0.4%. The average
rate of interest on the revolving loans was 6.1% and 6.3% during the years ended
December 31, 1997 and 1996, respectively. See "Note 5. Financial Instruments and
Risk Management" for information on instruments used by the Corporation to
manage the impact of interest rate changes on LIBOR-based bank debt. The credit
agreement contains restrictions on the operation of the Corporation's business,
including covenants pertaining to liens, sale and leaseback transactions, and
mergers and acquisitions of businesses not related to the building industry.
On June 2, 1997, the Corporation executed through CGC Inc. a $77 million (U.S.)
($110 million Canadian), parent-guaranteed, Canadian credit facility due 2002.
This facility was later amended to increase the credit line by $14 million
(U.S.) ($20 million Canadian) for one year. As of December 31, 1997, outstanding
loans totaled $72 million (U.S.), leaving $19 million (U.S.) of available credit
under this facility. The method of calculating interest and the covenants
related to this facility are virtually the same as those for the U.S. facility
described above. The average rate of interest on the Canadian loans was 4.6%
during the period of June 2, 1997, through December 31, 1997. The average rate
of interest on a different Canadian credit facility that was in effect during
the period of January 1, 1997, through its termination on June 4, 1997, was
6.2%.
The Corporation also maintains a parent-guaranteed, multicurrency ($20 million
U.S. equivalent), European line of credit. As of December 31, 1997, there were
no outstanding loans under this facility.
The industrial revenue bonds had interest rates ranging from 3.7% to 8.8%, with
maturities through 2032. All debt classified as "other debt" had average
interest rates of 4.5% and 4.6% as of December 31, 1997 and 1996, respectively,
with varying payments due through 2006.
There were no short-term borrowings outstanding as of December 31, 1997.
Short-term borrowings outstanding as of December 31, 1996, totaled $7 million,
and the weighted average interest rate on these borrowings as of that date was
4.2%.
The fair market value of total debt outstanding was $646 million and $788
million as of December 31, 1997 and 1996, respectively, based on indicative bond
prices as of those dates.
As of December 31, 1997, aggregate scheduled maturities of long-term debt were
$10 million for each year 1998 through 2000, $160 million in 2001 and $107
million in 2002.
5. Financial Instruments and Risk Management
<TABLE>
The following table presents the carrying amounts and estimated fair value of
the Corporation's derivative portfolio as of December 31:
(millions) 1997 1996
- --------------------------------------------------
<CAPTION>
<S> <C> <C>
Interest Rate Contracts:
Notional amount $ 105 $ 171
Carrying amount - -
Fair value (10) (10)
Energy Swaps:
Notional amount 30 39
Carrying amount - -
Fair value - 4
Foreign Exchange Contracts:
Notional amount 22 15
Carrying amount - -
Fair value - -
- --------------------------------------------------
</TABLE>
The amounts reported as fair value represent the market value as obtained from
broker quotations. The negative fair values are estimates of the amounts the
Corporation would need to pay as of December 31, 1997 and 1996, to cancel the
contracts or transfer them to other parties.
The Corporation is exposed to credit losses in the event of nonperformance by
the counterparties on all its derivative contracts. All counterparties have
investment grade credit standing; accordingly, the Corporation anticipates that
these counterparties will be able to satisfy fully their obligations under the
contracts. The Corporation does not obtain collateral or other security to
support financial instruments subject to credit risk but monitors the credit
standing of counterparties.
Interest Rate Risk Management. As of December 31, 1997, the Corporation had a
swap agreement in place to pay 7.2% in exchange for LIBOR on $25 million
notional principal for the years 1998 through 2000. In addition, the Corporation
has entered into $80 million of interest rate swap agreements to hedge its
Receivables Facility on which the interest payments are based on commercial
paper rates. Under these agreements, the Corporation pays a fixed rate of 8.2%
in exchange for the monthly commercial paper rate due on the Receivables
Facility.
As of December 31, 1996, the Corporation owned an interest rate cap that capped
the Corporation's expected LIBOR-based interest payments on $25 million notional
principal at 5.6% for 1997. The Corporation also had swap agreements in place to
pay 7.1% in exchange for LIBOR on $50 million notional principal for the years
1997 through 2000 and on $25 million notional principal for 2001 and 2002. Also,
as of December 31, 1996, the Corporation had interest rate swap agreements to
hedge $80 million of its Receivables Facility.
Energy Risk Management. As of December 31, 1997 and 1996, the Corporation had
over-the-counter swap agreements to exchange monthly payments on notional
amounts of energy amounting to $30 million and $39 million, respectively, all
extending one year or less.
Foreign Exchange Risk Management. As of December 31, 1997, the Corporation had a
number of foreign currency forward contracts in place (primarily Canadian
dollars and Belgian francs) to hedge its exposure to exchange rate fluctuations
on foreign currency transactions. These foreign exchange contracts mature on the
anticipated cash requirement date of the hedged transaction, generally, within
one year. As of December 31, 1996, the Corporation had a foreign exchange
forward contract in place to hedge the refinancing of the purchase of the
minority interest in CGC. This contract was for $15 million (U.S.) and matured
in January 1997. The deferred gain on this foreign exchange hedge was not
significant as of December 31, 1996.
6. Purchase of Subsidiary Minority Interest
In the fourth quarter of 1996, the Corporation purchased the minority interest
in its Canadian subsidiary, CGC. The common shares of publicly held stock
totaled approximately 6 million and were acquired at a price of $11 (Canadian)
per share. The total amount paid in U.S. dollars for the shares was $49 million.
This payment was financed initially through an interim Canadian credit facility
due 1997 that was replaced in 1997 by a long-term Canadian credit facility due
2002. As a result of the transaction, CGC recorded goodwill of $41 million
(U.S.), which is included in other assets on the Consolidated Balance Sheet and
is being amortized over 40 years.
7. Writedown of Assets
In the fourth quarter of 1995, the Corporation recorded a $30 million pretax
($24 million after-tax) charge in connection with the sale of its insulation
manufacturing business in the United States, which was completed in the second
quarter of 1996, and the closure of its insulation plant in Canada. Included in
this charge is a $15 million noncash, no-tax-impact write-off of excess
reorganization value associated with these businesses. The remainder of the
charge primarily reflects a writedown of the assets of these businesses to their
net realizable value. The total charge is reflected in other expense, net in the
Consolidated Statement of Earnings.
8. Income Taxes
<TABLE>
Earnings before income taxes consisted of the following:
(millions) 1997 1996 1995
- ----------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
U.S. $ 301 $ 138 $ 73
Foreign 19 (6) (8)
- -----------------------------------------------------
Total 320 132 65
=====================================================
</TABLE>
<TABLE>
Income taxes consisted of the following:
(millions) 1997 1996 1995
- ----------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
Current:
Federal $ 147 $ 90 $ 67
Foreign 10 5 10
State 26 17 15
- ----------------------------------------------------
183 112 92
- ----------------------------------------------------
Deferred:
Federal (12) 3 7
Foreign 2 1 (2)
State (1) 1 -
- ----------------------------------------------------
(11) 5 5
- ----------------------------------------------------
Total 172 117 97
====================================================
</TABLE>
<TABLE>
Differences between actual provisions for income taxes and provisions for income
taxes at the U.S. federal statutory rate (35%) were as follows:
(millions) 1997 1996 1995
- --------------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
Taxes on income at
federal statutory rate $ 112 $ 46 $ 23
Excess reorganization
value amortization 44 59 64
Foreign earnings subject
to different tax rates 2 2 2
State income tax, net of
federal benefit 16 12 10
Percentage depletion (3) (3) (3)
Other, net 1 1 1
- --------------------------------------------------------
Provision for income
taxes 172 117 97
========================================================
Effective income tax rate 53.9% 88.9% 149.0%
========================================================
</TABLE>
<PAGE>
<TABLE>
Significant components of deferred tax (assets) liabilities as of December 31
were as follows:
(millions) 1997 1996
- ----------------------------------------------------
<CAPTION>
<S> <C> <C>
Property, plant and equipment $ 155 $ 171
Debt discount - 7
- ----------------------------------------------------
Deferred tax liabilities 155 178
- ----------------------------------------------------
Pension and postretirement benefits (78) (97)
Reserves not deductible until paid (126) (106)
Other 2 1
- ----------------------------------------------------
Deferred tax assets before
valuation allowance (202) (202)
Valuation allowance - 90
- ----------------------------------------------------
Deferred tax assets (202) (112)
- -----------------------------------------------------
Net deferred tax (assets) liabilities (47) 66
=====================================================
</TABLE>
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 in the third
quarter of 1997. The elimination of this allowance reflects 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 in the third quarter of 1997.
The Corporation used a net operating loss carryforward of $100 million to offset
U.S. taxable income in 1994 through 1996. Because of the uncertainty regarding
the application of the Internal Revenue Code to this carryforward as a result of
the Corporation's financial restructuring in 1993, the carryforward could be
reduced or eliminated.
The Corporation does not provide for U.S. income taxes on the portion of
undistributed earnings of foreign subsidiaries that are intended to be
permanently reinvested. The cumulative amount of such undistributed earnings
totaled approximately $144 million as of December 31, 1997. These earnings would
become taxable in the United States upon the sale or liquidation of these
foreign subsidiaries or upon the remittance of dividends. It is not practicable
to estimate the amount of the deferred tax liability on such earnings.
9. Inventories
As of December 31, 1997 and 1996, the LIFO values of domestic inventories
were $153 million and $141 million, respectively, and would have been higher by
$4 million and $7 million, respectively, if they were valued under the FIFO and
average production cost methods. The LIFO value of U.S. domestic inventories
exceeded that computed for U.S. federal income tax purposes by $30 million as of
December 31, 1997 and 1996. Inventory classifications as of December 31 were as
follows:
<TABLE>
(millions) 1997 1996
- --------------------------------------------------------
<CAPTION>
<S> <C> <C>
Finished goods and work in progress $ 132 $ 118
Raw materials 65 58
Supplies 11 9
- --------------------------------------------------------
Total 208 185
========================================================
</TABLE>
10. Property, Plant and Equipment
<TABLE>
Property, plant and equipment classifications as of
December 31 were as follows:
(millions) 1997 1996
- -------------------------------------------------------
<CAPTION>
<S> <C> <C>
Land and mineral deposits $ 61 $ 58
Buildings and realty improvements 262 248
Machinery and equipment 895 758
- -------------------------------------------------------
1,218 1,064
Reserves for depreciation and
depletion (236) (177)
- -------------------------------------------------------
Total 982 887
=======================================================
</TABLE>
11. Leases
The Corporation leases certain of its offices, buildings, machinery and
equipment, and autos under noncancelable operating leases. These leases have
various terms and renewal options. Lease expense amounted to $51 million, $46
million and $41 million in the years ended December 31, 1997, 1996 and 1995,
respectively. Future minimum lease payments required under operating leases with
initial or remaining noncancelable terms in excess of one year as of December
31, 1997, were $36 million in 1998, $31 million in 1999, $26 million in 2000,
$20 million in 2001 and $18 million in 2002. The aggregate obligation subsequent
to 2002 was $19 million.
12. Employee Retirement Plans
Pension Plans. The Corporation and most of its subsidiaries have defined benefit
retirement plans for all eligible employees. Benefits of the plans are generally
based on years of service and employees' compensation during the final years of
employment. The Corporation's contributions are made in accordance with
independent actuarial reports. The Corporation made fundings of $25 million and
$13 million in 1997 and 1996, respectively, to one of its plans. Pension plan
assets consist primarily of publicly traded common stocks and debt securities.
Net pension expense included the following components:
<TABLE>
(millions) 1997 1996 1995
- ---------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
Service cost-benefits
earned during the period $ 12 $ 12 $ 9
Interest cost on projected
benefit obligation 36 35 35
Actual return on plan assets (96) (62) (72)
Net amortization 57 27 38
- --------------------------------------------------------------
Net pension expense 9 12 10
==============================================================
</TABLE>
<TABLE>
The following table presents a reconciliation of the funded status of the
pension plans as of December 31:
(millions) 1997 1996
- -----------------------------------------------------------------
<CAPTION>
<S> <C> <C>
Amount of assets available for benefits:
Funded assets of the plans at fair
market value $ 554 $ 464
Accrued pension expense 13 26
- ------------------------------------------------------------------
Total assets of the plans 567 490
- ------------------------------------------------------------------
Present value of estimated pension
obligation:
Vested benefits 369 349
Nonvested benefits 33 32
- ------------------------------------------------------------------
Accumulated benefit obligation 402 381
Additional benefits based on
projected future salary increases 126 111
- ------------------------------------------------------------------
Projected benefit obligation 528 492
- ------------------------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligation 39 (2)
==================================================================
</TABLE>
The expected long-term rate of return on plan assets was 9% for the years ended
December 31, 1997 and 1996. The assumed weighted average discount rate used in
determining the accumulated benefit obligation was 7.25% and 7.5% as of December
31, 1997 and 1996, respectively. The rate of increases in projected future
compensation levels was 5% for both years.
Postretirement Benefits. The Corporation maintains plans that provide retiree
health care and life insurance benefits for all eligible employees. Employees
generally become eligible for the retiree benefit plans when they meet minimum
retirement age and service requirements. The cost of providing most of these
benefits is shared with retirees. The following table summarizes the components
of net periodic postretirement benefit cost:
<TABLE>
(millions) 1997 1996 1995
- --------------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
Service cost of benefits
earned $ 6 $ 6 $ 4
Interest on accumulated
postretirement benefit
obligation 15 16 13
Net amortization (deferral) - - (1)
- --------------------------------------------------------
Net periodic postretirement
benefit cost 21 22 16
========================================================
</TABLE>
The status of the Corporation's accrued postretirement benefit obligation
recognized on the Consolidated Balance Sheet as of December 31 was as follows:
<TABLE>
(millions) 1997 1996
- -----------------------------------------------------------
<CAPTION>
<S> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees $ 123 $ 119
Fully eligible active participants 14 17
Other active participants 82 86
- -----------------------------------------------------------
219 222
Unrecognized net gain (loss) 9 (7)
- -----------------------------------------------------------
Accrued postretirement benefit
obligation 228 215
===========================================================
</TABLE>
The assumed health-care-cost trend rate used in measuring the accumulated
postretirement benefit obligation was 8% as of December 31, 1997, and 9% as of
December 31, 1996, with a rate gradually declining to 5% by 2000 and remaining
at that level thereafter. A one-percentage-point increase in the assumed
health-care-cost trend rate for each year would increase the accumulated
postretirement benefit obligation by $31 million and $33 million as of December
31, 1997 and 1996, respectively, and would increase the net periodic
postretirement benefit cost by $3 million and $4 million for the years ended
December 31, 1997 and 1996, respectively. The assumed discount rate used in
determining the accumulated postretirement benefit obligation was 7.25% and 7.5%
as of December 31, 1997 and 1996, respectively.
13. Stock-Based Compensation
The Corporation has issued stock options from three successive plans under its
long-term equity program. Under each of the plans, options were granted at an
exercise price equal to the market value on the date of grant. All options
granted under the plans have 10-year terms and vesting schedules ranging from
two to three years. The options expire on the 10th anniversary of the date of
the grant, except in the case of retirement, death or disability, in which case
they expire on the earlier of the fifth anniversary of such event or the
expiration of the original option term.
The Corporation accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25 and discloses such compensation under
the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation."
The fair value of each option grant was estimated as of the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions for options granted in 1997 and 1996; no options were granted in
1995: <TABLE>
1997 1996
- ---------------------------------------------------
<CAPTION>
<S> <C> <C>
Expected lives (years) 7.4 7.4
Risk-free interest rate 6.8% 5.9%
Expected volatility 29.6% 33.0%
Dividend yield - -
- ---------------------------------------------------
</TABLE>
The weighted average fair value of options granted during the years ended
December 31, 1997 and 1996, was $15.61 and $14.17, respectively.
If the Corporation had elected to recognize compensation cost for stock-based
compensation grants consistent with the method prescribed by SFAS No. 123, net
earnings and net earnings per common share for 1997 and 1996 would have changed
to the following pro forma amounts:
<TABLE>
(millions, except per share amounts) 1997 1996
- -----------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
Net earnings: As reported $ 148 $ 15
Pro forma 144 13
Basic EPS: As reported 3.19 0.32
Pro forma 3.12 0.29
Diluted EPS: As reported 3.03 0.31
Pro forma 2.96 0.28
- -----------------------------------------------------
</TABLE>
<TABLE>
Stock option activity was as follows:
(options in thousands) 1997 1996 1995
- ------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
Options:
Outstanding, January 1 2,565 2,560 2,765
Granted 378 359 -
Exercised (882) (343) (173)
Canceled (12) (11) (32)
- -------------------------------------------------------------
Outstanding, December 31 2,049 2,565 2,560
Exercisable, December 31 1,339 1,889 1,369
Available for grant, December 31 1,671 467 929
Weighted average exercise price:
Outstanding, January 1 $ 21.71 $ 19.19 $ 18.78
Granted 34.60 29.40 -
Exercised 18.20 10.75 10.88
Canceled 32.00 28.29 28.33
Outstanding, December 31 25.54 21.71 19.19
Exercisable, December 31 22.06 18.82 16.31
- ------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options outstanding as of
December 31, 1997:
<TABLE>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Weighted Average Weighted
Range of Average Remaining Average
Exercise Options Exercise Contractual Options Exercise
Prices (000) Price Life (yrs.) (000) Price
-----------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C>
$ 5 - 15 545 $ 10 5.4 545 $ 10
15 - 25 181 22 6.6 181 22
25 - 35 1,323 32 7.4 613 33
- ------------------------------------------------------------
Total 2,049 1,339
============================================================
</TABLE>
<PAGE>
14. Stockholders' Equity
<TABLE>
Changes in stockholders' equity as of December 31 are
summarized as follows:
(millions) 1997 1996 1995
- -----------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
Common Stock:
Beginning balance $ 5 $ 5 $ 5
Ending balance 5 5 5
- ----------------------------------------------------
Capital Received in Excess
of Par Value:
Beginning balance 231 223 221
Issuances of common stock 18 4 2
Other, net 9 4 -
- ----------------------------------------------------
Ending balance 258 231 223
- ----------------------------------------------------
Deferred Currency
Translation:
Beginning balance (10) (6) (13)
Change during the
period (15) (4) 7
- -----------------------------------------------------
Ending balance (25) (10) (6)
- -----------------------------------------------------
Reinvested Earnings (Deficit):
Beginning balance (249) (259) (221)
Net earnings (loss) 148 15 (32)
Other, net 10 (5) (6)
- -----------------------------------------------------
Ending balance (91) (249) (259)
- -----------------------------------------------------
Total stockholders' equity
(deficit) 147 (23) (37)
=====================================================
</TABLE>
There were 48,919 and 31,488 shares of $0.10 par value common stock held in
treasury as of December 31, 1997 and 1996, respectively. These shares were
acquired through the forfeiture of restricted stock and the surrender of shares
in settlement of tax withholding obligations.
Warrants. As of December 31, 1997 and 1996, outstanding warrants amounted to
2,489,898 and 2,591,091, respectively. The warrants are exercisable, subject to
applicable securities laws, at any time prior to May 6, 1998, at which time they
expire. Each share of common stock issued upon exercise of a warrant prior to
the distribution date (as defined in the Rights Agreement described below) and
prior to the redemption or expiration of the Rights will be accompanied by an
attached Right issued under the terms and subject to the conditions of the
Rights Agreement as it may then be in effect.
On May 6, 1993, a total of 2,602,566 warrants, each to purchase a share of
common stock at an exercise price of $16.14 per share, in addition to common
stock, were issued to holders of certain debt that was converted to equity in
the financial restructuring implemented on that date. Upon issuance, each of the
warrants entitled the holder to purchase one share of common stock at a purchase
price of $16.14 per share, subject to adjustment under certain events.
Stockholder Rights Plan. On May 6, 1993, a rights plan (the "Rights Agreement")
was adopted pursuant to which the Corporation declared a distribution of one
right (the "Rights") upon each share of common stock. The Rights, which are
intended to protect the Corporation and its stockholders in the event of an
unsolicited attempt to acquire the Corporation, generally become exercisable 10
days following the announcement of the acquisition of 20% or more of the
outstanding common stock by someone other than the Corporation or one of its
employee benefit plans (10% in the case of an acquisition that the Corporation's
Board of Directors determines to represent a threat of acquisition not in the
best interests of the Corporation's stockholders) or 10 business days after
commencement of a tender offer for 30% or more of the outstanding common stock.
When exercisable, each of the Rights entitles the registered holder to purchase
one-hundredth of a share of a junior participating preferred stock, series C,
$1.00 par value per share, at a price of $35 per one-hundredth of a preferred
share, subject to adjustment. The Rights also provide for a so-called "flip-in"
feature and an exchange feature.
In the event that the Corporation is the surviving corporation and its common
stock remains outstanding and unchanged in a merger or other business
combination with such acquiring party or the acquiring party engages in one of a
number of self-dealing transactions specified in the Rights Agreement, or in the
event that there is a 10% acquisition that the Board of Directors determines to
represent a threat of acquisition not in the best interests of the Corporation's
stockholders, each holder of a Right, other than the acquiring party, will
thereafter have the right, subject to the exchange feature, to receive upon
exercise thereof that number of shares of common stock having a market value at
the time of such transaction of two times the exercise price of the Right.
15. Industry and Geographic Segments
Transactions between industry and geographic segments are accounted for at
transfer prices that are approximately equal to market value. Intercompany
transfers between industry and geographic segments are not material.
Eliminations reflect intercompany sales between industry segments. No single
customer accounted for 10% or more of consolidated net sales. Export sales to
foreign unaffiliated customers represent less than 10% of consolidated net
sales. Segment operating profit (loss) includes all costs and expenses directly
related to the segment involved and an allocation of expenses that benefit more
than one segment. Segment operating profit (loss) also includes the noncash
amortization of excess reorganization value, which had the impact of reducing
operating profit and identifiable assets for North American Gypsum and Worldwide
Ceilings.
Corporate identifiable assets include the assets of USG Funding, which represent
the outstanding balances of receivables purchased from U.S. Gypsum and USG
Interiors, net of reserves. As of December 31, 1997, 1996 and 1995, such
receivables, net of reserves, amounted to $128 million, $121 million and $110
million, respectively, including $95 million, $89 million and $78 million
purchased from U.S. Gypsum and $33 million, $32 million and $32 million
purchased from USG Interiors as of the respective dates.
USG CORPORATION
<TABLE>
Industry Segments
North
American Worldwide
(millions) Gypsum Ceilings Corporate Eliminations Total
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C>
1997
- ----
Net sales................................... $ 2,338 $ 634 $ - $ (98) $ 2,874
Amortization of excess reorganization value. 62 65 - - 127
Operating profit (loss)..................... 429 (1) (49) - 379
Depreciation, depletion and amortization.... 48 17 5 - 70
Capital expenditures........................ 126 45 1 - 172
Identifiable assets......................... 1,247 398 289 (8) 1,926
1996
- ----
Net sales................................... 2,067 612 - (89) 2,590
Amortization of excess reorganization value. 82 87 - - 169
Operating profit (loss)..................... 291 (44) (39) - 208
Depreciation, depletion and amortization.... 44 15 6 - 65
Capital expenditures........................ 63 56 1 - 120
Identifiable assets......................... 1,161 478 230 (5) 1,864
1995
- ----
Net sales................................... 1,924 609 - (89) 2,444
Amortization of excess reorganization value. 82 87 - - 169
Operating profit (loss)..................... 262 (34) (38) - 190
Depreciation, depletion and amortization.... 42 14 11 - 67
Capital expenditures........................ 96 49 2 - 147
Identifiable assets......................... 1,157 531 243 (4) 1,927
</TABLE>
<PAGE>
Geographic Segments
<TABLE>
Transfers
Between
United Other Geographic
(millions) States Canada Foreign Areas Total
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C>
1997
- ----
Net sales................................... $ 2,570 $ 184 $ 251 $ (131) $ 2,874
Amortization of excess reorganization value. 101 14 12 - 127
Operating profit............................ 356 9 14 - 379
Depreciation, depletion and amortization.... 57 8 5 - 70
Capital expenditures........................ 136 30 6 - 172
Identifiable assets......................... 1,610 178 138 - 1,926
1996
- ----
Net sales................................... 2,319 169 242 (140) 2,590
Amortization of excess reorganization value. 135 18 16 - 169
Operating profit (loss)..................... 209 1 (2) - 208
Depreciation, depletion and amortization.... 53 6 6 - 65
Capital expenditures........................ 102 13 5 - 120
Identifiable assets......................... 1,518 177 169 - 1,864
1995
- ----
Net sales................................... 2,161 155 246 (118) 2,444
Amortization of excess reorganization value. 135 18 16 - 169
Operating profit (loss)..................... 191 (3) 2 - 190
Depreciation, depletion and amortization.... 56 6 5 - 67
Capital expenditures........................ 123 19 5 - 147
Identifiable assets......................... 1,594 146 187 - 1,927
</TABLE>
<PAGE>
16. Litigation
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 sold 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").
Property Damage Cases. 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 the next 12 months and will be partially
funded by insurance. Sixteen additional property damage claims have been
threatened against U.S. Gypsum.
Results to Date: In total, U.S. Gypsum has settled approximately 110 Property
Damage Cases involving 240 plaintiffs, in addition to four class action
settlements. Twenty-four cases have been tried to verdict, 16 of which were won
by U.S. Gypsum and five lost; three other cases, one won at the trial level and
two lost, were settled during appeals. In the cases lost, compensatory damage
awards against U.S. Gypsum have totaled $11.5 million. Punitive damages totaling
$5.5 million were entered against U.S. Gypsum in four trials. Two of the
punitive damage awards, totaling $1.45 million, were paid, and two were settled
during the appellate process.
In 1997, one Property Damage Case was filed against U.S. Gypsum, three cases
were dismissed before trial, six were settled, one closed case was reopened, and
16 were pending at year end. U.S. Gypsum expended $7.8 million for the defense
and resolution of Property Damage Cases and received insurance payments of $15.5
million in 1997. During 1996, two Property Damage Cases were filed against U.S.
Gypsum, three cases were dismissed before trial, eight were settled, and 23 were
pending at year end; U.S. Gypsum expended $33.4 million for the defense and
resolution of Property Damage Cases in 1996 and received insurance payments of
$84 million. In 1995, three Property Damage Cases were filed against U.S.
Gypsum, seven cases were dismissed before trial, three were settled, two were
closed following trial or appeal, and 32 were pending at year end. U.S. Gypsum
expended $36 million for the defense and resolution of Property Damage Cases and
received insurance payments of $48.6 million in 1995. A substantial portion of
the insurance payments received during the years 1995 through 1997 constituted
reimbursement for amounts expended in connection with Property Damage Cases in
prior years.
U. S. Gypsum's estimated cost of resolving pending Property Damage Cases is
discussed below. (See "Estimated Cost.")
Personal Injury Cases. U.S. Gypsum is also a defendant in approximately 67,000
Personal Injury Cases pending at December 31, 1997, as well as an additional
approximately 7,000 cases that have been settled but will be closed over time.
Filings of new Personal Injury Cases totaled 23,500 claims in 1997, compared
with 28,000 new claims in 1996 and 14,000 in 1995. U.S. Gypsum's average
settlement cost for Personal Injury Cases over the past three years has been
approximately $1,600 per claim, exclusive of defense costs. Management does not
anticipate that the average settlement cost for currently pending claims will
vary significantly from historical amounts, due largely to opportunities for
block settlements of large numbers of claims and the apparently high percentage
of asbestos personal injury claims that appear to have been brought by
individuals with little or no physical impairment. However, other factors,
including the possible insolvency of co-defendants, could have an adverse impact
on settlement costs.
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 and the Center were parties to a class action settlement known as
"Georgine" that would have required most future Personal Injury Cases to be
resolved through an administrative system and provided prescribed levels of
benefits based on the nature of the claimants' physical impairment. However, on
June 25, 1997, the Supreme Court affirmed a May 1996 ruling by a federal
appellate court finding that class certification in Georgine was improper
(Amchem Products, Inc. v. Windsor, Case No. 96-270). Since the invalidation of
the Georgine settlement, U.S. Gypsum and the other Center members have been
named in a substantial number of additional Personal Injury Cases. The
defendants in Georgine, including U.S. Gypsum, have stated their intention to
pursue another claims-handling vehicle that would serve as an alternative to the
tort system, although there can be no assurance that such an alternative can be
found and implemented.
During 1997, approximately 23,500 Personal Injury Cases were filed against U.S.
Gypsum, approximately 5,000 claims were refiled or amended to add U.S. Gypsum as
a defendant, and approximately 14,000 were settled or dismissed. U.S. Gypsum
incurred expenses of $31.6 million in 1997 with respect to Personal Injury
Cases, of which $27.2 million is being paid by insurance. During 1996,
approximately 28,000 Personal Injury Cases were filed against U.S. Gypsum, and
approximately 20,000 were settled or dismissed. U.S. Gypsum incurred expenses of
$28.6 million in 1996 with respect to Personal Injury Cases, of which $21.6
million was paid by insurance. (The reduction in the portion of the cost paid by
insurance in 1996 was attributable to the impact of certain insurer
insolvencies.) During 1995, approximately 13,000 Personal Injury Cases were
filed against U.S. Gypsum, and 17,600 were settled or dismissed. U.S. Gypsum
incurred expenses of $32.1 million in 1995 with respect to Personal Injury
Cases, of which $30.9 million was paid by insurance. As of December 31, 1997,
1996 and 1995, approximately 74,000, 59,600 and 50,000 Personal Injury Cases,
respectively, were pending against U.S. Gypsum.
U. S. Gypsum's estimated cost of resolving the pending Personal Injury Cases is
discussed below. (See "Estimated Cost.")
Insurance Coverage Action. 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.
During 1995 and 1996, following an Illinois Appellate Court ruling awarding U.S.
Gypsum coverage for Property Damage Cases, several carriers paid U.S. Gypsum
approximately $133 million as reimbursement for past property damage costs.
These amounts were added to U.S. Gypsum's reserve for asbestos costs (discussed
below).
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.
Insolvent Carriers: Four of U.S. Gypsum's domestic insurance carriers, as well
as underwriters of portions of various policies issued by Lloyds and other
London market companies, providing a total of approximately $106 million of
coverage, are insolvent. Because these policies would already have been consumed
by U.S. Gypsum's asbestos expenses to date if the carriers had been solvent, the
insolvencies will not adversely affect U.S. Gypsum's coverage for future
asbestos-related costs. However, U.S. Gypsum is pursuing claims for
reimbursement from the insolvent estates and other sources and expects to
recover a presently indeterminable portion of the policy amounts from these
sources. In February 1997, U.S. Gypsum was paid approximately $11 million by the
receiver for one of the insolvent carriers.
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 pretrial 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
Georgine. 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.
Currently 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 currently pending Property Damage and Personal Injury Cases 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 re-evaluated 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.
<PAGE>
REPORT OF MANAGEMENT
Management of USG Corporation is responsible for the preparation, integrity
and fair presentation of the financial information included in this report. The
financial statements have been prepared in accordance with generally accepted
accounting principles and necessarily include certain amounts that are based on
management's estimates and judgment.
Management is responsible for maintaining a system of internal accounting
controls to provide reasonable assurance as to the integrity and reliability of
the financial statements, the proper safeguarding and use of assets, and the
accurate execution and recording of transactions. Such controls are based on
established policies and procedures and are implemented by trained personnel.
The system of internal accounting controls is monitored by the Corporation's
internal auditors to confirm that the system is proper and operating
effectively. The Corporation's policies and procedures prescribe that the
Corporation and its subsidiaries are to maintain ethical standards and that its
business practices are to be consistent with those standards.
The Corporation's financial statements have been audited by Arthur Andersen
LLP, independent public accountants. Their audit was conducted in accordance
with generally accepted auditing standards and included consideration of the
Corporation's internal control system. Management has made available to Arthur
Andersen LLP all the Corporation's financial records and related data, as well
as minutes of the meetings of the Board of Directors. Management believes that
all representations made to Arthur Andersen LLP were valid and appropriate.
The Board of Directors, operating through its Audit Committee composed
entirely of nonemployee directors, provides oversight to the financial reporting
process. The Audit Committee meets periodically with management, the internal
auditors and Arthur Andersen LLP, jointly and separately, to review financial
reporting matters, internal accounting controls and audit results to assure that
all parties are properly fulfilling their responsibilities. Both Arthur Andersen
LLP and the internal auditors have unrestricted access to the Audit Committee.
William C. Foote
Chairman and Chief Executive Officer
Richard H. Fleming
Senior Vice President and Chief Financial Officer
Raymond T. Belz
Vice President and Controller
REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS
To the Stockholders and Board of Directors of USG Corporation:
We have audited the accompanying consolidated balance sheets of USG
Corporation and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of earnings and cash flows for the years ended December
31, 1997, 1996 and 1995. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of USG Corporation and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the years ended December 31, 1997, 1996 and
1995, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
- -----------------------
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 22 , 1998
<PAGE>
<TABLE>
USG CORPORATION
SELECTED QUARTERLY FINANCIAL DATA (unaudited)
(millions, except per share data)
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
<CAPTION>
<S> <C> <C> <C> <C> <C>
1997
----
Net sales................. $ 673 $ 723 $ 757 $ 721 $ 2,874
Gross profit.............. 177 202 210 198 787
Operating profit (a)...... 69 88 97 125 379
Net earnings (a).......... 15 27 34 72 148
Per common share:
Net earnings (b) - basic 0.33 0.57 0.74 1.53 3.19
- diluted 0.32 0.55 0.70 1.45 3.03
Price range (c) - high 38.750 38.625 48.000 51.500 51.500
- low 30.000 29.875 35.750 41.375 29.875
EBITDA.................... 127 147 156 142 572
1996
----
Net sales................. 602 642 678 668 2,590
Gross profit.............. 131 160 179 175 645
Operating profit (a)...... 22 53 67 66 208
Net earnings (loss) (a)... (15) 4 13 13 15
Per common share:
Net earnings (loss)(b)- basic (0.32) 0.09 0.27 0.28 0.32
- diluted (0.32) 0.09 0.26 0.26 0.31
Price range (c) - high 30.500 29.000 29.875 34.500 34.500
- low 24.000 24.000 25.750 28.125 24.000
EBITDA.................... 79 110 125 123 437
</TABLE>
(a) The noncash amortization of excess reorganization value, which had no tax
impact, reduced operating profit and net earnings by approximately $42
million in each quarter during 1996 and in the first, second and third
quarters of 1997. Excess reorganization value, which was established in
connection with a financial restructuring in 1993, was scheduled to be
amortized through April 1998. However, in the third quarter of 1997, the
remaining balance of $83 million was offset by the elimination of a
valuation allowance.
(b) Basic earnings per common share were calculated using average shares
outstanding during the period. Diluted earnings per common share were
calculated using average shares and common stock equivalents outstanding
during the period. Consequently, the sum of the four quarters is not
necessarily additive to the total for the year.
(c) Stock price ranges are for transactions on the New York Stock Exchange
(trading symbol USG), which is the principal market for these securities.
Stockholders of record as of January 31, 1998: Common - 4,704; Preferred -
none.
<PAGE>
<TABLE>
USG CORPORATION
FIVE-YEAR SUMMARY (a) (unaudited)
(dollars in millions, except per share data)
May 7 January 1
Years ended December 31, through through
------------------------ December 31 May 6,
1997 1996 1995 1994 1993 1993
---- ---- ---- ---- ---- ----
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Earnings Statement Data:
Net sales........................................ $ 2,874 $ 2,590 $ 2,444 $ 2,290 $ 1,325 $ 591
Gross profit..................................... 787 645 603 517 263 109
Selling and administrative expenses.............. 281 268 244 244 149 71
Amortization of excess reorganization value...... 127 169 169 169 113 -
Operating profit................................. 379 208 190 104 1 38
Interest expense................................. 60 75 99 149 92 86
Interest income.................................. (3) (2) (6) (10) (4) (2)
Other expense (income), net...................... 2 3 32 3 (8) 6
Reorganization items............................. - - - - - (709)
Earnings (loss) before extraordinary items
and changes in accounting principles.......... 148 15 (32) (92) (108) 640
Extraordinary gain (loss), net of taxes.......... - - - - (21) 944
Cumulative effect of accounting changes.......... - - - - - (150)
Net earnings (loss).............................. 148 15 (32) (92) (129) 1,434
Net earnings (loss) per common share (b):
Basic......................................... 3.19 0.32 (0.71) (2.14) (3.46)
Diluted....................................... 3.03 0.31 (0.71) (2.14) (3.46)
Balance Sheet Data (as of the end of the period):
Working capital ................................. 264 159 167 311 185 271
Current ratio.................................... 1.70 1.41 1.46 1.83 1.41 2.02
Property, plant and equipment, net............... 982 887 842 755 754 767
Total assets..................................... 1,926 1,864 1,927 2,173 2,195 2,234
Total debt (c)................................... 620 772 926 1,149 1,531 1,556
Total stockholders' equity (deficit)............. 147 (23) (37) (8) (134) 4
Other Information:
EBITDA........................................... 572 437 417 325 155 63
Capital expenditures............................. 172 120 147 64 29 12
Gross margin %................................... 27.4 24.9 24.7 22.6 19.8 18.4
EBITDA margin %.................................. 19.9 16.9 17.1 14.2 11.7 10.7
Market value per common share (b)................ 49.00 38.88 30.00 19.50 29.25
Average number of employees...................... 13,000 12,500 12,400 12,300 11,900 11,750
</TABLE>
(a) Due to a financial restructuring and implementation of fresh start
accounting, financial statements for periods subsequent to May 6, 1993, are
not comparable to financial statements for periods through that date.
Accordingly, a vertical line has been added to separate such information.
(b) Per share information for the period of January 1 through May 6, 1993, was
omitted because, as a result of the financial restructuring and
implementation of fresh start accounting, it is not meaningful. Market
value per common share reflects the closing stock price on December 31 of
the applicable year.
(c) Total debt is shown at principal amounts for all periods presented. The
carrying amounts of total debt (net of unamortized reorganization discount)
as reflected on the Corporation's balance sheets were $755 million, $907
million, $1,122 million, $1,476 million and $1,461 million as of December
31, 1996, 1995, 1994 and 1993, and May 6, 1993, respectively.
EXHIBIT 21
SUBSIDIARIES
The companies listed below are the primary subsidiaries of the Corporation.
The financial data for these subsidiaries, as well as for other subsidiaries
which are not considered to be significant and are therefore excluded from this
exhibit, comprised the Corporation's consolidated financial statements.
<TABLE>
Organized Under
Name of Company Laws of
- --------------- -------
Domestic:
<CAPTION>
<S> <C>
United States Gypsum Company(a)......................................................... Delaware
USG Interiors, Inc. (a)................................................................. Delaware
L&W Supply Corporation (a)(b)........................................................... Delaware
USG International, Ltd.................................................................. Delaware
USG Foreign Investments, Ltd. (a)....................................................... Delaware
USG Interiors International, Inc........................................................ Ohio
USG Funding Corporation................................................................. Delaware
La Mirada Products Co., Inc............................................................. Ohio
USG Foreign Sales Corporation........................................................... Virgin Islands
Gypsum Engineering Company.............................................................. Delaware
Alabaster Assurance Company, Ltd........................................................ Vermont
International:
CGC Inc. (a)............................................................................ Canada
USG Canadian Mining Ltd................................................................. Ontario
Gypsum Transportation Limited........................................................... Bermuda
Yeso Panamericano, S.A. de C.V.......................................................... Mexico
USG Manufacturing Worldwide, Ltd........................................................ Caymans
Panama Gypsum Company................................................................... Panama
USG Interiors (Donn) S.A................................................................ Belgium
Donn Products GmbH...................................................................... Germany
USG Interiors Eastern Manufacturing GmbH................................................ Germany
USG Interiors East Sales GmbH........................................................... Germany
USG (U.K.) Ltd.......................................................................... United Kingdom
USG France S.A.......................................................................... France
USG (Netherlands) B.V................................................................... Netherlands
USG Interiors (Europe) S.A.............................................................. Belgium
USG Interiors Coordination Centre S.A................................................... Belgium
USG Belgium Holdings S.A................................................................ Belgium
USG Asia Pacific Holdings Pty. Ltd...................................................... Singapore
USG Interiors Pacific Ltd............................................................... New Zealand
USG Interiors Australia Pty. Ltd........................................................ Australia
USG Interiors (Far East) SDN BHD........................................................ Malaysia
Shenzhen USG Zhongbei Building Materials Co. (60% ownership)............................ China
Alabaster Engineering (Nederland) B.V................................................... Netherlands
Red Top Technology (Nederland) B.V...................................................... Netherlands
</TABLE>
(a) Accounts for material revenues.
(b) As of December 31, 1997, L&W Supply conducted its business out of 176
locations in 34 states using various names registered under applicable assumed
business name statutes.
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated January 22, 1998, included in this Form 10-K for
the year ended December 31, 1997, into the Corporation's previously filed
Registration Statements Nos. 33-40136 and 33-64217 on Form S-3 and 33-22581, as
amended, 33-22930, 33-36303, 33-52573, 33-52715, 33-63554 and 33-65383 on Form
S-8.
/s/ Arthur Andersen LLP
-----------------------
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 22, 1998
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose name appears below
constitutes and appoints Richard H. Fleming, Raymond T. Belz, and Dean H.
Goossen and each of them, his or her true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for and in his or
her name, place and stead, in any and all capacities, to sign the Annual Report
on Form 10-K for the year ending December 31, 1997 of USG Corporation and any or
all amendments thereto, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitutes, may lawfully do or cause to be done by virtue hereof.
<TABLE>
This power of attorney has been signed as of the 10th day of February,
1998, by the following persons:
<CAPTION>
<S> <C>
/s/ William C. Foote /s/ W.H. Clark
- -------------------- --------------
William C. Foote, W. H. Clark,
Director, Chairman of the Board Director
and Chief Executive Officer
/s/ P.J. O'Bryan /s/ James C. Cotting
- ---------------- --------------------
P.J. O'Bryan, James C. Cotting,
Director, President and Chief Director
Operating Officer
/s/ Robert L. Barnett /s/ Lawrence M. Crutcher
- --------------------- ------------------------
Robert L. Barnett, Lawrence M. Crutcher,
Director Director
/s/ Keith A. Brown /s/ W. Douglas Ford
- ------------------ -------------------
Keith A. Brown, W. Douglas Ford,
Director Director
/s/ David W. Fox /s/ John B. Schwemm
- ---------------- -------------------
David W. Fox, John B. Schwemm,
Director Director
/s/ Philip C. Jackson, Jr. /s/ Judith A. Sprieser
- -------------------------- ----------------------
Philip C. Jackson, Jr. Judith A. Sprieser,
Director Director
/s/ Marvin E. Lesser
- --------------------
Marvin E. Lesser
Director
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 72
<SECURITIES> 0
<RECEIVABLES> 314
<ALLOWANCES> 17
<INVENTORY> 208
<CURRENT-ASSETS> 640
<PP&E> 1,218
<DEPRECIATION> 236
<TOTAL-ASSETS> 1,926
<CURRENT-LIABILITIES> 376
<BONDS> 610
0
0
<COMMON> 5
<OTHER-SE> 142
<TOTAL-LIABILITY-AND-EQUITY> 1,926
<SALES> 2,874
<TOTAL-REVENUES> 2,874
<CGS> 2,087
<TOTAL-COSTS> 2,087
<OTHER-EXPENSES> 281
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57
<INCOME-PRETAX> 320
<INCOME-TAX> 172
<INCOME-CONTINUING> 148
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 148
<EPS-BASIC> 3.19
<EPS-DILUTED> 3.03
</TABLE>
