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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, 1999
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
8.5% Senior Notes, Due 2005 New York Stock Exchange
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Securities Registered Pursuant to Section 12(g) of the Act:
None
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No
As of January 31, 2000, the aggregate market value of USG Corporation
common stock held by nonaffiliates (based upon the New York Stock Exchange
closing prices) was approximately $1,810,905,000.
As of January 31, 2000, 48,807,531, shares of common stock were
outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Corporation's 1999 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 10, 2000, is
incorporated by reference in Part III of this Form 10-K Report.
3. A list of exhibits incorporated by reference is presented in this Form
10-K Report beginning on page 13.
TABLE OF CONTENTS
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PART I Page
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Item 1. Business........................................................................................ 3
Item 2. Properties...................................................................................... 8
Item 3. Legal Proceedings............................................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders............................................. 10
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters........................ 10
Item 6. Selected Financial Data......................................................................... 10
Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition........... 10
Item 8. Financial Statements and Supplementary Data..................................................... 10
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............ 10
PART III
Item 10. Directors and Executive Officers of the Registrant.............................................. 11
Item 11. Executive Compensation.......................................................................... 13
Item 12. Security Ownership of Certain Beneficial Owners and Management.................................. 13
Item 13. Certain Relationships and Related Transactions.................................................. 13
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................. 13
Signatures.................................................................................................... 20
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PART I
ITEM 1. BUSINESS
GENERAL
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.
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 is focused on building long-term stockholder value through dividends,
share repurchases and the five elements of its strategic growth plan. USG began
paying a $0.10 per share cash dividend in the fourth quarter of 1998 and
increased it to $0.15 in the fourth quarter of 1999. Under a multi-year share
repurchase plan that contemplates buying back up to 5 million shares, USG has
bought back nearly 1.7 million shares since the program began in the fourth
quarter of 1998. USG is investing in its businesses under five central
strategies - building for growth by adding capacity and lowering production
costs, leading in product innovation, expanding its building products
distribution business, enhancing customer service and promoting its brand names.
USG's operations are organized into three operating segments: North
American Gypsum, Worldwide Ceilings and Building Products Distribution.
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 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 1999. CGC is the largest producer of
gypsum wallboard in eastern Canada.
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.
In 1998, USG launched a new product platform: FIBEROCK brand gypsum fiber
panels. This product line currently includes abuse-resistant wall panels and
floor underlayment. The Corporation produces a variety of plaster products used
to provide a custom finish for residential and commercial interiors. Like
SHEETROCK brand gypsum wallboard, these products provide aesthetic,
sound-dampening and fire-retarding value. Plaster products are sold under the
trade names of RED
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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 50 plants located
throughout the United States and Canada and in central Mexico. To meet growing
demand, USG is investing in state-of-the art manufacturing facilities. New
production capacity will serve to meet the demands of USG's customers and
improve profitability. Upon completion of the five projects described below, USG
will have added more than 2 billion square feet of net new capacity with lower
operating costs than those of the old facilities it is replacing.
In the second quarter of 1999, U.S. Gypsum completed the startup of a new
SHEETROCK brand gypsum wallboard and joint compound plant in Bridgeport, Ala.
This new facility replaced the 90-year-old Plasterco, Va. plant, which was
shutdown on December 23, 1999. In the Midwest, U.S. Gypsum completed
construction of a new production line for SHEETROCK brand gypsum wallboard at
its East Chicago, Ind., plant. This new line replaced an existing high-cost line
and began operation in the fourth quarter of 1999.
In the Northeast, U.S. Gypsum is building a new SHEETROCK brand gypsum
wallboard plant in Aliquippa, Pa. Construction of this facility is on schedule
to be completed in the second quarter of 2000. In the Northwest, ground was
broken in 1999 for a new SHEETROCK brand gypsum wallboard plant in Rainier,
Ore., which is expected to be fully operational in 2001. A significant portion
of the new capacity provided by this plant will replace existing USG shipments
into the region from plants as far away as Iowa, Texas and Ontario, Canada. In
the Southwest, construction began in 1999 on a new production line for SHEETROCK
brand gypsum wallboard at U.S. Gypsum's plant in Plaster City, Calif. This new
low-cost production line will replace a 41-year-old, high-cost production line.
This facility also is expected to be fully operational in 2001.
Construction of a new facility to manufacture FIBEROCK brand gypsum fiber
panels, USG's newest product platform, was completed in the fourth quarter of
1999. This production line, located at the company's wallboard plant in Gypsum,
Ohio, will complement the gypsum fiber panel plant in Port Hawkesbury, Nova
Scotia, Canada.
In the fourth quarter of 1999, USG acquired Sybex, Inc., the holding
company of Beadex Manufacturing Company, Inc. and The Synkoloid Company of
Canada. Sybex operates joint compound and paper-faced metal corner bead plants
in the United States and Canada. With annual sales of approximately $58 million,
Sybex is the leader in joint compound in the Pacific Northwest and western
Canada and the leader in paper-faced metal corner bead in North America.
Gypsum rock is mined or quarried at 12 company-owned locations in the
United States and Canada. In 1999, these facilities provided approximately 84%
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.
Outside purchases accounted for 16% 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 198 million tons, of which
approximately 69% are located in the United States and 31% 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 10.2 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.
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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 does 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 Corporation ("L&W Supply"),
a wholly owned subsidiary of USG, building materials dealers, home improvement
centers and other retailers, contractors and specialty wallboard distributors.
Sales of gypsum products are seasonal in the sense 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 1999, about 45% of total industry
volume demand for gypsum wallboard was generated by new residential construction
activity, 37% of volume demand was generated by residential and nonresidential
repair and remodel activity, 11% 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.
Competition
The Corporation competes in North America as the largest of 13 producers of
gypsum wallboard products and in 1999 accounted for nearly one-third of total
gypsum wallboard sales in the United States. In 1999, U.S. Gypsum shipped 9.2
billion square feet of wallboard, the highest level in the Corporation's
history, out of total U.S. industry shipments (including imports) estimated at
31.0 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.
WORLDWIDE CEILINGS
Business
Worldwide Ceilings, which manufactures and markets interior systems
products worldwide, includes USG Interiors, Inc. ("USG Interiors"), the
international interior systems business managed as USG International and the
ceilings business of CGC. Worldwide Ceilings is a leading supplier of interior
ceilings products used primarily in commercial applications. In 1999, 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,
relocatable wall systems and, in Europe and the Asia-Pacific region, access
floor systems. USG's integrated line of ceilings 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.
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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.
USG Interiors' primary research and development are carried out at the
Corporation's research and development center in Libertyville, Ill., and at its
"Solutions Center"SM in Chicago, Ill. An additional metal forming research and
development facility in Avon, Ohio, provides product design, engineering and
testing services in addition to manufacturing development.
Marketing and Distribution
Worldwide Ceilings' products are sold primarily in markets related to the
new construction and renovation of commercial buildings. Marketing and
distribution are conducted through a network of distributors, installation
contractors, L&W Supply, and home improvement centers.
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.
BUILDING PRODUCTS DISTRIBUTION
Business
Building Products Distribution consists of L&W Supply, the leading
distributor of wallboard and related building products in the United States. In
1999, L&W Supply distributed approximately 10% of all gypsum wallboard in the
United States (including approximately 28% of U.S. Gypsum's wallboard
production).
Marketing and Distribution
L&W Supply, was organized in 1971 by U.S. Gypsum and, as of December 31,
1999, operated 193 distribution locations in 37 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 53% 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 92% of its facilities from third parties. Usually,
initial leases run from three to five years with a five-year renewal option.
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Competition
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, CSR 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.
OTHER INFORMATION
The Corporation's plants are substantial users of energy. Five major fuel
types are used in a mix consisting of 82% natural gas, 10% electricity, 3% oil,
2% coke and 3% purchased hot air. With few exceptions, plants that use natural
gas are equipped with fuel standby 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.
None of the operating segments have 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 1999 or 1998 consolidated net sales. Because
orders are filled upon receipt, no operating 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
ongoing 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 is included in "Notes to Financial Statements -
Note 16. Litigation" of the Corporation's 1999 Annual Report to Stockholders and
is incorporated herein by reference.
Financial information pertaining to operating segments, foreign and
domestic operations and export sales is included in "Notes to Financial
Statements - Note 15. Segments" of the Corporation's 1999 Annual Report to
Stockholders and is incorporated herein by reference.
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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. The locations of the
production properties of the Corporation's subsidiaries, grouped by operating
segment, are as follows (plants are owned unless otherwise indicated):
NORTH AMERICAN GYPSUM
Gypsum Wallboard and Other Gypsum Products
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Baltimore, Md. Gypsum, Ohio Southard, Okla.
Bridgeport, Ala. Jacksonville, Fla. Sperry, Iowa
Boston (Charlestown), Mass. New Orleans, La. Stony Point, N.Y.
Detroit (River Rouge), Mich. Norfolk, Va. Sweetwater, Texas
East Chicago, Ind. Oakfield, N.Y. Hagersville, Ontario, Canada
Empire, Nev. Plaster City, Calif. Montreal, Quebec, Canada
Fort Dodge, Iowa Santa Fe Springs, Calif. St. Jerome, Quebec, Canada (currently idle)
Fremont, Calif. Shoals, Ind. Puebla, Puebla, Mexico
Galena Park, Texas Sigurd, Utah Saltillo, Coahuila, Mexico
</TABLE>
The Plasterco, Va., plant was shutdown on December 23, 1999.
Joint Compound (surface preparation and joint treatment products)
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Auburn, Wash. Gypsum, Ohio Edmonton, Alberta, Canada
Bridgeport, Ala. Jacksonville, Fla. Hagersville, Ontario, Canada
Chamblee, Ga. Port Reading, N.J. Montreal, Quebec, Canada
Dallas, Texas Sigurd, Utah Surrey, British Columbia, Canada
East Chicago, Ind. Tacoma, Wash. (leased) Puebla, Puebla, Mexico
Fort Dodge, Iowa Torrance, Calif. Port Klang, Malaysia (leased)
Galena Park, Texas Calgary, Alberta, Canada
</TABLE>
Gypsum Rock (mines and quarries)
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Alabaster (Tawas City), Mich. Shoals, Ind. Sweetwater, Texas
Empire, Nev. Sigurd, Utah Hagersville, Ontario, Canada
Fort Dodge, Iowa Southard, Okla. Little Narrows, Nova Scotia, Canada
Plaster City, Calif. Sperry, Iowa Windsor, Nova Scotia, Canada
</TABLE>
Synthetic gypsum is processed at Belledune, New Brunswick, Canada.
Mining operations at Plasterco, Va., were shut down on December 23, 1999.
Paper for Gypsum Wallboard
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Clark, N.J. Jacksonville, Fla. South Gate, Calif.
Galena Park, Texas North Kansas City, Mo.
Gypsum, Ohio Oakfield, N.Y.
</TABLE>
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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. Gypsum fiber panel products
are produced at Gypsum, Ohio, and Port Hawkesbury, Nova Scotia, Canada.
Paper-faced metal corner bead is manufactured at Auburn, Wash. and Weirton,
W.Va. Various other products are manufactured at La Mirada, Calif. (adhesives
and finishes) and New Orleans, La. (lime products).
Ocean Vessels
Gypsum Transportation Limited, a wholly owned subsidiary of USG
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. A contract to build a
new self-unloading vessel was entered into with Hyundai Mipo Dockyard Ltd. in
December 1999, providing for delivery in about 18 months from the date of
contract.
WORLDWIDE CEILINGS
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Ceiling Tile
Cloquet, Minn. Walworth, Wis. Aubange, Belgium
Greenville, Miss. San Juan Ixhuatepec, Mexico
Ceiling Grid
Cartersville, Ga. Dreux, France Viersen, Germany
Stockton, Calif. Oakville, Ontario, Canada Taipei, Taiwan (leased)
Westlake, Ohio Peterlee, England (leased)
Auckland, New Zealand (leased) Port Klang, Malaysia (leased)
</TABLE>
A coil coater and slitter plant used in the production of ceiling grid also is
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).
ITEM 3. LEGAL PROCEEDINGS
Information pertaining to legal proceedings is included in "Notes to
Financial Statements - Note 16. Litigation" of the Corporation's 1999 Annual
Report to Stockholders and is incorporated herein by reference.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the fourth quarter of 1999.
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, the number of
stockholders of record and the amount of quarterly cash dividends is included in
"Selected Quarterly Financial Data" of the Corporation's 1999 Annual Report to
Stockholders and is incorporated herein by reference.
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 third
and fourth annual grants of 1,021 and 990 common shares were made on November
23, 1998, and November 22, 1999, respectively. The unregistered common stock is
restricted from transfer, resale or other disposition until November 22, 2001.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data are included in the "Five-Year Summary" of the
Corporation's 1999 Annual Report to Stockholders and 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 1999 Annual Report to Stockholders is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data included in the "Consolidated
Statement of Earnings," "Consolidated Balance Sheet," "Consolidated Statement of
Cash Flows," "Consolidated Statement of Stockholders' Equity," "Consolidated
Statement of Comprehensive Income," "Notes to Financial Statements" and "Report
of Independent Public Accountants" of the Corporation's 1999 Annual Report to
Stockholders are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors is included in the Corporation's definitive
Proxy Statement, which is incorporated herein by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT (AS OF FEBRUARY 10, 2000)
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NAME, AGE AND BUSINESS EXPERIENCE DURING THE LAST FIVE YEARS PRESENT POSITION
PRESENT POSITION HELD SINCE
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William C. Foote, 48 President and Chief Operating Officer from January August 1999
Chairman, President and Chief 1994 to January 1996; President and Chief Executive
Executive Officer Officer to April 1996; Chairman, President and Chief
Executive Officer from April 1996 to June 1997; Chairman
and Chief Executive Officer from June 1997 to August
1999.
P. Jack O'Bryan, 64 Senior Vice President - Worldwide Manufacturing and August 1999
Vice Chairman; President and Chief Technology to October 1995; Executive Vice President -
Executive Officer, L&W Supply Worldwide Ceilings to September 1996; Executive Vice
Corporation President - Operations to June 1997; President and
Chief Executive Officer, United States Gypsum Company
from October 1996 to February 1999; President and Chief
Executive Officer, USG Interiors, Inc. from October
1995 to February 1999; President and Chief Operating
Officer from June 1997 to August 1999; President and
Chief Executive Officer, L&W Supply Corporation from
February 1999 to the present.
Richard H. Fleming, 52 Senior Vice President and Chief Financial Officer to February 1999
Executive Vice President and February 1999.
Chief Financial Officer
Raymond T. Belz, 59 Vice President and Controller, USG Corporation from February 1999
Senior Vice President and January 1994 to February 1999; Vice President
Controller; Executive Vice Financial Services, United States Gypsum Company from
President, Financial Operations, January 1994 to January 1995; Vice President and Chief
North American Gypsum and Financial Officer, North American Gypsum from January
Worldwide Ceilings 1995 to September 1996; Vice President Financial
Operations, North American Gypsum and Worldwide Ceilings
from September 1996 to February 1999.
Arthur G. Leisten, 58 Same position. February 1994
Senior Vice President and
General Counsel
Edward M. Bosowski, 45 Vice President and Chief Financial Officer, Worldwide February 1999
Vice President; President and Ceilings and Vice President, USG Interiors, Inc. to
Chief Executive Officer, United September 1996; Executive Vice President - Marketing,
States Gypsum Company United States Gypsum Company to February 1999.
Brian W. Burrows, 60 Same position. March 1987
Vice President, Research and
Technology
</TABLE>
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<TABLE>
<CAPTION>
NAME, AGE AND BUSINESS EXPERIENCE DURING THE LAST FIVE YEARS PRESENT POSITION
PRESENT POSITION HELD SINCE
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Brian J. Cook, 42 Director, Employee Relations, Training and Corporate December 1998
Vice President, Human Resources Employee Counsel to April 1996; Director, Human
Resources Planning and Development and Corporate
Employee Counsel to December 1997; Director, Human
Resources - Operations to December 1998.
Stanley L. Ferguson, 47 Associate General Counsel to February 1999. February 1999
Vice President and Associate
General Counsel
Jean K. Holley, 40 Director, Information Technology, WMX Environmental August 1998
Vice President and Chief Monitoring Laboratories to March 1996; Director,
Information Officer Information Systems, Rust Industrial Services (a
subsidiary of Waste Management Corporation) to
December 1996; Senior Director, Information
Technology, Waste Management Corporation to August
1998.
Marcia S. Kaminsky, 41 Director, Public Relations, The Nutrasweet Company to October 1998
Vice President, Communications March 1995; Vice President, U.S. Communications, Bank
of Montreal/Harris Bank to January 1997; Senior Vice
President, Public Affairs, Bank of Montreal/Harris
Bank to October 1998.
D. Rick Lowes, 45 Vice President and Chief Financial Officer, CGC Inc. January 1999
Vice President and Treasurer to January 1999.
Peter K. Maitland, 58 Director, Employee Benefits and Office Facilities to February 1999
Vice President, Compensation, June 1997; Director, Employee Benefits and Office
Benefits and Administration Management to February 1999.
John H. Meister, 42 Director, Marketing East, United States Gypsum Company February 1999
Vice President; President and to July 1994; Vice President Marketing - East, United
Chief Executive Officer, USG States Gypsum Company to November 1995; Executive Vice
Interiors, Inc. President and Chief Operating Officer, L&W Supply
Corporation to May 1996; President and Chief Executive
Officer, L&W Supply Corporation to February 1999.
Daniel J. Nootens, 61 Executive Vice President & Chief Operating Officer, June 1997
Vice President; Executive Vice United States Gypsum Company from July 1994 to
President, Strategic Manufacturing September 1996; Executive Vice President - Operations,
& Capital Investments, North North American Gypsum from September 1996 to June 1997.
American Gypsum and Worldwide
Ceilings
Robert B. Sirgant, 59 Vice President, National Accounts, United States August 1999
Vice President, Corporate Gypsum Company from July 1994 to January 1995; Vice
Customer Relations President, Corporate Accounts from January 1995 to
August 1999.
Dean Goossen, 52 Same position. February 1994
Corporate Secretary
</TABLE>
12
<PAGE> 13
ITEM 11. EXECUTIVE COMPENSATION
Information required by Item 11 is included in the Corporation's definitive
Proxy Statement, which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by Item 12 is included in the Corporation's definitive
Proxy Statement, which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by Item 13 is included in the Corporation's definitive
Proxy Statement, which 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 1999 Annual Report to Stockholders and listed below are
incorporated herein by reference:
Consolidated Statement of Earnings - Years ended December 31, 1999,
1998 and 1997.
Consolidated Balance Sheet - As of December 31, 1999 and 1998.
Consolidated Statement of Cash Flows - Years ended December 31, 1999,
1998 and 1997.
Consolidated Statement of Stockholders' Equity - Years ended December
31, 1999, 1998 and 1997.
Consolidated Statement of Comprehensive Income - Years ended December
31, 1999, 1998 and 1997.
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.
13
<PAGE> 14
3. Exhibits (Reg. S-K, Item 601):
EXHIBIT
NO. PAGE
--- ----
3 Articles of incorporation and by-laws:
(a) Restated Certificate of Incorporation of USG Corporation
(incorporated by reference to Exhibit 3.1 of USG
Corporation's Form 8-K, dated May 7, 1993).
(b) Certificate of Designation of Junior Participating
Preferred Stock, series D, of USG Corporation
(incorporated by reference to Exhibit A of Exhibit 4 to
USG Corporation's Form 8-K dated March 27, 1998).
(c) Amended and Restated By-Laws of USG Corporation,
dated as of March 27, 1998 (incorporated by
reference to Exhibit 3(ii) of USG Corporation's Form
10-Q, dated May 1, 1998).
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) Rights Agreement dated March 27, 1998, between USG
Corporation and Harris Trust and Savings Bank, as Rights
Agent (incorporated by reference to Exhibit 4 of USG
Corporation's Form 8-K, dated March 27, 1998).
(c) 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).
14
<PAGE> 15
(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 (incorporated by
reference to Exhibit 10(c) of USG Corporation's
Annual Report on Form 10-K, dated February 20,
1998).
(d) First Amendment to Supplemental Retirement Plan,
effective July 1, 1997 (incorporated by reference to
Exhibit 10(d) of USG Corporation's Annual Report on
Form 10-K, dated February 26, 1999).
(e) Form of Termination Compensation Agreement. 21
(f) Form of Indemnification Agreement (incorporated by
reference to Exhibit 10(g) of Amendment No. 1 to USG
Corporation's Registration No. 33-51845 on Form S-1).
(g) Form of Employment Agreement 32
(h) 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).
(i) Amendment No. 1, dated as of February 1, 1996, to
the Credit Agreement (incorporated by reference to
Exhibit 10(l) of USG Corporation's 1995 Annual
Report on Form 10-K, dated February 29, 1996).
(j) Amendment No. 2, dated as of May 14, 1997, to the
Credit Agreement (incorporated by reference to
Exhibit 10(l) of USG Corporation's Annual Report on
Form 10-K, dated February 20, 1998).
(k) 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).
15
<PAGE> 16
(l) 1999 Annual Management Incentive Program - USG
Corporation. 42
(m) Omnibus Management Incentive Plan (incorporated by
reference to Annex A to USG Corporation's Proxy
Statement and Proxy, dated March 28, 1997).
(n) First Amendment to Omnibus Management Incentive
Plan, dated as of November 11, 1997 (incorporated by
reference to Exhibit 10(p) of USG Corporation's
Annual Report on Form 10-K, dated February 20,
1998).
(o) Amended and Restated Stock Compensation Program for
Non-Employee Directors of USG Corporation, dated
July 1, 1997 (incorporated by reference to Exhibit
10(q) of USG Corporation's Annual Report on Form
10-K, dated February 20, 1998).
13 Portions of USG Corporation's 1999 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.) 49
21 Subsidiaries 81
23 Consents of Experts and Counsel 82
24 Power of Attorney 83
27 Financial Data Schedule 84
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of 1999.
16
<PAGE> 17
INDEX TO EXHIBITS FILED
WITH THE ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
EXHIBIT PAGE
- ------- ----
10(e) Form of Termination Compensation Agreement 21
10(g) Form of Employment Agreement 32
10(l) 1999 Annual Management Incentive Program - USG Corporation 42
13 Portions of USG Corporation's 1999 Annual Report to Stockholders 49
21 Subsidiaries 81
23 Consent of Experts and Counsel 82
24 Power of Attorney 83
27 Financial Data Schedule 84
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
17
<PAGE> 18
USG CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PROVISION RECEIVABLES
CHARGED TO WRITTEN OFF
BEGINNING COSTS AND AND DISCOUNTS ENDING
BALANCE EXPENSES ALLOWED BALANCE
--------- ---------- ------------- -------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Doubtful accounts................................. $ 14 $ 4 $ (4) $ 14
Cash discounts.................................... 4 59 (59) 4
YEAR ENDED DECEMBER 31, 1998:
Doubtful accounts................................. 14 4 (4) 14
Cash discounts.................................... 3 59 (58) 4
YEAR ENDED DECEMBER 31, 1997:
Doubtful accounts................................. 14 5 (5) 14
Cash discounts.................................... 3 52 (52) 3
</TABLE>
18
<PAGE> 19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
WITH RESPECT TO FINANCIAL STATEMENT SCHEDULE
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements included in USG Corporation's annual
report to stockholders incorporated by reference in this Form 10-K and have
issued our report thereon dated January 27, 2000. 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
February 29, 2000
19
<PAGE> 20
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 29, 2000
By: /s/Richard H. Fleming
----------------------------
Richard H. Fleming
Executive 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 29, 2000
- ------------------------------
WILLIAM C. FOOTE
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Richard H. Fleming February 29, 2000
- ------------------------------
RICHARD H. FLEMING
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Raymond T. Belz February 29, 2000
- ------------------------------
RAYMOND T. BELZ
Senior Vice President and Controller
(Principal Accounting Officer)
ROBERT L. BARNETT, KEITH A. BROWN, ) By: /s/ Richard H. Fleming
W.H. CLARK, JAMES C. COTTING, ----------------------
LAWRENCE M. CRUTCHER, W. DOUGLAS ) Richard H. Fleming
FORD, DAVID W. FOX, VALERIE B. JARRETT, ) Attorney-in-fact
MARVIN E. LESSER, P. JACK O'BRYAN, ) Pursuant to Power of Attorney
JOHN B. SCHWEMM, JUDITH A. SPRIESER, ) (Exhibit 24 hereto)
Directors ) February 29, 2000
20
<PAGE> 1
EXHIBIT 10 (e)
TERMINATION COMPENSATION AGREEMENT
THIS AGREEMENT, made and entered into in duplicate as of the
1st day of January, 2000, by and between USG CORPORATION, a Delaware corporation
(hereinafter, together with its subsidiaries, collectively referred to as the
"Corporation") and _______________ (hereinafter referred to as the "Executive").
WITNESSETH:
WHEREAS, the Executive has had extensive experience in the
business and affairs of the Corporation and is a valuable member of management;
and
WHEREAS, the Board of Directors of USG Corporation has
determined that it is appropriate to reinforce and encourage the continued
attention of members of the management of the Corporation, including the
Executive, to their assigned duties without distraction if the possibility
should arise of a change in control of the Corporation;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
1. EMPLOYMENT. During the term of this Agreement, the
Executive agrees to remain in the employ of the Corporation except as may be
permitted hereunder and to continue to perform the Executive's regular duties as
an executive of the Corporation.
2. CHANGE IN CONTROL. No benefits shall be payable hereunder
unless there shall have been a change in control of the Corporation, as set
forth below, and the Executive's employment by the Corporation shall thereafter
have been terminated in accordance with Section 3 below. For purposes of this
Agreement, a "change in control of the Corporation" shall be deemed to have
occurred if:
21
<PAGE> 2
2.1. any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of USG
Corporation representing twenty percent (20%) or more of the combined voting
power of USG Corporation's then outstanding securities, or
2.2. during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of USG Corporation cease for any reason to constitute at least a
majority thereof; or
2.3. the Corporation is a party to (i) any
consolidation or merger of USG Corporation in which it is not the continuing or
surviving corporation or pursuant to which its shares of common stock would be
converted into cash, securities, or other property, or (ii) any sale, lease,
exchange, or other transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Corporation; or
2.4. approval by the stockholders of USG Corporation of
any plan or proposal for its liquidation or dissolution.
3. TERMINATION FOLLOWING CHANGE IN CONTROL. If any of the
events described in Section 2 hereof constituting a change in control of the
Corporation shall have occurred, the Executive, if terminated within three (3)
years of any such change in control shall be entitled to the benefits provided
in Section 4 hereof, unless such termination is due to the Executive's death,
disability, or, except as provided below, retirement, or is by the Corporation
for cause, or is by the Executive for other than good reason. It is expressly
understood and agreed that each occurrence of any change in control, as defined
in Section 2 hereof, shall commence a new three-year period, regardless of the
number of such occurrences. For purposes of this Agreement, the following
definitions shall apply.
3.1. "Disability" shall mean termination because of the
Executive's absence from the Executive's duties with the Corporation on a
full-time basis for six (6) consecutive months, as a result of incapacity due to
physical or mental illness, unless within thirty (30) days after Notice of
Termination (as hereinafter defined) is given following such absence the
Executive shall have returned to the full-time performance of the Executive's
duties.
3.2. "Retirement" shall mean termination in accordance
with the terms of the USG Corporation Retirement Plan (the "Retirement Plan")
and the USG Corporation Supplemental Retirement Plan (the
22
<PAGE> 3
"Supplemental Plan"), if applicable, as in effect immediately prior to the
change in control, under circumstances where the Executive is immediately
eligible for retirement benefits. It is understood that eligibility of the
Executive for immediate retirement benefits, and any request therefor, does not
preclude Executive's receipt of benefits under Section 4 hereof as a result of
any termination by the Corporation without cause or by the Executive for good
reason.
3.3. "Cause" shall mean termination upon (i) the
willful and continued failure by the Executive to substantially perform the
Executive's duties (other than any such failure resulting from incapacity due to
physical or mental illness) after a demand for substantial performance has been
delivered by the Chief Executive Officer of the Corporation, which specifically
identifies the manner in which it is believed that the Executive has not
substantially performed the Executive's duties, or (ii) the willful engaging by
the Executive in misconduct which is materially injurious to the Corporation.
For purposes of this paragraph, no act, or failure to act, on the Executive's
part shall be considered "willful" unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief that the action or
omission was in the best interest of the Corporation. Notwithstanding the
foregoing, the Executive shall not be deemed to have been terminated for cause
unless and until there shall have been delivered to the Executive a copy of a
Notice of Termination from the Chief Executive Officer of the Corporation, after
reasonable notice to, and an opportunity for the Executive, together with
counsel, to be heard before the Board of Directors of the Corporation, finding
that in the good faith opinion of such Board the Executive was guilty of conduct
set forth in clauses (i) or (ii) of the first sentence of this Section 3.3 and
specifying the particulars thereof in detail.
3.4. "Good reason" shall mean termination subsequent to
a change in control of the Corporation based on (i) a diminution in the
Executive's normal duties and responsibilities, including, but not limited to,
the assignment without the Executive's written consent of any diminished duties
and responsibilities which are inconsistent with the Executive's positions,
duties, responsibilities and status with the Corporation immediately prior to a
change in control, or a change in the Executive's reporting responsibilities,
titles or offices as in effect immediately prior to the change in control,
whether or not resulting from an act of the Corporation or otherwise, or any
removal of the Executive from or any failure to re-elect the Executive to any of
such positions, except in connection with the termination of the Executive's
employment for disability, retirement, or cause or as a result of the
Executive's death or by the Executive other than for good reason; (ii) a
reduction by the Corporation in the Executive's base salary as in effect on the
date hereof or as the same may be increased from time to time; (iii) a failure
by the Corporation to continue any
23
<PAGE> 4
bonus, incentive or similar plans in which the Executive was entitled to
participate immediately prior to the change in control (the "Bonus Plans"), in
substantially the same form and substance as in effect at such time, or a
failure by the Corporation to continue the Executive as a participant in the
Bonus Plans on at least the same basis as the Executive participated at such
time in accordance with the Bonus Plans; (iv) the Corporation's requiring the
Executive, without the Executive's written consent, to be based anywhere other
than within thirty (30) miles of the Executive's office location immediately
prior to the change in control, except for required travel on the Corporation's
business to an extent substantially consistent with business travel obligations
immediately prior to the change in control; (v) the failure by the Corporation
to continue in effect any benefit, compensation, or retirement plan, savings
plan, stock purchase plan, stock option plan, other equity incentive plan, life
insurance plan, health and accident plan, or disability plan in which the
Executive was participating at the time of such change (or plans providing the
Executive with substantially similar benefits), the taking of any action by the
Corporation which would adversely affect the Executive's participation in or
materially reduce the Executive's benefits under any of such plans or deprive
the Executive of any material fringe benefit enjoyed by the Executive at the
time of such change, or the failure by the Corporation to provide the Executive
with the number of paid vacation days to which the Executive was then entitled
in accordance with the Corporation's normal vacation policy in effect on the
date hereof; (vi) the failure by the Corporation to obtain assumption of the
obligation to perform this Agreement by any successor as contemplated in Section
6 hereof; (vii) any purported termination of the Executive's employment which is
not effected pursuant to a Notice of Termination satisfying the requirements of
Section 3.5 below (and, if applicable, Section 3.3 above); and for purposes of
this Agreement, no such purported termination shall be effective; or (viii) the
failure of the Corporation, within five (5) business days of any change in
control, to establish and fund a Rabbi Trust, as required in Section 4.7 below.
3.5. Any purported termination by the Corporation
pursuant to Sections 3.1, 3.2, or 3.3 above or by the Executive pursuant to
Sections 3.2 or 3.4 above shall be communicated by written Notice of Termination
to the other party hereto. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated.
24
<PAGE> 5
3.6. "Date of Termination" shall mean (i) if the
Executive's employment is terminated for disability, thirty (30) days after
Notice of Termination is given (provided that the Executive shall not have
returned to the performance of the Executive's duties on a full-time basis
during such thirty (30) day period); (ii) if the Executive's employment is
terminated for cause, the date specified in the Notice of Termination; and (iii)
if the Executive's employment is terminated for any other reason, the date on
which a Notice of Termination is given. Anything in the immediately preceding
sentence to the contrary notwithstanding, "Date of Termination" for purposes of
Section 4.1 below shall mean the date on which any dispute arising under Section
2, this Section 3, or Section 6 of this Agreement is definitively adjudicated,
settled, or otherwise resolved.
4. CERTAIN BENEFITS UPON TERMINATION. If, after any change in
control of the Corporation shall have occurred, as defined in Section 2 above
and consistent with Section 3 above, the Executive's employment by the
Corporation shall be terminated (i) by the Corporation other than for
disability, retirement, or cause or (ii) by the Executive for good reason, then
the Executive shall be entitled to the benefits provided below.
4.1. The Corporation shall pay the Executive full base
salary through the Date of Termination at the rate in effect at the time Notice
of Termination is given plus credit for any vacation earned but not taken. The
Corporation also shall pay the Executive the amount, if any, of any bonus for a
past fiscal year (and pro rata for any portion of the then current fiscal year
based solely on position par value), which has not yet been awarded or paid
under the Bonus Plans and shall continue in full force and effect through the
Date of Termination all stock ownership, purchase, or option plans, benefit or
compensation plans, and insurance or disability plans in effect at the time of
the change in control, or plans substantially similar thereto.
4.2. In lieu of any further salary payments to the
Executive for periods subsequent to the Date of Termination, and subject to
Section 4.3 hereof, the Corporation shall pay as severance pay to the Executive
on or before the fifth (5th) day following the Date of Termination a lump sum
amount (the "lump sum amount") equal to two and ninety-nine one hundredths
(2.99) times the sum of (i) the Executive's then annual base salary, computed at
twelve (12) times the Executive's then current monthly pay, and (ii) the
Executive's full year bonus for the then current fiscal year, computed based
solely on par award opportunity for the applicable fiscal year under the then
current Annual Management Incentive Program of the Corporation at the value in
effect at the Date of Termination or the date of this
25
<PAGE> 6
Agreement, whichever is higher, such lump sum payment to be subject to all
applicable federal, state, provincial and local income and FICA taxes, including
all required withholding.
4.3. The lump sum amount payable to the Executive under
Section 4.2 shall be adjusted as set forth in this Section 4.3. If the sum (the
"combined amount") of the lump sum amount under Section 4.2 and all other
payments or benefits which the Executive has received or has the right to
receive from the Corporation which are defined in ss.280G(b)(2)(A)(i) of the
Internal Revenue Code of 1986, as amended (the "Code"), would constitute a
"parachute payment" (as defined in ss.280G(b)(2) of the Code), the combined
amount shall, unless the following sentence applies, be decreased by the
smallest amount that will eliminate any parachute payment. If the decrease
referred to in the preceding sentence is 10% or more of the combined amount, the
combined amount shall not be decreased, but rather shall be increased by an
amount sufficient to provide the Executive, after tax, a net amount equal to the
Code ss.4999 excise tax imposed on such combined amount, as increased pursuant
to this section. For this purpose, "after tax" means the amount retained by the
Executive after satisfaction (whether through withholding, direct payment or
otherwise) of all applicable federal, state, provincial and local income taxes
at the highest marginal tax rate, and the employee share of any applicable FICA
taxes. If at a time subsequent to any payment under Section 4.2, an additional
amount of Code ss.4999 excise tax is definitively determined to be due by either
the Internal Revenue Service or a court of competent jurisdiction, the
Corporation shall pay to the Executive an additional amount which, net of
Federal, state, provincial and local income, FICA and Code ss.4999 excise taxes,
will satisfy such additional Code ss.4999 excise tax, including applicable
interest and penalties. The parties acknowledge that the intention of the
preceding three sentences is to place the Executive in the position in which the
Executive would be if the Code ss.4999 excise tax did not exist.
4.4. If, following a change in control, as defined in
Section 2 above, the Executive's employment is terminated in accordance with
Section 3 above, the Corporation shall also pay to the Executive an amount equal
to all reasonable legal fees and expenses incurred by the Executive as a result
of such termination, including all such fees and expenses, if any, incurred in
contesting or disputing any such termination or in seeking to obtain or enforce
any right or benefit under this Agreement or incurred by the Executive in
seeking advice with respect to the matters set forth in Section 3.4 or Section 4
of this Agreement.
4.5. The Corporation shall credit the Executive with
three years of benefit and credited service in addition to the total number of
years of benefit and credited service the Executive has accrued under the
26
<PAGE> 7
Retirement Plan, as supplemented by the Supplemental Plan. In the event the
Executive, after credit for the additional three years, has a total of less than
five years of credited service, said Executive nonetheless shall be treated as
if fully vested under the Retirement Plan and the Supplemental Plan, but with
benefits computed solely on the basis of such total benefit service. The total
amount of pension enhancement described in this Section 4.5 shall be reduced to
present value in accordance with assumptions consistent with those used by the
Corporation under the terms of such plans prior to the change of control, or, if
more favorable to the Executive, prior to the termination of the Executive's
employment, based on age of the Executive at the date entitlement to benefits
under this Section 4 arises and then shall be paid to the Executive in a lump
sum on or before the fifth (5th) day following such date. The obligations
imposed by this Section 4.5 are contractual in nature only, running between the
Corporation and the Executive, and in no way shall be construed as new
obligations under or an amendment or attempted amendment of the Retirement Plan.
4.6. The Corporation shall maintain in full force and
effect, for the continued benefit of the Executive until the earlier of (i)
three (3) years after the Date of Termination or (ii) the Executive's
commencement of full-time employment with a new employer, all employee welfare
plans and programs, including, but not limited to, life insurance, executive
death benefit, medical, health and accident, and disability plans or programs
(but excluding the Retirement Plan, the Supplemental Plan and the USG
Corporation Investment Plan) in which the Executive was entitled to participate
immediately prior to the Date of Termination, provided that the Executive's
continued participation is possible under the general terms and provisions of
such plans and programs and subject to periodic changes in such benefits as are
applicable generally to all participants in such plans and programs. In
connection with the USG Corporation Executive Medical Expense Plan, the
Corporation will use its reasonable best efforts to permit the Executive to
continue to participate, at the Corporation's expense, and on a basis that is
tax-free to the Executive, in such Plan. In the event that, with respect to any
of the benefits referred to in this Section 4.6, the Corporation is unable to
provide the continuation of one or more of such the benefits described herein,
the Corporation shall provide benefits comparable to those which the Executive
would otherwise be entitled to receive under such plans and programs to the
Executive at the Corporation's expense. Except as provided in Section 4.3 above,
the Executive is responsible for any personal income taxes that might arise as a
result of the Executive's benefits under this Section. Notwithstanding the
continuation of welfare plans and programs hereunder, no service credit shall be
given for the period of such continuation.
27
<PAGE> 8
4.7. Within five (5) business days of a change of
control, the Corporation shall establish a so-called "Rabbi Trust," the assets
of which shall be subject to the claims of the Corporation's creditors in the
event of the Corporation's insolvency. Said "Rabbi Trust" is intended to provide
a source of payment for benefits payable under this Agreement. Immediately after
the Rabbi Trust is established, the Corporation shall be obligated to deposit
with the trustee under such Rabbi Trust, an amount the proper officers of the
Corporation reasonably estimate could potentially be payable under this
Agreement. Funds in the Rabbi Trust shall be audited annually by external
auditors to ensure sufficiency of funding levels. Notwithstanding the foregoing,
if the assets in the Rabbi Trust are in fact insufficient to provide for all
benefits payable under this Agreement, such insufficiency shall be paid directly
by the Corporation from its general assets.
Any sum due pursuant to this Section 4 and not paid by such
time shall accrue for the benefit of Executive with interest at the prime rate
as then in effect at The Northern Trust Bank (or successor thereto).
The Executive shall not be required to mitigate the amount of
any payment provided for in this Section 4 by seeking other employment or
otherwise, nor shall the amount of any payment provided for in this Section 4 be
reduced by any compensation earned by the Executive as the result of employment
by another employer after the Date of Termination, or otherwise.
5. TERM OF AGREEMENT. Except as provided in the immediately
succeeding sentence, this Agreement shall have an original term expiring at the
close of business on December 31, 2000, and shall thereafter be automatically
extended for successive two-year terms expiring at the close of business on the
second December 31st following the commencement of each such extended term
unless the Corporation has notified the Executive of its election not to extend
the term of this Agreement not less than 120 days before the expiration of the
then current term, in which case this Agreement shall terminate at the
expiration of the then current term. Notwithstanding anything in this Agreement
to the contrary, this Agreement shall not terminate in the event that a change
in control of the Corporation, as defined in Section 2 above, shall have
occurred.
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<PAGE> 9
6. SUCCESSORS; BINDING AGREEMENT. (i) The Corporation shall
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Corporation, by agreement in form and substance satisfactory to
the Executive, to expressly assume and agree to perform this Agreement in the
same manner and to the same extent that the Corporation would be required to
perform it if no such succession had taken place. Failure of the Corporation to
obtain such agreement prior to the effectiveness of any such succession shall be
a breach of this Agreement and shall entitle the Executive to compensation from
the Corporation in the same amount and on the same terms as the Executive would
be entitled hereunder if the Executive terminated employment for good reason,
except that for purposes of implementing the foregoing and subject to the
provisions of Section 3.6 above, the date on which any such succession becomes
effective shall be deemed the Date of Termination. As used in this Agreement,
"Corporation" shall mean the Corporation as hereinbefore defined and any
successor to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Section 6 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law. (ii) This
Agreement shall inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amount would still be payable hereunder to the Executive if the Executive had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee or other designee or, if there be no such designee, to the Executive's
estate.
7. NOTICES. Any and all notices which may be given
hereunder by either party to the other shall be sufficient if in writing and
sent by registered mail to the respective party at its or their last known
address.
8. MODIFICATIONS AND WAIVERS; ENTIRE AGREEMENT. No provisions
of this Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing signed by the Executive and
the Chief Executive Officer of the Corporation. No waiver by either party hereto
at any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject
29
<PAGE> 10
matter hereof have been made by either party which are not expressly set forth
in this Agreement; provided, however, that this Agreement shall not supersede or
in any way limit the rights, duties or obligations the Executive may have under
any other written agreement with the Corporation, it being understood that any
rights, duties, or obligations of the Executive under this Agreement shall be
assertable or operative in the alternative and not in addition to any rights,
duties, or obligations of the Executive under any employment agreement now in
effect or subsequently entered into by and between the Corporation and the
Executive. Notwithstanding any of the foregoing, this Agreement supersedes and
replaces and by its own force terminates any prior termination compensation
agreement between the parties.
9. GOVERNING LAW. The validity, interpretation, construction,
and performance of this Agreement shall be governed by the laws of the State of
Delaware.
10. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
11. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
12. ARBITRATION. Any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration in
Chicago, Illinois in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction. All reasonable expenses of such arbitration,
including the fees and expenses of the counsel for the Executive, shall be borne
by the Corporation.
* * * * *
30
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
USG CORPORATION:
By:
------------------------------
Brian J. Cook
Vice President,
Human Resources
ATTEST:
- -----------------------------
Dean H. Goossen
Corporate Secretary
EXECUTIVE:
---------------------------------
Name:
WITNESS:
- -----------------------------
Name:
31
<PAGE> 1
EXHIBIT 10 (g)
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of the 1st day of January,
2000, by and between USG CORPORATION, a Delaware corporation (hereinafter,
together with its subsidiaries, collectively referred to as the "Corporation")
and _________________ (the "Executive");
W I T N E S S E T H:
WHEREAS, the Executive has had extensive experience in the business and
affairs of the Corporation and is a valuable member of management;
WHEREAS, the Corporation wishes to assure itself of the continued
availability of the Executive's services, and the Executive wishes to assure the
Executive's continued employment, all on and subject to the terms and conditions
hereinafter set forth; and
WHEREAS, the Executive, in the course of the Executive's employment
with the Corporation, has become and shall continue to become familiar with the
Corporation's near-permanent relationships with its customers, trade secrets and
other confidential information concerning the Corporation, including the
information referred to in Paragraph 7 hereof, and the Executive's services have
been and shall be of special, unique and extraordinary value to the Corporation.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereto agree as follows:
1. Employment and Term. The Corporation hereby employs the Executive,
and the Executive hereby accepts employment by the Corporation, for an initial
term extending through the close of business on December 31, 2000 (herein, as
the same may be extended as provided in the next sentence, referred to as the
"term of this Agreement"), with such title and in such capacity and in the
performance of such executive and managerial duties as may be determined or
assigned to the Executive from time to time by or under the authority of the
Board of Directors of the Corporation. The term of this Agreement shall be
automatically extended for successive two-year terms expiring at the
32
<PAGE> 2
close of business on the second December 31st following the commencement of each
such extended term unless the Corporation has notified the Executive of its
election not to extend the term of this Agreement not less than 120 days before
the expiration of the then current term, in which case this Agreement shall
terminate at the expiration of the then current term.
2. Performance. The Executive agrees to devote the Executive's full
attention and best efforts throughout the term of this Agreement to the
performance of the duties assigned to the Executive by or under the authority of
the Board of Directors of the Corporation, all in the interest of the
Corporation and the successful operation of its business. The Executive shall
not directly or indirectly engage in any other business or commercial activity
during the Executive's employment hereunder without the prior consent of the
Board of Directors or Chief Executive Officer of the Corporation or his
designee, as appropriate. It is understood, however, that the Executive may
serve from time to time as a director of other business corporations and as a
director, trustee, or in other responsible capacities with charitable and public
services organizations, provided only that, absent approval of the Board of
Directors or Chief Executive Officer of the Corporation or his designee, as
appropriate, the same does not materially conflict or interfere with the
performance of the Executive's duties hereunder.
3. Compensation. The Corporation shall pay to the Executive as
compensation for the Executive's services hereunder a salary at the rate of not
less than ___________ dollars and ________ cents ($ , . ) per annum in regular
pay installments at regular pay intervals. Such rate shall be increased to any
greater salary, if any, that shall have been fixed for the Executive by the
Board of Directors or Chief Executive Officer of the Corporation or his
designee, as appropriate. During such time, if any, as the Executive is deemed a
"continuing employee" under Paragraph 5 below, such salary shall also include
annual incentive awards, computed based solely on the par award opportunity
under the applicable Annual Management Incentive Programs (which shall be based
upon the opportunity applicable in the year of termination), prorated for
partial years. Additionally, the Executive, during the Executive's employment
hereunder, shall be entitled to participate in all benefits in which he normally
would be entitled to participate as an employee and key executive of the
Corporation, including, but not limited to, all retirement, investment, stock
ownership, stock option and other equity incentive plans, all life, health and
disability insurance, and all salary continuation plans,
33
<PAGE> 3
together with bonuses and such other grants of additional compensation or
supplemental benefits as may be granted from time to time by the Board of
Directors or Chief Executive Officer of the Corporation, as appropriate.
4. Vacations; Business Expenses. The Executive shall be entitled to
normal vacations consistent with the present practices of the Corporation, as
the same may be altered from time to time. The Corporation shall pay or
reimburse all of the reasonable expenses incurred by the Executive in
furtherance of or in connection with the business of the Corporation, including,
but not limited to, all such travel and entertainment expenses. If any such
expenses are paid in the first instance by the Executive, the Corporation will
make reimbursement therefor upon submission of vouchers or other documents
supporting such expenses and their relationship to the business of the
Corporation.
5. Termination. In the event the Executive during the term of this
Agreement is discharged from employment by the Corporation without cause and is
not promptly appointed or elected by the Corporation or any related or
affiliated company to a position which carries with it salary and benefits at
least equal to those contemplated by this Agreement, or is constructively
discharged by the Corporation, the Executive may at the Executive's option treat
such action as a material breach and violation of the provisions of this
Agreement. For purposes of this Agreement, "constructive discharge" means any
circumstance in which the Executive elects to terminate the Executive's
employment with the Corporation because (i) the Corporation has committed a
material breach of this Agreement, (ii) the Executive has given the Corporation
written notice of such material breach, (iii) the Corporation has failed to
fully remedy such material breach within thirty (30) days of delivery of the
Executive's written notice, and (iv) the Executive by written notice to the
Corporation within ninety (90) days of the expiration of such thirty (30) days
period terminates the Executive's employment. In any such case, the Executive
shall be deemed a "continuing employee" of the Corporation, whether or not the
Executive is permitted by the Corporation to render services under this
Agreement, and the Executive then shall be entitled to continuation of salary
payable in the manner specified in Paragraph 3 above and at the then existing
rate (but in no event less than the rate specified in said Paragraph 3), such
continuation to be for the balance of the then current term of this Agreement or
a period of two (2) years, whichever is greater. If deemed a "continuing
employee" under the immediately preceding sentence, the Executive additionally
shall be entitled to continuation of all
34
<PAGE> 4
other benefits specified in Paragraph 3 above (subject to periodic changes in
such benefits as are applicable generally to all participants in the plans) for
the balance of the then current term of this Agreement or a period of two (2)
years, whichever is greater (and, in the event that, with respect to any of such
benefits, the Corporation is unable to provide the continuation of one or more
of such benefits described above, the Corporation shall provide benefits
comparable to those which the Executive would otherwise be entitled to receive
under such plans and programs to the Executive at the Corporation's expense).
For purposes of the foregoing, (a) any stock option granted to the Executive
under any long-term equity plan of the Corporation ("Equity Plan") but not yet
exercisable, (b) any restricted stock granted to the Executive under any Equity
Plan and not yet freed of restrictions, and (c) any other equity awards or
incentives shall be dealt with, for time and performance vesting and all other
purposes, on the assumption that the Executive has continued as an employee of
the Corporation during the period in which the Executive is a continuing
employee under this Agreement. The Corporation shall also reimburse the
Executive for all reasonable legal fees and expenses incurred by the Executive
in order to enforce this Agreement for a right or benefit wrongfully denied by
the Corporation, provided, however, that legal fees incurred by the Executive
for general advice of counsel in the absence of such wrongful denial are not
reimbursable by the Corporation. The provisions of the four immediately
preceding sentences shall constitute the Executive's sole remedy in the event of
discharge without cause (or constructive termination). In the event discharge is
for cause, none of such provisions shall apply. For purposes of this Paragraph
5, "cause" shall mean (a) willful and continued failure by the Executive to
substantially perform the Executive's duties after a demand for substantial
performance has been delivered by the Chief Executive Officer of the Corporation
specifically identifying the manner in which it is believed the Executive has
not substantially performed the Executive's duties, or (b) willful misconduct by
the Executive which is materially injurious to the Corporation or any related or
affiliated company. The right of the Executive to receive all continued benefits
to which the Executive may be entitled under this Paragraph 5 is further
contingent upon the Executive's compliance with the terms of this Agreement,
including Paragraphs 7, 8, 9 and 10.
6. Disability or Death. If during the term of this Agreement the
Executive shall become unable to perform the Executive's duties hereunder by
reason of disability resulting from illness or other incapacity and such
disability shall continue for six (6) consecutive months, then compensation
payable under Paragraph 3 above shall be continued at the rate in effect
immediately prior to such disability and for the remainder of the period of
disability (but
35
<PAGE> 5
not beyond the end of the unexpired current term of this Agreement); provided,
however, that any disability payments otherwise payable pursuant to this
Paragraph 6 shall be reduced by the amount of any other payments received under
any retirement plan or other disability or income plan or policy maintained in
force and effect by the Corporation during such period. In the event of the
Executive's death during the term of this Agreement, salary payments specified
under Paragraph 3 above shall cease as of the end of the month in which death
has occurred, and, in addition to any other payments made under any group life
or other plan, the Corporation thereafter shall make payments to the beneficiary
or beneficiaries designated in writing by the Executive (or if there be none, to
the Executive's estate) at a rate equal to fifty percent (50%) of the full rate
of salary in effect at the time of such death (without regard to any prior
reduction in rate under the disability provisions of this Paragraph 6), such
payments to be made at regular pay intervals and to be continued through the
remainder of the then current term of this Agreement.
7. Covenant Not to Compete. The Executive acknowledges that in the
course of the Executive's employment with the Corporation, the Executive has
become and shall continue to become familiar with the Corporation's
near-permanent relationships with its customers, trade secrets and other
confidential information concerning the Corporation, including, but not limited
to, information, data, and plans, both technical and business in nature, such as
customer lists and records, sales records and marketing plans, research and
technical reports and records, formulas, processes, inventions, patent
applications, designs and drawings, instructions and training manuals, business
and financial information, salary information, contracts and other legal
documents, and correspondence to which the Corporation has been a party, and
that the Executive's services have been and shall be of special, unique and
extraordinary value to the Corporation. Therefore, while employment continues
under this Agreement (including any period in which the Executive is deemed a
"continuing employee" pursuant to Paragraph 5 above) and for a period of
eighteen (18) months thereafter (the "Non-Compete Period"), the Executive shall
not engage or participate, directly or indirectly, as a partner, officer,
director, employee, advisor, or otherwise, in any corporation, business, or
activity which competes or is then competitive with the Corporation or any of
its affiliated companies in the manufacture or sale of any line of products in
any state of the United States, any province of Canada and any state of Mexico
where the Corporation then does business, provided, however, that the foregoing
restriction shall not be construed to prevent the Executive from owning or
acquiring less than five percent (5%) of the publicly traded voting stock of a
competing corporation; and
36
<PAGE> 6
provided, further, that if any court of competent jurisdiction should hereafter
determine in the course of litigation that the provisions of this Paragraph 7
are unreasonable with respect to length of time, geographic areas or activities
restrained, then this Paragraph 7 shall be construed to operate only for such
period of time, in such geographic areas, and in respect of such activities as
said court shall determine to be the maximum reasonable restraint in the
circumstances.
8. Confidential Information. The Executive shall not during the term
of this Agreement or at any time thereafter use for the Executive's benefit or
the benefit of others or disclose to others any information, data, or plans,
whether technical or business in nature, which are treated as confidential by
the Corporation, except to the extent such use or disclosure is required by or
necessarily incident to performance of duties by the Executive under this
Agreement and except to the extent such information, data, or plans have become
a matter of public knowledge other than as a result of the Executive's breach of
this Agreement. For purposes of this Paragraph 8, such information, data, or
plans shall include, but not be limited to, research and technical reports and
records, formulas, processes, inventions, patent applications, designs and
drawings, instructions and training manuals, business and financial information,
customer lists and records, sales records and marketing plans, salary
information, contracts and other legal documents, and correspondence to which
the Corporation has been a party. The Executive shall deliver to the Corporation
at the termination of the Executive's employment period or at any other time the
Corporation may request, all memoranda, notes, plans, records, reports, computer
tapes, printouts and software and other documents and data (and copies thereof)
relating to the confidential information, Work Product (as defined below) or the
business of the Corporation which the Executive may then possess or have under
the Executive's control.
9. Inventions and Patents. The Executive hereby assigns to the
Corporation all right, title, and interest to all patents and patent
applications, all inventions, innovations, improvements, developments, methods,
designs, analyses, drawings, reports and all similar or related information (in
each case whether or not patentable), all copyrights and copyrightable works,
all trade secrets, confidential information and know-how, and all other
intellectual property rights that are conceived, reduced to practice, developed
or made by the Executive while employed by the Corporation and that (i) relate
to the Corporation's actual or anticipated business, research and development or
existing or future products or services; or (ii) are conceived, reduced to
practice, developed or made using any of the equipment, supplies,
37
<PAGE> 7
facilities, assets or resources of the Corporation (including, but not limited
to, intellectual property rights) ("Work Product"). The Executive shall promptly
disclose such Work Product to the Corporation and perform all actions reasonably
requested by the Corporation (whether during or after the Executive's period of
employment with the Corporation) to establish and confirm the Corporation's
ownership (including, without limitation, assignments, consents, powers of
attorney, applications and other instruments).
10. Non-Solicitation. The Executive acknowledges that in the course of
the Executive's employment with the Corporation, the Executive has become and
shall become familiar with the Corporation's near-permanent relationships with
its customers, trade secrets and other confidential information concerning the
Corporation, including, but not limited to information, data, and plans, both
technical and business in nature, such as customer lists and records, sales
records and marketing plans, research and technical reports and records,
formulas, processes, inventions, patent applications, designs and drawings,
instructions and training manuals, business and financial information, salary
information, contracts and other legal documents, and correspondence to which
the Corporation has been a party, and that the Executive's services have been
and shall be of special, unique and extraordinary value to the Corporation.
Therefore, while employment continues under this Agreement (including any period
in which the Executive is deemed a "continuing employee" pursuant to Paragraph 5
above) and for eighteen (18) months thereafter, the Executive shall not directly
or indirectly through another entity (other than in connection with the
performance of the Executive's duties for the Corporation) (i) induce or attempt
to induce any employee of the Corporation to leave the employ of the
Corporation, or in any way interfere with the relationship between the
Corporation and any employee thereof, (ii) hire any person who was an employee
of the Corporation at any time during the Executive's period of employment with
the Corporation or (iii) induce or attempt to induce any customer, supplier,
licensee, licensor, franchisee or other business relation of the Corporation to
cease doing business with the Corporation or in any way interfere with the
relationship between any such customer, supplier, licensee, licensor, franchisee
or business relation and the Corporation, including, without limitation, by
making any negative statements or communications about the Corporation.
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<PAGE> 8
11. Acknowledgments by Executive. Executive hereby agrees and
acknowledges (i) that the Corporation has a protectable interest in the
information, data, and plans, both technical and business in nature, which are
treated as confidential by the Corporation, as well as the goodwill and
specialized knowledge acquired by the Executive during the course of the
Executive's employment with the Corporation; (ii) that the provisions of
Paragraphs 7, 8, 9 and 10 of this Agreement are in consideration of (a)
employment with the Corporation, (b) employment for a fixed period of time, (c)
eligibility to participate in the Corporation's benefit plans and enter into
this extended Employment Agreement and any extended termination compensation
agreement with the Corporation, (d) access to and use of confidential
information, including but not limited to information, data, and plans, both
technical and business in nature, such as customer lists and records, sales
records and marketing plans, research and technical reports and records,
formulas, processes, inventions, patent applications, designs and drawings,
instructions and training manuals, business and financial information, salary
information, contracts and other legal documents, and correspondence to which
the Corporation has been a party, (e) access to and the Executive's development
on behalf of the Corporation of near-permanent relationships with the
Corporation's customers, and (f) additional good and valuable consideration as
set forth in this Agreement; (iii) that the restrictions contained in Paragraphs
7, 8, 9 and 10 do not preclude the Executive from earning a livelihood, nor do
they unreasonably impose limitations on the Executive's ability to earn a
living, and that the potential harm to the Corporation of the non-enforcement of
Paragraphs 7, 8, 9 and 10 outweighs any harm to the Executive of their
enforcement by injunction or otherwise; and (iv) that the Executive has
carefully read this Agreement, has given careful consideration to the restraints
imposed upon the Executive by this Agreement and is in full accord as to their
necessity for the reasonable and proper protection of the Corporation's near
permanent customer relationships and confidential information, data and plans,
and that each and every restraint imposed by this Agreement is reasonable with
respect to subject matter, time period and geographical area.
12. Specific Performance. In the event of the Executive's breach or
threatened breach of Paragraph 7, 8, 9 or 10 of this Agreement, the Executive
acknowledges that such breach would give rise to irreparable harm to the
Corporation incapable of compensation by money damages, and therefore agrees
that the Corporation shall be entitled to a temporary restraining order and an
injunction and may pursue all other available remedies for such breach or
threatened breach. The Executive further acknowledges that, if the Corporation
shall prevail in demonstrating any
39
<PAGE> 9
such breach or threatened breach or obtaining any such remedy, the Corporation
shall be entitled to recover from the Executive all reasonable legal fees and
expenses incurred by the Corporation in enforcing its rights under this
Agreement.
13. Assignment and Delegation. The Corporation may assign all rights
and delegate all duties under this Agreement to a parent corporation,
subsidiary, affiliated company or successor to all or a portion of its business
which assumes in writing all obligations imposed by this Agreement. Apart from
the foregoing, this Agreement is personal between the parties, and neither party
shall assign rights or attempt to delegate duties hereunder without the prior
written consent of the other.
14. Modifications and Waivers; Entire Agreement. No provisions of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in a writing signed by the Executive and the Chief
Executive Officer of the Corporation. No waiver by either party hereto at any
time of any breach by the other party hereto of any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
the same or similar provisions or conditions at the same or any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. This Agreement
supersedes and replaces and by its own force terminates any prior Employment
Agreement between the Executive and the Corporation or a subsidiary or affiliate
thereof. It is understood and agreed, however, that all rights of the Executive
under any termination compensation agreement or severance plan or agreement to
which the Corporation and the Executive are parties shall endure. It is further
understood and agreed that any rights of the Executive under this Agreement
shall be assertable or operative in the alternative and not in addition to any
rights of the Executive under any such termination compensation agreement or
severance plan or agreement.
15. Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
40
<PAGE> 10
16. Governing Law. The validity, interpretation, construction, and
performance of this Agreement shall be governed by the laws of the State of
Illinois.
17. Notices. Any and all notices which may be given hereunder by
either party to the other shall be sufficient if in writing and sent by
registered mail to such other party at their last known address.
* * * * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above stated.
USG CORPORATION:
By:
----------------------------
Brian J. Cook
Vice President,
Human Resources
ATTEST:
- -----------------------------
Dean H. Goossen
Corporate Secretary
EXECUTIVE:
---------------------------------
Name:
WITNESS:
- -----------------------------
Name:
41
<PAGE> 1
EXHIBIT 10 (l)
1999
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, 1999
through December 31, 1999.
ELIGIBILITY
Individuals eligible for participation in this Program are those officers and
other key employees occupying management positions in Broadband 13 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 1999 Annual Management Incentive Program, 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.
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<PAGE> 2
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. Resulting award opportunities represent a fully competitive
incentive opportunity for 100% (target) achievement of Corporate, Operating
Subsidiary and/or Profit Center goals:
- -------------------------------------------------------------------------------
POSITION TARGET INCENTIVE
Chairman & CEO - USG Corporation 70%
- -------------------------------------------------------------------------------
President & COO, USG Corporation; 60%
President & CEO, L&W Supply Corporation
- -------------------------------------------------------------------------------
Executive Vice President & Chief Financial Officer 50%
Senior Vice President & General Counsel
Senior Vice President & Chief Administrative Officer
Vice President, USG Corporation;
President & CEO, U.S. Gypsum Company
Vice President, USG Corporation;
President & CEO, USG Interiors, Inc
- -------------------------------------------------------------------------------
USG CORPORATION & OPERATING SUBSIDIARIES
OFFICERS AND MANAGERS
Vice President, USG Corporation; 45%
Executive Vice President Strategic Mfg & Capital Investments,
North American Gypsum and Worldwide Ceilings
Executive Vice President - Operations, North American Gypsum
Senior Vice President & Controller, USG Corporation;
Executive Vice President Financial Operations
North American Gypsum and Worldwide Ceilings
- -------------------------------------------------------------------------------
Vice President Research & Technology, USG Corporation 40%
Executive Vice President & COO, L&W Supply Corporation
Sr Vice President International, USG Interiors, Inc.
Vice President, Human Resources, USG Corporation
President & CEO, CGC, Inc.
Vice President & Chief Information Officer, USG Corporation
Vice President Communications, USG Corporation
- -------------------------------------------------------------------------------
USG CORPORATION, OPERATING SUBSIDIARIES & PROFIT CENTERS
OFFICERS AND MANAGERS
Position Reference Point: $148,980 and over 35%
Position Reference Point: $132,720 - $148,979 25%
Position Reference Point: $118,380 - $132,719 20%
Position Reference Point: $94,860 - $118,379 15%
Position Reference Point: $91,320 - $94,859 10%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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<PAGE> 3
AWARDS
Incentive awards for all participants in the 1999 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 1999 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-two most senior executives) multiplied by the applicable
position target incentive value percent.
Incentive awards for 1999 will be based on:
NET EARNINGS: 20% - 60% OF INCENTIVE
based on the Corporation's year-end financial statements.
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.
STRATEGIC FOCUS TARGET: 20% OF INCENTIVE
PERSONAL PERFORMANCE: 20% OF INCENTIVE
[except in the case of the twenty-two (22) most senior executives whose
awards are based solely on degree of achievement of Net Earnings and/or
Goal Income (60%) and Strategic Focus Target (40%) results].
Except in the case of a Named Executive Officer, other appropriate performance
measures as approved by the Subcommittee.
1. For participants to qualify for the 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 net earnings or goal income target.
2. NET EARNINGS and GOAL INCOME segment award amounts will be determined
according to the following schedule:
Net Earnings/ Adjustment Factor for Corporate, Group,
Goal Income Achievement Subsidiary or Profit Center Performance
- ---------------------------------------------------------------------------
Below 75% 0%
75% 50%
80% 60%
90% 80%
100% 100%
110% 120%
120% 140%
140% 180%
150% 200%
44
<PAGE> 4
3. For participants to qualify for the STRATEGIC FOCUS TARGET segment
comprising 20% (40% for the twenty-two 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-two (22) most senior executives
(including the Named Executive Officers) whose awards are based solely on
achievement of 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:
Personal Personal Performance
Performance Rating Adjustment Range
-------------------------------------------------------------------
Far Exceeded Expectations 1.70 - 2.00
-------------------------------------------------------------------
Exceeded Expectations 1.20 - 1.50
-------------------------------------------------------------------
Achieved Expectations 1.00 - 1.10
-------------------------------------------------------------------
Partially Achieved Expectations 0.80 - 0.90
-------------------------------------------------------------------
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 "Partially 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 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:
45
<PAGE> 5
<TABLE>
<CAPTION>
BASIS FOR
FINANCIAL MEASURES BASIS FOR
INCENTIVE AWARD STRATEGIC FOCUS
PARTICIPANTS (60% OF TARGET INCENTIVE) INCENTIVE AWARD
<S> <C> <C>
USG CORPORATION
Senior Executive Management 60% Net Earnings, USG Corporation 40%
USG Corporation Staff 60% Net Earnings, USG Corporation 20%
NORTH AMERICAN GYPSUM
- VP, USG Corporation 20% Net Earnings, USG Corporation
President & CEO, U.S. Gypsum Co. 40% Goal Income, U.S. Gypsum Co.
- Exec. VP - Operations, NAG 40%
- General Mgr - IGD 10% Goal Income, North American Gypsum 20%
- General Mgr - Materials Division 20% Goal Income, U.S. Gypsum Company
- Profit Center Staff 30% Goal Income, Profit Center/Division
- President & CEO, CGC, Inc 20% Net Earnings, USG Corporation 40%
20% Goal Income, North American Gypsum
20% Goal Income, CGC, Inc
- President & General Mgr, YPSA 25% Goal Income, North American Gypsum 20%
35% Goal Income, YPSA
- Customer Service Staff 20% Net Earnings, USG Corporation 20%
20% Goal Income, U.S. Gypsum Company
20% Goal Income, USG Interiors, Inc.
- U.S. Gypsum Staff 25% Goal Income, North American Gypsum 20%
35% Goal Income, U.S. Gypsum Company
- CGC, Inc Staff 20% Goal Income, North American Gypsum 20%
40% Goal Income, CGC, Inc
WORLDWIDE CEILINGS
- VP USG Corporation 20% Net Earnings, USG Corporation 40%
President & CEO, USG Interiors 40% Goal Income, Worldwide Ceilings
- Sr VP International, USG Interiors
USG Interiors, Inc Staff 25% Goal Income, Worldwide Ceilings 20%
35% Goal Income, USG Interiors, Inc
L&W SUPPLY CORPORATION
Exec VP & COO, L&W Supply 20% Net Earnings, USG Corporation 40%
20% Goal Income, North American Gypsum
20% Goal Income, L&W Supply
L&W Supply Corporation Staff 20% Goal Income, North American Gypsum 20%
40% Goal Income, L&W Supply
10% Goal Income, North American Gypsum 20%
20% Goal Income, L&W Supply Corporation
30% Goal Income, Profit Center (Business Unit)
</TABLE>
46
<PAGE> 6
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 1999
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 31,1999 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-two 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
47
<PAGE> 7
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 1999 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 1999 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.
48
<PAGE> 1
EXHIBIT 13
USG CORPORATION
FINANCIAL REVIEW
Page
MANAGEMENT'S DISCUSSION AND ANALYSIS 50
CONSOLIDATED FINANCIAL STATEMENTS
Statement of Earnings 60
Balance Sheet 61
Statement of Cash Flows 62
Statement of Stockholders' Equity 63
Statement of Comprehensive Income 63
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies 64
2. Acquisition of Sybex, Inc. 66
3. Shutdown of Plasterco 66
4. Earnings Per Share 66
5. Common Stock 66
6. Inventories 67
7. Property, Plant and Equipment 67
8. Leases 67
9. Debt 68
10. Financing Arrangements 68
11. Financial Instruments and Risk Management 69
12. Employee Retirement Plans 70
13. Stock-Based Compensation 71
14. Income Taxes 72
15. Segments 73
16. Litigation 74
REPORT OF MANAGEMENT 78
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 78
SELECTED QUARTERLY FINANCIAL DATA 79
FIVE-YEAR SUMMARY 80
49
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
CONSOLIDATED RESULTS
NET SALES
1999 was another record-setting year for USG due to continued strong demand from
all sectors of the construction industry in North America. Net sales of $3.60
billion represented a new record level, the eighth consecutive year of higher
sales and a 15% increase from the previous record of $3.13 billion in 1998.
Growth in repair and remodeling and new residential construction resulted in
record shipments and selling prices for USG's SHEETROCK brand gypsum wallboard.
Increased opportunity from nonresidential construction led to record shipments
of DONN brand suspension grid and solid demand for USG's ceiling tile products.
Similar market trends resulted in a 9% increase in 1998 net sales as compared
with 1997.
GROSS PROFIT
Gross profit as a percentage of net sales increased to 29.7% in 1999, compared
with 28.2% in 1998 and 27.4% in 1997. The improved margin in 1999 reflects
higher selling prices for SHEETROCK brand gypsum wallboard, which more than
offset increased asbestos-related costs and a $22 million charge related to a
plant closing.
Asbestos charges in 1999 totaled $80.5 million compared with $26 million in
1998. See "Legal Contingencies" below and "Note 16. Litigation" for additional
information on asbestos-related costs.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses increased to $338 million in 1999, from $299
million in 1998 and $281 million in 1997. However, these expenses as a
percentage of net sales improved to 9.4% in 1999, from 9.6% in 1998 and 9.8% in
1997. The increase in expense dollars in 1999 primarily related to incentive
compensation and information technology initiatives. The increase in 1998 versus
1997 was primarily attributable to higher levels of expenses related to
marketing programs and information technology initiatives.
INTEREST EXPENSE
Interest expense amounted to $53 million in both 1999 and 1998 as the level of
total debt remained relatively constant over the two-year period. Interest
expense in 1998 was down 12% from $60 million in 1997 as a result of a lower
average level of debt in 1998.
INCOME TAXES
Income tax expense amounted to $263 million in 1999, compared with $202 million
in 1998 and $172 million in 1997. The Corporation's effective tax rates for
1999, 1998 and 1997 were 38.4%, 37.8% and 53.9%, respectively.
In 1997, the Corporation's income tax expense was computed based on pretax
earnings excluding the amortization of excess reorganization value, which was
not deductible for income tax purposes. Excess reorganization value was
established in 1993 in connection with a financial restructuring. Excluding the
amortization of excess reorganization value, the Corporation's 1997 effective
tax rate was 38.6%. See "Note 14. Income Taxes" for additional information.
NET EARNINGS
Net earnings in 1999 were a record $421 million, up 27% from $332 million in
1998. This increase marked the fifth consecutive year of improved earnings.
Diluted earnings per share were $8.39 in 1999 versus $6.61 in 1998.
In 1997, net earnings of $148 million, or $3.03 per diluted share, were net
of the amortization of excess reorganization value of $127 million, or $2.60 per
diluted share.
[Bar Graphs]
USG Corporation - Net Sales (millions of dollars) $2,874, $3,130 and $3,600 for
1997, 1998 and 1999, respectively.
USG Corporation - Net Earnings (millions of dollars) $275 (excludes
amortization of excess reorganization value of $127 million), $332 and $421 for
1997, 1998 and 1999, respectively.
50
<PAGE> 3
CORE BUSINESS RESULTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
(millions) Net Sales Operating Profit (Loss)
--------------------------------- ---------------------------------
1999 1998 1997 1999 1998 1997*
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NORTH AMERICAN GYPSUM:
U.S. Gypsum Company $ 2,034 $ 1,732 $ 1,565 $ 597 $ 494 $ 376
CGC Inc. (gypsum) 161 134 124 27 18 2
Other subsidiaries 108 95 95 27 22 24
Eliminations (122) (135) (116) - - -
------- ------- ------- ------- ------- -------
Total 2,181 1,826 1,668 651 534 402
------- ------- ------- ------- ------- -------
WORLDWIDE CEILINGS:
USG Interiors, Inc. 455 446 425 60 53 (1)
USG International 212 237 229 - 9 (3)
CGC Inc. (ceilings) 39 37 34 3 3 3
Eliminations (58) (63) (54) - - -
------- ------- ------- ------- ------- -------
Total 648 657 634 63 65 (1)
------- ------- ------- ------- ------- -------
BUILDING PRODUCTS DISTRIBUTION:
L&W Supply Corporation 1,345 1,103 981 87 40 29
------- ------- ------- ------- ------- -------
Corporate - - - (64) (54) (49)
Eliminations (574) (456) (409) (7) - (2)
------- ------- ------- ------- ------- -------
TOTAL USG CORPORATION 3,600 3,130 2,874 730 585 379
======= ======= ======= ======= ======= =======
</TABLE>
*Operating profit (loss) in 1997 includes the amortization of excess
reorganization value of $127 million ($60 million for North American Gypsum, $65
million for Worldwide Ceilings and $2 million for Building Products
Distribution).
Effective with this annual report, USG's operations are organized into three
operating segments - North American Gypsum, Worldwide Ceilings and Building
Products Distribution. Previously, L&W Supply Corporation was a component of
North American Gypsum. Because of the growth of L&W Supply, it is now presented
as a separate operating segment.
Following is a discussion of the results for each of USG's operating
segments beginning with North American Gypsum.
NORTH AMERICAN GYPSUM
Net sales in 1999 were $2.18 billion, up 19% from 1998. Operating profit in 1999
was $651 million, up 22% from 1998. Net sales in 1998 increased 9% versus 1997.
Operating profit in 1998 rose 33% due in part to the absence of amortization of
excess reorganization value of $60 million recorded in 1997.
United States Gypsum Company: With its plants running at full capacity,
shipments of SHEETROCK brand gypsum wallboard totaled a record 9.2 billion
square feet in 1999, up 5% from 8.8 billion square feet in 1998. Shipments in
1997 totaled 8.4 billion square feet. The average selling price of SHEETROCK
brand gypsum wallboard in 1999 was a record $153.40 per thousand square feet, up
18% compared with the 1998 average price of $129.50. The average price in 1997
was $122.65. These improved results for wallboard were complemented by record
shipments of SHEETROCK brand joint compound and DUROCK brand cement board in
1999. U.S. Gypsum's manufacturing costs for SHEETROCK brand gypsum wallboard
were higher in 1999 largely due to higher prices for wastepaper, the primary raw
material of wallboard paper. Lower unit costs in 1998 versus 1997 were largely
due to lower prices for wastepaper. U.S. Gypsum's plants operated at 100% of
capacity in 1999, compared with the estimated average rate of 98% for the U.S.
wallboard industry.
CGC Inc.: The gypsum business of Canada-based CGC
51
<PAGE> 4
experienced improved net sales and operating profit in both 1999 and 1998.
Increased levels of housing starts in eastern Canada resulted in greater demand
and higher selling prices for CGC's SHEETROCK brand gypsum wallboard in each
year. Improved results in 1998 versus 1997 also reflected a higher level of
exports to the United States.
[Bar Graphs]
NorthAmerican Gypsum - Net Sales (millions of dollars) $1,668, $1,826 and $2,181
for 1997, 1998 and 1999, respectively.
North American Gypsum - Operating Profit (millions of dollars) $462
(excludes amortization of excess reorganization value of $60 million), $534 and
$651 for 1997, 1998 and 1999, respectively.
WORLDWIDE CEILINGS
Net sales in 1999 were $648 million, down slightly from 1998. Operating profit
in 1999 was $63 million, compared with $65 million in 1998. Record sales and
operating profit for USG Interiors, Inc., record domestic shipments of DONN
brand suspension grid and solid demand for ceiling tile products were
attributable to increased opportunity from the U.S. nonresidential construction
market (both new construction and renovation). Operating profit in 1999 for USG
Interiors also benefited from reduced manufacturing costs. However, these
results were offset by weak economic conditions in Eastern Europe and in the
Asia Pacific region.
Comparing 1998 with 1997, net sales increased 4% to $657 million as sales
improved for ceiling tile and DONN brand suspension grid. Operating profit of
$65 million in 1998 was favorably affected by higher volume and selling prices,
reduced manufacturing costs and improved international operating efficiencies.
An operating loss of $1 million in 1997 reflected the amortization of excess
reorganization value of $65 million.
[Bar Graphs]
Worldwide Ceilings - Net Sales (millions of dollars) $634, $657 and $648 for
1997, 1998 and 1999, respectively.
Worldwide Ceilings - Operating Profit (millions of dollars) $64 (excludes
amortization of excess reorganization value of $65 million), $65 and $63 for
1997, 1998 and 1999, respectively.
BUILDING PRODUCTS DISTRIBUTION
Net sales and operating profit for L&W Supply, the leading specialty building
products distributor in the United States, reached record levels in 1999. Net
sales exceeded $1.3 billion, a 22% increase over 1998. Operating profit totaled
$87 million, more than double the 1998 level of $40 million. This performance
reflects record sales of gypsum wallboard and complementary building materials
such as drywall metal, ceiling products and joint compound. During 1999, L&W
Supply had a net increase of six locations, bringing the total to 193,
representing 37 states. Net sales and operating profit in 1998 increased 12% and
38%, respectively, versus 1997. Operating profit in 1997 for L&W Supply was
lowered by the amortization of excess reorganization value of $2 million.
[Bar Graphs]
Building Products Distribution - Net Sales (millions of dollars) $981, $1,103
and $1,345 for 1997, 1998 and 1999, respectively.
Building Products Distribution - Operating Profit (millions of dollars) $31
(excludes amortization of excess reorganization value of $2 million), $40 and
$87 for 1997, 1998 and 1999, respectively.
MARKET CONDITIONS AND OUTLOOK
Overall market conditions were robust in 1999, and management is optimistic
about key market fundamentals in 2000.
Industry shipments of wallboard in the United States grew in 1999 to an
estimated 31.0 billion square feet, a record level and a 10% rise from 1998.
This increase was supported by growth in new residential construction and repair
and remodel activity. Strong demand from nonresidential construction was also a
contributing factor.
Based on preliminary data issued by the U.S. Bureau of the Census, U.S.
housing starts in 1999 were an estimated 1.665 million units, up 3% over 1998.
Although management believes that new residential construction may not maintain
this high level in 2000, housing starts are expected to approximate the healthy
pace of the past several years. In addition, demand for larger homes with higher
ceilings and more amenities, and whose purchasers are less affected by interest
rate changes, remains strong. Housing starts totaled 1.617 million units in 1998
and 1.474 million units in 1997.
Repair and remodel is the fastest-growing market
52
<PAGE> 5
for USG and accounts for the second-largest portion of its sales. Opportunity
from repair and remodel activity continued to grow in 1999, increasing
approximately 10%. Sales of existing homes were a record 5.2 million units in
1999. Because many buyers remodel an existing home within two years of purchase,
the residential repair and remodel market should be healthy over the next
several years. Lease rates, government tax receipts and other factors should
support continued renovation of nonresidential space, such as offices and
schools. Repair and remodel activity of all types is expected to continue to
account for an increasing proportion of USG's sales.
Sales of USG products to the new nonresidential construction market
increased in 1999 and are expected to remain strong in 2000. Future demand for
USG products from new nonresidential construction is gauged by floor space for
which contracts are signed. Installation of gypsum and ceilings products follows
signing of the construction contract by about a year. Floor space for which
contracts were signed rose 13% in 1998 and increased another 3% in 1999.
While market conditions continue to be good in the United States and
Canada, certain international markets remain weak. Most of USG's sales outside
of North America come from Western Europe, Latin America and the Asia Pacific
region. USG's exposure to the economic problems of Asia and Eastern Europe is
small. Business conditions continue to be soft in Asia and parts of Europe, but
have remained solid in Latin America.
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL STRATEGY
USG is focused on building long-term stockholder value through dividends, share
repurchases and the five elements of its strategic growth plan.
Dividends: In 1999, USG paid cash dividends of $0.10 per share in the first,
second and third quarters. Because of record earnings in 1999 and the forecast
of a stronger performance in 2000, USG increased its quarterly dividend to $0.15
in the fourth quarter of 1999.
Share Repurchases: USG has purchased nearly 1.7 million shares since its
multiyear share-repurchase program began in the fourth quarter of 1998. Under
the program, USG may repurchase up to 5 million shares. Share repurchases are
being made in the open market or through privately negotiated transactions and
are being funded with available cash from operations.
Strategic Growth Plan: USG is investing in its businesses under five central
strategies - building for growth by adding capacity and lowering production
costs (see "Capital Expenditures" below), leading in product innovation,
expanding its building products distribution business, enhancing customer
service and promoting its brand names.
CAPITAL EXPENDITURES
Capital spending amounted to $426 million in 1999, compared with $309 million in
1998. As of December 31, 1999, capital expenditure commitments for the
replacement, modernization and expansion of operations amounted to $260 million,
compared with $481 million as of December 31, 1998. USG's capital expenditures
program includes the following projects:
Wallboard Capacity Modernization and Expansion: To meet growing demand, USG is
investing in state-of-the- art manufacturing facilities. New production capacity
will serve to meet the demands of USG's customers and improve profitability.
Upon completion of the five projects described below, USG will have added more
than 2 billion square feet of net new capacity with lower operating costs than
those of the old facilities it is replacing.
In the Southeast, construction of a new plant in Bridgeport, Ala., was
successfully completed. This facility, which has more than 700 million square
feet of SHEETROCK brand gypsum wallboard manufacturing capacity, began operation
in the second quarter of 1999.
In the Midwest, U.S. Gypsum completed construction of a new production line
for SHEETROCK brand gypsum wallboard at its East Chicago, Ind., plant. This new
line replaced an existing high-cost line and began operation in the fourth
quarter of 1999.
In the Northeast, U.S. Gypsum is building a new SHEETROCK brand gypsum
wallboard plant in Aliquippa, Pa. Construction of this facility is expected to
be completed in the second quarter of 2000.
In the Northwest, ground was broken during 1999 for a new SHEETROCK brand
gypsum wallboard plant in Rainier, Ore. A significant portion of the new
capacity provided by this plant will replace existing USG shipments into the
region from plants as far away as Iowa, Texas and Ontario, Canada. This facility
is expected to be fully operational in 2001.
53
<PAGE> 6
In the Southwest, construction began in 1999 on a new production line for
SHEETROCK brand gypsum wallboard at U.S. Gypsum's plant in Plaster City, Calif.,
which will replace a 41-year-old, high-cost production line. This facility also
is expected to be fully operational in 2001.
Gypsum Fiber Project: Construction was completed on a facility to manufacture
FIBEROCK brand gypsum fiber panels, USG's newest product platform. This
production line, which is located at the Gypsum, Ohio, wallboard plant, began
operation in late 1999.
ACQUISITION OF SYBEX, INC.
On November 30, 1999, USG acquired Sybex, Inc., the holding company of Beadex
Manufacturing Company, Inc. and The Synkoloid Company of Canada. Sybex operates
joint compound and paper-faced metal corner bead plants in the United States and
Canada. With annual sales of approximately $58 million, Sybex is the leader in
joint compound in the Pacific Northwest and western Canada and the leader in
paper-faced metal corner bead in North America.
USG continues to evaluate potential acquisitions of companies in the
building products industry, as well as divestitures and joint ventures, on an
ongoing basis. USG has external sources of capital available and adequate
financial resources and liquidity to fund future growth opportunities such as
new products, acquisitions and joint ventures.
SHUTDOWN OF PLASTERCO
In the third quarter of 1999, U.S. Gypsum announced the planned shutdown of 350
million square feet of high-cost manufacturing capacity at its 90-year-old
Plasterco, Va., plant. In conjunction with the announcement, U.S. Gypsum
recorded a $22 million pretax ($14 million after-tax; $0.27 per share) charge to
cost of products sold for expenses related to the closing of the plant and
adjacent gypsum mine. The Plasterco facility was closed on December 23, 1999,
following the start-up of U.S. Gypsum's new plant in Bridgeport, Ala., earlier
in the year.
WORKING CAPITAL
Working capital (current assets less current liabilities) as of December 31,
1999, amounted to $382 million, compared with $368 million as of December 31,
1998. The ratio of current assets to current liabilities was 1.78 to 1 as of
December 31, 1999, compared with 1.86 to 1 as of December 31, 1998.
Receivables increased to $361 million as of December 31, 1999, from $349
million as of December 31, 1998. Inventories increased to $256 million from $234
million, and accounts payable rose to $172 million from $157 million. These
variations reflect an increased level of business in 1999 as compared with 1998.
Cash and cash equivalents as of December 31, 1999, amounted to $197
million, up from $152 million as of December 31, 1998. During 1999, net cash
flows from operating activities totaled $631 million. Net cash flows to
investing activities of $498 million primarily reflect capital spending of $426
million and the acquisition of Sybex, Inc. Net cash flows to financing
activities of $88 million primarily reflect $72 million used for stock
repurchases and $22 million used for cash dividends, partially offset by $12
million received from the exercise of stock options.
DEBT
As of December 31, 1999, total debt amounted to $593 million, down slightly from
$596 million at December 31, 1998. During 1999, USG retired $25 million of 8.75%
debentures due 2017, $25 million of Canadian credit facility borrowings and $24
million of old higher-cost industrial revenue bonds ("IRBs"). These retirements
were offset by a $64 million increase in IRBs associated with the Gypsum, Ohio,
and East Chicago, Ind., capital projects and a $7 million increase in short-term
and long-term notes payable.
Available Liquidity
USG 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 $602 million (including a $125
million letter of credit subfacility in the United States), under which, as of
December 31, 1999, outstanding revolving loans totaled $85 million and letters
of credit issued and outstanding amounted to $15 million, leaving the
Corporation with $502 million of unused and available credit.
USG had additional borrowing capacity of $50 million as of December 31,
1999, under a revolving accounts receivable facility. See "Note 10. 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
54
<PAGE> 7
million. As of the filing date of USG's 1999 Annual Report on Form 10-K, no
securities had been issued pursuant to this registration.
[Bar Graphs]
USG Corporation - Capital Spending (millions of dollars) $172, $309 and $426 for
1997, 1998 and 1999, respectively.
USG Corporation - Debt (as of December 31, millions of dollars) $620, $596 and
$593 for 1997, 1998 and 1999, respectively.
OTHER MATTERS
MARKET RISK
In the normal course of business, USG uses financial instruments, including
fixed and variable rate debt, to finance its operations. In addition, USG uses
derivative instruments to manage well-defined interest rate, energy cost and
foreign currency exposures. USG does not use derivative instruments for trading
purposes.
Interest Rate Risk: The table below provides information about USG's financial
instruments that are sensitive to changes in interest rates, specifically debt
obligations and interest rate swaps. For debt obligations, the table presents
principal cash flows and related weighted average interest rates by expected
maturity dates. For interest rate swaps, the table presents notional amounts and
weighted average interest rates by expected (contractual) maturity dates.
Notional amounts are used to calculate the contractual payments to be exchanged
under the contract. Weighted average variable rates are based on implied forward
rates at the reporting date. The information is presented in U.S. dollar
equivalents, which is USG's reporting currency.
55
<PAGE> 8
<TABLE>
<CAPTION>
(dollars in millions) Maturity Date
-----------------------------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total Fair Value
--------- --------- --------- --------- --------- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DEBT
U.S. Dollar:
Fixed rate - $ 150 - - - $ 278 $ 428 $ 417
Average interest rate - 9.3% - - - 5.8% 6.4%
Variable rate $ 2 - $ 25 $ 40 $ 40 - $ 107 $ 107
Average interest rate 8.5% - 7.4% 7.3% 7.4% - 7.4%
Canadian Dollar:
Variable rate - - $ 44 - - - $ 44 $ 44
Average interest rate - - 6.9% - - - 6.9%
European Multicurrency Line:
Variable rate $ 14 - - - - - $ 14 $ 14
Average interest rate 4.7% - - - - - 4.7%
INTEREST RATE SWAPS
U.S. Dollar:
Notional amount $ 25 - - - - - $ 25 -
Average pay rate 7.2% - - - - - 7.2%
Average receive rate 6.2% - - - - - 6.2%
Canadian Dollar:
Notional amount - $ 28 - - - - $ 28 -
Average pay rate - 5.5% - - - - 5.5%
Average receive rate - 6.3% - - - - 6.3%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Foreign Currency Exchange Risk: The table below summarizes USG's foreign
currency hedge contracts as of December 31, 1999. The table presents the
notional amounts (in millions of U.S. dollar equivalents) and weighted average
contract rates. Virtually all outstanding foreign currency hedge contracts
mature within 12 months.
- ----------------------------------------------------------------
Currency Currency Notional Contract
Sold Purchased Value Rate
- ----------------------------------------------------------------
Forward Contracts:
U.S. Dollars Canadian Dollars $24 $ 1.48
British Pounds Euros 7 0.68
U.S. Dollars Euros 3 1.05
Australian Dollars New Zealand Dollars 2 1.24
Australian Dollars U.S. Dollars 2 0.65
Singapore Dollars U.S. Dollars 2 1.65
Option Contracts:
Australian Dollars U.S. Dollars 1 0.63
- ----------------------------------------------------------------
Commodity Price Risk: USG uses natural gas swap contracts to manage price
exposure on anticipated natural gas purchases. A sensitivity analysis has been
prepared to estimate the potential loss in fair value of such instruments
assuming a hypothetical 10% increase in market prices. The sensitivity analysis
includes the underlying exposures that are being hedged. Based on the results of
the sensitivity analysis, which may differ from actual results, USG's potential
loss in fair value is $17 million.
See "Note 1. Significant Accounting Policies" and "Note 11. Financial
Instruments and Risk Management" for additional information on USG's financial
exposures.
YEAR 2000 COMPLIANCE
In 1996, USG began an evaluation of its computer-based systems to determine the
extent of the modifications required to make those systems year 2000 compliant
and to devise a plan to complete such modifications prior to January 1, 2000.
The plan was divided into five phases: identification (a basic inventory of all
systems), assessment, remediation, testing and completion. The plan encompassed
all of USG's computer systems including mainframe,
56
<PAGE> 9
midrange, client server and desktop systems as well as all specialized control
systems for plant operations or other facilities including those that are
considered embedded systems. USG's mainframe systems are responsible for most of
the information processing done by the Corporation and have received a majority
of the efforts dedicated to this project as well as a majority of the budget
allocated to it. All plan phases have been completed.
Current Status: USG's computer-based systems did not experience any disruptions
on the critical date of January 1, 2000. The USG plan contemplates that the
Corporation will continue to monitor its internal operating systems and continue
the ongoing contacts regarding year 2000 matters with its critical suppliers at
least through early 2000. Furthermore, there may be potential computer problems
related to year 2000 that may not surface until after January 2000 (e.g.,
software applications affected by the leap day, software applications that are
run only on a quarterly or annual basis, or automatic shutdown of embedded
systems and any related processes based on failure to perform timely
maintenance.)
Suppliers and Customers: USG's year 2000 compliance plan also included an
analysis and survey of critical third-party suppliers of material and services
to determine their year 2000 compliance status. As of the filing date of USG's
Annual Report on Form 10-K, no disruption to USG's business has occurred as a
result of performance issues affecting suppliers. However, there continues to be
a small degree of uncertainty as to whether there will be, or the extent of, any
significant disruption due to third- party supplier failures. USG also has been
in contact with most of its major customers on the status of each party's year
2000 compliance plans and expects to continue such information exchanges beyond
January 1, 2000, in order to maintain those business relationships and to obtain
updated information for its own ongoing planning. Based on the survey responses
received to date, these ongoing contacts, internal review of its collection
history from major customers, the steps taken to prepare for the critical period
and USG's experience since January 1, 2000, USG does not expect to experience
any lack of liquidity which would affect its ability to continue business
operations in whatever circumstances should come about.
Costs: The cost of carrying out USG's compliance plan is currently estimated at
$11 million, a reduction of $1 million from the previous estimate. As of
December 31, 1999, about 82% of this amount has been incurred. Much of the
balance may be expended in early 2000.
Contingency Plans: While USG has not to date experienced any significant systems
or other year 2000 problems, it is still possible that USG might later
experience significant disruptions due to year 2000 problems that affect the
operating environment in which it conducts business. The inability of USG or its
critical suppliers and customers to effectuate solutions to their respective
year 2000 issues on a timely and cost-effective basis could still have a
material adverse effect on USG.
In view of the continuing uncertainty, albeit much reduced, that USG faces
with respect to year 2000 issues, it maintains its ability to implement its
contingency plan to provide for continuation of its operations in the event of
possible year 2000 disruptions. The plan will be continually evaluated and
modified as required by developments and circumstances that may emerge through
the course of 2000.
USG's contingency plan provides for the continuation of its business and
operations in the period following January 1, 2000. The planning process
involved detailed reviews by operating personnel of all of the information that
has been gathered concerning critical suppliers, customers and internal systems
to determine all foreseeable risks to the continuation of business operations.
Based on that review process, USG prepared a set of operating procedures for
dealing with the identified risks. These procedures provide for flexible
responses to conditions, as they may be expected to develop after the critical
date of January 1, 2000.
Worst-Case Scenario: In the view of USG's year 2000 contingency planning team,
the most reasonably likely worst-case scenario is that there might be a local or
regional disruption to its plant production due to disruptions in the supply
chain. However, as of the filing date of its Annual Report on Form 10-K, USG has
not experienced any local or regional disruption to its plant production due to
disruptions in the supply chain.
Conclusion: While USG will continue to maintain its contingency plan even beyond
January 1, 2000,
57
<PAGE> 10
management believes that, in terms of the Corporation's internal operating
systems, it has been and will be able to continue its operations without
material disruption. Based on management's present knowledge, it also does not
foresee any significant disruptions to USG's businesses from external causes.
EURO CURRENCY CONVERSION
Effective January 1, 1999, 11 of the 15 countries that are members of the
European Union introduced a new, single currency unit, the euro. Prior to full
implementation of the new currency for the participating countries on January 1,
2002, there is a three-year transition period during which parties may use
either the existing currencies or the euro. However, during the transition
period, all exchanges between currencies of the participating countries are
required to be first converted through the euro.
USG has conducted a comprehensive analysis to address the euro currency
issue. USG's efforts are focused on two phases. The first phase addresses USG's
European operations during the transition period. The second phase covers full
conversion of these operations to the euro. The Corporation was ready for the
transition period that began on January 1, 1999, and expects to be ready for
full conversion by January 1, 2002, the mandatory conversion date. USG also is
prepared to deal with its critical suppliers and customers during the transition
period and will communicate with them as appropriate. The Corporation does not
expect the introduction of the euro currency to have a material adverse impact
on its business, results of operations or financial position.
LEGAL CONTINGENCIES
One of the Corporation's subsidiaries, U.S. Gypsum, is a defendant in asbestos
lawsuits alleging both property damage and personal injury. Asbestos charges in
1999 totaled $80.5 million compared with $26 million in 1998. Although new
personal injury cases were filed in 1999 at a significantly lower rate than that
at which cases were filed in 1998, asbestos charges to results of operations
have been higher in 1999 because the estimated cost of resolving cases pending
during 1998 will, when expended, consume all of U.S. Gypsum's remaining
insurance. As a result, the estimated liability from new case filings is
currently being charged against reported earnings.
U.S. Gypsum expects that periodic charges will continue to be necessary in
the future in amounts that could be higher or lower than recent quarters, and
which could be material to the period in which they are taken. The amount of
future periodic charges will depend upon factors that include, but may not be
limited to, the rate at which new asbestos-related claims are filed, the
potential imposition of medical criteria, the impact of changes in membership of
the Center for Claims Resolution (of which U.S. Gypsum is a member), U.S.
Gypsum's settlement cost and the estimated cost of resolving pending claims, and
the necessity of higher-cost settlements in particular jurisdictions. In
addition, U.S. Gypsum will continue to evaluate whether its probable liability
for future personal injury cases can be reasonably estimated. The ability to
make such an estimate will require an assessment of the impact on future case
filings and settlement values of a number of uncertainties. When such an
estimate can be made, it is probable that an additional charge to results of
operations will be necessary. Although the timing and amount of the resulting
charge cannot presently be determined, the amount is expected to be material to
results of operations in the period in which it is taken. However, the asbestos
litigation is not expected to have a significant impact on the Corporation's
liquidity or cash flows. See "Note 16. Litigation" for additional information on
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 results of operations or financial
position. See "Note 16. Litigation" for additional information on environmental
litigation.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements related to management's
expectations about future conditions. Actual business or other conditions may
differ significantly from management's expectations and accordingly affect the
Corporation's sales and profitability or other results. Actual results may
differ due to factors over which the Corporation has no control, including
economic activity such as new housing construction, interest rates and consumer
confidence; competitive activity such as price and
58
<PAGE> 11
product competition; increases in raw material and energy costs; risk of
disruption due to year 2000 issues such as those described above; euro currency
issues such as the ability and willingness of third parties to convert affected
systems in a timely manner and the actions of governmental agencies or other
third parties; and the outcome of contested asbestos-related litigation, the
rate of new asbestos-related filings and the other factors described herein. The
Corporation assumes no obligation to update any forward-looking information
contained in this report.
59
<PAGE> 12
CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
(dollars in millions, except per share data) Years Ended December 31,
- --------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 3,600 $ 3,130 $ 2,874
Cost of products sold 2,532 2,246 2,087
- --------------------------------------------------------------------------------------------
Gross profit 1,068 884 787
% of net sales 29.7 28.2 27.4
Selling and administrative expenses 338 299 281
Amortization of excess reorganization value - - 127
- --------------------------------------------------------------------------------------------
Operating profit 730 585 379
Interest expense 53 53 60
Interest income (10) (5) (3)
Other expense, net 3 3 2
- --------------------------------------------------------------------------------------------
Earnings before income taxes 684 534 320
Income taxes 263 202 172
- --------------------------------------------------------------------------------------------
Net earnings 421 332 148
============================================================================================
Net Earnings Per Common Share:
Basic 8.48 6.81 3.19
============================================================================================
Diluted 8.39 6.61 3.03
============================================================================================
</TABLE>
The notes to financial statements are an integral part of this statement.
60
<PAGE> 13
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(dollars in millions, except per share data) As of December 31,
- -------------------------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 197 $ 152
Receivables (net of reserves of $18 and $18) 361 349
Inventories 256 234
Current and deferred income taxes 59 62
- -------------------------------------------------------------------------------------------------------------------
Total current assets 873 797
- -------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 1,568 1,214
Other assets 332 346
- -------------------------------------------------------------------------------------------------------------------
Total assets 2,773 2,357
===================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 172 157
Accrued expenses 303 237
Notes payable 16 10
Current portion of long-term debt - 25
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 491 429
===================================================================================================================
Long-term debt 577 561
Deferred income taxes 138 169
Other liabilities 700 680
Stockholders' Equity:
Preferred stock - $1 par value; authorized 36,000,000 shares; $1.80
convertible preferred stock (initial series);
outstanding - none - -
Common stock - $0.10 par value; authorized 200,000,000 shares;
outstanding 48,859,531 and 49,524,952 shares (after
deducting 1,125,691 and 296,235 shares held in treasury) 5 5
Treasury stock (56) (10)
Capital received in excess of par value 316 317
Deferred currency translation (33) (30)
Reinvested earnings 635 236
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 867 518
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity 2,773 2,357
===================================================================================================================
</TABLE>
The notes to financial statements are an integral part of this statement.
61
<PAGE> 14
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(millions) Years Ended December 31,
- ---------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 421 $ 332 $ 148
Adjustments to Reconcile Net Earnings to Net Cash:
Amortization of excess reorganization value - - 127
Depreciation, depletion and amortization 91 81 70
Current and deferred income taxes (31) 7 (2)
(Increase) Decrease in Working Capital:
Receivables (4) (52) (23)
Inventories (15) (26) (23)
Payables 12 11 5
Accrued expenses 58 17 20
(Increase) decrease in other assets (20) 6 (10)
Increase in other liabilities 121 - 19
Other, net (2) (2) 1
- ---------------------------------------------------------------------------------------------------------------
Net cash from operating activities 631 374 332
- ---------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (426) (309) (172)
Net proceeds from asset dispositions 2 2 2
Acquisition of business, net of acquired cash (74) - -
- ---------------------------------------------------------------------------------------------------------------
Net cash to investing activities (498) (307) (170)
- ---------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance of debt 65 78 116
Repayment of debt (50) (107) (265)
Short-term borrowings (repayments), net (21) 9 (3)
Issuances of common stock 12 48 18
Purchases of common stock (72) (10) -
Cash dividends paid (22) (5) -
- ---------------------------------------------------------------------------------------------------------------
Net cash (to) from financing activities (88) 13 (134)
- ---------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 45 80 28
Cash and cash equivalents at beginning of period 152 72 44
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period 197 152 72
===============================================================================================================
Supplemental Cash Flow Disclosures:
Interest paid 56 56 64
Income taxes paid 281 186 168
</TABLE>
The notes to financial statements are an integral part of this statement.
62
<PAGE> 15
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(millions) Years Ended December 31,
- -------------------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock:
Balance at January 1 $ 5 $ 5 $ 5
- -------------------------------------------------------------------------------------------------
Balance at December 31 5 5 5
- -------------------------------------------------------------------------------------------------
Treasury Stock:
Balance at January 1 (10) - -
Purchases of common stock (72) (10) -
Stock option and restricted stock activity, net 26 - -
- -------------------------------------------------------------------------------------------------
Balance at December 31 (56) (10) -
- -------------------------------------------------------------------------------------------------
Capital Received in Excess of Par Value:
Balance at January 1 317 258 231
Stock option and restricted stock activity, net (1) 19 25
Warrants exercised - 40 2
- -------------------------------------------------------------------------------------------------
Balance at December 31 316 317 258
- -------------------------------------------------------------------------------------------------
Reinvested Earnings (Deficit):
Balance at January 1 236 (91) (239)
Net earnings 421 332 148
Cash dividends paid (22) (5) -
- -------------------------------------------------------------------------------------------------
Balance at December 31 635 236 (91)
- -------------------------------------------------------------------------------------------------
Accumulated Other Comprehensive Income:
Balance at January 1 (30) (25) (20)
Other comprehensive income (3) (5) (5)
- -------------------------------------------------------------------------------------------------
Balance at December 31 (33) (30) (25)
- -------------------------------------------------------------------------------------------------
Total stockholders' equity 867 518 147
=================================================================================================
</TABLE>
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
(millions) Years Ended December 31,
- -------------------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings $ 421 $ 332 $ 148
Other Comprehensive Income (net of tax):
Foreign currency translation adjustments (3) (5) (15)
Minimum pension liability - - 10
- -------------------------------------------------------------------------------------------------
(3) (5) (5)
- -------------------------------------------------------------------------------------------------
Total comprehensive income 418 327 143
=================================================================================================
</TABLE>
The notes to financial statements are an integral part of these statements.
63
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Through its subsidiaries, USG Corporation ("USG" or "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.
USG's operations are organized into three operating segments: North American
Gypsum, which manufactures and markets SHEETROCK brand gypsum wallboard and
related products in the United States, Canada and Mexico; Worldwide Ceilings,
which manufactures and markets ceiling tile, DONN brand suspension grid and
other interior systems products worldwide; and Building Products Distribution,
which distributes gypsum wallboard, drywall metal, ceiling products, joint
compound and other building products throughout the United States. USG's
products also are distributed through 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 1999 presentation.
REVENUE RECOGNITION
Revenue is recognized upon the shipment of products to customers.
EARNINGS PER SHARE
Basic earnings per share is computed by dividing net earnings by the weighted
average number of shares of common stock outstanding during the year. Diluted
earnings per share includes the dilutive effect of the potential exercise of
outstanding stock options and warrants under the treasury stock method.
COMPREHENSIVE INCOME
The components of comprehensive income for USG include net earnings, foreign
currency translation gain or loss adjustments and, in 1997, a minimum pension
liability adjustment. Taxes related to the minimum pension liability adjustment
in 1997 were $7 million. There was no tax impact on the foreign currency
translation adjustments.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid investments 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.
64
<PAGE> 17
EXCESS REORGANIZATION VALUE
In the third quarter of 1997, the remaining balance of excess reorganization
value was eliminated. The $83 million 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
14. Income Taxes" for additional information. Excess reorganization value was
recorded in 1993 in connection with a comprehensive restructuring of the
Corporation's debt under the principles of fresh start accounting as required by
SOP 90-7.
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 in which 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 due to intercompany and third-party transactions 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 and/or option 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.
RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to earnings as incurred and
amounted to $21 million, $20 million and $19 million in the years ended December
31, 1999, 1998 and 1997, respectively.
RECENT ACCOUNTING PRONOUNCEMENT
In 1998, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") 133, "Accounting for Derivative Instruments and
Hedging Activities." The effective date of this statement was delayed under SFAS
137 to fiscal years beginning after June 15, 2000, and cannot be applied
retroactively. SFAS 133 establishes accounting and reporting standards requiring
that every derivative instrument be recorded on the balance sheet as either an
asset or liability measured at its fair value. The statement requires that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. The Corporation plans to
adopt SFAS 133 effective January 1, 2001, and will determine both the method and
impact of adoption prior to that date.
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<PAGE> 18
2. ACQUISITION OF SYBEX, INC.
On November 30, 1999, USG acquired Sybex, Inc., the holding company of Beadex
Manufacturing Company, Inc. and The Synkoloid Company of Canada. Sybex operates
joint compound and paper-faced metal corner bead plants in the United States and
Canada and has annual sales of approximately $58 million.
3. SHUTDOWN OF PLASTERCO
In the third quarter of 1999, U.S. Gypsum announced the planned shutdown of its
Plasterco, Va., plant. In conjunction with the announcement, U.S. Gypsum
recorded a $22 million pretax ($14 million after-tax; $0.27 per share) charge to
cost of products sold for expenses related to the closing of the plant and
adjacent gypsum mine. The Plasterco facility was closed on December 23, 1999,
following the start-up of U.S. Gypsum's new plant in Bridgeport, Ala., earlier
in the year.
4. EARNINGS PER SHARE
The reconciliation of basic earnings per share to diluted earnings per share is
shown in the following table:
Average
(millions, except Net Shares Per Share
share data) Earnings (000) Amount
- -----------------------------------------------------------------
1999:
Basic earnings $ 421 49,697 $8.48
Effect of Dilutive Securities:
Options 519
- -----------------------------------------------------------------
Diluted earnings 421 50,216 8.39
=================================================================
1998:
Basic earnings 332 48,710 6.81
Effect of Dilutive Securities:
Options 861
Warrants 613
- -----------------------------------------------------------------
Diluted earnings 332 50,184 6.61
=================================================================
1997:
Basic earnings 148 46,269 3.19
Effect of Dilutive Securities:
Options 930
Warrants 1,528
- -----------------------------------------------------------------
Diluted earnings 148 48,727 3.03
=================================================================
5. COMMON STOCK
Changes in outstanding common stock are summarized as follows:
(shares in thousands) 1999 1998 1997
- -----------------------------------------------------------------
Common Stock:
Balance at January 1 49,525 46,781 45,725
Stock option and restricted
stock activity, net 165 536 973
Warrants exercised - 2,455 101
Treasury stock (830) (247) (18)
- -----------------------------------------------------------------
Balance at December 31 48,860 49,525 46,781
=================================================================
Treasury Stock:
Balance at January 1 (296) (49) (31)
Purchases of common stock (1,425) (225) -
Stock option and restricted
stock activity, net 595 (22) (18)
- -----------------------------------------------------------------
Balance at December 31 (1,126) (296) (49)
=================================================================
STOCK REPURCHASES
In the fourth quarter of 1998, USG initiated a multiyear stock-repurchase
program, under which up to 5 million shares of common stock may be purchased.
Stock repurchases are being made in the open market or through privately
negotiated transactions and are being financed with available cash from
operations.
STOCKHOLDER RIGHTS PLAN
The Corporation's stockholder rights plan which will expire on March 27, 2008,
has four basic provisions. First, if an acquirer buys 15% or more of USG's
outstanding common stock, the plan allows other stockholders to buy, with each
right, additional USG shares at a 50% discount. Second, if USG is acquired in a
merger or other business combination transaction, rights holders will be
entitled to buy shares of the acquiring company at a 50% discount. Third, if an
acquirer buys between 15% and 50% of USG's outstanding common stock, the
Corporation can exchange part or all of the rights of the other holders for
shares of the Corporation's stock on a one-for-one basis, or shares of a new
junior preferred stock on a one-for-one-hundredth basis. Fourth, before an
acquirer buys 15% or more of USG's outstanding common stock, the rights are
redeemable for $0.01 per right at the option of the board of directors. This
provision permits the board to enter into an acquisition transaction that is
determined to be in the best interests of stockholders. The board is authorized
to reduce the 15% threshold to not less than 10%.
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<PAGE> 19
WARRANTS
In 1998, the Corporation received cash proceeds of $40 million from the exercise
of 2,455,383 warrants issued in connection with a financial restructuring
implemented in 1993. Each warrant 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, at any time prior to the May 6, 1998, expiration date. The
proceeds from the exercises were added to the cash resources of the Corporation
and used for general corporate purposes.
6. INVENTORIES
As of December 31, 1999 and 1998, the LIFO values of domestic inventories were
$191 million and $168 million, respectively, and would have been $3 million
higher for 1999 and $1 million lower for 1998 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, 1999 and 1998. Inventory classifications as of December 31 were as
follows:
(millions) 1999 1998
- ------------------------------------------------------------
Finished goods and work in progress $164 $151
Raw materials 77 69
Supplies 15 14
- ------------------------------------------------------------
Total 256 234
============================================================
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment classifications as of December 31 were as follows:
(millions) 1999 1998
- ------------------------------------------------------------
Land and mineral deposits $ 79 $ 63
Buildings and realty improvements 423 331
Machinery and equipment 1,439 1,118
- ------------------------------------------------------------
1,941 1,512
Reserves for depreciation and depletion (373) (298)
- ------------------------------------------------------------
Total 1,568 1,214
============================================================
8. 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 $62 million, $59
million and $51 million in the years ended December 31, 1999, 1998 and 1997,
respectively. Future minimum lease payments required under operating leases with
initial or remaining noncancelable terms in excess of one year as of December
31, 1999, were $45 million in 2000, $37 million in 2001, $31 million in 2002,
$19 million in 2003 and $15 million in 2004. The aggregate obligation subsequent
to 2004 was $23 million.
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<PAGE> 20
9. DEBT
Total debt, including debt maturing within one year, as of December 31 consisted
of the following:
(millions) 1999 1998
- -----------------------------------------------------
European line of credit due 2000 $ 14 $ 10
9.25% senior notes due 2001 150 150
U.S. revolving credit facility due 2002 25 25
Canadian credit facility due 2002 44 69
Receivables facility due 2003 and 2004 80 80
8.5% senior notes due 2005 150 150
Industrial revenue bonds 124 84
8.75% sinking fund debentures - 25
Other 6 3
- -----------------------------------------------------
Total 593 596
=====================================================
U.S. REVOLVING CREDIT FACILITY
USG 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, 1999, outstanding revolving loans totaled $25 million,
and letters of credit issued and outstanding amounted to $15 million, leaving
the Corporation with $460 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, 1999, the applicable spread was
0.4%. The average rate of interest on the revolving loans was 5.7% during 1999
and 6.0% during 1998. See "Note 11. 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 with and acquisitions of businesses not
related to the building industry.
CANADIAN CREDIT FACILITY
USG maintains through CGC Inc. a $76 million (U.S.) ($110 million Canadian),
parent-guaranteed Canadian credit facility due 2002.
As of December 31, 1999, outstanding loans totaled $44 million (U.S.),
leaving $32 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 5.8% during 1999 and 6.0%
during 1998.
EUROPEAN LINE OF CREDIT
USG maintains a parent-guaranteed, multicurrency ($20 million U.S. equivalent)
European line of credit. As of December 31, 1999, short-term borrowings
outstanding under this line of credit amounted to $14 million (U.S.). The
average rate of interest on these borrowings was 3.3% during 1999 and 4.2%
during 1998.
INDUSTRIAL REVENUE BONDS
Industrial revenue bonds reflected in the above table had interest rates ranging
from 5.5% to 8.8%, with maturities through 2034.
USG uses industrial revenue bonds to finance certain capital projects.
Proceeds from these bonds are deposited into construction escrow accounts. The
bonds are recorded incrementally on USG's books as funds are drawn from the
escrow accounts throughout the construction process. In 1999, USG issued $140
million of industrial revenue bonds, of which $10 million were drawn and
recorded. Industrial revenue bonds issued in 1998 totaling $54 million were also
drawn and recorded in 1999.
OTHER INFORMATION
The fair market value of total debt outstanding was $582 million and $619
million as of December 31, 1999 and 1998, respectively, based on indicative
market prices as of those dates.
Aggregate scheduled maturities of debt during the five years subsequent to
December 31, 1999, are $16 million in 2000, $150 million in 2001, $69 million in
2002, $40 million in 2003 and $40 million in 2004.
10. FINANCING ARRANGEMENTS
ACCOUNTS RECEIVABLE FACILITY
The Corporation has an accounts receivable facility in which USG Funding
Corporation, a special-purpose subsidiary of the Corporation formed under
Delaware law, entered into agreements with U.S. Gypsum and USG Interiors, 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
68
<PAGE> 21
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 underlying interest rate on this
facility is based on the commercial paper index. However, the interest rate on
such debt was fixed at 8.2% through December 31, 1999, through a long-term
interest rate swap that expired on that date. Pursuant to the applicable reserve
and eligibility requirements, the maximum amount of debt issuable under the
receivables facility as of December 31, 1999 and 1998, (including $80 million
outstanding as of each date) was $108 million and $112 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, 1999 and 1998, the outstanding balance of receivables
sold to USG Funding and held under the Master Trust was $192 million and $189
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 1999 Annual Report on Form
10-K, no securities had been issued pursuant to this registration.
11. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The amounts reported below as fair values represent the market value as obtained
from broker quotations. Any negative fair values are estimates of the amounts
USG would need to pay to cancel the contracts or transfer them to other parties.
INTEREST RATE RISK MANAGEMENT
USG uses interest rate swap agreements to manage the impact of interest rate
changes on the underlying floating-rate debt. USG's swap portfolio consists of
pay fixed/receive floating swaps, which effectively convert floating-rate
obligations into fixed-rate instruments. As of December 31, 1999 and 1998, USG
had swap agreements in place to convert $53 million and $131 million,
respectively, of notional principal from floating-rate to fixed-rate
instruments. As of December 31, 1999, all swap agreements mature within two
years. The fair values of these swap agreements as of December 31, 1999 and
1998, were zero and $(8) million, respectively.
ENERGY RISK MANAGEMENT
USG uses swap agreements to hedge anticipated purchases of fuel to be utilized
in its manufacturing processes. As of December 31, 1999 and 1998, USG had swap
agreements to exchange monthly payments on notional amounts of energy amounting
to $53 million and $57 million, respectively. These agreements mature within
three years. The fair values of these swap agreements as of December 31, 1999
and 1998, were zero and $(6) million, respectively.
FOREIGN EXCHANGE RISK MANAGEMENT
As of December 31, 1999 and 1998, USG had a number of foreign currency contracts
in place (primarily Canadian dollars and euros) 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, virtually all within 12 months. The notional amounts of foreign
currency contracts as of December 31, 1999 and 1998, were $41 million and $60
million, respectively. The fair values of these contracts as of December 31,
1999 and 1998, were zero and $(1) million, respectively.
COUNTERPARTY RISK
USG is exposed to credit losses in the event of nonperformance by the
counterparties on its financial instruments. All counterparties have investment
grade credit standing; accordingly, USG anticipates that these counterparties
will be able to satisfy fully their obligations under the contracts. USG does
not obtain collateral or other security to support financial instruments subject
to credit risk but monitors the credit standing of all
69
<PAGE> 22
counterparties.
12. EMPLOYEE RETIREMENT PLANS
The Corporation and most of its subsidiaries have defined benefit pension 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 also 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 retiree health care benefits is
shared with retirees.
The components of net pension and postretirement benefit costs are
summarized in the following tables:
Pension Benefits
--------------------
(millions) 1999 1998 1997
- -----------------------------------------------------
Service cost of benefits
earned $ 19 $ 14 $ 12
Interest cost on projected
benefit obligation 43 39 36
Expected return on plan assets (49) (44) (39)
Net amortization 2 1 -
- -----------------------------------------------------
Net pension cost 15 10 9
=====================================================
Postretirement Benefits
-----------------------
(millions) 1999 1998 1997
- -----------------------------------------------------
Service cost of benefits
earned 7 6 6
Interest cost on projected
benefit obligation 15 14 15
Net amortization - (1) -
- -----------------------------------------------------
Net postretirement cost 22 19 21
=====================================================
The following tables summarize pension and postretirement benefit
obligations, plan assets and funded status as of December 31:
Pension Postretirement
--------------- ---------------
(millions) 1999 1998 1999 1998
- ---------------------------------------------------------------------
Change in Benefit Obligation:
Benefit obligation
as of January 1 $ 633 $ 528 $ 214 $ 219
Service cost 19 14 7 6
Interest cost 43 39 15 14
Employee contributions 9 9 2 2
Benefits paid (49) (47) (12) (13)
Plan amendment 2 3 (7) -
Actuarial (gain) loss (28) 90 (24) (14)
Foreign currency rate change 3 (3) - -
- ---------------------------------------------------------------------
Benefit obligation
as of December 31 632 633 195 214
=====================================================================
Change in Plan Assets:
Fair value as of January 1 597 554 - -
Actual return on plan assets 97 79 - -
Employer contributions 9 7 - -
Employee contributions 9 9 - -
Benefits paid (49) (47) - -
Foreign currency rate change 4 (5) - -
- ---------------------------------------------------------------------
Fair value as of December 31 667 597 - -
=====================================================================
Funded Status:
As of December 31 35 (36) (195) (214)
Unrecognized prior service cost 7 4 (6) 1
Unrecognized net (gain) loss (65) 14 (48) (23)
- ---------------------------------------------------------------------
Net balance sheet liability (23) (18) (249) (236)
=====================================================================
Assumptions as of December 31:
Discount rate 7.75% 6.75% 7.75% 6.75%
Pension plans expected return 9% 9% - -
Compensation increase rate 5% 5% 5% 5%
- ---------------------------------------------------------------------
The assumed health-care-cost trend rate used in measuring the accumulated
postretirement benefit obligation was 6% as of December 31, 1999, and 7% as of
December 31, 1998, with a rate gradually declining to 5% by 2000 and remaining
at that level thereafter. A one-percentage-point change in the assumed
health-care-cost trend rate would have the following effects:
One Percentage One Percentage
(millions) Point Increase Point Decrease
Effect on total service and
interest cost components $ 4 $ (3)
Effect on postretirement
benefit obligation 34 (27)
- -----------------------------------------------------------------
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<PAGE> 23
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 of two or three
years. The options expire on the 10th anniversary of the date of grant, except
in the case of retirement, death or disability, in which case they expire on the
earlier of the fifth anniversary of such event or the expiration of the original
option term.
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 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:
1999 1998 1997
- -------------------------------------------------------
Expected life (years) 7.4 7.4 7.4
Risk-free interest rate 6.5% 5.7% 6.8%
Expected volatility 31.4% 30.7% 29.6%
Dividend yield .88% - -
- -------------------------------------------------------
The weighted average fair value of options granted on January 2, 1999, was
$22.05. The weighted average fair values of options granted on January 2 and
January 19, 1998, were $22.32 and $24.53, respectively. The weighted average
fair value of options granted during 1997 was $15.61.
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 would have changed to
the following pro forma amounts:
(millions, except per share data) 1999 1998 1997
- --------------------------------------------------------------
Net Earnings: As reported $421 $332 $148
Pro forma 416 328 144
Basic EPS: As reported 8.48 6.81 3.19
Pro forma 8.38 6.73 3.12
Diluted EPS: As reported 8.39 6.61 3.03
Pro forma 8.29 6.54 2.96
- --------------------------------------------------------------
Stock option activity was as follows:
(options in thousands) 1999 1998 1997
- --------------------------------------------------------------
Options:
Outstanding, January 1 2,034 2,049 2,565
Granted 316 413 378
Exercised (553) (388) (882)
Canceled (7) (40) (12)
- --------------------------------------------------------------
Outstanding, December 31 1,790 2,034 2,049
Exercisable, December 31 1,087 1,292 1,339
Available for grant, December 31 566 1,122 1,671
Weighted Average Exercise Price:
Outstanding, January 1 $30.43 $25.54 $21.71
Granted 50.87 48.44 34.60
Exercised 22.29 22.72 18.20
Canceled 48.99 40.53 32.00
Outstanding, December 31 36.49 30.43 25.54
Exercisable, December 31 28.05 23.80 22.06
- --------------------------------------------------------------
The following table summarizes information about stock options outstanding
as of December 31, 1999:
Options Outstanding Options Exercisable
---------------------------------- -------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Options Contractual Exercise Options Exercise
Prices (000) Life (yrs.) Price (000) Price
- ------- --------- ---------- ----------- ----------- -----
$ 5 - 15 157 3.4 $10 157 $10
15 - 25 121 4.6 22 121 22
25 - 35 809 5.7 32 809 32
35 - 55 703 8.5 50 - -
- --------------------------------------------------------------
Total 1,790 6.5 36 1,087 28
==============================================================
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<PAGE> 24
14. INCOME TAXES
Earnings before income taxes consisted of the following:
(millions) 1999 1998 1997
- -----------------------------------------------------
U.S. $633 $487 $301
Foreign 51 47 19
- -----------------------------------------------------
Total 684 534 320
=====================================================
Income taxes consisted of the following:
(millions) 1999 1998 1997
- -----------------------------------------------------
Current:
Federal $246 $165 $147
Foreign 10 12 10
State 47 29 26
- -----------------------------------------------------
303 206 183
- -----------------------------------------------------
Deferred:
Federal (38) (3) (12)
Foreign 5 (1) 2
State (7) - (1)
- -----------------------------------------------------
(40) (4) (11)
- -----------------------------------------------------
Total 263 202 172
=====================================================
Differences between actual provisions for income taxes and provisions for
income taxes at the U.S. federal statutory rate (35%) were as follows:
(millions) 1999 1998 1997
- -----------------------------------------------------
Taxes on income at
federal statutory rate $240 $187 $112
Excess reorganization
value amortization - - 44
Foreign sales corporation (1) (1) -
Foreign earnings subject
to different tax rates - (1) 2
State income tax, net of
federal benefit 26 19 16
Percentage depletion (4) (3) (3)
Other, net 2 1 1
- -----------------------------------------------------
Provision for income taxes 263 202 172
=====================================================
Effective income tax rate 38.4% 37.8% 53.9%
=====================================================
Significant components of deferred tax (assets) liabilities as of December
31 were as follows:
(millions) 1999 1998
- -----------------------------------------------------
Property, plant and equipment $189 $173
Other - 1
- -----------------------------------------------------
Deferred tax liabilities 189 174
- -----------------------------------------------------
Pension and postretirement benefits (93) (87)
Reserves not deductible until paid (178) (137)
Other (7) -
- -----------------------------------------------------
Deferred tax assets (278) (224)
- -----------------------------------------------------
Net deferred tax assets (89) (50)
=====================================================
A valuation allowance of $90 million, which had been provided for deferred
tax assets relating to pension and postretirement benefits prior to the
Corporation's financial restructuring in 1993, was eliminated in the third
quarter of 1997. The elimination of this allowance reflected a change in
management's judgment regarding the realizability of these assets in future
years as a result of the Corporation's pretax earnings levels and improved
capital structure over the prior 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 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 $196 million as of December 31, 1999. 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.
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<PAGE> 25
15. SEGMENTS
OPERATING SEGMENTS
(millions) 1999 1998 1997
- ------------------------------------------------------------------------------
[S] [C] [C] [C]
Net Sales:
North American Gypsum $2,181 $1,826 $1,668
Worldwide Ceilings 648 657 634
Building Products
Distribution 1,345 1,103 981
Eliminations (574) (456) (409)
- ------------------------------------------------------------------------------
Total 3,600 3,130 2,874
==============================================================================
Amortization of Excess
Reorganization Value:
North American Gypsum - - 60
Worldwide Ceilings - - 65
Building Products
Distribution - - 2
- ------------------------------------------------------------------------------
Total - - 127
==============================================================================
Operating Profit (Loss):
North American Gypsum 651 534 402
Worldwide Ceilings 63 65 (1)
Building Products Distribution 87 40 29
Corporate (64) (54) (49)
Eliminations (7) - (2)
- ------------------------------------------------------------------------------
Total 730 585 379
==============================================================================
Depreciation, Depletion
and Amortization:
North American Gypsum 57 50 44
Worldwide Ceilings 19 18 17
Building Products Distribution 6 5 4
Corporate 9 8 5
- ------------------------------------------------------------------------------
Total 91 81 70
==============================================================================
Capital Expenditures:
North American Gypsum 397 260 121
Worldwide Ceilings 20 39 45
Building Products Distribution 8 9 5
Corporate 1 1 1
- ------------------------------------------------------------------------------
Total 426 309 172
==============================================================================
Assets:
North American Gypsum 1,721 1,350 1,085
Worldwide Ceilings 425 434 398
Building Products Distribution 309 258 213
Corporate 410 383 289
Eliminations (92) (68) (59)
- ------------------------------------------------------------------------------
Total 2,773 2,357 1,926
==============================================================================
GEOGRAPHIC SEGMENTS
(millions) 1999 1998 1997
- ------------------------------------------------------------------------------
Net Sales:
United States $3,262 $2,829 $2,570
Canada 240 206 184
Other Foreign 246 256 251
Geographic transfers (148) (161) (131)
- ------------------------------------------------------------------------------
Total 3,600 3,130 2,874
==============================================================================
Long-Lived Assets:
United States 1,473 1,094 869
Canada 198 155 156
Other Foreign 102 83 71
- ------------------------------------------------------------------------------
Total 1,773 1,332 1,096
==============================================================================
Effective with this annual report, USG's operations are organized into three
operating segments - North American Gypsum, Worldwide Ceilings and Building
Products Distribution. Previously, L&W Supply Corporation was a component of
North American Gypsum. Because of the growth of L&W Supply, it is now presented
as a separate operating segment.
Transactions between operating and geographic segments are accounted for at
transfer prices that are approximately equal to market value. Intercompany
transfers between operating segments (shown above as Eliminations) largely
reflect intercompany sales from U.S. Gypsum to L&W Supply. No single customer
accounted for 10% or more of consolidated net sales. Revenues are attributed to
geographic areas based on the location of the assets producing the revenues.
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) for 1997
also includes the noncash amortization of excess reorganization value, which had
the impact of reducing operating profit for North American Gypsum, Worldwide
Ceilings and Building Products Distribution.
Corporate 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, 1999, 1998 and 1997, such
receivables, net of reserves, amounted to $125 million, $141 million and $128
million, respectively, including $97 million, $106 million and $95 million
purchased from U.S. Gypsum and $28 million, $35 million and $33 million
purchased from USG Interiors as of the respective dates.
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<PAGE> 26
16. LITIGATION
ASBESTOS AND RELATED INSURANCE LITIGATION
One of the Corporation's subsidiaries, U.S. Gypsum (or "the Company"), is among
many defendants in lawsuits arising out of the manufacture and sale of
asbestos-containing materials. U.S. Gypsum sold certain asbestos-containing
products beginning in the 1930s; in most cases, the products were discontinued
or asbestos was removed from the formula by 1972, and no asbestos-containing
products were produced after 1977. Some of these lawsuits seek to recover
compensatory and in many cases punitive damages for costs associated with the
maintenance or removal and replacement of asbestos-containing products in
buildings (the "Property Damage Cases"). Others seek compensatory and in many
cases punitive damages for personal injury allegedly resulting from exposure to
asbestos-containing products (the "Personal Injury Cases").
Property Damage Cases: U.S. Gypsum is a defendant in 11 Property Damage Cases,
most 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.). 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 if the class
action referred to above is decertified, as sought by the Company, it is likely
that some colleges and universities will file individual Property Damage Cases
against U.S. Gypsum. It is possible that any cases that are filed will seek
substantial damages.
In total, U.S. Gypsum has settled approximately 115 Property Damage Cases
involving 245 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 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 1999, no new Property Damage Cases were filed against U.S. Gypsum, one
case was settled, and 11 were pending at year end. U.S. Gypsum expended $5
million for the defense and resolution of Property Damage Cases and received
insurance payments of $24 million. In 1998, two Property Damage Cases were filed
against U.S. Gypsum, two cases were dismissed before trial, four were settled,
and 12 were pending at year end. U.S. Gypsum expended $29.5 million for the
defense and resolution of Property Damage Cases (most of which consisted of
payments for settlements agreed to in the prior year) and received insurance
payments of $22.0 million in 1998. 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. A substantial portion
of the insurance payments received during the years 1997-1999 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 93,000
Personal Injury Cases pending at December 31, 1999, as well as an additional
approximately 59,000 cases that have been settled but will be closed over time.
Filings of new Personal Injury Cases totaled approximately 48,000 claims in
1999, compared to 80,000 claims in 1998, and 23,500 claims in 1997. The Company
believes that the higher rate of personal injury case filings in 1998 resulted,
at least in part, from a Supreme Court ruling striking down a class action
settlement that included an injunction against the filing of certain Personal
Injury Cases from September 1994 until July 1997. 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.
U.S. Gypsum's average settlement cost for Personal Injury Cases over the
past several years has been approximately $1,800 per claim, exclusive of defense
costs. In 1999, U.S. Gypsum (through the Center for Claims Resolution, discussed
below) agreed to settlements of approximately 76,000 Personal Injury Cases,
including 39,000 cases that will be closed in future years at an average cost of
approximately $1,250 per case, and 37,000 claims closed during 1999 for an
average settlement of approximately $2,500 per case. The higher cost of
settlements of those cases actually closed in 1999 was due
74
<PAGE> 27
primarily to more costly settlements in particular jurisdictions, and an
increase in the number of such claims that came from individuals alleging
serious illness, due in part to the courts' accelerated treatment of such
claims. Management anticipates that the average settlement cost for most pending
claims will continue to be moderated by opportunities for block settlements of
large numbers of claims and the apparently high percentage of claims that appear
to have been brought by individuals with little or no physical impairment.
However, other factors, including the litigation strategies of certain
co-defendants and an increasingly adverse litigation environment in particular
jurisdictions, are expected to have an adverse impact on settlement costs for
some pending and future cases and, therefore, on U.S. Gypsum's overall
settlement costs.
U.S. Gypsum is a member, together with 14 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. Most of U.S. Gypsum's personal injury liability and defense
costs have been paid by its insurance carriers. Punitive damages have never been
awarded against U.S. Gypsum in a Personal Injury Case; whether such an award
would be covered by insurance would depend on state law and the terms of the
individual policies.
During 1999, three companies left the Center and the membership of another
company was terminated by the Center's Board. U.S. Gypsum and other Center
members have stated their intention to pursue alternatives to the current tort
system, including settlements with plaintiffs' firms that include agreements to
resolve over time the firms' pending claims, as well as the firms' agreement to
recommend to their future clients that they defer filing, or accept nominal
payments on, personal injury claims that do not meet established disease
criteria. The Center reached several such agreements in 1999 and will continue
to attempt to negotiate similar agreements in the future. The impact of such
agreements, and of the changes in the Center's membership, cannot be determined
at this time.
During 1999, approximately 48,000 Personal Injury Cases were filed against
U.S. Gypsum, and approximately 37,000 were settled or dismissed. U.S. Gypsum
incurred expenses of $100 million in 1999 with respect to the settlement and
defense of Personal Injury Cases, of which approximately $85 million was paid by
insurance. During 1998, approximately 80,000 Personal Injury Cases were filed
against U.S. Gypsum, and 21,000 were settled or dismissed. U.S. Gypsum incurred
expenses of $61.1 million in 1998 with respect to the resolution and defense of
Personal Injury Cases, of which $45.5 million was paid by insurance. 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 was paid by insurance.
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 its solvent carriers. As of December 31, 1999, after deducting
insolvent coverage and insurance paid out to date, and taking into account
recent settlements, approximately $142 million of insurance remained with 8
carriers, all of which have agreed, subject to certain limitations and
conditions, to cover asbestos-related costs.
Insurance payments to U.S. Gypsum for all asbestos-related matters,
including property damage, personal injury, insurance coverage litigation and
related expenses, exceeded asbestos-related expenses by $6 million for 1999 and
$0.7 million in 1997 due primarily to nonrecurring reimbursement for amounts
expended in prior years. However, U.S. Gypsum's total asbestos-related
expenditures exceeded aggregate insurance payments by $24 million in 1998.
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.
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,
75
<PAGE> 28
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 normally (but not uniformly) has 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 resolve claims at historical or
acceptable levels; the level of physical impairment of claimants; the viability
of claims for punitive damages; the effect of recent changes in membership in
the Center and any future changes in Center membership; and the ability to
negotiate settlements or develop other mechanisms that defer or reduce claims
from unimpaired claimants. 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.
Subject to the above uncertainties, and based in part on information
provided by the Center, U.S. Gypsum estimates that it is probable that Property
Damage and Personal Injury Cases pending at December 31, 1999, can be resolved
for an amount totaling between $342 million and $485 million, including defense
costs. Most of these amounts are expected to be expended over the next three to
five years, although settlements of some Personal Injury Cases will be
consummated over periods as long as seven years. Significant insurance funding
is available for these costs, as detailed below, although resolution of the
pending cases will consume U.S. Gypsum's remaining insurance. At this time, U.S.
Gypsum does not believe that the number and severity of asbestos-related cases
that ultimately will be filed in the future can be predicted with sufficient
accuracy to provide the basis for a reasonable estimate of the liability that
will be associated with such cases, although, as noted below, the Company is
actively engaged in examining the feasibility of such an estimate with the
objective of providing such information when possible.
Accounting for Asbestos Liability: As of December 31, 1999, U.S. Gypsum had
reserved $342 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 $142 million, the estimated portion of the reserved amount that is
expected to be paid or reimbursed by insurance. As of December 31, 1999, U.S.
Gypsum had an additional $32 million reserved for asbestos liabilities and
asbestos-related expenses.
U.S. Gypsum compares its estimates of liability to then-existing reserves
and available insurance assets and from time to time adjusts its reserves as
appropriate. The Company historically has accrued $18 million annually ($4.5
million per quarter) for asbestos costs. In view of the increased level of
personal injury filings beginning in 1998, U.S. Gypsum accrued an additional $8
million (or a total of $12.5 million) in both the fourth quarter of 1998 and the
first quarter of 1999. U.S. Gypsum charged results of operations a total of $30
million in the second quarter of 1999, $20 million in the third quarter, and $18
million in the fourth quarter, based largely on new filings in those quarters.
Although new Personal Injury Cases were filed in 1999 at a rate significantly
below the rate at which cases were filed in 1998, asbestos charges to results of
operations have been higher in 1999 because the estimated cost of resolving
cases pending during 1998 will, when expended, consume all of U.S. Gypsum's
remaining insurance; as a result, the estimated liability from new case filings
is currently being charged against reported earnings. Accordingly, the Company
expects that additional periodic charges will be necessary in the future, in
amounts that could be higher or lower than recent quarters, and which could be
material to the period in which they are taken. The amount of future periodic
charges will depend upon factors that include, but may not be limited to, the
rate at which new asbestos-related claims are filed, the potential imposition of
medical criteria, the impact of changes in membership of the Center, changes in
U.S. Gypsum's settlement cost and the estimated cost of resolving pending
claims, and the necessity of higher-cost settlements in particular
jurisdictions.
In addition, U.S. Gypsum will continue to evaluate whether its probable
liability for future Personal Injury Cases can be reasonably estimated. The
ability to make such an estimate will require an assessment of the impact on
future case filings and settlement values of the uncertainties identified above,
including the outcome of negotiations currently underway between the Center and
certain plaintiffs' firms concerning settlements that would, among other things,
apply medical criteria to the firm's future Personal Injury Cases. When such an
estimate can be made, it is probable that an additional charge to results of
operations will be necessary. Although the timing and
76
<PAGE> 29
amount of the resulting charge cannot presently be determined, the amount is
expected to be material to results of operations in the period in which it is
taken.
Conclusion: The above estimates and reserves are re-evaluated periodically as
additional information becomes available. Additional charges to results of
operations are expected to be necessary in light of future events, and such
charges could be material to results of operations in the period in which they
are 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 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 continuously reviews 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 also are 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 results of operations or
financial position.
77
<PAGE> 30
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, Chief Executive Officer and President
Richard H. Fleming
Executive Vice President and Chief Financial Officer
Raymond T. Belz
Senior 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 (a Delaware corporation) and subsidiaries as of December 31, 1999
and 1998, and the related consolidated statements of earnings, cash flows,
stockholders' equity and comprehensive income for the years ended December 31,
1999, 1998 and 1997. These consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of USG
Corporation and subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for the years ended December 31, 1999,
1998 and 1997, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 27, 2000
78
<PAGE> 31
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
First Second Third Fourth Total
(millions, except per share data) Quarter Quarter Quarter Quarter Year
- --------------------------------------------------------------------------------
1999
Net sales $ 823 $ 895 $ 952 $ 930 $ 3,600
Gross profit 231 265 283 289 1,068
Operating profit 154 183 198 195 730
Net earnings 86 104 116 115 421
Per Common Share:
Net earnings (a) - basic 1.73 2.09 2.34 2.34 8.48
- diluted 1.71 2.07 2.32 2.32 8.39
Price range (b) - high 58.375 64.500 60.750 52.375 64.500
- low 44.750 51.438 46.438 41.125 41.125
Cash dividends paid 0.10 0.10 0.10 0.15 0.45
1998
Net sales $ 735 $ 775 $ 814 $ 806 $ 3,130
Gross profit 196 221 233 234 884
Operating profit 124 147 158 156 585
Net earnings 67 82 91 92 332
Per Common Share:
Net earnings (a) - basic 1.42 1.68 1.83 1.85 6.81
- diluted 1.35 1.63 1.80 1.83 6.61
Price range (b) - high 56.750 58.000 58.750 51.625 58.750
- low 47.000 49.500 41.375 35.500 35.500
Cash dividends paid - - - 0.10 0.10
(a) Basic earnings per share is calculated using average shares outstanding
during the period. Diluted earnings per share is calculated using average
shares and common stock equivalents outstanding during the period.
Consequently, the sum of the four quarters is not necessarily the same as
the total for the year.
(b) 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, 2000: Common - 4,463; Preferred -
none.
79
<PAGE> 32
FIVE-YEAR SUMMARY (UNAUDITED)
<TABLE>
<CAPTION>
(dollars in millions, except per share data) Years Ended December 31,
- ------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA:
Net sales $ 3,600 $ 3,130 $ 2,874 $ 2,590 $ 2,444
Gross profit 1,068 884 787 645 603
Selling and administrative expenses 338 299 281 268 244
Amortization of excess reorganization value - - 127 169 169
Operating profit 730 585 379 208 190
Interest expense 53 53 60 75 99
Interest income (10) (5) (3) (2) (6)
Other expense, net 3 3 2 3 32
Income taxes 263 202 172 117 97
Net earnings (loss) 421 332 148 15 (32)
Net Earnings (Loss) Per Common Share:
Basic 8.48 6.81 3.19 0.32 (0.71)
Diluted 8.39 6.61 3.03 0.31 (0.71)
BALANCE SHEET DATA (as of the end of the period):
Working capital 382 368 264 159 167
Current ratio 1.78 1.86 1.70 1.41 1.46
Property, plant and equipment, net 1,568 1,214 982 887 842
Total assets 2,773 2,357 1,926 1,864 1,927
Total debt (a) 593 596 620 772 926
Total stockholders' equity (deficit) 867 518 147 (23) (37)
OTHER INFORMATION:
Capital expenditures 426 309 172 120 147
Gross margin % 29.7 28.2 27.4 24.9 24.7
Stock price (per common share) (b) 47.13 50.94 49.00 33.88 30.00
Cash dividends paid (per common share) 0.45 0.10 - - -
Average number of employees 14,300 13,700 13,000 12,500 12,400
</TABLE>
(a) 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 consolidated balance sheets as of December 31, 1996 and
1995, were $755 million and $907 million, respectively.
(b) Stock price per common share reflects the closing price on December 31.
80
<PAGE> 1
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>
<CAPTION>
ORGANIZED UNDER
NAME OF COMPANY LAWS OF
<S> <C>
Domestic:
United States Gypsum Company(a)....................................... Delaware
USG Interiors, Inc. (a)............................................... Delaware
L&W Supply Corporation (a)(b)......................................... Delaware
USG International, Ltd................................................ Delaware
USG Foreign Investments, Ltd. (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
H & B Gypsum, Inc..................................................... Oklahoma
USG Latin America..................................................... Delaware
Sybex, Inc............................................................ Delaware
Beadex Investments Company, Inc.... .................................. Delaware
Beadex Maunfacturing Company, Inc..................................... Delaware
Beadex Foreign Sales Corporation, Inc. ............................... Guam
International:
CGC Inc. (a).......................................................... Canada
USG Canadian Mining Ltd............................................... Ontario
Gypsum Transportation Limited......................................... Bermuda
Yeso Panamericano, S.A. de C.V........................................ Mexico
Grupo Yeso de Mexico, S.A. de C.V..................................... Mexico
Exploracion de Yeso, S.A. de C.V...................................... Mexico
USG Manufacturing Worldwide, Ltd...................................... Caymans
USG Interiors (Donn) S.A.............................................. Belgium
Donn Products GmbH.................................................... Germany
USG Interiors Eastern Manufacturing Baulemente GmbH................... Germany
USG Interiors East Innenausbau-vertriebsgesellschaft mbH.............. 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 Europe, 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
The Synkoloid Company of Canada....................................... British Columbia
Synko Leasing Company, Ltd. .......................................... British Columbia
Synkoloid ULC......................................................... Nova Scotia
</TABLE>
(a) Accounts for material revenues.
(b) As of December 31, 1999, L&W Supply conducted its business out of 193
locations in 37 states using various names registered under applicable
assumed business name statutes.
81
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated January 27, 2000, included in this Form 10-K for
the year ended December 31, 1999, into the Corporation's previously filed
Registration Statements Nos. 33-60563 and 33-64217 on Form S-3 and 33-22581, as
amended, 33-36303, 33-52715, 33-63554, 33-65383, 333-34147, 333-29137 and
33-11496 on Form S-8. It should be noted that we have not audited any financial
statements of the company subsequent to December 31, 1999 or performed any audit
procedures subsequent to the date of our report.
/s/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 29, 2000
82
<PAGE> 1
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, 1999, of USG Corporation and any
or all amendments thereto, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitutes, may lawfully do or cause to be done by virtue hereof.
This power of attorney has been signed as of the 9th day of February, 2000, by
the following persons:
/s/ William C. Foote /s/ W.H. Clark
- ---------------------------------------- ----------------------------
William C. Foote, W. H. Clark,
Director, President, Chairman of Director
the Board and Chief Executive Officer
/s/ P.J. O'Bryan /s/ James C. Cotting
- ---------------------------------------- ----------------------------
P.J. O'Bryan, James C. Cotting,
Director and Vice Chairman Director
/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/ Valerie B. Jarrett. /s/ Judith A. Sprieser
- ---------------------------------------- ----------------------------
Valerie B. Jarrett, Judith A. Sprieser,
Director Director
/s/ Marvin E. Lesser
- ----------------------------------------
Marvin E. Lesser
Director
83
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 197
<SECURITIES> 0
<RECEIVABLES> 379
<ALLOWANCES> 18
<INVENTORY> 256
<CURRENT-ASSETS> 873
<PP&E> 1941
<DEPRECIATION> 373
<TOTAL-ASSETS> 2773
<CURRENT-LIABILITIES> 491
<BONDS> 577
0
0
<COMMON> 5
<OTHER-SE> 862
<TOTAL-LIABILITY-AND-EQUITY> 2773
<SALES> 3600
<TOTAL-REVENUES> 3600
<CGS> 2532
<TOTAL-COSTS> 2532
<OTHER-EXPENSES> 338
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53
<INCOME-PRETAX> 684
<INCOME-TAX> 263
<INCOME-CONTINUING> 421
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 421
<EPS-BASIC> 8.48
<EPS-DILUTED> 8.39
</TABLE>
