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<SEC-DOCUMENT>0000950137-01-500193.txt : 20010307
<SEC-HEADER>0000950137-01-500193.hdr.sgml : 20010307
ACCESSION NUMBER: 0000950137-01-500193
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 8
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010305
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: USG CORP
CENTRAL INDEX KEY: 0000757011
STANDARD INDUSTRIAL CLASSIFICATION: CONCRETE GYPSUM PLASTER PRODUCTS [3270]
IRS NUMBER: 363329400
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 001-08864
FILM NUMBER: 1561162
BUSINESS ADDRESS:
STREET 1: 125 S FRANKLIN ST
STREET 2: DEPT. 188
CITY: CHICAGO
STATE: IL
ZIP: 60606
BUSINESS PHONE: 3126064000
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>c60469e10-k405.txt
<DESCRIPTION>ANNUAL REPORT
<TEXT>
<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-K
-----------------
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --------- EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For fiscal year ended December 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ----------- SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____________ to _____________.
Commission File Number 1-8864
USG CORPORATION
(Exact name of Registrant as Specified in its Charter)
DELAWARE 36-3329400
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
125 S. FRANKLIN STREET, CHICAGO, ILLINOIS 60606-4678
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (312) 606-4000
-----------------
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Exchange on
Title of Each Class Which Registered
- ------------------------------- -------------------------
New York Stock Exchange
Common Stock, $0.10 par value Chicago Stock Exchange
- ------------------------------- -------------------------
New York Stock Exchange
Preferred Share Purchase Rights Chicago Stock Exchange
- ------------------------------- -------------------------
8.5% Senior Notes, Due 2005 New York Stock Exchange
- ------------------------------- ------------------------
Securities Registered Pursuant to Section 12(g) of the Act:
None
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No
As of January 31, 2001, the aggregate market value of USG Corporation
common stock held by nonaffiliates (based upon the New York Stock Exchange
closing prices) was approximately $950,699,000.
As of January 31, 2001, 43,403,285 shares of common stock were outstanding.
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Corporation's 2000 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 9, 2001, 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
<TABLE>
<CAPTION>
PART I Page
- ------ ----
<S> <C> <C>
Item 1. Business........................................................................................ 3
Item 2. Properties...................................................................................... 8
Item 3. Legal Proceedings............................................................................... 10
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........... 11
Item 8. Financial Statements and Supplementary Data..................................................... 11
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............ 11
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.................................................................................................... 21
</TABLE>
2
<PAGE> 3
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.
2000 was a challenging year for USG Corporation. First, the gypsum
wallboard market in the United States, which represents USG's largest single
business, transitioned from short supply to excess supply. Although, shipments
of USG's SHEETROCK brand gypsum wallboard set a new record, selling prices fell
significantly during the year because of excess supply in the market. The lower
prices, combined with higher energy and raw material costs, had an adverse
effect on USG's profitability in 2000.
Second, the number of asbestos claims and related settlement values
continued to increase, and two other major building products companies, Owens
Corning and Armstrong World Industries, Inc., filed Chapter 11 bankruptcies due
to asbestos-related liabilities. Based on an independent study, USG estimated
its probable liability for costs associated with asbestos cases currently
pending and expected to be filed through 2003 to be between $889 million and
$1,281 million. In the fourth quarter of 2000, USG recorded a noncash, pretax
provision of $850 million, increasing its total reserve for asbestos claims to
$1,185 million as of December 31, 2000.
Third, like the stock prices of several other building products companies,
the price of USG's common stock declined significantly following the
bankruptcies of Owens Corning and Armstrong World Industries.
Fourth, USG experienced two unfavorable developments in the fourth quarter
that could affect its ability to increase its liquidity in the future. The two
credit rating agencies, Standard & Poor's and Moody's, downgraded USG's
corporate debt rating. Standard & Poor's lowered its rating to investment grade
BBB, while Moody's dropped its rating to Ba2, two levels below its minimum
investment grade rating. In each case, the decrease was due to concerns over
USG's increasing asbestos exposure. Even before these downgrades, the securities
markets had steeply discounted securities, both debt and equity, of public
companies that are defendants in asbestos-related litigation. This development
came as a direct response to the Owens Corning bankruptcy filing. As a
consequence of these developments, USG expects to find it increasingly difficult
to raise new money in the capital markets so long as the long-term outcome of
its asbestos litigation remains uncertain.
Despite these challenges, 2000 also was a year of accomplishments for USG
including record shipments for all major product lines, record net sales for its
distribution business, a new $600 million revolving credit agreement and the
completion of three major capital projects.
Because of a cyclical downturn in its businesses, rising energy prices and
asbestos litigation, USG's financial priorities in 2001 will focus on increasing
cash flow and optimizing operating performance. The plan includes reducing
capital expenditures, reducing costs and expenses, improving working capital
performance and seeking opportunities for the sale of surplus assets. In
addition, in the first quarter of 2001, USG reduced its quarterly cash dividend
to $0.025
3
<PAGE> 4
per share. This action will reduce annual dividend payments by approximately
$22 million.
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 USG Mexico
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 2000. CGC is the largest producer of gypsum wallboard in
eastern Canada.
Products
North American Gypsum's products are used in a variety of building and
industrial 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. FIBEROCK brand gypsum fiber panels include
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 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 46 plants located
throughout the United States and Canada and in central Mexico.
USG is nearing completion of a major modernization of its gypsum wallboard
capacity, enabling it to replace old capacity with much more efficient new
facilities. The Corporation has completed construction of five new gypsum
wallboard facilities and closed six old, high-cost facilities. The modernization
program includes the construction of new gypsum wallboard plants located in
Bridgeport, Ala. (opened in 1999), Aliquippa, Pa. (opened in 2000), Rainier,
Ore. (opened in 2000) and Monterrey, Mexico (to be opened in 2001) and
construction of new wallboard production lines at U.S. Gypsum's plants in East
Chicago, Ind. (started up in 1999) and Plaster City, Calif. (started up in
2000). The new plant in Monterrey, Mexico, will allow USG Mexico S.A. de C.V.,
USG's wholly owned subsidiary in Mexico and the Mexican wallboard leader, to
strengthen its position in northern Mexico while freeing existing capacity for
southern Mexico markets. With a plant in northern Mexico, USG Mexico will become
Mexico's first national wallboard manufacturer. Startup of the Monterrey
facility is anticipated to occur in the third quarter of 2001.
Closure of old, high-cost capacity included the shutdown of the Plasterco,
Va., plant in 1999 and shutdown of gypsum wallboard production lines at U.S.
Gypsum's plants in East Chicago, Ind., in 1999, Plaster City, Calif., in 2000,
Gypsum,
4
<PAGE> 5
Ohio, in December 2000, Fort Dodge, Iowa, in February 2001 and Oakfield, N.Y.,
in February 2001. One production line continues to operate at the Fort Dodge
plant.
Gypsum rock is mined or quarried at 14 company-owned locations in North
America. In 2000, these locations provided approximately 77% of the gypsum used
by USG's plants in North America. Certain plants purchase synthetic gypsum or
natural gypsum rock from various outside sources. Outside purchases accounted
for 23% of the gypsum used in USG's plants. The Corporation's geologists
estimate that its 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 282
million tons. Additional reserves of approximately 154 million tons are found on
four properties not in operation. USG's total average annual production of crude
gypsum during the past five years was 10 million tons.
The Corporation owns and operates seven paper mills located across the
United States. Vertical integration in paper ensures a continuous supply of
high-quality paper that is tailored to the specific needs of USG's wallboard
production processes.
The Corporation does research and development at the USG Research and
Technology Center in Libertyville, Ill. The staff at this center provides
specialized technical services to the operating units and does product and
process research and development. The center is especially well-equipped for
carrying out fire, acoustical, structural and environmental testing 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 2000, 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, 13% of volume demand was generated by new
nonresidential construction activity and the remaining 5% 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 11 producers of
gypsum wallboard products and in 2000 accounted for nearly one-third of total
gypsum wallboard sales in the United States. In 2000, U.S. Gypsum shipped 9.3
billion square feet of wallboard, the highest level in the Corporation's
history, out of total U.S. industry shipments (including imports) estimated at
29.3 billion square feet, the second highest level on record. Principal
competitors in the United States are: National Gypsum Company, Georgia-Pacific
Corporation, James Hardie Gypsum, BPB Celotex, Temple-Inland Forest Products
Corporation, American Gypsum, Lafarge Corporation and other smaller, regional
competitors. Major competitors in Canada include BPB Westroc, Georgia-Pacific
Corporation and Lafarge Corporation. In Mexico, the Corporation's major
competitor is Panel Rey.
5
<PAGE> 6
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 2000, 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.
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 CenterSM 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., OWA Faserplattenwerk GmbH (Odenwald) and BPB
Celotex. As noted above, Armstrong World Industries, Inc., the world's largest
manufacturer of acoustical ceiling tile, filed Chapter 11 bankruptcy in the
fourth quarter of 2000 in response to pending and potential asbestos litigation
filings. 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.
6
<PAGE> 7
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
2000, L&W Supply distributed approximately 11% 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 currently has 192
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 90% of its facilities from third parties. Usually, initial leases
run from three to five years with a five-year renewal option.
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
Primary supplies of energy have been adequate and no significant
curtailment of plant operations has resulted from insufficient supplies although
pricing has increased dramatically during the year. 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 10% or
more of the Corporation's 2000, 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.
7
<PAGE> 8
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 Consolidated Financial
Statements - Note 17. Litigation" of the Corporation's 2000 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 Consolidated
Financial Statements - Note 16. Segments" of the Corporation's 2000 Annual
Report to stockholders and is incorporated herein by reference.
Item 2. PROPERTIES
The Corporation's plants, mines, quarries, transport ships and other
facilities are located in North America, Europe and Asia-Pacific. In 2000, most
of these facilities operated above 80% of 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
<TABLE>
<CAPTION>
<S> <C> <C>
Aliquippa, Pa. Galena Park, Texas Southard, Okla.
Baltimore, Md. Jacksonville, Fla. Sperry, Iowa
Bridgeport, Ala. New Orleans, La. Stony Point, N.Y.
Boston (Charlestown), Mass. Norfolk, Va. Sweetwater, Texas
Detroit (River Rouge), Mich. Plaster City, Calif. Hagersville, Ontario, Canada
East Chicago, Ind. Rainier, Ore. Montreal, Quebec, Canada
Empire, Nev. Santa Fe Springs, Calif. Puebla, Puebla, Mexico
Fort Dodge, Iowa Shoals, Ind. Saltillo, Coahuila, Mexico
Fremont, Calif. Sigurd, Utah
</TABLE>
As part of the Corporation's fourth quarter 2000 restructuring plan, gypsum
wallboard production lines were shutdown at Gypsum, Ohio (December 2000),
Oakfield, N.Y. (February 2001), and Fort Dodge, Iowa (February 2001). One line
continues to operate at Fort Dodge.
Joint Compound (surface preparation and joint treatment products)
<TABLE>
<CAPTION>
<S> <C> <C>
Auburn, Wash. Gypsum, Ohio Hagersville, Ontario, Canada
Bridgeport, Ala. Jacksonville, Fla. Montreal, Quebec, Canada
Chamblee, Ga. Port Reading, N.J. Surrey, British Columbia, Canada
Dallas, Texas Sigurd, Utah Puebla, Puebla, Mexico
East Chicago, Ind. Torrance, Calif. Port Klang, Malaysia (leased)
Fort Dodge, Iowa Calgary, Alberta, Canada
Galena Park, Texas Edmonton, Alberta, Canada
</TABLE>
8
<PAGE> 9
Gypsum Rock (mines and quarries)
<TABLE>
<CAPTION>
<S> <C> <C>
Alabaster (Tawas City), Mich. Sigurd, Utah Little Narrows, Nova Scotia, Canada
Empire, Nev. Southard, Okla. Windsor, Nova Scotia, Canada
Fort Dodge, Iowa Sperry, Iowa Manzanillo, Colima, Mexico
Plaster City, Calif. Sweetwater, Texas Monterrey, Nuevo Leon, Mexico
Shoals, Ind Hagersville, Ontario, Canada
</TABLE>
Synthetic gypsum is processed at Belledune, New Brunswick, Canada.
A mill and ship-loading system at Alabaster, Mich., were shutdown as part of the
Corporation's fourth quarter 2000 restructuring plan. However, the gypsum quarry
at Alabaster will continue operating at a decreased level.
Paper for Gypsum Wallboard
<TABLE>
<CAPTION>
<S> <C> <C>
Clark, N.J. Jacksonville, Fla. South Gate, Calif.
Galena Park, Texas North Kansas City, Mo.
Gypsum, Ohio Oakfield, N.Y.
</TABLE>
Other Products
A mica-processing plant is located at Spruce Pine, N.C.; 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). A perlite ore mine at Grants, N.M., was shutdown in 2000.
Ocean Vessels
Gypsum Transportation Limited, a wholly owned subsidiary of the Corporation
and 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 new self-unloading
vessel is being constructed in Korea by Hyundai Mipo Dockyard Ltd. with delivery
scheduled to occur about mid-2001.
WORLDWIDE CEILINGS
Ceiling Tile
<TABLE>
<CAPTION>
<S> <C> <C>
Cloquet, Minn. Walworth, Wis. Aubange, Belgium
Greenville, Miss. San Juan Ixhuatepec, Mexico
</TABLE>
Ceiling Grid
<TABLE>
<CAPTION>
<S> <C> <C>
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>
9
<PAGE> 10
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
Consolidated Financial Statements - Note 17. Litigation" of the Corporation's
2000 Annual Report to Stockholders and is incorporated herein by reference.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the fourth quarter of 2000.
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 2000 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 fourth
and fifth annual grants of 990 and 3,493 common shares were made on November 22,
1999, and November 22, 2000, 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 2000 Annual Report to Stockholders and is incorporated herein by
reference.
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<PAGE> 11
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 2000 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
Statements of Earnings," "Consolidated Balance Sheets," "Consolidated Statements
of Cash Flows," "Consolidated Statements of Stockholders' Equity," "Notes to
Consolidated Financial Statements" and "Report of Independent Public
Accountants" of the Corporation's 2000 Annual Report to Stockholders are
incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information 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 14, 2001)
<TABLE>
<CAPTION>
NAME, AGE AND BUSINESS EXPERIENCE DURING THE LAST FIVE YEARS PRESENT POSITION
PRESENT POSITION HELD SINCE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
William C. Foote, 49 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.
Richard H. Fleming, 53 Senior Vice President and Chief Financial Officer to February 1999
Executive Vice President and February 1999.
Chief Financial Officer
Raymond T. Belz, 60 Vice President and Controller, USG Corporation from February 1999
Senior Vice President and January 1994 to February 1999; Vice President and
Controller Chief Financial Officer, North American Gypsum from
January 1995 to September 1996; Vice President
Financial Operations, North American Gypsum and
Worldwide Ceilings from September 1996 to February 1999.
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
NAME, AGE AND BUSINESS EXPERIENCE DURING THE LAST FIVE YEARS PRESENT POSITION
PRESENT POSITION HELD SINCE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Edward M. Bosowski, 46 Vice President and Chief Financial Officer, Worldwide February 2001
Senior Vice President, Marketing Ceilings and Vice President, USG Interiors, Inc. to
and Corporate Strategy; President, September 1996; Executive Vice President - Marketing,
International United States Gypsum Company to February 1999;
President and Chief Executive Officer,
United States Gypsum Company to November
2000; President Growth Initiatives and
International to February 2001.
John H. Meister, 43 Executive Vice President and Chief Operating Officer, November 2000
Senior Vice President; President, L&W Supply Corporation to May 1996; President and
Building Systems Chief Executive Officer, L&W Supply Corporation to
February 1999; President and Chief Executive Officer,
USG Interiors, Inc. to November 2000.
James S. Metcalf, 43 Vice President of National Accounts, United States February 2001
Senior Vice President; President Gypsum Company to July 1996; Vice President Sales, USG
and Chief Executive Officer, L&W Interiors, Inc. to June 1998; Senior Vice President,
Supply Corporation Sales and Marketing, USG Interiors, Inc. to March
1999; Executive Vice President and Chief Operating
Officer, L&W Supply Corporation to March 2000.
Daniel J. Nootens, 62 Executive Vice President & Chief Operating Officer, May 2000
Senior Vice President and Chief United States Gypsum Company to September 1996;
Technology Officer Executive Vice President - Operations, North American
Gypsum from September 1996 to June 1997;
Executive Vice President, Strategic
Manufacturing and Capital Investments,
North American Gypsum and Worldwide
Ceilings to May 2000.
Brian W. Burrows, 61 Same position March 1987
Vice President, Research and
Technology
Brian J. Cook, 43 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, 48 Associate General Counsel to May 2000. May 2000
Vice President and General Counsel
Jean K. Holley, 41 Director, Information Technology, WMX Environmenta l 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, 42 Vice President, U.S. Communications, Bank of October 1998
Vice President, Communications Montreal/Harris Bank to January 1997; Senior Vice
President, Public Affairs, Bank of Montreal/Harris
Bank to October 1998.
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
NAME, AGE AND BUSINESS EXPERIENCE DURING THE LAST FIVE YEARS PRESENT POSITION
PRESENT POSITION HELD SINCE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
D. Rick Lowes, 46 Vice President and Chief Financial Officer, CGC Inc. January 1999
Vice President and Treasurer to January 1999.
Peter K. Maitland, 59 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.
Robert B. Sirgant, 60 Vice President, Corporate Accounts to August 1999. August 1999
Vice President, Corporate
Customer Relations
Dean Goossen, 53 Same position. February 1994
Corporate Secretary
</TABLE>
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 consolidated financial
statements and report of independent public accountants included in the
Corporation's 2000 Annual Report to Stockholders and listed below are
incorporated herein by reference:
Consolidated Statements of Earnings - Years ended December 31, 2000,
1999 and 1998.
Consolidated Balance Sheets - As of December 31, 2000 and 1999.
Consolidated Statements of Cash Flows - Years ended December 31, 2000,
1999 and 1998.
13
<PAGE> 14
Consolidated Statements of Stockholders' Equity - Years ended December
31, 2000, 1999 and 1998.
Notes to Consolidated 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 consolidated
financial statements or notes thereto.
3. Exhibits (Reg. S-K, Item 601):
<TABLE>
<CAPTION>
EXHIBIT
NO. PAGE
--- ----
<S> <C> <C>
3 Articles of incorporation and by-laws:
(a) Restated Certificate of Incorporation of USG Corporation
(incorporated by reference to Exhibit 3.1 of USG
Corporation's Form 8-K, dated May 7, 1993).
(b) 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 September 22, 2000 (incorporated by reference to
Exhibit 4(a) of USG Corporation's Form 10-Q, dated
November 6, 2000).
4 Instruments defining the rights of security holders, including
indentures:
(a) Indenture dated as of October 1, 1986 between USG
Corporation and Bank One, successor Trustee to Harris
Trust and Savings Bank (incorporated by reference to
Exhibit 4(a) of USG Corporation's Registration Statement
No. 33-9294 on Form S-3, dated October 7, 1986).
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
<S> <C> <C>
(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).
(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) Second Amendment to Management Performance Plan, dated as
of June 27, 2000 (incorporated by reference to Exhibit
10(a) of USG Corporation's Form 10-Q, dated November 6,
2000).
(d) 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).
(e) 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).
(f) Second Amendment to Supplemental Retirement Plan,
effective November 8, 2000. 22
(g) Third Amendment to Supplemental Retirement Plan,
effective November 8, 2000. 24
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
<S> <C> <C>
(h) Form of Termination Compensation Agreement dated January
1, 2000 (incorporated by reference to Exhibit 10(e) of
USG Corporation's Annual Report on Form 10-K, dated
February 29, 2000).
(i) 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).
(j) Form of Employment Agreement dated January 1, 2000
(incorporated by reference to Exhibit 10(g) of USG
Corporation's Annual Report on Form 10-K, dated February
29, 2000).
(k) Five Year Credit Agreement dated as of June 30, 2000,
among USG Corporation and the banks listed on the
signature pages thereto and Chase Manhattan Bank as
Administrative Agent (incorporated by reference to
Exhibit 10(a) of USG Corporation's 10-Q, dated August 7,
2000).
(l) 364-Day Credit Agreement dated as of June 30, 2000, among
USG Corporation and the banks listed on the signature
pages thereto and Chase Manhattan Bank as Administrative
Agent (incorporated by reference to Exhibit 10(b) of USG
Corporation's 10-Q, dated August 7, 2000).
(m) 1995 Long-Term Equity Plan of USG Corporation
(incorporated by reference to Annex A to USG
Corporation's Proxy Statement and Proxy, dated March 31,
1995).
(n) First Amendment to 1995 Long-Term Equity Plan of USG
Corporation, dated as of June 27, 2000 (incorporated by
reference to Exhibit 10(b) of USG Corporation's Form
10-Q, dated November 6, 2000).
(o) 2000 Annual Management Incentive Program - USG
Corporation. 26
(p) Omnibus Management Incentive Plan (incorporated by
reference to Annex A to USG Corporation's Proxy Statement
and Proxy, dated March 28, 1997).
(q) 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).
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
<S> <C> <C>
(r) Second Amendment to Omnibus Management Incentive Plan of
USG Corporation, dated as of June 27, 2000 (incorporated
by reference to Exhibit 10(c) of USG Corporation's 10-Q,
dated November 6, 2000).
(s) 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 2000 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.) 34
21 Subsidiaries 65
23 Consents of Experts and Counsel 66
24 Power of Attorney 67
</TABLE>
(b) Reports on Form 8-K:
A Form 8-K was filed on November 17, 2000, to report under Item 5 "Other
Events" the suspension of employee contributions to the USG Common Stock fund in
the Corporation's qualified 401-K investment plan.
A Form 8-K was filed on December 27, 2000, to report under Item 5 "Other
Events" information related to plant shutdowns, market conditions and asbestos
liability matters.
17
<PAGE> 18
INDEX TO EXHIBITS FILED
WITH THE ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2000
<TABLE>
<CAPTION>
EXHIBIT PAGE
- ------- ----
<S> <C> <C>
10(f) Second Amendment to Supplemental Retirement Plan 22
10(g) Third Amendment to Supplemental Retirement Plan 24
10(o) 2000 Annual Management Incentive Program - USG Corporation 26
13 Portions of USG Corporation's 2000 Annual Report to Stockholders 34
21 Subsidiaries 65
23 Consent of Experts and Counsel 66
24 Power of Attorney 67
</TABLE>
If you wish to receive a copy of any exhibit, it may be obtained, upon payment
of reasonable expenses, by writing to:
Dean H. Goossen, Corporate Secretary
USG Corporation
Department #188
P.O. Box 6721
Chicago, IL 60680-6721
18
<PAGE> 19
USG CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in millions)
<TABLE>
<CAPTION>
Beginning Ending
Balance Additions (a) Deductions (b) Balance
--------- ------------- -------------- -------
<S> <C> <C> <C> <C>
Year ended December 31, 2000:
Doubtful accounts........................ $ 14 $ 4 $ (4) $ 14
Cash discounts........................... 4 57 (57) 4
Provision for restructuring expenses..... - 35 (1) 34
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
</TABLE>
(a) Reflects provisions charged to costs and expenses.
(b) Reflects receivables written off as related to doubtful accounts,
discounts allowed as related to cash discounts and payments made
against the reserve as related to restructuring.
19
<PAGE> 20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
WITH RESPECT TO FINANCIAL STATEMENT SCHEDULE
We have audited, in accordance with auditing standards generally accepted
in the United States, 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 24, 2001. Our audit
was made for the purpose of forming an opinion on the consolidated financial
statements taken as a whole. The financial statement schedule on page 19 is the
responsibility of the Corporation's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the consolidated financial statements. The financial statement schedule has been
subjected to the auditing procedures applied in the audit of the consolidated
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the
consolidated financial statements taken as a whole.
/s/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 5, 2001
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
USG CORPORATION
March 5, 2001
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 March 5, 2001
- ------------------------------------------
WILLIAM C. FOOTE
Chairman, President and Chief Executive
Officer
(Principal Executive Officer)
/s/ Richard H. Fleming March 5, 2001
- ------------------------------------------
RICHARD H. FLEMING
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Raymond T. Belz March 5, 2001
- ------------------------------------------
RAYMOND T. BELZ
Senior Vice President and Controller
(Principal Accounting Officer)
By: /s/ Richard H. Fleming
------------------------------
ROBERT L. BARNETT, KEITH A. BROWN, ) Richard H. Fleming
JAMES C. COTTING, LAWRENCE M. CRUTCHER, ) Attorney-in-fact
W. DOUGLAS FORD, DAVID W. FOX, ) Pursuant to Power of Attorney
VALERIE B. JARRETT, MARVIN E. LESSER, ) (Exhibit 24 hereto)
JOHN B. SCHWEMM, JUDITH A. SPRIESER ) March 5, 2001
Directors )
21
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.(F)
<SEQUENCE>2
<FILENAME>c60469ex10-f.txt
<DESCRIPTION>MATERIAL CONTRACTS SECOND AMENDMENT
<TEXT>
<PAGE> 1
EXHIBIT 10(f)
SECOND AMENDMENT
OF
USG CORPORATION SUPPLEMENTAL RETIREMENT PLAN
(As Amended and Restated Effective as of July 1, 1997)
WHEREAS, USG Corporation Supplemental Retirement Plan (the "Plan"), established
effective January 1, 1976 and amended from time to time, was last amended and
restated in its entirety effective as of July 1, 1997; and
WHEREAS, amendment of the Plan now is considered desirable;
NOW, THEREFORE, pursuant to the amending power reserved to USG Corporation as
the "Company" under Section 7 of the Plan, as amended, the Plan be and is
further amended effective November 8, 2000 by adding the following new
subsection 4.10 immediately after subsection 4.9 thereof:
"4.10 Termination of Part B Deferrals and Immediate Distributions
Notwithstanding any other provisions of the Plan to the contrary:
(a) Compensation deferrals under subsections 4.3 and 4.4 and
Employer Matching Contributions under subsection 4.5 shall
be discontinued effective as of November 8 (or as soon as
practicable thereafter as the Committee may determine)
(such date referred to herein as the "Part B
Discontinuance Date").
(b) As of the Part B Discontinuance Date, all Participants
shall be fully vested in and have a nonforfeitable right
to their entire Part B Supplemental Benefit regardless of
their years of service and regardless of whether they are
fully vested in their employer matching contribution
account under the Investment Plan.
(c) All Participant accounts maintained under this Section 4
shall be adjusted as of the Part B Discontinuance Date.
Compensation deferrals under subsection 4.3 and 4.4 that
have not been credited to accounts shall either be
credited to accounts or returned to participants. Any
withdrawals and distributions made from such accounts but
not yet charged against accounts as of the Part B
Discontinuance Date shall be so charged.
(d) Subject to the provisions of subsection 5.3, as soon as
practicable after all Participant accounts have been
adjusted as provided in subparagraph (b) next above, the
balances in such accounts shall be distributed in a lump
sum to the Participants and Supplemental Plan
Beneficiaries in whose names such accounts have been
maintained and the balances in such accounts shall be
reduced to zero.
(e) As soon as practicable after corporation matching
contributions are made in 2001 to the Investment Plan for
its plan year ending on December 31, 2000, if any such
contributions are required under the
22
<PAGE> 2
contribution formula in the Investment Plan, Employer
Matching Contributions under this Plan attributable to
compensation deferrals made pursuant to subsection 4.3
during 2000 shall be distributed to the Participants
entitled thereto (or in case of their deaths their
Supplemental Plan Beneficiaries).
(f) Except as provided in this subsection 4.10, no further
Part B Supplemental Benefits may accrue under the Plan on
or after the Part B Discontinuance Date."
IN WITNESS WHEREOF, the Company has caused these presents to be signed on its
behalf by an officer thereunto duly authorized this 10th day of November, 2000.
USG CORPORATION
By:
----------------------------------
Its: Vice President, Compensation,
Benefits And Administration
23
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.(G)
<SEQUENCE>3
<FILENAME>c60469ex10-g.txt
<DESCRIPTION>MATERIAL CONTRACTS THIRD AMENDMENT
<TEXT>
<PAGE> 1
EXHIBIT 10(g)
THIRD AMENDMENT
OF
USG CORPORATION SUPPLEMENTAL RETIREMENT PLAN
(As Amended and Restated Effective as of July 1, 1997)
WHEREAS, USG Corporation Supplemental Retirement Plan (the
"Plan"), established effective January 1, 1976 and amended from time
to time, was last amended and restated in its entirety effective as of
July 1, 1997; and
WHEREAS, further amendment of the Plan now is considered
desirable;
NOW, THEREFORE, pursuant to the authority delegated to the
undersigned by resolution of the Board of Directors of USG
Corporation, the Plan be and is further amended, effective November 8,
2000, as follows:
1. By adding the following new subsection 3.8 to the Plan:
"3.8 OFFSET/REDUCTION FOR BENEFITS PROVIDED BY FUNDING ACCOUNTS
Although the plan is an unfunded, non-qualified compensation arrangement,
funds may be paid to the Participant or contributed to an individual trust
intended to constitute a grantor trust of a Participant under Section 671-678 of
the Internal Revenue Code of 1986, as amended (the "Code") or other funding
account established and maintained by a Participant pursuant to a funding
agreement between the Participant and USG (a "Funding Agreement"). If a
Participant has a Funding Agreement with USG, upon the Participant's death or
termination of employment for any reason, the Participant's Part A Supplemental
Benefits and Part A Supplemental Death Benefits will be offset/reduced to the
extent provided in the Funding Agreement to reflect the value of payments made
to the Participant and his or her grantor trust."
2. By substituting the following for subsection 5.3 of the Plan:
"5.3 FUNDING
Benefits payable under this Plan to a Participant or a Supplemental Plan
Beneficiary shall be paid directly by the Employers from their general assets in
such proportions as the Company shall determine to the extent such benefits are
not paid from a Special Retirement Account (established pursuant to Supplement A
of this Plan) or from a Funding Account (as defined in subsection 3.8) or from a
so-called "rabbi trust", an irrevocable grantor trust the assets of which are
subject to the claims of creditors of the Employers in the event of their
insolvency. The Employers shall not be required to segregate on their books or
otherwise any amount to be used for the payment of benefits under this Plan,
except as to any amounts paid or payable to a Funding Account or to a "rabbi
trust"."
24
<PAGE> 2
IN WITNESS WHEREOF, the Company has caused these presents to be signed
on its behalf by an officer thereunto duly authorized this 19th day of
December, 2000.
USG CORPORATION
By:
-------------------------------------
Its: Vice President, Compensation,
Benefits And Administration
25
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.(O)
<SEQUENCE>4
<FILENAME>c60469ex10-o.txt
<DESCRIPTION>2000 ANNUAL MANAGEMENT INCENTIVE PROGRAM
<TEXT>
<PAGE> 1
EXHIBIT 10(o)
YEAR 2000
ANNUAL
MANAGEMENT INCENTIVE
PROGRAM
USG CORPORATION
26
<PAGE> 2
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, 2000
through December 31, 2000.
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 hay 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 2000 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.
27
<PAGE> 3
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:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
POSITION TARGET INCENTIVE
<S> <C>
Chairman, President & CEO, USG Corporation 70%
- ---------------------------------------------------------------------------------------------------------------
Vice Chairman, USG Corporation; 60%
President & CEO, L&W Supply Corporation
- ---------------------------------------------------------------------------------------------------------------
Executive Vice President & Chief Financial Officer, USG Corporation 50%
Senior Vice President & General Counsel, USG Corporation
Vice President, USG Corporation;
President & CEO, United States 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 Manufacturing & 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
Senior Vice President International, USG Interiors, Inc
Vice President Human Resources, USG Corporation
Vice President & Chief Information Officer, USG Corporation
Vice President Communications, USG Corporation
Vice President Corporate Customer Relations
- ---------------------------------------------------------------------------------------------------------------
USG CORPORATION, OPERATING SUBSIDIARIES & PROFIT CENTERS
OFFICERS AND MANAGERS
Position Reference Point: $159,450 and over 35%
Position Reference Point: $146,470 - $159,449 30%
Position Reference Point: $133,500 - $146,469 25%
Position Reference Point: $119,890 - $133,449 20%
Position Reference Point: $106,900 - $119,889 15%
Position Reference Point: $ 94,060 - $106,899 10%
- ---------------------------------------------------------------------------------------------------------------
The par opportunity for the General Manager, Materials Division is 35%.
</TABLE>
28
<PAGE> 4
AWARDS
Incentive awards for all participants in the 2000 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 2000 CONSOLIDATED GOAL INCOME. IN THE EVENT THAT AWARDS
OTHERWISE PAYABLE PURSUANT TO THE ANNUAL MANAGEMENT INCENTIVE PROGRAM EXCEED
SUCH AMOUNT, ALL AWARDS WILL BE REDUCED PRORATA TO AN AGGREGATE AMOUNT EQUAL TO
4.0%.
For all participants, the annual incentive award opportunity is the annualized
salary in effect at the beginning of the calendar year (March 1 of the calendar
year for the twenty most senior executives) multiplied by the applicable
position target incentive value percent.
Incentive awards for 2000 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 (20) 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%
29
<PAGE> 5
3. For participants to qualify for the STRATEGIC FOCUS TARGET segment
comprising 20% (40% for the twenty most senior executives) of their
incentive award, their respective organization must achieve a minimum level
of performance related to the specified strategic focus. The Strategic
Focus Targets will be measurable, verifiable and derived from the formal
strategic planning process (e.g., cost reduction, sales growth, market
share gain, margins, etc.). The award adjustment factor for this segment
will range from 0.5 (after achieving minimum performance levels) to 2.0 for
maximum attainment. Participants will receive schedules of Strategic Focus
Targets upon approval by the Subcommittee.
4. Except with respect to the twenty (20) most senior executives (including
the Named Executive Officers) whose awards are based solely on achievement
of 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
----------------------------------------------------------------------
Did Not Meet Expectations No Award
----------------------------------------------------------------------
The maximum incentive award including all segments of this Program is 200%
of the target incentive opportunity.
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:
30
<PAGE> 6
<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 40%
President & CEO, U.S. Gypsum Co 40% Goal Income, U.S. Gypsum Company
- - Exec VP - Operations, NAG
- - 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
- - Sr VP & General Mgr, CGC, Inc 20% Net Earnings, USG Corporation 40%
20% Goal Income, North American Gypsum
20% Goal Income, CGC, Inc
- - President & General Mgr, YPSA 20% Goal Income, North American Gypsum 20%
40% 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>
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.
31
<PAGE> 7
GENERAL PROVISIONS
1. The Subcommittee shall review and approve the awards recommended for
officers and other employees who are eligible participants in the 2000
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, 2000 and all payments to be
made hereunder will be made as soon as practicable after said awards have
been approved.
ADMINISTRATIVE GUIDELINES
1. Award values will be based on annualized salary in effect for each
qualifying participant at the beginning of the year (March 1 for the twenty
most senior executives). Any change in duties, dimensions or
responsibilities of a current position resulting in a new evaluation and an
increase or decrease in reference points will be applied for Incentive
Program purposes on a prorata basis with the respective reference point and
target incentive value to apply for the actual number of full months of
service at each evaluation except for such a change with respect to a Named
Executive Officer, in which case any change in reference points and target
incentive value, for any reason, shall not become effective until January 1
of the following year.
2. As provided by the Program, no award is to be paid any participant who is
not a regular full-time employee in good standing at the end of the
calendar year to which the award applies. However, in the event an eligible
participant with three (3) or more months of active service in the Program
year subsequently retires, becomes disabled or dies, or is discharged from
the employment of the Company without cause, the participant (or
beneficiary) may receive an award which would otherwise be payable based on
goal achievement, prorated for the actual months of active service during
the year.
3. Employees participating in any other incentive or bonus program of the
parent Corporation or a Subsidiary who are transferred during the year to a
position covered by the Annual Management Incentive Program (other than a
Named Executive Officer) will be eligible to receive a potential award
prorated for actual full months of service in the two positions with the
respective incentive program and target incentive values to apply. For
example, a Marketing Manager promoted to Director, Marketing on August 1,
will be eligible to receive a prorata award for seven months based on the
Marketing Manager Plan provisions and values, and for five months under the
Annual Management Incentive Program provisions and target incentive values.
32
<PAGE> 8
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 Annual Management
Incentive Program, the employee is eligible to participate in the Annual
Management 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 2000 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.
33
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>5
<FILENAME>c60469ex13.txt
<DESCRIPTION>ANNUAL REPORT TO STOCKHOLDERS
<TEXT>
<PAGE> 1
EXHIBIT 13
USG CORPORATION
FINANCIAL REVIEW
Page
----
MANAGEMENT'S DISCUSSION AND ANALYSIS 35
CONSOLIDATED FINANCIAL STATEMENTS
Statements of Earnings 44
Balance Sheets 45
Statements of Cash Flows 46
Statements of Stockholders' Equity 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies 48
2. Provision for Restructuring Expenses 50
3. Shutdown of Plasterco 50
4. Acquisition of Sybex, Inc. 50
5. Earnings Per Share 50
6. Common Stock 50
7. Inventories 51
8. Property, Plant and Equipment 51
9. Leases 51
10. Debt 51
11. Financing Arrangements 52
12. Financial Instruments and Risk Management 53
13. Employee Retirement Plans 53
14. Stock-Based Compensation 54
15. Income Taxes 55
16. Segments 56
17. Litigation 57
REPORT OF MANAGEMENT 62
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 62
SELECTED QUARTERLY FINANCIAL DATA 63
FIVE-YEAR SUMMARY 64
34
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Overview
2000 was a challenging year for USG Corporation. First, the gypsum wallboard
market in the United States, which represents USG's largest single business,
transitioned from short supply to excess supply. Although, shipments of USG's
SHEETROCK brand gypsum wallboard set a new record, selling prices fell
significantly during the year because of excess supply in the market. The lower
prices, combined with higher energy and raw material costs, had an adverse
effect on USG's profitability in 2000.
Second, the number of asbestos claims and related settlement values
continued to increase, and two other major building products companies, Owens
Corning and Armstrong World Industries, Inc., filed Chapter 11 bankruptcies due
to asbestos-related liabilities. Based on an independent study, USG estimated
its probable liability for costs associated with asbestos cases currently
pending and expected to be filed through 2003 to be between $889 million and
$1,281 million. In the fourth quarter of 2000, USG recorded a noncash, pretax
provision of $850 million, increasing its total reserve for asbestos claims to
$1,185 million as of December 31, 2000.
Third, like the stock prices of several other building products companies,
the price of USG's common stock declined significantly following the
bankruptcies of Owens Corning and Armstrong World Industries.
Fourth, USG experienced two unfavorable developments in the fourth quarter
that could affect its ability to increase its liquidity in the future. The two
credit rating agencies, Standard & Poor's and Moody's, downgraded USG's
corporate debt rating. Standard & Poor's lowered its rating to investment grade
BBB, while Moody's dropped its rating to Ba2, two levels below its minimum
investment grade rating. In each case, the decrease was due to concerns over
USG's increasing asbestos exposure. Even before these downgrades, the securities
markets had steeply discounted securities, both debt and equity, of public
companies that are defendants in asbestos-related litigation. This development
came as a direct response to the Owens Corning bankruptcy filing. As a
consequence of these developments, USG expects to find it increasingly difficult
to raise new money in the capital markets so long as the long-term outcome of
its asbestos litigation remains uncertain.
Despite these challenges, 2000 also was a year of accomplishments for USG
including record shipments for all major product lines, record net sales for its
distribution business, a new $600 million revolving credit agreement and the
completion of three major capital projects. These accomplishments are discussed
in further detail below.
CONSOLIDATED RESULTS
NET SALES
Net sales in 2000 totaled $3,781 million, a slight decrease from 1999's record
level of $3,810 million. Record shipments were achieved for all of USG's major
product lines in 2000. However, the impact of favorable demand was offset by
lower selling prices on SHEETROCK brand gypsum wallboard. Comparing 1999 with
1998, net sales increased 14% primarily due to increased shipments and record
selling prices for SHEETROCK brand gypsum wallboard.
COST OF PRODUCTS SOLD
Cost of products sold totaled $2,941 million, up 7% versus 1999, reflecting the
combination of increased volume and higher energy and raw material costs. Cost
of products sold in 1999 was $2,742 million, up 12% from 1998 primarily due to
increased volume and higher asbestos-related charges.
In addition to the fourth quarter 2000 provision for asbestos claims, USG
recorded asbestos-related charges to cost of products sold through September 30,
2000. These charges totaled $77 million during the first nine months of 2000,
$80.5 million in 1999 and $26 million in 1998.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses totaled $309 million in 2000, down 9% from
$338 million in 1999. Expenses in 1998 totaled $299 million. As a percentage of
net sales, these expenses improved to 8.2% in 2000 from 8.9% in 1999 and 1998.
The decrease in expense dollars in 2000 versus 1999 primarily reflected
lower charges for incentive compensation programs and a company-wide emphasis on
reducing expenses. The increase in expense dollars in 1999 versus 1998 primarily
was related to incentive compensation and information technology initiatives.
35
<PAGE> 3
PROVISION FOR ASBESTOS CLAIMS
In the fourth quarter of 2000, based on an independent study, USG estimated its
probable liability for costs associated with asbestos cases currently pending
and expected to be filed through 2003 and recorded a noncash provision of $850
million pretax ($524 million after-tax). This provision, combined with the
existing asbestos-related reserve of $335 million, resulted in a total reserve
as of December 31, 2000, of $1,185 million, of which $250 million was classified
as a short-term liability and $935 million was classified as a long-term
liability on the consolidated balance sheet. See "Legal Contingencies" below and
"Note 17. Litigation" for additional information on asbestos-related matters.
PROVISION FOR RESTRUCTURING EXPENSES
In the fourth quarter of 2000, USG recorded a charge of $50 million pretax ($31
million after-tax) related to a restructuring plan that included a salaried
workforce reduction and the shutdown of three high-cost gypsum wallboard
manufacturing lines and other operations. An additional restructuring-related
charge of $4 million pretax ($2 million after-tax) was included in cost of
products sold for the writedown of certain inventory. The restructuring, which
will be completed in 2001, is designed to streamline operations and improve
business efficiency.
Included in the $50 million pretax charge was $16 million for severance
related to the salaried workforce reduction of over 500 positions, $15 million
for the write-off of property, plant and equipment, $12 million for razing
buildings and equipment, $5 million for line shutdown and removal, and $2
million for contract cancellations and severance for over 100 hourly positions.
Gypsum wallboard manufacturing lines were shut down at United States Gypsum
Company's plants located at Gypsum, Ohio (closed in December 2000), Oakfield,
N.Y. (closed in February 2001) and Fort Dodge, Iowa (closed in February 2001).
Together, these closings eliminated approximately 700 million square feet of
old, high-cost capacity. New, low-cost, high-speed manufacturing lines at East
Chicago, Ind., and Aliquippa, Pa., are now serving the customers of the closed
lines. Also, one of the two manufacturing lines at the Fort Dodge plant
continues to operate. Other operations that were shut down included a mill and
ship-loading system at Alabaster, Mich.
Total payments charged against the restructuring reserve in 2000 amounted
to $1 million. All restructuring-related payments are being funded with cash
from normal operations. Annual savings from the restructuring initiatives are
estimated at $40 million.
OPERATING PROFIT (LOSS)
An operating loss of $369 million was recorded in 2000. This loss included the
pretax provisions of $850 million for asbestos claims, $50 million for
restructuring expenses and $4 million for the writedown of certain inventory.
Excluding these provisions, operating profit was $535 million, down 27% from
$730 million in 1999 primarily due to a lower gross profit margin on gypsum
wallboard. Operating profit totaled $585 million in 1998.
INTEREST EXPENSE
Interest expense remained relatively constant over the past three years at $52
million in 2000 and $53 million in both 1999 and 1998.
INCOME TAXES (BENEFIT)
An income tax benefit of $161 million was recorded in 2000 due to the net loss
resulting from the provisions relating to asbestos claims and restructuring.
Income tax expense was $263 million in 1999 and $202 million in 1998. The
Corporation's effective tax rates were 38.4% in 2000 and 1999 and 37.8% in 1998.
NET EARNINGS (LOSS)
A net loss of $259 million, or $5.62 per share, was recorded in 2000. This loss
included the after-tax provisions of $524 million, or $11.39 per share, for
asbestos claims, $31 million, or $0.66 per share, for restructuring expenses and
$2 million, or $0.06 per share, for the writedown of certain inventory.
Excluding these provisions, net earnings in 2000 were $298 million and diluted
earnings per share were $6.49. Net earnings totaled $421 million in 1999 and
$332 million in 1998. Diluted earnings per share were $8.39 in 1999 and $6.61 in
1998.
36
<PAGE> 4
CORE BUSINESS RESULTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
(millions) Net Sales Operating Profit (Loss)
--------------------------------- ---------------------------------
2000 1999 1998 2000 1999 1998
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NORTH AMERICAN GYPSUM:
U.S. Gypsum Company $ 2,119 $ 2,255 $ 1,938 $ 336 $ 597 $ 494
CGC Inc. (gypsum) 206 183 156 34 27 18
Other subsidiaries 112 108 95 22 27 22
Eliminations (139) (130) (144) -- -- --
------- ------- ------- ------- ------- -------
Total 2,298 2,416 2,045 392 651 534
------- ------- ------- ------- ------- -------
WORLDWIDE CEILINGS:
USG Interiors, Inc. 513 487 476 64 60 53
USG International 232 226 250 3 -- 9
CGC Inc. (ceilings) 43 39 37 3 3 3
Eliminations (83) (63) (68) -- -- --
------- ------- ------- ------- ------- -------
Total 705 689 695 70 63 65
------- ------- ------- ------- ------- -------
BUILDING PRODUCTS DISTRIBUTION:
L&W Supply Corporation 1,373 1,345 1,103 110 87 40
------- ------- ------- ------- ------- -------
Corporate -- -- -- (44) (64) (54)
Eliminations (595) (640) (501) 3 (7) --
Provision for asbestos claims * -- -- -- (850) -- --
Provision for restructuring expenses -- -- -- (50) -- --
------- ------- ------- ------- ------- -------
TOTAL USG CORPORATION 3,781 3,810 3,342 (369) 730 585
======= ======= ======= ======= ======= =======
</TABLE>
* Excludes asbestos-related charges totaling $77 million for the first nine
months of 2000 recorded by U.S. Gypsum to cost of products sold. Comparable
full-year charges in 1999 and 1998 were $80.5 million and $26 million,
respectively.
- --------------------------------------------------------------------------------
NORTH AMERICAN GYPSUM
Net sales in 2000 were $2,298 million, down 5% from 1999. Operating profit of
$392 million declined 40% from 1999. Net sales and operating profit in 1999
increased 18% and 22%, respectively, versus 1998.
United States Gypsum Company reported lower net sales in 2000 as compared
with 1999. This decline primarily reflected lower wallboard selling prices,
which more than offset record shipments. Selling prices on SHEETROCK brand
gypsum wallboard declined steadily during 2000, and by December, prices averaged
$93.59 per thousand square feet, down 44% from the record high of $166.05 in
December 1999. This drop in selling prices resulted from the gypsum wallboard
market's transition from short supply to excess supply. For the year, the
average selling price of SHEETROCK brand gypsum wallboard was $130.61 per
thousand square feet, down 15% from the average price of $153.40 in 1999. The
average price in 1998 was $129.50. Shipments of SHEETROCK brand gypsum wallboard
totaled 9.29 billion square feet in 2000, up slightly from the previous record
of 9.24 billion square feet in 1999. Shipments in 1998 totaled 8.83 billion
square feet. Shipments of SHEETROCK brand joint compounds and DUROCK brand
cement board also set records in 2000.
Operating profit for U.S. Gypsum declined in 2000 due to the lower selling
prices and higher manufacturing costs for gypsum wallboard. Costs were up
primarily due to rising energy costs and higher prices for wastepaper, the
primary raw material of wallboard paper. Higher wastepaper prices also accounted
for an increase in manufacturing costs in 1999 as compared with 1998. U.S.
Gypsum's plants operated at 92% of capacity in 2000, compared with the estimated
average rate of 84% for the U.S. wallboard industry.
Asbestos-related charges to U.S. Gypsum's cost of products sold totaled $77
million during the first nine months of 2000, compared with full-year charges of
37
<PAGE> 5
$80.5 million in 1999 and $26 million in 1998.
The gypsum business of Canada-based CGC Inc. experienced improved net sales
and operating profit in each of the past two years. Net sales increased 13% in
2000 to $206 million, a new record. This followed a 17% increase in 1999.
Operating profit rose 26% in 2000 and 50% in 1999 as compared with the
respective prior years. These trends were primarily attributable to higher
selling prices on CGC's SHEETROCK brand gypsum wallboard.
WORLDWIDE CEILINGS
Net sales in 2000 were $705 million, up 2% versus 1999, while operating profit
of $70 million increased 11%. USG's domestic ceilings business, USG Interiors,
Inc., reported record net sales of $513 million, while operating profit of $64
million rose 7% over 1999. Domestic shipments of ceiling grid and AURATONE brand
ceiling tile were at record levels. USG International reported a 3% increase in
net sales, primarily due to increased sales in Europe, and recorded an operating
profit of $3 million in 2000 versus breakeven results in 1999. The ceilings
division of CGC contributed $3 million in operating profit, the same as last
year.
Comparing 1999 with 1998, net sales decreased slightly to $689 million from
$695 million. Operating profit in 1999 was $63 million, compared with $65
million in 1998. These declines were primarily attributable to weak economic
conditions in Eastern Europe and the Asia Pacific region. However, USG Interiors
experienced increased net sales and operating profit, increased domestic
shipments of ceiling grid and solid demand for ceiling tile products. These
improvements 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.
BUILDING PRODUCTS DISTRIBUTION
L&W Supply Corporation, the leading specialty building products distribution
business in the United States, reported record net sales of $1,373 million in
2000, an increase of 2% versus 1999. Operating profit of $110 million, also a
record, represented a 26% increase over the prior year. These results were
driven by record shipments of gypsum wallboard and strong sales of complementary
building products. As of December 31, 2000, L&W Supply operated out of 192
locations in the United States, distributing a variety of gypsum, ceilings and
related building materials. Net sales and operating profit in 1999 increased 22%
and 118%, respectively, versus 1998.
MARKET CONDITIONS AND OUTLOOK
Industry shipments of wallboard in the United States were an estimated 29.3
billion square feet in 2000, a 6% decrease from 1999. This decrease reflected
softening demand from new residential construction and a slowdown in repair and
remodel growth.
Based on preliminary data issued by the U.S. Bureau of the Census, U.S.
housing starts in 2000 were an estimated 1.592 million units, down 4% versus
1.667 million units in 1999. Housing starts totaled 1.617 million units in 1998.
The repair and remodel market has been the fastest growing segment for USG,
accounting for the second-largest portion of its sales. Record sales in 1999 of
existing homes of 5.197 million units supported residential repair and
remodeling in 2000. This, combined with strong nonresidential repair and
remodeling, provided solid opportunity in this market segment. However,
opportunity from this market in 2001 is expected to decline as sales of existing
homes in 2000 were 5.030 million units, down 3% from 1999. Lease rates,
government spending and other factors should support continued renovation of
nonresidential space, such as offices and schools.
Sales of USG products to the new nonresidential construction market were
solid in 2000. Future demand for USG products from new nonresidential
construction is determined by floor space for which contracts are signed.
Installation of gypsum and ceilings products follows signing of construction
contracts by about a year. Floor space for which contracts were signed was down
1% in 2000, following a 2% rise in 1999.
The U.S. market for gypsum wallboard transitioned from short supply, as
experienced in 1999, to excess supply in 2000. Also, new industry capacity was
added in 2000 by USG and other gypsum wallboard manufacturers, and more is being
added in 2001. As a result, management anticipates continued softness in USG's
gypsum wallboard results in 2001. In response to the excess supply conditions,
USG closed six wallboard manufacturing lines over a 16-month period ending in
February 2001. These closures eliminated approximately 1.5 billion square feet
of old, high-cost capacity. Pressure on gypsum wallboard pricing is likely to
continue until more capacity in the industry is closed and/or demand increases.
38
<PAGE> 6
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL STRATEGY
During the years 1997 through 2000, USG was focused on building long-term
stockholder value through the implementation of its strategic growth plan,
dividends and share repurchases.
Strategic Growth Plan: During the past four years, USG made significant
investments in its businesses under five strategies. The first strategy,
"building for growth by adding capacity and lowering production costs," is
nearly complete with the addition of five new gypsum wallboard manufacturing
lines, three of which were completed in 2000. A sixth line, currently under
construction in Monterrey, Mexico, will be completed in 2001. The second
strategy, "expanding its building products distribution business," is being
achieved by increasing the number of L&W Supply locations from 161 as of
December 31, 1996, to 192 as of December 31, 2000. The third strategy,
"enhancing customer service," is being realized through USG's centralized
customer service center that opened in 1997, the Genesis automated sales
information system that was implemented in 1999 and through the recent
consolidation of USG's gypsum and ceilings sales and marketing organizations.
The fourth strategy, "promoting its brand names," is being accomplished through
various brand awareness campaigns such as NASCAR sponsorships, television
commercials and the USG "Rock Tour" promotion. Finally, "leading in product
innovation" continues to be a USG standard. Recent examples are the "Next
Generation" of SHEETROCK brand gypsum wallboard and the FIBEROCK brand gypsum
fiber panel.
Dividends: USG began paying a quarterly cash dividend of $0.10 per-share in the
fourth quarter of 1998. USG increased the dividend to $0.15 per share in the
fourth quarter of 1999 and continued paying quarterly dividends at that rate
through the fourth quarter of 2000. However, as explained below under "2001
Plan," USG reduced its quarterly cash dividend to $0.025 per share in the first
quarter of 2001.
Share Repurchases: USG began a share-repurchase program in the fourth quarter of
1998. Under the program, the Corporation allocated a percentage of its free cash
flow to stock repurchases. This percentage varied from quarter to quarter
depending on the price of USG's stock, the level of USG's cash flow and
alternative uses of cash. Share repurchases were made in the open market or
through privately negotiated transactions and were funded with available cash
from operations. However, due to uncertainties related to current business
conditions and asbestos litigation, USG does not anticipate making any further
repurchases of common stock at this time.
Since the program began in the fourth quarter of 1998, USG purchased a
total of 7.3 million shares, completing an initial 5-million-share authorization
and purchasing 2.3 million shares of an additional 5-million-share
authorization. Share repurchases by year amounted to 5.7 million shares in 2000,
1.4 million shares in 1999 and 0.2 million shares in 1998.
2001 Plan: Because of a cyclical downturn in its businesses, rising energy
prices and asbestos litigation, USG's financial priorities in 2001 will focus on
increasing cash flow and optimizing operating performance. The plan includes
reducing capital expenditures, reducing costs and expenses, improving working
capital performance and seeking opportunities for the sale of surplus assets. In
addition, in the first quarter of 2001, USG reduced its quarterly cash dividend
to $0.025 per share. This action will reduce annual dividend payments by
approximately $22 million.
CAPITAL EXPENDITURES
Capital spending amounted to $380 million in 2000, compared with $426 million in
1999. As of December 31, 2000, remaining capital expenditure commitments for the
replacement, modernization and expansion of operations amounted to $58 million,
compared with $260 million as of December 31, 1999.
A substantial portion of the capital spending in 1999 and 2000 related to
the modernization of USG's gypsum wallboard capacity. This modernization has
enabled USG to replace old capacity with much more efficient new facilities. The
Corporation has completed construction of five new gypsum wallboard facilities
and closed six old, high-cost facilities. The modernization program includes the
construction of new gypsum wallboard plants located in Bridgeport, Ala. (opened
in 1999), Aliquippa, Pa. (opened in 2000), Rainier, Ore. (opened in 2000), and
Monterrey, Mexico (to be opened in 2001), and construction of new gypsum
wallboard manufacturing lines at U.S. Gypsum's plants in East Chicago, Ind.
(started up in 1999), and Plaster City, Calif. (started up in 2000). The new
plant in Monterrey, Mexico, will allow USG Mexico S.A. de C.V., USG's wholly
owned subsidiary in Mexico and the Mexican wallboard leader, to
39
<PAGE> 7
strengthen its position in northern Mexico while freeing existing capacity for
southern Mexican markets. With a plant in northern Mexico, USG Mexico will
become Mexico's first national wallboard manufacturer. Start-up of the Monterrey
facility is anticipated to occur in the third quarter of 2001.
Closure of old, high-cost capacity included the shutdown of the Plasterco,
Va., plant in 1999 and shutdown of gypsum wallboard manufacturing lines at U.S.
Gypsum's plants in East Chicago, Ind., in 1999, Plaster City, Calif., in 2000,
and as part of USG's fourth quarter 2000 restructuring program, Gypsum, Ohio, in
December 2000, Oakfield, N.Y., in February 2001 and Fort Dodge, Iowa, in
February 2001. One of the two manufacturing lines at the Fort Dodge plant
continues to operate.
USG expects to have limited external sources of capital available and
limited financial resources and liquidity to fund potential future growth
opportunities such as new products, acquisitions and joint ventures.
WORKING CAPITAL
As of December 31, 2000, current liabilities exceeded current assets by $20
million. This deficit working capital position included $250 million of the
total asbestos reserve of $1,185 million as a current liability. As of December
31, 1999, current assets exceeded current liabilities by $319 million. The ratio
of current assets to current liabilities was .98 to 1 as of December 31, 2000,
compared with 1.50 to 1 as of December 31, 1999.
Cash and cash equivalents as of December 31, 2000, amounted to $70 million,
down from $197 million as of December 31, 1999. During 2000, net cash flows from
operating activities totaled $364 million. Net cash flows to investing
activities of $377 million primarily reflected capital spending of $380 million.
Net cash flows to financing activities of $114 million primarily reflected $207
million used for stock repurchases and $27 million used for cash dividends,
partially offset by a net increase in borrowings of $118 million plus a currency
translation adjustment of $2 million related to foreign borrowings.
Receivables decreased to $305 million as of December 31, 2000, from $361
million as of December 31, 1999, primarily due to a lower level of net sales in
the fourth quarter of 2000 as compared with the fourth quarter of 1999.
Inventories increased to $271 million from $256 million, and accounts payable
rose to $200 million from $172 million. As of December 31, 2000, $141 million of
9.25% senior notes were classified as a current liability due to their maturity
in 2001.
DEBT
As of December 31, 2000, total debt amounted to $711 million, up $118 million
from $593 million as of December 31, 1999. This increase primarily reflects $131
million of industrial revenue bonds recorded in connection with USG's capital
spending program and $10 million of credit facility borrowings, partially offset
by a repayment of $20 million on an accounts receivable facility.
AVAILABLE LIQUIDITY
As of December 31, 2000, USG had $692 million of liquidity through three
financing arrangements. First, on June 30, 2000, USG entered into an agreement
with a syndicate of banks that includes revolving credit facilities totaling
$600 million. The agreement includes a five-year, multicurrency revolving credit
facility that permits the Corporation to borrow up to $400 million, including
borrowing capacity for its Canadian subsidiaries of up to $75 million in
equivalent Canadian dollars. The agreement also includes a $200 million, 364-day
facility. Second, USG has an accounts receivable facility that allows the
Corporation to borrow up to $130 million. The maximum amount of debt issuable
under the accounts receivable facility is determined by applicable reserve and
eligibility requirements. As of December 31, 2000, the maximum allowed borrowing
was $72 million based on these requirements. Third, USG maintains a $20 million
multicurrency facility in Europe. As of December 31, 2000, outstanding loans on
the three arrangements totaled $145 million, and letters of credit issued and
outstanding amounted to $16 million, leaving the Corporation with $531 million
of unused and available credit.
In addition, a shelf registration statement on file with the Securities and
Exchange Commission allows the Corporation to offer, from time to time, debt
securities, shares of preferred and common stock or warrants to purchase shares
of common stock, all having an aggregate initial offering price not to exceed
$300 million. No securities have been issued pursuant to this registration and
in view of the aforementioned issues involving asbestos litigation and credit
ratings, the Corporation does not currently expect to raise new money in the
public capital markets so long as the long-term outcome of its asbestos
litigation remains uncertain.
40
<PAGE> 8
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 commodity price, foreign currency
and interest rate exposures. USG does not use derivative instruments for trading
purposes.
Commodity Price Risk: USG uses swap and option agreements to manage price
exposure on anticipated purchases of natural gas, wastepaper and fuel. 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 results of the sensitivity analysis, which may differ from
actual results, USG's potential loss in fair value is $51 million.
Foreign Currency Exchange Risk: The foreign currency table below summarizes
USG's foreign currency hedge forward contracts as of December 31, 2000. The
table presents the notional values (in millions of U.S. dollar equivalents) and
weighted average contract rates. All outstanding foreign currency hedge
contracts mature within 12 months.
- ----------------------------------------------------------------------
FOREIGN CURRENCY
Currency Currency Notional Contract
Sold Purchased Value Rate
- ----------------------------------------------------------------------
U.S. Dollars Canadian Dollars $ 36 $ 1.48
U.S. Dollars Euros 6 0.89
Mexican Pesos U.S. Dollars 5 10.17
British Pounds Euros 4 0.62
Australian Dollars New Zealand Dollars 1 1.29
- ----------------------------------------------------------------------
Interest Rate Risk: The interest rates 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 by expected maturity dates and related
weighted average interest rates, except for variable-rate debt for which cash
flows are presented by average variable rates based on implied forward rates at
the reporting date. 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. The information is presented in U.S. dollar equivalents,
which is USG's reporting currency.
See "Note 1. Significant Accounting Policies" and "Note 12. Financial
Instruments and Risk Management" for additional information on USG's financial
exposures.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
INTEREST RATES
(dollars in millions) Maturity Date
---------------------------------------------------------------------
2001 2002 2003 2004 2005 Thereafter Total Fair Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DEBT
U.S. Dollar:
Fixed rate $ 141 -- -- -- $ 150 $ 260 $ 551 $ 404
Average interest rate 9.3% -- -- -- 8.5% 5.9% 6.2%
Variable rate -- $ 4 $ 25 $ 46 $ 50 -- $ 125 $ 108
Average interest rate -- 6.4% 6.2% 6.3% 6.7% -- 6.4%
Canadian Dollar:
Variable rate -- -- -- -- $ 29 -- $ 29 $ 19
Average interest rate -- -- -- -- 6.6% -- 6.6%
European Multicurrency Line:
Variable rate $ 6 -- -- -- -- -- $ 6 $ 6
Average interest rate 5.7% -- -- -- -- -- 5.7%
- ----------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE SWAPS
Canadian Dollar:
Notional amount $ 27 -- -- -- -- -- $ 27 --
Average pay rate 5.5% -- -- -- -- -- 5.5%
Average receive rate 5.9% -- -- -- -- -- 5.9%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 9
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 proceeded to prepare for the conversion to the euro. 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. USG 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 has been communicating
with them as necessary. Based on its experience during the first two years of
the transition period, USG 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 USG Corporation's subsidiaries, U.S. Gypsum, is a defendant in asbestos
lawsuits alleging both property damage and personal injury. As stated above, as
of December 31, 2000, the Corporation estimated U.S. Gypsum's probable liability
for costs associated with asbestos cases currently pending and expected to be
filed through 2003 to be between $889 million and $1,281 million. U. S. Gypsum
has reserved $1,185 million as the most likely estimate within that range. These
amounts are stated before tax benefit and are not discounted to present value.
In order to establish this reserve, a noncash, pretax charge to results of
operations of $850 million was taken in the fourth quarter of 2000 and added to
existing asbestos-related reserves totaling $335 million as of December 31,
2000, which primarily related to pending claims. U.S. Gypsum had a corresponding
receivable from insurance carriers of $86 million as of December 31, 2000, the
estimated portion of the reserved amount that is expected to be paid or
reimbursed by insurance.
The Corporation intends to monitor asbestos costs and trends, and it is
reasonably possible that they may differ from the Corporation's current
estimates and that any such difference may be material. In addition, asbestos
personal injury claims will continue to be asserted after 2003, and it is
probable that subsequent information will allow the Corporation to estimate the
costs associated with those cases. When such events occur, additional charges to
results of operations will be necessary in amounts that cannot currently be
reasonably estimated, but which are likely to be material to the period in which
they are taken.
U.S. Gypsum's total asbestos-related payments, net of insurance recoveries,
were $62 million in 2000 and $24 million in 1998. Insurance payments to U.S.
Gypsum for asbestos-related matters exceeded asbestos-related expenses by $6
million for 1999 due primarily to nonrecurring reimbursement for amounts
expended in prior years. In 2001, asbestos-related costs are currently expected
to exceed insurance recoveries by approximately $215 million.
Recent asbestos costs and charges, combined with declines in operating
results, have adversely affected the Corporation's access to capital, results of
operations, and financial position, but the Corporation currently believes that
it has sufficient cash flow and other capital resources to meet its obligations
and maintain its operations. However, although the Corporation's estimate of the
cost of the asbestos litigation is based on the information currently available,
the impact of the asbestos litigation on the Corporation may be affected by
numerous factors, including but not limited to bankruptcies of other defendants,
as well as other factors that may arise in the future. If asbestos-related costs
materially exceed the Corporation's estimates or its cash flow and capital
resources fall materially below current expectations, it is likely that the
asbestos litigation would have a material adverse impact on the Corporation's
results, liquidity and financial position.
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 17. Litigation" for additional information on asbestos and
environmental litigation.
42
<PAGE> 10
RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2001, USG will adopt Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities." These statements establish
accounting and reporting standards requiring that every derivative instrument be
recorded on the consolidated balance sheet as either an asset or a liability
measured at its fair value. These statements require that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. USG has determined that the impact of
adopting SFAS No. 133 and SFAS No. 138 on January 1, 2001, will be increases in
assets and liabilities of $111 million and $6 million, respectively, with the
corresponding offset of $105 million reflected in accumulated other
comprehensive income.
In 2000, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board issued EITF 00-10, "Accounting for Shipping and
Handling Revenues and Costs." This rule became effective in the fourth quarter
of 2000 and requires that all shipping and handling revenues are included in net
sales and related costs are included in cost of sales. USG's adoption of EITF
00-10 had the impact of increasing 2000 net sales and cost of products sold by
$231 million. Accordingly, prior years' net sales and cost of products sold were
restated to reflect increases of $210 million for 1999 and $212 million for
1998. Because each year's net sales and cost of products sold increased by an
equal amount, there was no impact on operating profit and net earnings.
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 conditions such as construction activity, interest rates and consumer
confidence; competitive conditions such as price and product competition;
increases in raw material and energy costs; 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. The
ultimate costs associated with the Corporation's asbestos litigation may differ
as a result of factors over which the Corporation has little or no control,
including the rate at which new asbestos-related claims are filed, the cost of
claims settlements and verdicts, the impact of recent and possible future
bankruptcies of other defendants and the recent reductions in the membership of
the Center for Claims Resolution and the other factors described herein. The
Corporation assumes no obligation to update any forward-looking information
contained in this report.
43
<PAGE> 11
CONSOLIDATED STATEMENTS OF EARNINGS
(millions, except per-share data) Years Ended December 31,
- ----------------------------------------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------
Net sales $ 3,781 $ 3,810 $ 3,342
Cost of products sold 2,941 2,742 2,458
Selling and administrative expenses 309 338 299
Provision for asbestos claims 850 - -
Provision for restructuring expenses 50 - -
- ----------------------------------------------------------------------------
Operating profit (loss) (369) 730 585
Interest expense 52 53 53
Interest income (5) (10) (5)
Other expense, net 4 3 3
- ----------------------------------------------------------------------------
Earnings (loss) before income taxes (420) 684 534
Income taxes (benefit) (161) 263 202
- ----------------------------------------------------------------------------
Net earnings (loss) (259) 421 332
============================================================================
Net Earnings (Loss) Per Common Share:
Basic (5.62) 8.48 6.81
============================================================================
Diluted (5.62) 8.39 6.61
============================================================================
The notes to consolidated financial statements are an integral part of these
statements.
44
<PAGE> 12
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(millions, except share data) As of December 31,
- -----------------------------------------------------------------------------------------------------
2000 1999
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 70 $ 197
Receivables (net of reserves of $18 and $18) 305 361
Inventories 271 256
Deferred income taxes 194 80
Other current assets 36 57
- -----------------------------------------------------------------------------------------------------
Total current assets 876 951
- -----------------------------------------------------------------------------------------------------
Property, plant and equipment, net 1,830 1,568
Deferred income taxes 257 -
Other assets 251 275
- -----------------------------------------------------------------------------------------------------
Total assets 3,214 2,794
=====================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 200 172
Accrued expenses 280 303
Taxes on income 19 21
Notes payable 6 16
Current portion of long-term debt 141 -
Current portion of asbestos reserve 250 120
- -----------------------------------------------------------------------------------------------------
Total current liabilities 896 632
=====================================================================================================
Long-term debt 564 577
Long-term asbestos reserve 935 254
Deferred income taxes - 138
Other liabilities 355 326
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 - 43,401,045 and 48,859,531 shares (after
deducting 6,584,177 and 1,125,691 shares held in treasury) 5 5
Treasury stock (256) (56)
Capital received in excess of par value 411 316
Accumulated other comprehensive loss (45) (33)
Retained earnings 349 635
- -----------------------------------------------------------------------------------------------------
Total stockholders' equity 464 867
- -----------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity 3,214 2,794
=====================================================================================================
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
45
<PAGE> 13
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(millions) Years Ended December 31,
- ------------------------------------------------------------------------------------------
2000 1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net earnings (loss) $(259) $ 421 $ 332
Adjustments to Reconcile Net Earnings (Loss) to Net Cash:
Provision for asbestos claims 850 - -
Provision for restructuring expenses 50 - -
Depreciation, depletion and amortization 96 91 81
Deferred income taxes (365) (42) (2)
(Increase) Decrease in Working Capital:
Receivables 55 (4) (52)
Inventories (15) (15) (26)
Payables 15 24 20
Accrued expenses (58) 58 17
(Increase) decrease in other assets (2) (20) 6
Increase in other liabilities 2 121 -
Other, net (5) (3) (2)
- -----------------------------------------------------------------------------------------
Net cash from operating activities 364 631 374
- -----------------------------------------------------------------------------------------
Investing Activities
Capital expenditures (380) (426) (309)
Net proceeds from asset dispositions 3 2 2
Acquisition of business, net of acquired cash - (74) -
- -----------------------------------------------------------------------------------------
Net cash to investing activities (377) (498) (307)
- -----------------------------------------------------------------------------------------
Financing Activities
Issuance of debt 197 65 78
Repayment of debt (114) (50) (107)
Short-term borrowings (repayments), net 37 (21) 9
Issuances of common stock - 12 48
Purchases of common stock (207) (72) (10)
Cash dividends paid (27) (22) (5)
- -----------------------------------------------------------------------------------------
Net cash (to) from financing activities (114) (88) 13
- -----------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (127) 45 80
Cash and cash equivalents at beginning of period 197 152 72
- -----------------------------------------------------------------------------------------
Cash and cash equivalents at end of period 70 197 152
=========================================================================================
Supplemental Cash Flow Disclosures:
Interest paid 52 56 56
Income taxes paid 211 281 186
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
46
<PAGE> 14
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Capital
Received Accumulated
Common Treasury in Excess Retained Other
Shares Shares Common Treasury of Par Earnings Comprehensive
(millions, except share data) (000) (000) Stock Stock Value (Deficit) Loss Total
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 46,781 (49) $ 5 $ - $ 258 $ (91) $ (25) $ 147
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Comprehensive Income:
Net earnings - - - - - 332 - 332
Foreign currency translation - - - - - - (5) (5)
-------
Total comprehensive income - - - - - - - 327
Cash dividends paid - - - - - (5) - (5)
Stock issuances 589 - - - 18 - - 18
Warrants exercised 2,455 - - - 40 - - 40
Purchases of common stock - (225) - (10) - - - (10)
Other (53) (22) - - 1 - - 1
Net change in treasury stock (247) - - - - - - -
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 49,525 (296) 5 (10) 317 236 (30) 518
- -------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net earnings - - - - - 421 - 421
Foreign currency translation - - - - - - (3) (3)
------
Total comprehensive income - - - - - - - 418
Cash dividends paid - - - - - (22) - (22)
Stock issuances 164 661 - 29 (18) - - 11
Purchases of common stock - (1,425) - (72) - - - (72)
Other 1 (66) - (3) 17 - - 14
Net change in treasury stock (830) - - - - - - -
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 48,860 (1,126) 5 (56) 316 635 (33) 867
- -------------------------------------------------------------------------------------------------------------------------
Comprehensive Loss:
Net loss - - - - - (259) - (259)
Foreign currency translation - - - - - - (12) (12)
------
Total comprehensive loss - - - - - - - (271)
Cash dividends paid - - - - - (27) - (27)
Stock issuances - 262 - 9 (11) - - (2)
Purchases of common stock - (5,656) - (207) - - - (207)
Reduction of tax reserves - - - - 103 - - 103
Other (1) (64) - (2) 3 - - 1
Net change in treasury stock (5,458) - - - - - - -
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000 43,401 (6,584) 5 (256) 411 349 (45) 464
=========================================================================================================================
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
47
<PAGE> 15
NOTES TO CONSOLIDATED 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, ceiling 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 consolidated financial statements in conformity with
accounting principles generally accepted in the United States 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' consolidated financial statements and notes
thereto have been reclassified to conform with the 2000 presentation.
REVENUE RECOGNITION
Revenue is recognized upon the shipment of products to customers.
EARNINGS PER SHARE
Basic earnings per share are computed by dividing net earnings by the weighted
average number of common shares outstanding during the year. The diluted loss
per share in 2000 also was computed by dividing net earnings by the weighted
average number of common shares outstanding during the year. Common stock
equivalents are not included in a diluted loss per share calculation because
they have an anti-dilutive effect. Diluted earnings per share in 1999 and 1998
include the dilutive effect of the potential exercise of outstanding stock
options and, for 1998 warrants, under the treasury stock method.
COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss) for USG include net earnings
(loss) and foreign currency translation gain or loss adjustments. 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.
FOREIGN CURRENCY TRANSLATION
Foreign currency-denominated assets and liabilities are translated into U.S.
dollars at the exchange rates existing as of the respective balance sheet dates.
Translation adjustments resulting from fluctuations in exchange rates are
recorded as a separate component of accumulated other comprehensive income
within stockholders' equity. Income and expense items are translated at the
average exchange rates during the respective periods.
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
48
<PAGE> 16
property, plant and equipment are determined principally on a straight-line
basis over the expected average useful lives of composite asset groups.
Estimated useful lives are determined to be 50 years for buildings and realty
improvements and a range of 10 years to 25 years for machinery and equipment.
Depletion is computed on a basis calculated to spread the cost of gypsum and
other applicable resources over the estimated quantities of material
recoverable.
LONG-LIVED ASSETS
Long-lived assets primarily include property, plant and equipment and goodwill
(the excess of cost over the fair value of net assets acquired). The Corporation
periodically reviews its long-lived assets for impairment by comparing the
carrying value of the assets with their estimated future undiscounted cash
flows. If impairment is determined, the asset is written down to estimated net
realizable value. Goodwill is amortized on a straight-line basis over a period
of 15 years to 40 years. Goodwill, net of accumulated amortization, amounted to
$120 million and $116 million as of December 31, 2000 and 1999, respectively.
Accumulated amortization of goodwill as of those dates totaled $9 million and $5
million, respectively. Goodwill is included in other assets on the consolidated
balance sheets.
FINANCIAL INSTRUMENTS
The Corporation uses derivative instruments to manage well-defined commodity
price, foreign currency and interest rate 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) whether there is a correlation between the value of the
derivative instrument and the underlying obligation.
Commodity Derivative Instruments: The Corporation uses swap and option
agreements to hedge anticipated purchases of natural gas, wastepaper and fuel to
be used in its manufacturing and shipping operations. These agreements are
designated as hedges and qualify for hedge accounting. Unrealized gains and
losses and option premiums are deferred and included in net earnings as part of
the underlying transaction.
Foreign Exchange Derivative Instruments: The Corporation has operations in a
number of countries and, as a result of intercompany and third-party
transactions, is exposed to changes in foreign currency exchange rates. To the
extent that the 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.
Interest Rate Derivative Instruments: The Corporation uses interest rate swap
agreements from time to time 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.
RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to earnings as incurred and
amounted to $21 million in the years ended December 31, 2000 and 1999, and $20
million in the year ended December 31, 1998.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2001, the Corporation will adopt Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended by SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities." These statements
establish accounting and reporting standards requiring that every derivative
instrument be recorded on the consolidated balance sheet as either an asset or a
liability measured at its fair value. These statements require that changes in
the derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. USG has determined that the impact of
adopting SFAS No. 133 and SFAS No. 138 on January 1, 2001, will be increases in
assets and liabilities of $111 million and $6 million, respectively, with the
corresponding offset of $105 million reflected in accumulated other
comprehensive income.
In 2000, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board issued EITF 00-10, "Accounting for Shipping and
Handling Revenues and Costs." This rule became effective in the fourth quarter
of 2000 and requires that all shipping and handling revenues are included in net
sales and related costs are included in cost of sales. USG's adoption of EITF
00-10 had the impact of increasing 2000 net sales and cost of products sold by
$231 million. Accordingly, prior years' net sales and cost of products sold were
49
<PAGE> 17
restated to reflect increases of $210 million for 1999 and $212 million for
1998. Because each year's net sales and cost of products sold increased by an
equal amount, there was no impact on operating profit and net earnings.
2. PROVISION FOR RESTRUCTURING EXPENSES
In the fourth quarter of 2000, USG recorded a pretax charge of $50 million
related to a restructuring plan that included a salaried workforce reduction and
the shutdown of three gypsum wallboard manufacturing lines and other operations.
An additional restructuring-related charge of $4 million was included in cost of
products sold for the writedown of certain inventory. The restructuring, which
will be completed in 2001, is designed to streamline operations and improve
business efficiency.
Included in the $50 million charge was $16 million for severance related to
the salaried workforce reduction of over 500 positions, $15 million for the
write-off of property, plant and equipment, $12 million for razing buildings and
equipment, $5 million for line shutdown and removal, and $2 million for contract
cancellations and severance for over 100 hourly positions.
Total payments charged against the restructuring reserve in 2000 amounted
to $1 million. All restructuring-related payments are being funded with cash
from normal operations.
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 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. 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 operated
joint compound and paper-faced metal corner bead plants in the United States and
Canada.
5. EARNINGS PER SHARE
The reconciliation of basic earnings per share to diluted earnings per share is
shown in the following table:
Net Average
(millions, except Earnings Shares Per-Share
share data) (Loss) (000) Amount
- ---------------------------------------------------------------------
2000:
Basic loss $ (259) 45,972 $ (5.62)
- ---------------------------------------------------------------------
Diluted loss (259) 45,972 (5.62)
=====================================================================
1999:
Basic earnings 421 49,697 8.48
Dilutive effect of stock options 519
- ---------------------------------------------------------------------
Diluted earnings 421 50,216 8.39
=====================================================================
1998:
Basic earnings 332 48,710 6.81
Dilutive effect of stock options 861
Dilutive effect of stock warrants 613
- ---------------------------------------------------------------------
Diluted earnings 332 50,184 6.61
=====================================================================
The diluted loss per share in 2000 was computed using the weighted average
number of common shares outstanding during the year. Common stock equivalents
were not included in the calculation because they have an anti-dilutive effect.
Including the dilutive effect of stock options, the weighted average number of
diluted shares outstanding in 2000 were 46,067,121.
6. COMMON STOCK
DIVIDENDS
USG paid cash dividends of $0.15 per share in each quarter of 2000. In 1999, USG
paid cash dividends of $0.10 per share in the first, second and third quarters,
and $0.15 in the fourth quarter. In the first quarter of 2001, USG reduced its
quarterly cash dividend to $0.025 per share.
SHARE REPURCHASES
Due to uncertainties related to current business conditions and asbestos
litigation, USG does not anticipate making any further repurchases of common
stock at this time. Since the program began in the fourth quarter of 1998, USG
purchased a total of 7.3 million shares, completing an initial 5-million-share
authorization and purchasing 2.3 million shares of an additional 5-million-share
authorization. Share repurchases by year amounted to 5.7 million shares in 2000,
1.4 million shares in 1999 and 0.2 million shares in 1998.
50
<PAGE> 18
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%.
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.
7. INVENTORIES
As of December 31, 2000 and 1999, the LIFO values of domestic inventories were
$197 million and $191 million, respectively, and would have been $2 million
higher for 2000 and $3 million higher for 1999 if they were valued under the
FIFO and average production cost methods. All nondomestic inventory is valued
under FIFO or 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, 2000 and 1999. Inventory classifications as of
December 31 were as follows:
(millions) 2000 1999
- ----------------------------------------------------------------
Finished goods and work in progress $ 175 $ 164
Raw materials 80 77
Supplies 16 15
- ----------------------------------------------------------------
Total 271 256
================================================================
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment classifications as of December 31 were as follows:
(millions) 2000 1999
- ----------------------------------------------------------------
Land and mineral deposits $ 85 $ 79
Buildings and realty improvements 551 423
Machinery and equipment 1,664 1,439
- ----------------------------------------------------------------
2,300 1,941
Reserves for depreciation and depletion (470) (373)
- ----------------------------------------------------------------
Total 1,830 1,568
================================================================
9. 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 $70 million, $62
million and $59 million in the years ended December 31, 2000, 1999 and 1998,
respectively. Future minimum lease payments required under operating leases with
initial or remaining noncancelable terms in excess of one year as of December
31, 2000, were $49 million in 2001, $43 million in 2002, $29 million in 2003,
$24 million in 2004 and $18 million in 2005. The aggregate obligation subsequent
to 2005 was $26 million.
10. DEBT
Total debt, including debt maturing within one year, as of December 31 consisted
of the following:
(millions) 2000 1999
- ----------------------------------------------------------------
Revolving credit facilities $ 79 $ 69
9.25% senior notes due 2001 141 150
Receivables facility due 2003 and 2004 60 80
8.5% senior notes due 2005 150 150
Industrial revenue bonds 255 124
Other 26 20
- ----------------------------------------------------------------
Total 711 593
================================================================
51
<PAGE> 19
REVOLVING CREDIT FACILITIES
On June 30, 2000, USG entered into an agreement with a syndicate of banks that
includes revolving credit facilities totaling $600 million. The agreement
includes a five-year, multicurrency revolving credit facility that permits the
Corporation to borrow up to $400 million, including borrowing capacity for its
Canadian subsidiaries of up to $75 million in equivalent Canadian dollars. The
agreement also includes a $200 million, 364-day facility. The terms of the
agreement include two financial covenants that require the Corporation to
maintain a minimum interest coverage ratio and a maximum leverage ratio. As of
December 31, 2000, the Corporation was in compliance with these covenants. These
facilities replace a $500 million revolving credit facility in the United States
and a $76 million ($110 million Canadian) facility in Canada, each scheduled to
mature in 2002.
As of December 31, 2000, outstanding loans under the five-year revolving
credit facility totaled $79 million, and letters of credit issued and
outstanding amounted to $16 million. There were no borrowings at year end under
the 364-day facility. This left the Corporation with $505 million of available
credit under these facilities.
The average rate of interest on borrowings under the five-year facility was
6.5% during the period of July 1, 2000, through December 31, 2000. The average
rates of interest on borrowings under the old U.S. and Canadian facilities
during the period of January 1, 2000 through June 30, 2000, were 6.6% and 5.5%,
respectively, and in 1999 were 5.7% and 5.8%, respectively.
See "Note 12. Financial Instruments and Risk Management" for information on
instruments used by the Corporation to manage the impact of interest rate
changes.
INDUSTRIAL REVENUE BONDS
Industrial revenue bonds have fixed interest rates ranging from 5.5% to 8.75%.
The weighted average rate of interest on the industrial revenue bonds is 6.0%.
The average maturity of these bonds is 30 years.
OTHER INFORMATION
The fair market value of total debt outstanding was $537 million and $582
million as of December 31, 2000 and 1999, respectively. The fair market values
were based on quoted market prices or, where quoted market prices were not
available, on instruments with similar terms and maturities.
Aggregate scheduled maturities of debt during the five years subsequent to
December 31, 2000, are $147 million in 2001, $4 million in 2002, $25 million in
2003, $46 million in 2004, $229 million in 2005 and $260 million thereafter.
11. 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 Corporation) of U.S. Gypsum and USG
Interiors as generated, in a transaction designed to be a "true sale" under
applicable law. USG Funding is a party to a Master Trust arrangement (the
"Master Trust") under which the purchased receivables are then transferred to
Chase Manhattan Bank as trustee to be held for the benefit of certificate
holders in such trust. A residual interest in the Master Trust is owned by USG
Funding through subordinated certificates. Under a supplement to the Master
Trust, certificates representing an ownership interest in the Master Trust of up
to $130 million have been issued to Citicorp Securities, Inc. Pursuant to the
applicable reserve and eligibility requirements, the maximum amount of debt
issuable under the receivables facility as of December 31, 2000 and 1999,
(including $60 million and $80 million outstanding as of December 31, 2000 and
1999, respectively), was $72 million and $108 million, respectively. 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 A1/P1
commercial paper rates.
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, 2000 and 1999, the outstanding balance of receivables
sold to USG Funding and held under the Master Trust was $156 million and $192
million, respectively, and debt outstanding under the receivables facility was
$60 million and $80 million as of December 31, 2000 and 1999, respectively.
Receivables and debt outstanding in connection with the receivables facility
remain in
52
<PAGE> 20
receivables and long-term debt, respectively, on the consolidated balance
sheets.
SHELF REGISTRATION
A shelf registration statement filed with the Securities and Exchange Commission
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. No securities have
been issued pursuant to this registration.
12. 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.
COMMODITY RISK MANAGEMENT
The Corporation uses swap and option agreements to hedge anticipated purchases
of natural gas, wastepaper and fuel to be used in its manufacturing and shipping
operations. As of December 31, 2000 and 1999, the Corporation had swap
agreements to exchange monthly payments on notional amounts of commodities
amounting to $205 million and $53 million, respectively. These agreements mature
within five years. The fair values of these swap agreements as of December 31,
2000 and 1999, were $105 million and zero, respectively.
FOREIGN EXCHANGE RISK MANAGEMENT
As of December 31, 2000 and 1999, the Corporation 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 date of the underlying
transaction, and all contracts mature within 12 months. The notional amounts of
foreign currency contracts as of December 31, 2000 and 1999, were $52 million
and $41 million, respectively. The fair value of these contracts as of December
31, 2000 and 1999, was zero.
INTEREST RATE RISK MANAGEMENT
The Corporation uses interest rate swap agreements from time to time to manage
the impact of interest rate changes on the underlying floating-rate debt. The
Corporation's swap portfolio consists of pay fixed/receive floating swaps, which
effectively convert floating-rate obligations into fixed-rate instruments. As of
December 31, 2000 and 1999, the Corporation had swap agreements in place to
convert $27 million and $53 million, respectively, of notional principal from
floating-rate to fixed-rate instruments. The swap agreements in place as of
December 31, 2000, matured in February 2001. The fair value of these swap
agreements as of December 31, 2000 and 1999, was zero.
COUNTERPARTY RISK
The Corporation 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, the Corporation anticipates that
these counterparties will be able to satisfy fully their obligations under the
contracts. The Corporation does not obtain collateral or other security to
support financial instruments subject to credit risk but monitors the credit
standing of all counterparties.
13. 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
employees' years of service and 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) 2000 1999 1998
- ----------------------------------------------------------------
Service cost of benefits
earned $ 16 $ 19 $ 14
Interest cost on projected
benefit obligation 47 43 39
Expected return on plan assets (54) (49) (44)
Net amortization 3 2 1
- ----------------------------------------------------------------
Net pension cost 12 15 10
================================================================
53
<PAGE> 21
Postretirement Benefits
-------------------------------
(millions) 2000 1999 1998
- ----------------------------------------------------------------
Service cost of benefits
earned $ 6 $ 7 $ 6
Interest cost on projected
benefit obligation 16 15 14
Net amortization (2) - (1)
- ----------------------------------------------------------------
Net postretirement cost 20 22 19
================================================================
The following tables summarize pension and postretirement benefit
obligations, plan assets and funded status as of December 31:
Pension Postretirement
----------------------------------
(millions) 2000 1999 2000 1999
- ----------------------------------------------------------------
Change in Benefit Obligation:
Benefit obligation
as of January 1 $ 632 $ 633 $ 195 $ 214
Service cost 16 19 6 7
Interest cost 47 43 16 15
Employee contributions 12 9 2 2
Benefits paid (55) (49) (12) (12)
Plan amendment 3 2 (1) (7)
Actuarial (gain) loss 17 (28) 16 (24)
Foreign currency rate change (2) 3 - -
- ----------------------------------------------------------------
Benefit obligation
as of December 31 670 632 222 195
================================================================
Change in Plan Assets:
Fair value as of January 1 667 597 - -
Actual return on plan assets 14 97 - -
Employer contributions 17 9 - -
Employee contributions 12 9 - -
Benefits paid (55) (49) - -
Foreign currency rate change (3) 4 - -
- ----------------------------------------------------------------
Fair value as of December 31 652 667 - -
================================================================
Funded Status:
As of December 31 (18) 35 (222) (195)
Unrecognized prior service cost 6 7 (6) (6)
Unrecognized net (gain) loss (7) (65) (32) (48)
- ----------------------------------------------------------------
Net balance sheet liability (19) (23) (260) (249)
================================================================
Assumptions as of December 31:
Discount rate 7.50% 7.75% 7.50% 7.75%
Pension plans expected return 9% 9% - -
Compensation increase rate 5% 5% 5% 5%
- ----------------------------------------------------------------
The assumed health-care-cost trend rate used to measure the accumulated
postretirement benefit obligation will be 7.5% in 2001, with a rate gradually
declining to 4.75% in 2007 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 31 (25)
- ----------------------------------------------------------------
14. 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:
2000 1999 1998
- ----------------------------------------------------------------
Expected life (years) 7.4 7.4 7.4
Risk-free interest rate 6.2% 6.5% 5.7%
Expected volatility 31.3% 31.4% 30.7%
Dividend yield 1.29% 0.88% -
- ----------------------------------------------------------------
The weighted average fair value of options granted on January 3, 2000, was
$18.84. The weighted average fair values of options granted on January 2, 1999,
January 2, 1998, and January 19, 1998, were $22.05, $22.32 and $24.53,
respectively.
If the Corporation had elected to recognize compensation cost for
stock-based compensation grants consistent with the method prescribed by SFAS
No. 123, net earnings (loss) and net earnings (loss) per common share would have
changed to the following pro forma amounts:
54
<PAGE> 22
(millions, except per-share data) 2000 1999 1998
- -------------------------------------------------------------------
Net Earnings(Loss): As reported $ (259) $ 421 $ 332
Pro forma (262) 416 328
Basic EPS: As reported (5.62) 8.48 6.81
Pro forma (5.70) 8.38 6.73
Diluted EPS: As reported (5.62) 8.39 6.61
Pro forma (5.70) 8.29 6.54
- -------------------------------------------------------------------
Stock option activity was as follows:
(options in thousands) 2000 1999 1998
- -------------------------------------------------------------------
Options:
Outstanding, January 1 1,790 2,034 2,049
Granted 330 316 413
Exercised (22) (553) (388)
Canceled (47) (7) (40)
- -------------------------------------------------------------------
Outstanding, December 31 2,051 1,790 2,034
Exercisable, December 31 1,437 1,087 1,292
Available for grant, December 31 2,488 566 1,122
- -------------------------------------------------------------------
Weighted Average Exercise Price:
Outstanding, January 1 $ 36.49 $ 30.43 $ 25.54
Granted 46.14 50.87 48.44
Exercised 10.31 22.29 22.72
Canceled 44.79 48.99 40.53
Outstanding, December 31 38.12 36.49 30.43
Exercisable, December 31 33.70 28.05 23.80
- -------------------------------------------------------------------
The following table summarizes information about stock options outstanding
as of December 31, 2000:
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 - 15 135 2.4 $ 10 135 $ 10
15 - 25 121 3.6 22 121 22
25 - 35 799 4.8 32 799 32
35 - 55 996 7.9 48 382 48
- -------------------------------------------------------------------
Total 2,051 6.1 38 1,437 34
===================================================================
As of December 31, 2000, common shares totaling 2,051,025 were reserved for
future issuance in conjunction with existing stock option grants. In addition,
2,487,720 common shares were reserved for future grants. Shares issued in option
exercises may be from original issue or available treasury shares.
15. INCOME TAXES
Earnings (loss) before income taxes consisted of the following:
(millions) 2000 1999 1998
- -------------------------------------------------------------------
U.S. $(471) $633 $487
Foreign 51 51 47
- -------------------------------------------------------------------
Total (420) 684 534
===================================================================
Income taxes (benefit) consisted of the following:
(millions) 2000 1999 1998
- -------------------------------------------------------------------
Current:
Federal $ 154 $246 $165
Foreign 18 10 12
State 27 47 29
- -------------------------------------------------------------------
199 303 206
- -------------------------------------------------------------------
Deferred:
Federal (306) (38) (3)
Foreign - 5 (1)
State (54) (7) -
- -------------------------------------------------------------------
(360) (40) (4)
- -------------------------------------------------------------------
Total (161) 263 202
===================================================================
Differences between actual provisions (benefits) for income taxes and
provisions (benefits) for income taxes at the U.S. federal statutory rate (35%)
were as follows:
(millions) 2000 1999 1998
- -------------------------------------------------------------------
Taxes on income (loss)
at federal statutory rate $(147) $240 $187
Foreign sales corporation (1) (1) (1)
Foreign earnings subject
to different tax rates 4 - (1)
State income tax, net of
federal benefit (17) 26 19
Percentage depletion (4) (4) (3)
Other, net 4 2 1
- -------------------------------------------------------------------
Provision (benefit) for
income taxes (161) 263 202
===================================================================
Effective income tax rate 38.4% 38.4% 37.8%
===================================================================
55
<PAGE> 23
Significant components of deferred tax assets and liabilities as of December
31 were as follows:
(millions) 2000 1999
- -------------------------------------------------------------------
Deferred Tax Assets:
Pension and postretirement benefits $ 104 $ 93
Reserves not deductible until paid 550 178
Other 34 7
- -------------------------------------------------------------------
688 278
- -------------------------------------------------------------------
Deferred Tax Liabilities:
Property, plant and equipment 237 189
- -------------------------------------------------------------------
Net deferred tax assets 451 89
===================================================================
The Corporation's income tax reserves were reduced by $103 million in the
third quarter of 2000 to reflect the settlement of various tax audits. The
benefit realized from the reduction of these reserves was credited to equity in
accordance with AICPA Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code." The reduction of these
reserves had no impact on the results of operations or cash flows of the
Corporation.
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 $206 million as of December 31, 2000. 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.
16. Segments
OPERATING SEGMENTS
(millions) 2000 1999 1998
- -------------------------------------------------------------------
Net Sales:
North American Gypsum $ 2,298 $ 2,416 $ 2,045
Worldwide Ceilings 705 689 695
Building Products Distribution 1,373 1,345 1,103
Eliminations (595) (640) (501)
- -------------------------------------------------------------------
Total 3,781 3,810 3,342
===================================================================
Operating Profit (Loss):
North American Gypsum 392 651 534
Worldwide Ceilings 70 63 65
Building Products Distribution 110 87 40
Corporate (44) (64) (54)
Eliminations 3 (7) -
Provision for asbestos claims (850) - -
Provision for restructuring expenses (50) - -
- -------------------------------------------------------------------
Total (369) 730 585
===================================================================
Depreciation, Depletion
and Amortization:
North American Gypsum 70 57 50
Worldwide Ceilings 18 19 18
Building Products Distribution 7 6 5
Corporate 1 9 8
- -------------------------------------------------------------------
Total 96 91 81
===================================================================
Capital Expenditures:
North American Gypsum 354 397 260
Worldwide Ceilings 16 20 39
Building Products Distribution 9 8 9
Corporate 1 1 1
- -------------------------------------------------------------------
Total 380 426 309
===================================================================
Assets:
North American Gypsum 1,924 1,721 1,350
Worldwide Ceilings 433 425 434
Building Products Distribution 278 309 258
Corporate 639 431 392
Eliminations (60) (92) (68)
- -------------------------------------------------------------------
Total 3,214 2,794 2,366
===================================================================
GEOGRAPHIC SEGMENTS
(millions) 2000 1999 1998
- -------------------------------------------------------------------
Net Sales:
United States $ 3,428 $ 3,449 $ 3,020
Canada 284 262 228
Other Foreign 259 260 269
Geographic transfers (190) (161) (175)
- -------------------------------------------------------------------
Total 3,781 3,810 3,342
===================================================================
Long-Lived Assets:
United States 1,709 1,473 1,094
Canada 188 198 155
Other Foreign 134 102 83
- -------------------------------------------------------------------
Total 2,031 1,773 1,332
===================================================================
56
<PAGE> 24
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.
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, 2000, 1999, and 1998, such
receivables, net of reserves, amounted to $93 million, $125 million and $141
million, respectively, including $59 million, $97 million and $106 million
purchased from U.S. Gypsum and $34 million, $28 million and $35 million
purchased from USG Interiors as of the respective dates.
17. 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 ten Property Damage Cases,
most of which involve multiple buildings. One of the cases is a conditionally
certified class action comprising 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, as a result of the
operation of statutes of limitations and the impact of certain other factors,
few if any additional Property Damage Cases will be filed. However, 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 likely that any cases that are filed will seek
substantial damages.
In total, U.S. Gypsum has settled approximately 116 Property Damage Cases
involving 246 plaintiffs, in addition to four class action settlements.
Twenty-four cases have been tried to verdict, seventeen of which were won by
U.S. Gypsum and seven of which were lost. Three of the twenty-four 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 2000, no new Property Damage Cases were filed against U.S. Gypsum, one
was settled, and ten were pending at year end. U.S. Gypsum expended
approximately $14 million for the defense and resolution of Property Damage
Cases and received insurance payments of approximately $21 million in 2000. In
1999, no new Property Damage Cases were filed against U.S. Gypsum, one case was
settled, and eleven 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
twelve were pending at year end. U.S. Gypsum expended $29.5 million for the
defense and resolution of Property Damage Cases and received insurance payments
of $22 million in 1998 (most of which consisted of payments for settlements
agreed to in the prior year).
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
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<PAGE> 25
defendant in approximately 92,000 Personal Injury Cases pending at December 31,
2000, 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 53,000 claims in 2000, compared with 48,000 claims in 1999, 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 likely 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 has been
increasing. In 2000, U.S. Gypsum (through the Center for Claims Resolution,
discussed below) closed approximately 57,000 claims for an average settlement of
approximately $2,600 per case, exclusive of defense costs. In addition, during
2000, U.S. Gypsum agreed to settle, in future years, approximately 26,000 claims
pending as of December 31, 2000, at approximately $1,475 per claim. See
"Estimated Cost" below for the estimated cost of resolving pending and future
asbestos cases to be filed through 2003.
U.S. Gypsum has been a member, together with fourteen other former
producers of asbestos-containing products, of the Center for Claims Resolution
(the "Center"), which assumed the handling of all Personal Injury Cases pending
against U.S. Gypsum and the other members of the Center. Since 1988, costs of
defense and settlement of Personal Injury Cases have been shared among the
members of the Center pursuant to predetermined sharing formulae. Effective
February 1, 2001, the Center members, including U.S. Gypsum, will no longer
share the costs of settlements entered into after that date, and each Center
member, including U.S. Gypsum, will negotiate and be responsible for paying its
own settlements separately. The Center will continue to perform certain claims
administration, negotiation, and defense functions for its members, the costs of
which will continue to be shared by 14 of the original Center members. Other
selected defense costs will be borne separately by each Center member, including
U.S. Gypsum. Most of U.S. Gypsum's personal injury liability and defense costs
have been paid by insurance, but current and future costs will be paid largely
by U.S. Gypsum, due to exhaustion of most available insurance. In addition, the
end of indemnity sharing by Center members may affect the amounts paid by U.S.
Gypsum to resolve Personal Injury Cases in the future. Plaintiffs' settlement
demands to separate Center members, including U.S. Gypsum, may be greater than
the members' historical share of settlement payments when the Center members
shared settlement costs. In addition, it is possible that more cases will be
tried to verdict against U.S. Gypsum than has previously been the case and that
significant adverse verdicts may occur. In December 2000, a jury in Miami, Fla.,
returned a verdict against U.S. Gypsum in the amount of $14 million in
compensatory damages and may award additional punitive damages. In February
2001, a jury in Beaumont, Texas, returned a verdict against U.S. Gypsum and in
favor of 22 plaintiffs in the total net amount of $16.6 million in compensatory
damages. No punitive damages were awarded. Damages awarded against U.S. Gypsum's
co-defendant, Flexitallic, Inc. totaled $18.6 million. U.S. Gypsum plans to
appeal.
U.S. Gypsum and other Center members have negotiated a number of
settlements with plaintiffs' firms that include agreements to resolve over time
the firms' pending claims as well as certain future claims. With regard to
future claims, these settlements typically provide that the plaintiffs' firms
will recommend to their future clients that they defer filing, or accept nominal
payments on, personal injury claims that do not meet established disease
criteria, and, with regard to those claims meeting established disease criteria,
that the future clients accept specified amounts to settle those claims. The
Center reached several such agreements in 1999 and 2000. These agreements
typically resolve claims for amounts consistent with historical per-claim
settlement costs paid to the plaintiffs' firms involved. However, settlement
costs for cases resolved outside such agreements have been increasing,
reflecting higher settlement demands to all defendants for more serious cases,
particularly in certain jurisdictions, and the bankruptcy of several defendants.
During 2000 and early 2001, several defendants in the Personal Injury Cases
(including one member and one former member of the Center) filed bankruptcy
petitions, and others may file in the future. When such bankruptcies occur, the
bankrupt defendant typically ceases paying asbestos claims for a period of
years. The absence of these defendants from the litigation is increasing the
cost of resolving Personal Injury Cases for other defendants, including U. S.
Gypsum, because
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<PAGE> 26
plaintiffs typically (and have recently) increased settlement demands to
remaining solvent defendants to replace the expected payments of now-bankrupt
defendants. Although the projected effect of recent bankruptcy filings has been
considered in estimating the cost of settling pending and future asbestos cases
(see "Estimated Cost," below), if additional major defendants were to file for
bankruptcy, this likely would have a material impact on U. S. Gypsum's
settlement costs and may increase the cost above that estimated below.
During 2000, five members left the Center, three of which are (because of
bankruptcy or insolvency) no longer paying their share of certain settlements
agreed to by the Center while they were members. Although in the past,
plaintiffs in such cases have accepted reduced payments from the remaining
Center members consistent with their share of the agreed settlements, some
plaintiffs now argue that the remaining Center members are required to fund the
entire settlement. Although there are strong defenses to such claims, there can
be no assurance as to the outcome. In other cases, the plaintiffs have certain
rights to nullify the settlement as to any unpaid portion, and it is possible
that such settlements will be jeopardized by the unwillingness of the remaining
members to fund the absent shares. Such a development would be likely to
increase U.S. Gypsum's costs of resolving the cases.
During 2000, approximately 53,000 Personal Injury Cases were filed against
U.S. Gypsum, and approximately 57,000 were closed. U.S. Gypsum incurred expenses
of $162 million in 2000 with respect to Personal Injury Cases, and received
approximately $90 million of insurance payments during that same year. 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.
U.S. Gypsum's estimated cost of resolving Personal Injury Cases is
discussed below (see "Estimated Cost").
Insurance Coverage: 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, 2000, after deducting insurance
paid out to date, and taking into account recent settlements, approximately $86
million of insurance remained with four carriers, all of which have agreed,
subject to certain limitations and conditions, to cover asbestos-related costs.
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. The amount of insurance remaining has increased due to increases in the
distributions from the estate of an insolvent carrier.
U.S. Gypsum's total asbestos-related payments, net of insurance recoveries,
were $62 million in 2000 and $24 million in 1998. Insurance payments to U.S.
Gypsum for asbestos-related matters exceeded asbestos-related expenses by $6
million for 1999 due primarily to nonrecurring reimbursement for amounts
expended in prior years.
Estimated Cost: The asbestos litigation involves numerous uncertainties that
make it difficult to estimate reliably U.S. Gypsum's probable liability in the
Personal Injury and Property Damage Cases.
In the Property Damage Cases, such uncertainties include, but may not be
limited to, 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, but may not be limited
to, the number, disease and occupational characteristics, and venue of Personal
Injury Cases that are filed against U.S. Gypsum; the age and level of physical
impairment of claimants; the
59
<PAGE> 27
viability of claims for conspiracy or punitive damages; the elimination of
indemnity sharing among Center members for future settlements and its impact on
U. S. Gypsum's ability to continue to resolve claims at historical or acceptable
levels; the continued solvency of other defendants; the inability or refusal of
former Center members to fund their share of existing settlements and its effect
on such settlement agreements; the continued ability to negotiate settlements or
develop other mechanisms that defer or reduce claims from unimpaired claimants;
and the possibility that federal legislation addressing asbestos litigation will
be enacted. In addition, additional bankruptcies of major defendants likely
would have a material impact on U.S. Gypsum's settlement costs and may increase
the cost above that estimated below.
As a result, any estimate of U.S. Gypsum's liability, while based upon the
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, and U. S. Gypsum's liability may be materially different
from its current estimate.
The Corporation has in the past, in the opinion of management, been unable
to reasonably estimate the probable cost of resolving future asbestos claims,
although the Corporation has estimated and reserved for costs associated with
then-pending claims. However, in 1999 and increasingly in 2000, the Center
entered into a number of long-term, broad-based settlements with plaintiffs' law
firms that provide, in addition to settlements of pending claims brought by such
firms, that the Center would have certain rights relating to settlement of
future claims brought by such firms. Generally, under these long-term
settlements, these plaintiffs' firms agree to recommend to their future clients
that they settle their claims against Center members consistent with specified
amounts, depending upon the application of disease criteria.
Concurrent with the increase in the number of these long-term settlements,
the Corporation undertook a detailed study of U. S. Gypsum's current and
potential future asbestos liability. This analysis was completed in the fourth
quarter of 2000. As part of this analysis, the Corporation reviewed, among other
things, historical case filings and increasing settlement costs; the type of
products sold by U. S. Gypsum and the occupations of claimants expected to bring
future asbestos-related claims; epidemiological data concerning the incidence of
past and projected future asbestos-related diseases; trends in the propensity of
persons alleging asbestos-related disease to sue U. S. Gypsum; the adverse
effect on settlement costs of historical reductions in the number of solvent
defendants available to pay claims, including reductions in membership of the
Center; the pre-agreed settlement recommendations in, and the continued
viability of, the long-term settlement agreements described above; and
anticipated trends in recruitment by plaintiffs' firms of non-malignant or
unimpaired claimants. The study attempted to weigh relevant variables and assess
the impact of likely outcomes on future case filings and settlement costs. In
addition, the Corporation considered future defense costs, as well as
allegations that U. S. Gypsum and the other Center members bear joint liability
for the share of certain settlement agreements that was to be paid by former
members that now have refused or are unable to pay.
Although substantial uncertainty remains, the Corporation believes it is
now possible to provide a reasonable estimate of U. S. Gypsum's liability for
asbestos cases to be filed through 2003 as well as those currently pending. The
Corporation believes that it is probable that asbestos claims currently pending
against U. S. Gypsum and future asbestos claims to be filed against it through
2003 (both property damage and personal injury) can be resolved for an amount
between $889 million and $1,281 million, including defense costs, and that
within this range the most likely estimate is $1,185 million. However, these
amounts are expected to be expended over a period extending several years beyond
2003, because asbestos cases have historically been resolved an average of three
years after filing. The above amounts are stated before tax benefit and are not
discounted to present value.
Although the Corporation estimates the probable liability for asbestos
claims to be filed against U. S. Gypsum through 2003 to be in the range set
forth above, it is also possible that the cost of resolving claims will be
greater than that set forth in this range, which would require an additional
charge to results of operations. Further, with regard to asbestos claims that
may be filed after 2003, the Corporation does not believe that adequate
information currently exists to allow it to reasonably estimate the number of
claims to be filed beyond 2003, or the liability associated with such claims.
However, claims will continue to be asserted after 2003, and it is probable that
prior to the end of 2003 the Corporation will be able to reasonably estimate
costs associated with claims to be filed after 2003 and will charge results of
operations for such costs.
60
<PAGE> 28
The Corporation has attempted to evaluate and weigh all relevant factors in
estimating U. S. Gypsum's liability. However, the Corporation cautions that
liability in asbestos cases is difficult to predict and involves many subjective
judgments that can be affected by the uncertainties identified above, as well as
other presently unanticipated factors that may arise. Many of these factors,
including but not limited to bankruptcies of co-defendants, are outside U. S.
Gypsum's control. As a result, it is reasonably possible that actual costs may
differ from the estimate set forth above and that this difference may be
material.
Accounting for Asbestos Liability: As stated above, as of December 31, 2000, the
Corporation estimated U. S. Gypsum's probable liability for asbestos costs
associated with cases currently pending and expected to be filed through 2003 to
be between $889 million and $1,281 million. U. S. Gypsum has reserved $1,185
million as the amount it believes to be the most likely estimate within that
range. These amounts are stated before tax benefit and are not discounted to
present value. In order to establish this reserve, a noncash, pre-tax charge to
results of operations of $850 million was taken in the fourth quarter and added
to existing asbestos-related reserves totaling $335 million as of December 31,
2000, which primarily related to pending claims. U.S. Gypsum had a corresponding
receivable from insurance carriers of $86 million as of December 31, 2000, the
estimated portion of the reserved amount that is expected to be paid or
reimbursed by insurance.
The Corporation intends to monitor asbestos-related costs and trends and,
as noted above, it is reasonably possible that they may differ from the
Corporation's current estimates and that any such difference may be material. In
addition, asbestos claims will continue to be asserted after 2003, and it is
probable that subsequent information will allow the Corporation to estimate the
costs associated with those cases. When such events occur, additional charges to
results of operations will be necessary in amounts that cannot presently be
reasonably estimated, but which are likely to be material to the period in which
they are taken.
Conclusion: Recent asbestos costs and charges, combined with declines in
operating results, have adversely affected the Corporation's access to capital,
results of operations, and financial position, but the Corporation currently
believes that it has sufficient cash flow and other capital resources to meet
its obligations and maintain its operations. However, although the Corporation's
estimate of the cost of the asbestos litigation is based on the information
currently available, the impact of the asbestos litigation on the Corporation
may be affected by the numerous factors identified above, including but not
limited to bankruptcies of other defendants, as well as other factors that may
arise in the future. If asbestos-related costs materially exceed the
Corporation's estimates or its cash flow and capital resources fall materially
below current expectations, it is likely that the asbestos litigation would have
a material adverse impact on the Corporation's results, liquidity and financial
position.
ENVIRONMENTAL LITIGATION
The Corporation and certain of its subsidiaries have been notified by state and
federal environmental protection agencies of possible involvement as one of
numerous "potentially responsible parties" in a number of so-called "Superfund"
sites in the United States. In most of these sites, the involvement of the
Corporation or its subsidiaries is expected to be minimal. The Corporation
believes that appropriate reserves have been established for its potential
liability in connection with all Superfund sites but is continuing to review its
accruals as additional information becomes available. Such reserves take into
account all known or estimated costs associated with these sites, including site
investigations and feasibility costs, site cleanup and remediation, legal costs,
and fines and penalties, if any. In addition, environmental costs connected with
site cleanups on USG-owned property 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.
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<PAGE> 29
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 accounting principles
generally accepted in the United States 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 auditing standards generally accepted in the United States 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 accounting,
auditing, internal control and financial reporting matters. 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, 2000
and 1999, and the related consolidated statements of earnings, cash flows and
stockholders' equity for the years ended December 31, 2000, 1999 and 1998. 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 auditing standards generally
accepted in the United States. 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, 2000 and 1999, and the results
of their operations and their cash flows for the years ended December 31, 2000,
1999 and 1998, in conformity with accounting principles generally accepted in
the United States.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 24, 2001
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<PAGE> 30
SELECTED QUARTERLY FINANCIAL DATA (unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth Total
(millions, except per-share data) Quarter Quarter Quarter Quarter Year
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000
Net sales $ 989 $ 995 $ 956 $ 841 $ 3,781
Operating profit (loss) 184 165 122 (840)(a) (369)(a)
Net earnings (loss) 106 93 65 (523)(a) (259)(a)
Per Common Share:
Net earnings (loss) (b) - basic 2.19 2.06 1.48 (12.05) (5.62)
- diluted 2.18 2.04 1.48 (12.05) (5.62)
Price range (c) - high 48.000 45.563 33.563 25.500 48.000
- low 30.750 30.359 24.625 13.125 13.125
Cash dividends paid 0.15 0.15 0.15 0.15 0.60
- --------------------------------------------------------------------------------------------------------------------------------
1999
Net sales 873 949 1,006 982 3,810
Operating profit 154 183 198 195 730
Net earnings 86 104 116 115 421
Per Common Share:
Net earnings (b) - basic 1.73 2.09 2.34 2.34 8.48
- diluted 1.71 2.07 2.32 2.32 8.39
Price range (c) - 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
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes provisions of $850 million pretax ($524 million after-tax) for
asbestos claims, $50 million pretax ($31 million after-tax) for
restructuring expenses and $4 million pretax ($2 million after-tax) for the
writedown of certain inventory.
(b) Basic earnings per share are calculated using weighted average common
shares outstanding during the period. Diluted losses per share in the
fourth quarter and full year 2000 also were calculated using weighted
average common shares outstanding during the periods. Common stock
equivalents were not included in these calculations because they have an
anti-dilutive effect. For all other periods, diluted earnings per share
were calculated using weighted average common shares and common stock
equivalents outstanding during the period. The sum of the four quarters is
not necessarily the same as the total for the year.
(c) Stock price ranges are for transactions on the New York Stock Exchange
(trading symbol USG), which is the principal market for these securities.
Stockholders of record as of January 31, 2001: Common - 4,314; Preferred -
none.
63
<PAGE> 31
FIVE-YEAR SUMMARY (unaudited)
<TABLE>
<CAPTION>
(dollars in millions, except per-share data) Years Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA:
Net sales $ 3,781 $ 3,810 $ 3,342 $ 3,066 $ 2,764
Cost of products sold 2,941 2,742 2,458 2,279 2,119
Selling and administrative expenses 309 338 299 281 268
Provision for asbestos claims 850 -- -- -- --
Provision for restructuring expenses 50 -- -- -- --
Amortization of excess reorganization value (a) -- -- -- 127 169
Operating profit (loss) (369) 730 585 379 208
Interest expense 52 53 53 60 75
Interest income (5) (10) (5) (3) (2)
Other expense, net 4 3 3 2 3
Income taxes (benefit) (161) 263 202 172 117
Net earnings (loss) (259) 421 332 148 15
Net Earnings (Loss) Per Common Share:
Basic (5.62) 8.48 6.81 3.19 0.32
Diluted (b) (5.62) 8.39 6.61 3.03 0.31
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA (as of the end of the period):
Working capital (20) 319 410 199 150
Current ratio 0.98 1.50 1.79 1.43 1.37
Property, plant and equipment, net 1,830 1,568 1,214 982 887
Total assets 3,214 2,794 2,366 1,926 1,864
Total debt 711 593 596 620 772
Total stockholders' equity (deficit) 464 867 518 147 (23)
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION:
Capital expenditures 380 426 309 172 120
Stock price (per common share) (c) 22.50 47.13 50.94 49.00 33.88
Cash dividends paid (per common share) 0.60 0.45 0.10 -- --
Average number of employees 14,900 14,300 13,700 13,000 12,500
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excess reorganization value was established in connection with a financial
restructuring in May 1993 and was subsequently amortized through September
30, 1997.
(b) Basic earnings per share are calculated using weighted average common
shares outstanding during the year. Diluted losses per share in 2000 also
were calculated using weighted average common shares outstanding during the
year. Common stock equivalents were not included in this calculation
because they have an anti-dilutive effect. For all other years, diluted
earnings per share were calculated using weighted average common shares and
common stock equivalents outstanding during the year.
(c) Stock price per common share reflects the final closing price of the year.
64
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>6
<FILENAME>c60469ex21.txt
<DESCRIPTION>SUBSIDIARIES
<TEXT>
<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
Beadex Manufacturing LLC................................................... Delaware
International:
CGC Inc. (a)............................................................... Canada
USG Canadian Mining Ltd.................................................... Ontario
Gypsum Transportation Limited.............................................. Bermuda
USG Mexico, S.A. de C.V.................................................... Mexico
USG Holding 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
</TABLE>
(a) Accounts for material revenues.
(b) As of December 31, 2000, L&W Supply conducted its business out of 192
locations in 37 states using various names registered under applicable
assumed business name statutes.
65
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>7
<FILENAME>c60469ex23.txt
<DESCRIPTION>CONSENTS OF EXPERTS AND COUNSEL
<TEXT>
<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 24, 2001, included in this Form 10-K for
the year ended December 31, 2000, 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, 33-11496
and 333-50388 on Form S-8. It should be noted that we have not audited any
financial statements of the Corporation subsequent to December 31, 2000, or
performed any audit procedures subsequent to the date of our report.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 5, 2001
66
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-24
<SEQUENCE>8
<FILENAME>c60469ex24.txt
<DESCRIPTION>POWER OF ATTORNEY
<TEXT>
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL PERSONS 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, 2000, 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 14th day of February, 2001, by
the following persons:
/s/ William C. Foote /s/ James C. Cotting
- --------------------------------------- ------------------------------------
William C. Foote, James C. Cotting,
Director, Chairman of the Board, Director
President and Chief Executive Officer
/s/ Robert L. Barnett /s/ Lawrence M. Crutcher
- --------------------------------------- ------------------------------------
Robert L. Barnett, Lawrence M. Crutcher,
Director Director
/s/ Keith A. Brown /s/ W. Douglas Ford
- --------------------------------------- ------------------------------------
Keith A. Brown W. Douglas Ford,
Director Director
/s/ David W. Fox /s/ John B. Schwemm
- --------------------------------------- ------------------------------------
David W. Fox, John B. Schwemm,
Director Director
/s/ Valerie B. Jarrett /s/ Judith A. Sprieser
- --------------------------------------- ------------------------------------
Valerie B. Jarrett, Judith A. Sprieser,
Director Director
/s/ Marvin E. Lesser
- ---------------------------------------
Marvin E. Lesser,
Director
67
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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