-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ab+oyW+G0XD184hVCc5xO8q3EWlYX6nilR6nXlgJKdHdjztiXgYNEiEukwYKwtwn dErkDoDbMvcRe/30Ytmvvg== 0000757011-98-000014.txt : 19980504 0000757011-98-000014.hdr.sgml : 19980504 ACCESSION NUMBER: 0000757011-98-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980501 SROS: CSX SROS: NYSE 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-Q SEC ACT: SEC FILE NUMBER: 001-08864 FILM NUMBER: 98608236 BUSINESS ADDRESS: STREET 1: 125 S FRANKLIN ST STREET 2: DEPT. 188 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3126064000 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED 03-31-98 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 -------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 South Franklin Street, Chicago, Illinois 60606-4678 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (312) 606-4000 -------------------------- 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 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 March 31, 1998, 47,395,284 shares of USG common stock were outstanding. Table of Contents
Page -------- PART I FINANCIAL STATEMENTS Item 1. Financial Statements: Consolidated Statement of Earnings: Three Months Ended March 31, 1998 and 1997 3 Consolidated Balance Sheet: As of March 31, 1998 and December 31, 1997 4 Consolidated Statement of Cash Flows: Three Months Ended March 31, 1998 and 1997 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 10 Report of Independent Public Accountants 18 PART II OTHER INFORMATION Item 1. Legal Proceedings 19 Item 6. Exhibits and Reports on Form 8-K 22 SIGNATURES 24
PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS USG CORPORATION CONSOLIDATED STATEMENT OF EARNINGS (dollars in millions except per share data) (Unaudited)
Three Months Ended March 31, -------------------- 1998 1997 --------- --------- Net sales $ 735 $ 673 Cost of products sold 539 496 --------- --------- Gross profit 196 177 Selling and administrative expenses 72 66 Amortization of excess reorganization value - 42 ---------- --------- Operating profit 124 69 Interest expense 13 17 Interest income (1) - Other expense, net 2 - ---------- --------- Earnings before income taxes 110 52 Income taxes 43 37 ---------- --------- Net earnings 67 15 ========== ========= Basic earnings per common share 1.42 0.33 Diluted earnings per common share 1.35 0.32 Dividends paid per common share - - Average number of common shares 47,125,604 45,946,213 Average diluted number of common shares 49,717,163 48,216,915 See accompanying Notes to Consolidated Financial Statements.
USG CORPORATION CONSOLIDATED BALANCE SHEET (dollars in millions) (Unaudited)
As of As of March 31, December 31, 1998 1997 ------------- ------------ Assets Current Assets: Cash and cash equivalents $ 66 $ 72 Receivables (net of reserves - $18 and $17) 339 297 Inventories 217 208 Current and deferred income taxes 29 63 ------------- ------------ Total current assets 651 640 Property, plant and equipment (net of reserves for depreciation and depletion - $249 and $236) 1,021 982 Other assets 301 304 ------------- ------------ Total Assets 1,973 1,926 ============= ============ Liabilities and Stockholders' Equity Current Liabilities: Accounts payable 163 146 Accrued expenses 186 220 Debt maturing within one year 16 10 ------------- ------------- Total current liabilities 365 376 Long-term debt 597 610 Deferred income taxes 161 163 Other liabilities 627 630 Stockholders' Equity: Preferred stock - - Common stock 5 5 Capital received in excess of par value 270 258 Deferred currency translation (28) (25) Reinvested earnings (deficit) (24) (91) ------------- ------------- Total stockholders' equity 223 147 ------------- ------------- Total Liabilities and Stockholders' Equity 1,973 1,926 ============= ============= See accompanying Notes to Consolidated Financial Statements.
USG CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (dollars in millions) (Unaudited)
Three Months Ended March 31, --------------------- 1998 1997 --------- --------- Operating Activities: Net earnings $ 67 $ 15 Adjustments to reconcile net earnings to net cash: Amortization of excess reorganization value - 42 Depreciation, depletion and other amortization 20 17 Current and deferred income taxes 32 23 (Increase) decrease in working capital: Receivables (42) (27) Inventories (9) (9) Payables 17 7 Accrued expenses (34) (35) (Increase) decrease in other assets 3 (7) Increase (decrease) in other liabilities (3) 20 Other, net (3) (4) --------- --------- Net cash from operating activities 48 42 --------- --------- Investing Activities: Capital expenditures (58) (24) Net proceeds from asset dispositions 1 - --------- --------- Net cash to investing activities (57) (24) --------- --------- Financing Activities: Issuance of debt 48 41 Repayment of debt (67) (61) Short-term borrowings, net 12 - Issuances of common stock 10 3 --------- --------- Net cash from (to) financing activities 3 (17) --------- --------- Net increase (decrease) in cash & cash equivalents (6) 1 Cash & cash equivalents at beginning of period 72 44 --------- --------- Cash & cash equivalents at end of period 66 45 ========= ========= Supplemental Cash Flow Disclosures: Interest paid 22 26 Income taxes paid 10 16 See accompanying Notes to Consolidated Financial Statements.
USG CORPORATION Notes to Consolidated Financial Statements (Unaudited) (1) The consolidated financial statements of USG Corporation and its subsidiaries ("USG" or the "Corporation") included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from those estimates. In the opinion of management, the statements reflect all adjustments, which are of a normal recurring nature, necessary to present fairly the Corporation's financial position as of March 31, 1998, and December 31, 1997, and results of operations and cash flows for the three months ended March 31, 1998 and 1997. Certain amounts in the prior years' financial statements have been reclassified to conform with the 1998 presentation. While these interim financial statements and accompanying notes are unaudited, they have been reviewed by Arthur Andersen LLP, the Corporation's independent public accountants. These financial statements and notes are to be read in conjunction with the financial statements and notes included in the Corporation's 1997 Annual Report on Form 10-K dated February 20, 1998. (2) Basic earnings per share were computed by dividing net earnings by the weighted average number of common shares outstanding for the period. The dilutive effect of the potential exercise of outstanding options and warrants to purchase shares of common stock is calculated using the treasury stock method. The reconciliation of basic earnings per share to diluted earnings per share is shown in the following table (dollars in millions except share data). Three Months Ended Net Shares Per Share March 31, Earnings (000) Amount ----------------------------------------------------------------------------------------------------------
1998 Basic earnings $ 67 47,126 $ 1.42 Effect of Dilutive Securities: Options 949 Warrants 1,642 ---------------------------------------------------------------------------------------------------------- Diluted Earnings 67 49,717 1.35 ========================================================================================================== 1997 Basic earnings 15 45,946 0.33 Effect of Dilutive Securities: Options 870 Warrants 1,401 ---------------------------------------------------------------------------------------------------------- Diluted Earnings 15 48,217 0.32 ==========================================================================================================
(3) In the first quarter of 1998, the Corporation adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." Total comprehensive income, consisting of net earnings and foreign currency translation adjustments, amounted to $64 million and $6 million for the three months ended March 31, 1998 and 1997, respectively. There was no tax impact on the foreign currency translation adjustments. (4) The Corporation uses derivative instruments to manage well-defined interest rate, energy cost and foreign currency exposures. The Corporation does not use derivative instruments for trading purposes. The criteria used to determine if hedge accounting treatment is appropriate are: (i) the designation of the hedge to an underlying exposure (ii) whether or not overall uncertainty is being reduced and (iii) if there is a correlation between the value of the derivative instrument and the underlying obligation. Interest Rate Derivative Instruments: - ------------------------------------- The Corporation utilizes interest rate swap agreements to manage the impact of interest rate changes on its underlying floating-rate debt. These agreements are designated as hedges and qualify for hedge accounting. Amounts payable or receivable under these swap agreements are accrued as an increase or decrease to interest expense on a current basis. To the extent the underlying floating-rate debt is reduced, the Corporation terminates swap agreements accordingly so as not to be in an overhedged position. In such cases, the Corporation recognizes gains and/or losses in the period the agreement is terminated. Energy Cost Derivative Instruments: - ----------------------------------- The Corporation uses swap agreements to hedge anticipated purchases of fuel to be utilized in the manufacturing processes for gypsum wallboard and ceiling tile. Under these swap agreements, the Corporation receives or makes payments based on the differential between a specified price and the actual closing price for the current month's energy price contract. These contracts are designated as hedges and qualify for hedge accounting. Amounts payable or receivable under these swap agreements are accrued as an increase or decrease to cost of products sold, along with the actual spot energy cost of the corresponding underlying hedge transaction, the combination of which amounts to the predetermined specified contract price. Foreign Currency Derivative Instruments: - ---------------------------------------- The Corporation has operations in a number of countries and has intercompany transactions among them and, as a result, is exposed to changes in foreign currency exchange rates. The Corporation manages most of these exposures on a consolidated basis, which allows netting of certain exposures to take advantage of any natural offsets. To the extent the net exposures are hedged, option and forward contracts are used. The foreign currency options qualify for hedge accounting, under which the option premium is amortized over the life of the option. The forward contracts are marked to market on a current basis with gains and/or losses included in net earnings in the period in which the exchange rates change. (5) Excess reorganization value, an intangible asset totaling $851 million, was recorded in 1993 in connection with a comprehensive restructuring of the Corporation's debt and the implementation of fresh start accounting as required by AICPA Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7"). As of September 30, 1997, the remaining $83 million balance of excess reorganization value was eliminated. This balance, which would have been amortized through April 1998, was offset by the elimination of a valuation allowance in accordance with SOP 90-7. See Note 6 below for additional information. (6) Income tax expense amounted to $43 million and $37 million in the three months ended March 31, 1998 and 1997, respectively. The Corporation's income tax expense for the first quarter of 1997 was computed based on pre-tax earnings excluding the noncash amortization of excess reorganization value, which was not deductible for income tax purposes. In the third quarter of 1997, a valuation allowance of $90 million, which had been provided for deferred tax assets relating to pension and retiree medical benefits prior to the Corporation's financial restructuring in 1993, was eliminated. The elimination of this allowance reflected a change in management's judgment regarding the realizability of these assets in future years as a result of the Corporation's pretax earnings levels and improved capital structure over the past three years. In accordance with SOP 90-7, the benefit realized from the elimination of this allowance was used to reduce the balance of excess reorganization value to zero as of September 30, 1997. (7) As of March 31, 1998, common shares totaling 2,212,900 were reserved for future issuance in conjunction with existing stock option grants. In addition, 1,150,645 common shares were reserved for future grants. (8) One of the Corporation's subsidiaries, United States Gypsum Company ("U.S. Gypsum"), is a defendant in asbestos lawsuits alleging both property damage and personal injury. See Part II, Item 1. "Legal Proceedings" for information concerning the asbestos litigation. The Corporation and certain of its subsidiaries have been notified by state and federal environmental protection agencies of possible involvement as one of numerous "potentially responsible parties" in a number of so-called "Superfund" sites in the United States. The Corporation believes that neither these matters nor any other known governmental proceeding regarding environmental matters will have a material adverse effect upon its earnings or consolidated financial position. See Part II, Item 1. "Legal Proceedings" for additional information on environmental litigation. (9) Under a revolving accounts receivable facility, the trade receivables of U.S. Gypsum and USG Interiors, Inc. are being purchased by USG Funding Corporation ("USG Funding") and transferred to a trust administered by Chase Manhattan Bank as trustee. Certificates representing an ownership interest of up to $130 million in the trust have been issued to an affiliate of Citicorp North America, Inc. USG Funding, a special-purpose subsidiary of USG Corporation, is a separate corporate entity with its own separate creditors that will be entitled to be satisfied out of USG Funding's assets prior to any value in USG Funding becoming available to its shareholder. Receivables and debt outstanding in connection with the receivables facility remain in receivables and long-term debt, respectively, on the Corporation's consolidated balance sheet. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS USG Corporation Consolidated Results Net Sales - First quarter 1998 net sales totaled $735 million, a record level for any first quarter and a 9% increase compared with net sales of $673 million in the first quarter of 1997. This increase was attributable to record first quarter shipments of all major product lines and higher selling prices for SHEETROCK brand gypsum wallboard. Gross Profit Margin - Gross profit as a percentage of net sales was 26.7% in the first quarter of 1998, up slightly from 26.3% in the prior-year period. Selling and Administrative Expenses - First quarter 1998 selling and administrative expenses of $72 million increased 9% versus expenses of $66 million in the first quarter of 1997. However, as a percentage of net sales, these expenses were unchanged at 9.8%. Expense dollars were up in the 1998 period due primarily to information technology initiatives, USG's product branding program and accruals for USG's performance-based restricted stock program. Amortization of Excess Reorganization Value - The noncash amortization of excess reorganization value reduced operating profit by $42 million in the first quarter of 1997. As explained in Notes 5 and 6 of this report, the remaining $83 million balance of excess reorganization value, which would have been amortized through April 1998, was offset by the elimination of a valuation allowance as of September 30, 1997. Interest Expense - As a result of debt reduction during the past year, interest expense in the first quarter of 1998 was $13 million, down 24% from the $17 million incurred in the first quarter of 1997. Income Tax - Taxes on income amounted to $43 million and $37 million in the first quarters of 1998 and 1997, respectively. The Corporation's 1997 income tax expense was computed based on pretax earnings excluding the noncash amortization of excess reorganization value, which was not deductible for income tax purposes. Net Earnings - First quarter 1998 net earnings were $67 million, or $1.35 per diluted share. First quarter 1997 net earnings, which amounted to $15 million, or $0.32 per diluted share, were net of the noncash amortization of excess reorganization value of $42 million, or $0.88 per diluted share. EBITDA - Earnings before interest, taxes, depreciation, depletion, amortization and certain other income and expense items ("EBITDA") amounted to $142 million in the first quarter of 1998, up 12% compared with $127 million for the first quarter of 1997. As a result of the amortization of excess reorganization value through September 30, 1997, USG continues to report EBITDA to facilitate comparisons of current and historical results. EBITDA is also helpful in understanding cash flow generated from operations that is available for taxes, debt service and capital expenditures. EBITDA should not be considered by investors as an alternative to net earnings as an indicator of the Corporation's operating performance or to cash flows as a measure of its overall liquidity. USG Corporation Core Business Results (dollars in millions) Net Sales EBITDA - -------------------------------------------------------------------------------------------------------------------- Three Months Ended March 31, 1998 1997 1998 1997 - -------------------------------------------------------------------------------------------------------------------- North American Gypsum: U.S. Gypsum Company $ 408 $ 375 $ 117 $ 105 L&W Supply Corporation 244 221 6 6 CGC Inc. (gypsum) 37 31 7 5 Other subsidiaries 20 20 6 5 Eliminations (110) (100) - - - -------------------------------------------------------------------------------------------------------------------- Total 599 547 136 121 - -------------------------------------------------------------------------------------------------------------------- Worldwide Ceilings: USG Interiors, Inc. 107 98 14 13 USG International 57 55 3 3 CGC Inc. (ceilings) 10 8 1 1 Eliminations (14) (13) - - - -------------------------------------------------------------------------------------------------------------------- Total 160 148 18 17 - -------------------------------------------------------------------------------------------------------------------- Corporate - - (12) (11) Eliminations (24) (22) - - - -------------------------------------------------------------------------------------------------------------------- Total USG Corporation 735 673 142 127 ====================================================================================================================
North American Gypsum First quarter 1998 net sales of $599 million and EBITDA of $136 million increased 10% and 12%, respectively, over first quarter 1997 levels. United States Gypsum Company - U.S. Gypsum's net sales in the first quarter of 1998 were the highest ever for a first quarter. Shipments of SHEETROCK brand gypsum wallboard totaled 2.137 billion square feet, the highest level for any first quarter and a 4% increase over first quarter 1997 shipments of 2.050 billion square feet. Selling prices on SHEETROCK wallboard averaged $125.31 per thousand square feet, up 4% from $120.31 for the first quarter of last year. Manufacturing unit costs for SHEETROCK wallboard were virtually unchanged from the prior-year period. First quarter 1998 capacity utilization at U.S. Gypsum's wallboard plants increased to approximately 99% from 97% a year ago. First quarter shipments of SHEETROCK brand joint compound and DUROCK brand cement board were the highest for any quarter in the company's history. L&W Supply Corporation - Net sales for USG's building products distribution business were a record for any first quarter and were up 10% over the first quarter of 1997. This performance reflects a new high for quarterly average selling prices on wallboard and record first quarter sales of wallboard and complementary building products. As of March 31, 1998, L&W Supply operated 179 locations in the United States after adding four greenfield locations and consolidating two locations into one during the first quarter of 1998. CGC Inc. - The gypsum business of CGC Inc., USG's wholly owned Canadian subsidiary, reported increased sales and EBITDA in the first quarter of 1998. CGC's performance reflects higher SHEETROCK wallboard volume and prices resulting from the improving Canadian economy and a continued high level of shipments to the eastern United States. Worldwide Ceilings First quarter 1998 net sales of $160 million increased 8% over the first quarter of 1997. EBITDA was $18 million in the first quarter of 1998 compared with $17 million in the corresponding 1997 period. Record first quarter shipments were realized for AURATONE brand ceiling tile, CONSTELLATION brand ceiling tile and DONN brand ceiling grid. These records were attributable to strong demand in the U.S. nonresidential construction market (both new construction and renovation) and growing international demand. International results reflect sales records in Europe and Latin America, partially offset by a modest decline in Asia. Construction Market Outlook Based on leading indicators, such as new housing starts, existing home sales and nonresidential construction activity, the outlook for 1998 continues to be positive. Key drivers of demand for USG's products, such as consumer confidence, employment rates and interest rates, all remain at favorable levels. In the United States, we are currently forecasting 1998 housing starts to approximate 1.450 million units, down slightly from the 1.474 million units registered in 1997. Record 1997 sales of existing homes of more than 4 million units will support residential repair and remodeling in 1998. This, combined with strong nonresidential repair and remodeling, will continue to provide growth in this market segment. New nonresidential construction in 1997, which increased by 10% as measured in floor space for which contracts were awarded, will support increased demand for this segment in 1998 as the finishing of an interior follows contract awards by about a year or more. Internationally, construction in Canada and Mexico should maintain their recoveries. Demand continues to be strong in Eastern Europe and Latin America, while conditions in Western Europe are showing signs of improvement. Prospects for the Asian construction market are expected to weaken in 1998; however, this market represents a relatively minor share of USG's total sales and earnings. LIQUIDITY AND CAPITAL RESOURCES Financial and Growth Strategies At the time of the 1993 debt restructuring, USG implemented a five-year strategy designed to improve its financial flexibility by reducing debt to a manageable level and attaining an investment grade rating on its capital structure. The goals of this strategy were recently achieved when the Corporation reached its target debt level in October 1997, followed by Standard & Poor's rating increase to BBB in December 1997 and Moody's rating increase to Baa3 in March 1998. USG's current strategy focuses on earnings growth. The key drivers of this strategy are USG's investments in cost-reduction and growth initiatives, which are supported by the financial flexibility of an investment grade capital structure. These initiatives involve replacing high-cost manufacturing capacity with low-cost capacity; adding efficient new capacity to serve customers and thereby increase market share; and expanding sales internationally through exports and manufacturing overseas. USG anticipates that these initiatives also will serve to reduce the impact of cyclicality on its earnings. Capital Expenditures Capital spending amounted to $58 million in the first three months of 1998, compared with $24 million in the corresponding 1997 period. As of March 31, 1998, capital expenditure commitments for the replacement, modernization and expansion of operations amounted to $468 million compared with $363 million as of December 31, 1997. North American Gypsum Projects - In April 1998, USG announced plans for a third major wallboard capacity replacement project, a $112 million plant to be located in Aliquippa, Pa. This new facility will provide 700 million square feet of SHEETROCK brand gypsum wallboard capacity to replace existing high-cost capacity in the region, improve service and accommodate anticipated strong growth in the Northeast market. The Aliquippa plant will manufacture SHEETROCK wallboard using 100% synthetic gypsum and is expected to begin operation in early 2000. Ground was broken in June 1997 for a new $110 million plant in Bridgeport, Ala. This facility will also manufacture SHEETROCK brand wallboard using 100% synthetic gypsum and is expected to begin operation in mid-1999. USG is also investing $90 million to rebuild and modernize its wallboard manufacturing line at the East Chicago, Ind., plant. This new line is expected to begin production by the end of 1999. Construction is underway to build a $90 million facility to manufacture gypsum wood fiber panels at the Gypsum, Ohio, wallboard plant. The new production line is expected to begin operating by the end of 1999 and will complement the fourth quarter 1997 acquisition of a gypsum fiber panel plant in Port Hawksbury, Nova Scotia. USG's gypsum wood fiber products are marketed under the FIBEROCK brand name. Additional capital investments include cost-reduction projects, such as the installation of stock cleaning equipment to utilize lower grades of recycled paper and the additional installation of processes to accommodate the use of synthetic gypsum at manufacturing facilities where it is more economical than natural gypsum rock. Worldwide Ceilings Projects - A $35 million project that included the replacement of two old production lines with one modern, high-speed line at the ceiling tile plant in Cloquet, Minn., was completed during the first quarter. The start-up process of the new line is currently under way. Working Capital Working capital (current assets less current liabilities) as of March 31, 1998, amounted to $286 million, and the ratio of current assets to current liabilities was 1.8 to 1. As of December 31, 1997, working capital was $264 million, and the ratio of current assets to current liabilities was 1.7 to 1. Receivables increased to $339 million as of March 31, 1998, from $297 million as of December 31, 1997, while inventories increased to $217 million from $208 million and accounts payable rose to $163 million from $146 million. These variations reflect normal seasonal fluctuations. Cash and cash equivalents as of March 31, 1998, amounted to $66 million, down from $72 million as of December 31, 1997. This decrease reflects first quarter 1998 net cash flows from operating and financing activities of $48 million and $3 million, respectively, and net cash flows to investing activities of $57 million. Debt As of March 31, 1998, total debt amounted to $613 million compared with $620 million as of December 31, 1997. During the first quarter, USG retired $67 million of 8.75% senior debentures, while increasing the borrowing on its U.S. and Canadian revolving credit facilities by $40 million and $8 million, respectively. Industrial revenue bonds and seasonal foreign borrowings increased by a total of $12 million. During the first quarter, USG issued $44 million of 5.65% fixed-rate industrial revenue bonds due 2033 to investors, the proceeds of which were deposited into a construction escrow account. These bonds, together with $45 million of variable-rate industrial revenue bonds issued last year in a related offering, will be used to finance the Gypsum, Ohio, gypsum wood fiber project. This debt is being recorded incrementally on USG's books as funds are drawn from the escrow accounts throughout the construction process. Available Liquidity The Corporation has additional liquidity available through several financing arrangements. Revolving credit facilities in the United States, Canada and Europe allow the Corporation to borrow up to an aggregate of $611 million (including a $125 million letter of credit subfacility in the United States), under which, as of March 31, 1998, outstanding revolving loans totaled $150 million and letters of credit issued and outstanding amounted to $80 million, leaving the Corporation with $381 million of unused and available credit. The Corporation had additional borrowing capacity of $50 million as of March 31, 1998, under a revolving accounts receivable facility. (See Note 9.) A shelf registration statement filed with the Securities and Exchange Commission allows the Corporation to offer from time to time debt securities, shares of preferred and common stock or warrants to purchase shares of common stock, all having an aggregate initial offering price not to exceed $300 million. As of the date of this report, no securities had been issued pursuant to this registration. On May 6, 1993, in connection with its debt restructuring, USG issued 2,602,566 warrants. Each warrant entitles the holder to purchase one share of USG common stock at a price of $16.14 any time prior to May 6, 1998. Through March 31, 1998, 348,191 warrants had been exercised, generating cash proceeds to USG of approximately $6 million. Assuming exercise of all remaining outstanding warrants by the termination date, additional cash proceeds to USG in the second quarter of 1998 would be approximately $36 million. The proceeds from the exercises will be added to the cash resources of the Corporation to be used for general corporate purposes. Stockholder Rights Plan On March 27, 1998, the Corporation approved the redemption of the preferred share purchase rights declared under a 10-year rights agreement adopted in May 1993 and adopted a new share purchase rights plan that is designed to strengthen the previous provisions assuring the fair and equal treatment for all stockholders in the event of any unsolicited attempt to acquire the Corporation. The new rights plan, which became effective on April 15, 1998, and will expire on March 27, 2008, has four basic provisions. First, if an acquiror buys 15% or more of USG's outstanding common stock, the plan allows other stockholders to buy, with each right, additional USG shares at a 50% discount. Second, if USG is acquired in a merger or other business combination transaction, rights holders will be entitled to buy shares of the acquiring company at a 50% discount. Third, if an acquiror buys between 15% and 50% of USG's outstanding common stock, the company can exchange part or all of the rights of the other holders for shares of the company's stock on a one-for-one basis, or shares of the new junior preferred stock on a one-for-one-hundredth basis. Fourth, before an acquiror buys 15% or more of USG's outstanding common stock, the rights are redeemable for one cent per right at the option of the board of directors. This provision permits the board to enter into an acquisition transaction that is determined to be in the best interests of stockholders. The board is authorized to reduce the 15% threshold to not less than 10%. Legal Contingencies One of the Corporation's subsidiaries, U.S. Gypsum, is a defendant in asbestos lawsuits alleging both property damage and personal injury. See Part II, Item 1. "Legal Proceedings" for information concerning the asbestos litigation. The Corporation and certain of its subsidiaries have been notified by state and federal environmental protection agencies of possible involvement as one of numerous "potentially responsible parties" in a number of so-called "Superfund" sites in the United States. The Corporation believes that neither these matters nor any other known governmental proceeding regarding environmental matters will have a material adverse effect upon its earnings or consolidated financial position. See Part II, Item 1. "Legal Proceedings" for additional information on environmental litigation. Year 2000 In 1997, USG developed a plan to modify its computer-based systems that are affected by the year 2000 date change. Anticipated spending for this modification is not expected to have a material impact on the Corporation's ongoing results of operations. The Corporation intends to implement its year 2000 compliance plan within the next 12 months to allow sufficient time to test its systems thoroughly before January 1, 2000. Forward-Looking Statements This report contains forward-looking statements related to management's expectations about future conditions. Actual business or other conditions may differ significantly from management's expectations and accordingly affect the Corporation's sales and profitability or other results. Actual results may differ due to factors over which the Corporation has no control, including economic activity, such as new housing construction, interest rates, and consumer confidence; competitive activity such as price and product competition; increases in raw material and energy costs; and the outcome of contested litigation. The Corporation assumes no obligation to update any forward-looking information contained in this report. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of USG Corporation: We have reviewed the accompanying condensed consolidated balance sheet of USG CORPORATION (a Delaware corporation) AND SUBSIDIARIES as of March 31, 1998, and the related condensed consolidated statement of earnings for the three-month periods ended March 31, 1998 and 1997 and the condensed consolidated statement of cash flows for the three months ended March 31, 1998 and 1997. These financial statements are the responsibility of the Corporation's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP ----------------------- ARTHUR ANDERSEN LLP Chicago, Illinois April 22, 1998 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Asbestos and Related Insurance Litigation One of the Corporation's subsidiaries, U.S. Gypsum, is among many defendants in lawsuits arising out of the manufacture and sale of asbestos-containing materials. U.S. Gypsum sold certain asbestos-containing products beginning in the 1930s; in most cases, the products were discontinued or asbestos was removed from the formula by 1972, and no asbestos-containing products were produced after 1977. Some of these lawsuits seek to recover compensatory and in many cases punitive damages for costs associated with the maintenance or removal and replacement of asbestos-containing products in buildings (the "Property Damage Cases"). Others seek compensatory and in many cases punitive damages for personal injury allegedly resulting from exposure to asbestos-containing products (the "Personal Injury Cases"). It is anticipated that additional asbestos-related suits will be filed. Summary - The following is a brief summary; see Note 16 to the financial statements in the Corporation's 1997 Annual Report for additional information on the asbestos litigation. U.S. Gypsum is a defendant in 16 Property Damage Cases, many of which involve multiple buildings. One of the cases is a conditionally certified class action comprised of all colleges and universities in the United States, which certification is presently limited to the resolution of certain allegedly "common" liability issues. (Central Wesleyan College v. W.R. Grace & Co., et al., U.S.D.C.S.C.). Another class action, brought on behalf of various public entities in the state of Texas, was settled in August 1997. The settlement amount will be paid over 12 months and will be partially funded by insurance. Fifteen additional property damage claims have been threatened against U.S. Gypsum. During the years 1995-1997, 6 new Property Damage Cases were filed against U.S. Gypsum while 32 were closed; the Company spent an average of $25 million per year on the defense and settlement of Property Damage Cases, but received a total of $148 million over the three-year period from insurance carriers, including reimbursement for expenditures in prior years. U.S. Gypsum's estimated cost of resolving pending Property Damage Cases is discussed below. (See "Estimated Cost.") U.S. Gypsum is also a defendant in Personal Injury Cases brought by approximately 85,000 claimants, as well as an additional 13,000 claims that have been settled but will be closed over time. Filings of new Personal Injury Cases totaled 23,500 claims in 1997, compared to 28,000 claims in 1996 and 14,000 in 1995. Filings of Personal Injury Cases have increased as a result of rulings by a Federal appellate court and the U.S. Supreme Court rejecting the Georgine v. Amchem class action settlement, in which U.S. Gypsum had participated as a member of the Center for Claims Resolution, referred to below. U.S. Gypsum's average cost to resolve Personal Injury Cases during the past three years has been approximately $1,600 per claim. Over that period, U.S. Gypsum expended an average of $30 million per year on Personal Injury Cases, of which an average of $26 million was paid by insurance. U.S. Gypsum is a member, together with 19 other former producers of asbestos- containing products, of the Center for Claims Resolution (the "Center"), which has assumed the handling of all Personal Injury Cases pending against U.S. Gypsum and the other members of the Center. Costs of defense and settlement are shared among the members of the Center pursuant to predetermined sharing formulae. Virtually all of U.S. Gypsum's personal injury liability and defense costs are paid by those of its insurance carriers that in 1985 signed an Agreement Concerning Asbestos-Related Claims (the "Wellington Agreement"), obligating them to provide coverage for the defense and indemnity costs incurred by U.S. Gypsum in Personal Injury Cases. Punitive damages have never been awarded against U.S. Gypsum in a Personal Injury Case; whether such an award would be covered by insurance under the Wellington Agreement would depend on state law and the terms of the individual policies. U.S. Gypsum's estimated cost of resolving pending Property Damage Cases is discussed below. (See "Estimated Cost.") U.S. Gypsum sued its insurance carriers in 1983 to obtain coverage for asbestos cases (the "Coverage Action") and has settled all disputes with 12 of its 17 solvent carriers. As of December 31, 1997, after deducting insolvent coverage and insurance paid out to date, approximately $325 million of potential insurance remained, including approximately $140 million of insurance from five carriers that have agreed, subject to certain limitations and conditions, to cover both property damage and personal injury costs; $140 million from two carriers that have agreed, subject to certain limitations and conditions, to cover personal injury but not yet property damage; and approximately $45 million from three carriers that have not yet agreed to cover either. U.S. Gypsum is attempting to negotiate a resolution of the Coverage Action with the five remaining defendant carriers, but may be required to litigate additional issues in its effort to secure the contested coverage. Aggregate insurance payments exceeded U.S. Gypsum's total expenditures for all asbestos-related matters, including property damage, personal injury, insurance coverage litigation and related expenses, by $2.3 million for 1997, $41 million in 1996 and $10 million in 1995, due primarily to nonrecurring reimbursement for amounts expended in prior years. Estimated Cost - The asbestos litigation involves numerous uncertainties that affect U.S. Gypsum's ability to estimate reliably its probable liability in the Personal Injury and Property Damage Cases. In the Property Damage Cases, such uncertainties include the identification and volume of asbestos-containing products in the buildings at issue in each case, which is often disputed; the claimed damages associated therewith; the viability of statute of limitations, product identification and other defenses, which varies depending upon the facts and jurisdiction of each case; the amount for which such cases can be resolved, which has normally (but not uniformly) been substantially lower than the claimed damages; and the viability of claims for punitive and other forms of multiple damages. Uncertainties in the Personal Injury Cases include the number, characteristics and venue of Personal Injury Cases that are filed against U.S. Gypsum; the Center's ability to continue to negotiate pre-trial settlements at historical or acceptable levels; the level of physical impairment of claimants; the viability of claims for punitive damages; and the Center's ability to develop an alternate claims-handling vehicle that retains the key benefits of the Georgine settlement. As a result, any estimate of U.S. Gypsum's liability, while based upon the best information currently available, may not be an accurate prediction of actual costs and is subject to revision as additional information becomes available and developments occur. Pending Cases: Subject to the above uncertainties, and based in part on information provided by the Center, U.S. Gypsum estimates that it is probable that Property Damage and Personal Injury Cases pending on December 31, 1997, can be resolved for an amount totaling between $200 million and $265 million, including defense costs. These amounts are expected to be expended over the next three to five years. Significant insurance funding is available for these costs, as detailed below. Future Cases: U.S. Gypsum is unable to reasonably estimate the cost of resolving Property Damage Cases and Personal Injury Cases that will be filed in the future. The Company anticipates that few additional Property Damage Cases will be filed, as a result of the operation of statutes of limitations and the impact of certain other factors, although it is possible that any cases that are filed may seek substantial damages. It is anticipated that Personal Injury Cases will continue to be filed in substantial numbers for the foreseeable future, although the percentage of such cases filed by claimants with little or no physical impairment is expected to remain high. However, the Company does not believe that the number and severity of future cases can be predicted with sufficient accuracy to provide the basis for a reasonable estimate of the liability that will be associated with such cases. Accounting for Asbestos Liability: As of December 31, 1997, U.S. Gypsum had reserved $200 million for liability from pending Property Damage and Personal Injury Cases (equaling the lower end of the estimated range of costs provided above). U.S. Gypsum had a corresponding receivable from insurance carriers of approximately $160 million, the estimated portion of the reserved amount that is expected to be paid or reimbursed by committed insurance. Additional amounts may be reimbursed by insurance depending upon the outcome of litigation and negotiations relating to insurance that is presently disputed. U.S. Gypsum had an additional reserve of $110 million as of December 31, 1997, that was available for future asbestos liabilities and asbestos-related expenses. The Company continues to accrue $18 million per year for asbestos costs and will periodically compare its estimates of liability to then-existing reserves and available insurance assets and adjust its reserves as appropriate. It is possible that U.S. Gypsum will determine in the future that additional charges to results of operations are necessary, although whether additional charges will be required and, if so, the timing and amount of such charges, cannot presently be predicted. Conclusion - The above estimates and reserves will be reevaluated periodically as additional information becomes available. It is possible that additional charges to earnings may be necessary in the future if the amounts reflected above prove insufficient in light of future events, and that any such charge could be material to results of operations in the period in which it is taken. However, it is management's opinion, taking into account all of the above information and uncertainties, including currently available information concerning U.S. Gypsum's liabilities, reserves, and probable insurance coverage, that the asbestos litigation will not have a material adverse effect on the liquidity or consolidated financial position of the Corporation. Environmental Litigation The Corporation and certain of its subsidiaries have been notified by state and federal environmental protection agencies of possible involvement as one of numerous "potentially responsible parties" in a number of so-called "Superfund" sites in the United States. In most of these sites, the involvement of the Corporation or its subsidiaries is expected to be minimal. The Corporation believes that appropriate reserves have been established for its potential liability in connection with all Superfund sites but is continuing to review its accruals as additional information becomes available. Such reserves take into account all known or estimated costs associated with these sites, including site investigations and feasibility costs, site cleanup and remediation, legal costs, and fines and penalties, if any. In addition, environmental costs connected with site cleanups on USG-owned property are also covered by reserves established in accordance with the foregoing. The Corporation believes that neither these matters nor any other known governmental proceeding regarding environmental matters will have a material adverse effect upon its earnings or consolidated financial position. Item 6. Exhibits and Reports on Form 8-K
(a) (3) Articles of Incorporation and By-Laws: (i) Certificate of Designations of Junior Participating Preferred Stock, Series D, of USG Corporation (incorporated by reference to Exhibit A of Exhibit 4 to USG Corporation's Form 8-K dated March 27, 1998). (ii) Amended and Restated By-Laws of USG Corporation, dated as of March 27, 1998. (4) Rights Agreement, dated March 27, 1998, between USG Corporation and Harris Trust and Savings Bank, as Rights Agent (incorporated by reference to Exhibit 4 to USG Corporation's Form 8-K dated March 27, 1998). (15) Letter of Arthur Andersen LLP regarding unaudited financial information. (27) Financial Data Schedule. (b) A report on Form 8-K was filed on March 27, 1998, relating to the Rights Agreement, dated March 27,1998, between USG Corporation and Harris Trust and Savings Bank, as Rights Agent.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. USG CORPORATION By /s/ Dean H. Goossen ----------------------------------- Dean H. Goossen, Corporate Secretary, USG Corporation By /s/ Raymond T. Belz May 1, 1998 ----------------------------------- Raymond T. Belz, Vice President and Controller, USG Corporation EX-3.(II) 2 BY-LAWS DATED AS OF 3/27/98 BY-LAWS OF USG CORPORATION (Delaware) As of March 27, 1998 BY-LAWS OF USG CORPORATION ARTICLE I OFFICES The principal office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle. The corporation may have such other offices, either within or without the State of Delaware, as the business of the corporation may require from time to time. ARTICLE II STOCKHOLDERS Annual Meeting Section 1. The date and time of the annual meetings of stockholders shall be determined by or under the authority of the board of directors as permitted by law for the purpose of electing directors and the transaction of such other business as may properly come before the meeting. If the election of directors shall not be held on the date designated for any such annual meeting or at any adjournment thereof, the board of directors shall cause the election to be held at a special meeting of the stockholders as soon thereafter as conveniently may be. Special Meetings Section 2. Special meetings of the stockholders may be called at any time by the chief executive officer of the corporation or by the corporate secretary upon a request in writing of a majority of the board of directors. Such request shall state the purpose or purposes of the proposed meeting. Place of Meetings Section 3. All meetings of the stockholders for the election of directors shall be held in the City of Chicago, State of Illinois, or at such other place as may be fixed from time to time by the board of directors. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Notice of Meetings Section 4. Written notice stating the place, day and hour of the meeting, and in the case of a special meeting the purpose or purposes for which the meeting is called, shall be given by mail to each stockholder entitled to vote thereat not less than ten (10) days, nor more than sixty (60) days before the date of the meeting. Such notice, when mailed, shall be deemed to be delivered when deposited in the United States mail in a sealed envelope addressed to the stockholder at his address as it appears on the records of the corporation, with postage prepaid. Quorum, Vote and Procedures Section 5. (a) The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally scheduled. (b) When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the certificate of incorporation, a different vote is required in which case such express provision shall govern and control the decision of such question. (c) The conduct of all meetings of the stockholders generally shall be in accordance with customary rules of parliamentary procedure. Subject to the requirements of Sections 11 and 12 of this Article II, any matter to be presented for consideration and with a view to obtaining a vote thereon at any such meeting shall be introduced by a motion, and any such motion shall be seconded before such consideration may begin or before any such vote may be obtained. Organization of Meeting Section 6. The chairman of the board of directors, or in his absence the president of the corporation, or in his absence the vice chairmen of the corporation in the chronological order of their election to that office, or in their absence the executive vice presidents, senior vice presidents, or vice presidents in that order and in order of their election, shall preside as chairman of all meetings of the stockholders. In the absence of all such persons, the meeting shall select, by majority vote, a stockholder present at the meeting to act as chairman. The corporate secretary of the corporation, or in his absence an assistant secretary, shall act as secretary of all meetings of the stockholders, and in the absence of the corporate secretary or an assistant secretary, the chairman shall appoint some other person to act as secretary of the meeting. Voting of Stock Section 7. On each matter submitted to a vote at a meeting of the stockholders, each holder of common stock shall be entitled to one vote in person or by proxy for each share of common stock held by the stockholder. No proxy shall be voted after three years from its date unless otherwise provided in the proxy, and, except where the transfer books of the corporation have been closed or a date has been fixed as a record date for the determination of its stockholders entitled to vote, no share of stock shall be voted at any election for directors which has been transferred on the books of the corporation within twenty (20) days next preceding such election of directors. In all elections for directors each stockholder shall have the right to vote, in person or by proxy, the number of shares owned by him for as many persons as there are directors to be elected. Voting of Shares By Certain Holders Section 8. (a) Each share standing in the name of another corporation, domestic or foreign, may be voted by such officer, agent or proxy as the by-laws of such corporation may prescribe or, in the absence of such by-law provisions, as the board of directors of such corporation may determine. (b) Shares standing in the name of a deceased person may be voted by his administrator or executor either in person or by proxy. Persons holding stock in a fiduciary capacity may vote the shares so held in person or by proxy. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority so to do be contained in an appropriate order of the court by which such receiver was appointed. A stockholder whose shares are pledged shall be entitled to vote such shares in person or by proxy, unless in the transfer by the pledgor on the books of the corporation he has expressly empowered the pledgee to vote thereon, in which case only the pledgee or his proxy may represent the stock and vote thereon. (c) Shares of stock of this corporation belonging to the corporation shall not be voted, directly or indirectly, at any meeting and shall not be counted in determining the total number of outstanding shares at any given time, but such shares held by the corporation in a fiduciary capacity may be voted and shall be counted in determining the total number of outstanding shares at any given time. Voting Lists Section 9. The officer or agent having charge of the stock ledger for the shares of the corporation shall prepare and make, at least ten (10) days before each meeting of the stockholders at which directors are to be elected, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order with the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder during ordinary business hours for a period of at least ten (10) days prior to such meeting at the place where the meeting is to be held or at the office of the corporation in Chicago, Illinois. Such list shall be produced and kept at the time and place of the meeting during the whole time thereof and shall be subject to the inspection of any stockholder who may be present. The original stock ledger shall be prima facie evidence as to who are the stockholders entitled to examine such stock ledger and to vote at any meeting of the stockholders. Closing of Transfer Books Section 10. The board of directors may close the stock transfer books of the corporation for a period not exceeding sixty (60) days preceding the date of any meeting of stockholders or the date of payment of any dividend, or the date for the allotment of rights or the date when any change or conversion or exchange of capital stock shall go into effect, or for a period not exceeding sixty (60) days in connection with obtaining the consent of stockholders for any purpose. In lieu of closing the stock transfer books as aforesaid, the board of directors may fix in advance a date, not exceeding sixty (60) days preceding the date of any meeting of stockholders, or the date of the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting, and any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to give such consent, and in such case such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting and any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the corporation after any such record date fixed as aforesaid. Advance Notice of Nominations Section 11. Subject to such rights of the holders of any class or series of preferred stock as shall be prescribed in the Restated Certificate of Incorporation or in the resolutions of the Board of Directors providing for the issuance of any such class or series, only persons who are nominated in accordance with the procedures set forth in this Section 11 shall be eligible for election as, and to serve as, directors. Nominations of persons for election to the Board of Directors may be made at a meeting of the stockholders at which directors are to be elected (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation entitled to vote at such meeting in the election of directors who complies with the requirements of this Section 11. Such nominations, other than those made by or at the direction of the Board of Directors, shall be preceded by timely advance notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 60th day nor earlier than the close of business on the 90th day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. A stockholder's notice to the Secretary shall set forth (x) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (I) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the number of shares of each class of capital stock of the Corporation beneficially owned by such person, and (iv) the written consent of such person to having such person's name placed in nomination at the meeting and to serve as a director if elected, and (y) as to the stockholder giving the notice, (I) the name and address, as they appear on the Corporation's books, of such stockholder, and (ii) the number of shares of each class of voting stock of the Corporation which are then beneficially owned by the stockholder. The presiding officer of the meeting of stockholders shall determine whether the requirements of this Section 11 have been met with respect to any nomination or intended nomination. If the presiding officer determines that any nomination was not made in accordance with the requirements of this Section 11, he or she shall so declare at the meeting and the defective nomination shall be disregarded. Advance Notice of Stockholder Proposals Section 12. At an annual meeting of stockholders, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been brought before the annual meeting (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation who complies with the requirements of this Section 12 and as shall otherwise be proper subjects for stockholder action and shall be properly introduced at the meeting. For a proposal to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely advance notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 60th day nor earlier than the close of business on the 90th day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (w) a description of the proposal desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (x) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business and any other stockholders known by such stockholder to be supporting such proposal, (y) the class and number of shares of the Corporation's stock which are beneficially owned by the stockholder on the date of such notice and (z) any financial interest of the stockholder in such proposal. The presiding officer of the annual meeting shall determine whether the requirements of this Section 12 have been met with respect to any stockholder proposal. If the presiding officer determines that a stockholder proposal was not made in accordance with the terms of this Section 12, he or she shall so declare at the meeting and any such proposal shall not be acted upon at the meeting. At a special meeting of stockholders, only such business shall be acted upon as shall have been set forth in the notice relating to the meeting or as shall constitute matters incident to the conduct of the meeting as the presiding officer of the meeting shall determine to be appropriate. ARTICLE III DIRECTORS General Powers Section 1. The business and affairs of the corporation shall be managed by a board of directors which may exercise all the powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these by-laws directed and required to be exercised or done by the stockholders. Number, Classes, and Qualifications Section 2. The number of directors which shall constitute the whole board shall be not less than three (3) nor more than seventeen (17) and shall be divided into three classes, as nearly equal in number as may be. Subject to the above limits, the number and classes of directors shall be determined from time to time by resolution of the board of directors. At each annual meeting after the initial classification and election of directors, directors shall be elected to fill all seats in the class whose term expires at such annual meeting and each director so elected shall hold office for a term expiring at the third annual meeting of stockholders after election as director and until a successor shall be duly elected and qualified. No non-employee director shall serve as such beyond the first annual meeting of stockholders following that director's 70th birthday nor while such person is an owner, member, or employee of or affiliated or associated with a professional firm or enterprise providing legal, accounting, or auditing services or advice to the corporation or any of its subsidiaries. A non-employee director shall report to the board or any appropriate committee thereof any significant change in such director's principal business, occupation, or position and shall consult with the board or any such committee concerning the possible effect of such change on continued service as a director. No officer-director shall serve as a director beyond the date such person ceases to be an officer. Directors need not be stockholders. Vacancies Section 3. Newly created directorships resulting from any increase in the authorized number of directors and vacancies in the board of directors from death, resignation, retirement, disqualification, removal from office or other cause, shall be filled by a majority vote of the directors then in office, and each director so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of the class to which he or she shall have been elected expires, and until his or her successor shall be duly elected and qualified. Regular Meetings Section 4. Regular meetings of the board of directors shall be held immediately after the annual meeting of stockholders in each year and on the second Wednesday in each of the months of February, August, and November in each year and also on the fourth Friday in each of the months of March and September in each year. If the day fixed for any such regular meeting shall be a legal holiday, the meeting scheduled for that day shall be held on the next succeeding business day which is not a legal holiday. The date and time of any such regular meeting may be changed as the Board of Directors may from time to time determine by resolution. Special Meetings Section 5. Special meetings of the board of directors may be called at any time by the chief executive officer of the corporation, or by the corporate secretary upon the request of not less than one-third (1/3rd) of the directors then in office. Place of Meetings Section 6. All meetings of the board of directors, whether regular or special, shall be held at the office of the corporation in Chicago, Illinois; provided, however, that any meeting, whether regular or special, may be held at such other place as the board of directors may from time to time determine by resolution or as may be fixed in a notice of the meeting or as may be fixed in any waiver of notice signed by all of the directors. Notice of Meetings Section 7. No notice of the holding of any regular meeting of the board of directors is required. Written notice of any special meeting shall be given by mail to each director not less than five (5) days before the date of the meeting, or by telegram, cable, telephone facsimile or electronic mail not less than two (2) days before the date of the meeting, or by telephone not less than twenty-four (24) hours before the time of the meeting, with confirmation of notice by telegram, cable, telephone facsimile or electronic mail, to be sent promptly. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, in a sealed envelope addressed to the director at his address as it appears on the records of the corporation, with postage prepaid. If such notice is given by telegram, cable, telephone facsimile, or electronic mail, the same shall be deemed to be delivered when delivered to any telegraph company with charges prepaid and addressed to the director at his address as it appears on the records of the corporation or when placed on telephone lines for facsimile transmittal or electronic mail to the director. Attendance of any director at any special meeting shall constitute a waiver of notice of such meeting except where a director attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of any special meeting of the board of directors need be stated in the notice or waiver of notice of such meeting. Quorum Section 8. A majority of the board of directors shall constitute a quorum for the transaction of business, but if at any meeting of the board there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time. The affirmative vote of a majority of all directors shall be necessary for the passage of any resolution unless a greater vote is required in these by-laws or the certificate of incorporation. Organization of Meeting Section 9. At meetings of the board of directors, the chairman of the board, or in his absence the president, or in his absence the vice chairmen of the corporation in the chronological order of their election to that office, shall preside as chairman of the meeting. In the absence of all of them, the meeting shall elect a director, present at the meeting, to act as chairman. The corporate secretary of the corporation, or in his absence an assistant secretary, shall act as secretary of all meetings of the board of directors and, in the absence of all such persons, the chairman of the meeting shall appoint some other person to act as secretary of the meeting. Compensation of Directors Section 10. Each director not otherwise employed by the corporation or an affiliated corporation shall be entitled to be paid expenses, if any, of attendance at such meetings and such remuneration as the board of directors may from time to time determine. ARTICLE IV COMMITTEES OF DIRECTORS Designation of Standing Committees Section 1. The corporation shall have the following standing committees: (a) An Executive Committee which shall have and may exercise all the authority of the board of directors during the intervals between meetings of the board of directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it. The committee shall consist of not less than four members of the board of directors and shall include the chairman of the board of directors and the president and/or a vice chairman as members. (b) A Compensation and Organization Committee which shall have the duty to review and to make recommendations to the board of directors with respect to management organization, succession and development programs, the election of corporate officers and their salaries and incentive compensation or bonus awards; to make the decisions required by a committee of the board of directors under all stock option and restricted stock and deferred stock plans; and to approve and report to the board of directors changes in salary ranges for all other major position categories and changes in retirement plans, group insurance plans, investment plans or other benefit plans and management incentive compensation or bonus plans. The committee shall consist of not less than four members of the board of directors who are not officers or employees of the corporation. (c) An Audit Committee which shall have ongoing responsibilities with respect to adequacy of financial reporting, compliance with corporate policies, and efficacy of corporate controls. This committee shall provide reasonable assurance that the corporation's financial disclosure fairly portrays its financial condition, results of operations, and long-term plans and commitments. It likewise shall provide reasonable assurance of substantial compliance with corporate policies applicable to business conduct. The committee shall monitor the corporation's system of internal controls for adequacy and implementation. The Audit Committee additionally shall select and employ on behalf of the corporation, subject to ratification by stockholders, a firm of certified public accountants whose duty shall be to audit the books and accounts of the corporation and its subsidiaries and affiliates for the fiscal year for which it is appointed. The committee shall confer with such firm on the scope of such audit and on other services to be provided and on the costs thereof and shall review with the firm at the conclusion of the audit and prior to any publication of audited financial statements the findings disclosed in such audit. The committee periodically shall report and make appropriate recommendations to the board of directors. It shall consist of not less than three members of the board of directors who are not officers or employees of the corporation. (d) A Committee on Directors which shall study and make recommendations to the board of directors concerning the size and composition of the board and committees of the board, recommend nominees for election or reelection as directors, and consider other matters pertaining to board membership such as retirement policy and compensation of non-employee directors. Directors who are not officers or employees of the corporation and whose terms continue after the next annual meeting will be designated to serve on this committee. (e) A Finance Committee which shall provide review and oversight of and make recommendations to the board of directors on the corporation's financing requirements and programs to obtain funds; relations with banks, bondholders and other creditors, and equity holders; forecasting procedures on revenues, expenses, earnings, and cash flow; operating and capital expenditure budgets; dividend policy; the adoption of any compensation plan for key employees which contemplates the issuance of stock of the corporation or which is a significant cash compensation plan (other than an annual cash bonus plan consistent with past practice); and acquisitions, divestitures and significant transactions affecting the corporation's capital structure or ownership. The Committee shall confer with the Pension and Investment Committee established under the corporation's retirement plan and report periodically to the board of directors on the funding of qualified pension plans of the corporation and its subsidiaries and the investment performance of plan funds and, on behalf of the board of directors, authorize necessary or desirable changes in actuarial assumptions for funding the plans. The Committee shall consider such other matters as may be referred to it from time to time by the board of directors. (f) A Corporate Affairs Committee which shall review and recommend policies and programs which are important in maintaining a sound position with those various publics whose understanding and goodwill are necessary to the corporation's success. The committee shall report periodically to the board of directors on the corporation's activities in fulfilling its social responsibilities and complying with public policy, including employee safety and occupational health, equal employment opportunity, product safety, corporate contributions, and the relationship of the corporation to the communities in which it operates. The committee shall consist of not fewer than three members of the board of directors who are not officers or employees of the corporation. Other Committees of Directors Section 2. The board of directors may, by resolution passed by a majority of the whole board, designate from time to time other committees of the board of directors of such number of directors and with such powers as the board of directors may by resolution determine. Appointment of Committee Members Section 3. The board of directors at its meeting following the annual meeting of stockholders shall designate the directors to constitute the membership of each standing committee and the chairman thereof, and such directors shall serve until the directors' meeting following the next annual meeting of stockholders; provided, however, that vacancies during the year on any standing committee shall be filled by the board of directors so that the membership of each committee shall be filled at all times; and provided further that in the absence or disqualification of any member of a committee, the members of that committee present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of the absent or disqualified member. Meetings--Quorum Section 4. Meetings of each committee may be called by its chairman or by any two members of the committee or by the chief executive officer of the corporation or by resolution of the board of directors. Each such committee shall fix its own rules of procedure. The presence of a majority of the members of a committee shall be necessary to constitute a quorum for the transaction of business, and the affirmative vote of a majority of all the members of the committee shall be necessary for the adoption of any resolution or the taking of any action. Each committee shall report to the board of directors all actions of the committee at the next directors' meeting following any meeting of any such committee. Regular minutes of the proceedings of each committee shall be kept in a book provided for that purpose. Remuneration of Committee Members Section 5. Members of each committee not regularly employed by the corporation or an affiliated corporation shall be entitled to expenses, if any, of attendance at such meetings and such remuneration as may be determined by resolution of the board of directors. ARTICLE V OFFICERS General Provisions Section 1. The officers of the corporation shall be a chairman of the board of directors, a president, a treasurer, and a corporate secretary, and such vice chairmen, executive vice presidents, senior vice presidents, vice presidents, assistant treasurers, assistant secretaries or other officers as may be elected or appointed by the board of directors. Either the chairman of the board of directors or the president shall be the chief executive officer. Either the president or an executive vice president shall be the chief operating officer. The chairman of the board of directors, the president, and the vice chairmen all shall be members of the board of directors. The officers shall have authority and perform duties as set forth in these by-laws or as prescribed by resolution adopted by the board of directors. The salaries and other compensation of officers shall be fixed by the board of directors. Election Section 2. The officers of the corporation shall be elected annually by the board of directors at the first meeting of the board of directors held after each annual meeting of the stockholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Vacancies may be filled or new officers created and filled at any meeting of the board of directors. Each officer shall hold office until his successor shall have been elected and shall have qualified or until his death, resignation or removal in the manner hereinafter provided, or until the board of directors shall by resolution determine that the office shall be left unfilled. The chairman of the board and the president shall be chosen from the members of the board of directors. Removal Section 3. Any officer elected by the board of directors may be removed by the board of directors whenever in its judgment the best interests of the corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. The Chairman of the Board of Directors Section 4. The chairman of the board of directors shall have general responsibility for the business and affairs of the corporation, subject to the control of the board of directors. Such officer shall preside at all meetings of the stockholders and of the board of directors of the corporation, shall have all other responsibilities incident to the office of chairman of the board of directors, and shall, by virtue of the office, be a member of the Executive Committee of the board of directors. Such officer additionally may, with the corporate secretary or an assistant secretary, sign certificates of capital stock and other securities of the corporation. The President Section 5. The president shall have direct and active charge of the business and affairs of the corporation under the direction of the chairman of the board of directors and subject to the control of the board of directors. Such officer shall perform such other duties as may be delegated from time to time by the board of directors or the chairman thereof and shall have all other responsibilities incident to the office of president. Such officer additionally may, with the corporate secretary or an assistant secretary, sign certificates of capital stock and other securities of the corporation. In the event of the death or disability of the chairman of the board of directors, the president shall assume the responsibilities of chairman of the board of directors. The Vice Chairmen Section 6. If elected, the vice chairmen shall have the respective responsibilities incident to any other office or title conferred on them by the board of directors and such other responsibilities as may be assigned from time to time by the chairman of the board of directors. In the event of the death or disability of the chairman of the board of directors and the president, the vice chairmen in the chronological order of their election to that office shall assume the responsibilities of chairman of the board of directors. The Chief Executive Officer and the Chief Operating Officer Section 7. The chief executive officer shall have authority to approve basic policies, operating plans, and annual performance goals, subject to approval of the board of directors as required. Such officer shall assure uniform interpretation and administration of basic policies by all members of management and shall have responsibility for such financial, legal, and other administrative functions directly bearing on general corporate governance as are determined from time to time by the chairman of the board of directors, subject to approval of the board of directors as required. The chief operating officer shall assist the chief executive officer in formulating and implementing overall plans. Such officer shall have such responsibilities for management of general manufacturing, sales, product distribution, and directly related staff functions as are determined from time to time by the chairman of the board of directors. The Executive Vice Presidents, The Senior Vice Presidents, and The Vice Presidents Section 8. If an executive vice president is elected and designated chief operating officer, such executive vice president shall, in the event of the death or disability of the president, assume the responsibilities of president. If no executive vice president is designated chief operating officer, then in the event of the death or disability of the president, first the executive vice presidents, then the senior vice presidents, then the vice presidents, each in chronological order of election, shall assume the responsibilities of president. The executive vice presidents, the senior vice presidents, and the vice presidents shall have such responsibilities and such other powers as the board of directors, the chairman of the board of directors, or the president from time to time shall prescribe. The Treasurer and Assistant Treasurers Section 9. The treasurer shall have charge and custody of all funds and securities of the corporation, shall keep full and accurate accounts of the receipts and disbursements in books belonging to the corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be authorized from time to time by the board of directors. Such officer shall disburse the funds of the corporation as may be required in the conduct of the business and shall render to the chief executive officer and the board of directors, at the regular meetings of said board or whenever said board may require it, an account of all transactions as treasurer and of the financial condition of the corporation. If required by the board of directors, such officer shall give the corporation a bond in such form and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of the office. In general, such officer shall have the authority to perform all acts incident to the office of treasurer, subject to the control of the board of directors. The assistant treasurers, in the order of their election, shall, in the event of death or disability of the treasurer, assume the responsibilities of the treasurer and shall perform such other duties as the board of directors or the treasurer may from time to time prescribe or delegate. The Corporate Secretary and Assistant Secretaries Section 10. The corporate secretary shall attend all meetings of the board of directors and all meetings of the stockholders, record all proceedings of the meetings of the board of directors and the stockholders in books to be kept for those purposes and shall perform like duties for any committee of the board of directors when requested. Such officer shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors and shall be the custodian of corporate records and the seal of the corporation. Such officer additionally shall have authority to affix the seal to any instrument requiring it and when so affixed, it may be attested by signature. The assistant secretaries, in the order of their election, shall, in the event of death or disability of the corporate secretary, assume the responsibilities of the corporate secretary and shall perform such other duties as the corporate secretary or the board of directors may from time to time prescribe. Voting Shares of Other Corporations Section 11. Unless otherwise ordered by the board of directors, the chairman of the board of directors or such person as he may appoint shall have full power and authority, on behalf of the corporation, to attend any meetings of stockholders of any corporation in which this corporation may hold stock and to vote the shares held by this corporation at any such meeting, and at any such meeting to possess and exercise any and all rights and powers incident to the ownership of such shares. ARTICLE VI CERTIFICATES OF STOCK - DIVIDENDS Section 1. (a) Every holder of stock in the corporation shall be entitled to have a certificate signed in the name of the corporation by the chairman of the board of directors or the president and the corporate secretary or an assistant secretary, certifying the number of shares owned by him in the corporation. If such certificate is countersigned (1) by a transfer agent other than the corporation or its employee, or (2) by a registrar other than the corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, the certificate may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. (b) All certificates surrendered to the corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares of the same class has been surrendered and canceled or properly accounted for in the case of a lost certificate. Transfer of Shares Section 2. Upon surrender to the corporation or transfer agent of the corporation of a certificate of shares duly endorsed and accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. The board of directors may appoint one or more transfer agents and registrars of transfer, and may require all stock certificates to bear the signature of a transfer agent and of a registrar of transfers. Registered Stockholders Section 3. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware or elsewhere in these by-laws. Dividends Section 4. Dividends upon the capital stock of the corporation, subject to the provisions, if any, of the certificate of incorporation, may be declared by the board of directors at any regular or special meeting pursuant to law. Dividends may be paid in cash, in property, or in shares of capital stock, subject to the provisions of the certificate of incorporation. ARTICLE VII INDEMNIFICATION OF DIRECTORS AND OFFICERS The corporation (i) shall indemnify every person who is or was a director or officer of the corporation or is or was serving at the corporation's request as a director or officer of another corporation, partnership, joint venture, trust or other enterprise; and (ii) shall, if the board of directors so directs, indemnify any person who is or was an employee or agent of the corporation or is or was serving at the corporation's request as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise to the extent, in the manner, and subject to compliance with the applicable standards of conduct, provided by Section 145 of the General Corporation Law of the State of Delaware as the same (or any substitute provision therefor) may be in effect from time to time. Without limiting the foregoing, the corporation shall indemnify, and (subject to the receipt of any required undertaking to repay expenses) advance expenses to, every person who is a director of the corporation to the fullest extent permitted by law. Such indemnification (i) shall not be deemed exclusive of any other rights to which any person seeking indemnification under or apart from this Article VII may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and (ii) shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. ARTICLE VIII GENERAL PROVISIONS Checks Section 1. All checks or demands for money and notes of the corporation shall be signed by such officer or officers, or such other person or persons, as the board of directors may from time to time designate. Fiscal Year Section 2. The fiscal year of the corporation shall begin on the first day of January of each year and end at the close of the last day of December in the same year. Seal Section 3. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Waiver of Notice Section 4. Whenever any notice whatever is required to be given under the provisions of the statutes or of the certificate of incorporation or of these by-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE IX AMENDMENTS These by-laws may be amended or repealed (i) subject to Article TWELFTH of the corporation's Restated Certificate of Incorporation, by the affirmative vote of a majority of the total number of directors or (ii) by the affirmative vote of the holders of 80% of the voting power of the corporation's stock outstanding and entitled to vote thereon. EX-15 3 LETTER OF ARTHUR ANDERSON LLP May 1, 1998 USG Corporation 125 South Franklin Street Chicago, Illinois 60606 Gentlemen: We are aware that USG Corporation has incorporated by reference into previously filed Registration Statement Numbers 33-40136 and 33-64217 on Form S-3 and 33- 22581, as amended, 33-22930, 33-36303, 33-52573, 33-52715, 33-63554, and 33-65383 on Form S-8 its Form 10-Q for the quarter ended March 31, 1998, which includes our report dated April 22, 1998, covering the unaudited condensed financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933, these reports are not considered a part of the registration statement prepared or certified by our firm or reports prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. Very truly yours, /s/ ARTHUR ANDERSEN LLP - ----------------------- ARTHUR ANDERSEN LLP EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000,000 3-MOS DEC-31-1997 MAR-31-1998 66 0 357 18 217 651 1,270 249 1,973 365 597 0 0 5 218 1,973 735 735 539 539 72 0 13 110 43 67 0 0 0 67 1.42 1.35
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