May 13, 2004

BY SANDRA GUY Business Reporter
http://www.suntimes.com/output/business/cst-fin-usg13.html

Dry-wall manufacturer USG Corp. is running at 92 percent capacity to feed the booming housing industry, but it sees no resolution to its fight against asbestos-exposure lawsuits.

Federal legislation to create a fund to compensate asbestos-exposure victims has stalled in Congress, and its future is doubtful, USG CEO William C. Foote said Wednesday after the company shareholders' meeting at USG headquarters at 125 S. Franklin.

"It's become very political in an election year," Foote said. "The chances of its passage have become more complicated."

USG would contribute $52 million each year for 23 years under the latest version of the legislation. The proposed fund would total $123 billion and would be funded by insurers and companies sued by people who claim they have been sickened by asbestos exposure. The legislation would prohibit victims from filing damage lawsuits in state courts.

Though Foote said USG has used no asbestos in its manufacturing processes for more than 25 years, he believes the legislation is "an elegant solution" to a crisis that has sent more than 30 companies into bankruptcy since January 2000.

USG filed for Chapter 11 bankruptcy protection three years ago, but has since built up a $925 million cash reserve.

Another obstacle to the asbestos legislation surfaced April 27 when auto parts maker Federal-Mogul Corp. said it thought it was being asked to pay too high a contribution to the asbestos trust fund.

Nevertheless, U.S. Senate Majority Leader Bill Frist (R-Tenn.) and Minority Leader Tom Daschle (D-S.D.) are working with retired federal Judge Edward Becker to try to negotiate with labor unions, insurers and manufacturers on the size of the victims' trust fund and how to assess claims awards.

On a brighter note, USG has gained pricing leverage for its wallboard products because of the boom in building new houses.

Sheetrock-brand wallboard sells for $110.33 per thousand square feet, compared with an industry-wide low of $72.42 three years ago when manufacturers opened new wallboard manufacturing plants and flooded the market.

The fear of overcapacity remains, particularly because two USG rivals -- BPB (British Plaster Board) and National Gypsum -- plan to build new wallboard manufacturing plants.

Other worries include higher energy costs and weak demand for construction of commercial buildings, such as schools, warehouses and office buildings. USG's ceiling-tile business, which is closely tied to commercial building, posted a decline in operating profit margins in 2003 from the year earlier.

However, USG should see its financial results improve this year compared with 2003, Foote said.

USG reported on April 28 that its first-quarter net sales of $1.02 billion were a record for any quarter in USG's 102-year history.

*** POSTED MAY 13, 2004 ***