USG FILES CHAPTER 11
USG Corporation announced that it filed a voluntary petition petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code to manage the growing asbestos litigation costs of its United States Gypsum Company subsidiary and to resolve asbestos claims in a fair and equitable manner. USG's major domestic subsidiaries also filed Chapter 11 petitions, including United States Gypsum Company, USG Interiors Inc. and L&W Supply Corporation.
"We took this action not only to resolve asbestos lawsuits equitably, but also to protect the long-term value of our business and maintain our leadership position in the market," said William C. Foote, chairman, president and CEO. "It was important to take the litigation out of a dysfunctional tort system and move it to a single forum where the claims can be objectively evaluated.
"The asbestos litigation system is clearly out of control," said Foote. "Lawsuits continue to be filed at a high rate with no slowdown in sight, and most of the claims are filed by people who are not sick. In addition, the recent bankrupticies of other asbestos defendants have dramtically increased U.S. Gypsum's asbestos costs to the point that they are completely out of proportion to its legitimate liability. We have said repeatedly that U.S. Gypsum can afford to pay for its own liability, but it cannot pay for the liability of other companies or pay everyone who was exposed to asbestos-containing products--yet that is exactly what is happening because of the high volume of new cases and the other asbestos-related bankruptcies."
Commenting on the company's operations, Foote explained, "Our businesses continue to grow, and we remain the leader in our markets. Today's filing is not about restructuring our (company's) operating units or dealing with a liquidity crisis. Rather, the Chapter 11 process was the only alternative to prevent the value drain that has been occuring as U.S. Gypsum was forced to pay for the asbesos costs of other companies that have already filed Chapter 11. The bankruptcy filing includes USG and its other major domestic subsidiaries to address financing needs during the Chapter 11 process and so that all USG companies would be included in the final resolution of U.S. Gypsum's asbestos liability.
"We carefully considered other alternatives," continued Foote. "Chapter 11 is the only way to obtain a fair valuation of U.S. Gypsum's asbestos liability--and it is the best way to preserve value for all of our stakeholders, including our legitimate creditors, our shareholders and our employees."
He noted that USG is the eighth company in the last 18 months that has been forced to utilize Chapter 11 to resolve asbestos claims; over the past two decades, 27 companies have filed for protection under Chapter 11 because of asbestos litigation. Since 1994, U.S. Gypsum has been named in more than 250,000 asbestos-related personal injury claims, and has paid more than $450 million (before insurance recoveries) to manage and resolve asbestos-related litigation. Further, USG received more than 22,000 new claims since the3 beginning of this year. U.S. Gypsum's asbestos personal injury costs (before insurance) have risen from $30 million in 1997 to more than $160 million in 2000, and were expected to exceed $275 million in 2001.
Commenting on the need for federal legislation, Foote said, "We have been advocating and working hard on a legislative solution to the asbestos situation. Legislation is needed; it represents good public policy and we remain committed to finding a legislative solution. However, we simply could not continue to endure the dramatic increase in asbestos costs and still protect USG, its customers, suppliers, employees, shareholders and other important stakeholders."
USG also announced it has received a commitment for up to $350 million in debtor-in-possession (DIP) financing from JP Morgan Chase, which will augment the company's liquidity and fund operations during the restructuring process and enable the company to purchase and pay for goods and services going forward. During the restructuring period and beyond, USG's operations will continue without interruption. The company will maintain its commitment to providintg the highest quality products and superior service to customers. Vendors will be paid for all goods furnished and services provided after the filing,