Document Ran2eKraB4zpRd2J55Gyrp2xk
UC 14* !
PLAINTIFF'S EXHIBIT
UC-3588
INTERNAL CORRESPONDENCE METALS DIVISION
MAR 3 1580 270 PARK AVENUE, NEW YORK. NEW YORK 10017
To (Name)
0 i v i 11 on
Location
Floor dumber
G. R. Bailey
/
R. L. Folkman /
R. W. Rebholz *
F. J. Shortsleeve
Copy <o
W. G. Alesio
Date March 3, 1980 Ongmoftrig Dpf.
Floor Number
Answering fetter bote
Subicf
Asbestos Strategy
Attached is a rough draft version of the asbestos strategic plan, which will be reviewed at our March 28 meeting.
JTK:tb Attachment
J. T. Kelly
UCC 008116
INDUSTRY DEFINITION Those enterprises engaged in the worldwide production and marketing of short fiber asbestos and/or viscosity control agents.
BUSINESS DEFINITION The mining, milling, chemical treatment and world wide marketing of high quality short fiber asbestos-
UCC 008117
ASBESTOS - GENERAL TOTAL WORLDWIDE ASBESTOS SUPPLY/DEMAND
r m.li*/ 5b A
USSR Canada USA Europe Japan S. Africa Rhodesia Others
TOTAL
PRODUCTION 2.7 1.7 0.1 0.2
0.4 0.2 0.6 5.9
CONSUMPTION 5.9
SHORT FIBER ASBESTOS PRODUCTION
-- APPROXIMATELY 30% of TOTAL ASBESTOS PRODUCTION IS SHORT FIBER GRADES
-- MOST SHORT FIBER ASBESTOS IS OBTAINED AS A BY-PROD UCT IN LONG FIBER OPERATIONS. NOT ALL IS CURRENTLY RECOVERED.
MAJOR APPLICATIONS V- -A* * 7
A* * ? *
S
-- rtTMT^im ..TLnnnnr'Tf _ mTT.F,
ffBTn'TftH MATFiRTMifT
/>/ i.
, T. i. ,X
-*-*
& '-'
-
O ->-5
UCC 008118
UCC OPERATION
KING CITY, CALIFORNIA "CALIDRIA" ASBESTOS
MINING SITE AT COALINGA DEPOSIT, DISCOVERED IN 1957.
TOTAL COALINGA RESERVES --
3MM + TONS
(100 + YEARS OPERATION)
SHORT FIBER ASBESTOS ONLY. HIGH QUALITY (PURITY, FIBER CONTENT)
MILLING OPERATIONS BEGAN IN 1964. CURRENTLY OPERATING AT 85% OF CAPACITY.
PRODUCT SOLD IN U.S.A., JAPAN, EUROPE
UCC 008119
UCC COMPETITORS
SHORT FIBER ASBESTOS
-- CAREY (Quebec, Canada) -- JOHNS-MANVILLE (Quebec) -- ATLAS (California)
CAPACITY, M TONS/YR. 2 30 800 25
KING CITY
33
VISCOSITY CONTROL AGENTS
DE GUSSA CABOT NATIONAL LEAD BAKER
PRODUCT /;
CURRENT OPERATING RATE '% CAPACITY
KING CITY
UCC 008120
UCC MARKETS SHORT FIBER ASBESTOS
USA
TONS
% SHARE
CAREY JOHNS-MANVILLE ATLAS UCC
61,000 30,000 15,000 25,000
47 23 11 19
131,000 100
JAPAN
TONS
% SHARE
TOTAL
TONS
% SHARE
33,000 5,000
-
7,000
73 11
-
16
94,000 35,000 15,000 33,000
53 20
9 18
45,000 100
176,000 100
UCC 008121
VISCOSITY CONTROL MARKETS
MAJOR APPLICATIONS -- ADHESIVES, SEALANTS, COATINGS
MARKET SHARE
DE GUSSA CABOT NATIONAL LEAD BAKER UCC
USA 25 49 10 5 11
SHARES %
JAPAN 70
EUROPE 70
25
23
13
25 19
TOTAL 40 40 3 2 15
UCC SUPPLYING THE ONLY ASBESTOS BASE PRODUCT.
UCC 008122
PROSPECTS FOR INDUSTRY GROWTH & PROFITABILITY
. SHORT FIBER ASBESTOS -- low to moderate The question of health hazards and associated
governmental regulatory action and potential third party liability are expected to result in a zerovolume growth rate for this industry. Limited num ber of competitors and favorable pricing history are positive factors.
VISCOSITY CONTROL AGENTS -- high The unfavorable asbestos publicity and restric
tive government regulations have been less of a negative factor in customer consideration. Aplications for asbestos remain despite considerable effort to develop substitutes. Requirements for technical competence and capital investment in this area are high.
Viscosity control products represent only 8% of the tonnage at King City, but account for 60% of the plant margin.
UCC 008123
INDUSTRY PROPILE SHORT FIBER ASBESTOS
CRITICAL ITEMS
VOLUME GROWTH VULNERABILITY TO
SUBSTITUTION COMPETITION PRICING RESPONSE CUSTOMERS GOVERNMENT INTERVENTION ACTIVIST INFLUENCE THIRD PARTY LIABILITY
INDUSTRY PROSPECTS
HIGH
MODERATE
LOW
X
X X X X
X X X
VOLUME GROWTH EARNINGS QUALITY OVERALL ASSESSMENT
UCC 008124
INDUSTRY PROFILE
VISCOSITY CONTROL AGENTS
CRITICAL ITEMS
VOLUME GROWTH SUBSTITUTION COMPETITION BASIS OF PRODUCT
COMPETITION CUSTOMERS
INDUSTRY PROSPECTS
HIGH
MODERATE
LOW
X X X
X X
VOLUME GROWTH EARNINGS QUALITY OVERALL ASSESSMENT
X X
X
UCC 008125
i
~i~A * --(* ~ijf HEALTH QUgSSrgK
FOUR DISEASES CONNECTED WITH ASBESTOS EXPOSURE: ASBESTOSIS LUNG CANCER MESOTHELIOMA
LATENT PERIOD VARIES FROM]15 TO 50 YEARS.
MESOTHELIOMA IS THE MOST CRITICAL CONCERN. CAN APPARENTLY BE CAUSED BY SHORT, RELATIVELY LOW EXPOSURES AND IS NOT SMOKING RELATED. REASON FOR SCHOOL CEILING & HAIR DRYER INCIDENTS.
DEFINITIVE SCIENTIFIC ANSWER TO QUESTION OF CANCER RISK AT VERY LOW EXPOSURES WILL PROBABLY NOT BE FORTHCOMING IN THE NEAR FUTURE.
UCC 008126
ESTIMATE OF FURTHER REGULATORY IMPACTS ON UCC ASBESTOS BUSINESS
1. WORKPLACE EXPOSURE LIMITS WILL BE REDUCED BY OSHA FROM 2.0 FIBERS/CC TO 0.5-1.0 RANGE.
2. LITTLE CHANGE IN OTHER REGULATIONS.
3. NO MANDATORY SUBSTITUTION. EXISTS AT PRESENT.)
(NO STATUTORY AUTHORITY
4. "AFTER THE FACT" LEGISLATION WILL NOT SIGNIFICANTLY AFFECT UCC.
UCC 008127
UCC PRODUCT DIRECTIONS EMPHASIZE DUST CONTROLLED "CALIDRIA" ASBESTOS
PRODUCTS. IMPROVE PACKAGING CONCENTRATE ON END USES WHERE FREE FIBER GENERATION
IS MINIMIZED OR ELIMINATED.
UCC 008128
FINANCIAL SUMMARY
"CALIDRIA" ASBESTOS
SALES ($MM) NET INCOME ($MM)
(C/SHARE) ROS % ROA % CASH GENERATED ($MM)
1975 1976 1977 1978 1979
4.3 4.9 5.3 7.2 6.4 0.1 0.5 0.6 1.2 1.0 0.2 0.8 1.0 1.9 1.5 2.3 10.2 11.3 16.7 16.4 1.6 10.5 12.9 25.4 19.8 0.2 0.1 1.1 1.0 1.2
UCC 008129
SPU COMPETITIVE POSITION
SHORT FIBER ASBESTOS -- STRONG/LEADING High level of product quality and service to a
diverse customer base overcome the disadvantage on costs of competing against a by-product situation.
VISCOSITY CONTROL AGENTS -- STRONG A strong technical service effort, the most varied
product line, and superior cost position have helped to offset the health factor, which has limited market share and remains a threat to future participation in these markets.
UCC 008130
SPU COMPETITIVE PROFILE
SHORT FIBER ASBESTOS
CRITICAL ITEMS
LEADING
STRONG
FAIR
WEAK
MARKET SHARE PRODUCT LINE BREADTH BREADTH/CUSTOMER BASE COST POSITION TECHNOLOGY POSITION PRODUCT QUALITY SERVICE/RELIABILITY
**
*
**
* *........ ..........*
.* *
OVERALL
UCC 008131
Assessment of Principal Competitors Relative to Key Competitive Factors
Asbestos Category
Market Share Product Line Breadth Breadth Customer Base
UCC Strong Strong Strong
Carey <-jt. >'!*? Strong Strong/ Fair
Strong
Total Cost Position
Pair
Strong
Technical Position Product Quality
Customer Service/Dependable Supplier
Overall Rank
Strong Leading
Leading
Leading/ Strong 1
Weak Strong/
Fair Weak
Strong/ Fair 3
John b * Manville Strong Strong Strong
Leading/ Strong Strong Fair Strong
Strong 2
Atlas lT A i
-Stresig
Weak
Weak
Fair
Weak
Strong
Weak
Fair/ Weak 4
UCC 008132
SPU COMPETITIVE PROFILE
VISCOSITY CONTROL AGENTS
CRITICAL ITEMS
LEADING
STRONG
FAIR
WEAK
PRODUCT LINE BREADTH BREADTH/CUSTOMER BASE COST POSITION TECHNOLOGY POSITION PRODUCT QUALITY HEALTH FACTOR
.*
OVERALL
UCC 008133
Assessment of Principal Competitors Relative to Key Competitive Factors
Non*Asbestos Category
Product line Breadth Breadth of Customer Base Total Cost Position Technical position Product Quality Health Factor Overall
UCC Strong Leading
Natl. Lead Fair/ Weak Fair
Leading . Strong
Leading/ Strong
Strong
Leading Strong
Weak Strong/)
Fair
Strong Strong/
Fair
22
Cabot DeCussa
Fair
Fair
Strong Strong
Strong Strong
Strong Strong
Strong Strong
Strong Strong
Strong Strong/
Fair
12
Baker Feir/
Weak Fair Strong Fair Strong Strong Strong/
Fair
2
t^The health factor was weighted at 4 to 1 rating for UCC.
other factors in the overall
UCC 008134
u>i
UCC 008135
PROSPECTS FOR LONG-TERM INDUSTRY GROWTH AND EARNINGS Q U ALITY
NON -ASBESTOS CATEGORY
>*
Pi
sO
5
O
o
6 w A 3
KEY EXTERNAL ASSUMPTIONS
VOLUME GROWTH: VISCOSITY CONTROL -- 8% PER YEAR SHORT FIBER ASBESTOS -- 0% PER YEAR
GOVERNMENT: CLEAR POSITION TAKEN ON HEALTH QUESTION WITHIN 2-3 YEARS. NO WIDESPREAD BANS OR MANDATORY SUBSTITUTION OSHA TLV NO MORE RESTRICTIVE THAN J^CJ^FIBER/CC
COMPETITION: . NO NEW MAJOR EXPLOITATION OF COALINGA DEPOSIT . RUSSIANS DO NOT ENTER SHORT FIBER MARKET . VISCOSITY CONTROL COMPETITORS DO NOT REDUCE PRICES . MARKETING POLICY OF SHORT FIBER PRODUCERS UNCHANGED . ATLAS OPERATES THROUGH AT LEAST 1981*
CUSTOMERS: HEALTH FACTOR HAS NO SIGNIFICANT ADDITIONAL IMPACT ON SHORT FIBER ASBESTOS MARKET APPREHENSION OF CUSTOMERS IN THE VISCOSITY CONTROL AREA WILL SUBSIDE IN 2-3 YEARS
UCC 008136
CURRENT DIRECTION THE ASBESTOS BUSINESS HAS BEEN OPERATED TO MAXIMIZE EARNINGS AND CASH FLOW. AGGRESSIVE MARKETING AND PRODUCT DEVELOPMENT PROGRAMS HAVE BEEN MAINTAINED. CAPITAL INVEST MENT HAS BEEN LIMITED TO DUST CONTROL IMPROVEMENTS AND OTHER MINOR REQUIREMENTS.
-- MAINTAIN POSITION WHILE MINIMIZING RISK IN VIEW OF MARKET UNCERTAINTIES.
UCC 008137
SALES HISTORY
SHORT FIBER VISCOSITY
CONTROL
TOTAL
1975 28.5
1.6 30.1
1976
M TONS 1977
22.5 2.1
22.8 2.1
24.6
24.9
1978 32.9
2.4 35.3
1979 26.5
2.2 28.7
CONSTRUCTION EXPENDITURES
1975 1976 1977 1978 1979
SM 542 197
47 77 57
UCC 008138
STRATEGY SELECTION
STRATEGY:
STRATEGIC DIRECTION
SHORT FIBER
VISCOSITY CONTROL
CONSTANT CAPACITY (BASE CASE) SHORT FIBER EXPANSION VISCOSITY CONTROL EXPANSION UNIT ABANDONMENT
Maintain Position
Improve Position
Maintain Position
Concede Position Concede Position
MaintainPosition
UCC 008139
STRATEGY ASSUMPTIONS
CONSTANT CAPACITY (BASE CASE): SHORT FIBER ASBESTOS --MARKET SHARE 18-20% OVER PLAN PERIOD -- TOTAL VOLUME RELATIVELY CONSTANT
VISCOSITY CONTROL -- MARKET SHARE 15% THROUGH 1982, DROPS TO 12% BY 1988
DUE TO CAPACITY LIMITATION OF CHEMICAL CURCUIT
SHORT FIBER EXPANSION; SHORT FIBER ASBESTOS -- INCREASE CAPACITY BY 25,000 TPY (75%) IN 1981, AT CAPITAL COST OF $6.3 MM -- MARKET SHARE EXPANDED FROM 18% TO 32% BY 1982 (OBTAIN 12,000 TPY CONTRACT WITH GAF)
VISCOSITY CONTROL -- SAME AS BASE CASE
VISCOSITY CONTROL EXPANSION: SHQRT FIBER ASBESTOS -- SAME AS BASE CASE
VISCOSITY CONTROL -- EXPAND CHEMICAL CURCUIT 1800 TPY (100%) BY 1983,
AT CAPITAL COST OF $5.8 MM -- MAINTAIN MARKET SHARE AT 15% TRHOUGH THE PLAN PERIOD
UCC 008140
STRATEGY ASSUMPTIONS
j
UNIT ABANDONMENT
A - SHUT DOWN OPERATION
CLOSE KING CITY PLANT IN 1980
-- DECOMMISSION COST $1.2 MM
-- NET BOOK VALUE
$2.6 MM
B - SELL OPERATION 1980 SALE AT $7 MM (7X EARNINGS)
UCC 008141
RISK ADJUSTMENTS DEPLETION ALLOWANCE
ASSIGNED 25% PROBABILITY TO THE LOSS OF DEPLETION BY 1983
SALES SHORT FIBER ASBESTOS VOLUME REDUCED BY 7-10% STARTING IN 1984 VISCOSITY CONTROL PRODUCTS GROWTH RATE LOWERED FROM 8% TO 6% FOR THE ENTIRE PLAN PERIOD
PLANT COSTS INCREASED 3% ABOVE ANNUAL INFLATION RATE DUE TO TIGHTENING REGULATIONS
i
CAPITAL COSTS INCREASED 12.5% ABOVE PLAN
UCC 008142
UCC 008143
RISK ADJUSTED F IN A N C IA L SUMMARY -- ASBESTOS
<
x Eh
o 01
X
3
x
xa (J 05
55 <
x H 05
< D
Z C13 05
Z <\
z W </>
<
00 00 x s 5 a\ OIOS r~A < x
VO TT n
ON rH
p- cn i--w oo
-
r-4 CM o
CO rM fH
CM CM
w Eh u U w c* cu X
00
00 co W
ON o c*
z
m
<ac
2K CO
ON
r- 03 </>
ON
ffi
co o 2
a< &>4 </>
vo in
rH 00
r~-
i
r~
m rt *
oo
no
OJ i--I
ro
H
|l
CmM o<No
r* o in
oo
O CM co r** o cm co r- m oo
M
W
>H z -I
<O
Eh
H U
cu X
XC-i
z wz
<wz
ss
0j <
05
o uz
zo oa
u
u n
>H oM
a Z Eh
X
>h Eh M h X <c o X
o z Eu M Z m x w
x < X< <X X
eh
Eh Eh O cu x 05 U X Eh 1
1
3 z O XX H l 1
e*
o XH
Z
CO
uX>
o
UCC 008144
z
THIRD PARTY LIABILITY CLASSES OF POSSIBLE PLAINTIFFS
. INSULATION WORKERS -- UCC HAS NO EXPOSURE
. END USERS -- LOW RISK TO UCC SINCE ASBESTOS IS "ENCAPSULATED" IN MOST CUSTOMER PRODUCTS -- POSSIBLE EXCEPTION IS TAPE JOINT COMPOUNDS. CALIDRIA USED IN THIS APPLICATION FOR APPROX. 10 YRS
. CUSTOMER EMPLOYEES -- DISSATISFACTION WITH LOW WORKERS' COMPENSATION AWARDS MAY LEAD TO LITIGATION AGAINST ASBESTOS SUPPLIERS
UCC 008145
THIRD.PARTY LIABILITY WARNINGS TO UCC CUSTOMERS -- NO WARNING ON UCC PACKAGE FROM LATE 1965 TO JUNE 1978 -- "WEAK" WARNING LABEL USED ON UCC PACKAGING BEGINNING
JUNE 1968 -- OSHA WARNING LABEL PRESCRIBED IN JUNE 1972. NOT AN
ABSOLUTE BAR TO LIABILITY, BUT HAS NOT BEEN TESTED IN COURTS -- MASSIVE GOVERNMENT EDUCATION CAMPAIGN IN 1978 A FURTHER BASIS FOR CLAIMING PUBLIC HAS BEEN ADEQUATELY WARNED
UCC 008146
THIRD PARTY LIABILITY ANALYSIS OF UCC EXPOSORE
. 1963 - 1977 -- EXPECT 2-3 SETTLEMENTS PER YEAR @ $60,000 EACH -- WITH 20 YEAR INCUBATION PERIOD, CLAIMS WOULD BEGIN IN 1983
. POST 1977 -- ASSUME CLAIMS DROP TO $40,000 PER YEAR TOTAL
- RISK FACTOR -- FIGURE LIABILITY 50% HIGHER THAN ABOVE ESTIMATES
. ESTIMATE OF UCC EXPOSURE -- CONTINUED OPERATION CASES -- $4 MM -- ABANDONMENT CASE -- $3.5 MM
UCC 008147
THIRD PARTY LIABILITY ANALYSIS OF UCC EXPOSURE
. IMPACT ON STRATEGY RESULTS
1979-1988 IMPACT (ZERO LIA3ILITY)
CASH FLOW $ MM
EARNINGS S/SHARE
AVERAGE ROA
CONSTANT CAPACITY
SHORT FIBER EXPANSION VISCOSITY CONTROL
EXPANSION
UNIT ABANDONMENT - SHUT DOWN - SELL
12.0 8.2
7.8 3.7 8.0
.152 .128
.144 (.017)
.050
23 10
13
-
-
1979-1988 IMPACT (ACCRUE FOR LIABILITY)
CASH FLOW $ MM
EARNINGS $/SHARE
AVERAGE ROA
CONSTANT CAPACITY
SHORT FIBER EXPANSION
VISCOSITY CONTROL EXPANSION
UNIT ABANDONMENT - SHUT DOWN
0
- SELL
9.9 6.1
5.7 1.9 6.2
.120 .096
.112 (.045)
.022
18 8
10 -
-
UCC 008148
RECOMMENDED STRATEGY CONSTANT CAPACITY
. HIGHEST EARNINGS QUALITY . LIMITED CAPITAL INVESTMENT . LOW RISK {POTENTIAL THIRD PARTY LIABILITY LARGELY
RELATED TO PRE-'?7 OPERATION)
UCC 008149
ANNUAL CHECK POINTS GOVERNMENT REGULATORY ACTION. STATUS OF ASBESTOS LITIGATION. MARKET DEMAND.
ACTION PLANS MAINTAIN STRONG TECHNICAL SERVICE IN VISCOSITY CONTROL AREAS. CONTINUE TO WORK WITH GOVERNMENT AGENCIES ON ASBESTOS
REGULATORY MATTERS. SPONSOR RESEARCH ON UCC CALIDRIA.
UCC 008150