Document kmYZ8yxLVZGOEx7gmyOZJDM4J
'JC 149*2
INTERNAL CORRESPONDENCE
4j ^ /i% 111*' _0
METALS DIVISION
To (Nome} Division Locution Floor Number
Copy to
R. L. Folkman
W. G. Alesio G. R. Bailey R. W. Rebhol2 F. J. Shortsleeve-
270 PARK AVENUE, NEW YORK, NEW YORK 10017
Dafe OWg/nafJng Depf.
April 28, 1980 Financial Control
Floor Number
Answering /otter date Subject
RECEIVED APR 2 81980
F. J. StfuFTTSLEEVE
Attached is the latest asbestos strategy package, which includes the revisions discussed at the March 28 review meeting.
A basic assumption of the plan is that OSHA TLV will be no more restrictive than 1.0 fiber per cc, compared to the current 2.0 fiber per cc level. Should the standard be revised to 0.5 fiber per cc, the strategy would have to be reconsidered with new sales demand and production cost imput. The estimated impact of a 0.5 fiber restriction on King City is an extra $1.5MM capital, plus an additional $0.27MM/yr. operating expense (per p.R. Sherman and W. B. DeAfley).
Very truly yours,
JTK/ro Attachment'
UCC 008186
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 008187
ASBESTOS - GENERAL
TOTAL WORLDWIDE ASBESTOS SUPPLY/DEMAND
USSR Canada USA Europe Japan S. Africa Rhodesia Others
TOTAL
MM TONS
PRODUCTION
CONSUMPTION
2.7 2.4
1.7 0.1
0.1 0.7
0.2 0.8
- 0.3
0.4
0.2 1.7
. 0.6
5.9 6.0
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 FROM LONG FIBER OPERATIONS. NOT ALL IS CURRENTLY RECOVERED.
MAJOR APPLICATIONS( SHORT FIBERS) -- FLOOR TILE, PLASTICS, ASPHALT, OIL-WELL MUDS-.
UCC 008188
UCC OPERATION
u-
KING CITY, CALIFORNIA
"CALIDRIA" ASBESTOS
yj
MINING SITE AT COALINGA DEPOSIT, DISCOVERED IN 1957.
\*
TOTAL COALINGA RESERVES --
3 MM + TONS
V
(100 + YEARS OPERATION)
\V
/
/ r*
SHORT FIBER ASBESTOS ONLY. HIGH QUALITY (PURITY, FIBER CONTENT) i,
MILLING OPERATIONS BEGAN IN 1963. CURRENTLY OPERATING AT 85% OF CAPACITY.
MAJOR MARKET AREAS USA, JAPAN, EUROPE, AUSTRALIA.
UCC 008189
UCC COMPETITORS
SHORT FIBER ASBESTOS
-- CAREY (Quebec,Canada) -- JOHNS-MANVILLE (Quebec) -- ATLAS (California)
ESTIMATED SHORT FIBER CAPACITY, M TONS/YR
230 800
25
KING CITY
33
VISCOSITY CONTROL AGENTS
, PRODUCT
CURRENT OPERATING RATE ________% CAPACITY
DE GUSSA
TREATED SILICA
90-95
CABOT
TREATED SILICA
90-95
NATIONAL LEAD TREATED CLAY
?
BAKER
MODIFIED CASTOR OIL
?
KING CITY
TREATED ASBESTOS
85
UCC 008190
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 008191
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 008192
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. Applications for asbestos remain despite considerable effort to develop substitutes.
VISCOSITY CONTROL AGENTS -- high The unfavorable asbestos publicity and restric
tive government regulations have been less of a negative factor in customer consideration. 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 .008193 -
INDUSTRY PROFILE SHORT FIBER ASBESTOS
CRITICAL ITEMS
VOLUME GROWTH VULNERABILITY TO
SUBSTITUTION COMPETITION PRICING RESPONSE CUSTOMER NO./MIX 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 008194
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 008195
AS8EST0S HEALTH EFFECTS
MAIN EFFECTS OF ASBESTOS EXPOSURE
ASBESTOSIS
'
Result of very high past exposures'.
LUNG CANCER
Mainly from interaction with smoking, (Non-smoking asbestos worker has little or no excess risk of lunq cancer.)
MESOTHELIOMA
This cancer can result from low exposures and is not smoking related.
LATENT PERIOD VARIES FROM ABOUT 15-50 YEARS.
PRESENT REGULATORY ACTIONS AIMED AT REDUCING RISK OF LUNG CANCER AND MESOTHELIOMA
THE EXTENT OF CANCER RISK AT VERY LOW EXPOSURES IS ESTIMATED, NOT MEASURED DIRECTLY.
Definitive scientific answers will probably not be forthcoming in the near future.
UCC 008196
ESTIMATE OF FURTHER REGULATORY IMPACTS ON UCC ASBESTOS BUSINESS
X. ONE - THREE YEARS, POSSIBLY LONGER, OF UNSETTLED REGULATIONS.
2. NO SIGNIFICANT IMPACT DUE TO "RETROACTIVE" LEGISLATION. 3. MODERATE IMPACT OF BANS AND MANDATORY SUBSTITUTIONS. 4. OSHA NO MORE RESTRICTIVE THAN 0.5 FIBER/cc TWA.
{NO SOONER THAN FIRST QUARTER OF 1981, COULD BE A YEAR OR MORE LATER.) 5. NUMERICAL AMBIENT AIR STANDARD AND MORE RESTRICTIVE WASTE DISPOSAL UNDER RECRA. (1-2 YEARS AWAY.)
UCC 008197
UCC PRODUCT DIRECTIONS EMPHASIZE DUST CONTROLLED "CALIDRIA" ASBESTOS
PRODUCTS. IMPROVE PACKAGING CONCENTRATE ON END USES WHERE FREE FIBER GENERATION
IS MINIMIZED OR ELIMINATED.
UCC 008198
FINANCIAL SUMMARY
"CALIDRIA" ASBESTOS
SALES ($MM)
NET INCOME ($MM)
{C/SHARE)
ROS %
ROA % CASH GENERATED
($MM)
1975 1976 1977 1978 1979
4.3 0.1 0.2 2.3 1.6 0.2
00
o
4.9 0.5
10.2 10.5
0.1
5.3 0.6 1.0 11.3 12.9 1.1
7.2 1.2 1.9 16.7 25.4 1.0
I
6.4 1.0 1.5 16.4 19.8 1.2
UCC 008199
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
1
A strong technical service effort, versatile
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 008200
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 008201
Assessment of Principal Competitors Relative to Key Competitive Factors
Asbestos Category
Market Share Product Line Breadth Breadth Customer Base Total Cost Position Technical Position Product Quality Customer Service/Dependable
Supplier Overall Rank
UCC
Carey
Strong Strong Strong
Leading Strong/
Fair
Strong
Fair
Strong
Strong Leading Leading
Weak Strong/
Fair Weak
Johns - Manville
Strong
Strong
Strong Leading/
Strong Strong
Fair
Strong
Leading/ Strong
1
Strong/ Fair
3
#
Strong Z
Atlas -.Fair Weak Weak Beak Weak Strong Weak
Fair/ Weak 4
UCC 008202
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 008203
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 pnV
UCC Strong Leading
Natl. Lead
Fair/ Weak
Fair
Leading . Strong
Leading/ Strong
Strong
Leading
Strong
Weak
Strong^1) Fair
Strong Strong/
Fair
22
Cabot DeGusea
Fair
Fair
Strong Strong
Strong Strong
Strong Strong
Strong Strong
Strong Strong
Strong Strong/
Fair
12
Baker Fair/
Weak Fair Strong Fair Strong Strong Strong/
Fair
2
(l)The health, factor was weighted at 4 to 1 against other factors in the overall rating for UCC.
UCC 008204
O
9K
ui to
UCC 008205
PROSPECTS FOR LONG-TERM INDUSTRY GROWTH AND EARNINGS QUALITY NON-ASBESTOS CATEGORY
*
<ut
o
u u H
o
8
w
A
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 MODERATE IMPACT OF BANS OR MANDATORY' SUBSTITUTION . OSHA TLV NO MORE RESTRICTIVE THAN 1.0 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 008206
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 008207
SALES HISTORY
SHORT FIBER VISCOSITY
CONTROL
TOTAL
1975 28.5
1.6 30.1
1976
M TONS 1977
22.5
22.8
2.1
2.1
24.6
24.9
1978 32.9
2.4 35.3
1979 26.5
2.2 23.7
CONSTRUCTION EXPENDITURES
1975 1976 197? 1978 1979
$M 542 197
47 77 57
UCC 008208
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 008209
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; . SHORT 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 008210
STRATEGY ASSUMPTIONS
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 008211
if
RISK ADJUSTMENTS DEPLETION ALLOWANCE
. ASSIGNED 25% PROBABILITY TO THE LOSS OF DEPLETION BY 1933
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
CAPITAL COSTS . INCREASED 12.5% ABOVE PLAN
UCC 008212
UCC 008213
R IS K ADJUSTED F IN A N C IA L SUMMARY -- ASBESTOS
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UCC 008214
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
I UCC 008215
THIRD PARTY LIABILITY WARNINGS TO UCC CUSTOMERS -- NO WARNING ON UCC PACKAGE FROM LATE 1963 TO JUNE 1968 -- "WEAK" WARNING LABEL USED ON UCC PACKAGING BEGINNING
JUNE 1968 -- OSHA WARNING LABEL PRESCRIBED IN JUNE 1972. NOT AN
ABSOLUTE BAR TO LIABILITY, AND HAS NOT BEEN TESTED IN COURTS -- MASSIVE GOVERNMENT EDUCATION CAMPAIGN IN 1978 A FURTHER BASIS FOR CLAIMING PUBLIC HAS BEEN ADEQUATELY WARNED
UCC 008216
THIRD PARTY LIABILITY
LAWSUITS
APPROXIMATELY 180 LAWSUITS HAVE BEEN FIXED SINCE 1972, ALL BUT
5 OF WHICH HAVE INVOLVED EXPOSURE TO ASBESTOS INSULATION OR
PIPING.
/
NONE OF THESE SUITS HAS PROCEEDED TO TRIAL AND THEY DO NOT REPRESENT AN ADEQUATE BASIS FOR PREDICTING THE OUTCOME OF FUTURE LITIGATION.
NO JUDGMENTS OR SETTLEMENTS AGAINST THE CORPORATION TO DATE.
OF THE 5 SUITS WHICH DO NOT INVOLVE ASBESTOS INSULATION OR PIPING, 1 SUIT HAS BEEN DISMISSED. THE OTHER 4 SUITS ARE CURRENT AND INVOLVE CUSTOMERS' EMPLOYEES. THE CORPORATION AND ITS DISTRIBUTOR ARE THE TARGET IN 2 OF THESE SUITS.
UCC 008217
THIRD PARTY LIABILITY
LAWSUITS
-- APPROXIMATELY 180 LAWSUITS HAVE BEEN FILED SINCE 1972, ALL BUT
5 OF WHICH HAVE INVOLVED EXPOSURE TO ASBESTOS INSULATION OR
PIPING.
/
-- NONE OF THESE SUITS HAS PROCEEDED TO TRIAL AND THEY DO NOT REPRESENT AN ADEQUATE BASIS FOR PREDICTING THE OUTCOME OF FUTURE LITIGATION.
-- NO JUDGMENTS OR SETTLEMENTS AGAINST THE CORPORATION TO DATE .
-- OF THE 5 SUITS WHICH DO NOT INVOLVE ASBESTOS INSULATION OR PIPING, 1 SUIT HAS BEEN DISMISSED. THE OTHER 4 SUITS ARE CURRENT AND INVOLVE CUSTOMERS' EMPLOYEES. THE CORPORATION AND ITS DISTRIBUTOR ARE THE TARGET IN 2 OF THESE SUITS.
- ..UC.C0.0821&,,
recommended strategy
CONSTANT CAPACITY , HIGHEST EARNINGS QUALITY , LIMITED CAPITAL INVESTMENT . LOW RISK (POTENTIAL THIRD PARTY LIABILITY LARGELY RELATED TO PRE-r77 OPERATION)
UCC 008219
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.
--------- _UCC008220,.