Document rxaMyXeNJLwrXe1NvNGEr0L5V

PLAINTIFF'S EXHIBIT INTERNAL CORRESPONDENCE METALS DIVISION To fNqme,' Divrliort Locof/orf Floor Number Copy to R. L. Folkman W. G. Alesio G. R. Bailey R. W. Rebholz F. J. Shorts leeve^' 270 PARK AVENUE, NEW YORK, NEW YORK 10017 Dofe Originating Depf. April 28, 1980 Financial Control Floor Number Answering letter dote Subject || RECEIVES APR 2 81980 F. J. SHORTSLEEVE 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 S0.27MM/yr. operating expense (per P.R. Sherman and W. B. DeAJfley) . 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 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 KING CITY, CALIFORNIA 0 "CALIDRIA" ASBESTOS 'O MINING SITE AT COALINGA DEPOSIT, DISCOVERED IN 1957. TOTAL COALINGA RESERVES -- 3MM + TONS ) (100 + YEARS OPERATION) \* / 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 CABOT TREATED SILICA TREATED SILICA 90-95 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 13 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 end 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 X X X UCC 008194 INDUSTRY PROFILE VISCOSITY CONTROL AGENTS CRITICAL ITEMS VOLUME GROWTH SUBSTITUTION COMPETITION BASIS OF PRODUCT COMPETITION CUSTOMERS INDUSTRY PROSPECTS HIGH MODERATELOW X X X X X VOLUME GROWTH EARNINGS QUALITY OVERALL ASSESSMENT X X X UCC 008195 ASBESTOS 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 lung 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 1. 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 {$MM) (VSHARE) ROS % ROA % CASH GENERATED ($MM) 1975 1976 1977 1978 1979 4.3 0.1 0.2 2.3 1.6 0.2 4.9 0.5 0.8 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 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 Asbe stos Category UCC Carey Market Share Product Line Breadth Breadth Customer Base Total Cost Position Technical Position Product Quality Customer Service/Dependable Supplier Overall Rank Strong Strong Strong Leading Strong/ Fair Strong Fair Strong Strong Leading Leading Weak Strong/ Fair Weak Leading/ Strong 1 Strong/ Fair 3 Johns - Manville Strong Strong Strong Leading/ Strong Strong Fair Strong Strong Z Atlas -.Fair Weak Weak ffeak 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 Ranh UCC Strong Leading Natl. Lead Fair/ Weak Fair Leading . Strong Leading/ Strong Strang Leading Strong Weak Strong A1) Fair Strong Strong/ Fair 22 Cabot Fair DeGussa 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 PROSPECTS FOR LONG-TERM INDUSTRY GROWTH ANO EARNINGS QUALITY III > p-- Eg 0- h EM 82 oas ui i UCC 008205 STRONG FAIR WEAK NON-ASBESTOS CATEGORY 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 t l 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 1977 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 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 CAPITAL COSTS INCREASED 12.5% ABOVE PLAN UCC 008212 UCC 008213 < 03 j s 03 J 0az3 fo<as WZ < wo Eh Z 03 O<uS \ 03 w CO 00 03 < 00 03 s?S 03 O <U 4fa} v> D 03 t4 < H oz zc t* HU fa < o. Q BO w Eh 03 00 0o3o 03 I" <33 4 s< s e< H4 fa /> < u W o a! o ca 5 03 pa 3 HZ Z 03 Si </> Z* 03 O < *4 O fa </> vroo as r* cn 1-4 oo CM o I 00 CM CM \o m 00 co rr> oo mo <N M CO CM oo m CM *r (.0 1 7 ) 3 .7 O CM CM 00 w 00 U N IT ABANDONMENT -- SHUT DOWN B H Xo h Kt<* e0h3 X H C<f<oaJ E*EcZChnh OZO cn Xz<fpaa o0pHsa3 fa EOhS oX10 .4 OKEh Z uo z XE0H)h otH<Zo oHOUi fXua > 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 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. UCC 008217 THIRD PARTY LIABILITY LAWSUITS APPROXIMATELY 180 LAWSUITS HAVE BEEN FIIED 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..008218__ RECOMMENDED STRATEGY CONSTANT CAPACITY . HIGHEST EARNINGS QUALITY . LIMITED CAPITAL INVESTMENT . LOW RISK (POTENTIAL THIRD PARTY LIABILITY LARGELY RELATED TO PRE-'77 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. -----------------------UCC00S22D..