SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1994 Commission File Number 1-1687
PPG INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-0730780
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One PPG Place, Pittsburgh, Pennsylvania 15272
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (412) 434-3131
As of October 27, 1994, 212,755,505 shares of the Registrant's common stock,
par value $1.66-2/3 per share, were outstanding.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
<PAGE>
PPG INDUSTRIES, INC.
AND CONSOLIDATED SUBSIDIARIES
=============================
Index
Part I. Financial Information Page(s)
Item 1. Financial Statements:
Condensed Statement of Operations................................ 2 - 3
Condensed Balance Sheet.......................................... 4
Condensed Statement of Cash Flows................................ 5
Notes to Condensed Financial Statements.......................... 6 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 11 - 18
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.......................... 19
Signature............................................................ 20
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<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
PPG INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
Condensed Statement of Operations (Unaudited)
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1994 1993 1994 1993
(Millions)
<S> <C> <C> <C> <C>
Net sales..................... $1,575.3 $1,405.4 $4,671.5 $4,375.7
Cost of sales................. 962.1 884.9 2,861.8 2,764.7
Gross profit................ 613.2 520.5 1,809.7 1,611.0
Other expenses:
Selling, general and
administrative............ 225.7 216.2 665.2 657.1
Depreciation................ 78.6 82.2 236.1 250.8
Research and development.... 55.7 49.8 159.1 150.8
Interest.................... 21.8 24.5 66.0 77.9
Other charges............... 29.1 26.7 72.7 62.8
Business divestitures
and realignments (Note 4). -- 87.0 85.0 88.4
Total other expenses.......... 410.9 486.4 1,284.1 1,287.8
Other earnings................ 34.4 26.3 81.9 108.6
Income before income taxes
and minority interest....... 236.7 60.4 607.5 431.8
Income taxes.................. 86.2 30.8 230.9 179.3
Minority interest............. 5.0 4.8 13.0 11.4
Income before cumulative
effect of accounting
changes..................... 145.5 24.8 363.6 241.1
Cumulative effect of
accounting changes (Note 2):
Other postretirement and
postemployment bene-
fits, net of income
taxes of $231.9 million. -- -- -- (363.2)
Income taxes.............. -- -- -- 90.4
Net income (loss)............. $ 145.5 $ 24.8 $ 363.6 $ (31.7)
</TABLE>
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<PAGE>
PPG INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
Condensed Statement of Operations (Unaudited)
(Continued)
<CAPTION>
Three Months Six Months
Ended September 30 Ended September 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Earnings (loss) per share:
Income before cumulative
effect of accounting
changes................... $ 0.68 $ 0.12 $ 1.71 $ 1.14
Cumulative effect of
accounting changes:
Other postretirement
and postemployment
benefits.............. -- -- -- (1.71)
Income taxes............ -- -- -- 0.42
Earnings (loss) per share... $ 0.68 $ 0.12 $ 1.71 $ (0.15)
Dividends per share (after
giving retroactive effect
to 100% stock distribution,
Note 6)..................... $ 0.28 $ 0.27 $ 0.83 $ 0.77
Average shares outstanding
(after giving retroactive
effect to 100% stock
distribution, in millions,
Note 6)..................... 212.5 212.2 212.7 212.3
</TABLE>
The accompanying notes to condensed financial statements are an integral part
of this statement.
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<PAGE>
PPG INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
Condensed Balance Sheet (Unaudited)
<CAPTION>
September 30 December 31
1994 1993
(Millions)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents................... $ 165.7 $ 111.9
Receivables-net............................. 1,229.2 996.7
Inventories (Note 3)........................ 686.8 683.3
Other....................................... 233.9 234.0
Total current assets...................... 2,315.6 2,025.9
Property (less accumulated depreciation of
$3,409.5 million and $3,254.6 million)...... 2,718.9 2,787.3
Investments................................... 285.3 264.5
Other assets.................................. 546.7 573.8
Total..................................... $5,866.5 $5,651.5
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings and obligations
under capital leases...................... $ 300.7 $ 355.1
Accounts payable and accrued liabilities.... 971.5 921.2
Income taxes................................ 17.5 4.7
Total current liabilities................. 1,289.7 1,281.0
Long-term debt and obligations under
capital leases.............................. 767.7 774.0
Deferred income taxes......................... 280.3 268.6
Accumulated provisions........................ 265.6 282.5
Other postretirement benefits (Note 2)........ 508.2 520.4
Minority interest............................. 65.1 51.9
Total liabilities......................... 3,176.6 3,178.4
Shareholders' equity:
Common stock (Note 6)....................... 484.3 242.1
Additional paid-in capital (Note 6)......... 65.9 297.5
Retained earnings........................... 3,626.5 3,436.8
Treasury stock.............................. (1,279.9) (1,224.7)
Unearned compensation....................... (178.7) (182.5)
Minimum pension liability adjustment........ (25.9) (36.1)
Currency translation adjustment............. (2.3) (60.0)
Total shareholders' equity................ 2,689.9 2,473.1
Total..................................... $5,866.5 $5,651.5
The accompanying notes to condensed financial statements are an integral part
of this statement.
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<PAGE>
PPG INDUSTRIES, INC. AND SUBSIDIARIES
</TABLE>
<TABLE>
Condensed Statement of Cash Flows (Unaudited)
<CAPTION>
Nine Months Ended Sept. 30
1994 1993
(Millions)
<S> <C> <C>
Cash from operations......................... $ 503.0 $ 467.8
Investing activities:
Capital spending.......................... (224.0) (220.8)
Other..................................... 83.3 40.8
Cash used for investing activities... (140.7) (180.0)
Financing activities:
Net change in borrowings with
maturities of three months or less...... (74.4) 71.5
Proceeds from other short-term debt....... 31.0 6.6
Repayment of other short-term debt........ (23.9) (9.4)
Proceeds from long-term debt.............. 10.3 8.0
Repayment of long-term debt and capital
leases.................................. (28.7) (193.4)
Loans to employee stock ownership plan.... (11.0) --
Repayment of loans by employee stock
ownership plan.......................... 14.8 16.6
Purchase of treasury stock, net........... (53.0) (23.8)
Dividends paid............................ (176.4) (163.5)
Cash used by
financing activities............... (311.3) (287.4)
Effect of currency exchange rate changes
on cash and cash equivalents............... 2.8 (.5)
Net increase (decrease) in cash
and cash equivalents....................... 53.8 (.1)
Cash and cash equivalents,
beginning of period........................ 111.9 61.4
Cash and cash equivalents,
end of period.............................. $ 165.7 $ 61.3
</TABLE>
The accompanying notes to condensed financial statements are an integral part
of this statement.
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<PAGE>
PPG INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Condensed Financial Statements (Unaudited)
1. Financial Statements
The condensed financial statements included herein are unaudited. In
the opinion of management, these statements include all adjustments,
consisting only of normal, recurring adjustments, necessary for a fair
presentation of the financial position of PPG Industries, Inc. and
consolidated subsidiaries (the Company or PPG) at September 30, 1994,
and the results of their operations for the three- and nine-month
periods ended September 30, 1994 and 1993 and their cash flows for the
nine-month periods ended September 30, 1994 and 1993. These condensed
financial statements should be read in conjunction with the financial
statements and notes thereto included in PPG's Annual Report on Form
10-K for the year ended December 31, 1993.
The results of operations for the nine months ended September 30, 1994
are not necessarily indicative of the results to be expected for the
full year.
2. Changes in Methods of Accounting
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." This standard requires
accrual, during the years that the employee renders the necessary
services, of the expected cost of providing postretirement benefits to
an employee and the employee's covered dependents. The Company's
previous practice was to recognize these costs as benefits were paid.
PPG elected to recognize immediately the cumulative effect of this
accounting change, which resulted in an after-tax charge of
$357.1 million (including $6.4 million for an equity affiliate) in 1993.
The incremental after-tax impact of accruing the cost of these
postretirement benefits for 1993 was not material.
The Company also adopted SFAS No. 109, "Accounting for Income Taxes,"
effective January 1, 1993. This standard requires an asset and
liability approach to accounting for income taxes. Deferred income tax
liabilities and assets reflect the tax effects of (1) temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes and (2) operating loss and tax credit carryforwards. Deferred
income tax assets, such as benefits related to net operating loss
carryforwards, are recognized to the extent that realization of such
benefits is more likely than not. Changes in enacted tax rates or laws
result in adjustments to the recorded deferred income tax assets and
liabilities in the period that the tax law is enacted.
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<PAGE>
The $90.4 million cumulative effect of this accounting change as of
January 1, 1993 was credited to income in 1993. The effect of the
accounting change on 1993 net income, exclusive of the cumulative effect
as of January 1, 1993, was not material. Previously, the Company
applied the deferral method specified in Accounting Principles Board
Opinion No. 11 to provide for deferred income taxes with respect to
timing differences between the recognition of income and expense items
for financial reporting purposes and income tax purposes.
Effective January 1, 1993, the Company also adopted the provisions of
SFAS No. 112, "Employers' Accounting for Postemployment Benefits." This
standard requires an accrual method of recognizing the cost of
postemployment benefits, such as disability, severance and workers'
compensation benefits. Since the Company previously accounted for most
of these benefits on an accrual basis, the cumulative after-tax charge
as of January 1, 1993, of the accounting change was only $6.1 million.
The incremental after-tax impact of accruing the cost of these benefits
for 1993 was not material.
3. Inventories
Inventories at September 30, 1994, and December 31, 1993, are detailed
below.
<TABLE>
<CAPTION>
Sept. 30 Dec. 31
1994 1993
(Millions)
<S> <C> <C>
Finished products and work in process............ $455.6 $451.8
Raw materials.................................... 117.0 117.5
Supplies......................................... 114.2 114.0
Total.......................................... $686.8 $683.3
</TABLE>
Most domestic and certain foreign inventories are valued using the last-
in, first-out method. If the first-in, first-out method had been used,
inventories would have been $206.7 million and $210.1 million higher at
September 30, 1994 and December 31, 1993, respectively.
4. Business Divestitures and Realignments
PPG's 1994 and 1993 results reflect the impact of the Company's
continuing programs to divest or realign businesses and activities not
meeting strategic or performance objectives. The related charge for the
current year as shown in the condensed statement of operations pertains
to the divestiture of the Biomedical Systems Division. The charges for
the prior year mainly involve further streamlining in our glass segment,
including costs associated with selected plant closings, permanent shut-
downs of inactive facilities and disposition of a commercial
construction fabrication operation. The charges also include costs for
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<PAGE>
streamlining our European coatings and resins segment operations. Refer
to Note 7, Business Segment Information, and Management's Discussion and
Analysis of Financial Condition and Results of Operations for further
details regarding these charges.
5. Cash Flow Information
Cash payments for interest for the nine months ended September 30, 1994
and 1993 were $63.7 million and $78.3 million, respectively. Cash
payments for income taxes for the nine months ended September 30, 1994
and 1993 were $217.4 million and $196.9 million, respectively.
6. Stock Split
On April 21, 1994, the Board of Directors approved a two-for-one stock
split in the form of a 100% stock distribution. The distribution was
made on June 10, 1994, to shareholders of record as of May 10, 1994.
Share and per share data have given retroactive effect to the stock
split.
7. Business Segment Information
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1994 1993 1994 1993
(Millions)
<S> <C> <C> <C> <C>
Net Sales
Coatings and Resins $ 640 $ 547 $1,956 $1,735
Glass 594 521 1,779 1,647
Chemicals 342 296 937 869
Other -- 42 -- 125
Total $1,576 $1,406 $4,672 $4,376
</TABLE>
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<PAGE>
7. Business Segment Information (Continued)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1994 1993 1994 1993
(Millions)
<S> <C> <C> <C> <C>
Operating Income (Loss)(1)
Coatings and Resins $ 109 $ 90 $ 376 $ 310
Glass 74 (31) 243 80
Chemicals 68 27 139 108
Other (1) 2 (3) (79) (12)
Total operating
income 253 83 679 486
Interest - net (19) (21) (59) (68)
Other unallocated corporate
(expense) income - net 3 (1) (12) 14
Income before income taxes
and minority interest $ 237 $ 61 $ 608 $ 432
</TABLE>
[FN]
<TABLE>
(1) Includes charges related to business divestitures and
realignments, as follows:
<CAPTION>
Three Months Nine Months
Ended Sept. 30 Ended Sept. 30
1994 1993 1994 1993
(Millions)
<S> <C> <C> <C> <C>
Coatings and Resins $ -- $ 4 $ -- $ 5
Glass -- 78 -- 78
Chemicals -- 5 -- 5
Other -- -- 85 --
Total $ -- $ 87 $ 85 $ 88
</TABLE>
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<PAGE>
8. Environmental Matters
Management of the Company currently does not anticipate that the
resolution of the environmental contingencies detailed below, which will
occur over an extended period of time, will result in the Company
recording future annual charges to income that are significantly greater
than those recorded in recent years. It is possible, however, that
technological, regulatory and enforcement developments, the results of
environmental studies and other factors, could alter this expectation.
In management's opinion, the Company operates in an environmentally
sound manner and the outcome of these environmental matters will not
have a material effect on PPG's financial position or liquidity. To
date, compliance with Federal, state and local requirements has not had
a material impact on PPG's financial position, results of operations or
liquidity.
It is PPG's policy to accrue expenses for environmental contingencies
when it is probable that a liability exists and the amount of loss can
be reasonably estimated. As of September 30, 1994 and December 31,
1993, PPG had environmental reserves totaling $88 million and
$90 million, respectively. Charges against income for environmental
remediation costs for the nine month periods ended September 30, 1994
and 1993 were $25 million and $23 million, respectively.
In addition to the amounts accrued, the Company may be subject to
contingencies related to environmental matters estimated at the high end
to be as much as $200 million to $400 million. Such aggregate losses
are reasonably possible but not currently considered to be probable of
occurrence. These contingencies include significant unresolved issues
including the nature and extent of contamination, if any, at sites and
the methods that may have to be employed should remediation be required.
At certain waste sites, the financial condition of any other potentially
responsible parties also contributes to the uncertainty of estimating
PPG's final costs. Although contributors of waste to sites involving
other potentially responsible parties may face governmental agency
assertions of joint and several liability, in general, final allocations
of costs are made based on the relative contributions of wastes to such
sites. PPG is generally not a major contributor to such sites. The
extent to which costs incurred are recoverable from insurance companies
is also a factor in determining PPG's ultimate cost. Although the
unrecorded exposure to future loss relates to all sites, a significant
portion of such unrecorded exposure involves three operating plant sites
and one closed plant site. Two of the sites are in the early stages of
study while the remaining two are further into the study phase. All
four sites require further study in order to assess the magnitude of
contamination, if any, and the viable remediation alternatives. It is
expected that the Company's environmental contingencies will be resolved
over a period of 20 years or more.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Performance in the Third Quarter of 1994 Compared to the Third Quarter of 1993
Performance Overview
Sales for the third quarter of 1994 and 1993 were $1.58 billion and
$1.41 billion, respectively. Higher volumes in each of the business segments,
including sales from the January 1994 acquisition of Akzo's European original
equipment auto coatings business, more than offset the absence of sales in
1994 from the Biomedicals Systems Division and glass businesses which have
been substantially divested or discontinued. Higher commodity chemical prices
also contributed to the sales increase.
The gross profit percentage increased to 38.9% from 37.0% in the prior year's
quarter. Contributing factors to the improvement were lower manufacturing
costs, sales mix improvements, higher overall sales prices and benefits from
substantially divested and discontinued businesses. The negative effects of
inflation partly offset these gains.
On April 21, 1994, the Board of Directors approved a two-for-one stock split
in the form of a 100% stock distribution. The distribution was made on
June 10, 1994 to shareholders of record on May 10, 1994. Share and per share
data give retroactive effect to the stock split.
Net income and earnings per share for the quarter were $145.5 million and
$0.68, respectively. In the third quarter of 1993, net income and earnings
per share were $24.8 million and $0.12, respectively. Current period earnings
were favorably impacted by the factors that contributed to the gross profit
percentage improvement, higher sales volumes, and the absence of business
divestiture and realignment charges. Higher income tax expense partially
offset these gains and resulted principally from the increase in pre-tax
income.
Performance of Business Segments
Coatings and resins sales increased to $640 million from $547 million for the
third quarter of 1993. Operating earnings for the corresponding periods were
$109 million and $90 million, respectively. Contributing principally to the
sales increase were higher volumes for most of the segment's major product
lines, including sales from the January 1994 acquisition of the Akzo coatings
business and the July 1994 acquisition of an automotive paint spray booth
business. The increase in operating earnings was primarily attributable to
the factors that contributed to the sales increase and the absence of business
realignment charges, offset in part by higher overhead costs and the negative
effects of inflation.
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<PAGE>
Glass sales increased to $594 million in the third quarter of 1994 from
$521 million in the prior year period. Operating income increased to
$74 million from a $31 million loss in the corresponding prior period. Higher
volumes in each of the segment's major businesses and higher sales prices for
North American flat and automotive replacement glass and fiber glass
reinforcement products contributed to the sales increase. The favorable
effects of translating European currencies also contributed to the sales
increase. The absence of sales from a divested business, and reduced prices
for North American automotive original glass partially offset these
improvements. The increase in operating earnings was principally the result
of the absence of $78 million of restructuring charges that were recorded in
the prior year period and the factors that contributed to the sales increase.
The negative effects of inflation partially offset these improvements.
Chemicals sales increased to $342 million from $296 million in the third
quarter of 1993. Operating earnings increased to $68 million from $27 million
for the corresponding prior period. The increase in sales is primarily
attributable to higher volumes for most chlor-alkali and specialty chemical
products and increased prices for chlorine and most chlorine derivatives
products. Partially offsetting these improvements were lower caustic soda
prices. The operating earnings improvement was attributable to the factors
that contributed to the sales increase, manufacturing efficiencies, gains from
the dispositions of the segment's polymer additives business and its
investment in a bromine business, and the absence of business divestiture and
realignment charges.
There have not been significant changes in the Company's plans for
implementing business divestiture and realignment programs undertaken in prior
years and previous quarters of the current year.
Performance in the First Nine Months of 1994 Compared to the First Nine Months
of 1993
Performance Overview
Sales for the first nine months of 1994 and 1993 were $4.7 billion and
$4.4 billion, respectively. Higher volumes in each of the business segments,
including sales from the January 1994 acquisition of an Akzo coatings
business, more than offset the absence of sales in 1994 from the Biomedicals
Systems Division and glass businesses which have been substantially divested
or discontinued. The unfavorable effect of translating European currencies
and lower overall prices in the Chemicals segment negatively impacted sales.
The gross profit percentage increased to 38.7% from 36.8% in the prior period.
Contributing factors to the improvement were sales mix improvements, lower
manufacturing costs, and benefits from substantially divested and discontinued
businesses. Lower overall sales prices and the negative effects of inflation
partly offset these gains.
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<PAGE>
Net income and earnings per share for the current year period were
$363.6 million and $1.71, respectively. In the prior year period, the Company
experienced a net loss and loss per share of $31.7 million and $0.15,
respectively. The prior year amounts included a net charge of $272.8 million
or $1.29 per share for three accounting changes (see Note 2 to the condensed
financial statements) and business divestiture and realignment charges of $52
million, after-tax. Also included was an $0.08 per share gain from the sale
of our interest in an insurance company. Current period earnings were
favorably impacted by the factors that contributed to the gross profit
percentage improvement, higher sales volumes and lower interest expense.
Partly offsetting these gains was the $52 million after-tax charge related to
the exit of the Biomedical Systems Division and higher income tax expense due
principally to the higher pre-tax income.
Performance of Business Segments
Coatings and resins sales increased to $1.96 billion from $1.74 billion for
the first nine months of 1993. Operating earnings for the corresponding
periods were $376 million and $310 million, respectively. Contributing to the
sales increase were higher volumes for nearly all of the segment's major
product lines, including sales from the January 1994 acquisition of the Akzo
coatings business and a July 1994 acquisition of an automotive paint spray
booth business, which were partially offset by the unfavorable effect of
translating European currencies. The increase in operating earnings was
attributable to the higher overall sales volumes and prices as well as
benefits from manufacturing efficiencies. Higher overhead costs, the
unfavorable effects of inflation and the negative effects of European currency
translation partly offset these improvements.
Glass sales increased to $1.78 billion in the nine-month period ended
September 30, 1994, from $1.65 billion in the prior year period. Operating
income increased to $243 million from $80 million in the corresponding prior
period. Higher volumes in each of the segment's major businesses and higher
sales prices for North American flat, automotive replacement and fiber glass
products contributed to the sales increase. The absence of sales from
divested and discontinued businesses, the unfavorable effects of translating
European currencies, and reduced prices for worldwide automotive original
products and flat and fiber glass reinforcement products in Europe partially
offset these improvements. The operating earnings improvement was primarily
the result of the absence of $78 million of restructuring charges that were
recorded in the prior year period, the factors that contributed to the sales
increase, manufacturing efficiencies, and the absence of operating losses from
certain divested or discontinued businesses. The negative effects of
inflation partially offset these gains.
Chemicals sales increased to $937 million from $869 million for the nine-month
period ended September 30, 1993. Operating earnings increased to $139 million
from $108 million for the corresponding prior period. The increase in sales
is primarily attributable to higher volumes for most chlor-alkali, chlorine
derivative, and specialty chemical products. Significantly offsetting these
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<PAGE>
improvements were lower chlor-alkali prices. The increase in operating
earnings was principally the result of the higher sales volumes, manufacturing
efficiencies, gains from the dispositions of the segment's polymer additives
business and its investment in a bromine business, and the absence of business
divestiture and realignment charges. Lower overall sales prices, the negative
effects of inflation and higher overhead costs somewhat offset these
improvements.
Included in the "other" segment's operating loss was an $85 million second
quarter charge related to the divestment of the Biomedical Systems Division.
Because of the general decline in health care and related markets, and other
uncertainties, disposition of the remaining assets of this division was no
longer assured of occurring within one year of the Company's original decision
to divest it. The majority of the charge was comprised of the reversal of a
$60 million gain originally anticipated from divestiture of its sensors
business at the time the decision was made to dispose of the division. Also,
a $13 million charge was taken for additional operating losses anticipated
through the expected disposal date resulting from such date being extended as
well as actual operating losses exceeding those originally estimated. Any
gains on sales of the remaining assets will be recognized in the period in
which they occur.
Other Factors
The decline in interest expense was principally the result of lower average
borrowings for the third quarter of 1994 and nine-month period ended
September 30, 1994, as compared with the corresponding periods in 1993.
Higher other charges for the nine-month period ended September 30, 1994, was
principally the result of higher environmental study costs and charges
incurred for the relocation of an administrative office.
Lower other earnings and the change in other unallocated corporate (expense)
income - net for the nine-month period ended September 30, 1994, were
principally the result of the absence of the gain from the sale of our
interest in an insurance company, which occurred in the first quarter of 1993.
The increase in accounts receivable is principally the result of higher sales
in September 1994 as compared with those in December 1993.
The decline in accumulated provisions and other assets is principally
attributable to the sale of the European portion of our Biomedical Systems
Division.
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<PAGE>
PPG's board of directors approved a repurchase of 6.5 million shares of PPG
stock. The stock will be purchased in open market or private transactions and
no timetable for the repurchases has been announced.
Environmental Matters
Management of the Company currently does not anticipate that the resolution of
the environmental contingencies detailed below, which will occur over an
extended period of time, will result in the Company recording future annual
charges to income that are significantly greater than those recorded in recent
years. It is possible, however, that technological, regulatory and
enforcement developments, the results of environmental studies and other
factors, could alter this expectation. In management's opinion, the Company
operates in an environmentally sound manner and the outcome of these
environmental matters will not have a material effect on PPG's financial
position or liquidity. To date, compliance with Federal, state and local
requirements has not had a material impact on PPG's financial position,
results of operations or liquidity.
It is PPG's policy to accrue expenses for environmental contingencies when it
is probable that a liability exists and the amount of loss can be reasonably
estimated. As of September 30, 1994 and December 31, 1993, PPG had
environmental reserves totaling $88 million and $90 million, respectively.
Charges against income for environmental remediation costs for the nine month
periods ended September 30, 1994 and 1993 were $25 million and $23 million,
respectively.
In addition to the amounts accrued, the Company may be subject to
contingencies related to environmental matters estimated at the high end to be
as much as $200 million to $400 million. Such aggregate losses are reasonably
possible but not currently considered to be probable of occurrence. These
contingencies include significant unresolved issues including the nature and
extent of contamination, if any, at sites and the methods that may have to be
employed should remediation be required. At certain waste sites, the
financial condition of any other potentially responsible parties also
contributes to the uncertainty of estimating PPG's final costs. Although
contributors of waste to sites involving other potentially responsible parties
may face governmental agency assertions of joint and several liability, in
general, final allocations of costs are made based on the relative
contributions of wastes to such sites. PPG is generally not a major
contributor to such sites. The extent to which costs incurred are recoverable
from insurance companies is also a factor in determining PPG's ultimate cost.
Although the unrecorded exposure to future loss relates to all sites, a
significant portion of such unrecorded exposure involves three operating plant
sites and one closed plant site. Two of the sites are in the early stages of
study while the remaining two are further into the study phase. All four
sites require further study in order to assess the magnitude of contamination,
if any, and the viable remediation alternatives. It is expected that the
Company's environmental contingencies will be resolved over a period of 20
years or more.
- 15 -
<PAGE>
Foreign Currency and Interest Rate Risk
As a multinational company, PPG is concerned with, and therefore manages, its
transaction exposure to foreign currency risk. Its objective in managing this
risk is to minimize the volatility of cash flows due to currency fluctuations.
The Company manages its foreign currency exposures principally through the
purchase of forward and option contracts. It does not manage its exposure to
translation gains and losses; however, by borrowing in local currencies it
reduces such exposure. The market value of the forward and option contracts
purchased and outstanding as of September 30, 1994, was not material.
The Company manages its interest rate risk in order to balance its exposure
between fixed and variable rates while attempting to minimize its interest
costs. PPG principally manages its interest rate risk by means of retiring
and issuing debt from time to time. To a limited extent, PPG manages its
interest rate risk through the purchase of interest rate swaps. As of
December 31, 1993 and September 30, 1994 the notional principal amounts and
fair values of interest rate swaps held were immaterial.
PPG's policies do not permit active trading of currency or interest rate
derivatives.
Additional Business Divestiture and Realignment Detail
1991 Business Divestitures and Realignments
In 1991, the Company recorded business divestiture and realignment charges
totaling $84 million. Of the charges, $68 million related to the glass
segment, $13 million related to the coatings and resins segment, $2 million
related to the chemicals segment and $1 million related to the "other"
segment.
Of the glass segment charges, approximately $42 million was recorded to write
down certain assets at two plants to reflect the segment's inability to
recover the carrying value of such impaired assets. A $12 million charge was
also taken with respect to the idling of these facilities, for a period of
approximately three years, due to overcapacity in the North American flat
glass industry and the lack of demand for glass products produced at those
plants. These actions were taken in response to results from internal and
external studies which analyzed the performance aspect of these facilities and
a related impairment analysis, which were completed in the first quarter of
1991. The remainder of the charges relate principally to a work force
reduction program which was initiated to streamline the segment's flat glass
organization.
The charge recorded by the coatings and resins segment principally related to
streamlining of each of its operations throughout North America and
reorganization of the North American architectural finishes business.
- 16 -
<PAGE>
In addition to the $42 million impairment charge, the provisions recorded were
principally comprised of severance costs totaling $38 million and the cost of
long-term contractual obligations principally related to the two glass
facilities during the period they were idle of $7 million.
1993 Business Divestitures and Realignments
In 1993, the Company recorded business divestiture and realignment charges
totaling $126 million. Of these charges, $78 million related to the glass
segment, $38 million related to the "other" segment involving our Biomedicals
Systems Division and $5 million each related to the coatings and resins and
the chemicals segments.
Of the glass segment's charges, approximately $71 million related to the shut-
down of two manufacturing facilities, the discontinuation of the commercial
products business, and the disposition of the architectural metals business.
One of the manufacturing facilities, which had previously been temporarily
idled, was permanently closed because management concluded that the market for
its products would not support operation of the facility. Management also
decided to close the second facility because of the segment's overcapacity for
the plant's manufactured products. Operating earnings could be increased
through the reallocation of its production to more efficient facilities. The
decision to exit the commercial products business was due principally to its
disappointing operating performance. The architectural metals business was
sold because it was not a core operation of the glass segment and it also
experienced unfavorable operating results.
Since the Company's acquisition of the Biomedicals Systems Division, it has
consistently reported disappointing operating results. Moreover, this
business had not blended well with PPG's other major segments and proved to be
difficult to manage under the continually changing business environment in
which it operated. As a result, management decided early in the fourth
quarter of 1993 to divest and a charge of $38 million was recorded in that
quarter. The charge was principally based on anticipated sales proceeds from
the divestiture of the sensors and medical electronics businesses of
approximately $65 million and $50 million, respectively. Such amounts
resulted in an estimated net loss of $5 million. In addition, $30 million of
operating losses were anticipated through the expected disposal date.
In addition to the components of the Biomedicals Systems Division provision
detailed above, significant components of the business divestiture and
realignment charges included charges for the retirement or write-off of
operating assets with net book values of approximately $31 million, severance
and benefit costs of $17 million, incremental workers' compensation accruals
of $10 million, environmental accruals of $9 million, anticipated future
operating losses of $6 million through the expected disposal dates for the
commercial products and architectural metals businesses, and charges of
approximately $2 million for the disposition of operating assets (net of
anticipated sales proceeds of $16 million).
- 17 -
<PAGE>
The charges recorded in 1993 are expected to be recovered in the future to a
large extent through the absence of historical operating losses for the
Biomedical Systems Division. Such operating losses were approximately
$61 million, $13 million, and $23 million for 1993, 1992 and 1991,
respectively. In addition, future annual operating earnings are projected to
be positively impacted by approximately $10 million primarily as a result of
the elimination of various operating costs. With the exception of sales
proceeds expected in 1994 from the divestiture of the Biomedicals Systems
Division's sensors and medical electronics businesses, the cash flow effect of
these 1993 activities are not anticipated to be significant. Sales proceeds
received to date in 1994 have consisted of $13 million in cash plus
$12 million in securities and receivables.
- 18 -
<PAGE>
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Computation of Earnings Per Share
(b) Reports on Form 8-K
The Company filed a Form 8-K on October 21, 1994. The report
indicated that on October 20, 1994 the Registrant's Board of
Directors approved the repurchase by the Registrant of 6.5 million
shares of the Registrant's outstanding common stock, par value
$1.66 2/3 per share (the common stock). The shares may be
repurchased in the open market or in private transactions and no
timetable was established for the repurchase. CS First Boston
Corporation is exclusive agent of the initial part of this
repurchase program.
- 19 -
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PPG INDUSTRIES, INC.
(Registrant)
Date: November 1, 1994 /s/ W.H. Hernandez
W. H. Hernandez
Vice President and Controller
(Acting Principal Financial and
Accounting Officer and
Duly Authorized Officer)
- 20 -
<PAGE>
PPG INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
No. Description
11 Computation of Earnings (Loss) Per Share
27 Financial Data Schedule
<PAGE>
Exhibit 11
PPG INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
Computation of Earnings (Loss) Per Share
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Income before cumulative
effect of accounting
changes..................... $145.5 $ 24.8 $ 363.6 $ 241.1
Cumulative effect of
accounting changes:
Other postretirement
and postemployment
benefits.................. -- -- -- (363.2)
Income taxes................ -- -- -- 90.4
Net income (loss)............. $ 145.5 $ 24.8 $ 363.6 $ (31.7)
Weighted average number of
shares of common stock
outstanding................. 212.5 212.2 212.7 212.3
Weighted average number of
shares of common stock
outstanding and common
stock equivalents.......... 214.3 213.6 214.4 213.7
Primary earnings (loss)
per share:
Income before cumulative
effect of accounting
changes.................. $ 0.68 $ 0.12 $ 1.71 $ 1.14
Cumulative effect of
accounting changes:
Other postretirement
and postemployment
benefits................ -- -- -- (1.71)
Income taxes.............. -- -- -- 0.42
Earnings (loss) per share... $ 0.68 $ 0.12 $ 1.71 $ (0.15)
</TABLE>
<PAGE>
Exhibit 11
PPG INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
Computation of Earnings (Loss) Per Share
(Continued)
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Fully diluted earnings (loss)
per share:
Income before cumulative
effect of accounting
changes................... $ 0.68 $ 0.12 $ 1.70 $ 1.13
Cumulative effect of
accounting changes:
Other postretirement
and postemployment
benefits................ -- -- -- (1.70)
Income taxes.............. -- -- -- 0.42
Earnings (loss) per share... $ 0.68 $ 0.12 $ 1.70 $ (0.15)
<FN>
NOTES:
Share and per share data give retroactive effect to the two-for-one stock
split in the form of a 100% stock distribution which was made on June 10,
1994.
The common stock equivalents consist of the shares reserved for issuance under
PPG's stock option plan and deferred under PPG's incentive compensation,
management award, earnings growth and directors' retirement plans.
The fully diluted earnings (loss) per share calculations are submitted in
accordance with Regulation S-K item 601(b)(11) although not required by
footnote 2 to paragraph 14 of APB Opinion No. 15 because they result in
dilution of less than three percent.
All amounts are in millions except per share data.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PPG
INDUSTRIES, INC.'S FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1994 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 166
<SECURITIES> 0
<RECEIVABLES> 1,229
<ALLOWANCES> 0
<INVENTORY> 687
<CURRENT-ASSETS> 2,316
<PP&E> 6,128
<DEPRECIATION> 3,410
<TOTAL-ASSETS> 5,867
<CURRENT-LIABILITIES> 1,290
<BONDS> 768
<COMMON> 484
0
0
<OTHER-SE> 2,206
<TOTAL-LIABILITY-AND-EQUITY> 5,867
<SALES> 4,672
<TOTAL-REVENUES> 4,672
<CGS> 2,862
<TOTAL-COSTS> 2,862
<OTHER-EXPENSES> 553
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66
<INCOME-PRETAX> 608
<INCOME-TAX> 231
<INCOME-CONTINUING> 364
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 364
<EPS-PRIMARY> 1.71
<EPS-DILUTED> 1.71
</TABLE>
