<PAGE>
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 June 30, 1997 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)
(412) 434-3131
(Registrant's telephone number, including area code)
As of July 31, 1997, 179,286,949 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 SUBSIDIARIES
INDEX
PAGE(S)
Part I. Financial Information
Item 1. Financial Statements:
Condensed Statement of Income.............................. 2
Condensed Balance Sheet.................................... 3
Condensed Statement of Cash Flows.......................... 4
Notes to Condensed Financial Statements.................... 5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 8-12
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.................... 13
Signature....................................................... 14
-1-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ------------------------------
PPG INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Statement of Income (Unaudited)
-----------------------------------------
(Millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
---------------- ----------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales........................................ $1,944 $1,913 $3,721 $3,662
Cost of sales.................................... 1,146 1,128 2,233 2,195
------ ------ ------ ------
Gross profit............................... 798 785 1,488 1,467
------ ------ ------ ------
Other expenses:
Selling, general and administrative........ 275 252 522 491
Depreciation............................... 88 84 173 167
Research and development................... 61 58 119 117
Interest................................... 26 25 51 47
Other charges.............................. 12 18 32 34
------ ------ ------ ------
Total other expenses................... 462 437 897 856
------ ------ ------ ------
Other earnings................................... 26 31 50 56
------ ------ ------ ------
Income before income taxes and
minority interest........................... 362 379 641 667
Income taxes..................................... 138 144 244 253
Minority interest................................ 6 6 13 13
------ ------ ------ ------
Net income....................................... $ 218 $ 229 $ 384 $ 401
====== ====== ====== ======
Earnings per share............................... $ 1.21 $ 1.20 $ 2.12 $ 2.10
====== ====== ====== ======
Dividends per share.............................. $ 0.33 $ 0.32 $ 0.66 $ 0.62
====== ====== ====== ======
Average shares outstanding....................... 180.1 188.6 181.1 190.5
====== ====== ====== ======
</TABLE>
The accompanying notes to the condensed financial statements are an integral
part of this statement.
-2-
<PAGE>
PPG INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Balance Sheet (Unaudited)
-----------------------------------
<TABLE>
<CAPTION>
June 30 Dec. 31
1997 1996
--------- ---------
Assets (Millions)
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................... $ 105 $ 70
Receivables-net.............................. 1,376 1,226
Inventories (Note 2)......................... 807 797
Other........................................ 192 203
-------- --------
Total current assets...................... 2,480 2,296
Property (less accumulated depreciation
of $3,806 million and $3,775 million).............. 2,861 2,913
Investments......................................... 227 254
Other assets........................................ 998 978
-------- --------
Total..................................... $ 6,566 $ 6,441
======== ========
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Short-term borrowings and current
portion of long-term debt................. $ 598 $ 648
Accounts payable and accrued
liabilities................................. 1,095 1,106
Income taxes................................. 38 15
-------- --------
Total current liabilities................. 1,731 1,769
Long-term debt (Note 6)............................. 980 834
Deferred income taxes............................... 417 419
Accumulated provisions.............................. 367 339
Other postretirement benefits....................... 527 521
-------- --------
Total liabilities......................... 4,022 3,882
-------- --------
Commitments and contingent liabilities
(Note 5)...........................................
Minority interest................................... 80 76
-------- --------
Shareholders' equity:
Common stock................................. 484 484
Additional paid-in capital................... 99 97
Retained earnings............................ 5,026 4,760
Treasury stock............................... (2,865) (2,667)
Unearned compensation........................ (179) (171)
Minimum pension liability
adjustment.................................. (12) (10)
Currency translation adjustment.............. (89) (10)
-------- --------
Total shareholders' equity............... 2,464 2,483
-------- --------
Total..................................... $ 6,566 $ 6,441
======== ========
</TABLE>
The accompanying notes to the condensed financial statements are an integral
part of this statement.
-3-
<PAGE>
PPG INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Statement of Cash Flows (Unaudited)
---------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30
--------------------------
1997 1996
------------ -----------
<S> <C> <C>
(Millions)
Cash from operating activities..................... $ 438 $ 311
------ ------
Investing activities:
Capital spending............................ (198) (222)
Reduction of investments.................... 22 12
Other....................................... 4 1
------ ------
Cash used for investing activities......... (172) (209)
------ ------
Financing activities:
Net change in borrowings with
maturities of three months or less........ (70) 366
Proceeds from other short-term debt......... 55 25
Repayment of other short-term debt.......... (50) (17)
Proceeds from long-term debt................ 204 155
Repayment of long-term debt................. (39) (133)
Loans to employee stock ownership plan...... (26) (26)
Repayment of loans by employee
stock ownership plan....................... 19 14
Purchase of treasury stock, net............. (202) (351)
Dividends paid.............................. (119) (118)
------ ------
Cash used for financing activities......... (228) (85)
------ ------
Effect of currency exchange rate changes
on cash and cash equivalents................ (3) (1)
------ ------
Net increase in cash and cash equivalents.......... 35 16
Cash and cash equivalents, beginning of period..... 70 106
------ ------
Cash and cash equivalents, end of period........... $ 105 $ 122
====== ======
</TABLE>
The accompanying notes to the condensed financial statements are an integral
part of this statement.
-4-
<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 subsidiaries (the
Company or PPG) at June 30, 1997, and the results of their operations and
their cash flows for the three- and six-month periods ended June 30, 1997
and 1996. These condensed financial statements should be read in
conjunction with the financial statements and notes thereto incorporated by
reference in PPG's Annual Report on Form 10-K for the year ended December
31, 1996.
The results of operations for the six months ended June 30, 1997 are not
necessarily indicative of the results to be expected for the full year.
2. Inventories
-----------
Inventories at June 30, 1997 and December 31, 1996 are detailed below.
<TABLE>
<CAPTION>
June 30 Dec. 31
1997 1996
------- -------
<S> <C> <C>
(Millions)
Finished products and work in
process........................... $ 553 $ 548
Raw materials...................... 139 134
Supplies........................... 115 115
----- -----
Total......................... $ 807 $ 797
===== =====
</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 $197 million and $204 million higher at June
30, 1997 and December 31, 1996, respectively.
3. Cash Flow Information
---------------------
Cash payments for interest were $51 million and $53 million for the six
months ended June 30, 1997 and 1996, respectively. Net cash payments for
income taxes for the six months ended June 30, 1997 and 1996 were $203
million and $240 million, respectively.
-5-
<PAGE>
4. Business Segment Information
----------------------------
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(Millions)
Net sales:
Coatings................. $ 809 $ 771 $1,522 $1,463
Glass.................... 707 722 1,366 1,388
Chemicals................ 428 420 833 811
------ ------ ------ ------
Total.................... $1,944 $1,913 $3,721 $3,662
====== ====== ====== ======
Operating income:
Coatings................. $ 171 $ 166 $ 295 $ 281
Glass.................... 116 130 205 233
Chemicals................ 102 108 191 199
------ ------ ------ ------
Total.................... 389 404 691 713
Interest expense - net...... (24) (22) (47) (42)
Other unallocated corporate
expense - net............ (3) (3) (3) (4)
------ ------ ------ ------
Income before income taxes
and minority interest.... $ 362 $ 379 $ 641 $ 667
====== ====== ====== ======
</TABLE>
5. Commitments and Contingent Liabilities
--------------------------------------
PPG is involved in a number of lawsuits and claims, both actual and
potential, including some which it has asserted against others, in which
substantial money damages are sought. PPG's lawsuits and claims against
others include claims against insurers and other third parties with respect
to actual and contingent losses related to environmental matters.
Management believes that the outcome of all lawsuits and claims involving
PPG, in the aggregate, will not have a material effect on PPG's
consolidated 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 has been incurred and the amount of loss
can be reasonably estimated. Reserves for environmental contingencies are
exclusive of claims against third parties and are not discounted. As of
June 30, 1997 and December 31, 1996, PPG had reserves for environmental
contingencies totaling $85 million and $91 million, respectively. Pre-tax
charges against income for environmental remediation costs for the six
months ended June 30, 1997 and 1996 were $10 million and $14 million,
respectively. Cash outlays related to such charges for the six months
ended June 30, 1997 and 1996 aggregated $16 million in each period.
-6-
<PAGE>
Management anticipates that the resolution of the Company's environmental
contingencies, which will occur over an extended period of time, will not
result in future annual charges against 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 the Company's environmental contingencies will
not have a material effect on PPG's financial position or liquidity.
In addition to the amounts currently reserved, the Company may be subject
to loss contingencies related to environmental matters estimated to be as
much as $200 million to $400 million, which range is unchanged from
December 31, 1996. Such unreserved losses are reasonably possible but are
not currently considered to be probable of occurrence. The Company's
environmental contingencies are expected to be resolved over an extended
period of time. Although the unreserved exposure to future loss relates to
all sites, a significant portion of such exposure involves three operating
plant sites and one closed plant site. Initial remedial actions are
occurring at these sites. Studies to determine the nature of the
contamination are reaching completion and the need for additional remedial
actions, if any, is presently being evaluated. The loss contingencies
related to the remaining portion of such unreserved exposure include
significant unresolved issues such as the nature and extent of
contamination, if any, at sites and the methods that may have to be
employed should remediation be required. With respect to 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 impact of evolving programs, such as
natural resource damage claims, industrial site reuse initiatives and state
voluntary remediation programs, also adds to the present uncertainties with
regard to the ultimate resolution of this unreserved exposure to future
loss. Although insurers and other third parties may cover a portion of
these costs, to the extent they are incurred, any potential recovery is not
included in this unreserved exposure to future loss.
The Company's assessment of the potential impact of these environmental
contingencies is subject to considerable uncertainty due to the complex,
ongoing and evolving process of investigation and remediation, if
necessary, of such environmental contingencies.
6. Long-term Debt
--------------
On February 21, 1997, the Company issued $100 million of non-redeemable 6-
1/4% notes due February 15, 2002 and $100 million of redeemable 6-7/8%
notes due February 15, 2012.
-7-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
-------------
Performance in the Second Quarter of 1997 Compared to the Second Quarter of 1996
Performance Overview
Sales increased during the second quarter of 1997 to $1.94 billion compared to
$1.91 billion in the second quarter of 1996. The current quarter sales increase
is attributable to improved volumes in each of our business segments combined
with the impact of several minor acquisitions and slightly higher sales prices
in our coatings segment. Lower sales prices in our glass and chemicals
segments, and the unfavorable effects of foreign currency translation partially
offset these improvements.
The gross profit percentage when comparing the second quarter of 1997 and 1996
remained constant at 41.0%. The benefits realized from continued manufacturing
efficiencies within the glass segment, favorable sales mix changes in our three
segments, and slightly higher sales prices and lower raw material costs within
the coatings segment were fully offset by the negative effects of lower sales
prices and inflation within the glass and chemicals segments.
Net income and earnings per share for the second quarter of 1997 were $218
million and $1.21, respectively, compared to net income and earnings per share
of $229 million and $1.20, respectively, for the second quarter of 1996. Net
income in the second quarter of 1997 was negatively affected by higher selling,
general and administrative expenses related to growth initiatives and increased
advertising costs, and higher depreciation charges associated with several minor
acquisitions. The quarter's higher overall sales levels, lower environmental
expenses, and lower income tax expense partially offset these negative factors.
Reduced average shares outstanding, due to repurchases of common stock by the
Company, favorably impacted earnings per share in the current quarter.
Performance of Business Segments
Coatings sales increased to $809 million in the second quarter of 1997 compared
to $771 million in the same quarter of 1996. Sales increased as a result of
volume improvements for industrial coatings and automotive refinish products in
both North America and Europe, improved volumes in the North American
architectural coatings business, sales from several minor acquisitions, and
improved sales prices in both North America and Europe for automotive refinish
and industrial coatings products. These improvements were partially offset by
the unfavorable effects of foreign currency translation and slightly lower
automotive coatings prices and volume. Operating income increased to $171
million from $166 million when comparing the second quarter of 1997 and 1996.
The improvement in operating income was due to the same factors that contributed
to the sales increase and lower raw material costs in both Europe and North
America. Partially offsetting these positive factors were higher overhead costs
associated with the increased sales levels in the industrial, architectural and
automotive refinish coatings businesses, growth initiatives in South America and
Asia, and the negative effects of inflation.
Glass sales decreased to $707 million in the second quarter of 1997 from $722
million in the same quarter of 1996. Although we experienced volume increases
for our fiber glass, flat glass, and automotive original glass products in
Europe and our fiber glass and automotive replacement glass products in North
America; these increases were more than offset by the lower worldwide selling
prices for our fiber glass and other glass products, lower North American
volumes for our automotive original glass and flat glass products, and the
unfavorable
-8-
<PAGE>
effects of foreign currency translation. Operating income decreased to $116
million in the second quarter of 1997 compared to $130 million in the
corresponding 1996 quarter. The decline in operating income was due to the same
factors which contributed to the lower overall sales levels, the negative
effects of inflation, slightly higher overhead costs related to the expansion of
our LYNX Services business, which provides claims management services to
insurance and fleet customers, and legal expenses. The benefits of global
manufacturing efficiencies at our glass and fiber glass operations only
partially offset these unfavorable factors. We experienced a modest improvement
in European glass pricing in the second quarter of 1997 as compared to the first
quarter of 1997. Flat glass prices in the Asia/Pacific region, however, continue
to be adversely affected by weak overall market conditions and, as a result, we
are evaluating our alternatives and options.
Chemicals sales increased to $428 million in the second quarter of 1997 compared
to $420 million in the same quarter of the prior fiscal year principally due to
increased volumes in the specialty chemicals business for Transitions optical
lenses and silica products, higher selling prices for vinyl chloride monomer and
other chlorine products, and slightly higher selling prices for certain
specialty chemicals. Lower selling prices for caustic soda partially offset
these favorable factors. Operating income decreased in the current quarter to
$102 million compared to $108 million in the comparable quarter of the prior
year. The favorable impact of increased volumes, lower environmental expenses,
and slightly higher selling prices for specialty chemicals in the current
quarter were more than offset by the decline in selling prices for caustic soda,
increased advertising and selling expenses for Transitions optical lenses,
and the negative effects of inflation.
Performance in the First Six Months of 1997 Compared to the First Six Months of
1996
Performance Overview
Sales for the first six months of 1997 and 1996 were $3.72 billion and $3.66
billion, respectively. The increase in sales in the current six-month period
results from improved volumes in each of our business segments, sales related to
several minor acquisitions in our coatings segment, and slightly higher sales
prices for certain chemical products. These improvements were partially offset
by lower sales prices for caustic soda in our chemicals segment, lower sales
prices in our glass segment, and the unfavorable effects of foreign currency
translation in both our coatings and glass segments.
The gross profit percentage remained relatively constant at 40.0% in the 1997
six-month period compared to 40.1% in the same prior-year period. The benefits
realized from improved manufacturing efficiencies within the glass and chemicals
segments, slightly higher prices and lower raw materials costs within the
coatings segment, and favorable sales mix changes in our three segments were
offset by the negative effects of lower overall sales prices and inflation in
the glass and chemicals segments.
Net income and earnings per share for the current six-month period were $384
million and $2.12, respectively, compared to net income and earnings per share
of $401 million and $2.10, respectively, for the same period of the prior fiscal
year. Current period net income was unfavorably impacted by higher overhead
costs associated with growth initiatives in the coatings segment, increased
advertising costs in the chemicals segment, the negative effects of inflation,
and a slight increase in interest costs due to higher outstanding borrowings.
These negative factors were offset in part by higher overall sales volumes and
lower income tax expense. Reduced average shares outstanding, due to
repurchases of common stock by the Company, also favorably impacted earnings per
share in the current six-month period.
-9-
<PAGE>
Performance of Business Segments
Coatings sales increased to $1.52 billion in the current six-month period from
$1.46 billion in the comparable period of 1996. Sales increased due to volume
gains for industrial coatings and automotive refinish products in North America
and Europe, sales related to several minor acquisitions, improved volumes for
architectural coatings products in North America, and improved prices for
automotive refinish and industrial coatings products. These improvements were
partially offset by the unfavorable effects of foreign currency translation and
lower worldwide pricing for our automotive original coatings products.
Operating income increased to $295 million for the current six months compared
to $281 million in the prior year's six-month period. The improvement in
operating income is due to the same factors that contributed to the sales
increase and lower raw material costs, partially offset by higher overhead costs
associated with growth initiatives in South America, Asia and in the industrial
coatings business, and the negative effects of inflation and foreign currency
translation.
Glass sales decreased to $1.37 billion in the six-month period ended June 30,
1997 from $1.39 billion in the same period of 1996. Volume increases for our
North American automotive original glass and fiber glass products, European flat
glass and fiber glass products, and aircraft products were more than offset by
lower worldwide sales prices for fiber glass, flat glass and automotive original
glass products and the unfavorable effects of foreign currency translation.
Operating income decreased to $205 million in the current six-month period
compared to $233 million in last year's six-month period due to the same factors
that contributed to the lower sales levels, the negative effects of inflation,
and a slight increase in overhead costs associated with the expansion of our
LYNX Services business and legal expenses. Improved manufacturing efficiencies
at both glass and fiberglass operations only partially offset these unfavorable
factors.
Chemicals sales for the six-month periods ended June 30, 1997 and 1996 were $833
million and $811 million, respectively. The increase in Chemical sales in the
current six months is attributable to volume increases for Transitions
optical lenses, other specialty chemical products, chlorine and caustic soda,
combined with higher selling prices for vinyl chloride monomer and chlorine.
These favorable factors were offset in part by lower selling prices for caustic
soda. Operating income decreased in the current six-month period to $191
million from $199 million in the same period last year. The favorable effects
of volume increases for specialty chemicals and chlor-alkali products and
improved manufacturing efficiencies in the chemicals segment were more than
offset by the decline in sales prices for caustic soda, increased advertising
and selling expenses for Transitions optical lenses, and the negative effects
of inflation on raw material costs.
Other Factors
The increase in accounts receivable principally results from higher sales in May
and June of 1997 compared with November and December of 1996.
Cash flow from operating activities increased in the current six-month period
primarily due to a reduction in pension plan contributions.
The reduction in income tax expense in the current six-month period is the
result of lower pre-tax earnings as the effective income tax rate remained at
38% in each of the periods. Income taxes payable experienced an increase due to
the timing of estimated tax payments.
-10-
<PAGE>
The increase in long-term debt in the 1997 six-month period results from the
issuance of $100 million of non-redeemable 6-1/4% notes due February 15, 2002
and $100 million of redeemable 6-7/8% notes due February 15, 2012. The proceeds
from the issuance of the notes were used for general corporate purposes,
including the repayment of commercial paper borrowings.
Accounting Standards
During the first quarter of 1997, the Company adopted the provisions of
Statement of Position (SOP) No. 96-1, "Environmental Remediation Liabilities."
The adoption of SOP No. 96-1 did not have a material impact on the Company's
financial position or results of operations in the three- or six-month periods
ended June 30, 1997. Further, the adoption of SOP No. 96-1 did not affect the
Company's cash flow. In February 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 128, "Earnings
per Share." The impact on the Company's 1997 reported earnings per share of
adopting this new standard will not be material.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
which is effective for periods beginning after December 15, 1997. The Company
is evaluating the impact of this new standard on its current reporting of
operating segment information in both its interim and annual financial
statements.
Commitments and Contingent Liabilities, including Environmental Matters
PPG is involved in a number of lawsuits and claims, both actual and potential,
including some which it has asserted against others, in which substantial money
damages are sought. PPG's lawsuits and claims against others include claims
against insurers and other third parties with respect to actual and contingent
losses related to environmental matters. Management believes that the outcome of
all lawsuits and claims involving PPG, in the aggregate, will not have a
material effect on PPG's consolidated 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 has been incurred and the amount of loss can be
reasonably estimated. Reserves for environmental contingencies are exclusive of
claims against third parties and are not discounted. As of June 30, 1997 and
December 31, 1996, PPG had reserves for environmental contingencies totaling $85
million and $91 million, respectively. Pre-tax charges against income for
environmental remediation costs for the six months ended June 30, 1997 and 1996
were $10 million and $14 million, respectively. Cash outlays related to such
charges for the six months ended June 30, 1997 and 1996 aggregated $16 million
in each period.
Management anticipates that the resolution of the Company's environmental
contingencies, which will occur over an extended period of time, will not result
in future annual charges against 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 the
Company's environmental contingencies will not have a material effect on PPG's
financial position or liquidity.
In addition to the amounts currently reserved, the Company may be subject to
loss contingencies related to environmental matters estimated to be as much as
$200 million to $400 million, which range is unchanged from December 31, 1996.
Such unreserved losses are
-11-
<PAGE>
reasonably possible but are not currently considered to be probable of
occurrence. The Company's environmental contingencies are expected to be
resolved over an extended period of time. Although the unreserved exposure to
future loss relates to all sites, a significant portion of such exposure
involves three operating plant sites and one closed plant site. Initial remedial
actions are occurring at these sites. Studies to determine the nature of the
contamination are reaching completion and the need for additional remedial
actions, if any, is presently being evaluated. The loss contingencies related to
the remaining portion of such unreserved exposure include significant unresolved
issues such as the nature and extent of contamination, if any, at sites and the
methods that may have to be employed should remediation be required. With
respect to 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 impact of evolving programs, such as natural resource damage
claims, industrial site reuse initiatives and state voluntary remediation
programs, also adds to the present uncertainties with regard to the ultimate
resolution of this unreserved exposure to future loss. Although insurers and
other third parties may cover a portion of these costs, to the extent they are
incurred, any potential recovery is not included in this unreserved exposure to
future loss.
The Company's assessment of the potential impact of these environmental
contingencies is subject to considerable uncertainty due to the complex, ongoing
and evolving process of investigation and remediation, if necessary, of such
environmental contingencies.
Foreign Currency, Interest Rate and Commodity Price Risk
As a multinational company, PPG manages its transaction exposure to foreign
currency risk to minimize the volatility of cash flows caused by currency
fluctuations. The Company manages its foreign currency transaction exposures
principally through the purchase of forward and option contracts. It does not
hedge its exposure to translation gains and losses; however, by borrowing in
local currencies it reduces such exposure. The fair value of the forward and
option contracts purchased and outstanding as of June 30, 1997 and December 31,
1996, 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 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 June 30, 1997 and December
31, 1996, the notional principal amount and fair value of interest rate swaps
held were not material.
The Company also uses commodity swap contracts to reduce its exposure to
fluctuations in prices for natural gas. The fair value of such swap contracts
purchased and outstanding as of June 30, 1997 and December 31, 1996, was not
material.
PPG's policies do not permit active trading of, or speculation in, derivative
instruments.
-12-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) Exhibits
(11) Computation of Earnings Per Share.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
(1) The Company did not file any reports on Form 8-K during the three
months ended June 30, 1997.
-13-
<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: August 6, 1997 By /s/ W. H. Hernandez
----------------------------
W. H. Hernandez
Senior Vice President, Finance
(Principal Financial and
Accounting Officer and
Duly Authorized Officer)
-14-
<PAGE>
PPG INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
INDEX TO EXHIBITS
Exhibit
No. Description
- ------- -----------
(11) Computation of Earnings Per Share
(27) Financial Data Schedule
<PAGE>
Exhibit 11
PPG INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income......................... $ 218 $ 229 $ 384 $ 401
====== ====== ====== ======
Weighted average number of shares
of common stock outstanding...... 180.1 188.6 181.1 190.5
====== ====== ====== ======
Weighted average number of shares
of common stock outstanding
and common stock equivalents..... 182.0 190.9 183.0 192.7
====== ====== ====== ======
Primary earnings per share......... $ 1.21 $ 1.20 $ 2.12 $ 2.10
====== ====== ====== ======
Fully diluted earnings per share... $ 1.20 $ 1.20 $ 2.10 $ 2.08
====== ====== ====== ======
</TABLE>
NOTES:
The common stock equivalents consist of the shares reserved for issuance under
PPG's stock option plan and deferred under PPG's deferred compensation and
earnings growth plans.
The fully diluted earnings 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> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PPG
INDUSTRIES, INC. JUNE 30, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 105
<SECURITIES> 0
<RECEIVABLES> 1,376
<ALLOWANCES> 0
<INVENTORY> 807
<CURRENT-ASSETS> 2,480
<PP&E> 6,667
<DEPRECIATION> 3,806
<TOTAL-ASSETS> 6,566
<CURRENT-LIABILITIES> 1,731
<BONDS> 980
0
0
<COMMON> 484
<OTHER-SE> 1,980
<TOTAL-LIABILITY-AND-EQUITY> 6,566
<SALES> 3,721
<TOTAL-REVENUES> 3,721
<CGS> 2,233
<TOTAL-COSTS> 2,233
<OTHER-EXPENSES> 324
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51
<INCOME-PRETAX> 641
<INCOME-TAX> 244
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 384
<EPS-PRIMARY> 2.12
<EPS-DILUTED> 2.12
</TABLE>
