<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 September 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 incorporation (I.R.S. Employer
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 September 30, 1997, 178,125,965 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...................... 8-13
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.......................... 14
Signature............................................................ 15
-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 Nine Months
Ended Sept. 30 Ended Sept. 30
-------------------------- -------------------------
1997 1996 1997 1996
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net sales....................................... $1,812 $1,802 $5,533 $5,464
Cost of sales................................... 1,079 1,073 3,312 3,268
------ ------ ------ ------
Gross profit................................. 733 729 2,221 2,196
------ ------ ------ ------
Other expenses:
Selling, general and administrative.......... 266 249 788 740
Depreciation................................. 88 85 261 252
Research and development..................... 63 59 182 176
Interest..................................... 25 25 76 72
Other charges................................ 31 31 63 65
------ ------ ------ ------
Total other expenses..................... 473 449 1,370 1,305
------ ------ ------ ------
Other earnings.................................. 24 38 74 94
------ ------ ------ ------
Income before income taxes and
minority interest............................. 284 318 925 985
Income taxes.................................... 108 121 352 374
Minority interest............................... 5 6 18 19
------ ------ ------ ------
Net income...................................... $ 171 $ 191 $ 555 $ 592
====== ====== ====== ======
Earnings per share.............................. $ 0.96 $ 1.03 $ 3.08 $ 3.13
====== ====== ====== ======
Dividends per share............................. $ 0.33 $ 0.32 $ 0.99 $ 0.94
====== ====== ====== ======
Average shares outstanding...................... 178.8 186.5 180.4 189.2
====== ====== ====== ======
</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>
Sept. 30 Dec. 31
1997 1996
-------- --------
(Millions)
<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents............................................. $ 90 $ 70
Receivables-net....................................................... 1,301 1,226
Inventories (Note 2).................................................. 819 797
Other................................................................. 201 203
-------- --------
Total current assets.............................................. 2,411 2,296
Property (less accumulated depreciation of
$3,870 million and $3,775 million)..................................... 2,846 2,913
Investments.............................................................. 234 254
Other assets............................................................. 1,047 978
-------- --------
Total............................................................. $ 6,538 $ 6,441
======== ========
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Short-term borrowings and current
portion of long-term debt........................................... $ 566 $ 648
Accounts payable and accrued liabilities.............................. 1,081 1,106
Income taxes.......................................................... 9 15
-------- --------
Total current liabilities......................................... 1,656 1,769
Long-term debt (Note 5).................................................. 990 834
Deferred income taxes.................................................... 411 419
Accumulated provisions................................................... 386 339
Other postretirement benefits............................................ 530 521
-------- --------
Total liabilities................................................. 3,973 3,882
-------- --------
Commitments and contingent liabilities (Note 6).........................
Minority interest........................................................ 82 76
-------- --------
Shareholders' equity:
Common stock.......................................................... 484 484
Additional paid-in capital............................................ 101 97
Retained earnings..................................................... 5,139 4,760
Treasury stock........................................................ (2,957) (2,667)
Unearned compensation................................................. (173) (171)
Minimum pension liability adjustment.................................. (12) (10)
Currency translation adjustment....................................... (99) (10)
-------- --------
Total shareholders' equity........................................ 2,483 2,483
-------- --------
Total............................................................. $ 6,538 $ 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>
Nine Months Ended Sept. 30
--------------------------
1997 1996
------ ------
(Millions)
<S> <C> <C>
Cash from operating activities............................................. $ 724 $ 701
------ ------
Investing activities:
Capital spending........................................................ (335) (330)
Reduction of investments................................................ 22 14
Other................................................................... 3 2
------ ------
Cash used for investing activities.................................. (310) (314)
------ ------
Financing activities:
Net change in borrowings with
maturities of three months or less.................................... (85) 186
Proceeds from other short-term debt..................................... 65 32
Repayment of other short-term debt...................................... (61) (28)
Proceeds from long-term debt............................................ 217 159
Repayment of long-term debt............................................. (52) (142)
Loans to employee stock ownership plan.................................. (27) (26)
Repayment of loans by employee stock
ownership plan........................................................ 25 20
Purchase of treasury stock, net......................................... (294) (411)
Dividends paid.......................................................... (179) (178)
------ ------
Cash used for financing activities.................................. (391) (388)
------ ------
Effect of currency exchange rate changes
on cash and cash equivalents............................................. (3) (1)
------ ------
Net increase (decrease) in cash and cash equivalents....................... 20 (2)
Cash and cash equivalents, beginning of period............................. 70 106
------ ------
Cash and cash equivalents, end of period................................... $ 90 $ 104
====== ======
</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 September 30, 1997, and the results of their operations
and their cash flows for the three- and nine-month periods ended September
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 nine months ended September 30, 1997 are
not necessarily indicative of the results to be expected for the full year.
2. Inventories
-----------
Inventories at September 30, 1997 and December 31, 1996 are detailed below.
<TABLE>
<CAPTION>
Sept. 30 Dec. 31
1997 1996
-------- -------
(Millions)
<S> <C> <C>
Finished products and work in process............................... $ 559 $ 548
Raw materials....................................................... 146 134
Supplies............................................................ 114 115
----- -----
Total............................................................ $ 819 $ 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 $194 million and $204 million higher at
September 30, 1997 and December 31, 1996, respectively.
3. Cash Flow Information
---------------------
Cash payments for interest were $74 million for each of the nine months
ended September 30, 1997 and 1996, respectively. Net cash payments for
income taxes for the nine months ended September 30, 1997 and 1996 were
$339 million and $328 million, respectively.
-5-
<PAGE>
4. Business Segment Information
----------------------------
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Sept. 30 Ended Sept. 30
------------------ ------------------
1997 1996 1997 1996
------- ------- ------- -------
(Millions)
<S> <C> <C> <C> <C>
Net sales:
Coatings.......................................... $ 737 $ 712 $2,259 $2,175
Glass............................................. 658 678 2,024 2,066
Chemicals......................................... 417 412 1,250 1,223
------ ------ ------ ------
Total.......................................... $1,812 $1,802 $5,533 $5,464
====== ====== ====== ======
Operating income:
Coatings.......................................... $ 124 $ 132 $ 419 $ 413
Glass............................................. 99 114 304 347
Chemicals......................................... 83 97 274 296
------ ------ ------ ------
Total........................................... 306 343 997 1,056
Interest expense - net............................... (24) (23) (71) (65)
Other unallocated corporate income
(expense) - net.................................... 2 (2) (1) (6)
------ ------ ------ ------
Income before income taxes
and minority interest.............................. $ 284 $ 318 $ 925 $ 985
====== ====== ====== ======
</TABLE>
5. 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.
6. 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
September 30, 1997 and December 31, 1996, PPG had reserves for
environmental contingencies totaling $95 million and $91 million,
respectively. Pre-tax charges against income for environmental remediation
costs for the nine months ended September 30, 1997 and 1996 were $26
million and
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<PAGE>
$22 million, respectively. Cash outlays related to such charges for the
nine months ended September 30, 1997 and 1996 aggregated $22 million and
$27 million, respectively.
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.
-7-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
-------------
Performance in the Third Quarter of 1997 Compared to the Third Quarter of 1996
Performance Overview
During the third quarter of 1997, sales increased slightly to $1.81 billion
compared to $1.80 billion in the third quarter of 1996. The current quarter
increase is attributable to improved volumes in all of our business segments and
sales associated with several acquisitions in our coatings segment. These
improvements were partially offset by the unfavorable effects of foreign
currency translation in both our coatings and glass segments, lower worldwide
sales prices in our glass segment, and lower sales prices for caustic soda
products in our chemicals segment.
The gross profit percentage when comparing the third quarter of 1997 and 1996
remained constant at 40.5%. The benefits realized from continued manufacturing
efficiencies within the glass segment and favorable sales mix changes in our
coatings and chemicals segments were fully offset by the negative effects of
lower worldwide sales prices in the glass segment, lower prices for caustic soda
products, and the negative effects of inflation.
Net income and earnings per share for the third quarter of 1997 were $171
million and $0.96, respectively, compared to net income and earnings per share
of $191 million and $1.03, respectively, for the same quarter of 1996. The
decrease in net income in the third quarter of 1997 is attributable to higher
selling, general and administrative expenses related to growth initiatives and
increased advertising costs, higher environmental expenses, and higher legal
expenses. The current quarter's slightly higher sales levels and lower income
tax expense partially offset these negative factors. The third quarter of 1996
also included the favorable impact of higher other earnings associated with the
recovery through insurance of certain past costs. 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 $737 million in the third quarter of 1997 compared
to $712 million in the comparable quarter of 1996. Sales increased as a result
of sales associated with several acquisitions, worldwide volume improvements for
original equipment automotive coatings, higher volumes for industrial coatings
in North America, and improved sales prices in both North America and Europe for
automotive refinish products. These improvements were partially offset by the
unfavorable effects of foreign currency translation, reduced volumes for
architectural coatings products in North America, and lower worldwide original
equipment automotive coatings sales prices. Operating income decreased to $124
million from $132 million when comparing the third quarter of 1997 and 1996.
The decline in operating income resulted from higher overhead costs associated
with the increased worldwide sales in the original equipment automotive coatings
business, higher overhead costs related to the increased North American sales
levels for industrial coatings, growth initiatives in South America and Asia,
lower worldwide sales prices for original equipment automotive coatings and the
negative effects of inflation. These negative factors were offset in part by
the previously discussed volume improvements for original equipment automotive
coatings and industrial coatings, and slightly higher sales prices for
automotive refinish products in North America and Europe.
-8-
<PAGE>
Glass sales decreased to $658 million in the third quarter of 1997 from $678
million in the third quarter of 1996. The effect of volume improvements in
worldwide fiber glass sales, automotive original glass products in Europe, and
flat glass products in North America were more than offset by lower worldwide
selling prices for our fiber glass and most other glass products, lower volumes
for North American automotive original glass and European flat glass products,
and the unfavorable effects of foreign currency translation. Operating income
decreased to $99 million in the 1997 third quarter compared to $114 million in
the corresponding 1996 quarter. The decline in operating income was due to the
same factors that contributed to the lower overall sales levels, the negative
effects of inflation, and slightly higher overhead costs principally due to
legal expenses. Global manufacturing efficiencies at our glass and fiber glass
operations only partially offset these unfavorable factors.
Chemicals sales increased to $417 million in the third quarter of 1997 compared
to $412 million in the same quarter of the prior fiscal year principally due to
higher volumes for chlorine and caustic soda, increased volumes in the specialty
chemicals business for Transitions optical lenses, and higher selling prices
for chlorine products. Significantly lower selling prices for caustic soda
partially offset these favorable factors. Operating income decreased in the
current quarter to $83 million compared to $97 million in the comparable quarter
of the prior year. The favorable impact of increased volumes discussed above,
improved chlor-alkali manufacturing efficiencies, 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, higher environmental expenses,
increased advertising and selling expenses for Transitions optical lenses,
higher manufacturing costs for specialty chemicals, and the negative effects of
inflation.
Performance in the First Nine Months of 1997 Compared to the First Nine Months
of 1996
Performance Overview
Sales for the first nine months of 1997 and 1996 were $5.53 billion and $5.46
billion, respectively. The increase in sales in the current nine-month period
results from improved volumes in each of our business segments, sales related to
several acquisitions in our coatings segment, and slightly higher sales prices
for certain products in our chemicals and coatings segments. These improvements
were partially offset by lower sales prices for caustic soda in our chemicals
segment, lower worldwide sales prices for fiber glass and glass products, and
the unfavorable effects of foreign currency translation in both our coatings and
glass segments.
The gross profit percentage remained relatively constant in each of the 1997 and
1996 nine-month periods. The benefits realized from 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 coatings and chemicals segments were offset by the negative effects of lower
overall sales prices and inflation in our glass and chemicals segments.
Net income and earnings per share for the current nine-month period were $555
million and $3.08, respectively, compared to net income and earnings per share
of $592 million and $3.13, respectively, for the same period of the prior fiscal
year. Current period net income was adversely impacted by higher overhead costs
associated with growth initiatives in the coatings segment, increased
advertising, selling, and environmental expenses in the chemicals segment, the
negative effects of inflation, and slightly higher interest costs associated
with higher outstanding borrowings. These negative factors were offset in part
by higher overall sales volumes within all three segments, manufacturing
efficiencies within the glass segment,
-9-
<PAGE>
higher sales prices for certain products within the coatings and chemicals
segments, 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 nine-month period.
Performance of Business Segments
Coatings sales increased to $2.26 billion in the current nine-month period from
$2.17 billion in the comparable nine-month period of 1996. The increase in the
current nine-month period is attributable to worldwide volume increases for
original equipment automotive coatings, automotive refinish and industrial
coatings products, sales related to several acquisitions, and improved sales
prices for automotive refinish products in North America and Europe and
industrial coatings in North America. These improvements were partially offset
by the unfavorable effects of foreign currency translation and lower sales
prices for our original equipment automotive coatings products in North America
and Europe. Operating income increased to $419 million for the 1997 nine-month
period compared to $413 million in the prior year's nine-month period. The
improvement in operating income is due to the same volume and price factors that
contributed to the sales increase combined with lower raw material costs. These
improvements were offset in part by higher overhead costs associated with growth
initiatives in South America, Asia and in the industrial coatings business, and
the negative effects of inflation.
Glass sales decreased to $2.02 billion in the first nine months of 1997 from
$2.07 billion in the same nine months of 1996. Volume increases for our fiber
glass, automotive original glass, and flat glass products in North America and
Europe were more than offset by lower sales prices for North American
and European fiber glass, flat glass and automotive original glass products and
the unfavorable effects of foreign currency translation. Operating income
decreased to $304 million in the current nine-month period compared to $347
million in last year's nine-month period due to the same price and volume
factors that contributed to the lower sales levels, the negative effects of
inflation, slightly higher overhead costs associated with the expansion of our
LYNX Services business, and higher legal expenses. Improved worldwide
manufacturing efficiencies only partially offset these unfavorable factors.
For the nine-month periods ended September 30, 1997 and 1996, chemicals sales
were $1.25 billion and $1.22 billion, respectively. The increase in chemicals
sales in the current nine months is attributable to volume increases for
chlorine and caustic soda products and certain specialty chemical products,
including sales of Transitions optical lenses, and higher selling prices for
vinyl chloride monomer and other chlorine products. These favorable factors
were offset in part by significantly lower selling prices for caustic soda and
reduced volumes for vinyl chloride monomers. Operating income decreased in the
current nine-month period to $274 million from $296 million in the same period
last year. The favorable effects of volume increases for specialty chemicals
and chlor-alkali products and improved manufacturing efficiencies associated
with chlor-alkali products were more than offset by the decline in sales prices
for caustic soda, increased advertising and selling expenses, principally for
Transitions optical lenses, the negative effects of inflation on raw material
costs, and higher environmental expenses.
Other Factors
The increase in accounts receivable principally results from higher sales in
August and September of 1997 compared with November and December of 1996.
-10-
<PAGE>
The increase in accumulated provisions relates to accruals for income taxes,
deferred compensation and environmental matters.
Cash flow from operating activities increased in the current nine-month period
primarily due to a reduction in pension plan contributions.
The reduction in income tax expense in the current nine-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 a decrease due to
the timing of estimated tax payments.
The increase in long-term debt in the 1997 nine-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.
At the end of the third quarter of 1997, the Company completed the purchase of
the pretreatment and process lubricant chemicals business of Man-Gill Chemical
Co. The Company has completed a preliminary purchase price allocation as of
September 30, 1997, and the operating activity associated with this acquisition
will be reflected in the Company's results of operations beginning October 1,
1997. Additionally, the Company has entered into an agreement to acquire Max
Meyer Duco S.p.A. of Milan, Italy, a supplier of automotive refinishes, fleet
finishes and decorative coatings. The acquisition, which is subject to
government approvals, is expected to be completed by December 31, 1997. The
annual revenues associated with these two businesses total approximately $150
million.
The Company has also entered into an agreement whereby it will acquire the
worldwide packaging coatings businesses of BASF Lacke + Farben AG. The
agreement also includes the divestiture of PPG's surfactants business which is
anticipated to result in a gain to PPG. Each of the respective businesses has
annual revenues of approximately $150 million. The Company anticipates that the
transactions, which are subject to government approvals, will be completed by
December 31, 1997.
Certain components of the Company's worldwide Glass business are not performing
at levels that meet the Company's performance expectations. As a result,
management is in the process of evaluating available options to restructure
these businesses to improve future competitiveness and profitability. This
process is expected to be completed in the next several months and certain
charges may result.
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 nine-month periods
ended September 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
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<PAGE>
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 September 30, 1997
and December 31, 1996, PPG had reserves for environmental contingencies totaling
$95 million and $91 million, respectively. Pre-tax charges against income for
environmental remediation costs for the nine months ended September 30, 1997 and
1996 were $26 million and $22 million, respectively. Cash outlays related to
such charges for the nine months ended September 30, 1997 and 1996 aggregated
$22 million and $27 million, respectively.
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
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<PAGE>
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 September 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 September 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 September 30, 1997 and December 31, 1996 was not
material.
PPG's policies do not permit active trading of, or speculation in, derivative
instruments.
-13-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) Exhibits
(11) Computation of Earnings Per Share.
(12) Computation of Ratio of Earnings to Fixed Charges (Exhibit 12 is
filed hereby so as to become, by way of incorporation by
reference, an exhibit to Registration Statement No. 33-64081
on Form S-3.)
(27) Financial Data Schedule.
(b) Reports on Form 8-K
(1) The Company filed a Form 8-K on September 22, 1997, dated
September 19, 1997, which included as an exhibit the Company's
press release reporting the designation of Raymond W. LeBoeuf as
Chairman-elect and further indicating that he will become Board
Chairman and Chief Executive Officer when Chairman Jerry E.
Dempsey retires from the Company on November 1, 1997.
-14-
<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: October 28, 1997 By /s/ W. H. Hernandez
-----------------------------------
W. H. Hernandez
Senior Vice President, Finance
(Principal Financial and
Accounting Officer and
Duly Authorized Officer)
-15-
<PAGE>
PPG INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
INDEX TO EXHIBITS
Exhibit
No. Description
------- -----------
(11) Computation of Earnings Per Share
(12) Computation of Ratio of Earnings to Fixed Charges
(27) Financial Data Schedule
<PAGE>
Exhibit 11
PPG INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Sept. 30 Ended Sept. 30
-------------- --------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income......................... $ 171 $ 191 $ 555 $ 592
====== ====== ====== ======
Weighted average number of shares
of common stock outstanding...... 178.8 186.5 180.4 189.2
====== ====== ====== ======
Weighted average number of shares
of common stock outstanding
and common stock equivalents..... 180.8 188.5 182.2 191.2
====== ====== ====== ======
Primary earnings per share......... $ 0.96 $ 1.03 $ 3.08 $ 3.13
====== ====== ====== ======
Fully diluted earnings per share... $ 0.95 $ 1.02 $ 3.05 $ 3.10
====== ====== ====== ======
</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.
<PAGE>
Exhibit 12
PPG INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
Computation of Ratio Of Earnings to Fixed Charges
(Dollars in Millions)
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31 Ended
---------------------------------------------- Sept. 30,
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Earnings before income taxes.................................. $537.8 $531.2 $839.8 $1,247.3 $1,215.0 $ 906.6
Plus:
Fixed charges exclusive of capitalized interest............. 167.2 127.6 108.2 112.9 124.6 97.7
Amortization of capitalized interest........................ 10.8 11.1 11.6 11.8 12.5 9.4
Adjustments for equity affiliates........................... (1.6) (0.7) (2.4) (4.2) (2.5) (1.2)
------------------------------------------------------------
Total............................................... $714.2 $669.2 $957.2 $1,367.8 $1,349.6 $1,012.5
============================================================
Fixed Charges:
Interest expense including amortization of debt
discount/premium and debt expense........................... $147.4 $107.5 $ 88.2 $ 90.6 $ 101.9 $ 81.6
Rentals -- portion representative of interest................. 19.8 20.1 20.0 22.3 22.7 16.1
------------------------------------------------------------
Fixed charges exclusive of capitalized interest............... 167.2 127.6 108.2 112.9 124.6 97.7
Capitalized interest.......................................... 7.4 6.0 5.3 8.6 11.7 8.1
------------------------------------------------------------
Total............................................... $174.6 $133.6 $113.5 $ 121.5 $ 136.3 $ 105.8
============================================================
Ratio of earnings to fixed charges.............................. 4.09 5.01 8.43 11.26 9.90 9.57
============================================================
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PPG
INDUSTRIES, INC. SEPTEMBER 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 90
<SECURITIES> 0
<RECEIVABLES> 1,301
<ALLOWANCES> 0
<INVENTORY> 819
<CURRENT-ASSETS> 2,411
<PP&E> 6,716
<DEPRECIATION> 3,870
<TOTAL-ASSETS> 6,538
<CURRENT-LIABILITIES> 1,656
<BONDS> 990
0
0
<COMMON> 484
<OTHER-SE> 1,999
<TOTAL-LIABILITY-AND-EQUITY> 6,538
<SALES> 5,533
<TOTAL-REVENUES> 5,533
<CGS> 3,312
<TOTAL-COSTS> 3,312
<OTHER-EXPENSES> 506
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76
<INCOME-PRETAX> 925
<INCOME-TAX> 352
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 555
<EPS-PRIMARY> 3.08
<EPS-DILUTED> 3.08
</TABLE>
