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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999 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
Securities Registered Pursuant to Section 12(b) of the Act:
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Name of each exchange on
Title of each class which registered
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Common Stock--Par Value $1.66 2/3 New York Stock Exchange
Pacific Stock Exchange
Philadelphia Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Pacific Stock Exchange
Philadelphia Stock Exchange
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Securities Registered Pursuant to Section 12(g) of the Act: None
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
As of January 31, 2000, 174,036,756 shares of the Registrant's common stock,
with a par value of $1.66 2/3 per share, were outstanding. As of that date,
the aggregate market value of common stock held by non-affiliates was $9,561
million.
DOCUMENTS INCORPORATED BY REFERENCE
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Incorporated By
Document Reference In Part No.
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Portions of PPG Industries, Inc. Annual Report to
Shareholders for the year ended December 31, 1999....... I, II and IV
Portions of PPG Industries, Inc. Proxy Statement for its
2000 Annual Meeting of Shareholders..................... III
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PPG INDUSTRIES, INC.
AND CONSOLIDATED SUBSIDIARIES
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As used in this report, the terms "PPG," "Company," and "Registrant" mean PPG
Industries, Inc. and its subsidiaries, taken as a whole, unless the context
indicates otherwise.
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TABLE OF CONTENTS
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Page
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Part I
Item 1. Business..................................................... 1
Item 2. Properties................................................... 4
Item 3. Legal Proceedings............................................ 4
Item 4. Submission of Matters to a Vote of Security Holders.......... 4
Executive Officers of the Registrant......................... 5
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.......................................... 6
Item 6. Selected Financial Data...................................... 6
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 6
Item 7a. Quantitative and Qualitative Disclosures About Market Risk... 6
Item 8. Financial Statements and Supplementary Data.................. 7
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.......................... 7
Part III
Item 10. Directors and Executive Officers of the Registrant........... 8
Item 11. Executive Compensation....................................... 8
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................... 8
Item 13. Certain Relationships and Related Transactions............... 8
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K.......................................................... 9
Signatures ............................................................. 11
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Note on Incorporation by Reference
Throughout this report, various information and data are incorporated by
reference to the Company's 1999 Annual Report to Shareholders (hereinafter
referred to as "the Annual Report to Shareholders"). Any reference in this
report to disclosures in the Annual Report to Shareholders shall constitute
incorporation by reference only of that specific information and data into
this Form 10-K.
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Part I
Item 1. Business
PPG Industries, Inc., incorporated in Pennsylvania in 1883, is comprised of
three basic business segments: coatings, glass and chemicals. Within these
business segments, PPG has followed a program of directing its resources of
people, capital and technology into selected areas to build upon positions of
leadership. Areas in which resources have been focused are automotive
original, refinish, industrial, aerospace, packaging, and architectural
coatings; flat glass, automotive original and replacement glass, aircraft
transparencies, continuous-strand fiber glass; and chlor-alkali and specialty
chemicals. Each of the businesses in which PPG is engaged is highly
competitive. However, the diversification of product lines and worldwide
markets served tend to minimize the impact on total sales and earnings of
changes in demand for a particular product line or in a particular geographic
area. Reference is made to "Business Segment Information" on pages 29 through
31 of the Annual Report to Shareholders, which is incorporated herein by
reference, for financial information relating to business segments.
Coatings
PPG is a major supplier of protective and decorative coatings. The coatings
industry is highly competitive and consists of a few large firms with global
presence and many smaller firms serving local or regional markets. PPG
competes in its primary markets with the world's largest coatings companies,
most of which have operations in North America and Europe, and many smaller
regional coatings companies. Product development, innovation, quality and
customer service have been stressed by PPG and have been significant factors
in developing an important supplier position.
The coatings business involves the supply of protective and decorative
finishes for automotive original equipment, appliances, industrial equipment
and packaging; factory-finished aluminum extrusions and coils for
architectural uses; aircraft; and other industrial and consumer products. In
addition to supplying finishes to the automotive original equipment market,
PPG supplies automotive refinishes to the aftermarket, which are primarily
sold through distributors. In addition to specific products, PPG supplies
technical expertise, engineering and purchasing services to the automotive
original and industrial portions of the business. In the automotive original
and industrial portions of the coatings business, PPG sells directly to a
variety of manufacturing companies. Automotive original and industrial
coatings are formulated specifically for the customer's needs and application
methods. PPG also supplies adhesives and sealants for the automotive industry
and metal pretreatments and related chemicals for automotive and industrial
applications. The packaging portion of the coatings business supplies finishes
for aerosol, food and beverage containers for consumer products. Product
performance, technology, quality and customer service are major competitive
factors.
The architectural finishes business consists primarily of coatings used by
painting and maintenance contractors and by consumers for decoration and
maintenance. PPG's products are sold through independent distributors, paint
dealers, mass merchandisers, home centers, PPG-operated outlets and directly
to some customers. Price, quality and distribution are key competitive factors
in the architectural finishes market.
The recently acquired aerospace business primarily supplies coatings and
sealants for aircraft as well as sealants for architectural insulating glass
units. The aerospace business distributes products directly to aircraft
maintenance and aftermarket customers around the world.
PPG continued to grow the coatings business through several acquisitions
completed during 1999. In January 1999, the Company completed the acquisition
of the remaining portion of the global packaging coatings business formerly
owned by Courtaulds plc from Akzo Nobel N.V. and completed the purchase of
certain leased assets in connection with its 1998 acquisition of the technical
coatings business of Orica Ltd. In February 1999, the Company acquired the
commercial transport refinish coatings business of Sigma Coatings B.V., a
subsidiary of Belgian refiner PetroFina S.A. In July 1999, PPG acquired the
global automotive refinish, automotive coatings and industrial coatings
business of Imperial Chemical Industries PLC (the ICI business), with the
exception of the ICI businesses in the Indian subcontinent. The acquisition of
a majority of the ICI business in Asia was finalized in the fourth quarter of
1999 and the acquisition of the ICI business in France was finalized in
November 1999. Also, in July 1999, the Company acquired coatings and sealants
maker PRC-DeSoto International, Inc. (PRC-DeSoto) from Akzo Nobel N.V. The
acquisition of the PRC-DeSoto business in France was not finalized until
November 1999. In October 1999, the Company acquired a majority interest in
privately held powder coatings maker Bellaria S.p.A.
The principal production facilities of the coatings business are in North
America and Europe. North American production facilities consist of 24 plants
in the United States, two in Canada and one in Mexico. The three largest
facilities in the United States are the Cleveland, Ohio, plant, which
primarily produces automotive original coatings; the Oak Creek, Wis., plant,
which primarily produces industrial coatings and certain automotive original
coatings; and the Delaware, Ohio, plant, which primarily produces automotive
refinishes and certain industrial coatings. Outside North America,
1
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PPG operates five plants in Italy, four plants in Germany, three plants each
in England and Spain, two plants each in Brazil, China and France, and one
plant each in Argentina, Australia, Malaysia, the Netherlands, Thailand and
Turkey. PPG owns equity interests in operations in Canada, India, South Korea
and Taiwan. Additionally, the coatings business operates 11 service centers in
the United States, two each in Canada and Mexico, and one each in Argentina,
Poland and Portugal to provide just-in-time delivery and service to selected
automotive assembly plants. Twenty-nine training centers in Europe, 20 in the
United States, 18 in Asia, seven in South America, four in the Middle East,
three in Canada and two in Mexico are in operation. These centers provide
training for automotive aftermarket refinish customers. Also, four automotive
original coatings application centers that provide testing facilities for
customer paint processes and new products are in operation. The average number
of persons employed by the coatings segment during 1999 was 15,100.
During 1999, PPG approved a restructuring program and recorded a pre-tax
charge of $42 million for disposal of a redundant European packaging coatings
facility, work force reductions and the closure of a facility. PPG also
recorded a $1 million reversal of previously established restructuring
reserves.
Glass
PPG is one of the major producers of flat glass, fabricated glass and
continuous-strand fiber glass in the world. PPG's major markets are automotive
original equipment, automotive replacement, residential and commercial
construction, aircraft transparencies, the furniture and electronics
industries, and other markets. Most glass products are sold directly to
manufacturing and construction companies, although in some instances products
are sold directly to independent distributors and through PPG distribution
outlets. PPG manufactures flat glass by the float process and fiber glass by
the continuous-filament process.
The bases for competition are price, quality, technology, cost and customer
service. The Company competes with six other major producers of flat glass,
six other major producers of fabricated glass and two other major producers of
fiber glass throughout the world.
PPG's principal glass production facilities are concentrated in North America
and Europe. Fifteen plants operate in the United States, of which six produce
automotive original and replacement glass products, five produce flat glass,
three produce fiber glass products and one produces aircraft transparencies.
There are three plants in Canada, two of which produce automotive original and
replacement glass products and one produces flat glass. One plant operates in
Italy producing aircraft transparencies. One plant each in England and the
Netherlands produce fiber glass. PPG owns equity interests in operations in
Mexico, the Netherlands, Taiwan, the United States and Venezuela and a
majority interest in a glass distribution company in Japan. Additionally,
there are three satellite operations in the United States and two satellite
operations in Canada that provide limited manufacturing and just-in-time
service to selected automotive customer locations, one coating facility in the
United States for flat glass products and one tempering and fabrication
facility in the United States for flat glass products. The average number of
persons employed by the glass segment during 1999 was 12,800.
During 1999, PPG approved a restructuring program, which included cost
reduction initiatives in our glass operations resulting in a pre-tax charge of
$4 million. We also recorded the reversal of $4 million of previously
established restructuring reserves.
Chemicals
PPG is a major producer and marketer of chlor-alkali chemicals and a supplier
of specialty chemicals. The primary chlor-alkali products are chlorine,
caustic soda, vinyl chloride monomer, chlorinated solvents, chlorinated
benzenes and calcium hypochlorite. Most of these products are sold directly to
manufacturing companies in the chemical processing, rubber and plastics,
paper, minerals, metals, and water treatment industries. The primary products
of PPG's specialty chemicals businesses are Transitions(R) lenses; optical
monomers; precipitated silicas for tire, shoe, and battery separator
businesses and phosgene derivatives and other intermediates for the
pharmaceutical and agricultural businesses.
PPG competes with six other major producers of chlor-alkali products. Price,
product availability, product quality and customer service are the key
competitive factors. In the specialty chemicals area, PPG's market share
varies greatly by business; product quality and performance and technical
service are the most critical competitive factors.
Chemicals' principal production facilities are concentrated in North America,
with five plants in the United States and one each in Canada and Mexico. The
two largest facilities, located in Lake Charles, La., and Natrium, W. Va.,
primarily produce chlor-alkali products. Outside North America, PPG operates
two plants each in China and Taiwan, and one each in Australia, Brazil,
France, Ireland, the Netherlands and the Philippines. PPG owns equity
interests in operations in China, Japan, Thailand and the United States. The
average number of persons employed by the chemicals segment during 1999 was
4,900.
During 1999, PPG approved a restructuring program, which included cost
reduction initiatives in our Chemicals operations, and recorded a pre-tax
charge of $1 million.
2
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Raw Materials
The effective management of raw materials is important to PPG's continued
success. The Company's most significant raw materials are titanium dioxide and
epoxy and other resins in the coatings segment; sand, soda ash, energy and
polyvinyl butyral in the glass segment, and energy and ethylene in the
chemicals segment. Most of the raw materials used in production are purchased
from outside sources, and the Company has made, and will continue to make,
supply arrangements to meet the planned operating requirements for the future.
Assurance of supply of critical raw materials is managed by establishing
multiple sources and identifying alternative materials or technology whenever
possible.
Research and Development
Research and development costs, including depreciation of research facilities,
during 1999, 1998 and 1997 were $301 million, $287 million and $266 million,
respectively. PPG owns and operates several research and development
facilities to conduct research and development involving new and improved
products and processes. Additional process and product research and
development work is also undertaken at many of the Company's manufacturing
plants.
Patents
PPG considers patent protection to be important. The Company's business
segments are not materially dependent upon any single patent or group of
related patents. PPG received $26 million in 1999, $18 million in 1998 and $25
million in 1997 from royalties and the sale of technical know-how.
Backlog
In general, PPG does not manufacture its products against a backlog of orders.
Production and inventory levels are geared primarily to projections of future
demand and the level of incoming orders.
Non-U.S. Operations
Although PPG has a significant investment in non-U.S. operations, based upon
the magnitude and location of investments, management believes that the risk
associated with its international operations is not significantly greater than
that of domestic operations.
Employees
The average number of persons employed worldwide by PPG during 1999 was
33,800.
Environmental Matters
Like other companies, PPG is subject to the existing and evolving standards
relating to the protection of the environment. Capital expenditures for
environmental control projects were $19 million, $19 million and $32 million
in 1999, 1998 and 1997, respectively. It is expected that expenditures for
such projects in 2000 will approximate $26 million, with similar amounts of
annual expenditures expected in the near future. Although future capital
expenditures are difficult to estimate accurately because of constantly
changing regulatory standards and policies, it can be anticipated that
environmental control standards will become increasingly stringent and costly.
PPG is negotiating with various government agencies concerning 54 cleanup
sites, including 32 sites on the National Priority List (NPL). While PPG is
not generally a major contributor of wastes to these sites, each potentially
responsible party or contributor may face governmental agency assertions of
joint and several liability as to each cleanup site. Generally, however, a
final allocation of costs is made based on relative contributions of wastes to
the site. There is a wide range of cost estimates for cleanup of these sites,
due largely to uncertainties as to the nature and extent of their condition
and the methods that may have to be employed for their remediation.
Additionally, remediation projects have been or may be undertaken at certain
of the Company's current and former plant sites. The Company has established
reserves for those sites where it is probable a liability exists and the
amount can be reasonably estimated. As of December 31, 1999 and 1998, PPG had
reserves for environmental contingencies totaling $82 million and $94 million,
respectively. Pre-tax charges against income for environmental remediation
costs totaled $10 million in 1999, $10 million in 1998 and $34 million in
1997.
The Company's experience to date regarding environmental matters leads PPG to
believe that it will have continuing expenditures for compliance with
provisions regulating the protection of the environment and for present and
future remediation efforts at waste and plant sites. However, management
anticipates that such expenditures, 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 addition, a portion of such environmental expenditures may be
recovered from insurers and other third parties. In management's opinion, the
Company operates in an environmentally sound manner, is well positioned,
relative to environmental matters, within the industries in which it operates,
and the outcome of these environmental matters will not have a material
adverse effect on PPG's financial position or liquidity. See Commitments and
Contingent Liabilities, including Environmental Matters, in Management's
Discussion and Analysis for additional information related to environmental
matters.
3
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Item 2. Properties
See "Item 1. Business" for information on PPG's production and fabrication
facilities.
Generally, the Company's plants are suitable and adequate for the purposes for
which they are intended, and overall have sufficient capacity to conduct
business in the upcoming year.
Item 3. Legal Proceedings
PPG is involved in a number of lawsuits and claims, both actual and potential,
including some that it has asserted against others, in which substantial money
damages are sought. These lawsuits and claims relate to product liability,
contract, patent, environmental, antitrust and other matters arising out of
the conduct of PPG's business. Included among PPG's legal proceedings are the
following:
The Company has been named as a defendant in a number of antitrust lawsuits
filed in federal and state courts by various plaintiffs. These suits allege
PPG was involved with competitors in fixing prices and allocating markets for
certain glass products. Twenty-nine cases were filed in federal courts, all of
which have been consolidated in a single federal district court (W.D. Pa.) for
pretrial proceedings under the multidistrict litigation rules. Eleven cases
were filed in state courts in California, Wisconsin, Tennessee and Kansas; the
Wisconsin case was removed to federal court and then consolidated under
multidistrict litigation. Among the defendants in these actions are Pilkington
plc; Libbey-Owens Ford Co., Inc.; AFG Industries; Asahi Glass Co., Ltd.;
Guardian Industries Corp.; and Ford Motor Company. In the federal
multidistrict litigation, the other defendants named above, except for the
Ford Motor Company, have entered into settlement agreements with the
plaintiffs, which are pending court approval. These antitrust lawsuits all
purport to be class actions. In the federal multidistrict litigation, the
court has ruled that the case may proceed as a class action. The plaintiffs in
these cases are seeking economic and treble damages and injunctive relief. The
Company believes it has meritorious defenses in these lawsuits.
For over 30 years, the Company has been a defendant in lawsuits involving
claims alleging personal injury from exposure to asbestos. Aggregate
settlements by PPG to date have been immaterial. Over the past few years,
the number of asbestos-related claims against the Company, as well as numerous
other defendants, has increased. At December 31, 1999, the Company was one of
many defendants in numerous asbestos-related lawsuits involving approximately
110,000 claims. In many of the cases, the plaintiffs allege that the Company
should be liable under various "direct participation" and other theories for
injuries involving asbestos-containing thermal insulation products
manufactured and distributed by Pittsburgh Corning Corporation ("PC"). The
Company and Corning Incorporated are each 50% shareholders of PC. The Company
believes it is not responsible for any injuries caused by PC products and
intends to defend against such claims. PPG has successfully defended such
claims in the past. In January 2000, for the first time, a trial court found
PPG liable for injuries to five plaintiffs alleged to be caused by PC
products. The Company intends to appeal that verdict. Separately from the
claims against the Company described above, as a shareholder of PC, any loss
to the Company due to losses incurred by PC arising from asbestos-related
claims would not involve a cash payment and would be limited to the diminution
in value of the Company's investment in PC. If such a loss were to occur, it
would be approximately $34 million on an after-tax basis, based on the
Company's investment in PC as of December 31, 1999.
The Company and others are defendants in three cases filed in State Court in
Maryland claiming damages related to exposure to lead. One case involves a
claim by an adult who claims to have been injured from ingesting lead paint in
the early 1950s. The second case is a purported class action by homeowners for
remediation of single family residences in Maryland constructed before 1978
which contain lead paint. The third case was filed on behalf of six children
who allegedly suffer from lead poisoning. That case alleges the injuries arose
from exposure to lead pigments in paints and exposure to tetraethyl lead
gasoline additives. Over the past ten years, PPG has been a defendant in
several other lawsuits alleging injury due to lead paint. PPG has been
dismissed as a defendant from all those other lawsuits.
PPG believes it has adequate insurance for the personal injury and property
damage claims against the Company described above. 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, asbestos and
other matters. Management believes that, in the aggregate, the outcome of all
lawsuits and claims involving PPG will not have a material effect on PPG's
consolidated financial position, results of operations or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders
None.
4
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Executive Officers of the Registrant
The executive officers of the Company are elected annually in April by the
Board of Directors and the business experience during the past five years of
each Executive Officer is set forth below.
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Raymond W. LeBoeuf (a) 53 Chairman of the Board and Chief Executive Officer since November 1997
Frank A. Archinaco (b) 56 Executive Vice President since April 1997
Charles E. Bunch (c) 50 Senior Vice President, Strategic Planning and Corporate Services since April 1997
Russell L. Crane 59 Senior Vice President, Human Resources and Administration since April 1994
James C. Diggs (d) 51 Senior Vice President and General Counsel since July 1997
William H. Hernandez (e) 51 Senior Vice President, Finance since January 1995
E. Kears Pollock (f) 59 Executive Vice President since April 1997
</TABLE>
(a) Mr. LeBoeuf was Chairman Elect and Chief Executive Officer, President and
Chief Operating Officer and Executive Vice President, prior to his present
position.
(b) Mr. Archinaco was Senior Vice President, Glass and Vice President, Glass,
prior to his present position.
(c) Mr. Bunch was Vice President, Fiber Glass and Vice President,
Architectural Finishes, prior to his present position.
(d) Mr. Diggs was Senior Vice President and General Counsel Elect and was TRW
Inc.'s Vice President and Assistant General Counsel prior to joining PPG
in March 1997.
(e) Mr. Hernandez was Vice President and Controller, prior to his present
position.
(f) Mr. Pollock was Senior Vice President, Coatings and Resins and Vice
President, Coatings and Resins, prior to his present position.
5
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Part II
Information with respect to the following Items can be found on the indicated
pages of the Annual Report to Shareholders and is incorporated herein by
reference.
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Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
Stock Exchange Listings............................................... 45
Quarterly Stock Information........................................... 45
Directors who are not also Officers of the Company receive Common
Stock Equivalents pursuant to the Deferred Compensation Plan for
Directors and the Directors' Common Stock Plan. Common Stock
Equivalents are hypothetical shares of Common Stock having a value on
any given date equal to the value of a share of Common Stock. Common
Stock Equivalents earn dividend equivalents that are converted into
additional Common Stock Equivalents but carry no voting rights or
other rights of a holder of Common Stock. The Common Stock Equivalents
credited to Directors under both plans are exempt from registration
under Section 4(2) of the Securities Act of 1933 as private offerings
made only to Directors of the Company in accordance with the
provisions of the plans. The plans are incorporated by reference into
this Form 10-K as Exhibits 10 and 10.3.
Under the Company's Deferred Compensation Plan for Directors, each
Director must defer receipt of such compensation as the Board
mandates. Currently, the Board mandates deferral of one-third of each
payment of the basic annual retainer of each Director. Each Director
may also elect to defer the receipt of (i) an additional one-third of
each payment of the basic annual retainer, (ii) all of the basic
annual retainer, or (iii) all compensation. All deferred payments are
held in the form of Common Stock Equivalents. Payments out of the
deferred accounts are made in the form of Common Stock of the Company
(and cash as to any fractional Common Stock Equivalent). The
Directors, as a group, were credited with 10,811, 6,674 and 6,934
Common Stock Equivalents in 1999, 1998 and 1997, respectively, under
this plan. The values of the Common Stock Equivalents, when credited,
ranged from $51.25 to $64.94 in 1999, $51.00 to $72.88 in 1998 and
$53.50 to $64.00 in 1997.
Under the Directors' Common Stock Plan, each Director who neither is
nor was an employee of the Company is credited annually with Common
Stock Equivalents worth one-half of the Director's basic annual
retainer. Upon termination of service and attaining 70 years of age,
the Common Stock Equivalents held in a Director's account are
converted to and paid in Common Stock of the Company (and cash as to
any fractional Common Stock Equivalent). The Directors, as a group,
received 3,746, 2,582 and 3,162 Common Stock Equivalents in 1999, 1998
and 1997, respectively, under this plan. The values of those Common
Stock Equivalents, when credited, ranged from $52.21 to $64.13 in
1999, $52.50 to $70.94 in 1998 and $50.38 to $63.31 in 1997.
Item 6. Selected Financial Data
The information required by Item 6 is reported in the Eleven-Year
Digest under the captions net sales, income before accounting changes,
cumulative effect of accounting changes, net income, earnings per
common share before accounting changes, cumulative effect of
accounting changes on earnings per common share, earnings per common
share, earnings per common share-assuming dilution, dividends per
share, total assets and long-term debt for the years 1995 through
1999.................................................................. 44
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Management's Discussion and Analysis.................................. 22-28
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Management's Discussion and Analysis.................................. 27-28
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Item 8. Financial Statements and Supplementary Data
Independent Auditors' Report.......................................... 17
Financial Statements:
Statement of Income for the years ended December 31, 1999, 1998 and
1997................................................................ 18
Balance Sheet, December 31, 1999 and 1998............................ 19
Statement of Shareholders' Equity for the years ended December 31,
1999, 1998 and 1997................................................. 20
Statement of Comprehensive Income for the years ended December 31,
1999, 1998 and 1997................................................. 20
Statement of Cash Flows for the years ended December 31, 1999, 1998
and 1997............................................................ 21
Notes to the Financial Statements.................................... 32-43
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
</TABLE>
7
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Part III
Item 10. Directors and Executive Officers of the Registrant
The information required by Item 10 regarding Directors is contained under the
caption "Election of Directors" in the Registrant's definitive Proxy Statement
for its 2000 Annual Meeting of Shareholders (the Proxy Statement) which will
be filed with the Securities and Exchange Commission, pursuant to Regulation
14A, not later than 120 days after the end of the fiscal year, which
information under such caption is incorporated herein by reference.
The information required by Item 10 regarding Executive Officers is set forth
in Part I of this report under the caption "Executive Officers of the
Registrant."
The information required by Item 405 of Regulation S-K is included under the
caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy
Statement which information under such caption is incorporated herein by
reference.
Item 11. Executive Compensation
The information required by Item 11 is contained under the captions
"Compensation of Executive Officers" and "Election of Directors--Compensation
of Directors" in the Proxy Statement which information under such captions is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 is contained under the caption "Voting
Securities" in the Proxy Statement which information under such caption is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required by Item 13 is contained under the caption "Election
of Directors--Other Transactions" in the Proxy Statement which information
under such caption is incorporated herein by reference.
8
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Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements and Independent Auditors' Report (see Part II, Item 8
of this report (page 7) regarding incorporation by reference from the
Annual Report to Shareholders).
Financial Statement Schedules for years ended December 31, 1999, 1998 and
1997:
The following should be read in conjunction with the previously
referenced financial statements.
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Independent Auditors' Report........................................... 12
Schedule II--Valuation and Qualifying Accounts......................... 13
</TABLE>
All other schedules are omitted because they are not applicable.
(b) No reports were filed on Form 8-K during the last quarter of the period
covered by this report.
(c)Exhibits:
3 The Restated Articles of Incorporation, as amended, were filed as
Exhibit 3 to the Registrant's Form 10-Q for the quarter ended March
31, 1995, which exhibit is incorporated herein by reference.
3.1 Statement with Respect to Shares, amending the Restated Articles of
Incorporation effective April 21, 1998 was filed as Exhibit 3.1 to
the Registrant's Form 10-K for the year ended December 31, 1998,
which exhibit is incorporated herein by reference.
3.2 The Bylaws, as amended, were filed as Exhibit 3 to the Registrant's
Form 10-Q for the quarter ended March 31, 1998, which exhibit is
incorporated herein by reference.
4 The Shareholders' Rights Plan was filed as Exhibit 4 on the
Registrant's Form 8-K, dated February 19, 1998, which exhibit is
incorporated herein by reference.
4.1 Indenture, dated as of August 1, 1982, was filed as Exhibit 4.1 to
PPG's Registration Statement on Form S-3 (No. 333-44397) dated
January 16, 1998 (the "1998 Form S-3"), which exhibit is
incorporated herein by reference.
4.2 First Supplemental Indenture, dated as of April 1, 1986, was filed
as Exhibit 4.2 to the 1998 Form S-3, which exhibit is incorporated
herein by reference.
4.3 Second Supplemental Indenture, dated as of October 1, 1989, was
filed as Exhibit 4.3 to the 1998 Form S-3, which exhibit is
incorporated herein by reference.
4.4 Third Supplemental Indenture, dated as of November 1, 1995, was
filed as Exhibit 4.4 to the 1998 Form S-3, which exhibit is
incorporated herein by reference.
*10 PPG Industries, Inc. Nonqualified Retirement Plan dated as of January
1, 1989, as amended January 1, 1996 was filed as Exhibit 10 to the
Registrant's Form 10-Q for the quarter ended March 31, 1996, which
exhibit is incorporated by reference. The Supplemental Executive
Retirement Plan II as amended, and the Change in Control Employment
Agreement were filed as Exhibits 10.2 and 10.5, respectively, to the
Registrant's Form 10-Q for the quarter ended September 30, 1995. The
PPG Industries, Inc. Stock Plan was filed as Exhibit 10 to the
Registrant's Form 10-Q for the quarter ended March 31, 1997. The
Directors' Common Stock Plan as amended, was filed as Exhibit 10 to
the Registrant's Form 10-Q for the quarter ended March 31, 1999. All
such exhibits are incorporated herein by reference.
*10.1 PPG Industries, Inc. Incentive Compensation and Deferred Income Plan
for Key Employees was filed as Exhibit 10.1 to the Registrant's Form
10-K for the year ended December 31, 1998, which exhibit is
incorporated herein by reference.
*10.2 PPG Industries, Inc. Deferred Compensation Plan was filed as Exhibit
10.2 to the Registrant's Form 10-K for the year ended December 31,
1998, which exhibit is incorporated herein by reference.
9
<PAGE>
*10.3 PPG Industries, Inc. Deferred Compensation Plan for Directors, was
filed as Exhibit 10.3 to the Registrant's Form 10-K for the year
ended December 31, 1997, which exhibit is incorporated herein by
reference.
*10.4 PPG Industries, Inc. Total Shareholder Return Plan for Key Employees
was filed as Exhibit 10.4 to the Registrant's Form 10-K for the year
ended December 31, 1998, which exhibit is incorporated herein by
reference.
12 Computation of Ratio of Earnings to Fixed Charges for the Five Years
Ended December 31, 1999.
13 Company's 1999 Annual Report to Shareholders. (Except for the pages
and information therein expressly incorporated by reference in this
Form 10-K, the Annual Report to Shareholders is provided solely for
the information of the Commission and is not to be deemed "filed" as
part of the Form 10-K.)
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
24 Powers of Attorney.
27 Financial Data Schedule.
* Items referred to in Exhibit 10, 10.1, 10.2, 10.3 and 10.4 and incorporated
by reference are either management contracts, compensatory plans or
arrangements required to be filed as an exhibit hereto pursuant to Item
14(c) of Form 10-K.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on February 18, 2000.
PPG INDUSTRIES, INC.
(Registrant)
By /s/ W. H. Hernandez
...............................................
W. H. Hernandez, Senior Vice President,
Finance
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant
and in the capacities indicated, on February 18, 2000.
<TABLE>
<CAPTION>
Signature Capacity
----------- ----------
<S> <C>
/s/ R. W. LeBoeuf Director, Chairman of the Board and
..................... Chief Executive Officer
R. W. LeBoeuf
/s/ W. H. Hernandez Senior Vice President, Finance (Principal
..................... Financial and Accounting Officer)
W. H. Hernandez
E. B. Davis, Jr. Director |
|
M. J. Hooper Director |
|
A. J. Krowe Director |
| By /s/ W. H. Hernandez,
R. Mehrabian Director | ..................................
| W. H. Hernandez, Attorney-in-Fact
T. J. Usher Director |
|
D. G. Vice Director |
|
D. R. Whitwam Director |
</TABLE>
11
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of PPG
Industries, Inc.:
We have audited the balance sheet of PPG Industries,
Inc. and subsidiaries as of December 31, 1999 and
1998, and the related statements of income,
comprehensive income, shareholders' equity and cash
flows for each of the three years in the period ended
December 31, 1999, and have issued our report thereon
dated January 20, 2000; such financial statements and
report are included in your 1999 Annual Report to
Shareholders and are incorporated herein by
reference. Our audits also included financial
statement schedule II, Valuation and Qualifying
Accounts, of PPG Industries, Inc. and subsidiaries
for the years ended December 31, 1999, 1998 and 1997.
The financial statement schedule is the
responsibility of the Company's management. Our
responsibility is to express an opinion based on our
audits. In our opinion, such financial statement
schedule, when considered in relation to the basic
financial statements taken as a whole, presents
fairly in all material respects the information set
forth therein.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
January 20, 2000
12
<PAGE>
PPG Industries, Inc. and Subsidiaries
Schedule II--Valuation and Qualifying Accounts
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Balance at Charged to
Beginning Costs and Balance at
Description of Year Expenses Deductions(/1/) End of Year
----------- ------- -------- --------------- -----------
(Millions)
<S> <C> <C> <C> <C>
1999
Deducted from assets to
which they apply:
Allowance for doubtful
accounts ____________ $20.6 $20.5 $15.4 $25.7
===== ===== ===== =====
1998
Deducted from assets to
which they apply:
Allowance for doubtful
accounts ____________ $20.5 $11.4 $11.3 $20.6
===== ===== ===== =====
1997
Deducted from assets to
which they apply:
Allowance for doubtful
accounts ____________ $25.6 $10.2 $15.3 $20.5
===== ===== ===== =====
</TABLE>
---------------------
(/1/) Notes and accounts receivable written off as uncollectible, net of
recoveries, changes attributable to foreign currency translation and
activity related to businesses sold.
13
<PAGE>
PPG INDUSTRIES, INC.
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Incorporated by Reference
- ------- -------------------------
<S> <C> <C>
3 Restated Articles of Incorporation. Exhibit 3 - Form 10-Q for the quarter ended March 31, 1995.
3.1 Statement with Respect to Shares, Exhibit 3.1 - Form 10-K for the year ended December 31, 1998.
amending the Restated Articles of
Incorporation.
3.2 Bylaws. Exhibit 3 - Form 10-Q for the quarter ended March 31, 1998.
4 Shareholders' Rights Plan. Exhibit 4 - Form 8-K, dated February 19, 1998.
4.1 Indenture, dated as of August 1, 1982. Exhibit 4.1 - Registration Statement on Form S-3 (No. 333-44397),
dated January 16, 1998.
4.2 First Supplemental Indenture, dated Exhibit 4.2 - Registration Statement on Form S-3 (No. 333-44397),
as of April 1, 1986. dated January 16, 1998.
4.3 Second Supplemental Indenture, dated Exhibit 4.3 - Registration Statement on Form S-3 (No. 333-44397),
as of October 1, 1989. dated January 16, 1998.
4.4 Third Supplemental Indenture, dated as Exhibit 4.4 - Registration Statement on Form S-3 (No. 333-44397),
of November 1, 1995. dated January 16, 1998.
10 PPG Industries, Inc. Nonqualified Retirement Exhibit 10 - Form 10-Q for the quarter ended March 31, 1996.
Plan, dated as of January 1, 1989, as
amended January 1, 1996.
10 Supplemental Executive Retirement Plan II. Exhibit 10.2 - Form 10-Q for the quarter ended September 30, 1995.
10 Change in Control Employment Agreement. Exhibit 10.5 - Form 10-Q for the quarter ended September 30, 1995.
10 PPG Industries, Inc. Stock Plan. Exhibit 10 - Form 10-Q for the quarter ended March 31, 1997.
10 Directors' Common Stock Plan. Exhibit 10 - Form 10-Q for the quarter ended March 31, 1999.
10.1 PPG Industries, Inc. Incentive Compensation Exhibit 10.1 - Form 10-K for the year ended December 31, 1998.
and Deferred Income Plan for Key Employees.
10.2 PPG Industries, Inc. Deferred Compensation Exhibit 10.2 - Form 10-K for the year ended December 31, 1998.
Plan.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporated by Reference
- ------- -------------------------
<S> <C> <C>
10.3 PPG Industries, Inc. Deferred Compensation Exhibit 10.3 - Form 10-K for the year ended December 31, 1997.
Plan for Directors.
10.4 PPG Industries, Inc. Total Shareholder Return Exhibit 10.4 - Form 10-K for the year ended December 31, 1998.
Plan for Key Employees.
</TABLE>
<PAGE>
Exhibit Description
- ------- -----------
12 Computation of Ratio of Earnings to Fixed Charges for the Five
Years Ended December 31, 1999.
13 Company's 1999 Annual Report to Shareholders.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
24 Powers of Attorney.
27 Financial Data Schedule.
<PAGE>
Exhibit 12
PPG INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
Computation of Ratio Of Earnings to Fixed Charges
(Dollars in Millions)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Earnings:
Earnings before income taxes and net earnings in
equity affiliates $ 1,231 $ 1,221 $ 1,165 $ 1,264 $ 945
Plus:
Fixed charges exclusive of capitalized interest 107 118 128 135 164
Amortization of capitalized interest 12 13 13 12 10
Adjustments for equity affiliates 14 15 14 16 16
------- ------- ------- ------- -------
Total $ 1,364 $ 1,367 $ 1,320 $ 1,427 $ 1,135
======= ======= ======= ======= =======
Fixed Charges:
Interest expense including amortization of debt
discount/premium and debt expense $ 85 $ 96 $ 105 $ 110 $ 133
Rentals - portion representative of interest 22 22 23 25 31
------- ------- ------- ------- -------
Fixed charges exclusive of capitalized interest 107 118 128 135 164
Capitalized interest 9 12 10 9 11
------- ------- ------- ------- -------
Total $ 116 $ 130 $ 138 $ 144 $ 175
======= ======= ======= ======= =======
Ratio of earnings to fixed charges 11.8 10.5 9.6 9.9 6.5
======= ======= ======= ======= =======
</TABLE>
<PAGE>
Exhibit 13
1999 Annual Report
Financial and Operating Review
Independent Auditors' Report
To the Board of Directors and Shareholders of
PPG Industries, Inc.:
We have audited the accompanying balance sheet of PPG Industries, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the related statements of
income, comprehensive income, shareholders' equity and cash flows for each of
the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of PPG Industries, Inc. and subsidiaries as of
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
January 20, 2000
Management Statement
Responsibility for Preparation of the Financial Statements
The management of PPG Industries, Inc. is responsible for the preparation of the
financial statements included in this Annual Report.
To ensure the reliability of financial data, PPG has established, and
maintains, an internal control system. We believe the internal controls in use
give reasonable assurance that financial reports do not contain any material
misstatement.
We believe that the financial statements and related notes in this report are
accurate in all material respects, and that they were prepared according to
generally accepted accounting principles. The financial statements include
amounts that are based on the best estimates and judgments of management.
We believe, further, that the other financial information contained in this
Annual Report is consistent with the financial statements.
/s/ Raymond W. LeBoeuf
Raymond W. LeBoeuf
Chairman of the Board
and Chief Executive Officer
/s/ William H. Hernandez
William H. Hernandez
Senior Vice President, Finance
17
<PAGE>
PPG Industries
Statement of Income
<TABLE>
<CAPTION>
For the Year
- ----------------------------------------------------------------------------------------------------------------
(Millions, except per share amounts) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $7,757 $7,510 $7,379
- ----------------------------------------------------------------------------------------------------------------
Cost of sales 4,719 4,476 4,397
- ----------------------------------------------------------------------------------------------------------------
Gross profit 3,038 3,034 2,982
- ----------------------------------------------------------------------------------------------------------------
Other expenses (earnings)
Selling, general and administrative 1,230 1,133 1,068
------------------------------------------------------------------------------------------------------------
Depreciation 366 354 348
------------------------------------------------------------------------------------------------------------
Research and development--net (See Note 17) 284 271 250
------------------------------------------------------------------------------------------------------------
Interest 133 110 105
------------------------------------------------------------------------------------------------------------
Amortization 49 27 19
------------------------------------------------------------------------------------------------------------
Business divestitures and realignments (See Note 2) 42 31 102
------------------------------------------------------------------------------------------------------------
Purchased in-process research and development (See Note 2) 40 -- --
------------------------------------------------------------------------------------------------------------
Other charges 45 50 77
------------------------------------------------------------------------------------------------------------
Other earnings (See Notes 2 and 14) (124) (236) (162)
- ----------------------------------------------------------------------------------------------------------------
Total other expenses--net 2,065 1,740 1,807
- ----------------------------------------------------------------------------------------------------------------
Income before income taxes and minority interest 973 1,294 1,175
- ----------------------------------------------------------------------------------------------------------------
Income taxes (See Note 8) 377 466 435
- ----------------------------------------------------------------------------------------------------------------
Minority interest 28 27 26
- ----------------------------------------------------------------------------------------------------------------
Net income $ 568 $ 801 $ 714
- ----------------------------------------------------------------------------------------------------------------
Earnings per common share (See Note 7) $ 3.27 $ 4.52 $ 3.97
- ----------------------------------------------------------------------------------------------------------------
Earnings per common share--assuming dilution (See Note 7) $ 3.23 $ 4.48 $ 3.94
================================================================================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
18
<PAGE>
1999 Annual Report
Balance Sheet
<TABLE>
<CAPTION>
December 31
- -------------------------------------------------------------------------------------------------------------------
(Millions) 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 158 $ 128
---------------------------------------------------------------------------------------------------------------
Receivables (See Note 3) 1,594 1,366
---------------------------------------------------------------------------------------------------------------
Inventories (See Note 3) 1,016 917
---------------------------------------------------------------------------------------------------------------
Deferred income taxes (See Note 8) 165 146
---------------------------------------------------------------------------------------------------------------
Other 129 103
- -------------------------------------------------------------------------------------------------------------------
Total current assets 3,062 2,660
- -------------------------------------------------------------------------------------------------------------------
Property (See Note 4) 6,859 6,739
- -------------------------------------------------------------------------------------------------------------------
Less accumulated depreciation 3,926 3,834
- -------------------------------------------------------------------------------------------------------------------
Property--net 2,933 2,905
- -------------------------------------------------------------------------------------------------------------------
Investments 261 263
- -------------------------------------------------------------------------------------------------------------------
Goodwill 1,102 660
- -------------------------------------------------------------------------------------------------------------------
Less accumulated amortization 100 84
- -------------------------------------------------------------------------------------------------------------------
Goodwill--net 1,002 576
- -------------------------------------------------------------------------------------------------------------------
Identifiable intangible assets 723 184
- -------------------------------------------------------------------------------------------------------------------
Less accumulated amortization 63 36
- -------------------------------------------------------------------------------------------------------------------
Identifiable intangible assets--net 660 148
- -------------------------------------------------------------------------------------------------------------------
Other assets (See Note 9) 996 835
- -------------------------------------------------------------------------------------------------------------------
Total $ 8,914 $ 7,387
===================================================================================================================
Liabilities and Shareholders' Equity
Current liabilities
Short-term debt and current portion of long-term debt (See Note 5) $ 954 $ 637
---------------------------------------------------------------------------------------------------------------
Accounts payable and accrued liabilities (See Note 3) 1,430 1,275
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,384 1,912
- -------------------------------------------------------------------------------------------------------------------
Long-term debt (See Note 5) 1,836 1,081
- -------------------------------------------------------------------------------------------------------------------
Deferred income taxes (See Note 8) 520 440
- -------------------------------------------------------------------------------------------------------------------
Accrued pensions (See Note 9) 123 130
- -------------------------------------------------------------------------------------------------------------------
Other postretirement benefits (See Note 9) 548 543
- -------------------------------------------------------------------------------------------------------------------
Other liabilities 299 314
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 5,710 4,420
- -------------------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities (See Note 10)
- -------------------------------------------------------------------------------------------------------------------
Minority interest 98 87
- -------------------------------------------------------------------------------------------------------------------
Shareholders' equity (See Notes 11 and 12)
Common stock 484 484
---------------------------------------------------------------------------------------------------------------
Additional paid-in capital 104 105
---------------------------------------------------------------------------------------------------------------
Retained earnings 6,098 5,791
---------------------------------------------------------------------------------------------------------------
Treasury stock, at cost (3,268) (3,198)
---------------------------------------------------------------------------------------------------------------
Unearned compensation (134) (149)
---------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive loss (178) (153)
- -------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 3,106 2,880
- -------------------------------------------------------------------------------------------------------------------
Total $ 8,914 $ 7,387
===================================================================================================================
</TABLE>
Shares outstanding were 173,988,266 and 174,989,596 at Dec. 31, 1999 and 1998,
respectively.
The accompanying notes to the financial statements are an integral part of this
statement.
19
<PAGE>
PPG Industries
Statement of Shareholders' Equity
<TABLE>
<CAPTION>
Accumulated
Other
Additional Unearned Comprehensive
Common Paid-In Retained Treasury Compensation Loss
(Millions) Total Stock Capital Earnings Stock (See Note 13) (See Note 12)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, Jan. 1, 1997 $2,483 $484 $ 97 $4,760 $(2,667) $(171) $ (20)
- --------------------------------------------------------------------------------------------------------------------------
Net income 714 -- -- 714 -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Other comprehensive loss, net of tax (141) -- -- -- -- -- (141)
- --------------------------------------------------------------------------------------------------------------------------
Cash dividends (239) -- -- (239) -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock (343) -- -- -- (343) -- --
- --------------------------------------------------------------------------------------------------------------------------
Issuance of treasury stock 22 -- 2 -- 20 -- --
- --------------------------------------------------------------------------------------------------------------------------
Loans to ESOP (27) -- -- -- -- (27) --
- --------------------------------------------------------------------------------------------------------------------------
Repayment of loans by ESOP 36 -- -- -- -- 36 --
- --------------------------------------------------------------------------------------------------------------------------
Other 4 -- -- 4 -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Balance, Dec. 31, 1997 2,509 484 99 5,239 (2,990) (162) (161)
- --------------------------------------------------------------------------------------------------------------------------
Net income 801 -- -- 801 -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Other comprehensive income, net of tax 8 -- -- -- -- -- 8
- --------------------------------------------------------------------------------------------------------------------------
Cash dividends (252) -- -- (252) -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock (231) -- -- -- (231) -- --
- --------------------------------------------------------------------------------------------------------------------------
Issuance of treasury stock 29 -- 6 -- 23 -- --
- --------------------------------------------------------------------------------------------------------------------------
Loans to ESOP (26) -- -- -- -- (26) --
- --------------------------------------------------------------------------------------------------------------------------
Repayment of loans by ESOP 39 -- -- -- -- 39 --
- --------------------------------------------------------------------------------------------------------------------------
Other 3 -- -- 3 -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Balance, Dec. 31, 1998 2,880 484 105 5,791 (3,198) (149) (153)
- --------------------------------------------------------------------------------------------------------------------------
Net income 568 -- -- 568 -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Other comprehensive loss, net of tax (25) -- -- -- -- -- (25)
- --------------------------------------------------------------------------------------------------------------------------
Cash dividends (264) -- -- (264) -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock (82) -- -- -- (82) -- --
- --------------------------------------------------------------------------------------------------------------------------
Issuance of treasury stock 11 -- (1) -- 12 -- --
- --------------------------------------------------------------------------------------------------------------------------
Loans to ESOP (24) -- -- -- -- (24) --
- --------------------------------------------------------------------------------------------------------------------------
Repayment of loans by ESOP 39 -- -- -- -- 39 --
- --------------------------------------------------------------------------------------------------------------------------
Other 3 -- -- 3 -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Balance, Dec. 31, 1999 $3,106 $484 $104 $6,098 $(3,268) $(134) $(178)
==========================================================================================================================
</TABLE>
Statement of Comprehensive Income
<TABLE>
<CAPTION>
For the Year
- --------------------------------------------------------------------------------------------------------------------------
(Millions) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 568 $ 801 $ 714
- --------------------------------------------------------------------------------------------------------------------------
Other comprehensive (loss) income, net of tax
Currency translation adjustment (40) 14 (126)
- --------------------------------------------------------------------------------------------------------------------------
Minimum pension liability adjustment 18 (6) (15)
- --------------------------------------------------------------------------------------------------------------------------
Unrealized losses on marketable securities (3) -- --
- --------------------------------------------------------------------------------------------------------------------------
Other comprehensive (loss) income (25) 8 (141)
- --------------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 543 $ 809 $ 573
==========================================================================================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
20
<PAGE>
1999 Annual Report
Statement of Cash Flows
<TABLE>
<CAPTION>
For the Year
- ---------------------------------------------------------------------------------------------------------------
(Millions) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 568 $ 801 $ 714
- ---------------------------------------------------------------------------------------------------------------
Adjustments to reconcile to cash from operations
Depreciation and amortization 419 383 373
-----------------------------------------------------------------------------------------------------------
Business divestitures and realignments 42 31 102
-----------------------------------------------------------------------------------------------------------
Purchased in-process research and development 40 -- --
-----------------------------------------------------------------------------------------------------------
Gain on sale of business -- (85) (59)
-----------------------------------------------------------------------------------------------------------
Increase in receivables (128) (85) (124)
-----------------------------------------------------------------------------------------------------------
Increase in inventories (7) (73) (60)
-----------------------------------------------------------------------------------------------------------
Increase in pension asset (110) (57) (41)
-----------------------------------------------------------------------------------------------------------
Increase in accounts payable and accrued liabilities 77 55 37
-----------------------------------------------------------------------------------------------------------
Change in other noncurrent assets and liabilities and other--net 1 (28) 65
- ---------------------------------------------------------------------------------------------------------------
Cash from operating activities 902 942 1,007
- ---------------------------------------------------------------------------------------------------------------
Investing activities
Capital spending
Additions to property and investments (490) (487) (466)
- ---------------------------------------------------------------------------------------------------------------
Business acquisitions, net of cash balances acquired (1,343) (390) (363)
- ---------------------------------------------------------------------------------------------------------------
Proceeds from business divestitures -- 278 171
- ---------------------------------------------------------------------------------------------------------------
Proceeds from the sale of the Company's headquarters complex 152 -- --
- ---------------------------------------------------------------------------------------------------------------
Reductions of other property and investments 37 18 75
- ---------------------------------------------------------------------------------------------------------------
Cash used for investing activities (1,644) (581) (583)
- ---------------------------------------------------------------------------------------------------------------
Financing activities
Net change in borrowings with maturities of three months or less 492 109 (223)
- ---------------------------------------------------------------------------------------------------------------
Proceeds from other short-term debt 252 170 89
- ---------------------------------------------------------------------------------------------------------------
Repayment of other short-term debt (267) (154) (78)
- ---------------------------------------------------------------------------------------------------------------
Proceeds from long-term debt 821 12 472
- ---------------------------------------------------------------------------------------------------------------
Repayment of long-term debt (203) (64) (63)
- ---------------------------------------------------------------------------------------------------------------
Loans to employee stock ownership plan (24) (26) (27)
- ---------------------------------------------------------------------------------------------------------------
Repayment of loans by employee stock ownership plan 39 39 38
- ---------------------------------------------------------------------------------------------------------------
Purchase of treasury stock (82) (217) (343)
- ---------------------------------------------------------------------------------------------------------------
Issuance of treasury stock 9 22 14
- ---------------------------------------------------------------------------------------------------------------
Dividends paid (264) (252) (239)
- ---------------------------------------------------------------------------------------------------------------
Cash from (used for) financing activities 773 (361) (360)
- ---------------------------------------------------------------------------------------------------------------
Effect of currency exchange rate changes on cash and cash equivalents (1) (1) (5)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 30 (1) 59
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, beginning of year 128 129 70
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 158 $ 128 $ 129
===============================================================================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
21
<PAGE>
PPG Industries
Management's Discussion and Analysis
Performance in 1999 Compared with 1998
Overall Performance
Our sales increased 3% in 1999 to $7.8 billion from $7.5 billion in 1998. The
combination of acquisitions in our coatings segment and volume increases across
all of our business segments contributed 8% and 3%, respectively, to the
increased sales levels in 1999. These sales increases were partially offset by a
4% decrease due to lower selling prices in all of our business segments and a 4%
decrease due to the absence of sales from our European flat and automotive glass
businesses, which were divested in July 1998.
The gross profit percentage decreased to 39.2% in 1999 from 40.4% in 1998. The
effects of lower selling prices across all of our business segments,
particularly in our chemicals business for certain chlor-alkali products,
increased raw material costs in our chemicals business and a charge representing
the fair-market-value adjustment of acquired inventories that have been sold
contributed to the lower gross margins. These negative factors were offset in
part by the benefits realized from improved manufacturing efficiencies across
all of our segments and the margins from recent acquisitions.
Net income and earnings per share, diluted, for 1999 were $568 million and
$3.23, respectively, compared to $801 million and $4.48, respectively, in 1998.
Net income in 1999 was affected by the same factors that contributed to the
change in sales and gross profit, including $15 million for the fair-market-
value adjustment on an after-tax basis of acquired inventories sold, the absence
of an $82 million after-tax gain from the sale of our European flat and
automotive glass businesses, after-tax acquisition related charges of $33
million for purchased in-process research and development and higher interest
expense as a result of acquisition activity. Net income in 1999 was also
affected by after-tax restructuring charges of $31 million, related to the
integration of packaging coatings acquisitions and ongoing cost reduction
efforts, which exceeded after-tax restructuring charges in 1998. These factors
were partially offset by lower income tax expense as a result of a reduction in
pre-tax earnings. Excluding the after-tax acquisition related and restructuring
charges and the after-tax gain from the sale of our European flat and automotive
glass businesses, net income and earnings per share, diluted, for 1999 were $647
million and $3.68, respectively, compared to $738 million or $4.13,
respectively, in 1998.
Results of Business Segments
Coatings sales increased 18% to $4.1 billion in 1999 from $3.5 billion in 1998.
Sales increased 17% from acquisitions that affected all of our coatings
businesses and 3% due to volume increases in our North American and European
automotive original businesses and our North American industrial business. Sales
in 1998 were impacted by the adverse effects of the General Motors strike. Sales
declines of 1% from the negative effects of foreign currency translation and 1%
from lower selling prices, principally within our North American and European
automotive original businesses, partially offset the sales increases. Operating
income decreased to $522 million in 1999 from $546 million in 1998. Operating
income in 1999 was reduced by the lower selling prices discussed above and pre-
tax restructuring charges of $41 million related to the integration of packaging
acquisitions and on-going cost reduction efforts. Coatings operating income in
1999 was also negatively impacted by pre-tax acquisition related charges of $40
million for purchased in-process research and development charges associated
with the acquisitions of coatings and sealant maker PRC-DeSoto International,
Inc. (PRC-DeSoto) and the majority of the global automotive refinish, automotive
and industrial coatings businesses of Imperial Chemical Industries PLC (the ICI
business), and $23 million for the fair-market-value adjustment of acquired
inventories that have been sold. A combination of increased sales volumes as
previously discussed, earnings from acquisitions and improved manufacturing
efficiencies, primarily within our North American and European industrial
businesses, partially offset these reductions. Excluding the pre-tax acquisition
related and restructuring charges, operating income in 1999 increased to $626
million as compared to $555 million in 1998.
Glass sales decreased 11% to $2.3 billion in 1999 from $2.5 billion in 1998.
Sales declined by 11% as a result of the divestiture of our European flat and
automotive glass businesses in July 1998 and 3% due to lower selling prices for
our fiber glass, automotive original and automotive replacement glass products.
These negative factors were offset in part by a 3% increase in sales volumes
primarily from our North American automotive original glass business, our fiber
glass reinforcement products and, to a lesser extent, our automotive replacement
and flat glass businesses. Sales levels in 1998 were adversely affected by the
General Motors strike. Operating income decreased to $386 million in 1999 from
$478 million in 1998. The absence of an $85 million pre-tax gain from the sale
of our European flat and automotive glass businesses and the lower selling
prices mentioned previously were partially offset by manufacturing efficiencies
in our North American automotive original glass and fiber glass reinforcements
businesses. Operating income in 1998 also included pre-tax restructuring charges
of $21 million, related to the divestiture of our equity interests in Asian
glass operations, cost reduction initiatives and the reversal of a reserve
related to the Perry, Ga., plant. Excluding the pre-tax restructuring charges
and the pre-tax gain from the sale of our European flat and automotive glass
businesses, operating income in 1999 was $386 million as compared to $414
million in 1998.
Chemicals sales decreased 7% to $1.4 billion in 1999 from $1.5 billion in
1998. Sales declined 11% as a result of significantly lower selling prices for
our chlorine and caustic soda products and 1% due to the negative effects of
foreign currency translation. These negative factors were offset in
22
<PAGE>
1999 Annual Report
Management's Discussion and Analysis
part by a 5% improvement in volumes primarily for certain chlor-alkali
derivative products and, to a lesser extent, certain specialty chemical
products. The volume increase for specialty chemicals related to optical
products, including Transitions(R) optical lenses. Operating income decreased to
$177 million in 1999 compared to $354 million in 1998. The significant reduction
in selling prices for chlorine and caustic soda products and higher raw material
costs were only slightly offset by the previously discussed sales volume
improvements and manufacturing efficiencies in our chlor-alkali and derivatives
business.
Other Significant Factors
Earnings in 1999 and 1998 included net periodic pension income of $71 million
and $57 million, respectively, due primarily to returns on U.S. defined benefit
pension plan assets. See Note 9 for information concerning the pension plan
assets and the components of the net periodic pension income.
Interest expense and long-term debt increased due to the issuance of $800
million aggregate principal amount of debt securities in August 1999 to repay a
substantial portion of the short-term debt issued to finance the acquisitions of
the ICI business and PRC-DeSoto.
The increase in the overall effective tax rate is principally due to the non-
deductibility of certain 1999 purchased in-process research and development
charges and the 1998 pre-tax gain from the sale of our European flat and
automotive glass businesses being almost entirely offset by the utilization of
capital loss carryforwards.
Goodwill and identifiable intangible assets increased principally due to the
acquisitions of the ICI business and PRC-DeSoto in 1999. The increase in other
long-term assets was attributable to an increase in our prepaid pension asset.
Outlook
During 2000, the North American economy is expected to grow at a slower rate
than in 1999 as a result of higher interest rates, which is likely to cause a
decline in vehicle production and housing starts. Raw material prices and fuel
costs could rise if oil prices remain high or trend upward. On the other hand,
growth is projected in some European automobile markets and in the Asian
economies. Also, the Brazilian economy is projected to slowly improve. If these
trends occur, PPG should experience increased revenues in 2000 due to the
increasing importance of the coatings and glass aftermarkets to our business,
improving chlor-alkali chemical pricing, and the inclusion of a full year's
results associated with acquisitions completed in 1999.
Throughout most of 1999, certain of our businesses were adversely affected by
the economic weakness in Asia. Our chlor-alkali business experienced
significantly lower selling prices as industry exports to Asia from North
America declined resulting in excess supply in North America. Our fiber glass
business was also affected by the economic weakness in Asia as exports to Asia
declined and imports from Asia into North America and Europe resulted in
significantly lower selling prices. Also during 1999, our automotive coatings
and refinish operations were adversely affected by the economic weakness and
currency devaluation in Brazil. In the fourth quarter of 1999 and into 2000, an
improvement in the Asian economic conditions has resulted in improved selling
prices for our chlor-alkali products, particularly chlorine, which we expect to
continue to strengthen during the remainder of 2000. The economic improvement in
Asia has also led to a resurgence of the electronics industry and increased
demand for certain of our fiber glass products.
Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The effective date of this standard has been delayed to
fiscal years beginning after June 15, 2000. The Company is currently evaluating
the prospective impact of this standard on its financial position and results of
operations.
Performance in 1998 Compared with 1997
Overall Performance
Our sales in 1998 increased 2% to $7.5 billion from $7.4 billion in 1997. The
sales increase resulted from an 8% increase in volumes, including sales related
to several acquisitions made in late 1997 and in 1998, primarily within our
coatings segment. These sales increases were offset in part by a 4% decline due
to the absence of sales related to the divestitures of our European flat and
automotive glass businesses in July 1998 and our surfactants business in
November 1997, a 1% decline in sales associated with lower prices for chlorine
products in our chemicals segment and a 1% decline from foreign currency
translation due to the strengthening of the U.S. dollar.
The gross profit percentage remained relatively constant at 40.4% in 1998 and
1997. The combination of improved manufacturing efficiencies across all of our
business segments and lower raw materials costs in our chemicals segment was
substantially offset by lower sales prices for chlorine products and certain
glass products and the negative effects of inflation in our coatings and glass
segments.
Net income and earnings per common share, diluted, for 1998 increased to $801
million and $4.48, respectively, compared to net income and earnings per common
share, diluted, of $714 million and $3.94, respectively, for 1997. The increase
in 1998 net income resulted from an $82 million after-tax gain from the sale of
our European flat and automotive glass businesses, a significant reduction in
business divestiture and realignment charges, insurance recoveries of certain
past environmental costs and the same factors that contributed to the increased
sales described above.
23
<PAGE>
PPG Industries
Management's Discussion and Analysis
These improvements were partially offset by the absence of the gain from the
1997 sale of our surfactants business, higher expenses associated with worldwide
growth initiatives in our coatings segment, the negative effects of inflation,
higher income tax expense due to increased pre-tax earnings and the effects of
the 1998 General Motors strike and the adverse economic conditions in Asia.
Results of Business Segments
Coatings sales increased 13% to $3.5 billion in 1998 from $3.1 billion in 1997.
A 14% increase in sales volume included sales from recent acquisitions and
volume increases for our worldwide automotive refinish, industrial and
architectural coatings products and for our automotive original coatings
products in Europe and North America. These sales increases were slightly offset
by a 1% decline from foreign currency translation. Sales generated from
worldwide acquisitions in 1998 and late 1997 contributed substantially to the
segment's sales growth in 1998. The unfavorable effects of the General Motors
strike partially offset the sales volume improvements in our North American
automotive original and industrial coatings businesses. Operating income
decreased to $546 million in 1998 compared to $561 million in 1997. The decrease
in operating income is attributable to higher expenses associated with worldwide
growth initiatives in our automotive refinish and industrial businesses, the
negative effects of inflation, particularly on our European businesses,
restructuring charges related to cost reduction initiatives, the impact of the
General Motors strike and reduced royalty income. These reductions were
partially offset by the previously discussed volume improvements and the
favorable effect of earnings from recently acquired businesses.
Glass sales decreased 5% to $2.5 billion in 1998 from $2.7 billion in 1997.
Sales declined 7% as a result of the divestiture of our European flat and
automotive glass businesses effective July 31, 1998, 1% due to the unfavorable
effects of foreign currency translation and 1% from lower fiber glass product
volumes. These negative factors were partially offset by a 4% sales volume
increase, principally for North American automotive replacement glass products
and an acquisition of an automotive original glass products facility in early
1998. Additionally, worldwide sales price improvements for fiber glass products
were more than offset by lower sales prices for North American automotive
original glass and flat glass products. The increase in operating income to $478
million in 1998 compared to $286 million in 1997 is attributable to an $85
million pre-tax gain from the sale of our European flat and automotive glass
businesses, a reduction in business divestiture and realignment charges to $21
million from $102 million in 1997, improved manufacturing efficiencies,
particularly in our North American automotive original glass business, and
increased equity affiliate earnings. These favorable factors were partially
offset by the negative effects of inflation, the sales price reductions
mentioned above and the impact of the General Motors strike.
Chemicals sales decreased 7% to $1.5 billion in 1998 from $1.6 billion in
1997. A 7% reduction in sales volumes associated with the divestiture of the
surfactants business in late 1997 and a 5% decline related to lower sales prices
were partially offset by a 5% increase in sales volumes for specialty chemicals.
Significantly lower sales prices were experienced for chlor-alkali and
derivative products. Specialty chemical volumes increased due primarily to
demand for Transitions(R) optical lenses and the acquisition in late 1997 of a
pharmaceutical intermediates company. Operating income in 1998 decreased to $354
million from $428 million in 1997. The decrease in operating income is
attributable to a decline in chlor-alkali and derivative product prices and the
absence of a $59 million pre-tax gain from the sale of and earnings associated
with our surfactants business. These unfavorable factors were partially offset
by lower raw material costs within our chlor-alkali and derivatives business,
lower environmental costs, an insurance recovery of certain past environmental
costs and the sales volume increases discussed above.
Other Significant Factors
The reduction in the overall effective tax rate in 1998 was primarily
attributable to the realization of the benefits of capital loss carryforwards on
the gain from the sale of our European flat and automotive glass businesses.
Goodwill increased due to acquisition activity in 1998. The increase in other
long-term assets was attributable principally to an increase in our prepaid
pension asset and to an increase in other intangible assets resulting from 1998
acquisition activity.
Business Divestitures and Realignments
During 1999, we approved restructuring plans associated with the integration of
our recent packaging coatings acquisitions and cost reduction activities across
all of our businesses that resulted in a pre-tax charge of $47 million. The
components of the plans included severance benefits for 519 employees and
estimated losses of $17 million on the disposal of a redundant European facility
and the disposition of the assets of a U.S. coatings facility. As of Dec. 31,
1999, $7 million had been paid under the plans to 215 employees. At Dec. 31,
1999 the remaining reserves associated with the 1999 restructuring plans covered
304 employees. We anticipate that the remaining severance benefits will be paid
and the asset dispositions will be completed in 2000. We also recorded reversals
of $2 million and $1 million, originally recorded in 1997, related to the sale
of our equity interest in an Asian float glass plant and the closure of our
Perry, Ga., flat glass plant, respectively, and a $2 million reversal related to
reserves established in 1999 and 1998 for cost reduction initiatives in our
glass and coatings businesses. Finally, in 1999, we completed the sale of our
equity interest in one of
24
<PAGE>
1999 Annual Report
Management's Discussion and Analysis
the Asian float glass plants. We also reached agreements to dispose of our
remaining equity interest in another Asian float glass plant and the Asian
downstream fabrication facilities. These dispositions are expected to be
completed in the first quarter of 2000.
During 1998, we recorded a pre-tax charge of $19 million in connection with a
restructuring plan to reduce costs in our glass and coatings operations. The
components of the plan included severance benefits for 283 employees. During
1999 and 1998, approximately $14 million was paid out under the restructuring
plan and $1 million was reversed for amounts that will not be paid under the
plan. At Dec. 31, 1999, the remaining reserve associated with the 1998
restructuring plan covered 73 employees. In 1998 we also recorded an additional
pre-tax charge of $15 million related to the disposition of our equity interests
in two Asian float glass plants and two Asian downstream fabrication facilities.
The additional charge for the disposition of these facilities resulted from a
reassessment of the proceeds expected to be realized on the dispositions of $14
million and additional asset write-offs of $1 million. We also recorded a $3
million reversal of a reserve in 1998, originally recorded in 1997, related to
the closure of our Perry, Ga., flat glass plant.
At Dec. 31, 1999, the remaining reserves associated with the 1999 and 1998
restructuring plans totaled $26 million and are expected to be paid in 2000.
In 1997 we recorded a pre-tax restructuring charge of $102 million related to
certain glass businesses that were not meeting strategic performance objectives.
The principal components of the 1997 restructuring program included the closure
of our Perry, Ga., flat glass plant and the disposition of our equity interests
in two Asian float glass plants. The pre-tax restructuring charge in 1997
included $61 million of asset write-offs and $41 million associated with cash
outlays primarily for severance costs for 317 employees, a proportionate share
of equity investee indebtedness, and demolition and environmental costs, net of
proceeds from sale. During 1999 and 1998, cash outlays and asset write-offs
associated with both the 1997 restructuring program and the additional
restructuring charge recorded in 1998 related to this program totaled $32
million. We also reversed $3 million of these restructuring charges in each of
the years 1999 and 1998, respectively. At Dec. 31, 1999, approximately $40
million of reserves related to the 1997 restructuring program are outstanding
and will be paid out in the first quarter of 2000 when the remaining equity
interest in the Asian float glass plant and the Asian downstream fabrication
facilities are sold.
Commitments and Contingent Liabilities, including Environmental Matters
PPG is involved in a number of lawsuits and claims, both actual and potential,
including some that it has asserted against others, in which substantial money
damages are sought. These lawsuits and claims relate to product liability,
contract, patent, environmental, antitrust and other matters arising out of the
conduct of PPG's business. See Note 10, "Commitments and Contingent
Liabilities," to the financial statements in this 1999 Annual Report for an
expanded description of certain of these lawsuits. 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 and other
matters. Management believes that, in the aggregate, the outcome of all lawsuits
and claims involving PPG 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 Dec. 31, 1999 and
1998, PPG had reserves for environmental contingencies totaling $82 million and
$94 million, respectively. Pre-tax charges against income for environmental
remediation costs in 1999, 1998 and 1997 totaled $10 million, $10 million and
$34 million, respectively, and are included in "Other charges" in the statement
of income. Cash outlays related to such environmental remediation aggregated $22
million, $16 million and $25 million in 1999, 1998 and 1997, 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 the prior year end.
Such unreserved losses are reasonably possible but are not currently considered
to be probable of occurrence. 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 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.
Initial remedial actions are occurring at these sites. Studies to determine the
nature of the contamination are reaching completion and the need for
25
<PAGE>
PPG Industries
Management's Discussion and Analysis
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. 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.
Impact of Inflation
PPG's financial statements are prepared on a historical cost basis, which does
not completely account for the effects of inflation.
In 1999 the decline in selling prices and negative effects of inflation on our
production costs were partially offset by improved manufacturing efficiencies.
In 1998 the overall decline in selling prices was partially offset by improved
manufacturing efficiencies and the overall positive impacts of lower raw
material and other production costs. In 1997 the increase in production costs
due to the negative effects of inflation was not fully recovered through price
increases and manufacturing efficiencies. While inflationary pressure on costs
is expected to be experienced in 2000, we anticipate that ongoing improvements
in manufacturing efficiencies and increases in selling prices for certain
products will mitigate the negative effect of inflation on 2000 operating income
to a significant extent.
Financial Resources, Capital Spending
During the past three years, we continued to have sufficient financial resources
to meet operating requirements, to fund our capital spending, share repurchase
programs and pension contributions, and to pay increased dividends to
shareholders. Cash from operating activities was $902 million in 1999, $942
million in 1998 and $1,007 million in 1997. Dividends paid to shareholders
totaled $264 million in 1999, $252 million in 1998 and $239 million in 1997.
During 1999, 1998 and 1997, the Company repurchased approximately 1.2 million,
2.1 million and 5.3 million shares of common stock at a cost of $68 million,
$122 million and $302 million, respectively, under various share repurchase
programs. The most recent program authorized the repurchase of 10 million shares
of common stock, and was initiated in November 1998. As of Dec. 31, 1999, 3.2
million shares of common stock had been repurchased under the most recent
program at a cost of $182 million. The repurchase of common stock was financed
principally by cash from operations and proceeds from long-term debt.
In 1999 long-term debt was increased principally by the issuance of $800
million of notes and debentures at rates ranging from 6 3/4% to 7.4%. In 1997
long-term debt was increased principally by the issuance of $450 million of
notes at rates ranging from 6 1/4% to 6 7/8%, partially offset by scheduled debt
repayments. The proceeds from the issuance of the notes were used to fund
acquisitions and for general corporate purposes, including the repayment of U.S.
commercial paper borrowings.
Capital spending in 1999 totaled $1,833 million, compared with $877 million in
1998 and $829 million in 1997. This spending related to business acquisitions
totaling $1,343 million, $390 million and $363 million, in 1999, 1998 and 1997,
respectively, modernization and productivity improvements, expansion of existing
businesses, and environmental control projects. Capital spending of a similar
nature, excluding acquisitions, is expected to total about $525 million during
2000.
We periodically review our array of businesses in comparison to our overall
strategic or performance objectives. As part of this review, we routinely
acquire or divest of certain businesses. During 2000, we anticipate that any
acquisitions completed will be funded through a combination of cash generated
from operations and external funding sources, but with no major impact on our
current capital structure.
The ratio of total debt, including capital leases, to total debt and equity
was 47% and 37% at Dec. 31, 1999 and 1998, respectively. Cash from operations
and the Company's debt capacity are expected to continue to be sufficient to
fund capital spending, dividend payments, share repurchases and operating
requirements.
See Note 5, "Debt and Bank Credit Agreements and Leases", for details
regarding the use and availability of committed and uncommitted lines of credit.
In addition to the lines of credit, the Company may issue up to $500 million
aggregate principal amount of debt securities under a shelf registration
statement filed with the Securities and Exchange Commission (SEC) in July 1999.
Conversion to the Euro
On Jan. 1, 1999, eleven of the member countries of the European Monetary Union
converted from their sovereign currencies to a common currency, the euro. At
that time,
26
<PAGE>
1999 Annual Report
Management's Discussion and Analysis
fixed conversion rates between the legacy currencies and the euro were set. The
legacy currencies will remain legal tender through July 1, 2002. Beginning Jan.
1, 2002, euro-denominated currency will be issued. No later than July 1, 2002,
the participating countries will withdraw all bills and coins so that their
legacy currencies will no longer be considered legal tender.
PPG has identified and substantially addressed the significant issues that may
have resulted from the euro conversion. These issues include increased
competitive pressures from greater price transparency, changes to information
systems to accommodate various aspects of the new currency and exposure to
market risk with respect to financial instruments. The impact on PPG's operating
results and financial condition from the conversion to the euro has not been,
and is not expected to be, material.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements made by or on behalf of the Company. Management's
Discussion and Analysis and other sections of this Annual Report contain
forward-looking statements that reflect the Company's current views with respect
to future events and financial performance.
Forward-looking statements are identified by the use of the words "aim,"
"believe," "expect," "anticipate," "intend," "estimate" and other expressions
that indicate future events and trends. Any forward-looking statement speaks
only as of the date on which such statement is made and the Company undertakes
no obligation to update any forward-looking statement, whether as a result of
new information, future events or otherwise. You are advised, however, to
consult any further disclosures we make on related subjects in our reports to
the SEC. Also, note the following cautionary statements.
Many factors could cause actual results to differ materially from the
Company's forward-looking statements. Among these factors are increasing price
and product competition by foreign and domestic competitors, fluctuations in the
cost and availability of raw materials, the ability to maintain favorable
supplier relationships and arrangements, economic and political conditions in
international markets, the ability to penetrate existing, developing and
emerging foreign and domestic markets, which also depends on economic and
political conditions, foreign exchange rates and fluctuations in those rates.
Further, it is not possible to predict or identify all such factors.
Consequently, while the list of factors presented here is considered
representative, no such list should be considered to be a complete statement of
all potential risks and uncertainties. Unlisted factors may present significant
additional obstacles to the realization of forward-looking statements.
The consequences of material differences in the results as compared to those
anticipated in the forward-looking statements could include, among other things,
business disruption, operational problems, financial loss, legal liability to
third parties and similar risks, any of which could have a material adverse
effect on the Company's consolidated financial condition, operations or
liquidity.
Year 2000 Disclosure
Many information technology products and systems were expected to experience
miscalculations, malfunctions or disruptions when attempting to process
information containing dates subsequent to Dec. 31, 1999, if they were not
successfully remediated. These potential problems were collectively referred to
as the "Year 2000" problem.
The Company successfully completed the testing and remediation of all systems
prior to Dec. 31, 1999. The Company has not experienced any significant Year
2000 problems. Also, the Company's suppliers and customers have not experienced
any significant Year 2000 problems that have affected PPG.
The Company used internal and external resources to execute its Year 2000
compliance plan and spent a total of $12 million in 1999 and $7 million in 1998.
Market Risk
PPG is exposed to certain market risks arising from transactions that are
entered into in the normal course of business. The Company may enter into
derivative financial instrument transactions in order to manage or reduce this
market risk. PPG's policies do not permit active trading of, or speculation in,
derivative financial instruments. A discussion of the Company's primary market
risk exposures and the management of those exposures is presented below.
PPG generates revenues and costs that are subject to fluctuations due to
changes in foreign currency exchange rates when transactions are denominated in
currencies other than the functional currency. Since the Company manufactures
its products in a number of locations around the world, principally North
America and Europe, it has a cost base that is diversified over a number of
different currencies as well as the U.S. dollar, which serves to counterbalance
partially its foreign currency transaction risk.
PPG manages its foreign currency transaction risk to minimize the volatility
of cash flows caused by currency fluctuations by forecasting foreign currency-
denominated cash flows of each subsidiary for a 12-month period and aggregating
these cash inflows and outflows in each currency to determine the overall net
transaction exposures. Decisions on whether to use derivative financial
instruments to hedge the net transaction exposures are made based on the amount
of those exposures, by currency, and an assessment of the near-term outlook for
each currency. The Company's policy permits the use of foreign currency forward
and option contracts to hedge approximately 30% to
27
<PAGE>
PPG Industries
Management's Discussion and Analysis
70% of its anticipated net foreign currency cash flows over the next 12-month
period. PPG does not hedge its exposure to translation gains and losses;
however, by borrowing in local currencies, it reduces such exposure. The Company
does not hedge its foreign currency exposures in a manner that eliminates the
effect of changes in foreign currency rates on consolidated net income. The fair
value of the foreign currency contracts outstanding as of Dec. 31, 1999 and 1998
was not material. The market value of such contracts has a high correlation to
the price changes in the currencies of the related hedged transactions. The
potential reduction in PPG's future earnings resulting from adverse changes in
the exchange rates of its outstanding foreign currency hedge contracts of 10%
for European currencies and 20% for Asian and South American currencies would
have totaled approximately $9 million, $12 million and $5 million as of Dec. 31,
1999, 1998 and 1997, respectively. In addition, PPG had foreign currency-
denominated debt of $598 million and $332 million as of Dec. 31, 1999 and 1998,
respectively. The increase in the foreign currency-denominated debt balance is
principally attributable to PPG's initiation of a euro commercial paper program,
which financed a portion of PPG's European acquisitions. A weakening of the U.S.
dollar relative to this foreign currency-denominated debt of 10% for debt
denominated in European currencies and 20% for debt denominated in Asian and
South American currencies would have resulted in unrealized translation losses
of approximately $75 million, $43 million and $52 million as of Dec. 31, 1999,
1998 and 1997, respectively.
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. Generally, the Company maintains variable interest rate debt at a level
of 25% to 50% of total borrowings. 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 use of interest rate swaps. As of
Dec. 31, 1999 and 1998, the fair value of interest rate swaps was not material.
A 10% increase in interest rates in the United States and Europe and a 20%
increase in Asia and South America would have affected PPG's variable rate debt
obligations by increasing interest expense by approximately $6 million as of
Dec. 31, 1999 and $3 million as of both Dec.31, 1998 and 1997. Further, a 10%
reduction in interest rates would have increased the present value of the
Company's fixed rate debt by approximately $93 million and $54 million as of
Dec. 31, 1999 and 1998, respectively. Such changes would not have had a near-
term effect on PPG's future earnings or cash flows. Long-term fixed rate
borrowings substantially increased from 1998 as a result of PPG's issuance of
$800 million of notes and debentures which were used to finance business
acquisitions and for general corporate purposes, including repayment of U.S.
commercial paper borrowings. This higher debt load is the principal contributor
to the changes in the fixed rate debt sensitivity analyses from 1998 to 1999.
The Company enters into commodity swap and option contracts to reduce its
exposure to fluctuations in prices for natural gas. The fair values of these
contracts as of Dec. 31, 1999 and 1998, were not material. As a result of a 10%
reduction in the price of natural gas, the Company would have experienced
potential losses in the fair value of the underlying commodity swap and option
contracts as of Dec.31, 1999, 1998 and 1997 of approximately $0.1 million, $3
million and $8 million, respectively.
28
<PAGE>
1999 Annual Report
Business Segment Information
Segment Organization and Products
PPG is a multinational manufacturer with three reportable segments: coatings,
glass and chemicals. The Company's segments are organized based on differences
in products. The glass and fiber glass operations have been aggregated into a
single reportable segment. The coatings segment supplies a variety of protective
and decorative coatings and finishes along with adhesives, sealants and metal
pretreatment products for automotive original equipment and aftermarket
refinish, aerospace, industrial, packaging and architectural applications. In
addition to specific products, the coatings segment supplies technical
expertise, engineering and purchasing services to the automotive original and
industrial portions of the business. The glass segment supplies flat glass and
continuous-strand fiber glass for residential and commercial construction,
automotive original and replacement markets and other transportation and
industrial applications. The chemicals segment supplies chlor-alkali and
specialty chemicals products. The primary chlor-alkali products are chlorine,
caustic soda, vinyl chloride monomer, chlorinated solvents and chlorinated
benzenes. The primary specialty chemicals products are Transitions(R) lenses,
optical monomers, silicas and fine chemicals. Production facilities and markets
for the coatings and glass segments are predominantly in North America and
Europe, while the chemicals segment operates primarily in North America. Each of
the businesses in which PPG is engaged is highly competitive. However, the
diversification of product lines and worldwide markets served tends to minimize
the impact on total sales and earnings of changes in demand for a particular
product line or in a particular geographic area.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company allocates resources to
segments and evaluates the performance of segments based upon reported segment
income before interest expense and income, income taxes and minority interest.
Substantially all corporate expenses are allocated to the segments. Net periodic
pension income and expense is allocated to the segments; however, prepaid
pension assets for defined benefit plans that cover certain U.S. employees are
not allocated to the segments and are included in corporate assets. Intersegment
sales and transfers are recorded at selling prices that approximate market
prices.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
(Millions) Consolidated
Segments Coatings/(1)/ Glass/(2)/ Chemicals/(3)/ Corporate/(4)/ Totals
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
Net sales to external customers $4,079 $2,255 $1,423 $ -- $7,757
- ------------------------------------------------------------------------------------------------------------------------------
Intersegment net sales 3 -- 8 (11) --
- ------------------------------------------------------------------------------------------------------------------------------
Total net sales $4,082 $2,255 $1,431 $ (11) $7,757
==============================================================================================================================
Operating income $ 522 $ 386 $ 177 $ 12 $1,097
- ------------------------------------------------------------------------------------------------------------------------------
Interest--net (124)
- ------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and minority interest $ 973
==============================================================================================================================
Depreciation and amortization $ 154 $ 152 $ 91 $ 22 $ 419
- ------------------------------------------------------------------------------------------------------------------------------
Share of net earnings in equity affiliates $ 3 $ 14 $ 3 $ 8 $ 28
- ------------------------------------------------------------------------------------------------------------------------------
Segment assets/(5)/ $4,380 $1,799 $1,252 $1,483 $8,914
- ------------------------------------------------------------------------------------------------------------------------------
Investments in equity affiliates $ 21 $ 87 $ 33 $ 54 $ 195
- ------------------------------------------------------------------------------------------------------------------------------
Expenditures for long lived assets $1,414 $ 145 $ 125 $ 54 $1,738
==============================================================================================================================
</TABLE>
(continued on next page)
29
<PAGE>
PPG Industries
Business Segment Information
(continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
(Millions) Consolidated
Segments Coatings/(1)/ Glass/(2)/ Chemicals/(3)/ Corporate/(4)/ Totals
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Net sales to external customers $3,459 $2,527 $1,524 $ -- $7,510
- -----------------------------------------------------------------------------------------------------------------------------------
Intersegment net sales 2 -- 9 (11) --
- -----------------------------------------------------------------------------------------------------------------------------------
Total net sales $3,461 $2,527 $1,533 $ (11) $7,510
===================================================================================================================================
Operating income $ 546 $ 478 $ 354 $ 14 $1,392
- -----------------------------------------------------------------------------------------------------------------------------------
Interest--net (98)
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and minority interest $1,294
===================================================================================================================================
Depreciation and amortization $ 108 $ 161 $ 88 $ 26 $ 383
- -----------------------------------------------------------------------------------------------------------------------------------
Share of net earnings in equity affiliates $ 1 $ 14 $ 2 $ 13 $ 30
- -----------------------------------------------------------------------------------------------------------------------------------
Segment assets/(5)/ $2,976 $1,791 $1,187 $1,433 $7,387
- -----------------------------------------------------------------------------------------------------------------------------------
Investments in equity affiliates $ 16 $ 74 $ 31 $ 55 $ 176
- -----------------------------------------------------------------------------------------------------------------------------------
Expenditures for long lived assets $ 580 $ 167 $ 97 $ 22 $ 866
===================================================================================================================================
1997
Net sales to external customers $3,059 $2,673 $1,647 $ -- $7,379
- -----------------------------------------------------------------------------------------------------------------------------------
Intersegment net sales -- -- 37 (37) --
- -----------------------------------------------------------------------------------------------------------------------------------
Total net sales $3,059 $2,673 $1,684 $ (37) $7,379
===================================================================================================================================
Operating income (loss) $ 561 $ 286 $ 428 $ (3) $1,272
- -----------------------------------------------------------------------------------------------------------------------------------
Interest--net (97)
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and minority interest $1,175
===================================================================================================================================
Depreciation and amortization $ 91 $ 169 $ 87 $ 26 $ 373
- -----------------------------------------------------------------------------------------------------------------------------------
Share of net earnings in equity affiliates $ -- $ -- $ 1 $ 9 $ 10
- -----------------------------------------------------------------------------------------------------------------------------------
Segment assets/(5)/ $2,239 $2,115 $1,183 $1,331 $6,868
- -----------------------------------------------------------------------------------------------------------------------------------
Investments in equity affiliates $ 10 $ 79 $ 31 $ 51 $ 171
- -----------------------------------------------------------------------------------------------------------------------------------
Expenditures for long lived assets $ 370 $ 168 $ 147 $ 22 $ 707
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
(Millions)
Geographic Information 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales/(6)/
United States $5,180 $5,023 $4,960
----------------------------------------------------------------------------------------------------------------
Europe 1,533 1,606 1,560
----------------------------------------------------------------------------------------------------------------
Canada 531 476 477
----------------------------------------------------------------------------------------------------------------
Other 513 405 382
- --------------------------------------------------------------------------------------------------------------------
Total $7,757 $7,510 $7,379
====================================================================================================================
Operating income
United States/(7)/ $ 888 $1,063 $1,037
----------------------------------------------------------------------------------------------------------------
Europe/(8)/ 121 244 156
----------------------------------------------------------------------------------------------------------------
Canada/(9)/ 63 83 82
----------------------------------------------------------------------------------------------------------------
Other/(10)/ 13 (12) --
- --------------------------------------------------------------------------------------------------------------------
Total $1,085 $1,378 $1,275
- --------------------------------------------------------------------------------------------------------------------
Interest--net (124) (98) (97)
- --------------------------------------------------------------------------------------------------------------------
Other unallocated corporate income (expenses)--net 12 14 (3)
- --------------------------------------------------------------------------------------------------------------------
Income before income taxes and minority interest $ 973 $1,294 $1,175
====================================================================================================================
</TABLE>
(continued on next page)
30
<PAGE>
1999 Annual Report
Business Segment Information
<TABLE>
<CAPTION>
(continued)
- ---------------------------------------------------------------------------------------------------------------
(Millions)
Geographic Information 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Long-lived assets
United States $3,676 $3,064 $2,799
-----------------------------------------------------------------------------------------------------------
Europe 1,082 825 836
-----------------------------------------------------------------------------------------------------------
Canada 235 191 220
-----------------------------------------------------------------------------------------------------------
Other 545 367 197
- ---------------------------------------------------------------------------------------------------------------
Total $5,538 $4,447 $4,052
- ---------------------------------------------------------------------------------------------------------------
Identifiable assets
United States/(11)/ $5,625 $4,889 $4,442
-----------------------------------------------------------------------------------------------------------
Europe 1,943 1,505 1,641
-----------------------------------------------------------------------------------------------------------
Canada 390 323 346
-----------------------------------------------------------------------------------------------------------
Other 956 670 439
- ---------------------------------------------------------------------------------------------------------------
Total $8,914 $7,387 $6,868
===============================================================================================================
</TABLE>
(1) Coatings segment income in 1999 includes a pre-tax restructuring charge of
$42 million for cost reduction initiatives, the integration of our recent
packaging coatings acquisitions, the disposal of a redundant European
facility and the disposition of the assets of a U.S. coatings facility. In
1999, coatings segment income also includes a $40 million pre-tax charge
for purchased in-process research and development, a $23 million pre-tax
charge representing the fair-market-value adjustment of acquired
inventories that have been sold, a $6 million pre-tax charge related to
the bankruptcy of a home-center chain, and a pre-tax restructuring
(credit) of $(1) million related to the reversal of previously established
restructuring reserves. Coatings segment income in 1998 includes a pre-tax
restructuring charge of $9 million related to cost reduction initiatives.
(2) Glass segment income in 1999 includes a pre-tax restructuring charge of $4
million related to cost reduction initiatives and a pre-tax restructuring
(credit) of $(4) million related to the reversal of reserves established
in 1997 for the disposition of an equity interest in an Asian float glass
plant and the closure of the Perry, Ga., plant. Glass segment income in
1998 includes a pre-tax gain of $85 million related to the sale of the
European flat and automotive glass businesses and pre-tax restructuring
charges (credit) of $15 million, $9 million, and $(3) million,
respectively, related to the disposition of equity interests in two Asian
float glass plants and two Asian downstream fabrication facilities, cost
reduction initiatives and the reversal of a reserve related to the Perry,
Ga., plant. Glass segment income in 1997 includes a pre-tax restructuring
charge of $102 million of which $65 million principally related to the
closure of the Perry, Ga., plant and $37 million related to the
disposition of equity interests in two Asian float glass plants.
(3) Chemicals segment income in 1999 includes a pre-tax restructuring charge
of $1 million related to cost reduction initiatives. Chemicals segment
income in 1997 includes a pre-tax gain of $59 million related to the sale
of the surfactants business.
(4) Corporate intersegment net sales represents intersegment net sales
eliminations. Corporate income (loss) represents unallocated corporate
income and expenses.
(5) Segment assets are the total assets used in the operation of each segment.
Corporate assets are principally cash and cash equivalents, income tax
assets and prepaid pensions. See Note 9. In 1998 and 1997, corporate
assets also included the Company's headquarters complex.
(6) Net sales to external customers are attributed to individual countries
based upon the location of the operating unit shipping the product.
(7) Operating income in 1999 includes pre-tax charges (credit) of $40 million,
$18 million, $6 million, $6 million and $(5) million, respectively,
related to purchased in-process research and development, cost reduction
initiatives, the fair-market-value adjustment of acquired inventories that
have been sold, the bankruptcy of a home-center chain and the reversal of
previously established restructuring reserves. Operating income in 1998
includes pre-tax restructuring charges (credit) of $15 million, $14
million, and $(3) million, respectively, related to the disposition of
equity interests in two Asian float glass plants and two Asian downstream
fabrication facilities, cost reduction initiatives and the reversal of a
reserve related to the Perry, Ga., plant. Operating income in 1997
includes a pre-tax gain of $59 million related to the sale of the
surfactants business and pre-tax restructuring charges of $58 million and
$37 million principally related to the divestiture of the Perry, Ga.,
plant and the disposition of equity interests in two Asian float glass
plants, respectively.
(8) Operating income in 1999 includes pre-tax charges of $29 million and $13
million, respectively, related to cost reduction initiatives and the fair-
market-value adjustment of acquired inventories that have been sold.
Operating income in 1998 includes a pre-tax gain of $85 million related to
the sale of the European flat and automotive glass businesses and a pre-
tax restructuring charge of $4 million related to cost reduction
initiatives. Operating income in 1997 includes pre-tax restructuring
charges of $7 million related to cost reduction initiatives.
(9) Operating income in 1999 includes a pre-tax charge of $1 million related
to the fair-market-value adjustment of acquired inventories that have been
sold. Operating income in 1998 includes a pre-tax restructuring charge of
$1 million related to cost reduction initiatives.
(10) Operating income in 1999 includes a pre-tax charge of $3 million related
to the fair-market-value adjustment of acquired inventories that have been
sold.
(11) Includes corporate assets which are principally cash and cash equivalents,
income tax assets and prepaid pensions. In 1998 and 1997, corporate assets
also included the Company's headquarters complex.
31
<PAGE>
PPG Industries
Notes
1. Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts of PPG Industries,
Inc. (PPG or the Company), and all significant subsidiaries, both U.S. and non-
U.S., of which we own more than 50% of the voting stock. Investments in
companies of which we own 20% to 50% of the voting stock are carried at equity,
and our share of the earnings or losses of such equity affiliates is included in
the statement of income. Transactions between PPG and its subsidiaries are
eliminated in consolidation.
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of income and expenses during the reporting period.
Actual outcomes could differ from those estimates.
Revenue recognition
Revenue from sales is recognized when title to inventory passes to the customer.
Foreign currency translation
For all significant non-U.S. operations, the functional currency is the local
currency. Assets and liabilities of those operations are translated into U.S.
dollars using year-end exchange rates; income and expenses are translated using
the average exchange rates for the reporting period. Translation adjustments are
deferred in accumulated other comprehensive income, a separate component of
shareholders' equity.
Inventories
Most U.S. and certain non-U.S. inventories are stated at cost, using the last-
in, first-out (LIFO) method, which does not exceed market. Other inventories are
stated at the lower of cost or market. We determine cost using either average or
standard factory costs, which approximate actual costs, excluding certain fixed
costs such as depreciation and property taxes.
Property
Property is recorded at cost. We compute depreciation by the straight-line
method based on the estimated useful lives of depreciable assets. Additional
expense is recorded when facilities or equipment are subject to abnormal
economic conditions or obsolescence. Significant improvements that add to
productive capacity or extend the lives of properties are capitalized. Costs for
repairs and maintenance are charged to expense as incurred. When property is
retired or otherwise disposed of, the cost and related depreciation are removed
from the accounts and any related gains or losses are included in income.
Amortization of the cost of capitalized leased assets is included in
depreciation expense.
Identifiable intangible assets and goodwill
Identifiable intangible assets acquired in business combinations accounted for
by the purchase method are recorded based upon fair market value at the date of
acquisition. Indentifiable intangible assets are amortized on a straight-line
basis over their estimated useful lives (3 to 40 years) and primarily consist of
core developed technology, trademarks and tradenames and customer lists.
Goodwill, representing the excess of the cost over the net tangible and
identified intangible assets of acquired businesses, is stated at cost and
amortized on a straight-line basis over the estimated future periods to be
benefited, principally 40 years.
Identified intangible assets and goodwill are reviewed for impairment at each
balance sheet date or whenever events or circumstances indicate that the
carrying amounts may not be recoverable.
Employee Stock Ownership Plan
We account for our employee stock ownership plan (ESOP) in accordance with
Statement of Position (SOP) No. 93-6 for PPG common stock purchased after Dec.
31, 1992 (new ESOP shares). As permitted by SOP No. 93-6, shares purchased prior
to Dec. 31, 1992 (old ESOP shares), continue to be accounted for in accordance
with SOP No. 76-3. ESOP shares are released and allocated to participants based
upon debt service paid during the year on loans used by the ESOP to purchase the
shares. These loans are a combination of borrowings guaranteed by PPG and
borrowings directly from PPG. Borrowings from third parties are included in debt
in our balance sheet (see Note 5). Unearned compensation, reflected as a
reduction of shareholders' equity, principally represents the unpaid balance of
such ESOP loans. Dividends received by the ESOP are used to pay debt service.
For old ESOP shares, compensation expense is equal to amounts contributed, or
committed to be contributed, to the ESOP by the Company less the ESOP interest
expense element of such contributions. Dividends on old ESOP shares are deducted
from retained earnings. Old ESOP shares are considered to be outstanding in
computing earnings per share.
For new ESOP shares, compensation expense is equal to the Company's matching
contribution (see Note 13). Dividends on released new ESOP shares are deducted
from retained earnings, and dividends on unreleased shares are reported as a
reduction of debt or accrued interest. Only new ESOP shares that have been
released are considered outstanding in computing earnings per share.
Cash equivalents
Cash equivalents are highly liquid investments (valued at cost, which
approximates fair value) acquired with an original maturity of three months or
less.
32
<PAGE>
1999 Annual Report
Notes
Derivative financial instruments
Derivative financial instruments are used to hedge a portion of the Company's
foreign currency and interest rate exposures. Income and expense are recorded in
the same caption as that arising from the related asset or liability being
hedged. Premiums paid on option contracts are amortized over the lives of the
contracts.
Gains and losses related to hedges of firm commitments are deferred and
recognized over the expected remaining lives of the related assets and
liabilities. Unrealized gains and losses from option contracts that hedge
anticipated transactions are also deferred and recognized in income in the same
period as the hedged transactions. Unrealized gains and losses from forward
contracts that hedge anticipated transactions are not deferred.
The Company also uses commodity swap and option contracts to reduce its
exposure to fluctuations in prices for natural gas. Gains and losses on these
contracts are deferred and recognized in income in the same period as the hedged
transactions as an adjustment to cost of sales.
The fair value of derivative instruments held as of Dec. 31, 1999 and 1998,
was not material. The Company does not enter into derivative transactions for
speculative purposes and therefore holds no derivative instruments for trading
purposes.
Reclassifications
Certain amounts in the 1998 and 1997 financial statements have been reclassified
to be consistent with the 1999 presentation.
2. Acquisitions, Business Divestitures and Realignments
During the past three years, we have acquired a number of businesses, all of
which were recorded using the purchase method of accounting. Accordingly, the
results of operations of the acquired companies have been included in our
consolidated results from their respective acquisition dates.
In October 1999, we acquired a majority interest in privately held powder
coatings maker Bellaria S.p.A. In July 1999, we acquired the global automotive
refinish, automotive and industrial coatings businesses of Imperial Chemical
Industries PLC (the ICI business), except for the businesses in the Indian
subcontinent, for approximately $677 million and aerospace coatings and sealant
maker PRC-DeSoto International, Inc. (PRC-DeSoto) from Akzo Nobel N.V. (Akzo)
for approximately $524 million. Although included as part of the original
purchase price, the majority of the ICI business in Asia was not acquired until
the fourth quarter of 1999 and the PRC-DeSoto and ICI businesses in France were
not acquired until November 1999. We also acquired the U.S. architectural
coatings business of Australian based Wattyl, Ltd. and we completed the
acquisition of the German-based specialty coatings business of Imperial Chemical
Industries PLC in July 1999. In February 1999, we acquired the commercial
transport refinish coatings business of Sigma Coatings B.V., a subsidiary of
Belgian refiner PetroFina S.A. Finally, in January 1999, we completed the
acquisition of the remaining portion of the global packaging coatings business
formerly owned by Courtaulds plc (Courtaulds) from Akzo and the purchase of
certain leased assets associated with our 1998 acquisition of the technical
coatings business of Orica Ltd. (Orica).
The preliminary purchase price allocations for the 1999 acquisitions are
subject to adjustment in 2000 when finalized. In each of the 1999 acquisitions,
the preliminary allocation resulted in an excess of purchase price over the fair
value of net assets acquired being allocated to goodwill, which is being
amortized on a straight-line basis over 40 years.
In connection with the acquisitions of PRC-DeSoto and the ICI business, a
portion of the purchase price for each acquisition was allocated to purchased
in-process research and development (IPR&D) which totaled $21 million and $19
million, respectively. The amounts attributed to IPR&D were expensed at the
dates of acquisition as the IPR&D projects had not reached technological
feasibility nor had any alternative future use.
The IPR&D projects, which totaled more than 40, primarily related to
developing improved environmentally compliant product offerings, such as high
solids (low solvents) or waterborne products, were valued through the
application of the income approach by independent valuation specialists. The
income approach includes an analysis of the markets, projected net cash flows,
and technical and commercial risks associated with achieving such cash flows.
With respect to the IPR&D projects of PRC-DeSoto and the ICI business, the
estimated cash flows were projected over periods ranging from ten to twenty
years after the date of the acquisitions, and were discounted at rates ranging
from 15% to 30% (the average discount rate utilized was approximately 20%). The
discount rates were selected on a project-by-project basis and were based on the
Company's weighted average cost of capital adjusted for the risks associated
with the estimated growth, profitability, and technical and commercial risks of
the acquired IPR&D projects. The nature of the efforts to develop the acquired
IPR&D into commercially viable products consists principally of planning,
designing and testing activities necessary to determine that the products can
meet market expectations, including functionality, technical and performance
requirements and specifications. The financial assumptions utilized in the
valuation of the IPR&D are consistent with the acquired businesses' historical
results, PPG's specific experience and expectations, and general industry
levels. Anticipated cost savings and other synergies were not included in the
valuation analysis of the IPR&D. The Company expects that the products
incorporating the acquired technology will generally be completed and begin to
generate cash flows over the three to twenty-four month period after the
acquisitions. However,
33
<PAGE>
PPG Industries
Notes
development of these technologies remains a significant risk due to the
remaining effort to achieve technical viability, evolving customer markets,
uncertain standards and performance specifications for new products, and
significant competitive threats from numerous companies.
The valuation of the acquired IPR&D also gave consideration to the stage of
completion of the projects at the time of the acquisition and the degree to
which the projects relied on prior, existing technology. With respect to the
stage of completion, the PRC-DeSoto and the ICI business IPR&D projects were, on
average, approximately 46% and 56% complete, respectively, at the dates of
acquisition. Similarly, the IPR&D projects' degree of leverage from the
applicable developed technologies was approximately 33% for PRC-DeSoto and 36%
for the ICI business.
We are currently in the process of refining plans, originally developed at the
date of the acquisition, to integrate the operations of the ICI business and
PRC-DeSoto that will likely result in certain severance costs. These costs, once
determinable, will be accrued as part of the purchase price allocation and will
result in an increase in goodwill.
From September to December 1998, we completed the purchase of the Australian
automotive refinish, automotive original equipment, coil, packaging and
industrial coatings businesses of Orica and the U.S. architectural coatings
business and a portion of the global packaging coatings business formerly owned
by Courtaulds from Akzo. In January and February 1998, we acquired the assets of
a U.S. automotive glass plant from Chrysler Corporation and the automotive
coatings business of Helios-Lacke Bollig & Kemper GmbH & Co. KG of Germany.
From September to December 1997, we acquired the U.S. industrial pretreatment
business of Man-Gill Chemical Company; Max Meyer Duco S.p.A., a European
supplier of automotive refinish, fleet finish and decorative coatings; Phillips
Paint Products, a Canadian industrial coatings manufacturer; the worldwide
packaging coatings businesses of BASF Lacke + Farben AG; Keeler & Long, a U.S.
manufacturer of high performance coatings and coil coatings, and Sipsy Chimie
Fine S.C.A., a French manufacturer of pharmaceutical intermediates formerly
owned by Warner Lambert Company. We also increased our ownership interest in two
related automotive original coatings companies located in Brazil and Argentina
from 45% to 100%.
The cost of the acquisitions was $1,343 million in 1999, $390 million in 1998
and $363 million in 1997 plus the assumption of indebtedness of $5 million, $11
million and $42 million, respectively.
The following table reflects the results of our operations on a pro forma
basis as if the 1999 acquisitions had been completed on January 1, 1998, the
1998 acquisitions had been completed on January 1, 1997, and the 1997
acquisitions had been completed on January 1, 1997. Further, the pro forma
results of operations do not include after-tax charges of $33 million for IPR&D
and $15 million for the fair-market-value adjustment of acquired inventories
sold, both of which are associated with the 1999 acquisitions of the ICI
business and PRC-DeSoto. The following unaudited pro forma information also
excludes the effects of synergies and cost reduction initiatives directly
related to all acquisitions. These actions have already commenced and are
expected to continue in the year 2000.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
(Millions, except per share amounts) 1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $8,178 $8,626 $8,014
- ------------------------------------------------------------------------------------
Earnings before interest, income
taxes and minority interest $1,191 $1,469 $1,313
- ------------------------------------------------------------------------------------
Net income $ 597 $ 788 $ 740
- ------------------------------------------------------------------------------------
Earnings per common share $ 3.44 $ 4.45 $ 4.12
- ------------------------------------------------------------------------------------
Earnings per common share--
assuming dilution $ 3.40 $ 4.41 $ 4.08
- ------------------------------------------------------------------------------------
</TABLE>
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the acquisitions been consummated
as of the dates indicated, nor are they necessarily indicative of future
operating results.
In July 1999, the Company completed the sale of its Pittsburgh headquarters
complex for $186 million and concurrently entered into a long-term operating
lease for the portion of the complex occupied by the Company. The pre-tax gain
of $7 million on the sale was deferred and will be amortized over the term of
the long-term operating lease.
In July 1998, we completed the sale of our European flat and automotive glass
businesses to Glaverbel S.A. of Brussels, Belgium, for $266 million in cash plus
the assumption of certain indebtedness, which resulted in a pre-tax gain of
approximately $85 million. We also completed certain business divestitures in
1997, primarily the sale of the surfactants business, which resulted in a net
pre-tax gain of $58 million. The net sales of these divested businesses totaled
$271 million in 1998 and $550 million in 1997. Additionally, in August 1998, we
sold the European decorative coatings business acquired in the 1997 Max Meyer
acquisition. The selling price approximated the carrying value of the net assets
sold.
During 1999, we approved restructuring plans associated with the integration
of our recent packaging coatings acquisitions and cost reduction activities
across all of our businesses that resulted in pre-tax charges of $47 million.
The components of the plans included severance benefits for 519 employees and
estimated losses of $17 million on the disposal of a redundant European facility
and the disposition of the assets of a U.S. coatings facility. As of Dec. 31,
1999, $7 million had been paid under the plans to 215 employees. At Dec. 31,
1999 the remaining reserves associated with the 1999 restructuring plans covered
304 employees. We anticipate that the remaining severance benefits will be paid
and the asset dispositions will be completed in 2000. We also recorded reversals
of $2 million and
34
<PAGE>
1999 Annual Report
Notes
$1 million, originally recorded in 1997, related to the sale of our equity
interest in an Asian float glass plant and the closure of our Perry, Ga., flat
glass plant, respectively, and a $2 million reversal related to reserves
established in 1999 and 1998 for cost reduction initiatives in our glass and
coatings operations. Finally, in 1999, we completed the sale of our equity
interest in one of the Asian float glass plants. We also reached agreements to
dispose of our remaining equity interest in another Asian float glass plant and
the Asian downstream fabrication facilities. These dispositions are expected to
be completed in the first quarter of 2000.
During 1998, we recorded a pre-tax charge of $19 million in connection with a
restructuring plan to reduce costs in our glass and coatings businesses. The
components of the plan included severance benefits for 283 employees. During
1999 and 1998, approximately $14 million was paid out under the restructuring
plan and $1 million was reversed for amounts that will not be paid under the
plan. At Dec. 31, 1999, the remaining reserves associated with the 1998
restructuring plan covered 73 employees. In 1998 we also recorded an additional
pre-tax charge of $15 million related to the disposition of our equity interests
in two Asian float glass plants and two Asian downstream fabrication facilities.
The additional charge for the disposition of these facilities resulted from a
reassessment of the proceeds expected to be realized on the dispositions of $14
million and additional asset write-offs of $1 million. We also recorded a $3
million reversal of a reserve in 1998, originally recorded in 1997, related to
the closure of our Perry, Ga., flat glass plant.
At Dec. 31, 1999, the remaining reserves associated with the 1999 and 1998
restructuring plans totaled $26 million and are expected to be paid in 2000.
In 1997 we recorded a pre-tax restructuring charge of $102 million related to
certain glass businesses that were not meeting strategic performance objectives.
The principal components of the 1997 restructuring program included the closure
of our Perry, Ga., flat glass plant and the disposition of our equity interests
in two Asian float glass plants. The pre-tax restructuring charge in 1997
included $61 million of asset write-offs and $41 million associated with cash
outlays primarily for severance costs for 317 employees, a proportionate share
of equity investee indebtedness, and demolition and environmental costs, net of
proceeds from sale. During 1999 and 1998, cash outlays and asset write-offs
associated with both the 1997 restructuring program and the additional
restructuring charge recorded in 1998 related to this program totaled $32
million. We also reversed $3 million of these restructuring charges in each of
the years 1999 and 1998, respectively. At Dec. 31, 1999, approximately $40
million of reserves related to the 1997 restructuring program are outstanding
and will be paid out in the first quarter of 2000 when the remaining equity
interest in the Asian float glass plant and the Asian downstream fabrication
facilities are sold.
3. Working Capital Detail
<TABLE>
<CAPTION>
December 31
- ------------------------------------------------------------------------------------------------------------------
(Millions) 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Receivables
Customers $1,489 $1,246
--------------------------------------------------------------------------------------------------------------
Other 131 141
--------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts (26) (21)
- -----------------------------------------------------------------------------------------------------------------
Total $1,594 $1,366
=================================================================================================================
Inventories/(1)/
Finished products and work
in process $ 716 $ 638
--------------------------------------------------------------------------------------------------------------
Raw materials 189 174
--------------------------------------------------------------------------------------------------------------
Supplies 111 105
- -----------------------------------------------------------------------------------------------------------------
Total $1,016 $ 917
=================================================================================================================
Accounts payable and
accrued liabilities
Trade creditors $ 755 $ 630
--------------------------------------------------------------------------------------------------------------
Accrued payroll 219 213
--------------------------------------------------------------------------------------------------------------
Other postretirement and
pension benefits 64 57
--------------------------------------------------------------------------------------------------------------
Income taxes 26 11
--------------------------------------------------------------------------------------------------------------
Other 366 364
- -----------------------------------------------------------------------------------------------------------------
Total $1,430 $1,275
=================================================================================================================
</TABLE>
(1) Inventories valued using the LIFO method comprised 63% and 68% of total
gross inventory values at Dec. 31, 1999 and 1998, respectively. Total
gross inventory values exclude the LIFO reserve and supply balances. If
the first-in, first-out method of inventory valuation had been used,
inventories would have been $164 million and $183 million higher at Dec.
31, 1999 and 1998, respectively.
4. Property Detail
<TABLE>
<CAPTION>
December 31
- -------------------------------------------------------------------------------------------------------------------
(Millions) 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Property/(1)/
Land and land improvements $ 308 $ 317
---------------------------------------------------------------------------------------------------------------
Buildings 1,058 1,194
---------------------------------------------------------------------------------------------------------------
Machinery and equipment 4,864 4,697
---------------------------------------------------------------------------------------------------------------
Other 348 323
---------------------------------------------------------------------------------------------------------------
Construction in progress 281 208
- ------------------------------------------------------------------------------------------------------------------
Total $6,859 $6,739
======================================================================================================================
</TABLE>
(1) Interest capitalized in 1999, 1998 and 1997 was $11 million, $9 million and
$10 million, respectively.
35
<PAGE>
PPG Industries
Notes
5. Debt and Bank Credit Agreements and Leases
<TABLE>
<CAPTION>
December 31
- ---------------------------------------------------------------------------------------------------------------------
(Millions) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
6 3/4% non-callable notes, due 2004 $ 299 $ --
- ---------------------------------------------------------------------------------------------------------------------
7.05% notes, due 2009 298 --
- ---------------------------------------------------------------------------------------------------------------------
7.4% notes, due 2019 199 --
- ---------------------------------------------------------------------------------------------------------------------
9.3% notes, due 1999 -- 123
- ---------------------------------------------------------------------------------------------------------------------
6 1/4% non-callable notes, due 2002 100 100
- ---------------------------------------------------------------------------------------------------------------------
6 7/8% non-callable debentures, due 2005 100 100
- ---------------------------------------------------------------------------------------------------------------------
6 1/2% notes, due 2007 150 150
- ---------------------------------------------------------------------------------------------------------------------
6 7/8% notes, due 2012 100 100
- ---------------------------------------------------------------------------------------------------------------------
7 3/8% notes, due 2016 149 149
- ---------------------------------------------------------------------------------------------------------------------
6 7/8% notes, due 2017 99 99
- ---------------------------------------------------------------------------------------------------------------------
9% non-callable debentures, due 2021 148 148
- ---------------------------------------------------------------------------------------------------------------------
ESOP notes/(1)/
Weighted average 8.5%
fixed-rate notes 51 56
-----------------------------------------------------------------------------------------------------------------
Variable-rate notes, weighted
average 5.4% at Dec. 31, 1999 77 83
- ---------------------------------------------------------------------------------------------------------------------
Various other debt, weighted
average 5.6% at Dec. 31, 1999 54 38
- ---------------------------------------------------------------------------------------------------------------------
Non-U.S. subsidiary borrowings
12.7% notes, maturing in 1999 -- 13
-----------------------------------------------------------------------------------------------------------------
Various other debt, weighted
average 4.8% at Dec. 31, 1999 34 53
- ---------------------------------------------------------------------------------------------------------------------
Capital lease obligations 10 34
- ---------------------------------------------------------------------------------------------------------------------
Total 1,868 1,246
- ---------------------------------------------------------------------------------------------------------------------
Less payments due within one year 32 165
- ---------------------------------------------------------------------------------------------------------------------
Long-term debt $1,836 $1,081
=====================================================================================================================
</TABLE>
(1) See Note 13 for discussion of ESOP borrowings. The fixed- and variable-
rate notes mature in 2009 and require annual principal payments from 2000
to 2008.
Aggregate maturities during the next five years are (in millions) $32 in 2000,
$30 in 2001, $134 in 2002, $26 in 2003 and $314 in 2004.
The Company has revolving credit agreements with credit lines totaling $1.2
billion. Of these credit lines, $800 million will expire in December 2001 and
requires payment of annual fees equal to seven basis points on the unused
portion of the lines. An additional $403 million of the Company's credit lines
will expire in October 2000 and requires payment of annual fees from 10 1/2 to
12 1/2 basis points on the unused portion of the lines. These lines support our
commercial paper programs in the United States, Europe and Canada. The remaining
$25 million of credit lines, relating to a subsidiary, will expire in October
2000 and requires payment of annual fees equal to 10 basis points on the unused
portion of the line. PPG may cancel all or part of these credit agreements at
any time without penalty or premium. At Dec. 31, 1999, we had used $20 million
of these lines of credit.
Our non-U.S. operations have other committed and uncommitted lines of credit
totaling $39 million and $315 million, respectively, of which $11 million and
$82 million, respectively, were used at Dec. 31, 1999. The committed lines of
credit, which expire between 2000 and 2001, do not require significant
commitment fees. The uncommitted lines of credit are subject to cancellation at
any time and are not subject to any commitment fees.
PPG is in compliance with the restrictive covenants under its various credit
agreements, loan agreements and indentures.
The Dec. 31, 1999 and 1998, balances for "Short-term debt and current portion
of long-term debt" include, respectively, $757 million and $147 million of
commercial paper and $165 million and $325 million of short-term notes. Of the
$757 million in commercial paper, $460 million relates to our euro-denominated
commercial paper program. The weighted-average interest rates of short-term
borrowings as of Dec. 31, 1999 and 1998, were 5.0% and 5.1%, respectively.
Interest payments in 1999, 1998 and 1997 totaled $123 million, $121 million
and $106 million, respectively.
Rental expense for operating leases was $92 million, $75 million and $70
million in 1999, 1998 and 1997, respectively. Minimum lease commitments for
operating leases that have initial or remaining lease terms in excess of one
year at Dec. 31, 1999, are (in millions) $55 in 2000, $43 in 2001, $33 in 2002,
$24 in 2003, $21 in 2004 and $101 thereafter.
6. Financial Instruments
Included in PPG's financial instrument portfolio are cash and cash equivalents,
Company-owned life insurance, derivative financial instruments and short- and
long-term debt instruments. The most significant instrument, long-term debt
(excluding capital lease obligations), had carrying and fair values totaling
$1,858 million and $1,794 million, respectively, at Dec. 31, 1999. The
corresponding amounts at Dec. 31, 1998, were $1,212 million and $1,317 million,
respectively. The fair values of the other instruments approximated their
carrying values, in the aggregate.
The fair values of the debt instruments were based upon quoted market prices
of the same or similar instruments or on the rates available to the Company for
instruments of the same remaining maturities.
36
<PAGE>
1999 Annual Report
Notes
7. Earnings Per Common Share
The earnings per common share calculations for the three years ended Dec. 31,
1999 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
(Millions, except per share amounts) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings per common share
- --------------------------------------------------------------------------------------------------------
Net income $ 568 $ 801 $ 714
-----------------------------------------------------------------------------------------------------
Weighted average com-
mon shares outstanding 173.8 177.0 179.8
-----------------------------------------------------------------------------------------------------
Earnings per common share $ 3.27 $ 4.52 $ 3.97
=========================================================================================================
Earnings per common share--
assuming dilution
Net income $ 568 $ 801 $ 714
-----------------------------------------------------------------------------------------------------
Weighted average com-
mon shares outstanding 173.8 177.0 179.8
-----------------------------------------------------------------------------------------------------
Effect of dilutive securities
Stock options 0.5 0.6 0.7
-------------------------------------------------------------------------------------------------
Other stock compen-
sation plans 1.2 1.1 1.0
-----------------------------------------------------------------------------------------------------
Potentially dilutive com-
mon shares 1.7 1.7 1.7
-----------------------------------------------------------------------------------------------------
Adjusted common
shares outstanding 175.5 178.7 181.5
- --------------------------------------------------------------------------------------------------------
Earnings per common
share--assuming dilution $ 3.23 $ 4.48 $ 3.94
========================================================================================================
</TABLE>
8. Income Taxes
The following is a reconciliation of the statutory U.S. corporate federal income
tax rate to the effective income tax rate.
<TABLE>
<CAPTION>
Percent of Pre-tax Income
- --------------------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. federal income tax rate 35.0% 35.0% 35.0%
- --------------------------------------------------------------------------------------------------------
Changes in rate due to:
State and local taxes--U.S. 1.9 3.2 3.2
-----------------------------------------------------------------------------------------------------
Taxes on non-U.S. earnings net of related tax credits 3.5 .9 .1
-----------------------------------------------------------------------------------------------------
Other (1.6) (3.1) (1.3)
- --------------------------------------------------------------------------------------------------------
Effective income tax rate 38.8% 36.0% 37.0%
========================================================================================================
</TABLE>
The following table gives details of income tax expense in the statement of
income. A portion of these taxes will be payable within one year and is
therefore shown below as "Current income taxes," while the balance is shown as
"Deferred income taxes."
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
(Millions) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current income taxes
U.S. federal $ 310 $ 308 $ 284
-----------------------------------------------------------------------------------------------------------------
Non-U.S. 87 97 93
-----------------------------------------------------------------------------------------------------------------
State and local--U.S. 28 60 58
- --------------------------------------------------------------------------------------------------------------------
Total current 425 465 435
====================================================================================================================
Deferred income taxes
U.S. federal (43) 6 2
-----------------------------------------------------------------------------------------------------------------
Non-U.S. (2) (6) (1)
-----------------------------------------------------------------------------------------------------------------
State and local--U.S. (3) 1 (1)
- --------------------------------------------------------------------------------------------------------------------
Total deferred (48) 1 --
- --------------------------------------------------------------------------------------------------------------------
Total $ 377 $ 466 $ 435
====================================================================================================================
</TABLE>
Net deferred income tax assets and liabilities as of Dec. 31, 1999 and 1998,
are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
(Millions) 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets related to
Employee benefits $ 333 $ 337
----------------------------------------------------------------------------------------------------------------
Environmental 32 36
----------------------------------------------------------------------------------------------------------------
Operating loss and other carryforwards 80 46
----------------------------------------------------------------------------------------------------------------
Inventories 35 32
----------------------------------------------------------------------------------------------------------------
Property 27 17
----------------------------------------------------------------------------------------------------------------
Restructuring 26 24
----------------------------------------------------------------------------------------------------------------
Intangibles 12 4
----------------------------------------------------------------------------------------------------------------
Other 42 24
----------------------------------------------------------------------------------------------------------------
Valuation allowance (46) (24)
- -------------------------------------------------------------------------------------------------------------------
Total 541 496
- -------------------------------------------------------------------------------------------------------------------
Deferred income tax liabilities related to
Property 406 461
----------------------------------------------------------------------------------------------------------------
Employee benefits 296 263
----------------------------------------------------------------------------------------------------------------
Intangibles 147 32
----------------------------------------------------------------------------------------------------------------
Other 38 29
- -------------------------------------------------------------------------------------------------------------------
Total 887 785
- -------------------------------------------------------------------------------------------------------------------
Deferred income tax
liabilities--net $ 346 $ 289
===================================================================================================================
</TABLE>
37
<PAGE>
PPG Industries
Notes
The non-deductibility of certain purchased in-process research and development
charges recorded by PPG in 1999 has resulted in an increase in the effective tax
rate.
Dispositions of certain non-U.S. subsidiaries in 1997 generated U.S. capital
losses of approximately $180 million. A portion of these losses was realized by
offsetting it against capital gains from previous years and a 1997 capital gain
from the sale of certain U.S. businesses. The remaining $88 million capital loss
carryforward was offset with a valuation allowance at Dec. 31, 1997, because
PPG's ability to realize the amount carried forward was uncertain. In July 1998,
PPG recognized a gain from the sale of its European flat and automotive glass
businesses, of which a considerable portion was capital, the tax on which was
offset by the capital loss carryforward. As a result of the realization of the
tax benefit from the capital loss carryforward, the valuation allowance that was
recorded in the prior year was reversed in 1998. This benefit from the
realization of the capital loss in both 1997 and 1998 reduced the effective tax
rate in each year.
At Dec. 31, 1999, subsidiaries of the Company had available net operating loss
(NOL) carryforwards of approximately $210 million for income tax purposes, of
which $167 million has an indefinite expiration. The remaining $43 million
expires between the years 2002 and 2010.
The majority of the NOL carryforwards relate to operations of subsidiaries in
countries permitting indefinite carryforward of losses. Generally, a valuation
allowance has been established for these carryforwards because the ability to
utilize them is uncertain.
Income before income taxes of our non-U.S. operations for 1999, 1998 and 1997
was $190 million, $273 million and $232 million, respectively.
No deferred U.S. income taxes have been provided on certain undistributed
earnings of non-U.S. subsidiaries, which amounted to $750 million at Dec. 31,
1999 and $681 million at Dec. 31, 1998. These earnings are considered to be
reinvested for an indefinite period of time or will be repatriated when it is
tax effective to do so. It is not practicable to determine the deferred tax
liability on these earnings.
The Internal Revenue Service has examined our U.S. federal income tax returns
through 1993, and we have paid all tax claims.
Income tax payments in 1999, 1998 and 1997 totaled $394 million, $385 million
and $452 million, respectively.
9. Pensions and Other Postretirement Benefits
We have noncontributory defined benefit pension plans that cover certain
employees worldwide. PPG also sponsors defined benefit plans that provide
medical and life insurance benefits for certain active and retired U.S. and
Canadian employees and dependents. The Company has the right to modify or
terminate certain of these defined benefit plans in the future. Salaried and
certain wage employees hired after Jan. 31, 1993, will not be entitled to
postretirement medical benefits. At Dec. 31, 1999 and 1998, the U.S. plans had
provisions that capped the cost of postretirement medical benefits at 2003
levels for certain current and future retirees covered by bargaining plans and
non-bargaining plans.
The following table sets forth the changes in benefit obligations, plan
assets, the funded status and the amounts recognized in our balance sheet for
our defined benefit pension and other postretirement benefit plans.
<TABLE>
<CAPTION>
Other
Postretirement
Pensions Benefits
- ---------------------------------------------------------------------------------------------------------------
(Millions) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Benefit obligation, Jan. 1 $2,201 $2,023 $ 729 $ 704
- ---------------------------------------------------------------------------------------------------------------
Service cost 48 41 8 8
- ---------------------------------------------------------------------------------------------------------------
Interest cost 140 137 45 48
- ---------------------------------------------------------------------------------------------------------------
Plan amendments 26 10 2 (2)
- ---------------------------------------------------------------------------------------------------------------
Actuarial (gains) losses (285) 116 (95) 22
- ---------------------------------------------------------------------------------------------------------------
Benefits paid (134) (130) (58) (50)
- ---------------------------------------------------------------------------------------------------------------
Businesses acquired 20 7 4 1
- ---------------------------------------------------------------------------------------------------------------
Businesses disposed -- (6) -- --
- ---------------------------------------------------------------------------------------------------------------
Foreign currency translation adjustments (10) -- 2 (2)
- ---------------------------------------------------------------------------------------------------------------
Special termination benefits and other 6 3 -- --
- ---------------------------------------------------------------------------------------------------------------
Benefit obligation, Dec. 31 $2,012 $2,201 $ 637 $ 729
===============================================================================================================
Fair value of plan assets, Jan. 1 $2,536 $2,308
- ----------------------------------------------------------------------------------------------
Actual return on plan assets 307 349
- ----------------------------------------------------------------------------------------------
Contributions 7 6
- ----------------------------------------------------------------------------------------------
Benefits paid (127) (121)
- ----------------------------------------------------------------------------------------------
Businesses acquired 17 2
- ----------------------------------------------------------------------------------------------
Plan expenses and other--net (4) (4)
- ----------------------------------------------------------------------------------------------
Foreign currency translation adjustments (6) (4)
- ----------------------------------------------------------------------------------------------
Fair value of plan
assets, Dec. 31 $2,730 $2,536
=============================================================================================
Funded status $ 718 $ 335 $(637) $(729)
- ---------------------------------------------------------------------------------------------------------------
Unrecognized actuarial (gains) losses (72) 246 19 116
- ---------------------------------------------------------------------------------------------------------------
Unrecognized prior service cost 84 71 13 18
- ---------------------------------------------------------------------------------------------------------------
Unrecognized transition asset (13) (19) -- --
- ---------------------------------------------------------------------------------------------------------------
Minimum pension liability (23) (56) -- --
- ---------------------------------------------------------------------------------------------------------------
Net prepaid (accrued)
benefit cost $ 694 $ 577 $(605) $(595)
===============================================================================================================
</TABLE>
38
<PAGE>
1999 Annual Report
Notes
The following summarizes the amounts recognized in the balance sheet:
<TABLE>
<CAPTION>
Other
Postretirement
Pensions Benefits
- ------------------------------------------------------------------------------------------------------------
(Millions) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prepaid benefit cost $ 817 $ 707 $ -- $ --
- ------------------------------------------------------------------------------------------------------------
Accrued benefit cost (123) (130) (605) (595)
- ------------------------------------------------------------------------------------------------------------
Net prepaid (accrued)
benefit cost $ 694 $ 577 $(605) $(595)
============================================================================================================
</TABLE>
The minimum pension liability impacted the following balance sheet captions:
<TABLE>
<CAPTION>
(Millions) 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Other assets $ 4 $ 7
- ---------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive loss $ 13 $ 31
- ---------------------------------------------------------------------------------------------------------------
Deferred income taxes $ 6 $ 18
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with benefit obligations in excess of
plan assets were $137 million, $116 million and $4 million, respectively, at
Dec. 31, 1999, and were $200 million, $178 million and $53 million,
respectively, at Dec. 31, 1998.
The accrued pension benefit cost reflected in the balance sheet includes $5
million, at Dec. 31, 1999 and 1998, for defined contribution plans.
Net periodic benefit (income) cost includes the following:
<TABLE>
<CAPTION>
Other
Postretirement
Pensions Benefits
- ----------------------------------------------------------------------------------------------------------------
(Millions) 1999 1998 1997 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 48 $ 41 $ 36 $ 8 $ 8 $ 7
- ----------------------------------------------------------------------------------------------------------------
Interest cost 140 137 134 45 48 48
- ----------------------------------------------------------------------------------------------------------------
Expected return on plan assets (271) (245) (212) -- -- --
- ----------------------------------------------------------------------------------------------------------------
Amortization of transition assets (5) (5) (5) -- -- --
- ----------------------------------------------------------------------------------------------------------------
Amortization of prior service cost 12 11 10 5 2 4
- ----------------------------------------------------------------------------------------------------------------
Amortization of actuarial losses 5 4 12 5 4 2
- ----------------------------------------------------------------------------------------------------------------
Net periodic
benefit (income) cost $ (71) $ (57) $ (25) $ 63 $ 62 $ 61
================================================================================================================
</TABLE>
In determining net periodic benefit (income) cost, unrecognized prior service
costs are amortized over periods ranging from six to 14 years.
The following weighted average assumptions were used to determine the benefit
obligations and net periodic benefit (income) cost for our defined benefit
pension and other postretirement benefit plans:
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate/(1)/ 7.8% 6.4% 7.0%
- ----------------------------------------------------------------------------------------------------
Expected return on assets/(2)/ 10.9% 10.9% 10.9%
- ----------------------------------------------------------------------------------------------------
Rate of compensation increase 4.1% 4.1% 4.6%
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) Net periodic benefit (income) cost is determined using the previous year's
discount rate.
(2) Applies only to defined benefit pension plans.
The weighted-average medical healthcare cost trend rate used was 6.0% for 1999
and 5.7% for 2000, declining ratably to 3.5% in the year 2007. If these trend
rates were increased or decreased by one percentage point per year, such
increases or decreases would have the following effects:
<TABLE>
<CAPTION>
One-Percentage Point
- ----------------------------------------------------------------------------------------------------------------------------
(Millions) Increase Decrease
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in the aggregate of service and interest cost components $ 2 $ (2)
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in the benefit obligation $21 $(32)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company also incurred costs for multi-employer pension plans of $1 million
in each of the years 1999, 1998 and 1997. Multi-employer healthcare costs
totaled $1 million in each of the years 1999, 1998 and 1997.
10. Commitments and Contingent Liabilities
PPG is involved in a number of lawsuits and claims, both actual and potential,
including some that it has asserted against others, in which substantial money
damages are sought. These lawsuits and claims relate to product liability,
contract, patent, environmental, antitrust and other matters arising out of the
conduct of PPG's business. The Company has been named in a number of antitrust
lawsuits alleging that PPG acted with competitors to fix prices and allocate
markets for certain glass products. These antitrust proceedings are in an early
stage. For over 30 years, the Company has been a defendant in lawsuits involving
claims alleging personal injury from exposure to asbestos. Aggregate settlements
by PPG to date have been immaterial. Over the past few years, the number of
asbestos-related claims against the Company, as well as numerous other
defendants, has increased. At Dec. 31, 1999, the Company was one of many
defendants in numerous asbestos-related lawsuits involving approximately 110,000
claims. In many of the cases, the plaintiffs allege that the Company should be
liable for injuries from products manufactured and distributed by Pittsburgh
Corning Corporation ("PC"). The Company and Corning Incorporated are each 50%
shareholders of PC. The Company believes it is not responsible for any injuries
caused by PC products and intends to defend against such claims. PPG has
successfully defended such claims in the past. In January 2000, for the first
time, a
39
<PAGE>
PPG Industries
Notes
trial court found PPG liable for injuries to five plaintiffs alleged to be
caused by PC products. The Company intends to appeal that verdict. Separately
from the claims against the Company described above, as a shareholder of PC, any
loss to the Company due to losses incurred by PC arising from asbestos-related
claims would not involve a cash payment and would be limited to the diminution
in value of the Company's investment in PC. If such a loss were to occur, it
would be approximately $34 million on an after-tax basis, based on the Company's
investment in PC as of Dec. 31, 1999. The Company and others are also defendants
in three cases involving claims alleging injury from exposure to lead. PPG
believes it has adequate insurance for the personal injury and property damage
claims against the Company described above. 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, asbestos and other
matters. Management believes that, in the aggregate, the outcome of all lawsuits
and claims involving PPG 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 Dec. 31, 1999 and
1998, PPG had reserves for environmental contingencies totaling $82 million and
$94 million, respectively. Pre-tax charges against income for environmental
remediation costs in 1999, 1998 and 1997 totaled $10 million, $10 million and
$34 million, respectively, and are included in "Other charges" in the statement
of income. Cash outlays related to such environmental remediation aggregated $22
million, $16 million and $25 million in 1999, 1998 and 1997, 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 the prior year end.
Such unreserved losses are reasonably possible but are not currently considered
to be probable of occurrence. 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 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.
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. 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.
11. Shareholders' Equity
A class of 10 million shares of preferred stock, without par value, is
authorized but unissued. Common stock has a par value of $1.66 2/3 per share;
600 million shares are authorized and 290,573,068 were issued at Dec. 31, 1999,
1998 and 1997. Shares outstanding at Dec. 31, 1999 and 1998, exclude unreleased
new ESOP shares (see Note 13).
PPG has a Shareholders' Rights Plan, under which each share of the Company's
outstanding common stock has an associated preferred share purchase right. The
rights are exercisable only under certain circumstances and allow holders of
such rights to purchase common stock of PPG or an acquiring company at a
discounted price, which would generally be 50% of the respective stocks' current
fair market value.
Treasury shares held at Dec. 31, 1999 and 1998, were 116,472,619 shares and
115,448,529 shares, respectively. Purchases of treasury stock totaled 1,452,600,
3,793,300 and 5,964,792 in 1999, 1998 and 1997, respectively. Issuances of
treasury stock totaled 428,510, 863,016 and 804,507 in 1999, 1998 and 1997,
respectively.
40
<PAGE>
1999 Annual Report
Notes
Per share cash dividends paid were $1.52 in 1999, $1.42 in 1998 and $1.33 in
1997.
12. Accumulated Other Comprehensive Loss
<TABLE>
<CAPTION>
Minimum Unrealized Accumulated
Currency Pension Losses on Other
Translation Liability Marketable Comprehensive
(Millions) Adjustment Adjustment Securities Loss
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, Jan. 1, 1997 $ (10) $(10) $-- $ (20)
- -------------------------------------------------------------------------------------------
Net change (126) (15) -- (141)
- -------------------------------------------------------------------------------------------
Balance, Dec. 31, 1997 (136) (25) -- (161)
- -------------------------------------------------------------------------------------------
Net change 14 (6) -- 8
- -------------------------------------------------------------------------------------------
Balance, Dec. 31, 1998 (122) (31) -- (153)
- -------------------------------------------------------------------------------------------
Net change (40) 18 (3) (25)
- -------------------------------------------------------------------------------------------
Balance, Dec. 31, 1999 $(162) $(13) $(3) $(178)
===========================================================================================
</TABLE>
Foreign currency translation adjustments exclude income tax expense (benefit)
given that the earnings of non-U.S. subsidiaries are deemed to be reinvested for
an indefinite period of time. The income tax expense (benefit) associated with
the minimum pension liability adjustment was $12 million in 1999 and $(3)
million in 1998.
13. Employee Stock Ownership Plan
Our employee stock ownership plan (ESOP) covers substantially all U. S.
employees. The Company makes matching contributions to the ESOP based upon
participants' savings, subject to certain limitations, the matching percentage
being based upon our return on average capital for the previous year. Prior to
1999, the matching percentage was based on the previous year's return on equity.
Compensation expense related to the ESOP for 1999, 1998 and 1997 totaled $18
million, $9 million and $11 million, respectively. Interest expense totaled $9
million, $10 million and $11 million for 1999, 1998 and 1997, respectively.
Dividends on PPG shares held by the ESOP, to service ESOP debt, totaled $40
million, $39 million and $39 million for 1999, 1998 and 1997, respectively. The
fair value of unreleased new ESOP shares was $7 million and $8 million at Dec.
31, 1999 and 1998, respectively. Shares held by the ESOP as of Dec. 31, 1999 and
1998, are as follows:
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------------------------------------
Old New Old New
Shares Shares Shares Shares
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allocated shares 8,640,224 2,833,480 8,085,473 2,382,576
- ------------------------------------------------------------------------------------------------------------------
Unreleased shares 4,760,110 112,183 5,314,861 134,943
- ------------------------------------------------------------------------------------------------------------------
Total 13,400,334 2,945,663 13,400,334 2,517,519
==================================================================================================================
</TABLE>
14. Other Earnings
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
(Millions) 1999 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 8 $ 12 $ 8
- -----------------------------------------------------------------------------------
Royalty income 26 18 25
- -----------------------------------------------------------------------------------
Shares of net earnings in
equity affiliates 28 30 10
- -----------------------------------------------------------------------------------
Gain on sale of businesses -- 85 59
- -----------------------------------------------------------------------------------
Other 62 91 60
- -----------------------------------------------------------------------------------
Total $ 124 $ 236 $ 162
===================================================================================
</TABLE>
PPG's share of undistributed earnings of equity affiliates was $122 million
and $106 million at Dec. 31, 1999 and 1998, respectively. Dividends received
from equity affiliates were $16 million, $16 million and $14 million in 1999,
1998 and 1997, respectively.
15. Stock Option Plans
Under PPG's stock option plan, certain employees of the Company have been
granted options to purchase shares of common stock at prices equal to the fair
market value of the shares on the date the option was granted. Options are
exercisable beginning from six to 12 months after granting and have a maximum
term of 10 years. Shares available for future grants were 7,234,550 and
8,808,178 at Dec. 31, 1999 and 1998, respectively.
On July 1, 1998, the Company granted to substantially all active employees of
the Company and its majority owned subsidiaries the option to purchase 100
shares of common stock at its then fair market value of $70 per share. Options
are exercisable beginning July 1, 2003 and expire on June 30, 2008. If the
Company's earnings per common share for the year ended Dec. 31, 2000 is $7.00 or
more, the options become exercisable beginning Jan. 31, 2001.
41
<PAGE>
PPG applies Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations in accounting for its stock-
based compensation. Accordingly, no compensation cost for PPG's stock option
plan has been recognized in the accompanying financial statements. Had
compensation cost been determined based upon the fair value at the grant date
for awards granted in 1999, 1998 and 1997 consistent with the methodology
prescribed in SFAS No. 123, "Accounting for Stock-Based Compensation," net
income and earnings per common share, assuming dilution, would have been reduced
by $26 million and $0.14 in 1999, $24 million and $0.13 in 1998 and $20 million
and $0.11 in 1997. The fair value of stock options is estimated at the grant
date using the Black-Scholes option pricing model with the following weighted
average assumptions.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 5.4% 5.4% 6.0%
- ---------------------------------------------------------------------------------------
Expected life of option in years 5.2 4.8 3.4
- ---------------------------------------------------------------------------------------
Expected dividend yield 2.6% 2.7% 2.8%
- ---------------------------------------------------------------------------------------
Expected volatility 22.2% 21.0% 21.0%
=======================================================================================
</TABLE>
The following table summarizes stock option activity under all plans for the
three years ended Dec. 31, 1999.
<TABLE>
<CAPTION>
Weighted
Number of average
shares exercise
subject to price
Stock option activity options per share
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding, Jan. 1, 1997 6,724,965 $41.92
- ---------------------------------------------------------------------------------------
Granted 3,177,322 56.91
------------------------------------------------------------------------------------
Exercised (2,474,445) 40.41
------------------------------------------------------------------------------------
Terminated (45,500) 51.90
- ---------------------------------------------------------------------------------------
Outstanding, Dec. 31, 1997 7,382,342 48.82
- ---------------------------------------------------------------------------------------
Granted 6,255,259 66.47
------------------------------------------------------------------------------------
Exercised (2,607,468) 47.29
------------------------------------------------------------------------------------
Terminated (269,103) 61.72
- ---------------------------------------------------------------------------------------
Outstanding, Dec. 31, 1998 10,761,030 59.13
- ---------------------------------------------------------------------------------------
Granted 3,117,845 57.40
------------------------------------------------------------------------------------
Exercised (1,711,732) 51.21
------------------------------------------------------------------------------------
Terminated (374,022) 66.58
- ---------------------------------------------------------------------------------------
Outstanding, Dec. 31, 1999 11,793,121 59.58
=======================================================================================
</TABLE>
The following table summarizes information about stock options outstanding and
exercisable at Dec. 31, 1999.
<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------- -------------------
Weighted Weighted Weighted
Range of average average average
exercise remaining exercise exercise
price Number contractual price Number price
per share of shares life (years) per share of shares per share
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$19.75-$33.00 368,637 2.28 $30.04 368,637 $30.04
- ---------------------------------------------------------------------------------------
$34.68-$49.37 1,221,521 5.05 43.71 1,221,521 43.71
- ---------------------------------------------------------------------------------------
$50.50-$63.00 5,567,213 7.09 57.12 3,606,632 59.22
- ---------------------------------------------------------------------------------------
$63.06-$76.31 4,635,750 6.68 69.08 1,761,688 68.00
- ---------------------------------------------------------------------------------------
11,793,121 6,958,478
========== =========
</TABLE>
At Dec. 31, 1998, options were exercisable for 5.7 million shares at a
weighted average exercise price of $52.83 per common share. The corresponding
amounts at Dec. 31, 1997, were 5.1 million and $45.06 per common share,
respectively.
16. Advertising Costs
Advertising costs are expensed as incurred and totaled $101 million, $93 million
and $88 million in 1999, 1998 and 1997, respectively.
17. Research and Development
<TABLE>
<CAPTION>
(Millions) 1999 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Research and development--total $ 301 $ 287 $ 266
- -------------------------------------------------------------------------------------
Less depreciation 17 16 16
- -------------------------------------------------------------------------------------
Research and development--net $ 284 $ 271 $ 250
=====================================================================================
</TABLE>
42
<PAGE>
1999 Annual Report
Notes
18. Quarterly Financial Information
(unaudited)
<TABLE>
<CAPTION>
Earnings
Per
Earnings Common
Net Gross Net Per Share--
Sales Profit Income Common Assuming
(Millions) (Millions) (Millions) Share Dilution
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 quarter ended
- -----------------------------------------------------------------------------------------------------------------------------
March 31/(1)/ $1,803 $ 700 $123 $ .71 $ .70
- -----------------------------------------------------------------------------------------------------------------------------
June 30 1,947 782 184 1.06 1.05
- -----------------------------------------------------------------------------------------------------------------------------
September 30/(2)/ 1,954 748 99 .57 .56
- -----------------------------------------------------------------------------------------------------------------------------
December 31/(3)/ 2,053 808 162 .93 .92
- -----------------------------------------------------------------------------------------------------------------------------
Total $7,757 $3,038 $568 $3.27 $3.23
=============================================================================================================================
1998 quarter ended
- -----------------------------------------------------------------------------------------------------------------------------
March 31 $1,913 $ 768 $192 $1.08 $1.07
- -----------------------------------------------------------------------------------------------------------------------------
June 30/(4)/ 2,004 818 199 1.13 1.11
- -----------------------------------------------------------------------------------------------------------------------------
September 30/(5)/ 1,804 722 248 1.40 1.39
- -----------------------------------------------------------------------------------------------------------------------------
December 31/(6)/ 1,789 726 162 .91 .91
- -----------------------------------------------------------------------------------------------------------------------------
Total $7,510 $3,034 $801 $4.52 $4.48
=============================================================================================================================
</TABLE>
(1) First-quarter 1999 earnings were reduced by a pre-tax charge of $24
million for disposal of a redundant European packaging coatings facility
and work force reductions.
(2) Third-quarter 1999 earnings were reduced by pre-tax charges of $40 million
for purchased in-process research and development, $19 million
representing the fair-market-value adjustment of acquired ICI and PRC-
DeSoto inventories that have been sold, $19 million of restructuring
charges related to cost reduction initiatives and the closure of a
coatings facility and $6 million related to the bankruptcy of a home-
center chain.
(3) Fourth-quarter 1999 earnings were reduced by pre-tax charges of $4 million
representing the fair-market-value adjustment of acquired ICI and PRC-
DeSoto inventories that have been sold, and $4 million related to cost
reduction initiatives in our coatings and glass businesses and increased
by a reversal of $5 million for previously established restructuring
reserves in our glass and coatings operations.
(4) Second-quarter 1998 earnings were reduced by a pre-tax charge of $15
million related to the divestiture of equity interests in two Asian float
glass plants and two Asian downstream fabrication facilities.
(5) Third-quarter 1998 earnings were increased by a pre-tax gain of $85
million related to the sale of the European flat and automotive glass
businesses and reduced by a pre-tax charge of $3 million related to cost
reduction initiatives in our glass businesses.
(6) Fourth-quarter 1998 earnings were reduced by a pre-tax charge of $16
million related to cost reduction initiatives principally in our glass and
coatings businesses and increased by a reversal of $3 million related to a
1997 restructuring reserve in our glass businesses.
19. Business Segment Information
Refer to pages 29 through 31 for information on our business segments for 1999,
1998 and 1997.
43
<PAGE>
PPG Industries
Eleven-Year Digest
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Income
Net sales 7,757 7,510 7,379 7,218 7,058 6,331 5,754 5,814 5,673 6,021 5,734
- -----------------------------------------------------------------------------------------------------------------------------------
Gross profit (%) 39.2 40.4 40.4 39.9 40.3 38.9 36.9 36.4 35.2 37.8 37.1
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 945 1,267 1,149 1,215 1,248 840 531 538 348 767 749
- -----------------------------------------------------------------------------------------------------------------------------------
Income taxes 377 466 435 471 480 325 236 218 147 292 284
- -----------------------------------------------------------------------------------------------------------------------------------
Income before
accounting changes 568 801 714 744 768 515 295 319 201 475 465
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative effect of accounting
changes/(1)/ -- -- -- -- -- -- (273) -- 75 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net income 568 801 714 744 768 515 22 319 276 475 465
- -----------------------------------------------------------------------------------------------------------------------------------
Return on average capital
(%)/(2)(3)/ 12.7 19.6 19.1 20.3 21.6 15.3 2.2/8.9 9.7 8.7/7.0 14.0 14.8
- -----------------------------------------------------------------------------------------------------------------------------------
Return on average equity (%)/(2)/ 19.3 29.4 28.8 29.5 28.8 20.1 .9/10.7 11.8 10.7/8.0 19.7 21.0
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings per common share
before accounting changes 3.27 4.52 3.97 3.96 3.80 2.43 1.39 1.51 .95 2.22 2.09
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative effect of accounting
changes on earnings per
common share -- -- -- -- -- -- (1.29) -- .35 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings per common share 3.27 4.52 3.97 3.96 3.80 2.43 .10 1.51 1.30 2.22 2.09
- -----------------------------------------------------------------------------------------------------------------------------------
Average number of common shares 173.8 177.0 179.8 187.8 202.0 211.9 212.6 212.2 212.4 214.4 222.6
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings per common share--
assuming dilution 3.23 4.48 3.94 3.93 3.78 2.42 .10 1.50 1.29 2.21 2.08
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends 264 252 239 237 239 238 221 200 183 176 165
- -----------------------------------------------------------------------------------------------------------------------------------
Per share 1.52 1.42 1.33 1.26 1.18 1.12 1.04 .94 .86 .82 .74
- -----------------------------------------------------------------------------------------------------------------------------------
Balance Sheet
Current assets 3,062 2,660 2,584 2,296 2,275 2,168 2,026 1,951 2,173 2,217 2,056
- -----------------------------------------------------------------------------------------------------------------------------------
Current liabilities 2,384 1,912 1,662 1,769 1,629 1,425 1,281 1,253 1,341 1,471 1,338
- -----------------------------------------------------------------------------------------------------------------------------------
Working capital 678 748 922 527 646 743 745 698 832 746 718
- -----------------------------------------------------------------------------------------------------------------------------------
Property (net) 2,933 2,905 2,855 2,913 2,835 2,742 2,787 2,972 3,183 3,255 3,007
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets 8,914 7,387 6,868 6,441 6,194 5,894 5,652 5,662 6,056 6,108 5,645
- -----------------------------------------------------------------------------------------------------------------------------------
Long-term debt 1,836 1,081 1,257 834 736 773 774 905 1,190 1,210 1,198
- -----------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 3,106 2,880 2,509 2,483 2,569 2,557 2,473 2,699 2,655 2,547 2,282
- -----------------------------------------------------------------------------------------------------------------------------------
Per share 17.86 16.46 14.11 13.57 13.23 12.35 11.57 12.71 12.50 12.01 10.49
- -----------------------------------------------------------------------------------------------------------------------------------
Other Data
Capital spending/(4)/ 1,833 877 829 489 454 356 293 283 335 567 671
- -----------------------------------------------------------------------------------------------------------------------------------
Depreciation expense 366 354 348 340 332 318 331 352 351 324 292
- -----------------------------------------------------------------------------------------------------------------------------------
Quoted market price
High 70 3/4 76 5/8 67 1/2 62 1/4 47 7/8 42 1/8 38 1/8 34 1/8 29 5/8 27 5/8 23
-------------------------------------------------------------------------------------------------------------------------------
Low 47 15/16 49 1/8 48 5/8 42 7/8 34 7/8 33 3/4 29 5/8 25 20 3/4 17 1/4 18 1/2
-------------------------------------------------------------------------------------------------------------------------------
Year-end 62 9/16 58 3/16 57 1/8 56 1/8 45 3/4 37 1/8 37 7/8 32 7/8 25 1/4 23 1/2 19 7/8
-------------------------------------------------------------------------------------------------------------------------------
Price/earnings ratio/(5)/
High 22 17 17 16 13 17 27 23 31 12 11
-------------------------------------------------------------------------------------------------------------------------------
Low 15 11 12 11 9 14 21 17 22 8 9
-------------------------------------------------------------------------------------------------------------------------------
Average number of employees 33,800 32,500 31,900 31,300 31,200 30,800 31,400 32,300 33,700 35,100 35,500
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
All amounts are in millions of dollars except per share data and number of
employees.
Data was adjusted, as appropriate, to reflect the two-for-one stock split
payable on June 10, 1994.
(1) The 1993 changes in methods of accounting relate to the adoption of SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions"; SFAS No. 109, "Accounting for Income Taxes," and SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." The 1991 change in
the method of accounting relates to the cost of rebuilding glass and fiber
glass melting facilities. The effect of all the changes on net income in
the years of change, exclusive of the cumulative effect to Jan. 1 of the
year of change and the pro forma effect on individual prior years' net
income, was not material.
(2) Return on average capital and return on average equity for 1993 and 1991
were calculated and presented inclusive and exclusive of the cumulative
effect of the accounting changes.
(3) Return on average capital is calculated using pre-interest, after-tax
earnings and average debt and equity during the year.
(4) Includes the cost of businesses acquired.
(5) Price/earnings ratios were calculated based on high and low market prices
during the year and the respective year's earnings per common share. The
1993 and 1991 ratios were calculated and presented exclusive of the
cumulative effect of the accounting changes.
44
<PAGE>
PPG Shareholder Information
World Headquarters
One PPG Place
Pittsburgh, PA 15272, U.S.A.
Phone (412) 434-3131
Internet: www.ppg.com
Annual Meeting
Thursday, April 20, 2000, 11:00 A.M.
Sheraton Hotel
Station Square
Pittsburgh, PA 15219
Transfer Agent & Registrar
ChaseMellon Shareholder Services, LLC
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
PPG-dedicated phone 1-800-648-8160
Internet inquiries: www.chasemellon.com
Shareholders with specific questions regarding dividend checks, transfer or
replacement of stock certificates or dividend tax information should contact
ChaseMellon Shareholder Services -- the dividend paying agent, dividend
reinvestment agent, transfer agent and registrar for PPG at the above address.
Toll-Free Quarterly Financial Results
Shareholders may dial the toll-free number 1-888-NEWS-PPG (1-888-639-7774) at
any time, 24 hours a day, to hear quarterly financial results. By dialing this
number, shareholders also may request copies of financial news releases via fax,
electronic mail or conventional mail.
Publications Available to Shareholders
Copies of the following publications will be furnished without charge upon
written request to Corporate Communications, 7W, PPG Industries, One PPG Place,
Pittsburgh, PA 15272.
Form 10-K -- the Company's Annual Report filed with the Securities and Exchange
Commission.
PPG Industries Blueprint -- a booklet summarizing PPG's mission, values,
strategy and goals.
PPG's Global Code of Ethics -- an employee guide to corporate conduct policies,
including those concerning personal conduct, relationships with customers,
suppliers and competitors, protection of corporate assets, responsibilities to
the public, and PPG as a global organization.
PPG's Environment, Health and Safety Policy -- a brochure describing the
Company's commitment, worldwide, to manufacturing, selling and distributing
products in a manner that is safe and healthful for its employees, neighbors and
customers, and that protects the environment.
PPG's Environment, Health and Safety Progress Report -- a report of progress
during the year with respect to the Company's environment, health and safety
commitment.
PPG's Responsible Care Commitment -- a brochure outlining the Company's
voluntary activities under the Responsible Care initiative of the Chemical
Manufacturers Association for safe and ethical management of chemicals.
Dividend Information
PPG has paid uninterrupted dividends since 1899. The latest quarterly dividend
of 40 cents per share, voted by the board of directors on Jan. 20, 2000, results
in an annual dividend rate of $1.60 per share.
Stock Exchange Listings
PPG common stock is traded on the New York, Pacific and Philadelphia stock
exchanges (symbol: PPG).
Direct Purchase Plan with Dividend Reinvestment Option
The Direct Purchase Plan with Dividend Reinvestment Option is offered as a
service and convenience to shareholders. It allows purchase of shares of PPG
stock directly through the plan, as well as dividend reinvestment and
safekeeping of PPG stock certificates.
Shareholders may also have their dividends deposited directly into their bank
accounts.
For more information regarding the plan, call 1-800-648-8160.
Investor Relations
General information about PPG common stock may be obtained from Douglas B.
Atkinson, Director of Investor Relations. Phone (412) 434-3312, or write
Director of Investor Relations, 40E, PPG Industries, One PPG Place, Pittsburgh,
PA 15272.
Quarterly Stock Market Price
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------------------
Quarter Ended High Low Close High Low Close
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
March 31 $64 3/4 $49 3/8 $ 51 1/4 $68 9/16 $52 3/4 $67 15/16
- -----------------------------------------------------------------------------------------------------------
June 30 70 3/4 47 15/16 59 1/16 76 5/8 63 5/8 69 9/16
- -----------------------------------------------------------------------------------------------------------
Sept. 30 67 57 60 70 5/8 49 1/8 54 9/16
- -----------------------------------------------------------------------------------------------------------
Dec. 31 63 55 1/2 62 9/16 63 3/8 51 3/4 58 3/16
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The number of holders of record of PPG common stock as of Jan. 31, 2000, was
31,595, as shown on the records of the Company's transfer agent.
aDividends
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------------------
Month of Payment Amount Per Amount Per
(Millions) Share (Millions) Share
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March $ 66 $ .38 $ 60 $ .34
- -----------------------------------------------------------------------------------------------------------
June 66 .38 64 .36
- -----------------------------------------------------------------------------------------------------------
September 66 .38 64 .36
- -----------------------------------------------------------------------------------------------------------
December 66 .38 64 .36
- -----------------------------------------------------------------------------------------------------------
Total $264 $1.52 $252 $1.42
===========================================================================================================
</TABLE>
45
<PAGE>
Exhibit 21
PPG INDUSTRIES, INC.
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
SUBSIDIARIES OF THE REGISTRANT
The Registrant is PPG Industries, Inc. There are no subsidiaries for which
separate financial statements are filed or included in group financial
statements filed for unconsolidated subsidiaries. Material subsidiaries
included in the 1999 consolidated financial statements of the Company are:
Percentage of
Domestic: Voting Power
------------
PPG Architectural Finishes, Inc. - Delaware............. 100.00%
PPG Industries Fiber Glass Products, Inc - Delaware..... 100.00
PPG Industries International, Inc.- Delaware............ 100.00
PPG Industries Ohio, Inc. - Delaware.................... 100.00
PPG Industries Securities, Inc. - Delaware.............. 100.00
PRC-DeSoto International, Inc. - California............. 100.00
Transitions Optical, Inc. - Delaware.................... 51.00
Canadian:
PPG Canada Inc. - Canada................................ 100.00
PRC-Desoto Canada, Inc. - Canada........................ 100.00
European:
Gonfreville Coatings S.A. - France...................... 100.00
PPG(Austria)Handels GmbH - Austria...................... 100.00
PPG Coatings B.V. - The Netherlands..................... 100.00
PPG Holdings (U.K.) Limited - United Kingdom............ 100.00
PPG Holdings B.V. - The Netherlands..................... 100.00
PPG Holdings SARL - France.............................. 100.00
PPG Iberica S.A. - Spain................................ 60.00
PPG Industries Belgium SANV - Belgium................... 100.00
PPG Industries Chemicals B.V. - The Netherlands......... 100.00
PPG Industries Fiber Glass B.V. - The Netherlands....... 100.00
PPG Industries France - France.......................... 100.00
PPG Industries Italia S.r.l. - Italy.................... 100.00
PPG Industries Lacke GmbH - Germany..................... 100.00
PPG Industries Lackfabrik GmbH - Germany................ 100.00
PPG Industries (U. K.) Limited - England................ 100.00
PPG Industries Packaging Coatings S.A.S. - France....... 100.00
PPG Refinish France S.A.S. - France..................... 100.00
PPG Sipsy S.C.A. - France............................... 100.00
Transitions Optical Holdings B.V. - The Netherlands..... 51.00
Transitions Optical Limited - Ireland .................. 51.00
Subsidiaries in other areas:
American Finishes Limitada(Brazil) - Brazil............. 100.00
PPG Coatings(Hong Kong) Co. Ltd. - Hong Kong............ 60.00
PPG Coatings(Malaysia)Sdn.Bhd. - Malaysia............... 100.00
PPG-Feng Tai Company, Limited - Hong Kong............... 55.00
PPG Industrial Do Brasil Limitada - Brazil.............. 100.00
PPG Japan Ltd.- Japan................................... 100.00
PPG Industries Argentina S.A. - Argentina............... 100.00
<PAGE>
PPG Industries Australia PTY Limited - Australia........ 100.00
PPG Industries de Mexico, S.A. de C.V. - Mexico......... 100.00
PPG Industries New Zealand Limited - New Zealand........ 100.00
Taiwan Chlorine Industries Ltd. - Taiwan................ 60.00
Transitions Optical Philippines, Inc. - Philippines..... 51.00
Partnerships:
Glass Plaza Associates - Pennsylvania................... 100.00
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Post-effective Amendment No. 1
to Registration Statement No. 2-62328 on Form S-3, in Registration Statement
Nos. 333-44397 and 333-83019 on Form S-3 and in Registration Statement Nos. 33-
23350, 33-50400, 33-13605 and 33-64077 on Form S-8 of our reports dated January
20, 2000, appearing in and incorporated by reference in this Annual Report on
Form 10-K of PPG Industries, Inc. for the year ended December 31, 1999.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
February 18, 2000
<PAGE>
Exhibit 24
PPG INDUSTRIES, INC.
POWER OF ATTORNEY
-----------------
(10-K)
I, Thomas J. Usher, a Director of PPG Industries, Inc. (the "Corporation"),
a Pennsylvania corporation, hereby constitute and appoint R. W. LeBoeuf, W. H.
Hernandez and M. C. Hanzel, or any of them, my true and lawful attorneys or
attorneys-in-fact, with full power of substitution and revocation, to sign, in
my name and on my behalf as a Director of the Corporation, the Corporation's
Form 10-K for the fiscal year ended December 31, 1999, to be filed with the
Securities and Exchange Commission, Washington, DC.
WITNESS my hand this 17th day of February 2000.
/s/ Thomas J. Usher
-------------------
<PAGE>
PPG INDUSTRIES, INC.
POWER OF ATTORNEY
-----------------
(10-K)
I, Allen J. Krowe, a Director of PPG Industries, Inc. (the "Corporation"),
a Pennsylvania corporation, hereby constitute and appoint R. W. LeBoeuf, W. H.
Hernandez and M. C. Hanzel, or any of them, my true and lawful attorneys or
attorneys-in-fact, with full power of substitution and revocation, to sign, in
my name and on my behalf as a Director of the Corporation, the Corporation's
Form 10-K for the fiscal year ended December 31, 1999, to be filed with the
Securities and Exchange Commission, Washington, DC.
WITNESS my hand this 17th day of February 2000.
/s/ Allen J. Krowe
------------------
<PAGE>
PPG INDUSTRIES, INC.
POWER OF ATTORNEY
-----------------
(10-K)
I, Robert Mehrabian, a Director of PPG Industries, Inc. (the
"Corporation"), a Pennsylvania corporation, hereby constitute and appoint R. W.
LeBoeuf, W. H. Hernandez and M. C. Hanzel, or any of them, my true and lawful
attorneys or attorneys-in-fact, with full power of substitution and revocation,
to sign, in my name and on my behalf as a Director of the Corporation, the
Corporation's Form 10-K for the fiscal year ended December 31, 1999, to be filed
with the Securities and Exchange Commission, Washington, DC.
WITNESS my hand this 17th day of February 2000.
/s/ Robert Mehrabian
--------------------
<PAGE>
PPG INDUSTRIES, INC.
POWER OF ATTORNEY
-----------------
(10-K)
I, David G. Vice, a Director of PPG Industries, Inc. (the "Corporation"), a
Pennsylvania corporation, hereby constitute and appoint R. W. LeBoeuf, W. H.
Hernandez and M. C. Hanzel, or any of them, my true and lawful attorneys or
attorneys-in-fact, with full power of substitution and revocation, to sign, in
my name and on my behalf as a Director of the Corporation, the Corporation's
Form 10-K for the fiscal year ended December 31, 1999, to be filed with the
Securities and Exchange Commission, Washington, DC.
WITNESS my hand this 17th day of February 2000.
/s/ David G. Vice
-----------------
<PAGE>
PPG INDUSTRIES, INC.
POWER OF ATTORNEY
-----------------
(10-K)
I, David R. Whitwam, a Director of PPG Industries, Inc. (the
"Corporation"), a Pennsylvania corporation, hereby constitute and appoint R. W.
LeBoeuf, W. H. Hernandez and M. C. Hanzel, or any of them, my true and lawful
attorneys or attorneys-in-fact, with full power of substitution and revocation,
to sign, in my name and on my behalf as a Director of the Corporation, the
Corporation's Form 10-K for the fiscal year ended December 31, 1999, to be filed
with the Securities and Exchange Commission, Washington, DC.
WITNESS my hand this 17th day of February 2000.
/s/ David R. Whitwam
--------------------
<PAGE>
PPG INDUSTRIES, INC.
POWER OF ATTORNEY
-----------------
(10-K)
I, Erroll B. Davis, Jr., a Director of PPG Industries, Inc. (the
"Corporation"), a Pennsylvania corporation, hereby constitute and appoint R. W.
LeBoeuf, W. H. Hernandez and M. C. Hanzel, or any of them, my true and lawful
attorneys or attorneys-in-fact, with full power of substitution and revocation,
to sign, in my name and on my behalf as a Director of the Corporation, the
Corporation's Form 10-K for the fiscal year ended December 31, 1999, to be filed
with the Securities and Exchange Commission, Washington, DC.
WITNESS my hand this 17th day of February 2000.
/s/ Erroll B. Davis, Jr.
------------------------
<PAGE>
PPG INDUSTRIES, INC.
POWER OF ATTORNEY
-----------------
(10-K)
I, Michele J. Hooper, a Director of PPG Industries, Inc. (the
"Corporation"), a Pennsylvania corporation, hereby constitute and appoint R. W.
LeBoeuf, W. H. Hernandez and M. C. Hanzel, or any of them, my true and lawful
attorneys or attorneys-in-fact, with full power of substitution and revocation,
to sign, in my name and on my behalf as a Director of the Corporation, the
Corporation's Form 10-K for the fiscal year ended December 31, 1999, to be filed
with the Securities and Exchange Commission, Washington, DC.
WITNESS my hand this 17th day of February 2000.
/s/ Michele J. Hooper
---------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PPG
INDUSTRIES, INC. DECEMBER 31, 1999 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 158
<SECURITIES> 0
<RECEIVABLES> 1,489
<ALLOWANCES> 26
<INVENTORY> 1,016
<CURRENT-ASSETS> 3,062
<PP&E> 6,859
<DEPRECIATION> 3,926
<TOTAL-ASSETS> 8,914
<CURRENT-LIABILITIES> 2,384
<BONDS> 1,836
0
0
<COMMON> 484
<OTHER-SE> 2,622
<TOTAL-LIABILITY-AND-EQUITY> 8,914
<SALES> 7,757
<TOTAL-REVENUES> 7,757
<CGS> 4,719
<TOTAL-COSTS> 4,719
<OTHER-EXPENSES> 826
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 133
<INCOME-PRETAX> 973
<INCOME-TAX> 377
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 568
<EPS-BASIC> 3.27
<EPS-DILUTED> 3.23
</TABLE>
