-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, eKoXNCVrlewtSsyz0HqjKLwSdi/HX2coA8TlVsdXkc9c8CnnvcVCCPNV/OncMIuf B3fLAVwdpd4Dn1EEIHKUNA== 0000079879-94-000020.txt : 19941103 0000079879-94-000020.hdr.sgml : 19941103 ACCESSION NUMBER: 0000079879-94-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941101 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PPG INDUSTRIES INC CENTRAL INDEX KEY: 0000079879 STANDARD INDUSTRIAL CLASSIFICATION: 2851 IRS NUMBER: 250730780 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-01687 FILM NUMBER: 94557179 BUSINESS ADDRESS: STREET 1: ONE PPG PL 9 WEST STREET 2: CAROLYN A IHRIG CITY: PITTSBURGH STATE: PA ZIP: 15272 BUSINESS PHONE: 4124343131 MAIL ADDRESS: STREET 1: ONE PPG PLACE CITY: PITTSBURGH STATE: PA ZIP: 15272 FORMER COMPANY: FORMER CONFORMED NAME: PITTSBURGH PLATE GLASS CO DATE OF NAME CHANGE: 19681219 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended September 30, 1994 Commission File Number 1-1687 PPG INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Pennsylvania 25-0730780 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One PPG Place, Pittsburgh, Pennsylvania 15272 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (412) 434-3131 As of October 27, 1994, 212,755,505 shares of the Registrant's common stock, par value $1.66-2/3 per share, were outstanding. Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No PPG INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES ============================= Index Part I. Financial Information Page(s) Item 1. Financial Statements: Condensed Statement of Operations................................ 2 - 3 Condensed Balance Sheet.......................................... 4 Condensed Statement of Cash Flows................................ 5 Notes to Condensed Financial Statements.......................... 6 - 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 11 - 18 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K.......................... 19 Signature............................................................ 20 - 1 - Part I. FINANCIAL INFORMATION Item 1. Financial Statements PPG INDUSTRIES, INC. AND SUBSIDIARIES Condensed Statement of Operations (Unaudited)
Three Months Nine Months Ended September 30 Ended September 30 1994 1993 1994 1993 (Millions) Net sales..................... $1,575.3 $1,405.4 $4,671.5 $4,375.7 Cost of sales................. 962.1 884.9 2,861.8 2,764.7 Gross profit................ 613.2 520.5 1,809.7 1,611.0 Other expenses: Selling, general and administrative............ 225.7 216.2 665.2 657.1 Depreciation................ 78.6 82.2 236.1 250.8 Research and development.... 55.7 49.8 159.1 150.8 Interest.................... 21.8 24.5 66.0 77.9 Other charges............... 29.1 26.7 72.7 62.8 Business divestitures and realignments (Note 4). -- 87.0 85.0 88.4 Total other expenses.......... 410.9 486.4 1,284.1 1,287.8 Other earnings................ 34.4 26.3 81.9 108.6 Income before income taxes and minority interest....... 236.7 60.4 607.5 431.8 Income taxes.................. 86.2 30.8 230.9 179.3 Minority interest............. 5.0 4.8 13.0 11.4 Income before cumulative effect of accounting changes..................... 145.5 24.8 363.6 241.1 Cumulative effect of accounting changes (Note 2): Other postretirement and postemployment bene- fits, net of income taxes of $231.9 million. -- -- -- (363.2) Income taxes.............. -- -- -- 90.4 Net income (loss)............. $ 145.5 $ 24.8 $ 363.6 $ (31.7)
- 2 - PPG INDUSTRIES, INC. AND SUBSIDIARIES Condensed Statement of Operations (Unaudited) (Continued)
Three Months Six Months Ended September 30 Ended September 30 1994 1993 1994 1993 Earnings (loss) per share: Income before cumulative effect of accounting changes................... $ 0.68 $ 0.12 $ 1.71 $ 1.14 Cumulative effect of accounting changes: Other postretirement and postemployment benefits.............. -- -- -- (1.71) Income taxes............ -- -- -- 0.42 Earnings (loss) per share... $ 0.68 $ 0.12 $ 1.71 $ (0.15) Dividends per share (after giving retroactive effect to 100% stock distribution, Note 6)..................... $ 0.28 $ 0.27 $ 0.83 $ 0.77 Average shares outstanding (after giving retroactive effect to 100% stock distribution, in millions, Note 6)..................... 212.5 212.2 212.7 212.3
The accompanying notes to condensed financial statements are an integral part of this statement. - 3 - PPG INDUSTRIES, INC. AND SUBSIDIARIES Condensed Balance Sheet (Unaudited)
September 30 December 31 1994 1993 (Millions) Assets Current assets: Cash and cash equivalents................... $ 165.7 $ 111.9 Receivables-net............................. 1,229.2 996.7 Inventories (Note 3)........................ 686.8 683.3 Other....................................... 233.9 234.0 Total current assets...................... 2,315.6 2,025.9 Property (less accumulated depreciation of $3,409.5 million and $3,254.6 million)...... 2,718.9 2,787.3 Investments................................... 285.3 264.5 Other assets.................................. 546.7 573.8 Total..................................... $5,866.5 $5,651.5 Liabilities and Shareholders' Equity Current liabilities: Short-term borrowings and obligations under capital leases...................... $ 300.7 $ 355.1 Accounts payable and accrued liabilities.... 971.5 921.2 Income taxes................................ 17.5 4.7 Total current liabilities................. 1,289.7 1,281.0 Long-term debt and obligations under capital leases.............................. 767.7 774.0 Deferred income taxes......................... 280.3 268.6 Accumulated provisions........................ 265.6 282.5 Other postretirement benefits (Note 2)........ 508.2 520.4 Minority interest............................. 65.1 51.9 Total liabilities......................... 3,176.6 3,178.4 Shareholders' equity: Common stock (Note 6)....................... 484.3 242.1 Additional paid-in capital (Note 6)......... 65.9 297.5 Retained earnings........................... 3,626.5 3,436.8 Treasury stock.............................. (1,279.9) (1,224.7) Unearned compensation....................... (178.7) (182.5) Minimum pension liability adjustment........ (25.9) (36.1) Currency translation adjustment............. (2.3) (60.0) Total shareholders' equity................ 2,689.9 2,473.1 Total..................................... $5,866.5 $5,651.5 The accompanying notes to condensed financial statements are an integral part of this statement. - 4 - PPG INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Statement of Cash Flows (Unaudited)
Nine Months Ended Sept. 30 1994 1993 (Millions) Cash from operations......................... $ 503.0 $ 467.8 Investing activities: Capital spending.......................... (224.0) (220.8) Other..................................... 83.3 40.8 Cash used for investing activities... (140.7) (180.0) Financing activities: Net change in borrowings with maturities of three months or less...... (74.4) 71.5 Proceeds from other short-term debt....... 31.0 6.6 Repayment of other short-term debt........ (23.9) (9.4) Proceeds from long-term debt.............. 10.3 8.0 Repayment of long-term debt and capital leases.................................. (28.7) (193.4) Loans to employee stock ownership plan.... (11.0) -- Repayment of loans by employee stock ownership plan.......................... 14.8 16.6 Purchase of treasury stock, net........... (53.0) (23.8) Dividends paid............................ (176.4) (163.5) Cash used by financing activities............... (311.3) (287.4) Effect of currency exchange rate changes on cash and cash equivalents............... 2.8 (.5) Net increase (decrease) in cash and cash equivalents....................... 53.8 (.1) Cash and cash equivalents, beginning of period........................ 111.9 61.4 Cash and cash equivalents, end of period.............................. $ 165.7 $ 61.3
The accompanying notes to condensed financial statements are an integral part of this statement. - 5 - PPG INDUSTRIES, INC. AND SUBSIDIARIES Notes to Condensed Financial Statements (Unaudited) 1. Financial Statements The condensed financial statements included herein are unaudited. In the opinion of management, these statements include all adjustments, consisting only of normal, recurring adjustments, necessary for a fair presentation of the financial position of PPG Industries, Inc. and consolidated subsidiaries (the Company or PPG) at September 30, 1994, and the results of their operations for the three- and nine-month periods ended September 30, 1994 and 1993 and their cash flows for the nine-month periods ended September 30, 1994 and 1993. These condensed financial statements should be read in conjunction with the financial statements and notes thereto included in PPG's Annual Report on Form 10-K for the year ended December 31, 1993. The results of operations for the nine months ended September 30, 1994 are not necessarily indicative of the results to be expected for the full year. 2. Changes in Methods of Accounting Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This standard requires accrual, during the years that the employee renders the necessary services, of the expected cost of providing postretirement benefits to an employee and the employee's covered dependents. The Company's previous practice was to recognize these costs as benefits were paid. PPG elected to recognize immediately the cumulative effect of this accounting change, which resulted in an after-tax charge of $357.1 million (including $6.4 million for an equity affiliate) in 1993. The incremental after-tax impact of accruing the cost of these postretirement benefits for 1993 was not material. The Company also adopted SFAS No. 109, "Accounting for Income Taxes," effective January 1, 1993. This standard requires an asset and liability approach to accounting for income taxes. Deferred income tax liabilities and assets reflect the tax effects of (1) temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and (2) operating loss and tax credit carryforwards. Deferred income tax assets, such as benefits related to net operating loss carryforwards, are recognized to the extent that realization of such benefits is more likely than not. Changes in enacted tax rates or laws result in adjustments to the recorded deferred income tax assets and liabilities in the period that the tax law is enacted. - 6 - The $90.4 million cumulative effect of this accounting change as of January 1, 1993 was credited to income in 1993. The effect of the accounting change on 1993 net income, exclusive of the cumulative effect as of January 1, 1993, was not material. Previously, the Company applied the deferral method specified in Accounting Principles Board Opinion No. 11 to provide for deferred income taxes with respect to timing differences between the recognition of income and expense items for financial reporting purposes and income tax purposes. Effective January 1, 1993, the Company also adopted the provisions of SFAS No. 112, "Employers' Accounting for Postemployment Benefits." This standard requires an accrual method of recognizing the cost of postemployment benefits, such as disability, severance and workers' compensation benefits. Since the Company previously accounted for most of these benefits on an accrual basis, the cumulative after-tax charge as of January 1, 1993, of the accounting change was only $6.1 million. The incremental after-tax impact of accruing the cost of these benefits for 1993 was not material. 3. Inventories Inventories at September 30, 1994, and December 31, 1993, are detailed below.
Sept. 30 Dec. 31 1994 1993 (Millions) Finished products and work in process............ $455.6 $451.8 Raw materials.................................... 117.0 117.5 Supplies......................................... 114.2 114.0 Total.......................................... $686.8 $683.3
Most domestic and certain foreign inventories are valued using the last- in, first-out method. If the first-in, first-out method had been used, inventories would have been $206.7 million and $210.1 million higher at September 30, 1994 and December 31, 1993, respectively. 4. Business Divestitures and Realignments PPG's 1994 and 1993 results reflect the impact of the Company's continuing programs to divest or realign businesses and activities not meeting strategic or performance objectives. The related charge for the current year as shown in the condensed statement of operations pertains to the divestiture of the Biomedical Systems Division. The charges for the prior year mainly involve further streamlining in our glass segment, including costs associated with selected plant closings, permanent shut- downs of inactive facilities and disposition of a commercial construction fabrication operation. The charges also include costs for - 7 - streamlining our European coatings and resins segment operations. Refer to Note 7, Business Segment Information, and Management's Discussion and Analysis of Financial Condition and Results of Operations for further details regarding these charges. 5. Cash Flow Information Cash payments for interest for the nine months ended September 30, 1994 and 1993 were $63.7 million and $78.3 million, respectively. Cash payments for income taxes for the nine months ended September 30, 1994 and 1993 were $217.4 million and $196.9 million, respectively. 6. Stock Split On April 21, 1994, the Board of Directors approved a two-for-one stock split in the form of a 100% stock distribution. The distribution was made on June 10, 1994, to shareholders of record as of May 10, 1994. Share and per share data have given retroactive effect to the stock split. 7. Business Segment Information
Three Months Nine Months Ended September 30 Ended September 30 1994 1993 1994 1993 (Millions) Net Sales Coatings and Resins $ 640 $ 547 $1,956 $1,735 Glass 594 521 1,779 1,647 Chemicals 342 296 937 869 Other -- 42 -- 125 Total $1,576 $1,406 $4,672 $4,376
- 8 - 7. Business Segment Information (Continued)
Three Months Nine Months Ended September 30 Ended September 30 1994 1993 1994 1993 (Millions) Operating Income (Loss)(1) Coatings and Resins $ 109 $ 90 $ 376 $ 310 Glass 74 (31) 243 80 Chemicals 68 27 139 108 Other (1) 2 (3) (79) (12) Total operating income 253 83 679 486 Interest - net (19) (21) (59) (68) Other unallocated corporate (expense) income - net 3 (1) (12) 14 Income before income taxes and minority interest $ 237 $ 61 $ 608 $ 432
[FN] (1) Includes charges related to business divestitures and realignments, as follows:
Three Months Nine Months Ended Sept. 30 Ended Sept. 30 1994 1993 1994 1993 (Millions) Coatings and Resins $ -- $ 4 $ -- $ 5 Glass -- 78 -- 78 Chemicals -- 5 -- 5 Other -- -- 85 -- Total $ -- $ 87 $ 85 $ 88
- 9 - 8. Environmental Matters Management of the Company currently does not anticipate that the resolution of the environmental contingencies detailed below, which will occur over an extended period of time, will result in the Company recording future annual charges to income that are significantly greater than those recorded in recent years. It is possible, however, that technological, regulatory and enforcement developments, the results of environmental studies and other factors, could alter this expectation. In management's opinion, the Company operates in an environmentally sound manner and the outcome of these environmental matters will not have a material effect on PPG's financial position or liquidity. To date, compliance with Federal, state and local requirements has not had a material impact on PPG's financial position, results of operations or liquidity. It is PPG's policy to accrue expenses for environmental contingencies when it is probable that a liability exists and the amount of loss can be reasonably estimated. As of September 30, 1994 and December 31, 1993, PPG had environmental reserves totaling $88 million and $90 million, respectively. Charges against income for environmental remediation costs for the nine month periods ended September 30, 1994 and 1993 were $25 million and $23 million, respectively. In addition to the amounts accrued, the Company may be subject to contingencies related to environmental matters estimated at the high end to be as much as $200 million to $400 million. Such aggregate losses are reasonably possible but not currently considered to be probable of occurrence. These contingencies include significant unresolved issues including the nature and extent of contamination, if any, at sites and the methods that may have to be employed should remediation be required. At certain waste sites, the financial condition of any other potentially responsible parties also contributes to the uncertainty of estimating PPG's final costs. Although contributors of waste to sites involving other potentially responsible parties may face governmental agency assertions of joint and several liability, in general, final allocations of costs are made based on the relative contributions of wastes to such sites. PPG is generally not a major contributor to such sites. The extent to which costs incurred are recoverable from insurance companies is also a factor in determining PPG's ultimate cost. Although the unrecorded exposure to future loss relates to all sites, a significant portion of such unrecorded exposure involves three operating plant sites and one closed plant site. Two of the sites are in the early stages of study while the remaining two are further into the study phase. All four sites require further study in order to assess the magnitude of contamination, if any, and the viable remediation alternatives. It is expected that the Company's environmental contingencies will be resolved over a period of 20 years or more. - 10 - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Performance in the Third Quarter of 1994 Compared to the Third Quarter of 1993 Performance Overview Sales for the third quarter of 1994 and 1993 were $1.58 billion and $1.41 billion, respectively. Higher volumes in each of the business segments, including sales from the January 1994 acquisition of Akzo's European original equipment auto coatings business, more than offset the absence of sales in 1994 from the Biomedicals Systems Division and glass businesses which have been substantially divested or discontinued. Higher commodity chemical prices also contributed to the sales increase. The gross profit percentage increased to 38.9% from 37.0% in the prior year's quarter. Contributing factors to the improvement were lower manufacturing costs, sales mix improvements, higher overall sales prices and benefits from substantially divested and discontinued businesses. The negative effects of inflation partly offset these gains. On April 21, 1994, the Board of Directors approved a two-for-one stock split in the form of a 100% stock distribution. The distribution was made on June 10, 1994 to shareholders of record on May 10, 1994. Share and per share data give retroactive effect to the stock split. Net income and earnings per share for the quarter were $145.5 million and $0.68, respectively. In the third quarter of 1993, net income and earnings per share were $24.8 million and $0.12, respectively. Current period earnings were favorably impacted by the factors that contributed to the gross profit percentage improvement, higher sales volumes, and the absence of business divestiture and realignment charges. Higher income tax expense partially offset these gains and resulted principally from the increase in pre-tax income. Performance of Business Segments Coatings and resins sales increased to $640 million from $547 million for the third quarter of 1993. Operating earnings for the corresponding periods were $109 million and $90 million, respectively. Contributing principally to the sales increase were higher volumes for most of the segment's major product lines, including sales from the January 1994 acquisition of the Akzo coatings business and the July 1994 acquisition of an automotive paint spray booth business. The increase in operating earnings was primarily attributable to the factors that contributed to the sales increase and the absence of business realignment charges, offset in part by higher overhead costs and the negative effects of inflation. - 11 - Glass sales increased to $594 million in the third quarter of 1994 from $521 million in the prior year period. Operating income increased to $74 million from a $31 million loss in the corresponding prior period. Higher volumes in each of the segment's major businesses and higher sales prices for North American flat and automotive replacement glass and fiber glass reinforcement products contributed to the sales increase. The favorable effects of translating European currencies also contributed to the sales increase. The absence of sales from a divested business, and reduced prices for North American automotive original glass partially offset these improvements. The increase in operating earnings was principally the result of the absence of $78 million of restructuring charges that were recorded in the prior year period and the factors that contributed to the sales increase. The negative effects of inflation partially offset these improvements. Chemicals sales increased to $342 million from $296 million in the third quarter of 1993. Operating earnings increased to $68 million from $27 million for the corresponding prior period. The increase in sales is primarily attributable to higher volumes for most chlor-alkali and specialty chemical products and increased prices for chlorine and most chlorine derivatives products. Partially offsetting these improvements were lower caustic soda prices. The operating earnings improvement was attributable to the factors that contributed to the sales increase, manufacturing efficiencies, gains from the dispositions of the segment's polymer additives business and its investment in a bromine business, and the absence of business divestiture and realignment charges. There have not been significant changes in the Company's plans for implementing business divestiture and realignment programs undertaken in prior years and previous quarters of the current year. Performance in the First Nine Months of 1994 Compared to the First Nine Months of 1993 Performance Overview Sales for the first nine months of 1994 and 1993 were $4.7 billion and $4.4 billion, respectively. Higher volumes in each of the business segments, including sales from the January 1994 acquisition of an Akzo coatings business, more than offset the absence of sales in 1994 from the Biomedicals Systems Division and glass businesses which have been substantially divested or discontinued. The unfavorable effect of translating European currencies and lower overall prices in the Chemicals segment negatively impacted sales. The gross profit percentage increased to 38.7% from 36.8% in the prior period. Contributing factors to the improvement were sales mix improvements, lower manufacturing costs, and benefits from substantially divested and discontinued businesses. Lower overall sales prices and the negative effects of inflation partly offset these gains. - 12 - Net income and earnings per share for the current year period were $363.6 million and $1.71, respectively. In the prior year period, the Company experienced a net loss and loss per share of $31.7 million and $0.15, respectively. The prior year amounts included a net charge of $272.8 million or $1.29 per share for three accounting changes (see Note 2 to the condensed financial statements) and business divestiture and realignment charges of $52 million, after-tax. Also included was an $0.08 per share gain from the sale of our interest in an insurance company. Current period earnings were favorably impacted by the factors that contributed to the gross profit percentage improvement, higher sales volumes and lower interest expense. Partly offsetting these gains was the $52 million after-tax charge related to the exit of the Biomedical Systems Division and higher income tax expense due principally to the higher pre-tax income. Performance of Business Segments Coatings and resins sales increased to $1.96 billion from $1.74 billion for the first nine months of 1993. Operating earnings for the corresponding periods were $376 million and $310 million, respectively. Contributing to the sales increase were higher volumes for nearly all of the segment's major product lines, including sales from the January 1994 acquisition of the Akzo coatings business and a July 1994 acquisition of an automotive paint spray booth business, which were partially offset by the unfavorable effect of translating European currencies. The increase in operating earnings was attributable to the higher overall sales volumes and prices as well as benefits from manufacturing efficiencies. Higher overhead costs, the unfavorable effects of inflation and the negative effects of European currency translation partly offset these improvements. Glass sales increased to $1.78 billion in the nine-month period ended September 30, 1994, from $1.65 billion in the prior year period. Operating income increased to $243 million from $80 million in the corresponding prior period. Higher volumes in each of the segment's major businesses and higher sales prices for North American flat, automotive replacement and fiber glass products contributed to the sales increase. The absence of sales from divested and discontinued businesses, the unfavorable effects of translating European currencies, and reduced prices for worldwide automotive original products and flat and fiber glass reinforcement products in Europe partially offset these improvements. The operating earnings improvement was primarily the result of the absence of $78 million of restructuring charges that were recorded in the prior year period, the factors that contributed to the sales increase, manufacturing efficiencies, and the absence of operating losses from certain divested or discontinued businesses. The negative effects of inflation partially offset these gains. Chemicals sales increased to $937 million from $869 million for the nine-month period ended September 30, 1993. Operating earnings increased to $139 million from $108 million for the corresponding prior period. The increase in sales is primarily attributable to higher volumes for most chlor-alkali, chlorine derivative, and specialty chemical products. Significantly offsetting these - 13 - improvements were lower chlor-alkali prices. The increase in operating earnings was principally the result of the higher sales volumes, manufacturing efficiencies, gains from the dispositions of the segment's polymer additives business and its investment in a bromine business, and the absence of business divestiture and realignment charges. Lower overall sales prices, the negative effects of inflation and higher overhead costs somewhat offset these improvements. Included in the "other" segment's operating loss was an $85 million second quarter charge related to the divestment of the Biomedical Systems Division. Because of the general decline in health care and related markets, and other uncertainties, disposition of the remaining assets of this division was no longer assured of occurring within one year of the Company's original decision to divest it. The majority of the charge was comprised of the reversal of a $60 million gain originally anticipated from divestiture of its sensors business at the time the decision was made to dispose of the division. Also, a $13 million charge was taken for additional operating losses anticipated through the expected disposal date resulting from such date being extended as well as actual operating losses exceeding those originally estimated. Any gains on sales of the remaining assets will be recognized in the period in which they occur. Other Factors The decline in interest expense was principally the result of lower average borrowings for the third quarter of 1994 and nine-month period ended September 30, 1994, as compared with the corresponding periods in 1993. Higher other charges for the nine-month period ended September 30, 1994, was principally the result of higher environmental study costs and charges incurred for the relocation of an administrative office. Lower other earnings and the change in other unallocated corporate (expense) income - net for the nine-month period ended September 30, 1994, were principally the result of the absence of the gain from the sale of our interest in an insurance company, which occurred in the first quarter of 1993. The increase in accounts receivable is principally the result of higher sales in September 1994 as compared with those in December 1993. The decline in accumulated provisions and other assets is principally attributable to the sale of the European portion of our Biomedical Systems Division. - 14 - PPG's board of directors approved a repurchase of 6.5 million shares of PPG stock. The stock will be purchased in open market or private transactions and no timetable for the repurchases has been announced. Environmental Matters Management of the Company currently does not anticipate that the resolution of the environmental contingencies detailed below, which will occur over an extended period of time, will result in the Company recording future annual charges to income that are significantly greater than those recorded in recent years. It is possible, however, that technological, regulatory and enforcement developments, the results of environmental studies and other factors, could alter this expectation. In management's opinion, the Company operates in an environmentally sound manner and the outcome of these environmental matters will not have a material effect on PPG's financial position or liquidity. To date, compliance with Federal, state and local requirements has not had a material impact on PPG's financial position, results of operations or liquidity. It is PPG's policy to accrue expenses for environmental contingencies when it is probable that a liability exists and the amount of loss can be reasonably estimated. As of September 30, 1994 and December 31, 1993, PPG had environmental reserves totaling $88 million and $90 million, respectively. Charges against income for environmental remediation costs for the nine month periods ended September 30, 1994 and 1993 were $25 million and $23 million, respectively. In addition to the amounts accrued, the Company may be subject to contingencies related to environmental matters estimated at the high end to be as much as $200 million to $400 million. Such aggregate losses are reasonably possible but not currently considered to be probable of occurrence. These contingencies include significant unresolved issues including the nature and extent of contamination, if any, at sites and the methods that may have to be employed should remediation be required. At certain waste sites, the financial condition of any other potentially responsible parties also contributes to the uncertainty of estimating PPG's final costs. Although contributors of waste to sites involving other potentially responsible parties may face governmental agency assertions of joint and several liability, in general, final allocations of costs are made based on the relative contributions of wastes to such sites. PPG is generally not a major contributor to such sites. The extent to which costs incurred are recoverable from insurance companies is also a factor in determining PPG's ultimate cost. Although the unrecorded exposure to future loss relates to all sites, a significant portion of such unrecorded exposure involves three operating plant sites and one closed plant site. Two of the sites are in the early stages of study while the remaining two are further into the study phase. All four sites require further study in order to assess the magnitude of contamination, if any, and the viable remediation alternatives. It is expected that the Company's environmental contingencies will be resolved over a period of 20 years or more. - 15 - Foreign Currency and Interest Rate Risk As a multinational company, PPG is concerned with, and therefore manages, its transaction exposure to foreign currency risk. Its objective in managing this risk is to minimize the volatility of cash flows due to currency fluctuations. The Company manages its foreign currency exposures principally through the purchase of forward and option contracts. It does not manage its exposure to translation gains and losses; however, by borrowing in local currencies it reduces such exposure. The market value of the forward and option contracts purchased and outstanding as of September 30, 1994, was not material. The Company manages its interest rate risk in order to balance its exposure between fixed and variable rates while attempting to minimize its interest costs. PPG principally manages its interest rate risk by means of retiring and issuing debt from time to time. To a limited extent, PPG manages its interest rate risk through the purchase of interest rate swaps. As of December 31, 1993 and September 30, 1994 the notional principal amounts and fair values of interest rate swaps held were immaterial. PPG's policies do not permit active trading of currency or interest rate derivatives. Additional Business Divestiture and Realignment Detail 1991 Business Divestitures and Realignments In 1991, the Company recorded business divestiture and realignment charges totaling $84 million. Of the charges, $68 million related to the glass segment, $13 million related to the coatings and resins segment, $2 million related to the chemicals segment and $1 million related to the "other" segment. Of the glass segment charges, approximately $42 million was recorded to write down certain assets at two plants to reflect the segment's inability to recover the carrying value of such impaired assets. A $12 million charge was also taken with respect to the idling of these facilities, for a period of approximately three years, due to overcapacity in the North American flat glass industry and the lack of demand for glass products produced at those plants. These actions were taken in response to results from internal and external studies which analyzed the performance aspect of these facilities and a related impairment analysis, which were completed in the first quarter of 1991. The remainder of the charges relate principally to a work force reduction program which was initiated to streamline the segment's flat glass organization. The charge recorded by the coatings and resins segment principally related to streamlining of each of its operations throughout North America and reorganization of the North American architectural finishes business. - 16 - In addition to the $42 million impairment charge, the provisions recorded were principally comprised of severance costs totaling $38 million and the cost of long-term contractual obligations principally related to the two glass facilities during the period they were idle of $7 million. 1993 Business Divestitures and Realignments In 1993, the Company recorded business divestiture and realignment charges totaling $126 million. Of these charges, $78 million related to the glass segment, $38 million related to the "other" segment involving our Biomedicals Systems Division and $5 million each related to the coatings and resins and the chemicals segments. Of the glass segment's charges, approximately $71 million related to the shut- down of two manufacturing facilities, the discontinuation of the commercial products business, and the disposition of the architectural metals business. One of the manufacturing facilities, which had previously been temporarily idled, was permanently closed because management concluded that the market for its products would not support operation of the facility. Management also decided to close the second facility because of the segment's overcapacity for the plant's manufactured products. Operating earnings could be increased through the reallocation of its production to more efficient facilities. The decision to exit the commercial products business was due principally to its disappointing operating performance. The architectural metals business was sold because it was not a core operation of the glass segment and it also experienced unfavorable operating results. Since the Company's acquisition of the Biomedicals Systems Division, it has consistently reported disappointing operating results. Moreover, this business had not blended well with PPG's other major segments and proved to be difficult to manage under the continually changing business environment in which it operated. As a result, management decided early in the fourth quarter of 1993 to divest and a charge of $38 million was recorded in that quarter. The charge was principally based on anticipated sales proceeds from the divestiture of the sensors and medical electronics businesses of approximately $65 million and $50 million, respectively. Such amounts resulted in an estimated net loss of $5 million. In addition, $30 million of operating losses were anticipated through the expected disposal date. In addition to the components of the Biomedicals Systems Division provision detailed above, significant components of the business divestiture and realignment charges included charges for the retirement or write-off of operating assets with net book values of approximately $31 million, severance and benefit costs of $17 million, incremental workers' compensation accruals of $10 million, environmental accruals of $9 million, anticipated future operating losses of $6 million through the expected disposal dates for the commercial products and architectural metals businesses, and charges of approximately $2 million for the disposition of operating assets (net of anticipated sales proceeds of $16 million). - 17 - The charges recorded in 1993 are expected to be recovered in the future to a large extent through the absence of historical operating losses for the Biomedical Systems Division. Such operating losses were approximately $61 million, $13 million, and $23 million for 1993, 1992 and 1991, respectively. In addition, future annual operating earnings are projected to be positively impacted by approximately $10 million primarily as a result of the elimination of various operating costs. With the exception of sales proceeds expected in 1994 from the divestiture of the Biomedicals Systems Division's sensors and medical electronics businesses, the cash flow effect of these 1993 activities are not anticipated to be significant. Sales proceeds received to date in 1994 have consisted of $13 million in cash plus $12 million in securities and receivables. - 18 - Part II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (11) Computation of Earnings Per Share (b) Reports on Form 8-K The Company filed a Form 8-K on October 21, 1994. The report indicated that on October 20, 1994 the Registrant's Board of Directors approved the repurchase by the Registrant of 6.5 million shares of the Registrant's outstanding common stock, par value $1.66 2/3 per share (the common stock). The shares may be repurchased in the open market or in private transactions and no timetable was established for the repurchase. CS First Boston Corporation is exclusive agent of the initial part of this repurchase program. - 19 - SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PPG INDUSTRIES, INC. (Registrant) Date: November 1, 1994 /s/ W.H. Hernandez W. H. Hernandez Vice President and Controller (Acting Principal Financial and Accounting Officer and Duly Authorized Officer) - 20 - PPG INDUSTRIES, INC. AND SUBSIDIARIES INDEX TO EXHIBITS Exhibit No. Description 11 Computation of Earnings (Loss) Per Share 27 Financial Data Schedule EX-11 2 EXHIBIT 11 Exhibit 11 PPG INDUSTRIES, INC. AND SUBSIDIARIES Computation of Earnings (Loss) Per Share
Three Months Nine Months Ended September 30 Ended September 30 1994 1993 1994 1993 Income before cumulative effect of accounting changes..................... $145.5 $ 24.8 $ 363.6 $ 241.1 Cumulative effect of accounting changes: Other postretirement and postemployment benefits.................. -- -- -- (363.2) Income taxes................ -- -- -- 90.4 Net income (loss)............. $ 145.5 $ 24.8 $ 363.6 $ (31.7) Weighted average number of shares of common stock outstanding................. 212.5 212.2 212.7 212.3 Weighted average number of shares of common stock outstanding and common stock equivalents.......... 214.3 213.6 214.4 213.7 Primary earnings (loss) per share: Income before cumulative effect of accounting changes.................. $ 0.68 $ 0.12 $ 1.71 $ 1.14 Cumulative effect of accounting changes: Other postretirement and postemployment benefits................ -- -- -- (1.71) Income taxes.............. -- -- -- 0.42 Earnings (loss) per share... $ 0.68 $ 0.12 $ 1.71 $ (0.15)
Exhibit 11 PPG INDUSTRIES, INC. AND SUBSIDIARIES Computation of Earnings (Loss) Per Share (Continued)
Three Months Nine Months Ended September 30 Ended September 30 1994 1993 1994 1993 Fully diluted earnings (loss) per share: Income before cumulative effect of accounting changes................... $ 0.68 $ 0.12 $ 1.70 $ 1.13 Cumulative effect of accounting changes: Other postretirement and postemployment benefits................ -- -- -- (1.70) Income taxes.............. -- -- -- 0.42 Earnings (loss) per share... $ 0.68 $ 0.12 $ 1.70 $ (0.15) NOTES: Share and per share data give retroactive effect to the two-for-one stock split in the form of a 100% stock distribution which was made on June 10, 1994. The common stock equivalents consist of the shares reserved for issuance under PPG's stock option plan and deferred under PPG's incentive compensation, management award, earnings growth and directors' retirement plans. The fully diluted earnings (loss) per share calculations are submitted in accordance with Regulation S-K item 601(b)(11) although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because they result in dilution of less than three percent. All amounts are in millions except per share data.
EX-27 3
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PPG INDUSTRIES, INC.'S FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 9-MOS DEC-31-1994 SEP-30-1994 166 0 1,229 0 687 2,316 6,128 3,410 5,867 1,290 768 484 0 0 2,206 5,867 4,672 4,672 2,862 2,862 553 0 66 608 231 364 0 0 0 364 1.71 1.71
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