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 March 31, 1995 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 April 28, 1995, 206,188,018 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 SUBSIDIARIES
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Index
Part I. Financial Information Page(s)
Item 1. Financial Statements:
Condensed Statement of Operations................................ 2
Condensed Balance Sheet.......................................... 3
Condensed Statement of Cash Flows................................ 4
Notes to Condensed Financial Statements.......................... 5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 8-11
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders....... 12
Item 6. Exhibits and Reports on Form 8-K.......................... 13
Signature............................................................ 14
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
PPG INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Statement of Operations (Unaudited)
(Millions, except per share amounts)
Three Months Ended March 31
1995 1994
Net sales.................................... $1,740.8 $1,476.9
Cost of sales................................ 1,028.1 911.8
Gross profit............................... 712.7 565.1
Other expenses:
Selling, general and administrative........ 231.5 216.0
Depreciation............................... 80.0 78.5
Research and development................... 56.9 49.0
Interest................................... 20.5 21.8
Other charges.............................. 38.0 15.1
Total other expenses..................... 426.9 380.4
Other earnings............................... 73.1 24.9
Income before income taxes
and minority interest...................... 358.9 209.6
Income taxes................................. 136.4 83.8
Minority interest............................ 3.3 3.9
Net income................................... $ 219.2 $ 121.9
Earnings per share........................... $ 1.06 $ 0.57
Dividends per share.......................... $ 0.29 $ 0.27
Average shares outstanding................... 206.5 212.9
The accompanying notes to the condensed financial statements are an integral
part of this statement.
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PPG INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Balance Sheet (Unaudited)
March 31 Dec. 31
1995 1994
(Millions)
Assets
Current assets:
Cash and cash equivalents.................. $ 73.2 $ 62.1
Receivables-net............................ 1,413.0 1,228.9
Inventories (Note 2)....................... 767.3 686.4
Other...................................... 197.6 190.8
Total current assets..................... 2,451.1 2,168.2
Property (less accumulated depreciation of
$3,251.6 million and $3,420.4 million)..... 2,758.9 2,742.3
Investments.................................. 192.2 277.4
Other assets................................. 745.8 706.0
Total.................................... $6,148.0 $5,893.9
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings and current
portion of long-term debt................ $ 382.2 $ 370.7
Accounts payable and accrued liabilities... 1,059.4 1,034.4
Income taxes............................... 134.7 19.4
Total current liabilities................ 1,576.3 1,424.5
Long-term debt............................... 655.5 773.4
Deferred income taxes........................ 303.7 302.7
Accumulated provisions....................... 278.2 260.5
Other postretirement benefits ............... 513.4 505.5
Minority interest............................ 74.3 70.3
Total liabilities........................ 3,401.4 3,336.9
Shareholders' equity:
Common stock............................... 484.3 484.3
Additional paid-in capital................. 69.2 67.5
Retained earnings.......................... 3,877.2 3,717.1
Treasury stock............................. (1,515.9) (1,488.6)
Unearned compensation...................... (172.9) (183.0)
Minimum pension liability adjustment....... (1.7) (1.7)
Currency translation adjustment............ 6.4 (38.6)
Total shareholders' equity............... 2,746.6 2,557.0
Total.................................... $6,148.0 $5,893.9
The accompanying notes to the condensed financial statements are an integral
part of this statement.
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PPG INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Statement of Cash Flows (Unaudited)
Three Months Ended March 31
1995 1994
(Millions)
Cash from operating activities .............. $ 181.4 $ 83.5
Investing activities:
Capital spending.......................... (75.0) (86.1)
Reduction of investments.................. 98.7 --
Other..................................... 6.0 3.4
Cash from (used for) investing
activities......................... 29.7 (82.7)
Financing activities:
Net change in borrowings with
maturities of three months or less...... (78.9) 111.3
Proceeds from other short-term debt....... 10.9 15.6
Repayment of other short-term debt........ (35.0) (8.2)
Proceeds from long-term debt.............. 6.8 3.1
Repayment of long-term debt and capital
leases.................................. (25.8) (7.8)
Repayment of loans by employee stock
ownership plan.......................... 10.1 3.9
Purchase of treasury stock, net........... (29.8) (57.1)
Dividends paid............................ (59.8) (57.4)
Cash (used for) from
financing activities............... (201.5) 3.4
Effect of currency exchange rate changes
on cash and cash equivalents............... 1.5 .8
Net increase in cash
and cash equivalents....................... 11.1 5.0
Cash and cash equivalents,
beginning of period..... ................... 62.1 111.9
Cash and cash equivalents,
end of period.............................. $ 73.2 $ 116.9
The accompanying notes to the condensed financial statements are an integral
part of this statement.
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PPG INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Condensed Financial Statements (Unaudited)
1. Financial Statements
The condensed financial statements included herein are unaudited. In the
opinion of management, these statements include all adjustments,
consisting only of normal, recurring adjustments, necessary for a fair
presentation of the financial position of PPG Industries, Inc. and
subsidiaries (the Company or PPG) at March 31, 1995, and the results of
their operations and their cash flows for the three months ended March
31, 1995 and 1994. 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, 1994.
The results of operations for the three months ended March 31, 1995 are
not necessarily indicative of the results to be expected for the full
year.
2. Inventories
Inventories at March 31, 1995 and December 31, 1994 are detailed below.
March 31 Dec. 31
1995 1994
(Millions)
Finished products and work in process............. $522.9 $462.7
Raw materials..................................... 131.2 111.9
Supplies.......................................... 113.2 111.8
Total.......................................... $767.3 $686.4
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 $210.9 million and $199.2 million higher at
March 31, 1995 and December 31, 1994 respectively.
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3. Cash Flow Information
Cash payments for interest were $15.3 million and $18.6 million for the
three months ended March 31, 1995 and 1994, respectively. Net cash
payments for income taxes for the three months ended March 31, 1995 and
1994 were $22.5 million and $12.6 million, respectively.
4. Business Segment Information
Three Months Ended March 31
1995 1994
(Millions)
Net sales:
Coatings and Resins $ 684 $ 621
Glass 661 568
Chemicals 396 288
Total $1,741 $1,477
Operating income:
Coatings and Resins $ 129 $ 124
Glass 155 76
Chemicals 93 36
Total operating income 377 236
Interest expense - net (18) (20)
Other unallocated
corporate expense - net -- (6)
Income before income taxes and
minority interest $ 359 $ 210
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5. Environmental Matters
Management of the Company anticipates that the resolution of the
environmental contingencies discussed below, which will occur over an
extended period of time, will not result in 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 March 31, 1995 and December 31, 1994,
PPG had environmental reserves totaling $89 million and $90 million,
respectively. Charges against income increasing these reserves for
environmental remediation costs for the three months ended March 31,
1995 and 1994 were $8 million and $1 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. The Company's current environmental contingencies are
expected to be resolved over a period of 20 years or more. These loss
contingencies 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. Although insurance
may cover a portion of these costs, to the extent they are incurred, any
potential recovery is not included in this unrecorded exposure to future
loss. 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. 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 additional
study to assess the magnitude of contamination, if any, and the
remediation alternatives.
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Performance Overview
Sales for the first quarter of 1995 and 1994 were $1.74 billion and $1.48
billion, respectively. The sales increase was attributable to higher prices,
particularly for our chlor-alkali and derivative, fiber glass, and flat glass
products, higher volumes in each of the business segments, and the favorable
effects of foreign currency translation.
The gross profit percentage increased to 40.9% from 38.3% in the prior year's
quarter. Contributing factors to the improvement were higher overall sales
prices and benefits from manufacturing efficiencies. The negative effects of
inflation partially offset these gains.
During the first quarter of 1995, a legal settlement regarding a glass
technology dispute with Pilkington plc of England resulted in a $24.2 million
after-tax gain ($0.12 per share).
Net income and earnings per share for the quarter were $219.2 million and
$1.06, respectively. In the first quarter of 1994, net income and earnings
per share were $121.9 million and $0.57, respectively. Current period income
was favorably impacted by the factors that contributed to the gross profit
percentage improvement, higher sales volumes, and increased other earnings
which were attributable to gains from legal settlements. Partially offsetting
these gains were higher income tax expense and increased other charges. The
majority of the increase in other charges was the result of a charge for a
legal dispute and higher environmental expenses.
Performance of Business Segments
Coatings and resins sales increased to $684 million from $621 million for the
first quarter of 1994. Operating earnings for the corresponding periods were
$129 million and $124 million, respectively. The increase in sales was
primarily attributable to higher volumes in the European automotive original
and worldwide industrial coatings product lines, the favorable effects of
translating European currencies, and stronger prices for our automotive
refinish products. Lower North American automotive refinish volume partially
offset these improvements. Operating earnings remained relatively flat as
volume and manufacturing efficiencies, combined with a gain from a settlement
of an industrial coatings dispute, were substantially offset by the negative
effects of inflation on raw material and overhead costs.
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Glass sales increased to $661 million in the first quarter of 1995 from $568
million in the prior year's quarter. Operating income increased to $155
million from $76 million in the corresponding 1994 period. Higher sales
prices, principally for worldwide fiber glass and flat glass products, higher
volumes in most of the segment's major businesses, principally worldwide
automotive original and fiber glass, and the favorable effects of translating
European currencies contributed to the sales increase. Lower North American
automotive replacement glass volume partially offset these improvements.
Increased operating earnings were primarily the result of the factors that
contributed to the sales increase, manufacturing efficiencies, and the gain
from the legal settlement with Pilkington. The negative effects of inflation
and higher overhead costs partially offset these improvements.
Chemicals sales increased to $396 million from $288 million in the first
quarter of 1994. Operating earnings for the corresponding periods were $93
million and $36 million, respectively. The increase in sales was primarily
attributable to substantial price gains for chlor-alkali and derivative
products and volume improvements for most specialty and chlor-alkali
derivative products. The increase in operating earnings was attributable to
the factors that contributed to the sales increase combined with manufacturing
efficiencies. Partially offsetting these improvements were the negative
effects of inflation, particularly on ethylene costs, a charge for a legal
dispute, increased environmental expenses, and higher overhead costs.
Other Factors
The increase in income tax expense was principally due to significantly higher
pre-tax earnings. Partially offsetting this was a decrease in the effective
tax rate, primarily attributable to losses at certain European subsidiaries
for which we were unable to recognize any income tax benefit in 1994. The
increase in income taxes payable was principally the result of the timing of
estimated tax payments in the first quarter of 1995 versus the fourth quarter
of 1994.
The increase in accounts receivable was the result of higher sales in February
and March of 1995 as compared with those in November and December of 1994,
seasonal extended credit terms to certain customers, and the strengthening of
certain European currencies against the U.S. dollar. Also contributing to the
increase was the receivable from the legal settlement with Pilkington which
was collected in early April 1995.
Higher inventories were mainly due to a build-up in our coatings and resins
and glass segments to support anticipated stronger seasonal sales volumes and
the strengthening of certain European currencies against the U.S. dollar.
The decline in investments was principally due to a loan taken against the
cash surrender value of an investment in company-owned life insurance.
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The decline in long-term debt was primarily attributable to a reclassification
of the portion of long-term notes maturing in the first quarter of 1996 to
current liabilities. Substantially offsetting this increase in such
liabilities was the repayment of certain short-term borrowings with cash
generated from operations.
PPG's Board of Directors approved a repurchase of ten million shares of PPG
common stock. The shares may be repurchased in open market or private
transactions and a timetable for the repurchase has not been established.
Environmental Matters
Management of the Company anticipates that the resolution of the environmental
contingencies discussed below, which will occur over an extended period of
time, will not result in 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 March 31, 1995 and December 31, 1994, PPG had environmental
reserves totaling $89 million and $90 million, respectively. Charges against
income increasing these reserves for environmental remediation costs for the
three months ended March 31, 1995 and 1994 were $8 million and $1 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. The
Company's current environmental contingencies are expected to be resolved over
a period of 20 years or more. These loss contingencies 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. Although insurance may cover a portion of these costs, to the
extent they are incurred, any potential recovery is not included in this
unrecorded exposure to future loss. 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
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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. 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 additional study to assess the
magnitude of contamination, if any, and the remediation alternatives.
Foreign Currency and Interest Rate Risk
As a multinational company, PPG manages its transaction exposure to foreign
currency risk to minimize the volatility of cash flows caused by currency
fluctuations. The Company manages its foreign currency 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 March 31, 1995, was not
material.
The Company manages its interest rate risk in order to balance its exposure
between fixed and variable rates while attempting to minimize its interest
costs. PPG principally manages its interest rate risk by retiring and issuing
debt from time to time. To a limited extent, PPG manages its interest rate
risk through the purchase of interest rate swaps. As of March 31, 1995 and
December 31, 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.
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Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Registrant's Annual Meeting of Shareholders held on April 20, 1995 (the
"Annual Meeting"), the shareholders voted on the following matters with the
results shown below. There were no broker nonvotes with respect to any of
these matters.
1. On the matter of the election of three directors to serve for the terms
indicated in the proxy statement relating to the Annual Meeting, the vote
was as follows:
Nominees Votes For Votes Withheld
Erroll B. Davis, Jr. 165,162,896 1,273,235
Allen J. Krowe 165,463,474 972,657
Robert Mehrabian 165,379,252 1,056,879
Each of the nominees was therefore elected a director to serve for the
terms indicated in the proxy statement relating to the Annual Meeting.
2. On the matter of the election of Deloitte & Touche LLP as auditors for
the Registrant for the year 1995, the vote was as follows:
For: 165,216,165 Against: 742,080 Abstain: 630,366
Therefore, Deloitte & Touche LLP were elected auditors for the Registrant
for 1995.
3. On the matter of a proposal to amend the Restated Articles of
Incorporation of the Registrant to increase the number of authorized
shares of common stock from 300 million to 600 million shares, the vote
was as follows:
For: 149,817,396 Against: 15,324,190 Abstain: 1,447,025
Therefore, the Restated Articles of Incorporation of the Registrant were
amended to increase the number of authorized shares of common stock from
300 million to 600 million.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(3)(i) Restated Articles of Incorporation as amended through April
20, 1995
(11) Computation of Earnings Per Share
(27) Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Form 8-K on April 7, 1995, dated April 4, 1995,
attaching a press release. The release indicated that the glass
technology dispute with Pilkington plc of England had been settled.
Both companies dismissed all actions on the basis of no finding of
fault on either side. Pilkington plc is to pay PPG $50 million,
being reimbursement of $36 million paid by PPG to Pilkington after
an earlier litigation and a contribution toward balancing of legal
costs. This settlement eliminates all existing claims between PPG
and Pilkington and those companies agreed generally not to file any
future claims against each other, or their subsidiaries or
licensees, concerning float-process technology for making flat
glass.
The Company filed a Form 8-K on April 24, 1995, dated April 20,
1995. The report indicated that on April 20, 1995 the Board of
Directors approved the repurchase of ten million shares of the
Company's outstanding common stock, par value $1.66 2/3 per share.
The shares may be repurchased in open market or private
transactions and a timetable was not established for the
repurchase.
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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: May l, 1995 /s/W. H. Hernandez
W. H. Hernandez
Senior Vice President, Finance
(Principal Financial and
Accounting Officer and
Duly Authorized Officer)
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PPG INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
No. Description
(3)(i) Restated Articles of Incorporation as amended through April 20, 1995
(11) Computation of Earnings Per Share
(27) Financial Data Schedule