Item 1. Business
PPG Industries Inc., incorporated in Pennsylvania in 1883, is comprised of three basic business segments: coatings and resins, glass and chemicals. Within these business segments, PPG has followed a careful program of directing its resources of people, capital and technology in selected areas where it enjoys positions of leadership. Primary areas in which resources have been focused are automotive, industrial and architectural coatings, flat glass, automotive original and replacement glass, aircraft transparencies, continuous strand fiber glass, and industrial and specialty chemicals. Each of the business segments in which PPG is engaged is highly competitive. However, the broad diversification of product lines and worldwide markets served tend to minimize the impact of changes in demand for a particular product line on total sales and earnings. Reference is made to "Business Segment Information" on pages 26 and 27 of the Annual Report to Shareholders, which is incorporated herein by reference, for financial information relating to business segments.
Coatings and Resins
PPG is a major manufacturer 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. Product development, innovation, quality and customer service have been stressed by PPG and have been significant factors in developing an important supplier position.
The industrial portion of the coatings business involves the supply of protective and decorative finishes for autos, appliances, industrial equipment, and packaging; factory finished aluminum extrusions and coils for architectural uses; and other industrial and consumer products. In addition to the supply of finishes to the automotive original equipment market, PPG supplies automotive refinishes to the aftermarket which are primarily sold through distributors. In the industrial portion of the coatings business, PPG sells directly to a variety of manufacturing companies. Product performance, quality and customer service are major competitive factors. The industrial coatings are formulated specifically for the customer's needs and application methods. PPG also manufactures adhesives and sealants for the auto industry and metal pretreatments for auto and industrial applications.
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 and home centers. Price, quality and service are key competitive factors in the architectural finishes market.
Coatings and resins' principal production facilities are concentrated in North America and Europe. North American production facilities consist of 13 plants in the United States, one in Canada and two in Mexico. The three largest facilities are the Cleveland, OH plant, which primarily produces automotive original coatings; the Oak Creek, WI plant, which produces automotive original and other industrial coatings; and the Delaware, OH plant, which primarily produces automotive refinishes and certain industrial coatings. Outside North America, PPG operates three plants in Spain; two plants each in France and Italy, and one plant each in England, Germany and Portugal. These plants produce a variety of industrial and architectural coatings. PPG owns a 60 percent interest in a sales operation in Hong Kong, 50 percent interests in operations in South Korea and Japan, and a minority interest in an operation in Taiwan. Additionally, coatings and resins operates ten service centers in the United States, two in Canada and one in Mexico to provide just-in-time delivery and service to selected automotive assembly plants. Twenty training centers in the United States, five in Europe, two in Asia and one in Canada are in operation. These centers provide training for automotive aftermarket refinish customers. Also, four automotive original 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 and resins segment during 1994 was 9,600.
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, marine 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. Fiber glass products are sold directly to manufacturing companies and independent distributors. 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. Fourteen plants operate in the United States, of which six produce flat glass, five produce automotive glass, two produce fiber glass products and one produces aircraft transparencies. There are three plants in Canada, two of which produce automotive glass and one produces flat glass. Four
plants operate in Italy; one manufactures automotive and flat glass, one produces automotive glass, one produces flat glass, and another produces aircraft transparencies. Three plants are located in France; one plant manufactures automotive and flat glass and two plants produce automotive glass. One plant in England and one plant in the Netherlands produce fiber glass. PPG owns equity interests in operations in the United States, Canada, France, the People's Republic of China, Taiwan and Venezuela and a majority interest in a glass distribution company in Japan. The average number of persons employed by the glass segment during 1994 was 15,400.
Chemicals
PPG is a major manufacturer of chlor-alkali and specialty chemicals. The primary chlor-alkali and derivative products are chlorine, caustic soda, vinyl chloride monomer, chlorinated solvents and chlorinated benzenes. Most of these products are sold directly to manufacturing companies in the chemical processing, rubber and plastics, paper, minerals and metals, and water treatment industries. The primary specialty chemical products are silica based compounds for the tire, shoe and battery separator businesses; surfactants for food emulsification, sugar processing and personal care products; CR-39 monomer for optical plastics; photochromic lens coatings for eyeglasses; and phosgene derivatives for the pharmaceutical, herbicide and fuel additives businesses.
PPG competes with six other major producers of clor-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 performance and technical service are the most critical competitive factors.
PPG's chemical production facilities consist of nine plants in North America, two plants each in Taiwan and the Peoples Republic of China, and one each in France, the Netherlands and Ireland. The two largest facilities, located in Lake Charles, LA and in Natrium, WV, primarily produce chlor-alkali and derivative products. PPG owns equity interests in one company each in Japan, Thailand and the United States. The average number of persons employed by the chemicals segment during 1994 was 4,500.
Business Divested in 1994--Biomedical Systems Division
The Company's Biomedical Systems Division was a manufacturer, supplier and servicer of integrated medical systems for human health care on a worldwide basis. Major markets involved cardiopulmonary applications, including cardiac catheterization, electrocardiographs and related equipment for diagnosis of cardiovascular diseases, patient monitoring systems and sensors for both vital signs and respiratory monitoring functions. A large number of competitors provided products on either a global or regional basis. PPG sold directly to hospital and clinical customers and through distributor organizations in selected markets, and distributed selected original equipment products for other manufacturers.
A decision was made in the fourth quarter of 1993 to divest the Biomedical Systems Division. The sale of the medical electronics portion of this business was completed by the end of the third quarter of 1994 and the sale of the sensors business was completed in January 1995.
Two production facilities in Germany and one in the United States were sold during 1994. One remaining plant in the United States related to the sensors business existed at the end of 1994. This plant was sold as part of the sensors business sale in January 1995. The average number of persons employed by the Biomedical Systems Division during 1994 was 500.
Raw Materials
The effective management of raw materials is important to PPG's continued success. The Company's most significant raw materials are sand, soda ash, energy, polyvinyl butyral, colemanite and boric acid in the glass segment, titanium dioxide and epoxy resins in the coatings and resins 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. For the significant raw material requirements identified above, and other material, there is more than one source of supply.
Patents
Although PPG considers patent protection to be important from an overall standpoint, the Company's business segments are not materially dependent upon any single patent or group of related patents. PPG received $25 million, $25 million and $27 million from royalties and the sale of technical know-how during the years 1994, 1993 and 1992, respectively.
Research and Development
Research and development costs, including depreciation of research facilities, during 1994, 1993 and 1992 were $233 million, $218 million and $221 million, respectively. Research and development facilities are maintained for each business segment. Each of the facilities conducts research and development involving new and improved products and processes, and additional process and product development work is undertaken at many of the Company's manufacturing plants. PPG owns and operates eight research and development facilities in the United States and Europe.
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 extent and location of investments, management believes that the risk associated with its international operations is not significantly greater than domestic operations.
Employees
The average number of persons employed by PPG during 1994 was 30,800.
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 approximately $19 million, $29 million and $48 million in 1994, 1993 and 1992, respectively. It is projected that expenditures for such projects in 1995 will approximate $40 million with similar amounts of annual expenditures expected in the near future. Although future capital expenditures are difficult to forecast accurately because of constantly changing regulatory standards, it can be anticipated that environmental control standards will become increasingly stringent and costly.
PPG is negotiating with various government agencies concerning 75 National Priority List ("NPL") and various other cleanup sites. While PPG is not generally a major contributor of wastes to these sites, each potentially responsible party or contributor may face agency assertions of joint and several liability. 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 which 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 Dec. 31, 1994 and 1993, PPG had environmental reserves totaling $90 million. Charges against income increasing environmental remediation reserves totaled approximately $30 million in 1994, $23 million in 1993 and $16 million in 1992. Cash outlays against these reserves were approximately $30 million, $40 million and $58 million in 1994, 1993 and 1992, respectively.
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 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, 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. 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. See Environmental Matters in Management's Discussion and Analysis for additional information related to environmental matters.
Item 2.
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.
Item 3. Legal Proceedings
Securities and Exchange Commission regulations require the disclosure of any environmental legal proceeding in which a governmental authority is a party and which may reasonably be expected to involve monetary sanctions in excess of $100,000. In this regard, on November 14, 1991, the Company received a penalty notice from the Louisiana Department of Environmental Quality (DEQ) proposing a penalty of $1,236,000 for alleged violations of hazardous waste regulations relating to the Company's investigation of groundwater contamination at the Company's Lake Charles, LA plant. The Company has filed an appeal of the proposed penalty and negotiations with the DEQ continue.
Separately, the Company has voluntarily entered into an agreement with the EPA to participate in the EPA's Toxic Substances Control Act Section 8(e) Compliance Audit Program (the "Program"). Under the Program the Company conducted a self-audit. On October 28, 1992, the Company submitted the first of two final reports pursuant to the Program. Based on this submission, the Company would pay $522,000 in stipulated penalties. To the Company's knowledge, the EPA has not yet reviewed the report or issued any order as a result of the report. Under the Program, the EPA has agreed that the combined potential civil penalties for both final reports of the Company will not exceed $1,000,000.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
None
Executive Officers of the Registrant
(a) Mr. Dempsey was Senior Vice President of WMX Technologies, Inc., and Chairman of Chemical Waste Management, Inc., prior to his present position. (b) Mr. Crane was Vice President, Human Resources prior to his present position. (c) Mr. Duncan was Group Vice President, Glass prior to his present position. (d) Dr. Heinze was Group Vice President, Chemicals of the Company and was President of the Chemicals Division of BASF (U.S.) prior to his present position. (e) Mr. Hernandez was Vice President and Controller and Controller of the Company and was Vice President, Finance and Planning and Chief Financial Officer of Borg-Warner Automotive, Inc. prior to his present position. (f) Mr. Horgan was Vice President, Fiber Glass Products and Vice President, Administration prior to his present position. (g) Mr. LeBoeuf was Vice President, Finance prior to his present position. (h) Mr. Zoghby was Vice President and General Counsel prior to his present position.
The executive officers of the Company are elected annually in April by the Board of Directors.
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.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
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 1995 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."
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.
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