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 original, refinish, industrial 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 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 on total sales and earnings of changes in demand for a particular product line. 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 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, 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 the automotive original and industrial portions of the coatings business, PPG sells directly to a variety of manufacturing companies. Product performance, technology, quality and customer service are major competitive factors. The automotive original and industrial coatings are formulated specifically for the customer's needs and application methods. PPG also manufactures adhesives and sealants for the automotive industry and metal pretreatments for automotive 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 fourteen 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 in Italy, and one plant each in China, England, France, Germany and Portugal. These plants produce a variety of industrial 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 minority interests in operations in Taiwan and Brazil. Additionally, coatings and resins operates ten service centers in the United States and two each in Canada and Mexico to provide just-in-time delivery and service to selected automotive assembly plants. Nineteen training centers in the United States, six in Europe, five 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 1995 was 10,100.
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. A third plant is expected to begin producing fiber glass products in March 1996. 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 Canada, France, the Netherlands, the People's Republic of China, Taiwan, the United States and Venezuela and a majority interest in a glass distribution company in Japan. Additionally, glass has four satellite operations that provide limited manufacturing and just-in-time service to selected automotive customer locations. The average number of persons employed by the glass segment during 1995 was 15,700.
CHEMICALS
PPG is a major producer of chlor-alkali and specialty chemicals. The primary chlor-alkali 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 Transitions(registered trademark) optical products; 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; and phosgene derivatives for the pharmaceutical, herbicide and fuel additives 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 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 People's Republic of China, and one each in Australia, France, Ireland and the Netherlands. The two largest facilities, located in Lake Charles, LA and in Natrium, WV, primarily produce chlor-alkali products. PPG owns equity interests in operations in Japan, Thailand and the United States. The average number of persons employed by the chemicals segment during 1995 was 4,600.
BUSINESS DIVESTED--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.
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. With the sale of the sensors business in January 1995, the divestiture of the Biomedical Systems Division was completed.
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 and boron containing minerals 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.
RESEARCH AND DEVELOPMENT
Research and development costs, including depreciation of research facilities, during 1995, 1994 and 1993 were $252 million, $233 million and $218 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.
PATENTS
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 $27 million, $25 million and $25 million from royalties and the sale of technical know-how during the years 1995, 1994 and 1993, respectively.
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 worldwide by PPG during 1995 was 31,200.
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 $25 million, $19 million and $29 million in 1995, 1994 and 1993, respectively. It is expected that expenditures for such projects in 1996 will approximate $40 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, it can be anticipated that environmental control standards will become increasingly stringent and costly.
PPG is negotiating with various government agencies concerning 72 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, 1995 and 1994, PPG had reserves for environmental contingencies totaling $100 million and $90 million, respectively. Charges against income for environmental remediation costs totaled $49 million in 1995, $36 million in 1994 and $23 million in 1993.
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 1995. 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. 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 and DEQ reached a settlement of this matter which resulted in a payment by PPG of $200,000.
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. LeBoeuf was Executive Vice President, Vice President, Coatings and Resins and Vice President, Finance prior to his present position. (c) Mr. Archinaco was Vice President, Glass, Vice President, Automotive and Aircraft Products and Vice President, Automotive OEM Products prior to his present position. (d) Mr. Crane was Vice President, Human Resources prior to his present position. (e) Mr. Duncan was Group Vice President, Glass prior to his present position. (f) 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. (g) Mr. Hernandez was Vice President, Finance, Vice President and Controller and Controller prior to his present position. (h) Mr. Pollock was Vice President, Coatings and Resins and Vice President, Automotive Products prior to his present position. (i) 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 1996 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) Reporting" 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.
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