UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
| For The Quarterly Period Ended September 30, 2004 | 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 incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| One PPG Place, Pittsburgh, Pennsylvania | 15272 | |
| (Address of principal executive offices) | (Zip Code) | |
(412) 434-3131
(Registrant’s telephone number, including area code)
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 ¨
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
As of September 30, 2004, 171,893,428 shares of the Registrant’s common stock, par value $1.66-2/3 per share, were outstanding.
PPG INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
| PAGE(S) | ||
| Part I. Financial Information |
||
| 2 | ||
| 3 | ||
| 4 | ||
| 5-19 | ||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
20-25 | |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk |
25 | |
| Item 4. Controls and Procedures |
25 | |
| Part II. Other Information |
||
| Item 1. Legal Proceedings |
26-27 | |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
27-28 | |
| Item 5. Other Information |
28 | |
| Item 6. Exhibits |
28-29 | |
| 30 | ||
- 1 -
PPG INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Statement of Income (Unaudited)
(Millions, except per share amounts)
| Three Months Ended Sept. 30 |
Nine Months Ended Sept. 30 |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Net sales |
$ | 2,409 | $ | 2,206 | $ | 7,102 | $ | 6,581 | ||||||||
| Cost of sales |
1,516 | 1,370 | 4,473 | 4,157 | ||||||||||||
| Gross profit |
893 | 836 | 2,629 | 2,424 | ||||||||||||
| Other expenses (earnings): |
||||||||||||||||
| Selling, general and administrative |
422 | 395 | 1,271 | 1,161 | ||||||||||||
| Depreciation |
88 | 93 | 268 | 275 | ||||||||||||
| Research and development |
74 | 71 | 224 | 215 | ||||||||||||
| Interest |
22 | 25 | 70 | 81 | ||||||||||||
| Amortization |
8 | 7 | 23 | 22 | ||||||||||||
| Asbestos settlement – net (Note 14) |
6 | 8 | 21 | 24 | ||||||||||||
| Business restructuring (Note 5) |
— | — | — | 4 | ||||||||||||
| Other income – net |
(21 | ) | (2 | ) | (46 | ) | (11 | ) | ||||||||
| Total other expenses – net |
599 | 597 | 1,831 | 1,771 | ||||||||||||
| Income before income taxes, minority interest and cumulative effect of accounting change |
294 | 239 | 798 | 653 | ||||||||||||
| Income tax expense |
82 | 86 | 250 | 234 | ||||||||||||
| Minority interest |
18 | 11 | 48 | 41 | ||||||||||||
| Income before cumulative effect of accounting change |
194 | 142 | 500 | 378 | ||||||||||||
| Cumulative effect of accounting change, net of tax (Note 2) |
— | — | — | (6 | ) | |||||||||||
| Net income |
$ | 194 | $ | 142 | $ | 500 | $ | 372 | ||||||||
| Earnings per common share (Note 4): |
||||||||||||||||
| Income before cumulative effect of accounting change |
$ | 1.13 | $ | 0.83 | $ | 2.91 | $ | 2.22 | ||||||||
| Cumulative effect of accounting change, net of tax |
— | — | — | (0.03 | ) | |||||||||||
| Earnings per common share |
$ | 1.13 | $ | 0.83 | $ | 2.91 | $ | 2.19 | ||||||||
| Earnings per common share – assuming dilution (Note 4): |
||||||||||||||||
| Income before cumulative effect of accounting change |
$ | 1.12 | $ | 0.83 | $ | 2.89 | $ | 2.21 | ||||||||
| Cumulative effect of accounting change, net of tax |
— | — | — | (0.03 | ) | |||||||||||
| Earnings per common share – assuming dilution |
$ | 1.12 | $ | 0.83 | $ | 2.89 | $ | 2.18 | ||||||||
| Dividends per common share |
$ | 0.45 | $ | 0.43 | $ | 1.34 | $ | 1.29 | ||||||||
The accompanying notes to the condensed financial statements are an integral part of this consolidated statement.
- 2 -
PPG INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Balance Sheet (Unaudited)
| Sept. 30 2004 |
Dec. 31 2003 |
|||||||
| (Millions) | ||||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 561 | $ | 499 | ||||
| Receivables-net |
1,809 | 1,631 | ||||||
| Inventories (Note 6) |
1,010 | 997 | ||||||
| Other |
451 | 410 | ||||||
| Total current assets |
3,831 | 3,537 | ||||||
| Property (less accumulated depreciation of $5,248 million and $5,054 million) |
2,420 | 2,566 | ||||||
| Investments |
281 | 265 | ||||||
| Goodwill (Note 7) |
1,163 | 1,157 | ||||||
| Identifiable intangible assets (Note 7) |
497 | 495 | ||||||
| Other assets |
407 | 404 | ||||||
| Total |
$ | 8,599 | $ | 8,424 | ||||
| Liabilities and Shareholders’ Equity |
||||||||
| Current liabilities: |
||||||||
| Short-term debt and current portion of long-term debt |
$ | 165 | $ | 327 | ||||
| Asbestos settlement (Note 14) |
394 | 308 | ||||||
| Accounts payable and accrued liabilities |
1,663 | 1,504 | ||||||
| Total current liabilities |
2,222 | 2,139 | ||||||
| Long-term debt |
1,200 | 1,339 | ||||||
| Asbestos settlement (Note 14) |
433 | 500 | ||||||
| Deferred income taxes |
102 | 88 | ||||||
| Other postretirement benefits |
549 | 532 | ||||||
| Other liabilities |
724 | 778 | ||||||
| Total liabilities |
5,230 | 5,376 | ||||||
| Commitments and contingent liabilities (Note 14) |
||||||||
| Minority interest |
114 | 137 | ||||||
| Shareholders’ equity: |
||||||||
| Common stock |
484 | 484 | ||||||
| Additional paid-in capital |
205 | 158 | ||||||
| Retained earnings |
6,670 | 6,399 | ||||||
| Treasury stock |
(3,405 | ) | (3,428 | ) | ||||
| Unearned compensation |
(52 | ) | (60 | ) | ||||
| Accumulated other comprehensive loss (Note 9) |
(647 | ) | (642 | ) | ||||
| Total shareholders’ equity |
3,255 | 2,911 | ||||||
| Total |
$ | 8,599 | $ | 8,424 | ||||
The accompanying notes to the condensed financial statements are an integral part of this consolidated statement.
- 3 -
PPG INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Statement of Cash Flows (Unaudited)
| Nine Months Ended Sept. 30 |
||||||||
| 2004 |
2003 |
|||||||
| (Millions) | ||||||||
| Cash from operating activities |
$ | 712 | $ | 770 | ||||
| Investing activities: |
||||||||
| Capital spending |
||||||||
| Additions to property and investments |
(157 | ) | (146 | ) | ||||
| Business acquisitions, net of cash balances acquired |
(67 | ) | — | |||||
| Reductions of other property and investments |
56 | 42 | ||||||
| Cash used for investing activities |
(168 | ) | (104 | ) | ||||
| Financing activities: |
||||||||
| Net change in borrowings with maturities of three months or less |
2 | (251 | ) | |||||
| Proceeds from other short-term debt |
26 | 10 | ||||||
| Repayment of other short-term debt |
(5 | ) | (24 | ) | ||||
| Proceeds from long-term debt |
— | 4 | ||||||
| Repayment of long-term debt |
(325 | ) | (55 | ) | ||||
| Repayment of loans by employee stock ownership plan |
8 | 18 | ||||||
| Purchase of treasury stock |
(8 | ) | — | |||||
| Issuance of treasury stock, net |
44 | 11 | ||||||
| Dividends paid |
(230 | ) | (219 | ) | ||||
| Cash used for financing activities |
(488 | ) | (506 | ) | ||||
| Effect of currency exchange rate changes on cash and cash equivalents |
6 | 6 | ||||||
| Net increase in cash and cash equivalents |
62 | 166 | ||||||
| Cash and cash equivalents, beginning of period |
499 | 117 | ||||||
</ | ||||||||