UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008 |
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) | |
Registrants telephone number, including area code: | 412-434-3131 |
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class |
Name of each exchange on which registered |
|
Common Stock Par Value $1.66 2 / 3 |
New York Stock Exchange |
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. YES x NO ¨
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ¨ NO x
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x | Accelerated filer ¨ | |
Non-accelerated filer ¨ | Smaller reporting company ¨ | |
(Do not check if a smaller reporting company) |
Indicate by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Act). YES ¨ NO x
The aggregate market value of common stock held by non-affiliates as of June 30, 2008, was $9,400 million.
As of
January 31, 2009,
164,233,391 shares of the Registrants common stock, with a par value of $1.66
2
/
3
per share, were outstanding. As of that date, the aggregate market value of common stock held by non-affiliates was
DOCUMENTS INCORPORATED BY REFERENCE
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Incorporated By
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Portions of PPG Industries, Inc. Proxy Statement for its 2009
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III |
2008 PPG ANNUAL REPORT AND FORM 10-K | 3 |
PPG INDUSTRIES, INC.
AND CONSOLIDATED SUBSIDIARIES
As used in this report, the terms PPG, Company, Registrant, we, us and our refer to PPG Industries, Inc., and its subsidiaries, taken as a whole, unless the context indicates otherwise.
Note on Incorporation by Reference
Throughout this report, various information and data are incorporated by reference to the Companys 2008 Annual Report (hereinafter referred to as the Annual Report). Any reference in this report to disclosures in the Annual Report shall constitute incorporation by reference only of that specific information and data into this Form 10-K.
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Part I
PPG Industries, Inc., incorporated in Pennsylvania in 1883, is comprised of six reportable business segments: Performance Coatings, Industrial Coatings, Architectural Coatings EMEA (Europe, Middle East and Africa), Optical and Specialty Materials, Commodity Chemicals and Glass. Each of the business segments in which PPG is engaged is highly competitive. However, the diversification of product lines and worldwide markets served tend to minimize the impact on PPGs total sales and earnings from changes in demand for a particular product line or in a particular geographic area. Refer to Note 24, Reportable Business Segment Information under Item 8 of this Form 10-K for financial information relating to our reportable business segments and Note 2, Acquisitions under Item 8 for information regarding acquisition activity.
Performance Coatings, Industrial Coatings and Architectural Coatings - EMEA
PPG is a major global supplier of protective and decorative coatings. The Performance Coatings, Industrial Coatings and Architectural Coatings EMEA reportable segments supply protective and decorative finishes for customers in a wide array of end use markets including industrial equipment, appliances and packaging; factory-finished aluminum extrusions and steel and aluminum coils; marine and aircraft equipment; automotive original equipment; and other industrial and consumer products. In addition to supplying finishes to the automotive original equipment market, PPG supplies refinishes to the automotive aftermarket. PPG also supplies coatings to painting and maintenance contractors and directly to consumers for decoration and maintenance. 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 worlds largest coatings companies, most of which have global operations, and many smaller regional coatings companies. Product development, innovation, quality and technical and customer service have been stressed by PPG and have been significant factors in developing an important supplier position by PPGs coatings businesses comprising the Performance Coatings, Industrial Coatings and Architectural Coatings EMEA reportable segments.
On January 2, 2008, PPG completed the acquisition of SigmaKalon Group (SigmaKalon), a worldwide coatings producer based in Uithoorn, Netherlands. The results of operations of SigmaKalon are included in PPGs consolidated financial statements from the acquisition date onward. The businesses acquired from SigmaKalon produce architectural, protective and marine and industrial coatings. The protective and marine and industrial coatings businesses of SigmaKalon are managed as part of PPGs previously existing coatings businesses. The SigmaKalon architectural coatings business in Europe, the Middle East and Africa is reported in 2008 as a new separate reportable business segment known as Architectural Coatings EMEA. This business represents about 70% of SigmaKalons sales.
The Performance Coatings reportable segment is comprised of the refinish, aerospace, protective and marine and architectural Americas and Asia Pacific coatings businesses.
The refinish coatings business supplies coatings products for automotive and commercial transport/fleet repair and refurbishing, light industrial coatings for a wide array of markets and specialty coatings for signs. These products are sold primarily through distributors.
The aerospace coatings business supplies sealants, coatings, technical cleaners and transparencies for commercial, military, regional jet and general aviation aircraft and transparent armor for military land vehicles. PPG supplies products to aircraft manufacturers, maintenance and aftermarket customers around the world both on a direct basis and through a company-owned distribution network.
The protective and marine coatings business supplies coatings and finishes for the protection of metals and structures to metal fabricators, heavy duty maintenance contractors and manufacturers of ships, bridges, rail cars and shipping containers. These products are sold through the architectural coatings company-owned stores, independent distributors and directly to customers.
Product performance, technology, quality, distribution and technical and customer service are major competitive factors in these three coatings businesses.
The architectural coatings-Americas and Asia Pacific business primarily produces coatings used by painting and maintenance contractors and by consumers for decoration and maintenance. These coatings are sold under a number of brands. Architectural coatings Americas and Asia Pacific products are sold through a combination of company-owned stores, home centers, paint dealers, independent distributors, and directly to customers. Price, product performance, quality, distribution and brand recognition are key competitive factors for the architectural coatings business. The architectural coatings-Americas and Asia Pacific business operates approximately 410 company-owned stores in North America and approximately 50 company-owned stores in Australia.
The major global competitors of the Performance Coatings reportable segment are Akzo Nobel NV, BASF Corporation, the DuPont Company, the Sherwin-Williams Company and Valspar Corporation. The average number of persons employed by the Performance Coatings reportable segment during 2008 was 13,400.
The Industrial Coatings reportable segment is comprised of the automotive, industrial and packaging
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coatings businesses. Industrial, automotive and packaging coatings are formulated specifically for the customers needs and application methods.
The industrial and automotive coatings businesses sell directly to a variety of manufacturing companies. PPG also supplies adhesives and sealants for the automotive industry and metal pretreatments and related chemicals for industrial and automotive applications. PPG maintains an alliance with Kansai Paint. The venture, known as PPG Kansai Automotive Finishes, is owned 60% by PPG and 40% by Kansai Paint. The focus of the venture is Japanese based automotive original equipment manufacturers in North America and Europe. In addition, PPG and Kansai Paint are developing technology jointly, potentially benefiting customers worldwide.
The packaging coatings business supplies coatings and inks for aerosol, food and beverage containers for consumer products to the manufacturers of those containers.
Product performance, technology, quality and technical and customer service are major competitive factors in the industrial coatings businesses. The major global competitors of the Industrial Coatings reportable segment are Akzo Nobel NV, BASF Corporation, the DuPont Company and Valspar Corporation. The average number of persons employed by the Industrial Coatings reportable segment during 2008 was 9,700.
The Architectural Coatings EMEA business supplies a variety of coatings under a number of brands and purchased sundries to painting contractors and consumers in Europe, the Middle East and Africa. Architectural Coatings EMEA products are sold through a combination of approximately 500 company-owned stores, home centers, paint dealers, independent distributors, and directly to customers. Price, product performance, quality, distribution and brand recognition are key competitive factors for this business. The major competitors of the Architectural Coatings EMEA reportable segment are Akzo Nobel NV and Materis Paints. The average number of persons employed by the Architectural Coatings EMEA reportable segment during 2008 was 8,500.
Optical and Specialty Materials
PPGs Optical and Specialty Materials reportable segment is comprised of the optical products and silicas businesses. The primary Optical and Specialty Materials products are Transitions ® lenses, sunlenses, optical materials and polarized film; amorphous precipitated silicas for tire, battery separator and other end-use markets; and Teslin ® synthetic printing sheet used in such applications as waterproof labels, e-passports, drivers licenses and identification cards. Transitions ® lenses are processed and distributed by PPGs 51%-owned joint venture with Essilor International. In the Optical and Specialty Materials businesses, product quality and performance and technical service are the most critical competitive factors. The average number of persons employed by the Optical and Specialty Materials reportable business segment during 2008 was 3,200.
Historically, the Optical and Specialty Materials reportable segment included the fine chemicals business. PPG sold the fine chemicals business in the fourth quarter of 2007. As such, the results of operations and cash flows of this business have been classified as discontinued operations in the consolidated financial statements under Item 8 of this Form 10-K. Refer to Note 1, Summary of Significant Accounting Policies under Item 8 for further information.
Commodity Chemicals
PPG is a producer and supplier of basic chemicals. The Commodity Chemicals reportable segment produces chlor-alkali and derivative products including chlorine, caustic soda, vinyl chloride monomer, chlorinated solvents, calcium hypochlorite, ethylene dichloride and phosgene derivatives. Most of these products are sold directly to manufacturing companies in the chemical processing, rubber and plastics, paper, minerals, metals and water treatment industries. PPG competes with five other major producers of chlor-alkali products including The Dow Chemical Company; Formosa Plastics Corporation, U.S.A.; Georgia Gulf Corporation; Olin Corporation and Occidental Chemical Corporation. Price, product availability, product quality and customer service are the key competitive factors. The average number of persons employed by the Commodity Chemicals reportable business segment during 2008 was 2,100.
Glass
PPG is a producer of flat glass in North America and a global producer of continuous-strand fiber glass. The Glass reportable business segment is comprised of the performance glazings and fiber glass businesses. PPGs major markets are commercial and residential construction and the wind energy, energy infrastructure, transportation and electronics industries. Most glass products are sold directly to manufacturing companies. PPG manufactures flat glass by the float process and fiber glass by the continuous-strand process.
The bases for competition in the Glass businesses are price, quality, technology and customer service. The Company competes with four major producers of flat glass including Asahi Glass Company, Cardinal Glass Industries, Guardian Industries and NSG Pilkington, and five major producers of fiber glass throughout the world including Owens Corning-Vetrotex, Jushi Group, Johns Manville Corporation, CPIC Fiberglass and AGY. The average number of persons employed by the Glass reportable business segment during 2008 was 3,700, excluding the automotive glass and services business.
Historically, the Glass reportable segment has included the automotive glass and services business. In
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September 2008, PPG completed a transaction by which it divested a majority interest in the automotive glass and services business. The results of this business through September 30, 2008 are reported as part of the Glass reportable segment in the consolidated financial statements under Item 8 of this Form 10-K. See Note 3, Divestiture of Automotive Glass and Services Business under Item 8 for additional information.
Raw Materials and Energy
The effective management of raw materials and energy is important to PPGs continued success. Our primary energy cost is natural gas used in our Commodity Chemicals and Glass businesses. In 2008, our natural gas costs were volatile and on average increased almost 25 percent in the U.S. compared to 2007 levels. The increase can be linked to year-over-year strong pricing for energy commodities, including the run up in the price of crude oil by mid-year.
During 2008, our average coatings raw material costs increased about 5 percent, with differing results by region. Coatings raw material costs rose 1 percent and 3 percent in 2007 and 2006, respectively. Many of our coatings raw materials are petroleum based, and changes in pricing for these raw materials traditionally lags oil price fluctuations by about six months. Our costs are also dependent on global supply and demand for these materials. Escalating crude oil prices and global economic growth rates, especially in emerging regions, in the first two quarters of 2008 resulted in higher inflation impacts to PPGs coatings raw materials in the third and most of the fourth quarter of 2008. This inflation was more acute and volatile in North America, Asia and other emerging regions. However, rapid second half 2008 oil price declines, along with the sudden drop in global industrial demand late in the year, resulted in a decline in the price of certain raw materials in these same regions as we were exiting the year.
The Companys most significant raw materials are titanium dioxide and epoxy and other resins in the Coatings businesses; lenses, photochromic dye, sand and soda ash in the Optical and Specialty Materials businesses; brine and ethylene in the Commodity Chemicals business; and sand and soda ash in the Glass businesses. Energy is a significant production cost in the Commodity Chemicals and Glass businesses. Most of the raw materials and energy used in production are purchased from outside sources, and the Company has made, and plans to continue to make, supply arrangements to meet the planned operating requirements for the future. Supply of critical raw materials and energy is managed by establishing contracts, multiple sources, and identifying alternative materials or technology, whenever possible. The Company has aggressive sourcing initiatives underway to support its continuous efforts to find the lowest total material costs. These initiatives include reformulation of certain of our products using both petroleum derived and bio-based materials as part of a product renewal strategy. Another initiative is to qualify multiple sources of supply, including supplies from Asia and other lower cost regions of the world.
We are subject to existing and evolving standards relating to the registration of chemicals that impact or could potentially impact the availability and viability of some of the raw materials we use in our production processes. Our ongoing global product stewardship efforts are directed at maintaining our compliance with these standards. In December 2006, the environment ministers of the European Union (EU) member states gave final approval to comprehensive chemical management legislation known as REACH (Registration, Evaluation, and Authorization of Chemicals). REACH applies to all chemical substances manufactured or imported into the EU in quantities of one metric ton or more annually and will require the registration of approximately 30,000 chemical substances with the European Chemicals Agency. The pre-registration period for such chemicals ended on December 1, 2008. Additionally, REACH requires the registration of these materials, entailing the filing of extensive data on their potential risks to human health and the environment. Registration activities will be phased over an 11-year period, based on tonnage and level of concern, with the first registration deadline set for December 1, 2010. In the case of chemicals with a high level of concern, the regulation calls for progressive substitution unless no alternative can be found; in these cases, authorization of the chemicals will be required.
PPG has established a dedicated organization to manage REACH implementation. We have reviewed our product portfolio, worked closely with our suppliers to assure their commitment to pre-register our key raw materials and completed pre-registrations of PPG manufactured or imported raw materials. We will continue to work with our suppliers to understand the future availability and viability of the raw materials we use in our production processes.
PPG anticipates that some current raw materials and products will be subject to the REACH authorization process and believes that PPG will be able to demonstrate adequate risk management for the use and application of the majority of such substances. Compliance with the REACH legislation will result in increased costs due to registration costs, product testing and reformulation, risk characterization, participation in Substance Information Exchange Forums and Consortia and dossier preparation. The REACH legislation has prompted a growing number of initiatives in other regions, the most notable of which is the ChAMP (Chemical Assessment and Management Program) that has been initiated in the U.S. Under ChAMP, chemicals imported or manufactured in the U.S. above 25,000 pounds annually will undergo hazard and risk characterization by the U.S. Environmental Protection Agency (USEPA). Chemicals identified by
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the USEPA as high risk or of special concern will be subject to further data development and/or regulatory control. At this time it is not possible to quantify the financial impact of these regulatory initiatives on PPGs businesses.
Research and Development
Technology innovation has been a hallmark of PPGs success throughout its history. Research and development costs, including depreciation of research facilities, were $468 million, $363 million and $330 million during 2008, 2007 and 2006, respectively. These costs totaled approximately 3% of sales in each of these years, representing a level of expenditure that is expected to continue in 2009. PPG owns and operates several facilities to conduct research and development relating to new and improved products and processes. Additional process and product research and development work is also undertaken at many of the Companys manufacturing plants. As part of our ongoing efforts to manage our costs effectively, we operate a laboratory in China, have outsourcing arrangements with several laboratories and have been actively pursuing government funding of a small, but growing portion of the Companys research efforts. Because of the Companys broad array of products and customers, PPG is not materially dependent upon any single technology platform.
Patents
PPG considers patent protection to be important. The Companys reportable business segments are not materially dependent upon any single patent or group of related patents. PPG received $52 million in 2008, $ 48 million in 2007 and $44 million in 2006 from royalties and the sale of technical know-how.
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
PPG has a significant investment in non-U.S. operations, and as a result we are subject to certain inherent risks, including economic and political conditions in international markets and fluctuations in foreign currency exchange rates. While approximately 75% of sales and operating income is generated by products sold in the United States, Canada and Western Europe, our remaining sales and operating income are generated in developing regions, such as Asia, Eastern Europe and Latin America. With the acquisition of SigmaKalon in January 2008, we have increased our international operations as substantially all of its sales are outside the United States.
Employee Relations
The average number of persons employed worldwide by PPG during 2008 was 44,900. The Company has numerous collective bargaining agreements throughout the world. While we have experienced occasional work stoppages as a result of the collective bargaining process and may experience some work stoppages in the future, we believe we will be able to negotiate all labor agreements on satisfactory terms. To date, these work stoppages have not had a significant impact on PPGs operating results. Overall, the Company believes it has good relationships with its employees.
Environmental Matters
PPG is subject to existing and evolving standards relating to protection of the environment. Capital expenditures for environmental control projects were $15 million, $16 million and $14 million in 2008, 2007 and 2006, respectively. It is expected that expenditures for such projects in 2009 will be in the range of $15-$25 million. Although future capital expenditures are difficult to estimate accurately because of constantly changing regulatory standards and policies, it can be anticipated that environmental control standards will become increasingly stringent and the cost of compliance will increase.
Prior to 2007, about 20% of our chlor-alkali production capacity used mercury cell technology. PPG strives to operate these cells in accordance with applicable laws and regulations, and these cells are reviewed at least annually by state authorities. The USEPA has issued new regulations imposing significantly more stringent requirements on mercury emissions. These new rules took effect in December 2006. In order to meet the USEPAs new air quality standards, a decision was made in July 2005 to replace the existing mercury cell production unit at the Lake Charles, La., chlor-alkali plant with newer membrane cell technology. The Louisiana Department of Environmental Quality granted the Company a one year extension to meet the new requirements on mercury emissions. This capital project began in 2005 and was completed in 2007. With the completion of this project in 2007, 4% of PPGs chlor-alkali production uses mercury cell technology.
PPG is negotiating with various government agencies concerning 105 current and former manufacturing sites and offsite waste disposal locations, including 23 sites on the National Priority List. The number of sites has increased when compared to the prior year, primarily as a result of sites that were assumed as a result of the SigmaKalon acquisition. While PPG is not generally a major contributor of wastes to these offsite waste disposal locations, each potentially responsible party may face governmental 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
8 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
and extent of their condition and the methods that may have to be employed for their remediation. The Company has established reserves for onsite and offsite remediation of those sites where it is probable that a liability has been incurred and the amount can be reasonably estimated. As of December 31, 2008 and 2007, PPG had reserves for environmental contingencies totaling $299 million and $276 million, respectively, of which $44 million and $57 million, respectively, were classified as current liabilities. Pretax charges against income for environmental remediation costs in 2008, 2007 and 2006 totaled $15 million, $12 million and $207 million, respectively. Cash outlays related to such environmental remediation aggregated $24 million, $19 million and $22 million in 2008, 2007 and 2006, respectively. As part of the allocation of the SigmaKalon purchase price to the assets acquired and liabilities assumed, the reserve for environmental contingencies was increased by $37 million in 2008. The impact of foreign currency translation decreased the liability by $5 million in 2008. Environmental remediation of a former chromium manufacturing plant site and associated sites in Jersey City, N.J., represented the major part of our 2006 environmental charges and our existing reserves. Included in the amounts mentioned above were $185 million of 2006 charges against income and $193 million and $195 million in reserves at December 31, 2008 and 2007, respectively, associated with all New Jersey chromium sites.
The Companys 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. Management anticipates that such expenditures will occur over an extended period of time.
Charges for estimated environmental remediation costs in 2006 were significantly higher than our historical range. Our continuing efforts to analyze and assess the environmental issues associated with a former chromium manufacturing plant site located in Jersey City, N.J., and the Calcasieu River Estuary located near our Lake Charles, La., chlor-alkali plant resulted in a pre-tax charge of $173 million in the third quarter of 2006 for the estimated costs of remediating these sites. Excluding 2006, pre-tax charges against income have ranged between $10 million and $49 million per year for the past 15 years. We anticipate that charges against income in 2009 for environmental remediation costs will be within this historical range.
In managements 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 contingencies will not have a material adverse effect on PPGs financial position or liquidity; however, any such outcome may be material to the results of operations of any particular period in which costs, if any, are recognized. See Note 15, Commitments and Contingent Liabilities, under Item 8 of this Form 10-K for additional information related to environmental matters.
There are growing public and governmental concerns related to climate change, which have led to efforts to limit greenhouse gas (GHG) emissions. These concerns were reflected in the 2005 framework for GHG reduction under the Kyoto Protocol to the United Nations Framework Convention on Climate Change. The Kyoto Protocol has been adopted by many countries where PPG operates, including the EU and Canada, though not in the U.S. The EU has implemented a cap and trade approach with a mandatory emissions trading scheme for GHGs. In December 2007, delegates to the United Nations Framework Convention on Climate Change reached agreement on development of a plan for the second phase of Kyoto, scheduled to start in 2013. This could potentially lead to further reduction requirements. A substantial portion of PPGs GHG emissions are generated by locations in the U.S.; however, at this time it is uncertain whether the U.S. will set GHG reduction goals under the Kyoto Protocol or by some other mechanism. PPG has joined the U.S.-based Climate Registry to assist in verification of future GHG reduction achievements in preparation for potential imposition in the U.S. of GHG reduction goals.
Energy prices and availability of supply continue to be a concern for major energy users. Since PPGs GHG emissions arise principally from combustion of fossil fuels, PPG has for some time recognized the desirability of reducing energy consumption and GHG generation. We committed under the Business Roundtables Climate RESOLVE program to reduce our GHG intensity (GHGs produced per million dollars of revenue) by 18% between 2002 and 2012. PPG achieved this target in 2006, six years ahead of schedule. Recognizing the continuing importance of this matter, PPG has appointed an Energy Security and Climate Change Steering Group to guide the Companys progress in this area. Additionally, in 2007 PPG announced new corporate targets, namely (i) a reduction in energy intensity by 25% from 2006 to 2016 and (ii) a 10% absolute reduction in GHG emissions from 2006 to 2011. PPGs public disclosure on energy security and climate change can be viewed at the Carbon Disclosure Project www.cdproject.net.
Available Information
The Companys website address is www.ppg.com . The Company posts, and shareholders may access without charge, the Companys recent filings and any amendments thereto of its annual reports on Form 10-K, quarterly reports on Form 10-Q and its proxy statements as soon as reasonably practicable after such reports are filed with the Securities and Exchange Commission (SEC). The
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Company also posts all financial press releases and earnings releases to its website. All other reports filed or furnished to the SEC, including reports on Form 8-K, are available via direct link on PPGs website to the SECs website, www.sec.gov. Reference to the Companys and SECs websites herein does not incorporate by reference any information contained on those websites and such information should not be considered part of this Form 10-K.
As a global manufacturer of coatings, glass and chemicals products, we operate in a business environment that includes risks. These risks are not unlike the risks we have faced in the recent past. Each of the risks described in this section could adversely affect our operating results, financial position and liquidity. While the factors listed here are considered to be the more significant factors, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles which may adversely affect our business.
The current U.S. and worldwide recession and credit crisis could have a continuing negative impact on our results of operations and cash flows.
During the fourth quarter of 2008, the demand for many of our products in Europe, Asia and Latin America declined significantly as the impact of the recession in the U.S. economy, which had impacted demand throughout 2008, spread globally. The impact of the recession was felt most noticeably by our businesses serving the automotive original equipment, construction and general industrial markets. Entering 2009, the global economic outlook in terms of GDP and industrial production is for weak conditions to prevail. Many economists are forecasting that the recession will persist through at least the first half of 2009. Continued weakness in the global economy would be expected to result in lower demand for many of our products and increase our exposure to credit risk from customers in the industries most impacted by the weak economy. How deep and how long the recession will last is not known.
We sell products to global and regional automotive original equipment manufacturers and their suppliers.
Global production of automobiles and light trucks declined by 2% in 2008 reflecting declines of 19% in the U.S. and Canada and 7% in Western Europe that were substantially offset by growth in production in Eastern Europe, Asia and Latin America. The industry forecast for 2009 projects a global decline of nearly 10%, with declines in production in all regions of the world led by the U.S. and Canada, where vehicle production is forecast to be down approximately 25%. Declines in the global production of automobiles and light trucks of this magnitude would adversely impact our sales volume.
The North American automotive industry continues to experience structural change, including the loss of U.S. market share by General Motors, Ford and Chrysler. Further deterioration of market conditions could cause certain of our customers and suppliers to experience liquidity problems, potentially resulting in the write-off of amounts due from these customers and cost impacts of changing suppliers. Our worldwide sales to General Motors, Ford and Chrysler are made under normal credit terms and we expect to collect substantially all of the approximately $45 million due from these customers at December 31, 2008 in the first quarter of 2009; however, we remain focused on the continual management of this credit risk.
Increases in prices and declines in the availability of raw materials could negatively impact our financial results.
Our operating results are significantly affected by the cost of raw materials and energy, including natural gas. Changes in natural gas prices have a significant impact on the operating performance of our Commodity Chemicals and Glass businesses. Each one-dollar change in our unit price of natural gas per million British Thermal Units (mmbtu) has a direct impact of approximately $60 million to $70 million on our annual operating costs. In 2008, our natural gas costs were volatile and, on average increased almost 25% in the U.S. compared to 2007 levels. Year-over-year coatings raw material costs rose by $150 million in 2008 following a rise of $40 million in 2007. This inflation, which was partially linked to increased oil prices, occurred in all regions of the world, with the most significant impact in the U.S. The impact was most significant in the automotive, industrial, architectural coatingsAmericas and Asia Pacific and automotive refinish businesses.
We also import raw materials, particularly for use at our manufacturing facilities in the emerging regions of the world. In most cases, those imports are priced in the currency of the supplier and, therefore, our margins are at risk of being lowered if those foreign currencies strengthen against the local currencies of our manufacturing facilities.
Additionally, certain raw materials are critical to our production processes. These include titanium dioxide and epoxy and other resins in the Coatings businesses; lenses, photochromic dye, sand and soda ash in the Optical and Specialty Materials businesses; brine and ethylene in the Commodity Chemicals business; and sand and soda ash in the Glass businesses. We have made, and plan to continue to make, supply arrangements to meet the planned operating requirements for the future. However, an inability to obtain these critical raw materials would adversely impact our ability to produce products.
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We experience substantial competition from certain low-cost regions.
Growing competition from companies in certain regions of the world, including Asia, Eastern Europe and Latin America, where energy and labor costs are lower than those in the U.S., could result in lower selling prices or reduced demand for some of our glass and fiber glass products.
We are subject to existing and evolving standards relating to the protection of the environment.
Excluding 2006, pretax charges against income for environmental remediation ranged between $10 million and $49 million per year over the past 15 years. In 2006 those charges totaled $207 million. We have accrued $299 million for estimated remediation costs that are probable at December 31, 2008. Our assessment of the potential impact of these environmental contingencies is subject to considerable uncertainty due to the complex, ongoing and evolving process of investigation and remediation, if necessary, of such environmental contingencies, and the potential for technological and regulatory developments. As such, in addition to the amounts currently reserved, we may be subject to loss contingencies related to environmental matters estimated to be as much as $200 million to $300 million. Such unreserved losses are reasonably possible but are not currently considered to be probable of occurrence.
We are involved in a number of lawsuits and claims, both actual and potential, in which substantial monetary damages are sought.
The results of any future litigation or settlement of such lawsuits and claims are inherently unpredictable, but such outcomes could be adverse and material in amount.
For over 30 years, we have been a defendant in lawsuits involving claims alleging personal injury from exposure to asbestos.
Most of our potential exposure relates to allegations by plaintiffs that PPG should be liable for injuries involving asbestos containing thermal insulation products manufactured by Pittsburgh Corning Corporation (PC). PPG is a 50% shareholder of PC. Although we have entered into a settlement arrangement with several parties concerning these asbestos claims as discussed in Note 15, Commitments and Contingent Liabilities, under Item 8 of this Form 10-K, the arrangement remains subject to court proceedings and, if not approved, the outcome could be material to the results of operations of any particular period.
Our products are subject to existing and evolving regulations.
Regulations concerning the composition and use of chemical products continue to evolve. Developments concerning these regulations could potentially impact the availability or viability of some of the raw materials we use in our product formulations and/or our ability to supply certain products to some customers or markets.
Our international operations expose us to additional risks and uncertainties that could affect our financial results.
Because we are a global company, our results are subject to certain inherent risks, including economic and political conditions in international markets and fluctuations in foreign currency exchange rates. While approximately 75% of sales and operating income in 2008 was generated by products sold in the United States, Canada and Western Europe, our remaining sales and operating income are generated in developing regions, such as Asia, Eastern Europe and Latin America.
As a producer of chemicals, we manufacture and transport certain materials that are inherently hazardous due to their toxic nature.
We have significant experience in handling these materials and take precautions to handle and transport them in a safe manner. However, these materials, if mishandled or released into the environment, could cause substantial property damage or personal injuries resulting in significant legal claims against us. In addition, evolving regulations concerning the security of chemical production facilities and the transportation of hazardous chemicals could result in increased future capital or operating costs.
Business disruptions could have a negative impact on our results of operations and financial condition.
Unexpected events, including supply disruptions, temporary plant and/or power outages, natural disasters and severe weather events, fires, or war or terrorist activities, could increase the cost of doing business or otherwise harm the operations of PPG, our customers and our suppliers. It is not possible for us to predict the occurrence or consequence of any such events. However, such events could reduce demand for our products or make it difficult or impossible for us to receive raw materials from suppliers and to deliver products to customers.
Item 1b. Unresolved Staff Comments
None.
2008 PPG ANNUAL REPORT AND FORM 10-K | 11 |
The Companys corporate headquarters is located in Pittsburgh, Pa. The Companys manufacturing facilities, sales offices, research and development centers and distribution centers are located throughout the world. The Company operates 133 manufacturing facilities in 44 countries. The Companys principal manufacturing and distribution facilities are as follows:
Performance Coatings: |
Clayton, Australia; Delaware, Ohio; Dover, Del.; Huntsville, Ala.; Kunshan, China; Stowmarket, United Kingdom; Sylmar, Calif.; approximately 410 company-owned stores in the United States and 50 company-owned stores in Australia | |
Industrial Coatings: |
Cieszyn, Poland; Cleveland, Ohio; Oak Creek, Wis.; Tianjin, China; Quattordio, Italy; San Juan del Rio, Mexico and Busan, South Korea | |
Architectural CoatingsEMEA: |
Ruitz, France; Budapest, Hungary; Amsterdam, Netherlands; Wroclaw, Poland; Birstall, United Kingdom and approximately 500 company-owned stores, including 175 stores each in France and the United Kingdom | |
Optical and Specialty Materials: |
Barberton, Ohio; Bangkok, Thailand; Lake Charles, La.; and Manila, Philippines | |
Commodity Chemicals: |
Lake Charles, La. and Natrium, W. Va. | |
Glass: |
Carlisle, Pa.; Hoogezand, Netherlands; Shelby, N.C. and Wichita Falls, Texas |
Including the principal manufacturing facilities noted above, the Company has manufacturing facilities in the following geographic areas:
United States: |
40 manufacturing facilities in 23 states. | |
Other Americas: |
13 manufacturing facilities in 6 countries. | |
EMEA: |
55 manufacturing facilities in 27 countries. | |
Asia: |
25 manufacturing facilities in 10 countries. |
The Companys principal research and development centers are located in Allison Park, Pa.; Harmarville, Pa.; and Monroeville, Pa.
The Companys headquarters and company-owned paint stores are located in facilities that are leased while, the Companys other facilities are generally owned. Our facilities are considered to be suitable and adequate for the purposes for which they are intended, and overall have sufficient capacity to conduct business in the upcoming year.
PPG is involved in a number of lawsuits and claims, both actual and potential, including some that it has asserted against others, in which substantial monetary damages are sought. These lawsuits and claims, the most significant of which are described below, relate to contract, patent, environmental, product liability, antitrust and other matters arising out of the conduct of PPGs current and past business activities. To the extent that these lawsuits and claims involve personal injury and property damage, PPG believes it has adequate insurance; however, certain of PPGs insurers are contesting coverage with respect to some of these claims, and other insurers, as they had prior to the asbestos settlement described below, may contest coverage with respect to some of the asbestos claims if the settlement is not implemented. PPGs lawsuits and claims against others include claims against insurers and other third parties with respect to actual and contingent losses related to environmental, asbestos and other matters.
The result of any future litigation of such lawsuits and claims is inherently unpredictable. However, management believes that, in the aggregate, the outcome of all lawsuits and claims involving PPG, including asbestos-related claims in the event the settlement described below does not become effective, will not have a material effect on PPGs consolidated financial position or liquidity; however, such outcome may be material to the results of operations of any particular period in which costs, if any, are recognized.
For over 30 years, PPG has been a defendant in lawsuits involving claims alleging personal injury from exposure to asbestos. For a description of asbestos litigation affecting the Company and the terms and status of the proposed asbestos settlement, see Note 15, Commitments and Contingent Liabilities, under Item 8 of this Form 10-K.
Over the past several years, the Company and others have been named as defendants in several cases in various jurisdictions claiming damages related to exposure to lead and remediation of lead-based coatings applications. PPG has been dismissed as a defendant from most of these lawsuits and has never been found liable
Item 4. Submission of Matters to a Vote of Security Holders
None.
12 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Executive Officers of the Company
Set forth below is information related to the Companys executive officers as of February 19, 2009.
Name | Age | Title | ||
Charles E. Bunch (a) |
59 | Chairman of the Board and Chief Executive Officer since July 2005 | ||
James C. Diggs |
60 | Senior Vice President and General Counsel since July 1997 and Secretary since September 2004 | ||
William H. Hernandez (b) |
60 | Senior Vice President, Finance and Chief Financial Officer since January 1995 | ||
J. Rich Alexander (c) |
53 | Senior Vice President, Performance Coatings since May 2005 | ||
Pierre-Marie De Leener (d) |
51 | Senior Vice President, Architectural Coatings, Europe, Middle East and Africa since January 2008 and President, PPG Europe since July 2008 | ||
Richard C. Elias (e) |
55 | Senior Vice President, Optical and Specialty Materials since July 2008 | ||
Victoria M. Holt (f) |
51 | Senior Vice President, Glass and Fiber Glass since May 2005 | ||
Michael H. McGarry (g) |
50 | Senior Vice President, Commodity Chemicals since July 2008 | ||
William A. Wulfsohn (h) |
46 | Senior Vice President, Industrial Coatings since May 2005 |
(a) | Mr. Bunch held the position of President and Chief Operating Officer from July 2002 until July 2005. |
(b) | Mr. Hernandez also held the position of Treasurer from April 2007 until January 2008. |
(c) | Mr. Alexander held the position of Vice President, Industrial Coatings from July 2002 until April 2005. |
(d) | Mr. De Leener was appointed to Senior Vice President, Architectural Coatings, Europe, Middle East and Africa upon PPGs acquisition of SigmaKalon Group on January 2, 2008. He previously served as Chief Executive Officer of SigmaKalon Group from 1999 until January 2008. |
(e) | Mr. Elias held the position of Vice President, Optical Products from April 2000 until June 2008. |
(f) | Ms. Holt held the position of Vice President, Fiber Glass from February 2003 until April 2005. |
(g) | Mr. McGarry held the positions of Vice President, Coatings, Europe and Managing Director, PPG Europe from July 2006 through June 2008; Vice President, Chlor-Alkali and Derivatives from March 2004 through June 2006; and General Manager, Fine Chemicals from October 2000 through February 2004. |
(h) | Mr. Wulfsohn also held the position of Managing Director, PPG Europe from May 2005 until June 2006; and the position of Vice President, Coatings, Europe, and Managing Director, PPG Europe from February 2003 until April 2005. |
Part II
Item 5. Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The information required by Item 5 regarding market information, including stock exchange listings and quarterly stock market prices, dividends and holders of common stock is included in Exhibit 13.1 filed with this Form 10-K and is incorporated herein by reference. This information is also included in the PPG Shareholder Information on page 79 of the Annual Report to shareholders.
Directors who are not also officers of the Company receive common stock equivalents pursuant to the PPG Industries, Inc., Deferred Compensation Plan for Directors (PPG Deferred Compensation Plan for Directors). Common stock equivalents are hypothetical shares of common stock having a value on any given date equal to the value of a share of common stock. Common stock equivalents earn dividend equivalents that are converted into additional common stock equivalents but carry no voting rights or other rights afforded to a holder of common stock. The common stock equivalents credited to directors under this plan are exempt from registration under Section 4(2) of the Securities Act of 1933 as private offerings made only to directors of the Company in accordance with the provisions of the plan.
Under the PPG Deferred Compensation Plan for Directors, each director may elect to defer the receipt of all or any portion of the compensation paid to such director for serving as a PPG director. All deferred payments are held in the form of common stock equivalents. Payments out of the deferred accounts are made in the form of common stock of the Company (and cash as to any fractional common stock equivalent). The directors, as a group, were credited with 9,751; 9,742; and 2,886 common stock equivalents in 2008, 2007 and 2006, respectively, under this plan. The values of the common stock equivalents, when credited, ranged from $43.89 to $67.77 in 2008, $68.71 to $75.50 in 2007 and $61.32 to $65.84 in 2006.
2008 PPG ANNUAL REPORT AND FORM 10-K | 13 |
Issuer Purchases of Equity Securities
The following table summarizes the Companys stock repurchase activity for the three months ended December 31, 2008:
Month |
Total
Number of Shares Purchased |
Average
Price Paid per Share |
Total Number
of Shares
as Part
of
|
Maximum
that May
|
|||||||
October 2008 | |||||||||||
Repurchase program |
| $ | | | 3,868,609 | ||||||
|
|||||||||||
Other transactions (2) |
| | | | |||||||
November 2008 | |||||||||||
Repurchase program |
18,600 | 37.77 | | 3,850,009 | |||||||
|
|||||||||||
Other transactions (2) |
| | | | |||||||
December 2008 | |||||||||||
Repurchase program |
| | | 3,850,009 | |||||||
|
|||||||||||
Other transactions (2) |
| | | | |||||||
Total quarter ended December 31, 2008 |
|||||||||||
Repurchase program |
18,600 | $ | 37.77 | | 3,850,009 | ||||||
|
|||||||||||
Other transactions (2) |
| | | |
(1) | These shares were repurchased under a 10 million share repurchase program approved by PPGs Board of Directors in October 2005. This program does not have an expiration date. |
(2) | Includes shares withheld or certified to in satisfaction of the exercise price and/or tax withholding obligation by holders of employee stock options who exercised options granted under the Companys equity compensation plans. |
Equity Compensation Plan Information
The equity compensation plan documents described in the footnotes below are included as Exhibits to this Form 10-K, and are incorporated herein by reference in their entirety. The following table provides information as of December 31, 2008 regarding the number of shares of PPG common stock that may be issued under PPGs equity compensation plans. For additional information on the Companys equity compensation program, see Note 20, Stock-Based Compensation, under Item 8 of this Form 10-K.
Plan category |
Number
of
(a ) |
Weighted-
(b) |
Number of
(c) |
|||||
Equity compensation plans
approved by security holders (1) |
8,289,946 |
$60.28 |
7,772,483 |
|||||
|
||||||||
Equity compensation plans
not approved by security holders (2) |
|
|
|
|||||
|
||||||||
Total |
8,289,946 |
$60.28 |
7,772,483 |
(1) | Equity compensation plans approved by security holders include the PPG Industries, Inc., Stock Plan, the PPG Industries, Inc., Omnibus Incentive Plan, the PPG Industries, Inc., Executive Officers Long Term Incentive Plan and the PPG Industries Inc., Long Term Incentive Plan. |
(2) | Excluded from the information presented here are common stock equivalents held under the PPG Industries, Inc., Deferred Compensation Plan and the PPG Industries, Inc., Deferred Compensation Plan for Directors, neither of which are equity compensation plans. As supplemental information, there were 526,569 common stock equivalents held under such plans as of December 31, 2008. |
Item 6. Selected Financial Data
The information required by Item 6 regarding the selected financial data for the five years ended December 31, 2008 is included in Exhibit 13.2 filed with this Form 10-K and is incorporated herein by reference. This information is also reported in the Five-Year Digest on page 78 of the Annual Report to shareholders.
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
Divestiture of Automotive Glass and Services Business
During the third quarter of 2007, the Company entered into an agreement to sell its automotive glass and services business to Platinum Equity (Platinum) for approximately $500 million. Accordingly, the assets and liabilities of this business were classified as held for sale and the results of operations and cash flows of this business were classified as discontinued operations. In the fourth quarter of 2007, PPG was notified that affiliates of Platinum had filed suit in the Supreme Court of the State
14 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Managements Discussion and Analysis
of New York, County of New York, alleging that Platinum was not obligated to consummate the agreement. Platinum also terminated the agreement. PPG has sued Platinum and certain of its affiliates for damages, including the $25 million breakup fee stipulated by the terms of the agreement, based on various alleged actions of the Platinum parties. While the transaction with Platinum was terminated, PPG management remained committed to a sale of the automotive glass and services business and continued to classify its assets and liabilities as held for sale and report its results of operations and cash flows as discontinued operations through the first quarter of 2008.
In July 2008, PPG entered into an agreement with affiliates of Kohlberg & Company, LLC, under which PPG would divest the automotive glass and services business to a new company formed by affiliates of Kohlberg. Under the agreement, PPG would receive a minority interest in the new company, and, as such, the accounting requirements of Statement of Financial Accounting Standards, (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets for classifying the business as assets held for sale and reporting its results of operations and cash flows as discontinued operations had no longer been met. The assets and liabilities of the business have been classified as held for use in the consolidated balance sheet as of December 31, 2007, and the results of operations and cash flows of the business through September 30, 2008 have been classified as continuing operations in the Glass reportable segment in the consolidated statements of income and cash flows under Item 8 of this Form 10-K for the three years ended December 31, 2008.
In the second quarter of 2008, as a result of the reclassification of the automotive glass and services business to continuing operations, PPG recorded a one-time, non-cash charge of $17 million ($11 million aftertax) to reflect a catch-up of depreciation expense, which was suspended when the business was classified as a discontinued operation. Additionally, in the second quarter of 2008, PPG recorded a charge of $19 million ($12 million aftertax) for special termination benefits and a pension curtailment loss relating to the impact of benefit changes, including accelerated vesting, negotiated as part of the sale.
The transaction with affiliates of Kohlberg was completed on September 30, 2008, with PPG receiving total proceeds of $315 million, including $225 million in cash and two 6-year notes totaling $90 million ($60 million at 8.5% interest and $30 million at 10% interest). Both notes, which may be prepaid at any time without penalty, are senior to the equity of the new company. In addition, PPG has received a minority interest of approximately 40 percent in the new company, Pittsburgh Glass Works LLC. This transaction resulted in a third quarter 2008 gain of $15 million pretax, net of transaction costs, and is included in Other income in the consolidated statement of income for the year ended December 31, 2008 under Item 8. The aftertax gain on the transaction was $3 million, reflective of tax expense of $12 million. Tax expense on the gain includes the tax cost of repatriating certain transaction proceeds from Canada to the U.S. and the impact of certain permanent book/tax differences which resulted in a larger taxable gain. PPG will account for its interest in Pittsburgh Glass Works LLC under the equity method of accounting from October 1, 2008 onward. PPG has retained certain liabilities for pension and post-employment benefits earned for service up to September 30, 2008.
Divestiture of Fine Chemicals Business
In the third quarter of 2007, PPG entered into an agreement to sell its fine chemicals business to ZaCh System S.p.A., a subsidiary of Zambon Company S.p.A., for approximately $65 million. The sale of this business was completed in November 2007. The results of operations and cash flows of this business, which had previously been included in the Optical and Specialty Materials reportable segment, have been classified as discontinued operations in the consolidated statements of income and cash flows under Item 8 for the years ended December 31, 2007 and 2006. PPG recorded a pretax loss on sale of the fine chemicals business of $25 million ($19 million aftertax) in 2007.
Performance in 2008 compared with 2007
Performance Overview
Our sales increased 30% to $15.8 billion in 2008 compared to $12.2 billion in 2007. Sales increased 28% due to the impact of acquisitions, 4% due to increased selling prices and 2% due to the positive effects of foreign currency translation. These sales increases were offset by a 2% decline due to lower sales volumes and by a 2% decline related to the automotive glass and services business divestiture.
Cost of sales, exclusive of depreciation and amortization, increased by $2,327 million in 2008 to $10,155 million compared to $7,828 million in 2007. This increase corresponds with the increase in sales. Cost of sales as a percentage of sales was 64.1% in both 2008 and 2007. Cost of sales in 2008 includes $94 million for the flow through cost of sales of the step up to fair value of acquired inventory related to the SigmaKalon acquisition.
Selling, general and administrative expenses increased by $1,122 million in 2008 due principally to the impact of the acquisition of SigmaKalon. Selling, general and administrative expenses as a percentage of sales were 21.7% for 2008 compared to 18.9% for 2007. The increase
2008 PPG ANNUAL REPORT AND FORM 10-K | 15 |
Managements Discussion and Analysis
in selling, general and administrative expenses as a percentage of sales was due largely to the addition of SigmaKalon and reflects the distribution nature of these businesses, which requires higher selling, distribution, advertising and regional management costs to serve their broad customer profile. Selling, general and administrative expenses as a percent of sales in the Architectural Coatings - EMEA reportable segment are in line with PPGs other architectural coatings businesses. Other factors causing the increase in these expenses were higher levels of cost to support growth in our coatings and optical businesses, higher bad debt expense associated with the impact of the weakening economy on our customers, a second quarter charge of $19 million for special termination benefits and foreign currency translation.
Depreciation expense increased by $83 million due primarily to the acquisition of SigmaKalon. Research and development costs increased by $103 million and amortization increased by $77 million compared to 2007. These increases were primarily due to the acquisition of SigmaKalon. Interest expense increased by $161 million in 2008 due to debt incurred to finance the acquisition of SigmaKalon.
During the third quarter of 2008, the Company finalized a restructuring plan that is part of implementing PPGs global transformation strategy and the integration of its acquisition of SigmaKalon. The Company recorded a charge of $163 million for the cost of this restructuring.
The effective tax rate on pretax earnings from continuing operations in 2008 was 31.3% compared to 29.1% in 2007. The 2008 rate includes a tax benefit of $14 million related to the settlement with the Internal Revenue Service of our U.S. tax returns for tax years 2004, 2005 and 2006. The 2008 rate also includes a total net tax benefit of 26.5% on costs related to the acquisition of SigmaKalon, the charges for the catch-up of depreciation expense and the impact of benefit changes related to the divestiture of the automotive glass and services business, the business restructuring charge, the adjustment to increase the current value of the Companys obligation under the proposed asbestos settlement, as discussed in Note 15, Commitments and Contingent Liabilities under Item 8 of this Form 10-K, and the gain on divestiture of the automotive glass and services business. The tax rate was 31.3% on the remaining pretax earnings in 2008.
The rate in 2007 includes the benefit of $15 million for the reversal of a valuation allowance previously recorded against the benefit of a tax net operating loss carryforward, the benefit associated with an enacted reduction in the Canadian federal corporate income tax rate and a tax benefit of 39% on the adjustment to increase the current value of the Companys obligation under the proposed asbestos settlement. The tax rate was 30.5% on the remaining pretax earnings from continuing operations in 2007.
The effective tax rate on pretax earnings from discontinued operations in 2007 was 25.2%. This rate includes a tax benefit of 24% on the loss on the sale of the fine chemicals business. The tax rate was 36.5% on the remaining pretax earnings from discontinued operations in 2007.
Net income and earnings per share assuming dilution for 2008 and 2007 are summarized below:
(1) | Costs related to SigmaKalon acquisition, including $66 million aftertax for the flow-through cost of sales of the step up to fair value of acquired inventory and $23 million aftertax for the write-off of in-process research and development. |
(2) | Represents the catch-up of depreciation expense, which was suspended when the automotive glass and services business was classified previously as a discontinued operation. |
(3) | Represents special termination benefits and a pension curtailment loss relating to the impact of benefit changes, including accelerated vesting, negotiated as part of the sale of the automotive glass and services business. |
(4) | Net increase in the current value of the Companys obligation under the proposed asbestos settlement. |
(5) | Costs related to Barloworld Coatings Australia acquisition for the flow-through cost of sales of the step up to fair value of acquired inventory. |
(6) | Represents curtailment losses on certain defined benefit plans of the automotive glass and services business. |
16 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Managements Discussion and Analysis
Results of Reportable Business Segments
Net sales | Segment income | |||||||||||
(Millions) | 2008 | 2007 | 2008 | 2007 | ||||||||
Performance Coatings |
$ | 4,716 | $ | 3,811 | $ | 582 | $ | 563 | ||||
Industrial Coatings |
3,999 | 3,646 | 212 | 370 | ||||||||
Architectural Coatings EMEA |
2,249 | | 141 | | ||||||||
Optical and Specialty Materials |
1,134 | 1,029 | 244 | 235 | ||||||||
Commodity Chemicals |
1,837 | 1,539 | 340 | 243 | ||||||||
Glass |
1,914 | 2,195 | 70 | 138 |
Performance Coatings sales increased $905 million or 24% in 2008. Sales increased 21% due to acquisitions, largely due to the impact of the SigmaKalon protective and marine coatings business. Sales also grew by 3% due to higher selling prices and 2% due to the positive impact of foreign currency translation. Sales volumes declined 2% as reduced volumes in architectural coatings Americas and Asia Pacific and automotive refinish were not fully offset by improved volumes in the aerospace and protective and marine businesses. Volume growth in the aerospace businesses occurred throughout the world, while the volume growth in protective and marine coatings occurred primarily in Asia. Segment income increased $19 million in 2008. Factors increasing segment income were the positive impact of acquisitions, lower overhead costs and the positive impact of foreign currency translation. The benefit of higher selling prices more than offset the negative impact of inflation, including higher raw materials and benefit costs. Segment income was reduced by the impact of the lower sales volumes in architectural coatings and automotive refinish, which more than offset the benefit of volume gains in the aerospace and protective and marine coatings businesses.
Industrial Coatings sales increased $353 million or 10% in 2008. Sales increased 11% due to acquisitions, including the impact of the SigmaKalon industrial coatings business. Sales also grew 3% due to the positive impact of foreign currency translation, and 1% from higher selling prices. Sales volumes declined 5% as reduced volumes were experienced in all three businesses, reflecting the substantial declines in global demand. Volume declines in the automotive and industrial businesses were primarily in the U.S. and Canada. Additional volume declines in the European and Asian regions were experienced by the industrial coatings business. In packaging coatings, volume declines in Europe were only partially offset by gains in Asia and North America. Segment income declined $158 million in 2008 due to the lower volumes and inflation, including higher raw material and freight costs, the impact of which was only partially mitigated by the increased selling prices. Segment income also declined due to higher selling and distribution costs, including higher bad debt expense. Factors increasing segment income were the earnings of acquired businesses, the positive impact of foreign currency translation and lower manufacturing costs.
Architectural Coatings - EMEA sales for the year were $2,249 million. This business was acquired in the SigmaKalon acquisition. Segment income was $141 million, which included amortization expense of $63 million related to acquired intangible assets and depreciation expense of $58 million.
Optical and Specialty Materials sales increased $105 million or 10% in 2008. Sales increased 5% due to higher volumes in our optical products business resulting from the launch of Transitions Opticals next generation lens product, 3% due to the positive impact of foreign currency translation and 2% due to increased selling prices. Segment income increased $9 million in 2008. The increase in segment income was the result of increased sales volumes and the favorable impact of currency partially offset by increased selling and marketing costs in the optical products business related to the Transitions Optical product launch mentioned above. Increased selling prices only partially offset higher raw material costs, primarily in our silicas business.
Commodity Chemicals sales increased $298 million or 19% in 2008. Sales increased 18% due to higher selling prices and 1% due to improved sales volumes. Segment income increased $97 million in 2008. Segment income increased in large part due to higher selling prices, which more than offset the negative impact of inflation, primarily higher raw material and energy costs. Segment income also improved due to lower manufacturing costs, while lower margin mix and equity earnings reduced segment income.
Glass sales decreased $281 million or 13% in 2008. Sales decreased 11% due to the divestiture of the automotive glass and services business in September 2008 and 4% due to lower sales volumes. Sales increased 2% due to higher selling prices. Segment income decreased $68 million in 2008. Segment income decreased due to the divestiture of the automotive glass and services business, lower volumes, the negative impact of inflation and lower equity earnings from our Asian fiber glass joint ventures. Factors increasing segment income were lower manufacturing costs, higher selling prices and stronger foreign currency.
Outlook
Overall global economic activity was volatile in 2008 with an overall downward trend. The North American economy continued a slowing trend which began during the second half of 2006 and continued all of 2007. The impact of the weakening U.S. economy was particularly
2008 PPG ANNUAL REPORT AND FORM 10-K |
17
|
Managements Discussion and Analysis
evident in lower automotive production, housing starts and consumer confidence. Many economies in other regions were stable early in 2008 but then began to slow during the year, with nearly all global economies slowing rapidly in the fourth quarter. The significance of access to credit and overall liquidity concerns increased as the year progressed, triggering intervention by many governments to provide interim financial aid to the global banking system and to lower interest rates and implement other measures intended to stimulate economic activity. Industrial end-markets experienced rapid declines in the fourth quarter, as global demand dropped reflecting a deepening U.S. recession and the spread of the banking crisis and recessionary conditions to many European, Asian and Latin American economies.
Early in 2008, global inflation intensified as oil prices accelerated to all-time highs. These inflationary trends continued well into the third quarter, driving up costs of other energy sources and many of the products that are dependent upon energy as a feedstock. Then, in recognition of the global economic slowing, prices of energy and many related commodities declined in the latter part of the year.
The North American economy continued to slow during the year. Residential construction continued to decline, while rising unemployment, high levels of mortgage foreclosures and real estate pricing declines were among the primary causal factors of the ongoing banking crisis. Industrial output sagged, with the U.S. automotive OEM market declining the most of any of the major industrial markets. By year-end, declines in many industrial end-markets exceeded 10 percent, with several declining 20-30 percent. The declining economic environment resulted in a continued upward shift of the U.S. unemployment rate and a decline in consumer confidence to all-time lows.
The European economy was more stable early in the year, with softness beginning to appear in a few countries such as Spain, Italy and the United Kingdom. Most of the remaining parts of Western Europe began to experience similar declines to the U.S. later in the year. Eastern European growth once again outpaced growth in Western Europe, with most countries continuing to grow throughout the year, albeit at declining rates. However, several countries, including Hungary, Poland and Russia began to experience economic decline stemming from either the spread of the banking crisis or the drop in commodity pricing.
The Asian economies continued to post very high growth rates well into the year, but the impact of the decline in the U.S. and European economies eventually led to declines in the Asian growth rates late in the year. Overall, China GDP grew to the point that China now represents the third largest economy globally, but even this growth rate fell below 10 percent for the first time in over five years.
Entering 2009, the overall economic outlook is uncertain and extremely bearish. Many economists believe the U.S. will experience its worst recession in at least 50 years, with other major regional economies possibly following suit. As a result, we expect the 2008 inflationary pressures on our input cost to, at least in part, reverse. The Company is anticipating a generally stronger U.S. dollar in 2009 resulting in negative sales and earnings impacts relating to translation of the sales and earnings from our foreign affiliates compared to 2008.
Pension and postretirement benefit costs will increase in 2009 due largely to the significant declines in plan assets due to 2008 investment performance. Our pension and postretirement benefit costs totaled $258 million in 2008, including charges of $34 million related to plan changes stemming from the divestiture of the automotive glass and services business and our 2008 restructuring actions. Based on our current estimates, we expect our ongoing pension and other postretirement benefits costs to increase by approximately $100-$125 million in 2009.
Our natural gas costs in 2008 were volatile and on average increased by almost 25 percent in the U.S. as compared to 2007. Changes in natural gas prices have a significant impact on the operating performance of our Commodity Chemicals and Glass businesses. Each one dollar change in our price of natural gas per million British thermal units (mmbtu) has a direct impact of $60 million to $70 million on our annual operating costs. Our 2008 natural gas costs averaged over $9.00 per mmbtu for the year, while our 2007 costs averaged about $7.25. While it remains difficult to predict future natural gas prices, in order to reduce the risks associated with volatile prices, we use a variety of techniques, which include reducing consumption through improved manufacturing processes, switching to alternative fuels and hedging. We currently estimate our cost for natural gas in the first quarter of 2009 will be lower than the first quarter of 2008. We currently have about 50% of our first quarter 2009 U.S. natural gas purchases hedged at a price of about $8.50, and approximately 50% of our 2009 U.S. annual requirements hedged at about $8.00. The current spot price for natural gas is about $5.00.
In the past year, we experienced increases in the prices we pay for raw materials used in many of our businesses, particularly in our coatings businesses. The increases have resulted from global industrial expansion, supply/demand imbalance and increases in supplier feedstock costs. We have and plan to continue to combat the impact of these rising costs by seeking alternate and global supply sources for our raw materials, reformulating our products,
18 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Managements Discussion and Analysis
improving our production processes and raising our selling prices. Year-over-year coatings raw material costs rose by about $150 million in 2008, or about a 5 percent increase, up notably from 2007 which increased by about $40 million or 1 percent. Our current forecast for the early portion of 2009 is for the cost of certain raw materials to decline, resulting from the delayed impact of lower oil prices and lower global demand for the materials we purchase. We also expect a negative impact on our margins in the United Kingdom, Eastern Europe, and Latin America, where raw materials are purchased in currencies that are expected to be stronger than the local currencies. About 30% of our coatings sales in Europe are made outside the Eurozone. Given the dynamic supply/demand, energy cost and currency environment, it is not feasible to project full year raw material pricing, but the main drivers will continue to be overall economic conditions and resulting supply and demand factors.
The combination of a tight supply position for caustic and high energy costs resulted in chlor-alkali pricing that ended 2008 at an all-time record high and pricing for the fourth quarter that was up 20% over the prior year. Chlor-alkali demand was strong at the beginning of the fourth quarter following the adverse impact of third quarter hurricanes on industrial activity in the U.S. Gulf Coast. Demand softened in November and December and we are anticipating that early 2009 demand levels will be less than in the fourth quarter.
We completed significant portfolio changes in 2008 that have been crucial in the transformation of the Company. We completed the acquisition of SigmaKalon. The total transaction value was approximately $3.2 billion, consisting of cash paid of $1,673 million and debt assumed of $1,517 million. We also completed a few other targeted acquisitions at a cost totaling nearly $140 million. As in past years, these acquisitions are intended to strengthen our coatings businesses by extending their geographic breadth and/or product offering. The sales for businesses held for less than one year added approximately $3.4 billion to PPGs 2008 sales with mid-single digit operating margins, excluding certain one-time acquisition related costs and including amortization expense stemming from the acquisitions, which amortization totaled $79 million. Interim financing from the SigmaKalon acquisition was replaced with permanent financing in March 2008, as PPG placed term debt with five, ten and thirty year maturities at a cost of 5.75%, 6.65% and 7.70% respectively, which we believe is favorable to the cost of placing that debt today.
Also in 2008, we completed the divestiture of a majority interest in the automotive glass and services business. We retained about a 40 percent interest in the business and will account for this interest using the equity method of accounting. The weak economic conditions that are adversely impacting our continuing businesses that serve the automotive OEM market are also significantly impacting this divested business.
The Company announced restructuring actions in the third quarter of 2008 focused on reducing its cost structure, including actions associated with achieving the synergies from the integration of the acquired SigmaKalon business and in reflection of the lower demand levels. We are considering additional cost-reduction actions which may result in additional restructuring charges and related cost savings in 2009.
Global economic conditions entering 2009 are extremely challenging due to continued lack of industrial demand and global credit issues. The transformation of the Company, including the 2008 portfolio changes, has enhanced our geographic sales mix, as now only about 45 percent of sales are derived in the U.S. and Canada, and emerging regions account for nearly 25 percent of sales. Additionally, we have broadened our end-markets served resulting in lower exposure to any individual end-market. Entering the year, we have $1 billion of cash on hand following record cash generation in 2008. We anticipate that our increased diversification and our cash and existing borrowing capacity will provide the Company with the liquidity it needs to finance operations and reward shareholders in 2009, even in the face of todays weakened global economy and the possibility that the recovery does not begin until 2010.
Accounting Standards Adopted in 2008
Note 1, Summary of Significant Accounting Policies, under Item 8 describes the Companys adoption of the Emerging Issues Task Force, (EITF) Issue No. 06-10, Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements, Statement of Financial Accounting Standards, (SFAS) No. 157, Fair Value Measurements and SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of Financial Accounting Standards Board, (FASB) Statement No. 115 as of January 1, 2008.
Accounting Standards to be Adopted in Future Years
Note 1, Summary of Significant Accounting Policies, under Item 8 describes the potential impact on PPG of accounting standards that are not yet effective, including SFAS No. 141 (revised 2007), Business Combinations, SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51, EITF Issue No. 07-1, Accounting for Collaborative Arrangements and SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities.
2008 PPG ANNUAL REPORT AND FORM 10-K | 19 |
Managements Discussion and Analysis
Performance in 2007 compared with 2006
Performance Overview
Our sales increased 12% to $12.2 billion in 2007 compared to $10.9 billion in 2006. Sales increased 6% due to the impact of acquisitions, 3% due to increased volumes and 3% due to the positive effects of foreign currency translation.
Cost of sales as a percentage of sales increased slightly to 64.1% compared to 63.6% in 2006 due to the adverse impact of inflation net of selling price changes. Selling, general and administrative expense increased slightly as a percentage of sales to 18.9% compared to 18.1% in 2006. These costs increased primarily due to higher expenses related to growth, including increased advertising costs and the impact of inflation.
Business restructuring expense decreased $37 million in 2007. In 2006, the Company finalized plans for certain actions to reduce its workforce and consolidate facilities and recorded a charge of $37 million.
Other charges decreased $195 million in 2007. The reduction was primarily due to a reduction in environmental expenses, which were $195 million lower in 2007 as compared to 2006.
Other earnings increased $18 million in 2007 due to higher royalty income, higher interest income and gains from asset sales.
The effective tax rate on pretax earnings from continuing operations in 2007 was 29.1% compared to 26.1% in 2006. The rate in 2007 included the benefit of $15 million for the reversal of a valuation allowance previously recorded against the benefit of a tax net operating loss carryforward, the benefit associated with an enacted reduction in the Canadian federal corporate income tax rate and a tax benefit of 39% on the adjustment to increase the current value of the Companys obligation under the proposed asbestos settlement. The tax rate was 30.5% on the remaining pretax earnings from continuing operations in 2007. The effective tax rate on earnings from continuing operations in 2006 included the benefit of a tax refund from Canada resulting from the favorable resolution of a tax dispute dating back to 1998 and a tax benefit related to the settlement with the Internal Revenue Service of our tax returns for the years 2001-2003. In the aggregate, these benefits reduced 2006 income tax expense by $39 million. The 2006 effective tax rate also included a tax benefit of 36% on the charge for business restructuring and a tax benefit of 39% on the third quarter environmental remediation charge for sites in New Jersey and Louisiana, on the charges for legal settlements, and on the adjustment to increase the current value of the Companys obligation under the proposed asbestos settlement. Income tax expense of 39% was recognized on certain insurance recoveries, and income tax expense of 29.4% was recognized on the remaining pretax earnings from continuing operations in 2006.
The effective tax rate on pretax earnings from discontinued operations in 2007 was 25.2% compared to 39% in 2006. The rate in 2007 included a tax benefit of 24% on the loss on the sale of the fine chemicals business. The tax rate was 36.5% on the remaining pretax earnings from discontinued operations in 2007.
Net income and earnings per share assuming dilution for 2007 and 2006 are summarized below:
(1) | Costs related to Barloworld Coatings Australia acquisition for the flow-through cost of sales of the step up to fair value of acquired inventory. |
(2) | Net increase in the current value of the Companys obligation under the proposed asbestos settlement. |
(3) | Represents curtailment losses on certain defined benefit plans of the automotive glass and services business. |
(4) |
Charge for estimated environmental remediation costs at our former chromium manufacturing plant in Jersey City, N.J. and at the Calcasieu River estuary near our Lake Charles, La.
|
Results of Reportable Business Segments
Net sales | Segment income | |||||||||||
(Millions) | 2007 | 2006 | 2007 | 2006 | ||||||||
Performance Coatings |
$ | 3,811 | $ | 3,088 | $ | 563 | $ | 514 | ||||
Industrial Coatings |
3,646 | 3,236 | 370 | 349 | ||||||||
Optical and Specialty Materials |
1,029 | 904 | 235 | 217 | ||||||||
Commodity Chemicals |
1,539 | 1,483 | 243 | 285 | ||||||||
Glass |
2,195 | 2,227 | 138 | 148 |
Performance Coatings sales increased $723 million or 23% in 2007. Sales increased 15% due to sales from acquisitions in all Performance Coatings businesses, 4% due to the positive impact of foreign currency translation
20 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Managements Discussion and Analysis
and 3% due to improved sales volumes in our aerospace and automotive refinish businesses, which more than offset slightly lower volumes in architectural coatings. The volume growth in the aerospace and refinish businesses occurred throughout the world, while the volume decline in architectural coatings was in North America. Sales also increased 1% due to higher selling prices. Segment income increased $49 million to a total of $563 million in 2007. Factors increasing segment income were improved sales volumes, earnings from acquisitions and the positive impact of foreign currency translation. Additionally, the benefit of higher selling prices more than offset the impact of inflation. Segment income decreased due to higher overhead costs to support growth initiatives in this segment.
Industrial Coatings sales increased $410 million or 13% in 2007. Sales increased 6% due to the positive impact of foreign currency translation, 4% due to acquisitions in our automotive and industrial coatings businesses and 3% from improved sales volumes as volume increases in automotive coatings and packaging coatings more than offset declines in the volume of the industrial coatings business in the U.S. and Canada. Volume growth in the automotive coatings business occurred in all regions of the world, while the volume growth in packaging coatings was experienced mainly in Asia and Europe. The decline in industrial coatings North American volumes overshadowed solid growth for this business in Europe, Asia and Latin America. Segment income increased $21 million in 2007 due to improved sales volumes, the impact of acquisitions, lower manufacturing costs and the positive impact of foreign currency translation. Factors decreasing segment income were inflation, including higher raw material costs, which more than offset a slight improvement in selling prices, and increased overhead costs to support growth initiatives.
Optical and Specialty Materials sales increased $125 million or 14% in 2007. Sales increased 8% due to higher volumes primarily in the optical products business, 4% due to the positive impact of foreign currency translation, 1% as the result of sales from acquisitions in the optical products business and 1% due to higher selling prices. Segment income increased $18 million in 2007. The increase in segment income was primarily the result of the increased sales volumes partially offset by higher advertising expense related to optical products volume growth initiatives in all regions and to the impending launch of Transitions Opticals next generation lens product in the first quarter of 2008.
Commodity Chemicals sales increased $56 million or 4% in 2007. Sales increased 9% due to higher sales volumes of caustic and derivatives, which was partially offset by a 5% decrease in selling prices in part due to lower natural gas input costs. Segment income decreased $42 million in 2007. Segment income was lower in large part due to lower selling prices, higher manufacturing costs, including maintenance costs and higher raw material costs. Segment income also decreased as a result of the absence of an insurance recovery received in 2006 for damage caused by Hurricane Rita in 2005. The benefit of lower energy and environmental costs and improved sales volumes were factors that increased segment income in 2007.
Glass sales decreased by $32 million or 1% in 2007. Sales decreased 1% due to lower sales volumes in our automotive glass and services business and 1% due to the negative impact of lower selling prices primarily in our performance glazings business. Pricing in the performance glazings business includes a surcharge related to the cost of energy lagged by one quarter. The surcharge in 2006 exceeded the 2007 surcharge due to higher energy costs during the comparable periods. Sales increased by 1% due to the positive impact of foreign currency translation. Segment income decreased $10 million in 2007. Segment income decreased due to the negative impact of inflation and lower pricing, including the lower energy surcharge in performance glazings. These factors were only partially offset by the benefit from lower manufacturing and selling costs.
See Note 24, Reportable Business Segment Information, under Item 8 of this Form 10-K for further information related to the Companys operating segments and reportable business segments.
Commitments and Contingent Liabilities, including Environmental Matters
PPG is involved in a number of lawsuits and claims, both actual and potential, including some that it has asserted against others, in which substantial monetary damages are sought. See Item 3, Legal Proceedings and Note 15, Commitments and Contingent Liabilities, under Item 8 of this Form 10-K for a description of certain of these lawsuits, including a description of the proposed asbestos settlement and a description of the antitrust suits against PPG related to the flat glass and automotive refinish industries. As discussed in Item 3 and Note 15, although the result of any future litigation of such lawsuits and claims is inherently unpredictable, management believes that, in the aggregate, the outcome of all lawsuits and claims involving PPG, including asbestos-related claims in the event the proposed asbestos settlement described in Note 15 does not become effective, will not have a material effect on PPGs consolidated financial position or liquidity; however, any such outcome may be material to the results of operations of any particular period in which costs, if any, are recognized.
2008 PPG ANNUAL REPORT AND FORM 10-K | 21 |
Managements Discussion and Analysis
It is PPGs policy to accrue expenses for environmental contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Reserves for environmental contingencies are exclusive of claims against third parties and are generally not discounted. Management anticipates that the resolution of the Companys environmental contingencies will occur over an extended period of time. As of December 31, 2008 and 2007, PPG had reserves for environmental contingencies totaling $299 million and $276 million, respectively, of which $44 million and $57 million, respectively, were classified as current liabilities. Pretax charges against income for environmental remediation costs in 2008, 2007 and 2006 totaled $15 million, $12 million and $207 million, respectively, and are included in Other charges in the consolidated statement of income. Cash outlays related to such environmental remediation aggregated $24 million, $19 million and $22 million, in 2008, 2007 and 2006, respectively. As part of the allocation of the SigmaKalon purchase price to the assets acquired and liabilities assumed, the reserve for environmental contingencies was increased by $37 million in 2008. The impact of foreign currency translation decreased the liability by $5 million in 2008.
In addition to the amounts currently reserved for environmental remediation, the Company may be subject to loss contingencies related to environmental matters estimated to be as much as $200 million to $300 million, which range is unchanged since December 31, 2007. Such unreserved losses are reasonably possible but are not currently considered to be probable of occurrence.
Charges for estimated environmental remediation costs in 2006 were significantly higher than our historical range. Our continuing efforts to analyze and assess the environmental issues associated with a former chromium manufacturing plant site located in Jersey City, N.J., and at the Calcasieu River Estuary located near our Lake Charles, La., chlor-alkali plant resulted in a pre-tax charge of $173 million in the third quarter of 2006 for the estimated costs of remediating these sites. Excluding 2006, pretax charges against income have ranged between $10 million and $49 million per year for the past 15 years. We anticipate that charges against income in 2009 for environmental remediation costs will be within this historical range.
Management expects cash outlays for environmental remediation costs to be approximately $50 million in 2009 and to range from $45 million to $75 million annually through 2013. It is possible that technological, regulatory and enforcement developments, the results of environmental studies and other factors could alter our expectations with respect to charges against income and future cash outlays. Specifically, the level of expected cash outlays is highly dependent upon activity related to the former chromium manufacturing plant site in New Jersey, as PPG awaits approval of workplans that have been submitted to the applicable regulatory agencies.
Impact of Inflation
In 2008, PPG was able to more than offset the increase in our costs due to the negative effects of inflation, including the impact of higher raw materials and energy costs, with increased selling prices. In our Commodity Chemicals reportable segment, the increase in our costs due to inflation was more than offset by higher selling prices. In our Performance Coatings and Optical and Specialty Materials reportable segments, the increase in our costs due to the negative effects of inflation was offset by higher selling prices. However, in our Industrial Coatings and Glass reportable segments, the increase in our costs due to the negative effects of inflation was not offset by higher selling prices.
In 2007, the increase in our costs due to the negative effects of inflation, including the impact of higher raw material costs in our Industrial Coatings, Commodity Chemicals and Glass reportable segments, were not offset by higher selling prices. Higher selling prices did offset the negative impact of inflation in our Performance Coatings and Optical and Specialty Materials reportable segments.
In 2006, the increase in our costs due to the negative effects of inflation, including the impact of higher raw material costs in our coatings businesses, was offset by higher selling prices in our Industrial Coatings, Performance Coatings and Commodity Chemicals reportable segments and by reduced manufacturing costs in our Glass and Optical and Specialty Materials reportable segments.
In 2009, we expect that the combined impact of productivity improvements, lower manufacturing costs and higher selling
prices will offset any negative impact of inflation on raw materials, energy and other costs. We expect erosion in the cost of certain raw materials in some regions of the world in the beginning of 2009, resulting from the delayed impact of lower
oil prices and lower global demand for these raw materials. However, our forecast for raw material inflation remains uncertain for the full year 2009 given the current economic uncertainty and the volatility in commodity and raw material costs we
Liquidity and Capital Resources
During the past three years, we had sufficient financial resources to meet our operating requirements, to fund our capital spending, share repurchases and pension plans and to pay increasing dividends to our shareholders.
Cash from operating activities was $1,358 million, $996 million and $1,115 million in 2008, 2007 and 2006,
22 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Managements Discussion and Analysis
respectively. The increase in cash from operations in 2008 compared to 2007 of $362 million was due in large part to an increase in earnings after adjustment for non-cash charges for amortization, depreciation, SigmaKalon acquired inventory step-up and in-process research and development costs and business restructuring and to less growth in working capital. The major factors contributing to these higher year-over-year earnings were the earnings from the acquired SigmaKalon business and higher Commodity Chemicals earnings. Our strong 2008 performance in terms of cash from operating activities has enabled us to repay $681 million of debt during the year and still have over $1 billion of cash on hand at December 31, 2008. Our debt reduction activity has lowered our U.S. commercial paper outstanding at December 31, 2008 to $222 million. The credit crisis in the U.S. drove up our cost of borrowing in the commercial paper market late in 2008 by about 300 basis points compared to our cost earlier in 2008, shortened the term of our commercial paper borrowings and effectively reduced the amount of credit available to us in this market from time to time; however, our strong cash position and other available credit facilities were sufficient to fund the shortfall we experienced in terms of commercial paper availability in 2008. In the early part of 2009, our cost of borrowing in the commercial paper market has declined by about 400 basis points, and the amount of credit available to us in this market has returned to a more normal level.
Total current assets less total current liabilities (net working capital) decreased $171 million to $2,138 million at December 31, 2008 from $2,309 million at December 31, 2007. The decrease in net working capital is principally related to the change in net short-term borrowings and the growth in accounts payable and accrued liabilities, offset with increases in accounts receivable and inventory driven by acquisitions and an increase in cash due to our cash flow focus in the fourth quarter of 2008. Accounts receivable as a percent of annual sales for 2008 decreased to 17.7 percent from 20.6 percent in 2007. Days sales outstanding decreased to 65 days in 2008 from 75 days in 2007. Inventories as a percent of annual sales decreased to 10.7 percent from 12.5 percent in 2007. Inventory turnover was 5 times in 2008 and 2007.
Total capital spending was $2,056 million, $597 million and $771 million in 2008, 2007 and 2006, respectively. Spending related to modernization and productivity improvements, expansion of existing businesses and environmental control projects was $383 million, $364 million and $369 million in 2008, 2007 and 2006, respectively, and is expected to be approximately $200 million during 2009. Capital spending related to business acquisitions amounted to $1,673 million, $233 million and $402 million in 2008, 2007 and 2006, respectively.
On January 2, 2008, PPG completed the acquisition of SigmaKalon, a worldwide coatings producer based in Uithoorn, Netherlands, from global private investment firm Bain Capital (the seller). SigmaKalon produces architectural, protective and marine and industrial coatings and is a leading coatings supplier in Europe and other key markets across the globe, with an increasing presence in Africa and Asia. The total transaction value was approximately $3.2 billion, consisting of cash paid to the seller of $1,673 million and debt assumed of $1,517 million.
In order to provide financing for the SigmaKalon acquisition, in December 2007, PPG and certain of its subsidiaries entered into a three year 650 million revolving credit facility with several banks and financial institutions and Societe Generale, as facility agent for the lenders. The facility has an annual fee of 7 basis points. In addition, PPG and a subsidiary entered into two bridge loan agreements, one in the amount of 1 billion with multiple lenders and Credit Suisse as administrative agent for those lenders and the other in the amount of $500 million with Credit Suisse as the lender.
In December 2007, PPG issued $617 million of commercial paper and borrowed $1,056 million (717 million) under the 1 billion bridge loan agreement. The proceeds from these borrowings were deposited into escrow in December 2007. Upon closing of the acquisition on January 2, 2008, these amounts were released from escrow and paid to the seller. Also, in January 2008, PPG borrowed $1,143 million, representing the remaining $417 million (283 million) available under the 1 billion bridge loan agreement and $726 million (493 million) under the 650 million revolving credit facility. The proceeds from these borrowings and cash on hand of $116 million were used to refinance $1,259 million of the $1,517 million of SigmaKalon debt outstanding on the date of acquisition. No amounts were borrowed under the $500 million bridge loan agreement and, due to the passage of time and the specific purpose of this agreement, PPG can no longer make borrowings under this agreement.
On March 18, 2008, PPG completed a public offering of $600 million in aggregate principal amount of its 5.75% Notes due 2013 (the 2013 Notes), $700 million in aggregate principal amount of its 6.65% Notes due 2018 (the 2018 Notes) and $250 million in aggregate principal amount of its 7.70% Notes due 2038 (the 2038 Notes and, together with the 2013 Notes and the 2018 Notes, the Notes). The Notes were offered by the Company pursuant to its existing shelf registration. The proceeds of this offering of $1,538 million (net of discount and issuance costs) and additional borrowings of $195 million under the 650 million revolving credit
2008 PPG ANNUAL REPORT AND FORM 10-K | 23 |
Managements Discussion and Analysis
facility were used to repay existing debt, including certain short-term debt and the amounts outstanding under the 1 billion bridge loan. No further amounts can be borrowed under the 1 billion bridge loan. The discount and issuance costs related to the Notes, which totaled $12 million, will be amortized to interest expense over the respective lives of the Notes.
In the fourth quarter 2008, the Company monetized certain cross currency foreign exchange swap contracts, which had been designated as hedges of our Euro denominated net investment in SigmaKalon, and replaced them with new swap contracts. As a result of these swap monetizations, the Company received $208 million in cash proceeds. See Item 7a of this Form 10-K for further information regarding these instruments.
In July 2008, the Company entered into an agreement to divest its automotive OEM glass and automotive replacement glass and services businesses (automotive glass and services business). Under the agreement, PPG received a minority ownership interest in the new company formed by the buyer. The transaction was completed on September 30, 2008. The Company received proceeds of $225 million from this transaction.
Dividends paid to shareholders totaled $343 million, $335 million and $316 million in 2008, 2007 and 2006, respectively. PPG has paid uninterrupted dividends since 1899, and 2008 marked the 37th consecutive year of increased annual dividend payments to shareholders. Over time, our goal is to sustain our dividends at approximately one-third of our earnings per share.
During 2008, the Company repurchased 0.1 million shares of PPG common stock at a cost of $7 million under a previously authorized share repurchase program. In 2007, the Company purchased 3.7 million shares of PPG common stock at a cost of $274 million, and during 2006, the Company repurchased 2.3 million shares of PPG common stock at a cost of $153 million.
On August 17, 2006, the Pension Protection Act of 2006 (the PPA) was signed into law, changing the funding requirements for our U.S. defined benefit pension plans beginning in 2008. Under the requirements of PPA, we did not have a mandatory contribution to these plans in 2008; however, we made a voluntary contribution of $50 million to our U.S. defined benefit pension plans in 2008. We do not currently expect to have a mandatory contribution to these plans in 2009; however, due in large part to the negative investment return on pension plan assets in 2008, we made a voluntary contribution in the amount of $160 million to these plans in January 2009 and we may make additional voluntary contributions to these plans in 2009 in an amount up to $140 million. In both 2007 and 2006, we made voluntary contributions to our U.S. defined benefit pension plans of $100 million. Contributions were made to our non-U.S. defined benefit pension plans of $69 million, $49 million and $24 million for 2008, 2007 and 2006, respectively, some of which were required by local funding requirements. We expect to make contributions to our non-U.S. plans in 2009 of approximately $60 million, all of which are mandatory.
The ratio of total debt, including capital leases, to total debt and equity was 54% at December 31, 2008 and 42% at December 31, 2007. The increase in 2008 is primarily due to the additional debt borrowed to finance the acquisition of SigmaKalon combined with a reduction in equity driven by currency and pension adjustments to other comprehensive income (loss).
We continue to believe that our cash on hand, cash from operations and the Companys available debt capacity will continue to be sufficient to fund operating activities, capital spending, including acquisitions, dividend payments, debt service, amounts due under the proposed asbestos settlement, share repurchases, contributions to pension plans, and PPGs significant contractual obligations. These significant contractual obligations, along with amounts due under the proposed asbestos settlement are presented in the following table.
Obligations Due In:
|
|||||||||||||||||
(Millions) | Total | 2009 |
2010- 2011 |
2012- 2013 |
Thereafter | ||||||||||||
Contractual Obligations | |||||||||||||||||
Long-term debt |
$ | 3,122 | $ | 117 | $ | 378 | $ | 676 | $ | 1,951 | |||||||
|
|||||||||||||||||
Short-term debt |
784 | 784 | | | | ||||||||||||
|
|||||||||||||||||
Capital lease obligations |
6 | 2 | 1 | 1 | 2 | ||||||||||||
|
|||||||||||||||||
Operating leases |
633 | 126 | 189 | 116 | 202 | ||||||||||||
|
|||||||||||||||||
Interest payments (1) | 1,776 | 188 | 331 | 306 | 951 | ||||||||||||
|
|||||||||||||||||
Pension contributions (2) | 220 | 220 | | | | ||||||||||||
|
|||||||||||||||||
Unconditional purchase obligations |
1,220 | 374 | 403 | 101 | 342 | ||||||||||||
|
|||||||||||||||||
Total |
$ | 7,761 | $ | 1,811 | $ | 1,302 | $ | 1,200 | $ | 3,448 | |||||||
|
|||||||||||||||||
Asbestos Settlement (3) | |||||||||||||||||
Aggregate cash payments | $ | 825 | $ | 417 | $ | 29 | $ | 33 | $ | 346 | |||||||
|
|||||||||||||||||
PPG stock and other | 74 | 74 | | | | ||||||||||||
|
|||||||||||||||||
Total |
$ | 899 | $ | 491 | $ | 29 | $ | 33 | $ | 346 | |||||||
|
(1) | Includes interest on all outstanding debt. Interest for variable-rate debt instruments is based on effective rates at December 31, 2008. Interest for fixed-rate debt instruments have been adjusted for the impact of interest rate swaps using the effective rate at December 31, 2008. |
(2) | Includes the estimated pension contribution for 2009 only, as PPG is unable to estimate the pension contributions beyond 2009. |
(3) | We have recorded an obligation equal to the net present value of the aggregate cash payments, along with the PPG stock and other assets to be contributed to a trust under the proposed asbestos settlement. However, PPG has no obligation to pay any amounts under this settlement until the Funding Effective Date, as more fully discussed in Note 15, Commitments and Contingent Liabilities, under Item 8 of this Form 10-K. |
24 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Managements Discussion and Analysis
The unconditional purchase commitments are principally take-or-pay obligations related to the purchase of certain materials, including industrial gases, natural gas, coal and electricity, consistent with customary industry practice. These amounts also include PPGs commitment to purchase electricity and steam from the RS Cogen joint venture discussed in Note 6, Investments, under Item 8 of this Form 10-K.
See Note 9, Debt and Bank Credit Agreements and Leases, under Item 8 of this Form 10-K for details regarding the use and availability of committed and uncommitted lines of credit, letters of credit, guarantees and debt covenants.
In addition to the amounts available under the lines of credit, the Company has an automatic shelf registration on file with the SEC pursuant to which it may issue, offer and sell from time to time on a continuous or delayed basis any combination of securities in one or more offerings.
Off-Balance Sheet Arrangements
The Companys off-balance sheet arrangements include the operating leases and unconditional purchase obligations disclosed in the Liquidity and Capital Resources section in the contractual obligations table as well as letters of credit and guarantees as discussed in Note 9, Debt and Bank Credit Agreements and Leases, under Item 8 of this Form 10-K.
Critical Accounting Estimates
Management has evaluated the accounting policies used in the preparation of the financial statements and related notes presented under Item 8 of this Form 10-K and believes those policies to be reasonable and appropriate. We believe that the most critical accounting estimates made in the preparation of our financial statements are those related to accounting for contingencies, under which we accrue a loss when it is probable that a liability has been incurred and the amount can be reasonably estimated, and to accounting for pensions, other postretirement benefits, goodwill and other identifiable intangible assets with indefinite lives because of the importance of management judgment in making the estimates necessary to apply these policies.
Contingencies, by their nature, relate to uncertainties that require management to exercise judgment both in assessing the likelihood that a liability has been incurred as well as in estimating the amount of potential loss. The most important contingencies impacting our financial statements are those related to the collectibility of accounts receivable, to environmental remediation, to pending, impending or overtly threatened litigation against the Company and to the resolution of matters related to open tax years. For more information on these matters, see Note 4, Working Capital Detail, Note 13, Income Taxes and Note 15, Commitments and Contingent Liabilities under Item 8 of this Form 10-K.
Accounting for pensions and other postretirement benefits involves estimating the cost of benefits to be provided well into the future and attributing that cost over the time period each employee works. To accomplish this, extensive use is made of assumptions about inflation, investment returns, mortality, turnover, medical costs and discount rates. These assumptions are reviewed annually. See Note 14, Pensions and Other Postretirement Benefits, under Item 8 for information on these plans and the assumptions used.
The discount rate used in accounting for pensions and other postretirement benefits is determined by reference to a current yield curve and by considering the timing and amount of projected future benefit payments. The discount rate assumption for 2009 is 6.15% for our U.S. defined benefit pension and other postretirement benefit plans. A reduction in the discount rate of 50 basis points, with all other assumptions held constant, would increase 2009 net periodic benefit expense for our defined benefit pension and other postretirement benefit plans by approximately $9 million and $5 million, respectively.
The expected return on plan assets assumption used in accounting for our pension plans is determined by evaluating the mix of investments that comprise plan assets and external forecasts of future long-term investment returns. For 2008, the return on plan assets assumption for our U.S. defined benefit pension plans was 8.5%. We will use the same assumption for 2009. A reduction in the rate of return of 50 basis points, with other assumptions held constant, would increase 2009 net periodic pension expense by approximately $10 million.
As discussed in Note 1, Summary of Significant Accounting Policies, under Item 8 of this Form 10-K, the Company tests goodwill and identifiable intangible assets with indefinite lives for impairment at least annually by comparing the fair value of the reporting units to their carrying values. Fair values are estimated using discounted cash flow methodologies that are based on projections of the amounts and timing of future revenues and cash flows. Based on this testing, none of our goodwill or identifiable intangible assets with indefinite lives was impaired as of December 31, 2008.
As part of our ongoing financial reporting process, a collaborative effort is undertaken involving PPG managers with functional responsibility for financial, credit, environmental, legal, tax and benefit matters. The results of this effort provide management with the necessary information on which to base their judgments on these contingencies and to develop the estimates and assumptions used to prepare the financial statements.
2008 PPG ANNUAL REPORT AND FORM 10-K | 25 |
Managements Discussion and Analysis
We believe that the amounts recorded in the financial statements under Item 8 of this Form 10-K related to these contingencies, pensions, other postretirement benefits, goodwill and other identifiable intangible assets with indefinite lives are based on the best estimates and judgments of the appropriate PPG management, although actual outcomes could differ from our estimates.
Currency
From December 31, 2007 to December 31, 2008, the U.S. dollar strengthened against the currencies of most of the countries in which PPG operates, most notably against the euro, the British pound sterling, the Polish zloty, the Brazilian real, the South Korean won and the Australian dollar. As a result, the effects of translating the net assets of PPGs operations denominated in non-U.S. currencies to the U.S. dollar decreased consolidated net assets at December 31, 2008 by $499 million compared to December 31, 2007. During much of the year, the U.S. dollar was weaker against the currencies of many countries in which PPG operates than it was in 2007, which had a favorable impact on 2008 pretax earnings of $45 million from the translation of these foreign earnings into U.S. dollars.
During 2007, the U.S. dollar weakened against certain of the currencies in the countries in which PPG operates, most notably against the euro, the Canadian dollar and the Brazilian real. The effects of translating the net assets of PPGs operations denominated in non-U.S. currencies to the U.S. dollar increased consolidated net assets at December 31, 2007 by $260 million compared to December 31, 2006. In addition, the weaker U.S. dollar had a favorable impact on 2007 pretax earnings of $47 million.
During 2006, the U.S. dollar weakened against the currencies of most of the countries in which PPG operates, most notably against the euro, the British pound sterling and the Australian dollar. The effects of translating the net assets of PPGs operations denominated in non-U.S. currencies to the U.S. dollar increased consolidated net assets by $179 million for the year ended December 31, 2006. In addition, the weaker U.S. dollar had a favorable impact on 2006 pretax earnings of $9 million.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. Managements Discussion and Analysis and other sections of this Annual Report contain forward-looking statements that reflect the Companys current views with respect to future events and financial performance.
Forward-looking statements are identified by the use of the words aim, believe, expect, anticipate, intend, estimate and other expressions that indicate future events and trends. Any forward-looking statement speaks only as of the date on which such statement is made and the Company undertakes no obligation to update any forward looking statement, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our reports to the Securities and Exchange Commission. Also, note the following cautionary statements.
Many factors could cause actual results to differ materially from the Companys forward-looking statements. Such factors include increasing price and product competition by foreign and domestic competitors, fluctuations in cost and availability of raw materials, the ability to maintain favorable supplier relationships and arrangements, difficulties in integrating acquired businesses and achieving expected synergies therefrom, economic and political conditions in international markets, the ability to penetrate existing, developing and emerging foreign and domestic markets, which also depends on economic and political conditions, foreign exchange rates and fluctuations in such rates, the impact of environmental regulations, unexpected business disruptions and the unpredictability of existing and possible future litigation, including litigation that could result if the proposed asbestos settlement does not become effective. However, it is not possible to predict or identify all such factors. Consequently, while the list of factors presented here and under Item 1a is considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements.
Consequences of material differences in the results compared with those anticipated in the forward-looking statements could include, among other things, business disruption, operational problems, financial loss, legal liability to third parties, other factors set forth in Item 1a of this Form 10-K and similar risks, any of which could have a material adverse effect on the Companys consolidated financial condition, results of operations or liquidity.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
PPG is exposed to market risks related to changes in foreign currency exchange rates, interest rates, and natural gas prices and to changes in PPGs stock price. The Company may enter into derivative financial instrument transactions in order to manage or reduce these market risks. A detailed description of these exposures and the Companys risk management policies are provided in Note 11, Derivative Financial Instruments and Hedge Activities, under Item 8 of this Form 10-K.
26 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Managements Discussion and Analysis
The following disclosures summarize PPGs exposure to market risks and information regarding the use of and fair value of derivatives employed to manage its exposure to such risks. Quantitative sensitivity analyses have been provided to reflect how reasonably possible, unfavorable changes in market rates can impact PPGs consolidated results of operations, cash flows and financial position.
Foreign currency forward and option contracts outstanding during 2008 and 2007 were used to hedge PPGs exposure to foreign currency transaction risk. The fair value of these contracts as of December 31, 2008 and 2007 were liabilities of $17 million and assets of $0.4 million, respectively. The potential reduction in PPGs earnings resulting from the impact of adverse changes in exchange rates on the fair value of its outstanding foreign currency hedge contracts of 10% for European currencies and 20% for Asian and South American currencies for the years ended December 31, 2008 and 2007 would have been $27 million and $0.3 million, respectively.
Concurrent with the March 18, 2008 completion of the $1.55 billion public debt offering, PPG entered into ten U.S. dollar to euro cross currency swap contracts with a total notional amount of $1.3 billion, of which $600 million were to settle on March 15, 2013 and $700 million were to settle on March 15, 2018. On March 18, 2008, PPG paid the counterparties to the contracts a total of $1.3 billion and received euros, which were used to repay most of the 1 billion bridge loan, which the Company employed to finance the acquisition of SigmaKalon. During the fourth quarter of 2008, PPG converted $1.16 billion of these contracts to $208 million of cash and replaced them with new cross currency swap contracts. On settlement of the contracts, PPG will receive $1.3 billion U.S. dollars and pay euros to the counterparties to the contracts of which $600 million will settle on March 15, 2013 and $700 million will settle on March 15, 2018. The Company has designated these swaps as hedges of its net investment in SigmaKalon and, as a result, mark to fair value adjustments of the swaps have been and will be recorded as a component of other comprehensive income. As of December 31, 2008, the aggregate fair value of these swaps was a liability of $130 million. A 10% increase in the value of the euro to the U.S. dollar would have had an unfavorable effect on the fair value of these swap contracts and increased the liability by $181 million at December 31, 2008.
PPG had non-U.S. dollar denominated debt outstanding of $1,373 million as of December 31, 2008 and $1,636 million as of December 31, 2007. A weakening of the U.S. dollar by 10% against European currencies and by 20% against Asian and South American currencies would have resulted in unrealized translation losses of approximately $118 million and $203 million as of December 31, 2008 and 2007, respectively.
Interest rate swaps are used to manage a portion of PPGs interest rate risk. The fair value of the interest rate swaps was an asset of $3 million and $6 million as of December 31, 2008 and 2007, respectively. The fair value of these swaps would have decreased by $ 0.5 million and $8 million as of December 31, 2008 and 2007, respectively, if variable interest rates increased by 10%. A 10% increase in interest rates in the U.S., Canada, Mexico and Europe and a 20% increase in interest rates in Asia and South America would have affected PPGs variable rate debt obligations by increasing interest expense approximately $3 million as of December 31, 2008 and $10 million as of December 31, 2007. Further, a 10% reduction in interest rates would have increased the present value of the Companys fixed rate debt by approximately $ 118 million and $48 million as of December 31, 2008 and 2007, respectively; however, such changes would not have had an effect on PPGs annual earnings or cash flows.
The fair value of natural gas swap contracts in place as of December 31, 2008 and 2007 was a liability of $85 million and $8 million, respectively. These contracts were entered into to reduce PPGs exposure to higher prices of natural gas. A 10% reduction in the price of natural gas would have had an unfavorable effect on the fair value of these contracts and increased the liability by $27 million and $26 million at December 31, 2008 and 2007, respectively.
An equity forward arrangement was entered into to hedge the Companys exposure to changes in fair value of its future obligation to contribute PPG stock into an asbestos settlement trust (see Note 11 Derivative Financial Instruments and Hedge Activities and Note 15, Commitments and Contingent Liabilities, under Item 8 of this Form 10-K). The fair value of this instrument as of December 31, 2008 and 2007 was a liability of $6 million and an asset of $ 18 million, respectively. A 10% decrease in PPGs stock price would have had an unfavorable effect on the fair value of this instrument and increased the liability by $6 million at December 31, 2008 and reduced the asset by $6 million at December 31, 2007.
2008 PPG ANNUAL REPORT AND FORM 10-K | 27 |
Item 8. Financial Statements and Supplementary Data
Internal Controls Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of PPG Industries, Inc.
We have audited the internal control over financial reporting of PPG Industries, Inc. and subsidiaries (the Company) as of December 31, 2008, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in the Management Report, management excluded from its assessment the internal control over financial reporting at the SigmaKalon Group, which was acquired on January 2, 2008 and whose financial statements constitute approximately 33% of assets and 20% of sales of the consolidated financial statement amounts as of and for the year ended December 31, 2008. Accordingly, our audit did not include the internal control over financial reporting at the SigmaKalon Group. The Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed by, or under the supervision of, the companys principal executive and principal financial officers, or persons performing similar functions, and effected by the companys board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2008 of the Company and our report dated February 19, 2009 expressed an unqualified opinion on those financial statements and financial statement schedule and included an explanatory paragraph relating to the Companys adoption of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
February 19, 2009
28 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Responsibility for Preparation of the Financial Statements and Establishing and Maintaining Adequate Internal Control Over Financial Reporting
We are responsible for the preparation of the financial statements included in this Annual Report. The financial statements were prepared in accordance with accounting principles generally accepted in the United States of America and include amounts that are based on the best estimates and judgments of management.
We are also responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system is designed to provide reasonable assurance concerning the reliability of the financial data used in the preparation of PPGs financial statements, as well as to safeguard the Companys assets from unauthorized use or disposition.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. In addition, because of changing conditions, there is risk in projecting any evaluation of internal controls to future periods.
We conducted an evaluation of the effectiveness of the Companys internal control over financial reporting as of December 31, 2008. In making this evaluation, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework . Our evaluation included reviewing the documentation of our controls, evaluating the design effectiveness of our controls and testing their operating effectiveness. Our evaluation, however, excluded the internal control over financial reporting related to the SigmaKalon Group, which was acquired by the Company in January of 2008 and whose financial statements constituted approximately 33% of our consolidated assets and 20% of our consolidated sales as of and for the year ended December 31, 2008. This acquired business will be included in managements assessment of the effectiveness of our internal controls over financial reporting as of December 31, 2009. Based on this evaluation we believe that, as of December 31, 2008, the Companys internal controls over financial reporting were effective and provide reasonable assurance that the accompanying financial statements do not contain any material misstatement.
Deloitte & Touche LLP, an independent registered public accounting firm, has issued their report, included on page 28 of this Form 10-K, regarding the Companys internal control over financial reporting.
/s/ Charles E. Bunch Charles E. Bunch Chairman of the Board and Chief Executive Officer February 19, 2009 |
/s/ William H. Hernandez William H. Hernandez Senior Vice President, Finance and Chief Financial Officer |
Consolidated Financial Statements Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of PPG Industries, Inc.
We have audited the accompanying consolidated balance sheets of PPG Industries, Inc. and subsidiaries (the Company) as of December 31, 2008 and 2007, and the related consolidated statements of income, shareholders equity, comprehensive income and cash flows for each of the three years in the period ended December 31, 2008. Our audits also included the financial statement schedule listed in Item 15(b). These financial statements and the financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of PPG Industries, Inc. and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, on January 1, 2007 the Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Companys internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 19, 2009 expressed an unqualified opinion on the Companys internal control over financial reporting.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
February 19, 2009
2008 PPG ANNUAL REPORT AND FORM 10-K | 29 |
Consolidated Statement of Income
|
For the Year
|
|
||||||||||
(Millions, except per share amounts) | 2008 | 2007 | 2006 | |||||||||
Net sales |
$ | 15,849 | $ | 12,220 | $ | 10,938 | ||||||
Cost of sales, exclusive of depreciation and amortization (See Note 2) |
10,155 | 7,828 | 6,957 | |||||||||
Selling, general and administrative (See Note 3) |
3,432 | 2,310 | 1,979 | |||||||||
Depreciation (See Note 3) |
428 | 345 | 332 | |||||||||
Research and development net (See Note 22) |
451 | 348 | 314 | |||||||||
Interest |
254 | 93 | 83 | |||||||||
Amortization (See Note 7) |
135 | 58 | 43 | |||||||||
Asbestos settlement net (See Notes 11 and 15) |
4 | 24 | 28 | |||||||||
In-process research and development (See Note 2) |
23 | | | |||||||||
Business restructuring (See Note 8) |
163 | | 37 | |||||||||
Other charges (See Note 15) |
61 | 59 | 254 | |||||||||
Other earnings (See Note 19) |
(165 | ) | (160 | ) | (142 | ) | ||||||
Income from continuing operations before income taxes and minority interest |
908 | 1,315 | 1,053 | |||||||||
Income tax expense (See Note 13) |
284 | 383 | 275 | |||||||||
Minority interest |
86 | 76 | 71 | |||||||||
Income from continuing operations, net of tax |
538 | 856 | 707 | |||||||||
(Loss) income from discontinued operations, net of tax (See Note 3) |
| (22 | ) | 4 | ||||||||
Net income |
$ | 538 | $ | 834 | $ | 711 | ||||||
|
|
|||||||||||
Earnings per common share (See Note 12) |
||||||||||||
Income from continuing operations |
$ | 3.27 | $ | 5.20 | $ | 4.27 | ||||||
(Loss) income from discontinued operations (See Note 3) |
| (0.13 | ) | 0.02 | ||||||||
Net income |
$ | 3.27 | $ | 5.07 | $ | 4.29 | ||||||
|
|
|||||||||||
Earnings per common share assuming dilution (See Note 12) |
||||||||||||
Income from continuing operations |
$ | 3.25 | $ | 5.16 | $ | 4.25 | ||||||
(Loss) income from discontinued operations (See Note 3) |
| (0.13 | ) | 0.02 | ||||||||
Net Income |
$ | 3.25 | $ | 5.03 | $ | 4.27 | ||||||
|
|
The accompanying notes to the consolidated financial statements are an integral part of this consolidated statement.
30 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
December 31 |
||||||||||
(Millions) | 2008 | 2007 | ||||||||
Assets |
||||||||||
Current assets |
||||||||||
Cash and cash equivalents |
$ | 1,021 | $ | 526 | ||||||
|
|
|||||||||
Cash held in escrow (See Note 2) |
24 | 1,706 | ||||||||
|
|
|||||||||
Receivables (See Note 4) |
2,804 | 2,522 | ||||||||
|
|
|||||||||
Inventories (See Note 4) |
1,702 | 1,532 | ||||||||
|
|
|||||||||
Deferred income taxes (See Note 13) |
515 | 418 | ||||||||
|
|
|||||||||
Other |
282 | 237 | ||||||||
|
|
|||||||||
|
|
|||||||||
Total current assets |
6,348 | 6,941 | ||||||||
|
|
|||||||||
Property (See Note 5) |
8,043 | 8,694 | ||||||||
|
|
|||||||||
Less accumulated depreciation |
5,245 | 6,116 | ||||||||
|
|
|||||||||
Property net |
2,798 | 2,578 | ||||||||
|
|
|||||||||
Investments (See Note 6) |
509 | 370 | ||||||||
|
|
|||||||||
Goodwill (See Note 7) |
2,641 | 1,507 | ||||||||
|
|
|||||||||
Identifiable intangible assets net (See Note 7) |
1,472 | 614 | ||||||||
|
|
|||||||||
Other assets (See Note 13) |
930 | 619 | ||||||||
|
|
|||||||||
Total |
$ | 14,698 | $ | 12,629 | ||||||
|
|
|||||||||
Liabilities and Shareholders Equity |
||||||||||
Current liabilities |
||||||||||
Short-term debt and current portion of long-term debt (See Note 9) |
$ | 903 | $ | 1,819 | ||||||
|
|
|||||||||
Asbestos settlement (See Note 15) |
491 | 593 | ||||||||
|
|
|||||||||
Accounts payable and accrued liabilities (See Note 4) |
2,816 | 2,220 | ||||||||
|
|
|||||||||
|
|
|||||||||
Total current liabilities |
4,210 | 4,632 | ||||||||
|
|
|||||||||
Long-term debt (See Note 9) |
3,009 | 1,201 | ||||||||
|
|
|||||||||
Asbestos settlement (See Note 15) |
244 | 324 | ||||||||
|
|
|||||||||
Deferred income taxes (See Note 13) |
425 | 164 | ||||||||
|
|
|||||||||
Accrued pensions (See Note 14) |
1,250 | 396 | ||||||||
|
|
|||||||||
Other postretirement benefits (See Note 14) |
1,072 | 997 | ||||||||
|
|
|||||||||
Other liabilities (See Note 14) |
999 | 603 | ||||||||
|
|
|||||||||
Total liabilities |
11,209 | 8,317 | ||||||||
|
|
|||||||||
Commitments and contingent liabilities (See Note 15) |
||||||||||
|
|
|||||||||
Minority interest |
156 | 161 | ||||||||
|
|
|||||||||
Shareholders equity (See Note 16) |
||||||||||
Common stock |
484 | 484 | ||||||||
|
|
|||||||||
Additional paid-in capital |
580 | 553 | ||||||||
|
|
|||||||||
Retained earnings |
8,156 | 7,963 | ||||||||
|
|
|||||||||
Treasury stock, at cost |
(4,259 | ) | (4,267 | ) | ||||||
|
|
|||||||||
|
|
|||||||||
Accumulated other comprehensive loss (See Note 17) |
(1,628 | ) | (582 | ) | ||||||
|
|
|||||||||
Total shareholders equity |
3,333 | 4,151 | ||||||||
|
|
|||||||||
Total |
$ | 14,698 | $ | 12,629 | ||||||
|
|
Shares outstanding were 164,198,633 and 163,800,668 as of December 31, 2008 and 2007, respectively.
The accompanying notes to the consolidated financial statements are an integral part of this consolidated statement.
2008 PPG ANNUAL REPORT AND FORM 10-K | 31 |
Consolidated Statement of Shareholders Equity
(Millions) |
|
Common
Stock |
|
Additional
Paid-In Capital |
|
Retained
Earnings |
|
|
Treasury
Stock |
|
|
Unearned
Compensation (See Note 1) |
|
|
Accumulated
Other Comprehensive (Loss) Income (See Note 17) |
|
Total | |||||||||
Balance, January 1, 2006 |
$ | 484 | $ | 352 | $ | 7,057 | $ | (3,984 | ) | $ | (37 | ) | $ | (819 | ) | $ | 3,053 | |||||||||
|
|
|||||||||||||||||||||||||
Net income |
| | 711 | | | | 711 | |||||||||||||||||||
|
|
|||||||||||||||||||||||||
Other comprehensive income, net of tax |
| | | | | 339 | 339 | |||||||||||||||||||
|
|
|||||||||||||||||||||||||
Transition adjustment for adoption of SFAS No. 158 (See Note 1) |
| | | | | (459 | ) | (459 | ) | |||||||||||||||||
|
|
|||||||||||||||||||||||||
Cash dividends |
| | (316 | ) | | | | (316 | ) | |||||||||||||||||
|
|
|||||||||||||||||||||||||
Purchase of treasury stock |
| | | (153 | ) | | | (153 | ) | |||||||||||||||||
|
|
|||||||||||||||||||||||||
Issuance of treasury stock |
| 25 | | 36 | | | 61 | |||||||||||||||||||
|
|
|||||||||||||||||||||||||
Stock option activity |
| 31 | | | | | 31 | |||||||||||||||||||
|
|
|||||||||||||||||||||||||
Repayment of loans by ESOP |
| | | | 12 | | 12 | |||||||||||||||||||
|
|
|||||||||||||||||||||||||
Other |
| | 1 | | | | 1 | |||||||||||||||||||
|
|
|||||||||||||||||||||||||
Balance, December 31, 2006 |
$ | 484 | $ | 408 | $ | 7,453 | $ | (4,101 | ) | $ | (25 | ) | $ | (939 | ) | $ | 3,280 | |||||||||
|
|
|||||||||||||||||||||||||
Net income |
| | 834 | | | | 834 | |||||||||||||||||||
|
|
|||||||||||||||||||||||||
Other comprehensive income, net of tax |
| | | | | 357 | 357 | |||||||||||||||||||
|
|
|||||||||||||||||||||||||
Cash dividends |
| | (335 | ) | | | | (335 | ) | |||||||||||||||||
|
|
|||||||||||||||||||||||||
Purchase of treasury stock |
| | | (274 | ) | | | (274 | ) | |||||||||||||||||
|
|
|||||||||||||||||||||||||
Issuance of treasury stock |
| 102 | | 108 | | | 210 | |||||||||||||||||||
|
|
|||||||||||||||||||||||||
Stock option activity |
| 43 | | | | | 43 | |||||||||||||||||||
|
|
|||||||||||||||||||||||||
Repayment of loans by ESOP |
| | | | 25 | | 25 | |||||||||||||||||||
|
|
|||||||||||||||||||||||||
Transition adjustment for adoption of FASB Interpretation No. 48 (See Note 1) |
| | 11 | | | | 11 | |||||||||||||||||||
|
|
|||||||||||||||||||||||||
Balance, December 31, 2007 |
$ | 484 | $ | 553 | $ | 7,963 | $ | (4,267 | ) | $ | | $ | (582 | ) | $ | 4,151 | ||||||||||
|
|
|||||||||||||||||||||||||
Net income |
| | 538 | | | | 538 | |||||||||||||||||||
|
|
|||||||||||||||||||||||||
Other comprehensive (loss), net of tax |
| | | | | (1,046 | ) | (1,046 | ) | |||||||||||||||||
|
|
|||||||||||||||||||||||||
Cash dividends |
| | (343 | ) | | | | (343 | ) | |||||||||||||||||
|
|
|||||||||||||||||||||||||
Purchase of treasury stock |
| | | (7 | ) | | | (7 | ) | |||||||||||||||||
|
|
|||||||||||||||||||||||||
Issuance of treasury stock |
| 18 | | 15 | | | 33 | |||||||||||||||||||
|
|
|||||||||||||||||||||||||
Stock option activity |
| 9 | | | | | 9 | |||||||||||||||||||
|
|
|||||||||||||||||||||||||
Transition adjustment for adoption of EITF No. 06-10 (See Note 1) |
| | (2 | ) | | | | (2 | ) | |||||||||||||||||
|
|
|||||||||||||||||||||||||
Balance, December 31, 2008 |
$ | 484 | $ | 580 | $ | 8,156 | $ | (4,259 | ) | $ | | $ | (1,628 | ) | $ | 3,333 | ||||||||||
|
|
Consolidated Statement of Comprehensive Income
For the Year |
|||||||||||||
(Millions) | 2008 | 2007 |
2006 |
||||||||||
Net income |
$ | 538 | $ | 834 | $ | 711 | |||||||
|
|
||||||||||||
Other comprehensive (loss) income, net of tax (See Note 17) |
|||||||||||||
Unrealized currency translation adjustment |
(499 | ) | 260 | 179 | |||||||||
|
|
||||||||||||
Defined benefit pension and other postretirement benefit adjustments
|
(494 | ) | 90 | 170 | |||||||||
|
|
||||||||||||
Unrealized (losses) gains on marketable equity securities |
(4 | ) | | 3 | |||||||||
|
|
||||||||||||
Net change derivatives (See Note 11) |
(49 | ) | 7 | (13 | ) | ||||||||
|
|
||||||||||||
Other comprehensive (loss) income, net of tax |
(1,046 | ) | 357 | 339 | |||||||||
|
|
||||||||||||
Comprehensive (loss) income |
$ | (508 | ) | $ | 1,191 | $ | 1,050 | ||||||
|
|
The accompanying notes to the consolidated financial statements are an integral part of these consolidated statements.
32 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Consolidated Statement of Cash Flows
For the Year | ||||||||||||||
(Millions) |
2008 |
2007 |
2006 |
|||||||||||
Operating activities |
||||||||||||||
Net income |
$ | 538 | $ | 834 | $ | 711 | ||||||||
|
|
|||||||||||||
Loss (income) from discontinued operations, net of tax |
| 22 | (4 | ) | ||||||||||
Income from continuing operations, net of tax |
538 | 856 | 707 | |||||||||||
Adjustments to reconcile to cash from operations |
||||||||||||||
Depreciation and amortization |
563 | 403 | 375 | |||||||||||
|
|
|||||||||||||
Asbestos settlement, net of tax |
2 | 15 | 17 | |||||||||||
|
|
|||||||||||||
Business restructuring |
163 | | 37 | |||||||||||
|
|
|||||||||||||
Write-off of in-process research and development |
23 | | | |||||||||||
|
|
|||||||||||||
Restructuring cash spending |
(27 | ) | (15 | ) | (33 | ) | ||||||||
|
|
|||||||||||||
Bad debt expense |
52 | 16 | 14 | |||||||||||
|
|
|||||||||||||
Equity affiliate loss (earnings) net of dividends |
15 | (11 | ) | (18 | ) | |||||||||
|
|
|||||||||||||
Increase (decrease) in net accrued pension benefit costs |
78 | (7 | ) | 21 | ||||||||||
|
|
|||||||||||||
Increase in receivables |
(4 | ) | (224 | ) | (92 | ) | ||||||||
|
|
|||||||||||||
Decrease (increase) in inventories |
79 | (49 | ) | (80 | ) | |||||||||
|
|
|||||||||||||
Increase in other current assets |
(123 | ) | (24 | ) | (11 | ) | ||||||||
|
|
|||||||||||||
Increase in accounts payable and accrued liabilities |
15 | 72 | 61 | |||||||||||
|
|
|||||||||||||
Decrease (increase) in noncurrent assets |
21 | (100 | ) | (99 | ) | |||||||||
|
|
|||||||||||||
(Decrease) increase in noncurrent liabilities |
(132 | ) | 3 | 167 | ||||||||||
|
|
|||||||||||||
Other |
95 | 60 | 50 | |||||||||||
|
|
|||||||||||||
Cash from operating activities continuing operations |
1,358 | 995 | 1,116 | |||||||||||
Cash from (used for) operating activities discontinued operations |
| 1 | (1 | ) | ||||||||||
Cash from operating activities |
1,358 | 996 | 1,115 | |||||||||||
|
|
|||||||||||||
Investing activities |
||||||||||||||
Capital spending |
||||||||||||||
Additions to property and investments |
(383 | ) | (364 | ) | (369 | ) | ||||||||
|
|
|||||||||||||
Business acquisitions, net of cash balances acquired (See Note 2) |
(1,673 | ) | (233 | ) | (402 | ) | ||||||||
|
|
|||||||||||||
Deposits held in escrow (See Note 2) |
(37 | ) | (1,718 | ) | (3 | ) | ||||||||
Release of deposits held in escrow (See Note 2) |
1,740 | 2 | 67 | |||||||||||
Proceeds from sale of automotive glass and services business (See Note 3) |
225 | | | |||||||||||
Proceeds from termination of currency swap contracts (See Note 11) |
208 | | | |||||||||||
Reductions of other property and investments |
45 | 68 | 48 | |||||||||||
Purchases of short-term investments (See Note 1) |
| | (963 | ) | ||||||||||
Proceeds from sales of short-term investments (See Note 1) |
| | 963 | |||||||||||
|
|
|||||||||||||
Cash from (used for) investing activities continuing operations |
125 | (2,245 | ) | (659 | ) | |||||||||
Cash from (used for) investing activities discontinued operations |
| 38 | (3 | ) | ||||||||||
Cash from (used for) investing activities |
125 | (2,207 | ) | (662 | ) | |||||||||
|
|
|||||||||||||
Financing activities |
||||||||||||||
Debt: |
||||||||||||||
Borrowings to refinance acquired SigmaKalon debt (See Note 9) |
1,143 | | | |||||||||||
|
|
|||||||||||||
Repayment of acquired SigmaKalon debt (See Note 9) |
(1,259 | ) | | | ||||||||||
|
|
|||||||||||||
Proceeds from issuance of notes (net of discount and issuance costs) (See Note 9) |
1,538 | | | |||||||||||
|
|
|||||||||||||
Repayment of bridge loan (See Note 9) |
(1,557 | ) | | | ||||||||||
|
|
|||||||||||||
Net change in borrowings with maturities of three months or less |
(392 | ) | 698 | (4 | ) | |||||||||
|
|
|||||||||||||
Proceeds from other short-term debt |
329 | 1,129 | 143 | |||||||||||
|
|
|||||||||||||
Repayment of other short-term debt |
(442 | ) | (83 | ) | (212 | ) | ||||||||
|
|
|||||||||||||
Repayment of other long-term debt |
(41 | ) | (71 | ) | (26 | ) | ||||||||
|
|
|||||||||||||
Net change in cash related to debt transactions |
(681 | ) | 1,673 | (99 | ) | |||||||||
|
|
|||||||||||||
Other financing activities: |
||||||||||||||
Proceeds from termination of interest rate swaps |
40 | | | |||||||||||
|
|
|||||||||||||
Repayment of loans by employee stock ownership plan |
| 25 | 12 | |||||||||||
|
|
|||||||||||||
Purchase of treasury stock |
(7 | ) | (274 | ) | (153 | ) | ||||||||
|
|
|||||||||||||
Issuance of treasury stock |
13 | 194 | 55 | |||||||||||
|
|
|||||||||||||
Dividends paid |
(343 | ) | (335 | ) | (316 | ) | ||||||||
|
|
|||||||||||||
Cash (used for) from financing activities continuing operations |
(978 | ) | 1,283 | (501 | ) | |||||||||
Cash (used for) from financing activities discontinued operations |
| | | |||||||||||
Cash (used for) from financing activities |
(978 | ) | 1,283 | (501 | ) | |||||||||
|
|
|||||||||||||
Effect of currency exchange rate changes on cash and cash equivalents |
(10 | ) | 11 | 22 | ||||||||||
|
|
|||||||||||||
Net increase (decrease) in cash and cash equivalents |
495 | 83 | (26 | ) | ||||||||||
|
|
|||||||||||||
Cash and cash equivalents, beginning of year |
526 | 443 | 469 | |||||||||||
|
|
|||||||||||||
Cash and cash equivalents, end of year |
$ | 1,021 | $ | 526 | $ | 443 | ||||||||
|
|
The accompanying notes to the consolidated financial statements are an integral part of this consolidated statement.
2008 PPG ANNUAL REPORT AND FORM 10-K | 33 |
Notes to the Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of PPG Industries, Inc. (PPG or the Company), and all subsidiaries, both U.S. and non-U.S., that it controls. PPG owns more than 50% of the voting stock of the subsidiaries that it controls. Investments in companies in which PPG owns 20% to 50% of the voting stock and has the ability to exercise significant influence over operating and financial policies of the investee are accounted for using the equity method of accounting. As a result, PPGs share of the earnings or losses of such equity affiliates is included in the accompanying consolidated statement of income and PPGs share of these companies shareholders equity is included in investments in the accompanying consolidated balance sheet. Transactions between PPG and its subsidiaries are eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of income and expenses during the reporting period. Actual outcomes could differ from those estimates.
Basis of Presentation
In July 2008, the Company entered into an agreement to divest its automotive OEM glass and automotive replacement glass and services businesses (automotive glass and services business). Under the agreement, PPG would receive a minority ownership interest in the new company formed by the buyer. In accordance with the requirements of Statement of Financial Accounting Standards, (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the results of the automotive glass and services business were reported as discontinued operations beginning in September 2007, and in the second quarter of 2008 the business was reclassified into continuing operations because of PPGs continuing involvement arising from the approximate 40% retained equity interest. The transaction was completed on September 30, 2008. The results of the automotive glass and services business through September 30, 2008 are reported as part of the Glass reportable segment in the accompanying financial statements. See Note 3, Divestiture of Automotive Glass and Services Business for additional information.
In the third quarter of 2007, PPG entered into an agreement to sell its fine chemicals business to ZaCh System S.p.A., a subsidiary of Zambon Company S.p.A., for approximately $65 million. The sale of this business was completed in November 2007. The results of operations and cash flows of this business, which had previously been included in the Optical and Specialty Materials reportable segment, have been classified as discontinued operations in the accompanying consolidated statements of income and of cash flows for the years ended December 31, 2007 and 2006. Sales of the fine chemicals business were $79 million and $99 million for the years ended December 31, 2007 and 2006, respectively. For the year ended December 31, 2007 the fine chemicals business had a loss from discontinued operations of $22 million, which included a pretax charge of $25 million ($19 million aftertax) related to the divestiture of the fine chemicals business. For the year ended December 31, 2006, income from discontinued operations was $4 million.
Revenue Recognition
Revenue from sales is recognized by all operating segments when goods are shipped and title to inventory and risk of loss passes to the customer or when services have been rendered.
Shipping and Handling Costs
Amounts billed to customers for shipping and handling are reported in Net sales in the accompanying consolidated statement of income. Shipping and handling costs incurred by the Company for the delivery of goods to customers are included in Cost of sales, exclusive of depreciation and amortization in the accompanying consolidated statement of income.
Selling, General and Administrative Costs
Amounts presented as Selling, general and administrative in the accompanying consolidated statement of income are comprised of selling, customer service, distribution and advertising costs, as well as the costs of providing corporate-wide functional support in such areas as finance, law, human resources and planning. Distribution costs pertain to the movement and storage of finished goods inventory at company-owned and leased warehouses, terminals and other distribution facilities. Certain of these costs may be included in cost of sales by other companies, resulting in a lack of comparability with other companies.
Legal Costs
Legal costs are expensed as incurred.
Foreign Currency Translation
For all significant non-U.S. operations, their functional currency is their local currency. Assets and liabilities of those operations are translated into U.S. dollars using year-end exchange rates; income and
34 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Notes to the Consolidated Financial Statements
expenses are translated using the average exchange rates for the reporting period. Unrealized currency translation adjustments are deferred in accumulated other comprehensive (loss) income, a separate component of shareholders equity.
Cash Equivalents
Cash equivalents are highly liquid investments (valued at cost, which approximates fair value) acquired with an original maturity of three months or less.
Cash Held in Escrow
Cash held in escrow is restricted cash and consists of amounts deposited into third-party escrow accounts to comply with contractual stipulations or legal requirements. Cash deposited into escrow or released from escrow is classified as an investing activity in the consolidated statement of cash flows.
Short-term Investments
Short-term investments are highly liquid investments that have stated maturities of three months to one year. The purchases and sales of these investments are classified as investing activities in the consolidated statement of cash flows.
Inventories
Most U.S. inventories are stated at cost, using the last-in, first-out (LIFO) method of accounting, which does not exceed market. All other inventories are stated at cost, using the first-in, first-out (FIFO) method of accounting, which does not exceed market. PPG determines cost using either average or standard factory costs, which approximate actual costs, excluding certain fixed costs such as depreciation and property taxes.
Marketable Equity Securities
The Companys investment in marketable equity securities is recorded at fair market value and reported in Other current assets and Investments in the accompanying consolidated balance sheet with changes in fair market value recorded in income for those securities designated as trading securities and in other comprehensive (loss) income, net of tax, for those designated as available for sale securities.
Property
Property is recorded at cost. PPG computes depreciation by the straight-line method based on the estimated useful lives of depreciable assets. Additional expense is recorded when facilities or equipment are subject to abnormal economic conditions or obsolescence. Significant improvements that add to productive capacity or extend the lives of properties are capitalized. Costs for repairs and maintenance are charged to expense as incurred. When property is retired or otherwise disposed of, the original cost and related accumulated depreciation balance are removed from the accounts and any related gain or loss is included in income. Amortization of the cost of capitalized leased assets is included in depreciation expense. Property and other long-lived assets are reviewed for impairment whenever events or circumstances indicate that their carrying amounts may not be recoverable.
Goodwill and Identifiable Intangible Assets
Goodwill represents the excess of the cost over the fair value of acquired identifiable tangible and intangible assets less liabilities assumed from acquired businesses. Identifiable intangible assets acquired in business combinations are recorded based upon their fair value at the date of acquisition.
The Company tests goodwill of each reporting unit for impairment at least annually in connection with PPGs strategic planning process in the third quarter. The goodwill impairment test is performed by comparing the fair value of the associated reporting unit to its carrying value. The Companys reporting units are its operating segments. (See Note 24, Reportable Business Segment Information for further information concerning the Companys operating segments.) Fair value is estimated using discounted cash flow methodologies and market comparable information.
The Company has determined that certain acquired trademarks have indefinite useful lives. The Company tests the carrying value of these trademarks for impairment at least annually in the third quarter by comparing the fair value of each trademark to its carrying value. Fair value is estimated by using the relief from royalty method (a discounted cash flow methodology).
Identifiable intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives (2 to 25 years) and are reviewed for impairment whenever events or circumstances indicate that their carrying amount may not be recoverable.
Employee Stock Ownership Plan
Compensation expense related to the employee stock ownership plan (ESOP) was equal to the Companys matching contribution in 2008.
PPG accounted for its ESOP in accordance with Statement of Position (SOP) No. 93-6 for PPG common stock purchased after December 31, 1992 (new ESOP shares). As permitted by SOP No. 93-6, shares purchased prior to December 31, 1992 (old ESOP shares) were accounted for in accordance with SOP No. 76-3. ESOP shares were released for future allocation to participants
2008 PPG ANNUAL REPORT AND FORM 10-K | 35 |
Notes to the Consolidated Financial Statements
based on the ratio of debt service paid during the year on loans used by the ESOP to purchase the shares to the remaining debt service on these loans. These loans were a combination of borrowings guaranteed by PPG and borrowings by the ESOP directly from PPG. No loan balances remained outstanding as of December 31, 2007. Unearned compensation was reflected as a reduction of shareholders equity as of December 31, 2006, which principally represented the unpaid balance of all of the ESOPs loans. Dividends received by the ESOP were primarily used to pay debt service.
When old ESOP shares were released, compensation expense was equal to cash contributed to the ESOP by the Company less the appreciation on the allocated old ESOP shares. Cash contributions to the ESOP were reduced by $30 million in 2007 and $18 million in 2006 for the appreciation on the old shares allocated to participants accounts in each of those years. Dividends paid on old ESOP shares were deducted from retained earnings. Old ESOP shares were considered to be outstanding in computing earnings per common share. For new ESOP shares, compensation expense was equal to the Companys matching contribution (see Note 18, Employee Stock Ownership Plan). Dividends paid on released new ESOP shares were deducted from retained earnings, and dividends on unreleased shares were reported as a reduction of debt or accrued interest. New ESOP shares that were released were considered outstanding in computing earnings per common share. Unreleased new ESOP shares were not considered to be outstanding.
Derivative Financial Instruments and Hedge Activities
The Company recognizes all derivative instruments as either assets or liabilities at fair value on the balance sheet. The accounting for changes in the fair value of a derivative depends on the use of the derivative. To the extent that a derivative is effective as a cash flow hedge of an exposure to future changes in value, the change in fair value of the derivative is deferred in accumulated other comprehensive (loss) income. Any portion considered to be ineffective is reported in earnings immediately, including changes in value related to credit risk. To the extent that a derivative is effective as a hedge of an exposure to future changes in fair value, the change in the derivatives fair value, to the extent effective, is offset in the consolidated statement of income by the change in fair value of the item being hedged. To the extent that a derivative or a financial instrument is effective as a hedge of a net investment in a foreign operation, the change in the derivatives fair value is deferred as an unrealized currency translation adjustment in accumulated other comprehensive (loss) income.
Product Warranties
The Company accrues for product warranties at the time the associated products are sold based on historical claims experience. As of December 31, 2008 and 2007, the reserve for product warranties was $10 million and $9 million, respectively. Pretax charges against income for product warranties in 2008, 2007 and 2006 totaled $ 7 million, $5 million and $4 million, respectively. Cash outlays related to product warranties were $ 7 million, $6 million and $5 million in 2008, 2007 and 2006, respectively. In addition, $1 million of warranty obligations were assumed as part of the Companys 2008 business acquisitions.
Asset Retirement Obligations
An asset retirement obligation represents a legal obligation associated with the retirement of a tangible long-lived asset that is incurred upon the acquisition, construction, development or normal operation of that long-lived asset. PPG recognizes asset retirement obligations in the period in which they are incurred, if a reasonable estimate of fair value can be made. The asset retirement obligation is subsequently adjusted for changes in fair value. The associated estimated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and depreciated over its useful life. PPGs asset retirement obligations are primarily associated with closure of certain assets used in the chemicals manufacturing process.
The accrued asset retirement obligation was $14 million and $11 million as of December 31, 2008 and 2007, respectively.
PPGs only conditional asset retirement obligation relates to the possible future abatement of asbestos contained in certain PPG production facilities. The asbestos in PPGs production facilities arises from the application of normal and customary building practices in the past when the facilities were constructed. This asbestos is encapsulated in place and, as a result, there is no current legal requirement to abate it. Inasmuch as there is no requirement to abate, the Company does not have any current plans or an intention to abate and therefore the timing, method and cost of future abatement, if any, are not known. The Company has not recorded an asset retirement obligation associated with asbestos abatement, given the uncertainty concerning the timing of future abatement, if any.
Pensions and Other Postretirement Benefits
In September 2006, the Financial Accounting Standards Board, (FASB) issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R). Under this
36 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Notes to the Consolidated Financial Statements
standard, a company must recognize a net liability or asset to report the funded status of its defined benefit pension and other postretirement benefit plans on its consolidated balance sheet as well as recognize changes in that funded status in the year in which the changes occur, through charges or credits to comprehensive income. SFAS No. 158 does not change how pensions and other postretirement benefits are accounted for and reported in the income statement. As a result of the adoption of SFAS No. 158 on December 31, 2006, the Company increased its net pension and other postretirement benefit liabilities by $459 million by recording a direct adjustment to accumulated other comprehensive loss. See Note 14, Pensions and Other Postretirement Benefits, for additional information.
Uncertain Tax Positions
In June 2006, the FASB issued FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (FIN No. 48). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company adopted the provisions of FIN No. 48 as of January 1, 2007. As a result of the implementation of FIN No. 48, the Company reduced its liability for unrecognized tax benefits by $11 million, which was recorded as a direct increase in retained earnings. Refer to Note 13, Income Taxes for additional information.
Accounting Standards Adopted in 2008
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157), which defines fair value, establishes a framework in generally accepted accounting principles for measuring fair value and expands disclosures about fair value measurements. This standard only applies when other standards require or permit the fair value measurement of assets and liabilities. It does not increase the use of fair value measurement. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, except as it relates to nonrecurring fair value measurements of nonfinancial assets and liabilities for which the standard is effective for fiscal years beginning after November 15, 2008, as mandated by FASB Staff Position No. 157-2, Effective Date of FASB Statement No. 157. The adoption of SFAS No. 157 with respect to financial assets and liabilities in the first quarter of 2008 did not have a significant effect on PPGs consolidated results of operations or financial position. The standard did not have a significant impact on PPGs 2008 results of operations or PPGs financial position as of December 31, 2008. The Company is evaluating the impact of SFAS No. 157 for measuring nonfinancial assets and liabilities on future results of operations and financial position, which is not expected to be significant.
SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as of the measurement date. The standard establishes a hierarchy of inputs employed to determine fair value measurements, with three levels. Level 1 inputs are quoted prices in active markets for identical assets and liabilities, are considered to be the most reliable evidence of fair value, and should be used whenever available. Level 2 inputs are observable prices that are not quoted on active exchanges. Level 3 inputs are unobservable inputs employed for measuring the fair value of assets or liabilities.
The Companys financial assets and liabilities that are reported at fair value in the accompanying consolidated balance sheet, as of December 31, 2008, were as follows:
(Millions) | Level 1 | Level 2 | Level 3 | Total | ||||||||
Other current assets: |
||||||||||||
Foreign currency contracts |
$ | | $ | 7 | $ | | $ | 7 | ||||
Marketable equity securities |
4 | | | 4 | ||||||||
Investments: |
||||||||||||
Marketable equity securities |
48 | 2 | | 50 | ||||||||
Other assets: |
||||||||||||
Natural gas swap contracts |
| 1 | | 1 | ||||||||
Interest rate swaps |
| 3 | | 3 | ||||||||
Cross currency swaps |
| 21 | | 21 | ||||||||
Accounts payable and accrued liabilities: |
||||||||||||
Foreign currency contracts |
| 16 | | 16 | ||||||||
Equity forward arrangement |
| 6 | | 6 | ||||||||
Natural gas swap contracts |
| 62 | | 62 | ||||||||
Other liabilities: |
||||||||||||
Foreign currency contracts |
| 6 | | 6 | ||||||||
Natural gas swap contracts |
| 24 | | 24 | ||||||||
Cross currency swaps |
| 151 | | 151 |
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115 (SFAS No. 159). SFAS No. 159 permits entities to choose to measure eligible items at fair value at specified election dates and report unrealized gains and losses on items, for which the fair value option has been elected, in earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS No. 159 in the first quarter of 2008 did not have an impact on PPGs consolidated results of operations or financial position.
In March 2007, the Emerging Issues Task Force (EITF) issued EITF No. 06-10, Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements (EITF 06-10). Under the provisions of EITF 06-10, an employer is required to recognize a liability for the postretirement benefit related to a collateral assignment split-dollar life insurance arrangement in accordance with
2008 PPG ANNUAL REPORT AND FORM 10-K | 37 |
Notes to the Consolidated Financial Statements
either SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions, or Accounting Principles Board Opinion No. 12, Omnibus Opinion 1967, if the employer has agreed to maintain a life insurance policy during the employees retirement or provide the employee with a death benefit based on the substantive arrangement with the employee. The provisions of EITF 06-10 also require an employer to recognize and measure the asset in a collateral assignment split-dollar life insurance arrangement based on the nature and substance of the arrangement. EITF 06-10 was effective as of January 1, 2008. PPG has collateral assignment split-dollar life insurance arrangements within the scope of EITF 06-10. The Company adopted the provisions of EITF 06-10 as of January 1, 2008. As a result of the adoption, the Company recognized a liability of $2 million, representing the present value of the future premium payments to be made under the existing policies. In accordance with the transition provisions of EITF 06-10, this amount was recorded as a direct decrease to retained earnings. No adjustment to the recorded asset value was required upon adoption.
Accounting Standards to be Adopted in Future Years
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS No. 141(R)), which replaces SFAS No. 141, Business Combinations. SFAS No. 141(R) retains the underlying concepts of SFAS No. 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting (formerly known as the purchase method of accounting), but SFAS No. 141(R) changes the method of applying the acquisition method in a number of significant aspects. Acquisition costs will generally be expensed as incurred; noncontrolling interests will be valued at fair value at the acquisition date; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. SFAS No. 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008, with an exception related to the accounting for valuation allowances on deferred taxes and acquired tax contingencies related to acquisitions completed before the effective date. SFAS No. 141(R) amends SFAS No. 109 to require adjustments, made after the effective date of this statement, to valuation allowances for acquired deferred tax assets and uncertain income tax positions to be recognized as income tax expense. Beginning January 1, 2009, PPG will apply the provisions of SFAS No. 141(R) to its accounting for applicable business combinations.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51 (SFAS No. 160). This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. SFAS No. 160 requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parents equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS No. 160 amends certain of ARB No. 51s consolidation procedures for consistency with the requirements of SFAS No. 141(R). This statement requires changes in the parents ownership interest in consolidated subsidiaries to be accounted for as equity transactions. This statement also includes expanded disclosure requirements regarding the interests of the parent and related noncontrolling interests. Beginning January 1, 2009, PPG will apply the provisions of SFAS No. 160 to its accounting for noncontrolling interests and its financial statement disclosures.
In November 2007, EITF Issue No. 07-1, Accounting for Collaborative Arrangements (EITF 07-1), which defines collaborative arrangements and establishes reporting and disclosure requirements for such arrangements, was issued. EITF 07-1 is effective for fiscal years beginning after December 15, 2008. The Company is continuing to evaluate the impact of adopting the provisions of EITF 07-1; however, it does not anticipate that adoption will have a material effect on its consolidated results of operations or financial position.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, (SFAS No. 161) which changes the disclosure requirements for derivative instruments and hedging activities. This statements disclosure requirements are effective for fiscal years and interim periods beginning after November 15, 2008. SFAS No. 161 requires enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities and its related interpretations, and (c) how derivative instruments and related hedged items affect an entitys financial position, financial performance, and cash flows. PPG will apply the provisions of SFAS No. 161 to its financial statement disclosures beginning in 2009.
2. Acquisitions
The Company spent $1,673 million on acquisitions (net of cash acquired of $136 million) in 2008, including
38 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Notes to the Consolidated Financial Statements
purchase price adjustments related to 2007 acquisitions. Most of this spending was related to the January 2, 2008 acquisition of SigmaKalon, a worldwide coatings producer based in Uithoorn, Netherlands, from global private investment firm Bain Capital (the seller). The acquired SigmaKalon business produces architectural, protective and marine and industrial coatings and is a leading coatings supplier in Europe and other key markets across the globe, with an increasing presence in Africa and Asia. The results of these businesses have been included in PPGs consolidated results of operations from January 2, 2008 onward. The 2008 sales of the acquired SigmaKalon businesses were $3.2 billion.
The total transaction value was approximately $3.2 billion, consisting of cash paid to the seller of $1,673 million and debt assumed of $1,517 million. The cash paid to the seller consisted of 717 million ($1,056 million) and $617 million. In 2007, PPG issued $617 million of commercial paper and borrowed $1,056 million (717 million) under the 1 billion bridge loan agreement established in December 2007 in anticipation of completing the SigmaKalon acquisition. The proceeds from these borrowings were deposited into escrow in December 2007. Upon closing of the transaction on January 2, 2008, these amounts were released from escrow and paid to the seller. The funds held in escrow were reported as Cash held in escrow in the accompanying consolidated balance sheet as of December 31, 2007.
The following table summarizes the final purchase price allocation for the SigmaKalon acquisition.
(Millions) | ||||
Current assets (including cash of $136) |
$ | 1,415 | ||
|
|
|||
Property, plant, and equipment |
635 | |||
|
|
|||
Customer-related intangibles |
685 | |||
|
|
|||
Trade names |
277 | |||
|
|
|||
Acquired technology |
122 | |||
|
|
|||
Goodwill (non-deductible) |
1,353 | |||
|
|
|||
Other |
172 | |||
|
|
|||
Total assets |
4,659 | |||
|
|
|||
Short-term debt |
(1,507 | ) | ||
|
|
|||
Current liabilities |
(798 | ) | ||
|
|
|||
Long-term debt |
(10 | ) | ||
|
|
|||
Deferred taxes |
(389 | ) | ||
|
|
|||
Other long-term liabilities |
(305 | ) | ||
|
|
|||
Net assets |
1,650 | |||
|
|
|||
In-process research and development |
23 | |||
|
|
|||
Total purchase price |
$ | 1,673 | ||
|
|
Identifiable intangible assets with finite lives are subject to amortization over their estimated useful lives. The identifiable intangible assets acquired in the SigmaKalon transaction will be amortized over an estimated weighted-average amortization period of 11 years. Customer-related intangibles will be amortized over an estimated weighted-average amortization period of 12 years, acquired technology will be amortized over an estimated weighted-average amortization period of seven years and trade names will be amortized over an estimated weighted-average amortization period of 15 years. Estimated future amortization expense related to these identifiable intangible assets is approximately $75 million in each of the next five years.
Goodwill related to the SigmaKalon acquisition has been recorded by PPGs reportable segments as follows: $1,045 million by Architectural Coatings EMEA, $112 million by Performance Coatings (protective and marine operating segment) and $196 million by Industrial Coatings (industrial operating segment).
The step up to fair value of acquired inventory as part of the purchase price allocation totaled $94 million. This amount was included in cost of sales, exclusive of depreciation and amortization, in the accompanying consolidated statement of income for the year ended December 31, 2008 as the related inventory was sold to customers in the first quarter of 2008. The amount allocated to in-process research and development was charged to expense in the first quarter of 2008.
The following information reflects the results of PPGs operations for the year ended December 31, 2007 on a pro forma basis as if the acquisition of SigmaKalon had been completed on January 1, 2007. The unaudited pro forma financial information was prepared to give pro forma effect to events that are 1) directly attributable to the acquisition, 2) factually supportable and 3) expected to have a continuing impact on the combined results. Pro forma adjustments have been made to illustrate the incremental impact on earnings of interest costs on the borrowings to acquire SigmaKalon, amortization expense related to acquired intangible assets of SigmaKalon, and the tax benefit associated with the incremental interest costs and amortization expense. The following unaudited pro forma information does not include certain cost savings or operating synergies (or costs associated with realizing such savings or synergies) that may result from the acquisition.
The unaudited pro forma information is provided for illustrative purposes only and does not purport to represent what PPGs consolidated results of operations would have been had the transaction actually occurred as
2008 PPG ANNUAL REPORT AND FORM 10-K | 39 |
Notes to the Consolidated Financial Statements
of January 1, 2007, and does not purport to project PPGs future consolidated results of operations.
During 2008, the Company made several other acquisitions in the coatings businesses. The following table summarizes the estimated fair value of assets acquired and liabilities assumed as a result of these acquisitions and reflected in the preliminary purchase price allocations and adjustments recorded as of December 31, 2008. No significant adjustments to these preliminary allocations are expected.
(Millions) | ||||
Current assets |
$ | 38 | ||
|
|
|||
Property, plant, and equipment |
6 | |||
|
|
|||
Goodwill |
21 | |||
|
|
|||
Other current assets |
38 | |||
|
|
|||
Other non-current assets |
34 | |||
|
|
|||
Total assets |
137 | |||
|
|
|||
|
|
|||
Long-term liabilities |
(1 | ) | ||
|
|
|||
Net assets |
$ | 136 | ||
|
|
The Company spent $233 million on several acquisitions in 2007, including purchase price adjustments related to 2006 acquisitions. The 2007 results of the acquired businesses have been included in PPGs consolidated results of operations for the period since the acquisitions were completed. Sales in 2007 increased by approximately $592 million due to acquisitions and the acquired businesses were accretive to earnings in 2007. The largest of the transactions completed in 2007 were the acquisition of Barloworld Coatings Australia and the acquisition of the architectural and industrial coatings businesses of Renner Sayerlack, S.A.
In the third quarter of 2007, PPG acquired Barloworld Coatings Australia, the architectural paint unit of South African-based Barloworld, Ltd., a multinational industrial brand management company. Barloworld Coatings Australia, a leading Australian architectural paint manufacturer, produces Taubmans, Bristol and White Knight brands of architectural coatings. The acquisition includes a production facility in Villawood, New South Wales. Barloworld Coatings Australia distributes products through approximately 50 company-owned stores, a network of sole-brand distributors and numerous independent dealers. In addition, the companys paints are sold through Bunnings, Australias largest home-improvement retailer, and exported to New Zealand. Barloworld Coatings Australia sales in 2006 were approximately $150 million.
During the first quarter of 2007, the Company acquired the architectural and industrial coatings businesses of Renner Sayerlack, S.A., Gravatai, Brazil, to expand its coatings businesses in Latin America. The acquired business operates manufacturing plants in Brazil, Chile, and Uruguay and each plant also serves as a distribution center. The purchase price allocation resulted in an excess of purchase price over the fair value of net assets acquired, which has been reflected as an addition to goodwill.
The following table summarizes the estimated fair value of assets acquired and liabilities assumed as a result of the acquisitions completed in 2007 and reflected in the purchase price allocations and adjustments recorded as of December 31, 2007. There were no significant adjustments to these amounts subsequent to December 31, 2007.
(Millions) | ||||
Current assets |
$ | 124 | ||
|
|
|||
Property, plant, and equipment |
38 | |||
|
|
|||
Goodwill |
59 | |||
|
|
|||
Other non-current assets |
67 | |||
|
|
|||
Total assets |
288 | |||
|
|
|||
|
|
|||
Current liabilities |
(48 | ) | ||
|
|
|||
|
|
|||
Long-term liabilities |
(7 | ) | ||
|
|
|||
Net assets |
$ | 233 | ||
|
|
During 2006, the Company made several acquisitions, primarily in the coatings and optical products businesses. The total cost of these acquisitions was $482 million, consisting of $402 million of cash and the assumption of $80 million of debt. In addition, certain of these acquisitions also provide for contingent payments and/or escrowed holdbacks that could result in future adjustments to the cost of the acquisitions.
The largest of the transactions completed during 2006 were the acquisition of the performance coatings and finishes businesses of Ameron International Corporation, the acquisitions of Sierracin Corporation and Intercast Europe, S.p.A., and the acquisition of the remaining 50% share of Dongju Industrial Co., Ltd.
The following table summarizes the estimated fair value of assets acquired and liabilities assumed as a result of the acquisitions completed in 2006 and reflected in the purchase price allocations and adjustments recorded as of December 31, 2006. There were no significant adjustments to these amounts subsequent to December 31, 2006.
(Millions) | ||||
Current assets |
$ | 296 | ||
|
|
|||
Property, plant, and equipment |
150 | |||
|
|
|||
Goodwill |
158 | |||
|
|
|||
Other non-current assets |
102 | |||
|
|
|||
Total assets |
706 | |||
|
|
|||
|
|
|||
Short-term debt |
(69 | ) | ||
|
|
|||
Current liabilities |
(153 | ) | ||
|
|
|||
Long-term debt |
(11 | ) | ||
|
|
|||
Long-term liabilities |
(71 | ) | ||
|
|
|||
Net assets |
$ | 402 | ||
|
|
40 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Notes to the Consolidated Financial Statements
3. Divestiture of Automotive Glass and Services Business
During the third quarter of 2007, the Company entered into an agreement to sell its automotive glass and services business to Platinum Equity (Platinum) for approximately $500 million. Accordingly, the assets and liabilities of this business were classified as held for sale and the results of operations and cash flows of this business were classified as discontinued operations. In the fourth quarter of 2007, PPG was notified that affiliates of Platinum had filed suit in the Supreme Court of the State of New York, County of New York, alleging that Platinum was not obligated to consummate the agreement. Platinum also terminated the agreement. PPG has sued Platinum and certain of its affiliates for damages, including the $25 million breakup fee stipulated by the terms of the agreement, based on various alleged actions of the Platinum parties. While the transaction with Platinum was terminated, PPG management remained committed to a sale of the automotive glass and services business and continued to classify its assets and liabilities as held for sale and report its results of operations and cash flows as discontinued operations through the first quarter of 2008.
In July 2008, PPG entered into an agreement with affiliates of Kohlberg & Company, LLC, under which PPG would divest the automotive glass and services business to a new company formed by affiliates of Kohlberg. Under the agreement, PPG would receive a minority interest in the new company, and, as such, the accounting requirements of SFAS No. 144 for classifying the business as assets held for sale and reporting its results of operations and cash flows as discontinued operations had no longer been met. The assets and liabilities of the business have been classified as held for use in the consolidated balance sheet as of December 31, 2007, and the results of operations and cash flows of the business through September 30, 2008 have been classified as continuing operations in the Glass reportable segment in the accompanying consolidated statements of income and cash flows for the three years ended December 31, 2008.
In the second quarter of 2008, as a result of the reclassification of the automotive glass and services business to continuing operations, PPG recorded a one-time, non-cash charge of $17 million ($11 million aftertax) to reflect a catch-up of depreciation expense, which was suspended during the period the business was classified as a discontinued operation. Additionally, in the second quarter of 2008, PPG recorded a charge of $19 million ($12 million aftertax) for special termination benefits and a pension curtailment loss relating to the impact of benefit changes, including accelerated vesting, negotiated as part of the sale. This charge is included in selling, general and administrative expenses in the accompanying consolidated statement of income for the year ended December 31, 2008.
The transaction with affiliates of Kohlberg was completed on September 30, 2008, with PPG receiving total proceeds of $315 million, including $225 million in cash and two 6-year notes totaling $90 million ($60 million at 8.5% interest and $30 million at 10% interest). Both notes, which may be prepaid at any time without penalty, are senior to the equity of the new company. In addition, PPG received a minority interest of approximately 40 percent in the new company, Pittsburgh Glass Works LLC. This transaction resulted in a third quarter 2008 gain of $15 million pretax, net of transaction costs, and is included in Other income in the accompanying consolidated statement of income for the year ended December 31, 2008. The aftertax gain on the transaction was $3 million, reflective of tax expense of $12 million. Tax expense on the gain includes the tax cost of repatriating certain transaction proceeds from Canada to the U.S. and the impact of certain permanent book/tax differences which resulted in a larger taxable gain. PPG will account for its interest in Pittsburgh Glass Works LLC under the equity method of accounting from October 1, 2008 onward. PPG has retained certain liabilities for pension and post-employment benefits earned for service up to September 30, 2008, totaling approximately $280 million at December 31, 2008. PPG expects to recognize expense of approximately $15 million related to these obligations in 2009. In addition, PPG is providing certain transition services, including information technology and accounting services, to Pittsburgh Glass Works LLC for a period of up to two years.
In December 2008, Pittsburgh Glass Works LLC announced its intention to close its Oshawa, Canada manufacturing plant in the first quarter of 2009. Under Canadian pension regulations, this closure will result in a partial wind-up of the pension plans for former employees in Canada that were retained by PPG. This will result in a settlement charge against PPG earnings and a required cash contribution to the plans in amounts that will be determined as of the settlement date, which will occur later in 2009 or in 2010 following a required review of the partial wind-up by the Canadian pension authorities. The amount of the pretax charge and the cash contribution is currently estimated to be in the range of $20-$30 million and $10-$15 million, respectively. A similar outcome to PPG would result from a future decision by Pittsburgh Glass Works LLC management to close its remaining manufacturing plant in Canada.
2008 PPG ANNUAL REPORT AND FORM 10-K | 41 |
Notes to the Consolidated Financial Statements
4. Working Capital Detail
(Millions) | 2008 | 2007 | ||||||||
Receivables | ||||||||||
Customers |
$ | 2,640 | $ | 2,369 | ||||||
|
|
|||||||||
Equity affiliates |
22 | 35 | ||||||||
|
|
|||||||||
Other |
245 | 169 | ||||||||
|
|
|||||||||
Allowance for doubtful accounts |
(103 | ) | (51 | ) | ||||||
|
|
|||||||||
Total |
$ | 2,804 | $ | 2,522 | ||||||
|
|
|||||||||
Inventories (1) | ||||||||||
Finished products |
$ | 1,045 | $ | 937 | ||||||
|
|
|||||||||
Work in process |
134 | 131 | ||||||||
|
|
|||||||||
Raw materials |
412 | 323 | ||||||||
|
|
|||||||||
Supplies |
111 | 141 | ||||||||
|
|
|||||||||
Total |
$ | 1,702 | $ | 1,532 | ||||||
|
|
|||||||||
Accounts payable and accrued liabilities | ||||||||||
Trade creditors |
$ | 1,402 | $ | 1,182 | ||||||
|
|
|||||||||
Accrued payroll |
378 | 326 | ||||||||
|
|
|||||||||
Customer rebates |
208 | 142 | ||||||||
|
|
|||||||||
Other postretirement and pension benefits |
102 | 90 | ||||||||
|
|
|||||||||
Income taxes |
62 | 49 | ||||||||
|
|
|||||||||
Other |
664 | 431 | ||||||||
|
|
|||||||||
Total |
$ | 2,816 | $ | 2,220 | ||||||
|
|
(1) | Inventories valued using the LIFO method of inventory valuation comprised 35% and 50% of total gross inventory values as of December 31, 2008 and 2007, respectively. If the FIFO method of inventory valuation had been used, inventories would have been $ 213 million and $234 million higher as of December 31, 2008 and 2007, respectively. During the year ended December 31, 2008 and 2007, certain inventories accounted for on the LIFO method of accounting were reduced, which resulted in the liquidation of certain quantities carried at costs prevailing in prior years. The net effect on earnings was not material. |
5. Property
(Millions) |
Useful
(years) |
2008 | 2007 | |||||||
Land and land improvements |
5-30 | $ | 453 | $ | 418 | |||||
|
||||||||||
Buildings |
20-40 | 1,416 | 1,391 | |||||||
|
||||||||||
Machinery and equipment (1) |
5-25 | 5,338 | 6,164 | |||||||
|
||||||||||
Other |
3-20 | 604 | 553 | |||||||
|
||||||||||
Construction in progress |
232 | 168 | ||||||||
|
||||||||||
Total (2) |
$ | 8,043 | $ | 8,694 | ||||||
|
(1) | Factors reducing machinery and equipment in 2008 were the sale of the automotive glass and services business, asset write-offs included in the business restructuring and the impact of currency. These factors were partially offset by increases due to the acquisition of SigmaKalon and 2008 capital spending. |
(2) | Interest capitalized in 2008, 2007 and 2006 was $8 million, $11 million and $7 million, respectively. |
6. Investments
(Millions) | 2008 | 2007 | ||||||
Investments in and advances to equity affiliates | $ | 381 | $ | 190 | ||||
|
||||||||
Marketable equity securities | ||||||||
Trading (See Note 14) |
|
47 |
|
80 |
||||
|
||||||||
Available for sale |
4 | 9 | ||||||
|
||||||||
Other | 77 | 91 | ||||||
|
||||||||
Total |
$ | 509 | $ | 370 | ||||
|
The Companys investments in and advances to equity affiliates includes its approximately 40 percent interest in Pittsburgh Glass Works LLC, which had a carrying value, including $90 million in notes receivable, of $183 million at December 31, 2008 (see Note 3, Divestiture of Automotive Glass and Services Business). The Companys investments in and advances to equity affiliates also include 50% ownership interests in a number of joint ventures that manufacture and sell coatings, glass and chemicals products, the most significant of which produce fiber glass products and are located in Asia.
In addition, PPG has a fifty-percent ownership interest in RS Cogen, L.L.C., which toll produces electricity and steam primarily for PPG and its joint venture partner. The joint venture was formed with a wholly-owned subsidiary of Entergy Corporation in 2000 for the construction and operation of a $300 million process steam, natural gas-fired cogeneration facility in Lake Charles, La., the majority of which was financed by a syndicate of banks. PPGs future commitment to purchase electricity and steam from the joint venture approximates $25 million per year subject to contractually defined inflation adjustments for the next 15 years. The purchases for the years ended December 31, 2008, 2007 and 2006 were $24 million, $25 million and $24 million, respectively.
Summarized financial information of PPGs equity affiliates on a 100 percent basis, in the aggregate, is as follows:
(Millions) | 2008 | 2007 | |||||||||
Working capital |
$ | 284 | $ | 60 | |||||||
|
|
||||||||||
Property, net |
958 | 818 | |||||||||
|
|
||||||||||
Short-term debt |
(133 | ) | (75 | ) | |||||||
|
|
||||||||||
Long-term debt |
(565 | ) | (392 | ) | |||||||
|
|
||||||||||
Other, net |
229 | 23 | |||||||||
|
|
||||||||||
Net assets |
$ | 773 | $ | 434 | |||||||
|
|
||||||||||
(Millions) | 2008 | 2007 | 2006 | ||||||||
Revenues |
$ | 885 | $ | 674 | $ | 721 | |||||
|
|
||||||||||
Net earnings |
$ | 14 | $ | 66 | $ | 66 | |||||
|
|
PPGs share of undistributed net earnings of equity affiliates was $ 60 million and $75 million as of December 31, 2008 and 2007, respectively. Dividends received from equity affiliates were $18 million, $ 21 million and $16 million in 2008, 2007 and 2006, respectively.
42 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Notes to the Consolidated Financial Statements
As of December 31, 2008 and 2007, there were unrealized pretax losses of $1 million and unrealized pretax gains of $4 million, respectively, recorded in Accumulated other comprehensive loss in the accompanying consolidated balance sheet related to marketable equity securities available for sale. During 2008, PPG sold certain of these investments resulting in recognition of pretax gains of $0.1 million and proceeds of $1 million. During 2007, PPG sold certain of these investments resulting in recognition of a pretax gain of $2 million and proceeds of $8 million.
7. Goodwill and Other Identifiable Intangible Assets
The change in the carrying amount of goodwill attributable to each reportable business segment for the years ended December 31, 2008 and 2007 was as follows:
The carrying amount of acquired trademarks with indefinite lives as of December 31, 2008 and 2007 totaled $339 million and $144 million, respectively. The amount at December 31, 2008 includes $195 million related to the SigmaKalon acquisition.
The Companys identifiable intangible assets with finite lives are being amortized over their estimated useful lives and are detailed below.
Dec. 31, 2008 | Dec. 31, 2007 | |||||||||||||||||||
(Millions) |
Gross Carrying Amount |
Accumulated Amortization |
Net |
Gross Carrying Amount |
Accumulated Amortization |
Net | ||||||||||||||
Acquired technology |
$ | 520 | $ | (201 | ) | $ | 319 | $ | 392 | $ | (164 | ) | $ | 228 | ||||||
|
||||||||||||||||||||
Customer-related intangibles |
927 | (195 | ) | 732 | 334 | (131 | ) | 203 | ||||||||||||
|
||||||||||||||||||||
Tradenames |
97 | (23 | ) | 74 | 55 | (24 | ) | 31 | ||||||||||||
|
||||||||||||||||||||
Other |
26 | (18 | ) | 8 | 25 | (17 | ) | 8 | ||||||||||||
|
||||||||||||||||||||
Balance |
$ | 1,570 | $ | (437 | ) | $ | 1,133 | $ | 806 | $ | (336 | ) | $ | 470 | ||||||
|
Most of the increase in gross carrying amount of identifiable intangible assets from December 31, 2007 to December 31, 2008 is the result of the SigmaKalon acquisition offset somewhat by the impact of foreign currency changes.
Aggregate amortization expense was $ 135 million, $58 million and $43 million in 2008, 2007 and 2006, respectively. The estimated future amortization expense of identifiable intangible assets during each of the next five years is approximately $135 million.
8. Business Restructuring
During the third quarter of 2008, the Company finalized a restructuring plan that is part of implementing PPGs global transformation strategy and the integration of its acquisition of SigmaKalon, completed January 2, 2008. As part of the restructuring, PPG will close several coatings manufacturing facilities, including those in Clarkson, Ont., Canada, and Geldermalsen, Netherlands, which are anticipated to close in the second and third quarters of 2009, respectively. The consultation with the applicable works council at Geldermalsen has been completed. Other staffing reductions will occur in PPGs coatings businesses in North America and Europe. PPG closed its Owen Sound, Ont., Canada, glass manufacturing facility and idled one float glass production line at its Mt. Zion, Ill., facility in the fourth quarter of 2008. Other actions included writing off idle production assets in PPGs fiber glass and chemicals businesses.
In the third quarter of 2008, the Company recorded a charge of $163 million for business restructuring, including severance and other costs of $73 million, pension curtailments of $21 million and asset write-offs of $69 million. Severance and other restructuring costs related to the SigmaKalon acquisition totaling $33 million have been recorded as part of the purchase price allocation, effectively increasing goodwill. The restructuring reserve recorded in 2008 totaled $196 million. It is expected that these restructuring actions will be substantially completed by the fourth quarter of 2009.
The Company also expects to incur additional costs of approximately $15 million directly associated with the restructuring actions for demolition, dismantling, relocation and training that will be charged to expense as incurred. The Company expects to incur these additional expenses primarily in the second half of 2009.
2008 PPG ANNUAL REPORT AND FORM 10-K | 43 |
Notes to the Consolidated Financial Statements
The following table summarizes the details through December 31, 2008:
(Millions, except no. of
employees) |
Severance
and Other Costs |
Pension
Curtailment Losses |
Asset
Write-offs |
Total Reserve |
Employees Impacted |
||||||||||||||
Performance Coatings |
$ | 30 | $ | | $ | 15 | $ | 45 | 270 | ||||||||||
Industrial Coatings |
45 | 9 | 10 | 64 | 577 | ||||||||||||||
Architectural Coatings - EMEA |
19 | | | 19 | 215 | ||||||||||||||
Commodity Chemicals |
| | 13 | 13 | 10 | ||||||||||||||
Glass |
12 | 12 | 31 | 55 | 285 | ||||||||||||||
Total |
$ | 106 | $ | 21 | $ | 69 | $ | 196 | 1,357 | ||||||||||
Activity to date |
(12 | ) | (21 | ) | (69 | ) | (102 | ) | (249 | ) | |||||||||
Currency impact |
(6 | ) | | | (6 | ) | | ||||||||||||
Balance as of Dec. 31, 2008 |
$ | 88 | $ | | $ | | $ | 88 | 1,108 | ||||||||||
|
|
During 2006, the Company finalized plans for certain actions to reduce its workforce and consolidate facilities and recorded a charge of $37 million for restructuring and other related activities, including severance costs of $35 million and loss on asset impairment of $2 million. All actions related to the 2006 restructuring charge were substantially completed by the end of the second quarter of 2007.
9. Debt and Bank Credit Agreements and Leases
(Millions) | 2008 | 2007 | ||||||
7.05% notes, due 2009 (1) |
$ | 116 | $ | 116 | ||||
|
||||||||
6 7 / 8 % notes, due 2012 (1) |
71 | 71 | ||||||
|
||||||||
5.75% notes, due 2013 |
600 | | ||||||
|
||||||||
3 7 / 8 % notes, due 2015 (300) |
418 | 436 | ||||||
|
||||||||
7 3 / 8 % notes, due 2016 |
146 | 146 | ||||||
|
||||||||
6 7 / 8 % notes, due 2017 |
74 | 74 | ||||||
|
||||||||
6.65% notes, due 2018 |
700 | | ||||||
|
||||||||
7.4% notes, due 2019 |
198 | 198 | ||||||
|
||||||||
9% non-callable debentures, due 2021 |
149 | 149 | ||||||
|
||||||||
7.70% notes, due 2038 |
249 | | ||||||
|
||||||||
650 revolving credit facility, weighted average
2.9%
as of December 31, 2008 (2) |
368 | | ||||||
|
||||||||
Impact of derivatives on debt (1) |
15 | 9 | ||||||
|
||||||||
Various other non-U.S. debt, weighted average
8.0%
as of December 31, 2008 |
18 | 2 | ||||||
|
||||||||
Capital lease obligations |
6 | 1 | ||||||
|
||||||||
Total |
3,128 | 1,202 | ||||||
|
||||||||
Less payments due within one year |
119 | 1 | ||||||
|
||||||||
Long-term debt |
$ | 3,009 | $ | 1,201 | ||||
|
(1) | PPG entered into several interest rate swaps which have the effect of converting $125 million and $ 275 million as of December 31, 2008 and 2007, respectively, of these fixed rate notes to variable rates, based on the three-month London Interbank Offered Rate (LIBOR). The weighted average effective interest rate for these borrowings, including the effects of the outstanding swaps was 5.4% and 8.0% for the years ended December 31, 2008 and 2007, respectively. Refer to Notes 1 and 11 for additional information. |
(2) | This borrowing is effectively due in 2010 as PPG has the intent and ability to rollover this amount. PPG has therefore classified this amount as long-term debt. |
Aggregate maturities of long-term debt during the next five years are (in millions) $ 119 in 2009, $ 378 in 2010, $ 1 in 2011, $ 76 in 2012 and $601 in 2013.
The Company has in place a $1 billion revolving credit facility that expires in 2011. The annual facility fee payable on the committed amount is 7 basis points. This facility is available for general corporate purposes and also to support PPGs commercial paper programs in the U.S. and Europe. As of December 31, 2008, no amounts were outstanding under this facility; however, borrowing availability under the facility was reduced by the outstanding commercial paper balance of $222 million at December 31, 2008.
PPGs non-U.S. operations have uncommitted lines of credit totaling $684 million of which $ 312 million was used as of December 31, 2008. These uncommitted lines of credit are subject to cancellation at any time and are generally not subject to any commitment fees.
In order to provide financing for the SigmaKalon acquisition, in December 2007, PPG and certain of its subsidiaries entered into a three year 650 million revolving credit facility with several banks and financial institutions and Societe Generale, as facility agent for the lenders. The facility has an annual fee of 7 basis points. In addition, PPG and a subsidiary entered into two bridge loan agreements, one in the amount of 1 billion with multiple lenders and Credit Suisse as administrative agent for those lenders and the other in the amount of $500 million with Credit Suisse as the lender. Each bridge loan had a term of 364 days.
In December 2007, PPG issued $617 million of commercial paper and borrowed $1,056 million (717 million) under the 1 billion bridge loan agreement. The proceeds from these borrowings were deposited into escrow in December 2007. Upon closing of the acquisition on January 2, 2008, these amounts were released from escrow and paid to the seller. Also, in January 2008, PPG borrowed $1,143 million, representing the remaining $417 million (283 million) available under the 1 billion bridge loan agreement and $726 million (493 million) under the 650 million revolving credit facility. The proceeds from these borrowings and cash on hand of $116 million were used to repay $1,259 million of the $1,517 million SigmaKalon debt assumed in the acquisition. No amounts were borrowed under the $500 million bridge loan agreement, and it has expired. As of December 31, 2008, $568 million (406 million) has been borrowed under the 650 million revolving credit facility.
44 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Notes to the Consolidated Financial Statements
On March 18, 2008, PPG completed a public offering of $600 million in aggregate principal amount of its 5.75% Notes due 2013 (the 2013 Notes), $700 million in aggregate principal amount of its 6.65% Notes due 2018 (the 2018 Notes) and $250 million in aggregate principal amount of its 7.70% Notes due 2038 (the 2038 Notes and, together with the 2013 Notes and the 2018 Notes, the Notes). The Notes were offered by the Company pursuant to its existing shelf registration. The proceeds of this offering of $1,538 million (net of discount and issuance costs) and additional borrowings of $195 million under the 650 million revolving credit facility were used to repay existing debt, including certain short-term debt and the amounts outstanding under the 1 billion bridge loan. No further amounts can be borrowed under the 1 billion bridge loan. The discount and issuance costs related to the Notes, which totaled $12 million, will be amortized to interest expense over the respective lives of the Notes.
Short-term debt outstanding as of December 31, 2008 and 2007, was as follows:
(Millions) | 2008 | 2007 | ||||
1 billion bridge loan agreement, 5.2% |
$ | | $ | 1,047 | ||
|
||||||
U.S. commercial paper, 5.3% as of Dec. 31, 2008 |
222 | 617 | ||||
|
||||||
650 million revolving credit facility, weighted average 2.9% as of Dec. 31, 2008 (1) |
200 | | ||||
|
||||||
Other, weighted average 4.0% as of Dec. 31, 2008 |
362 | 154 | ||||
|
||||||
Total |
$ | 784 | $ | 1,818 | ||
|
(1) | Borrowings under this facility have a term of 30 days and can be rolled over monthly until the facility expires in 2010. |
PPG is in compliance with the restrictive covenants under its various credit agreements, loan agreements and indentures. The Companys revolving credit agreements include a financial ratio covenant. The covenant requires that the amount of total indebtedness not exceed 60% of the Companys total capitalization excluding the portion of accumulated other comprehensive income (loss) related to pensions and other postretirement benefit adjustments. As of December 31, 2008, total indebtedness was 45% of the Companys total capitalization excluding the portion of accumulated other comprehensive income (loss) related to pensions and other postretirement benefit adjustments. Additionally, substantially all of the Companys debt agreements contain customary cross-default provisions. Those provisions generally provide that a default on a debt service payment of $10 million or more for longer than the grace period provided (usually 10 days) under one agreement may result in an event of default under other agreements. None of the Companys primary debt obligations are secured or guaranteed by the Companys affiliates.
Interest payments in 2008, 2007 and 2006 totaled $228 million, $ 102 million and $90 million, respectively.
Rental expense for operating leases was $ 267 million, $188 million and $161 million in 2008, 2007 and 2006, respectively. The primary leased assets include paint stores, transportation equipment, warehouses and other distribution facilities, and office space, including the Companys corporate headquarters located in Pittsburgh, Pa. Minimum lease commitments for operating leases that have initial or remaining lease terms in excess of one year as of December 31, 2008, are (in millions) $ 126 in 2009, $ 107 in 2010, $ 82 in 2011, $65 in 2012, $51 in 2013 and $ 202 thereafter.
The Company had outstanding letters of credit of $82 million as of December 31, 2008. The letters of credit secure the Companys performance to third parties under certain self-insurance programs and other commitments made in the ordinary course of business. As of December 31, 2008 and 2007 guarantees outstanding were $70 million. The guarantees relate primarily to debt of certain entities in which PPG has an ownership interest and selected customers of certain of the Companys businesses. A portion of such debt is secured by the assets of the related entities. The carrying values of these guarantees were $9 million and $3 million as of December 31, 2008 and 2007, respectively, and the fair values were $40 million and $17 million, as of December 31, 2008 and 2007, respectively. The Company does not believe any loss related to these letters of credit or guarantees is likely.
10. Financial Instruments, Excluding Derivative Financial Instruments
Included in PPGs financial instrument portfolio are cash and cash equivalents, cash held in escrow, marketable equity securities, company-owned life insurance and short- and long-term debt instruments. The fair values of the financial instruments approximated their carrying values, in the aggregate, except for long-term debt.
Long-term debt (excluding capital lease obligations), had carrying and fair values totaling $3,122 million and $3,035 million, respectively, as of December 31, 2008. The corresponding amounts as of December 31, 2007, were $1,201 million and $1,226 million, respectively. The fair values of the debt instruments were based on discounted cash flows and interest rates currently available to the Company for instruments of the same remaining maturities.
2008 PPG ANNUAL REPORT AND FORM 10-K | 45 |
Notes to the Consolidated Financial Statements
11. Derivative Financial Instruments and Hedge Activities
PPGs policies do not permit speculative use of derivative financial instruments. PPG uses derivative instruments to manage its exposure to fluctuating natural gas prices through the use of natural gas swap contracts. PPG also uses forward currency and option contracts as hedges against its exposure to variability in exchange rates on short-term intercompany borrowings, unrecognized firm sales commitments, and cash flows denominated in foreign currencies. PPG uses foreign denominated debt and cross currency swap contracts to hedge investments in foreign operations. Interest rate swaps are used to manage the Companys exposure to changing interest rates. PPG also uses an equity forward arrangement to hedge the Companys exposure to changes in the fair value of PPG stock that is to be contributed to the asbestos settlement trust as discussed in Note 15, Commitments and Contingent Liabilities.
PPG enters into derivative financial instruments with high credit quality counterparties and diversifies its positions among such counterparties in order to reduce its exposure to credit losses. The Company has not realized any credit losses on derivatives during the three-year period ended December 31, 2008.
PPG centrally manages its foreign currency transaction risk to minimize the volatility in cash flows caused by currency fluctuations. Decisions on whether to use derivative financial instruments to hedge the net transaction exposures, related to all regions of the world, are made based on the amount of those exposures, by currency, and, in certain situations, an assessment of the near-term outlook for certain currencies. This net hedging strategy does not qualify for hedge accounting under the provisions of SFAS No. 133; therefore, the change in the fair value of these instruments is recorded in Other charges in the accompanying consolidated statement of income in the period of change. The amounts recorded in earnings related to this hedging activity for the years ended December 31, 2008, 2007 and 2006 were a gain of $5 million, a loss of $ 2 million and a loss of $1 million, respectively. The fair value of these contracts as of December 31, 2008 and 2007 were assets of $1 million and $0.4 million, respectively.
In December 2007, PPG borrowed 717 million under the 1 billion bridge loan agreement established in December 2007 to finance a portion of the SigmaKalon acquisition. The Euro proceeds were converted to $1,056 million and deposited into escrow until the closing of the transaction on January 2, 2008. On the same day the $1,056 million was placed into escrow, the Company entered into a foreign currency forward contract to convert the U.S. dollars back to 717 million on January 2, 2008. A loss on the forward contract was recognized as of December 31, 2007 of $9 million, which was substantially offset by an $8 million gain on the Euro borrowing over the same time period.
Concurrent with the public offering of the Companys Notes, on March 18, 2008, PPG entered into ten U.S. dollar to euro cross currency swap contracts with a total notional amount of $1.3 billion, of which $600 million were to settle on March 15, 2013 and $700 million were to settle on March 15, 2018. PPG paid the counterparties to the contracts a total of $1.3 billion and received euros, which were used to repay most of the 1 billion bridge loan, which the Company employed to finance the acquisition of SigmaKalon. During the fourth quarter of 2008, PPG converted $1.16 billion of these contracts to cash at their fair value of $208 million and replaced them with new cross currency swap contracts. During the term of these contracts, PPG will receive semiannual interest payments in March and September of each year based on U.S. dollar, long-term fixed loan rates, and PPG will make annual interest payments in September of each year to the counterparties based on euro, long-term fixed loan rates. On settlement of all of the outstanding contracts, PPG will receive $1.3 billion U.S. dollars and pay euros to the counterparties to the contracts of which $600 million will settle on March 15, 2013 and $700 million will settle on March 15, 2018. The Company has designated these swaps as hedges of its net investment in SigmaKalon and, as a result, mark to fair value adjustments of the swaps have been and will be recorded as a component of other comprehensive income and the cash flow impact of these swaps has been and will be classified as investing activities in the consolidated statement of cash flows. As of December 31, 2008, the aggregate fair value of these swaps was a net liability of $130 million.
The 300 million Euro Notes due in 2015 are designated as a hedge of a portion of PPGs net investment in the Companys European operations. As a result, the change in book value from adjusting these foreign denominated notes to current spot rates at each balance sheet date is deferred in accumulated other comprehensive (loss) income. As of December 31, 2008 and 2007, the amount recorded in accumulated other comprehensive (loss) income from this hedge of the Companys net investment was an unrealized loss of $57 million and $76 million, respectively.
PPG designates forward currency contracts as hedges against the Companys exposure to variability in exchange rates on short-term intercompany borrowings denominated in foreign currencies. To the extent effective, changes in the fair value of these instruments are deferred in accumulated other comprehensive (loss) income and subsequently reclassified to Other charges in the accompanying consolidated statement of income as foreign exchange gains and losses are recognized on the
46 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Notes to the Consolidated Financial Statements
related intercompany borrowings. The portion of the change in fair value considered to be ineffective is recognized in Other charges in the accompanying consolidated statement of income. The amounts recorded in earnings for the years ended December 31, 2008, 2007 and 2006, were losses of $ 5 million, $9 million and $5 million, respectively. The fair value of these contracts was a net asset of $ 2 million and $5 million as of December 31, 2008 and 2007, respectively.
PPG designates forward currency contracts as hedges against the Companys exposure to future changes in fair value related to certain firm sales commitments denominated in foreign currencies. These contracts are designated as fair value hedges. As such, these contracts are carried at fair value. Changes in the fair value of these contracts and that of the related firm sales commitments are recorded in net sales. The portion of the change in fair value of the hedge contracts that was considered to be ineffective for the year ended December 31, 2008 was $4 million of expense. Prior to 2008, PPG did not hedge firm sales commitments denominated in foreign currencies. The fair value of these contracts was a liability of $18 million as of December 31, 2008.
The Company manages its interest rate risk by balancing its exposure to fixed and variable rates while attempting to minimize its interest costs. Generally, the Company maintains variable interest rate debt at a level of approximately 25% to 50% of total borrowings. PPG principally manages its fixed and variable interest rate risk by retiring and issuing debt from time to time and through the use of interest rate swaps. As of December 31, 2008 and 2007, these swaps converted $125 million and $275 million, respectively, of fixed rate debt to variable rate debt. These swaps are designated as fair value hedges. As such, the swaps are carried at fair value. Changes in the fair value of these swaps and that of the related debt are recorded in Interest expense in the accompanying consolidated statement of income. The fair value of these contracts was an asset of $3 million and $6 million as of December 31, 2008 and 2007, respectively.
The Company uses derivative instruments to manage its exposure to fluctuating natural gas prices through the use of natural gas swap contracts. These instruments mature over the next 37 months. To the extent that these instruments are effective in hedging PPGs exposure to price changes, changes in the fair values of the hedge contracts are deferred in accumulated other comprehensive (loss) income and reclassified to cost of sales as the natural gas is purchased. The amount of ineffectiveness, which is reported in Cost of sales, exclusive of depreciation and amortization in the accompanying consolidated statement of income for the years ended December 31, 2008, 2007, and 2006, was $0.3 million of expense, $0.4 million of income and $0.2 million of income, respectively. The fair value of these contracts was a liability of $85 million and $8 million as of December 31, 2008 and 2007, respectively. As of December 31, 2008 an aftertax loss of $52 million was deferred in accumulated other comprehensive (loss) income, of which $38 million related to natural gas hedge contracts that mature within the next 12 months.
In November 2002, PPG entered into a one-year renewable equity forward arrangement with a bank in order to mitigate the impact of changes in the fair value of PPG stock that is to be contributed to the asbestos settlement trust as discussed in Note 15, Commitments and Contingent Liabilities. This instrument, which has been renewed, is recorded at fair value as an asset or liability and changes in the fair value of this instrument are reflected in Asbestos settlement net in the accompanying consolidated statement of income. As of December 31, 2008 and 2007, PPG had recorded a current liability of $6 million and a current asset of $18 million, respectively, and recognized a loss of $24 million for the year ended December 31, 2008, income of $4 million for the year ended December 31, 2007 and income of $4 million for the year ended December 31, 2006.
In accordance with the terms of this instrument the bank had purchased 504,900 shares of PPG stock on the open market at a cost of $24 million through December 31, 2002, and during the first quarter of 2003 the bank purchased an additional 400,000 shares at a cost of $19 million. In December 2008, the bank purchased 483,989 shares at a cost of $19 million. The equity forward arrangement as of December 31, 2008 mitigates the full impact of changes in fair value of PPG stock that is to be contributed to the asbestos settlement trust. The total principal amount for these shares is $62 million. PPG will pay to the bank interest based on the principal amount and the bank will pay to PPG an amount equal to the dividends paid on these shares during the period this instrument is outstanding. The difference between the principal amount, and any amounts related to unpaid interest or dividends, and the current market price for these shares will represent the fair value of the instrument as well as the amount that PPG would pay or receive if the bank chose to net settle the instrument. Alternatively, the bank may, at its option, require PPG to purchase the shares covered by the arrangement at the market price on the date of settlement.
No derivative instrument initially designated as a hedge instrument was undesignated or discontinued as a hedging instrument during 2008 or 2007.
For the year ended December 31, 2008, other comprehensive (loss) income included a net loss due to derivatives of $49 million, net of tax. This loss was
2008 PPG ANNUAL REPORT AND FORM 10-K | 47 |
Notes to the Consolidated Financial Statements
comprised of realized gains of $9 million and unrealized losses of $40 million. The realized gains related to the settlement during the period of natural gas contracts, offset in part by realized losses related to the settlement of foreign currency contracts and interest rate swaps that were owned by one of the Companys investees accounted for under the equity method of accounting. The unrealized losses related to the change in fair value of the natural gas contracts and of interest rate swaps owned by one of the Companys investees accounted for under the equity method of accounting, offset in part by the change in fair value on foreign currency contracts.
For the year ended December 31, 2007, other comprehensive (loss) income included a net gain due to derivatives of $7 million, net of tax. This income was comprised of realized losses of $20 million and unrealized losses of $13 million. The realized losses related to the settlement during the period of natural gas contracts, foreign currency contracts and interest rate swaps that were owned by one of the Companys investees accounted for under the equity method of accounting. The unrealized losses related to the change in fair value of the natural gas contracts, foreign currency contracts and interest rate swaps that are owned by one of the Companys investees accounted for under the equity method of accounting.
The fair values of outstanding derivative instruments, excluding interest rate swaps, were determined using quoted market prices. The fair value of interest rate swaps was determined using discounted cash flows and current interest rates.
12. Earnings Per Common Share
The earnings per common share calculations for the three years ended December 31, 2008, are as follows:
(Millions, except per share amounts) |
2008 |
2007 |
2006 |
||||||
Earnings per common share |
|||||||||
Income from continuing operations | $538 | $856 | $707 | ||||||
|
|||||||||
(Loss) income from discontinued operations | | (22 | ) | 4 | |||||
|
|||||||||
Net Income | $538 | $834 | $711 | ||||||
|
|||||||||
Weighted average common shares outstanding | 164.6 |
164.5
|
|
165.7
|
|||||
|
|||||||||
Earnings per common share: | |||||||||
Income from continuing operations |
$3.27 | $5.20 | $4.27 | ||||||
|
|||||||||
(Loss) income from discontinued operations |
| (0.13 | ) | 0.02 | |||||
|
|||||||||
Net Income |
$3.27 | $5.07 | $4.29 | ||||||
|
|||||||||
Earnings per common share - assuming dilution |
|||||||||
Income from continuing operations | $538 | $856 | $707 | ||||||
|
|||||||||
(Loss) income from discontinued operations | | (22 | ) | 4 | |||||
|
|||||||||
Net Income | $538 | $834 | $711 | ||||||
|
|||||||||
Weighted average common shares outstanding | 164.6 |
164.5
|
|
165.7
|
|||||
|
|||||||||
Effect of dilutive securities: | |||||||||
Stock options |
0.2 | 0.9 | 0.6 | ||||||
|
|||||||||
Other stock compensation plans |
0.6 | 0.5 | 0.2 | ||||||
|
|||||||||
Potentially dilutive common shares | 0.8 | 1.4 | 0.8 | ||||||
|
|||||||||
Adjusted weighted average common shares outstanding | 165.4 | 165.9 | 166.5 | ||||||
|
|||||||||
Earnings per common share - assuming dilution: |
|||||||||
Income from continuing operations |
$3.25 | $5.16 | $4.25 | ||||||
|
|||||||||
(Loss) income from discontinued operations |
| (0.13 | ) | 0.02 | |||||
|
|||||||||
Net Income |
$3.25 | $5.03 | $4.27 | ||||||
|
There were 5.1 million, 1.1 million and 4.0 million outstanding stock options excluded in 2008, 2007 and 2006, respectively, from the computation of diluted earnings per common share due to their anti-dilutive effect.
48 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Notes to the Consolidated Financial Statements
13. Income Taxes
The following table presents a reconciliation of the statutory U.S. corporate federal income tax rate to the Companys effective income tax rate:
2008 | 2007 | 2006 | |||||||||
U.S. federal income tax rate |
35.00 | % | 35.00 | % | 35.00 | % | |||||
Changes in rate due to: |
|||||||||||
State and local taxes U.S. |
2.47 | 1.12 | 0.43 | ||||||||
|
|
||||||||||
Taxes on non-U.S. earnings |
(3.75 | ) | (4.92 | ) | (2.84 | ) | |||||
|
|
||||||||||
PPG dividends paid to the ESOP |
(1.13 | ) | (0.76 | ) | (1.04 | ) | |||||
|
|
||||||||||
U.S. federal audit settlements |
(1.59 | ) | (0.64 | ) | (2.04 | ) | |||||
|
|
||||||||||
Other |
0.28 | (0.65 | ) | (3.41 | ) | ||||||
|
|
||||||||||
Effective income tax rate |
31.28 | % | 29.15 | % | 26.10 | % | |||||
|
|
The change in the impact on the effective income tax rate for 2008 compared with 2007 due to state and local taxes and taxes on non-U.S. earnings was largely the result of the increase in U.S. earnings as a percentage of total earnings.
The 2007 effective income tax rate includes the tax benefit of $15 million for the reversal of a valuation allowance previously recorded against the benefit of a tax net operating loss carryforward of a non-U.S. subsidiary and the tax benefit associated with an enacted reduction in the Canadian federal corporate income tax rate. The impact of these items is presented as Taxes on non-U.S. earnings in the above rate reconciliation and accounted for most of the increase in the benefit that taxes on non-U.S. earnings had on the 2007 effective income tax rate.
Income before income taxes of the Companys non-U.S. operations for 2008, 2007 and 2006 was $ 219 million, $495 million and $352 million, respectively.
The following table gives details of income tax expense reported in the accompanying consolidated statement of income.
(Millions) |
2008 | 2007 | 2006 | |||||||||||
Current income taxes |
||||||||||||||
U.S. federal |
$ | 140 | $ | 294 | $ | 221 | ||||||||
|
|
|||||||||||||
Non-U.S. |
141 | 156 | 116 | |||||||||||
|
|
|||||||||||||
State and local U.S. |
29 | 31 | 30 | |||||||||||
Total current |
310 | 481 | 367 | |||||||||||
Deferred income taxes |
||||||||||||||
U.S. federal |
54 | (66 | ) | (82 | ) | |||||||||
|
|
|||||||||||||
Non-U.S. |
(86 | ) | (25 | ) | | |||||||||
|
|
|||||||||||||
State and local U.S. |
6 | (7 | ) | (10 | ) | |||||||||
Total deferred |
(26 | ) | (98 | ) | (92 | ) | ||||||||
Total |
$ | 284 | $ | 383 | $ | 275 | ||||||||
|
|
Income tax payments in 2008, 2007 and 2006 totaled $300 million, $475 million and $360 million, respectively.
Net deferred income tax assets and liabilities as of December 31, 2008 and 2007, were as follows:
(Millions) |
2008 | 2007 | ||||||||
Deferred income tax assets related to |
||||||||||
Employee benefits |
$ | 890 | $ | 644 | ||||||
|
|
|||||||||
Contingent and accrued liabilities |
529 | 507 | ||||||||
|
|
|||||||||
Operating loss and other carryforwards |
130 | 109 | ||||||||
|
|
|||||||||
Inventories |
20 | 25 | ||||||||
|
|
|||||||||
Property |
35 | 3 | ||||||||
|
|
|||||||||
Derivatives |
88 | | ||||||||
|
|
|||||||||
|
|
|||||||||
Other |
121 | 66 | ||||||||
|
|
|||||||||
Valuation allowance |
(58 | ) | (64 | ) | ||||||
|
|
|||||||||
Total |
1,755 | 1,290 | ||||||||
|
|
|||||||||
Deferred income tax liabilities related to |
||||||||||
Property |
460 | 381 | ||||||||
|
|
|||||||||
Intangibles |
505 | 257 | ||||||||
|
|
|||||||||
Employee benefits |
44 | 42 | ||||||||
|
|
|||||||||
Other |
49 | 26 | ||||||||
|
|
|||||||||
Total |
1,058 | 706 | ||||||||
|
|
|||||||||
Deferred income tax assets net |
$ | 697 | $ | 584 | ||||||
|
|
As of December 31, 2008, subsidiaries of the Company had available net operating loss carryforwards of approximately $439 million for income tax purposes, of which approximately $314 million has an indefinite expiration. The remaining $125 million expires between the years 2009 and 2023. A valuation allowance has been established for carry-forwards where the ability to utilize them is not likely.
No deferred U.S. income taxes have been provided on certain undistributed earnings of non-U.S. subsidiaries, which amounted to $2,461 million as of December 31, 2008 and $2,661 million as of December 31, 2007. These earnings are considered to be reinvested for an indefinite period of time or will be repatriated when it is tax effective to do so. It is not practicable to determine the deferred tax liability on these undistributed earnings.
The Company files federal, state and local income tax returns in numerous domestic and foreign jurisdictions. In most tax jurisdictions, returns are subject to examination by the relevant tax authorities for a number of years after the returns have been filed. The Company is no longer subject to examinations by tax authorities in any major tax jurisdiction for years before 2001. Additionally, the Internal Revenue Service (IRS) has completed its examination of the Companys U.S. federal income tax returns filed for years through 2006.
2008 PPG ANNUAL REPORT AND FORM 10-K | 49 |
Notes to the Consolidated Financial Statements
The activity in the accrued liability for unrecognized tax benefits for the two years ended December 31, 2008 was as follows:
(Millions) | 2008 | 2007 | ||||||
Balance at January 1 |
$ | 110 | $ | 77 | ||||
|
|
|||||||
Additions based on tax positions related to the current year |
12 | 21 | ||||||
|
|
|||||||
Additions for tax positions of prior years |
5 | 19 | ||||||
|
|
|||||||
Reductions for tax positions of prior years |
(17 | ) | (5 | ) | ||||
|
|
|||||||
Pre-acquisition unrecognized tax benefits |
20 | | ||||||
|
|
|||||||
Reductions for expiration of the applicable statute of limitations |
(6 | ) | (5 | ) | ||||
|
|
|||||||
Settlements |
(21 | ) | (1 | ) | ||||
|
|
|||||||
Currency |
(4 | ) | 4 | |||||
|
|
|||||||
Balance at December 31 |
$ | 99 | $ | 110 | ||||
|
|
The amount of unrecognized tax benefits was $99 million and $110 million as of December 31, 2008 and 2007, respectively. If recognized, $89 million and $88 million would impact the effective rate as of December 31, 2008 and 2007, respectively. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company had accrued $10 million and $9 million for estimated interest and penalties on unrecognized tax benefits as of December 31, 2008 and 2007, respectively. The Company recognized $1 million and $3 million of expense for estimated interest and penalties during the years ended December 31, 2008 and 2007, respectively.
While it is expected that the amount of unrecognized tax benefits will change in the next 12 months, quantification of an estimated range cannot be made at this time. The Company does not expect this change to have a significant impact on the results of operations or financial position of the Company, however, actual settlements may differ from amounts accrued.
14. Pensions and Other Postretirement Benefits
Defined Benefit Plans
PPG has defined benefit pension plans that cover certain employees worldwide. PPG also sponsors welfare benefit plans that provide postretirement medical and life insurance benefits for certain U.S. and Canadian employees and their dependents. These programs require retiree contributions based on retiree-selected coverage levels for certain retirees and their dependents and provide for sharing of future benefit cost increases between PPG and participants based on management discretion. The Company has the right to modify or terminate certain of these benefit plans in the future. Salaried and certain hourly employees hired on or after October 1, 2004, are not eligible for postretirement medical benefits. Salaried employees hired, rehired or transferred to salaried status on or after January 1, 2006, and certain hourly employees hired in 2006 or thereafter are eligible to participate in a defined contribution retirement plan. These employees are not eligible for defined benefit pension plan benefits.
The Medicare Act of 2003 introduced a prescription drug benefit under Medicare (Medicare Part D) that provides several options for Medicare eligible participants and employers, including a federal subsidy payable to companies that elect to provide a retiree prescription drug benefit which is at least actuarially equivalent to Medicare Part D. During the third quarter of 2004, PPG concluded its evaluation of the provisions of the Medicare Act and decided to maintain its retiree prescription drug program and to take the subsidy available under the Medicare Act. The impact of the Medicare Act was accounted for in accordance with FASB Staff Position No. 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 effective January 1, 2004. In addition, the plan was amended September 1, 2004, to provide that PPG management will determine the extent to which future increases in the cost of its retiree medical and prescription drug programs will be shared by certain retirees. The federal subsidy related to providing a retiree prescription drug benefit is not subject to U.S. federal income tax and is recorded as a reduction in annual net periodic benefit cost of other postretirement benefits.
In August 2007, the Companys U.S. other postretirement benefit plan was amended to consolidate the number of retiree health care options available for certain retirees and their dependents. The plan amendment was effective January 1, 2008. The amended plan also offers a fully-insured Medicare Part D prescription drug plan for certain retirees and their dependents. As such, beginning in 2008 PPG is no longer eligible to receive the subsidy provided under the Medicare Act of 2003 for these retirees and their dependents. The impact of the plan amendment was to reduce the accumulated plan benefit obligation by $57 million.
50 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Notes to the Consolidated Financial Statements
The following table sets forth the changes in projected benefit obligations (PBO) (as calculated as of December 31), plan assets, the funded status and the amounts recognized in the accompanying consolidated balance sheet for the Companys defined benefit pension and other postretirement benefit plans:
Pensions |
Other
Benefits |
|||||||||||||||||
(Millions) |
2008 | 2007 | 2008 | 2007 | ||||||||||||||
Projected benefit obligation, January 1 |
$ | 3,744 | $ | 3,790 | $ | 1,072 | $ | 1,107 | ||||||||||
Service cost |
72 | 69 | 21 | 24 | ||||||||||||||
Interest cost |
258 | 214 | 66 | 64 | ||||||||||||||
Plan amendments |
4 | 2 | | (57 | ) | |||||||||||||
Actuarial (gains) losses |
(33 | ) | (207 | ) | 71 | 16 | ||||||||||||
Benefits paid |
(241 | ) | (203 | ) | (69 | ) | (84 | ) | ||||||||||
Foreign currency translation adjustments | (229 | ) | 83 | (15 | ) | 14 | ||||||||||||
Curtailment and special termination benefits | 4 | (7 | ) | (1 | ) | (12 | ) | |||||||||||
Acquisition |
528 | | 5 | | ||||||||||||||
Divestiture |
(12 | ) | | | | |||||||||||||
Other |
1 | 3 | | | ||||||||||||||
Projected benefit obligation, December, 31 |
$ | 4,096 | $ | 3,744 | $ | 1,150 | $ | 1,072 | ||||||||||
Market value of plan assets, January 1 |
$ | 3,403 | $ | 3,161 | ||||||||||||||
Actual return on plan assets |
(679 | ) | 211 | |||||||||||||||
Company contributions |
128 | 149 | ||||||||||||||||
Participant contributions |
5 | 3 | ||||||||||||||||
Benefits paid |
(230 | ) | (190 | ) | ||||||||||||||
Plan expenses and other-net |
(10 | ) | (2 | ) | ||||||||||||||
Foreign currency translation adjustments | (181 | ) | 71 | |||||||||||||||
Acquisition |
411 | | ||||||||||||||||
Divestiture | (10 | ) | | |||||||||||||||
Market value of plan assets, December, 31 |
$ | 2,837 | $ | 3,403 | ||||||||||||||
Funded Status |
$ | (1,259 | ) | $ | (341 | ) | $ | (1,150 | ) | $ | (1,072 | ) | ||||||
Amounts recognized in the Consolidated Balance Sheet: |
|
|||||||||||||||||
Other assets (long-term) |
| 64 | | | ||||||||||||||
Accounts payable and accrued liabilities | (14 | ) | (14 | ) | (78 | ) | (75 | ) | ||||||||||
Accrued pensions |
(1,245 | ) | (391 | ) | | | ||||||||||||
Other postretirement benefits |
| | (1,072 | ) | (997 | ) | ||||||||||||
Net liability recognized |
$ | (1,259 | ) | $ | (341 | ) | $ | (1,150 | ) | $ | (1,072 | ) | ||||||
The PBO is the actuarial present value of benefits attributable to employee service rendered to date, including the effects of estimated future pay increases. The accumulated benefit obligation (ABO) is the actuarial present value of benefits attributable to employee service rendered to date, but does not include the effects of estimated future pay increases. The ABO for all defined benefit pension plans as of December 31, 2008 and 2007 was $3,773 million and $3,509 million, respectively.
The aggregate PBO and fair value of plan assets (in millions) for the pension plans with PBO in excess of plan assets were $4,096 and $2,837, respectively, as of December 31, 2008, and $3,080 and $2,675, respectively, as of December 31, 2007. The aggregate ABO and fair value of plan assets (in millions) for the pension plans with ABO in excess of plan assets were $3,772 and $2,835, respectively, as of December 31, 2008, and $961 and $647, respectively, as of December 31, 2007.
Amounts (pretax) not yet reflected in net periodic benefit cost and included in accumulated other comprehensive loss include the following:
(Millions) |
Pensions |
Other
|
||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||
Accumulated net actuarial losses |
$ | 1,860 | $ | 1,102 | $ | 465 | $ | 431 | ||||||
Accumulated prior service cost (credit) | 9 | 21 | (67 | ) | (96 | ) | ||||||||
Total |
$ | 1,869 | $ | 1,123 | $ | 398 | $ | 335 | ||||||
|
|
The accumulated net actuarial losses for pensions relate primarily to the actual return on plan assets being less than the expected return on plan assets in 2000-2002 and 2008 and a decline in the discount rate since 1999. The accumulated net actuarial losses for other postretirement benefits relate primarily to actual healthcare costs increasing at a higher rate than assumed during the 2001-2003 period and the decline in the discount rate. Since the accumulated net actuarial losses exceed 10% of the higher of the market value of plan assets or the PBO at the beginning of the year, amortization of such excess over the average remaining service period of active employees expected to receive benefits has been included in net periodic benefit costs for pension and other postretirement benefits in each of the last three years. Accumulated prior service cost (credit) is amortized over the future service periods of those employees who are active at the dates of the plan amendments and who are expected to receive benefits.
The increase (decrease) in accumulated other comprehensive loss (pretax) in 2008 relating to defined benefit pension and other postretirement benefits consists of:
(Millions) | Pensions |
Other
Postretirement Benefits |
||||||
Net actuarial loss arising during the year | $ | 933 | $ | 71 | ||||
New prior service cost |
4 | | ||||||
Amortization of actuarial loss |
(68 | ) | (26 | ) | ||||
Amortization of prior service (cost) credit |
(11 | ) | 16 | |||||
Impact of curtailment |
(33 | ) | 4 | |||||
Foreign currency translation adjustments and other | (79 | ) | (2 | ) | ||||
Net change |
$ | 746 | $ | 63 | ||||
|
|
2008 PPG ANNUAL REPORT AND FORM 10-K | 51 |
Notes to the Consolidated Financial Statements
The net actuarial loss arising during 2008 related to the Companys pension plans was primarily due to lower than expected plan asset returns for its U.S. plans.
The estimated amounts of accumulated net actuarial loss and prior service cost for the defined benefit pension plans that will be amortized from accumulated other comprehensive (loss) income into net periodic benefit cost in 2009 are $130 million and $6 million, respectively. The estimated amounts of accumulated net actuarial loss and prior service (credit) for the other postretirement benefit plans that will be amortized from accumulated other comprehensive (loss) income into net periodic benefit cost in 2009 are $35 million and $(13) million, respectively.
Net periodic benefit cost for the three years ended December 31, 2008, includes the following:
Pensions |
Other
Postretirement Benefits |
|||||||||||||||||||||||
(Millions) |
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | ||||||||||||||||||
Service cost |
$ | 72 | $ | 69 | $ | 74 | $ | 21 | $ | 24 | $ | 27 | ||||||||||||
Interest cost |
258 | 214 | 197 | 66 | 64 | 62 | ||||||||||||||||||
Expected return
on plan assets |
(283 | ) | (267 | ) | (232 | ) | | | | |||||||||||||||
Amortization of
prior service cost (credit) |
11 | 14 | 15 | (16 | ) | (12 | ) | (15 | ) | |||||||||||||||
Amortization of actuarial losses | 69 | 77 | 105 | 26 | 33 | 38 | ||||||||||||||||||
Curtailments and special termination benefits | 39 | 12 | | (5 | ) | 5 | | |||||||||||||||||
Net periodic
|
$ | 166 | $ | 119 | $ | 159 | $ | 92 | $ | 114 | $ | 112 | ||||||||||||
|
|
Net periodic benefit cost is included in Cost of sales, exclusive of depreciation and amortization, Selling, general and administrative and Research and development in the accompanying consolidated statement of income.
Assumptions
The following weighted average assumptions were used to determine the benefit obligation for the Companys defined benefit pension and other postretirement plans as of December 31, 2008 and 2007:
2008 | 2007 | |||||
Discount rate |
6.1 | % | 6.2 | % | ||
Rate of compensation increase |
3.9 | % | 4.1 | % |
The following weighted average assumptions were used to determine the net periodic benefit cost for the Companys defined benefit pension and other postretirement benefit plans for the three years ended December 31, 2008:
2008 | 2007 | 2006 | ||||
Discount rate |
6.2% | 5.7% | 5.5% | |||
Expected return on assets |
8.0% | 8.3% | 8.4% | |||
Rate of compensation increase |
4.1% | 4.0% | 4.1% |
These assumptions are reviewed on an annual basis. In determining the expected return on plan asset assumption, the Company evaluates the mix of investments that comprise plan assets and external forecasts of future long-term investment returns. The expected return on plan assets assumption to be used in determining 2009 net periodic pension expense will be 8.5% for the U.S. plans, which is the same rate used for 2008.
The weighted-average healthcare cost trend rate used was 8.0% for 2008 declining to 5.0% in the year 2014. For 2009, the weighted-average healthcare cost trend rate used will be 7.3% declining to 5.0% in the year 2017. These assumptions are reviewed on an annual basis. In selecting rates for current and long-term health care cost assumptions, the Company takes into consideration a number of factors including the Companys actual health care cost increases, the design of the Companys benefit programs, the demographics of the Companys active and retiree populations and expectations of future medical cost inflation rates. If these 2009 health care cost trend rates were increased or decreased by one percentage point per year, such increase or decrease would have the following effects:
One-Percentage Point | |||||||
(Millions) | Increase | Decrease | |||||
Increase (decrease) in the aggregate of service and interest cost components of annual expense | $ | 10 | $ | (8 | ) | ||
Increase (decrease) in the benefit obligation |
$ | 117 | $ | (98 | ) |
Contributions
On August 17, 2006, the Pension Protection Act of 2006 (PPA) was signed into law, changing the funding requirements for the Companys U.S. defined benefit pension plans beginning in 2008. Under the requirements of PPA, PPG did not have to make a mandatory contribution to these plans in 2008 and does not expect to have a mandatory contribution to these plans in 2009 because of managements intent to make voluntary contributions.
PPG made in 2008 and 2007 voluntary contributions to its U.S. defined benefit pension plans of $50 million and $100 million, respectively. PPG also made in 2008 and 2007 contributions to its non-U.S. defined benefit pension plans of $69 million and $49 million, respectively, some of which were required by local funding requirements. PPG expects to make mandatory contributions to its non-U.S. plans in 2009 of approximately $60 million. In January 2009, PPG made a voluntary contribution to its U.S. plans of $160 million and may make an additional voluntary contribution to these plans in 2009 in an amount up to $140 million.
Benefit Payments
The estimated pension benefits to be paid under the Companys defined benefit pension plans during the next
52 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Notes to the Consolidated Financial Statements
five years are (in millions) $239 in 2009, $239 in 2010, $246 in 2011, $249 in 2012 and $252 in 2013 and are expected to aggregate $1,384 million for the five years thereafter. The estimated other postretirement benefits to be paid during the next five years are (in millions) $77 in 2009, $79 in 2010, $81 in 2011, $82 in 2012 and $84 in 2013 and are expected to aggregate $444 million for the five years thereafter. The Company expects to receive $1 million of subsidy under the Medicare Act of 2003 during each of the next five years and an aggregate amount of $6 million for the five years thereafter. The 2008 subsidy under the Medicare Act of 2003 of $1 million was received as of December 31, 2008.
Plan Assets
The following summarizes the target pension plan asset allocation as of December 31, 2008, and the actual pension plan asset allocations as of December 31, 2008 and 2007:
Asset Category |
Target Asset
|
Percentage of
|
||||
2008 | 2007 | |||||
Equity securities |
5075% | 46% | 60% | |||
Debt securities |
2550% | 49% | 36% | |||
Real estate |
010% | 5% | 4% | |||
Other |
010% | 0% | 0% |
The pension plan assets are invested to generate investment earnings over an extended time horizon to help fund the cost of benefits promised under the plans while controlling investment risk.
Other Plans
The Company incurred costs for multi-employer pension plans of $1 million in each of the years 2008, 2007 and 2006. Multi-employer healthcare costs totaled $1 million in each of the years 2008, 2007 and 2006. PPGs obligations under these plans were transferred as part of the sale of the automotive glass and services business (see Note 3, Divestiture of Automotive Glass and Services Business).
The Company recognized expense for defined contribution pension plans in 2008, 2007 and 2006 of $22 million, $14 million and $7 million, respectively. As of December 31, 2008 and 2007, the Companys liability related to defined contribution pension plans was $15 million and $6 million, respectively.
The Company has a deferred compensation plan for certain key managers which allows them to defer a portion of their compensation in a phantom PPG stock account or other phantom investment accounts. The amount deferred earns a return based on the investment options selected by the participant. The amount owed to participants is an unfunded and unsecured general obligation of the Company. Upon retirement, death, disability, termination of employment, scheduled payment or unforeseen emergency the compensation deferred and related accumulated earnings are distributed in accordance with the participants election in cash or in PPG stock, based on the accounts selected by the participant.
The plan provides participants with investment alternatives and the ability to transfer amounts between the phantom non-PPG stock investment accounts. To mitigate the impact on compensation expense of changes in the market value of the liability, the Company has purchased a portfolio of marketable securities that mirror the phantom non-PPG stock investment accounts selected by the participants except the money market accounts. The changes in market value of these securities are also included in earnings. Trading will occur in this portfolio to align the securities held with the participants phantom non-PPG stock investment accounts except the money market accounts.
The cost of the deferred compensation plan, comprised of dividend equivalents accrued on the phantom PPG stock account, investment income and the change in market value of the liability, was income in 2008 of $25 million, and expense in 2007 and 2006 of $12 million and $9 million, respectively. These amounts are included in Selling, general and administrative in the accompanying consolidated statement of income. The change in market value of the investment portfolio in 2008 was expense of $27 million, and in 2007 and 2006 was income of $9 million and $8 million, respectively, of which $1 million, $2 million and $4 million was realized gains, respectively, and is also included in Selling, general and administrative.
The Companys obligations under this plan, which are included in Accounts payable and accrued liabilities and Other liabilities in the accompanying consolidated balance sheet, totaled $90 million and $119 million as of December 31, 2008 and 2007, respectively, and the investments in marketable securities, which are included in Investments and Other current assets in the accompanying consolidated balance sheet, were $51 million and $84 million as of December 31, 2008 and 2007, respectively.
15. Commitments and Contingent Liabilities
PPG is involved in a number of lawsuits and claims, both actual and potential, including some that it has asserted against others, in which substantial monetary damages are sought. These lawsuits and claims, the most significant of which are described below, relate to contract, patent, environmental, product liability, antitrust and other matters arising out of the conduct of
2008 PPG ANNUAL REPORT AND FORM 10-K | 53 |
Notes to the Consolidated Financial Statements
PPGs current and past business activities. To the extent that these lawsuits and claims involve personal injury and property damage, PPG believes it has adequate insurance; however, certain of PPGs insurers are contesting coverage with respect to some of these claims, and other insurers, as they had prior to the asbestos settlement described below, may contest coverage with respect to some of the asbestos claims if the settlement is not implemented. PPGs lawsuits and claims against others include claims against insurers and other third parties with respect to actual and contingent losses related to environmental, asbestos and other matters.
The result of any future litigation of such lawsuits and claims is inherently unpredictable. However, management believes that, in the aggregate, the outcome of all lawsuits and claims involving PPG, including asbestos-related claims in the event the settlement described below does not become effective, will not have a material effect on PPGs consolidated financial position or liquidity; however, such outcome may be material to the results of operations of any particular period in which costs, if any, are recognized.
Legacy Antitrust Matters
The Company has been named as a defendant, along with various other co-defendants, in a number of antitrust lawsuits filed in federal and state courts. These suits allege that PPG acted with competitors to fix prices and allocate markets in the flat glass and automotive refinish industries. The plaintiffs in these cases are seeking economic and, in certain cases, treble damages and injunctive relief. As described below, PPG has either settled or agreed to settle the most significant of these cases.
Twenty-nine glass antitrust cases were filed in federal courts, all of which were consolidated as a class action in the U.S. District Court for the Western District of Pennsylvania located in Pittsburgh, Pa. By 2003, all of the other defendants in the glass class action antitrust case settled with the plaintiffs and were dismissed from the case. On May 29, 2003, the Court granted PPGs motion for summary judgment dismissing the claims against PPG in the glass class action antitrust case. The plaintiffs in that case appealed that order to the U.S. Third Circuit Court of Appeals. On September 30, 2004, the U.S. Third Circuit Court of Appeals affirmed in part and reversed in part the dismissal of PPG and remanded the case for further proceedings. PPG petitioned the U.S. Supreme Court for permission to appeal the decision of the U.S. Third Circuit Court of Appeals, however, the U.S. Supreme Court rejected PPGs petition for review.
On October 19, 2005, PPG entered into a settlement agreement to settle the federal glass class action antitrust case in order to avoid the ongoing expense of this protracted case, as well as the risks and uncertainties associated with complex litigation involving jury trials. Pursuant to the settlement agreement, PPG agreed to pay $60 million and to bear up to $500,000 in settlement administration costs. These amounts were held in escrow until the U.S. District Court entered an order on February 7, 2006, approving the settlement. This order is no longer appealable. As a result of the settlement, PPG also paid $900,000 pursuant to a pre-existing contractual obligation to a plaintiff that did not participate in the federal glass class action antitrust case. Separately, on November 8, 2006, PPG entered into a class-wide settlement agreement to resolve all claims of indirect purchasers of flat glass in California. PPG agreed to make a payment of $2.5 million, inclusive of attorneys fees and costs. In early 2009, the settlement became final and non-appealable. Independent state court cases remain pending in Tennessee involving claims that are not included in the settlement of the federal and California glass class action antitrust cases. Notwithstanding that PPG has settled the federal and California glass class action antitrust cases, and is considering settlement of the Tennessee cases, PPG continues to believe that there was no wrongdoing on the part of the Company and also believes that PPG has meritorious defenses to the independent state court cases.
Approximately 60 cases alleging antitrust violations in the automotive refinish industry were filed in various state and federal jurisdictions. The approximately 55 federal cases were consolidated as a class action in the U.S. District Court for the Eastern District of Pennsylvania located in Philadelphia, Pa. Certain of the defendants in the federal automotive refinish case settled prior to PPG. Neither PPGs investigation conducted through its counsel of the allegations in these cases nor the discovery conducted in the case has identified a basis for the plaintiffs allegations that PPG participated in a price-fixing conspiracy in the U.S. automotive refinish industry. PPGs management continues to believe that there was no wrongdoing on the part of the Company and that it has meritorious defenses in the federal automotive refinish case. Nonetheless, it remained uncertain whether the federal court ultimately would dismiss PPG, or whether the case would go to trial. On September 14, 2006, PPG agreed to settle the federal class action for $23 million to avoid the ongoing expense of this protracted case, as well as the risks and uncertainties associated with complex litigation involving jury trials. PPG recorded a charge for $23 million in the third quarter of 2006. This amount was held in escrow and, on December 28, 2007, the federal court approved the class action settlement agreement. In January 2008, the $23 million was released from escrow.
54 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Notes to the Consolidated Financial Statements
Class action lawsuits that mimic the federal class action were filed in five states (California, Maine, Massachusetts, Tennessee and Vermont) pursuant to state statutes on behalf of indirect purchasers of automotive refinish products. A similar suit brought in a federal court in New York City was dismissed on May 8, 2007. In the fourth quarter of 2007, the case in Tennessee was dismissed. PPG believes that there was no wrongdoing on its part, and believes it has meritorious defenses to the independent state court cases. Notwithstanding the foregoing, to avoid the ongoing expense of protracted litigation, as well as the risks and uncertainties associated with complex litigation, PPG has settled the cases in California, Maine, Massachusetts and Vermont.
New Antitrust Matters
Several complaints were filed in different federal courts naming PPG and other flat glass producers as defendants in purported antitrust class actions. The complaints allege that the defendants conspired to fix, raise, maintain and stabilize the price and the terms and conditions of sale of flat glass in the United States in violation of federal antitrust laws. In June 2008, these cases were consolidated into one federal court class action in Pittsburgh, Pa. Many allegations in the complaints are similar to those raised in recently concluded proceedings in Europe in which fines were levied against other flat glass producers arising out of alleged antitrust violations. PPG was not involved in any of the proceedings in Europe. PPG divested its European flat glass business in 1998. A complaint containing allegations substantially similar to the U.S. litigation was filed in the Superior Court in Windsor, Ontario, Canada regarding the sale of flat glass in Canada. PPG is aware of no wrongdoing or conduct on its part that violated any antitrust laws and it intends to vigorously defend its position.
Asbestos Matters
For over 30 years, PPG has been a defendant in lawsuits involving claims alleging personal injury from exposure to asbestos. Most of PPGs potential exposure relates to allegations by plaintiffs that PPG should be liable for injuries involving asbestos-containing thermal insulation products, known as Unibestos, manufactured and distributed by Pittsburgh Corning Corporation (PC). PPG and Corning Incorporated are each 50% shareholders of PC. PPG has denied responsibility for, and has defended, all claims for any injuries caused by PC products. As of December 31, 2008, PPG was one of many defendants in numerous asbestos-related lawsuits involving approximately 114,000 open claims served on PPG.
Background of PC Bankruptcy Plan of Reorganization
On April 16, 2000, PC filed for Chapter 11 Bankruptcy in the U.S. Bankruptcy Court for the Western District of Pennsylvania located in Pittsburgh, Pa. Accordingly, in the first quarter of 2000, PPG recorded an after-tax charge of $35 million for the write-off of all of its investment in PC. As a consequence of the bankruptcy filing and various motions and orders in that proceeding, the asbestos litigation against PPG (as well as against PC) has been stayed and the filing of additional asbestos suits against them has been enjoined, until 30 days after the effective date of a confirmed plan of reorganization for PC substantially in accordance with the settlement arrangement among PPG and several other parties discussed below. The stay may be terminated if the Bankruptcy Court determines that such a plan will not be confirmed, or the settlement arrangement set forth below is not likely to be consummated.
On May 14, 2002, PPG announced that it had agreed with several other parties, including certain of its insurance carriers, the official committee representing asbestos claimants in the PC bankruptcy, and the legal representatives of future asbestos claimants appointed in the PC bankruptcy, on the terms of a settlement arrangement relating to certain asbestos claims against PPG and PC (the 2002 PPG Settlement Arrangement).
On March 28, 2003, Corning Incorporated announced that it had separately reached its own arrangement with the representatives of asbestos claimants for the settlement of certain asbestos claims against Corning and PC (the 2003 Corning Settlement Arrangement).
The terms of the 2002 PPG Settlement Arrangement and the 2003 Corning Settlement Arrangement were incorporated into a bankruptcy reorganization plan for PC along with a disclosure statement describing the plan, which PC filed with the Bankruptcy Court on April 30, 2003. Amendments to the plan and disclosure statement were subsequently filed. On November 26, 2003, after considering objections to the second amended disclosure statement and plan of reorganization, the Bankruptcy Court entered an order approving such disclosure statement and directing that it be sent to creditors, including asbestos claimants, for voting. In March 2004, the second amended PC plan of reorganization (the second amended PC plan of reorganization) received the required votes to approve the plan with a channeling injunction for present and future asbestos claimants under §524(g) of the Bankruptcy Code. After voting results for the second amended PC plan of reorganization were received, the Bankruptcy Court judge conducted a hearing regarding the fairness of the settlement, including whether the plan would be fair with respect to present and future claimants, whether such claimants would be treated in substantially the same manner, and whether the protection provided to PPG and its participating insurers would be fair in view of the assets they would convey to the asbestos settlement trust (the Trust) to be
2008 PPG ANNUAL REPORT AND FORM 10-K | 55 |
Notes to the Consolidated Financial Statements
established as part of the second amended PC plan of reorganization. At that hearing, creditors and other parties in interest raised objections to the second amended PC plan of reorganization. Following that hearing, the Bankruptcy Court scheduled oral arguments for the contested items.
The Bankruptcy Court heard oral arguments on the contested items on November 17-18, 2004. At the conclusion of the hearing, the Bankruptcy Court agreed to consider certain post-hearing written submissions. In a further development, on February 2, 2005, the Bankruptcy Court established a briefing schedule to address whether certain aspects of a decision of the U.S. Third Circuit Court of Appeals in an unrelated case have any applicability to the PC plan of reorganization. Oral arguments on these matters were subsequently held in March 2005. During an omnibus hearing on February 28, 2006, the Bankruptcy Court judge stated that she was prepared to rule on the PC plan of reorganization in the near future, provided certain amendments were made to the plan. Those amendments were filed, as directed, on March 17, 2006. After further conferences and supplemental briefings, in December 2006, the court denied confirmation of the second amended PC plan of reorganization, on the basis that the plan was too broad in the treatment of allegedly independent asbestos claims not associated with PC.
Terms of 2002 PPG Settlement Arrangement
PPG had no obligation to pay any amounts under the 2002 PPG Settlement Arrangement until 30 days after the second amended PC plan of reorganization was finally approved by an appropriate court order that was no longer subject to appellate review (the Effective Date). If the second amended PC plan of reorganization had been approved as proposed, PPG and certain of its insurers (along with PC) would have made payments on the Effective Date to the Trust, which would have provided the sole source of payment for all present and future asbestos bodily injury claims against PPG, its subsidiaries or PC alleged to be caused by the manufacture, distribution or sale of asbestos products by these companies. PPG would have conveyed the following assets to the Trust: (i) the stock it owns in PC and Pittsburgh Corning Europe, (ii) 1,388,889 shares of PPGs common stock and (iii) aggregate cash payments to the Trust of approximately $998 million, payable according to a fixed payment schedule over 21 years, beginning on June 30, 2003, or, if later, the Effective Date. PPG would have had the right, in its sole discretion, to prepay these cash payments to the Trust at any time at a discount rate of 5.5% per annum as of the prepayment date. In addition to the conveyance of these assets, PPG would have paid $30 million in legal fees and expenses on behalf of the Trust to recover proceeds from certain historical insurance assets, including policies issued by certain insurance carriers that were not participating in the settlement, the rights to which would be assigned to the Trust by PPG.
Under the proposed 2002 PPG Settlement Arrangement, PPGs participating historical insurance carriers would have made cash payments to the Trust of approximately $1.7 billion between the Effective Date and 2023. These payments could also have been prepaid to the Trust at any time at a discount rate of 5.5% per annum as of the prepayment date. In addition, as referenced above, PPG would have assigned to the Trust its rights, insofar as they related to the asbestos claims to have been resolved by the Trust, to the proceeds of policies issued by certain insurance carriers that were not participating in the 2002 PPG Settlement Arrangement and from the estates of insolvent insurers and state insurance guaranty funds.
Under the proposed 2002 PPG Settlement Arrangement, PPG would have granted asbestos releases to all participating insurers, subject to a coverage-in-place agreement with certain insurers for the continuing coverage of premises claims (discussed below). PPG would have granted certain participating insurers full policy releases on primary policies and full product liability releases on excess coverage policies. PPG would have also granted certain other participating excess insurers credit against their product liability coverage limits.
If the second amended PC plan of reorganization incorporating the terms of the 2002 PPG Settlement Arrangement and the 2003 Corning Settlement Arrangement had been approved by the Bankruptcy Court, the Court would have entered a channeling injunction under §524(g) and other provisions of the Bankruptcy Code, prohibiting present and future claimants from asserting bodily injury claims after the Effective Date against PPG or its subsidiaries or PC relating to the manufacture, distribution or sale of asbestos-containing products by PC or PPG or its subsidiaries. The injunction would have also prohibited codefendants in those cases from asserting claims against PPG for contribution, indemnification or other recovery. All such claims would have been filed with the Trust and only paid from the assets of the Trust.
Modified Third Amended PC Plan of Reorganization
To address the issues raised by the Bankruptcy Court in its December 2006 ruling, the interested parties engaged in extensive negotiations regarding the terms of a third amended PC plan of reorganization, including modifications to the 2002 PPG Settlement Arrangement. A modified third amended PC plan of reorganization (the third amended PC plan of reorganization), including a modified PPG settlement arrangement (the 2009 PPG
56 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Notes to the Consolidated Financial Statements
Settlement Arrangement), was filed with the Bankruptcy Court on January 29, 2009. The parties also filed a disclosure statement describing the third amended PC plan of reorganization with the court. The third amended PC plan of reorganization also includes a modified settlement arrangement of Corning Incorporated.
Creditors and other interested parties may file objections to the third amended PC plan of reorganization and the disclosure statement. Once such objections, if any, are resolved, the Bankruptcy Court would direct the third amended PC plan of reorganization and disclosure statement to be sent to creditors, including asbestos claimants, for voting. In 2004, creditors and claimants voted overwhelmingly in favor of the second amended PC plan of reorganization, which included the 2002 PPG Settlement Arrangement. Assuming a favorable vote by creditors and claimants on the third amended PC plan of reorganization, the Bankruptcy Court would then conduct a hearing regarding the fairness of the proposed plan, including whether (i) the plan would be fair with respect to present and future claimants, (ii) such claimants would be treated in substantially the same manner, and (iii) the protection provided to PPG and its participating insurers would be fair in view of the assets they would convey to the trust (the Trust) to be established as part of the third amended PC plan of reorganization. At that hearing, creditors and parties in interest could raise objections to the third amended PC plan of reorganization. Following that hearing, the Bankruptcy Court, after considering objections to the third amended PC plan of reorganization, will enter a confirmation order if all requirements to confirm a plan of reorganization under the Bankruptcy Code have been satisfied. Such an order could be appealed to the U.S. District Court for the Western District of Pennsylvania. Assuming that the District Court approves a confirmation order, interested parties could appeal the order to the U.S. Third Circuit Court of Appeals and subsequently could seek review by the U.S. Supreme Court.
The 2009 PPG Settlement Arrangement will not become effective until the third amended PC plan of reorganization is finally approved by an appropriate court order that is no longer subject to appellate review, and PPGs initial contributions will not be due until 30 business days thereafter (the Funding Effective Date).
Asbestos Claims Subject to Bankruptcy Courts Channeling Injunction
If the third amended PC plan of reorganization is approved by the Bankruptcy Court and becomes effective, a channeling injunction will be entered under §524(g) of the Bankruptcy Code prohibiting present and future claimants from asserting asbestos claims against PC. With regard to PPG, the channeling injunction will prohibit present and future claimants from asserting claims against PPG that arise, in whole or in part, out of exposure to Unibestos, or any other asbestos or asbestos-containing products actually or allegedly manufactured, sold and/or distributed by PC, or asbestos on or emanating from any PC premises. The injunction will also prohibit codefendants in these cases that are subject to the channeling injunction from asserting claims against PPG for contribution, indemnification or other recovery. The channeling injunction will also preclude the prosecution of claims against PPG arising from alleged exposure to asbestos or asbestos-containing products to the extent that a claimant is alleging or seeking to impose liability, directly or indirectly, for the conduct of, claims against or demands on PC by reason of PPGs: (i) ownership of a financial interest in PC; (ii) involvement in the management of PC, or service as an officer, director or employee of PC or a related party; (iii) provision of insurance to PC or a related party; or (iv) involvement in a financial transaction affecting the financial condition of PC or a related party. The foregoing PC related claims are referred to as PC Relationship Claims and constitute, in PPG managements opinion, the vast majority of the pending asbestos personal injury claims against PPG. All claims channeled to the Trust will be paid only from the assets of the Trust.
Asbestos Claims Retained by PPG
The channeling injunction provided for under the third amended PC plan of reorganization will not extend to any claim against PPG that arises out of exposure to any asbestos or asbestos-containing products actually or allegedly manufactured, sold and/or distributed by PPG or its subsidiaries that is not a PC Relationship Claim, and in this respect differs from the channeling injunction contemplated by the second amended PC plan of reorganization filed in 2003. While management believes that the vast majority of the approximately 114,000 open claims against PPG alleging personal injury from exposure to asbestos relate to products manufactured, distributed or sold by PC, the potential liability for any non-PC Relationship Claims will be retained by PPG. Because a determination of whether an asbestos claim is a non-PC Relationship Claim would typically not be known until shortly before trial and because the filing and prosecution of asbestos claims (other than certain premises claims) against PPG has been enjoined since April 2000, the actual number of non-PC Relationship Claims that may be pending at the expiration of the stay or the number of additional claims that may be filed against PPG in the future cannot be determined at this time. PPG does not expect the Court to lift the stay until after confirmation or rejection of the third amended PC plan of reorganization. PPG intends to defend against all such claims vigorously
2008 PPG ANNUAL REPORT AND FORM 10-K | 57 |
Notes to the Consolidated Financial Statements
and their ultimate resolution in the court system is expected to occur over a period of years.
In addition, similar to what was contemplated by the second amended PC plan of reorganization, the channeling injunction will not extend to claims against PPG alleging personal injury caused by asbestos on premises owned, leased or occupied by PPG (so called premises claims), which generally have been subject to the stay imposed by the Bankruptcy Court. Historically, a small proportion of the claims against PPG and its subsidiaries have been premises claims, and based upon recent review and analysis, PPG believes that the number of premises claims currently comprises less than 2% of the total asbestos-related claims against PPG. Beginning in late 2006, the Bankruptcy Court lifted the stay with respect to certain premises claims against PPG. As a result, PPG and its primary insurers have settled approximately 500 premises claims. PPGs insurers agreed to provide insurance coverage for a major portion of the payments made in connection with the settled claims, and PPG accrued the portion of the settlement amounts not covered by insurance. PPG and its primary insurers are evaluating the voluminous factual, medical, and other relevant information pertaining to approximately 600 additional claims that are being considered for potential settlement. Premises claims remain subject to the stay, as outlined above, although certain claimants have requested the Court to lift the stay with respect to these claims and the stay has been lifted as to some claims. PPG believes that any financial exposure resulting from such premises claims, taking into account available insurance coverage, will not have a material adverse effect on PPGs consolidated financial position, liquidity or results of operations.
PPGs Funding Obligations
PPG has no obligation to pay any amounts under the third amended PC plan of reorganization until the Funding Effective Date. If the third amended PC plan of reorganization is approved, PPG and certain of its insurers will make the following contributions to the Trust. On the Funding Effective Date, PPG will relinquish any claim to its equity interest in PC, convey the stock it owns in Pittsburgh Corning Europe and transfer 1,388,889 shares of PPGs common stock or cash equal to the fair value of such shares as defined in the 2009 PPG Settlement Arrangement. PPG will make aggregate cash payments to the Trust of approximately $825 million, payable according to a fixed payment schedule over the period to 2023, beginning on the Funding Effective Date. PPG would have the right, in its sole discretion, to prepay these cash payments to the Trust at any time at a discount rate of 5.5% per annum as of the prepayment date. PPGs participating historical insurance carriers will also make cash payments to the Trust of approximately $1.6 billion between the Funding Effective Date and 2027. These payments could also be prepaid to the Trust at any time at a discount rate of 5.5% per annum as of the prepayment date. PPG will grant asbestos releases and indemnifications to all participating insurers, subject to amended coverage-in-place arrangements with certain insurers for remaining coverage of premises claims. PPG will grant certain participating insurers full policy releases on primary policies and full product liability releases on excess coverage policies. PPG will also grant certain other participating excess insurers credit against their product liability coverage limits. PPG will retain insurance rights against non-participating insurance policies and insolvent insurance policies that would have been assigned to the Trust under the second amended PC plan of reorganization and will retain any net proceeds of the claims against such non-participating insurers. However, PPG will contribute to the Trust any net proceeds it recovers from claims against certain other non-participating insurers, and will use reasonable efforts to pursue such claims.
PPGs obligation at December 31, 2008 under the 2009 PPG Settlement Arrangement is $735 million, which is $162 million less than the $897 million accrued as of that date under the 2002 PPG Settlement Arrangement. This reduction is attributable to a number of negotiated provisions in the 2009 PPG Settlement Arrangement, including the provisions relating to the channeling injunction under which PPG retains liability for any non-PC Relationship Claims. PPG will retain such amount as a reserve for asbestos-related claims that will not be channeled to the Trust, as this amount represents PPGs best estimate of its liability for these claims. PPG does not have sufficient current claim information or settlement history on which to base a better estimate of this liability, in light of the fact that the Bankruptcy Courts stay has been in effect since 2000.
Following the effective date of the third amended PC plan of reorganization and the lifting of the Bankruptcy Court stay, PPG will monitor the activity associated with asbestos claims which are not channeled to the Trust pursuant to the third amended PC plan of reorganization, and evaluate its estimated liability for such claims and related insurance assets then available to the Company as well as underlying assumptions on a periodic basis to determine whether any adjustment to its reserve for these claims is required.
Of the total obligation of $735 million under the 2009 PPG Settlement Arrangement at December 31, 2008, $491 million is reported as a current liability and the present value of the payments due in the years 2010 to 2023 totaling $244 million is reported as a non-current liability in the accompanying consolidated balance sheet as of December 31, 2008. The future accretion of the non-current portion of the liability will total $164 million and
58 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Notes to the Consolidated Financial Statements
be reported as expense in the consolidated statement of income over the period through 2023, as follows (in millions):
|
|||
2009 |
$ | 14 | |
|
|||
2010 |
14 | ||
|
|||
2011 |
14 | ||
|
|||
2012 2023 |
122 | ||
|
|||
Total |
$ | 164 | |
|
The following table summarizes the impact on PPGs financial statements for the three years ended December 31, 2008 resulting from the 2002 and 2009 PPG Settlement Arrangements including the change in fair value of the stock to be transferred to the Trust and the equity forward instrument (see Note 11, Derivative Financial Instruments and Hedge Activities) and the increase in the net present value of the future payments to be made to the Trust.
(1) | Amounts have been reclassified to Other liabilities and retained as a reserve for asbestos-related claims that will not be channeled to the Trust. |
Payments under the fixed payment schedule require annual payments that are due each June. The current portion of the asbestos settlement liability included in the accompanying consolidated balance sheet as of December 31, 2008, consists of all such payments required through June 2009, the fair value of PPGs common stock and the value of PPGs investment in Pittsburgh Corning Europe. The amount due June 30, 2010, of $20 million and the net present value of the remaining payments is included in the long-term asbestos settlement liability in the accompanying consolidated balance sheet.
Enjoined Claims
If the 2009 PPG Settlement Arrangement is not implemented, for any reason, and the Bankruptcy Court stay expires, PPG intends to defend vigorously the pending and any future asbestos claims, including PC Relationship Claims, asserted against it and its subsidiaries. PPG continues to assert that it is not responsible for any injuries caused by PC products, which it believes account for the vast majority of the pending open claims against PPG. Prior to 2000, PPG had never been found liable for any PC-related claims. In numerous cases PPG had been dismissed on motions prior to trial, and in others PPG was released as part of settlements by PC. PPG was found not responsible for PC-related claims at trial in two cases. In January 2000, one jury found PPG, for the first time, partly responsible for injuries to five plaintiffs alleged to be caused by PC products. PPG intends to appeal that adverse verdict in the event the 2009 PPG Settlement Arrangement does not become effective, or the stay is lifted as to these claims, which are the subject of a motion to lift the stay. Although PPG has successfully defended asbestos claims brought against it in the past, in view of the number of claims, and the significant verdicts that other companies have experienced in asbestos litigation, the result of any future litigation of such claims is inherently unpredictable.
Environmental Matters
It is PPGs policy to accrue expenses for environmental contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Reserves for environmental contingencies are exclusive of claims against third parties and are generally not discounted. In managements opinion, the Company operates in an environmentally sound manner and the outcome of the Companys environmental contingencies will not have a material effect on PPGs financial position or liquidity; however, any such outcome may be material to the results of operations of any particular period in which costs, if any, are recognized. Management anticipates that the resolution of the Companys environmental contingencies will occur over an extended period of time.
As of December 31, 2008 and 2007, PPG had reserves for environmental contingencies totaling $299 million
2008 PPG ANNUAL REPORT AND FORM 10-K | 59 |
Notes to the Consolidated Financial Statements
and $276 million, respectively, of which $44 million and $57 million, respectively, were classified as current liabilities. The reserve at December 31, 2008 included $193 million for environmental contingencies associated with PPGs former chromium manufacturing plant in Jersey City, N.J., $48 million for environmental contingencies associated with the Calcasieu River estuary and three operating plant sites in PPGs chemicals business, $31 million for pre-acquisition environmental contingencies related to SigmaKalon operations, and $27 million for other environmental contingencies, including PPGs estimated obligations related to sites on the National Priority List. The reserve at December 31, 2007 included $195 million for environmental contingencies associated with the former chromium manufacturing plant in New Jersey, $53 million for environmental contingencies associated with the Calcasieu River estuary and three operating plant sites in PPGs chemical business, and $28 million for other environmental contingencies, including National Priority List sites. Pretax charges against income for environmental remediation costs in 2008, 2007 and 2006 totaled $15 million, $12 million and $207 million, respectively, and are included in Other charges in the accompanying consolidated statement of income. Cash outlays related to such environmental remediation aggregated $24 million, $19 million and $22 million in 2008, 2007, and 2006, respectively. As part of the allocation of the SigmaKalon purchase price to the assets acquired and liabilities assumed, the reserve for environmental contingencies was increased by $37 million in 2008. The impact of foreign currency translation decreased the liability by $5 million in 2008.
Charges for estimated environmental remediation costs in 2006 were significantly higher than PPGs historical range. The Companys continuing efforts to analyze and assess the environmental issues associated with a former chromium manufacturing plant site located in Jersey City, N.J., and at the Calcasieu River Estuary located near the Lake Charles, La., chlor-alkali plant resulted in a pre-tax charge of $173 million in the third quarter of 2006 for the estimated costs of remediating these sites. Excluding 2006, pretax charges against income have ranged between $10 million and $49 million per year for the past 15 years. PPG anticipates that charges against income in 2009 for environmental remediation costs will be within this historical range.
Management expects cash outlays for environmental remediation costs to be approximately $50 million in 2009 and to range from $45 million to $75 million annually through 2013. It is possible that technological, regulatory and enforcement developments, the results of environmental studies and other factors could alter the Companys expectations with respect to charges against income and future cash outlays. Specifically, the level of expected cash outlays is highly dependent upon activity related to the former chromium manufacturing plant site in New Jersey, as PPG awaits approval of workplans that have been submitted to the applicable regulatory agencies.
In New Jersey, PPG continues to perform its obligations under an Administrative Consent Order (ACO) with the New Jersey Department of Environmental Protection (NJDEP). Since 1990, PPG has remediated 47 of 61 residential and nonresidential sites under the ACO. The most significant of the 14 remaining sites is the former chromium manufacturing location in Jersey City. The principal contaminant of concern is hexavalent chromium. Based on current estimates, at least 500,000 tons of soil may be potentially impacted for all remaining sites. The Company submitted a feasibility study work plan to the NJDEP in October 2006 that includes a review of the available remediation technology alternatives for the former chromium manufacturing location. Under the feasibility study work plan, remedial alternatives which will be assessed include, but are not limited to, soil excavation and offsite disposal in a licensed disposal facility, in situ chemical stabilization of soil and groundwater, and in situ solidification of soils. PPG has submitted a Remedial Action Work Plan for one other of the remaining sites under the ACO. This proposal has been submitted to the NJDEP for approval. In addition, investigation activities are ongoing for an additional six sites covered by the ACO adjacent to the former manufacturing site with completion expected in 2009. Investigation activities have not yet begun for the remaining six sites covered by the ACO, but PPG believes the results of the study at the former chromium manufacturing location will also provide the Company with relevant information concerning remediation alternatives at these sites.
As a result of the extensive analysis undertaken in connection with the preparation and submission of the feasibility study work plan for the former chromium manufacturing location described above, the Company recorded a pretax charge of $165 million in the third quarter of 2006. The charge included estimated costs for remediation at the 14 remaining ACO sites, including the former manufacturing site, and for the resolution of litigation filed by NJDEP in May 2005 as discussed below. The principal estimated cost elements of the third quarter 2006 charge and of the remaining reserve at December 31, 2008 were based on competitively derived or readily available remediation industry cost data for representative remedial options, e.g., excavation and in situ stabilization/solidification. The major cost components are (i) in place soil treatment and transportation and disposal of excavated soil and (ii) construction services (related to soil excavation, groundwater management and site security), which account for approximately 50% and 30%
60 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Notes to the Consolidated Financial Statements
of the reserve, respectively, as of December 31, 2008. The reserve also includes estimated costs for remedial investigation, interim remedial measures, engineering and project management. The most significant assumptions underlying the reserve are those related to the extent and concentration of chromium impacts in the soil, as these will determine the quantity of soil that must be treated in place, the quantity that will have to be excavated and transported for offsite disposal, and the nature of disposal required. The charges are exclusive of any third party indemnification, as management believes the likelihood of receiving any such amounts to be remote.
Multiple future events, including completion of feasibility studies, remedy selection, remedy design and remedy implementation involving governmental agency action or approvals will be required, and considerable uncertainty exists regarding the timing of these future events for the remaining 14 sites covered by the ACO. Final resolution of these events is expected to occur over an extended period of time. However, based on current information, it is expected that feasibility study approval and remedy selection could occur during 2010 for the former chromium plant and six adjacent sites, while remedy design and approval could occur during 2010 to 2011, and remedy implementation could occur during 2011 to 2015, with some period of long-term monitoring for remedy effectiveness to follow related to these seven sites. One other site is expected to be remediated during 2009 to 2010. Activities at the six other sites have not yet begun and the timing of future events related to these sites cannot be predicted at this time. As these events occur and to the extent that the cost estimates of the environmental remediation remedies change, the existing reserve for this environmental remediation will be adjusted. Based on current information, PPG expects cash outlays related to remediation efforts in New Jersey to range from $16 million to $26 million in 2009 and $30 million to $50 million annually from 2010 through 2013.
In May 2005, the NJDEP filed a complaint against PPG and two other former chromium producers seeking to hold the parties responsible for a further 53 sites where the source of chromium contamination is not known and to recover costs incurred by the agency in connection with its response activities at certain of those sites. During the third quarter of 2008, the parties reached an agreement in principle on all claims relating to these 53 sites. Under the terms of the proposed settlement, PPG would, among other things, accept responsibility for remediation of 6 of the 53 sites, reimburse the NJDEP for a portion of past costs in the amount of $5 million and be responsible for the NJDEPs oversight costs associated with the sites for which PPG is wholly or partially responsible. This settlement would not affect PPGs responsibilities for the 14 remaining unremediated sites covered by PPGs ACO. However, a tentative agreement has been reached with the NJDEP and the City of Jersey City regarding a new process for the review of the technical reports PPG must submit for the investigation and remedy selection for the 14 ACO sites. This tentative agreement would also resolve reparation claims by the City of Jersey City with the payment of $1.25 million over a 4-5 year time period. This tentative agreement does not otherwise affect PPGs responsibility for the remediation of the 14 ACO sites. PPGs estimated costs under the proposed settlement relating to the 53 sites and the tentative agreement relating to the 14 ACO sites are included in the December 31, 2008 previously established reserve for New Jersey chrome environmental remediation matters.
In Lake Charles, the U.S. Environmental Protection Agency (USEPA) completed investigation of contamination levels in the Calcasieu River Estuary and issued a Final Remedial Investigation Report in September 2003, which incorporates the Human Health and Ecological Risk Assessments, indicating that elevated levels of risk exist in the estuary. PPG and other potentially responsible parties are performing a feasibility study under the authority of the Louisiana Department of Environmental Quality (LDEQ). PPGs exposure with respect to the Calcasieu Estuary is focused on the lower few miles of Bayou dInde, a small tributary to the Calcasieu Estuary near PPGs Lake Charles facility, and about 150 to 200 acres of adjacent marshes. The Company and three other potentially responsible parties submitted a draft remediation feasibility study report to the LDEQ in October 2006. The proposed remedial alternatives include sediment dredging, sediment capping, and biomonitoring of fish and shellfish. Principal contaminants of concern which may require remediation include various metals, dioxins and furans, and polychlorinated biphenyls. In response to agency comments on the draft study, the companies conducted additional investigations and submitted a revised feasibility report to the agencies in the third quarter of 2008. Government officials are awaiting the completion of a Corps of Engineers study, which is expected in the first half of 2009, before deciding whether to approve the feasibility study in its current form.
Multiple future events, such as feasibility study approval, remedy selection, remedy design and remedy implementation involving agency action or approvals will be required and considerable uncertainty exists regarding the timing of these future events. Final resolution of these events is expected to occur over an extended period of time. However, based on currently available information it is expected that feasibility study approval and remedy selection could occur in 2009, remedy design and approval could occur during 2010, and remedy implementation could occur during 2010 to 2013, with some period of
2008 PPG ANNUAL REPORT AND FORM 10-K | 61 |
Notes to the Consolidated Financial Statements
long-term monitoring for remedy effectiveness to follow. In addition PPGs obligation related to any potential remediation will be dependent in part upon the final allocation of responsibility among the potentially responsible parties. Negotiations with respect to this allocation are ongoing, but the outcome is uncertain.
In addition to the amounts currently reserved for environmental remediation, the Company may be subject to loss contingencies related to environmental matters estimated to be as much as $200 million to $300 million, which range is unchanged since December 31, 2007. Such unreserved losses are reasonably possible but are not currently considered to be probable of occurrence. This range of reasonably possible unreserved loss relates to environmental matters at a number of sites; however, about 40% of this range relates to additional costs at the former chromium manufacturing plant site and related sites in Jersey City, N.J., and about 30% relates to three operating PPG plant sites in the Companys chemicals businesses. The loss contingencies related to these sites include significant unresolved issues such as the nature and extent of contamination at these sites and the methods that may have to be employed to remediate them.
The status of the remediation activity at the sites in New Jersey and at the Calcasieu River Estuary in Louisiana and the factors that could result in the need for additional environmental remediation reserves at those sites are described above. Initial remedial actions are occurring at the three operating plant sites in the chemicals businesses. These three operating plant sites are in Barberton, Ohio, Lake Charles, La., and Natrium, W.Va. At Barberton, PPG has completed a Facility Investigation and Corrective Measure Study (CMS) under USEPAs Resource Conservation and Recycling Act (RCRA) Corrective Action Program. Currently, PPG is implementing the remediation alternatives recommended in the CMS using a performance-based approach with USEPA Region V oversight. Similarly, the Company has completed a Facility Investigation and CMS for the Lake Charles facility under the oversight of the LDEQ. The LDEQ has accepted the proposed remedial alternatives which are expected to be incorporated into the facilitys RCRA operating permit during 2009. Planning for or implementation of these proposed alternatives is in progress. At the Natrium facility, a facility investigation has been completed, initial interim remedial measures have been implemented to mitigate soil impacts but additional investigation is required to more fully define the nature and extent of groundwater contamination and to identify appropriate, additional remedial actions.
With respect to certain waste sites, the financial condition of any other potentially responsible parties also contributes to the uncertainty of estimating PPGs 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 impact of evolving programs, such as natural resource damage claims, industrial site reuse initiatives and state remediation programs, also adds to the present uncertainties with regard to the ultimate resolution of this unreserved exposure to future loss. The Companys assessment of the potential impact of these environmental contingencies is subject to considerable uncertainty due to the complex, ongoing and evolving process of investigation and remediation, if necessary, of such environmental contingencies, and the potential for technological and regulatory developments.
Other Matters
The Company, with the assistance of outside counsel, is conducting an investigation into potential violations of the U.S. export control laws, related to the export of small quantities (approximately 1,000 gallons) of protective coatings for potential use in Pakistan in 2006. The Company has made a preliminary voluntary self disclosure of potential U.S. export control law violations to the U.S. Department of Commerce and has committed to submit a final voluntary self disclosure once its ongoing investigation is completed. The Company is cooperating fully with the U.S. Department of Commerces Bureau of Industry and Security and with the U.S. Department of Justice in connection with their ongoing investigation relating to this issue, and has responded to administrative subpoenas from the Commerce Department and a federal grand jury subpoena. Violations of the export control laws may result in civil, administrative or criminal fines or penalties, loss of export privileges, debarment or a combination of these penalties. At this time the Company is unable to determine the outcome of the governments investigation or its possible effect on the Company.
In June 2003, PPGs partners in a fiber glass joint venture in Venezuela filed for bankruptcy. These proceedings have been in progress since 2003 and remain unresolved, which has created uncertainty concerning the future of the joint venture. After an extensive evaluation of a variety of options concerning the path forward, PPG concluded that the Company will not be able to recover the carrying amount of its investment in and receivables from this joint venture and wrote those assets off in the first quarter of 2007 by recording a pre-tax charge against earnings of $10 million which is included in Other charges in the accompanying consolidated statement of income for the year ended December 31, 2007.
62 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Notes to the Consolidated Financial Statements
16. Shareholders Equity
A class of 10 million shares of preferred stock, without par value, is authorized but unissued. Common stock has a par value of $1.66 2 / 3 per share; 600 million shares are authorized.
The following table summarizes the shares outstanding for the three years ended December 31, 2008:
Common Stock |
Treasury Stock |
ESOP Shares |
Shares Outstanding |
||||||||
Balance,
January 1, 2006 |
290,573,068 | (125,169,906 | ) | (125,872 | ) | 165,277,290 | |||||
Purchases |
| (2,343,215 | ) | | (2,343,215 | ) | |||||
Issuances/releases |
| 1,139,214 | 8,464 | 1,147,678 | |||||||
Balance,
December 31, 2006 |
290,573,068 | (126,373,907 | ) | (117,408 | ) | 164,081,753 | |||||
Purchases |
| (3,682,791 | ) | | (3,682,791 | ) | |||||
Issuances/releases |
| 3,284,298 | 117,408 | 3,401,706 | |||||||
Balance,
December 31, 2007 |
290,573,068 | (126,772,400 | ) | | 163,800,668 | ||||||
Purchases |
| (128,600 | ) | | (128,600 | ) | |||||
Issuances/releases |
| 526,565 | | 526,565 | |||||||
Balance,
December 31, 2008 |
290,573,068 | (126,374,435 | ) | | 164,198,633 | ||||||
|
|
ESOP shares represented the unreleased new shares held by the ESOP that were not considered outstanding under SOP 93-6 (see Note 1, Summary of Significant Accounting Policies and Note 18, Employee Stock Ownership Plan). The number of ESOP shares changed in 2006 and 2007 as a result of the purchases of new shares and releases of shares to participant accounts by the ESOP.
Per share cash dividends paid were $2.09 in 2008, $2.04 in 2007 and $1.91 in 2006.
17. Accumulated Other Comprehensive Loss
(Millions) |
Unrealized
Adjustment |
Pension
and
Adjustments |
Unrealized
Marketable
|
Unrealized
Derivatives |
Accum-
ulated Other Compre- hensive (Loss) Income |
|||||||||||||||
Balance January 1, 2006 |
$ | (47 | ) | $ | (768 | ) | $ | | $ | (4 | ) | $ | (819 | ) | ||||||
Net change |
179 | (289 | ) | 3 | (13 | ) | (120 | ) | ||||||||||||
Balance, |
||||||||||||||||||||
December 31, 2006 |
132 | (1,057 | ) | 3 | (17 | ) | (939 | ) | ||||||||||||
Net Change |
260 | 90 | | 7 | 357 | |||||||||||||||
Balance, December 31, 2007 |
392 | (967 | ) | 3 | (10 | ) | (582 | ) | ||||||||||||
Net change |
(499 | ) | (494 | ) | (4 | ) | (49 | ) | (1,046 | ) | ||||||||||
Balance,
December 31, 2008 |
$ | (107 | ) | $ | (1,461 | ) | $ | (1 | ) | $ | (59 | ) | $ | (1,628 | ) | |||||
|
|
Unrealized currency translation adjustments exclude income tax expense (benefit) given that the earnings of non-U.S. subsidiaries are deemed to be reinvested for an indefinite period of time. The tax benefit (cost) related to the adjustment for pension and other postretirement benefits for the years ended December 31, 2008, 2007 and 2006 was $315 million, $(211) million and $243 million, respectively. The cumulative tax benefit related to the adjustment for pension and other postretirement benefits at December 31, 2008 and 2007 was $806 million and $491 million, respectively. The tax benefit (cost) related to the change in the unrealized gain (loss) on marketable securities for the years ended December 31, 2008, 2007 and 2006 was $2 million, $(0.3) million and $(2) million, respectively. The tax benefit (cost) related to the change in the unrealized gain (loss) on derivatives for the years ended December 31, 2008, 2007 and 2006 was $30 million, $(5) million and $9 million, respectively.
18. Employee Stock Ownership Plan
PPGs ESOP covers substantially all U.S. employees. The Company makes matching contributions to the ESOP based upon participants savings, subject to certain limitations. For most participants not covered by a collective bargaining agreement, Company-matching contributions for the year ended December 31, 2006, were computed by multiplying each participants monthly contribution or portion thereof, as defined by the ESOPs plan document, by a percentage based on the Companys return on capital of the prior year. Effective January 1, 2007, the ESOPs plan document was amended to state that the Company match rate established each year will be at the discretion of the Company with the match being 100% in 2008 and in 2007, applied to a maximum of 6% of eligible participant compensation. For those participants whose employment is covered by a collective bargaining agreement, the level of Company-matching contribution, if any, is determined by the collective bargaining agreement.
Compensation expense related to the ESOP for 2008, 2007 and 2006 totaled $ 42 million, $16 million and $15 million, respectively. Cash contributions to the ESOP for 2008, 2007 and 2006 totaled $42 million, $ 14 million and $16 million, respectively. Interest expense totaled $1 million for 2007 and $2 million for 2006. The tax deductible dividends on PPG shares held by the ESOP were $ 29 million, $ 29 million and $33 million for 2008, 2007 and 2006, respectively.
19. Other Earnings
(Millions) |
2008 | 2007 | 2006 | ||||||
Interest income |
$ | 26 | $ | 20 | $ | 14 | |||
|
|||||||||
Royalty income |
52 | 48 | 44 | ||||||
|
|||||||||
Share of net earnings of equity affiliates (See Note 6) | 3 | 32 | 34 | ||||||
|
|||||||||
Gain on divestiture of automotive glass and services business (See Note 3) | 15 | | | ||||||
|
|||||||||
Other |
69 | 60 | 50 | ||||||
|
|||||||||
Total |
$ | 165 | $ | 160 | $ | 142 | |||
|
2008 PPG ANNUAL REPORT AND FORM 10-K | 63 |
Notes to the Consolidated Financial Statements
20. Stock-Based Compensation
The Companys stock-based compensation includes stock options, restricted stock units (RSUs) and grants of contingent shares that are earned based on achieving targeted levels of total shareholder return. All current grants of stock options, RSUs and contingent shares are made under the PPG Industries, Inc., Omnibus Incentive Plan (PPG Omnibus Plan). Shares available for future grants under the PPG Omnibus Plan were 7.4 million as of December 31, 2008.
Total stock-based compensation cost was $33 million, $46 million and $34 million in 2008, 2007 and 2006, respectively. The total income tax benefit recognized in the accompanying consolidated statement of income related to the stock-based compensation was $12 million, $17 million and $12 million in 2008, 2007 and 2006, respectively.
Stock Options
PPG has outstanding stock option awards that have been granted under two stock option plans: the PPG Industries, Inc., Stock Plan (PPG Stock Plan) and the PPG Omnibus Plan. Under the PPG Omnibus Plan and the PPG Stock Plan, certain employees of the Company have been granted options to purchase shares of common stock at prices equal to the fair market value of the shares on the date the options were granted. The options are generally exercisable beginning from six to 48 months after being granted and have a maximum term of 10 years. Upon exercise of a stock option, shares of Company stock are issued from treasury stock. The PPG Stock Plan includes a restored option provision for options originally granted prior to January 1, 2003 that allows an optionee to exercise options and satisfy the option price by certifying ownership of mature shares of PPG common stock with equivalent market value.
On July 1, 1998, under the PPG Industries, Inc., Challenge 2000 Stock Plan, the Company granted to substantially all active employees of the Company and its majority owned subsidiaries the option to purchase 100 shares of common stock at its then fair market value of $70 per share. The options became exercisable on July 1, 2003 and expired on June 30, 2008. A total of 1.2 million options expired on that date.
The fair value of stock options issued to employees is measured on the date of grant and is recognized as expense over the requisite service period. PPG estimates the fair value of stock options using the Black-Scholes option pricing model. The risk-free interest rate is determined by using the U.S. Treasury yield curve at the date of the grant and using a maturity equal to the expected life of the option. The expected life of options is calculated using the average of the vesting term and the maximum term, as prescribed by SEC Staff Accounting Bulletin (SAB) No. 107, Share-Based Payment, as amended by SAB No. 110. This method is used as the vesting terms of stock options were changed in 2004 to a three year vesting term, and as a result, the historical exercise data does not provide a reasonable basis upon which to estimate the expected life of options. The expected dividend yield and volatility are based on historical stock prices and dividend amounts over past time periods equal in length to the expected life of the options. The fair value of each grant was calculated with the following weighted average assumptions:
2008 | 2007 | 2006 | ||||
Risk free interest rate |
3.5% | 4.5% | 4.7% | |||
Expected life of option in years |
6.5 | 5.5 | 5.3 | |||
Expected dividend yield |
3.1% | 3.1% | 3.1% | |||
Expected volatility |
24.2% | 22.6% | 24.1% |
The weighted average fair value of options granted was $13.21 per share, $14.08 per share, and $12.91 per share for the years ended December 31, 2008, 2007, and 2006, respectively.
A summary of stock options outstanding and exercisable and activity for the year ended December 31, 2008 is presented below:
Number of Shares |
Weighted Average Exercise Price |
Weighted
Remaining Contractual Life (in years) |
Intrinsic Value (in millions) |
||||||||
Outstanding, January 1, 2008 |
8,299,583 | $ | 61.40 | 4.6 | $ | 76 | |||||
Granted |
726,507 | $ | 63.64 | ||||||||
Exercised |
(227,443 | ) | $ | 57.44 | |||||||
Forfeited/Expired |
(1,357,014 | ) | $ | 69.39 | |||||||
Outstanding, December 31, 2008 | 7,441,633 | $ | 60.28 | 4.8 | $ | | |||||
|
|||||||||||
Vested or expected to vest,
December 31, 2008 |
7,421,114 | $ | 60.26 | 4.8 | $ | | |||||
|
|||||||||||
Exercisable, December 31, 2008 | 5,302,851 | $ | 58.69 | 3.5 | $ | | |||||
|
At December 31, 2008, there was $7 million of total unrecognized compensation cost related to outstanding stock options that have not yet vested. This cost is expected to be recognized as expense over a weighted average period of 1.5 years.
The following table presents stock option activity for the years ended December 31, 2008, 2007 and 2006:
(Millions) | 2008 | 2007 | 2006 | ||||||
Total intrinsic value of stock options exercised |
$ | 2 | $ | 47 | $ | 16 | |||
Cash received from stock option exercises |
13 | 194 | 55 | ||||||
Income tax benefit from the exercise of stock options |
1 | 17 | 6 | ||||||
Total fair value of stock options vested |
15 | 29 | 4 |
64 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Notes to the Consolidated Financial Statements
Restricted Stock Units
Long-term incentive value is delivered to selected key management employees by granting RSUs, which have either time or performance-based vesting features. The fair value of an RSU is equal to the market value of a share of stock on the date of grant. Time-based RSUs vest over the three-year period following the date of grant, unless forfeited, and will be released in shares of stock or paid out in cash or a combination of both at the Companys discretion at the end of the three-year vesting period. Performance-based RSUs vest based on achieving specific annual performance targets for earnings per share growth and cash flow return on capital over the three-year period following the date of grant. Unless forfeited, the performance-based RSUs will be paid out in the form of stock, cash or a combination of both at the Companys discretion at the end of the three-year vesting period if PPG meets the performance targets. For awards granted in 2006 and 2007, the actual amount paid for performance-based awards may range from 0% to 150% of the original grant, as 50% of the grant vests in each year that one of the two targets are met during the three-year period. If the designated performance targets are not met in any of the three years in an award period, no payout will be made on the performance-based RSUs. For awards granted in 2008, the amount paid for performance-based awards may range from 0% to 180% of the original grant, based upon the frequency with which the earnings per share growth and cash flow return on capital performance targets are met over the three-year period. The performance-based RSUs granted in 2006 vested at the 150% level. For the purposes of expense recognition PPG has assumed that performance-based RSUs granted in 2007 and 2008 will vest at the 100% level. The performance targets for 2006, 2007 and 2008 were achieved as it relates to the 2006 and 2007 grants. With respect to the 2008 grant, one of the two performance targets was met in 2008.
The following table summarizes RSU activity for the year ended December 31, 2008:
Number of
Shares |
|
|
Weighted
Average Fair Value |
|
Intrinsic
Value (in millions) |
||||
Outstanding, January 1, 2008 |
808,413 | $ | 61.60 | $ | 57 | ||||
Granted | 241,632 | $ | 57.73 | ||||||
Additional Shares Vested | 95,350 | $ | 54.32 | ||||||
Released | (341,258 | ) | $ | 65.31 | |||||
Forfeited | (36,197 | ) | $ | 58.73 | |||||
Outstanding, December 31, 2008 |
767,940 | $ | 57.96 | $ | 33 | ||||
|
|||||||||
Vested or expected to vest,
|
759,197 | $ | 57.93 | $ | 32 | ||||
|
There was $10 million of total unrecognized compensation cost related to nonvested RSUs outstanding as of December 31, 2008. This cost is expected to be recognized as expense over a weighted average period of 1.5 years.
Contingent Share Grants
The Company also provides grants of contingent shares to selected key executives that may be earned based on PPG total shareholder return over the three-year period following the date of grant. Contingent share grants (TSR) are made annually and are paid out at the end of each three-year period based on the Companys performance. For awards granted in 2006 and 2007, performance is measured by determining the percentile rank of the total shareholder return of PPG common stock (stock price plus accumulated dividends) in relation to the total shareholder return of the S&P 500 and of the S&P 500 Materials sector for the three-year period following the date of grant. For awards granted in 2008, performance is measured by determining the percentile rank of the total shareholder return of PPG common stock in relation to the total shareholder return of the S&P 500 for the three-year period following the date of grant. The payment of awards following the three-year award period will be based on performance achieved in accordance with the scale set forth in the plan agreement and may range from 0% to 220% of the initial grant. A payout of 100% is earned if the target performance is achieved. Contingent share awards earn dividend equivalents during the three-year award period, which are credited to participants in the form of common stock equivalents. Any payments made at the end of the award period may be in the form of stock, cash or a combination of both. The TSR awards qualify as liability awards, and compensation expense is recognized over the three-year award period based on the fair value of the awards (giving consideration to the Companys percentile rank of total shareholder return) remeasured in each reporting period until settlement of the awards.
As of December 31, 2008, there was $4 million of total unrecognized compensation cost related to outstanding TSR awards based on the current estimate of fair value. This cost is expected to be recognized as expense over a weighted average period of 1.8 years.
21. Advertising Costs
Advertising costs are expensed in the year incurred and totaled $310 million, $157 million and $121 million in 2008, 2007 and 2006, respectively. The increase in 2008 is primarily a result of the SigmaKalon acquisition.
2008 PPG ANNUAL REPORT AND FORM 10-K | 65 |
Notes to the Consolidated Financial Statements
22. Research and Development
(Millions) |
2008 | 2007 | 2006 | ||||||
Research and development total |
$ | 468 | $ | 363 | $ | 330 | |||
|
|||||||||
Less depreciation on research facilities |
17 | 15 | 16 | ||||||
|
|||||||||
Research and development net |
$ | 451 | $ | 348 | $ | 314 | |||
|
23. Quarterly Financial Information (unaudited)
|
2008 Quarter Ended
|
Total
|
|||||||||||||||
Millions
|
March 31
(1)
|
June 30
|
Sept. 30
|
Dec. 31
|
|||||||||||||
Net sales |
$ | 3,962 | $ | 4,474 | $ | 4,225 | $ | 3,188 | $ | 15,849 | |||||||
|
|||||||||||||||||
Cost of Sales (2) |
$ | 2,596 | $ | 2,829 | $ | 2,701 | $ | 2,029 | $ | 10,155 | |||||||
|
|||||||||||||||||
Net income |
$ | 100 | $ | 250 | $ | 117 | $ | 71 | $ | 538 | |||||||
|
|||||||||||||||||
Earnings per common share |
$ | 0.61 | $ | 1.52 | $ | 0.71 | $ | 0.43 | $ | 3.27 | |||||||
|
|||||||||||||||||
Earnings per common share assuming dilution |
$ | 0.61 | $ | 1.51 | $ | 0.70 | $ | 0.43 | $ | 3.25 | |||||||
|
2007 Quarter Ended | |||||||||||||||||||||
Millions
|
March 31
(1)
|
June 30
|
Sept. 30
|
Dec. 31
|
Total
|
||||||||||||||||
Net sales |
$ | 2,888 | $ | 3,155 | $ | 3,073 | $ | 3,104 | $ | 12,220 | |||||||||||
|
|
||||||||||||||||||||
Cost of Sales (2) |
1,863 | 2,001 | 1,947 | 2,017 | 7,828 | ||||||||||||||||
|
|
||||||||||||||||||||
Income from
|
192 | 250 | 213 | 201 | 856 | ||||||||||||||||
|
|
||||||||||||||||||||
Income (loss) from
|
2 | (1 | ) | (22 | ) | (1 | ) | (22 | ) | ||||||||||||
|
|
||||||||||||||||||||
Net income |
$ | 194 | $ | 249 | $ | 191 | $ | 200 | $ | 834 | |||||||||||
|
|
||||||||||||||||||||
Earnings Per Common Share: |
|||||||||||||||||||||
Income from
|
$ | 1.17 | $ | 1.51 | $ | 1.30 | $ | 1.22 | $ | 5.20 | |||||||||||
|
|
||||||||||||||||||||
Income (loss) from discontinued operations |
0.01 | | (0.14 | ) | | (0.13 | ) | ||||||||||||||
Net income |
$ | 1.18 | $ | 1.51 | $ | 1.16 | $ | 1.22 | $ | 5.07 | |||||||||||
|
|
||||||||||||||||||||
Earnings Per Common Share Assuming Dilution: |
|||||||||||||||||||||
Income from
|
$ | 1.16 | $ | 1.50 | $ | 1.29 | $ | 1.21 | $ | 5.16 | |||||||||||
|
|
||||||||||||||||||||
Income (loss) from discontinued operations |
0.01 | | (0.14 | ) | | (0.13 | ) | ||||||||||||||
Net income |
$ | 1.17 | $ | 1.50 | $ | 1.15 | $ | 1.21 | $ | 5.03 | |||||||||||
|
|
(1) | First quarter amounts have been adjusted to reflect the second quarter 2008 reclassification of the automotive glass and services business from discontinued operations to continuing operations. |
(2) | Exclusive of depreciation and amortization. |
24. Reportable Business Segment Information
Segment Organization and Products
PPG is a multinational manufacturer with 13 operating segments that are organized based on the Companys major products lines. These operating segments are also the Companys reporting units for purposes of testing goodwill for impairment (see Note 1, Summary of Significant Accounting Policies). These operating segments were expanded during the first quarter of 2008 to include the protective and marine coatings operating segment, which is included in the Performance Coatings reportable segment, and the Architectural Coatings EMEA (Europe, Middle East and Africa) operating segment, which is also a reportable business segment. These changes were a result of the SigmaKalon acquisition. The operating segments have been aggregated based on economic similarities, the nature of their products, production processes, end-use markets and methods of distribution into six reportable business segments.
The Performance Coatings reportable segment is comprised of the refinish, aerospace, architectural coatings Americas and Asia Pacific and protective and marine coatings operating segments. This reportable segment primarily supplies a variety of protective and decorative coatings, sealants and finishes along with paint strippers, stains and related chemicals, as well as transparencies and transparent armor.
The Industrial Coatings reportable segment is comprised of the automotive, industrial and packaging coatings operating segments. This reportable segment primarily supplies a variety of protective and decorative coatings and finishes along with adhesives, sealants, inks and metal pretreatment products.
The Architectural Coatings EMEA reportable segment is comprised of the architectural coatings EMEA operating segment. This reportable segment primarily supplies a variety of coatings under a number of brands and purchased sundries to painting contractors and consumers in Europe, the Middle East and Africa.
The Optical and Specialty Materials reportable segment is comprised of the optical products and silicas operating segments. The primary Optical and Specialty Materials products are Transitions ® lenses, sunlenses, optical materials, polarized film and amorphous precipitated silica products. Transitions ® lenses are processed and distributed by PPGs 51%-owned joint venture with Essilor International.
The Commodity Chemicals reportable segment is comprised of the chlor-alkali and derivatives operating segment. The primary chlor-alkali and derivative products are chlorine, caustic soda, vinyl chloride monomer, chlorinated solvents, calcium hypochlorite, ethylene dichloride and phosgene derivatives.
The Glass reportable segment is comprised of the performance glazings and fiber glass operating segments. This reportable segment primarily supplies flat glass and continuous-strand fiber glass products.
Production facilities and markets for Performance Coatings, Industrial Coatings, Architectural Coatings EMEA, Optical and Specialty Materials, Commodity Chemicals and Glass are predominantly in North America and Europe. PPGs reportable segments continue to pursue opportunities to further develop markets in Asia, Eastern Europe and Latin America. Each of the reportable segments in which PPG is engaged is highly competitive. However, the diversification of product lines and
66 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Notes to the Consolidated Financial Statements
worldwide markets served tends to minimize the impact on PPGs total sales and earnings from changes in demand in a particular market or in a particular geographic area.
The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. The Company allocates resources to operating segments and evaluates the performance of operating segments based upon segment income, which is earnings before interest expense net, income taxes and minority interest and which may exclude certain charges which are considered to be unusual or non-recurring. Legacy items include current costs related to former operations of the Company, including certain environmental remediation, pension and other postretirement benefit costs, and certain charges for legal and other matters which are considered to be unusual or non-recurring. These legacy costs are excluded from the segment income that is used to evaluate the performance of the operating segments. Legacy items also include equity earnings (loss) from PPGs approximately 40 percent investment in the former automotive glass and services business. A substantial portion of corporate administrative expenses is allocated to the operating segments. The portion not allocated to the operating segments primarily represents the cost of corporate legal cases, net of related insurance recoveries, a business process redesign project in Europe and certain insurance and employee benefit programs and is included in the amount presented as Corporate unallocated loss. Net periodic pension expense is allocated to the operating segments.
For Optical and Specialty Materials, Commodity Chemicals and Glass, intersegment sales and transfers are recorded at selling prices that approximate market prices. Product movement between Performance Coatings, Industrial Coatings and Architectural Coatings EMEA is very limited, is accounted for as an inventory transfer and is recorded at cost plus a mark-up, the impact of which is not significant to the segment income of the three coatings reportable segments.
2008 PPG ANNUAL REPORT AND FORM 10-K | 67 |
Notes to the Consolidated Financial Statements
(Millions) Reportable Business Segments |
Performance Coatings |
Industrial
Coatings |
Architectural
Coatings EMEA |
Optical and
Specialty
|
Commodity
Chemicals |
Glass |
Corporate
/
Eliminations / Non-Segment Items (1) |
Consolidated
Totals |
|||||||||||||||||||
2008 |
|||||||||||||||||||||||||||
Net sales to external customers |
$ | 4,716 | $ | 3,999 | $ | 2,249 | $ | 1,134 | $ | 1,837 | $ | 1,914 | $ | | $ | 15,849 | |||||||||||
Intersegment net sales |
| | | 4 | 8 | | (12 | ) | | ||||||||||||||||||
Total net sales |
$ | 4,716 | $ | 3,999 | $ | 2,249 | $ | 1,138 | $ | 1,845 | $ | 1,914 | $ | (12 | ) | $ | 15,849 | ||||||||||
|
|
||||||||||||||||||||||||||
Segment income |
$ | 582 | $ | 212 | $ | 141 | $ | 244 | $ | 340 | $ | 70 | $ | | $ | 1,589 | |||||||||||
Corporate unallocated |
(88 | ) | |||||||||||||||||||||||||
Legacy items (2) |
(28 | ) | |||||||||||||||||||||||||
Business restructuring (See Note 8) |
(163 | ) | |||||||||||||||||||||||||
Gain on automotive glass and services divestiture (See Note 3) |
15 | ||||||||||||||||||||||||||
Depreciation catch-up charge (See Note 3) |
(17 | ) | |||||||||||||||||||||||||
Divestiture-related benefit costs (See Note 3) |
(19 | ) | |||||||||||||||||||||||||
Acquisition related costs (See Note 2) |
(117 | ) | |||||||||||||||||||||||||
Asbestos settlement net (See Note 15) |
(4 | ) | |||||||||||||||||||||||||
Interest expense, net of interest income |
(227 | ) | |||||||||||||||||||||||||
Unallocated stock based compensation (See Note 20) (3) |
(33 | ) | |||||||||||||||||||||||||
Income before income taxes and minority interest |
$ | 908 | |||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||
Depreciation and amortization (See Note 1) |
133 | 109 | 121 | 36 | 44 | 98 | 22 | $ | 563 | ||||||||||||||||||
Share of net earnings (loss) of equity affiliates |
2 | 1 | 2 | | (8 | ) | 14 | (8 | ) | 3 | |||||||||||||||||
Segment assets (4) |
4,190 | 2,699 | 3,003 | 615 | 603 | 923 | 2,665 | 14,698 | |||||||||||||||||||
Investment in equity affiliates |
3 | 14 | 18 | | 3 | 137 | 206 | 381 | |||||||||||||||||||
Expenditures for property |
139 | 198 | 525 | 49 | 35 | 61 | 25 | 1,032 | |||||||||||||||||||
2007 |
|||||||||||||||||||||||||||
Net sales to external customers |
$ | 3,811 | $ | 3,646 | $ | | $ | 1,029 | $ | 1,539 | $ | 2,195 | $ | | $ | 12,220 | |||||||||||
Intersegment net sales |
| | | 4 | 8 | 5 | (17 | ) | | ||||||||||||||||||
Total net sales |
$ | 3,811 | $ | 3,646 | $ | | $ | 1,033 | $ | 1,547 | $ | 2,200 | $ | (17 | ) | $ | 12,220 | ||||||||||
|
|
||||||||||||||||||||||||||
Segment income |
$ | 563 | $ | 370 | $ | | $ | 235 | $ | 243 | $ | 138 | $ | | $ | 1,549 | |||||||||||
Corporate unallocated |
(52 | ) | |||||||||||||||||||||||||
Legacy items (2) |
(13 | ) | |||||||||||||||||||||||||
Acquisition related costs |
(9 | ) | |||||||||||||||||||||||||
Divestiture-related benefit costs |
(17 | ) | |||||||||||||||||||||||||
Asbestos settlement net (See Note 15) |
(24 | ) | |||||||||||||||||||||||||
Interest expense, net of interest income |
(73 | ) | |||||||||||||||||||||||||
Unallocated stock based compensation (See Note 20) (3) |
(46 | ) | |||||||||||||||||||||||||
Income before income taxes and minority interest |
$ | 1,315 | |||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||
Depreciation and amortization (See Note 1) |
$ | 108 | $ | 94 | $ | | $ | 38 | $ | 46 | $ | 96 | $ | 21 | $ | 403 | |||||||||||
Share of net earnings (loss) of equity affiliates |
1 | 2 | | | 2 | 27 | | 32 | |||||||||||||||||||
Segment assets (4) |
3,848 | 2,508 | | 630 | 650 | 1,523 | 3,470 | 12,629 | |||||||||||||||||||
Investment in equity affiliates |
3 | 15 | | | 4 | 153 | 15 | 190 | |||||||||||||||||||
Expenditures for property |
119 | 89 | | 46 | 61 | 51 | 21 | 387 |
(continued on next page)
68 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Notes to the Consolidated Financial Statements
(continued) |
(Millions) Reportable Business Segments |
Performance Coatings |
Industrial
Coatings |
Architectural
Coatings EMEA |
Optical and
Specialty
|
Commodity
Chemicals |
Glass |
Corporate
/
Eliminations / Non-Segment Items (1) |
Consolidated
Totals |
||||||||||||||||||
2006 |
||||||||||||||||||||||||||
Net sales to external customers |
$ | 3,088 | $ | 3,236 | $ | | $ | 904 | $ | 1,483 | $ | 2,227 | $ | | $ | 10,938 | ||||||||||
Intersegment net sales |
3 | | | 4 | 8 | 1 | (16 | ) | | |||||||||||||||||
Total net sales |
$ | 3,091 | $ | 3,236 | $ | | $ | 908 | $ | 1,491 | $ | 2,228 | $ | (16 | ) | $ | 10,938 | |||||||||
|
|
|||||||||||||||||||||||||
Segment income |
$ | 514 | $ | 349 | $ | | $ | 217 | $ | 285 | $ | 148 | $ | | $ | 1,513 | ||||||||||
Corporate unallocated |
(93 | ) | ||||||||||||||||||||||||
Restructuring (See Note 8) |
(37 | ) | ||||||||||||||||||||||||
Legacy items (2) |
(199 | ) | ||||||||||||||||||||||||
Asbestos settlement net (See Note 15) |
(28 | ) | ||||||||||||||||||||||||
Interest expense, net of interest income |
(69 | ) | ||||||||||||||||||||||||
Unallocated stock based compensation (See Note 20) (3) |
(34 | ) | ||||||||||||||||||||||||
Income before income taxes and minority interest |
$ | 1,053 | ||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||
Depreciation and amortization (See Note 1) |
$ | 84 | $ | 87 | $ | | $ | 35 | $ | 43 | $ | 105 | $ | 21 | $ | 375 | ||||||||||
Share of net earnings of equity affiliates |
| 9 | | | | 25 | | 34 | ||||||||||||||||||
Segment assets (4) |
3,297 | 2,216 | | 548 | 609 | 1,574 | 1,823 | 10,067 | ||||||||||||||||||
Investment in equity affiliates |
| 16 | | | 5 | 155 | 15 | 191 | ||||||||||||||||||
Expenditures for property |
128 | 116 | | 59 | 63 | 67 | 29 | 462 |
(Millions) | |||||||||||||
Geographic Information |
2008 | 2007 | 2006 | ||||||||||
|
|||||||||||||
Net sales (5) |
|||||||||||||
The Americas |
|||||||||||||
|
|||||||||||||
United States |
$ | 7,115 | $ | 7,084 | $ | 6,852 | |||||||
|
|||||||||||||
Other Americas |
1,185 | 1,179 | 982 | ||||||||||
|
|||||||||||||
EMEA |
5,677 | 2,728 | 2,275 | ||||||||||
|
|||||||||||||
Asia |
1,872 | 1,229 | 829 | ||||||||||
|
|||||||||||||
Total |
$ | 15,849 | $ | 12,220 | $ | 10,938 | |||||||
|
|||||||||||||
Segment income |
|||||||||||||
The Americas |
|||||||||||||
|
|||||||||||||
United States |
$ | 899 | $ | 1,027 | $ | 1,071 | |||||||
|
|||||||||||||
Other Americas |
72 | 58 | 73 | ||||||||||
|
|||||||||||||
EMEA |
383 | 276 | 224 | ||||||||||
|
|||||||||||||
Asia |
235 | 188 | 145 | ||||||||||
|
|||||||||||||
Total |
$ | 1,589 | $ | 1,549 | $ | 1,513 | |||||||
|
|||||||||||||
Propertynet |
|||||||||||||
The Americas |
|||||||||||||
|
|||||||||||||
United States |
$ | 1,330 | $ | 1,458 | $ | 1,452 | |||||||
|
|||||||||||||
Other Americas |
116 | 215 | 186 | ||||||||||
|
|||||||||||||
EMEA |
1,006 | 575 | 556 | ||||||||||
|
|||||||||||||
Asia |
346 | 330 | 273 | ||||||||||
|
|||||||||||||
Total |
$ | 2,798 | $ | 2,578 | $ | 2,467 | |||||||
|
(1) | Corporate intersegment net sales represent intersegment net sales eliminations. Corporate unallocated income (loss) represents unallocated corporate income and expenses. Corporate/non-segment assets are principally cash and cash equivalents, cash held in escrow, deferred tax assets and the approximately 40 percent investment in the former automotive glass and services business. |
(2) | Legacy items include current costs related to former operations of the Company, including certain environmental remediation, pension and other postretirement benefit costs and certain charges which are considered to be unusual or non-recurring. Legacy items also include equity earnings (loss) from PPGs approximately 40 percent investment in the former automotive glass and services business. In 2006, these costs include environmental remediation costs at sites related to the Companys former chromium manufacturing facility and related sites in Jersey City, NJ of $185 million, a charge for the settlement of the federal refinish antitrust case of $23 million, and insurance recoveries related to the Marvin litigation settlement of $33 million. |
(3) | Unallocated stock based compensation includes the cost of stock options, restricted stock units and contingent share grants which are not allocated to the operating segments. |
(4) | Segment assets are the total assets used in the operation of each segment. Corporate assets are principally cash and cash equivalents, cash held in escrow, deferred tax assets and the approximately 40 percent investment in the former automotive glass and services business. |
(5) | Net sales to external customers are attributed to geographic regions based upon the location of the operating unit shipping the product. |
2008 PPG ANNUAL REPORT AND FORM 10-K |
69
|
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9a. Controls and Procedures
(a) | Evaluation of disclosure controls and procedures. |
Based on their evaluation as of the end of the period covered by this Form 10-K, the Companys principal executive officer and principal financial officer have concluded that the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Companys management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.
(b) | Changes in internal control. |
There were no changes in the Companys internal control over financial reporting that occurred during the Companys most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
See Management Report on page 29 for managements annual report on internal control over financial reporting. See Report of Independent Registered Public Accounting Firm on page 28 for Deloitte & Touche LLPs attestation report on the Companys internal control over financial reporting.
None.
Part III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by Item 10 and not otherwise set forth below is contained under the caption Proposal 1: To Elect Four Directors in PPGs definitive Proxy Statement for the 2009 Annual Meeting of Shareholders (the Proxy Statement) which the Company anticipates filing with the Securities and Exchange Commission, pursuant to Regulation 14A, not later than 120 days after the end of the Companys fiscal year, and is incorporated herein by reference.
The executive officers of the Company are elected by the Board of Directors. The information required by this item concerning the Companys executive officers is incorporated by reference herein from Part I of this report under the caption Executive Officers of the Company.
Information regarding the Companys Audit Committee is included in the Proxy Statement under the caption Corporate Governance Audit Committee and is incorporated herein by reference.
Information regarding the Companys codes of ethics is included in the Proxy Statement under the caption Corporate Governance Codes of Ethics and is incorporated herein by reference.
Item 11. Executive Compensation
The information required by Item 11 is contained in the Proxy Statement under the captions Compensation of Directors, Compensation Discussion and Analysis, Compensation of Executive Officers, Potential Payments upon Termination or Change in Control, Corporate Governance Compensation Committee Interlocks and Insider Participation, and Corporate Governance Officers-Directors Compensation Committee Report to Shareholders and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 12 is contained in the Proxy Statement under the caption Other Information Beneficial Ownership Tables and in Part II, Item 5 of this report under the caption Equity Plan Compensation Information and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 is contained in the Proxy Statement under the captions Corporate Governance Director Independence, Corporate Governance Review and Approval or Ratification of Transactions with Related Persons and Corporate Governance Certain Relationships and Related Transactions and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information required by Item 14 is contained in the Proxy Statement under the caption Proposal 2: To Endorse Deloitte & Touche LLP as our Independent Registered Public Accounting Firm for 2009 and is incorporated herein by reference.
70 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Part IV
Item 15. Exhibits, Financial Statement Schedules
(a) | Consolidated Financial Statements and Reports of Independent Registered Public Accounting Firm (see Part II, Item 8 of this Form 10-K). |
The following information is filed as part of this Form 10-K:
(b) | Consolidated Financial Statement Schedule for years ended December 31, 2008, 2007 and 2006. |
The following should be read in conjunction with the previously referenced financial statements:
Schedule II Valuation and Qualifying Accounts
Allowance for Doubtful Accounts for the Years Ended December 31, 2008, 2007 and 2006
(Millions) |
Balance at
Beginning
|
Charged to
Costs and
|
Other
Additions (2) |
Deductions (3) |
Balance at
End of
|
|||||||||||||
2008 | $ | 51 | $ | 52 | $ | 38 | $ | (38 | ) | $ | 103 | |||||||
|
||||||||||||||||||
2007 | $ | 48 | $ | 16 | $ | 2 | $ | (15 | ) | $ | 51 | |||||||
|
||||||||||||||||||
2006 | $ | 39 | $ | 14 | $ | 8 | $ | (13 | ) | $ | 48 |
(1) | Bad debt expense was $11 million in 2008 for acquired businesses. The remainder of the increase in bad debt expense compared to 2007 was primarily related to the Industrial Coatings segment. |
(2) | Represents allowance for doubtful accounts of acquired businesses. |
(3) | Notes and accounts receivable written off as uncollectible, net of recoveries, amounts attributable to divestitures and changes attributable to foreign currency translation. In 2008, write-offs totaled approximately $30 million. |
All other schedules are omitted because they are not applicable.
(c) | Exhibits. The following exhibits are filed as a part of, or incorporated by reference into, this Form 10-K. |
3 | PPG Industries, Inc., Restated Articles of Incorporation, as amended, were filed as Exhibit 3 to the Registrants Quarterly Report on Form 10-Q for the period ended March 31, 1995. |
3.1 | Statement with Respect to Shares, amending the Restated Articles of Incorporation effective April 21, 1998, was filed as Exhibit 3.1 to the Registrants Annual Report on Form 10-K for the period ended Dec. 31, 1998. |
3.2 | Amendment to Restated Articles of Incorporation of PPG Industries, Inc., as amended, effective April 27, 2007, was filed as Exhibit 3.1b to the Registrants Quarterly Report on Form 10-Q for the period ended March 31, 2007. |
3.3 | PPG Industries, Inc., Bylaws, as amended and restated on April 19, 2007, were filed as Exhibit 3.2 to the Registrants Quarterly Report on Form 10-Q for the period ended March 31, 2007. |
4 | Indenture, dated as of Aug. 1, 1982, was filed as Exhibit 4.1 to the Registrants Registration Statement on Form S-3 (No. 333-44397) dated Jan. 16, 1998. |
4.1 | First Supplemental Indenture, dated as of April 1, 1986, was filed as Exhibit 4.2 to the Registrants Registration Statement on Form S-3 (No. 333-44397) dated Jan. 16, 1998. |
4.2 | Second Supplemental Indenture, dated as of Oct. 1, 1989, was filed as Exhibit 4.3 to the Registrants Registration Statement on Form S-3 (No. 333-44397) dated Jan. 16, 1998. |
4.3 | Third Supplemental Indenture, dated as of Nov. 1, 1995, was filed as Exhibit 4.4 to the Registrants Registration Statement on Form S-3 (No. 333-44397) dated Jan. 16, 1998. |
4.4 | Indenture, dated as of June 24, 2005, was filed as Exhibit 4.1 to the Registrants Current Report on Form 8-K dated June 20, 2005. |
4.5 | Indenture, dated as of March 18, 2008, was filed as Exhibit 4.1 to the Registrants Current Report on Form 8-K filed on March 18, 2008. |
4.6 | Supplemental Indenture, dated as of March 18, 2008, was filed as Exhibit 4.2 to the Registrants Current Report on Form 8-K filed on March 18, 2008. |
*10 | PPG Industries, Inc. Nonqualified Retirement Plan, as amended and restated September 24, 2008. |
*10.1 | Form of Change in Control Employment Agreement entered into with executives prior to January 1, 2008, as amended, was filed as Exhibit 10.2 to the Registrants Annual Report on Form 10-K for the period ended December 31, 2007. |
*10.2 | Form of Change in Control Employment Agreement entered into with executives on or after January 1, 2008, was filed as Exhibit 10.24 to the Registrants Annual Report on Form 10-K for the period ended December 31, 2007. |
*10.3 | PPG Industries, Inc. Deferred Compensation Plan for Directors related to compensation deferred prior to January 1, 2005, was filed as Exhibit 10.3 to the Registrants Annual Report on Form 10-K for the period ended December 31, 1997. |
*10.4 | PPG Industries, Inc. Deferred Compensation Plan for Directors related to compensation deferred on or after January 1, 2005, as amended February 15, 2006, was filed as Exhibit 10.4 to the Registrants Quarterly Report on Form 10-Q for the period ended March 31, 2006. |
2008 PPG ANNUAL REPORT AND FORM 10-K | 71 |
*10.5 | PPG Industries, Inc. Deferred Compensation Plan related to compensation deferred prior to January 1, 2005, as amended effective July 14, 2004, was filed as Exhibit 10.1 to the Registrants Quarterly Report on Form 10-Q for the period ended June 30, 2004. |
*10.6 | PPG Industries, Inc. Deferred Compensation Plan related to compensation deferred on or after January 1, 2005, as amended and restated September 24, 2008. |
*10.7 | PPG Industries, Inc. Executive Officers Long Term Incentive Plan was filed as Exhibit 10.1 to the Registrants Current Report on Form 8-K dated Feb. 16, 2005. |
*10.8 | PPG Industries, Inc. Incentive Compensation Plan for Key Employees, as amended April 20, 2006. |
*10.9 | PPG Industries, Inc. Management Award Plan, as amended April 20, 2006. |
*10.10 | PPG Industries, Inc. Stock Plan, dated as of April 17, 1997, as amended July 20, 2005, was filed as Exhibit 10.13 to the Registrants Quarterly Report on Form 10-Q for the period ended September 30, 2005. |
*10.11 | PPG Industries, Inc. Omnibus Incentive Plan was filed as Exhibit 10.18 to the Registrants Quarterly Report on Form 10-Q for the period ended March 31, 2006. |
*10.12 | Form of Non-Qualified Option Agreement for Directors was filed as Exhibit 10.4 to the Registrants Current Report on Form 8-K dated February 15, 2005. |
*10.13 | Form of time-vested Restricted Stock Unit Award Agreement. |
*10.14 | Form of Non-Qualified Stock Option Award Agreement. |
*10.15 | Form of TSR Share Award Agreement. |
*10.16 | Form of performance-based Restricted Stock Unit Award Agreement for Key Employees. |
*10.17 | Form of performance-based Restricted Stock Unit Award Agreement. |
*10.18 | Material terms of retirement arrangement with Kevin F. Sullivan, was filed as Exhibit 10 to the Registrants current report on Form 8-K filed on April 28, 2008. |
*10.19 | Form of letter to certain executives regarding 2008 deferred compensation plan elections, was filed as Exhibit 10.20 to the Registrants Annual Report on Form 10-K for the period ended December 31, 2007. |
10.20 | 650 million credit facility dated December 3, 2007 and entered into among PPG Industries, Inc. and certain of its subsidiaries with multiple banks and financial institutions and Societe Generale, as facility agent for the lenders, was filed as Exhibit 10.23 to the Registrants Annual Report on Form 10-K for the period ended December 31, 2007. |
12 | Computation of Ratio of Earnings to Fixed Charges for the Five Years Ended December 31, 2008. |
13.1 | Market Information, Dividends and Holders of Common Stock. |
13.2 | Selected Financial Data for the Five Years Ended December 31, 2008. |
21 | Subsidiaries of the Registrant. |
23 | Consent of Independent Registered Public Accounting Firm. |
24 | Powers of Attorney. |
31.1 | Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 | Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
Filed herewith.
* | Management contracts, compensatory plans or arrangements required to be filed as an exhibit hereto pursuant to Item 601 of Regulation S-K. |
72 | 2008 PPG ANNUAL REPORT AND FORM 10-K |
Pursuant to the requirements of Section 13 or 15(d) 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 on February 19, 2009.
PPG INDUSTRIES, INC. (Registrant) |
||
By |
/s/ William H. Hernandez
|
|
W. H. Hernandez, Senior Vice President, Finance and Chief Financial Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities indicated on February 19, 2009.
2008 PPG ANNUAL REPORT AND FORM 10-K | 73 |
PPG Industries Inc. and Consolidated Subsidiaries
Index to Exhibits
Exhibits |
||
3 | PPG Industries, Inc., Restated Articles of Incorporation, as amended, were filed as Exhibit 3 to the Registrants Quarterly Report on Form 10-Q for the period ended March 31, 1995. | |
3.1 | Statement with Respect to Shares, amending the Restated Articles of Incorporation effective April 21, 1998, was filed as Exhibit 3.1 to the Registrants Annual Report on Form 10-K for the period ended Dec. 31, 1998. | |
3.2 | Amendment to Restated Articles of Incorporation of PPG Industries, Inc., as amended, effective April 27, 2007, was filed as Exhibit 3.1b to the Registrants Quarterly Report on Form 10-Q for the period ended March 31, 2007. | |
3.3 | PPG Industries, Inc., Bylaws, as amended and restated on April 19, 2007, were filed as Exhibit 3.2 to the Registrants Quarterly Report on Form 10-Q for the period ended March 31, 2007. | |
4 | Indenture, dated as of Aug. 1, 1982, was filed as Exhibit 4.1 to the Registrants Registration Statement on Form S-3 (No. 333-44397) dated Jan. 16, 1998. | |
4.1 | First Supplemental Indenture, dated as of April 1, 1986, was filed as Exhibit 4.2 to the Registrants Registration Statement on Form S-3 (No. 333-44397) dated Jan. 16, 1998. | |
4.2 | Second Supplemental Indenture, dated as of Oct. 1, 1989, was filed as Exhibit 4.3 to the Registrants Registration Statement on Form S-3 (No. 333-44397) dated Jan. 16, 1998. | |
4.3 | Third Supplemental Indenture, dated as of Nov. 1, 1995, was filed as Exhibit 4.4 to the Registrants Registration Statement on Form S-3 (No. 333-44397) dated Jan. 16, 1998. | |
4.4 | Indenture, dated as of June 24, 2005, was filed as Exhibit 4.1 to the Registrants Current Report on Form 8-K dated June 20, 2005. | |
4.5 | Indenture, dated as of March 18, 2008, was filed as Exhibit 4.1 to the Registrants Current Report on Form 8-K filed on March 18, 2008. | |
4.6 | Supplemental Indenture, dated as of March 18, 2008, was filed as Exhibit 4.2 to the Registrants Current Report on Form 8-K filed on March 18, 2008. | |
*10 | PPG Industries, Inc. Nonqualified Retirement Plan, as amended and restated September 24, 2008. | |
*10.1 | Form of Change in Control Employment Agreement entered into with executives prior to January 1, 2008, as amended, was filed as Exhibit 10.2 to the Registrants Annual Report on Form 10-K for the period ended December 31, 2007. | |
*10.2 | Form of Change in Control Employment Agreement entered into with executives on or after January 1, 2008, was filed as Exhibit 10.24 to the Registrants Annual Report on Form 10-K for the period ended December 31, 2007. | |
*10.3 | PPG Industries, Inc. Deferred Compensation Plan for Directors related to compensation deferred prior to January 1, 2005, was filed as Exhibit 10.3 to the Registrants Annual Report on Form 10-K for the period ended December 31, 1997. | |
*10.4 | PPG Industries, Inc. Deferred Compensation Plan for Directors related to compensation deferred on or after January 1, 2005, as amended February 15, 2006, was filed as Exhibit 10.4 to the Registrants Quarterly Report on Form 10-Q for the period ended March 31, 2006. |
*10.5 | PPG Industries, Inc. Deferred Compensation Plan related to compensation deferred prior to January 1, 2005, as amended effective July 14, 2004, was filed as Exhibit 10.1 to the Registrants Quarterly Report on Form 10-Q for the period ended June 30, 2004. | |
*10.6 | PPG Industries, Inc. Deferred Compensation Plan related to compensation deferred on or after January 1, 2005, as amended and restated September 24, 2008. | |
*10.7 | PPG Industries, Inc. Executive Officers Long Term Incentive Plan was filed as Exhibit 10.1 to the Registrants Current Report on Form 8-K dated Feb. 16, 2005. | |
*10.8 | PPG Industries, Inc. Incentive Compensation Plan for Key Employees, as amended April 20, 2006. | |
*10.9 | PPG Industries, Inc. Management Award Plan, as amended April 20, 2006. | |
*10.10 | PPG Industries, Inc. Stock Plan, dated as of April 17, 1997, as amended July 20, 2005, was filed as Exhibit 10.13 to the Registrants Quarterly Report on Form 10-Q for the period ended September 30, 2005. | |
*10.11 | PPG Industries, Inc. Omnibus Incentive Plan was filed as Exhibit 10.18 to the Registrants Quarterly Report on Form 10-Q for the period ended March 31, 2006. | |
*10.12 | Form of Non-Qualified Option Agreement for Directors was filed as Exhibit 10.4 to the Registrants Current Report on Form 8-K dated February 15, 2005. | |
*10.13 | Form of time-vested Restricted Stock Unit Award Agreement. | |
*10.14 | Form of Non-Qualified Stock Option Award Agreement. | |
*10.15 | Form of TSR Share Award Agreement. | |
*10.16 | Form of performance-based Restricted Stock Unit Award Agreement for Key Employees. | |
*10.17 | Form of performance-based Restricted Stock Unit Award Agreement. | |
*10.18 | Material terms of retirement arrangement with Kevin F. Sullivan, was filed as Exhibit 10 to the Registrants current report on Form 8-K filed on April 28, 2008. |
*10.19 | Form of letter to certain executives regarding 2008 deferred compensation plan elections, was filed as Exhibit 10.20 to the Registrants Annual Report on Form 10-K for the period ended December 31, 2007. | |
10.20 | 650 million credit facility dated December 3, 2007 and entered into among PPG Industries, Inc. and certain of its subsidiaries with multiple banks and financial institutions and Societe Generale, as facility agent for the lenders, was filed as Exhibit 10.23 to the Registrants Annual Report on Form 10-K for the period ended December 31, 2007. | |
12 | Computation of Ratio of Earnings to Fixed Charges for the Five Years Ended December 31, 2008. | |
13.1 | Market Information, Dividends and Holders of Common Stock. | |
13.2 | Selected Financial Data for the Five Years Ended December 31, 2008. | |
21 | Subsidiaries of the Registrant. | |
23 | Consent of Independent Registered Public Accounting Firm. | |
24 | Powers of Attorney. | |
31.1 | Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| Filed herewith. |
* | Management contracts, compensatory plans or arrangements required to be filed as an exhibit hereto pursuant to Item 601 of Regulation S-K. |
Exhibit 10
PPG INDUSTRIES, INC.
NONQUALIFIED RETIREMENT PLAN
History of Amendments
Effective January 1, 1996, the Plan was amended to provide that any benefit which is not provided in the Qualified Salaried Plan as a result of a Participants election to defer monthly salary under the Deferred Compensation Plan shall be payable under the Plan.
Effective January 1, 2000, the Plan was amended as follows:
|
Section 5.5: Delete the pop-up option from the Supplemental Early Retirement benefits in order to avoid constructive receipt issues. |
|
Section 5.7: Amend lump-sum provisions to: |
Clarify that the only Participants who are eligible are those whose job is rated at 2,128 Hay Points at the time of their termination; or those who were promised a lump-sum option under previous Plan provisions as reflected on Attachment A.
|
Section 6.1: Amend election provisions in order to avoid constructive receipt issues. |
|
Section 6.3: In connection with the amendments made to Section 6.1, provide that the AEP/SSB will be calculated using the Short Service formula in the case of a Participant who is eligible for the Short Service Benefit and who has filed an election designating his Benefit Commencement Date but who dies between the time of such designation and the Benefit Commencement Date. |
|
Section 7.2: Amend the Forfeiture of Benefits provisions to conform to those adopted in the Total Shareholder Return Plan. |
|
Section 7.4: Added new Section to clarify that, in accordance with Plan provisions, benefit amounts can increase and decrease over time. |
|
Section 9.3: Add language to the Change in Control provisions to ensure that funds sufficient to cover any possible lump-sum benefits are included in the Change-in-Control funding amount. |
Effective April 1, 2000:
|
Amend Section 5 to conform to the amendments adopted effective April 1, 2000 to the Qualified Salaried Plan and to provide for a transition benefit for those Participants with at least one hour of service earned prior to April 1, 2000, as similarly provided for in the Qualified Salaried Plan. |
Effective February 21, 2002, the Plan was amended as follows:
|
Sections 2.1, 3.1 and 3.2 were amended to incorporate the Executive Officers Incentive Compensation Plan to add a definition for the Executive Officers Incentive Compensation Plan; and |
|
Section 5.3 was amended to allow the Administrative Committee to waive the offset for any Prior Employer Benefit effective with respect to any retirements occurring on or after March 1, 2002. |
Effective January 1, 2005, the Plan was amended to comply with Section 409A of the Internal Revenue Code as follows:
|
Section 5.8 was amended to provide that Participants described therein shall receive payment of benefits in the form of a lump sum (with no election by the Participant). |
|
Section 6.4 was amended to provide that, for Participants described in Section 5.8, payment of benefits accrued on or after January 1, 2005 are paid to the Participants beneficiary in the form of a lump sum. |
|
Section 6.1 was amended to provide that a Participants Benefit Commencement Date is the first day of the month on or after the later of (i) his or her Early Retirement Age, or (ii) the date of his or her Termination of Employment. |
|
Section 6.5 was added to delay payments to Specified Employees. |
Effective December 12, 2007, the Plan was amended as follows:
|
Section 5.8(a) was amended relating to lump sum payment benefits. |
|
Section 8.5(a) and (b) were deleted and replaced with new Section 8.5 reflecting that qualified domestic relations orders will no longer be recognized by the Plan. |
Effective September 24, 2008, the Plan was amended as follows:
|
Article X was added to the Plan in connection with the divestiture of the automotive glass and services business. |
ARTICLE I
Effective Date
1.1 | This Plan shall be effective for retirements and terminations which occur on and after January 1, 1989. |
1.1
ARTICLE II
Definitions
2.1 | Wherever used herein, the following words and phrases shall have the meanings set forth below unless a different meaning is plainly required by context: |
(a) | Act shall mean the Employee Retirement Income Security Act of 1974 and amendments thereto. |
(b) |
(1) | Administrative Committee shall mean the Compensation and Employee Benefits Committee appointed by the Board of Directors of the Company. | ||
(2) | Administrative Subcommittee shall mean a committee appointed by the Administrative Committee which shall have the full discretionary authority set forth in Section 7.2. |
(c) | Administrator shall mean the Director, Payroll and Benefits or any successor position. |
(d) | Awards shall mean a grant of incentive compensation under the Omnibus Plan, the Incentive Compensation Plan or the Management Award Plan which is paid or deferred on or after January 1, 1989. |
(e) | Benefit Commencement Date shall mean, with respect to a Participant, the date such Participants benefits commence or are paid as specified in Section 6.1. |
(f) | Company shall mean PPG Industries, Inc. and its Subsidiaries. |
(g) | Early Retirement Reduction Factor shall mean the factor under the Qualified Salaried Plan applicable to the Participants Benefit Commencement Date hereunder. |
(h) | Eligible Spouse shall mean: |
(1) | For purposes of the payment of an REP/SSB, a spouse who was legally married to a Participant, Former Participant or Terminated Vested Participant on his Benefit Commencement Date; and |
(2) | For purposes of the payment of an AEP/SSB, a spouse who was legally married to a Participant for the entire one-year period immediately prior to the Participants date of death. |
(i) | Employee shall mean any full-time employee (including any officer) of the Company. |
2.1
(j) | Excess FAMI shall mean the amount by which a Participants FAMI exceeds Covered Compensation. |
(k) | Final Average Monthly Incentive or FAMI shall mean the sum of a Participants five highest Awards paid or deferred within the ten years immediately preceding such Participants termination of employment, divided by 60. |
(l) | Former Participant shall mean a Vested Participant who ceases to be a Participant prior to his Normal or Deferred Retirement Date for a reason other than retirement or termination of employment. |
(m) | Incentive Compensation Plan shall mean the PPG Industries, Inc. Incentive Compensation and Deferred Income Plan for Key Employees, as amended from time to time. |
(n) | Management Award Plan shall mean the PPG Industries, Inc. Management Award and Deferred Income Plan, as amended from time to time. |
(o) | Omnibus Plan shall mean the PPG Industries, Inc. Omnibus Incentive Plan, as amended from time to time. |
(p) | Participant shall mean an Employee of the Company who is eligible to participate, in accordance with ARTICLE III. |
(q) | Plan shall mean the PPG Industries, Inc. Nonqualified Retirement Plan. |
(r) | Prior Employer Benefit shall mean the amount of any benefit payable at Normal Retirement Age from any qualified or nonqualified retirement plan or profit sharing plan to which a Participant is entitled as a result of prior employment with any employer other than the Company. In the event such amount is payable in any manner other than a monthly straight-life annuity, such amount will be converted to a monthly straight-life annuity, using acceptable actuarial assumptions, as determined by the Administrator and consistent with the procedures of the Qualified Salaried Plan. |
(s) | Prior Plan shall mean Appendix 1 of the Qualified Salaried Plan, as in effect immediately prior to April 1, 2000. |
(t) | Qualified Salaried Plan shall mean the PPG Industries, Inc. Retirement Income Plan core document, its Appendix 1, and the Salaried Service Rules, as amended from time to time, and any successor plan. |
(u) | Subsidiary shall mean any Corporation, fifty percent or more of the outstanding voting stock or voting power of which is owned, directly or indirectly, by the Company and any partnership or other entity in which the Company has a fifty percent or more ownership interest. |
2.2
(v) | Terminated Vested Participant shall mean a Vested Participant who terminates employment prior to his Early Retirement Date. |
(w) | Vested Participant shall mean a Participant who has satisfied the vesting requirements of the Qualified Salaried Plan. |
2.2 | Wherever used herein, the following words and phrases shall have the meaning set forth in the Qualified Salaried Plan: |
Active Employees Pension Surviving Spouse Benefit (AEP/SSB)
Beneficiary
Code
Continuous Service (for purposes of this Plan, up to a maximum of 35 years)
Covered Compensation
Deferred Retirement Date
Early Retirement Date
Joint and Survivor Annuity
Normal Retirement Date
Retired Employees Pension Surviving Spouse Benefit (REP/SSB)
Retirement Date
Social Security Early Retirement Age
Social Security Normal Retirement Age
Straight-Life Annuity
Supplemental Early Retirement Date
Termination of Employment
2.3 | Wherever used herein, the masculine shall include the feminine and the singular shall include the plural unless a different meaning is clearly indicated by the context. |
2.3
ARTICLE III
Requirements for Participation
3.1 | An Employee shall be a Participant in this Plan if he is a participant in one or more of the Omnibus Plan, the Incentive Compensation Plan or the Management Award Plan. |
3.2 | A Participant shall cease to be an active Participant under this Plan at any time he ceases to be an active participant in each of the Omnibus Plan, the Incentive Compensation Plan and the Management Award Plan, unless otherwise designated by the Administrative Committee to remain as a Participant. |
3.3 | A Participant shall cease to be an active Participant under this Plan at any time he ceases to be an active participant under the Qualified Salaried Plan. |
3.1
ARTICLE IV
Eligibility for Benefits
4.1 | Standard Benefit |
Subject to Section 4.4, any Participant or Former Participant whose Normal Retirement Date, Early Retirement Date, Deferred Retirement Date, Supplemental Early Retirement Date or any Terminated Vested Participant whose termination date occurs on or after January 1, 1989, shall be eligible to receive the Standard Benefit as provided in Section 5.1, unless specifically designated by the Administrative Committee to receive the Special Short Service Benefit as provided in Section 5.3.
4.2 | Special Short Service Benefit |
Subject to Section 4.4:
(a) | Any Participant whose Normal Retirement Date or Deferred Retirement Date occurs on or after January 1, 1989, and who meets all of the following criteria shall be eligible to receive the Special Short Service Benefit as provided in Section 5.3: |
(1) | He has been specifically designated by the Administrative Committee to receive the Special Short Service Benefit; and |
(2) | He has less than thirty (30) years of Continuous Service on his Retirement Date. |
(b) | Any Participant whose Early Retirement Date occurs on or after January 1, 1989, and who meets all of the following criteria shall be eligible to receive the Special Short Service Benefit as provided in Section 5.3: |
(1) | He has been specifically designated by the Administrative Committee to receive the Special Short Service Benefit; and |
(2) | He has less than thirty (30) years of Continuous Service on his Retirement Date; and |
(3) | He has been specifically approved by the Administrative Committee to retire prior to his Normal Retirement Date. |
4.3 | Subject to Section 4.4, any Participant or Former Participant whose Normal Retirement Date, Early Retirement Date, Deferred Retirement Date, Supplemental Early Retirement Date, or any Terminated Vested Participant whose termination date occurs: |
(a) | On or after January 1, 1989, and |
4.1
(i) | Whose benefit under the Qualified Salaried Plan is limited or reduced as a result of §415 and/or §401(a)(17) of the Internal Revenue Code; or |
(ii) | Who was eligible to receive a benefit in accordance with Section 5.5 of the PPG Industries, Inc. Supplemental Retirement Plan II but whose benefit under this Plan is greater than such benefit, and whose benefit under the Qualified Salaried Plan is limited or reduced as a result of having deferred salary under the terms of the Capital Enhancement Account provision of the Incentive Compensation Plan; or |
(b) | On or after January 1, 1996, and whose benefit under the Qualified Salaried Plan is limited or reduced as a result of having deferred salary under the terms of the PPG Industries, Inc. Deferred Compensation Plan, |
shall be eligible to receive the Excess Benefit as provided in Section 5.7.
4.4 | A Participant who is entitled to receive a benefit in accordance with Section 5.6 of the PPG Industries, Inc. Supplemental Retirement Plan II shall not be entitled to receive a benefit under this Plan. |
4.2
ARTICLE V
Amounts of Benefits
5.1 | Standard Benefit |
(a) | Except as otherwise provided in Section 5.2 or 5.3, as applicable, for a Participant or Former Participant who retires on his Normal Retirement Date or Deferred Retirement Date or for a Terminated Vested Participant whose Benefit Commencement Date is his Normal Retirement Date, the monthly benefit shall be: |
FOR RETIREMENTS/TERMINATIONS PRIOR TO APRIL 1, 2000
.0095 times FAMI | ||||||
plus |
.0065 times Excess FAMI | |||||
Total times Continuous Service |
FOR RETIREMENTS/TERMINATIONS ON AND AFTER APRIL 1, 2000
.00855 times FAMI | ||||||
plus | .00585 times Excess FAMI | |||||
Total times Continuous Service |
LESS
Other payments specifically designated by the Administrative Committee to be deducted which are made pursuant to an individual employee contract to provide retirement income or deferred compensation regardless of whether the contract is made with the Company, a Subsidiary, or other employer.
(b) | Except as otherwise provided in Section 5.2 or 5.3, as applicable, for a Participant or Former Participant who retires before his Normal Retirement Date or Deferred Retirement Date or for a Terminated Vested Participant whose Benefit Commencement Date is before his Normal Retirement Date, the monthly benefit shall be: |
FOR RETIREMENTS/TERMINATIONS PRIOR TO APRIL 1, 2000
.0095 times FAMI | ||||||
plus |
.0065 times Excess FAMI | |||||
Total times Continuous Service |
5.1
FOR RETIREMENTS/TERMINATIONS ON AND AFTER APRIL 1, 2000
.00855 times FAMI | ||||||
plus |
.00585 times Excess FAMI | |||||
Total times Continuous Service |
MULTIPLIED BY
The Early Retirement Reduction Factor
LESS
Other payments specifically designated by the Administrative Committee to be deducted which are made pursuant to an individual employee contract to provide retirement income or deferred compensation regardless of whether the contract is made with the Company, a Subsidiary, or other employer.
5.2 | Transition Benefit |
Notwithstanding Section 5.1, the following Transition Benefit provisions apply to Participants or Former Participants who retire/terminate on or after April 1, 2000, but who have at least one hour of service prior to April 1, 2000.
(a) | For a Participant or Former Participant who retires on his Early Retirement Date, Normal Retirement Date or Deferred Retirement Date, a Transition Benefit shall be calculated in lieu of the Standard Benefit in accordance with this Section 5.2(a) and the Participant shall be entitled to the greater of [(1) + (2)] or (3). |
(1) | The Participants benefit calculated under Section 5.1 for retirements/terminations on or before March 31, 2000, using the Participants Continuous Service as of March 31, 2000, FAMI as of his Retirement Date, and the Early Retirement Reduction Factors in effect under the Prior Plan; plus |
(2) | The Participants benefit calculated under Section 5.1 for retirements/terminations on and after April 1, 2000, using the Participants Continuous Service on and after April 1, 2000, FAMI as of his Retirement Date, and the Early Retirement Reduction Factors in effect under the Qualified Salaried Plan; or |
(3) | The Participants benefit calculated under Section 5.1 for retirements/terminations on and after April 1, 2000, as of his Retirement Date, using the Participants Continuous Service as of his Retirement Date, FAMI as of his Retirement Date, and the Early Retirement Reduction Factors in effect under the Qualified Salaried Plan. |
5.2
(b) | Notwithstanding Section 5.1, for a Terminated Vested Participant whose Benefit Commencement Date is his Early Retirement Date or his Normal Retirement Date, a Transition Benefit shall be calculated in lieu of the Standard Benefit in accordance with this Section 5.2(b) and the Participant shall be entitled to the greater of [(1) + (2)] or (3). |
(1) | The Participants benefit calculated under Section 5.1 for retirements/terminations on or before March 31, 2000 using the Participants Continuous Service as of March 31, 2000, FAMI as of March 31, 2000, and the Early Retirement Reduction Factors in effect under the Prior Plan; plus ; |
(2) | The Participants benefit calculated under Section 5.1 for retirements/terminations on and after April 1, 2000, using the Participants Continuous Service on and after April 1, 2000, FAMI as of his Termination of Employment date, and the Early Retirement Reduction Factors in effect under the Qualified Salaried Plan; or |
(3) | The Participants benefit calculated under Section 5.1 for retirements/terminations on and after April 1, 2000, as of his Termination of Employment date, using the Participants Continuous Service as of his Termination of Employment date, FAMI as of his Termination of Employment date, and the Early Retirement Reduction Factors in effect under the Qualified Salaried Plan. |
5.3 | Special Short Service Benefit |
(a) |
For purposes of this Section 5.3 only, Plan Service shall mean one and one-half (1 1 / 2 ) times Continuous Service, with any half ( 1 / 2 ) month rounded up to the next full month, up to a maximum of thirty (30) years. |
(b) | For a Participant who retires on his Normal Retirement Date or Deferred Retirement Date, the monthly benefit shall be: |
FOR RETIREMENTS PRIOR TO APRIL 1, 2000
.0095 times FAMI | ||||||
plus |
.0065 times Excess FAMI | |||||
Total times Plan Service |
5.3
FOR RETIREMENTS ON AND AFTER APRIL 1, 2000
.00855 times FAMI | ||||||
plus |
.00585 times Excess FAMI | |||||
Total times Plan Service |
LESS
Except as otherwise provided in the following sentence with respect to certain Participants, any Prior Employer Benefit plus other payments, if specifically designated by the Administrative Committee to be deducted, which are made pursuant to an individual employee contract to provide retirement income or deferred compensation, regardless of whether the contract is made by the Company, a Subsidiary, or any other employer. Notwithstanding the preceding sentence, upon a specific designation by the Administrative Committee, in its discretion, the benefit described in this subparagraph (b) of this Section 5.3 shall not be reduced by any Prior Employer Benefit payable with respect to a Participant whose Retirement Date occurs on or after March 1, 2002.
(c) | For a Participant who retires on his Early Retirement Date, Plan Service shall be reduced by one month for each month the Participants Benefit Commencement Date precedes his Normal Retirement Date; provided, however, that the Administrative Committee may approve a lesser reduction. |
(d) | The monthly benefit for a Participant described in subparagraph (c) of this section 5.3 shall be: |
FOR RETIREMENTS PRIOR TO APRIL 1, 2000
.0095 times FAMI | ||||||
plus |
.0065 times Excess FAMI | |||||
Total times Plan Service |
FOR RETIREMENTS ON AND AFTER APRIL 1, 2000
.00855 times FAMI | ||||||
plus |
.00585 times Excess FAMI | |||||
Total times Plan Service |
MULTIPLIED BY
The Early Retirement Reduction Factor
5.4
LESS
Except as otherwise provided in the following sentence with respect to certain Participants, any Prior Employer Benefit plus other payments, if specifically designated by the Administrative Committee to be deducted, which are made pursuant to an individual employee contract to provide retirement income or deferred compensation, regardless of whether the contract is made by the Company, a Subsidiary, or any other employer. Notwithstanding the preceding sentence, upon a specific designation by the Administrative Committee, in its discretion, the benefit described in this subparagraph (d) of this Section 5.3 shall not be reduced by any Prior Employer Benefit payable with respect to a Participant whose Retirement Date occurs on or after March 1, 2002.
(e) | Notwithstanding the preceding paragraphs of this Section 5.3, the Special Short Service Benefit under paragraphs (a) through (d) of this Section 5.3 for any Participant whose Retirement Date is on or after April 2000, but who has at least one hour of service before April 1, 2000 shall be calculated using the formula for the calculation of the Transition Benefit described in Section 5.2(a), but substituting Plan Service, as defined in this Section 5.3, for Continuous Service each place it appears in said Section 5.2(a). |
5.4 | Terminated Vested Participant |
In the case of a Terminated Vested Participant who is not eligible for the Transition Benefit, the benefit amount payable under this Plan shall be calculated using Continuous Service, Final Average Monthly Incentive, and Covered Compensation as of the date of termination.
5.5 | Former Participant |
In the case of a Former Participant who is not eligible for the Transition Benefit, the benefit amount payable under this Plan shall be calculated as if his employment had terminated on the date his active participation in the Plan ceased, using Continuous Service, Final Average Monthly Incentive, and Covered Compensation as of the date of cessation of active participation.
Where a Former Participant subsequently retires or becomes a Terminated Vested Participant, the benefit amount payable under this Plan shall be calculated in accordance with this Section 5.5.
5.6 | Supplemental Early Retirement |
(a) |
A Participant or Former Participant who is eligible for a Supplemental Early Retirement Benefit under the Qualified Salaried Plan shall be eligible to have his benefit under this Plan calculated in a manner similar to the calculation of the Qualified Salaried Plan Supplemental Early Retirement benefit; provided, |
5.5
however, that no portion of the Supplemental Early Retirement Benefit may be deferred and that such Participant or Former Participant shall not be eligible for the Social Security Supplement as defined in the Qualified Salaried Plan. |
(b) | The Administrator shall apply rules for the calculation of the benefit pursuant to this Section 5.6 in a uniform and nondiscriminatory manner. |
5.7 | Excess Benefit |
(a) | In the event a Participants benefit under the Qualified Salaried Plan is limited or reduced as a result of §415 and/or §401(a)(17) of the Internal Revenue Code, or, in the case of a Participant described in either subparagraph (a)(ii) or paragraph (b) of Section 4.3, whose benefit under the Qualified Salaried Plan is limited or reduced as a result of his having deferred salary under the terms of the Capital Enhancement Account provision of the Incentive Compensation Plan, and/or as a result of his having deferred salary under the terms of the PPG Industries, Inc. Deferred Compensation Plan, this Plan shall provide a benefit equal to the amount of such limitation or reduction. |
(b) | The Administrator shall apply rules for the calculation of the benefit pursuant to this Section 5.7 in a uniform and nondiscriminatory manner. |
(c) | Any benefit payable in accordance with this Section 5.7 shall be in addition to any other benefit which may be payable hereunder. |
5.8 | Lump-Sum Benefit |
(a) | Eligibility |
In accordance with this Section 5.8, a Participant who, as of December 12, 2007, is in a job rated at Band B or higher, shall receive his or her benefit payable hereunder in a lump sum in lieu of a monthly annuity. If a Participant who is not eligible to receive a lump sum benefit in accordance with the preceding sentence first becomes employed in a job rated at Band B or higher on or after December 12, 2007, such Participant shall receive the portion of his or her benefit that accrues on or after the date on which such Participant first becomes employed in a job rated at Band B or higher in a lump sum in lieu of a monthly annuity, and the remaining portion of such benefit shall be paid in the form of a monthly annuity as otherwise provided under the terms of the Plan.
(b) | Calculation of Lump-Sum Benefit |
Any lump-sum benefit payable under this Section 5.8 shall be calculated using mortality assumptions according to the current actuarial valuation prepared for the Plan, and the PBGC immediate interest rate for the month in which the Participants Benefit Commencement Date, as defined in Section 6.1, occurs.
(c) | Exceptions |
(1) | The Administrative Committee shall have full discretion to provide that the portion of a Participants benefit that accrued prior to January 1, 2005 will not be paid in a lump sum. Such decisions by the Administrative Committee shall be made in a uniform and nondiscriminatory manner. |
5.6
(2) | The portion of a Participants benefit that accrues on or after January 1, 2005 will not be paid in a lump sum if, on or before the date payment would otherwise be made, the Participant engages in any activity in competition with any activity of the Company or any of its Subsidiaries, or contrary or harmful to the interests of the Company or any of its Subsidiaries, including, but not limited to: (a) conduct related to the Participants employment for which either criminal or civil penalties against the Participant may be sought; (b) violation of Company (or Subsidiary) Business Conduct Policies; (c) accepting employment with or serving as a consultant, advisor or in any other capacity to an employer that is in competition with or acting against the interests of the Company or any of its Subsidiaries, including employing or recruiting any present, former or future employee of the Company or any of its Subsidiaries; (4) disclosing or misusing any confidential information or material concerning the Company or any of its Subsidiaries; or (5) participating in a hostile takeover attempt. |
5.7
ARTICLE VI
Payment of Benefits (Including REP/SSB and AEP/SSB)
6.1 | A Participants Benefit Commencement Date shall be the first of the month which is on or after the later of (i) his Early Retirement Date, or (ii) the date of his Termination of Employment or, if applicable, his Supplemental Early Retirement Date, or, if later, the date of such Participants Separation from Service (as such term is defined in Section 409A of the Internal Revenue Code). |
6.2 | Except as otherwise provided in Section 5.8, a Participant may elect payment in the form of a Joint and Survivor Annuity or Straight Life Annuity. Subject to Section 6.1, such elections and payments shall be subject to the provisions of the Qualified Salaried Plan. |
6.3 | In the case of a Participant who is entitled to a lump sum benefit and who dies prior to his Benefit Commencement Date, the portion of such benefit that accrued prior to January 1, 2005, shall be payable in accordance with Section 6.5 and the portion of such benefit that accrued on or after January 1, 2005 shall be paid to such Participants Beneficiary in a lump sum. |
6.4 | Payment of the AEP/SSB |
(a) | Except as otherwise provided herein, eligibility for and payment of the AEP/SSB under this Plan shall be governed by the same rules and regulations as the Qualified Salaried Plan. |
(b) | The amount of benefit payable to an Eligible Spouse under the AEP/SSB shall always be determined under either the Standard Benefit formula or the Transition Benefit formula, as provided in Sections 5.1 or 5.2 of this Plan, as applicable. |
(c) | Except as provided in paragraph (d) below, the amount of benefit payable to an Eligible Spouse under the AEP/SSB of a Participant eligible for the Special Short Service Benefit shall not be based on the Special Short Service Benefit formula. |
(d) | The amount of benefit payable to an Eligible Spouse of a Participant who: |
(1) | is eligible for the Special Short Service Benefit; and |
(2) | dies prior to his Benefit Commencement Date |
shall be based on the Special Short Service Benefit formula.
6.5 |
Notwithstanding any other provision of the Plan, with respect to any Participant who is a Specified Employee (as that term is defined in Section 409A of the Internal Revenue Code), any payment attributable to benefits accrued on or after January 1, 2005 that would otherwise be made to such Participant during the six-month period following his |
6.1
or her Separation from Service (as such term is defined in Section 409A of the Internal Revenue Code) shall be postponed and paid on the first day of the month following the date that is six months after such Participants Separation from Service, together with interest at a rate equal to the PBGC immediate interest rate for the month in which the Participants Separation from Service occurs. This Section 6.5 shall not apply to benefits paid pursuant to the death of the Participant. |
6.2
ARTICLE VII
Forfeiture of Benefits
7.1 | In the event a Participant ceases participation under this Plan prior to becoming vested in the Qualified Salaried Plan, no benefit shall be payable under this Plan. |
7.2 |
(a) | Any benefit payable under this Plan to a Participant, Former Participant, or Terminated Vested Participant shall be forfeitable in the event it is found that such Participant engages in any activity in competition with any activity of the Company, or contrary or harmful to the interests of the Company, including, but not limited to: | ||
(1) Conduct related to the Participants employment for which either criminal or civil penalties against the Participant may be sought; or |
||||
(2) Violation of the Companys Business Conduct Policies; or |
||||
(3) Accepting employment with or serving as a consultant, advisor or in any other capacity to an employer that is in competition with or acting against the interests of the Company, including employing or recruiting any present, former or future employee of the Company; or |
||||
(4) Disclosing or misusing any confidential information or material concerning the Company; or |
||||
(5) Participating in a hostile take over attempt. |
||||
(b) | All determinations under this Section 7.2 shall be made by the Administrative Subcommittee at its sole discretion. As the Administrative Subcommittee finds appropriate, it may terminate immediately or suspend benefits to such Participant and furnish due notice thereof. If benefits are suspended, the Administrative Subcommittee may thereafter terminate benefits under this Plan unless such Participant discontinues the competitive activity or activity contrary or harmful to the interests of the Company and affords written notice to the Administrative Subcommittee of such discontinuance within ninety (90) calendar days following the giving of notice of suspension of benefits. The Company may use whatever means legally available to recover benefits already paid. |
7.3 | If any benefit under the Plan has been payable to and has been unclaimed by any Participant, Former Participant, Terminated Vested Participant or Eligible Spouse for a reasonable period of time, as determined by the Administrator, the Administrator may direct that all rights of such Participant or Eligible Spouse to payments accrued and to future payments be terminated absolutely, provided that if such Participant or Eligible Spouse subsequently appears and identifies himself to the satisfaction of the Administrator, then the liability will be reinstated. |
7.1
7.4 | The amount of benefits under this Plan may increase or decrease over time as provided by the provisions of the Plan. |
7.2
ARTICLE VIII
General Provisions
8.1 | The entire cost of benefits and administrative expenses for this Plan shall be paid by the Company out of its general assets. |
8.2 | Except where expressly reserved to the Company, the Administrative Committee or the Administrative Subcommittee, the administration of this Plan shall be the responsibility of the Administrator, who shall interpret the provisions of this Plan and decide all questions arising in its administration. The decisions of the Administrator shall be conclusive and binding for all purposes. The Administrative Committee and the Administrative Subcommittee each shall have full and discretionary authority to act on those matters for which they have been assigned specific responsibility. The Administrator shall have the full discretionary authority to: |
(a) | determine eligibility for benefits in accordance with the provisions of the Plan; |
(b) | construe the terms of the Plan; and |
(c) | control and manage the operation and administration of the Plan. |
All actions, decisions and interpretations of the Administrative Committee, Administrative Subcommittee and the Administrator shall be performed or made in a uniform and nondiscriminatory manner.
8.3 | Nothing contained in this Plan shall be construed as a contract of employment between the Company and any Participant, and the Plan shall not afford any Participant a right of continued service with the Company. |
8.4 | This Plan is purely voluntary on the part of the Company. The Company, by action of the Officers-Director Compensation Committee (or any successor) of the Board of Directors or by such other person or committee acting in accordance with a procedure adopted and approved by the Officers-Directors Compensation Committee (or any successor) of the Board of Directors, may amend, suspend, or terminate the Plan, in whole or in part at any time. |
8.5 | No benefits payable under this Plan may be assigned or alienated or transferred in whole or in part. No benefits payable under the Plan shall be subject to legal process or attachment for the payment of any claim against any person entitled to receive the same. |
8.1
8.6 | The Plan is intended to constitute an unfunded plan providing retirement or deferred compensation benefits for officers and highly compensated employees exempt from the requirements of parts 2, 3, and 4 of the Employee Retirement Income Security Act of 1974, as amended (ERISA). Except to the extent otherwise provided in ERISA and the Code, this Plan shall be construed, regulated and administered under the laws of the Commonwealth of Pennsylvania. |
8.2
ARTICLE IX
Change in Control
9.1 | Notwithstanding any other provisions of this Plan, upon a Change in Control, as defined in Section 9.2: |
(a) | All Participants shall be deemed to be Vested Participants; |
(b) | Any Participant, including Participants described in paragraph (a) of this Section 9.1, shall be eligible to receive the Special Short Service Benefit as provided in Section 5.3 if, as of the date a Change in Control occurs, he has been so designated by the Administrative Committee. |
(c) | Paragraph (c) of Section 5.3 shall be revised in its entirety to read: |
(c) | For a Participant who retires on his Early Retirement Date, for purposes of computing his benefit, Plan Service shall be reduced by the lesser of: |
(1) | One month for each month the Participants Benefit Commencement Date precedes his Normal Retirement Date; or |
(2) | 36 months. |
9.2 | For purposes of this Plan, a Change in Control shall mean: |
(a) | The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) (a Person) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either |
(i) | the then outstanding shares of common stock of the Company (the Outstanding Company Common Stock) or |
(ii) | the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the Outstanding Company Voting Securities); |
provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control:
(i) | any acquisition directly from the Company, |
(ii) | any acquisition by the Company, |
9.1
(iii) | any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Company controlled by the Company, or |
(iv) | any acquisition by any Company pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 9.2; or |
(b) | Individuals who, as of the date hereof, constitute the Board (the Incumbent Board) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Companys shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or |
(c) | Approval by the shareholders of the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a Business Combination), in each case, unless, following such Business Combination, |
(i) | all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the Company resulting from such Business Combination (including, without limitation, a Company which as a result of such transaction owns the Company or all or substantially all of the Companys assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, |
(ii) | no Person (excluding any employee benefit plan (or related trust) of the Company or such Company resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the Company resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such Company except to the extent that such ownership existed prior to the Business Combination, and |
9.2
(iii) | at least a majority of the members of the board of directors of the Company resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; |
(d) | Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company; or |
(e) | A majority of the Board otherwise determines that a Change in Control shall have occurred. |
9.3 | Upon, or in reasonable anticipation of, a Change in Control, an amount sufficient to fund the benefits of all Vested Participants, including those vested pursuant to Section 9.1, Former Participants, and Terminated Vested Participants, including an amount sufficient to fund additional benefits anticipated to accrue during the twenty-four (24) month period immediately following a Change in Control, the Active Employees Pension Surviving Spouse Benefit, the survivor annuity payable to the joint annuitant designated by any such Participant on his Benefit Commencement Date, and all lump-sum benefits which might become payable hereunder, shall be paid immediately by the Company to a Trustee. Selection of the Trustee, the amounts to be paid by the Company and the terms of such payment (including such terms as are appropriate to cause such payment, if possible, not to be a taxable event) in order to give effect to the payment of benefits as provided in Sections 9.4 and 9.5 shall be determined by the Vice President, Human Resources, and/or the Vice President, Finance. Notwithstanding such funding, the Company shall be obligated to pay such benefits to such Vested Participants, Former Participants and Terminated Vested Participants to the extent such funding proves to be insufficient. To the extent such funding proves to be more than sufficient, such excess shall revert to the Company. |
Except as regards paragraph (d) of Section 9.2, the Officers-Directors Compensation Committee shall have the duty and the authority to make the determination as to whether a Change in Control has occurred, or is reasonably to be anticipated, and, concomitantly, to direct the making of the payment contemplated herein.
9.4 | The Trustee shall provide for the payment of benefits to Vested Participants, Former Participants, Terminated Vested Participants, Eligible Spouses and joint annuitants in accordance with the provisions of this Plan as in effect on the date of the Change in Control. Any subsequent attempts to suspend or terminate this Plan or to amend this Plan in any way which reduces future benefits shall have no effect on payments made or to be made by the Trustee. |
9.5 | Notwithstanding any provision of this Plan, including without limitation, Section 8.4, this Plan may not be: |
(a) | Amended such that future benefits would be reduced; or |
9.3
(b) | Suspended; or |
(c) | Terminated; |
(1) | As to the future accrual of benefits, at any time during the twenty-four (24) month period following a Change in Control; or |
(2) | As to the payment of benefits, at any time prior to the last payment, determined in accordance with the provisions of this Plan, to each Vested Participant, Former Participant, Terminated Vested Participant, Eligible Spouse and joint annuitant. |
ARTICLE X TREATMENT OF FORMER AUTOMOTIVE
GLASS & SERVICES BUSINESS PARTICIPANTS
10.1 | Sale of AG&S Business |
Upon the closing date of the Companys sale (the Sale) of its Automotive Glass & Services business (the AG&S Business), each Participant who is employed in the AG&S Business and who is hired by the purchaser (the Purchaser) of the AG&S Business (each, an Affected AG&S Business Participant) will terminate employment with the Company. The purpose of this Section X is to set forth the impact of the Sale and such termination of employment upon such Affected AG&S Business Participants under the Plan.
10.2 | Eligibility |
On and after the Closing Date, each Affected AG&S Business Participant shall cease to be eligible to accrue benefits under the Plan.
10.3 | Pre-January 1, 2005 Lump Sum Accrued Benefit Provisions |
The provisions of Section 5.8 (c)(1) of the Plan shall not apply to an Affected AG&S Business Participant.
Section 6.3 of the Plan shall not apply to an Affected AG&S Business Participant. In lieu thereof, the following shall apply to an Affected AG&S Business Participant. In the case of a Participant who is entitled to a lump sum benefit and who dies prior to his Benefit Commencement Date, the accrued benefit of such Affected AG&S Business Participant shall be paid to such Participants Beneficiary in a lump sum.
10.4 Separation from Service
Notwithstanding the termination of employment of each Affected AG&S Business Participant with the Company pursuant to the Sale, and pursuant to Treasury Regulation Section 1.409A-1(h)(4), and except as otherwise provided in Section 10.5 below, an AG&S Business Participant shall not be treated as having incurred a Separation from Services under the terms of this Plan until such AG&S Business Participant shall terminate employment with the Purchaser and each entity that is required to be aggregated with the Purchaser under Sections 414(b), (c), (m) or (o) and 409A of the Code.
10.5 | New Payment Elections |
On or before such date as the Administrator may determine (which such date shall be no later than December 31, 2008), an Affected AG&S Business Participant may, in accordance with procedures established by the Administrator, file an election pursuant to Section 3.01(B)(1)(.02) of Internal Revenue Service Notice 2007-86 to receive or commence receiving payment of his or her benefits under this Plan on the later of (i) January 1, 2009 or (ii) his or her Early Retirement Age (as that term is defined in the Qualified Salaried Plan), notwithstanding any continuing employment with the Purchaser. In either case, such date shall be treated as the date of such Affected AG&S Business Participants Termination of Employment for purposes of the Plan, notwithstanding the provision of Section 10.4.
9.4
Exhibit 10.6
PPG INDUSTRIES, INC.
DEFERRED COMPENSATION PLAN
Preamble
The Plan is adopted primarily for the purpose of providing deferred compensation to a select group of management and highly compensated employees.
This PPG Industries, Inc. Deferred Compensation Plan (this Plan) is an amendment and restatement of the PPG Industries, Inc. Deferred Compensation Plan as in effect on December 31, 2004 (the Prior Plan). Except as otherwise provided herein, this amended and restated Plan applies to deferrals of all compensation that is earned or that becomes vested on or after January 1, 2005 (including any earnings thereon). All such deferred compensation shall be paid in accordance with the terms of this amended and restated Plan. The Prior Plan applies to deferrals of all compensation that was earned and vested prior to January 1, 2005 (including any earnings thereon). This amendment and restatement of the Plan is made on September 24, 2008.
Table of Contents
Section |
I | Definitions | 1 | |||
Section |
II | Deferrals | 6 | |||
Section |
III | Investment Options | 11 | |||
Section |
IV | Restoration Contributions | 13 | |||
Section |
V | Withdrawal Provisions | 15 | |||
Section |
VI | Specific Provisions Related to Benefits | 22 | |||
Section |
VII | Administration and Claims | 25 | |||
Section |
VIII | Amendment and Termination | 30 | |||
Section |
IX | Miscellaneous | 32 | |||
Section |
X | Change in Control | 34 | |||
Section |
XI | Treatment of Former Automotive Glass & Services Business Participants | 37 |
SECTION IDEFINITIONS
1.01 | Account means all deferred Award amounts, all deferred Salary amounts, all deferred Payments pursuant to the LTIP or Executive Officers LTIP, all deferred Omnibus Plan Stock Awards, all Savings Plan Restoration Contributions and all Defined Contribution Retirement Plan Restoration Contributions and earnings on each of the foregoing held at any particular time in the form of Stock Account Shares or Investment Account Shares in a Participants account established pursuant to the terms hereof. |
1.02 | Administrator means an officer or officers of the Company appointed by the Committee, and any person(s) designated by such Administrator to assist in the administration of the Plan. |
1.03 | Affiliate means any business entity, other than a Subsidiary, in which PPG has an equity interest. |
1.04 | Annual Plan means the PPG Industries, Inc. Executive Officers Annual Incentive Compensation Plan, as amended from time to time. |
1.05 | Award means a grant to a Participant under the IC Plan, MAP or the Annual Plan, and a Short-Term Cash Incentive Award under Article X of the Omnibus Plan which such person may elect to defer. |
1.06 | Beneficiary means the person or persons designated by a Participant to receive benefits hereunder following the Participants death, in accordance with Section 6.02. For purposes of this Section 1.06, person or persons is limited to an individual, a Trustee or a Participants estate. |
1.07 | Board means the Board of Directors of PPG Industries, Inc. |
1.08 | Code means the Internal Revenue Code of 1986, and amendments thereto. |
1.09 | Committee means the Officers-Directors Compensation Committee (or any successor) of the Board. |
1.10 | Company or PPG means PPG Industries, Inc. |
1.11 | Conversion Formula means, with respect to the cash component of an Award, the number of Stock Account Shares obtained by dividing such Award amount by the closing price as reported on the New York Stock Exchange Composite Tape of PPG Stock on the date payment of the Award is processed. |
1.12 | Corporation means PPG and any Subsidiary or Affiliate designated by the Administrator to permit such Subsidiarys or Affiliates employees to participate in the Plan, and which, by proper authorization of the board of directors or other governing body of such Subsidiary or Affiliate, elects to participate in the Plan. |
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1.13 | Defined Contribution Plan Restoration Contributions means contributions to a Participants Account in accordance with Section 4.02. |
1.14 | Disability means a medical or physical impairment that can be expected to result in death or that can be expected to last for a continuous period of not less than 12 months, by reason of which, a Participant has received income replacement benefits for a period of not less than six months under the Corporations disability plans, within the meaning of Section 409A of the Code. |
1.15 | Discretionary Transaction means a transaction pursuant to any employee benefit plan of the Company that: |
(a) | Is at the volition of the plan participant; |
(b) | Is not made in connection with the participants death, disability, retirement or termination of employment; |
(c) | Is not required to be made available to a plan participant pursuant to a provision of the Code; and |
(d) | Results in either an intra-plan transfer involving a PPG Stock Fund or a cash distribution funded by a volitional disposition of PPG Stock by the plan participant. |
1.16 | Employee means any full-time or permanent part-time salaried employee (including any officer) of the Corporation. |
1.17 | ERISA means the Employee Retirement Income Security Act of 1974, as amended. |
1.18 | Executive Officers LTIP means the PPG Industries, Inc. Executive Officers Long Term Incentive Plan, as amended from time to time. |
1.19 | IC Plan means the PPG Industries, Inc. Incentive Compensation for Key Employees, as amended from time to time and formerly known as the PPG Industries, Inc. Incentive Compensation and Deferred Income Plan for Key Employees. |
1.20 | Insider means a Participant who at any time within the prior six (6) months was a person subject to Section 16 of the Securities Act of 1934. |
1.21 |
Investment Account means, for any Participant, one or more recordkeeping accounts the value of which is based on or derived from such investment funds, |
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money market accounts or other investment vehicles as determined by the Committee from time to time and pursuant to which such Participant makes elections pursuant to Section III hereof. |
1.22 | Investment Account Share means a recordkeeping unit for the appropriate Investment Account, in each case, equal in value to one share or other ownership unit of the investment fund, money market account or other investment vehicle upon which the value of the particular Investment Account is based. |
1.23 | Key Employee has the meaning assigned to that term under Section 416(i) of the Code. For purposes of Sections 5.02(h) and 5.03(b), a Participant who is a Key Employee for a calendar year shall be treated as a Key Employee during the 12-month period commencing on the first day of the fourth month following the last day of such calendar year. |
1.24 | LTIP means the PPG Industries, Inc. Long Term Incentive Plan, as amended from time to time. |
1.25 | MAP means the PPG Industries, Inc. Management Award and Deferred Income Plan, as amended from time to time and formerly known as the PPG Industries, Inc. Management Award and Deferred Income Plan. |
1.26 | Omnibus Plan means the PPG Industries, Inc. Omnibus Incentive Plan, as amended from time to time. |
1.27 | Omnibus Plan Stock Award means an Award (as that term is defined under the Omnibus Plan) other than an Option, Stock Appreciation Right (as those terms are defined in the Omnibus Plan) or Short-Term Cash Incentive Award under Article X of the Omnibus Plan, whether settled in cash or in PPG Stock. |
1.28 | Participant means an Employee who is approved to participate in either the LTIP, the Executive Officers LTIP, the IC Plan, MAP, or the Annual Plan or who is eligible to receive an Omnibus Plan Stock Award or Short-Term Cash Incentive Award under Article X of the Omnibus Plan and has made one or more deferral elections pursuant to Section II hereof. |
1.29 | Payment has the meaning assigned to that term under the LTIP or the Executive Officers LTIP, as applicable. |
1.30 | Plan means this PPG Industries, Inc. Deferred Compensation Plan as amended and restated on September 24, 2008. |
1.31 | Plan Year means any calendar year. |
1.32 | PPG Stock means, as of any date, the then issued and outstanding voting common stock of the Company. Shares of PPG Stock issued or transferred in accordance with the terms of the Plan may be either authorized but unissued shares or issued shares acquired by the Company and held in its treasury. |
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1.33 | PPG Stock Account means a record-keeping account maintained for a Participant who elects to defer all or part of an Award, Salary, Payment, or Omnibus Plan Stock Award and/or to maintain all or part of a deferred Award, Salary, Payment, or Omnibus Plan Stock Award in the form of Stock Account Shares. |
1.34 | PPG Stock Fund means the PPG Stock Account or any other fund or account of any other benefit plan of the Company or a Subsidiary which account or fund is invested in, or valued based upon, PPG Stock. |
1.35 | Prohibited Discretionary Transaction means a Discretionary Transaction to be effected pursuant to an election made less than six months following the date of the most recent previous election to make a Discretionary Transaction with respect to any employee benefit plan of the Company which most recent previous election effected: |
(a) | An increase in a PPG Stock Fund if the current transaction would entail a disposition of PPG Stock or a decrease in a PPG Stock Fund; or |
(b) | A disposition of PPG Stock or a decrease in a PPG Stock Fund if the current transaction would entail an increase in a PPG Stock Fund. |
1.36 | Retired Participant means a Participant who elects to maintain an Account in the Plan after his/her Retirement Date. |
1.37 | Retirement Age means the date on which a Participant is eligible to receive a benefit from a retirement plan sponsored by the Corporation. |
1.38 | Retirement Date means the first day of the month following a Participants termination of employment on or after such Participants Retirement Age. |
1.39 | Salary means a Participants monthly base salary from the Corporation (excluding bonuses, commissions and other non-regular forms of compensation) and including payments from the PPG Industries Salary Continuance Plan, before reductions for deferrals under the Plan or under any other Plan sponsored by the Corporation. In the case of Salary continuance, Salary deferral elections shall be applied to the actual amount of Salary continuance being paid. |
1.40 | Savings Plan means the PPG Industries Employee Savings Plan, as amended from time to time. |
1.41 | Savings Plan Restoration Contributions means contributions to a Participants Account in accordance with Section 4.01. |
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1.42 | Stock Account Share means a record-keeping unit which is equivalent to one share of PPG Stock. |
1.43 | Subsidiary means any corporation of which fifty percent (50%) or more of the outstanding voting stock or voting power is owned, directly or indirectly, by the Company and any partnership or other entity in which the Company has a fifty percent (50%) or more ownership interest. |
1.44 | Unforeseeable Emergency means a severe financial hardship to a Participant resulting from an illness or accident of such Participant, loss of the Participants property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. |
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SECTION IIDEFERRALS
2.01 | Deferral of Salary |
(a) | Prior to the beginning of each Plan Year, a Participant may elect to defer a percentage, in whole percentages only, of his/her Salary for services performed for such Plan Year as follows: |
Minimum Deferral |
Maximum Deferral | |
1% |
50% |
(b) | Elections made pursuant to this Section 2.01 shall remain in effect until the last day of the Plan Year to which such election applies. |
(c) | Except as provided in Section 2.05, any election filed by a Participant pursuant to this Section 2.01 must be received by the Administrator on or before the last business day of the Plan Year prior to the Plan Year in which such election is to become effective. Deferred Salary shall be credited to the Participants Account on the last day of the month in which the deferral is made. |
(d) | The number of Stock Account Shares credited to the PPG Stock Account shall be determined by the closing price as reported on the New York Stock Exchange Composite Tape for PPG Stock on the last business day of the month in which the deferral is made. |
(e) | The number of Investment Account Shares credited to the appropriate Investment Account shall be determined by the closing market price for shares of the mutual fund on which the value of the Investment Account is based on the last business day of the month in which the deferral is made. |
(f) | Notwithstanding any other provision of this Section 2.01, a Participant may file a new deferral election with respect to Salary for services performed during the 2005 Plan Year no later than March 15, 2005 (and any such new election filed between January 1, 2005 and March 15, 2005 shall replace any election filed on or before December 31, 2004) that (i) increases the deferral of Salary earned on or after April 1, 2005, or (ii) cancels all deferral elections with respect to Salary earned from January 1, 2005 through April 15, 2005. In the event of a cancellation of a deferral election pursuant to clause (ii) above, the amount deferred prior to the filing of such election, adjusted for earning or losses, shall be paid to such Participant as soon as practicable after the election is filed, but in no event later than December 31, 2005. |
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2.02 | Deferral of Awards |
(a) | Prior to the beginning of each Plan Year, a Participant may elect to defer a percentage, in whole percentages only, of his/her Award granted for such Plan Year. |
(b) | Except as otherwise provided in Section 2.05, all elections pursuant to this Section 2.02 must be filed with the Administrator no later than the last day of the Plan Year prior to the Plan Year to which an Award relates; and such election shall become irrevocable as of the first day of the Plan Year to which it relates. |
(c) | In accordance with the provisions of Sections 2.02(a) and (b) above, the value of that portion of the cash component of an Award which the Participant elects to defer under this Plan and has designated to one or more of the Investment Accounts in accordance with Section 3.01 shall be credited to such Investment Account(s) on the day such deferral would otherwise have been paid to the Participant. |
(d) | In accordance with the provisions of this Section 2.02, the value of: |
(1) | that portion of the cash component of an Award which the Participant elects to defer and has designated in accordance with Section 3.01 to the PPG Stock Account; and/or |
(2) | the stock component of a deferred Award |
shall be credited to the PPG Stock Account in the Participants Account on the day such deferral would otherwise have been paid to the Participant.
(e) |
(1) | Share-based Awards credited to the PPG Stock Account shall be credited in the form of Stock Account Shares and cash Awards credited to the PPG Stock Account shall be credited in the form of whole and fractional Stock Account Shares, the number of which will be determined according to the Conversion Formula. |
(2) | Cash-based Awards credited to the Investment Account(s) shall be credited in the form of Investment Account Shares, the number of which will be determined according to the most recent closing market value of the appropriate Investment Account Shares as of the date credited to the Participants Investment Account(s). |
(f) | Any amount designated by the Participant for in-service withdrawal in accordance with Section 5.01(b) hereof may not be credited to the PPG Stock Fund. |
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(g) | Notwithstanding any other provision of this Section 2.02, at any time on or before March 15, 2005, a Participant may cancel any prior deferral election for Awards that were earned in 2004. |
2.03 | Deferral of Payment under the LTIP and the Executive Officers LTIP and Deferral of Omnibus Plan Stock Award |
(a) | A participant who is entitled to receive a Payment under the terms of the LTIP or the Executive Officers LTIP, or an Omnibus Plan Stock Award under the Omnibus Plan may elect to defer receipt of such Payment, or Omnibus Plan Stock Award in accordance with this Section 2.03. |
(b) | A Participant may elect to defer either 25%, 50%, 75% or 100% of his/her Payment or Omnibus Plan Stock Award. Any balance that is not deferred in accordance with this Section 2.03 shall be paid to the Participant as provided in the LTIP, the Executive Officers LTIP, or the Omnibus Plan, as applicable. |
(c) | Except as otherwise provided in Section 2.05, all elections pursuant to this Section 2.03 must be filed no later than the last day of the year prior to the last year of the period of service with respect to which the Payment or Omnibus Plan Stock Award is made, and such election shall become irrevocable as of the first day of the last year of such period. |
(d) | In accordance with the provisions of Sections 2.03(a), (b) and (c) above, the value of that portion of the cash component of a Payment or Omnibus Plan Stock Award which the Participant elects to defer under this Plan and has designated to one or more of the Investment Accounts in accordance with Section 3.01 shall be credited to such Investment Account(s) on the day such deferral would otherwise have been paid to the Participant. |
(e) | In accordance with the provisions of this Section 2.03, the value of: |
(1) | that portion of the cash component of a Payment or Omnibus Plan Stock Award which the Participant elects to defer and has designated in accordance with Section 3.01 to the PPG Stock Account; and/or |
(2) | the stock component of a deferred Payment or Omnibus Plan Stock Award |
shall be credited to the PPG Stock Account in the Participants Account on the day such deferral would otherwise have been paid to the Participant.
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(f) |
(1) | Share-based portions of Payments and Omnibus Plan Stock Awards credited to the PPG Stock Account shall be credited in the form of Stock Account Shares and cash-based portions of Payments and Omnibus Plan Stock Awards credited to the PPG Stock Account shall be credited in the form of whole and fractional Stock Account Shares, the number of which will be determined according to the Conversion Formula. |
(2) | Cash-based portions of Payments and Omnibus Plan Stock Awards credited to the Investment Account(s) shall be credited in the form of Investment Account Shares, the number of which will be determined according to the most recent closing market value of the appropriate Investment Account Shares as of the date credited to the Participants Investment Account(s). |
2.04 | Dividend Equivalents under the LTIP, the Executive Officers LTIP or the Omnibus Plan |
(a) | Dividend Equivalents credited to a Participant in accordance with the LTIP, the Executive Officers LTIP or, with respect to Omnibus Plan Stock Awards, the Omnibus Plan, shall be credited to such Participants PPG Stock Account in the form of Stock Account Shares or to such Participants Other Investment Account(s), as designated by the Participant in accordance with Section 3.01. |
(b) | The number of Stock Account Shares, if any, credited to the PPG Stock Account pursuant to Section 2.04(a) above shall be determined on the basis of the closing price as reported on the New York Stock Exchange Composite Tape of PPG Stock for the day on which the corresponding dividend is paid on PPG Stock. |
(c) | Dividend Equivalents credited to the Investment Account(s) shall be credited in the form of Investment Account Shares in the same manner as cash Awards are credited to Investment Account(s). |
2.05 | New Participants |
(a) | Notwithstanding any other provision of this Plan to the contrary, in the case of the first year a Participant becomes eligible to participate in the Plan, such Participants election to defer Salary, may be made within thirty days after the date the Participant becomes eligible to participate in the Plan. Such election shall be effective the first day of the month following such thirty day period. |
(b) | If a Participant first becomes eligible to participate in the Plan prior to June 1 of a calendar year, such Participant may file an election to defer an Award or a Payment for such year no later than June 30 of such year provided that such Award or Payment constitutes performance-based compensation within the meaning of Treasury Regulation Section 1.409A-1(e) (or any successor regulation) and, otherwise, shall not be permitted to file an election to defer such an Award or Payment. |
(c) | If a Participant first becomes eligible to participate in the Plan on or after June 1 of a calendar year, such Participant may not file an election to defer an Award or a Payment for such year. For purposes of this Section 2.05, the date on which a Participant first becomes eligible to participate in the Plan is the date on which such Participant is notified of his or her eligibility. |
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2.06 | Vesting |
(a) | All amounts credited to a Participants Account shall be 100% vested at all times, except to the extent provided in Section 5.03(c). |
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SECTION IIIINVESTMENT OPTIONS
3.01 | Investment Election |
(a) | Participants must file an election with the Administrator designating the investment election for any cash amounts or Dividend Equivalents from the LTIP, the Executive Officers LTIP or the Omnibus Plan being credited to the Plan. If a Participant does not provide an investment election to the Administrator in accordance with this Section 3.01, such Participant shall be deemed to have filed an election to have elected all amounts to be deemed invested in such Investment Account as the Committee shall determine from time to time. |
(b) | Any election filed by a Participant under Section 3.01(a) above shall remain in effect unless and until the Participant files a new election with the Administrator. |
(c) | Elections filed in accordance with this Section 3.01 must be filed in accordance with the procedure established by the Administrator. |
3.02 | Investment Accounts |
Amounts credited to the Investment Accounts shall be credited in the form of whole and fractional Investment Account Shares.
3.03 | PPG Stock Account |
(a) | Amounts credited to the PPG Stock Account shall be credited in the form of whole and fractional Stock Account Shares. |
(b) | Participants shall not receive cash dividends or have voting or other shareholders rights as to Stock Account Shares; however, Stock Account Shares shall accrue whole and fractional dividend equivalents, in the form of additional Stock Account Shares, on the basis of the closing price as reported on the New York Stock Exchange Composite Tape for PPG Stock for the day on which the dividend with respect to which such dividend equivalent is credited is paid, based on the number of whole and fractional Stock Account Shares in the PPG Stock Account on the record date. |
3.04 | Transfers |
(a) | Subject to paragraph (b) below, a Participant who has a balance in the Investment Accounts may elect to transfer any amounts between/among the Investment Accounts or into the PPG Stock Account. Such transfers shall be subject to the following: |
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(1) | Participants must file a transfer request with the Administrator in accordance with the procedure established by the Administrator. |
(2) |
(A) | For transfers into the PPG Stock Account, the number and value of whole and fractional Stock Account Shares shall be determined by the closing price as reported on the New York Stock Exchange Composite Tape of PPG Stock on the last business day of the month in which the election is received by the Administrator. |
(B) | For transfers into and out of any of the Investment Accounts, the number and value of whole and fractional Investment Account Shares shall be determined by the closing price of the appropriate Investment Account Share on the date of such transfer. |
(3) | No transfers may be made out of the PPG Stock Account at any time. |
(4) | A Participant may file no more than five (5) transfer requests per calendar quarter separately with respect to (i) amounts credited to Section 4.02, (ii) each amount subject to a scheduled in service withdrawal on a specified date pursuant to Section 3.05, (iii) all other amounts attributable to amounts deferred prior to January 1, 2005 and (iv) all other amounts attributable to deferrals on or after January 1, 2005. |
(b) | Insiders are prohibited from making any transfer which would constitute a Prohibited Discretionary Transaction. |
3.05 | Scheduled In-Service Withdrawals |
(a) | A Participant must file a separate investment election with respect to amounts that the Participant has elected to be paid as a Scheduled In-Service Withdrawal pursuant to Section 5.01. A single election shall be made for all amounts scheduled to be paid on the same date. No such election may designate the investment of any such amount in the PPG Stock Fund. |
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SECTION IVRESTORATION CONTRIBUTIONS
4.01 | Savings Plan Restoration Contributions |
(a) | Savings Plan Restoration Contributions will be credited to the accounts of Participants in the manner set forth in Section 4.01(b). The amount with respect to which Stock Account Shares are credited to a Participants PPG Stock Account for a month pursuant to Section 4.01(b) shall be an amount equal to the difference between (1) and (2) below, but no greater than the amount of such Participants deferred Salary for such month: |
(1) | The amount of Company matching contributions that would have been credited to such Participants account under the Savings Plan for such month (i) without regard to the limitations of Section 401(a)(17) of the Code, and (ii) by including the Participants Salary deferral amounts pursuant to Section 2.01 of this Plan in the determination of such Participants eligible earnings for such month. |
(2) | The amount of Company matching contributions actually credited to such Participants account under the Savings Plan for such month. |
(b) | Savings Plan Restoration Contributions shall be credited monthly to the Participants PPG Stock Account in the form of Stock Account Shares. The number of whole and fractional Stock Account Shares shall be determined by using the closing price as reported on the New York Stock Exchange Composite Tape for PPG Stock on the last business day of the month in which such Restoration Contributions are made, and shall be credited to the Participants Account as of such day. |
(c) | Savings Plan Restoration Contributions may not be transferred from the PPG Stock Account. |
4.02 | Defined Contribution Retirement Plan Restoration Contributions |
(a) | Effective January 1, 2006, Defined Contribution Retirement Plan Restoration Contributions will be credited to the Accounts of Participants on an annual basis after the end of each Plan Year. The amount credited to a Participants Account for a Plan Year shall be an amount equal to the difference between (1) and (2) below: |
(1) |
The amount of employer contributions that would have been credited to such Participants account under the PPG Industries, Inc. Defined Contribution Retirement Plan for such Plan Year determined (A) without regard to the limitations of Sections |
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401(a)(17) and 415 of the Code, and (B) by including bonus awards under the terms of the PPG Industries, Inc. Management Award Plan, Incentive Compensation Bonuses, Executive Officers Incentive Compensation and other compensation amounts to the extent otherwise excluded from the definition of Eligible Compensation under the PPG Industries, Inc. Defined Contribution Retirement Plan for purposes of determining allocations thereunder for such Plan Year. |
(2) | The amount of employer contributions actually credited to such Participants account under the PPG Industries, Inc. Defined Contribution Retirement Plan for such Plan Year. |
(b) | Defined Contribution Plan Restoration Contribution shall be credited to the Investment Accounts in the same manner as cash amounts invested pursuant to Section 3. |
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SECTION VWITHDRAWAL PROVISIONS
5.01 | Scheduled In-Service Withdrawals |
(a) | Except as otherwise provided in this Section V, payment of any amount designated by a Participant for in-service withdrawal, in accordance with the provisions of Section 5.01(b) below, shall be made to the Participant in a lump sum as of the first day of the quarter/year specified by the Participant. |
(b) | A Participant may designate for in-service withdrawal any portion of an Award that the Participant has elected to defer pursuant to Section 2.02 as follows: |
(1) | At the time an election is made to defer all or a portion of the cash component of an Award pursuant to Section 2.02, a Participant may designate all or a portion of the cash component of such deferred amount, including any earnings thereon, to be paid on the first day of a specified quarter/year. |
(2) | Withdrawal elections made pursuant to this Section 5.01 may not specify a year which is any sooner than the fourth Plan Year after the Plan Year in which the deferred amount is credited to the Participants Account. |
(3) | Any amount subject to withdrawal pursuant to this Section 5.01 must be invested in the Investment Account. |
(4) | Any election made in accordance with this subsection 5.01(b) shall be irrevocable. |
(c) | An election under this Section 5.01 shall become null and void upon the payment or commencement of payment of benefits under Section 5.02, 5.03, 5.04 or 5.05. |
5.02 | Withdrawals at/after a Participants Retirement Date |
(a) | In the event of a Participants termination of employment on or after the date of such Participants Retirement Age, such Participants Account shall be paid in accordance with this Section 5.02. |
(b) | A Participant may elect a payment schedule applicable to his/her Account provided such election is filed with the Administrator at the time the Participant files his or her initial deferral election pursuant to Section 2.01, 2.02 or 2.03 of the Plan. Notwithstanding the foregoing, each Participant in the Plan who was an active Participant in the Plan on January 1, 2005, must file such election no later than June 30, 2005. |
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(c) | Participants may elect: |
(1) | One lump-sum payment; or |
(2) | Quarterly or annual installments - to be made over a period of years, up to a maximum period of 15 years. |
(d) | Subject to the provisions of this paragraph (d), a Participant may delay the first payment for a period up to five years following his/her Retirement Date; provided, however, that, in all cases, payments must begin no later than the year in which the Participants 75th birthday occurs for Participants who retire prior to their 75th birthday; or no later than the Participants Retirement Date for Participants who retire on or after their 75th birthday. Any election pursuant to this Section 5.02(d) shall be filed with and at the time of the election described in Section 5.02(b). |
(e) | The payment schedule elected by the Participant shall apply to his/her entire Account, except as provided in subsection (j) below. Participants may designate the first day of the quarter for the commencement of the payment schedule on an annual or quarterly basis. |
Each installment payment shall be calculated by dividing the Participants then current Account balance by the remaining number of installments ( e.g. : Ten annual installments shall be paid: 1st installment = 1 / 10 of Account balance at time of payment; 2nd installment = 1 / 9 of Account balance at time of payment; 3rd installment = 1 / 8 of Account balance at time of payment, etc.). If the installment payment is to be in the form of PPG Stock, such distribution shall be made in whole shares and cash equal to any fractional share.
(f) | In the event a Participant fails to file a payment schedule election with the Administrator at the time described in Section 5.02(b), his/her Account shall be paid in one lump sum on the later of (i) the first day of the first quarter of a Plan Year that is six months and ten days following such Retirement Date or (ii) January 1 of the year following such Retirement Date. |
(g) | A Participant who has filed a payment election in accordance with this Section 5.02 may, at any time thereafter, file a subsequent election that specifies another form or time of payout, provided that: |
(1) |
Any subsequent election filed less than 12 months prior to the |
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date on which payment of the Participants Account would otherwise have commenced or been made shall be disregarded, null and void; |
(2) |
The date on which payment of the Participants Account will be made or commence under such subsequent election must be (i) at least five years later than the date on which such payment would otherwise have been made under such Participants original election, and (ii) no later than ten years following his/her Retirement Date; provided, however, that in all cases, payments must begin no later than the year in which the Participants 75 th birthday occurs for Participants who retire prior to their 75 th birthday, or no later than the Participants Retirement Date for Participants who retire on or after their 75 th birthday; |
(3) | The form and time of payment elected under such subsequent election may not cause any payment to be paid sooner than such payment would otherwise have been paid under such Participants original election; and |
(4) | The form of payment must be one permitted under 5.02(c). |
For purposes of this Section 5.02(g), an installment form of payment shall be treated as one payment. Accordingly, a Participant may elect to change his or her payment election from an installment form to a lump sum provided that such election is filed at least 12 months prior to the date on which such installment payments are scheduled to commence and provided that the lump sum is paid no earlier than the fifth anniversary of the date on which such installments were scheduled to commence.
(h) | Notwithstanding any other provision of this Section 5.02, no amount shall be payable under this Section 5.02 earlier than (i) in the case of a Participant who is a Key Employee, six months following the date of such Key Employees Separation from Service with the Corporation (as that term is defined in Section 409A of the Code), and (ii) in the case of a Participant who is a non-Key Employee, the date of such non-Key Employees Separation from Service with the Corporation. In the event the provisions of this Section 5.02 would otherwise require that a payment be made to a Participant prior to the date specified in clause (i) or (ii) above, as applicable, such payment shall be postponed and made on the date specified in clause (i) or (ii), as applicable. |
(i) | Notwithstanding any other provision of this Section 5.02, if, at the time the Participants payments commence under this Section 5.02, the Participants Account balance is $2,000 or less, such Participants Account shall be paid in a lump sum on such date and the Participants form of payment election shall be disregarded, null and void. |
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(j) | Notwithstanding any other provision of this Section 5.02, all amounts credited to the Account of a Participant that are attributable to Defined Contribution Retirement Plan Restoration Contributions credited pursuant to Section 4.02(a) and investments credits thereon pursuant to Section 4.02(b) shall be paid in a lump sum on the date that is the later of (i) the first day of the first quarter of a Plan Year that is six months and 10 days following such Participants Retirement Date or (ii) January 1 of the year following such Retirement Date. |
5.03 | Withdrawals Following Termination |
(a) | In the event of a Participants termination of employment prior to the Participants Retirement Age, such Participants Account shall be paid in a lump sum on the date that is the later of (i) the first day of the first quarter of a Plan Year that is six months and 10 days following such termination of employment or (ii) January 1 of the year following such termination of employment. |
(b) | Notwithstanding any other provision of this Section 5.03, no amount shall be payable under this Section 5.03 earlier than (i) in the case of a Participant who is a Key Employee, six months following the date of such Key Employees Separation from Service with the Corporation (as that term is defined in Section 409A of the Code), and (ii) in the case of a Participant who is a non-Key Employee, the date of such non-Key Employees Separation from Service with the Corporation. In the event the provisions of this Section 5.03 would otherwise require that a payment be made to a Participant prior to the date specified in clause (i) or (ii) above, as applicable, such payment shall be postponed and made on the date specified in clause (i) or (ii), as applicable. |
(c) | Notwithstanding any other provision of the Plan, the portion of a Participants Account that is attributable to Defined Contribution Retirement Plan Restoration Contributions (including any earnings and losses thereon) shall be paid to a Participant pursuant to this Section 5.03 only if, at the time of such Participants termination of employment, such Participant is a Vested Participant as that term is defined under the PPG Industries, Inc. Defined Contribution Retirement Plan. The Account of a Participant who is not a Vested Participant shall be forfeited at the same time as such Participants account under the PPG Industries, Inc. Defined Contribution Retirement Plan is forfeited. If such Participant is later rehired, such Participants Account shall be restored to the same extent that such Participants account under the PPG Industries, Inc. Defined Contribution Retirement Plan is restored. |
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5.04 | Withdrawals in the event of Disability |
(a) | In the event a Participants Disability, such Participants Account shall be paid in a lump sum on the date that is the later of (i) the first day of the first quarter of a Plan Year that is six months and 10 days following the date on which such Participant is determined to be Disabled, or (ii) January 1 of the year following the year in which such Participant is determined to be Disabled. |
5.05 | Withdrawals Following a Participants Death |
(a) | In the event of a Participants death, the Participants entire Account shall be paid to the Participants Beneficiary in a lump sum as soon as practicable following the Participants death. |
5.06 | Withdrawals upon finding of Unforeseeable Emergency |
(a) | Upon a finding that the Participant has suffered an Unforeseeable Emergency, the Administrator may, in his sole discretion, permit the acceleration of a withdrawal under the Plan in an amount reasonably necessary to alleviate the financial hardship giving rise to such Unforeseeable Emergency. |
(b) | The amount paid to a participant pursuant to this Section 5.06 shall not exceed the amount necessary to satisfy such emergency plus amounts necessary to pay taxes reasonably anticipated as a result of such payment, after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise by liquidation of the Participants assets (to the extent the liquidation of such assets would not itself caused severe financial hardship). |
(c) | Notwithstanding the foregoing, no amount attributable to a Participants Defined Contribution Retirement Plan Restoration Contributions (including investment credits pursuant to Section 4.02(b)) shall be available for withdrawal pursuant to this Section 5.06. |
5.07 | Methods of Payment |
(a) | PPG Stock Account |
Any payment from the PPG Stock Account shall be paid in the form of PPG Stock.
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At the time of the final scheduled payment, payments from the PPG Stock Account with respect to remaining fractional shares of PPG Stock shall be converted to and paid in cash.
(b) | Investment Accounts |
Payments from the Investment Accounts shall be made in cash. The value shall be determined using the value of the closing price of the appropriate Investment Account Shares on the last business day of the month preceding the month in which the distribution is made.
(c) | All payments to Participants, or their Beneficiaries, shall be made on the first business day of a calendar quarter or as soon as reasonably practicable thereafter. |
5.08 | Special Rules for Withdrawals by Insiders |
Anything to the contrary in this Section 5 notwithstanding, an Insider may not, without prior approval of PPGs General Counsel, or his or her successor, withdraw any amount from the PPG Stock Account which was credited to such Insiders PPG Stock Account within the prior six months.
5.09 | Termination of Employment in 2005 |
Notwithstanding any other provision of this Plan, if a Participant terminates employment in 2005, all amounts credited to the Account of such Participant shall be paid in a single lump sum cash payment as soon as practicable on or after such termination of employment but no later than December 31, 2005, provided that a Participant who has filed an election under Section 5.02(c) may, in the event of such Participants termination of employment on or before December 31, 2005, and on or after such Participants Retirement Age, elect to receive payment in accordance with such election in lieu of the payment described in this Section 5.09.
5.10 | Payment Delays |
Notwithstanding any other provision of this Plan, any payment to a Participant hereunder may, in the discretion of the Administrator, be delayed where the Company reasonably anticipates that (i) the Companys deduction with respect to such payment otherwise would be limited or eliminated by application of Section 162(m) of the Code (in which case, such payment shall be made either at the earliest date at which the Company reasonably anticipates that the deduction of such payment will not be limited or eliminated by application of Section 162(m) or the calendar year in which the Participant incurs a Separation from Service (within the meaning of Section 409A of the Code)), (ii) the making of the payment will violate a term of a loan agreement to which the Company is a party,
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or other similar contract to which the Company is a party, and such violation will cause material harm to the Company (in which case, such payment shall be made at the earliest date at which the Company reasonably anticipates that the making of the payment will not cause such violation, or such violation will not cause material harm to the Company, and provided that the facts and circumstances indicate that the Company entered in such loan agreement (including such covenant) or other similar contract for legitimate business reasons, and not to avoid the restrictions on deferral elections and subsequent deferral elections under Section 409A of the Code), or (iii) the making of the payment will violate federal securities laws or other applicable law (in which case, such payment shall be made at the earliest date at which the Company reasonably anticipates that the making of the payment will not cause such violation).
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SECTION VISPECIFIC PROVISIONS
RELATED TO BENEFITS
6.01 | Nonassignability |
(a) | Except as provided in paragraph (b) below and in Section 6.02, no person shall have any power to encumber, sell, alienate, or otherwise dispose of his/her interest under the Plan prior to actual payment to and receipt thereof by such person; nor shall the Administrator recognize any assignment in derogation of the foregoing. No interest hereunder of any person shall be subject to attachment, execution, garnishment or any other legal, equitable, or other process. |
(b) | Section 6.01(a) above shall not apply to the extent that a Participants interest under the Plan is alienated pursuant to a Qualified Domestic Relations Order (QDRO) as defined in §414(p) of the Code. |
(1) | The Administrator is authorized to adopt such procedural and substantive rules and to take such procedural and substantive actions as the Administrator may deem necessary or advisable to provide for the payment of amounts from the Plan to an Alternate Payee as provided in a QDRO. Such rules and actions shall be consistent with the principal purposes of the Plan. |
(2) | Under no circumstances may the Administrator accept an order as a QDRO following a Participants death. |
(3) | An Alternate Payee may not establish an account in the Plan. All amounts taken from a Participants Account, as provided in a QDRO, must be distributed as soon as possible following the acceptance of an order as a QDRO. |
6.02 | Beneficiary Designation |
(a) | The Participant shall have the right, at any time and from time to time, to designate any person(s) as Beneficiary. The designation of a Beneficiary shall be effective on the date it is received by the Administrator, provided the Participant is alive on such date. |
(b) | Each time a Participant submits a new Beneficiary designation form to the Administrator, such designation shall cancel all prior designations. |
(c) | In the case of a Participant who does not have a valid Beneficiary designation on file at the time of his/her death, or in the case the designated Beneficiary predeceases the Participant, the entire balance in the Participants Account shall be paid as soon as possible to the Participants estate. |
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(d) | Any Beneficiary designation with respect to a Participant in effect under the Prior Plan, shall remain in effect under this Plan, until a new Beneficiary designation form is filed in accordance with this Section 6.02. |
6.03 | Limited Right to Assets of the Company |
The Benefits paid under the Plan shall be paid from the general funds of the Company, and the Participants and any Beneficiary shall be no more than unsecured general creditors of the Company with no special or prior right to any assets of the Company for payment of any obligations hereunder.
6.04 | Protective Provisions |
The Participant or Beneficiary shall cooperate with the Administrator by furnishing any and all information requested by the Administrator in order to facilitate the payment of benefits hereunder. If a Participant refuses to cooperate, he/she may be deemed ineligible to receive a distribution and/or ineligible to continue to actively participate in the Plan.
6.05 | Withholding |
The Participant or Beneficiary shall make appropriate arrangements with the Administrator for satisfaction of any federal, state or local income tax withholding requirements and Social Security or other employee tax requirements applicable to the payment of benefits under the Plan. If no other arrangements are made, the Administrator may provide for such withholding and tax payments by any means he deems appropriate, in his sole discretion.
6.06 | Forfeiture Provision |
(a) | In the event the Company becomes aware that a Participant is engaged or employed as a business owner, employee, or consultant in any activity which is in competition with any line of business of the Corporation, or has engaged in any activity otherwise determined to be detrimental to the Company, the Administrative Subcommittee may apply any diminution or forfeiture of benefits, which is specifically approved by the Administrative Subcommittee. |
For purposes of this Section 6.06, the Administrative Subcommittee shall consist of the senior human resources officer of the Company, PPGs Director of Payroll and Benefits, and a representative of the Law Department, as appointed by the PPGs General Counsel, or, if not so appointed, PPGs General Counsel. The Administrative Subcommittee shall report all of its activities to the Committee.
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(b) | LTIP and Executive Officers LTIP |
A Participant may forfeit any or all deferrals of Payments to which the Participant is entitled under the terms of the LTIP or Executive Officers LTIP held in his/her Account if the Committee determines that such forfeiture shall occur in accordance with Section 4.04 of the LTIP or Executive Officers LTIP, as applicable.
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SECTION VIIADMINISTRATION AND CLAIMS
7.01 | Administration |
(a) | The Administrator shall administer the Plan and interpret, construe and apply its provisions in accordance with its terms. The Administrator shall have the complete authority to: |
(1) | Determine eligibility for benefits; |
(2) | Construe the terms of the Plan; and |
(3) | Control and manage the operation of the Plan. |
(b) | The Administrator shall have the authority to establish rules for the administration and interpretation of the Plan and the transaction of its business. The determination of the Administrator as to any disputed question shall be conclusive. |
(c) | The Administrator may employ counsel and other agents and may procure such clerical, accounting and other services as the Administrator may require in carrying out the provisions of the Plan. |
(d) | The Administrator shall not receive any compensation from the Plan for his services. |
(e) | The Company shall indemnify and save harmless the Administrator against all expenses and liabilities arising out of the Administrators service as such, excepting only expenses and liabilities arising from the Administrators own gross negligence or willful misconduct, as determined by the Committee. |
7.02 | Claims |
(a) | General |
Every person receiving or claiming benefits under the Plan shall be conclusively presumed to be mentally and physically competent and of age. If the Administrator determines that such person is mentally or physically incompetent or is a minor, payment shall be made to the legally appointed guardian, conservator, or other person who has been appointed by a court of competent jurisdiction to care for the estate of such person, provided that proper proof of such appointment is furnished in a form and manner suitable to the Administrator. Any payment made under the provisions of this Section 7.02(a) shall be a complete discharge of any liability therefore under the Plan. The Administrator shall not be required to see to the proper application of any such payment.
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(b) | Non-Disability Claims |
Except as provided in Section 7.02(c) below, all claims for benefits under the Plan shall be submitted to, and within 90 days thereafter decided by, in writing, the person designated by the Company (the Claims Reviewer) acting directly or through such employees of the Company as the Claims Reviewer shall designate. If the Claims Reviewer determines that an extension of time for processing the claim is required, the Claims Reviewer may extend the date by which a decision is required to 180 days after the claim is submitted provided that the Claims Reviewer provides written notice of the extension to the claimant prior to the termination of the initial 90-day period, including the special circumstances requiring an extension of time and the date by which the Claims Reviewer expects to render a decision.
(c) | Disability Claims |
All claims for benefits under the Plan that are based upon the Participants Disability (each a Disability Claim) shall be submitted to, and within 45 days thereafter decided in writing by, the Claims Reviewer acting directly or through such employees of the Company as the Claims Reviewer shall designate. If the Claims Reviewer determines that an extension of time for processing the Disability Claim is required, the Claims Reviewer may extend the date by which a decision is required to 75 days after the Disability Claim is submitted, provided that the Claims Reviewer provides written notice of the extension to the claimant prior to the termination of the initial 45-day period, including the special circumstances requiring an extension of time and the date by which the Claims Reviewer expects to render a decision. If the Claims Reviewer determines that, due to matters beyond the control of the Plan, a decision on a Disability Claim cannot be rendered within 75 days after the Disability Claim is submitted, the Claims Reviewer may extend the date by which a decision is required to 105 days after the Disability Claim is filed, provided that the Claims Reviewer notifies the claimant, prior to expiration of the 75-day period, of the circumstances requiring the extension and the date as of which the Plan expects to render a decision. In the case of any extension of the 45-day or 75-day review period, the notice of extension shall specifically explain the standards on which entitlement to a benefit is based, the unresolved issues that prevent a decision on the Disability Claim, and the additional information needed to resolve those issues, and the claimant shall be afforded at least 45 days within which to provide the specified information.
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(d) | Information Provided Upon Denial of Claim (Including Disability Claims) |
Written notice of the decision on each claim (including any Disability Claim) shall be furnished reasonably promptly to the claimant. If the claim is wholly or partially denied, such written notice shall set forth (i) the specific reason or reasons for the denial, (ii) reference to the specific Plan provisions on which the denial is based, (iii) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary, (iv) a description of the Plans review procedures and the time limits applicable to such procedures, including a statement of the claimants right to bring a civil action under Section 502(a) of ERISA, as amended, following the denial of a claim on review, (v) in the case of a denial of a Disability Claim, if an internal rule, guideline, protocol, or other criterion was relied upon in making the adverse determination, either the specific rule, guideline, protocol, or other similar criterion or a statement that such a rule, guideline, protocol, or other similar criterion was relied upon in denying the claim and that a copy of such rule, guideline, protocol, or other criterion will be provided free of charge to the claimant upon request.
(e) | Review of Denial of Non-Disability Claim |
Except as provided in Section 7.02(f) below, a claimant may request a review by the Claims Reviewer of a decision denying a claim in writing within 60 days following receipt of the denial. All such reviews shall be decided in writing by the Claims Reviewer within 60 days after receipt of the request for review. If the Claims Reviewer determines that an extension of time for processing the review is required, the Claims Reviewer may extend the date by which a decision is required to 120 days after the request for review is submitted provided that the Claims Reviewer provides written notice of the extension to the claimant prior to the termination of the initial 60-day period, including the special circumstances requiring an extension of time and the date by which the Claims Reviewer expects to render a decision.
(f) | Review of Denial of Disability Claim |
A claimant may request a review by the person designated by the Company as responsible for reviews of denied Disability Claims, which such person shall be neither the Claims Reviewer nor a person subordinate to the Claims Reviewer (the Disability Appeals Reviewer) of a decision denying a Disability Claim in writing within 180 days following receipt of the denial. All such reviews shall be decided in writing by the Disability Appeals Reviewer within 45 days after receipt of the request for review. If the Disability Appeals Reviewer determines that an extension of time for processing the review is required, the Disability Appeals Reviewer
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may extend the date by which a decision is required to 90 days after the request for review is submitted provided that the Disability Appeals Reviewer provides written notice of the extension to the claimant prior to the termination of the initial 45-day period, including the special circumstances requiring an extension of time and the date by which the Disability Appeals Reviewer expects to render a decision. If the Disability Appeals Reviewer cannot reach a decision about a claimants request for review because the claimant has not submitted information requested by the Disability Appeals Reviewer, the 45-day period (or 45-day extension if applicable) shall be tolled until the date on which the claimant responds to the request for additional information. The Disability Appeals Reviewer may delegate its duty to review denied Disability Claims hereunder provided that the person or entity to whom such duty is delegated shall not be the Claims Reviewer or a subordinate of the Claims Reviewer. Any review of a denied Disability Claim hereunder shall be without deference to the Claims Reviewers denial of the Disability Claim.
(g) | Review Procedures for All Claims |
In connection with a review of a denied claim for benefits (including a Disability Claim), a claimant shall (i) have the opportunity to submit written comments, documents, records, and other information relating to the claim for benefits, and (ii) be provided, upon request and free of charge, reasonable access to, and copies of all documents, records, and other information relevant to the claimants claim for benefits. The review of a denied claim shall take into account all comments, documents, records, and other information submitted by the claimant related to the claim, without regard to whether such information was submitted or considered in the initial review of the claim. If a claim is denied upon review, the written notice of the denial shall specify (i) the specific reason or reasons for the denial, (ii) reference to the specific Plan provisions upon which the denial is based, and (iii) a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claimants claim for benefits.
(h) | Additional Review Procedures for Disability Claims |
If the denial of a Disability Claim upon review is based in whole or in part on a medical judgment the Disability Appeals Reviewer or its delegate shall consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment. Such professional shall be an individual who is neither an individual who was consulted in connection with the initial denial of the Disability Claim nor the subordinate of any such individual. The Disability Appeals Reviewer or its delegate shall provide for the identification of medical or vocational experts whose advice was obtained on behalf of the Plan in
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connection with a denied Disability Claim without regard as to whether the advice was relied upon in making the benefit determination. If an internal rule, guideline or protocol, or other similar criterion was relied upon in denying a Disability Claim upon review, the notice denying such claim upon review shall set forth either the specific rule, guideline, protocol, or other similar criterion, or a statement that such rule, guideline, protocol, or other criterion was relied upon in denying the claim and that a copy of the rule, guideline, protocol, or other similar criterion will be provided free of charge to the claimant upon request. Any notice denying a Disability Claim upon review shall contain the following statement: You and your plan may have other voluntary alternative dispute resolution options, such as mediation. One way to find out what may be available is to contact your local U.S. Department of Labor Office and your State insurance regulatory agency.
(i) | Authorized Representative |
The claimant may have an authorized representative to act on the claimants behalf in pursuing a benefit claim or appeal of the denial of the benefit. In order for a representative to be recognized as acting on behalf of the claimant, the claimant must provide in writing to the Administrator the name, address and phone number of his authorized representative and a statement that the representative is authorized to act in his behalf concerning his claim for benefit, and if applicable, an appeal of the denial of the benefit.
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SECTION VIIIAMENDMENT AND TERMINATION
8.01 | Amendment of the Plan |
Except as provided in Section X, the Board or the Committee may amend the Plan, in whole or in part, at any time; however, no such amendment may decrease the amount of benefit currently accrued in Participants Accounts.
Except as provided in Section X, the Administrator shall have the authority to adopt amendments to the Plan, in whole or in part, at any time, necessary for the implementation and/or administration of the Plan, which will not result in a material change to the Plan. Moreover, no such amendment by the Administrator may increase or decrease the amount of benefit currently accrued in Participants Accounts.
8.02 | Plan Freeze |
The Committee may freeze the Plan at any time. Upon a Plan freeze pursuant to this Section 8.02, no further deferrals of Salary, Awards, Payments under the LTIP or the Executive Officers LTIP or Omnibus Plan Stock Awards under the Omnibus Plan shall be permitted.
8.03 | Premature Income Inclusion |
In the event the Administrator determines that amounts deferred under the Plan are includable in income pursuant to Section 409A of the Code, distributions shall be made to Participants, as determined by the Administrator up to an amount not to exceed the amount included the Participants income under Section 409A of the Code. The determination of the Administrator under this Section 8.03 shall be binding and conclusive.
8.04 | Termination |
Except as provided in Section X, the Committee may, in its discretion, terminate the Plan under any one of the following circumstances:
(a) |
At any time, provided that all nonqualified deferred compensation arrangements sponsored by the Company and any company required to be aggregated with the Company under Section 414(b) and (c) of the Code that are treated, together with the Plan, as one arrangement under Section 409A of the Code, provided that (i) no payments other than payments that would be payable under the terms of the Plan and such other arrangements if the termination had not occurred are made within 12 months of the termination of the Plan and such other arrangements, (ii) all such payments |
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are made within 24 months of the termination of the Plan and such other arrangements, (iii) neither the Company nor any company required to be aggregated with the Company under Section 414(b) or (c) of the Code adopts a new arrangement that would, with the Plan or any such other terminated arrangement, be treated as a single arrangement under Section 409A of the Code, at any time within five years following the date of termination of the Plan and such other arrangements.
(b) | At any time during the period beginning 30 days preceding and ending 12 months following a change in control event (as that term is defined in Proposed Treasury Regulation Section 1.409A-2(g)(4)(i) (or any successor regulation), provided that (i) all substantially similar arrangements sponsored by the Company and any company required to be aggregated with the Company under Sections 414(b) or (c) of the Code are terminated and (ii) all participants under the Plan and such other arrangements are required to receive all amounts of compensation deferred under the Plan and such other arrangements within 12 months of the date of termination of the Plan and such other arrangements. |
(c) | At any time within 12 months of a dissolution of the Company taxed under Section 331 of the Code, or with the approval of a bankruptcy court pursuant to 11 U.S.C. Section 503(b)(1)(A), provided that the amounts deferred under the Plan are included in Participants gross incomes in the latest of (i) the calendar year in which the termination occurs, or (ii) the first calendar year in which the payment s administratively practicable. |
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SECTION IXMISCELLANEOUS
9.01 | Successors of the Company |
The rights and obligations of the Company under the Plan shall inure to the benefit of, and shall be binding upon, the successors and assigns of the Company.
9.02 | ERISA Plan |
The Plan is intended to be an unfunded plan maintained primarily to provide deferred compensation benefits for a select group of management or highly compensated employees within the meaning of Sections 201, 301 and 401 of ERISA and therefore to be exempt from Parts 2, 3 and 4 of Title I of ERISA.
9.03 | Trust |
The Company shall be responsible for the payment of all benefits under the Plan. Except as otherwise required by Section X, the Company, at its discretion, may establish one or more grantor trusts for the purpose of providing for payment of benefits under the Plan. Such trust(s) may be irrevocable, but the assets thereof shall be subject to the claims of the Companys creditors. Benefits paid to the Participant from any such trust shall be considered paid by the Company for purposes of meeting the obligations of the Company under the Plan.
9.04 | Employment Not Guaranteed |
Nothing contained in the Plan nor any action taken hereunder shall be construed as a contract of employment or as giving any Participant any right to continued employment with the Corporation.
9.05 | Gender, Singular and Plural |
All pronouns and variations thereof shall be deemed to refer to the masculine, feminine, or neuter, as the identity of the person(s) requires. As the context may require, the singular may be read as the plural and the plural as the singular.
9.06 | Headings |
The headings of the Sections, subsections and paragraphs of the Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions.
9.07 | Validity |
If any provision of the Plan is held invalid, void or unenforceable, the same shall not affect, in any respect, the validity of any other provision(s) of the Plan.
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9.08 | Waiver of Breach |
The waiver by the Company of any breach of any provision of the Plan by a Participant or Beneficiary shall not operate or be construed as a waiver of any subsequent breach.
9.09 | Applicable Law |
Where applicable, the Plan is intended to conform and be governed by ERISA. In any case where ERISA does not apply, the Plan shall be governed and construed in accordance with the laws of the Commonwealth of Pennsylvania.
9.10 | Notice |
Any notice required or permitted to be given to the Administrator under the Plan shall be sufficient if in writing and either hand-delivered, or sent by first class mail to the principal office of the Company at One PPG Place, Pittsburgh, PA 15272, directed to the attention of the Administrator. Such notice shall be deemed given as of the date of delivery.
9.11 | 409A Compliance |
The plan is intended to comply with the requirements applicable to nonqualified deferred compensation plans under Section 409A of the Code. Notwithstanding any other provision of this plan, the Plan shall be interpreted and administered in accordance with the requirements of Section 409A of the Code.
9.12 | Adjustments Upon Changes in Capitalization |
In the event of any change in the number of outstanding shares of the Companys voting common stock by reason of any stock dividend, stock split or similar change, a corresponding change shall be made in the number Stock Account Shares held in each Participants Account. In the event of any change in the outstanding shares of the Companys voting common stock, or in the number thereof, by reason of any merger, consolidation, combination, sale of assets, exchange of shares, recapitalization, reorganization, spin-off or similar change, the Board of Directors or the Committee may make such changes in the Stock Account Shares held in each Participants Account as the Board or the Committee may deem to be equitable. No such change, without the consent of a Participant, may adversely affect the rights of such Participant with respect to Stock Account Shares held immediately prior to any such change, and any such change shall be final, conclusive and binding on all persons, including the Company and the Participants.
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SECTION XCHANGE IN CONTROL
10.01 | Payments to a Trustee |
Upon, or in reasonable anticipation of, a Change in Control, as defined in Section 10.02 below, the senior human resources officer and the senior finance officer, or either of them or their successor, shall cause an amount, as they deem appropriate, to be paid to a rabbi trust on such terms as they shall deem appropriate. Such amount shall be paid in cash and shall be sufficient, at a minimum, to equal to all deferred amounts credited to the Investment Accounts, and the PPG Stock Account. Amounts in the PPG Stock Account shall be converted to cash on the basis of the fair market value of PPG Stock on the date of the occurrence of the Change in Control, or, if higher, within 30 days of such date. Amounts in the Investment Accounts shall be converted to cash on the basis of the fair market value of the appropriate Investment Account on the date of the occurrence of the Change in Control, or, if higher, within 30 days of such date.
10.02 | Definition: Change in Control |
Change in Control means, and shall be deemed to have occurred upon the occurrence of, any one of the following events:
(a) | The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) (a Person) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then issued and outstanding shares of the Companys voting common stock (Outstanding Common Stock) or (ii) the combined voting power of all outstanding voting securities of the Company entitled to vote generally in the election of directors to the Board of Directors of the Company (Outstanding Voting Securities); provided that, for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company; (ii) any acquisition by the Company; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of paragraph (c) of this Section 10.02. |
(b) |
Individuals who, as of February 16, 2006 (the Reference Date), constitute the Board of Directors of the Company (the Incumbent Board) cease for any reason to constitute at least a majority of the Board; provided , however , that any individual becoming a director subsequent to the Reference Date whose election, or nomination for election by the Companys shareholders, was approved by a vote of at least a majority of |
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the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Incumbent Board; or |
(c) | Approval by the shareholders of the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a Business Combination), in each case, unless, following such Business Combination: |
(i) | All or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Common Stock and Outstanding Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Companys assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Common Stock and Outstanding Voting Securities, as the case may be; |
(ii) | No Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination; and |
(iii) | At least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action taken by the Incumbent Board approving such Business Combination; or |
(d) | Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company; or |
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(e) | A majority of the Incumbent Board otherwise determines that a Change in Control shall have occurred. |
10.03 | Plan Provisions |
Following a Change in Control, the Plan may not be amended and may not be terminated. Upon a Change in Control, in accordance with Section 10.01, the Plan Document then in existence (Controlling Plan) shall be provided to the Trustee. The Controlling Plan shall govern all amounts transferred and remain in effect until the Trustee has paid all such amounts to Participants and/or Beneficiaries.
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SECTION XITREATMENT OF FORMER AUTOMOTIVE
GLASS & SERVICES BUSINESS PARTICIPANTS
11.01 | Sale of AG&S Business |
Upon the closing date (the Closing Date) of the Companys sale (the Sale) of its Automotive Glass & Services business (the AG&S Business), each Participant who is employed in the AG&S Business and who is hired by the purchaser (the Purchaser) of the AG&S Business (each, an Affected AG&S Business Participant) will terminate employment with the Company. The purpose of this Section XI is to set forth the impact of the Sale and such termination of employment upon such Affected AG&S Business Participants under the Plan.
11.02 | Eligibility |
On and after the Closing Date, each Affected AG&S Business Participant shall cease to be eligible to make deferrals under the Plan or to receive Savings Plan Restoration Contributions or Defined Contribution Retirement Plan Restoration Contributions (except to the extent of any Savings Plan Restoration Contributions or Defined Contribution Retirement Plan Restoration Contributions made after the Closing Date with respect to compensation earned prior to the Closing Date).
11.03 | Pre-January 1, 2005 Deferrals and Restoration Contributions |
Notwithstanding the provisions of the Preamble, this Plan shall apply to all deferrals by or for Affected AG&S Business Participants, including all deferrals by or for Affected AG&S Business Participants before January 1, 2005. Accordingly, this Plan shall apply to the entire Account of each Affected AG&S Business Participant.
11.04 | Separation from Service |
Notwithstanding the termination of employment of each Affected AG&S Business Participant with the Company pursuant to the Sale, and pursuant to Treasury Regulation Section 1.409A-1(h)(4), an Affected AG&S Business Participant shall not be treated as having incurred a Separation from Service under the terms of this Plan until such Affected AG&S Business Participant shall terminate employment with the Purchaser and each entity that is required to be aggregated with the Purchaser under Sections 414(b), (c), (m) or (o) and 409A of the Code.
11.05 | New Payment Elections |
On or before such date as the Administrator may determine (which such date shall be no later than December 31, 2008), an Affected AG&S Business Participant may, in accordance with Section 3.01(B)(1)(.02) of Internal Revenue Service Notice 2007-86 and procedures established by the Administrator for such purpose:
(1) | make an election to receive payment of his or her entire Account on January 1, 2009; or |
(2) | make new retirement payment elections with respect to such Affected AG&S Business Participants entire Account pursuant to Section 5.02. |
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Exhibit 10.8
PPG INDUSTRIES, INC.
INCENTIVE COMPENSATION PLAN
FOR
KEY EMPLOYEES
Effective: February 15, 1995
As Amended 4/17/96; 2/18/98; 1/1/99; 4/19/00; 2/15/06
As Further Amended April 20, 2006
Table of Contents
Section I | Definitions | 1 | ||
Section II | Eligibility & Awards | 2 | ||
Section III | Specific Provisions Related to Benefits | 4 | ||
Section IV | Administration & Claims | 5 | ||
Section V | Amendment & Termination | 6 | ||
Section VI | Miscellaneous | 7 | ||
Section VII | Change in Control | 8 |
i
SECTION I DEFINITIONS
This PPG Industries, Inc. Incentive Compensation Plan for Key Employees (this Plan) is an amendment and restatement of the PPG Industries, Inc. Incentive Compensation and Deferred Income Plan for Key Employees, originally effective February 15, 1995, as previously amended and in effect on April 19, 2006 (the Prior Plan). This amended and restated Plan applies to Awards that become vested or are paid on or after January 1, 2005. All such Awards shall be paid in accordance with the terms of this amended and restated Plan. The Prior Plan applies to all Awards that were vested and paid prior to January 1, 2005. This amendment and restatement of the Plan is made on April 20, 2006 and is effective as of January 1, 2005. Prior to the date on which the shareholders of the Company approve the PPG Industries, Inc. Omnibus Incentive Plan, Awards may be paid under this amended and restated Plan in the form of Common Stock of the Company in accordance with the terms of the Prior Plan (without regard to the deferral provisions thereof).
1.01 | Administrator means an officer or officers of the Company appointed by the Committee, and any person(s) designated by such Administrator to assist in the administration of the Plan. |
1.02 | Award means a grant of incentive compensation hereunder. |
1.03 | Board means the Board of Directors of PPG Industries, Inc. |
1.04 | Code means the Internal Revenue Code of 1986, as amended. |
1.05 | Committee means the Compensation and Employee Benefits Committee of the Company (or any successor thereto). |
1.06 | Company or PPG means PPG Industries, Inc. |
1.07 | Corporation means PPG and any Subsidiary designated by the Committee as eligible to participate in the Plan, and which, by proper authorization of the Board of Directors or other governing body of such Subsidiary, elects to participate in the Plan. |
1.08 | Disability means any long-term disability. The Administrator, in his complete and sole discretion, shall determine a Participants Disability; provided, however, that a Participant who is approved to receive Long-Term Disability benefits pursuant to the PPG Industries, Inc. Long-Term Disability Plan shall be considered to have a Disability. The Administrator may require that a Participant submit to an examination from time to time, but no more often than annually, at the expense of the Company, by a competent physician or medical clinic, selected by the Administrator, to confirm Disability. On the basis of such medical evidence, the determination of the Administrator as to whether or not a condition of Disability exists or continues shall be conclusive. |
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1.09 | Employee means any full-time, or permanent part-time employee (including any officer) of the Corporation. |
1.10 | Participant means an Employee who is approved by the Committee to participate in the Plan. Participants shall be limited to key Employees of the Corporation who contribute the most to the growth and profitability of the Company as determined by the Committee from time to time. |
1.11 | Plan Year means each calendar year. |
1.12 | Subsidiary means any corporation of which fifty percent (50%) or more of the outstanding voting stock or voting power is owned, directly or indirectly, by the Company and any partnership or other entity in which the Company has a fifty percent (50%) or more ownership interest. |
SECTION II ELIGIBILITY & AWARDS
2.01 | Eligibility |
(a) | A Participant whose employment is terminated prior to July 1 by reason of retirement or death, or who is transferred to a position which is not covered by the Plan prior to July 1 or who becomes eligible for benefits under the PPG Industries, Inc. Long-Term Disability Plan prior to July 1 shall not be entitled to any Award for such Plan Year. |
(b) | A Participant whose employment is terminated on or after July 1 by reason of retirement or death, or who is transferred to a position which is not covered by the Plan on or after July 1 or who becomes eligible for benefits under the PPG Industries, Inc. Long-Term Disability Plan on or after July 1 may be entitled to a prorated Award for such Plan Year as determined by the Committee in its sole and absolute discretion. |
(c) | A Participant whose employment is terminated during the Plan Year for reasons other than retirement or death will not be eligible to receive an Award for such Plan Year regardless of the date of such termination during such Plan Year. |
(d) | Unless otherwise prohibited by applicable law, if the employment of a Participant terminates after the last day of a Plan Year and before the date on which payment of the Award for such Plan Year is to be made, the Committee may, in its sole and absolute discretion, determine that no Award shall be paid to such Participant for such Plan Year and, in such event, such Participant shall have no right to any payment with respect to such Award. |
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2.02 | Awards |
(a) | The Committee shall determine or approve: |
(1) | The Participants; |
(2) | For each Plan Year, the total amount of all Awards to all Participants; |
(3) | The amount of the Award to each Participant; and |
(4) | The methodology for determining Award amounts. |
(b) | The Committee may delegate to another person(s) the authority to determine: |
(1) | The Participants; and |
(2) | The amount of Awards to each Participant. |
(c) | The Committee is under no obligation to make Awards to any particular individual or class of individuals and the grant of an Award to a Participant in any given Plan Year shall not entitle such Participant to a grant in any other Plan Year or to continued employment by the Corporation. |
2.03 | Payment of Awards |
(a) | Awards to Participants will be made only in the form of cash. |
(b) | Payment of Awards shall be made to Participants not later than March 15 of the Plan Year following the end of the Plan Year to which the Awards relate, except that a Participant may defer the date of payment of an Award pursuant to the terms of the PPG Industries, Inc. Deferred Compensation Plan, as amended from time to time or any successor thereto. |
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SECTION III SPECIFIC PROVISIONS
RELATED TO BENEFITS
3.01 | Nonassignability |
Except as provided in Section 3.02, no person shall have any power to encumber, sell, alienate, or otherwise dispose of his/her interest under the Plan prior to actual payment to and receipt thereof by such person; nor shall the Administrator recognize any assignment in derogation of the foregoing. No interest hereunder of any person shall be subject to attachment, execution, garnishment or any other legal, equitable, or other process.
3.02 | Limited Right to Assets of the Corporation |
The amounts paid under the Plan shall be paid from the general funds of the Company, and the Participants shall be no more than unsecured general creditors of the Company with no special or prior right to any assets of the Company for payment of any obligations hereunder.
3.03 | Protective Provisions |
The Participant shall cooperate with the Administrator by furnishing any and all information requested by the Administrator in order to facilitate the payment of amounts hereunder. If a Participant refuses to cooperate, he/she may be deemed ineligible to receive a distribution and/or ineligible to continue to actively participate in the Plan.
3.04 | Withholding |
The Participant shall make appropriate arrangements with the Administrator for satisfaction of any federal, state or local income tax withholding requirements and Social Security or other employee tax requirements applicable to the payment of amounts under the Plan. If no other arrangements are made, the Administrator may provide for such withholding and tax payments by any means he deems appropriate, in his sole discretion.
3.05 | Forfeiture Provision |
In the event the Committee becomes aware that a Participant is engaged or employed as a business owner, employee, or consultant in any activity which is in competition with any line of business of the Corporation, or has engaged in any activity otherwise determined to be detrimental to the Corporation, the Administrative Subcommittee may terminate such Participants participation in the Plan and apply any diminution or forfeiture of amounts which is specifically approved by the Administrative Subcommittee.
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For purposes of this Section 3.05, the Administrative Subcommittee shall consist of the senior human resources officer of the Corporation, the employee responsible for the compensation function of the Corporation and a representative of the Law Department, as appointed by the General Counsel of PPG, or, if not so appointed, the General Counsel of PPG. The Administrative Subcommittee shall report all of its activities to the Committee.
SECTION IV ADMINISTRATION & CLAIMS
4.01 | Administration |
(a) | The Committee, for purposes of administering the Plan, shall meet and act as necessary to determine or approve for each Plan Year, the total amount of Awards to all Participants and the amount of Awards to Participants as the Committee deems appropriate. |
(b) | Except as otherwise provided herein, the Administrator shall administer the Plan and interpret, construe and apply its provisions in accordance with its terms and shall have the complete authority to: |
(1) | Determine eligibility for benefits; |
(2) | Construe the terms of the Plan; and |
(3) | Control and manage the operation of the Plan. |
(c) | Except as otherwise provided herein, the Administrator shall have the authority to establish rules for the administration and interpretation of the Plan and the transaction of its business. The determination of the Administrator as to any disputed question shall be conclusive. |
(d) | The Administrator may employ counsel and other agents and may procure such clerical, accounting and other services as the Administrator may require in carrying out the provisions of the Plan. |
(e) | The Administrator shall not receive any compensation from the Plan for his services. |
(f) | The Corporation shall indemnify and save harmless the Administrator against all expenses and liabilities arising out of the Administrators service as such, excepting only expenses and liabilities arising from the Administrators own gross negligence or willful misconduct, as determined by the Committee. |
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4.02 | Claims |
(a) | Every person receiving or claiming benefits under the Plan shall be conclusively presumed to be mentally and physically competent and of age. If the Administrator determines that such person is mentally or physically incompetent or is a minor, payment shall be made to the legally appointed guardian, conservator, or other person who has been appointed by a court of competent jurisdiction to care for the estate of such person, provided that proper proof of such appointment is furnished in a form and manner suitable to the Administrator. Any payment made under the provisions of this paragraph 4.02(a) shall be a complete discharge of any liability therefore under the Plan. The Administrator shall not be required to see to the proper application of any such payment. |
(b) | A Participant may not bring a claim for benefits in a court of law unless and until such Participant has made a claim for benefits with the Administrator, in accordance with procedures as the Administrator shall determine from time to time, and, if such claim is denied, filed a request for a review of such denial with the Administrator, and such review is denied. The Participant or his authorized representative shall be afforded a reasonable opportunity for full and fair review by the Administrator of the decision denying his or her claim for benefits. |
SECTION V AMENDMENT AND TERMINATION
5.01 | Amendment of the Plan |
The Committee may amend the Plan, in whole or in part, at any time.
5.02 | Termination of the Plan |
The Committee may terminate the Plan at any time.
5.03 | Company Action. |
The Companys power to amend or terminate the Plan shall be exercisable by the Committee, or by any individual authorized by the Committee to exercise such powers.
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SECTION VI MISCELLANEOUS
6.01 | Successors of the Company |
The rights and obligations of the Company under the Plan shall inure to the benefit of, and shall be binding upon, the successors and assigns of the Company.
6.02 | Trust |
The Company shall be responsible for the payment of all amounts under the Plan. At its discretion, the Company may establish one or more grantor trusts for the purpose of providing for payment of amounts under the Plan. Such trust(s) may be irrevocable, but the assets thereof shall be subject to the claims of the Companys creditors. Amounts paid to the Participant from any such trust shall be considered paid by the Company for purposes of meeting the obligations of the Company under the Plan.
6.03 | Employment Not Guaranteed |
Nothing contained in the Plan nor any action taken hereunder shall be construed as a contract of employment or as giving any Participant any right to continued employment with the Corporation.
6.04 | Gender, Singular and Plural |
All pronouns and variations thereof shall be deemed to refer to the masculine, feminine, or neuter, as the identity of the person(s) requires. As the context may require, the singular may be read as the plural and the plural as the singular.
6.05 | Headings |
The headings of the Sections, subsections and paragraphs of the Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions.
6.06 | Validity |
If any provision of the Plan is held invalid, void or unenforceable, the same shall not affect, in any respect, the validity of any other provision(s) of the Plan.
6.07 | Waiver of Breach |
The waiver by the Company of any breach of any provision of the Plan by a Participant or a Participants beneficiary shall not operate or be construed as a waiver of any subsequent breach.
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6.08 | Applicable Law |
The Plan shall be governed and construed in accordance with the laws of the Commonwealth of Pennsylvania.
6.09 | Notice |
Any notice required or permitted to be given to the Administrator under the Plan shall be sufficient if in writing and either hand-delivered, or sent by first class mail to the principal office of the Company at One PPG Place, Pittsburgh, PA 15272, directed to the attention of the Administrator. Such notice shall be deemed given as of the date of delivery.
SECTION VII CHANGE IN CONTROL
7.01 | Change in Control |
(a) | Upon, or in reasonable anticipation of, a Change in Control (as defined in section 7.02): |
(1) | Awards shall be made for the Plan Year during which the Change in Control occurs, and then paid immediately to a trustee on such terms as the senior human resources officer of the Corporation and the senior finance officer of the Corporation, or either of them, or their successors, shall deem appropriate (including such terms as are appropriate to cause such payment, if possible, not to be a taxable event to Participants) in order to cause the Awards so paid to be paid not later than March 15 following the end of the Plan Year to which the Awards relate. |
(2) | The amount of the Award payable to each Participant shall be: |
if the Change in Control occurs during the first six months of the Plan Year, one-half of the greater of (i) the target Award for such Plan Year or (ii) the actual Award payable for such Plan Year, based upon the methodology established by the Committee with respect to such Award; or
if the Change in Control occurs during the second six months of the Plan Year, the greater of (i) the target Award for such Plan Year or (ii) the actual Award payable for such Plan Year, based upon the methodology established by the Committee with respect to such Award.
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(b) | Notwithstanding any other provision of this section, if an Award actually payable for such Plan Year (based upon the methodology established by the Committee with respect to such Award) is greater than the Award made pursuant to this section, the Participant shall be entitled to the greater of the two amounts. |
7.02 | Definition: Change in Control |
Change in Control means, and shall be deemed to have occurred upon the occurrence of, any one of the following events:
(a) | The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) (a Person) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then issued and outstanding shares of the Companys voting common stock (Outstanding Common Stock) or (ii) the combined voting power of all outstanding voting securities of the Company entitled to vote generally in the election of directors to the Board (Outstanding Voting Securities); provided that, for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company; (ii) any acquisition by the Company; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of paragraph (c) of this Section 7.02. |
(b) | Individuals who, as of April 20, 2006 (the Reference Date), constitute the Board (the Incumbent Board) cease for any reason to constitute at least a majority of the Incumbent Board; provided , however , that any individual becoming a director subsequent to the Reference Date whose election, or nomination for election by the Companys shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Incumbent Board; or |
(c) | Approval by the shareholders of the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a Business Combination), in each case, unless, following such Business Combination: |
(i) | All or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Common Stock and Outstanding Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Companys assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Common Stock and Outstanding Voting Securities, as the case may be; |
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(ii) | No Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination; and |
(iii) | At least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or at the time of the action taken by the Incumbent Board approving such Business Combination; or |
(d) | Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company; or |
(e) | A majority of the Incumbent Board otherwise determines that a Change in Control shall have occurred. |
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Exhibit 10.9
PPG INDUSTRIES, INC.
MANAGEMENT AWARD PLAN
Effective: March 16, 1988
As Amended 1/1/96; 2/13/98; 1/1/99
As Further Amended April 20, 2006
Table of Contents
Section I | Definitions | 1 | ||
Section II | Eligibility & Awards | 2 | ||
Section III | Specific Provisions Related to Benefits | 3 | ||
Section IV | Administration & Claims | 4 | ||
Section V | Amendment & Termination | 6 | ||
Section VI | Miscellaneous | 6 | ||
Section VII | Change in Control | 8 |
i
INTRODUCTION
This PPG Industries, Inc. Management Award Plan (this Plan) is an amendment and restatement of the PPG Industries, Inc. Management Award and Deferred Income Plan, originally effective March 16, 1988, as previously amended and in effect on April 19, 2006 (the Prior Plan). This amended and restated Plan applies to Awards that become vested or are paid on or after January 1, 2005. All such Awards shall be paid in accordance with the terms of this amended and restated Plan. The Prior Plan applies to all Awards that were earned and paid prior to January 1, 2005. This amendment and restatement of the Plan is made on April 20, 2006 and is effective as of January 1, 2005.
ii
SECTION I - DEFINITIONS
1.01 | Administrator means an officer or officers of the Company appointed by the Committee, and any person(s) designated by such Administrator to assist in the administration of the Plan. |
1.02 | Award means a grant of incentive compensation hereunder. |
1.03 | Board means the Board of Directors of PPG Industries, Inc. |
1.04 | Code means the Internal Revenue Code of 1986, as amended. |
1.05 | Committee means the Compensation and Employee Benefits Committee of the Company (or any successor thereto). |
1.06 | Company or PPG means PPG Industries, Inc. |
1.07 | Corporation means PPG and any Subsidiary designated by the Committee as eligible to participate in the Plan, and which, by proper authorization of the Board of Directors or other governing body of such Subsidiary, elects to participate in the Plan. |
1.08 | Disability means any long-term disability. The Administrator, in his complete and sole discretion, shall determine a Participants Disability; provided, however, that a Participant who is approved to receive Long-Term Disability benefits pursuant to the PPG Industries, Inc. Long-Term Disability Plan shall be considered to have a Disability. The Administrator may require that a Participant submit to an examination from time to time, but no more often than annually, at the expense of the Company, by a competent physician or medical clinic, selected by the Administrator, to confirm Disability. On the basis of such medical evidence, the determination of the Administrator as to whether or not a condition of Disability exists or continues shall be conclusive. |
1.09 | Employee means any full-time, or permanent part-time employee (including any officer) of the Corporation. |
1.10 | Participant means an Employee who is approved by the Committee to participate in the Plan. Participants shall be limited to a select group of management or highly compensated employees as determined by the Committee from time to time that are nominated to participate in the Plan by their respective supervisors based on significant contributions to unit, group or department goals and that are not participants in the PPG Industries, Inc. Incentive Compensation Plan for Key Employees (as amended from time to time or any successor thereto). |
1.11 | Plan Year means each calendar year. |
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1.12 | Subsidiary means any corporation of which fifty percent (50%) or more of the outstanding voting stock or voting power is owned, directly or indirectly, by the Company and any partnership or other entity in which the Company has a fifty percent (50%) or more ownership interest. |
SECTION II - ELIGIBILITY & AWARDS
2.01 | Eligibility |
(a) | A Participant whose employment is terminated prior to July 1 by reason of retirement or death, or who is transferred to a position which is not covered by the Plan prior to July 1 or who becomes eligible for benefits under the PPG Industries, Inc. Long-Term Disability Plan prior to July 1 shall not be entitled to any Award for such Plan Year. |
(b) | A Participant whose employment is terminated on or after July 1 by reason of retirement or death, or who is transferred to a position which is not covered by the Plan on or after July 1 or who becomes eligible for benefits under the PPG Industries, Inc. Long-Term Disability Plan on or after July 1 may be entitled to a prorated Award for such Plan Year as determined by the Committee in its sole and absolute discretion. |
(c) | A Participant whose employment is terminated during the Plan Year for reasons other than retirement or death will not be eligible to receive an Award for such Plan Year regardless of the date of such termination during such Plan Year. |
(d) | Unless otherwise prohibited by applicable law, if the employment of a Participant terminates after the last day of a Plan Year and before the date on which payment of the Award for such Plan Year is to be made, the Committee may, in its sole and absolute discretion, determine that no Award shall be paid to such Participant for such Plan Year and, in such event, such Participant shall have no right to any payment with respect to such Award. |
2.02 | Awards |
(a) | The Committee shall determine or approve: |
(1) | The Participants; |
(2) | For each Plan Year, the total amount of all Awards to all Participants; |
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(3) | The amount of the Award to each Participant; and |
(4) | The methodology for determining Award amounts. |
(b) | The Committee may delegate to another person(s) the authority to determine: |
(1) | The Participants; and |
(2) | The amount of Awards to each Participant. |
(c) | The Committee is under no obligation to make Awards to any particular individual or class of individuals and the grant of an Award to a Participant in any given Plan Year shall not entitle such Participant to a grant in any other Plan Year or to continued employment by the Corporation. |
2.03 | Payment of Awards |
(a) | Awards to Participants will be made only in the form of cash. |
(b) | Payment of Awards shall be made to Participants not later than March 15 of the Plan Year following the end of the Plan Year to which the Awards relate, except that a Participant may defer the date of payment of an Award pursuant to the terms of the PPG Industries, Inc. Deferred Compensation Plan, as amended from time to time or any successor thereto. |
SECTION III - SPECIFIC PROVISIONS
RELATED TO BENEFITS
3.01 | Nonassignability |
Except as provided in Section 3.02, no person shall have any power to encumber, sell, alienate, or otherwise dispose of his/her interest under the Plan prior to actual payment to and receipt thereof by such person; nor shall the Administrator recognize any assignment in derogation of the foregoing. No interest hereunder of any person shall be subject to attachment, execution, garnishment or any other legal, equitable, or other process.
3.02 | Limited Right to Assets of the Corporation |
The amounts paid under the Plan shall be paid from the general funds of the Company, and the Participants shall be no more than unsecured general creditors of the Company with no special or prior right to any assets of the Company for payment of any obligations hereunder.
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3.03 | Protective Provisions |
The Participant shall cooperate with the Administrator by furnishing any and all information requested by the Administrator in order to facilitate the payment of amounts hereunder. If a Participant refuses to cooperate, he/she may be deemed ineligible to receive a distribution and/or ineligible to continue to actively participate in the Plan.
3.04 | Withholding |
The Participant shall make appropriate arrangements with the Administrator for satisfaction of any federal, state or local income tax withholding requirements and Social Security or other employee tax requirements applicable to the payment of amounts under the Plan. If no other arrangements are made, the Administrator may provide for such withholding and tax payments by any means he deems appropriate, in his sole discretion.
3.05 | Forfeiture Provision |
In the event the Committee becomes aware that a Participant is engaged or employed as a business owner, employee, or consultant in any activity which is in competition with any line of business of the Corporation, or has engaged in any activity otherwise determined to be detrimental to the Corporation, the Administrative Subcommittee may terminate such Participants participation in the Plan and apply any diminution or forfeiture of amounts which is specifically approved by the Administrative Subcommittee.
For purposes of this Section 3.05, the Administrative Subcommittee shall consist of the senior human resources officer of the Corporation, the employee responsible for the compensation function of the Corporation and a representative of the Law Department, as appointed by the General Counsel of PPG, or, if not so appointed, the General Counsel of PPG. The Administrative Subcommittee shall report all of its activities to the Committee.
SECTION IV - ADMINISTRATION & CLAIMS
4.01 | Administration |
(a) | The Committee, for purposes of administering the Plan, shall meet and act as necessary to determine or approve for each Plan Year, the total amount of Awards to all Participants and the amount of Awards to Participants as the Committee deems appropriate. |
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(b) | Except as otherwise provided herein, the Administrator shall administer the Plan and interpret, construe and apply its provisions in accordance with its terms and shall have the complete authority to: |
(1) | Determine eligibility for benefits; |
(2) | Construe the terms of the Plan; and |
(3) | Control and manage the operation of the Plan. |
(c) | Except as otherwise provided herein, the Administrator shall have the authority to establish rules for the administration and interpretation of the Plan and the transaction of its business. The determination of the Administrator as to any disputed question shall be conclusive. |
(d) | The Administrator may employ counsel and other agents and may procure such clerical, accounting and other services as the Administrator may require in carrying out the provisions of the Plan. |
(e) | The Administrator shall not receive any compensation from the Plan for his services. |
(f) | The Corporation shall indemnify and save harmless the Administrator against all expenses and liabilities arising out of the Administrators service as such, excepting only expenses and liabilities arising from the Administrators own gross negligence or willful misconduct, as determined by the Committee. |
4.02 | Claims |
(a) | Every person receiving or claiming benefits under the Plan shall be conclusively presumed to be mentally and physically competent and of age. If the Administrator determines that such person is mentally or physically incompetent or is a minor, payment shall be made to the legally appointed guardian, conservator, or other person who has been appointed by a court of competent jurisdiction to care for the estate of such person, provided that proper proof of such appointment is furnished in a form and manner suitable to the Administrator. Any payment made under the provisions of this paragraph 4.02(a) shall be a complete discharge of any liability therefore under the Plan. The Administrator shall not be required to see to the proper application of any such payment. |
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(b) | A Participant may not bring a claim for benefits in a court of law unless and until such Participant has made a claim for benefits with the Administrator, in accordance with procedures as the Administrator shall determine from time to time, and, if such claim is denied, filed a request for a review of such denial with the Administrator, and such review is denied. The Participant or his authorized representative shall be afforded a reasonable opportunity for full and fair review by the Administrator of the decision denying his or her claim for benefits. |
SECTION V- AMENDMENT AND TERMINATION
5.01 | Amendment of the Plan |
The Committee may amend the Plan, in whole or in part, at any time.
5.02 | Termination of the Plan |
The Committee may terminate the Plan at any time.
5.03 | Company Action. |
The Companys power to amend or terminate the Plan shall be exercisable by the Committee, or by any individual authorized by the Committee to exercise such powers.
SECTION VI - MISCELLANEOUS
6.01 | Successors of the Company |
The rights and obligations of the Company under the Plan shall inure to the benefit of, and shall be binding upon, the successors and assigns of the Company.
6.02 | Trust |
The Company shall be responsible for the payment of all amounts under the Plan. At its discretion, the Company may establish one or more grantor trusts for the purpose of providing for payment of amounts under the Plan. Such trust(s) may be irrevocable, but the assets thereof shall be subject to the claims of the Companys creditors. Amounts paid to the Participant from any such trust shall be considered paid by the Company for purposes of meeting the obligations of the Company under the Plan.
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6.03 | Employment Not Guaranteed |
Nothing contained in the Plan nor any action taken hereunder shall be construed as a contract of employment or as giving any Participant any right to continued employment with the Corporation.
6.04 | Gender, Singular and Plural |
All pronouns and variations thereof shall be deemed to refer to the masculine, feminine, or neuter, as the identity of the person(s) requires. As the context may require, the singular may be read as the plural and the plural as the singular.
6.05 | Headings |
The headings of the Sections, subsections and paragraphs of the Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions.
6.06 | Validity |
If any provision of the Plan is held invalid, void or unenforceable, the same shall not affect, in any respect, the validity of any other provision(s) of the Plan.
6.07 | Waiver of Breach |
The waiver by the Company of any breach of any provision of the Plan by a Participant or a Participants beneficiary shall not operate or be construed as a waiver of any subsequent breach.
6.08 | Applicable Law |
The Plan shall be governed and construed in accordance with the laws of the Commonwealth of Pennsylvania.
6.09 | Notice |
Any notice required or permitted to be given to the Administrator under the Plan shall be sufficient if in writing and either hand-delivered, or sent by first class mail to the principal office of the Company at One PPG Place, Pittsburgh, PA 15272, directed to the attention of the Administrator. Such notice shall be deemed given as of the date of delivery.
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SECTION VII - CHANGE IN CONTROL
7.01 | Change in Control |
(a) | Upon, or in reasonable anticipation of, a Change in Control (as defined in section 7.02): |
(1) | Awards shall be made for the Plan Year during which the Change in Control occurs, and then paid immediately to a trustee on such terms as the senior human resources officer of the Corporation and the senior finance officer of the Corporation, or either of them, or their successors, shall deem appropriate (including such terms as are appropriate to cause such payment, if possible, not to be a taxable event to Participants) in order to cause the Awards so paid to be paid not later than March 15 following the end of the Plan Year to which the Awards relate. |
(2) | The amount of the Award payable to each Participant shall be: |
if the Change in Control occurs during the first six months of the Plan Year, one-half of the greater of (i) the target Award for such Plan Year or (ii) the actual Award payable for such Plan Year, based upon the methodology established by the Committee with respect to such Award; or
if the Change in Control occurs during the second six months of the Plan Year, the greater of (i) the target Award for such Plan Year or (ii) the actual Award payable for such Plan Year, based upon the methodology established by the Committee with respect to such Award.
(b) | Notwithstanding any other provision of this section, if an Award actually payable for such Plan Year (based upon the methodology established by the Committee with respect to such Award) is greater than the Award made pursuant to this section, the Participant shall be entitled to the greater of the two amounts. |
7.02 | Definition: Change in Control |
Change in Control means, and shall be deemed to have occurred upon the occurrence of, any one of the following events:
(a) |
The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) (a Person) of beneficial ownership |
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(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then issued and outstanding shares of the Companys voting common stock (Outstanding Common Stock) or (ii) the combined voting power of all outstanding voting securities of the Company entitled to vote generally in the election of directors to the Board (Outstanding Voting Securities); provided that, for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company; (ii) any acquisition by the Company; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of paragraph (c) of this Section 7.02. |
(b) | Individuals who, as of April 20, 2006 (the Reference Date), constitute the Board (the Incumbent Board) cease for any reason to constitute at least a majority of the Incumbent Board; provided , however , that any individual becoming a director subsequent to the Reference Date whose election, or nomination for election by the Companys shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Incumbent Board; or |
(c) | Approval by the shareholders of the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a Business Combination), in each case, unless, following such Business Combination: |
(i) | All or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Common Stock and Outstanding Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Companys assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Common Stock and Outstanding Voting Securities, as the case may be; |
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(ii) | No Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination; and |
(iii) | At least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or at the time of the action taken by the Incumbent Board approving such Business Combination; or |
(d) | Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company; or |
(e) | A majority of the Incumbent Board otherwise determines that a Change in Control shall have occurred. |
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Exhibit 10.13
RESTRICTED STOCK UNIT AWARD AGREEMENT
[Date of Grant]
This RESTRICTED STOCK UNIT AWARD AGREEMENT (this Agreement) is entered into as of the date first written above by and between PPG Industries, Inc. (the Company) and (the Participant).
The Company maintains the PPG Industries, Inc. Omnibus Incentive Plan (as amended from time to time, the Plan), which is incorporated into and forms a part of this Agreement, and the Participant has been selected by the Officers-Directors Compensation Committee or its designee (as applicable, the Committee) to receive an Award under the Plan. Capitalized terms used in this Agreement shall, unless defined elsewhere in this Agreement, have the respective meanings given to such terms in the Plan.
The Award of Restricted Stock Units shall be confirmed by a separate Grant Notice to which this Agreement is attached (the Grant Notice), specifying the Date of Grant of the Award, the number of Restricted Stock Units granted and the Award Goals (as defined in the Grant Notice) applicable to such Restricted Stock Units. Each Restricted Stock Unit is a bookkeeping entry representing the equivalent in value of a share of Common Stock. Such Award shall be subject to the terms and conditions of this Agreement and such Grant Notice shall be deemed incorporated by reference into this Agreement.
NOW, THEREFORE, the Company and the Participant, intending to be legally bound, agree as follows:
1. | Terms and Conditions of the Award . |
A. | This Agreement sets forth the terms and conditions applicable to the Award of Restricted Stock Units confirmed in the Grant Notice. The Award of Restricted Stock Units is made under Article VII of the Plan. Unless and until the Restricted Stock Units are vested in the manner set forth in paragraph 1.F. and 2.A. hereof, the Participant shall have no right to settlement of any such Restricted Stock Units. |
B. | The Committee may terminate the Award at any time on or prior to the Vesting Date (as defined in the Grant Notice) if, in its sole discretion, the Committee determines that the Participant is no longer in a position to have a substantial opportunity to influence the long-term growth of the Company. |
C. |
Prior to settlement of any vested Restricted Stock Units, such Restricted Stock Units will represent an unsecured obligation of the Company, payable (if at all) |
only from the general assets of the Company. The Companys obligations under this Agreement shall be unfunded and unsecured, and no special or separate fund shall be established and no other segregation of assets shall be made and the Participant shall have no greater rights than an unsecured general creditor of the Company. Except as otherwise specifically provided in the Grant Notice or this Agreement, the Participant shall have no rights as a stockholder of the Company by virtue of any Restricted Stock Units granted under this Award unless and until such Award is determined to be vested and resulting shares of Common Stock are issued to the Participant. |
D. | If the Participants employment with the Company terminates prior to the Vesting Date but after the first anniversary of the Date of Grant because of retirement, disability or job elimination (each as determined in the Committees sole discretion), the Participant shall be entitled to the same Award to which the Participant would have been entitled had the Participants employment continued through the Vesting Date, and such Award shall be paid as soon as practicable following the Vesting Date, subject to paragraph 2.C. hereof; provided , however, that the Committee, in its sole discretion, may determine that the Participant will be entitled to a lesser Award. In the event of the Participants death during his or her employment with the Company prior to the Vesting Date but after the first anniversary of the Date of Grant, the Participants Award shall be deemed fully vested and such Award shall be paid to the Participants Beneficiary as promptly as practicable following the Participants death (the Accelerated Payout Date), subject to paragraph 2.C. hereof; provided , however, that the Committee, in its sole discretion, may determine that the Participant will be entitled to a lesser Award. |
E. | If the Participants employment with the Company terminates prior to the Vesting Date for any reason other than retirement, disability, job elimination or death, or for any reason before the first anniversary of the Date of Grant, the Participants Award shall be forfeited on the date of such termination; provided , however, that the Committee, in its sole discretion, may determine that the Participant will be entitled to a full or partial payout with respect to the Award, in which case the Award shall be paid as soon as practicable following the Vesting Date, subject to paragraph 2.C. hereof. |
F. | The Committee shall determine the extent, if any, to which the applicable Award Goals have been attained and the extent, if any, to which the Award has been earned by the Participant. The Committee shall have the negative discretion to reduce or eliminate any payout for the Award. |
G. |
The Award shall be subject to the provisions of Section 7.04 of the Plan concerning a Change in Control of the Company, in which case the payout of the Award shall be made as soon as practicable following the date of the Change in Control, subject to paragraph 2.C. hereof; provided , however, that if the Change in Control would not constitute a change in control event under U.S. Treas. |
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Reg. § 1.409A-3(i)(5), then the restrictions to which the Restricted Stock Units are subject shall terminate as provided in Section 7.04 of the Plan, but the payout of the Award shall be made as soon as practicable following the Vesting Date, subject to paragraph 2.C. hereof. |
2. | Payout on Account of Awards . |
A. | Upon attainment of the Award Goals and satisfaction of all other applicable conditions as to the issuance of the Restricted Stock Units, and otherwise subject to this Agreement and the terms of the Plan, the Participant shall be entitled to the number of shares of Common Stock constituting the Award as determined by the Committee in accordance with paragraph 1.F. The Participant shall be entitled to receive a payout of the vested Award in the form of cash, shares of Common Stock or a combination of cash and shares, less any Tax-Related Items as defined in paragraph 7, as determined by the Committee in its sole discretion. The amount of any cash to be paid in lieu of Common Stock shall be determined on the basis of the Fair Market Value of the Common Stock as of the Vesting Date or Accelerated Payout Date, as applicable. |
B. | Any shares of Common Stock issued to the Participant with respect to his or her Award shall be subject to such restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, the New York Stock Exchange and any applicable state or foreign securities laws, and the Committee may cause a legend or legends to be endorsed on any stock certificates for such shares making appropriate references to such legal restrictions. |
C. | Except as otherwise provided in this Agreement, the issuance of the shares of Common Stock in accordance with the provisions of this paragraph 2 will be delivered not later than (i) the last day of the calendar year in which the Vesting Date or Accelerated Payout Date, as applicable, occurs, or (ii) if later, the 15th day of the third calendar month following the Vesting Date or Accelerated Payout Date, as applicable. |
3. | Continuing Conditions . Notwithstanding any other provisions herein, the Participant, by execution of this Agreement, agrees and acknowledges that in return for the Award granted by the Company in this Agreement, the following continuing conditions shall apply: |
A. |
If at any time prior to the Vesting Date or within one (1) year after the Vesting Date the Participant engages in any activity in competition with any activity of the Company or any of its Subsidiaries, or contrary or harmful to the interests of the Company or any of its Subsidiaries, including, but not limited to: (1) conduct related to the Participants employment for which either criminal or civil penalties against the Participant may be sought; (2) violation of Company (or Subsidiary) Business Conduct Policies; (3) accepting employment with or serving as a |
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consultant, advisor or in any other capacity to an employer that is in competition with or acting against the interests of the Company or any of its Subsidiaries, including employing or recruiting any present, former or future employee of the Company or any of its Subsidiaries; (4) disclosing or misusing any confidential information or material concerning the Company or any of its Subsidiaries; or (5) participating in a hostile takeover attempt, then this Award shall terminate effective as of the date on which the Participant enters into such activity, unless terminated sooner by operation of another term or condition of this Agreement, and any Award Gain realized by the Participant shall be paid by the Participant to the Company. Award Gain shall mean the cash and the Fair Market Value of the Common Stock delivered to the Participant pursuant to paragraph 2 on the date of such delivery times the number of shares so delivered. |
B. | By accepting this Agreement, the Participant consents to a deduction from any amounts the Company or any of its Subsidiaries owes the Participant from time to time (including amounts owed the Participant as wages or other compensation, fringe benefits or vacation pay, as well as any other amounts owed to the Participant by the Company or any of its Subsidiaries), to the extent of the amounts payable to the Company by the Participant under paragraph 3.A. above. Whether or not the Company elects to make any set-off in whole or in part, if the Company does not recover by means of set-off the full amount payable by the Participant, calculated as set forth above, the Participant agrees to pay immediately the unpaid balance to the Company. |
C. | The Participant may be released from the Participants obligations under paragraphs 3.A and 3.B above only if the Committee determines, in its sole discretion, that such action is in the best interest of the Company. |
4. | Award Subject to Plan Provisions . Unless otherwise expressly provided in the Grant Notice or this Agreement, the Restricted Stock Unit Award shall be subject to the provisions of the Plan, including, without limitation, Article XI. In the event of any conflict between this Agreement and either the Grant Notice or the Plan, the Grant Notice or Plan, as applicable, shall control over this Agreement. |
5. | Applicable Law; Entire Agreement; Venue . This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania without reference to any choice of law principles. The Grant Notice, this Agreement and the Plan contain all terms and conditions with respect to the subject matter hereof. |
For purposes of litigating any dispute that arises under the Award or this Agreement, the parties hereby submit to and consent to the jurisdiction of the Commonwealth of Pennsylvania, and agree that such litigation shall be conducted in the courts of Allegheny County, Pennsylvania, or other federal courts for the United States for the Western District of Pennsylvania, and no other courts, where this Award of Restricted Stock Units is made and/or to be performed. The parties agree that, if suit is filed in Allegheny County courts, application will be made by one or both parties, without objection, to have the case heard in the Center for Commercial and Complex Litigation of the Court of Common Pleas of Allegheny County.
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6. | Further Assurances . The Participant agrees, upon demand of the Company or the Committee, to do all acts and execute, deliver and perform all additional documents, instruments and agreements (including, without limitation, stock powers with respect to shares of Common Stock issued or otherwise distributed in relation to this Award) which may be reasonably required by the Company or the Committee, as the case may be, to implement the provisions and purposes of the Grant Notice, this Agreement and the Plan. |
7. | Taxes . Regardless of any action the Company and/or the Subsidiary employing the Participant (the Employer) take with respect to any or all income tax (including U.S. federal, state, and local tax and/or non-U.S. tax), social insurance, payroll tax, payment on account or other tax-related withholding (Tax-Related Items), the Participant acknowledges that the ultimate liability for all Tax-Related Items legally due by the Participant is and remains the Participants responsibility and that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Award, including the grant and vesting of the Restricted Stock Units, the conversion of the Restricted Stock Units into shares or the receipt of an equivalent cash payment, the subsequent sale of any shares acquired pursuant to the Restricted Stock Units and the receipt of any dividends or Dividend Equivalents; and (ii) do not commit to structure the terms of the grant or any aspect of the Award to reduce or eliminate the Participants liability for Tax-Related Items. |
Prior to the relevant taxable event, the Participant shall pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, the Participant authorizes the Company and/or the Employer to satisfy the Tax-Related Items obligation by withholding otherwise deliverable shares of Common Stock, provided that the Company only withholds the amount of shares necessary to satisfy the minimum withholding amount or such other amount as may be necessary to avoid adverse accounting treatment. In addition, the Participant authorizes the Company and/or the Employer, in their sole discretion and pursuant to such procedures as the Company may specify from time to time, to withhold any Tax-Related Items necessary to comply with legal requirements by one or more of the following means: (i) arranging for the sale of shares of Common Stock acquired upon the vesting of the Award (on the Participants behalf and at the Participants direction pursuant to this authorization) and withholding from the cash proceeds; and /or (ii) withholding from any wages or other cash compensation paid to the Participant by the Company and/or the Employer or from any equivalent cash payment received in connection with the Award. If the obligation for Tax-Related Items is satisfied by withholding a number of shares as described herein, the Participant shall be deemed, for tax purposes only, to have been issued the full number of shares of Common Stock subject to the vested portion of the Award, notwithstanding that a number of shares are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of the Award. The Participant shall pay to the Company and/or the Employer any amount of Tax-Related Items that is
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required to be withheld in connection with the Restricted Stock Units that cannot be satisfied by the means previously described. The Company may refuse to deliver to the Participant any shares of Common Stock pursuant to the Award if the Participant fails to comply with his or her obligations in connection with the Tax-Related Items as described in this paragraph.
8. | Transfer Restrictions . This Award and the Restricted Stock Units are not transferable other than by will or the laws of descent and distribution, and may not be assigned, hypothecated or otherwise pledged and shall not be subject to execution, attachment or similar process. Upon any attempt to effect any such disposition, or upon the levy of any such process, the Award shall immediately become null and void and the Restricted Stock Units shall be forfeited. |
9. | Capitalization Adjustments . The number of Restricted Stock Units awarded is subject to adjustment as provided in Section 11.07(a) of the Plan. The Participant shall be notified of such adjustment and such adjustment shall be binding upon the Company and the Participant. |
10. | Securities Law Compliance . Notwithstanding anything to the contrary contained herein, no shares of Common Stock shall be issued to the Participant upon vesting of this Restricted Stock Unit Award unless the Common Stock is then registered under the U.S. Securities Act of 1933, as amended (the Securities Act) or, if such Common Stock is not then so registered, the Company has determined that such vesting and issuance would be exempt from the registration requirements of the Securities Act. By accepting this Award, the Participant agrees not to sell any of the shares of Common Stock received under this Award at a time when the applicable laws or Company policies prohibit a sale. |
11. | Award Confers No Rights to Continued Employment . Nothing contained in the Plan or this Agreement shall give the Participant the right to be retained in the employment of the Company or any Subsidiary or affect the right of any such employer to terminate the Participants employment. |
12. | Severability . If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, that provision will be enforced to the maximum extent permissible and the legality, validity and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. |
13. | Electronic Delivery . The Company may, in its sole discretion, decide to deliver any documents related to the Award or future awards under the Plan by electronic means or request the Participants consent to participate in the Plan by electronic means. The Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company. |
14. |
Code Section 409A . It is the intent that the vesting or the payout of the Restricted Stock Units set forth in this Agreement shall comply with the requirements of Section 409A of |
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the Code, and any ambiguities herein will be interpreted to so comply. The Company reserves the right, to the extent the Company deems necessary or advisable in its sole discretion, to unilaterally amend or modify this Agreement as may be necessary to ensure that all vesting or payouts provided under this Agreement are made in a manner that complies with Section 409A of the Code; provided , however, that the Company makes no representation that the vesting or payout of Restricted Stock Units provided under this Agreement will comply with Section 409A of the Code. |
PPG Industries, Inc. | ||||||
By: |
|
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Name: | ||||||
Title: |
I Accept | I Do Not Accept |
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Exhibit 10.14
TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTION AWARD
The purpose of this Agreement is to evidence the grant by the Company to the Optionee of an Option pursuant to the PPG Industries, Inc. Omnibus Incentive Plan (the Plan). For purposes of the Notice of Grant of Nonqualified Stock Option Award to which these Terms and Conditions are attached (the Notice) and these Terms and Conditions, any reference to the Company shall include a reference to any Subsidiary.
1. Incorporation by Reference . The capitalized terms used and not otherwise defined in the Notice and these Terms and Conditions shall have the meanings set forth in the Plan, the text of which is set forth in the Prospectus dated February 1, 2007, concerning the Plan. The Plan is incorporated herein by reference.
2. Grant . The Company hereby grants to the Optionee the right and option to purchase the number of shares of the Common Stock of the Company set forth in the Notice, on the terms and conditions herein set forth or incorporated by reference.
3. Exercise Price . Subject to adjustment as provided in Section 11.07 of the Plan, the Exercise Price of the shares subject to the Option is set forth in the Notice, which is the Fair Market Value of a share of Common Stock on the Date of Grant.
4. Option Term . Subject to Section 8 of these Terms and Conditions, the Option may be exercised as to any or all shares subject to the Option, at any time or from time-to-time, during the period beginning on the Vesting Date (as defined in the Notice) and ending on the Expiration Date (as defined in the Notice), subject to earlier termination as provided herein; provided, however, that under Section 6.03 of the Plan the Committee may provide for the acceleration of the vesting and exercisability of the Option in its discretion.
5. Exercise of Option .
(a) The Option may be exercised by the Optionee giving written notice (in such form as may be approved by the Committee) to the Company specifying the number of shares to be purchased. Notwithstanding the other provisions of this Agreement, no Option exercise or issuance of
shares of Common Stock pursuant to this Agreement shall be effective if (i) the shares reserved under the Plan are not subject to an effective registration statement at the time of such exercise or issuance, or otherwise eligible for an exemption from registration, or (ii) the Company determines in good faith that such exercise or issuance would violate any applicable Company policy or any securities or other law or regulation. By accepting this Option, the Optionee agrees not to sell any of the shares of Common Stock received under this Option at a time when the applicable laws or Company policies prohibit a sale.
(b) Unless otherwise determined by the Committee, the Exercise Price of an Option may be paid either (i) by delivery to the Company on the date of exercise (or on such later date as the Vice President, Human Resources or his or her successor may permit) of cash or a check in an amount equal to the Exercise Price, (ii) except for any portion of the Exercise Price which cannot be paid in whole shares which portion will be paid in cash, by delivery to the Company on the next business day following the date of exercise (or on such later date as the Vice President, Human Resources or his or her successor may permit) of certification of ownership of shares of Common Stock with a Fair Market Value on the date of exercise equal to the Exercise Price (such transaction hereinafter referred to as a Stock Swap), (iii) by such methods in accordance with such procedures as may be authorized or permitted by the Committee from time to time (e.g., a cashless exercise program) or (iv) by a combination of (i), (ii) and (iii), in the discretion of the Optionee.
(c) Shares used by an Optionee to initiate a Stock Swap may only be shares owned in the following ways:
(i) In the Optionees name (including shares of restricted stock issued pursuant to an award to the Optionee); or
(ii) In the Optionee and the Optionees spouses name; or
(iii) In a street account, provided that ownership is certified by the broker as being in the Optionee or in the Optionee and spouse; or
(iv) In a revocable trust in the Optionees name, provided that beneficial ownership is certified by the trustee as being in the Optionee or in the Optionee and spouse.
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(d) As soon as practicable after receipt by the Company of the required notice and payment in full of the Exercise Price (as well as any applicable Tax-Related Items as defined in paragraph 5(e)) for the shares purchased, a certificate or certificates representing the shares to be acquired by the Optionee shall be issued to the Optionee; provided that any certificate(s) for the shares purchased may be retained by the Company or its stock transfer agent or kept in a book-entry account by its stock transfer agent or may have such restrictive legends imprinted thereon prohibiting the transfer of such certificate(s) for such period as may be prescribed by the Committee. Subject to the foregoing, the Optionee shall have the rights of a shareholder with respect to such shares on the date the shares are delivered to the Optionee.
(e) Regardless of any action the Company and/or the Subsidiary employing the Optionee (the Employer) take with respect to any or all income tax (including U.S. federal, state, and local tax and/or non-U.S. tax), social insurance, payroll tax, payment on account or other tax-related withholding (Tax-Related Items), the Optionee acknowledges that the ultimate liability for all Tax-Related Items legally due by the Optionee is and remains the Optionees responsibility and that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Option, including the grant, vesting and exercise of the Option, the conversion of the Option into shares, the subsequent sale of any shares acquired pursuant to the Option and the receipt of any dividends; and (ii) do not commit to structure the terms of the grant or any aspect of the Option to reduce or eliminate the Optionees liability for Tax-Related Items. Prior to the relevant taxable event, the Optionee shall pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, the Optionee authorizes the Company and/or the Employer to satisfy the Tax-Related Items obligation by withholding otherwise deliverable shares of Common Stock, provided that the Company only withholds the amount of shares necessary to satisfy the minimum withholding amount or such other amount as may be necessary to avoid adverse accounting treatment. In addition, the Optionee authorizes the Company and/or the Employer, in their sole discretion and pursuant to such procedures as the Company may specify from time to time, to withhold any Tax-Related Items necessary to comply with legal requirements by one or more of the following means: (i) arranging for the sale of shares of Common Stock acquired upon the
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exercise of the Option (on the Optionees behalf and at the Optionees direction pursuant to this authorization) and withholding from the cash proceeds; and /or (ii) withholding from any wages or other cash compensation paid to the Optionee by the Company and/or the Employer. If the obligation for Tax-Related Items is satisfied by withholding a number of shares as described herein, the Optionee shall be deemed, for tax purposes only, to have been issued the full number of shares of Common Stock subject to the exercised portion of the Option, notwithstanding that a number of shares are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of the Option. The Optionee shall pay to the Company and/or the Employer any amount of Tax-Related Items that is required to be withheld in connection with the Option that cannot be satisfied by the means previously described. The Company may refuse to deliver to the Optionee any shares of Common Stock pursuant to the Option if the Optionee fails to comply with his or her obligations in connection with the Tax-Related Items as described in this paragraph.
(f) The date of exercise shall be the date the required notice is received by the Company; provided, however, that if payment in full is not received by the Company as described herein or as otherwise permitted by the Committee, such notice shall be deemed not to have been received.
6. Termination of Option . Unless the Committee shall exercise its discretion under Section 6.03 of the Plan, the Option shall immediately expire and will no longer be exercisable at the time the Optionee ceases to be employed by the Company or a Subsidiary, except as otherwise provided under Exercise After Termination of Service as set forth in the Notice.
7. Forfeiture . Notwithstanding any other provisions herein, the Optionee, by execution of this Agreement, agrees and acknowledges that in return for the Option granted by the Company herein, the following continuing conditions shall apply:
(a) If at any time within (i) the term of this Option or (ii) within one (1) year after the Optionee exercises any part of this Option, whichever is latest, the Optionee engages in any activity in competition with any activity of the Company or any of its Subsidiaries, or contrary or harmful to the interests of the Company or any of its Subsidiaries, including, but not limited to: (A) conduct related to the Optionees employment for which either criminal or civil penalties against the Optionee may be sought, (B) violation of Company (or Subsidiary) Business Conduct Policies, (C) accepting employment with or serving as a consultant, advisor or in any other capacity to an employer that is in competition with or acting against the
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interests of the Company or any of its Subsidiaries, including employing or recruiting any present, former or future employee of the Company or any of its Subsidiaries, (D) disclosing or misusing any confidential information or material concerning the Company or any of its Subsidiaries, or (E) participating in a hostile takeover attempt, then (1) this Option shall terminate effective as of the date on which the Optionee enters into such activity, unless terminated sooner by operation of another term or condition of this Agreement or the Plan, and (2) any Option Gain realized by the Optionee from exercising all or any portion of this Option within one (1) year prior to the Optionee entering into such activity shall be paid by the Optionee to the Company. Option Gain shall mean the gain represented by the Fair Market Value on the date of exercise over the Exercise Price, multiplied by the number of shares purchased, without regard to any subsequent market price decrease or increase.
(b) By accepting this Agreement, the Optionee consents to a deduction from any amounts the Company or any of its Subsidiaries owes the Optionee from time to time (including amounts owed to the Optionee as wages or other compensation, fringe benefits, or vacation pay, as well as any other amounts owed to the Optionee by the Company or any of its Subsidiaries), to the extent of the amounts owed to the Company by the Optionee under paragraph 7(a) above. Whether or not the Company elects to make any set-off in whole or in part, if the Company does not recover by means of set-off the full amount the Optionee owes it, calculated as set forth above, the Optionee agrees to pay immediately the unpaid balance to the Company.
(c) The Optionee may be released from the Optionees obligations under paragraphs 7(a) and 7(b) above only if the Committee (or its duly appointed agent) determines, in its sole discretion, that such action is in the best interests of the Company.
8. Acceleration of Vesting . Any Option not then exercisable under the terms of this Agreement shall, notwithstanding such terms, become fully vested and immediately exercisable upon the occurrence of any of the following events:
(a) the commencement of a tender offer or an exchange offer for the Common Stock; or
(b) a determination has been made that a Change in Control has occurred or is reasonably to be anticipated.
Upon becoming exercisable, any such Option shall remain so, notwithstanding the expiration or termination of the tender offer or the exchange offer or the subsequent failure of a Change in Control to occur until, by the terms of the Agreement covering it, such Option would otherwise have become exercisable.
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9. Nontransferability . The Option is not transferable by the Optionee except by will or the laws of descent and distribution, and may not be assigned, hypothecated or otherwise pledged and shall not be subject to execution, attachment or similar process. Further, the Option shall be exercisable during the Optionees lifetime only by the Optionee. Upon any attempt to effect any such disposition, or upon the levy of any such process, the Option shall immediately become null and void and the Option shall be forfeited.
10. Irrevocability . The rights and Option granted hereby may not be rescinded, modified, canceled or otherwise affected by the Company, except as provided herein (whether expressly or by incorporation by reference), without the written consent of the Optionee.
11. Choice of Law; Entire Agreement; Venue . The validity, construction and performance of this Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania without reference to any choice of law principles. The Notice, these Terms and Conditions and the Plan contain all terms and conditions with respect to the subject matter hereof.
For purposes of litigating any dispute that arises under the Option or this Agreement, the parties hereby submit to and consent to the jurisdiction of the Commonwealth of Pennsylvania, and agree that such litigation shall be conducted in the courts of Allegheny County, Pennsylvania, or other federal courts for the United States for the Western District of Pennsylvania, and no other courts, where this Option grant is made and/or to be performed. The parties agree that, if suit is filed in Allegheny County courts, application will be made by one or both parties, without objection, to have the case heard in the Center for Commercial and Complex Litigation of the Court of Common Pleas of Allegheny County.
12. Severability . If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, that provision will be enforced to the maximum extent permissible and the legality, validity and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
13. Notices . All notices provided for herein shall be in writing and, if to the Company, shall be delivered to the Treasurer of the Company or mailed to its principal office, One PPG Place, Pittsburgh, Pennsylvania 15272, addressed to the attention of the Treasurer, and, if to the Optionee, shall be delivered personally or mailed to the Optionee at the address appearing in the payroll records of the Company or a Subsidiary. Such addresses may be changed at any time by written notice to the other party.
14. Prospectus . By execution of this Agreement, the Optionee acknowledges receipt of the Prospectus dated February 1, 2007, concerning the Plan.
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15. Nonqualified Status . This Option shall, under no circumstances, be treated as an incentive stock option under Section 422 of the Code.
16. Further Assurances . The Optionee agrees, upon demand of the Company or the Committee, to do all acts and execute, deliver and perform all additional documents, instruments and agreements which may be reasonably required by the Company or the Committee, as the case may be, to implement the provisions and purposes of the Notice, this Agreement and the Plan.
17. Capitalization Adjustments . The number of shares of Common Stock subject to the Option is subject to adjustment as provided in Section 11.07(a) of the Plan. The Optionee shall be notified of such adjustment and such adjustment shall be binding upon the Company and the Optionee.
18. Option Confers No Rights to Continued Employment . Nothing contained in the Plan or this Agreement shall give the Optionee the right to be retained in the employment of the Company or any Subsidiary or affect the right of any such employer to terminate the Optionees employment.
19. Electronic Delivery . The Company may, in its sole discretion, decide to deliver any documents related to the Option or future awards under the Plan by electronic means or request the Optionees consent to participate in the Plan by electronic means. The Optionee hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
20. Code Section 409A . It is the intent that the grant, vesting and/or exercise of the Option set forth in this Agreement shall be exempt from the requirements of Section 409A of the Code, and any ambiguities herein will be interpreted to so comply. The Company reserves the right, to the extent the Company deems necessary or advisable in its sole discretion, to unilaterally amend or modify this Agreement as may be necessary to ensure that all grants, vesting and exercises provided under this Agreement are made in a manner that is exempt from Section 409A of the Code; provided, however, that the Company makes no representation that the Option provided under this Agreement will be exempt from and/or comply with Section 409A of the Code.
By accepting below, the Optionee agrees that this Option is granted under and governed by the terms and conditions of the Companys Omnibus Incentive Plan and this Agreement.
PPG Industries, Inc. | ||
By: |
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Name: | ||
Title: |
I Accept | I Do Not Accept |
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Exhibit 10.15
TSR SHARE AWARD AGREEMENT
[DATE OF GRANT]
This TSR SHARE AWARD AGREEMENT (this Agreement) is entered into as of the date first written above by and between PPG Industries, Inc. (the Company) and (the Participant).
The Company maintains the PPG Industries, Inc. Omnibus Incentive Plan (as amended from time to time, the Plan), which is incorporated into and forms a part of this Agreement, and the Participant has been selected by the Officers-Directors Compensation Committee (the Committee) to receive an Award under the Plan. The Award is intended to qualify as qualified performance-based compensation as described in Section 162(m)(4)(C) of the Code. Capitalized terms used in this Agreement shall, unless defined elsewhere in this Agreement, have the respective meanings given to such terms in the Plan.
The Award of TSR Shares shall be confirmed by a separate Grant Notice to which this Agreement is attached (the Grant Notice), specifying the Date of Grant of the Award, the number of TSR Shares granted and the Award Goals (as defined in the Grant Notice) applicable to such TSR Shares. Each TSR Share is a bookkeeping entry representing the equivalent in value of a share of Common Stock. Such Award shall be subject to the terms and conditions of this Agreement and such Grant Notice shall be deemed incorporated by reference into this Agreement.
NOW, THEREFORE, the Company and the Participant, intending to be legally bound, agree as follows:
1. | Terms and Conditions of the Award . |
A. | This Agreement sets forth the terms and conditions applicable to the Award of TSR Shares confirmed in the Grant Notice. The Award of TSR Shares is made under Article VIII of the Plan. Unless and until the TSR Shares are vested and certified in the manner set forth in paragraph 1.G. and 2.A. hereof, the Participant shall have no right to settlement of any such TSR Shares. |
B. | The Committee may terminate the Award at any time during the Award Period if, in its sole discretion, the Committee determines that the Participant is no longer in a position to have a substantial opportunity to influence the long-term growth of the Company. |
C. |
On each date that the Company pays a dividend on its Common Stock prior to the payout of the Award, the Participant shall be entitled to a Dividend Equivalent with respect to the target number of TSR Shares subject to the Award set forth in the Grant Notice. Unless prohibited under applicable law or otherwise |
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determined by the Committee in its discretion, the value of such Dividend Equivalents shall be automatically deferred, on behalf of the Participant, into the Participants account under the Deferred Compensation Plan in accordance with the Participants investment elections under such plan. For purposes of the time and form of payment requirements of Section 409A of the Code, such Dividend Equivalents shall be treated separately from the TSR Shares. |
D. | Prior to settlement of any vested TSR Shares, such TSR Shares will represent an unsecured obligation of the Company, payable (if at all) only from the general assets of the Company. The Companys obligations under this Agreement shall be unfunded and unsecured, and no special or separate fund shall be established and no other segregation of assets shall be made and the Participant shall have no greater rights than an unsecured general creditor of the Company. Except as otherwise specifically provided in the Grant Notice or this Agreement, the Participant shall have no rights as a stockholder of the Company by virtue of this Award unless and until such Award is determined to be vested and resulting shares of Common Stock are issued to the Participant. |
E. | If the Participants employment with the Company terminates during the Award Period but after the first anniversary of the Date of Grant because of retirement, disability or job elimination (each, as determined in the Committees sole discretion), the Participant shall be entitled to a prorated Award which shall be determined at the end of the Award Period by multiplying the lesser of (i) the target number of TSR Shares subject to the Award and (ii) the number of TSR Shares to which the Participant would otherwise have been entitled had the Participant continued in employment through the duration of the Award Period (based on actual performance as measured against the Award Goals in accordance with Section 162(m) of the Code) by a fraction, the numerator of which is the number of whole months the Participant was employed during the Award Period and the denominator of which is the total number of calendar months in the Award Period, and such Award shall be paid as soon as practicable following the Certification Date (as defined below), subject to paragraph 2.C. hereof; provided , however, that the Committee, in its sole discretion, may determine pursuant to the provisions of the Plan to reduce or eliminate any payout made or to be made to such Participant in respect of his or her Award. In the event of the Participants death during the Award Period but after the first anniversary of the Date of Grant, the Committee, in its sole discretion, shall determine the number of TSR Shares to which the Participant should be entitled, if any, not to exceed the maximum number of TSR Shares that are eligible to vest under the Award. Such Award shall be paid to the Participants Beneficiary as promptly as practicable following the Certification Date, subject to paragraph 2.C. hereof. |
F. |
If the Participants employment with the Company terminates during the Award Period for any reason other than retirement, disability, job elimination or death, or for any reason before the first anniversary of the Date of Grant, the Participants Award shall be forfeited on the date of such termination; provided , however, that |
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the Committee, in its sole discretion, may determine that the Participant will be entitled to a full or partial payout with respect to the Award, but in no event shall the amount of such payout exceed the amount that would be payable based on actual performance as measured against the Award Goals in accordance with Section 162(m) of the Code, in the case of a termination of the Participants employment due to retirement or job elimination. Any payout of the Award pursuant to this paragraph 1.F. shall be paid as soon as practicable following the Certification Date, subject to paragraph 2.C. hereof. |
G. | The Committee shall determine and certify in accordance with the requirements of Section 162(m) of the Code the extent, if any, to which the applicable Award Goals have been attained and the extent, if any, to which the Award has been earned by the Participant, as of the end of the Award Period or such other date as the Committee may select in its sole discretion (the Certification Date). The Committee shall have the negative discretion to reduce or eliminate any payout for the Award. The Committee may not increase the amount payable as a result of the performance as measured against the Award Goals. |
H. | The Award shall be subject to the provisions of Section 8.03 of the Plan concerning a Change in Control of the Company, in which case, the payout of the Award shall be made as soon as practicable following the date of the Change in Control, subject to paragraph 2.C. hereof; provided , however, that if the Change in Control would not constitute a change in control event under U.S. Treas. Reg. § 1.409A-3(i)(5), then the TSR Shares shall become fully vested as provided in Section 8.03 of the Plan, but the payout of the Award shall be made as soon as practicable following the Certification Date, subject to paragraph 2.C. hereof (for avoidance of doubt, the TSR Shares that vest pursuant to this paragraph 1.H. shall not be subject to the performance and certification procedures contemplated by Section 1.G. hereof). |
2. | Payout on Account of Awards . |
A. | Upon certification by the Committee of the level of attainment of the Award Goals in accordance with paragraph 1.G. hereof and satisfaction of all other applicable conditions as to the issuance of the TSR Shares, and otherwise subject to this Agreement and the terms of the Plan, the Participant shall be entitled to the number of shares of Common Stock constituting the Award as determined by the Committee. The Participant shall be entitled to receive payout of the vested Award in the form of cash, shares of Common Stock or a combination of cash and shares, less any Tax-Related Items as defined in paragraph 7, as determined by the Committee in its sole discretion. The amount of any cash to be paid in lieu of Common Stock shall be determined on the basis of the Fair Market Value of the Common Stock as of the last day of the Award Period. |
B. |
Any shares of Common Stock issued to the Participant with respect to his or her Award shall be subject to such restrictions as the Committee may deem advisable |
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under the rules, regulations and other requirements of the Securities and Exchange Commission, the New York Stock Exchange and any applicable state or foreign securities laws, and the Committee may cause a legend or legends to be endorsed on any stock certificates for such shares making appropriate references to such legal restrictions. |
C. |
Except as otherwise provided in this Agreement, and except in the event the Participant is permitted and has made an election to defer payout of the TSR Shares pursuant to the terms and conditions established by the Company, the issuance of the shares of Common Stock in accordance with the provisions of this paragraph 2 will be delivered as soon as practicable following the Certification Date or to the extent applicable under the provisions of paragraph 1.H. hereof, the date of a Change in Control (the earlier of the Certification Date and date of the Change in Control, the Payout Date), but in any event not later than (i) the last day of the calendar year in which the Payout Date occurs, or (ii) if later, the 15 th day of the third calendar month following the Payout Date. Payout of TSR Shares that have been deferred shall be governed by the terms and conditions of the deferral election form. |
3. | Continuing Conditions . Notwithstanding any other provisions herein, the Participant, by execution of this Agreement, agrees and acknowledges that in return for the Award granted by the Company in this Agreement, the following continuing conditions shall apply: |
A. | If at any time prior to the expiration of the Award Period or within one (1) year after the Award Period the Participant engages in any activity in competition with any activity of the Company or any of its Subsidiaries, or contrary or harmful to the interests of the Company or any of its Subsidiaries, including, but not limited to: (1) conduct related to the Participants employment for which either criminal or civil penalties against the Participant may be sought; (2) violation of Company (or Subsidiary) Business Conduct Policies; (3) accepting employment with or serving as a consultant, advisor or in any other capacity to an employer that is in competition with or acting against the interests of the Company or any of its Subsidiaries, including employing or recruiting any present, former or future employee of the Company or any of its Subsidiaries; (4) disclosing or misusing any confidential information or material concerning the Company or any of its Subsidiaries; or (5) participating in a hostile takeover attempt, then this Award shall terminate effective as of the date on which the Participant enters into such activity, unless terminated sooner by operation of another term or condition of this Agreement, and any Award Gain realized by the Participant shall be paid by the Participant to the Company. Award Gain shall mean the cash and the Fair Market Value of the Common Stock delivered to the Participant pursuant to paragraph 2 on the date of such delivery times the number of shares so delivered. Any shares of Common Stock deferred by the Participant shall be considered to have been delivered for the purpose of this paragraph 3. |
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B. | By accepting this Agreement, the Participant consents to a deduction from any amounts the Company or any of its Subsidiaries owes the Participant from time to time (including amounts owed the Participant as wages or other compensation, fringe benefits or vacation pay, as well as any other amounts owed to the Participant by the Company or any of its Subsidiaries), to the extent of the amounts payable to the Company by the Participant under paragraph 3.A. above. Whether or not the Company elects to make any set-off in whole or in part, if the Company does not recover by means of set-off the full amount payable by the Participant, calculated as set forth above, the Participant agrees to pay immediately the unpaid balance to the Company. |
C. | The Participant may be released from the Participants obligations under paragraphs 3.A and 3.B above only if the Committee determines, in its sole discretion, that such action is in the best interest of the Company. |
4. | Award Subject to Plan Provisions . Unless otherwise expressly provided in the Grant Notice or this Agreement, the TSR Share Award shall be subject to the provisions of the Plan, including, without limitation, Article XI. In the event of any conflict between this Agreement and either the Grant Notice or the Plan, the Grant Notice or Plan, as applicable, shall control over this Agreement. |
5. | Applicable Law; Entire Agreement; Venue . This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania without reference to any choice of law principles. The Grant Notice, this Agreement and the Plan contain all terms and conditions with respect to the subject matter hereof. |
For purposes of litigating any dispute that arises under the Award or this Agreement, the parties hereby submit to and consent to the jurisdiction of the Commonwealth of Pennsylvania, and agree that such litigation shall be conducted in the courts of Allegheny County, Pennsylvania, or other federal courts for the United States for the Western District of Pennsylvania, and no other courts, where this Award of TSR Shares is made and/or to be performed. The parties agree that, if suit is filed in Allegheny County courts, application will be made by one or both parties, without objection, to have the case heard in the Center for Commercial and Complex Litigation of the Court of Common Pleas of Allegheny County.
6. | Further Assurances . The Participant agrees, upon demand of the Company or the Committee, to do all acts and execute, deliver and perform all additional documents, instruments and agreements (including, without limitation, stock powers with respect to shares of Common Stock issued or otherwise distributed in relation to this Award) which may be reasonably required by the Company or the Committee, as the case may be, to implement the provisions and purposes of the Grant Notice, this Agreement and the Plan. |
7. |
Taxes . Regardless of any action the Company and/or the Subsidiary employing the Participant (the Employer) take with respect to any or all income tax (including U.S. federal, state, and local tax and/or non-U.S. tax), social insurance, payroll tax, payment |
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on account or other tax-related withholding (Tax-Related Items), the Participant acknowledges that the ultimate liability for all Tax-Related Items legally due by the Participant is and remains the Participants responsibility and that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Award, including the grant and vesting of the TSR Shares, the certification of the Award Goals, the conversion of the TSR Shares into shares or the receipt of an equivalent cash payment, the subsequent sale of any shares acquired pursuant to the TSR Shares and the receipt of any dividends or Dividend Equivalents; and (ii) do not commit to structure the terms of the grant or any aspect of the Award to reduce or eliminate the Participants liability for Tax-Related Items. |
Prior to the relevant taxable event, the Participant shall pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, the Participant authorizes the Company and/or the Employer to satisfy the Tax-Related Items obligation by withholding otherwise deliverable shares of Common Stock, provided that the Company only withholds the amount of shares necessary to satisfy the minimum withholding amount or such other amount as may be necessary to avoid adverse accounting treatment. In addition, the Participant authorizes the Company and/or the Employer, in their sole discretion and pursuant to such procedures as the Company may specify from time to time, to withhold any Tax-Related Items necessary to comply with legal requirements by one or more of the following means: (i) arranging for the sale of shares of Common Stock acquired upon the vesting of the Award (on the Participants behalf and at the Participants direction pursuant to this authorization) and withholding from the cash proceeds; and /or (ii) withholding from any wages or other cash compensation paid to the Participant by the Company and/or the Employer or from any equivalent cash payment received in connection with the Award. If the obligation for Tax-Related Items is satisfied by withholding a number of shares as described herein, the Participant shall be deemed, for tax purposes only, to have been issued the full number of shares of Common Stock subject to the vested portion of the Award, notwithstanding that a number of shares are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of the Award. The Participant shall pay to the Company and/or the Employer any amount of Tax-Related Items that is required to be withheld in connection with the TSR Shares that cannot be satisfied by the means previously described. The Company may refuse to deliver to the Participant any shares of Common Stock pursuant to the Award if the Participant fails to comply with his or her obligations in connection with the Tax-Related Items as described in this paragraph.
8. | Transfer Restrictions . This Award and the TSR Shares are not transferable other than by will or the laws of descent and distribution, and may not be assigned, hypothecated or otherwise pledged and shall not be subject to execution, attachment or similar process. Upon any attempt to effect any such disposition, or upon the levy of any such process, the Award shall immediately become null and void and the TSR Shares shall be forfeited. |
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9. | Capitalization Adjustments . The number of TSR Shares awarded is subject to adjustment as provided in Section 11.07(a) of the Plan. The Participant shall be notified of such adjustment and such adjustment shall be binding upon the Company and the Participant. |
10. | Securities Law Compliance . Notwithstanding anything to the contrary contained herein, no shares of Common Stock shall be issued to the Participant upon vesting of this Award unless the Common Stock is then registered under the U.S. Securities Act of 1933, as amended (the Securities Act) or, if such Common Stock is not then so registered, the Company has determined that such vesting and issuance would be exempt from the registration requirements of the Securities Act. By accepting this Award, the Participant agrees not to sell any of the shares of Common Stock received under this Award at a time when the applicable laws or Company policies prohibit a sale. |
11. | Award Confers No Rights to Continued Employment . Nothing contained in the Plan or this Agreement shall give the Participant the right to be retained in the employment of the Company or any Subsidiary or affect the right of any such employer to terminate the Participants employment. |
12. | Severability . If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, that provision will be enforced to the maximum extent permissible and the legality, validity and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. |
13. | Electronic Delivery . The Company may, in its sole discretion, decide to deliver any documents related to the Award or future awards under the Plan by electronic means or request the Participants consent to participate in the Plan by electronic means. The Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company. |
14. | Code Section 409A . It is the intent that the vesting or the payout of the TSR Shares set forth in this Agreement shall comply with the requirements of Section 409A of the Code, and any ambiguities herein will be interpreted to so comply. The Company reserves the right, to the extent the Company deems necessary or advisable in its sole discretion, to unilaterally amend or modify this Agreement as may be necessary to ensure that all vesting or payouts provided under this Agreement are made in a manner that complies with Section 409A of the Code; provided , however, that the Company makes no representation that the vesting or payout of TSR Shares provided under this Agreement will comply with Section 409A of the Code. |
PPG Industries, Inc. |
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By: |
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Name: | ||
Title: |
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Exhibit 10.16
RESTRICTED STOCK UNIT AWARD AGREEMENT
[FOR NON-162(M) COVERED EMPLOYEES]
[Date of Grant]
This RESTRICTED STOCK UNIT AWARD AGREEMENT (this Agreement) is entered into as of the date first written above by and between PPG Industries, Inc. (the Company) and (the Participant).
The Company maintains the PPG Industries, Inc. Omnibus Incentive Plan (as amended from time to time, the Plan), which is incorporated into and forms a part of this Agreement, and the Participant has been selected by the Officers-Directors Compensation Committee or its designee (as applicable, the Committee) to receive an Award under the Plan. Capitalized terms used in this Agreement shall, unless defined elsewhere in this Agreement, have the respective meanings given to such terms in the Plan.
The Award of Restricted Stock Units shall be confirmed by a separate Grant Notice to which this Agreement is attached (the Grant Notice), specifying the Date of Grant of the Award, the number of Restricted Stock Units granted and the Award Goals (as defined in the Grant Notice) applicable to such Restricted Stock Units. Each Restricted Stock Unit is a bookkeeping entry representing the equivalent in value of a share of Common Stock. Such Award shall be subject to the terms and conditions of this Agreement and such Grant Notice shall be deemed incorporated by reference into this Agreement.
NOW, THEREFORE, the Company and the Participant, intending to be legally bound, agree as follows:
1. | Terms and Conditions of the Award . |
A. | This Agreement sets forth the terms and conditions applicable to the Award of Restricted Stock Units confirmed in the Grant Notice. The Award of Restricted Stock Units is made under Article VII of the Plan. Unless and until the Restricted Stock Units are vested in the manner set forth in paragraph 1.F. and 2.A. hereof, the Participant shall have no right to settlement of any such Restricted Stock Units. |
B. | The Committee may terminate the Award at any time on or prior to the Vesting Date (as defined in the Grant Notice) if, in its sole discretion, the Committee determines that the Participant is no longer in a position to have a substantial opportunity to influence the long-term growth of the Company. |
C. | Prior to settlement of any vested Restricted Stock Units, such Restricted Stock Units will represent an unsecured obligation of the Company, payable (if at all) only from the general assets of the Company. The Companys obligations under this Agreement shall be unfunded and unsecured, and no special or separate fund shall be established and no other segregation of assets shall be made and the Participant shall have no greater rights than an unsecured general creditor of the Company. Except as otherwise specifically provided in the Grant Notice or this Agreement, the Participant shall have no rights as a stockholder of the Company by virtue of any Restricted Stock Units granted under this Award unless and until such Award is determined to be vested and resulting shares of Common Stock are issued to the Participant. |
D. | If the Participants employment with the Company terminates prior to the Vesting Date but after the first anniversary of the Date of Grant because of retirement, disability or job elimination (each, as determined in the Committees sole discretion), the Participant shall be entitled to the same Award to which the Participant would have been entitled had the Participants employment continued through the Vesting Date, and such Award shall be paid as soon as practicable following the Vesting Date, subject to paragraph 2.C. hereof; provided , however, that the Committee, in its sole discretion, may determine that the Participant will be entitled to a lesser Award. In the event of the Participants death during his or her employment with the Company prior to the Vesting Date but after the first anniversary of the Date of Grant, the Participants Award shall be deemed fully vested and such Award shall be paid to the Participants Beneficiary as promptly as practicable following the Participants death (the Accelerated Payout Date), subject to paragraph 2.C. hereof; provided , however, that the Committee, in its sole discretion, may determine that the Participant will be entitled to a lesser Award. |
E. | If the Participants employment with the Company terminates prior to the Vesting Date for any reason other than retirement, disability, job elimination or death, or for any reason before the first anniversary of the Date of Grant, the Participants Award shall be forfeited on the date of such termination; provided , however, that the Committee, in its sole discretion, may determine that the Participant will be entitled to a full or partial payout with respect to the Award, in which case the Award shall be paid as soon as practicable following the Vesting Date, subject to paragraph 2.C. hereof. |
F. | The Committee shall determine the extent, if any, to which the applicable Award Goals have been attained and the extent, if any, to which the Award has been earned by the Participant, as of the end of the Award Period or such other date as the Committee may select in its sole discretion. The Committee shall have the negative discretion to reduce or eliminate any payout for the Award. |
G. |
The Award shall be subject to the provisions of Section 7.04 of the Plan concerning a Change in Control of the Company, in which case the payout of the |
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Award shall be made as soon as practicable following the date of the Change in Control, subject to paragraph 2.C. hereof; provided , however, that if the Change in Control would not constitute a change in control event under U.S. Treas. Reg. § 1.409A-3(i)(5), then the restrictions to which the Restricted Stock Units are subject shall terminate as provided in Section 7.04 of the Plan, but the payout of the Award shall be made as soon as practicable following the Vesting Date, subject to paragraph 2.C. hereof. |
2. | Payout on Account of Awards . |
A. | Upon attainment of the Award Goals and satisfaction of all other applicable conditions as to the issuance of the Restricted Stock Units, and otherwise subject to this Agreement and the terms of the Plan, the Participant shall be entitled to the number of shares of Common Stock constituting the Award as determined by the Committee in accordance with paragraph 1.F. The Participant shall be entitled to receive a payout of the vested Award in the form of cash, shares of Common Stock or a combination of cash and shares, less any Tax-Related Items as defined in paragraph 7, as determined by the Committee in its sole discretion. The amount of any cash to be paid in lieu of Common Stock shall be determined on the basis of the Fair Market Value of the Common Stock as of the applicable Payout Date (as defined below). |
B. | Any shares of Common Stock issued to the Participant with respect to his or her Award shall be subject to such restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, the New York Stock Exchange and any applicable state or foreign securities laws, and the Committee may cause a legend or legends to be endorsed on any stock certificates for such shares making appropriate references to such legal restrictions. |
C. | Except as otherwise provided in this Agreement, and except in the event the Participant is permitted and has made an election to defer payout of the Restricted Stock Units pursuant to the terms and conditions established by the Company, the issuance of the shares of Common Stock in accordance with the provisions of this paragraph 2 will be delivered as soon as practicable following the earliest to occur of the Vesting Date, the Accelerated Payout Date, or to the extent applicable, the date of a Change in Control (the Payout Date), but in any event not later than (i) the last day of the calendar year in which the applicable Payout Date occurs, or (ii) if later, the 15th day of the third calendar month following the applicable Payout Date. Payout of Restricted Stock Units that have been deferred shall be governed by the terms and conditions of the deferral election form. |
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3. | Continuing Conditions . Notwithstanding any other provisions herein, the Participant, by execution of this Agreement, agrees and acknowledges that in return for the Award granted by the Company in this Agreement, the following continuing conditions shall apply: |
A. | If at any time prior to the Vesting Date or within one (1) year after the Vesting Date the Participant engages in any activity in competition with any activity of the Company or any of its Subsidiaries, or contrary or harmful to the interests of the Company or any of its Subsidiaries, including, but not limited to: (1) conduct related to the Participants employment for which either criminal or civil penalties against the Participant may be sought; (2) violation of Company (or Subsidiary) Business Conduct Policies; (3) accepting employment with or serving as a consultant, advisor or in any other capacity to an employer that is in competition with or acting against the interests of the Company or any of its Subsidiaries, including employing or recruiting any present, former or future employee of the Company or any of its Subsidiaries; (4) disclosing or misusing any confidential information or material concerning the Company or any of its Subsidiaries; or (5) participating in a hostile takeover attempt, then this Award shall terminate effective as of the date on which the Participant enters into such activity, unless terminated sooner by operation of another term or condition of this Agreement, and any Award Gain realized by the Participant shall be paid by the Participant to the Company. Award Gain shall mean the cash and the Fair Market Value of the Common Stock delivered to the Participant pursuant to paragraph 2 on the date of such delivery times the number of shares so delivered. Any shares of Common Stock deferred by the Participant shall be considered to have been delivered for the purpose of this paragraph 3. |
B. | By accepting this Agreement, the Participant consents to a deduction from any amounts the Company or any of its Subsidiaries owes the Participant from time to time (including amounts owed the Participant as wages or other compensation, fringe benefits or vacation pay, as well as any other amounts owed to the Participant by the Company or any of its Subsidiaries), to the extent of the amounts payable to the Company by the Participant under paragraph 3.A. above. Whether or not the Company elects to make any set-off in whole or in part, if the Company does not recover by means of set-off the full amount payable by the Participant, calculated as set forth above, the Participant agrees to pay immediately the unpaid balance to the Company. |
C. | The Participant may be released from the Participants obligations under paragraphs 3.A and 3.B above only if the Committee determines, in its sole discretion, that such action is in the best interest of the Company. |
4. | Award Subject to Plan Provisions . Unless otherwise expressly provided in the Grant Notice or this Agreement, the Restricted Stock Unit Award shall be subject to the provisions of the Plan, including, without limitation, Article XI. In the event of any conflict between this Agreement and either the Grant Notice or the Plan, the Grant Notice or Plan, as applicable, shall control over this Agreement. |
5. | Applicable Law; Entire Agreement; Venue . This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania without reference to any choice of law principles. The Grant Notice, this Agreement and the Plan contain all terms and conditions with respect to the subject matter hereof. |
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For purposes of litigating any dispute that arises under the Award or this Agreement, the parties hereby submit to and consent to the jurisdiction of the Commonwealth of Pennsylvania, and agree that such litigation shall be conducted in the courts of Allegheny County, Pennsylvania, or other federal courts for the United States for the Western District of Pennsylvania, and no other courts, where this Award of Restricted Stock Units is made and/or to be performed. The parties agree that, if suit is filed in Allegheny County courts, application will be made by one or both parties, without objection, to have the case heard in the Center for Commercial and Complex Litigation of the Court of Common Pleas of Allegheny County.
6. | Further Assurances . The Participant agrees, upon demand of the Company or the Committee, to do all acts and execute, deliver and perform all additional documents, instruments and agreements (including, without limitation, stock powers with respect to shares of Common Stock issued or otherwise distributed in relation to this Award) which may be reasonably required by the Company or the Committee, as the case may be, to implement the provisions and purposes of the Grant Notice, this Agreement and the Plan. |
7. | Taxes . Regardless of any action the Company and/or the Subsidiary employing the Participant (the Employer) take with respect to any or all income tax (including U.S. federal, state, and local tax and/or non-U.S. tax), social insurance, payroll tax, payment on account or other tax-related withholding (Tax-Related Items), the Participant acknowledges that the ultimate liability for all Tax-Related Items legally due by the Participant is and remains the Participants responsibility and that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Award, including the grant and vesting of the Restricted Stock Units, the conversion of the Restricted Stock Units into shares or the receipt of an equivalent cash payment, the subsequent sale of any shares acquired pursuant to the Restricted Stock Units and the receipt of any dividends or Dividend Equivalents; and (ii) do not commit to structure the terms of the grant or any aspect of the Award to reduce or eliminate the Participants liability for Tax-Related Items. |
Prior to the relevant taxable event, the Participant shall pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, the Participant authorizes the Company and/or the Employer to satisfy the Tax-Related Items obligation by withholding otherwise deliverable shares of Common Stock, provided that the Company only withholds the amount of shares necessary to satisfy the minimum withholding amount or such other amount as may be necessary to avoid adverse accounting treatment. In addition, the Participant authorizes the Company and/or the Employer, in their sole discretion and pursuant to such procedures as the Company may specify from time to time, to withhold any Tax-Related Items necessary to comply with legal requirements by one or more of the following means: (i) arranging for the sale of shares of Common Stock acquired upon the vesting
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of the Award (on the Participants behalf and at the Participants direction pursuant to this authorization) and withholding from the cash proceeds; and /or (ii) withholding from any wages or other cash compensation paid to the Participant by the Company and/or the Employer or from any equivalent cash payment received in connection with the Award. If the obligation for Tax-Related Items is satisfied by withholding a number of shares as described herein, the Participant shall be deemed, for tax purposes only, to have been issued the full number of shares of Common Stock subject to the vested portion of the Award, notwithstanding that a number of shares are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of the Award. The Participant shall pay to the Company and/or the Employer any amount of Tax-Related Items that is required to be withheld in connection with the Restricted Stock Units that cannot be satisfied by the means previously described. The Company may refuse to deliver to the Participant any shares of Common Stock pursuant to the Award if the Participant fails to comply with his or her obligations in connection with the Tax-Related Items as described in this paragraph.
8. | Transfer Restrictions . This Award and the Restricted Stock Units are not transferable other than by will or the laws of descent and distribution, and may not be assigned, hypothecated or otherwise pledged and shall not be subject to execution, attachment or similar process. Upon any attempt to effect any such disposition, or upon the levy of any such process, the Award shall immediately become null and void and the Restricted Stock Units shall be forfeited. |
9. | Capitalization Adjustments . The number of Restricted Stock Units awarded is subject to adjustment as provided in Section 11.07(a) of the Plan. The Participant shall be notified of such adjustment and such adjustment shall be binding upon the Company and the Participant. |
10. | Securities Law Compliance . Notwithstanding anything to the contrary contained herein, no shares of Common Stock shall be issued to the Participant upon vesting of this Restricted Stock Unit Award unless the Common Stock is then registered under the U.S. Securities Act of 1933, as amended (the Securities Act) or, if such Common Stock is not then so registered, the Company has determined that such vesting and issuance would be exempt from the registration requirements of the Securities Act. By accepting this Award, the Participant agrees not to sell any of the shares of Common Stock received under this Award at a time when the applicable laws or Company policies prohibit a sale. |
11. | Award Confers No Rights to Continued Employment . Nothing contained in the Plan or this Agreement shall give the Participant the right to be retained in the employment of the Company or any Subsidiary or affect the right of any such employer to terminate the Participants employment. |
12. | Severability . If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, that provision will be enforced to the maximum extent permissible and the legality, validity and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. |
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13. | Electronic Delivery . The Company may, in its sole discretion, decide to deliver any documents related to the Award or future awards under the Plan by electronic means or request the Participants consent to participate in the Plan by electronic means. The Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company. |
14. | Code Section 409A . It is the intent that the vesting or the payout of the Restricted Stock Units set forth in this Agreement shall comply with the requirements of Section 409A of the Code, and any ambiguities herein will be interpreted to so comply. The Company reserves the right, to the extent the Company deems necessary or advisable in its sole discretion, to unilaterally amend or modify this Agreement as may be necessary to ensure that all vesting or payouts provided under this Agreement are made in a manner that complies with Section 409A of the Code; provided , however, that the Company makes no representation that the vesting or payout of Restricted Stock Units provided under this Agreement will comply with Section 409A of the Code. |
PPG Industries, Inc. | ||
By: |
|
|
Name: | ||
Title: |
I Accept | I Do Not Accept |
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Exhibit 10.17
RESTRICTED STOCK UNIT AWARD AGREEMENT
[Date of Grant]
This RESTRICTED STOCK UNIT AWARD AGREEMENT (this Agreement) is entered into as of the date first written above by and between PPG Industries, Inc. (the Company) and (the Participant).
The Company maintains the PPG Industries, Inc. Omnibus Incentive Plan (as amended from time to time, the Plan), which is incorporated into and forms a part of this Agreement, and the Participant has been selected by the Officers-Directors Compensation Committee (the Committee) to receive an Award under the Plan. The Award is intended to qualify as qualified performance-based compensation as described in Section 162(m)(4)(C) of the Code. Capitalized terms used in this Agreement shall, unless defined elsewhere in this Agreement, have the respective meanings given to such terms in the Plan.
The Award of Restricted Stock Units shall be confirmed by a separate Grant Notice to which this Agreement is attached (the Grant Notice), specifying the Date of Grant of the Award, the number of Restricted Stock Units granted and the Award Goals (as defined in the Grant Notice) applicable to such Restricted Stock Units. Each Restricted Stock Unit is a bookkeeping entry representing the equivalent in value of a share of Common Stock. Such Award shall be subject to the terms and conditions of this Agreement and such Grant Notice shall be deemed incorporated by reference into this Agreement.
NOW, THEREFORE, the Company and the Participant, intending to be legally bound, agree as follows:
1. | Terms and Conditions of the Award . |
A. | This Agreement sets forth the terms and conditions applicable to the Award of Restricted Stock Units confirmed in the Grant Notice. The Award of Restricted Stock Units is made under Article VII of the Plan. Unless and until the Restricted Stock Units are vested and certified in the manner set forth in paragraph 1.F. and 2.A. hereof, the Participant shall have no right to settlement of any such Restricted Stock Units. |
B. | The Committee may terminate the Award at any time on or prior to the Vesting Date (as defined in the Grant Notice) if, in its sole discretion, the Committee determines that the Participant is no longer in a position to have a substantial opportunity to influence the long-term growth of the Company. |
C. |
Prior to settlement of any vested Restricted Stock Units, such Restricted Stock Units will represent an unsecured obligation of the Company, payable (if at all) |
only from the general assets of the Company. The Companys obligations under this Agreement shall be unfunded and unsecured, and no special or separate fund shall be established and no other segregation of assets shall be made and the Participant shall have no greater rights than an unsecured general creditor of the Company. Except as otherwise specifically provided in the Grant Notice or this Agreement, the Participant shall have no rights as a stockholder of the Company by virtue of any Restricted Stock Units granted under this Award unless and until such Award is determined to be vested and resulting shares of Common Stock are issued to the Participant. |
D. | If the Participants employment with the Company terminates prior to the Vesting Date but after the first anniversary of the Date of Grant because of retirement, disability or job elimination (each, as determined in the Committees sole discretion), the Participant shall be entitled to the same Award to which the Participant would have been entitled had the Participants employment continued through the Vesting Date (based on actual performance as measured against the Award Goals), and such Award shall be paid as soon as practicable following the Certification Date (as defined below), subject to paragraph 2.C. hereof; provided , however, that the Committee, in its sole discretion, may determine that the Participant will be entitled to a lesser Award. In the event of the Participants death during his or her employment with the Company prior to the Vesting Date but after the first anniversary of the Date of Grant, the Participants Award shall be deemed fully vested and such Award shall be paid to the Participants Beneficiary as promptly as practicable following the Participants death (the Accelerated Payout Date), subject to paragraph 2.C. hereof; provided , however, that the Committee, in its sole discretion, may determine that the Participant will be entitled to a lesser Award. |
E. | If the Participants employment with the Company terminates prior to the Vesting Date for any reason other than retirement, disability, job elimination or death, or for any reason before the first anniversary of the Date of Grant, the Participants Award shall be forfeited on the date of such termination; provided , however, that the Committee, in its sole discretion, may determine that the Participant will be entitled to a full or partial payout with respect to the Award, but in no event shall the amount of such payout exceed the amount that would be payable based on actual performance as measured against the Award Goals in accordance with the requirements of Section 162(m) of the Code, in the case of a termination of the Participants employment due to retirement or job elimination. Any payout of the Award pursuant to this paragraph 2.E. shall be paid as soon as practicable following the Certification Date, subject to paragraph 2.C. hereof. |
F. |
The Committee shall determine and certify in accordance with the requirements of Section 162(m) of the Code the extent, if any, to which the applicable Award Goals have been attained and the extent, if any, to which the Award has been earned by the Participant, as of the end of the Award Period or such other date as the Committee may select in its sole discretion (the Certification Date). The |
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Committee shall have the negative discretion to reduce or eliminate any payout for the Award. The Committee may not increase the amount payable as a result of the performance as measured against the Award Goals. |
G. | The Award shall be subject to the provisions of Section 7.04 of the Plan concerning a Change in Control of the Company, in which case the payout of the Award shall be made as soon as practicable following the date of the Change in Control, subject to paragraph 2.C. hereof; provided , however, that if the Change in Control would not constitute a change in control event under U.S. Treas. Reg. § 1.409A-3(i)(5), then the restrictions to which the Restricted Stock Units are subject shall terminate as provided in Section 7.04 of the Plan, but the payout of the Award shall be made as soon as practicable following the Certification Date, subject to paragraph 2.C. hereof (for avoidance of doubt, the Restricted Stock Units that vest pursuant to this paragraph 1.G. shall not be subject to the performance and certification procedures contemplated by Section 1.F. hereof). |
2. | Payout on Account of Awards . |
A. | Upon certification by the Committee of the level of attainment of the Award Goals in accordance with paragraph 1.F. hereof and satisfaction of all other applicable conditions as to the issuance of the Restricted Stock Units, and otherwise subject to this Agreement and the terms of the Plan, the Participant shall be entitled to the number of shares of Common Stock constituting the Award as determined by the Committee. The Participant shall be entitled to receive a payout of the vested Award in the form of cash, shares of Common Stock or a combination of cash and shares, less any Tax-Related Items as defined in paragraph 7, as determined by the Committee in its sole discretion. The amount of any cash to be paid in lieu of Common Stock shall be determined on the basis of the Fair Market Value of the Common Stock as of the applicable Payout Date (as defined below). |
B. | Any shares of Common Stock issued to the Participant with respect to his or her Award shall be subject to such restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, the New York Stock Exchange and any applicable state or foreign securities laws, and the Committee may cause a legend or legends to be endorsed on any stock certificates for such shares making appropriate references to such legal restrictions. |
C. |
Except as otherwise provided in this Agreement, and except in the event the Participant is permitted and has made an election to defer payout of the Restricted Stock Units pursuant to the terms and conditions established by the Company, the issuance of the shares of Common Stock in accordance with the provisions of this paragraph 2 will be delivered as soon as practicable following the earliest to occur of the Certification Date, the Accelerated Payout Date, or to the extent applicable, the date of a Change in Control (the Payout Date), but in any event not later |
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than (i) the last day of the calendar year in which the applicable Payout Date occurs, or (ii) if later, the 15th day of the third calendar month following the applicable Payout Date. Payout of Restricted Stock Units that have been deferred shall be governed by the terms and conditions of the deferral election form. |
3. | Continuing Conditions . Notwithstanding any other provisions herein, the Participant, by execution of this Agreement, agrees and acknowledges that in return for the Award granted by the Company in this Agreement, the following continuing conditions shall apply: |
A. | If at any time prior to the Vesting Date or within one (1) year after the Vesting Date the Participant engages in any activity in competition with any activity of the Company or any of its Subsidiaries, or contrary or harmful to the interests of the Company or any of its Subsidiaries, including, but not limited to: (1) conduct related to the Participants employment for which either criminal or civil penalties against the Participant may be sought; (2) violation of Company (or Subsidiary) Business Conduct Policies; (3) accepting employment with or serving as a consultant, advisor or in any other capacity to an employer that is in competition with or acting against the interests of the Company or any of its Subsidiaries, including employing or recruiting any present, former or future employee of the Company or any of its Subsidiaries; (4) disclosing or misusing any confidential information or material concerning the Company or any of its Subsidiaries; or (5) participating in a hostile takeover attempt, then this Award shall terminate effective as of the date on which the Participant enters into such activity, unless terminated sooner by operation of another term or condition of this Agreement, and any Award Gain realized by the Participant shall be paid by the Participant to the Company. Award Gain shall mean the cash and the Fair Market Value of the Common Stock delivered to the Participant pursuant to paragraph 2 on the date of such delivery times the number of shares so delivered. Any shares of Common Stock deferred by the Participant shall be considered to have been delivered for the purpose of this paragraph 3. |
B. | By accepting this Agreement, the Participant consents to a deduction from any amounts the Company or any of its Subsidiaries owes the Participant from time to time (including amounts owed the Participant as wages or other compensation, fringe benefits or vacation pay, as well as any other amounts owed to the Participant by the Company or any of its Subsidiaries), to the extent of the amounts payable to the Company by the Participant under paragraph 3.A. above. Whether or not the Company elects to make any set-off in whole or in part, if the Company does not recover by means of set-off the full amount payable by the Participant, calculated as set forth above, the Participant agrees to pay immediately the unpaid balance to the Company. |
C. | The Participant may be released from the Participants obligations under paragraphs 3.A and 3.B above only if the Committee determines, in its sole discretion, that such action is in the best interest of the Company. |
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4. | Award Subject to Plan Provisions . Unless otherwise expressly provided in the Grant Notice or this Agreement, the Restricted Stock Unit Award shall be subject to the provisions of the Plan, including, without limitation, Article XI. In the event of any conflict between this Agreement and either the Grant Notice or the Plan, the Grant Notice or Plan, as applicable, shall control over this Agreement. |
5. | Applicable Law; Entire Agreement; Venue . This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania without reference to any choice of law principles. The Grant Notice, this Agreement and the Plan contain all terms and conditions with respect to the subject matter hereof. |
For purposes of litigating any dispute that arises under the Award or this Agreement, the parties hereby submit to and consent to the jurisdiction of the Commonwealth of Pennsylvania, and agree that such litigation shall be conducted in the courts of Allegheny County, Pennsylvania, or other federal courts for the United States for the Western District of Pennsylvania, and no other courts, where this Award of Restricted Stock Units is made and/or to be performed. The parties agree that, if suit is filed in Allegheny County courts, application will be made by one or both parties, without objection, to have the case heard in the Center for Commercial and Complex Litigation of the Court of Common Pleas of Allegheny County.
6. | Further Assurances . The Participant agrees, upon demand of the Company or the Committee, to do all acts and execute, deliver and perform all additional documents, instruments and agreements (including, without limitation, stock powers with respect to shares of Common Stock issued or otherwise distributed in relation to this Award) which may be reasonably required by the Company or the Committee, as the case may be, to implement the provisions and purposes of the Grant Notice, this Agreement and the Plan. |
7. | Taxes . Regardless of any action the Company and/or the Subsidiary employing the Participant (the Employer) take with respect to any or all income tax (including U.S. federal, state, and local tax and/or non-U.S. tax), social insurance, payroll tax, payment on account or other tax-related withholding (Tax-Related Items), the Participant acknowledges that the ultimate liability for all Tax-Related Items legally due by the Participant is and remains the Participants responsibility and that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Award, including the grant and vesting of the Restricted Stock Units, the certification of the Award Goals, the conversion of the Restricted Stock Units into shares or the receipt of an equivalent cash payment, the subsequent sale of any shares acquired pursuant to the Restricted Stock Units and the receipt of any dividends or Dividend Equivalents; and (ii) do not commit to structure the terms of the grant or any aspect of the Award to reduce or eliminate the Participants liability for Tax-Related Items. |
Prior to the relevant taxable event, the Participant shall pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related
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Items. In this regard, the Participant authorizes the Company and/or the Employer to satisfy the Tax-Related Items obligation by withholding otherwise deliverable shares of Common Stock, provided that the Company only withholds the amount of shares necessary to satisfy the minimum withholding amount or such other amount as may be necessary to avoid adverse accounting treatment. In addition, the Participant authorizes the Company and/or the Employer, in their sole discretion and pursuant to such procedures as the Company may specify from time to time, to withhold any Tax-Related Items necessary to comply with legal requirements by one or more of the following means: (i) arranging for the sale of shares of Common Stock acquired upon the vesting of the Award (on the Participants behalf and at the Participants direction pursuant to this authorization) and withholding from the cash proceeds; and /or (ii) withholding from any wages or other cash compensation paid to the Participant by the Company and/or the Employer or from any equivalent cash payment received in connection with the Award. If the obligation for Tax-Related Items is satisfied by withholding a number of shares as described herein, the Participant shall be deemed, for tax purposes only, to have been issued the full number of shares of Common Stock subject to the vested portion of the Award, notwithstanding that a number of shares are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of the Award. The Participant shall pay to the Company and/or the Employer any amount of Tax-Related Items that is required to be withheld in connection with the Restricted Stock Units that cannot be satisfied by the means previously described. The Company may refuse to deliver to the Participant any shares of Common Stock pursuant to the Award if the Participant fails to comply with his or her obligations in connection with the Tax-Related Items as described in this paragraph.
8. | Transfer Restrictions . This Award and the Restricted Stock Units are not transferable other than by will or the laws of descent and distribution, and may not be assigned, hypothecated or otherwise pledged and shall not be subject to execution, attachment or similar process. Upon any attempt to effect any such disposition, or upon the levy of any such process, the Award shall immediately become null and void and the Restricted Stock Units shall be forfeited. |
9. | Capitalization Adjustments . The number of Restricted Stock Units awarded is subject to adjustment as provided in Section 11.07(a) of the Plan. The Participant shall be notified of such adjustment and such adjustment shall be binding upon the Company and the Participant. |
10. | Securities Law Compliance . Notwithstanding anything to the contrary contained herein, no shares of Common Stock shall be issued to the Participant upon vesting of this Restricted Stock Unit Award unless the Common Stock is then registered under the U.S. Securities Act of 1933, as amended (the Securities Act) or, if such Common Stock is not then so registered, the Company has determined that such vesting and issuance would be exempt from the registration requirements of the Securities Act. By accepting this Award, the Participant agrees not to sell any of the shares of Common Stock received under this Award at a time when the applicable laws or Company policies prohibit a sale. |
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11. | Award Confers No Rights to Continued Employment . Nothing contained in the Plan or this Agreement shall give the Participant the right to be retained in the employment of the Company or any Subsidiary or affect the right of any such employer to terminate the Participants employment. |
12. | Severability . If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, that provision will be enforced to the maximum extent permissible and the legality, validity and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. |
13. | Electronic Delivery . The Company may, in its sole discretion, decide to deliver any documents related to the Award or future awards under the Plan by electronic means or request the Participants consent to participate in the Plan by electronic means. The Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company. |
14. | Code Section 409A . It is the intent that the vesting or the payout of the Restricted Stock Units set forth in this Agreement shall comply with the requirements of Section 409A of the Code, and any ambiguities herein will be interpreted to so comply. The Company reserves the right, to the extent the Company deems necessary or advisable in its sole discretion, to unilaterally amend or modify this Agreement as may be necessary to ensure that all vesting or payouts provided under this Agreement are made in a manner that complies with Section 409A of the Code; provided , however, that the Company makes no representation that the vesting or payout of Restricted Stock Units provided under this Agreement will comply with Section 409A of the Code. |
PPG Industries, Inc. | ||
By: |
|
|
Name: | ||
Title: |
I Accept | I Do Not Accept |
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Exhibit 12
PPG INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(Dollars in millions)
Year Ended December 31 | |||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||
Earnings: |
|||||||||||||||
Earnings before income taxes and net earnings in equity affiliates |
$ | 904 | $ | 1,282 | $ | 1,018 | $ | 967 | $ | 1,041 | |||||
Plus: |
|||||||||||||||
Fixed charges exclusive of capitalized interest |
343 | 156 | 137 | 129 | 132 | ||||||||||
Amortization of capitalized interest |
7 | 7 | 8 | 9 | 10 | ||||||||||
Adjustments for equity affiliates |
18 | 21 | 16 | 20 | 6 | ||||||||||
Total |
$ | 1,271 | $ | 1,466 | $ | 1,179 | $ | 1,125 | $ | 1,189 | |||||
Fixed Charges |
|||||||||||||||
Interest expense including amortization of debt discount/premium and debt expense |
$ | 254 | $ | 93 | $ | 83 | $ | 81 | $ | 90 | |||||
Rentals - portion representative of interest |
89 | 63 | 54 | 48 | 42 | ||||||||||
Fixed charges exclusive of capitalized interest |
343 | 156 | 137 | 129 | 132 | ||||||||||
Capitalized interest |
8 | 11 | 7 | 5 | 3 | ||||||||||
Total |
$ | 351 | $ | 167 | $ | 144 | $ | 134 | $ | 135 | |||||
Ratio of earnings to fixed charges |
3.6 | 8.8 | 8.2 | 8.4 | 8.8 | ||||||||||
The financial information of all prior periods has been reclassified to reflect discontinued operations.
Exhibit 13.1
PPG INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
Market Information, Dividends and Holders of Common Stock
For the Year Ended December 31, 2008
Market Information
Stock Exchange Listings
PPG common stock is traded on the New York stock exchange (symbol: PPG).
Quarterly Stock Market Price
2008 | 2007 | |||||||||||
Quarter Ended |
High | Low | High | Low | ||||||||
March 31 |
$ | 71.00 | $ | 57.15 | $ | 72.40 | $ | 64.01 | ||||
June 30 |
66.53 | 56.39 | 78.80 | 69.94 | ||||||||
September 30 |
69.89 | 54.04 | 82.42 | 67.81 | ||||||||
December 31 |
59.10 | 35.94 | 79.95 | 64.93 | ||||||||
Dividends |
||||||||||||
2008 | 2007 | |||||||||||
Month of Payment |
Amount
(Millions) |
Per
Share |
Amount
(Millions) |
Per
Share |
||||||||
March |
$ | 85 | $ | 0.52 | $ | 82 | $ | 0.50 | ||||
June |
86 | 0.52 | 83 | 0.50 | ||||||||
September |
85 | 0.52 | 85 | 0.52 | ||||||||
December |
87 | 0.53 | 85 | 0.52 | ||||||||
Total |
$ | 343 | $ | 2.09 | $ | 335 | $ | 2.04 | ||||
PPG has paid uninterrupted dividends since 1899. The latest quarterly dividend of 53 cents per share was approved by the board of directors on January 15, 2009, payable March 12, 2009 to shareholders of record February 20, 2009.
Holders of Common Stock
The number of holders of record of PPG common stock as of January 31, 2009, was 21,784, as shown on the records of the Companys transfer agent.
Exhibit 13.2
PPG INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
Selected Financial Data
(Millions, except per share amounts)
Year Ended December 31 | |||||||||||||||||
2008(1) | 2007(2) | 2006(2) | 2005(2) | 2004(2) | |||||||||||||
Net sales |
$ | 15,849 | $ | 12,220 | $ | 10,938 | $ | 10,126 | $ | 9,417 | |||||||
Income from continuing operations |
538 | 856 | 707 | 622 | 682 | ||||||||||||
Income from discontinued operations, net of tax |
| (22 | ) | 4 | (26 | ) | 1 | ||||||||||
Net income |
538 | 834 | 711 | 596 | 683 | ||||||||||||
Earnings per common share: |
|||||||||||||||||
Income from continuing operations |
3.27 | 5.20 | 4.27 | 3.66 | 3.97 | ||||||||||||
Income from discontinued operations |
| (0.13 | ) | 0.02 | (0.15 | ) | 0.01 | ||||||||||
Net income |
3.27 | 5.07 | 4.29 | 3.51 | 3.98 | ||||||||||||
Earnings per common share - assuming dilution: |
|||||||||||||||||
Income from continuing operations |
3.25 | 5.16 | 4.25 | 3.64 | 3.94 | ||||||||||||
Income from discontinued operations |
| (0.13 | ) | 0.02 | (0.15 | ) | 0.01 | ||||||||||
Net income |
3.25 | 5.03 | 4.27 | 3.49 | 3.95 | ||||||||||||
Dividends per share |
2.09 | 2.04 | 1.91 | 1.86 | 1.79 | ||||||||||||
Total assets |
14,698 | 12,629 | 10,067 | 8,681 | 8,932 | ||||||||||||
Long-term debt |
3,009 | 1,201 | 1,155 | 1,169 | 1,184 |
(1) | The financial information presented for 2008 includes the acquired businesses of SigmaKalon from January 2, 2008. |
(2) | The financial information presented for 2004-2007 reflects the reclassification of the automotive glass and services business from discontinued operations, as presented in the 2007 annual report, to continuing operations. |
Exhibit 21
PPG Industries, Inc.
And Consolidated Subsidiaries
Subsidiaries of the Registrant
December 31, 2008
Significant subsidiaries included in the 2008 consolidated financial statements of the Company are:
Percentage of
Voting Power |
|||
United States: |
|||
LYNX Services, L.L.C. Kansas |
100 | % | |
Pinetree Stockholding Corporation Delaware |
100 | ||
PPG Architectural Finishes, Inc. Delaware |
100 | ||
PPG Capital LLC Delaware |
100 | ||
PPG Industries Fiber Glass Products, Inc. Delaware |
100 | ||
PPG Industries International, Inc. Delaware |
100 | ||
PPG Industries Ohio, Inc. Delaware |
100 | ||
PPG Industries Securities, Inc. Delaware |
100 | ||
PPG Kansai Automotive Finishes U.S., LLC Delaware |
60 | ||
PRC-DeSoto International, Inc. California |
100 | ||
Sierracin Corporation Delaware |
100 | ||
Sierracin/Sylmar Corporation California |
100 | ||
Stan-Mark, Inc. Delaware |
100 | ||
The CEI Group, Inc. Pennsylvania |
75 | ||
Transitions Optical, Inc. Delaware |
51 | ||
Canada: |
|||
PPG Canada Inc. Canada |
100 | ||
Europe: |
|||
Bellaria S.p.A. Italy |
100 | ||
Brown Brothers Distribution UK Ltd. United Kingdom |
100 | ||
Compagnie Equatoriale des Peintures S.A. Cameroon |
51.44 | ||
F.C.C. Coatings Funds de Commun de Creance France |
100 | ||
Gabonaise de Peintures et Laques S.A. Gabon |
47.18 | ||
Group 26 Diversified Holdings Ireland Ireland |
100 | ||
Intercast Europe S.R.L. Italy |
100 | ||
Johnstones Paints Limited United Kingdom |
100 | ||
Kalon Investment Company Limited- United Kingdom |
100 | ||
Kalon South Africa Proprietary Limited South Africa |
100 | ||
Kolormax, s.r.o Slovakia |
100 | ||
La Seigneurie Caraibes France |
100 | ||
La Seigneurie Ocean Indien France |
51 | ||
Necarbo B.V. The Netherlands |
100 | ||
PPG AC France S.A. France |
99.93 | ||
PPG AC Holdservices S.A. France |
99.99 | ||
PPG AC International S.A.S. France |
100 | ||
PPG Architectural Coatings Ireland Limited Ireland |
100 | ||
PPG Architectural Coatings UK Limited United Kingdom |
100 | ||
PPG B.V. The Netherlands |
100 | ||
PPG Coatings B.V. The Netherlands |
100 | ||
PPG Coatings SA France |
99.85 | ||
PPG Coating Sprl/Bvba. The Netherlands |
100 | ||
PPG Coatings Belux N.V. Belgium |
100 | ||
PPG Coatings Danmark AS Denmark |
100 | ||
PPG Coatings Deutschland GmbH Germany |
100 | ||
PPG Coatings Europe B.V. The Netherlands |
100 | ||
PPG Coatings Italy Srl. Italy |
100 | ||
PPG Coatings Nederland BV The Netherlands |
100 | ||
PPG Deco Polska Sp. Z.o.o Poland |
100 |
PPG Industries, Inc.
And Consolidated Subsidiaries
Subsidiaries of the Registrant
December 31, 2008
Europe (continued): |
||
PPG Deutschland Business Supoort GmbH Germany |
100 | |
PPG Deutschland Sales & Services GmbHGermany |
100 | |
PPG Distribution France |
100 | |
PPG Dr. Schoch AG Switzerland |
100 | |
PPG Europe B.V. The Netherlands |
100 | |
PPG Finance N.L. BV The Netherlands |
100 | |
PPG France Business Support SAS France |
100 | |
PPG France Manufacturing SAS France |
100 | |
PPG Grand Public S.A. France |
99.99 | |
PPG Helios Limited Slovenia |
100 | |
PPG Holdco SAS France |
100 | |
PPG Holding Netherlands B.V. The Netherlands |
100 | |
PPG Holding SAS France |
100 | |
PPG Holdings (U.K.) Limited United Kingdom |
100 | |
PPG Iberica, S.A. Spain |
100 | |
PPG Iberica Sales & Services, S.L. Spain. |
100 | |
PPG Industrial Coatings B.V. The Netherlands |
100 | |
PPG Industries Belgium BVBA Belgium |
100 | |
PPG Industries Chemicals B.V. The Netherlands |
100 | |
PPG Industries Europe (EEIG) France |
100 | |
PPG Industries Europe Sàrl Switzerland |
100 | |
PPG Industries Fiber Glass B.V. The Netherlands |
100 | |
PPG Industries France SAS France |
100 | |
PPG Industries Italia S.p.A. Italy |
100 | |
PPG Industries Kimya Sanayi ve Ticaret Anonim Sirketi Turkey |
100 | |
PPG Industries Lackfabrik GmbH Germany |
100 | |
PPG Industries Netherlands B.V. The Netherlands |
100 | |
PPG Industries Poland Sp. Zo.o. Poland |
100 | |
PPG Industries (UK) Limited England |
100 | |
PPG Ireland International Financial Company Limited Ireland |
100 | |
PPG Italia Business Support S.r.l Italy |
100 | |
PPG Italia Sales & Services S.r.L. Italy. |
100 | |
PPG Kansai Automotive Finishes U.K. LLP England |
60 | |
PPG Luxembourg Finance S.àR.L. Luxembourg |
100 | |
PPG Luxembourg Holdings S.àR.L. Luxembourg |
100 | |
PPG Polifarb Cieszyn S.A. Poland |
100 | |
PPG Retail Europe S.A.S. France |
100 | |
PPG Revestimentos para Automoveis AEIE Portugal |
100 | |
PPG Service Sud S.r.l. Italy |
100 | |
Primalex a.s. Czech Republic |
100 | |
Primalex Slovakia s.r.o Slovakia |
100 | |
Prominent Paints Proprietary Limited South Africa |
100 | |
SigmaKalon (BC) UK Limited United Kingdom |
100 | |
SigmaKalon UK Holding Limited United Kingdom |
100 | |
Sigma Marine & Protective Coatings Holding B.V. The Netherlands |
100 | |
Transitions Optical Holdings B.V. The Netherlands |
51 | |
Transitions Optical Limited Ireland |
51 | |
Trilak Festekgyarto Korlatolt Felelossegu Tarsasag Hungary |
100 | |
Triga Color a.s. Czech Republic |
100 | |
Asia/Pacific: |
||
PPG Coatings (Hong Kong) Co., Limited Hong Kong |
100 | |
PPG Coatings (Kunshan) Co., Limited China |
100 | |
PPG Coatings (Malaysia) Sdn. Bhd. Malaysia |
100 | |
PPG Coatings (Singapore) Pte. Ltd. Singapore |
100 | |
PPG Coatings (Suzhou) Company Ltd. China |
100 |
PPG Industries, Inc.
And Consolidated Subsidiaries
Subsidiaries of the Registrant
December 31, 2008
Asia/Pacific (continued): |
||
PPG Coatings (Thailand) Co., Ltd. Thailand |
100 | |
PPG Coatings (Tianjin) Co., Ltd. China |
100 | |
PPG Industries Australia PTY Limited A.C.N. 055 500 939 Australia |
100 | |
PPG Industries (Korea) Ltd. Korea |
100 | |
PPG Industries New Zealand Limited New Zealand |
100 | |
PPG Industries (Singapore) Pte., Ltd. Singapore |
100 | |
PPG Japan Ltd.- Japan |
100 | |
PPG Packaging Coatings (Suzhou) Co., Ltd. China |
90.4 | |
PPG Paints Trading (Shanghai) Co., Ltd. China |
100 | |
PPG Performance Coatings (Hong Kong) Limited Hong Kong |
100 | |
PPG Performance Coatings (Malaysia) Sdn. Bhd. Malaysia |
100 | |
PRC-DeSoto Australia Pty Ltd. Australia |
100 | |
Protec Pty Ltd (A.C.N. 007 857 392) Australia |
100 | |
PT PPG Coatings (Indonesia) Indonesia |
100 | |
SigmaKalon India Private Limited India |
100 | |
SigmaKalon Ivy (Shanghai) Chemicals Co. Ltd. China |
100 | |
Sigma Samsung Coatings Co., Ltd South Korea |
60 | |
Sigma Shinto Coatings Co., Ltd. Japan |
95 | |
Solarlens Co., Ltd. Thailand |
100 | |
Taiwan Chlorine Industries Ltd. Taiwan |
60 | |
Transitions Optical Philippines, Inc. Philippines |
51 | |
Transitions Optical PTY Ltd. Australia |
100 | |
Transitions Optical (Thailand) Ltd. Thailand |
51 | |
Varossieau Suriname N.V. Suriname |
100 | |
South America: |
||
Pinturas Renner Chile S.A. Chile |
100 | |
PPG Industrial do Brasil Tintas E Vernizes Ltda. Brazil |
100 | |
PPG Industries Argentina S.A. Argentina |
100 | |
Tintas Ideal S.A. Uruguay |
100 | |
Transitions Optical do Brasil Limitada Brazil |
51 | |
Mexico: |
||
PPG ALESCO Automotive Finishes Mexico, S. de R.L. de C.V. |
60 | |
PPG Industries de Mexico, S.A. de C.V. |
100 | |
Other: |
||
EPIC Insurance Co. Ltd. Bermuda |
100 |
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-145063 on Form S-3 and in Registration Statement Nos. 33-53235, 33-58909, 33-64077, 333-13605, 333-118207, 333-124537, 333-140559, 333-140561, and 333-140562 on Form S-8 of our reports dated February 19, 2009, relating to the financial statements and financial statement schedule of PPG Industries, Inc. (which report expresses and unqualified opinion and includes an explanatory paragraph relating to PPG Industries, Inc.s adoption as of January 1, 2007 of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109) and the effectiveness of PPG Industries Inc.s internal control over financial reporting, appearing in this Annual Report on Form 10-K of PPG Industries, Inc. for the year ended December 31, 2008.
/s/ DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
February 19, 2009
Exhibit 24
PPG INDUSTRIES, INC.
POWER OF ATTORNEY
(10-K)
I, James G. Berges, a Director of PPG Industries, Inc. (the Corporation), a Pennsylvania corporation, hereby constitute and appoint C. E. Bunch, W. H. Hernandez and J. C. Diggs, or any of them, my true and lawful attorneys or attorneys-in-fact, with full power of substitution and revocation, to sign, in my name and on my behalf as a Director of the Corporation, the Corporations Form 10-K for the fiscal year ended December 31, 2008, to be filed with the Securities and Exchange Commission, Washington, DC.
WITNESS my hand this 19 th day of February 2009.
/s/ James G. Berges |
James G. Berges |
PPG INDUSTRIES, INC.
POWER OF ATTORNEY
(10-K)
I, Hugh Grant, a Director of PPG Industries, Inc. (the Corporation), a Pennsylvania corporation, hereby constitute and appoint C. E. Bunch, W. H. Hernandez and J. C. Diggs, or any of them, my true and lawful attorneys or attorneys-in-fact, with full power of substitution and revocation, to sign, in my name and on my behalf as a Director of the Corporation, the Corporations Form 10-K for the fiscal year ended December 31, 2008, to be filed with the Securities and Exchange Commission, Washington, DC.
WITNESS my hand this 19 th day of February 2009.
/s/ Hugh Grant |
Hugh Grant |
PPG INDUSTRIES, INC.
POWER OF ATTORNEY
(10-K)
I, Victoria F. Haynes, a Director of PPG Industries, Inc. (the Corporation), a Pennsylvania corporation, hereby constitute and appoint C. E. Bunch, W. H. Hernandez and J. C. Diggs, or any of them, my true and lawful attorneys or attorneys-in-fact, with full power of substitution and revocation, to sign, in my name and on my behalf as a Director of the Corporation, the Corporations Form 10-K for the fiscal year ended December 31, 2008, to be filed with the Securities and Exchange Commission, Washington, DC.
WITNESS my hand this 19 th day of February 2009.
/s/ Victoria F. Haynes |
Victoria F. Haynes |
PPG INDUSTRIES, INC.
POWER OF ATTORNEY
(10-K)
I, Michele J. Hooper, a Director of PPG Industries, Inc. (the Corporation), a Pennsylvania corporation, hereby constitute and appoint C. E. Bunch, W. H. Hernandez and J. C. Diggs, or any of them, my true and lawful attorneys or attorneys-in-fact, with full power of substitution and revocation, to sign, in my name and on my behalf as a Director of the Corporation, the Corporations Form 10-K for the fiscal year ended December 31, 2008, to be filed with the Securities and Exchange Commission, Washington, DC.
WITNESS my hand this 19 th day of February 2009.
/s/ Michele J. Hooper |
Michele J. Hooper |
PPG INDUSTRIES, INC.
POWER OF ATTORNEY
(10-K)
I, Robert Mehrabian, a Director of PPG Industries, Inc. (the Corporation), a Pennsylvania corporation, hereby constitute and appoint C. E. Bunch, W. H. Hernandez and J. C. Diggs, or any of them, my true and lawful attorneys or attorneys-in-fact, with full power of substitution and revocation, to sign, in my name and on my behalf as a Director of the Corporation, the Corporations Form 10-K for the fiscal year ended December 31, 2008, to be filed with the Securities and Exchange Commission, Washington, DC.
WITNESS my hand this 19 th day of February 2009.
/s/ Robert Mehrabian |
Robert Mehrabian |
PPG INDUSTRIES, INC.
POWER OF ATTORNEY
(10-K)
I, Martin H. Richenhagen, a Director of PPG Industries, Inc. (the Corporation), a Pennsylvania corporation, hereby constitute and appoint C. E. Bunch, W. H. Hernandez and J. C. Diggs, or any of them, my true and lawful attorneys or attorneys-in-fact, with full power of substitution and revocation, to sign, in my name and on my behalf as a Director of the Corporation, the Corporations Form 10-K for the fiscal year ended December 31, 2008, to be filed with the Securities and Exchange Commission, Washington, DC.
WITNESS my hand this 19 th day of February 2009.
/s/ Martin H. Richenhagen |
Martin H. Richenhagen |
PPG INDUSTRIES, INC.
POWER OF ATTORNEY
(10-K)
I, Robert Ripp, a Director of PPG Industries, Inc. (the Corporation), a Pennsylvania corporation, hereby constitute and appoint C. E. Bunch, W. H. Hernandez and J. C. Diggs, or any of them, my true and lawful attorneys or attorneys-in-fact, with full power of substitution and revocation, to sign, in my name and on my behalf as a Director of the Corporation, the Corporations Form 10-K for the fiscal year ended December 31, 2008, to be filed with the Securities and Exchange Commission, Washington, DC.
WITNESS my hand this 19 th day of February 2009.
/s/ Robert Ripp |
Robert Ripp |
PPG INDUSTRIES, INC.
POWER OF ATTORNEY
(10-K)
I, Thomas J. Usher, a Director of PPG Industries, Inc. (the Corporation), a Pennsylvania corporation, hereby constitute and appoint C. E. Bunch, W. H. Hernandez and J. C. Diggs, or any of them, my true and lawful attorneys or attorneys-in-fact, with full power of substitution and revocation, to sign, in my name and on my behalf as a Director of the Corporation, the Corporations Form 10-K for the fiscal year ended December 31, 2008, to be filed with the Securities and Exchange Commission, Washington, DC.
WITNESS my hand this 19 th day of February 2009.
/s/ Thomas J. Usher |
Thomas J. Usher |
PPG INDUSTRIES, INC.
POWER OF ATTORNEY
(10-K)
I, David R. Whitwam, a Director of PPG Industries, Inc. (the Corporation), a Pennsylvania corporation, hereby constitute and appoint C. E. Bunch, W. H. Hernandez and J. C. Diggs, or any of them, my true and lawful attorneys or attorneys-in-fact, with full power of substitution and revocation, to sign, in my name and on my behalf as a Director of the Corporation, the Corporations Form 10-K for the fiscal year ended December 31, 2008, to be filed with the Securities and Exchange Commission, Washington, DC.
WITNESS my hand this 19 th day of February 2009.
/s/ David R. Whitwam |
David R. Whitwam |
Exhibit 31.1
PRINCIPAL EXECUTIVE OFFICER CERTIFICATION
I, Charles E. Bunch, certify that:
1. | I have reviewed this annual report on Form 10-K of PPG Industries, Inc. (PPG or the registrant); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of PPG as of, and for, the periods presented in this report; |
4. | PPGs other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for PPG and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to PPG, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of PPGs disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in PPGs internal control over financial reporting that occurred during PPGs most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, PPGs internal control over financial reporting; and |
5. | PPGs other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to PPGs auditors and the audit committee of PPGs Board of Directors: |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect PPGs ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in PPGs internal control over financial reporting. |
/s/ Charles E. Bunch |
Charles E. Bunch Chairman of the Board and Chief Executive Officer February 19, 2009 |
Exhibit 31.2
PRINCIPAL FINANCIAL OFFICER CERTIFICATION
I, William H. Hernandez, certify that:
1. | I have reviewed this annual report on Form 10-K of PPG Industries, Inc. (PPG or the registrant); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of PPG as of, and for, the periods presented in this report; |
4. | PPGs other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for PPG and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to PPG, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of PPGs disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in PPGs internal control over financial reporting that occurred during PPGs most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, PPGs internal control over financial reporting; and |
5. | PPGs other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to PPGs auditors and the audit committee of PPGs Board of Directors: |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect PPGs ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in PPGs internal control over financial reporting. |
/s/ William H. Hernandez |
William H. Hernandez
Senior Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
February 19, 2009
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report on Form 10-K of PPG Industries, Inc. for the period ended December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Charles E. Bunch, Chief Executive Officer of PPG Industries, Inc., certify to the best of my knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of PPG Industries, Inc. |
/s/ Charles E. Bunch |
Charles E. Bunch
Chairman of the Board and Chief Executive Officer
February 19, 2009
A signed original of this written statement required by Section 906 has been provided to PPG Industries, Inc. and will be retained by PPG Industries, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report on Form 10-K of PPG Industries, Inc. for the period ended December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, William H. Hernandez, Chief Financial Officer of PPG Industries, Inc., certify to the best of my knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of PPG Industries, Inc. |
/s/ William H. Hernandez |
William H. Hernandez
Senior Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
February 19, 2009
A signed original of this written statement required by Section 906 has been provided to PPG Industries, Inc. and will be retained by PPG Industries, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.