10-K 1 ppg-20141231x10k.htm 2014 FORM 10-K PPG-2014.12.31-10K
                                                
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, 2014
 
Commission File Number 1-1687
 PPG INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania
  
25-0730780
(State or other jurisdiction of
  
(I.R.S. Employer
incorporation or organization)
  
Identification No.)
 
 
One PPG Place, Pittsburgh, Pennsylvania
  
15272
(Address of principal executive offices)
  
(Zip code)
 
 
Registrant’s telephone number, including area code:
  
412-434-3131
 Securities Registered Pursuant to Section 12(b) of the Act:
 
 
Name of each exchange on
Title of each class
  
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 checkmark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  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 Registrant’s 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                   o
Non-accelerated filer  o
 
Smaller reporting company  o
(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  o    NO  ý
 The aggregate market value of common stock held by non-affiliates as of June 30, 2014, was $28,854 million.
As of January 31, 2015, 136,050,193 shares of the Registrant’s 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 $30,204 million.
 DOCUMENTS INCORPORATED BY REFERENCE
 
 
Incorporated By
Document
  
Reference In Part No.
Portions of PPG Industries, Inc. Proxy Statement for its 2015 Annual Meeting of Shareholders
  
III

2014 PPG ANNUAL REPORT AND FORM 10-K 7


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.
__________________________________________________________

TABLE OF CONTENTS
 
 
 
Page
Part I
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
Part II
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
 
Part III
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
Part IV
 
 
Item 15.
 
 
 
Note on Incorporation by Reference
Throughout this report, various information and data are incorporated by reference from the Company’s 2014 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.
 

8 2014 PPG ANNUAL REPORT AND FORM 10-K


Part I
 
 

Item 1. Business
 PPG Industries, Inc., manufactures and distributes a broad range of coatings, specialty materials and glass products. The Company, incorporated in Pennsylvania in 1883, is comprised of three reportable business segments: Performance Coatings, Industrial Coatings and Glass. Each of the business segments in which PPG operates is highly competitive. The Company's diversification of product lines and worldwide markets served tends to minimize the impact on PPG’s total net sales and income from continuing operations from changes in demand either for a particular product line or in a particular geographic area.
In November 2014, PPG finalized the acquisition of Consorcio Comex, S.A. de C.V. ("Comex"), an architectural coatings company headquartered in Mexico City, Mexico. The acquisition further expands PPG's global coatings business and adds a leading architectural coatings business in Mexico and Central America. Refer to Note 2, "Acquisitions and Dispositions" under Item 8 of this Form 10-K for further information regarding this acquisition.
In March 2014, PPG completed the sale of its 51% ownership interest in its Transitions Optical joint venture and 100% of its optical sunlens business to Essilor International (Compagnie Generale D'Optique) SA ("Essilor"). Refer to Note 2, “Acquisitions and Dispositions” under Item 8 of this Form 10-K for further information relating to this transaction.
In conjunction with the Company’s continued strategic focus on its coatings businesses, including the growth of the Company's global architectural coatings business, as well as the divestiture of its interest in its Transitions Optical joint venture and sunlens business, the Company realigned its segment reporting structure in the quarter ended March 31, 2014. Under the new segment reporting structure, the Company's reportable business segments changed from the five segments of Performance Coatings, Industrial Coatings, Architectural Coatings-Europe, Middle East and Africa ("EMEA"), Optical and Specialty Materials and Glass to the three reportable segments noted above. Refer to Note 19, "Reportable Business Segment Information” under Item 8 of this Form 10-K for financial information relating to our reportable business segments.
Performance Coatings and Industrial Coatings
 PPG is a major global supplier of coatings. The Performance Coatings and Industrial Coatings reportable segments supply coatings and specialty materials 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 coatings to the automotive original equipment market (“OEM”), PPG supplies refinishes to the automotive aftermarket. PPG also serves commercial and residential new build and maintenance markets by supplying coatings to painting and maintenance contractors and directly to consumers for decoration and maintenance. The coatings industry is highly competitive and consists of several large
 
firms with global presence and many smaller firms serving local or regional markets. PPG competes in its primary markets with the world’s largest coatings companies, most of which have global operations, and many smaller regional coatings companies. Product development, innovation, distribution, quality and technical and customer service have been stressed by PPG and have been significant factors in developing an important supplier position by PPG’s coatings businesses comprising the Performance Coatings and Industrial Coatings reportable segments.
Performance Coatings
The Performance Coatings reportable segment is comprised of the refinish, aerospace, protective and marine, architectural – Americas and Asia Pacific and architectural – EMEA coatings businesses.
Price, product performance, technology, quality, distribution, brand recognition and technical and customer service are major competitive factors in the performance coatings businesses.
The refinish coatings business supplies coatings products for automotive and commercial transport/fleet repair and refurbishing, light industrial coatings and specialty coatings for signs. These products are sold primarily through independent distributors.
The aerospace coatings business supplies sealants, coatings, maintenance cleaners and transparencies for commercial, military, regional jet and general aviation aircraft and transparent armor for specialty applications and also provides chemical management services for the aerospace industry. PPG supplies products to aircraft manufacturers and 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 and rail cars. These products are sold through company-owned architectural coatings stores, independent distributors and directly to customers.
The architectural coatings-Americas and Asia Pacific business primarily produces coatings used by painting and maintenance contractors and by consumers for decoration and maintenance of residential and commercial building structures. These coatings are sold under a number of brands, including PPG®, GLIDDEN®, COMEX®, OLYMPIC®, DULUX® (in Canada), SIKKENS®, PPG PITTSBURGH PAINTS®, MULCO®, FLOOD®, LIQUID NAILS®, SICO®, CIL®, RENNER®, TAUBMANS®, WHITE KNIGHT®, and BRISTOL®. Architectural coatings – Americas and Asia Pacific products are also sold through a combination of company-owned stores, home centers and other regional or national consumer retail outlets, paint dealers, concessionaires and independent distributors and directly to customers. At the end of 2014, the architectural coatings-Americas and Asia Pacific business operated about 900 company-owned stores in


2014 PPG ANNUAL REPORT AND FORM 10-K 9


North America. As a result of the Comex acquisition, PPG has expanded its presence in Mexico and Central America and now sells coatings and related products through more than 3,700 stores that are independently owned and operated by more than 700 concessionaires. The architectural coatings-Americas and Asia Pacific business also operates about 40 company-owned stores in Australia.
The Architectural Coatings – EMEA business supplies a variety of coatings and purchased sundries to painting contractors and consumers in Europe, the Middle East and Africa. The coatings are sold under a number of brands, including SIGMA®, HISTOR®, SEIGNEURIE®, GUITTET®, PEINTURES GAUTHIER®, RIPOLIN®, JOHNSTONE'S®, LEYLAND®, PRIMALEX®, DEKORAL®, TRILAK®, PROMINENT PAINTS®, GORI®, and BONDEX®. Architectural Coatings – EMEA products are sold through a combination of about 675 company-owned stores, regional home centers, paint dealers, and independent distributors and directly to customers.
The major global competitors of the Performance Coatings reportable segment are Akzo Nobel N.V., Axalta Coating Systems Ltd., BASF Corporation, Hempel A/S, the Jotun Group, Masco Corporation, the Sherwin-Williams Company, Valspar Corporation, Benjamin Moore, Materis Paints and RPM International Inc. The average number of persons employed by the Performance Coatings reportable segment during 2014 was about 26,400.
Industrial Coatings
The Industrial Coatings reportable segment is comprised of the automotive OEM, industrial coatings, packaging coatings, and specialty coatings and materials businesses. Industrial, automotive OEM, packaging coatings, and specialty coatings and materials products are formulated specifically for the customers’ needs and application methods.
Price, product performance, technology, cost effectiveness, quality and technical and customer service are major competitive factors in the industrial, automotive OEM and packaging coatings businesses.
The industrial and automotive OEM 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 has established alliances with Kansai Paints and Asian Paints Ltd. to serve certain automotive original equipment manufacturers and aftermarket customers in various regions of the world. PPG owns a 60% interest in PPG Kansai Automotive Finishes to serve Japanese-based automotive OEM customers in North America and Europe. In 2014, PPG acquired the ownership interest of Helios Group, the minority partner in the former PPG-Helios joint venture which serves Russian-based automotive OEM customers in Russia and the Ukraine. The packaging coatings business supplies coatings to the manufacturers of aerosol, food, and metal beverage containers.
The primary specialty coatings and materials products are amorphous precipitated silicas for tire, battery separator and other end-use markets; TESLIN® substrate used in such applications as radio frequency identification (RFID) tags and
 
labels, e-passports, drivers’ licenses and identification cards; Organic Light Emitting Diode (OLED) materials for use in displays and lighting; optical lens materials and photochromic dyes for optical lenses and color-change products. Product quality and performance, distribution and technical service are the most critical competitive factors to the specialty coatings and materials business.
The major global competitors of the Industrial Coatings reportable segment are Akzo Nobel N.V., Axalta Coating Systems Ltd., BASF Corporation, Valspar Corporation, and Nippon Paint. The average number of persons employed by the Industrial Coatings reportable segment during 2014 was about 10,900.
Glass
The Glass reportable business segment is comprised of the flat glass and fiber glass businesses. PPG is a producer of flat glass in North America and a producer of fiber glass in North America and Europe, as well as Asia through our partnership with Nan Ya Plastics Corp to serve the electronics industries. PPG’s 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.
Price, quality, technology and customer service are the key competitive factors in the glass businesses. The Company competes with several major producers of flat glass, including Asahi Glass Company, Cardinal Glass Industries, Guardian Industries and NSG Pilkington, and many major producers of fiber glass throughout the world, including Owens Corning, Jushi Group, Johns Manville Corporation, CPIC Fiberglass, AGY, NEG, 3B and Taishan Fiberglass. The average number of persons employed by the Glass reportable segment during 2014 was about 3,100.
Raw Materials and Energy
The effective management of raw materials and energy is important to PPG’s continued success. The Company’s most significant raw materials are epoxy and other resins, titanium dioxide and other pigments, and solvents in the coatings segments; sand and soda ash for the specialty coatings and materials business; and sand, clay and soda ash in the Glass segment. Coatings raw materials, which include both organic, primarily petroleum based, materials and inorganic materials, including titanium dioxide, generally comprise between 70% and 80% of cost of goods sold, excluding depreciation and amortization, in most coatings formulations and represent PPG’s single largest production cost component.
Energy is a significant production cost in the Glass segment, and our primary energy source is natural gas. With the separation of the commodity chemicals business in 2013, PPG's consumption of natural gas decreased significantly. Natural gas is expected to remain a competitive fuel source when compared to alternatives, especially on a global basis. We will continue to use competitive sourcing and consumption reduction initiatives to manage natural gas costs.


10 2014 PPG ANNUAL REPORT AND FORM 10-K


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. Our products use both petroleum-derived and bio-based materials as part of a product renewal strategy. While prices for these raw materials typically fluctuate with energy prices, such fluctuations are impacted by the fact that our raw materials are downstream from crude oil and natural gas.
The Company is continuing its aggressive sourcing initiatives to broaden our supply of high quality raw materials. These initiatives include qualifying multiple and local sources of supply, including suppliers from Asia and other lower cost regions of the world and a reduction in the amount of titanium dioxide used in our product formulations.
Our global efforts to reduce titanium dioxide consumption have been successful to date and are expected to continue. Titanium dioxide is a raw material widely used in the paint and coatings industry as a pigment to provide hiding, durability and whiteness characteristics. PPG purchases both sulfate-grade and chloride-grade titanium dioxide from suppliers for use in coatings formulations. The Company has undertaken a strategic initiative to secure and enhance PPG’s supply of titanium dioxide, as well as to add to the global supply of this raw material. PPG possesses intellectual property and expertise in the production and finishing of titanium dioxide pigment and has and intends to continue to leverage this and engage potential parties to develop innovative supply solutions through technical collaborations, joint ventures, licensing or other commercial initiatives.
PPG signed a license agreement with Henan Billions Chemicals Co., Ltd. ("Billions"), under which PPG has licensed certain chloride-based titanium dioxide technologies to Billions for use at Billions’ titanium dioxide refinement facilities in China. In addition, PPG has signed a long-term purchase agreement for titanium dioxide with Billions. In 2014, construction of Billions' titanium dioxide manufacturing and research facility was completed in the Henan Province of China. The facility is scheduled to begin production in the first half of 2015. PPG intends to use the chloride-based titanium dioxide manufactured by Billions for various end-use paint and coatings applications. Billions is also able to sell its chloride-based titanium dioxide to third parties.
In 2013, PPG signed a purchase and supply agreement as well as a research services agreement with Argex Titanium Inc. ("Argex") whereby PPG is providing technical support to Argex in connection with their efforts to develop a unique and low cost process to manufacture pigment grade titanium dioxide.
We are subject to existing and evolving standards relating to the registration of chemicals which 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.
Changes to chemical registration regulations have been proposed or implemented in the EU and many other countries, including China, Canada, the United States, and Korea. Because implementation of many of these programs has not been finalized, the financial impact cannot be estimated at this time. We anticipate that the number of chemical registration regulations will continue to increase globally, and we have implemented programs to track and comply with these regulations.
Given the volatility of certain energy-based input costs at the end of 2014, the Company is negotiating with suppliers on pricing for various raw materials.  Initial discussions have resulted in a slight downward bias on the price of certain oil-derived materials, which account for a portion of the Company’s overall raw material spend.  The Company is also experiencing moderate inflation in certain other raw materials and other expense categories, including employee-related wage and benefit costs.  Given the recent volatility in certain energy-based input costs, the Company is not able to predict with certainty the 2015 full year impact of related changes in raw material pricing.
Research and Development
Technology innovation has been a hallmark of PPG’s success throughout its history. Research and development costs, including depreciation of research facilities, were $509 million, $479 million and $444 million during 2014, 2013 and 2012, respectively. These costs totaled approximately 3% of annual sales in 2014, 2013 and 2012, respectively. We have obtained government funding of a small portion of the Company's research efforts, and we will continue to pursue government funding where appropriate.
PPG owns and operates several facilities to conduct research and development relating to new and improved products and processes. In addition to the Company's centralized principal research and development centers (See Item 2 of this Form 10-K), operating segments manage their development regionally through centers of excellence. As part of our ongoing efforts to manage our formulations and raw material costs effectively, we operate a global competitive sourcing laboratory in China. Because of the Company’s broad array of products and customers, PPG is not materially dependent upon any single technology platform.
The Company seeks to optimize its investment in research and development to create new products to drive profitable growth. We align our product development with the macro trends in the end-use markets we serve and leverage core technology platforms to develop products for unmet market needs. Our history of successful technology introductions is based on a commitment to an efficient and effective innovation process and disciplined portfolio management.


2014 PPG ANNUAL REPORT AND FORM 10-K 11


 Patents
PPG considers patent protection to be important; however, the Company’s reportable business segments are not materially dependent upon any single patent or group of related patents. PPG earned $50 million in 2014, $48 million in 2013 and $51 million in 2012 from royalties and the sale of technical know-how.
Backlog
In general, PPG does not manufacture its products against a backlog of orders. Production and inventory levels are geared primarily to projections of future demand and the level of incoming orders.
Global Operations
PPG has a significant investment in non-U.S. operations. This broad geographic footprint serves to lessen the significance of economic impacts occurring in any one region. As a result of our expansion outside the U.S., we are subject to certain inherent risks, including economic and political conditions in international markets and fluctuations in foreign currency exchange rates.
Our net sales in the developed and emerging regions of the world for the years ended December 31st are summarized below:
($ in millions)
 
Net Sales
 
 
2014
 
2013
 
2012
United States, Canada, Western Europe
 
$
11,139

 
$
10,311

 
$
8,767

Latin America, Central and Eastern Europe, Middle East, Africa, Asia Pacific
 
4,221

 
3,954

 
3,919

Total
 
$
15,360

 
$
14,265

 
$
12,686

Refer to Note 19 "Reportable Business Segment Information" under Item 8 of this Form 10-K for geographic information related to PPG's property, plant and equipment, and for additional geographic information pertaining to sales.
Seasonality
PPG’s income from continuing operations have typically been greater in the second and third quarters and cash flow from operations has been greatest in the fourth quarter due to end-use market seasonality, primarily in PPG’s architectural coatings businesses. Demand for PPG’s architectural coatings products is typically strongest in the second and third quarters due to higher home improvement, maintenance and construction activity during the spring and summer months in the U.S., Canada and Europe. The Latin America paint season is strongest in the fourth quarter. These higher activity levels result in higher outstanding receivables that are collected in the fourth quarter generating higher fourth quarter cash flow.
 
Employee Relations
The average number of persons employed worldwide by PPG during 2014 was about 44,400. The Company has numerous collective bargaining agreements throughout the world. We observe local customs, legislation and practice in labor relations when negotiating collective bargaining agreements. There were no significant work stoppages in 2014. 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 PPG’s 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. PPG is negotiating with various government agencies concerning 126 current and former manufacturing sites and offsite waste disposal locations, including 24 sites on the National Priority List. 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 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.
The Company’s experience to date regarding environmental matters leads it 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.
In addition to the $317 million currently reserved for environmental remediation efforts, we may be subject to loss contingencies related to environmental matters estimated to be approximately $75 million to $200 million. These reasonably possible unreserved losses relate to environmental matters at a number of sites. 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.
Capital expenditures for environmental control projects were $14 million, $22 million and $12 million in 2014, 2013 and 2012, respectively. It is expected that expenditures for such projects in 2015 will be in the range of $30 million to $40 million. Although future capital expenditures are difficult to estimate accurately because of constantly changing regulatory standards and policies, it can be


12 2014 PPG ANNUAL REPORT AND FORM 10-K


anticipated that environmental control standards will become increasingly stringent and the cost of compliance will increase.
In management’s opinion, the Company operates in an environmentally sound manner, is well positioned, relative to environmental matters, within the industries in which it operates and the outcome of these environmental contingencies will not have a material adverse effect on PPG’s 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 13, “Commitments and Contingent Liabilities,” under Item 8 of this Form 10-K for additional information related to environmental matters and our accrued liability for estimated environmental remediation costs.
Public and governmental concerns related to climate change continue to grow, leading to efforts to limit the greenhouse gas (“GHG”) emissions believed to be responsible. While PPG has operations in many countries, a substantial portion of PPG’s GHG emissions are generated by locations in the U.S., where considerable legislative and regulatory activity has been taking place. PPG has, and will continue to, annually report our global GHG emissions to the voluntary Carbon Disclosure project.
Energy prices and availability of supply continue to be a concern for major energy users. Since PPG’s GHG emissions arise principally from combustion of fossil fuels, PPG has for some time recognized the desirability of reducing energy consumption and GHG generation. From 2012 to 2013, energy consumption was reduced by 36% and GHG emission generation was reduced by 33%. PPG's total annual energy consumption and GHG emissions were significantly reduced as a result of the separation of its commodity chemicals business in January 2013. From 2013 to 2014, energy consumption was reduced by 8% and GHG emission generation was reduced by 10%.
PPG participates in both the U.S. Department of Energy
(“DOE”), BETTER BUILDINGS®, BETTER PLANTS®
program, formerly the Saving Energy Now Leadership program, and the Environmental Protection Agency (EPA) Energy Star Industrial Partnership program, both reinforcing the company’s voluntary efforts to significantly reduce its industrial energy intensity. These programs include developing and implementing energy management processes and setting energy savings targets while providing a suite of educational, training, and technical resources to help meet those targets. Recognizing the continuing importance of this matter, PPG has a senior management group with a mandate to guide the Company’s progress in this area.
PPG’s public disclosure on energy security and climate change can be viewed in our Sustainability Report at www.ppg.com/sustainability or at the Carbon Disclosure Project www.cdproject.net.
Available Information
The Company’s website address is www.ppg.com. The Company posts, and shareholders may access without charge,
 
the Company’s 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 Company also posts all financial press releases, including 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 PPG’s website to the SEC’s website, www.sec.gov. Reference to the Company’s and SEC’s 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.


2014 PPG ANNUAL REPORT AND FORM 10-K 13


Item 1A. Risk Factors
As a global manufacturer of coatings, specialty materials and glass products, we operate in a business environment that includes risks. These risks are not unlike the risks we have faced in the recent past nor are they unlike risks faced by our competitors. 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 businesses and our results of operations.

Increases in prices and declines in the availability of raw materials could negatively impact our financial results.
Our financial results are significantly affected by the cost of raw materials. Coatings raw materials, which include both organic, primarily petroleum based, materials and inorganic materials, including titanium dioxide, generally comprise between 70% and 80% of cost of goods, exclusive of depreciation and amortization, sold in most coatings formulations and represent PPG’s single largest production cost component.
While not our customary practice, we also import raw materials and intermediates, 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, if that currency strengthens against the currency of our manufacturing facility, our margins may be lower.
Most of our raw materials 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. Adequate supply of critical raw materials is managed by establishing contracts, procuring from multiple sources, and identifying alternative materials or technology whenever possible. The Company is continuing its aggressive sourcing initiatives to effectively broaden our supply of high quality raw materials. These initiatives include qualifying multiple and local sources of supply, including suppliers from Asia and other lower cost regions of the world and a reduction in the amount of titanium dioxide used in our product formulations. Our products use both petroleum-derived and bio-based materials as part of a product renewal strategy.
An inability to obtain critical raw materials would adversely impact our ability to produce products. Increases in the cost of raw materials may have an adverse effect on our income from continuing operations or cash flow in the event we are unable to offset these higher costs in a timely manner.
The pace of economic growth and level of uncertainty could have a negative impact on our results of operations and cash flows.
During 2014, overall economic conditions remained mixed among the major global economies. Demand was also varied
 
by major coatings end-use markets, however, we realized global growth in nearly all end-use categories.
We anticipate growth will remain the strongest in the U.S. and Canadian economies, including a further strengthening of growth that started in 2014 in non-residential construction. We also expect increased global demand in the automotive OEM and aerospace industries. Emerging regions growth is expected to remain mixed, but we expect PPG to post solid aggregate growth based on the specific end use-markets we supply. Our base case assumption is that European growth will remain mixed by country but subdued overall, but European economies may benefit from lower global energy prices.
PPG provides products and services to a variety of end-use markets in many geographies. This broad end-use market exposure and expanded geographic presence lessens the significance of any individual decrease in activity levels; nonetheless, lower demand levels may result in lower sales, which would result in reduced income from continuing operations and cash flows.
We are subject to existing and evolving standards relating to the protection of the environment.
Environmental laws and regulations control, among other things, the discharge of pollutants into the air and water, the handling, use, treatment, storage and clean-up of hazardous and non-hazardous waste, the investigation and remediation of soil and groundwater affected by hazardous substances, and regulate various health and safety matters. The environmental laws and regulations we are subject to impose liability for the costs of, and damages resulting from, cleaning up current sites, past spills, disposals and other releases of hazardous substances. Violations of these laws and regulations can also result in fines and penalties. Future environmental laws and regulations may require substantial capital expenditures or may require or cause us to modify or curtail our operations, which may have a material adverse impact on our business, financial condition and results of operations.
As described in Note 13, “Commitments and Contingent Liabilities,” under Item 8 of this Form 10-K, we are currently undertaking environmental remediation activities at a number of our current and former facilities and properties, the cost of which is substantial. In addition to the amounts currently reserved, we may be subject to loss contingencies related to environmental matters estimated to be as much as $75 million to $200 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, and we may be involved in future lawsuits and claims, in which substantial monetary damages are sought.
PPG is involved in a number of lawsuits and claims, both actual and potential in which substantial monetary damages are sought. Those lawsuits and claims relate to contract, patent, environmental, product liability, antitrust and other matters arising out of the conduct of PPG’s current and past business activities. Any such claims, whether with or without merit, could be time consuming, expensive to defend and


14 2014 PPG ANNUAL REPORT AND FORM 10-K


could divert management’s attention and resources. We maintain insurance against some, but not all, of these potential claims, and the levels of insurance we do maintain may not be adequate to fully cover any and all losses. We believe that, in the aggregate, the outcome of all current lawsuits and claims involving PPG, including asbestos-related claims in the event the settlement described in Note 13, “Commitments and Contingent Liabilities” under Item 8 of this Form 10-K does not become effective, will not have a material effect on PPG’s 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. Nonetheless, the results of any future litigation or claims are inherently unpredictable, but such outcomes could have a material adverse effect on our results of operations, cash flow or financial condition.
Fluctuations in foreign currency exchange rates could affect our financial results.
We earn revenues, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S. dollar. Because our consolidated financial statements are presented in U.S. dollars, we must translate revenues and expenses into U.S. dollars at the average exchange rate during each reporting period, as well as assets and liabilities into U.S. dollars at exchange rates in effect at the end of each reporting period. Therefore, increases or decreases in the value of the U.S. dollar against other major currencies will affect our net revenues, operating income and the value of balance sheet items denominated in foreign currencies. We use derivative financial instruments to reduce our net exposure to currency exchange rate fluctuations related to foreign currency transactions. However, fluctuations in foreign currency exchange rates, particularly the strengthening of the U.S. dollar against major currencies, could materially affect our financial results expressed in U.S. dollars.
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 13, “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.
We are subject to a variety of complex U.S. and non-U.S. laws and regulations which could increase our compliance costs.
We are subject to a wide variety of complex U.S. and non-U.S. laws and regulations, and legal compliance risks, including securities laws, tax laws, environmental laws, employment and pension-related laws, competition laws, U.S. and foreign export and trading laws, and laws governing improper business practices, including bribery. We are affected by new laws and regulations and changes to existing laws and
 
regulations, including interpretations by courts and regulators. These laws and regulations effectively expand our compliance obligations and potential enforcement actions by governmental authorities or litigation related to them.
New laws and regulations or changes in existing laws or regulations or their interpretation could increase our compliance costs. For example, regulations concerning the composition, use and transport 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. Import/export regulations also continue to evolve and could result in increased compliance costs, slower product movements or additional complexity in our supply chains.
Our international operations expose us to additional risks and uncertainties that could affect our financial results.
PPG has a significant investment in global operations. This broad geographic footprint serves to lessen the significance of economic impacts occurring in any one region. Notwithstanding the benefits of geographic diversification, our ability to achieve and maintain profitable growth in international markets is subject to risks related to the differing legal, political, social and regulatory requirements and economic conditions of many countries. As a result of our expansion outside the U.S., we are subject to certain inherent risks, including political and economic uncertainty, inflation rates, exchange rates, trade protection measures, local labor conditions and laws, restrictions on foreign investments and repatriation of earnings, and weak intellectual property protection. Our percentage of sales generated in 2014 by products sold outside the U.S. was approximately 59%.
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, work stoppages, natural disasters and severe weather events, computer system disruptions, fires, 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 or to deliver products to customers.
Failure to successfully integrate acquired businesses into our existing operations could adversely affect our financial results.
Part of the Company's strategy is growth through acquisitions, and we will likely acquire additional businesses and enter into additional joint ventures in the future. Growth through acquisitions and the formation of joint ventures involve risks, including:
difficulties in assimilating acquired companies and products into our existing business;
delays in realizing the benefits from the acquired companies or products;
diversion of our management’s time and attention from other business concerns;


2014 PPG ANNUAL REPORT AND FORM 10-K 15


difficulties due to lack of or limited prior experience in any new markets we may enter;
unforeseen claims and liabilities, including unexpected environmental exposures or product liability;
unexpected losses of customers or suppliers of the acquired or existing business;
difficulty in conforming the acquired business’ standards, processes, procedures and controls to those of our operations; and
difficulties in retaining key employees of the acquired businesses.
Our failure to address these risks or other problems encountered in connection with our past or future acquisitions and joint ventures could cause us to fail to realize the anticipated benefits of such acquisitions or joint ventures and could adversely affect our results of operations, cash flow or financial condition.
Our ability to understand our customers’ specific preferences and requirements, and to innovate, develop, produce and market products that meet customer demand is critical to our business results.
Our business relies on continued global demand for our brands and products. To achieve business goals, we must develop and sell products that appeal to customers.  This is dependent on a number of factors, including our ability to produce products that meet the quality, performance and price expectations of our customers and our ability to develop effective sales, advertising and marketing programs.  Future growth will depend on our ability to continue to innovate our existing products and to develop and introduce new products. If we fail to keep pace with product innovation on a competitive basis or to predict market demands for our products, our business, financial condition and results of operations could be adversely affected.

The industries in which we operate are highly competitive.
With each of our businesses, an increase in competition may cause us to lose market share, lose a large regional or global customer, or compel us to reduce prices to remain competitive, which could result in reduced margins for our products. Competitive pressures may not only reduce our margins but may also impact our revenues and our growth which could adversely affect our results of operations.

The security of our information technology systems could be compromised, which could adversely affect our ability to operate. 
Increased global information technology security requirements, threats and sophisticated and targeted computer crime pose a risk to the security of our systems, networks and the confidentiality, availability and integrity of our data. Despite our efforts to protect sensitive information and confidential and personal data, our facilities and systems may be vulnerable to security breaches. This could lead to negative publicity, theft, modification or destruction of proprietary information or key information, manufacture of defective products, production downtimes and operational disruptions, which could adversely affect our reputation, competitiveness and results of operations.
 
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The Company’s corporate headquarters is located in Pittsburgh, Pa. The Company’s manufacturing facilities, sales offices, research and development centers and distribution centers are located throughout the world. As of February 19, 2015, the Company operated 141 manufacturing facilities in 44 countries, and the principal manufacturing and distribution facilities were as follows:
Performance Coatings:
 
Amsterdam, Netherlands; Birstall, United Kingdom; Budapest, Hungary; Carrollton, Texas; Clayton, Australia; Delaware, Ohio; Duerne, Belgium; Dover, Del.; Huntsville, Ala.; Huron, Ohio; Irvine, Calif.; Kunshan, China; Little Rock, Ark.; Milan, Italy; Mojave, Calif.; Moreuil, France; Sylmar, Calif.; Soborg, Denmark; Stowmarket, United Kingdom; Tepexpan, Mexico; Ulsan, Korea; Wroclaw, Poland; about 900 company-owned stores in North America; about 675 company-owned stores in the EMEA region, including 212 stores in France and 189 stores in the United Kingdom; and about 40 company-owned stores in Australia. 
Industrial Coatings:
 
Barberton, Ohio; Busan, South Korea; Cieszyn, Poland; Cleveland, Ohio; Lake Charles, La.; Oak Creek, Wis.; Quattordio, Italy; San Juan del Rio, Mexico; Sumaré, Brazil; Tianjin, China, and Zhangjiagang, China
Glass:
 
Carlisle, Pa.; Hoogezand, Netherlands; Lexington, N.C.; Shelby, N.C.; Fresno, Ca. and Wichita Falls, Texas
Including the principal manufacturing facilities noted above, the Company has manufacturing facilities in the following geographic areas: 
United States:
 
38 manufacturing facilities in 20 states.
Other Americas:
 
21 manufacturing facilities in 5 countries.
EMEA:
 
58 manufacturing facilities in 29 countries.
Asia:
 
24 manufacturing facilities in 9 countries.
The Company’s principal research and development centers are located in Allison Park, Pa.; Harmarville, Pa.; Monroeville, Pa.; Shelby, Nc.; Burbank, Ca. and Tepexpan, Mexico.
The Company’s headquarters, certain distribution centers and substantially all company-owned paint stores are located in facilities that are leased while the Company’s 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.
Item 3. Legal Proceedings
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 PPG’s 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 PPG’s insurers are contesting coverage


16 2014 PPG ANNUAL REPORT AND FORM 10-K


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. PPG’s 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 results of any future litigation and claims are 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 does not become effective, will not have a material effect on PPG’s 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 arrangement, see Note 13, “Commitments and Contingent Liabilities” under Item 8 of this Form 10-K.
In the past, 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 in any of these cases.
Executive Officers of the Company
Set forth below is information related to the Company’s executive officers as of February 19, 2015
Name
Age
Title
Charles E. Bunch
65

Chairman and Chief Executive Officer since July 2005
Michael H. McGarry (a)
56

Chief Operating Officer since August 2014
Viktoras R. Sekmakas (b)
54

Executive Vice President since September 2012
Frank S. Sklarsky (c)
58

Executive Vice President and Chief Financial Officer since August 2013
Glenn E. Bost II (d)
63

Senior Vice President and General Counsel since July 2010
David B. Navikas (e)
64

Senior Vice President, Strategic Planning and Corporate Development since August 2013
Cynthia A. Niekamp (f)
55

Senior Vice President, Automotive Coatings since August 2010
(a)
McGarry has executive oversight responsibility for all of PPG’s strategic business units and operating regions and for the global Information Technology (IT), Environment, Health and Safety, and Purchasing and Logistics functions. From February 2013 until August 2014, Mr. McGarry was responsible for leading the Architectural Coatings-EMEA (Europe, Middle East and Africa) segment, the architectural coatings Americas and Asia Pacific businesses, the flat glass business and the EMEA region. His responsibilities also included the global Information Technology, Environmental Health and Safety and Corporate Quality functions. From September 2012 until February 2013, he was responsible for the global aerospace and automotive refinish businesses. Mr. McGarry led the Commodity Chemicals segment from July 2008 until the separation of that business on January 28, 2013. He held the positions of Executive Vice President from September 2012 through July 2014 and Senior Vice President, Commodity Chemicals from July 2008 until August 2012.
(b)
Mr. Sekmakas is responsible for leading the industrial coatings, packaging coatings, flat glass, fiber glass and specialty coatings and
 
materials businesses, the Asia Pacific region and has managerial responsibility for the Purchasing and Logistics function. From September 2012 until February 2013, he was responsible for the industrial coatings, packaging coatings and protective and marine coatings businesses and the EMEA region. Previously, he held the following leadership positions: Senior Vice President, industrial coatings and President, Europe from September 2011 until August 2012; Senior Vice President, industrial coatings and President, Asia Pacific coatings from August 2010 until September 2011; Vice President industrial coatings and President, Asia Pacific coatings from March 2010 until August 2010; and President PPG Asia Pacific from July 2008 until March 2010.
(c)
Mr. Sklarsky was appointed Executive Vice President, Finance, in April 2013 when he joined PPG. Prior to joining PPG, Mr. Sklarsky was Executive Vice President and Chief Financial Officer of Tyco International, Ltd. from December 2010 until September 2012, and was Executive Vice President and Chief Financial Officer of Eastman Kodak Company from November 2006 until December 2010.
(d)
Mr. Bost held the position of Vice President and Associate General Counsel from July 2006 through June 2010. 
(e)
Mr. Navikas held the position of Senior Vice President, Finance and Chief Financial Officer from June 2011 until August 2013. From March 2000 until June 2011, he held the position of Vice President and Controller. Mr. Navikas has announced his intention to retire effective March 1, 2015.
(f)
Ms. Niekamp is responsible for the automotive OEM coatings business and the Latin America regions. Ms. Niekamp was appointed Vice President, Automotive Coatings in January 2009 when she joined PPG from BorgWarner, Inc.

Item 4. Mine Safety Disclosures
Not Applicable.


2014 PPG ANNUAL REPORT AND FORM 10-K 17


Part II

Item 5. Market for the Registrant’s 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 5 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 12,862; 16,770; and 30,491 common stock equivalents in 2014, 2013 and 2012, respectively, under this plan. The values of the common stock equivalents, when credited, ranged from $191.17 to $219.82 in 2014, $138.55 to $183.92 in 2013 and $85.12 to $124.55 in 2012.
Issuer Purchases of Equity Securities
Month
Total Number of Shares Purchased
Avg. Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Programs (1)
Max. Number of Shares That May Yet Be Purchased Under the Programs
October 2014
 
 
 
 
    Repurchase program
364,049

$
189.59

364,049

6,714,246

November 2014


 
 
 
    Repurchase program
413,084

$
209.57

413,084

6,301,162

December 2014


 
 
 
    Repurchase program
642,876

$
225.11

642,876

5,658,286

Total quarter ended December 31, 2014


 
 
 
    Repurchase program
1,420,009

$
211.48

1,420,009

5,658,286

(1)In April 2014, PPG's board of directors authorized a $2 billion repurchase program. The remaining shares that may yet to be purchased under the $2 billion repurchase program have been calculated based upon PPG's
 
closing stock price on the last business day of the respective month. These repurchase programs have no expiration date.
No shares were withheld or certified in satisfaction of the exercise price and/or tax withholding obligation by holders of employee stock options who exercised options granted under the Company's equity compensation plans in the fourth quarter of 2014.
Item 6. Selected Financial Data
The information required by Item 6 regarding the selected financial data for the five years ended December 31, 2014 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 86 of the Annual Report to shareholders.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Strategic Transformation
During 2014 and 2013, PPG has completed several steps in its strategic transformation into a more focused coatings and specialty materials company.
In November 2014, PPG completed the acquisition of Comex, an architectural coatings company headquartered in Mexico City, Mexico. Comex manufactures coatings and related products in Mexico and sells them in Mexico and Central America principally through approximately 3,700 stores that are independently owned and operated by more than 700 concessionaires.
In March 2014, PPG completed the sale of its 51% ownership interest in its Transitions Optical joint venture and 100% of its optical sunlens business to Essilor.
In April 2013, PPG completed the acquisition of the North American architectural coatings business of Akzo Nobel N.V. The acquisition included the purchase of a number of leading brands and 526 paint stores, net of redundant store closures, in the U.S., Canada and the Caribbean.
In January 2013, PPG completed the separation of its commodity chemicals business and the merger of the subsidiary holding the PPG commodity chemicals business with a subsidiary of Georgia Gulf Corporation ("Georgia Gulf").
Refer to Note 2, "Acquisitions and Dispositions" under Item 8 of this Form 10-K for financial information relating to these transactions.



18 2014 PPG ANNUAL REPORT AND FORM 10-K


Performance in 2014 compared with 2013
Performance Overview
Net sales increased $1.1 billion, or 8%, from the prior year to $15,360 million primarily due to sales from acquired businesses (4%), higher sales volumes (3%) and higher selling prices (1%). Acquired businesses added about $600 million of sales in 2014, primarily due to the first quarter 2014 sales of the acquired Akzo Nobel North American architectural coatings business which closed in April 2013, as well as two months of sales of the acquired Comex business which closed in early November 2014. Additionally, the Company completed several other smaller acquisitions in 2014 and 2013, for which partial year impacts are included in the 2014 results. Year-over-year sales volumes, excluding acquisition-related impacts, were fairly consistent across all regions advancing 3.5% overall. The sales growth was led by a 4.3% improvement in the U.S. and Canada, with growth rates generally uniform each quarter of the year. Asia-Pacific sales also grew 3.9%, and Latin America sales grew 3.5% year-over-year. Sales for the Europe, Middle-East and Africa region grew 2.4%, with growth primarily occurring in the first half of the year. Pricing advanced slightly in aggregate, with a focus on offsetting cost inflation.
Cost of sales, exclusive of depreciation and amortization, increased $477 million, or 6%, from the prior year to $8,791 million primarily due to higher sales volumes and the inclusion of cost of sales from acquired businesses partially offset by lower manufacturing costs and the impact of foreign currency translation. Cost of sales as a percentage of sales improved 1% to 57% in 2014 compared to 58% in 2013.
Selling, general and administrative expenses increased $272 million, or 8%, from the prior year to $3,758 million, primarily due to the inclusion of acquired businesses and overhead cost inflation. Selling, general and administrative expenses as a percentage of sales was 24.5% in 2014 and 24.4% in 2013.
In 2013, the Company recorded a pre-tax restructuring charge of $98 million related to a restructuring plan focused on achieving cost synergies through improved productivity and efficiencies. The restructuring plan primarily related to the acquired Akzo Nobel North American architectural coatings business, but also included smaller targeted actions for PPG's legacy architectural business, as well as other businesses where market conditions remain very challenging, most notably protective and marine coatings and certain European businesses such as architectural coatings and fiber glass.
In the fourth quarter 2014, the Company recorded a pre-tax charge of $317 million representing costs related to a debt refinancing undertaken to lower the Company's future interest costs. The charge consists of an aggregate make-whole cash premium of $179 million for the redemption of public notes, an aggregate cash premium of $43 million for debt redeemed through a tender offer, a realization of net unamortized losses of $89 million on interest rate swaps and forward starting swaps, and a balance of unamortized fees and discounts of $6 million related to the debt redeemed. Refer to Note 8, "Borrowings and Lines of Credit" in Item 8 of this Form 10-K for additional information.
Other charges increased $32 million from the prior year to $221 million primarily due to higher legacy environmental remediation charges. The Company recorded pre-tax
 
environmental charges for the environmental remediation at a former chromium manufacturing plant and associated sites in New Jersey of $136 million and $89 million in 2014 and 2013, respectively.
Other income increased $133 million from the prior year to $260 million due primarily to gains realized on the sales of assets by an equity affiliate and our flat glass business.
The effective tax rate on income before income taxes was 18.3% and 20.6% in 2014 and 2013, respectively. The Company's adjusted effective tax rate on income before income taxes, excluding certain nonrecurring charges was 23.9% in 2014 and 23.1% in 2013. See the Regulation G reconciliation below for details of PPG's adjusted effective tax rate from continuing operations.
Diluted earnings-per-share for the year ended December 31, 2014 were $15.03, comprised of net income from continuing operations of $8.10 and discontinued operations, net of tax of $6.93. These diluted earnings per share from continuing operations compare to $6.55 in the year ended December 31, 2013. Operationally, each reporting segment delivered earnings growth of at least 15%. The Company benefited from the 5.7 million shares of stock repurchased in 2013 as well as the 3.8 million shares of stock repurchased during 2014. The diluted earnings per share from discontinued operations relates to the Transitions Optical joint venture and sunlens business which were sold in March of 2014.
Regulation G Reconciliation - Results from Operations
PPG Industries believes investors’ understanding of the Company’s operating performance is enhanced by the disclosure of income before income taxes, PPG's effective tax rate, tax expense, net income from continuing operations and earnings per diluted share adjusted for nonrecurring charges. PPG’s management considers this information useful in providing insight into the company’s ongoing operating performance because it excludes the impact of items that cannot reasonably be expected to recur on an ongoing basis. Income before income taxes, the effective tax rate, tax expense, net income from continuing operations and earnings per diluted share adjusted for these items are not recognized financial measures determined in accordance with U.S. generally accepted accounting principles ("GAAP") and should not be considered a substitute for income before income taxes, the effective tax rate, tax expense, net income from continuing operations or earnings per diluted share or other financial measures as computed in accordance with U.S. GAAP. In addition, adjusted income before income taxes, adjusted effective tax rate, adjusted tax expense, adjusted net income from continuing operations and adjusted earnings per diluted share from continuing operations may not be comparable to similarly titled measures as reported by other companies.


2014 PPG ANNUAL REPORT AND FORM 10-K 19


Income before income taxes is reconciled to adjusted income before income taxes below:
 
Years-ended December 31
($ in millions, except per share amounts)
2014
2013
Income before income taxes
$
1,416

$
1,226

Income before income taxes includes:
 
 
Charges related to business restructuring

98

Charge related to debt refinancing
317


Charges related to environmental remediation
138

101

Charges related to transaction-related costs
62

36

Gain on asset dispositions
(116
)

         Pension settlement costs
7

18

Adjusted income before income taxes
$
1,824

$
1,479

The effective tax rate from continuing operations is reconciled to the adjusted effective tax rate from continuing operations below:
Year-ended December 31, 2014
 
  ($ in millions, except per share amounts)
Income Before Income Taxes
 
Tax Expense
 
Effective Tax Rate
Effective tax rate, continuing operations
$
1,416

 
$
259

 
18.3
%
Includes:
 
 
 
 
 
Charge related to debt refinancing
317

 
117

 
36.9
%
Charges related to environmental remediation
138

 
52

 
37.7
%
Charges related to transaction-related costs
62

 
20

 
32.3
%
Gain on asset dispositions
(116
)
 
(43
)
 
37.1
%
Pension settlement costs
7

 
2

 
28.6
%
Favorable foreign tax ruling

 
29

 


Adjusted effective tax rate, continuing operations, excluding certain charges
$
1,824

 
$
436

 
23.9
%

Year-ended December 31, 2013
 
  ($ in millions, except per share amounts)
Income Before Income Taxes
 
Tax Expense
 
Effective Tax Rate
Effective tax rate, continuing operations
$
1,226

 
$
253

 
20.6
%
Includes:
 
 
 
 
 
Charges related to business restructuring
98

 
25

 
25.5
%
Charges related to environmental remediation
101

 
37

 
36.6
%
Charges related to transaction-related costs
36

 
12

 
33.3
%
Legacy pension settlement costs
18

 
5

 
27.8
%
U.S. tax law change enacted in 2013

 
10

 
 
Adjusted effective tax rate, continuing operations, excluding certain charges
$
1,479

 
$
342

 
23.1
%
 
Net income (attributable to PPG) and earnings per share – assuming dilution (attributable to PPG) are reconciled to adjusted net income (attributable to PPG) and adjusted earnings per share – assuming dilution below:
Year-ended December 31, 2014
 
  ($ in millions, except per share amounts)
$
 
EPS
Net income from continuing operations (attributable to PPG)
$
1,133

 
$
8.10

Net income from continuing operations (attributable to PPG) includes:
 
 
 
Charge related to debt refinancing
200

 
1.44

Charges related to environmental remediation
86

 
0.61

Charges related to transaction-related costs
42

 
0.30

Gain on asset dispositions
(73
)
 
(0.52
)
Pension settlement costs
5

 
0.03

Favorable foreign tax ruling
(29
)
 
(0.21
)
Adjusted net income from continuing operations (attributable to PPG)
$
1,364

 
$
9.75


Year-ended December 31, 2013
 
  ($ in millions, except per share amounts)
$
 
EPS
Net income from continuing operations (attributable to PPG)
$
950

 
$
6.55

Net income from continuing operations (attributable to PPG) includes:
 
 
 
Charges related to business restructuring
73

 
0.50

Charges related to environmental remediation
64

 
0.44

Charges related to transaction-related costs
24

 
0.16

Legacy pension settlement costs
13

 
0.09

U.S. tax law change enacted in 2013
(10
)
 
(0.07
)
Adjusted net income from continuing operations (attributable to PPG)
$
1,114

 
$
7.67


Results of Reportable Business Segments
 
Net sales
 
Segment income
($ in millions)
2014
 
2013
 
2014
 
2013
Performance Coatings
$
8,698

 
$
7,934

 
$
1,205

 
$
1,043

Industrial Coatings
5,552

 
5,264

 
951

 
824

Glass
1,110

 
1,067

 
81

 
56

 
Performance of Reportable Business Segments
Performance Coatings
Performance Coatings net sales increased $764 million, or approximately 10% from 2013, to $8,698 million primarily due to net sales from acquisitions, including the Akzo Nobel North American architectural coatings acquisition and Comex, partially offset by unfavorable currency translation. Acquisitions contributed an 8% increase in net sales for the year. Prices increased modestly, and segment volumes, excluding acquisitions, advanced nearly 2% across all major regions.
Architectural coatings-EMEA sales volumes improved by low-single digit percentages year-over-year aided by partial demand recovery in some regions and in comparison to strengthening prior year levels. Sales volume improvement occurred early in the year, aided by favorable weather conditions,


20 2014 PPG ANNUAL REPORT AND FORM 10-K


which was partially offset by lower year-over-year sales volumes late in the year.
The protective and marine coatings business experienced modest sales improvement, driven primarily by sales volume increases in the North American and European protective markets. Marine new-build sales volumes were negative early in the year, but positive late in the year.
The aerospace and automotive refinish businesses both delivered slightly higher sales volumes year-over-year in each major region. Demand trends in the overall aerospace industry continued to remain favorable globally. Refinish growth was supported by higher emerging region activity and solid growth in the developed regions, including benefits from the expansion of the vehicle parc in Asia, higher North American demand and a partial demand recovery in Europe. Excluding the impacts of acquisitions and currency, architectural coatings, America and Asia Pacific, net sales were up modestly year over year.
Segment income increased $162 million, or 16% from the prior year, to $1,205 million primarily due to the increase in net sales and acquisitions, including the further realization of cost synergies, partially offset by cost inflation.
In the first quarter of 2015, moderate North American architectural coatings market demand growth is expected to continue, including growth in both residential and non-residential end use-markets. The company will be making growth-related investments during 2015 in certain architectural coatings distribution channels in the region. This includes additional sales and marketing efforts and the addition of new company-owned store locations. The protective and marine business is expected to deliver year-over-year sales volume growth in the first quarter of 2015 due to improving Asian marine new build end-use market demand.
Looking forward for the segment, the Comex acquisition is expected to add between $180 to $200 million of sales in the first quarter 2015. Additionally, based on current exchange rates, we expect foreign currency translation to be unfavorable in sequential and year-over-year sales and earnings comparisons.
Industrial Coatings
Industrial Coatings segment net sales increased $288 million, or 6% from the prior year, to $5,552 million primarily due to sales volume growth of 6%. PPG’s global automotive OEM business grew net sales by high single-digit percentages year-over-year, and continued a multi-quarter trend of outperforming global industry growth. PPG continues to benefit from the adoption of new technologies and ongoing focus on customer service and customer process improvement initiatives. Growth accelerated in the industrial coatings business, aided by continued North American and emerging region strength, and European demand remained positive year-over-year. Packaging coatings year-over-year net sales were lower, reflecting continued weakness in Europe. Specialty coatings and materials net sales grew year-over-year aided by higher sales volumes in OLED materials, optical materials, precipitated silicas and Teslin®.
Segment income increased $127 million, or 15% from the year ended December 31, 2013, to $951 million primarily due to the benefit from sales volume growth and improved manufacturing
 
costs as a result of our continued focus on increased productivity and efficiency.
The Industrial Coatings segment is our most geographically diverse segment and currency translation is expected to negatively impact year-over-year financial results in the first quarter of 2015. On a sequential quarter basis, we expect that higher sales seasonally will be partly offset by unfavorable currency translation as current rates are below fourth quarter average conversion rates for many currencies. Recent global industrial production trends are expected to continue, resulting in generally consistent demand growth for PPG products.
Glass
Glass net sales increased $43 million, or 4% compared to the prior year, to $1,110 million primarily due to higher pricing and sales volumes in flat glass and higher sales volumes in fiber glass. Sales volumes in flat glass reflect improvements in residential and non-residential end-use market demand, partly offset by unfavorable currency translation, primarily the Canadian dollar.
Segment income increased $25 million from 2013, to $81 million as the benefit of manufacturing cost improvements and the impact of improved sales were partially offset by higher costs stemming from scheduled maintenance projects. Higher natural gas-based energy costs early in the year were also a negative factor although this impact declined later in the year.
Looking ahead, overall demand growth is expected to continue in flat glass, as is the favorable value-added product mix. Mixed global fiber glass demand trends are expected to continue. Unfavorable currency translation is also expected sequentially and year-over-year, although the majority of the segment sales are U.S. dollar denominated.
The segment will incur higher pension and other post-employment benefits ("OPEB") expense in 2015 versus 2014 stemming from revised mortality assumptions and a lower year-end discount rate. However, year-over-year earnings comparisons will benefit from the absence of first quarter 2014 costs associated with significant plant maintenance projects.
Review and Outlook
During 2014, overall economic conditions remained mixed among the major global economies, with the pace of economic activity in each region fairly constant throughout the year. Demand was also varied by major coatings end-use market; however, we realized global growth in nearly all end-use categories. These economic trends were an important element in PPG’s aggregate sales volume growth of 3.5% compared to the previous year. PPG achieved sales volume growth of greater than 2% in each major region for the year, and sales volume growth improved in every major region versus 2013 growth levels.
Year-over-year sales volumes grew about 4% in the U.S. and Canada in 2014, with sales volume growth adding to strong prior year gains and broad-based growth across many PPG businesses. The U.S. and Canada remained PPG’s largest region representing 47% of 2014 sales. During 2014, industrial activity continued to improve in the region aided by low regional energy costs, continued demand and production increases in several industries, including automotive OEM and aerospace.


2014 PPG ANNUAL REPORT AND FORM 10-K 21


Construction spending in the region continued to recover in a measured manner. U.S. housing starts grew moderately during the year and were supplemented by continued, modest improvement in the residential remodeling market. Non-residential construction demand remained suppressed early in the year but exhibited stronger but inconsistent growth in the latter portion of the year. Although smaller in size, demand growth in the Canadian construction market was also modest. Growth in the region and various end-use markets was also aided somewhat by lower U.S. unemployment rates which improved throughout the year. Falling energy and gasoline prices late in the year are expected to result in improved consumer spending and additional regional growth prospects for PPG entering 2015.
The pace of European economic activity remained subdued in 2014, with the region continuing to face limited employment growth. Industrial production and gross domestic product growth was mixed by country and generally weak across the region. Regional demand was strongest early in the year aided somewhat by modest winter weather conditions, with PPG year-over-year sales volumes advancing by about 5% in the first quarter. Demand trends were more muted for the remainder of the year, with full year regional sales volume growth of 2%. However, the level of demand was not consistent across the various countries in the region, as certain Eastern European countries and the U.K. experienced solid demand growth, while other large countries in the region, including France, remained challenged from a demand perspective. Europe remains a very large region for PPG, representing just under one-third of PPG’s 2014 sales. Overall Company sales volumes in the region are still down nearly 20% in comparison to 2008 pre-recession levels, reflecting economic weakness in prior years without any substantive or broad recovery. From a currency perspective, late in the year the Euro weakened considerably against the U.S. dollar. While the regional economy remains muted, a lower Euro may aid exports in 2015. Additionally, global oil prices rapidly descended late in 2014, and the European economies stand to benefit considerably if prices remain at low levels in 2015 given the large level of oil imported in the region and no significant detriment to lower oil pricing given the minimal amount of oil production regionally.
In the aggregate, emerging region economies continued to expand during 2014; however, growth rates varied considerably by country, and overall emerging region economic growth was lower than previous years. The emerging market regions of Asia and Latin America represented 22% of PPG’s sales 2014 sales, with Asia the largest emerging region having sales of about $2.5 billion. Company sales volumes increased in Asia overall by about 4%, with China sales volume growth considerably higher. China remained PPG’s second largest individual country from a sales perspective in 2014. As a result of the Comex acquisition, PPG has notably expanded our sales in emerging regions. In 2015, Mexico may overtake China as PPG's second largest individual country from a sales perspective. The largest gains in Asia were in the Industrial Coatings segment, including the benefit of just below 10% industry growth in Chinese automotive production. Offsetting these improvements was muted demand in a few end-use markets, including consumer electronics and certain heavy-duty equipment subsectors. Also,
 
marine new-build activity was lower early in the year, but began to grow later in the year. Demand in the Latin American economies remained erratic due to a variety of economic factors, including high inflation rates and weakening currencies in comparison to the U.S. dollar. PPG's Latin American sales volumes were up 3.5% for the year, with differences by end-use market and country. Heading into 2015, PPG anticipates consistent overall Company sales volume growth in emerging regions supported by more moderate growth in China, and less negative or improving demand in certain other emerging countries.
Looking ahead to 2015, we anticipate growth rates will remain mixed by region, with North American and Asian economies continuing to grow at rates generally consistent with 2014. We anticipate growth will remain the strongest in the U.S. economy, including a further strengthening of initial growth that started in 2014 in non-residential construction. Increased global demand is expected in the automotive OEM and aerospace industries. We expect emerging regions growth to remain mixed, but we expect PPG to post solid aggregate growth based on the specific end-use markets the Company supplies. Our base case assumption is that European growth will remain mixed by country but subdued overall, but that exports may benefit from a weaker Euro versus other currencies and lower global energy pricing.
In April 2013, PPG completed the acquisition of Akzo Nobel’s North American architectural coatings business. The Company targeted $200 million in annual savings relating to business synergies stemming from the acquisition. Throughout 2014 and 2013, PPG executed actions relating to capturing these synergies, and substantially all of the actions were completed by the end of 2014, achieving the targeted annual run-rate savings one year ahead of schedule. We will realize incremental annual saving of about $20 million in 2015, related to synergy capture actions completed during 2014 that will not reach their anniversary until 2015.
During 2014, PPG also finalized substantially all of the actions related to previously announced Company restructuring programs, except for a few remaining actions related to the 2013 restructuring plan which are expected to be completed during the first half of 2015. PPG remains aggressive with respect to cost management, and will continually monitor the company’s cost structure relative to projected regional and end use-market demand levels. The Company will proactively make adjustments to its cost structure as appropriate.
Raw materials are a significant input cost in the manufacture of coatings. PPG typically experiences fluctuating prices for energy and raw materials driven by various factors, including supply and demand imbalances, global industrial activity levels and changes in supplier feedstock costs and inventories. Given the recent volatility in certain energy-based input costs, the Company is not able to predict with certainty the 2015 full year impact of related changes in raw material pricing. Also, given the distribution nature of many of our businesses, logistics and distribution costs are sizable costs, as are wages and benefits but to a lesser degree. For 2014, in aggregate, these cost components were similar year-over-year with certain categories


22 2014 PPG ANNUAL REPORT AND FORM 10-K


increasing, such as logistics costs and wages in certain regions, while others were flat or declined modestly.
Pension and postretirement benefit costs, excluding curtailments and special termination benefits, were $123 million in 2014, down $54 million from $177 million in 2013. In 2015, we expect pension and other postretirement benefit costs to increase by approximately $60 to $65 million due to revised mortality assumptions and a lower liability discount rate as measured at year-end 2014. During 2014, PPG's cash contributions to defined benefit pension plans totaled $41 million. Total cash contributions to global defined benefit pension plans were $174 million and $80 million in 2013 and 2012, respectively. We expect to make mandatory contributions to our non-U.S. plans in the range of $10 million to $20 million in 2015.
In an effort to offset the adverse impact of cost inflation on income from continuing operations, in 2014 the Company implemented modestly higher selling prices, with overall pricing up one-half of one percent for the year. Selective pricing actions are currently planned in 2015, with actions expected to differ by business and region.
A variety of foreign currencies began to weaken in the second half of 2014 versus the U.S. dollar. Based on mid-January 2015 exchange rates, the Company expects year-over-year currency translation will unfavorably impact 2015 sales by $650 million to $750 million, and 2015 earnings by about $65 million to $75 million. Since mid-January, certain foreign currencies have continued to weaken versus the U.S. dollar, thus the unfavorable currency translation impact to 2015 sales and earnings could be larger than the mid-January 2015 ranges stated above. The company generally purchases raw materials, incurs manufacturing cost and sells finished products in the same currency, so it typically incurs more modest transactional-related currency impacts to earnings.
The company expects $55 million of lower net interest expense for 2015 due to a debt refinancing completed in the fourth quarter of 2014, partially offset by lower interest income from lower aggregate cash and short-term investment balances in 2015. The net interest savings will vary by quarter. Year-over-year net interest expense is expected to be approximately $20 million lower in the first quarter, and range from $10 million to $15 million lower in the second, third and fourth quarters.
We expect our ongoing effective tax rate from continuing operations to be in the range of 24.0% to 25.0% in 2015. This rate is slightly higher than the 2014 rate primarily due to the impact of earnings from the acquired business of Comex, which are primarily earned in Mexico, where the statutory tax rate is higher than the Company’s effective global tax rate. Because of the differences in the tax rates in the countries in which we operate, a shift in the geographic mix of earnings will impact our overall ongoing tax rate.
Over the past five years, the Company used $3.3 billion of cash to repurchase about 28 million shares of stock, and the Company ended the year with approximately $1.7 billion remaining under the current authorization from the Board of Directors. PPG announced in January 2014, its intention to
 
deploy between $3.0 billion and $4.0 billion of incremental cash over an 18 to 24 month period. During 2014, the Company deployed approximately $3.2 billion of cash for acquisitions, including repayment of acquired debt, and share repurchases. In January 2015, the Company announced a new cash deployment target for acquisitions and share repurchases of between $1.5 billion and $2.5 billion for years 2015 and 2016 combined. The Company expects continued strong free cash flow in 2015.
Accounting Standards Adopted in 2014
Note 1, “Summary of Significant Accounting Policies,” under Item 8 describes the Company’s recently adopted accounting pronouncements.
Accounting Standards to be Adopted in Future Years
Note 1, “Summary of Significant Accounting Policies,” under Item 8 describes accounting pronouncements that have been promulgated prior to December 31, 2014 but are not effective until a future date.
Performance in 2013 compared with 2012
Performance Overview
Net sales increased $1,579 million, or 12% from the prior year, to $14,265 million primarily due to sales of acquired businesses, which increased net sales by approximately 10%. The Akzo Nobel North American architectural coatings business acquired in April 2013 contributed approximately $1,165 million in net sales while the acquisitions of Deft, an aerospace coatings business acquired in May 2013, and the Spraylat coatings business acquired in December 2012, contributed approximately $166 million combined.
Overall sales volumes, excluding acquisitions, were level with the prior year as sales volume growth in the Industrial Coatings and Glass segments as well as the aerospace business was offset by a volume declines in the other businesses in the Performance Coatings segment. Sales volumes were inconsistent by region. The U.S. and Canada and the Latin America regions' sales volumes were up nearly 3% year over year. Growth occurred in many end-use markets in Asia Pacific, although total sales volumes for the region were nearly level year over year due to declines stemming from lower marine new-build end-use market demand. Sales volumes in Europe were down 3% year over year due to weak demand that occurred in the first half of the year. The 2013 volume decline in Europe continued the trend experienced since the recession began in 2009. Higher selling prices added just over 1% to net sales which included the carryover impact from 2012 price increases to offset current year inflation in certain cost components, including increases in transportation, energy and labor costs. The impact of foreign currency translation on net sales was flat for the year, although results were mixed by currency.
Cost of sales, exclusive of depreciation and amortization, increased $715 million, or 9% from the prior year, to $8,314 million primarily due to the inclusion of cost of sales from acquired businesses partially offset by lower manufacturing costs. Cost of sales as a percentage of sales in 2013 was 58.3% compared to 59.9% in 2012. This decrease is largely due to shifts in sales margin mix related to the businesses acquired.
Selling, general and administrative expenses increased by $499 million, or 17% from the prior year, to $3,486 million


2014 PPG ANNUAL REPORT AND FORM 10-K 23


principally related to the inclusion of acquired businesses and overhead cost inflation partly offset by the impact of our continued focus on cost management, including savings from restructuring actions initiated in 2012. As a percent of sales, selling, general and administrative expenses increased slightly to 24.4% in 2013 from 23.5% in 2012 primarily due to the addition of acquired businesses which have higher distribution related costs.
Depreciation expense increased $41 million, or 14% from the prior year, to $333 million primarily due to the depreciation of the acquired businesses.
The pre-tax restructuring charge of $98 million relates to a restructuring plan approved in the third quarter of 2013 focused on achieving cost synergies, through improved productivity and efficiency, related to the acquired North American architectural coatings business, but also includes smaller targeted actions for PPG's legacy architectural business, as well as other businesses where market conditions remain very challenging, most notably protective and marine coatings and certain European businesses such as architectural coatings and fiber glass.
Other charges decreased $34 million, or 15% from the prior year, to $189 million primarily due to lower legacy environmental remediation charges in 2013. In 2013, the largest charge included in other charges relates to a pre-tax charge of $89 million for the environmental remediation at a former chromium manufacturing plant and associated sites in New Jersey and a pre-tax charge of $12 million related to environmental remediation at a legacy chemical manufacturing site. The 2012 other charges included a pre-tax charge of $159 million, related primarily to the environmental remediation at the former chromium manufacturing plant and associated sites in New Jersey.
Other income decreased $11 million, or 8% from the prior year, to $127 million primarily due to lower equity earnings, primarily from our Asian fiber glass joint ventures as a result of a decline in demand in the personal computer market and lower licensing earnings in the Glass segment.
The effective tax rate on income before income taxes was 20.6% and 17.9% in 2013 and 2012, respectively. The Company's adjusted effective tax rate on income before income taxes, excluding certain charges was 23.1% in 2013 and 21.4% in 2012. See the Regulation G reconciliation below for details of PPG's adjusted effective tax rate from continuing operations.
Diluted earnings-per-share for 2013 were $22.27 per-share, comprised of net income from continuing operations of $6.55 per-share and discontinued operations, net of tax of $15.72 per-share. The increase in diluted earnings-per-share resulted from higher net income and a reduction in the number of shares outstanding as a result of the 10.8 million PPG shares tendered to the Company in the exchange offer in connection with the separation and merger of the Company's former commodity chemicals business as well as the approximately 5.7 million shares repurchased during 2013. For more information about the separation and merger of the Company's former commodity chemicals business, see Note 2, “Acquisitions and Dispositions ,” under Item 8 of this Form 10-K.
 
Regulation G Reconciliation - Results from Operations
PPG Industries believes investors’ understanding of the Company’s operating performance is enhanced by the disclosure of income before income taxes, PPG's effective tax rate, tax expense, net income from continuing operations and earnings per diluted share adjusted for nonrecurring charges. PPG’s management considers this information useful in providing insight into the company’s ongoing operating performance because it excludes the impact of items that cannot reasonably be expected to recur on an ongoing basis. Income before income taxes, the effective tax rate, tax expense, net income from continuing operations and earnings per diluted share adjusted for these items are not recognized financial measures determined in accordance with U.S. generally accepted accounting principles ("GAAP") and should not be considered a substitute for income before income taxes, the effective tax rate, tax expense, net income from continuing operations or earnings per diluted share or other financial measures as computed in accordance with U.S. GAAP. In addition, adjusted income before income taxes, adjusted effective tax rate, adjusted tax expense, adjusted net income from continuing operations and adjusted earnings per diluted share from continuing operations may not be comparable to similarly titled measures as reported by other companies.
Income before income taxes is reconciled to adjusted income before income taxes below:
Years-ended December 31
2013
2012
($ in millions, except per share amounts)
Income before income taxes
$
1,226

$
828

Income before income taxes includes:
 
 
Charges related to business restructuring
98

176

Charges related to environmental remediation
101

159

Charges related to transaction-related costs
36

11

Legacy pension settlement costs
18


Adjusted income before income taxes
$
1,479

$
1,174

The effective tax rate from continuing operations is reconciled to the adjusted effective tax rate from continuing operations below:
Year-ended December 31, 2013
 
  ($ in millions, except per share amounts)
Income Before Income Taxes
 
Tax Expense
 
Effective Tax Rate
Effective tax rate, continuing operations
$
1,226

 
$
253

 
20.6
%
Includes:
 
 
 
 
 
Charges related to business restructuring
98

 
25

 
25.5
%
Charges related to environmental remediation
101

 
37

 
36.6
%
Charges related to transaction-related costs
36

 
12

 
33.3
%
Legacy pension settlement costs
18

 
5

 
27.8
%
U.S. tax law change enacted in 2013
 
 
10

 


Adjusted effective tax rate, continuing operations, excluding certain charges
$
1,479

 
$
342

 
23.1
%



24 2014 PPG ANNUAL REPORT AND FORM 10-K


Year-ended December 31, 2012
 
  ($ in millions, except per share amounts)
Income Before Income Taxes
 
Tax Expense
 
Effective Tax Rate
Effective tax rate, continuing operations
$
828

 
$
148

 
17.9
%
Includes:
 
 
 
 
 
Charges related to business restructuring
176

 
39

 
22.2
%
Charges related to environmental remediation
159

 
60

 
37.7
%
Charges related to transaction-related costs
11

 
4

 
36.4
%
Adjusted effective tax rate, continuing operations, excluding certain charges
$
1,174

 
$
251

 
21.4
%
Net income from continuing operations (attributable to PPG) and earnings per share from continuing operations – assuming dilution (attributable to PPG) are reconciled to adjusted net income from continuing operations (attributable to PPG) and adjusted earnings per share from continuing operations – assuming dilution below:
Year-ended December 31, 2013
Net Income
  ($ in millions, except per share amounts)
$
 
EPS
Net income from continuing operations (attributable to PPG)
$
950

 
$
6.55

Net income from continuing operations (attributable to PPG) includes:
 
 
 
Charges related to business restructuring
73

 
0.50

Charges related to environmental remediation
64

 
0.44

Charges related to transaction-related costs
24

 
0.16

Legacy pension settlement costs
13

 
0.09

U.S. tax law change enacted in 2013
(10
)
 
(0.07
)
Adjusted net income from continuing operations (attributable to PPG)
$
1,114

 
$
7.67

Year-ended December 31, 2012
Net Income
  ($ in millions, except per share amounts)
$
 
EPS
Net income from continuing operations (attributable to PPG)
$
663

 
$
4.27

Net income from continuing operations (attributable to PPG) includes:
 
 
 
Charges related to business restructuring
137

 
0.89

Charges related to environmental remediation
99

 
0.64

Charges related to transaction-related costs
7

 
0.05

Adjusted net income from continuing operations (attributable to PPG)
$
906

 
$
5.85

Results of Reportable Business Segments
 
Net sales
 
Segment income
($ in millions)
2013
 
2012
 
2013
 
2012
Performance Coatings
$
7,934

 
$
6,899

 
$
1,043

 
$
889

Industrial Coatings
5,264

 
4,755

 
824

 
677

Glass
1,067

 
1,032

 
56

 
63

Performance Coatings
Performance Coatings net sales increased $1,035 million, or 15% from the prior year, to $7,934 million primarily due to net sales from businesses acquired (18%) and modestly higher pricing partially offset by lower sales volumes (5%). Sales volumes remained varied by region and business. Sales volume growth continued in the aerospace coatings business where
 
industry demand remains strong. Automotive refinish sales volumes were level with the prior year as growth in the Asia Pacific and Latin American regions offset sales volume declines in Europe, while the North American refinish sales volumes were consistent with 2012. Offsetting the segment sales volume gains was a decline in sales volume in the protective and marine coatings business due to further, notable weakness in the Asian marine new-build market reflecting lower global demand. U.S. and Canada architectural coatings sales volume declined by low-single-digit percentages with mid-to-high single digit percentage same store growth in company-owned stores, lower sales in national retail accounts and lower sales in the independent dealer channel. The lower sales volume in the national account channel was due to a previously disclosed change in products sold to a large retail customer. EMEA architectural coatings sales declined vs. prior year primarily due to lower sales volumes (down mid-single-digit percentages) as economic conditions worsened in most European countries. However, market demand improved somewhat in the second half of the year but remained negative overall and mixed across the region. Poor weather conditions in the first half of 2013 were also a contributor to the decline in EMEA architectural coatings sales volumes. The decline in EMEA architectural coatings sales volumes was partially offset by the impacts of favorable pricing and foreign currency translation. Segment income was $1,043 million for 2013, an increase of $154 million, or 17%, compared to the prior year primarily due to the income from acquired businesses, lower overhead and manufacturing costs stemming from prior restructuring actions and ongoing cost management, offset partially by the negative impact on segment income from the lower sales volumes.
Industrial Coatings
Industrial Coatings net sales increased $509 million, or 11% from the prior year, to $5,264 million primarily due to sales volume growth (6%) and net sales from acquired businesses (4%). In 2013, PPG's global automotive OEM coatings sales volumes grew 10%, outpacing global industry auto production growth of about 3% year-over-year. The industrial coatings business experienced varied sales volume results by region compared with the prior year, as strong improvements across emerging regions and modestly higher sales volumes in North America were offset by weak demand in Europe. Packaging coatings sales volumes grew modestly in Asia Pacific and Latin America, were down low-single-digits year-over-year in Europe and essentially flat in North America. Specialty coatings and materials sales volumes increased as the silicas business business achieved higher year over year sales volumes in both the U.S. and Europe as a result of solid demand growth. Segment income increased $147 million, or 22% from the prior year, to $824 million primarily due to the impact from the higher sales coupled with ongoing cost management initiatives and the benefits from the Company's restructuring actions initiated in 2012.









2014 PPG ANNUAL REPORT AND FORM 10-K 25


Glass
Glass segment net sales increased $35 million, or 3% from the prior year, to $1,067 million primarily due to higher fiber glass sales volumes. Sales volumes in fiber glass increased modestly, reflecting higher global demand in various end-use markets. Segment income was $56 million, a decrease of $7 million, or 11% from the prior year, primarily due to input cost inflation, including higher natural gas costs, lower licensing income and lower fiber glass equity earnings stemming from weaker personal computer production activity in Asia. These negative factors more than offset reductions in manufacturing costs.
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 13, “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.
As discussed in Item 3 and Note 13, 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 13 does not become effective, will not have a material effect on PPG’s 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.
It is PPG’s policy to accrue expenses for 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 management’s opinion, the Company operates in an environmentally sound manner and the outcome of the Company’s environmental contingencies will not have a material effect on PPG’s 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 Company’s environmental contingencies will occur over an extended period of time.
 As of December 31, 2014 and 2013, PPG had reserves for environmental contingencies totaling $317 million and $337 million, respectively, of which $141 million and $133 million, respectively, were classified as current liabilities. Pre-tax charges against income for environmental remediation costs in 2014, 2013 and 2012 totaled $144 million, $108 million and $166 million, respectively, and are included in “Other charges” in the accompanying consolidated statement of income. Cash outlays related to environmental remediation were $165 million, $111 million, and $62 million in 2014, 2013 and 2012, respectively.
In addition to the amounts currently reserved for environmental remediation, the Company may be subject to loss contingencies related to environmental matters now estimated to
 
be approximately $75 million to $200 million which is lower than the estimate of $100 million to $200 million as of December 31, 2013 as a result of the additional environmental remediation charge recorded in the third quarter of 2014 explained below. Such unreserved losses are reasonably possible but are not currently considered to be probable of occurrence. These reasonably possible unreserved losses relate to environmental matters at a number of sites. 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 impact of evolving programs, such as natural resource damage claims, industrial site re-use 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 Company’s 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.
The Company continues to analyze, assess and remediate the environmental issues associated with PPG's former chromium manufacturing plant in Jersey City, N.J. and associated sites ("New Jersey Chrome"). During the third quarters of 2014 and 2013, PPG completed assessments of costs incurred to date versus current progress and the potential cost impacts of the most recent information. Based on these assessments, the Company recorded reserve adjustments of $136 million and $89 million in the third quarters of 2014 and 2013, respectively. Principal factors impacting costs included a refinement in the estimate of the mix of hazardous to non-hazardous soils to be excavated, an overall increase in soil volumes to be excavated, enhanced water management requirements, decreased daily soil excavation rates due to site conditions, initial estimates for remedial actions related to groundwater, and increased oversight and management costs.
A charge of $145 million was recorded in the first quarter of 2012 as a result of updated information the Company compiled about the sites that was used to develop a new estimate of the cost to remediate these sites. The updated information was compiled in connection with the preparation of a final draft soil remedial action work plan and cost estimate.
The charges for estimated environmental remediation costs for the previous three years have been significantly higher than PPG’s historical range. Excluding the charges related to New Jersey Chrome, pre-tax charges against income for environmental remediation have ranged between $10 million and $30 million per year for the past 10 years.
Information will continue to be generated from the ongoing groundwater remedial investigation activities related to New Jersey Chrome and will be incorporated into a final draft remedial action work plan for groundwater expected to be submitted to New Jersey Department of Environmental Protection in late 2015 or 2016.


26 2014 PPG ANNUAL REPORT AND FORM 10-K


Liquidity and Capital Resources
During the past three years, PPG has had sufficient financial resources to meet its operating requirements, to fund our capital spending, including acquisitions, share repurchases and pension plans and to pay increasing dividends to shareholders.
Cash from continuing operating activities was $1,807 million, $1,562 million, and $1,410 million in 2014, 2013, and 2012, respectively. Increases in cash from continuing operating activities in 2014 compared to 2013 and in 2013 compared to 2012 were aided by higher income from continuing operations, including income from acquired businesses.
Operating Working Capital is a subset of total working capital and represents (1) receivables from customers, net of allowance for doubtful accounts, (2) inventories, and (3) trade liabilities. See Note 3, “Working Capital Detail” under Item 8 of this Form 10-K for further information related to the components of the Company’s Operating Working Capital. We believe Operating Working Capital represents the key components of working capital under the operating control of our businesses. Operating Working Capital at December 31, 2014 and 2013 was $2.5 billion and $2.6 billion, respectively. A key metric we use to measure our working capital management is Operating Working Capital as a percentage of sales (fourth quarter sales annualized). 
($ in millions, except percentages)
2014
 
2013
 
Trade Receivables, net
$
2,366

 
$
2,414

 
Inventories, FIFO
2,007

 
2,019

 
Trade Creditor's Liabilities
1,919

 
1,790

 
Operating Working Capital
$
2,454

 
$
2,643

(a) 
Operating Working Capital as % of Sales
16.5
%
 
17.8
%
 
(a) Inclusive of amounts related to PPG's interest in the Transitions Optical joint venture and sunlens businesses that were sold on March 31, 2014. Excluding the interest in these businesses, operating working capital was $2,503 or 17.9% at December 31, 2013.
Operating working capital at December 31, 2014 decreased $189 million compared with the prior year. Trade receivables from customers, net, as a percentage of 2014 fourth quarter sales, annualized, was 16.0%, down slightly from 16.2% for 2013. Days sales outstanding was 54 days in 2014, a 3 day improvement from 2013. Inventories on a FIFO basis as a percentage of 2014 fourth quarter sales, annualized, was 13.5% compared to 13.6% in 2013. Inventory turnover was 4.8 times in 2014 and 4.5 times in 2013.
Total capital spending, including acquisitions, was $2,700 million, $1,477 million and $452 million in 2014, 2013, and 2012, respectively. Spending related to modernization and productivity improvements, expansion of existing businesses and environmental control projects was $587 million, $494 million and $330 million in 2014, 2013, and 2012, respectively, and is expected to be in the range of 3.5% to 4.0% of sales during 2015. Capital spending, excluding acquisitions, as a percentage of sales was 3.8%, 3.5% and 2.6% in 2014, 2013 and 2012, respectively. Capital spending related to business acquisitions amounted to $2,113 million, $983
 
million, and $122 million in 2014, 2013 and 2012, respectively. In addition, the Company acquired and repaid $314 million of debt from acquired companies. A primary focus for the Company in 2015 will continue to be prudent cash deployment focused on profitable income growth, including pursuing opportunities for additional strategic acquisitions.
In November 2014, the Company acquired Comex, an architectural coatings company with headquarters in Mexico City, Mexico. In 2014, PPG also completed the acquisition of several smaller companies. The total cost of the 2014 acquisitions, including acquired debt repaid, was $2,427 million, net of cash acquired.
In March 2014, PPG received $1.735 billion in cash proceeds for the sale of its 51% ownership interest in its Transitions Optical joint venture and 100% of its optical sunlens business to Essilor.
In April 2013, the Company acquired the North American architectural coatings business of Akzo Nobel, N.V., Amsterdam and certain assets of a privately-owned U.S. based specialty coatings company. The total cost of 2013 acquisitions was $983 million.
In January 2013, PPG received $900 million in cash proceeds in connection with the closing of the separation of its commodity chemicals business and subsequent merger of the subsidiary holding the PPG commodity chemicals business with a subsidiary of Georgia Gulf. Refer to Note 2, “Acquisitions and Dispositions” under Item 8 of this Form 10-K for financial information regarding these discontinued operations.
The Company’s share repurchase activity in 2014, 2013 and 2012 was about 3.8 million shares at a cost of $750 million, 5.7 million shares at a cost of $1 billion and 1 million shares at a cost of $92 million, respectively. We anticipate completing additional share repurchases during 2015. The Company has approximately $1.7 billion remaining under the current authorization from the Board of Directors, which was approved in 2014. The current authorized repurchase program has no expiration date.
In addition, about 10.8 million shares were added to treasury stock as a result of the January 2013 exchange transaction that was part of the separation of PPG's former commodity chemicals business.
Dividends paid to shareholders totaled $361 million, $345 million and $358 million in 2014, 2013 and 2012, respectively. PPG has paid uninterrupted annual dividends since 1899, and 2014 marked the 43rd consecutive year of increased annual per-share dividend payments to shareholders. The Company raised its per-share dividend 10% in April 2014.
We did not have a mandatory contribution to our U.S. defined benefit pension plans in 2014. We made a voluntary contribution of $2 million and $50 million to these plans in 2014 and 2013, respectively. We did not make any contributions to our U.S. defined benefit plans in 2012. We currently do not expect to make mandatory contributions to our


2014 PPG ANNUAL REPORT AND FORM 10-K 27


U.S. defined benefit pension plans in 2015. We made contributions to our non-U.S. defined benefit pension plans of $39 million, $124 million and $80 million for 2014, 2013 and 2012, respectively, some of which were required by local funding requirements. We expect to make mandatory contributions to our non-U.S. plans in the range of $10 million to $20 million in 2015.
In the fourth quarter of 2014, PPG completed a debt refinancing which involved paying approximately $1.7 billion to redeem public notes which was funded by cash proceeds of approximately $1.2 billion from cash on hand and from several debt issuances described below.
In November 2014, PPG completed a public offering of $300 million in aggregrate principal amount of its 2.30% Notes due 2019. These notes were issued pursuant to PPG's existing shelf registration statement. Also in November 2014, PPG entered into three Euro-denominated borrowings. PPG entered into a EURIBOR based variable rate 3-year €500 million bank loan and privately placed a 15-year €80 million 2.5% fixed interest note and a 30-year €120 million 3.0% fixed interest note. Refer to Note 8, "Borrowings and Lines of Credit" under Item 8 of this Form 10-K for financial information regarding these debt obligations.
Also in 2014, PPG increased by $300 million the borrowing capacity under its 2012 five-year credit agreement (the "Credit Agreement") with several banks and financial institutions as further discussed in Note 8, "Borrowings and Lines of Credit" under Item 8 of this Form 10-K. The Credit Agreement now provides for a $1.5 billion unsecured revolving credit facility. The Credit Agreement will terminate on September 12, 2017. During the years ended December 31, 2014 and 2013, there were no borrowings outstanding under the Credit Agreement.
In 2013, PPG repaid its $600 million 5.75% notes due March 15, 2013.
In July 2012, PPG completed a public offering of $400 million in aggregate principal amount of its 2.70% Notes due 2022 (the "2022 Notes"). The 2022 Notes were offered by the Company pursuant to its existing shelf registration statement. The proceeds of this offering of $397 million, net of discount and issuance costs, were used to repay a portion of the $600 million of 5.75% notes in March 2013. The remaining unamortized discount and issuance costs related to the 2022 Notes were recognized in earnings in 2014 as a result of the debt refinancing.
Also during the year ended December 31, 2012 the Company assumed $120 million of debt in an acquisition; repaid $119 million of that debt, and repaid the $71 million of 6.875% notes upon their maturity.
The ratio of total debt, including capital leases, to total debt and equity was 44% at December 31, 2014 up from 41% in 2013.
The Company has $5.0 billion and $3.9 billion of undistributed earnings of non-U.S. subsidiaries as of December 31, 2014 and December 31, 2013, respectively.  These amounts
 
relate to approximately 200 subsidiaries in more than 60 taxable jurisdictions. As discussed in Note 2, "Acquisitions and Dispositions" under Item 8 of this Form 10-K, PPG recorded a deferred U.S. income tax liability of $247 million on the foreign earnings generated from the sale of its Transitions Optical joint venture in 2014. No significant deferred U.S. income taxes have been provided on the remaining $4.2 billion of PPG's undistributed earnings as they are considered to be reinvested for an indefinite period of time or will be repatriated when it is tax effective to do so. The Company estimates repatriation of undistributed earnings of non-U.S. subsidiaries as of December 31, 2014 and December 31, 2013 would have resulted in a U.S. tax cost of approximately $200 million and $250 million, respectively.
We continue to believe that our cash on hand and short term investments, cash from operations and the Company’s available debt capacity will continue to be sufficient to fund our operating activities, capital spending, including acquisitions, dividend payments, debt service, amounts due under the proposed asbestos settlement, share repurchases, contributions to pension plans, and PPG’s 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:
($ in millions)
Total
 
2015
 
2016-
2017
 
2018-
2019
 
Thereafter
Contractual Obligations
 
 
 
 
 
 
 
 
 
Long-term debt
$
2,942

 
$
363

 
$
855

 
$
425

 
$
1,299

 
Short-term debt
115

 
115

 

 

 

 
Commercial paper
935

 

 
935

 

 

 
Capital lease obligations
33

 
3

 
6

 
5

 
19

 
Operating leases
698

 
180

 
261

 
149

 
108

 
Interest payments(1)
1,139

 
112

 
172

 
147

 
708

 
Pension contributions(2)
20

 
20

 

 

 

 
Unconditional purchase commitments
298

 
152

 
60

 
28

 
58

 
Total
$
6,180

 
$
945

 
$
2,289

 
$
754

 
$
2,192

 
 
 
 
 
 
 
 
 
 
 
Asbestos Settlement(3)
 
 
 
 
 
 
 
 
 
Aggregate cash payments
$
340

 
$

 
$
67

 
$
91

 
$
182

 
PPG stock and other

 

 

 

 

 
Total
$
340

 
$

 
$
67

 
$
91

 
$
182

(1)
Includes interest on all outstanding debt.
(2)
Includes the high end of the range of the expected pension contributions for 2015 only, as PPG is unable to estimate the pension contributions beyond 2015.
(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 13, “Commitments and Contingent Liabilities,” under Item 8 of this Form 10-K.



28 2014 PPG ANNUAL REPORT AND FORM 10-K


At December 31, 2014, the total amount of unrecognized tax benefits for uncertain tax positions, including an accrual of related interest and penalties along with positions only impacting the timing of tax benefits, was approximately $78 million. The timing of payments will depend on the progress of examinations with tax authorities. PPG does not expect a significant tax payment related to these obligations within the next year. The Company is unable to make a reasonably reliable estimate as to when any significant cash settlements with taxing authorities may occur.
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.
See Note 8, “Borrowings and Lines of Credit,” 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 statement 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 Company’s off-balance sheet arrangements include the operating leases and unconditional purchase commitments 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 8, “Borrowings and Lines of Credit,” 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, business combinations, 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
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 collectability 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 3, “Working Capital Detail,” Note 11,
 
“Income Taxes” and Note 13, “Commitments and Contingent Liabilities” under Item 8 of this Form 10-K.
Defined Benefit Pension and Other Postretirement Benefit Plans
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. The Company has established a process by which management reviews and selects these assumptions annually. See Note 12, “Employee Benefit Plans,” 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 weighted average discount rate assumption at December 31, 2014 is 4.0% for our U.S. defined benefit pension and other postretirement benefit plans. The weighted average discount rate assumption for our U.S. defined benefit pension and other postretirement benefit plans at December 31, 2013 was 4.83%. A change in the discount rate of 100 basis points, with all other assumptions held constant, would impact 2015 net periodic benefit expense for our defined benefit pension and other postretirement benefit plans by approximately $24 million and $15 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 2014, the return on plan assets assumption for our U.S. defined benefit pension plans was 7.25%. This assumption is unchanged for 2015. A change in the rate of return of 100 basis points, with other assumptions held constant, would impact 2015 net periodic pension expense by approximately $26 million.
Business Combinations
In accordance with the accounting guidance for business combinations, the Company uses the acquisition method of accounting to allocate costs of acquired businesses to the assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition. The excess costs of acquired businesses over the fair values of the assets acquired and liabilities assumed were recognized as goodwill. The valuations of the acquired assets and liabilities will impact the determination of future operating results. In addition to using management estimates and negotiated amounts, the Company uses a variety of information sources to determine the estimated fair values of acquired assets and liabilities including: third-party appraisals for the estimated value and lives of identifiable intangible assets and property, plant and equipment; third-party actuaries for the estimated obligations of defined benefit pension plans and similar benefit obligations; and legal counsel or other experts to assess the obligations associated with legal, environmental and other contingent liabilities. The business and technical judgment of management was used in determining which intangible assets have indefinite lives and in determining the useful lives of finite-lived intangible assets in accordance


2014 PPG ANNUAL REPORT AND FORM 10-K 29


with the accounting guidance for goodwill and other intangible assets.
Goodwill and Intangible Assets
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. The Company tests indefinite-lived intangible assets and goodwill for impairment by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation is an assessment of factors, including reporting unit or asset specific financial information as well as industry, market and general economic conditions, to determine whether it is more likely than not that the fair values of a reporting unit or asset is less than its carrying amount, including goodwill when testing goodwill for impairment. The Company may elect to bypass this qualitative assessment for some or all of its reporting units and indefinite-lived intangible assets and perform a quantitative test. Fair values under the quantitative test 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 the 2014 impairment tests, none of our goodwill or identifiable intangible assets with indefinite lives was impaired.
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, business combinations, 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, 2013 to December 31, 2014, the U.S. dollar strengthened against the currencies in the countries in which PPG operates, most notably the Euro and the Mexican Peso. As a result, consolidated net assets at December 31, 2014 decreased by $623 million, compared to December 31, 2013. Comparing exchange rates during 2014 to those of 2013, in the countries in which PPG operates, the U.S. dollar was weaker overall, which had an immaterial favorable impact on full year 2014 income before income taxes from the translation of these foreign earnings into U.S. dollars.
From December 31, 2012 to December 31, 2013, the U.S. dollar strengthened against certain currencies in the countries in which PPG operates, while weakening against others, the most notable being the Euro. As a result, consolidated net assets at December 31, 2013 decreased by $44 million, compared to December 31, 2012. Comparing exchange rates during 2013 to those of 2012, in the countries in which PPG operates, the U.S. dollar was weaker in certain countries, which had a favorable impact on full year 2013 income before income taxes of $11 million from the translation of these foreign earnings into U.S. dollars.
The U.S. dollar weakened from year-end December 31, 2011 to year-end December 31, 2012, against certain currencies in the countries in which PPG operates, most notably against the Euro, the British pound sterling, Polish zloty, and the South Korean won. A $141 million increase in PPG consolidated net assets and shareholders' equity resulted from translating PPG’s
 
foreign denominated net assets to U.S. dollars at December 31, 2012, compared to December 31, 2011. Comparing exchange rates during 2012 to those of 2011, in the countries in which PPG operates, the U.S. dollar was generally stronger, particularly against the Euro, which had an unfavorable impact on full year 2012 income before income taxes of approximately $40 million from the translation of these foreign earnings into U.S. dollars.
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. Management’s Discussion and Analysis and other sections of this Annual Report contain forward-looking statements that reflect the Company’s current views with respect to future events and financial performance.
You can identify forward-looking statements by the fact that they do not relate strictly to current or historic facts. Forward-looking statements are identified by the use of the words “aim,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “outlook,” “forecast” 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, except as otherwise required by applicable law. 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 Company’s forward-looking statements. Such factors include global economic conditions, 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, foreign exchange rates and fluctuations in such rates, fluctuations in tax rates, the impact of future legislation, the impact of environmental regulations, unexpected business disruptions, the unpredictability of existing and possible future litigation, including litigation that could result if the proposed asbestos settlement does not become effective, the realization of anticipated cost savings from restructuring initiatives, and PPG's ability to integrate the Comex business acquisition and to achieve anticipated synergies. 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


30 2014 PPG ANNUAL REPORT AND FORM 10-K


and similar risks, any of which could have a material adverse effect on the Company’s 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 to changes in PPG’s 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 Company’s risk management policies are provided in Note 9, “Financial Instruments, Hedging Activities and Fair Value Measurements,” under Item 8 of this Form 10-K.
The following disclosures summarize PPG’s 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 PPG’s consolidated results of operations, cash flows and financial position.
Foreign Currency Risk
We conduct operations in many countries around the world. Our results of operations are subject to both currency transaction and currency translation risk. Foreign currency forward contracts outstanding during 2014 and 2013 were used to hedge PPG’s exposure to foreign currency transaction risk. The fair value of these contracts as of December 31, 2014 and 2013 was insignificant. The potential reduction in PPG’s income from continuing operations 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, 2014 and 2013 would have been $24 million and $9 million, respectively.
As of January 1, 2012, PPG had U.S. dollar to euro cross currency swap contracts with a total notional amount of $1.16 billion outstanding, of which $600 million were settled in June 2012. The remaining outstanding contracts of $560 million are expected to be settled in March 2018. On settlement of the remaining outstanding contracts, PPG will receive $560 million U.S. dollars and pay Euros to the counterparties to the contracts. During the term of these contracts, PPG receives semiannual payments in March and September of each year based on U.S. dollar, long-term fixed interest rates, and PPG makes annual payments in March of each year to the counterparties based on Euro, long-term fixed interest rates. The Company designated all of the cross currency swaps as hedges of its net investment in acquired European coatings businesses and, as a result, the mark to fair value adjustments of the swaps outstanding have been and will be recorded as a component of Accumulated Other Comprehensive (Loss)/Income ("AOCI"), 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, 2014 and December 31, 2013, the fair value of these contracts was a net liability of $32 million and $120 million, respectively. 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 $70
 
million and $81 million at December 31, 2014 and 2013, respectively.
PPG had non-U.S. dollar denominated debt outstanding of $1,325 million as of December 31, 2014 and $453 million as of December 31, 2013. 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 $154 million and $53 million as of December 31, 2014 and 2013, respectively.
Interest Rate Risk
The Company manages its interest rate risk by balancing its exposure to fixed and variable rates while attempting to minimize its interest costs. During 2012, PPG settled interest rate swaps with a notional value of $445 million that converted fixed rate debt to variable rate debt, receiving $29 million from such settlements. 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 an insignificant effect on PPG’s variable rate debt obligations and interest expense for the years ended December 31, 2014 and 2013, respectively. Further, a 10% reduction in interest rates would have increased the present value of the Company’s fixed rate debt by approximately $62 million as of December 31, 2014 and $81 million as of December 31, 2013; however, such changes would not have had an effect on PPG’s annual income from continuing operations or cash flows.
Equity Price Risk
An equity forward arrangement was entered into to hedge the Company’s exposure to changes in fair value of its future obligation to contribute PPG stock into an asbestos settlement trust (see Note 9, “Financial Instruments, Hedging Activities and Fair Value Measurements” and Note 13, “Commitments and Contingent Liabilities,” under Item 8 of this Form 10-K). The fair value of this instrument as of December 31, 2014 and 2013 was an asset of $268 million and $207 million, respectively. A 10% decrease in PPG’s stock price would have had an unfavorable effect on the fair value of this instrument of $32 million and $26 million at December 31, 2014 and 2013, respectively.




2014 PPG ANNUAL REPORT AND FORM 10-K 31


Item 8. Financial Statements and Supplementary Data
 
Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of PPG Industries, Inc.

In our opinion, the accompanying consolidated balance sheets as of December 31, 2014 and 2013 and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the years then ended present fairly, in all material respects, the financial position of PPG Industries, Inc. and its subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule for the years ended December 31, 2014 and 2013 listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the Management Report on Establishing and Maintaining Adequate Internal Control Over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
We also have audited the adjustments to the 2012 consolidated financial statements to retrospectively reflect the discontinued operations of the Transitions Optical joint venture and sunlens business discussed in Note 2 and to retrospectively reflect the change in the composition of reportable segments discussed in Note 19. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2012 financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2012 financial statements taken as a whole.
A company’s internal control over financial reporting is a process designed 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 company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) 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 (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As described in the Management Report on Establishing and Maintaining Adequate Internal Control Over Financial Reporting, management has excluded Consorcio Comex, S. A. de C.V. from its assessment of internal control over financial reporting as of December 31, 2014 because it was acquired by the Company in a purchase business combination in November, 2014. We have also excluded Consorcio Comex, S.A. de C.V. from our audit of internal control over financial reporting. Consorcio Comex, S.A. de C.V. is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit represent 2% and 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2014.

/s/ PricewaterhouseCoopers LLP

Pittsburgh, Pennsylvania
February 19, 2015

32 2014 PPG ANNUAL REPORT AND FORM 10-K


Management Report
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 as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Internal control over financial reporting, 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 Company’s internal control over financial reporting as of December 31, 2014. 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 (2013). Our evaluation included reviewing the documentation of our controls, evaluating the design effectiveness of our controls and testing their operating effectiveness. In November 2014, the Company acquired Consorcio Comex, S.A. de C.V. As the acquisition occurred in November 2014, the scope of the Company's assessment of the design and effectiveness of PPG's internal control over financial reporting for the year ended December 31, 2014 excluded this acquired business. The total assets and total revenues excluded from our assessment represented approximately 2% and 1%, respectively, of PPG's consolidated total assets and total revenue as of and for the year ended December 31, 2014. This exclusion is in accordance with the SEC's general guidance that an assessment of a recently acquired business may be omitted from the scope of the Company's evaluation of the effectiveness of its internal controls in the year of acquisition. This acquired business will be included in management’s assessment of the effectiveness of our internal controls over financial reporting as of December 31, 2015. Based on this evaluation we have concluded that, as of December 31, 2014, the Company’s internal controls over financial reporting were effective.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has issued their report, included on page 32 of this Form 10-K, regarding the Company’s internal control over financial reporting.
/s/ Charles E. Bunch
 
/s/ Frank S. Sklarsky
Charles E. Bunch
Chairman
and Chief Executive Officer
February 19, 2015
 
Frank S. Sklarsky
Executive Vice President and
Chief Financial Officer
February 19, 2015
2012 Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of PPG Industries, Inc.
We have audited, before the effects of the adjustments to retrospectively reflect the discontinued operations of the Transitions Optical joint venture and sunlens business discussed in Note 2 and to retrospectively reflect the change in the composition of reportable segments discussed in Note 19, the consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows of PPG Industries, Inc. for the year ended December 31, 2012. Our audit also included the financial statement schedule listed in the Index at Item 15(a)(2) for the year ended December 31, 2012. The 2012 financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements 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 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 audit provide a reasonable basis for our opinion.
In our opinion, the 2012 financial statements, before the effects of the adjustments to retrospectively reflect the discontinued operations of the Transitions Optical joint venture and sunlens business discussed in Note 2 and to retrospectively reflect the change in the composition of reportable segments discussed in Note 19, present fairly, in all material respects, the results of operations and cash flows of PPG Industries, Inc. for the year ended December 31, 2012 in conformity with U.S. generally accepted accounting principles.
We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively reflect the discontinued operations of the Transitions Optical joint venture and sunlens business discussed in Note 2 and to retrospectively reflect the change in the composition of reportable segments discussed in Note 19 and, accordingly we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by other auditors.

/s/ DELOITTE & TOUCHE LLP

Pittsburgh, Pennsylvania
February 21, 2013
(July 29, 2013 as to the effects of the discontinued operations of PPG’s former commodity chemicals business discussed in Note 2)

2014 PPG ANNUAL REPORT AND FORM 10-K 33


Consolidated Statement of Income
 
For the Year
($ in millions, except per share amounts)
2014
 
2013
 
2012
Net sales
$
15,360

 
$
14,265

 
$
12,686

Cost of sales, exclusive of depreciation and amortization
8,791

 
8,314

 
7,599

Selling, general and administrative
3,758

 
3,486

 
2,987

Depreciation
350

 
333

 
292

Amortization
126

 
119

 
107

Research and development, net
492

 
463

 
430

Interest expense
187

 
196

 
210

Interest income
(50
)
 
(43
)
 
(40
)
Asbestos settlement, net
12

 
11

 
12

Business restructuring

 
98

 
176

Debt refinancing charge
317

 

 

Other charges
221

 
189

 
223

Other income
(260
)
 
(127
)
 
(138
)
Income before income taxes
1,416

 
1,226

 
828

Income tax expense
259

 
253

 
148

Income from continuing operations
1,157

 
973

 
680

Income from discontinued operations, net of tax
1,002

 
2,380

 
384

Net income attributable to the controlling and noncontrolling interests
2,159

 
3,353

 
1,064

Less: net income attributable to noncontrolling interests
57

 
122

 
123

Net income (attributable to PPG)
$
2,102

 
$
3,231

 
$
941

Amounts Attributable to PPG
 
 
 
 
 
Continuing operations
$
1,133

 
$
950

 
$
663

Discontinued operations
969

 
2,281

 
278

Net income
$
2,102

 
$
3,231

 
$
941

Earnings per common share
 
 
 
 
 
Continuing operations
$
8.19

 
$
6.62

 
$
4.32

Discontinued operations
7.01

 
15.91

 
1.81

Net income (attributable to PPG)
$
15.20

 
$
22.53

 
$
6.13

Earnings per common share - assuming dilution
 
 
 
 
 
Continuing operations
$
8.10

 
$
6.55

 
$
4.27

Discontinued operations
6.93

 
15.72

 
1.79

Net income (attributable to PPG)
$
15.03

 
$
22.27

 
$
6.06

Consolidated Statement of Comprehensive Income
 
 
For the Year
($ in millions)
2014
 
2013
 
2012
Net income attributable to the controlling and noncontrolling interests
$
2,159

 
$
3,353

 
$
1,064

 
Unrealized foreign currency translation adjustment
(596
)
 
(51
)
 
146

 
Defined benefit pension and other postretirement benefit adjustments
(335
)
 
440

 

 
Net change – derivative financial instruments
69

 
10

 
(7
)
Other comprehensive (loss) / income, net of tax
(862
)
 
399

 
139

Total comprehensive income
$
1,297

 
$
3,752

 
$
1,203

Less: amounts attributable to noncontrolling interests:
 
 
 
 
 
 
Net income
(57
)
 
(122
)
 
(123
)
 
Unrealized foreign currency translation adjustment
6

 
7

 
(5
)
Comprehensive income attributable to PPG
$
1,246

 
$
3,637

 
$
1,075

The accompanying notes to the consolidated financial statements are an integral part of these consolidated statements.

34 2014 PPG ANNUAL REPORT AND FORM 10-K


Consolidated Balance Sheet
 
 
 
 
December 31
($ in millions)
2014
 
2013
Assets
 
 
 
Current assets
 
 
 
 
 
Cash and cash equivalents
$
686

 
$
1,116

 
 
Short-term investments
497

 
629

 
 
Receivables
2,815

 
2,736

 
 
Inventories
1,825

 
1,824

 
 
Deferred income taxes
406

 
425

 
 
Other
621

 
484

 
Total current assets
6,850

 
7,214

Property, plant and equipment, net
3,092

 
2,876

Goodwill
3,801

 
3,008

Identifiable intangible assets, net
2,411

 
1,339

Deferred income taxes
505

 
491

Investments
443

 
393

Other assets
481

 
542

 
Total
$
17,583

 
$
15,863

 
 
 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
Current liabilities
 
 
 
 
 
Accounts payable and accrued liabilities
$
3,548

 
$
3,265

 
 
Asbestos settlement
821

 
763

 
 
Restructuring reserves
26

 
73

 
 
Short-term debt and current portion of long-term debt
481

 
34

 
Total current liabilities
4,876

 
4,135

Long-term debt
3,544

 
3,372

Accrued pensions
995

 
728

Other postretirement benefits
1,132

 
1,007

Asbestos settlement
259

 
245

Deferred income taxes
702

 
249

Other liabilities
810

 
929

 
Total liabilities
12,318

 
10,665

Commitments and contingent liabilities (See Note 13)

 

Shareholders’ equity
 
 
 
 
 
Common stock
484

 
484

 
 
Additional paid-in capital
1,028

 
953

 
 
Retained earnings
14,498

 
12,757

 
 
Treasury stock, at cost
(8,714
)
 
(8,002
)
 
 
Accumulated other comprehensive loss
(2,116
)
 
(1,260
)
 
Total PPG shareholders’ equity
5,180

 
4,932

 
 
Noncontrolling interests
85

 
266

 
Total shareholders’ equity
5,265

 
5,198

 
Total
$
17,583

 
$
15,863


The accompanying notes to the consolidated financial statements are an integral part of this consolidated statement.
 

2014 PPG ANNUAL REPORT AND FORM 10-K 35


Consolidated Statement of Shareholders’ Equity
 
($ in millions)
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Income/(Loss)
 
Total
PPG
 
Non-
controlling
Interests
 
Total
Balance, January 1, 2012
$
484

 
$
783

 
$
9,288

 
$
(5,506
)
 
$
(1,800
)
 
$
3,249

 
$
197

 
$
3,446

Net income attributable to the controlling and noncontrolling interests

 

 
941

 

 

 
941

 
123

 
1,064

Other comprehensive loss, net of tax

 

 

 

 
134

 
134

 
5

 
139

Cash dividends

 

 
(358
)
 

 

 
(358
)
 

 
(358
)
Purchase of treasury stock

 

 

 
(92
)
 

 
(92
)
 

 
(92
)
Issuance of treasury stock

 
35

 

 
102

 

 
137

 

 
137

Stock-based compensation activity

 
55

 

 

 

 
55

 

 
55

Dividends paid on subsidiary common stock to noncontrolling interests

 

 

 

 

 

 
(111
)
 
(111
)
Joint venture formation and consolidation

 
(3
)
 

 

 

 
(3
)
 
45

 
42

Balance, December 31, 2012
$
484

 
$
870

 
$
9,871

 
$
(5,496
)
 
$
(1,666
)
 
$
4,063

 
$
259

 
$
4,322

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to the controlling and noncontrolling interests

 

 
3,231

 

 

 
3,231

 
122

 
3,353

Other comprehensive income, net of tax

 

 

 

 
406

 
406

 
(7
)
 
399

Cash dividends

 

 
(345
)
 

 

 
(345
)
 

 
(345
)
Purchase of treasury stock

 

 

 
(1,000
)
 

 
(1,000
)
 

 
(1,000
)
Issuance of treasury stock

 
25

 

 
55

 

 
80

 

 
80

Stock-based compensation activity

 
58

 

 

 

 
58

 

 
58

Separation and merger tender offer

 

 

 
(1,561
)
 

 
(1,561
)
 

 
(1,561
)
Dividends paid on subsidiary common stock to noncontrolling interests

 

 

 

 

 

 
(90
)
 
(90
)
Joint venture formation and consolidation

 

 

 

 

 

 
(18
)
 
(18
)
Balance, December 31, 2013
$
484

 
$
953

 
$
12,757

 
$
(8,002
)
 
$
(1,260
)
 
$
4,932

 
$
266

 
$
5,198

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to the controlling and noncontrolling interests

 

 
2,102

 

 

 
2,102

 
57

 
2,159

Other comprehensive income/(loss), net of tax

 

 

 

 
(856
)
 
(856
)
 
(6
)
 
(862
)
Cash dividends

 

 
(361
)
 

 

 
(361
)
 

 
(361
)
Purchase of treasury stock

 

 

 
(750
)
 

 
(750
)
 

 
(750
)
Issuance of treasury stock

 
39

 

 
38

 

 
77

 

 
77

Stock-based compensation activity

 
64

 

 

 

 
64

 

 
64

Dividends paid on subsidiary common stock to noncontrolling interests

 

 

 

 

 

 
(50
)
 
(50
)
Reductions in noncontrolling interests

 
(28
)
 

 

 

 
(28
)
 
(182
)
 
(210
)
Balance, December 31, 2014
$
484

 
$
1,028

 
$
14,498

 
$
(8,714
)
 
$
(2,116
)
 
$
5,180

 
$
85

 
$
5,265


 The accompanying notes to the consolidated financial statements are an integral part of this consolidated statement.

36 2014 PPG ANNUAL REPORT AND FORM 10-K


Consolidated Statement of Cash Flows
 
 
For the Year
($ in millions)
2014
 
2013
 
2012
Operating activities
 
 
 
 
 
Net income attributable to the controlling and noncontrolling interests
$
2,159

 
$
3,353

 
$
1,064

 
Less: Income from discontinued operations
1,002

 
2,380

 
384

Income from continuing operations
1,157

 
973

 
680

Adjustments to reconcile to cash from operations:
 
 
 
 
 
 
Depreciation and amortization
476

 
452

 
399

 
Defined benefit pension expense
68

 
107

 
143

 
Business restructuring

 
98

 
176

 
Environmental remediation charge
138

 
101

 
159

 
Stock-based compensation expense
73

 
81

 
71

 
Equity affiliate (earnings)/losses, net of dividends
(56
)
 
17

 
3

 
Deferred income taxes
(89
)
 
(16
)
 
(207
)
 
Cash contributions to pension plans
(41
)
 
(174
)
 
(80
)
 
Restructuring cash spending
(57
)
 
(86
)
 
(87
)
 
Debt refinancing charge
317

 

 

Change in certain asset and liability accounts (net of acquisitions):
 
 
 
 
 
 
Receivables
(119
)
 
(25
)
 
171

 
Inventories
(95
)
 
44

 
53

 
Other current assets
(68
)
 
(34
)
 
7

 
Accounts payable and accrued liabilities
215

 
5

 
(55
)
 
Noncurrent assets
(41
)
 
32