Acquisitions and Divestitures

Acquisitions

MetoKote Corporation

In July 2016, PPG completed the acquisition of MetoKote Corporation ("MetoKote"), a U.S.-based coatings services business. MetoKote applies coatings to customers' manufactured parts and assembled products. It operates on-site coatings services within several customer manufacturing locations, as well as at regional service centers, located throughout the U.S., Canada, Mexico, the United Kingdom, Germany, Hungary and the Czech Republic. Customers ship parts to MetoKote service centers where they are treated to enhance paint adhesion and painted with electrocoat, powder or liquid coatings technologies. Coated parts are then shipped to the customer’s next stage of assembly. MetoKote coats an average of more than 1.5 million parts per day.

PPG is in the process of obtaining final third-party valuations of assets acquired in the MetoKote acquisition. As such, the allocation of the purchase price is subject to change. The following table summarizes the estimated fair value of assets acquired and liabilities assumed as reflected in the preliminary purchase price allocation for MetoKote.



($ in millions)
Current assets	$	38
Property, plant, and equipment	73
Identifiable intangible assets with finite lives	86
Goodwill	166
Deferred income taxes^(a)	(12		)
Total assets	$	351
Current liabilities	(23		)
Other long-term liabilities	(22		)
Total liabilities	$	(45	)
Total purchase price, net of cash acquired	$	306

^(a)The net deferred income tax liability is included in assets due to the Company's tax jurisdictional netting.

The pro-forma impact on PPG's sales and results of operations, including the pro forma effect of events that are directly attributable to the acquisition, was not significant. While calculating this impact, no cost savings or operating synergies that may result from the acquisition were included. Since the acquisition, the results of this acquired business comprise the coatings services operating segment, included within the Industrial Coatings reportable segment.

Taiwan Chlorine Industries

In conjunction with the 2013 separation of its commodity chemicals business, PPG conveyed to Axiall Corporation ("Axiall") its 60% ownership interest in Taiwan Chlorine Industries (“TCI”), a joint venture with China Petrochemical Development Corporation (“CPDC”) located in Taiwan. Under PPG’s agreement with CPDC, if certain post-closing conditions were not met following the 3 year anniversary of the separation, CPDC had the option to sell its 40% ownership interest in TCI to Axiall for $100 million. In turn, Axiall had a right to designate PPG as its designee to purchase the 40% ownership interest of CPDC. In April 2016, Axiall announced that CPDC had decided to sell its ownership interest in TCI to Axiall. In June 2016, Axiall formally designated PPG to purchase the 40% ownership interest in TCI. In August 2016, Westlake Chemical Corporation acquired Axiall, which became a wholly-owned subsidiary of Westlake. PPG is currently negotiating the terms of its purchase of CPDC’s 40% ownership interest.

Consorcio Comex

In November 2014, PPG finalized the acquisition of Consorcio Comex, S.A. de C.V. (“Comex”), an architectural coatings company with headquarters in Mexico City, Mexico ($2.3 billion aggregate purchase price) for $1.95 billion, net of cash acquired of $69 million. PPG also repaid $280 million of third-party debt assumed in the acquisition. Comex manufactures coatings and related products in Mexico and sells them in Mexico and Central America principally through more than 4,200 stores that are independently owned and operated by more than 700 concessionaires. Comex also sells its products through regional retailers and wholesalers, and directly to customers. As of the acquisition date, Comex had approximately 3,900 employees, eight manufacturing facilities and six distribution centers. The acquisition further expands PPG’s global coatings business and adds a leading architectural coatings business in Mexico and Central America. Since the acquisition, the results of this acquired business have been principally included in the results of the architectural coatings - Americas and Asia Pacific business, within the Performance Coatings reportable segment. Comex’s net sales reported by PPG from this acquired business were approximately $900 million for the year ended December 31, 2015. Comex’s income from continuing operations related to this acquisition was a mid-teen percentage return on sales.

The purchase price related to the Comex acquisition was allocated based on information available at the acquisition date and was subject to customary post-closing adjustments. During the ten-month period ended October 31, 2015, PPG obtained a valuation of property, plant and equipment acquired in the Comex acquisition and made other changes during the measurement period which resulted in adjustments to property, plant and equipment, non-current deferred tax liabilities and goodwill. These measurement period adjustments increased goodwill by a net, aggregate amount of $3 million. These measurement period adjustments are not considered material individually or in the aggregate, therefore, prior periods have not been revised.

The following table summarizes the fair value of assets acquired and liabilities assumed as reflected in the purchase price allocation for Comex.



($ in millions)
Current assets	$	340
Property, plant, and equipment	229
Trademarks with indefinite lives	1,022
Identifiable intangible assets with finite lives	281
Goodwill	1,089
Other non-current assets	54
Total assets	3,015
Current liabilities	(331		)
Non-current deferred tax liabilities	(410		)
Long-term debt	(280		)
Accrued pensions	(20		)
Other long-term liabilities	(24		)
Total liabilities	$	(1,065	)
Total purchase price, net of cash acquired	$	1,950

The identifiable intangible assets with finite lives in the table above, which consist primarily of customer relationships and acquired technology, are subject to amortization over a weighted average period of 24 years. See Note 6, “Goodwill and Other Identifiable Intangible Assets” for further details regarding PPG’s intangible assets.

The following information reflects the net sales of PPG for the year ended December 31, 2014 on a pro forma basis as if the transaction for the Comex acquisition had been completed on January 1, 2014.



Condensed Consolidated Pro Forma information (unaudited)
($ in millions)	2014
Net sales	$	15,606

The pro forma impact on PPG’s results of operations, including the pro forma effect of events that were directly attributable to the acquisition, was not significant to PPG’s consolidated results of operations for 2014. While calculating this impact, no cost savings or operating synergies that may result from the acquisition were included.

Other Acquisitions

In 2016, 2015 and 2014, the Company completed several smaller business acquisitions. The total consideration paid for these acquisitions, net of cash acquired, debt assumed and other post closing adjustments, was $43 million, $371 million and $189 million, respectively.

On January 20, 2017, PPG announced that it has acquired certain assets of automotive refinish coatings company Futian Xinshi (Futian), an automotive refinish coatings company based in the Guangdong province of China. Futian distributes its products in China through a network of more than 200 distributors.

On January 5, 2017, PPG completed the acquisition of DEUTEK S.A., a leading Romanian paint and architectural coatings manufacturer, from the Emerging Europe Accession Fund. DEUTEK, established in 1993, manufactures and markets a large portfolio of well-known professional and consumer paint brands, including OSKAR^® and DANKE!^®. The company’s products are sold in more than 120 do-it-yourself stores and 3,500 independent retail outlets in Romania.

Divestitures

During 2016, PPG finalized the sale of its flat glass business, European fiber glass business and its ownership interests in several joint ventures and business affiliates. The Company received total cash proceeds of approximately $1.1 billion from the following business divestitures.

Flat Glass Business

On October 1, 2016, PPG completed the sale of its flat glass manufacturing and glass coatings operations to Vitro S.A.B. de C.V. PPG received approximately $740 million in cash proceeds and recorded a pre-tax gain on the sale of $421 million. PPG reported the assets and liabilities of the flat glass business as "Assets held for sale" and "Liabilities held for sale" in the accompanying consolidated balance sheet as of December 31, 2015 and the results of operations of the flat glass business as discontinued operations on the condensed consolidated statements of income and cash flows for all periods presented.

Under the terms of the agreement, PPG divested its entire flat glass manufacturing and glass coatings operations, including production sites located in Fresno, California; Salem, Oregon; Carlisle, Pennsylvania; and Wichita Falls, Texas; four distribution/fabrication facilities located across Canada; and a research-and-development center located in Harmar, Pennsylvania, near Pittsburgh. PPG’s flat glass business included approximately 1,200 employees. The business manufactures glass that is fabricated into products used primarily in commercial and residential construction.

The net sales and income from discontinued operations related to the flat glass business for the three years ended December 31, 2016, 2015 and 2014 were as follows:



($ in millions)	December 31
	2016		2015		2014
Net sales	$	427	$	564	$	569
Income from operations	$	70	$	99	$	70
Net gain on the divestiture of the flat glass business	421		—		—
Income tax expense	178		32		22
Income from discontinued operations, net of tax	$	313	$	67	$	48

The major classes of assets and liabilities of the flat glass business included in the PPG consolidated balance sheet at December 31, 2015 were as follows:



($ in millions)	December 31, 2015
Receivables	$	79
Inventory	47
Property, plant, and equipment	196
Deferred income taxes^(a)	(37		)
Assets held for sale	$	285
Short-term debt and current portion of long-term debt	1
Accounts payable and accrued liabilities	72
Long-term debt	16
Accrued pensions	16
Other postretirement benefits	6
Other long-term liabilities	1
Liabilities held for sale	$	112

^(a)The net deferred income tax liability is included in assets held for sale due to the Company's tax jurisdictional netting.

European Fiber Glass Business

On October 1, 2016, PPG completed the sale of its European fiber glass business to glass manufacturer Nippon Electric Glass Co. Ltd. ("NEG"). PPG recorded a pre-tax loss of $42 million, consisting predominately of a $46 million pension settlement charge which is recorded in “Selling, general and administrative” on the Consolidated Statement of Income. Manufacturing facilities in Hoogezand, Netherlands, and Wigan, England, and a research and development facility in Hoogezand were included in the transaction. The European fiber glass business manufactures reinforcement materials for thermoset and thermoplastic composite applications for the transportation, energy, infrastructure and consumer markets. The results of the European fiber glass business were not reclassified as discontinued operations, as the divestiture of the European fiber glass business did not have a major impact on PPG's ongoing results of operations and did not constitute an operating segment.

PFG Fiber Glass Joint Ventures

On November 18, 2016, PPG sold its 50% ownership interests in its two PFG fiber glass joint ventures to its joint venture partner Nan Ya Plastics Corporation (“Nan Ya”). Nan Ya is affiliated with Taiwan-based Formosa Plastics Group. The PFG fiber glass joint ventures supply electronic yarn fibers used in integrated electronic circuit boards and fiber glass reinforcement products for automotive applications. PPG recorded a net pre-tax gain on the sale of $36 million which is reported in “Other income” on the Consolidated Statement of Income.

Pittsburgh Glass Works

In April 2016, PPG sold its minority ownership interest in Pittsburgh Glass Works LLC ("PGW") to LKQ Corporation concurrent with the majority partner’s sale of its ownership interest. PPG recorded a pre-tax gain on the sale of $20 million. PPG accounted for its interest in PGW under the equity method of accounting. PPG’s share of net earnings from PGW are reported in “Other income” in the Consolidated Statement of Income for all periods presented and have not been reclassified as discontinued operations, as the divestiture of PGW does not represent a strategic shift in PPG’s operations and PGW did not have a major impact on PPG's ongoing results of operations.

In July 2014, PGW sold its insurance and services business and recognized a pre-tax gain. PPG’s share of the pre-tax gain recognized by PGW was $94 million. This gain is reported in the caption “Other income” on the Consolidated Statement of Income. In addition, PPG received a cash distribution of $41 million from PGW to offset PPG’s expected income tax liability associated with this transaction. The pre-tax gain and the cash distribution are both reported within the “Equity affiliate earnings, net of distributions received” caption on the Consolidated Statement of Cash Flows.

Mt. Zion Flat Glass Facility

In September 2014, PPG completed the sale of substantially all of the assets of its former Mt. Zion, Illinois, flat glass manufacturing facility to automotive glass manufacturer Fuyao Glass America Incorporated. As a result of this transaction, the Company recognized a pre-tax gain of $22 million which is reported in the caption “Discontinued Operations” on the Consolidated Statement of Income.

Plaka Business

In December 2016, PPG announced that it has reached a definitive agreement to sell the assets of its Mexico-based Plaka plasterboard and cement-board business to Knauf International GmbH. The transaction is expected to close in the first half of 2017, subject to regulatory approvals and other customary closing conditions. PPG has presented the assets of the Plaka business as “Assets held for sale” on the consolidated balance sheet as of December 31, 2016.

PPG acquired the Plaka business in 2014 as part of its acquisition of Comex. Plaka, with approximate sales of $30 million in 2015, manufactures plasterboard, cement board and drywall primarily for the Mexican construction market. The business employs about 200 people and operates a manufacturing facility in Querétaro, Mexico.