Attached files
| file | filename |
|---|---|
| 8-K - 8-K - PPG INDUSTRIES INC | a8-ktransitionssunlens.htm |
| EX-99.2 - EXHIBIT - PPG INDUSTRIES INC | a2013discopsrestatementbyq.htm |
| EX-99.3 - EXHIBIT - PPG INDUSTRIES INC | a2013q1segmentinformation-.htm |
PPG Industries, Inc.
Exhibit 99.1
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Pro Forma Presentation
On March 31, 2014, PPG Industries, Inc. (the “Company” or “PPG”) completed the previously announced divestiture of its 51% ownership interest in its Transitions Optical joint venture and 100% of PPG's optical sunlens business (the "Transaction") to Essilor International ("Essilor"). The Transaction reflects an enterprise value of approximately $3.4 billion, with PPG receiving cash at closing of $1.73 billion pre-tax or approximately $1.5 billion after-tax. Essilor also entered into multi-year agreements with PPG for supply of photochromic materials and research and development services.
The cash consideration is subject to certain post-closing adjustments and transaction costs. PPG will report a gain on the Transaction reflecting the excess of the sum of the cash proceeds received over the net book value of its share of the net assets of the Transitions Optical business and the net book value of the net assets of its optical sunlens business. The estimated net gain included in the pro forma consolidated balance sheet as if the Transaction occurred as of December 31, 2013 will differ from the gain reported in discontinued operations in PPG's first quarter 2014 financial statements due primarily to differences between the net book value of the assets as of December 31, 2013 and their values as of the date the Transaction was completed.
PPG’s historical condensed consolidated balance sheet and condensed consolidated statements of income have been adjusted on a pro forma basis to reflect the Transaction. The accompanying unaudited pro forma condensed consolidated financial information includes:
• | an unaudited pro forma condensed consolidated balance sheet as of December 31, 2013 after giving effect to the Transaction as if it had occurred on December 31, 2013; |
• | unaudited pro forma condensed consolidated statements of income for the years ended December 31, 2013, 2012 and 2011 after giving effect to the Transaction as if it had occurred on January 1, 2011; and |
• | notes to the unaudited pro forma condensed consolidated financial information. |
The PPG historical data has been derived from PPG’s historical audited consolidated financial statements included in PPG’s Annual Report on Form 10-K for the year ended December 31, 2013. The unaudited pro forma condensed consolidated financial information presented below should be read in conjunction with PPG’s financial statements and notes thereto and the “Management’s Discussion and Analysis of Financial Condition and Results of Operation” section contained in PPG’s Annual Report on Form 10-K for the year ended December 31, 2013. This financial information was prepared in accordance with accounting principles generally accepted in the United States of America. Assumptions underlying the pro forma adjustments are described in the accompanying notes below, which should be read in conjunction with the unaudited pro forma condensed consolidated financial information presented below. The unaudited pro forma condensed consolidated financial information presented below has been provided for information only and should not be considered indicative of PPG’s financial position or results of operations had the Transaction occurred as of the dates indicated.
PPG Industries, Inc.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET | |||||||||||||||||||||||
As of December 31, 2013 | |||||||||||||||||||||||
Historical PPG | Historical Transitions Optical and sunlens | Historical PPG less Transitions Optical and sunlens | Transaction Proceeds | Transaction Adjustments | PPG Pro Forma | ||||||||||||||||||
(In Millions) | (a) | ||||||||||||||||||||||
Assets | |||||||||||||||||||||||
Current assets: | |||||||||||||||||||||||
Cash and cash equivalents | $ | 1,116 | $ | (154 | ) | $ | 962 | $ | 1,735 | (b) | $ | 48 | (b) | $ | 2,745 | ||||||||
Receivables | 2,736 | (225 | ) | 2,511 | — | — | 2,511 | ||||||||||||||||
Inventories | 1,824 | (68 | ) | 1,756 | — | — | 1,756 | ||||||||||||||||
Other current assets | 1,538 | (13 | ) | 1,525 | — | — | 1,525 | ||||||||||||||||
Total current assets | 7,214 | (460 | ) | 6,754 | 1,735 | 48 | 8,537 | ||||||||||||||||
Property, plant and equipment, net | 2,876 | (158 | ) | 2,718 | — | — | 2,718 | ||||||||||||||||
Goodwill and intangible assets | 4,347 | (47 | ) | 4,300 | — | — | 4,300 | ||||||||||||||||
Investments | 393 | (3 | ) | 390 | — | — | 390 | ||||||||||||||||
Other assets | 1,033 | — | 1,033 | — | — | 1,033 | |||||||||||||||||
Total Assets | $ | 15,863 | $ | (668 | ) | $ | 15,195 | $ | 1,735 | $ | 48 | $ | 16,978 | ||||||||||
Liabilities and Shareholders' Equity | |||||||||||||||||||||||
Accounts payable and accrued liabilities | $ | 4,028 | $ | (199 | ) | $ | 3,829 | $ | 284 | (c) | $ | 55 | (d) | $ | 4,168 | ||||||||
Restructuring reserves | 73 | — | 73 | — | — | 73 | |||||||||||||||||
Short-term debt and current portion of long-term debt | 34 | (24 | ) | 10 | — | — | 10 | ||||||||||||||||
Total current liabilities | 4,135 | (223 | ) | 3,912 | 284 | 55 | 4,251 | ||||||||||||||||
Long-term debt | 3,372 | — | 3,372 | — | — | 3,372 | |||||||||||||||||
Accrued pensions | 728 | (1 | ) | 727 | — | — | 727 | ||||||||||||||||
Other postretirement benefits | 1,007 | — | 1,007 | — | — | 1,007 | |||||||||||||||||
Other liabilities | 1,423 | (10 | ) | 1,413 | — | 249 | (e) | 1,662 | |||||||||||||||
Total Liabilities | 10,665 | (234 | ) | 10,431 | 284 | 304 | 11,019 | ||||||||||||||||
Common stock | 484 | — | 484 | — | — | 484 | |||||||||||||||||
Additional paid-in capital | 953 | — | 953 | — | — | 953 | |||||||||||||||||
Retained earnings | 12,757 | (267 | ) | (f) | 12,490 | 1,451 | (f) | (256 | ) | (f) | 13,685 | ||||||||||||
Treasury stock, at cost | (8,002 | ) | — | (8,002 | ) | — | — | (8,002 | ) | ||||||||||||||
Accumulated other comprehensive loss | (1,260 | ) | — | (1,260 | ) | — | — | (1,260 | ) | ||||||||||||||
Total PPG shareholders' equity | 4,932 | (267 | ) | 4,665 | 1,451 | (256 | ) | 5,860 | |||||||||||||||
Noncontrolling interests | 266 | (167 | ) | 99 | — | — | 99 | ||||||||||||||||
Total Shareholders' Equity | 5,198 | (434 | ) | 4,764 | 1,451 | (256 | ) | 5,959 | |||||||||||||||
Total Liabilities and Shareholders' Equity | $ | 15,863 | $ | (668 | ) | $ | 15,195 | $ | 1,735 | $ | 48 | $ | 16,978 | ||||||||||
See accompanying notes to unaudited pro forma condensed consolidated financial information.
PPG Industries, Inc.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME | |||||||||||||||||||||
Year-ended December 31, 2013 | |||||||||||||||||||||
Historical PPG | Historical Transitions Optical and sunlens | Historical PPG less Transitions Optical and sunlens | Transaction Adjustments | PPG Pro Forma | |||||||||||||||||
(In millions, except per share amounts) | (g) | ||||||||||||||||||||
Net sales | $ | 15,108 | $ | (874 | ) | $ | 14,234 | $ | 54 | (h) | $ | 14,288 | |||||||||
Cost of sales, exclusive of depreciation and amortization | 8,636 | (353 | ) | 8,283 | 36 | (i) | 8,319 | ||||||||||||||
Selling, general and administrative | 3,699 | (213 | ) | 3,486 | 3,486 | ||||||||||||||||
Depreciation | 356 | (23 | ) | 333 | — | 333 | |||||||||||||||
Amortization | 119 | — | 119 | — | 119 | ||||||||||||||||
Research and development - net | 488 | (25 | ) | 463 | 463 | ||||||||||||||||
Interest expense | 196 | — | 196 | — | 196 | ||||||||||||||||
Interest income | (43 | ) | — | (43 | ) | — | (43 | ) | |||||||||||||
Business restructuring | 98 | — | 98 | — | 98 | ||||||||||||||||
Other charges | 201 | (1 | ) | 200 | — | 200 | |||||||||||||||
Other income | (131 | ) | 4 | (127 | ) | — | (127 | ) | |||||||||||||
Income before income taxes | 1,489 | (263 | ) | 1,226 | 18 | 1,244 | |||||||||||||||
Income tax expense | 333 | (j) | (80 | ) | 253 | 7 | (k) | 260 | (j) | ||||||||||||
Income from continuing operations | 1,156 | (183 | ) | 973 | 11 | 984 | |||||||||||||||
Less: net income from continuing operations attributable to noncontrolling interests | (122 | ) | 99 | (23 | ) | — | (23 | ) | |||||||||||||
Net income from continuing operations attributable to PPG | $ | 1,034 | $ | (84 | ) | $ | 950 | $ | 11 | $ | 961 | ||||||||||
Earnings per common share | |||||||||||||||||||||
Net income from continuing operations | $ | 7.21 | $ | 6.62 | $ | 6.70 | |||||||||||||||
Weighted average common shares outstanding | 143.4 | 143.4 | 143.4 | ||||||||||||||||||
Earnings per common share - assuming dilution | |||||||||||||||||||||
Net income from continuing operations | $ | 7.13 | $ | 6.55 | $ | 6.62 | |||||||||||||||
Weighted average common shares outstanding | 145.1 | 145.1 | 145.1 | ||||||||||||||||||
See accompanying notes to unaudited pro forma condensed consolidated financial information.
PPG Industries, Inc.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME | ||||||||||||||||||||
Year-ended December 31, 2012 | ||||||||||||||||||||
Historical PPG | Historical Transitions Optical and sunlens | Historical PPG less Transitions Optical and sunlens | Transaction Adjustments | PPG Pro Forma | ||||||||||||||||
(In millions, except per share amounts) | (g) | |||||||||||||||||||
Net sales | $ | 13,512 | $ | (850 | ) | $ | 12,662 | $ | 43 | (h) | $ | 12,705 | ||||||||
Cost of sales, exclusive of depreciation and amortization | 7,905 | (330 | ) | 7,575 | 32 | (i) | 7,607 | |||||||||||||
Selling, general and administrative | 3,200 | (212 | ) | 2,988 | 2,988 | |||||||||||||||
Depreciation | 312 | (20 | ) | 292 | — | 292 | ||||||||||||||
Amortization | 109 | (2 | ) | 107 | — | 107 | ||||||||||||||
Research and development - net | 453 | (23 | ) | 430 | — | 430 | ||||||||||||||
Interest expense | 210 | — | 210 | — | 210 | |||||||||||||||
Interest income | (39 | ) | (1 | ) | (40 | ) | — | (40 | ) | |||||||||||
Business restructuring | 208 | (32 | ) | 176 | — | 176 | ||||||||||||||
Other charges | 236 | (1 | ) | 235 | — | 235 | ||||||||||||||
Other income | (139 | ) | — | (139 | ) | — | (139 | ) | ||||||||||||
Income before income taxes | 1,057 | (229 | ) | 828 | 11 | 839 | ||||||||||||||
Income tax expense | 221 | (73 | ) | 148 | 4 | (k) | 152 | |||||||||||||
Income from continuing operations | 836 | (156 | ) | 680 | 7 | 687 | ||||||||||||||
Less: net income from continuing operations attributable to noncontrolling interests | (110 | ) | 93 | (17 | ) | — | (17 | ) | ||||||||||||
Net income from continuing operations attributable to PPG | $ | 726 | $ | (63 | ) | $ | 663 | $ | 7 | $ | 670 | |||||||||
Earnings per common share | ||||||||||||||||||||
Net Income | $ | 4.73 | $ | 4.32 | $ | 4.37 | ||||||||||||||
Weighted average common shares outstanding | 153.4 | 153.4 | 153.4 | |||||||||||||||||
Earnings per common share - assuming dilution | ||||||||||||||||||||
Net Income | $ | 4.69 | $ | 4.27 | $ | 4.32 | ||||||||||||||
Weighted average common shares outstanding | 155.1 | 155.1 | 155.1 | |||||||||||||||||
See accompanying notes to unaudited pro forma condensed consolidated financial information.
PPG Industries, Inc.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME | ||||||||||||||||||||
Year-ended December 31, 2011 | ||||||||||||||||||||
Historical PPG | Historical Transitions Optical and sunlens | Historical PPG less Transitions Optical and sunlens | Transaction Adjustments | PPG Pro Forma | ||||||||||||||||
(In millions, except per share amounts) | (g) | |||||||||||||||||||
Net sales | $ | 13,153 | $ | (865 | ) | $ | 12,288 | $ | 37 | (h) | $ | 12,325 | ||||||||
Cost of sales, exclusive of depreciation and amortization | 7,865 | (337 | ) | 7,528 | 28 | (i) | 7,556 | |||||||||||||
Selling, general and administrative | 3,122 | (229 | ) | 2,893 | 2,893 | |||||||||||||||
Depreciation | 305 | (20 | ) | 285 | — | 285 | ||||||||||||||
Amortization | 120 | (6 | ) | 114 | — | 114 | ||||||||||||||
Research and development - net | 428 | (22 | ) | 406 | — | 406 | ||||||||||||||
Interest expense | 210 | — | 210 | — | 210 | |||||||||||||||
Interest income | (42 | ) | — | (42 | ) | — | (42 | ) | ||||||||||||
Other charges | 75 | (7 | ) | 68 | — | 68 | ||||||||||||||
Other income | (152 | ) | 2 | (150 | ) | — | (150 | ) | ||||||||||||
Income before income taxes | 1,222 | (246 | ) | 976 | 9 | 985 | ||||||||||||||
Income tax expense | 260 | (73 | ) | 187 | 3 | (k) | 190 | |||||||||||||
Income from continuing operations | 962 | (173 | ) | 789 | 6 | 795 | ||||||||||||||
Less: net income from continuing operations attributable to noncontrolling interests | (104 | ) | 92 | (12 | ) | — | (12 | ) | ||||||||||||
Net income from continuing operations attributable to PPG | $ | 858 | $ | (81 | ) | $ | 777 | $ | 6 | $ | 783 | |||||||||
Earnings per common share | ||||||||||||||||||||
Net income from continuing operations | $ | 5.45 | $ | 4.94 | $ | 4.98 | ||||||||||||||
Weighted average common shares outstanding | 157.3 | 157.3 | 157.3 | |||||||||||||||||
Earnings per common share - assuming dilution | ||||||||||||||||||||
Net income from continuing operations | $ | 5.40 | $ | 4.88 | $ | 4.92 | ||||||||||||||
Weighted average common shares outstanding | 159.3 | 159.3 | 159.3 | |||||||||||||||||
See accompanying notes to unaudited pro forma condensed consolidated financial information.
PPG Industries, Inc.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Adjustments
Pro forma adjustments are necessary to reflect the amount of cash received from Essilor in exchange for the underlying assets and liabilities of PPG's 51% ownership interest in its Transitions Optical joint venture and 100% of PPG's optical sunlens business:
(a) | To reflect the disposition of the underlying assets and liabilities of PPG's 51% ownership interest in its Transitions Optical joint venture and 100% of PPG's optical sunlens business under the terms of the Transaction. |
(b) | To include the pre-tax cash proceeds from the Transaction of $1,735 million (after-tax cash proceeds of $1,499 million) and an adjustment of $48 million for cash net of debt and working capital as of December 31, 2013. |
(c) | To reflect taxes payable of $284 million associated with the gain on the Transaction. |
(d) | Amount reflects an accrual of $21 million, primarily for professional services related to the sale, and an accrual of $34 million related to post-closing adjustments, costs and other contingencies under the terms of the agreements. |
(e) | To reflect a long-term deferred tax liability of $249 million associated with the Transaction. |
(f) | To record the estimated net gain on disposition (dollars in millions): |
Cash proceeds | $ | 1,735 | |
Add: cash, net of debt and working capital adjustment | 48 | ||
Less: current taxes payable | (284 | ) | |
After-tax cash proceeds | 1,499 | ||
Less: book value of PPG's share of net assets sold | (267 | ) | |
long-term deferred tax liability | (249 | ) | |
estimated transaction costs | (21 | ) | |
accrual for estimated post-closing adjustments, costs and other contingencies | (34 | ) | |
Pro forma net gain | $ | 928 | |
(g) | To remove the operating results of PPG's 51% ownership interest in its Transitions Optical joint venture and 100% of PPG's optical sunlens business. For purposes of this unaudited pro forma consolidated statement of income, estimated tax rates of 30%, 32% and 30% have been used for the twelve months ended December 31, 2013, 2012, and 2011, respectively. The estimated income tax rates are based on applicable enacted statutory tax rates for the periods referenced above. Substantially all of PPG's Transitions Optical's and PPG's optical sunlens business' U.S. and non-U.S. subsidiaries file separate tax returns in each tax paying jurisdiction. The estimated tax rates used in these unaudited pro forma condensed consolidated financial statements have been calculated under the separate return method. |
(h) | Amount includes revenue for research and development services provided to Essilor in accordance with the research and development services agreement as if the agreement had been in place at January 1, 2011. The revenue related to this agreement for the years ended December 31, 2013, 2012 and 2011 is $25 million, $23 million and $22 million, respectively. In addition, the adjustment to net sales for the years ended December 31, 2013, 2012 and 2011 includes revenue from the sale of photochromic dye to Essilor in accordance with the photochromic dye supply agreement as if the agreement had been in place at January 1, 2011. The revenue related to this agreement for the years ended December 31, 2013, 2012, and 2011 is $29 million, $20 million and $15 million, respectively. These revenues were previously eliminated in PPG's historical financial results. |
(i) | To reflect costs associated with research and development services provided to Essilor and costs related to the sale of photochromic dye in accordance with the research and development services and photochromic dye supply agreements as if the agreements had been in place at January 1, 2011. |
PPG Industries, Inc.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(j) | Amount reflects an effective tax rate of 22.4% and 20.9% for Historical PPG and PPG Pro Forma, respectively. |
PPG believes investors' understanding of the Company's operating performance is enhanced by the disclosure of income before income taxes, PPG's effective tax rate and income tax expense 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, PPG's effective tax rate and income tax expense 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, PPG's effective tax rate and income tax expense as computed in accordance with U.S. GAAP. In addition, income before income taxes, PPG's effective tax rate and income tax expense adjusted for nonrecurring charges may not be comparable to similarly titled measures as reported by other companies.
The 2013 effective tax rate is reconciled to the adjusted effective tax rate below:
Historical PPG | PPG Pro Forma | ||||||||||||||||
Income before income taxes | Income tax expense | Effective tax rate | Income before income taxes | Income tax expense | Effective tax rate | ||||||||||||
Effective tax rate | $ | 1,489 | $ | 333 | 22.4 | % | $ | 1,244 | $ | 260 | 20.9 | % | |||||
Includes: | |||||||||||||||||
Charges related to environmental remediation | 101 | 37 | 36.6 | % | 101 | 37 | 36.6 | % | |||||||||
Charges related to business restructuring | 98 | 25 | 25.5 | % | 98 | 25 | 25.5 | % | |||||||||
Charges related to business acquisitions | 42 | 14 | 33.3 | % | 36 | 12 | 33.3 | % | |||||||||
Legacy pension settlement charges | 18 | 5 | 27.8 | % | 18 | 5 | 27.8 | % | |||||||||
U.S. tax law change enacted in 2013 | — | 10 | — | — | 10 | — | |||||||||||
Adjusted effective tax rate, excluding certain charges | $ | 1,748 | $ | 424 | 24.3 | % | $ | 1,497 | $ | 349 | 23.3 | % | |||||
(k) | To reflect income tax expense on the net revenue associated with the research and development services provided to Essilor as well as for the sales of photochromic dyes to Essilor as described above. |