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EX-32.2 - EXHIBIT 32.2 - PPG INDUSTRIES INCppg201710kex322-906certifi.htm
EX-32.1 - EXHIBIT 32.1 - PPG INDUSTRIES INCppg201710kex321-906certifi.htm
EX-31.2 - EXHIBIT 31.2 - PPG INDUSTRIES INCppg201710kex312-officercer.htm
EX-31.1 - EXHIBIT 31.1 - PPG INDUSTRIES INCppg201710kex311-officercer.htm
EX-24 - EXHIBIT 24 - PPG INDUSTRIES INCppg201710kex24-powerofatto.htm
EX-23 - EXHIBIT 23 - PPG INDUSTRIES INCppg201710kex23-consentofin.htm
EX-21 - EXHIBIT 21 - PPG INDUSTRIES INCppg201710kex21-subsidiarie.htm
EX-13.2 - EXHIBIT 13.2 - PPG INDUSTRIES INCppg201710kex132-selectedfi.htm
EX-13.1 - EXHIBIT 13.1 - PPG INDUSTRIES INCppg201710kex131-marketinfo.htm
EX-12 - EXHIBIT 12 - PPG INDUSTRIES INCppg201710kex12-ratioofearn.htm
EX-10.30 - EXHIBIT 10.30 - PPG INDUSTRIES INCppg10-kexhibit1030xsekmaka.htm


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, 2017
Commission File Number 1-1687
 ppga03.jpg
PPG INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania
  
25-0730780
(State or other jurisdiction of incorporation or organization)
  
(I.R.S. Employer Identification No.)
 
 
One PPG Place, Pittsburgh, Pennsylvania
  
15272
(Address of principal executive offices)
  
(Zip code)
 
 
Registrant’s telephone number, including area code:
  
412-434-3131
 Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
  
Name of each exchange on
which registered
Common Stock – Par Value $1.66 2/3
  
New York Stock Exchange
0.000% Notes due 2019
 
New York Stock Exchange
0.875% Notes due 2022
 
New York Stock Exchange
0.875% Notes due 2025
 
New York Stock Exchange
1.400% Notes due 2027
 
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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  x
 
Accelerated filer                   ¨
Non-accelerated filer  ¨
 
Smaller reporting company  ¨
(Do not check if a smaller reporting company)
 
Emerging growth company   ¨
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Act).  YES  o    NO  x
The aggregate market value of common stock held by non-affiliates as of June 30, 2017, was $28,173 million.
As of January 31, 2018, 249,880,613 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 $29,638 million.

 DOCUMENTS INCORPORATED BY REFERENCE
Document
  
Incorporated By
Reference In Part No.
Portions of PPG Industries, Inc. Proxy Statement for its 2018 Annual Meeting of Shareholders
  
III

2017 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.
Item 16.
 
 
 
Note on Incorporation by Reference
Throughout this report, various information and data are incorporated by reference from the Company’s 2017 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 2017 PPG ANNUAL REPORT AND 10-K


 
FINANCIAL HIGHLIGHTS
Below are our key financial results from continuing operations for the fiscal year ended December 31, 2017:
Net sales were $14.8 billion, up 3% from the prior year, driven primarily by higher sales volumes and acquisition-related sales.
Cost of sales, exclusive of depreciation and amortization increased 7% to $8.2 billion, driven primarily by raw material cost inflation, higher sales volumes and higher cost of sales from acquired businesses.
Selling, general and administrative expenses of $3.6 billion were slightly lower compared to the prior year.
Income before income taxes was $2,008 million up $1.2 billion year-over-year, due to the absence of pension settlement charges related to the purchase of group annuity contracts and a business restructuring charge.
Net income from continuing operations was $1,371 million and earnings per diluted share was $5.32.
Adjusted net income from continuing operations was $1,513 million and adjusted earnings per diluted share was $5.87.
Cash and short-term investments were approximately $1.5 billion at year-end.
Cash from operating activities - continuing operations was $1,556 million.
Capital expenditures for modernization, productivity and regulatory improvements was $360 million.
Cash used for business acquisitions (net of cash acquired), was $325 million.
The Company raised the per-share dividend by 13%, paid approximately $434 million in dividends and also repurchased $813 million of its outstanding common stock.
The Company expects to deploy at least $3.5 billion for acquisitions and share repurchases during 2017 and 2018 combined, with $1.1 billion deployed in 2017.
The 2017 effective tax rate was 30.7%, which includes a $134 million net charge related to the enactment of the U.S. Tax Cuts and Jobs Act. This net charge is $37 million higher than the net charge included in PPG’s fourth quarter earnings release and Form 8-K furnished on January 18, 2018, primarily due to new IRS regulations issued and refinements of the Company’s estimates. While the Company has made a preliminary assessment of the new legislation’s impact on PPG, U.S. regulatory agencies will be issuing further regulations and clarifying interpretations over 2018 which could alter the Company’s conclusions regarding the impact of the new law. Further, PPG may continue to refine its estimates to incorporate new or better information as it comes available. The Company’s adjusted effective tax rate was 24.4%.
For further information and a full discussion and analysis of business performance for the years ended December 31, 2017, 2016, and 2015 and a reconciliation of non-GAAP financial measures, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-K.
 
Part I
Item 1. Business
PPG Industries, Inc., manufactures and distributes a broad range of paints, coatings and specialty materials. PPG was incorporated in Pennsylvania in 1883. PPG’s vision is to be the world’s leading coatings company by consistently delivering high-quality, innovative and sustainable solutions that customers trust to protect and beautify their products and surroundings.  PPG’s business is comprised of two reportable business segments: Performance Coatings and Industrial Coatings.
In September 2017, PPG completed the sale of its North American fiber glass business, which represents the culmination of a multi-year strategic shift in the Company's business portfolio, resulting in the exit of all glass operations. Accordingly, all historical information has been recast to present the Glass segment as discontinued operations and assets held for sale. Refer to Note 2, “Acquisitions and Divestitures” under Item 8 of this Form 10-K for further information relating to this transaction.
Performance Coatings and Industrial Coatings
PPG is a major global supplier of coatings. The Performance Coatings and Industrial Coatings reportable business segments supply coatings and specialty materials to customers in a wide array of end-use markets, including industrial equipment and components, packaging material; aircraft and marine equipment; automotive original equipment (“automotive OEM”); automotive refinish; as well as for other industrial and consumer products. 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.

2017 PPG ANNUAL REPORT AND FORM 10-K 9


PERFORMANCE COATINGS
Strategic Business Unit
Products
Primary End-use Markets
Main Distribution Methods
Brands
Refinish Coatings
Coatings, solvents, adhesives, sundries, software
Automotive and commercial transport/fleet repair and refurbishing, light industrial coatings and specialty coatings for signs.
Independent distributors and direct to customers
PPG®
Aerospace Coatings
Coatings, sealants, transparencies, transparent armor, packaging and chemical management services for the aerospace industry
Commercial, military, regional jet and general aviation aircraft
Direct to customers and company-owned distribution network
PPG®
Protective and Marine Coatings
Coatings and finishes for the protection of metals and structures
Metal fabricators, heavy duty maintenance contractors and manufacturers of ships, bridges and rail cars
Company-owned architectural coatings stores, independent distributors, concessionaires and direct to customers
PPG®
Architectural Coatings Americas and Asia Pacific
Coatings and purchased sundries
Painting and maintenance contractors and consumers for decoration and maintenance of residential and commercial building structures
Company-owned stores, home centers and other regional or national consumer retail outlets, paint dealers, concessionaires, independent distributors and direct to customers
PPG®, GLIDDEN®, COMEX®, OLYMPIC®, DULUX® (in Canada), SIKKENS®, PPG PITTSBURGH PAINTS®, MULCO®, FLOOD®, LIQUID NAILS®, SICO®, CIL®, RENNER®, TAUBMANS®, WHITE KNIGHT®, BRISTOL®, HOMAX® among others.
Architectural Coatings Europe, Middle East and Africa (EMEA)
SIGMA®, HISTOR®, SEIGNEURIE®, GUITTET®, PEINTURES GAUTHIER®, RIPOLIN®, JOHNSTONE’S®, LEYLAND®, PRIMALEX®, DEKORAL®, TRILAK®, PROMINENT PAINTS®, GORI®, BONDEX®, and DANKE!® among others.
Major Competitive Factors
Product performance, technology, quality, technical and customer service, price, customer productivity, distribution, and brand recognition
Global Competitors
Akzo Nobel N.V., Axalta Coating Systems Ltd., BASF Corporation, Benjamin Moore, Hempel A/S, the Jotun Group, Masco Corporation, Materis Paints, Nippon Paint; RPM International Inc, the Sherwin-Williams Company and Tikkurila Oyj
Average Number of Employees in 2017
28,200
Principal Manufacturing and Distribution Facilities
Amsterdam, Netherlands; Birstall, United Kingdom; Budapest, Hungary; Clayton, Australia; Delaware, Ohio; Dover, Del.; Gonfreville, France; Huntsville, Ala.; Huron, Ohio; Kunshan, China; Little Rock, Ark.; Mexico City, Mexico; Milan, Italy; Mojave, Calif.; Moreuil, France; Shildon, United Kingdom; Sylmar, Calif.; Soborg, Denmark; Stowmarket, United Kingdom; Tepexpan, Mexico and Wroclaw, Poland.

10 2017 PPG ANNUAL REPORT AND 10-K


INDUSTRIAL COATINGS
Strategic Business Unit
Products
Primary End-use Markets
Main Distribution Methods
Brands
Automotive OEM Coatings
Specifically formulated coatings, adhesives and sealants and metal pretreaments
Automotive original equipment manufacturer (OEM)
Direct to manufacturing companies and various coatings applicators
PPG®
Industrial Coatings
Appliances, agricultural and construction equipment, consumer electronics, automotive parts and accessories, building products (including residential and commercial construction), transportation vehicles and numerous other finished products.
PPG®
Packaging Coatings
Specifically formulated coatings
Widely used for the protection, performance and decoration of metal cans, closures, plastic tubes, industrial packaging, and promotional and specialty packaging.
PPG®
Specialty Coatings and Materials
Amorphous precipitated silicas, TESLIN® substrate, Organic Light Emitting Diode (OLED) materials, optical lens materials and photochromic dyes
SILICA - Tire, battery separator and other end-use markets;
TESLIN - used in applications such as radio frequency identification (RFID) tags and labels, e-passports, drivers’ licenses and identification cards;
OLED - for use in displays and lighting; Lens materials - for optical lenses and color-change products.
PPG®
Coatings Services(a)
Services and coatings application
On-site coatings services within several customer manufacturing locations as well as at regional service centers. Customers ship parts to service centers where they are treated to enhance paint adhesion and painted with electrocoat, powder or liquid coatings. Coated parts are then shipped to the customer’s next stage of assembly.
On site at customer locations or at our company-owned service centers
PPG®
(a) Effective January 1, 2018, the coating services business unit has been merged into the industrial coatings business unit to achieve operational efficiencies and to realign management teams and operations to better deliver our total value proposition and provide optimal solutions to our customers.
Technology / Alliances
PPG’s automotive OEM coatings business was the first to introduce breakthrough automotive coating technologies such as cathodic electrocoat, powder clearcoat, compact paint systems and factory-applied spray-in bedliners, and the Company has a continued focus on innovation leadership. PPG has established alliances with Kansai Paints to serve Japanese-based automotive OEM customers in North America and Europe and Asian Paints Ltd. to serve certain aftermarket customers and automotive OEM customers in India.
Major Competitive Factors
Product performance, technology, quality, technical and customer service, price, customer productivity and distribution.
Global Competitors
Akzo Nobel N.V., Axalta Coating Systems Ltd., BASF Corporation, Kansai Paints, Nippon Paint and the Sherwin-Williams Company
2017 Strategic Acquisitions
The Crown Group (Crown) - Refer to Note 2, “Acquisitions and Divestitures” under Item 8 of this Form 10-K for more information.
Average Number of Employees in 2017
14,800
Principal Manufacturing and Distribution Facilities
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

2017 PPG ANNUAL REPORT AND FORM 10-K 11


Research and Development
($ in millions)
2017

 
2016

 
2015

Research and development costs, including depreciation of research facilities

$474

 

$479

 

$484

% of annual net sales
3.2
%
 
3.4
%
 
3.4
%
Technology innovation has been a hallmark of PPG’s success throughout its history. 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. We have obtained government funding for 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 for new and improved products and processes. In addition to the Company’s centralized principal research and development centers (See Item 2. “Properties” of this Form 10-K), operating segments manage their development 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.
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 businesses and sand and soda ash for the specialty coatings and materials business. Coatings raw materials, which include both organic, primarily petroleum based, materials and inorganic materials, including titanium dioxide, comprise between 70% and 80% of the Company’s cost of sales, excluding depreciation and amortization, in most coatings formulations and represent PPG’s single largest production cost component.
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 the manufacture of our raw materials is several steps 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, adding on-site resin production at certain manufacturing locations 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 minimize PPG’s use of this raw material. PPG possesses intellectual property and expertise in the production and finishing of titanium dioxide pigment. PPG intends to continue to leverage this technology and intends to develop innovative supply solutions through technical collaborations, joint ventures and licensing arrangements with other interested parties.
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 (U.S.), 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 recent volatility in certain energy-based input costs and foreign currencies, the Company is not able to predict with certainty the 2018 full year impact of related changes in raw material pricing; however, PPG currently expects overall coatings raw material costs to increase a mid-single-digit percentage in the first half of 2018, with impacts varied by region and commodity. Further, given the distribution nature of many of our businesses, logistics and distribution costs are sizable, as are wages and benefits but to a lesser degree. PPG typically experiences fluctuating prices for energy and raw materials

12 2017 PPG ANNUAL REPORT AND 10-K


driven by various factors, including changes in supplier feedstock costs and inventories, global industry activity levels, foreign currency exchange rates, government regulation, and global supply and demand factors. In aggregate, average raw material cost inflation rose by a mid-single-digit percentage in 2017 versus 2016, driven mostly by supply related factors including an unusually high number of supplier force majeure events in Europe, Chinese environmental regulation enforcement and severe hurricanes in the U.S. In addition, oil prices moved much higher in the second half of 2017 also contributing to raw material inflation.
Patents
($ in millions)
2017
 
2016
 
2015
Revenue earned from royalties and the sale of technical know-how
$11
 
$12
 
$15
PPG considers patent protection to be important; however, the Company’s operating segments are not materially dependent upon any single patent or group of related patents.
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 on PPG’s total net sales and income from continuing operations. 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. During 2017, favorable foreign currency translation increased net sales by approximately $55 million and decreased income from continuing operations by $7 million.
Our net sales in the developed and emerging regions of the world for the years ended December 31st are summarized below:
($ in millions)
 
 
 
 
 
Net Sales
2017

 
2016

 
2015

United States, Canada, Western Europe

$9,913

 

$9,773

 

$9,692

Latin America, Central and Eastern Europe, Middle East, Africa, Asia Pacific
4,837

 
4,497

 
4,549

Total

$14,750

 

$14,270

 

$14,241

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 has typically been greater in the second and third quarters and cash from operating activities 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 the 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 the strongest in the fourth quarter. These cyclical activity levels result in the collection of outstanding receivables and lower inventory on hand in the fourth quarter generating higher cash from operating activities.
Employee Relations
The average number of people employed worldwide by PPG during 2017 was about 47,200. The Company has numerous collective bargaining agreements throughout the world. We observe local customs, laws and practices in labor relations when negotiating collective bargaining agreements. There were no significant work stoppages in 2017. 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 that 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 results of operations. Overall, the Company believes it has good relationships with its employees.
Environmental Matters
PPG is committed to operating in a sustainable manner and to helping our customers meet their sustainability goals. Our sustainability efforts are led by the Technology and Environment Committee of our Board of Directors and our Sustainability Committee, which is comprised of members of PPG’s senior management team. The Sustainability Committee establishes

2017 PPG ANNUAL REPORT AND FORM 10-K 13


policies, programs, procedures and goals to address sustainability in our business practices, including resource management, climate change, innovation, communications, purchasing, manufacturing and employee wellness.
Our dedication to innovation is intertwined with sustainability. Once again in 2017, we increased the percent of our sales from sustainable products. We are marketing an ever-growing variety of products and services that provide environmental, safety and other benefits to our customers. Our products contribute to lighter, more fuel-efficient vehicles, airplanes and ships, and they help our customers reduce their energy consumption, conserve water and reduce waste. These products include a compact automotive paint process that saves energy and reduces water usage; sustainable, waterborne coatings formulations; lightweight sealants and coatings for aircraft; coatings that cool surfaces; and solutions for autonomous and battery-powered vehicles.
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.
PPG participates in both the U.S. Department of Energy, BETTER BUILDINGS®, BETTER PLANTS® program, formerly the SAVE ENERGY NOW® Leadership program, and the Environmental Protection Agency 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.
Our commitment to sustainability continues to yield tangible results. In 2017, we again made significant progress reducing our energy intensity, greenhouse gas emissions intensity, water usage intensity and waste intensity. More information about PPG’s sustainability values, efforts, goals and data and our community and employee engagement programs can be found in our Sustainability Report and on our sustainability website at http://sustainability.ppg.com and on the Carbon Disclosure Project’s website at www.cdp.net.
PPG is subject to existing and evolving standards relating to protection of the environment. In management’s opinion, the Company operates in an environmentally sound manner and is well positioned, relative to environmental matters, within the industries in which it operates. 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 of loss 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 $258 million currently reserved for environmental remediation efforts, we may be subject to loss contingencies related to environmental matters estimated to be approximately $100 million to $200 million. These reasonably possible unreserved losses relate to environmental matters at a number of sites, none of which are individually significant. The loss contingencies related to these sites include significant unresolved issues such as the nature and extent of contamination at these sites and the methods that may have to be employed to remediate them.
($ in millions)
2017
 
2016
 
2015
Capital expenditures for environmental control projects
$7
 
$18
 
$15
It is expected that expenditures for such projects in 2018 will be in the range of $10 million to $20 million. Although future capital expenditures are difficult to estimate accurately because of constantly changing regulatory standards and policies, it can be anticipated that environmental control standards will become increasingly stringent and the cost of compliance will increase.
Management believes that 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

14 2017 PPG ANNUAL REPORT AND 10-K


Form 10-K for additional information related to environmental matters and our accrued liability for estimated environmental remediation costs.
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 the 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.
Item 1A. Risk Factors
As a global manufacturer of paints, coatings and specialty materials, 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 results of operations, 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, comprise between 70% and 80% of the Company’s cost of sales, 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, adding on-site resin production at certain manufacturing locations, and a reduction in the amount of titanium dioxide and other raw materials 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 from operating activities in the event we are unable to offset these higher costs in a timely manner.
Refer to Item 1. “Raw Materials and Energy” of this Form 10-K for a discussion of the current year trends and outlook in raw material and energy costs.
The pace of economic growth and level of uncertainty could have a negative impact on our results of operations and cash flows.
During 2017, economic conditions improved in all of our major geographical regions while remaining mixed by end-use market. 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 from operating activities.
Refer to Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-K for discussion of the economic conditions in 2017 and our outlook on certain economic conditions in 2018.
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

2017 PPG ANNUAL REPORT AND FORM 10-K 15


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 $100 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, asbestos exposure, antitrust, employment 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 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 those described in Note 13, “Commitments and Contingent Liabilities” under Item 8 of this Form 10-K, 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, and such outcomes could have a material adverse effect on our results of operations, cash from operating activities 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 currencies will affect our net sales, net income and the value of balance sheet items denominated in foreign currencies. We may 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 or weakening of the U.S. dollar against major currencies, could adversely or positively affect our financial condition and results of operations expressed in U.S. dollars. In 2017, changes in the U.S. dollar versus our mix of currencies had a favorable impact on full year net sales and an unfavorable impact on income before income taxes from the translation of foreign earnings into U.S. dollars of approximately $55 million and $7 million, respectively.
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, as well as 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

16 2017 PPG ANNUAL REPORT AND 10-K


regulatory requirements and economic conditions of many countries. As a result of our operations 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 2017 by products sold outside the U.S. was approximately 62%.
Changes in the tax regimes and related government policies and regulations in the countries in which we operate could adversely affect our results and our effective tax rate.
As a multinational corporation, we are subject to various taxes in both the U.S. and non-U.S. jurisdictions. Due to economic and political conditions, tax rates in these various jurisdictions may be subject to significant change. Our future effective income tax rate could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets or changes in tax laws or their interpretation. In December 2017, the U.S. enacted the U.S. Tax Cuts and Job Act. While the Company has made a preliminary assessment of the new legislation’s impact on PPG, U.S. regulatory agencies will be issuing further regulations and clarifying interpretations over the next year which could alter the Company’s conclusions regarding the impact of the new law. Further, PPG may continue to refine its estimates to incorporate new or better information as it comes available. Recent developments, including the European Commission’s investigations on illegal state aid as well as the Organisation for Economic Co-operation and Development project on Base Erosion and Profit Shifting may result in changes to long-standing tax principles, which could adversely affect our effective tax rate or result in higher cash tax liabilities. If our effective income tax rate was to increase, our cash from operating activities, financial condition and results of operations would be adversely affected.
Although we believe that our tax filing positions are appropriate, the final determination of tax audits or tax disputes may be different from what is reflected in our historical income tax provisions and accruals. If future audits find that additional taxes are due, we may be subject to incremental tax liabilities, possibly including interest and penalties, which could have a material adverse effect on our cash from operating activities, financial condition and results of operations.
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 our ability to supply products, 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.
Integrating acquired businesses into our existing operations.
Part of the Company’s strategy is growth through acquisitions. Over the last decade, we have successfully completed more than 50 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;
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.
These risks or other problems encountered in connection with our past or future acquisitions and joint ventures could cause delays in realizing the anticipated benefits of such acquisitions or joint ventures and could adversely affect our results of operations, cash from operating activities or financial condition.

2017 PPG ANNUAL REPORT AND FORM 10-K 17


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. 
We believe the automotive industry will experience significant and continued change in the coming years. Vehicle manufacturers continue to develop new safety features such as collision avoidance technology and self-driving vehicles that may reduce vehicle collisions in the future, potentially lowering demand for our refinish coatings. In addition, through the introduction of new technologies, new business models or new methods of travel, such as ridesharing, the number of automotive OEM new-builds may decline, potentially reducing demand for our automotive OEM coatings.
Our 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 businesses, 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 15, 2018, the Company operated 133 manufacturing facilities in 39 countries. See Item 1. “Business” of this Form 10-K for the principal manufacturing and distribution facilities by reportable segment.
The Company has manufacturing facilities in the following geographic areas: 
United States and Canada:
39 facilities.
 
EMEA:
54 facilities in 23 countries.
Latin America:
14 facilities in 5 countries.
 
Asia Pacific:
26 facilities in 9 countries.
The Company’s principal research and development centers are located in Allison Park, Pa.; Monroeville, Pa.; Burbank, Calif.; Tianjin, China; Amsterdam, Netherlands 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.

18 2017 PPG ANNUAL REPORT AND 10-K


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 may relate to contract, patent, environmental, product liability, asbestos exposure, antitrust, employment 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 with respect to some of these claims, and other insurers may contest coverage. 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, 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 many 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, 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.
In March 2016, the Natural Resource Trustees for the Calcasieu River Estuary (the United States Department of the Interior, acting through the United States Fish and Wildlife Service, the National Oceanic and Atmospheric Administration of the United States Department of Commerce, the Louisiana Department of Environmental Quality and the Louisiana Department of Wildlife and Fisheries) reached an agreement in principle with PPG and two other potentially responsible parties to resolve the Trustees’ claims for natural resource damages alleged to have been caused by the release of hazardous substances into the Estuary. In the fourth quarter of 2017, PPG signed a consent decree prepared by the US Department of Justice for settlement of potential natural resource damage claims at the Calcasieu River Estuary. PPG’s share of this settlement is $3.6 million. Payment of PPG’s share of the settlement is required to be made into an escrow account within 30 days of filing the agreement with the court and is expected to occur in the first quarter of 2018.

2017 PPG ANNUAL REPORT AND FORM 10-K 19


Executive Officers of the Company
Set forth below is information related to the Company’s executive officers as of February 15, 2018
Name
Age
Title
Michael H. McGarry (a)
59
Chairman and Chief Executive Officer since September 2016
Glenn E. Bost II (b)
65
Senior Vice President and General Counsel since July 2010
Jean-Marie Greindl (c)
55
Senior Vice President, Architectural Coatings and President PPG EMEA since March 2016
Timothy M. Knavish (d)
52
Senior Vice President, Industrial Coatings since October 2017
Ramaparasad Vadlamannati (e)
55
Senior Vice President, Protective and Marine Coatings since March 2016
Vincent J. Morales (f)
52
Senior Vice President and Chief Financial Officer since March 2017
(a)
Mr. McGarry served as President and Chief Executive Officer from September 2015 through August 2016, President and Chief Operating Officer from March 2015 through August 2015; Chief Operating Officer from August 2014 through February 2015; Executive Vice President from September 2012 through July 2014; and Senior Vice President, Commodity Chemicals from July 2008 through August 2012.
(b)
Mr. Bost served as Vice President and Associate General Counsel from July 2006 through June 2010. 
(c)
Mr. Greindl served as Vice President, Automotive Coatings, EMEA and President, PPG EMEA from February 2013 through February 2016, Vice President, Automotive Coatings, EMEA from January 2011 through January 2013 and Vice President, Automotive Coatings, Europe from October 2010 through December 2010.
(d)
Mr. Knavish served as Senior Vice President, Automotive Coatings from March 2016 through September 2017, Vice President, Protective and Marine Coatings from August 2012 through February 2016 and Vice President, Automotive Coatings, Americas from March 2010 through July 2012.
(e)
Mr. Vadlamannati served as Vice President, Architectural Coatings, EMEA and Asia/Pacific from August 2014 through February 2016, Vice President, Architectural Coatings, EMEA from February 2012 through July 2014, Vice President, Architectural Coatings, EMEA for Region Western Europe from March 2011 through January 2012 and Vice President, Automotive Refinish, EMEA from September 2010 through February 2011.
(f)
Mr. Morales served as Vice President, Finance from June 2016 through February 2017. From June 2015 through June 2016, he served as Vice President Investor Relations and Treasurer and from October 2007 through May 2015 he served as Vice President, Investor Relations.
Item 4. Mine Safety Disclosures
Not Applicable.

20 2017 PPG ANNUAL REPORT AND 10-K


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 may 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(a)(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 14,007; 17,807; and 15,445 common stock equivalents in 2017, 2016 and 2015, respectively, under this plan. The values of the common stock equivalents, when credited, ranged from $95.25 to $115.89 in 2017; $95.63 to $116.07 in 2016, and $90.13 to $98.73 in 2015.
Issuer Purchases of Equity Securities - Fourth Quarter, 2017
Month
Total Number of Shares Purchased

Avg. Price Paid per Share

Total Number of Shares Purchased as Part of Publicly Announced Programs 

Max. Number of Shares That May Yet Be Purchased Under the Programs(1)

October 2017
 
 
 
 
Repurchase program
1,221,668


$114.35

1,221,668

11,327,456

November 2017


 
 
 
Repurchase program
1,152,976


$115.64

1,152,976

10,127,329

December 2017


 
 
 
Repurchase program
1,091,300


$116.36

1,091,300

30,443,353

Total quarter ended December 31, 2017


 
 
 
Repurchase program
3,465,944


$115.41

3,465,944

30,443,353

(1)
In December 2017, PPG's board of directors approved a $2.5 billion share repurchase program. This program is in addition to the company’s existing share repurchase authorization, which was approved in October 2016. The remaining shares yet to be purchased under the programs have been calculated using 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 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 2017.
Item 6. Selected Financial Data
The information required by Item 6 regarding the selected financial data for the five years ended December 31, 2017 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 96 of the Annual Report to shareholders.

2017 PPG ANNUAL REPORT AND FORM 10-K 21


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Performance Overview
Net Sales
 
 
% Change
($ in millions, except percentages)
2017

2016

2015

2017 vs. 2016
2016 vs. 2015
United States and Canada

$6,309


$6,254


$6,232

0.9%
0.4%
Europe, Middle East and Africa (EMEA)
4,389

4,164

4,103

5.4%
1.5%
Asia Pacific
2,523

2,431

2,433

3.8%
(0.1)%
Latin America
1,529

1,421

1,473

7.6%
(3.5)%
Total

$14,750


$14,270


$14,241

3.4%
0.2%
2017 vs. 2016
Net sales increased $480 million due to the following:
● Acquisition-related sales (+1%)
● Higher sales volumes (+1%)
● Slightly favorable foreign currency translation
● Slightly higher selling prices
Net sales from acquired businesses, net of divestitures, added over $200 million of sales in 2017, primarily MetoKote, DEUTEK, Univer and The Crown Group.
U.S. and Canada sales volumes declined slightly year-over-year, with mixed demand by business and end-use market segment. Sales volumes in architectural coatings U.S. company-owned stores grew by a mid-single-digit percentage, but were more than offset by sales volumes declines in the independent dealer networks and national retail (DIY) customer accounts in aggregate. Automotive OEM coatings sales volumes declined year-over-year and lagged industry demand levels due to a customer-driven market-share shift away from PPG that was offset in other regions of the world. These decreases in sales volumes were partially offset by higher sales volumes in specialty coatings and materials, automotive refinish coatings, general industrial coatings, aerospace coatings and packaging coatings.
EMEA sales volumes increased a low-single-digit percentage versus the prior year. Sales volumes in our automotive OEM coatings and aerospace coatings businesses each grew by a mid-single-digit percentage. Specialty coatings and materials sales volumes grew by a double-digit percentage, driven by strong silica demand. Protective coatings volumes also grew year-over-year. These increases in sales volumes were partially offset by lower demand in architectural coatings.
Asia Pacific sales volumes expanded by a mid-single-digit percentage year-over-year led by growth in each business within the Industrial Coatings segment along with sales volume growth in the architectural coatings business. These increases in sales volumes were partially offset by lower demand in marine coatings year-over-year. From a country and sub-region perspective, sales volumes grew in India, China, and Southeast Asia versus the prior year. Korea sales volumes continued to decline year-over-year primarily due to continued weakness in new shipbuilding.
Latin America sales volumes expanded by a mid-single-digit percentage versus the prior year primarily due to above market growth in our automotive OEM coatings and general industrial coatings businesses. The automotive OEM coatings growth was driven by industry production expansion with the opening of new assembly facilities in Mexico. Regional sales volumes were lower in architectural coatings versus the prior year primarily due to lower sales volumes in Brazil and in Mexico due to the impact of the natural disasters during the third quarter.

22 2017 PPG ANNUAL REPORT AND 10-K


2016 vs. 2015
Net sales increased $29 million due to the following:
● Acquisition-related sales (+2%)
● Higher sales volumes (+1%)
Partially offset by:
● Unfavorable foreign currency translation (-3%)
Acquired businesses added approximately $310 million of sales in 2016, primarily due to the partial year sales from businesses acquired in 2015, including Revocoat, IVC Industrial Coatings, Le Joint Francais and Cuming Microwave, as well as the 2016 acquisitions of MetoKote and Univer.

Sales volume growth, excluding acquisition related sales, grew 1% led by growth in Asia Pacific and EMEA, while U.S. and Canada sales volumes as a percentage of sales, declined modestly.

U.S. and Canada sales volumes declined a low-single-digit percentage year-over-year, with mixed demand by business and end-use market segment. Sales volumes in architectural coatings company-owned stores grew by a mid-single-digit percentage, but were more than offset by sales volumes declines in the independent dealer networks and several national retail (DIY) customer accounts. Automotive OEM coatings sales volumes declined year-over-year, in large-part due to lower industry production. These decreases in sales volumes were partially offset by higher sales volumes in automotive refinish coatings and packaging coatings.
EMEA sales volumes increased a low-single-digit percentage versus the prior year. Sales volumes in our automotive OEM coatings and general industrial coatings businesses each grew by a mid-single-digit percentage, above market. Specialty coatings and materials sales volumes grew by a mid-single-digit percentage, driven by silica demand. These increases in sales volumes were partially offset by modestly lower demand in architectural coatings.
Asia Pacific sales volumes expanded by a mid-single-digit percentage year-over-year led by growth in each business within the Industrial Coatings segment. These increases in sales volumes were partially offset by lower demand in marine coatings year-over-year. From a country and sub-region perspective, sales volumes grew in India, China, and Southeast Asia versus the prior year. Korea sales volumes declined year-over-year primarily due to continued weakness in new shipbuilding.
Latin America sales volumes expanded by a low-to-mid-single-digit percentage versus the prior year primarily due to above market growth in our architectural coatings, automotive OEM coatings and general industrial coatings businesses.
Unfavorable foreign currency translation reduced net sales by approximately $385 million as the U.S. dollar strengthened against most foreign currencies year-over-year, notably the British pound, the Mexican peso, and the Chinese yuan.

Cost of sales, exclusive of depreciation and amortization
 
 
% Change
($ in millions, except percentages)
2017

2016

2015

2017 vs. 2016
2016 vs. 2015
Cost of sales, exclusive of depreciation and amortization

$8,204


$7,693


$7,786

6.6%
(1.2)%
Cost of sales as a % of net sales
55.6
%
53.9
%
54.7
%
1.7%
(0.8)%
2017 vs. 2016
Cost of sales, exclusive of depreciation and amortization, increased $511 million (+7%) due to the following:
● Raw material cost inflation
● Higher sales volumes
● Cost of sales attributable to acquired businesses
● Foreign currency translation
Partially offset by:
● Lower manufacturing costs
2016 vs. 2015
Cost of sales, exclusive of depreciation and amortization, decreased $93 million (-1%) due to the following:
● Foreign currency translation
● Lower manufacturing costs
Partially offset by:
● Cost of sales from acquired businesses
● Higher sales volumes

2017 PPG ANNUAL REPORT AND FORM 10-K 23


Selling, general and administrative expenses    
 
 
% Change
($ in millions, except percentages)
2017

2016

2015

2017 vs. 2016
2016 vs. 2015
Selling, general and administrative expenses

$3,570


$3,581


$3,584

(0.3)%
(0.1)%
Selling, general and administrative expenses as a % of net sales
24.2
%
25.1
%
25.2
%
(0.9)%
(0.1)%
2017 vs. 2016
Selling, general and administrative expenses decreased $11 million (0%) primarily due to:
● Lower net periodic pension and other postretirement benefit costs
● Lower selling and advertising costs
● Restructuring cost savings
Partially offset by:
● Wage and other cost inflation
● Selling, general and administrative expenses from acquired businesses
● Foreign currency translation
2016 vs. 2015
Selling, general and administrative expenses decreased $3 million (0%) due to the following:
● Foreign currency translation
● Restructuring cost savings
Partially offset by:
● Selling, general and administrative expenses from acquired businesses
● Overhead cost inflation
Other charges and other income
 
 
% Change
($ in millions, except percentages)
2017

2016

2015

2017 vs. 2016
2016 vs. 2015
Interest expense, net of Interest income

$85


$99


$86

(14.1)%
15.1%
Business restructuring

$—


$195


$136

(100.0)%
43.4%
Pension settlements

$60


$968


$—

(93.8)%
N/A
Other charges

$64


$175


$90

(63.4)%
94.4%
Other income

($154
)

($131
)

($110
)
17.6%
19.1%
Interest expense, net of Interest income
Interest expense, net of interest income decreased $14 million in 2017 versus 2016 primarily due to lower interest rate debt outstanding during 2017. Interest expense, net of Interest income increased $13 million in 2016 versus 2015 as interest income decreased year-over-year due to lower interest rates and lower average cash deposits on hand.
Business restructuring
In 2016, PPG recorded a pre-tax business restructuring charge of $195 million. During 2017, PPG realized approximately $50 million of cost savings related to restructuring actions. Once fully implemented, the total annual savings run rate is expected to be approximately $125 million. Refer to Note 7, "Business Restructuring" in Item 8 of this Form 10-K for additional information.
In 2015, PPG recorded a pre-tax restructuring charge of $136 million, of which about 85% represented employee severance and other cash charges. As of December 31, 2016, substantially all actions have been completed.

24 2017 PPG ANNUAL REPORT AND 10-K


Pension settlements
During 2017, PPG made lump-sum payments to certain retirees who had participated in PPG's U.S. qualified and non-qualified pension plans totaling approximately $127 million. As the lump-sum payments were in excess of the expected 2017 service and interest costs for the affected plans, PPG remeasured the periodic benefit obligation of these plans in the period payments were made and recorded settlement charges totaling $60 million ($38 million after-tax) during 2017.
During 2016, PPG permanently transferred approximately $1.8 billion of its U.S. and Canadian pension obligations and assets to several highly rated insurance companies. These actions triggered remeasurement and partial settlement of certain of the Company’s defined benefit pension plans. PPG recognized a $968 million pre-tax settlement charge in connection with these transactions. Refer to Note 12, "Employee Benefit Plans" in Item 8 of this Form 10-K for additional information.
Other charges
Other charges in 2017 were lower than 2016 due to the absence of environmental charges and certain asset write-downs. In 2016, Other charges were higher than in 2015 due to environmental charges of $82 million. These charges were principally for environmental remediation at a former chromium manufacturing plant and associated sites in New Jersey.
Other income
Other income was higher in 2017 than in 2016 primarily due to the gain from the sale of the Mexican Plaka business of $25 million. Other income in 2016 was higher than in 2015 due to gains totaling $46 million resulting from the sale of a PPG legacy U.S. automotive glass and services business and a U.S. business affiliate, higher equity earnings from a 2017 acquisition of a 40% interest in a joint venture and was partially offset by the absence of certain business transaction-related gains.
Effective tax rate and earnings per diluted share, continuing operations
 
 
% Change
($ in millions, except percentages)
2017

2016

2015

2017 vs. 2016
2016 vs. 2015
Income tax expense

$616


$217


$413

183.9%
(47.5)%
Effective tax rate
30.7
%
27.6
%
23.7
%
3.1%
3.9%
Adjusted effective tax rate*
24.4
%
24.6
%
23.9
%
(0.2)%
0.7%
 
 
 
 
 
 
Earnings per diluted share

$5.32


$2.05


$4.79

159.5%
(57.2)%
Adjusted earnings per diluted share*

$5.87


$5.67


$5.33

3.5%
6.4%
*See the Regulation G reconciliations - results of operations
The effective tax rate for the year-ended December 31, 2017 was 30.7% and increased 3.1% from the prior year primarily due to recording the net charge triggered by the enactment of the U.S. Tax Cuts and Jobs Act. This charge is approximately $37 million higher than the net charge included in PPG’s fourth quarter earnings release and Form 8-K furnished on January 18, 2018, primarily due to new IRS regulations issued and refinements of management estimates.
As reported, earnings per diluted share from continuing operations for the year ended December 31, 2017 increased year-over-year, primarily due to the absence of the pension settlement charge of $616 million after-tax recorded in 2016. Refer to the Regulation G Reconciliations - Results of Operations for additional information. The Company’s earnings per diluted share and adjusted earnings per diluted share both benefited from the 7.4 million, 10.7 million and 7.0 million shares of stock repurchased in 2017, 2016 and 2015, respectively.
Regulation G Reconciliations - Results of Operations
PPG Industries believes investors’ understanding of the company’s operating performance is enhanced by the disclosure of net income, earnings per diluted share and the effective tax rate adjusted for certain 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 a quarterly basis or that are not attributable to our primary operations. Net income 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 net income or earnings per diluted share or other financial measures as computed in accordance with U.S. GAAP. In addition, adjusted net income, earnings per diluted share and the effective tax rate may not be comparable to similarly titled measures as reported by other companies.

2017 PPG ANNUAL REPORT AND FORM 10-K 25


Income before income taxes is reconciled to adjusted income before income taxes, the effective tax rate from continuing operations is reconciled to the adjusted effective tax rate from continuing operations and 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, 2017
 
 
 
 
 
($ in millions, except percentages and per share amounts)
Income Before Income Taxes

 
Tax Expense

 
Effective Tax Rate

 
Net income from continuing operations (attributable to PPG)

 
Earnings per diluted share

As reported, continuing operations

$2,008

 

$616

 
30.7
%
 

$1,371

 

$5.32

Includes:
 
 
 
 
 
 
 
 
 
Net tax charge related to U.S. Tax Cuts and Jobs Act

 
(134
)
 
N/A

 
134

 
0.52

Charges related to transaction-related costs(1)
9

 
3

 
37.9
%
 
6

 
0.02

Charges related to pension settlements
60

 
22

 
37.9
%
 
38

 
0.14

Gain from sale of business
(25
)
 
(1
)
 
3.2
%
 
(24
)
 
(0.09
)
Gain from a legal settlement
(18
)
 
(7
)
 
37.9
%
 
(11
)
 
(0.04
)
Gain from sale of a non-operating asset
(13
)
 
(5
)
 
37.9
%
 
(8
)
 
(0.03
)
Charges related to asset write-downs
7

 

 
%
 
7

 
0.03

Adjusted, continuing operations, excluding certain charges

$2,028

 

$494

 
24.4
%
 

$1,513

 

$5.87

Year-ended December 31, 2016
 
 
 
 
 
($ in millions, except percentages and per share amounts)
Income Before Income Taxes

 
Tax Expense

 
Effective Tax Rate

 
Net income from continuing operations (attributable to PPG)

 
Earnings per diluted share

As reported, continuing operations

$786

 

$217

 
27.6
%
 

$547

 

$2.05

Includes:
 
 
 
 
 
 
 
 
 
Charges related to transaction-related costs(1)
8

 
3

 
37.6
%
 
5

 
0.03

Charges related to pension settlements
968

 
352

 
36.4
%
 
616

 
2.31

Charge related to business restructuring
195

 
51

 
26.2
%
 
144

 
0.55

Charge related to environmental remediation
82

 
31

 
37.6
%
 
51

 
0.20

Net gain from disposals of ownership interests in business affiliates
(46
)
 
(16
)
 
34.8
%
 
(30
)
 
(0.12
)
Net tax effect of asbestos settlement funding

 
(151
)
 
N/A

 
151

 
0.57

Charge related to early retirement of debt
8

 
3

 
37.6
%
 
5

 
0.02

Charges related to asset write-downs
23

 
7

 
30.4
%
 
17

 
0.06

Adjusted, continuing operations, excluding certain charges

$2,024

 

$497

 
24.6
%
 

$1,506

 

$5.67

Year-ended December 31, 2015
 
 
 
 
 
($ in millions, except percentages and per share amounts)
Income Before Income Taxes

 
Tax Expense

 
Effective Tax Rate

 
Net income from continuing operations (attributable to PPG)

 
Earnings per diluted share

As reported, continuing operations

$1,745

 

$413

 
23.7
%
 

$1,311

 

$4.79

Includes:
 
 
 
 
 
 


 
 
Charges related to transaction-related costs(1)
44

 
14

 
33.3
%
 
30

 
0.10

Charge related to business restructuring
136

 
31

 
22.8
%
 
105

 
0.39

Charge related to pension settlement
7

 
2

 
28.6
%
 
5

 
0.02

Charge related to equity affiliate debt refinancing
11

 
4

 
37.6
%
 
7

 
0.03

Adjusted, continuing operations, excluding certain charges

$1,943

 

$464

 
23.9
%
 

$1,458

 

$5.33

(1)
Transaction-related costs include advisory, legal, accounting, valuation, and other professional or consulting fees incurred to effect significant acquisitions, as well as similar fees and other costs to effect divestitures not classified as discontinued operations. These costs also include the flow-through cost of sales impact for the step up to fair value of inventory acquired in acquisitions. These costs also include certain nonrecurring severance costs and charges associated with the Company’s business portfolio transformation.


26 2017 PPG ANNUAL REPORT AND 10-K


Performance of Reportable Business Segments
Performance Coatings
 
 
 
$ Change
 
% Change
($ in millions, except percentages)
2017

2016

2015

 
2017 vs. 2016
2016 vs. 2015
 
2017 vs. 2016
2016 vs. 2015
Net sales

$8,732


$8,580


$8,765

 
$152
$(185)
 
1.8%
(2.1)%
Segment income

$1,323


$1,314


$1,302

 
$9
$12
 
0.7%
0.9%
2017 vs. 2016
Performance Coatings net sales increased (2%) due to the following:
● Higher selling prices (+1%)
● Net sales from acquisitions (+1%)
● Modest foreign currency translation
Partially offset by:
● Slightly lower sales volumes
Selling prices increased year-over-year primarily due to selling price initiatives across all businesses to combat accelerating raw material cost inflation.
Architectural coatings - Americas and Asia Pacific sales volumes declined a low-single-digit-percentage versus the prior year. Sales volumes increased by a mid-single-digit percentage in company-owned stores in the U.S. and Canada, including the unfavorable impact from natural disasters in the third quarter 2017. This increase was more than offset by sales volume declines in the U.S. and Canada independent dealer networks and national retail (DIY) customer accounts, as both distribution channels continued to experience soft demand. Organic sales improved in both the Latin America and Asia Pacific regions.
Architectural coatings - EMEA net sales increased by a high-single-digit percentage year-over-year, primarily due to acquisition-related sales, principally DEUTEK and Univer, which contributed approximately $85 million to net sales. Sales volumes were down year-over-year primarily driven by continued weak demand in France and eastern Europe, as well as our turning away certain business due to low profitability or lack of customer acceptance of selling price increases. Demand growth continued in Northern Europe, where we continued to outperform the market.
Automotive refinish coatings organic sales grew by a low-single-digit percentage year-over-year, led by above-market performance in U.S. and Canada as customers continued to adopt PPG’s industry leading technologies. Organic sales also increased in the Latin American region versus the prior year, reflecting high end-use market demand. In Asia Pacific, net sales increased, largely due to the recent Futian Xinshi acquisition in China.
Aerospace coatings sales volumes grew by a low-single-digit percentage versus the prior year, led by above market performance in Europe and consistent with the overall industry demand.
Protective and marine coatings sales volumes declined by a mid-single-digit percentage year-over-year. Protective coatings sales volumes expanded in most regions, led by Europe, but were more than offset by significant weakness in new shipbuilding activity, primarily in the Asia Pacific region.
Segment income increased $9 million (1%) year-over-year primarily due to selling price increases, lower overhead and manufacturing costs, including the initial benefits from business restructuring actions, partially offset by increasing raw material costs, wage and other cost inflation, and lower sales volumes.

2017 PPG ANNUAL REPORT AND FORM 10-K 27


2016 vs. 2015
Performance Coatings net sales decreased (2%) due to the following:
● Unfavorable foreign currency translation of approximately $260 million (3%), most notably the Mexican peso, the British pound, the Chinese yuan and the euro.
Partially offset by:
● Net sales from acquisitions (+1%)
Architectural coatings - Americas and Asia Pacific organic sales were flat versus the prior year. In the U.S. and Canada, sales volumes advanced in the company-owned store channel versus the prior year, mainly due to recent growth-related investments and initiatives. The increase in the company-owned stores channel was more than offset by sales volume declines in national retail (DIY) accounts and U.S. independent dealer channel year-over-year, despite DIY channel strengthening in the second half of 2016. Latin America organic sales were up year-over-year, led by Mexico which grew at more than double the Mexican GDP growth rate.
Architectural coatings - EMEA sales volumes were flat year-over-year. Growth in western Europe was offset by reduced demand levels in central Europe and in Africa, where economies are closely linked to depressed commodity prices. Acquisition-related sales from Univer in Italy added about $10 million in the fourth quarter 2016.
Automotive refinish coatings organic sales grew at a low-single-digit percentage rate year-over-year, outperforming end-use market demand levels in the U.S. and Canada and Asia Pacific, as customers continued to adopt PPG’s industry leading technologies.
Aerospace coatings sales volumes increased modestly year-over-year, in line with industry growth rates. Sales growth occurred in all major regions.
Protective and marine coatings net sales volumes declined a low-to-mid-single-digit-percentage year-over-year as growth in protective coatings was offset by declines in marine coatings, primarily due to lower shipbuilding activity in the Asia Pacific region and the ongoing impact of decreased capital investment and maintenance in the oil and gas sector. Protective coatings sales volumes grew versus the prior year, led by the U.S. and Canada and Latin America regions, including benefits from expanded distribution through the PPG-Comex concessionaire network.
Segment income increased $12 million (+1%) primarily due to the benefits from prior year business restructuring initiatives, modestly higher selling prices, lower manufacturing costs, acquisition-related income (Cumings Microwave, Le Joint Francais, Univer), partially offset by unfavorable foreign currency translation and higher growth-related spending in the U.S. architectural coatings business. Segment income margins expanded, increasing 40 basis points year-over-year.
Looking Ahead
In the first quarter 2018, we expect sales volumes in the architectural coatings - Americas and Asia Pacific business to be seasonally lower than the fourth quarter 2017. In addition, overall volume trends by customer channel are anticipated to be consistent with the fourth quarter 2017. The PPG TIMELESS® product, launched in certain HOME DEPOT® stores in 2017, is projected to continue to meet our sales targets and is being expanded to more locations during 2018. We also anticipate additional growth-related spending of up to $5 million in the first quarter to support the continued momentum in the region. The volume growth trend for architectural coatings - EMEA is expected to improve modestly in the first quarter 2018, with results remaining uneven by country. We expect continued, high end-use demand in our automotive refinish coatings business as customers continue to adopt PPG’s industry leading technologies. In aerospace coatings, we anticipate continued improvement in industry demand growth. The protective and marine coatings business is expected to perform in-line with the market in the first quarter 2018.
We expect raw material costs to remain elevated in the first-quarter 2018 at similar levels experienced in the fourth quarter. Further selling price increases in 2018 will be needed to offset more recent raw material inflation. There will be no material benefit from acquisition-related sales in the segment, and, based on mid-January exchange rates, foreign currency translation is expected to have a similar sequential favorable impact on segment sales and income in the first quarter 2018.
Due to the timing of the Easter holiday, there is one fewer ship day in the first-quarter 2018 compared to first-quarter 2017, which is expected to unfavorably impact global architectural coatings sales volumes by about $20 million to $25 million in net sales. This unfavorable impact will reverse in the second quarter.

28 2017 PPG ANNUAL REPORT AND 10-K


Industrial Coatings
 
 
 
$ Change
 
% Change
($ in millions, except percentages)
2017

2016

2015

 
2017 vs. 2016
2016 vs. 2015
 
2017 vs. 2016
2016 vs. 2015
Net sales

$6,018


$5,690


$5,476

 
$328
$214
 
5.8%
3.9%
Segment income

$972


$1,042


$985

 
$(70)
$57
 
(6.7)%
5.8%
2017 vs. 2016
Industrial Coatings segment net sales increased (6%) due to the following:
● Higher sales volumes (+4%)
● Acquisition-related sales (+3%)
Partially offset by:
● Lower selling prices (1%)
PPG’s automotive OEM coatings sales volumes increased by a low-single-digit percentage versus the prior year, consistent with the global automotive industry production growth rate, led by China, Mexico, Europe and Brazil. Sales volumes declined in the U.S. and Canada, partially reflecting fewer automotive new builds.
General industrial coatings and specialty coatings and materials sales volumes, in aggregate, grew by a mid-single-digit percentage year-over-year. Sales volumes grew year-over-year in every major region with mixed demand by end-use market and geography. This growth was led by Asia Pacific and the U.S., which outpaced regional industrial production demand growth. Sales volumes grew across most sub-segments, including year-over-year increases in electronics materials, heavy duty equipment and organic light emitting diode (OLED) materials. Acquisition-related sales, primarily MetoKote, added approximately $155 million.
Packaging coatings sales volumes grew by a mid-single-digit percentage year-over-year, primarily driven by ongoing industry conversions to PPG’s new can coatings technologies, led by the U.S.
Segment income decreased $70 million (-7%) year-over-year primarily due to increasing raw material costs, lower selling prices and wage and other cost inflation. These cost increases were partially offset by income from higher sales volumes, lower manufacturing and overhead costs, including the initial benefits from business restructuring actions, and acquisition-related income.
2016 vs. 2015
Industrial Coatings segment net sales increased (4%) due to the following:
● Net sales from acquired businesses (+4%)
● Higher sales volumes (+3%)
Partially offset by:
● Unfavorable foreign currency translation of approximately $125 million (2%), most notably the Mexican peso, the British pound, the Chinese yuan and the euro.
● Lower selling prices (1%)
PPG’s automotive OEM coatings business sales volumes increased a low-single-digit-percentage over the prior year, consistent with global automotive industry production growth. PPG's sales volumes differed by region, led by year-over-year growth in Europe and Asia Pacific, while U.S. and Canada sales volumes lagged industry demand levels due to a customer-driven market-share shift away from PPG that was offset in other regions of the world.
General industrial coatings and specialty coatings and materials sales volumes, in aggregate, increased a mid-single-digit percentage year-over-year. Sales volume growth was led by Asia Pacific and EMEA, and was driven by strong end-market demand for automotive components, electronic materials, and coil and extrusion products. Latin America sales volumes advanced moderately, while volumes in the U.S. and Canada declined modestly.
Packaging coatings sales volumes were up a mid-to-high single-digit percentage year-over-year, primarily driven by continued strong sales growth momentum related to the adoption of PPG's new can coatings technologies. This above market sales volume growth was led by U.S. and Canada and Asia Pacific regions.
Segment income increased $57 million (+6%) primarily due to lower manufacturing costs, higher sales volumes, acquisition-related income (MetoKote, IVC Industrial Coatings, Revocoat) and the benefits from prior year restructuring initiatives, partially offset by unfavorable foreign currency translation and modestly lower selling prices. PPG experienced higher transportation and logistics costs required to meet increasing customer demand in Asia. Segment income margins continued to improve, increasing 30 basis points year-over-year.

2017 PPG ANNUAL REPORT AND FORM 10-K 29


Looking ahead
In the first quarter of 2018, we expect global automotive industry production growth to be about 1% led by Europe and Mexico. In China, automotive production is expected to modestly decrease in the first quarter of 2018, reflecting the expiration of a small engine subsidy that had been in effect the past several years. We anticipate solid general industrial demand growth trends to continue in aggregate, but remain mixed by geography and end-use market. PPG’s market outperformance is expected to continue. In our packaging coatings business, we anticipate volume growth will continue due to the ongoing industry conversion to BPA non-intent interior can coatings, with PPG’s year-over-year growth rates continuing at an above market level in 2018. We expect acquisition-related sales to add approximately $30 million to first quarter 2018 segment sales and, based on mid-January exchange rates, foreign currency translation is expected to have a similar sequential favorable impact on segment sales and income in the first quarter 2018.
Segment margin recovery continues to be a priority for 2018. Based on recent raw material inflation, segment margin recovery is expected to continue through the first half of 2018. All businesses in the segment have made progress with selling price initiatives and additional price increases have been announced for early 2018. Also, efforts to reduce costs remain a key focus in 2018.
Review and Outlook
During 2017, economic conditions improved in all of our major geographical regions while remaining mixed by end-use market. PPG’s aggregate organic sales grew 1.5% versus the prior year and were higher in the second half of 2017 compared to the first half of 2017. Acquisition-related sales from two acquisitions completed in 2016 and the four completed in 2017 contributed over 1% to net sales growth year-over-year. Foreign currency translation was modestly favorable to net sales year-over-year. Favorable foreign currency translation experienced in the second half of 2017 slightly offset unfavorable impacts during the first half of the year. Raw material inflation rose by a mid-single-digit percentage driven mostly by supply related factors, including an unusual high number of supplier force majeure events in Europe, government mandated production curtailments in China to help improve pollution, and severe hurricanes in the U.S. In addition, oil prices moved sharply higher in the second half of the year also contributing to raw material inflation.
U.S. and Canada
During 2017, the pace of economic activity improved in the U.S. and Canada region versus the prior year, with higher industrial production despite lower automotive industry builds. Demand in the residential and commercial construction markets were modestly higher in 2017 compared to 2016. New home starts advanced about 2% in 2017 versus approximately 6% in 2016. Residential remodeling declined 1% in 2017 versus 2016, while commercial construction was flat compared to 7% growth in 2016. Market demand for architectural paint shifted more to trade paint as U.S. unemployment continued to decline. Demand in the overall U.S. DIY paint market remained soft throughout the year. PPG’s architectural coatings performance in the U.S. followed market trends with solid improvement in company-owned same store sales throughout the year. The automotive refinish coatings business benefited from higher miles driven and more congestion on the roads due to lower unemployment. PPG’s packaging coatings business continued to expand well ahead of the industry end-use market growth driven by continued strong sales growth momentum related to customer adoption of PPG’s new interior can coatings technologies. Similar to 2016, PPG’s automotive OEM coatings business lagged industry demand levels due to a customer-driven market-share shift away from PPG that was offset in other regions of the world. The U.S. and Canada region remained PPG’s largest, representing approximately 43% of 2017 sales, although a smaller percentage of total sales than in the prior year.
Europe, Middle East and Africa
European economic activity improved in 2017 despite continued regional uncertainty over the United Kingdom’s exit from the European Union. Overall GDP and industrial production improved in the region. Regional demand continued to be mixed by country and end-use market. Demand for PPG’s products in several end-use markets drove the regional growth rate, including above market performance in automotive OEM coatings, aerospace coatings and specialty coatings and materials. PPG’s architectural coatings - EMEA business sales volumes decreased year-over-year, driven by soft market demand in France and more competitive pressures in Northern and Eastern Europe.
EMEA represented approximately 30% of PPG’s 2017 sales, similar to prior year levels. Regional coatings volumes remain approximately 13% below their pre-recession levels in 2008. The modest volume recovery reflects the slow pace of economic growth in the region. PPG expects continued volume growth over time at attractive incremental margins due to significant cost structure improvements and available capacity to satisfy additional demand. In the second half of the year, the euro appreciated approximately 5% against the U.S. dollar. The British pound recovered some of its 2016 declines versus the U.S. dollar gaining about 10% from the start of 2017.

30 2017 PPG ANNUAL REPORT AND 10-K


Asia Pacific and Latin America
The emerging regional markets of Asia Pacific and Latin America represented 27% of PPG’s 2017 sales in aggregate, 200 basis points higher than the prior year.
Asia remained the largest emerging region, with sales of approximately $2.5 billion, led by China, which continued as PPG’s second largest country by revenue. Sales volume growth in Asia was led by the Industrial Coatings segment, in part due to strong sales volume growth in general industrial and automotive OEM. These increases were partially offset by the continued demand decline in the marine shipbuilding industry.
Overall, demand in Latin America improved year-over-year, with continued above market growth in Mexico and Central America. Economic conditions modestly improved in South America, primarily led by Brazil. In Mexico, the PPG-Comex business added over 200 new concessionaire locations, and strong growth continued in the automotive industry due to the opening of new automotive assembly plants within the country in the past 18 months. Foreign currency translation turned favorable in the second half of the year, principally the Mexican peso and Chinese yuan. In Central America, the Company continued to grow organically following a 2015 acquisition to expand its presence in the architectural end-use market.
Regional Outlook
Looking ahead to 2018, we expect to continue to operate in a more balanced global growth environment. We anticipate the positive economic trends in 2017 to mostly continue. We expect economic growth rates to remain consistent with 2017 for the U.S. and Canada, Europe, and Asia Pacific regions, and we expect the Latin America region will increase its economic growth year-over-year, when compared to 2017.
We anticipate PPG’s U.S. and Canada regional growth will be led by general industrial coatings and packaging coatings, with flat automotive industry builds. We expect growth in the housing and commercial construction markets to be better than 2017.
We expect growth rates in Europe to stay at similar levels as 2017 but will remain mixed by sub-region and country. Favorable end-use market trends are expected to continue, particularly in automotive OEM coatings as industry build growth rates are anticipated to remain positive. Market demand is expected to improve in the architectural coatings business. There is greater risk to the economic environment in the U.K. as their exit from the European Union progresses.
In Asia Pacific, we expect continued industrial production growth in China as well as gains in Southeast Asia and India. In China, we see continued above global average growth with heightened risk as the Chinese economy continues to shift and rely more on domestic consumption. The regional declines in marine coatings sales volumes were less severe in the second half of 2017, and we expect a moderate recovery in sales volumes starting in the second half of 2018. Automotive build growth is expected to remain modestly positive.
In Latin America, we anticipate economic expansion will be led by Brazil and that Mexico’s economic conditions will modestly improve.
Significant other factors
During 2017, PPG finalized the divestiture of its North American fiber glass business. This is a transformational milestone for the Company as it completed the culmination of a multi-year strategic shift in the company’s business portfolio. The pre-tax cash proceeds from the sale were approximately $540 million.
In December 2016, PPG initiated a $195 million global restructuring program, with anticipated annual savings of approximately $125 million once fully implemented. The expected cost savings are broadly spread across all regions and all business units. The company achieved approximately $50 million of savings in 2017 and expects to achieve the full annualized target of $125 million by 2019. PPG will continue to aggressively manage the company’s cost structure to ensure alignment with the overall demand environment and make adjustments as required to remain competitive in the marketplace.
Raw materials are a significant input cost to the process of manufacturing coatings. PPG experiences fluctuating energy and raw material costs driven by various factors, including changes in supplier feedstock costs and inventories, global industry activity levels, foreign currency exchange rates, and global supply and demand factors. In aggregate, average raw material costs were higher in 2017 versus 2016, due to supplier force majeure, natural disasters and environmental regulation enforcement. PPG currently expects overall coatings raw material prices to increase a mid-single-digit percentage in the first half of 2018, with impacts varied by region and commodity.
In 2017, aggregate selling prices were modestly higher year-over-year, reflecting the company’s efforts to offset higher raw material costs. We expect to see further benefits from selling price actions taken in 2017 and other actions planned in 2018 to recover profit contribution margins. The Company will carefully monitor raw material costs during 2018 and assess the need for additional increases to selling prices to compensate for increases in raw material costs.

2017 PPG ANNUAL REPORT AND FORM 10-K 31


Pension and postretirement benefit costs, excluding settlements, curtailments and special termination benefits, totaled approximately $50 million in 2017, down approximately $70 million from 2016. In 2018, we expect pension and other postretirement benefit costs to decrease by approximately $15 million to $20 million due to strong 2017 asset performance improving the expected return on assets component of net periodic benefit cost as well as certain U.S. plan changes made in 2017.
PPG contributed $54 million to its U.S. defined benefit pension plans in 2017 and an additional $25 million in January 2018. In 2017, the Company made contributions aggregating $33 million to its non-U.S. defined benefit pension plans. In 2018, mandatory contributions to PPG’s non-U.S. defined benefit pension plans are expected to be between $20 million and $30 million.
In 2017, unfavorable foreign currency translation experienced in the first half was completely offset by favorable foreign currency translation experienced in the second half of the year. Based on mid-January 2018 exchange rates, the Company expects year-over-year favorable foreign currency translation to increase 2018 sales by $250 million to $300 million and 2018 income before income taxes by $25 million to $30 million. We expect the foreign currency translation impact to be more prevalent during the first half of 2018, due to prior year foreign exchange rate trends. The foreign currency environment continues to be volatile and the impact on 2018 net sales and income before income taxes could differ from the guidance provided above. The Company generally purchases raw materials, incurs manufacturing costs and sells finished goods in the same currency, so we typically incur only modest foreign currency transaction costs.
With the enactment of the U.S. Tax Cuts and Jobs Act, the Company’s 2018 effective tax rate from continuing operations is expected to be in the range of 23.0% and 24.0%. This range represents the Company’s best estimate, including the new legislation, however, our estimate is subject to revision as the Company completes its assessment of the new law and as additional regulations and interpretations are issued. Other factors may affect the expected 2018 effective tax rate positively or negatively throughout the year, including changes to various statutory tax rates and regulations around the world.
Over the past four years, the Company used $3.4 billion of cash to repurchase about 33 million shares of PPG stock, including over $800 million in 2017. The Company ended the year with approximately $3.6 billion remaining under its current share repurchase authorizations. During 2017, the Company deployed approximately $325 million for acquisitions and $434 million for dividends. PPG increased its per-share dividend in July 2017, marking the 46th annual increase and the 118th consecutive year of dividend payments. The Company is committed to deploying a minimum of $2.4 billion of cash during 2018 on acquisitions and share repurchases as part of our previously communicated commitment to deploy $3.5 billion in 2017 and 2018 combined. In 2017, PPG deployed $1.1 million for acquisitions and share repurchases.
PPG ended 2017 with approximately $1.5 billion in cash and short-term investments. The Company expects continued strong cash generation in 2018.
Accounting Standards Adopted in 2017
Note 1, “Summary of Significant Accounting Policies,” under Item 8 of this Form 10-K 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 of this Form 10-K describes accounting pronouncements that have been promulgated prior to December 31, 2017 but are not effective until a future date.
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.
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, 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.

32 2017 PPG ANNUAL REPORT AND 10-K


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”). 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 the New Jersey Department of Environmental Protection in 2021.
There are multiple, future events yet to occur, including further remedy selection and design, remedy implementation and execution and applicable governmental agency or community organization approvals. Considerable uncertainty exists regarding the timing of these future events for the New Jersey Chrome sites. Final resolution of these events is expected to occur over the next several years. As these events occur and to the extent that the cost estimates of the environmental remediation remedies change, the existing reserve for this environmental remediation matter will be adjusted.
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 and cash equivalents and short-term investments
($ in millions)
2017

 
2016

Cash and cash equivalents

$1,436

 

$1,820

Short-term investments
55

 
43

Total

$1,491

 

$1,863

Cash from operating activities - continuing operations
($ in millions, except percentages)
 
% Change
 
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
Cash from operating activities
$1,556
$1,218
$1,759
27.8%
(30.8)%
2017 vs. 2016
The $338 million increase in cash from operating activities - continuing operations, was primarily due to the absence of the prior year funding of the Pittsburgh Corning asbestos trust (the “Trust”), lower defined benefit pension contributions, lower restructuring payments and lower interest payments, partially offset by higher cash taxes paid in 2017 and higher working capital.
2016 vs. 2015
The $541 million decrease in cash from operating activities - continuing operations, was primarily due to the after-tax funding of the Trust, partially offset by lower working capital and lower defined benefit pension contributions.
Operating working capital
Operating Working Capital is a subset of total working capital and represents (1) receivables from customers, net of allowance for doubtful accounts, (2) inventories, and (3) trade liabilities. See Note 3, “Working Capital Detail” under Item 8 of this Form 10-K for further information related to the components of the Company’s Operating Working Capital. We believe Operating Working Capital represents the key components of working capital under the operating control of our businesses.
A key metric we use to measure our working capital management is Operating Working Capital as a percentage of sales (fourth quarter sales annualized). 
($ in millions, except percentages)
2017

 
2016

Trade Receivables, net

$2,559

 

$2,288

Inventories, FIFO
1,833

 
1,620

Trade Creditor’s Liabilities
2,321

 
1,907

Operating Working Capital

$2,071

 

$2,001

Operating Working Capital as a % of fourth quarter sales, annualized
14.1
%
 
14.6
%
 
 
 
 
Trade Receivables, net as a % of fourth quarter sales, annualized
17.4
%
 
16.7
%
Days sales outstanding
57

 
54

Inventories, FIFO as a % of fourth quarter sales, annualized
12.4
%
 
11.9
%
Inventory turnover
4.8

 
4.6


2017 PPG ANNUAL REPORT AND FORM 10-K 33


Environmental expenditures
($ in millions)
2017
2016
2015
Cash outlays related to environmental remediation activities
$44
$47
$109
We expect cash outlays for environmental remediation activities in 2018 to be between $25 million and $75 million.
Defined benefit pension plan contributions
($ in millions)
2017
2016
2015
U.S. defined benefit pension plans
$54
$134
$224
Non-U.S. defined benefit pension plans
$33
$54
$39
PPG contributed $54 million and $25 million to its U.S. defined benefit pension plans during 2017 and in January 2018, respectively. Some contributions to PPG’s non-U.S. defined benefit pension plans in 2017 were required by local funding requirements. PPG expects to make mandatory contributions to its non-U.S. defined benefit pension plans in the range of $20 million to $30 million in 2018. PPG may make voluntary contributions to its defined benefit pension plans in 2018 and beyond.
Asbestos settlement trust funding
In June 2016, PPG fully funded its portion of the trust that was established by the U.S. Bankruptcy Court for the Western District of Pennsylvania in May 2016. PPG’s total cash obligations to fund the Trust totaled $813 million (pre-tax). All payments were applied against a previously established PPG reserve for the total asbestos trust obligation. The company utilized cash on hand for the payments, and this funding had no impact on PPG’s previously stated cash-deployment targets. Refer to Note 13, “Commitments and Contingent Liabilities” under Item 8 of this Form 10-K for additional information.
Cash used for investing activities - continuing operations
($ in millions, except percentages)
 
% Change
 
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
Cash (used for)from investing activities
($63)
$472
($349)
(113.3)%
235.2%
2017 vs. 2016
The $535 million decrease in cash used for investing activities - continuing operations, was primarily due to the absence of the prior year proceeds from the sale of the flat glass business, European fiber glass business and two Asian joint ventures, as well as lower capital expenditures, including business acquisitions, partially offset by the current year proceeds from the sale of the North American fiber glass business.
2016 vs. 2015
The $821 million increase in cash from investing activities - continuing operations, was primarily due to the proceeds received from the divestiture of the flat glass business, European fiber glass business and two Asian joint ventures, partially offset by lower cash received from the maturity of short-term investments.
Capital expenditures, including business acquisitions
($ in millions, except percentages)
 
% Change
 
2017

2016

2015

2017 vs. 2016
2016 vs. 2015
Capital expenditures (1)

$360


$380


$430

(5.3)%
(11.6)%
Business acquisitions, net of cash acquired (2)

$325


$349


$320

(6.9)%
9.1%
Total capital expenditures, including acquisitions

$685


$729


$750

(6.0)%
(2.8)%
Capital expenditures, excluding acquisitions as a % of sales
2.4
%
2.7
%
3.0
%
(11.1)%
(10.0)%
(1) Includes modernization and productivity improvements, expansion of existing businesses and environmental control projects.
(2) Excluding cash acquired, business acquisitions totaled $332 million, $362 million, and $440 million in 2017, 2016 and 2015, respectively.
Capital expenditures related to modernization and productivity improvements, expansion of existing businesses and environmental control projects is expected to be in the range of 2.5% to 3.0% of sales during 2018.
A primary focus for the Company in 2018 will continue to be cash deployment focused on profitable income growth, including pursuing opportunities for additional strategic acquisitions.

34 2017 PPG ANNUAL REPORT AND 10-K


Cash proceeds from divestitures
In September 2017, PPG completed the sale of its North American fiber glass business to Nippon Electric Glass Co. and received approximately $540 million in pre-tax cash proceeds.
During 2016, PPG finalized the sale of its flat glass business and several other businesses and business affiliates. The Company received total pre-tax cash proceeds of approximately $1.1 billion from these business divestitures. Refer to Note 2, “Acquisitions and Divestitures” under Item 8 of this Form 10-K for additional information.
Cash used for financing activities - continuing operations
 
 
% Change
($ in millions, except percentages)
2017
2016
2015
2017 vs. 2016
2016 vs. 2015
Cash used for financing activities
($1,954)
($1,210)
($812)
61.5%
49.0%
2017 vs. 2016
The $744 million increase in cash used for financing activities - continuing operations, was primarily due to repayment of long term debt and higher dividends in 2017, partially offset by issuance of long term debt in 2016 and lower net purchases of treasury stock year-over-year.
2016 vs. 2015
The $398 million increase in cash used for financing activities - continuing operations, was primarily due to higher dividends in 2016, higher net purchases of treasury stock year-over-year, lower net issuance of long term debt in 2016, partially offset by lower taxes withheld for share-based payments.
Share repurchase activity
($ in millions, except number of shares)
2017

2016

2015

Number of shares repurchased (millions)
7.4

10.7

7.0

Cost of shares repurchased

$813


$1,050


$751

We anticipate completing additional share repurchases during 2018. The Company has approximately $3.6 billion remaining under the current authorizations from the Board of Directors, the latest of which was approved in December 2017. The current authorized repurchase programs have no expiration date.
Dividends paid to shareholders
($ in millions)
2017
2016
2015
Dividends paid to shareholders
$434
$414
$383
PPG has paid uninterrupted annual dividends since 1899, and 2017 marked the 46th consecutive year of increased annual per-share dividend payments to shareholders. The Company raised its per-share dividend by 13% to $0.45 per share in July 2017.
Debt issued and repaid
Debt Issued
Year
$ in millions

€300 million 0.000% Notes due 2019 and €600 million 0.875% Notes due 2025
2016

$987

 €600 million 0.875% Notes due 2022 and €600 million 1.400% Notes due 2027
2015
1,240

Debt Repaid
Year
$ in millions

3-year variable rate bank loan due 2017
2017

$587

$125 million 6.65% notes due 2018
2016
133

Two $250 million Term Loan Credit Agreements
2016
500

$250 million 1.9% notes
2016
250

€300 million 3.875% notes
2015
336

The ratio of total debt, including capital leases, to total debt and equity was 43% at December 31, 2017 down from 47% in 2016.

2017 PPG ANNUAL REPORT AND FORM 10-K 35


Credit agreements and lines of credit
In December 2015, PPG entered into a 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 provides for a $1.8 billion unsecured revolving credit facility. The Credit Agreement will terminate on December 18, 2020. During the years ended December 31, 2017 and 2016, there were no borrowings outstanding under the existing or the prior Credit Agreement.
In addition to the amounts available under the lines of credit, the Company has an automatic shelf registration statement on file with the SEC pursuant to which it may issue, offer and sell from time to time on a continuous or delayed basis any combination of securities in one or more offerings.
See Note 8, “Borrowings and Lines of Credit,” under Item 8 of this Form 10-K for information regarding notes entered into and repaid as well as details regarding the use and availability of committed and uncommitted lines of credit, letters of credit, guarantees and debt covenants.
Contractual obligations
We continue to believe that our cash on hand and short term investments, cash from operations and the Company’s access to capital markets will continue to be sufficient to fund our operating activities, capital spending, acquisitions, dividend payments, debt service, share repurchases, contributions to pension plans, and PPG’s significant contractual obligations. These significant contractual obligations are presented in the following table.
($ in millions)
 
 
Obligations Due In:
 
Total

 
2018

 
2019-2020

 
2021-2022

 
Thereafter

Contractual Obligations
 
 
 
 
 
 
 
 
 
Long-term debt

$4,123

 

$—

 

$1,151

 

$849

 

$2,123

Short-term debt
8

 
8

 

 

 

Capital lease obligations
15

 
4

 
5

 
2

 
4

Operating leases
840

 
212

 
305

 
149

 
174

Interest payments(1)
1,004

 
94

 
179

 
115

 
616

Pension contributions(2)
55

 
55

 

 

 

Unconditional purchase commitments(3)
124

 
55

 
39

 
11

 
19

Other commitments
136

 
6

 
56

 
13

 
61

Total

$6,305

 

$434

 

$1,735

 

$1,139

 

$2,997

(1)
Includes interest on all outstanding debt.
(2)
Includes the high end of the range of the expected mandatory pension contributions for 2018 only and U.S. contributions made in January 2018, as PPG is unable to estimate the pension contributions beyond 2018.
(3)
The unconditional purchase commitments are principally take-or-pay obligations related to the purchase of certain materials, including industrial gases and electricity, consistent with customary industry practice.
Other liquidity matters
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”) which, among other things lowered the U.S. corporate statutory income tax rate from 35% to 21%, eliminated certain deductible items and added other deductible items for corporations, imposed a tax on unrepatriated foreign earnings and eliminated U.S. taxes on most future foreign earnings. In December 2017, the Company recorded a net tax charge of $134 million related to the Act. The net charge consists of the tax on unrepatriated foreign earnings of approximately $250 million and a charge of approximately $125 million related to the remeasurement of PPG’s U.S. deferred tax assets and liabilities at the new enacted statutory rate. These charges were partially offset by a benefit from the reversal of an existing deferred tax liability on repatriated foreign earnings of approximately $150 million and a benefit resulting from PPG’s decision to accelerate recognition of certain U.S. tax attributes during the fourth quarter.
This net charge is $37 million higher than the net charge included in PPG’s fourth quarter earnings release and Form 8-K furnished on January 18, 2018, primarily due to new IRS regulations issued and refinements of management estimates. The net charge recorded as a provisional amount as of December 31, 2017 represents the Company’s best estimate using information available as of February 1, 2018. The Company anticipates U.S. regulatory agencies will issue further regulations during 2018, which may alter this estimate. The Company is still evaluating among other things, its position with respect to permanent reinvestment of foreign earnings overseas and other related outside basis difference considerations and the amount of tax owed on unrepatriated earnings by subsidiaries. The Company believes its remeasurement of the U.S deferred tax assets and liabilities is complete, except for changes in estimates that can result from finalizing the filing of our 2017 U.S.

36 2017 PPG ANNUAL REPORT AND 10-K


income tax return, which are not anticipated to be material, and changes that may be a direct impact of other provisional amounts recorded due to the enactment of the Act. The Company will refine its estimates to incorporate new or better information as it comes available through the filing date of its 2017 U.S. income tax returns in the fourth quarter of 2018.
The tax owed by PPG on its unrepatriated foreign earnings is payable over eight years and is subject to a prescriptive calculation to determine the portion payable in 2018 and beyond. PPG’s current estimate, using this prescriptive method, indicates its tax payable will be increased by approximately $1 million to $3 million per year through 2025. As such, the portion of the tax on unrepatriated foreign earnings not payable within the next 12 months is presented within “Other liabilities” on the consolidated balance sheet.
The Company currently expects its 2018 on-going effective tax rate from continuing operations to be in the range of 23% to 24%.
At December 31, 2017, 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 $163 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.
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, we make extensive use 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 of this Form 10-K for information on these plans and the assumptions used.
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

2017 PPG ANNUAL REPORT AND FORM 10-K 37


determining the useful lives of finite-lived intangible assets in accordance with the accounting guidance for goodwill and other intangible assets.
Goodwill and Intangible Assets
The Company tests indefinite-lived intangible assets and goodwill for impairment annually by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation is an assessment of factors 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. 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. For more information on these matters, see Note 1, “Summary of Significant Accounting Policies,” under Item 8 of this Form 10-K.
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
Comparing exchange rates from December 31, 2016 to December 31, 2017, the U.S. dollar weakened against the currencies in most countries in which PPG operates, most notably the Mexican peso, British pound, Chinese yuan and euro. As a result, consolidated net assets at December 31, 2017 increased by approximately $231 million from December 31, 2016.
Comparing exchange rates from December 31, 2015 to December 31, 2016, the U.S. dollar strengthened against the currencies in most countries in which PPG operates, most notably the Mexican peso, British pound, Chinese yuan and euro. As a result, consolidated net assets at December 31, 2016 decreased by approximately $465 million from December 31, 2015.
Comparing exchange rates during 2017 to those of 2016, in the countries in which PPG operates, the U.S. dollar was stronger overall, which had an unfavorable impact of approximately $7 million on full year 2017 income before income taxes from the translation of this foreign income into U.S. dollars.
Comparing exchange rates during 2016 to those of 2015, in the countries in which PPG operates, the U.S. dollar was stronger overall, which had an unfavorable impact of approximately $70 million on full year 2016 income before income taxes from the translation of this foreign income 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. 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 the impacts of the natural disasters in Mexico, Puerto Rico and the U.S., and their length and severity, any currently unanticipated future impacts from the natural disasters, global economic conditions, increasing price and product competition by foreign and domestic competitors, fluctuations in cost and availability of raw materials, the ability to increase selling price, the ability to recover margins, our ability to maintain favorable supplier relationships and arrangements, the timing of and the realization of anticipated cost savings from restructuring initiatives, difficulties in integrating acquired businesses and achieving expected synergies therefrom, economic and political conditions in the markets we serve, 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 and the unpredictability of existing and possible future litigation. 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.

38 2017 PPG ANNUAL REPORT AND 10-K


Consequences of material differences in the results compared with those anticipated in the forward-looking statements could include, among other things, lower sales or income, business disruption, operational problems, financial loss, legal liability to third parties, other factors set forth in Item 1A of this Form 10-K and similar risks, any of which could have a material adverse effect on the 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 was exposed 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 2017 and 2016 were generally designated as a hedge of PPG’s exposure to foreign currency transaction risk. As of December 31, 2017 and 2016, the fair value of these contracts was a net liability of $19 million and a net asset of $16 million, respectively. 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 and Canadian currencies and 20% for Asian and Latin American currencies for the years ended December 31, 2017 and 2016 would have been $255 million and $105 million, respectively.
As of December 31, 2017 and 2016, PPG had U.S. dollar to Euro cross currency swap contracts with a total notional amount of $560 million outstanding. As of December 31, 2017 and 2016, the fair value of these contracts was a net asset of $2 million and $65 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 by reducing the value of these instruments by $58 million and by $54 million at December 31, 2017 and 2016, respectively.
As of December 31, 2017 and 2016, PPG had non-U.S. dollar denominated debt outstanding of $2.8 billion and $3.1 billion, respectively. 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 $314 million and $344 million as of December 31, 2017 and 2016, 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. 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, 2017 and 2016, respectively. Further, a 10% reduction in interest rates would have increased the present value of the Company’s fixed rate debt by approximately $61 million and $65 million as of December 31, 2017 and 2016, respectively; however, such changes would not have had an effect on PPG’s annual income from continuing operations or cash flows.
Equity Price Risk
In prior years, PPG entered into equity forward arrangements to hedge the Company’s exposure to changes in the fair value of its future obligation to contribute PPG stock to the 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). In June 2016, PPG satisfied its funding obligation to the Trust and the equity forward arrangements were settled. At settlement, the aggregated fair value of the equity forward arrangements was an asset of $258 million.

2017 PPG ANNUAL REPORT AND FORM 10-K 39


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.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of PPG Industries, Inc. and its subsidiaries as of December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2017 appearing under item 15(a)(2)(collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Establishing and Maintaining Adequate Internal Control Over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. 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.
Definition and Limitations of Internal Control over Financial Reporting
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.

/s/ PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
February 15, 2018

We have served as the Company’s auditor since 2013.  

40 2017 PPG ANNUAL REPORT AND 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 consolidated financial statements included in this Annual Report. The consolidated 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, 2017. 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. Based on this evaluation we have concluded that, as of December 31, 2017, 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 40 of this Form 10-K, regarding the Company’s internal control over financial reporting.
/s/ Michael H. McGarry
 
/s/ Vincent J. Morales
Michael H. McGarry
Chairman and Chief Executive Officer
February 15, 2018
 
Vincent J. Morales
Senior Vice President and Chief Financial Officer
February 15, 2018

2017 PPG ANNUAL REPORT AND FORM 10-K 41


Consolidated Statement of Income
 
For the Year
($ in millions, except per share amounts)
2017

 
2016

 
2015

Net sales

$14,750

 

$14,270

 

$14,241

Cost of sales, exclusive of depreciation and amortization
8,204

 
7,693

 
7,786

Selling, general and administrative
3,570

 
3,581

 
3,584

Depreciation
331

 
319

 
314

Amortization
129

 
121

 
132

Research and development, net
453

 
459

 
466

Interest expense
105

 
125

 
125

Interest income
(20
)
 
(26
)
 
(39
)
Asbestos settlement, net

 
5

 
12

Business restructuring

 
195

 
136

Pension settlement charges
60

 
968

 

Other charges
64

 
175

 
90

Other income
(154
)
 
(131
)
 
(110
)
Income before income taxes

$2,008

 

$786

 

$1,745

Income tax expense
616

 
217

 
413

Income from continuing operations

$1,392

 

$569

 

$1,332

Income from discontinued operations, net of tax
220

 
330

 
95

Net income attributable to the controlling and noncontrolling interests

$1,612

 

$899

 

$1,427

Less: net income attributable to noncontrolling interests
21

 
22

 
21

Net income (attributable to PPG)

$1,591

 

$877

 

$1,406

Amounts Attributable to PPG
 
 
 
 
 
Continuing operations

$1,371

 

$547

 

$1,311

Discontinued operations
220

 
330

 
95

Net income

$1,591

 

$877

 

$1,406

Earnings per common share
 
 
 
 
 
Continuing operations

$5.35

 

$2.06

 

$4.83

Discontinued operations
0.86

 
1.24

 
0.35

Net income (attributable to PPG)

$6.21

 

$3.30

 

$5.18

Earnings per common share - assuming dilution
 
 
 
 
 
Continuing operations

$5.32

 

$2.05

 

$4.79

Discontinued operations
0.85

 
1.23

 
0.35

Net income (attributable to PPG)

$6.17

 

$3.28

 

$5.14

Consolidated Statement of Comprehensive Income
 
 
For the Year
($ in millions)
2017

 
2016

 
2015

Net income attributable to the controlling and noncontrolling interests

$1,612

 

$899

 

$1,427

 
Unrealized foreign currency translation gains/(losses)
248

 
(476
)
 
(717
)
 
Defined benefit pension and other postretirement benefit adjustments
78

 
808

 
113

 
Unrealized (losses)/gains – derivative financial instruments
(10
)
 
4

 
5

Other comprehensive income/(loss), net of tax
316

 
336

 
(599
)
Total comprehensive income

$1,928

 

$1,235

 

$828

Less: amounts attributable to noncontrolling interests:
 
 
 
 
 
 
Net income
(21
)
 
(22
)
 
(21
)
 
Unrealized foreign currency translation (losses)/gains
(17
)
 
10

 
13

Comprehensive income attributable to PPG

$1,890

 

$1,223

 

$820

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

42 2017 PPG ANNUAL REPORT AND 10-K


Consolidated Balance Sheet
 
December 31
($ in millions)
2017

 
2016

Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents

$1,436

 

$1,820

Short-term investments
55

 
43

Receivables
2,903

 
2,654

Inventories
1,730

 
1,514

Assets held for sale

 
223

Other
353

 
320

Total current assets

$6,477

 

$6,574

Property, plant and equipment, net
2,824

 
2,608

Goodwill
3,942

 
3,572

Identifiable intangible assets, net
2,045

 
1,983

Deferred income taxes
305

 
184

Investments
268

 
179

Other assets
677

 
669

Total

$16,538

 

$15,769

 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
Current liabilities
 
 
 
Accounts payable and accrued liabilities

$3,780

 

$3,460

Restructuring reserves
102

 
100

Short-term debt and current portion of long-term debt
12

 
629

Liabilities held for sale

 
64

Total current liabilities

$3,894

 

$4,253

Long-term debt
4,134

 
3,787

Accrued pensions
729

 
740

Other postretirement benefits
699

 
724

Deferred income taxes
442

 
417

Other liabilities
967

 
935

Total liabilities

$10,865

 

$10,856

Commitments and contingent liabilities (See Note 13)

 

Shareholders’ equity
 
 
 
Common stock

$969

 

$969

Additional paid-in capital
756

 
701

Retained earnings
17,141

 
15,984

Treasury stock, at cost
(11,251
)
 
(10,472
)
Accumulated other comprehensive loss
(2,057
)
 
(2,356
)
Total PPG shareholders’ equity

$5,558

 

$4,826

Noncontrolling interests
115

 
87

Total shareholders’ equity

$5,673

 

$4,913

Total

$16,538

 

$15,769

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

2017 PPG ANNUAL REPORT AND FORM 10-K 43


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

January 1, 2015

$484


$1,028


$14,498


($8,714
)

($2,116
)

$5,180


$85


$5,265

Net income attributable to the controlling and noncontrolling interests


1,406



1,406

21

1,427

Other comprehensive loss, net of tax




(586
)
(586
)
(13
)
(599
)
Cash dividends


(383
)


(383
)

(383
)
2:1 Stock split
485

(485
)






Purchase of treasury stock



(751
)

(751
)

(751
)
Issuance of treasury stock

46


25


71


71

Stock-based compensation activity

46




46


46

Dividends paid on subsidiary common stock to noncontrolling interests






(4
)
(4
)
Reductions in noncontrolling interests






(3
)
(3
)
December 31, 2015

$969


$635


$15,521


($9,440
)

($2,702
)

$4,983


$86


$5,069

 
 
 
 
 
 
 
 
 
Net income attributable to the controlling and noncontrolling interests


877



877

22

899

Other comprehensive loss, net of tax




346

346

(10
)
336

Cash dividends


(414
)


(414
)

(414
)
Purchase of treasury stock



(1,050
)

(1,050
)

(1,050
)
Issuance of treasury stock

37