01—Abstract
Summary
Summary of the 10-K filed February 19, 2015. Cited figures are marked; the original filing is the authoritative source.
PPG Industries, Inc. reported 2014 net sales of $15.36 billiona, up from $14.27 billion in 2013, with growth driven by acquired businesses (4%), higher sales volumes (3%) and higher selling prices (1%).
Net income attributable to PPG was $2.10 billionb, or $15.03 diluted earnings per share, but this figure includes $6.93 per share from discontinued operations, mainly the sale of the Transitions Optical joint venture and sunlens business to Essilor in March 2014. Diluted earnings per share from continuing operations were $8.10, compared with $6.55 in 2013. Income before income taxes was $1.42 billion, and the company cites adjusted income before income taxes of $1.82 billion after excluding certain nonrecurring charges, including a $317 million debt refinancing charge and $138 million of environmental remediation charges.
The company's largest acquisition was Consorcio Comex, S.A. de C.V., a Mexican architectural coatings business finalized in November 2014 for $1.98 billionc net of cash acquired. Segment income rose in all three reportable segments: Performance Coatings to $1.21 billion, Industrial Coatings to $951 million and Glass to $81 million. Management expects the 2015 currency translation impact to reduce sales by $650 million to $750 million and earnings by about $65 million to $75 million, and it expects an ongoing effective tax rate of 24.0% to 25.0%.
Risk factors center on raw material costs (coatings raw materials generally comprise 70% to 80% of cost of goods sold), foreign currency, and litigation. The company has ongoing asbestos exposure tied to Pittsburgh Corning Corporation, with a proposed settlement that remains subject to court approval, and environmental reserves of $317 milliond, largely for the former Jersey City chromium plant. Management believes these matters will not have a material adverse effect on consolidated financial position or liquidity, though outcomes could be material to results in a particular period.
02—Key points
Key Highlights
- Net sales rose 8% to $15.36 billion in 2014, with acquisitions contributing 4 percentage points, volume 3 points and pricing 1 point.
- Diluted earnings per share were $15.03 in total, but only $8.10 came from continuing operations; the remainder reflects the March 2014 sale of Transitions Optical and sunlens to Essilor, which generated a pre-tax gain of $1.47 billion.
- The Comex acquisition in November 2014 for $1.98 billion net of cash acquired added an architectural coatings business in Mexico and Central America, with the filing expecting $180 to $200 million of first-quarter 2015 sales from Comex.
- A $317 million pre-tax charge for the fourth-quarter 2014 debt refinancing lowered future interest costs, with net interest expense expected to be $55 million lower in 2015.
- Segment income increased 16% in Performance Coatings to $1.21 billion, 15% in Industrial Coatings to $951 million, and rose to $81 million in Glass from $56 million.
- The company returned $361 million in dividends and repurchased about 3.8 million shares for $750 million in 2014, with about $1.7 billion remaining under the current authorization and a 2015–2016 cash deployment target of $1.5 to $2.5 billion for acquisitions and buybacks.
- Asbestos and environmental liabilities remain significant: a proposed asbestos settlement involves aggregate cash payments of about $340 million in the table of obligations, and environmental reserves total $317 million with a reasonably possible additional exposure of $75 million to $200 million.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 19, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $14.79B$14.27B | +3.7% |
| R&D Expenses | $499.00M$479.00M | +4.2% |
| SG&A Expenses | $3.70B$3.49B | +6.0% |
| Operating Income | $2.19B$1.92B | +13.9% |
| Interest Expense | $187.00M$196.00M | −4.6% |
| Net Income | $2.10B$3.23B | −34.9% |
| EPS (Basic) | $7.60$11.27 | −32.6% |
| EPS (Diluted) | $7.52$11.13 | −32.4% |
| Shares Outstanding (Basic) | 276.60M286.80M | −3.6% |
| Shares Outstanding (Diluted) | 279.60M290.20M | −3.7% |
05—Questions
Frequently Asked Questions
What drove PPG's sales growth in 2014?
Net sales increased $1.1 billion, or 8%, to $15.36 billion. The filing attributes about 4 percentage points to acquired businesses, primarily the Akzo Nobel North American architectural coatings business and two months of Comex sales, 3 points to higher sales volumes and 1 point to higher selling prices.
Why is reported diluted EPS so much higher than EPS from continuing operations?
Diluted EPS of $15.03 includes $6.93 per share from discontinued operations, primarily the gain on the March 2014 sale of PPG's 51% interest in Transitions Optical and its sunlens business to Essilor. Diluted EPS from continuing operations was $8.10, up from $6.55 in 2013.
What is the status of PPG's asbestos exposure?
PPG has been a defendant in asbestos lawsuits for over 30 years, mostly tied to Pittsburgh Corning Corporation products. A proposed settlement under the modified third amended PC plan of reorganization remains subject to court proceedings, and the filing notes that the Third Circuit appeal was pending. If the settlement does not become effective, the company intends to defend the claims vigorously, and the outcome could be material to results of operations in a given period.
How much environmental exposure does PPG face?
The company held $317 million of environmental reserves at December 31, 2014, with $141 million classified as current. It may also face unreserved loss contingencies of approximately $75 million to $200 million. The largest component is remediation of the former Jersey City, N.J. chromium manufacturing plant, for which 2014 charges were $136 million.
What does PPG expect for 2015?
Based on mid-January 2015 exchange rates, PPG expects currency translation to reduce 2015 sales by $650 million to $750 million and earnings by about $65 million to $75 million. It expects an ongoing effective tax rate of 24.0% to 25.0%, pension and other postretirement costs to rise by about $60 million to $65 million, and about $20 million of incremental synergy savings from the Akzo Nobel acquisition.
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