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2016 PPG ANNUAL REPORT AND FORM 10-K
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 2016, unfavorable foreign currency
reduced net sales by approximately $400 million.
Our net sales in the developed and emerging regions of the
world for the years ended December 31
st
are summarized below:
($ in millions)
Net Sales
2016
2015 2014
United States, Canada, Western Europe
$10,196
$10,145 $10,657
Latin America, Central and Eastern Europe,
Middle East, Africa, Asia Pacific
4,555
4,621 4,134
Total
$14,751
$14,766 $14,791
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. and Canada and Europe. The Latin America paint
season is the strongest in the fourth quarter. These higher activity
levels result in higher outstanding receivables that are collected
in the fourth quarter generating higher fourth quarter cash from
operating activities.
Employee Relations
The average number of persons employed worldwide by
PPG during 2016 was about 47,000. 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 2016. 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 subject to existing and evolving standards relating to
protection of the environment. PPG is negotiating with various
government agencies concerning 126 current and former
manufacturing sites and offsite waste disposal locations,
including 24 sites on the National Priority List. While PPG is not
generally a major contributor of wastes to these offsite waste
disposal locations, each potentially responsible party may face
governmental agency assertions of joint and several liability.
Generally, however, a final allocation of costs is made based on
relative contributions of wastes to the site. There is a wide range
of cost estimates for cleanup of these sites, due largely to
uncertainties as to the nature and extent of their condition and
the methods that may have to be employed for their remediation.
The Company has established reserves for onsite and offsite
remediation of those sites where it is probable that a liability has
been incurred and the amount 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 $285 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.
Capital expenditures for environmental control projects
were $18 million, $15 million and $14 million in 2016, 2015,
and 2014, respectively. It is expected that expenditures for such
projects in 2017 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.
In management’s opinion, the Company operates in an
environmentally sound manner, is well positioned, relative to
environmental matters, within the industries in which it operates
and the outcome of these environmental contingencies will not
have a material adverse effect on PPG’s financial position or
liquidity; however, any such outcome may be material to the
results of operations of any particular period in which costs, if
any, are recognized. See Note 13, “Commitments and
Contingent Liabilities,” under Item 8 of this Form 10-K for
additional information related to environmental matters and our
accrued liability for estimated environmental remediation costs.
Public and governmental concerns related to climate change
continue to grow, leading to efforts to limit the greenhouse gas
(“GHG”) emissions believed to be responsible. While PPG has
operations in many countries, a substantial portion of PPG’s