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2016 PPG ANNUAL REPORT AND FORM 10-K
handling, use, treatment, storage and clean-up of hazardous and
non-hazardous waste, the investigation and remediation 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, but 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
of the U.S. dollar against major currencies, could adversely
affect our financial condition and results of operations expressed
in U.S. dollars. In 2016, this U.S. dollar strengthening had an
unfavorable impact on full year net sales and income before
income taxes from the translation of foreign earnings into U.S.
dollars of approximately $400 million and $70 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,
including 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
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 2016 by products sold outside the U.S. was
approximately 60%.
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