Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
  –––––––––––––––––––––––––––––––––––––––––––––––––
FORM 10-Q
 –––––––––––––––––––––––––––––––––––––––––––––––––
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2019
or
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 1-1687
––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
PPG INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
25-0730780
(I.R.S. Employer Identification No.)
Pennsylvania
(State or Other Jurisdiction of Incorporation or Organization)
One PPG Place, Pittsburgh, Pennsylvania
(Address of Principal Executive Offices)
15272
(Zip Code)
(412) 434-3131
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, par value $1.66 2/3
 
PPG
 
New York Stock Exchange
0.000% Notes due 2019
 
PPG 19
 
New York Stock Exchange
0.875% Notes due 2022
 
PPG 22
 
New York Stock Exchange
0.875% Notes due 2025
 
PPG 25
 
New York Stock Exchange
1.400% Notes due 2027
 
PPG 27
 
New York Stock Exchange
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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).  Yes     No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.    
Large Accelerated Filer
Accelerated Filer
Non-accelerated Filer
 
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 in Rule 12b-2 of the Act).  Yes     No 
As of June 30, 2019, 236,292,889 shares of the Registrant’s common stock, par value $1.66 2/3 per share, were outstanding.





PPG INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
 
 
 
PAGE
 
Item 1.
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
Item 1.
Item 1A.
Item 2.
Item 6.
 

1

Table of Contents

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PPG INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Income (Unaudited)
($ in millions, except per share amounts)
 
Three Months Ended
June 30
 
Six Months Ended
June 30
 
2019
 
2018
 
2019
 
2018
Net sales
$4,024

 

$4,131

 
$7,648

 

$7,912

Cost of sales, exclusive of depreciation and amortization
2,288

 
2,379

 
4,361

 
4,560

Selling, general and administrative
934

 
945

 
1,823

 
1,851

Depreciation
91

 
91

 
177

 
178

Amortization
35

 
34

 
67

 
70

Research and development, net
111

 
114

 
216

 
226

Interest expense
35

 
31

 
66

 
57

Interest income
(7
)
 
(7
)
 
(13
)
 
(12
)
Business restructuring, net
176

 
83

 
173

 
83

Other charges
29

 
6

 
43

 
47

Other income
(31
)
 
(24
)
 
(47
)
 
(48
)
Income before income taxes

$363

 

$479

 

$782

 

$900

Income tax expense
86

 
104

 
188

 
191

Income from continuing operations

$277

 

$375

 

$594

 

$709

Income from discontinued operations, net of tax
2

 

 
2

 
6

Net income attributable to controlling and noncontrolling interests

$279

 

$375

 

$596

 

$715

Less: Net income attributable to noncontrolling interests
(7
)
 
(4
)
 
(12
)
 
(10
)
Net income (attributable to PPG)

$272

 

$371

 

$584

 

$705

Amounts attributable to PPG:
 
 
 
 
 
 
 
Income from continuing operations, net of tax

$270

 

$371

 

$582

 

$699

Income from discontinued operations, net of tax
2

 

 
2

 
6

Net income (attributable to PPG)

$272

 

$371

 

$584

 

$705

 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
Income from continuing operations, net of tax

$1.14

 

$1.51

 

$2.46

 

$2.83

Income from discontinued operations, net of tax
0.01

 

 
0.01

 
0.02

Net income (attributable to PPG)

$1.15

 

$1.51

 

$2.47

 

$2.85

Earnings per common share – assuming dilution:
 
 
 
 
 
 
 
Income from continuing operations, net of tax

$1.13

 

$1.51

 

$2.44

 

$2.81

Income from discontinued operations, net of tax
0.01

 

 
0.01

 
0.02

Net income (attributable to PPG)

$1.14

 

$1.51

 

$2.45

 

$2.83

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

2

Table of Contents

PPG INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Comprehensive Income (Unaudited)
($ in millions)
 
Three Months Ended
June 30
 
Six Months Ended
June 30
 
2019
 
2018
 
2019
 
2018
Net income attributable to the controlling and noncontrolling interests

$279

 

$375

 

$596

 

$715

Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
Defined benefit pension and other postretirement benefits
12

 
15

 
6

 
32

Unrealized foreign currency translation adjustments
(15
)
 
(297
)
 
66

 
(151
)
Derivative financial instruments
(1
)
 
2

 
(1
)
 

Other comprehensive (loss) income, net of tax

($4
)
 

($280
)
 

$71

 

($119
)
Total comprehensive income

$275

 

$95

 

$667

 

$596

Less: amounts attributable to noncontrolling interests:
 
 
 
 
 
 
 
Net income
(7
)
 
(4
)
 
(12
)
 
(10
)
Unrealized foreign currency translation adjustments
(2
)
 
10

 
(1
)
 
8

Comprehensive income attributable to PPG

$266

 

$101

 

$654

 

$594

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

3

Table of Contents

PPG INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet (Unaudited)
($ in millions)
 
June 30, 2019
 
December 31, 2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents

$963

 

$902

Short-term investments
53

 
61

Receivables (less allowance for doubtful accounts of $26 and $24)
3,332

 
2,845

Inventories
1,945

 
1,783

Other current assets
414

 
370

Total current assets

$6,707

 

$5,961

Property, plant and equipment (net of accumulated depreciation of $3,963 and $3,828)
2,929

 
2,805

Goodwill
4,312

 
4,070

Identifiable intangible assets, net
2,081

 
1,972

Deferred income taxes
199

 
229

Investments
251

 
251

Operating lease right-of-use assets (Note 3)
731

 

Other assets
745

 
727

Total

$17,955

 

$16,015

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

$3,746

 

$3,623

Restructuring reserves
139

 
99

Short-term debt and current portion of long-term debt
654

 
651

Current portion of operating lease liabilities (Note 3)
167

 

Total current liabilities

$4,706

 

$4,373

Long-term debt
4,845

 
4,365

Operating lease liabilities (Note 3)
572

 

Accrued pensions
637

 
645

Other postretirement benefits
621

 
629

Deferred income taxes
382

 
429

Other liabilities
1,005

 
842

Total liabilities

$12,768

 

$11,283

Commitments and contingent liabilities (Note 15)
 
 

Shareholders’ equity:
 
 
 
Common stock
969

 
969

Additional paid-in capital
913

 
788

Retained earnings
18,488

 
18,131

Treasury stock, at cost
(13,061
)
 
(12,958
)
Accumulated other comprehensive loss
(2,230
)
 
(2,300
)
Total PPG shareholders’ equity

$5,079

 

$4,630

Noncontrolling interests
108

 
102

Total shareholders’ equity

$5,187

 

$4,732

Total

$17,955

 

$16,015

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

4

Table of Contents

PPG INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Shareholders' Equity (Unaudited)
($ in millions)
 
Common Stock
Additional Paid-In Capital
Retained Earnings
Treasury Stock
Accumulated Other Comprehensive (Loss)/Income
Total PPG
Non-controlling Interests
Total
January 1, 2019

$969


$788


$18,131


($12,958
)

($2,300
)

$4,630


$102


$4,732

Net income attributable to the controlling and noncontrolling interests


312



312

5

317

Other comprehensive income, net of tax




76

76

(1
)
75

Cash dividends


(113
)


(113
)

(113
)
Purchase of treasury stock



(175
)

(175
)

(175
)
Issuance of treasury stock

121


63


184


184

Stock-based compensation activity

(10
)



(10
)

(10
)
March 31, 2019

$969


$899


$18,330


($13,070
)

($2,224
)

$4,904


$106


$5,010

Net income attributable to the controlling and noncontrolling interests


272



272

7

279

Other comprehensive income, net of tax




(6
)
(6
)
2

(4
)
Cash dividends


(114
)


(114
)

(114
)
Issuance of treasury stock

7


9


16


16

Stock-based compensation activity

7




7


7

Dividends paid on subsidiary common stock to noncontrolling interests






(5
)
(5
)
Reductions in noncontrolling interests






(2
)
(2
)
June 30, 2019

$969


$913


$18,488


($13,061
)

($2,230
)

$5,079


$108


$5,187

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

5

Table of Contents

PPG INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Shareholders' Equity (Unaudited)
($ in millions)
 
Common Stock
Additional Paid-In Capital
Retained Earnings
Treasury Stock
Accumulated Other Comprehensive (Loss)/Income
Total PPG
Non-controlling Interests
Total
January 1, 2018

$969


$756


$17,140


($11,251
)

($2,057
)

$5,557


$115


$5,672

Net income attributable to the controlling and noncontrolling interests


334




$334

6


$340

Other comprehensive loss, net of tax




159


$159

2


$161

Cash dividends


(112
)



($112
)


($112
)
Purchase of treasury stock



(600
)


($600
)


($600
)
Issuance of treasury stock

24


7



$31



$31

Stock-based compensation activity

(19
)




($19
)


($19
)
Reductions in noncontrolling interests






$—

(2
)

($2
)
Reclassification from other comprehensive income to retained earnings - Adoption of ASU 2018-02


107


(107
)

$—



$

Adjustment to retained earnings - Adoption of ASU 2016-16


(4
)



($4
)


($4
)
March 31, 2018

$969


$761


$17,465


($11,844
)

($2,005
)

$5,346


$121


$5,467

Net income attributable to the controlling and noncontrolling interests


371



371

4

375

Other comprehensive loss, net of tax




(270
)
(270
)
(10
)
(280
)
Cash dividends


(110
)


(110
)

(110
)
Purchase of treasury stock



(463
)

(463
)

(463
)
Issuance of treasury stock

1


2


3


3

Stock-based compensation activity

7




7


7

Dividends paid on subsidiary common stock to noncontrolling interests






(2
)
(2
)
Reductions in noncontrolling interests






(14
)
(14
)
June 30, 2018

$969


$769


$17,726


($12,305
)

($2,275
)

$4,884


$99


$4,983

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

6

Table of Contents

PPG INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows (Unaudited)
 
Six Months Ended
June 30
($ in millions)
2019
 
2018
Operating activities:
 
 
 
Net income attributable to controlling and noncontrolling interests

$596

 

$715

Less: Income from discontinued operations
(2
)
 
(6
)
Income from continuing operations

$594

 

$709

Adjustments to reconcile net income to cash from operations:
 
 
 
Depreciation and amortization
244

 
248

Pension expense
25

 
20

Environmental remediation charges, net
40

 
34

Business restructuring, net
173

 
83

Impairment of a non-manufacturing asset

 
9

Stock-based compensation expense
19

 
18

Equity affiliate loss, net of dividends
6

 
6

Deferred income tax benefit
(7
)
 
(13
)
Cash contributions to pension plans
(6
)
 
(35
)
Cash used for restructuring actions
(23
)
 
(34
)
Change in certain asset and liability accounts:
 
 
 
Receivables
(431
)
 
(626
)
Inventories
(97
)
 
(270
)
Other current assets
(70
)
 
(5
)
Accounts payable and accrued liabilities
60

 
198

Taxes and interest payable
(21
)
 
(130
)
Noncurrent assets and liabilities, net
(10
)
 
(30
)
Other
(10
)
 
(51
)
Cash from operating activities - continuing operations

$486

 

$131

Cash used for operating activities - discontinued operations
(4
)
 

Cash from operating activities

$482

 

$131

Investing activities:
 
 
 
Capital expenditures
(133
)
 
(118
)
Business acquisitions, net of cash balances acquired
(361
)
 
(98
)
Payments for the settlement of cross currency swap contracts
(6
)
 
(17
)
Proceeds from the settlement of cross currency swap
19

 
3

Other
24

 
13

Cash used for investing activities

($457
)
 

($217
)
Financing activities:
 
 
 
Net change in borrowing with maturities of three months or less
6

 
11

Net proceeds/(payments) on commercial paper and short-term debt
470

 
(1
)
Proceeds from the issuance of debt, net of discounts and fees

 
992

Repayment of long-term debt
(2
)
 
(3
)
Repayment of acquired debt
(23
)
 

Purchase of treasury stock
(175
)
 
(1,063
)
Issuance of treasury stock
22

 
10

Dividends paid
(227
)
 
(222
)
Payments related to tax withholding on stock-based compensation awards
(12
)
 
(13
)
Other
(27
)
 
(16
)
Cash from/(used for) financing activities

$32

 

($305
)
Effect of currency exchange rate changes on cash and cash equivalents
4

 
(25
)
Net decrease in cash and cash equivalents

$61

 

($416
)
Cash and cash equivalents, beginning of period
902

 
1,436

Cash and cash equivalents, end of period

$963

 

$1,020

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Interest paid, net of amount capitalized

$68

 

$53

Taxes paid, net of refunds

$194

 

$234

 
 
 
 
Supplemental disclosure of noncash investing activities:
 
 
 
Reissuance of common stock for business acquisition

$164

 

$

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

7

Table of Contents

PPG INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
 
1.
Basis of Presentation
The condensed consolidated financial statements included herein are unaudited and have been prepared following the requirements of the Securities and Exchange Commission (the "SEC") and accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim reporting. Under these rules, certain footnotes and other financial information that are normally required for annual financial statements can be condensed or omitted. These statements include all adjustments, consisting only of normal, recurring adjustments, necessary for a fair presentation of the financial position and shareholders' equity of PPG as of June 30, 2019, and the results of its operations and cash flows for the three and six months ended June 30, 2019 and 2018. All intercompany balances and transactions have been eliminated. Material subsequent events are evaluated through the report issuance date and disclosed where applicable. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in PPG's 2018 Annual Report on Form 10-K (the "2018 Form 10-K").
Net sales, expenses, assets and liabilities can vary during each quarter of the year. Accordingly, the results of operations for the three and six months ended June 30, 2019 and the trends in these unaudited condensed consolidated financial statements may not necessarily be indicative of the results to be expected for the full year.
2.
New Accounting Standards
Accounting Standards Adopted in 2019
Effective January 1, 2019, PPG adopted Accounting Standards Update (“ASU”) No. 2016-02, "Leases." This ASU requires substantially all leases be recorded on the balance sheet as right of use assets and lease obligations. The Company adopted the ASU using a retrospective adoption method at January 1, 2019, as outlined in ASU No. 2018-11, "Leases - Targeted Improvements." Under this method of adoption, there is no impact to the comparative condensed consolidated statement of income and condensed consolidated balance sheet. PPG determined that there was no cumulative-effect adjustment to beginning Retained earnings on the condensed consolidated balance sheet. PPG will continue to report periods prior to January 1, 2019 in its financial statements under prior guidance as outlined in Accounting Standards Codification Topic 840, "Leases". In addition, PPG elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed carry forward of historical lease classifications.
Adoption of this standard did not materially impact PPG’s Income before income taxes and had no impact on the condensed consolidated statement of cash flows. See Note 3, “Leases” for further details.
Accounting Standards to be Adopted in Future Years
In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU No. 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software." This ASU requires capitalization of certain implementation costs incurred in a cloud computing arrangement that is a service contract. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019 and for interim periods therein with early adoption permitted. PPG does not believe this ASU will have a material impact on its consolidated financial position, results of operations or cash flows.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses.” This ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019 and for interim periods therein. Entities may choose to adopt the new ASU as of its fiscal year beginning after December 15, 2018. PPG did not early adopt this standard. PPG does not believe this ASU will have a material impact on its consolidated financial position, results of operations or cash flows.
3.
Leases
PPG leases certain retail paint stores, warehouses, distribution facilities, office space and equipment, including fleet vehicles. PPG determines if a contract is a lease at the inception of the arrangement. PPG reviews all options to extend, terminate, or purchase its right of use assets at the inception of the lease and accounts for these options when they are reasonably certain of being exercised. Certain real estate leases contain lease and non-lease components, which are accounted for separately. For certain equipment leases, lease and non-lease components are accounted for as a single lease component.

8

Table of Contents

Leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheet. Lease expense for these leases is recognized on a straight-line basis over the lease term.
The components of lease expense were as follows:
($ in millions)
Classification in the Condensed Consolidated Statement of Income
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
Operating lease cost
Cost of sales, exclusive of depreciation and amortization

$9

 

$18

Operating lease cost
Selling, general and administrative
49

 
97

Total operating lease cost
 

$58

 

$115

Finance lease cost:
 
 
 
 
Amortization of right-of-use assets
Depreciation

$

 

$1

Interest on lease liabilities
Interest Expense
1

 
1

Total finance lease cost
 

$1

 

$2

Total lease cost
 

$59

 

$117

Total operating lease cost is inclusive of the following:
($ in millions)
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
Variable lease costs

$3

 

$7

Short-term lease costs

$2

 

$3


Variable lease expense is based on contractual arrangements with PPG’s lessors determined based on external indices or other relevant market factors. In addition, PPG’s variable lease expense also includes elements of a contract that do not represent a good or service but for which the lessee is responsible for paying.
($ in millions)
Classification on the Condensed Consolidated Balance Sheet
June 30, 2019
Assets:
 
 
Operating
Operating lease right-of-use assets

$731

Finance (a)
Property, plant, and equipment
20

Total leased assets
 

$751

Liabilities:
 
 
Current
 
 
Operating
Current portion of operating lease liabilities

$167

Finance
Short-term debt and current portion of long-term debt
3

Noncurrent
 
 
Operating
Operating lease liabilities
572

Finance
Long-term debt
9

Total lease liabilities
 

$751

(a)
Net of accumulated depreciation of $11 million.
($ in millions)
Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows from operating leases

$105

Operating cash flows from finance leases

$

Financing cash flows from finance leases

$3

Right-of-use assets obtained in exchange for lease obligations:
 
Operating leases

$80

Finance leases

$1



9

Table of Contents

 
As of June 30, 2019
Weighted-average remaining lease term (in years)
 
Operating leases
7.4

Finance leases
6.1

Weighted-average discount rate
 
Operating leases
3.2
%
Finance leases
9.1
%

Nearly all of PPG’s lease contracts do not provide a readily determinable implicit rate. For these contracts, PPG’s estimated incremental borrowing rate is based on information available at the inception of the lease.
As of June 30, 2019, maturities of lease liabilities were as follows:
($ in millions)
Operating Leases
 
Finance Leases
Remaining six months of 2019

$100

 

$2

2020
164

 
3

2021
125

 
3

2022
98

 
2

2023
75

 
2

Thereafter
272

 
4

Total lease payments

$834

 

$16

Less: Interest
95

 
3

Total lease obligations

$739

 

$13


Disclosures related to periods prior to adoption of ASU 2016-02
The Company adopted ASU 2016-02 using a retrospective adoption method at January 1, 2019 as noted in Note 2. "New Accounting Standards." As required, the following disclosure is provided for periods prior to adoption. Minimum lease commitments as of December 31, 2018 that have initial or remaining lease terms in excess of one year are as follows:
($ in millions)
Operating Leases
 
Capital Leases
2019

$207

 

$3

2020
157

 
3

2021
116

 
1

2022
93

 
1

2023
76

 
1

Beyond 2023

$244

 

$3


4.
Acquisitions and Divestitures
Acquisitions
On April 16, 2019, PPG completed the acquisition of Hemmelrath, an automotive coatings manufacturer. Headquartered in Klingenberg, Germany, Hemmelrath is a global manufacturer of coatings for automotive original equipment manufacturers ("OEMs"). The pro-forma impact on PPG's sales and results of operations, including the pro forma effect of events that are directly attributable to the acquisition, was not significant. The results of this business since the date of acquisition have been reported within the automotive original equipment manufacturer ("OEM") coatings business within the Industrial Coatings reportable segment.
On March 1, 2019, PPG completed the acquisition of Whitford Worldwide Company ("Whitford"), a global manufacturer that specializes in low-friction and nonstick coatings for industrial applications and consumer products. Whitford employs more than 700 people and operates 10 manufacturing facilities globally. The pro-forma impact on PPG's sales and results of operations, including the pro forma effect of events that are directly attributable to the acquisition, was not significant. The results of this business since the date of acquisition have been reported within the industrial coatings business within the Industrial Coatings reportable segment.

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In January 2018, PPG acquired ProCoatings, a leading architectural paint and coatings wholesaler located in The Netherlands. ProCoatings, established in 2001, distributes a large portfolio of well-known professional paint brands through its network of 23 multi-brand stores. The company employs nearly 100 people. The pro-forma impact on PPG's sales and results of operations, including the pro forma effect of events that are directly attributable to the acquisition, was not significant.The results of this business since the date of acquisition have been reported within the architectural coatings - Europe, Middle East and Africa (EMEA) business within the Performance Coatings reportable segment.
Divestitures
Glass Segment
The Net sales and Income from discontinued operations, net of tax related to the former Glass reportable business segment for the six months ended June 30, 2018 were as follows:
($ in millions)
Six Months Ended
June 30, 2018
Income from operations

$8

Income tax expense
2

Income from discontinued operations, net of tax

$6


5.
Inventories
($ in millions)
June 30, 2019
 
December 31, 2018
Finished products

$1,216

 

$1,105

Work in process
213

 
193

Raw materials
482

 
452

Supplies
34

 
33

Total Inventories

$1,945

 

$1,783


Most U.S. inventories are valued using the last-in, first-out method. These inventories represented approximately 33% and 36% of total inventories at June 30, 2019 and December 31, 2018, respectively. If the first-in, first-out method of inventory valuation had been used, inventories would have been $126 million and $113 million higher as of June 30, 2019 and December 31, 2018, respectively.
6.
Goodwill and Other Identifiable Intangible Assets
The change in the carrying amount of goodwill attributable to each reportable segment for the six months ended June 30, 2019 was as follows:
($ in millions)
Performance
Coatings
 
Industrial
Coatings
 
Total
January 1, 2019

$3,266

 

$804

 

$4,070

Acquisitions, including purchase accounting adjustments
1

 
231

 
232

Foreign currency impact
9

 
1

 
10

June 30, 2019

$3,276

 

$1,036

 

$4,312



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A summary of the carrying value of the Company's identifiable intangible assets is as follows:
 
June 30, 2019
 
December 31, 2018
($ in millions)
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Indefinite-Lived Identifiable Intangible Assets
Trademarks

$1,156

 
N/A

 

$1,156

 

$1,140

 
N/A

 

$1,140

Definite-Lived Identifiable Intangible Assets
Acquired technology

$686

 

($533
)
 

$153

 

$648

 

($515
)
 

$133

Customer-related
1,511

 
(848
)
 
663

 
1,396

 
(798
)
 
598

Trade names
206

 
(104
)
 
102

 
190

 
(96
)
 
94

Other
46

 
(39
)
 
7

 
44

 
(37
)
 
7

Total Definite Lived Intangible Assets

$2,449

 

($1,524
)
 

$925

 

$2,278

 

($1,446
)
 

$832

Total Identifiable Intangible Assets

$3,605

 

($1,524
)
 

$2,081

 

$3,418

 

($1,446
)
 

$1,972


The Company’s identifiable intangible assets with finite lives are being amortized over their estimated useful lives.
As of June 30, 2019, estimated future amortization expense of identifiable intangible assets is as follows:
($ in millions)
Future Amortization Expense
Remaining six months of 2019

$58

2020
105

2021
100

2022
90

2023
85

2024
70

Thereafter
417


7.
Business Restructuring
The Company records restructuring liabilities that represent charges incurred in connection with consolidations of certain operations, including operations from acquisitions, as well as headcount reduction programs. These charges consist primarily of severance costs and asset write-downs.
2019 Restructuring Program
In June 2019, the Company approved a business restructuring plan which included actions to reduce its global cost structure. The program is the result of a comprehensive internal operational assessment to identify further opportunities to improve the profitability of the overall business portfolio. This program includes further manufacturing optimization; targeted pruning of low-profit business in certain regions; exiting certain smaller product lines that are not meeting profitability objectives; reorganization of certain business unit cost structures based on the current economic climate; and certain redundancy actions related to recent acquisitions.
A pretax restructuring charge of $184 million was recorded in PPG's second quarter 2019 financial results. This charge represents employee severance and other cash costs. The majority of restructuring actions are expected to be completed by the end of the fourth quarter 2020 with the remainder of the actions expected to be completed in 2022. There was no material activity on this reserve during the second quarter.
2018 Restructuring Program
In April 2018, the Company approved a business restructuring plan which included actions to reduce its global cost structure. The program was in response to the impacts of customer assortment changes in our U.S. architectural coatings business during the first quarter 2018 and sustained, elevated raw material inflation. The program aims to further right-size employee headcount and production capacity in certain businesses based on product demand, as well as reductions in various global functional and administrative costs. Substantially all actions from this business restructuring plan are expected to be complete by the end of the first quarter of 2020.

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Table of Contents

2016 Restructuring Program
In December 2016, PPG’s Board of Directors approved a business restructuring program which includes actions necessary to reduce the Company's global cost structure. The program is focused on certain regions and end-use markets where business conditions were the weakest, as well as reductions in production capacity and various global functional and administrative costs. Substantially all actions from this business restructuring plan are expected to be complete by the end of the third quarter of 2019.
The following table summarizes the reserve activity for the six months ended June 30, 2019:
($ in millions)
Total Reserve
December 31, 2018

$110

Second quarter 2019 restructuring charge
184

Cash payments
(23
)
Release of prior reserves 
(11
)
Foreign currency impact
1

June 30, 2019

$261


Adjustments of approximately $8 million and $11 million were recorded in the three and six months ended June 30, 2019, respectively, to reduce the remaining restructuring reserves to reflect the current estimate of the costs to complete these actions.
8.
Borrowings
During the six months of 2019, PPG issued $470 million of commercial paper. The Company's commercial paper borrowings are supported by the five-year credit agreement (the "Credit Agreement") entered into in 2015. As a result, the commercial paper borrowings as of June 30, 2019 are classified as long-term debt based on PPG's intent and ability to refinance these borrowings on a long-term basis.
In February 2018, PPG completed a public offering of $300 million aggregate principal amount of 3.2% notes due 2023 and $700 million aggregate principal amount of 3.75% notes due 2028. These notes were issued pursuant to PPG’s existing shelf registration statement and pursuant to an indenture between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee, as supplemented. The Indenture governing these notes contains covenants that limit the Company’s ability to, among other things, incur certain liens securing indebtedness, engage in certain sale-leaseback transactions, and enter into certain consolidations, mergers, conveyances, transfers or leases of all or substantially all the Company’s assets. The terms of these notes also require the Company to make an offer to repurchase notes upon a Change of Control Triggering Event (as defined in the Indenture) at a price equal to 101% of their principal amount plus accrued and unpaid interest. The Company may issue additional debt from time to time pursuant to the Indenture.
The aggregate cash proceeds from the notes, net of discounts and fees, was $992 million. A portion of the notes were converted from a fixed interest rate to a floating interest rate using interest rate swap contracts. For more information, refer to Note 13, “Financial Instruments, Hedging Activities and Fair Value Measurements.”

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9.
Earnings Per Common Share
The effect of dilutive securities on the weighted average common shares outstanding included in the calculation of earnings per diluted common share for the three and six months ended June 30, 2019 and 2018 were as follows:
 
Three Months Ended
June 30
 
Six Months Ended
June 30
(number of shares in millions)
2019
 
2018
 
2019
 
2018
Weighted average common shares outstanding
236.9

 
244.9

 
236.8

 
247.4

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock options
0.7

 
0.8

 
0.7

 
0.8

Other stock compensation plans
0.7

 
0.7

 
0.6

 
0.7

Potentially dilutive common shares
1.4

 
1.5

 
1.3

 
1.5

Adjusted weighted average common shares outstanding
238.3

 
246.4

 
238.1

 
248.9

 
 
 
 
 
 
 
 
Dividends per common share

$0.48

 

$0.45

 

$0.96

 

$0.90


Excluded from the computation of earnings per diluted share due to their antidilutive effect were 1.0 million outstanding stock options for the three and six months ended June 30, 2019, and 1.1 million outstanding stock options for the three and six months ended June 30, 2018.
10.
Income Taxes
 
Six Months Ended
June 30
 
2019
 
2018
Effective tax rate on pre-tax income from continuing operations
24.0
%
 
21.2
%

The effective tax rate of 24.0% for the six months ended June 30, 2019 reflects a benefit of $3 million of discrete items associated with PPG's U.S. and foreign jurisdictions. For the six months ended June 30, 2018, the effective tax rate was 21.2% inclusive of a $38 million benefit for discrete items. Income tax expense for the first six months of 2019 is based on an estimated annual effective rate, which requires management to make its best estimate of annual pretax income or loss.
During the year, PPG management regularly updates forecasted annual pretax results for the various countries in which PPG operates based on changes in factors such as prices, shipments, product mix, raw material inflation and manufacturing operations. To the extent that actual 2019 pretax results for U.S. and foreign income or loss vary from estimates, the actual Income tax expense recognized in 2019 could be different from the forecasted amount used to estimate the Income tax expense for the six months ended June 30, 2019.
11.
Pensions and Other Postretirement Benefits
Service cost for net periodic pension and other postretirement benefit costs is included in Cost of sales, exclusive of depreciation and amortization, Selling, general and administrative, and Research and development, net in the accompanying condensed consolidated statements of income. All other components of net periodic benefit cost are now recorded in Other charges, except for pension settlement charges, in the accompanying condensed consolidated statements of income.

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The net periodic pension and other postretirement benefit costs for the three and six months ended June 30, 2019 and 2018 were as follows:
 
Pension
 
Three Months Ended
June 30
 
Six Months Ended
June 30
($ in millions)
2019
 
2018
 
2019
 
2018
Service cost

$5

 

$8

 

$11

 

$16

Interest cost
27

 
24

 
53

 
48

Expected return on plan assets
(35
)
 
(38
)
 
(70
)
 
(76
)
Amortization of actuarial losses
16

 
16

 
31

 
32

Net periodic benefit cost

$13

 

$10

 

$25

 

$20


 
Other Postretirement Benefits
 
Three Months Ended
June 30
 
Six Months Ended
June 30
($ in millions)
2019
 
2018
 
2019
 
2018
Service cost

$2

 

$3

 

$4

 

$5

Interest cost
7

 
6

 
13

 
12

Amortization of actuarial losses
2

 
4

 
4

 
9

Amortization of prior service credit
(15
)
 
(15
)
 
(29
)
 
(30
)
Net periodic benefit cost

($4
)
 

($2
)
 

($8
)
 

($4
)

PPG expects its 2019 net periodic pension and other postretirement benefit cost to be approximately $35 million, with pension expense representing approximately $50 million and other postretirement benefit cost representing a benefit of approximately $15 million.
Contributions to Defined Benefit Pension Plans
 
Three Months Ended
June 30
 
Six Months Ended
June 30
($ in millions)
2019
 
2018
 
2019
 
2018
U.S. defined benefit pension contributions

$

 

$

 

$

 

$25

Non-U.S. defined benefit pension mandatory contributions

$3

 

$5

 

$6

 

$10


PPG made a voluntary contribution of $25 million to its U.S. defined benefit pension plans in January 2018. PPG expects to make mandatory contributions to its non-U.S. pension plans in the range of $10 million to $20 million during the remaining six months of 2019. PPG may make voluntary contributions to its defined benefit pension plans in 2019 and beyond.

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12.
Accumulated Other Comprehensive Loss
($ in millions)
Unrealized Foreign Currency Translation Adjustments
 
Pension and Other Postretirement Benefit Adjustments, net of tax (c)
 
Unrealized Gain (Loss) on Derivatives, net of tax (d)
 
Accumulated Other Comprehensive Loss
January 1, 2019
 

($1,734
)
 
 

($568
)
 
 

$2

 
 

($2,300
)
Current year deferrals to AOCI (a)
44

 
 

 
 

 
 
44

 
Current year deferrals to AOCI, net of tax (b)
21

 
 
(1
)
 
 
(2
)
 
 
18

 
Reclassifications from AOCI to net income

 
 
7

 
 
1

 
 
8

 
Period change
 

$65

 
 

$6

 
 

($1
)
 
 

$70

June 30, 2019
 

($1,669
)
 
 

($562
)
 
 

$1

 
 

($2,230
)
 
 
 
 
 
 
 
 
 
 
 
 
January 1, 2018
 

($1,567
)
 
 

($493
)
 
 

$3

 
 

($2,057
)
Current year deferrals to AOCI
(257
)
 
 

 
 

 
 
(257
)
 
Current year deferrals to AOCI, net of tax (b)
114

 
 
24

 
 
(1
)
 
 
137

 
Reclassifications from AOCI to net income

 
 
8

 
 
1

 
 
9

 
Period change
 

($143
)
 
 

$32

 
 

$

 
 

($111
)
Reclassification from AOCI to Retained earnings - Adoption ASU 2018-02
 
(23
)
 
 
(84
)
 
 

 

(107
)
June 30, 2018
 

($1,733
)
 
 

($545
)
 
 

$3