In: Finance
Refer to the following article: Hufford, Austen, "PPG Faces Accounting Inquiry," Wall Street Journal, 18 Jan 2019: B.2. Drawing from what you have learned in this course as well as any other sources, provide a well labeled and clearly articulated answer -- with explanation -- to the following: How would the costs of manufacturing coats and paints for walls and rooms of buildings and homes differ from the costs of manufacturing coats and paints for products such as cars and smartphones? How would accounting for the costs of manufacturing coats and paints for walls and rooms of buildings and homes differ from accounting for the costs of manufacturing coats and paints for products such as cars and smartphones? Explain how sales on a constant-currency basis can increase by 2 percent, while sales as impacted by foreign-exchange rates falls by 1 percent? Give an example with numbers to illustrate your response to this question. Where appropriate, properly cite any readings, specific pages from any secondary source, or other sources that contributed to or that support your explanation.
Article:
PPG Faces Accounting Inquiry
BY AUSTEN HUFFORD
PPG Industries Inc. on Thursday said federal prosecutors are investigating accounting irregularities at the company, ratcheting up pressure on the paint giant that is also facing a push by an activist investor to break itself apart.
PPG said U.S. attorneys are looking into the same improper accounting practices from 2017 into which the U.S.
Securities and Exchange Commission opened a probe last June.
PPG said last May that it had uncovered suspect accounting entries made at the direction of the company’s controller. PPG fired the controller and said that its 2017 financial reports “should no longer be relied upon.”
PPG said Thursday that it “continues to fully cooperate with both investigations.”
A spokeswoman for the U.S. attorney’s office in western Pennsylvania said she couldn’t comment, citing the government shutdown. The SEC declined to comment Thursday.
PPG said earlier on Thursday that it is conducting a review of its paint and coatings business that could result in a split of the company, following pressure from activist Trian Fund Management LP. Trian declined to comment Thursday on the planned review.
Pittsburgh-based PPG makes coatings and paints of two kinds: for walls and rooms of buildings and homes; and for products such as cars and smartphones. The company said it would decide whether those architectural and industrial coatings businesses should be separated by the end of the second quarter.
PPG in recent years sold and spun off assets to focus on those two businesses. Trian has called for PPG to be broken up along those lines and for Chief Executive Michael McGarry to step down. The Wall Street Journal reported in October that Trian had taken a 2.9% stake in the company.
PPG said that month that its board unanimously supported Mr. McGarry.
“We are very appreciative of the input and constructive dialogue that we have with all of our shareholders,” Mr. Mc- Garry said in a statement. The statement didn’t mention Trian by name.
The company said in 2017 that about 40% of its revenue came from sales for architectural uses—home and building paints and coatings—and 60% from sales for industrial uses.
Jean-Marie Greindl, PPG’s head of architectural coatings, stepped down on Jan. 9, the company said in a filing last Friday. The company didn’t say why he left.
PPG also said on Thursday that it saw softening global economic growth and declines in demand for its products in some countries, including car makers in China and Europe.
PPG forecast constant-currency sales growth of 3% to 5% in 2019 and adjusted earnings per share growth of 7% to 10%.
Rising costs continued to pressure PPG in 2018 as it paid more for the chemicals it uses to make paint and coatings, as well as for oil and shipping.
PPG has raised prices and cut costs.