Stock Review for Watch List Stock -- ASM Stock Portfolios

Company/ticker: PPG Industries Inc. /PPG Date: 4/28/10 Price:

$69.92

Analyst: Mike Gonzales Sector/Industry/%weight:

Materials/Diversified Chemicals/3.0%

$ Dividend/%yield: $2.16/3.09% Beta (β): 1.24

Shares o/s (#/$market cap): 166.33m/$11.5b Float (shs o/s): 165.98

Fiscal yr end: 12/31

Recommendation: Hold Price

target: $77.71

Company Overview: PPG Industries, Inc. www.ppg.com

412-434-3131

PPG Industries is a diversified, leading producer and global supplier of coatings, chemicals and
glass products. International operations contributed 55% of sales and 43% of operating profits in
2008. The company is headquartered in Pittsburgh, Pennsylvania with manufacturing facilities in
over 40 countries.

Industrial coatings (25% of sales in 2009 and 13% of operating profits) is comprised of original
automotive, industrial (used in appliance and industrial equipment), and packaging coatings. PPG
also produces adhesives and sealants for the automotive industry and metal pretreatments.

Performance coatings (34%, 46%) consists of automotive and industrial refinish coatings,
aerospace coatings, marine and specialty industrial coatings, and a major North American
supplier of architectural coatings. The company is a global supplier of aircraft coatings, sealants,
and transparencies to OEM, maintenance and after market customers.

The European Architectural coatings segment contributed 16% of sales and 11% of operating
profits. PPG's commodity chemicals business (10%, 13%) is the fourth largest U.S. producer of
chlorine and caustic soda used in a wide variety of industrial applications.

Optical and specialty materials (8%, 20%) consist of optical resins (Transitions photo chromic
lenses, sun lenses, and polarized film) and silica compounds (tires, batteries, passports, and ids).
Optical materials market share is currently 90%.

The glass business (7%, -3%) is the U.S. leader and one of the world's largest producers of flat
glass and fabricated glass. Major markets include original and replacement glass for commercial
and residential construction, aircraft transparencies, furniture, and various industrial uses.

PPG is one of the world's largest producers of continuous strand and chopped strand fiberglass,
including electronic and specialty materials, for transportation, construction, electronics,
recreational and industrial uses.

The company is currently the 4th largest producer of caustic soda (pulp and paper, textiles) and
3rd largest producer of chlor-alkali (a building block chemical).

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The coatings industry is highly competitive and consists of a few large firms with a global
presence and many smaller firms serving local or regional markets. Its main competitors are Dow
Chemical, Eastman Chemical, and Huntsman Corp.

Investment Thesis

• As the global economy continues to recovery from the recession and move into an
expansionary phase, PPG, a classic early-cycle stock, will benefit from increased global
demand in material, automotive, chemical, and industrial sectors.

• Analysts predict that production in the chemical industry is set to rise this year after 2
consecutive years in decline. Furthermore, it is expected that caustic soda prices will start
to rise again with an improved economy after decreased demand led to lower profits last
year.

• PPG achieved near-record cash generation of $1.3b in 2009 despite the recession. The
company also maintains a healthy, constant-growth dividend.

• PPG has cut its debt by more than 45% in the last 2 years, and has continued to look for
ways to cut expenses to shield its exposure to sluggish sales in the event of a less than
anticipated economic recovery.

• PPG achieved 20% of industrial coating sales in Asia and expects continued growth as
expansion plans get under way and U.S. coatings volumes should show positive growth for
the first time in 4 years.

• Finalization of restructuring initiatives will help reduce costs in Q2 and beyond.

Risks

• Analysts have expressed concern over rising raw chemicals costs in 2010 that could
dampen industry profits.

• Slower than projected industrial activity will impact revenue for the company.

• Exposure to domestic auto makers and sluggish prices could reduce profitability.

• Negative currency conversion attributed to a 5% sales decline in 2009 and could pose a
threat to profit in 2010.

• Management expects sales in Europe to remain flat in 2010.

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• It is likely that a lawsuit payout will take place within the year and could open future
litigation risk.

Pending lawsuits and/or M&A activity:

The company has been a defendant in lawsuits involving asbestos claims for over 30 years,
mostly related to its 50% ownership of Pittsburgh Corning Corporation (PC). In December 2006,
the U.S. Bankruptcy Court of Pennsylvania issued a decision denying confirmation of the 2nd
amended PC plan of reorganization. To address the issues raised by the bankruptcy court in its
Dec 2006 ruling, a modified third amended PC plan of reorganization, including a modified PPG
settlement arrangement was filed with the bankruptcy court in early 2009. A hearing is
scheduled for the second quarter of 2010, wherein creditors and parties of interest could raise
objections to the plan. Under the terms of the 2009 PPG Settlement Arrangement, PPG would
make aggregate cash payments of $825 million, contribute 1.4 million shares of its stock, and
convey the stock it owns in PC to a trust. The company's obligation under the 2009 PPG
Settlement Arrangement at Dec. 31, 2008 is $162 million less than the amount that would have
been due under the second amended plan. If the asbestos settlement becomes effective, PPG
will make an after-tax payment of $310 million to the trust with remaining annual fixed
payments through 2023. The company has sufficient cash and CP/bank revolver availability to
meet this initial settlement payment as well as the required annual payments thereafter.

Fundamental/Ratio Analysis

2009 2008 2007 2006 2005 CAGR

2.03 3.25 5.03 4.25 3.49
EPS (FD)
- -
37.54 35.39 18.35 21.78
% % % % -12.67%
%change
12,23 15,84 11,20 11,03 10,20
9 9 6 7 1
Sales (in $mill
-
22.78 41.43
% % 1.53% 8.20% 4.66%
%change
2.13 2.09 2.04 1.91 1.86
Div/share
1.91% 2.45% 6.81% 2.69% 3.45%
%change

Earnings -4.93% 35.69% 59.44% 55.06% 46.70%

retention

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38.40% 35.93% 30.14% 36.97%

Gross margin
EBITDA 5.04% 5.73% 11.73% 9.54% 9.28%
margin
2.75% 3.39% 7.27% 6.44% 5.84%
Net margin
81.11% 90.28% 28.93% 35.21% 38.29%
Debt/Equity
Interest 3.73 4.14 12.52 12.88 11.84
coverage
0.86 1.08 0.89 1.10 1.18
Total asset t/o
Financial 3.79 4.41 3.04 3.06 2.84
leverage

Return on Equity (ROE): EBITDA margin x Total asset t/o x Financial

leverage
16.44% 27.24% 31.68% 32.10% 31.02%

Internal/sustainable growth rate: ROE x Earnings

retention
-0.81% 9.72% 18.83% 17.68% 14.49%

Valuation/Price target: (Estimated earnings data provided by the Wall Street Journal)

Earnings/share consensus est (upcoming quarter): Q2 2010: $1.29

Earnings/share consensus est (current yr): FY 2010: $4.13

High est: $4.42 Low est: $3.79 Consensus est: $4.13 #of
analysts surveyed: 12

Earnings/share consensus est (next year): FY 2011: $4.59

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High est: $4.80 Low est: $4.07 Consensus est: $4.59 #of
analysts surveyed: 10

P/E current year (2010 estimated earnings): 16.93x

P/E next year (2011 estimated earnings): 15.23x

Price target:

EPS 2011: 4.59 x P/E2010 16.93x = $77.71

Fair Value Dividend Discount Model

Required Rate of Return: k = 9% Fair Value (DDM): $39.89

Valuation Comment:

The U.S. and most of the international economy is beginning to recover. As we continue in the
recovery phase toward expansion of the economy, demand in all sectors will increase.
Historically, cyclical and high margin businesses have been able to increase revenue during
this phase. PPG Industries is a well diversified company that has an opportunity to profit off
the increased demand in both finished goods and raw materials. The company has revenue
opportunities in the glass, steel, chemical, aerospace, and construction sectors. Expect
overall demand levels to track closely with U.S and Asia industrial and automotive trends
which are both showing improvement. Its stock performance and earnings growth will look to
rebound from the past two years backed by the emergence of a stronger economy. In light of
the recession, the company has made a concerted effort to revamp its business portfolio to
achieve faster growth, less cyclical risk, and lower capital intensity. A healthy cash reserve
will allow a level of financial flexibility for the company in 2010 and management will continue
to focus on cash flow and working capital to hedge against economic lag. PPG’s diversified
business portfolio and healthy dividend will protect returns from unforeseen declines while its
growth strategy will yield increases in earnings. Despite declines in 2009, the company saw
15% growth in Asia driven by demands in industrial coatings due to increases in consumer
electronics and auto production. Demand here will continue to increase in 2010 and remain a
focus of growth goals. PPG has tremendous cash reserves, a strong global presence, and is
poised to benefit from the end of the recession. These reasons justify a buy recommendation.

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Quarterly Update: Q: 1

Reported EPS: $.70 vs. Consensus estimate: $.63 vs. Reported year ago quarter:
($.68)

Change in: “Investment Thesis”? No X ; “Risks”? No X; “Valuation Comment”? No X

All earnings estimates have increased since last quarter

Management’s comments from conference call:

• First quarter sales improved about $340 million or 12% versus the first quarter of
2009

• Industrial Coatings achieved higher year sales volumes and posted its highest first
quarter earnings in 10 years despite industry activity levels that still remain below
historical levels

• Asia Pacific remained a star performer for the period reaching record sales and
earnings in the region with 25% year over year volume growth

• With a recovering economy and cash flow and liquidity remaining very solid,
management will now move away from strictly a cash conservation emphasis to a
plan identifying ways to deploy cash to drive earnings

• First quarter cash from operations results puts PPG ahead of the near record
setting pace of 2009 cash generation

• Like several companies, PPG experienced a negative non-recurring $85 million or

$.51/share after-tax charge attributable to recently enacted US Healthcare
legislation

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• European sales remain flat attributable to the slower economic recovery in the
region

• Management has suggested that a share repurchase will take place by year end

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