PPG Reports On Quarter, Maintains Focus On Strengthening Balance Sheet
PITTSBURGH--April 18, 2002--PPG Industries first quarter net income was $34 million, or 20 cents a share, including one-time after-tax charges of $55 million, or 33 cents a share, for restructuring and $9 million, or 5 cents a share, for the cumulative effect of a required accounting change. Excluding these charges, net income was $98 million, or 58 cents a share. Sales for the quarter were $1.9 billion.First quarter 2001 net income was $56 million, or 33 cents a share, including an after-tax restructuring charge of $71 million, or 42 cents a share. Excluding the charge, net income was $127 million, or 75 cents a share. Sales for the quarter were $2.1 billion.
"To improve our business mix, from 1997 to 1999 we made more than $2 billion in acquisitions, most of them involving overseas coatings operations," said Raymond W. LeBoeuf, PPG chairman and chief executive officer. "As we integrated these acquisitions, we saw further opportunities to reduce costs. And beginning in September of 2000, when it became apparent to us that a U.S. recession was a real possibility, we accelerated our actions to reduce our costs, particularly in the coatings segment, resulting in the $101 million pretax charge in the first quarter of 2001. Last year, despite the worst manufacturing recession in the past 20 years, we actually strengthened our balance sheet, increasing operating cash flow by nearly $200 million and reducing capital spending by $375 million, enabling us to reduce debt by 20 percent.
"Three months ago we announced we would record an additional restructuring charge in the first quarter of this year because last year's actions revealed additional opportunities to make efficiency gains and meaningful improvements. The $81 million pretax charge we announced today will enable us to reduce and restructure our workforce further and to close facilities or parts of facilities no longer needed as a result of improved business processes."
LeBoeuf said PPG will remain focused on strengthening its balance sheet in 2002.
"Although some of the economic news this year is encouraging, we have not seen any significant signs of strengthening in our major markets other than North American vehicles. As a result, we plan to maintain our focus on generating cash and reducing debt in 2002. Though the timing and pace of business expansion remains uncertain, I'm confident that our prudent actions are appropriate. If the global economy grows quicker and stronger than expected, we are well-positioned to reap the benefits."
In the quarter, the provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," were adopted, resulting in a cumulative effect of an accounting change of $9 million after-tax to reflect an impairment in the carrying value of certain trademarks within the coatings segment. Also, in accordance with the new standard, the carrying value of goodwill and trademarks will no longer be amortized and will instead be tested for impairment annually. Such amortization reduced 2001 first quarter earnings by $8 million after-tax, or 5 cents a share.
As reported last year, earnings in 2002 include the impact of higher pension and retiree medical benefit costs.
Coatings segment sales were down 5 percent because of volume declines in automotive original equipment and refinish, as well as industrial and aerospace. The largest declines occurred in Europe with North American volumes down only 1 percent. Operating earnings exceeded year-ago levels, driven primarily by cost reductions and lower raw material prices.
A 12-percent decline in volumes and a 3-percent decline in pricing led to lower glass segment sales and earnings. Cost reductions in every business were more than offset by at least 10-percent volume declines in every business but automotive original equipment.
Chemical segment sales and earnings declined on sharply lower commodity pricing. This impact on earnings was more than offset by lower natural gas costs, cost reductions in every business, a 20-percent volume growth in the optical business driven by the introduction of new products and lower restructuring costs.
Additional Information
Recorded comments by William H. Hernandez, senior vice president and chief financial officer, regarding 2002 first quarter results may be heard by telephone at 412-434-2816 until 5 p.m. EDT on Friday, April 26. The commentary is also available online at Financial, Financial Commentary, on PPG's Web site (www.ppg.com). The commentary may include forward-looking statements or other material information. Additional information, including historical performance, is also available at Financial on PPG's Web site.
Forward-Looking Statement
Statements in this news release relating to matters that are not historical facts are forward-looking statements reflecting the company's current view with respect to future events and financial performance. These matters involve risks and uncertainties that affect the company's operations, as discussed in PPG Industries' Annual Report on Form 10-K filed with the Securities and Exchange Commission. Accordingly, many factors could cause actual results to differ materially from the company's forward-looking statements.
Among these factors are increasing price and product competition by foreign and domestic competitors, fluctuations in cost and availability of raw materials, the ability to maintain favorable supplier relationships and arrangements, economic and political conditions in international markets, the ability to penetrate existing, developing and emerging foreign and domestic markets, which also depends on economic and political conditions, and foreign exchange rates and fluctuations in those rates. Further, it is not possible to predict or identify all such factors. Consequently, while the list of factors presented here is considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements.
Consequences of material differences in results as compared with those anticipated in the forward-looking statements could include, among other things, business disruption, operational problems, financial loss, legal liability to third parties and similar risks, any of which could have a material adverse effect on the company's consolidated financial condition, operations or liquidity.
PPG INDUSTRIES AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENT OF OPERATIONS (unaudited)
(All amounts in millions except per-share data)
3 Months Ended
March 31
2002 2001
---- ----
Net sales $ 1,875 $ 2,099
Cost of sales 1,189 1,324
-------------------------------------------------------------
GROSS PROFIT 686 775
Other expenses (earnings):
Selling & other 408 418
Depreciation 91 94
Interest 33 48
Amortization 8 18
Business realignments 81 101
Other - net (19) (18)
--------------------------------------------------------------
INCOME BEFORE INCOME TAXES, MINORITY
INTEREST & CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 84 114
Income taxes 33 48
Minority interest 8 10
--------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 43 56
Cumulative effect of accounting change,
net of tax 9 -
--------------------------------------------------------------
NET INCOME $ 34 $ 56
==============================================================
Earnings per common share:
Income before cumulative effect of
accounting change $ 0.25 $ 0.33
Cumulative effect of accounting change,
net of tax (0.05) -
--------------------------------------------------------------
Earnings per common share $ 0.20 $ 0.33
==============================================================
Earnings per common share
- assuming dilution:
Income before cumulative effect
of accounting change $ 0.25 $ 0.33
Cumulative effect of accounting
change, net of tax (0.05) -
--------------------------------------------------------------
Earnings per common share - assuming dilution $ 0.20 $ 0.33
==============================================================
Average shares outstanding 168.6 168.3
==============================================================
Average shares outstanding - assuming dilution 169.5 169.1
==============================================================
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets."
The adoption of this new standard resulted in a cumulative effect of
an accounting change of $9 million after-tax, or 5 cents a share, for
the quarter ended March 31, 2002 to reflect an impairment in the
carrying value of certain trademarks within the coatings segment.
Also, in accordance with the new standard, the carrying value of
goodwill and trademarks will no longer be amortized and will instead
be tested for impairment annually. Such amortization reduced 2001
first quarter earnings by $8 million after-tax, or 5 cents a share.
CONDENSED BALANCE SHEET (unaudited)
March 31 Dec. 31
2002 2001
---- ----
(millions)
Current assets:
Cash & cash equivalents $ 72 $ 108
Receivables - net 1,533 1,416
Inventories 948 904
Other 288 275
-------------------------------------------------------------
Total current assets 2,841 2,703
Investments 306 305
Property less accumulated depreciation 2,695 2,752
Goodwill & identifiable intangible assets 1,506 1,542
Other assets 1,139 1,150
-------------------------------------------------------------
TOTAL $ 8,487 $ 8,452
=============================================================
Current liabilities:
Short-term debt & current portion of
long-term debt $ 735 $ 696
Accounts payable & accrued liabilities 1,333 1,259
-------------------------------------------------------------
Total current liabilities 2,068 1,955
Long-term debt 1,679 1,699
Deferred income taxes 523 552
Accumulated provisions 1,052 1,044
Minority interest 128 122
Shareholders' equity 3,037 3,080
-------------------------------------------------------------
TOTAL $ 8,487 $ 8,452
=============================================================
BUSINESS SEGMENT INFORMATION (unaudited)
3 Months Ended
March 31
2002 2001
---- ----
(millions)
Net sales
Coatings $ 1,052 $ 1,105
Glass 488 583
Chemicals 335 411
-------------------------------------------------------------
TOTAL $ 1,875 $ 2,099
=============================================================
Operating income
Coatings $ 71 $ 61
Glass 20 85
Chemicals 27 23
-------------------------------------------------------------
TOTAL 118 169
Interest - net (31) (43)
Other unallocated corporate expense - net (3) (12)
-------------------------------------------------------------
INCOME BEFORE INCOME TAXES, MINORITY
INTEREST & CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (1) $ 84 $ 114
=============================================================
(1) Income before income taxes, minority interest and cumulative
effect of accounting change for the quarter ended March 31, 2002,
includes a charge for $81 million for restructuring and other
related activities, including severance and other costs of $66
million and asset write-offs of $15 million. Income before income
taxes, minority interest and cumulative effect of accounting
change for the quarter ended March 31, 2001 includes a charge for
$101 million for restructuring and other related activities,
including severance and other costs of $67 million and asset
write-offs of $34 million. The amounts by business segment were as
follows:
3 Months Ended
March 31
2002 2001
Coatings $ 77 $ 83
Glass 1 10
Chemicals 1 7
Corporate 2 1
------ ------
$ 81 $ 101
====== ======