PPG Reports Strong Volume, EPS Growth in First Quarter
PITTSBURGH--April 15, 2004--PPG Industries reported today first quarter net income of $115 million, or 67 cents a share, which includes aftertax charges of $4 million, or 2 cents a share, reflecting the previously announced decision to begin expensing stock options in 2004, and $3 million, or 2 cents a share, to reflect the net increase in the current value of the company's obligation under its asbestos settlement agreement reported in May 2002. Sales for the first quarter of 2004 were $2.3 billion.That compares with first quarter 2003 net income of $78 million, or 46 cents a share, which includes aftertax charges of $6 million, or 3 cents a share, for the cumulative effect of a required change in the accounting for asset retirement obligations, and $3 million, or 2 cents a share, to reflect the value of the company's obligation under its asbestos settlement agreement. Sales for the first quarter of 2003 were $2.1 billion.
"Our results reflect the benefit of our strategic actions to grow our coatings segment in combination with strong volume gains and an unwavering focus on efficient operations, despite lower pricing," said Raymond W. LeBoeuf, chairman and chief executive officer. "We're now seeing the full benefit of our actions in recent years to restructure and reduce costs. In addition, we incurred $9 million of severance costs in the first quarter for actions that will help bottom-line growth the rest of the year.
"We have been increasingly optimistic about the economy since the middle of last year, and that optimism continues," LeBoeuf continued. "Although we're not predicting sharp growth, we are seeing volume gains in all regions and all business segments."
Coatings sales increased $150 million, or 13 percent, because of stronger volumes in the architectural, industrial, aerospace, automotive OEM and automotive refinish businesses and the strengthening of foreign currencies, offset by slightly lower prices in the automotive OEM business. Operating earnings were up $43 million largely because of increased volumes, improved manufacturing efficiencies and the favorable effects of foreign currency translation. Lower selling prices reduced operating earnings.
Glass sales increased $21 million, or 4 percent, because of stronger volumes in the automotive OEM, flat and fiber glass businesses and the strengthening of foreign currencies, offset partially by lower selling prices across all businesses. Operating earnings were up $17 million because of improved volumes, manufacturing efficiencies and higher royalty income, which more than offset the lower selling prices.
Chemicals sales increased $22 million, or 5 percent, on higher volumes for commodity and fine chemicals and optical products, and the strengthening of foreign currencies, offset partially by lower selling prices for commodity products. Operating earnings decreased $5 million because of lower selling prices, higher energy costs and additional selling and advertising expenses in the optical business, which more than offset the benefit of improved volumes and manufacturing efficiencies.
Beginning Jan. 1, PPG adopted the fair value method of recording stock-based compensation, as defined by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," for stock options awarded to employees after the date of adoption and for previously issued stock options that were not vested as of Jan. 1, 2004.
Additional Information
Recorded comments by William H. Hernandez, senior vice president and chief financial officer, regarding first quarter 2004 results may be heard by telephone at 412-434-2816 until 5 p.m. ET on Friday, April 23. The commentary will also be 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 could affect the company's operations, as discussed in PPG Industries' periodic reports on Form 10-K and Form 10-Q 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, foreign exchange rates and fluctuations in those rates, and the unpredictability of possible future litigation, including litigation that could result if the asbestos settlement discussed in PPG's reports filed with the Securities and Exchange Commission does not become effective. 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.
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PPG INDUSTRIES AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENT OF OPERATIONS (unaudited)
(All amounts in millions except per-share data)
3 Months Ended
March 31
2004 2003
---------------------
Net sales $2,264 $2,071
Cost of sales 1,441 1,342
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GROSS PROFIT 823 729
Other expenses (earnings):
Selling & other 503 449
Depreciation 90 90
Interest 23 28
Amortization 7 7
Asbestos settlement - net 5 5
Business restructuring - 1
Other - net (3) (2)
----------------------------------------------------------------------
INCOME BEFORE INCOME TAXES, MINORITY
INTEREST & CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 198 151
Income tax expense 69 55
Minority interest 14 12
----------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 115 84
Cumulative effect of accounting change, net of
tax - (6)
----------------------------------------------------------------------
NET INCOME $115 $78
======================================================================
Earnings per common share:
Income before cumulative effect of accounting
change $0.67 $0.49
Cumulative effect of accounting change, net of
tax - (0.03)
----------------------------------------------------------------------
Earnings per common share: $0.67 $0.46
======================================================================
Earnings per common share - assuming dilution:
Income before cumulative effect of accounting
change $0.67 $0.49
Cumulative effect of accounting change, net of
tax - (0.03)
----------------------------------------------------------------------
Earnings per common share - assuming dilution: $0.67 $0.46
======================================================================
Average shares outstanding 171.2 169.6
======================================================================
Average shares outstanding - assuming dilution 172.7 170.3
======================================================================
Effective January 1, 2004, the Company adopted the fair value method
of recording stock-based compensation, as defined by Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," for stock options awarded to employees
after the date of adoption and for previously issued stock options
that were not vested as of January 1, 2004. This adoption increased
stock-based compensation expense by $4 million aftertax, or 2 cents a
share, for the three months ended March 31, 2004.
Effective January 1, 2003, the Company adopted SFAS No. 143,
"Accounting for Asset Retirement Obligations." The adoption of this
standard resulted in a charge for the cumulative effect of an
accounting change of $6 million aftertax, or 3 cents a share, in the
first quarter of 2003. This standard requires the Company to recognize
asset retirement obligations in the period in which they are incurred,
if a reasonable estimate of fair value can be made.
CONDENSED BALANCE SHEET (unaudited)
March 31 Dec. 31
2004 2003
---------------------
(millions)
Current assets:
Cash & cash equivalents $466 $499
Receivables - net 1,794 1,631
Inventories 1,044 997
Other 401 410
----------------------------------------------------------------------
Total current assets 3,705 3,537
Investments 278 265
Property less accumulated depreciation 2,512 2,566
Goodwill & identifiable intangible assets 1,674 1,652
Other assets 438 404
----------------------------------------------------------------------
TOTAL $8,607 $8,424
======================================================================
Current liabilities:
Short-term debt & current portion of long-term
debt $347 $327
Asbestos settlement 300 308
Accounts payable & accrued liabilities 1,594 1,504
----------------------------------------------------------------------
Total current liabilities 2,241 2,139
Long-term debt 1,329 1,339
Asbestos settlement 508 500
Deferred income taxes 99 88
Accumulated provisions 1,342 1,310
Minority interest 116 137
Shareholders' equity 2,972 2,911
----------------------------------------------------------------------
TOTAL $8,607 $8,424
======================================================================
BUSINESS SEGMENT INFORMATION (unaudited)
3 Months Ended
March 31
2004 2003
---------------------
(millions)
Net sales
Coatings $1,274 $1,124
Glass 537 516
Chemicals 453 431
----------------------------------------------------------------------
TOTAL $2,264 $2,071
======================================================================
Operating income
Coatings (A) $185 $142
Glass 23 6
Chemicals (A) 40 45
----------------------------------------------------------------------
TOTAL 248 193
Interest - net (21) (25)
Asbestos settlement - net (5) (5)
Other unallocated corporate expense - net (A) (24) (12)
----------------------------------------------------------------------
INCOME BEFORE INCOME TAXES, MINORITY
INTEREST & CUMULATIVE EFFECT OF
ACCOUNTING CHANGE $198 $151
======================================================================
(A) Prior to 2004, the pension and other postretirement benefit costs
for U.S. salaried retirees were allocated to businesses based on
the active U.S. salaried payroll. In 2004, the Company revised its
allocation method to more appropriately reflect these costs by
business based on the salaried retiree's work location at
retirement. For comparative purposes, segment operating income for
2003 in the above table has been revised to reflect this change in
allocation method, which resulted in an increase in our coatings
segment operating income of approximately $3 million, a reduction
in our chemicals segment operating income of approximately $1
million and an increase in other unallocated corporate expense -
net of approximately $2 million.