PPG Reports Fourth-Quarter EPS, Sales Records on Stronger Volumes
PITTSBURGH--Jan. 20, 2005--PPG Industries reported today fourth-quarter net income of $183 million, or $1.06 a share.This includes aftertax charges of $3 million, or 1 cent a share, to reflect the previously announced decision to begin expensing stock options in 2004; $6 million, or 3 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; and income of $6 million, or 4 cents a share, to reflect the benefit of Medicare prescription drug legislation. Sales were $2.41 billion.
Earnings per share and sales were PPG fourth-quarter records.
In the fourth quarter 2003, PPG reported net income of $122 million, or 71 cents a share. This included an aftertax charge of $8 million, or 5 cents a share, to reflect the net increase in the value of the company's obligation under the asbestos settlement agreement. Sales were $2.18 billion.
For all of 2004, PPG recorded net income of $683 million, or $3.95 per share.
This includes aftertax charges of $13 million, or 7 cents a share, to reflect the expensing of stock options in 2004; $19 million, or 11 cents a share, to reflect the net increase in the current value of the company's obligation under the asbestos settlement agreement; and income of $19 million, or 11 cents a share, to reflect the benefit of Medicare legislation. Sales were $9.51 billion.
For all of 2003, PPG recorded net income of $494 million, or $2.89 per share. This included 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; $23 million, or 14 cents a share, to reflect the net increase in the value of the company's obligation under the asbestos settlement agreement; and $2 million, or 1 cent a share, for restructuring. Sales for 2003 were $8.76 billion.
"We delivered a record fourth-quarter performance primarily because of higher volumes in all our businesses, higher selling prices for our commodity chemicals and strong manufacturing efficiencies, producing higher operating margins despite significantly higher raw material and energy costs," said Raymond W. LeBoeuf, chairman and chief executive officer. "As a result of our strong cash flow in 2004, we contributed to our pension plans, paid down debt, completed our previously announced $100 million share repurchase and raised shareholder payments for the 33rd consecutive year. And with all that, we still were able to end the year with more than $700 million of cash on hand.
"The rapid growth in the global economy early in 2004 cooled at midyear to what is probably a more sustainable level. The fundamentals in the U.S. economy remain solid: job growth continues, the consumer is healthy and capital spending is strong. Meanwhile, we expect worldwide growth to continue at varying degrees. Regardless of changing economic conditions, PPG continues its commitment to creating growth, driving down costs, generating cash and rewarding our shareholders."
The effective tax rate for the full year 2004 is approximately 30.5 percent compared with an estimated rate of 31.5 percent in the third quarter. The year-to-date impact of the change has been reflected in the fourth quarter results of operations.
Coatings sales for the quarter increased $88 million, or 7 percent, as stronger volumes across all businesses and strengthening of foreign currencies were offset slightly by lower prices in the automotive business. Operating earnings were down $16 million due to the impact of inflation, primarily raw materials, up about $40 million; higher overhead costs; and lower selling prices. These declines exceeded the benefits from improved volumes, the favorable effect of currency translation and lower pension and postretirement medical costs.
Glass sales for the quarter increased $13 million, or 3 percent, as higher volumes in the fiber glass and flat glass businesses and the strengthening of foreign currencies more than offset lower selling prices across all businesses. Operating earnings were up $17 million reflecting improved manufacturing efficiencies, increased volumes, higher equity earnings and lower pension and postretirement medical costs. These increases exceeded the impact of lower selling prices, cost inflation and higher energy costs.
Chemicals sales for the quarter increased $135 million, or 32 percent, on higher selling prices for commodity products, higher volumes, and the strengthening of foreign currencies. Operating earnings were up $55 million as higher selling prices, improved volumes and lower overhead costs combined to exceed the impact of higher energy costs and inflation.
Beginning Jan. 1, 2004, 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.
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 was enacted in December 2003. During the third quarter of 2004, PPG concluded its evaluation of the provisions of this act and decided to maintain the company's retiree medical benefits program and take the subsidy available under the act. The impact of this decision lowered the company's other postretirement medical cost, which for the three and 12 months ended Dec. 31, 2004 increased net income by $6 million, or 4 cents a share, and $19 million, or 11 cents a share, respectively.
Additional Information
Recorded comments by William H. Hernandez, senior vice president and chief financial officer, regarding fourth quarter 2004 results may be heard by telephone at 412-434-2816 until 5 p.m. ET on Friday, Jan. 28, 2005. 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 contained herein relating to matters that are not historical facts are forward-looking statements reflecting PPG's current view with respect to future events and financial performance. These matters involve risks and uncertainties that may affect PPG's operations, as discussed in PPG's filings with the Securities and Exchange Commission pursuant to Sections 13(a), 13(c) or 15(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. Accordingly, many factors may cause actual results to differ materially from the forward-looking statements contained herein.
Such factors include 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 such rates, and the unpredictability of existing and possible future litigation, including litigation that could result if the asbestos settlement discussed in PPG's filings with the Securities and Exchange Commission does not become effective. However, 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 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 PPG'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 12 Months Ended
Dec. 31 Dec. 31
2004 2003 2004 2003
------- ------- ------- -------
Net sales $2,411 $2,175 $9,513 $8,756
Cost of sales 1,526 1,364 5,999 5,521
------------------------------------- ------- ------- ------- -------
GROSS PROFIT 885 811 3,514 3,235
Other expenses (earnings):
Selling & other 523 492 2,018 1,868
Depreciation 89 90 357 365
Interest 20 26 90 107
Amortization 8 7 31 29
Asbestos settlement - net 11 14 32 38
Business restructuring - - - 4
Other income - net (31) (8) (77) (19)
------------------------------------- ------- ------- ------- -------
INCOME BEFORE INCOME TAXES, MINORITY
INTEREST & CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 265 190 1,063 843
Income tax expense 72 59 322 293
Minority interest 10 9 58 50
------------------------------------- ------- ------- ------- -------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 183 122 683 500
Cumulative effect of accounting
change, net of tax - - - (6)
------------------------------------- ------- ------- ------- -------
NET INCOME $183 $122 $683 $494
===================================== ======= ======= ======= =======
Earnings per common share:
Income before cumulative effect of
accounting change $1.07 $0.72 $3.98 $2.94
Cumulative effect of accounting
change, net of tax - - - (0.03)
------------------------------------- ------- ------- ------- -------
Earnings per common share: $1.07 $0.72 $3.98 $2.91
===================================== ======= ======= ======= =======
Earnings per common share - assuming
dilution:
Income before cumulative effect of
accounting change $1.06 $0.71 $3.95 $2.92
Cumulative effect of accounting
change, net of tax - - - (0.03)
------------------------------------- ------- ------- ------- -------
Earnings per common share - assuming
dilution: $1.06 $0.71 $3.95 $2.89
===================================== ======= ======= ======= =======
Average shares outstanding 172.1 170.3 171.7 169.9
===================================== ======= ======= ======= =======
Average shares outstanding - assuming
dilution 173.6 171.8 173.0 170.9
===================================== ======= ======= ======= =======
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 $3 million aftertax, or 1 cent a
share, and $13 million aftertax, or 7 cents a share, for the three and
12 months ended December 31, 2004, respectively.
The Medicare Prescription Drug, Improvement and Modernization Act of
2003 was enacted in December 2003. During the third quarter of 2004,
PPG concluded its evaluation of the provisions of this act and decided
to maintain the Company's retiree medical benefits program and take
the subsidy available under the act. The impact of this decision
lowered the Company's other postretirement medical cost, which for the
three and 12 months ended December 31, 2004 increased net income by $6
million, or 4 cents a share, and $19 million, or 11 cents a share,
respectively.
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)
Dec. 31 Dec. 31
2004 2003
----------- ---------
(millions)
Current assets:
Cash & cash equivalents $709 $499
Receivables - net 1,797 1,631
Inventories 1,076 997
Other 472 410
------------------------------------------- ----------- ---------
Total current assets 4,054 3,537
Investments 298 265
Property less accumulated
depreciation 2,471 2,566
Goodwill & identifiable intangible
assets 1,713 1,652
Other assets 396 404
------------------------------------------- ----------- ---------
TOTAL $8,932 $8,424
=========================================== =========== =========
Current liabilities:
Short-term debt & current portion
of long-term debt $166 $327
Asbestos settlement 404 308
Accounts payable & accrued
liabilities 1,651 1,504
------------------------------------------- ----------- ---------
Total current liabilities 2,221 2,139
Long-term debt 1,184 1,339
Asbestos settlement 440 500
Deferred income taxes 145 88
Accumulated provisions 1,274 1,310
Minority interest 96 137
Shareholders' equity 3,572 2,911
------------------------------------------- ----------- ---------
TOTAL $8,932 $8,424
=========================================== =========== =========
BUSINESS SEGMENT INFORMATION (unaudited)
3 Months Ended 12 Months Ended
Dec. 31 Dec. 31
2004 2003 2004 2003
------- ------- ------- -------
(millions)
Net sales
Coatings $1,329 $1,241 $5,275 $4,835
Glass 524 511 2,204 2,150
Chemicals 558 423 2,034 1,771
------------------------------------- ------- ------- ------- -------
TOTAL $2,411 $2,175 $9,513 $8,756
===================================== ======= ======= ======= =======
Operating income
Coatings (A) $168 $184 $777 $719
Glass 28 11 169 71
Chemicals (A) 105 50 291 228
------------------------------------- ------- ------- ------- -------
TOTAL 301 245 1,237 1,018
Interest expense - net (16) (23) (78) (97)
Asbestos settlement - net (11) (14) (32) (38)
Compensation cost associated with
stock options (5) - (20) -
Other unallocated corporate expense -
net (A) (4) (18) (44) (40)
------------------------------------- ------- ------- ------- -------
INCOME BEFORE INCOME TAXES, MINORITY
INTEREST & CUMULATIVE EFFECT OF
ACCOUNTING CHANGE $265 $190 $1,063 $843
===================================== ======= ======= ======= =======
(A) Prior to 2004, the pension and other postretirement benefit costs
for U.S. salaried retirees were allocated to businesses based on
their active U.S. salaried payroll dollars. 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 and $12
million, a reduction in our chemicals segment operating income of
approximately $1 million and $4 million and an increase in other
unallocated corporate expense - net of approximately $2 million
and $8 million for the three and 12 months ended December 31,
2003, respectively.