PPG Reports Record Third-Quarter Sales; Marks 10th Consecutive Quarter of Year-over-Year Sales Records
PITTSBURGH--Oct. 20, 2005--PPG Industries reported today third quarter net income of $157 million, or 92 cents a share, including aftertax charges of $25 million, or 15 cents a share, for net legal and insurance settlements; $11 million, or 6 cents a share, for direct costs related to the impact of hurricanes Katrina and Rita; 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. The company estimates that aftertax earnings were also reduced by approximately $6 million, or 4 cents a share, due to lower sales volumes resulting from the hurricanes.On Sept. 26, following Hurricane Rita, PPG declared force majeure for products produced at its Lake Charles, La., chemical complex. The damage caused by Hurricane Rita resulted in the shutdown of the Lake Charles facility for a total of eight days in September. On Oct. 6, the facility resumed production at reduced operating rates and has increased production throughout the month.
The majority of the net charges for legal and insurance settlements relate to a settlement reached this week on a civil glass antitrust matter. The case was first filed in 1997 and is pending in federal court. The settlement remains subject to the court's final approval.
Sales were $2.55 billion, a record for the third quarter.
That compares with third quarter 2004 net income of $194 million, or $1.12 a share, including an aftertax charge of $4 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. Sales were $2.41 billion.
For the first nine months of 2005, PPG recorded net income of $483 million, or $2.81 a share, which includes aftertax charges of $116 million, or 67 cents a share, for net legal and insurance settlements; $11 million, or 6 cents a share, for direct costs related to the impact of hurricanes Katrina and Rita; $12 million, or 7 cents a share, for debt refinancing; and $10 million, or 6 cents a share, to reflect the net increase in the value of the company's obligation under the asbestos settlement agreement. The company estimates that aftertax earnings were also reduced by approximately $6 million, or 4 cents a share, due to lower sales volumes resulting from the hurricanes. Sales for the first nine months of 2005 were $7.70 billion.
For the first nine months of 2004, PPG recorded net income of $500 million, or $2.89 a share, including an aftertax charge of $13 million, or 8 cents a share, to reflect the net increase in the value of the company's obligation under the asbestos settlement. Sales were $7.10 billion.
"We delivered record third-quarter sales, and our operating performance was outstanding, despite a variety of significant economic headwinds," said Charles E. Bunch, chairman and chief executive officer. "This is the 10th consecutive quarter we've generated year-over-year record sales. In fact, all six of our coatings businesses and our chemicals segment set third-quarter sales records.
"We remain excited about our growth prospects, fueled by a strong array of products and a growing presence in emerging markets. We believe this will enable us to continue generating strong cash flows, which have been and will be used to benefit our shareholders."
Coatings sales increased $78 million, or 6 percent, as a result of improved selling prices across most businesses, strengthening foreign currencies and higher volumes, primarily in aerospace and architectural. Operating earnings were up $11 million due to the benefits of higher selling prices, higher other income due to the favorable impact of several insurance settlements and higher volumes, which more than offset the negative impact of inflation, primarily high raw materials costs.
Glass sales decreased $5 million, or 1 percent, due to lower volumes across all businesses except automotive replacement glass and lower selling prices, which were partially offset by the impact of strengthening foreign currencies. Operating earnings were down $82 million largely due to the adverse impact from the settlement of the civil glass antitrust matter. Additionally, inflation, including higher energy costs, and lower volumes exceeded the benefits from improved manufacturing efficiencies.
Chemicals sales increased $65 million, or 12 percent, due primarily to higher selling prices for chlor-alkali products. These increases were slightly offset by lower volumes for chlor-alkali products including the unfavorable impact of the hurricanes. Operating earnings were up $26 million primarily due to higher selling prices, which exceeded the impact of higher energy costs, lower manufacturing efficiencies and the impact of the hurricanes.
Additional Information
Recorded comments by William H. Hernandez, senior vice president and chief financial officer, regarding third quarter 2005 results may be heard by telephone at 412-434-2816 until 5 p.m. ET on Friday, Oct. 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 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.
PPG INDUSTRIES AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENT OF OPERATIONS (unaudited)
(All amounts in millions except per-share data)
3 Months Ended 9 Months Ended
Sept. 30 Sept. 30
2005 2004 2005 2004
------ ------- ------ -------
Net sales $2,547 $2,409 $7,696 $7,102
Cost of sales 1,614 1,516 4,822 4,473
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GROSS PROFIT 933 893 2,874 2,629
Other expenses (earnings):
Selling and other 514 496 1,578 1,495
Depreciation 84 88 256 268
Interest 21 22 62 70
Amortization 8 8 24 23
Asbestos settlement - net 4 6 16 21
Other - net (Note A) 47 (21) 178 (46)
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INCOME BEFORE INCOME TAXES AND MINORITY
INTEREST 255 294 760 798
Income tax expense 77 82 222 250
Minority interest 21 18 55 48
----------------------------------------------------------------------
NET INCOME (Note B) $157 $194 $483 $500
======================================================================
Earnings per common share $0.93 $1.13 $2.83 $2.91
======================================================================
Earnings per common share - assuming
dilution $0.92 $1.12 $2.81 $2.89
======================================================================
Average shares outstanding 168.9 171.8 170.7 171.5
======================================================================
Average shares outstanding - assuming
dilution 170.0 173.2 172.1 172.9
======================================================================
Note A:
The three months ended September 30, 2005, includes pretax charges
of $40 million for net legal and insurance settlements and
$18 million for direct costs related to hurricanes. The nine months
ended September 30, 2005, includes pretax charges of $190 million
for net legal and insurance settlements, $18 million for direct
costs related to hurricanes and $19 million for debt refinancing
costs.
Note B:
The three months ended September 30, 2005, includes aftertax
charges of $25 million for net legal and insurance settlements and
$11 million for direct costs related to hurricanes. The nine
months ended September 30, 2005, includes aftertax charges of
$116 million for net legal and insurance settlements, $11 million
for direct costs related to hurricanes and $12 million for debt
refinancing costs.
CONDENSED BALANCE SHEET (unaudited)
Sept. 30 Dec. 31
2005 2004
-------- -------
(millions)
Current assets:
Cash and cash equivalents $489 $659
Short-term investments - 50
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Total cash, cash equivalents and short-term
investments 489 709
Receivables - net 1,968 1,797
Inventories 1,116 1,076
Other 500 472
----------------------------------------------------------------------
Total current assets 4,073 4,054
Property less accumulated depreciation 2,336 2,471
Investments 332 298
Goodwill and identifiable intangible assets 1,650 1,713
Other assets 403 396
----------------------------------------------------------------------
TOTAL $8,794 $8,932
======================================================================
Current liabilities:
Short-term debt and current portion of long-term
debt $72 $166
Asbestos settlement 474 404
Accounts payable and accrued liabilities 1,789 1,651
----------------------------------------------------------------------
Total current liabilities 2,335 2,221
Long-term debt 1,181 1,184
Asbestos settlement 378 440
Deferred income taxes 128 145
Accumulated provisions 1,324 1,274
Minority interest 130 96
Shareholders' equity 3,318 3,572
----------------------------------------------------------------------
TOTAL $8,794 $8,932
======================================================================
BUSINESS SEGMENT INFORMATION (unaudited)
3 Months Ended 9 Months Ended
Sept. 30 Sept. 30
2005 2004 2005 2004
------ ------- ------ -------
(millions)
Net sales
Coatings $1,396 $1,318 $4,178 $3,946
Glass 554 559 1,689 1,680
Chemicals 597 532 1,829 1,476
----------------------------------------------------------------------
TOTAL $2,547 $2,409 $7,696 $7,102
======================================================================
Operating income (expense)
Coatings (Note A) $210 $199 $429 $609
Glass (Note B) (36) 46 57 141
Chemicals (Note C) 121 95 428 186
----------------------------------------------------------------------
TOTAL 295 340 914 936
Interest expense - net (18) (19) (52) (62)
Asbestos settlement - net (4) (6) (16) (21)
Compensation cost associated with stock
options (7) (4) (22) (15)
Other unallocated corporate expense - net
(Note D) (11) (17) (64) (40)
----------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND MINORITY
INTEREST $255 $294 $760 $798
======================================================================
Note A:
The three months ended September 30, 2005, include pretax income of
$17 million for net insurance settlements. The nine months ended
September 30, 2005, include pretax charges of $133 million for net
legal and insurance settlements.
Note B:
The three and nine months ended September 30, 2005, include pretax
charges of $58 million for net legal settlements.
Note C:
The three and nine months ended September 30, 2005, include pretax
charges of $18 million for direct costs related to hurricanes and
pretax income of $1 million for an insurance settlement.
Note D:
The nine months ended September 30, 2005, includes pretax charges
of $19 million for debt refinancing costs.