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PPG Posts 42-Percent Sales Gain, 12-Percent Adjusted Earnings Per Share Growth
Actions to Focus Portfolio, Broaden Global Reach More Than Offset Weak U.S. Economy
PITTSBURGH, Jul 17, 2008 (BUSINESS WIRE) -- PPG Industries (NYSE:PPG) today reported record sales for the
second quarter of $4.5 billion, surpassing the prior year's second
quarter results by 42 percent. Second quarter reported net income was
$250 million, or $1.51 per share. Adjusted net income, excluding the
operating results of the automotive glass and services (AG&S)
business, which is pending sale, as well as unusual and one-time
items, was $269 million, or $1.62 per share, exceeding the prior
year's quarter by 12 percent. Reported net income for the second
quarter 2007 was $249 million, or $1.50 per share, and adjusted net
income was $242 million, or $1.45 per share.
"We delivered double-digit-percent growth in sales and adjusted
earnings per share despite continued inflationary pressures and steep
recessions in several U.S. end-markets," said Charles E. Bunch, PPG
chairman and chief executive officer. "We are capitalizing on the
strategic shift in our portfolio, the broadening of our geographic
presence, and the increased end-market diversity of our businesses
that we've achieved over the past four years."
Bunch highlighted several key elements of PPG's financial
performance in the quarter. "First, our core businesses - coatings and
optical and specialty materials - grew combined segment earnings by
more than 25 percent, aided by our acquisition of SigmaKalon and
growth in emerging regions," he said. "Second, our commodity chemicals
business continued to deliver solid earnings. Last, we achieved one of
the largest quarterly increases in our selling prices in the past
several years.
"Our strong performance in today's environment provides measurable
evidence of our portfolio strength and our successful transformation
into a global leader in coatings and specialty products," Bunch said.
"Looking ahead, we expect our growth to be sustained, due in part
to these same factors," Bunch said. He added that announced price
increases in the commodity chemicals business are being implemented,
along with price actions in other businesses, with the intent of
offsetting further inflationary pressures. "We expect our future
operating results to remain solid and to compare favorably within our
industry groups," Bunch concluded.
PPG generated more than $300 million in cash from operations
during the quarter, and on a year-to-date basis is approximately $125
million ahead of the previous year in cash generation.
PPG announced on July 8 an agreement with an affiliate of funds
managed by Kohlberg & Company, LLC, under which PPG will divest its
AG&S business to a new company formed by Kohlberg. PPG will receive
$330 million in gross cash proceeds and a minority interest of
approximately 40 percent in the new company as a result of the
transaction. In accordance with generally accepted accounting
principles (GAAP), the results of the AG&S business were classified as
discontinued operations beginning in September 2007. However, because
PPG will hold an ownership interest in the newly-formed company, it
now will include this business in continuing operations in its
historical and current financial statements.
Reported second quarter 2008 net income includes one-time,
aftertax charges related to the pending sale of PPG's AG&S business of
$11 million, or 7 cents per share, to reflect a catch-up of
depreciation expense, which was suspended when the business was
previously classified as a discontinued operation, and $12 million, or
7 cents per share, relating to the impact of benefit changes including
accelerated vesting negotiated as part of the sale. The company also
recorded an aftertax charge of $2 million, or 1 cent per share, to
reflect the net increase to current value of the company's obligation
under its proposed asbestos settlement agreement reported in May 2002,
which is subject to pending court proceedings. Results also include
aftertax earnings of $6 million, or 4 cents per share, relating to
operating results of the AG&S business. Adjusted net income was $269
million, or $1.62 per share.
PPG's sales for the second quarter 2007 were $3.2 billion. Second
quarter 2007 net income was comprised of net income from continuing
operations of $250 million, or $1.50 per share, and a loss from
discontinued operations from the former fine chemicals business, net
of tax, of $1 million. Net income from continuing operations included
an aftertax charge of $6 million, or 3 cents per share, to reflect the
net increase in the value of the company's obligation under its
proposed asbestos settlement agreement. Results also included aftertax
earnings of $13 million, or 8 cents per share, relating to the
operating results of the AG&S business. Adjusted net income was $242
million, or $1.45 per share.
Performance Coatings segment sales in the second quarter 2008
increased $295 million, or 30 percent, versus the prior year's
quarter, primarily as a result of the acquisitions of SigmaKalon's
protective and marine coatings business and of Barloworld. The
positive impact of stronger foreign currencies, increased selling
prices and growth in emerging regions more than offset significant
volume declines in the U.S. architectural coatings business. Segment
earnings improved by $12 million, or 8 percent, as the earnings impact
from acquisitions and favorable currency outpaced lower volumes.
Inflation was mitigated by price gains and lower costs.
Industrial Coatings segment sales for the quarter increased $209
million, or 22 percent, as a result of the acquisition of SigmaKalon's
industrial coatings business, stronger foreign currencies and improved
volumes, primarily in the automotive coatings business. The segment
experienced volume declines in North America that were more than
offset by higher volumes in all other regions. Segment earnings were
flat. The positive impact of acquisitions, stronger foreign currencies
and lower manufacturing costs were offset by inflation.
The Architectural Coatings EMEA (Europe, Middle East and Africa)
segment is a new reportable segment in 2008 and represents the largest
business from the SigmaKalon acquisition. Segment sales for the
quarter were $667 million, up a double-digit percentage in comparison
to SigmaKalon's corresponding sales in 2007. Segment earnings were $71
million and include nearly $20 million of ongoing quarterly
amortization expense related to acquired intangible assets as well as
approximately $20 million of quarterly depreciation expense.
Optical and Specialty Materials segment sales for the quarter
increased $32 million, or 12 percent, as a result of improved volumes,
particularly in the optical products business. Stronger foreign
currencies and increased selling prices also added to the growth.
Segment earnings were up $5 million due to higher sales volumes and
stronger foreign currencies, despite the impact of inflation and
higher advertising expenses related in part to growth initiatives to
support Transitions Optical's next-generation lens product.
Commodity Chemicals segment sales for the quarter increased $115
million, or 30 percent, due to higher sales volumes and increased
selling prices. Segment earnings improved by $11 million due to lower
manufacturing costs and higher sales volumes. The impact of increased
selling prices was countered by inflation, including higher energy and
raw materials costs.
Reported Glass segment sales, including the AG&S business, were
comparable to the prior year, as stronger foreign currencies and
increased selling prices were almost entirely offset by lower sales
volumes. Segment earnings decreased by $20 million due to lower
volumes and higher inflation, partially offset by lower manufacturing
costs.
About PPG
Pittsburgh-based PPG is a global supplier of paints, coatings,
chemicals, optical products, specialty materials, glass and fiber
glass. The company has more than 150 manufacturing facilities and
equity affiliates and operates in more than 60 countries. PPG shares
are traded on the New York Stock Exchange (symbol: PPG). For more
information, visit www.ppg.com.
Additional Information
Financial commentary from William H. Hernandez, senior vice
president, finance, and chief financial officer, regarding second
quarter 2008 results may be heard by telephone at 412-434-2816 until
Friday, July 25, at 5 p.m. ET. The commentary will also be available
on PPG's Web site at Investor Center, 2nd Qtr Financial Commentary.
The commentary may include forward-looking statements or other
material information. Additional information, including historical
performance, is also available at PPG's online Investor Center at
http://corporateportal.ppg.com/na/corp/InvestorCenter.
Forward-Looking Statements
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 or objectives and
financial or operational performance or results. These matters involve
risks and uncertainties as discussed in PPG Industries' periodic
reports on Form 10-K and Form 10-Q, and its current reports on Form
8-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 and energy, the ability to maintain
favorable supplier relationships and arrangements, difficulties in
integrating acquired businesses and achieving expected synergies there
from, economic and political conditions in international markets,
foreign exchange rates and fluctuations in such rates, the impact of
environmental regulations, unexpected business disruptions and the
unpredictability of possible future litigation, including litigation
that could result if the asbestos settlement discussed in PPG's
filings with the SEC 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 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 PPG's
consolidated financial condition, operations or liquidity.
Discontinued Operations
PPG continues to classify the previously sold fine chemicals
business as discontinued operations in accordance with GAAP. The sale
of the fine chemicals business was completed in the fourth quarter
2007.
Regulation G Reconciliation
PPG Industries believes investors' understanding of the company's
operating performance is enhanced by the disclosure of sales, segment
income, net income and earnings per share adjusted for nonrecurring
charges and the sales, earnings and operating results of the AG&S
business, which is pending sale. PPG's management considers this
information useful in providing insight into the company's ongoing
operating performance because it excludes the impact of items that
cannot reasonably be expected to recur on a quarterly basis and
anticipates the divestiture of the AG&S business. Sales, segment
income, net income and earnings per share adjusted for these items are
not recognized financial measures determined in accordance with GAAP
and should not be considered a substitute for sales, segment income,
net income or earnings per share or other financial measures as
computed in accordance with GAAP. In addition, adjusted sales, segment
income, net income and earnings per share may not be comparable to
similarly titled measures as reported by other companies. The
following is a reconciliation of reported and adjusted sales, segment
income, net income and earnings per share for the second quarter 2008
and 2007:
Regulation G Plus: Less:
Reconciliation - One-Time Automotive
Results From Total PPG + Charges - Glass and = Adjusted
Operations (as Reported) (including Services PPG Total
asbestos) Operating
Results(1)
----------------------------------------------------------------------
Second Quarter 2008
Sales $4,474 $- $253 $4,221
Segment income 525 - 10 515
Net income 250 25A 6 269
Earnings per common
share - assuming
dilution 1.51 0.15A 0.04 1.62
============= ========== ========== =========
Second Quarter 2007
Sales 3,155 - 278 2,877
Segment income 446 - 22 424
Net income 249 6B 13 242
Earnings per common
share - assuming
dilution 1.50 0.03B 0.08 1.45
============= ========== ========== =========
All amounts are reported in millions of dollars, except per-share
amounts.
(1) For purposes of comparing the current and historical operating results of the AG&S business, the table reflects adjustment for the entire AG&S business. However, as noted above, upon closing of the AG&S divestiture transaction, PPG will retain a minority ownership of approximately 40 percent of this business, and this interest will be presented in PPG's future financial statements in accordance with GAAP. A - Income from continuing operations, net of tax, and Earnings per common share - assuming dilution include one-time aftertax charges related to the pending sale of PPG's AG&S business of $11 million, or 7 cents per share, to reflect a catch-up of depreciation expense, which was suspended when the business was classified previously as a discontinued operation, and $12 million, or 7 cents per share, relating to the impact of benefit changes including accelerated vesting negotiated as part of the sale. In addition, the company recorded an aftertax charge of $2 million, or 1 cent per share, to reflect the net increase to current value of the company's obligation under its proposed asbestos settlement agreement reported in May 2002, which is subject to pending court proceedings. B - Income from continuing operations, net of tax, and Earnings per common share - assuming dilution include an aftertax charge of $6 million, or 3 cents per share, to reflect the net increase in the value of the company's obligation under its proposed asbestos settlement agreement.
PPG INDUSTRIES AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENT OF OPERATIONS (unaudited)
(All amounts in millions except per-share data)
3 Months Ended 6 Months Ended
June 30 June 30
2008 2007 2008 2007
------- ------- ------- -------
Net sales $4,474 $3,155 $8,436 $6,043
Cost of sales, exclusive of
depreciation and amortization (Note A) 2,829 2,001 5,425 3,864
Selling and other (Note B) 1,054 651 2,035 1,271
Depreciation (Note C) 128 88 235 174
Interest expense 65 23 131 45
Amortization 37 15 71 29
Asbestos settlement - net 4 8 4 17
Other - net (Note D) (37) (29) (42) (31)
-------------------------------------------------------------- -------
INCOME BEFORE INCOME TAXES AND MINORITY
INTEREST 394 398 577 674
Income tax expense 116 125 173 191
Minority interest 28 23 54 41
-------------------------------------------------------------- -------
INCOME FROM CONTINUING OPERATIONS
(Notes A, B, C & D) 250 250 350 442
Income from discontinued operations,
net of tax (Note E) - (1) - 1
-------------------------------------------------------------- -------
NET INCOME $ 250 $ 249 $ 350 $ 443
============================================================== =======
Earnings per common share
Income from continuing operations
(Notes A, B, C & D) $ 1.52 $ 1.51 $ 2.13 $ 2.68
Income from discontinued operations
(Note E) $ - $ - $ - $ 0.01
-------------------------------------------------------------- -------
NET INCOME $ 1.52 $ 1.51 $ 2.13 $ 2.69
============================================================== =======
Earnings per common share - assuming
dilution
Income from continuing operations
(Notes A, B, C & D) $ 1.51 $ 1.50 $ 2.12 $ 2.66
Income from discontinued operations
(Note E) $ - $ - $ - $ 0.01
----------------------------------------------------------------------
NET INCOME $ 1.51 $ 1.50 $ 2.12 $ 2.67
======================================================================
Average shares outstanding 164.6 164.8 164.5 164.7
======================================================================
Average shares outstanding - assuming
dilution 165.6 166.4 165.7 166.1
======================================================================
Note A: The six months ended June 30, 2008, include a pretax expense of $94 million ($66 million aftertax or 40 cents per share) for the flow- through cost of sales of the step up to fair value of inventory related to the SigmaKalon acquisition. Note B: The three and six months ended June 30, 2008, include a pretax expense of $19 million ($12 million aftertax or 7 cents per share) for the impact of benefit changes including accelerated vesting negotiated as part of the pending sale of the automotive glass and services business. Note C: The three and six months ended June 30, 2008, include a pretax expense of $17 million ($11 million aftertax or 7 cents per share) for the catch-up of depreciation expense, which was suspended when the automotive glass and services business was classified as a discontinued operation in September 2007. Note D: The six months ended June 30, 2008, include a pretax expense of $23 million ($23 million aftertax or 14 cents per share) for the write- off of in-process research and development related to the SigmaKalon acquisition. Note E: Discontinued operations includes the results of operations of the fine chemicals business that was sold in the third quarter 2007.
BALANCE SHEET HIGHLIGHTS (unaudited)
June 30 June 30 December 31
2008 2007 2007
---------- ---------- -----------
(millions)
Current assets:
Cash and cash equivalents $ 266 $ 181 $ 526
Cash held in escrow (Note A) 12 41 1,706
Receivables - net (Note B) 3,907 2,566 2,522
Inventories (Note B) 2,124 1,458 1,532
Other (Note B) 782 648 655
Assets held for sale (Note C) - 120 -
--------------------- -----------
Total current assets $ 7,091 $ 5,014 $ 6,941
===================== ===========
Current liabilities:
Short-term debt and current portion
of long-term debt $ 816 $ 216 $ 1,819
Asbestos settlement 613 601 593
Accounts payable and accrued
liabilities (Note B) 3,316 2,119 2,220
Liabilities of business held for
sale (Note C) - 27 -
--------------------- -----------
Total current liabilities $ 4,745 $ 2,963 $ 4,632
===================== ===========
--------------------- -----------
Long-term debt (Note D) $ 3,440 $ 1,151 $ 1,201
===================== ===========
Note A: Includes $1,673 million that was borrowed late in the fourth quarter 2007 to finance the SigmaKalon acquisition and was held in escrow at Dec. 31, 2007, and released from escrow when the transaction closed Jan. 2, 2008. Note B: Receivables - net, inventories and other current assets less accounts payable and accrued liabilities acquired as part of SigmaKalon on Jan. 2, 2008, totaled $539 million. Note C: Assets held for sale and liabilities of business held for sale represent assets and liabilities of the fine chemicals business, which was sold in the third quarter 2007. Note D: Long-term debt at June 30, 2008, has increased due to the SigmaKalon acquisition. PPG assumed debt of $1,517 million related to the acquisition.
BUSINESS SEGMENT INFORMATION
(unaudited)
3 Months Ended 6 Months Ended
June 30 June 30
2008 2007 2008 2007
------- ------- ------- -------
(millions)
Net sales
Performance Coatings $1,269 $ 974 $2,383 $1,829
Industrial Coatings 1,152 943 2,210 1,812
Architectural Coatings EMEA 667 - 1,203 -
Optical and Specialty Materials 310 278 605 529
Commodity Chemicals 495 380 918 751
Glass (Note A) 581 580 1,117 1,122
----------------------------------------------------------------------
TOTAL $4,474 $3,155 $8,436 $6,043
======================================================================
Segment income
Performance Coatings $ 171 $ 159 $ 291 $ 280
Industrial Coatings 109 109 204 204
Architectural Coatings EMEA 71 - 80 -
Optical and Specialty Materials 76 71 150 134
Commodity Chemicals 68 57 136 101
Glass (Note A) 30 50 60 70
-------------------------------
TOTAL 525 446 921 789
Legacy costs (Note B) (3) (6) (7) (10)
Acquisition-related costs (Note C) - - (117) -
Depreciation catch-up charge (Note D) (17) - (17) -
Divestiture-related benefit costs (Note
E) (19) - (19) -
Asbestos settlement - net (4) (8) (4) (17)
Interest expense, net of interest
income (Note F) (60) (20) (119) (39)
Unallocated stock-based compensation
(Note G) (6) (9) (15) (18)
Other unallocated corporate expense (22) (5) (46) (31)
-------------------------------
INCOME BEFORE INCOME TAXES AND MINORITY
INTEREST $ 394 $ 398 $ 577 $ 674
======================================================================
Note A: Glass net sales and segment income include the results of the automotive glass and services business for the three and six months ended June 30, 2008 and 2007, respectively. Note B: Legacy costs include current costs related to former operations of the Company, including certain environmental remediation, pension and other postretirement benefit costs and certain charges that are considered to be unusual or non-recurring. Note C: Represents costs related to the SigmaKalon acquisition. In the first quarter 2008, these costs included $94 million of the flow-through cost of sales of the step up to fair value of acquired inventory and $23 million for the write-off of in-process research and development. These costs are considered to be unusual and non- recurring and will not reduce the segment earnings used to evaluate the performance of the operating segments. Note D: Represents the catch-up of depreciation expense, which was suspended when the automotive glass and services business was classified as a discontinued operation in September 2007. Note E: Represents the impact of benefit changes including accelerated vesting negotiated as part of the pending sale of the automotive glass and services business. Note F: The increase in Interest expense, net of income, for the three and six months ended June 30, 2008, as compared to June 30, 2007, is primarily due to increased interest costs related to the financing of the SigmaKalon acquisition. Note G: Unallocated stock-based compensation includes the cost of stock options, restricted stock units and contingent share grants that are not allocated to the operating segments.
SOURCE: PPG Industries, Inc.
PPG Industries, Inc., Pittsburgh Jack Maurer, 412-434-2181 jmaurer@ppg.com or Investors: Vince Morales, 412-434-3740 vmorales@ppg.com
Copyright Business Wire 2008
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