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PPG Reports Strong Volume, EPS Growth in Third Quarter

Published on 2004-10-25. Author : SpecialChem

PITTSBURGH -- PPG Industries reported third quarter net income of $194 million, or $1.12 a share, including aftertax charges 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 reported in May 2002 and $3 million, or 2 cents a share, to reflect the previously announced decision to begin expensing stock options in 2004; and income of $5 million, or 3 cents a share, to reflect the benefit of Medicare prescription drug legislation. Sales were $2.41 billion.

This compares with third quarter 2003 net income of $142 million, or 83 cents a share, including an aftertax charge of $5 million, or 3 cents a share, to reflect the net increase in the value of the asbestos settlement. Sales were $2.21 billion.
For the first nine months of 2004, PPG recorded net income of $500 million, or $2.89 a share, including aftertax charges 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 and $10 million, or 6 cents a share, to reflect the expensing of stock options in 2004; and income of $13 million, or 7 cents a share, to reflect the benefit of Medicare legislation. Sales were $7.10 billion.

For the first nine months of 2003, PPG recorded net income of $372 million, or $2.18 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; $15 million, or 9 cents a share, to reflect the net increase in the value of the company's obligation under the asbestos settlement; and $2 million, or 1 cent a share, for restructuring. Sales for the first nine months of 2003 were $6.58 billion.

"Our strong performance this quarter continues to reflect the benefits of actions we have taken to improve the quality of our business portfolio aided by the continued expansion of the global industrial economy," said Raymond W. LeBoeuf, chairman and chief executive officer. "In addition, our results reflect our continued success in reducing costs and improving productivity. These PPG hallmarks will play a critical role in our performance amid the ongoing challenges of higher energy and raw material costs.

"While the rates of growth may vary from market to market and country to country, we believe the odds favor continued growth in the global economy," LeBoeuf added. "Under these conditions, we expect strong cash flow to continue. In the third quarter we generated about $350 million in cash from operations, enabling us to retire more than $300 million in debt and reduce our debt-to-total capital ratio to the lower end of our target range of 30 to 40 percent. Given our strong cash position, we will complete the purchase of $100 million of our stock by year end, as previously announced."

The effective tax rate for full year 2004 is estimated to be 31.5 percent compared with an estimate of 34 percent in the second quarter. The year-to-date impact of the change in the estimate has been reflected in the third quarter results of operations.
Coatings sales increased $97 million, or 8 percent, as stronger volumes across all businesses and the strengthening of foreign currencies were offset slightly by lower prices in the automotive business. Operating earnings were up $11 million. Improved volumes, lower pension and postretirement medical costs and the favorable effects of foreign currency translation increased operating earnings. The impact of cost inflation, including raw materials, and lower selling prices reduced operating earnings.

Glass sales increased $10 million, or 2 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 $20 million. Improved manufacturing efficiencies, higher other income, increased volumes and lower pension and postretirement medical costs increased operating earnings. The impact of lower selling prices, cost inflation and higher energy costs reduced operating earnings.

Chemicals sales increased $96 million, or 22 percent, on higher volumes primarily for commodity and optical products, higher selling prices for commodity products and the strengthening of foreign currencies. Operating earnings were up $31 million as improved volumes, higher selling prices and lower environmental remediation costs more than offset higher energy and raw material costs.

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.

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 lowers the company's other postretirement medical cost, which for the three and nine months ended Sept. 30, 2004 increased net income by $5 million, or 3 cents a share, and $13 million, or 7 cents a share, respectively.

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 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.

Source: PPG Industries


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