How did PPG perform financially in 2006?

Net sales increased 8% to $11.04 billion from $10.20 billion. Net income rose to $711 million, or $4.27 per diluted share, from $596 million, or $3.49 per diluted share, in 2005. The 2006 results included aftertax charges of $106 million for environmental remediation and other items, offset by aftertax insurance recoveries of $24 million.

Which business segments drove sales growth?

Performance and Applied Coatings sales increased $420 million, or 16%, and Industrial Coatings sales increased $315 million, or 11%. Optical and Specialty Materials rose 15%, Glass increased 1%, and Commodity Chemicals declined 3%. Acquisitions were a major contributor to the coatings segments' growth.

What are the main environmental and legal risks?

Environmental reserves totaled $282 million at year-end 2006, and the company may face additional unreserved losses estimated at $200 million to $300 million, mainly related to a former chromium plant in Jersey City, NJ and the Calcasieu River Estuary near Lake Charles, LA. Management says the environmental outcome will not have a material effect on financial position or liquidity. Separately, the asbestos settlement arrangement remains subject to bankruptcy court approval, and if it is not implemented, PPG intends to defend asbestos claims vigorously.

Is PPG planning any portfolio changes?

Yes. In 2007 PPG plans to consider alternatives for maximizing shareholder value, which may include acquisitions, restructuring, strategic alliances and divestiture. It is initially focusing on the automotive OEM glass, automotive replacement glass and services, and fine chemicals operating segments and has engaged outside advisors, including for a potential sale of one or more of these segments.

What is PPG's outlook for cash returns and capital spending?

PPG paid dividends of $316 million in 2006 and raised the quarterly dividend to 50 cents from 48 cents in January 2007. It repurchased 2.3 million shares for $153 million in 2006 and expects capital spending, excluding acquisitions, of $350 million to $400 million in 2007. It also expects to make a $100 million voluntary contribution to its U.S. pension plans in the first quarter of 2007.

PPG 10-K FY2006 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed February 21, 2007. Cited figures are marked; the original filing is the authoritative source.

PPG Industries, Inc. reported 2006 net sales of $11.04 billion^a, up 8% from $10.20 billion in 2005, with net income of $711 million and diluted earnings per share of $4.27, compared with $596 million and $3.49 in 2005.

Sales growth was attributed to acquisitions (4%), higher volumes (2%) and higher selling prices (2%). Results were pressured by $257 million^b in other charges, including $185 million of pretax environmental remediation charges for New Jersey sites and $42 million for legal settlements. Cost of sales rose slightly to 63.7% of sales from 63.5%.

The company operates five reportable segments: Industrial Coatings, Performance and Applied Coatings, Optical and Specialty Materials, Commodity Chemicals and Glass. Segment sales growth was strongest in Performance and Applied Coatings (up 16%) and Industrial Coatings (up 11%), while Commodity Chemicals declined 3%. Cash from operating activities was $1.13 billion^c, and capital spending was $774 million including $402 million for acquisitions.

The company is also evaluating strategic alternatives, including possible sale, for its automotive OEM glass, automotive replacement glass and services, and fine chemicals operating segments, and has engaged outside advisors for that review. Significant contingencies remain.

Environmental reserves rose to $282 million^d at year-end 2006 from $94 million, and the filing estimates possible additional unreserved losses of $200 million to $300 million. The asbestos settlement arrangement tied to Pittsburgh Corning remains subject to bankruptcy court approval, and the court denied confirmation of the plan on December 21, 2006, with reconsideration pending.

02—Key points

Key Highlights

Net sales rose 8% to $11.04 billion in 2006; acquisitions contributed 4 points of growth, volumes 2 points and selling prices 2 points.
Net income increased to $711 million, or $4.27 per diluted share, from $596 million, or $3.49, in 2005.
Other charges of $257 million included $185 million for New Jersey environmental remediation and $42 million for legal settlements.
Environmental reserves increased to $282 million at December 31, 2006, from $94 million a year earlier; the filing estimates possible additional unreserved losses of $200 million to $300 million.
PPG is evaluating strategic alternatives, including potential sale, for its automotive OEM glass, automotive replacement glass and services, and fine chemicals operating segments.
Operating cash flow was $1.13 billion, and the quarterly dividend was raised to 50 cents from 48 cents in January 2007.
The asbestos settlement arrangement with Pittsburgh Corning remains unresolved; the Bankruptcy Court denied confirmation of the plan on December 21, 2006, and reconsideration is pending.

03—Questions

Frequently Asked Questions

How did PPG perform financially in 2006?
Net sales increased 8% to $11.04 billion from $10.20 billion. Net income rose to $711 million, or $4.27 per diluted share, from $596 million, or $3.49 per diluted share, in 2005. The 2006 results included aftertax charges of $106 million for environmental remediation and other items, offset by aftertax insurance recoveries of $24 million.
Which business segments drove sales growth?
Performance and Applied Coatings sales increased $420 million, or 16%, and Industrial Coatings sales increased $315 million, or 11%. Optical and Specialty Materials rose 15%, Glass increased 1%, and Commodity Chemicals declined 3%. Acquisitions were a major contributor to the coatings segments' growth.
What are the main environmental and legal risks?
Environmental reserves totaled $282 million at year-end 2006, and the company may face additional unreserved losses estimated at $200 million to $300 million, mainly related to a former chromium plant in Jersey City, NJ and the Calcasieu River Estuary near Lake Charles, LA. Management says the environmental outcome will not have a material effect on financial position or liquidity. Separately, the asbestos settlement arrangement remains subject to bankruptcy court approval, and if it is not implemented, PPG intends to defend asbestos claims vigorously.
Is PPG planning any portfolio changes?
Yes. In 2007 PPG plans to consider alternatives for maximizing shareholder value, which may include acquisitions, restructuring, strategic alliances and divestiture. It is initially focusing on the automotive OEM glass, automotive replacement glass and services, and fine chemicals operating segments and has engaged outside advisors, including for a potential sale of one or more of these segments.
What is PPG's outlook for cash returns and capital spending?
PPG paid dividends of $316 million in 2006 and raised the quarterly dividend to 50 cents from 48 cents in January 2007. It repurchased 2.3 million shares for $153 million in 2006 and expects capital spending, excluding acquisitions, of $350 million to $400 million in 2007. It also expects to make a $100 million voluntary contribution to its U.S. pension plans in the first quarter of 2007.

04—Continue

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