01—Abstract
Summary
Summary of the 10-K filed February 19, 2009. Cited figures are marked; the original filing is the authoritative source.
PPG Industries, Inc. reported a transformative 2008 driven by the January 2, 2008 acquisition of SigmaKalon, a coatings producer.
Net sales rose 30% to $15.8 billiona (from $12.2 billion), with sales increasing 28% due to acquisitions, 4% from higher selling prices and 2% from foreign currency, partly offset by a 2% decline in volumes and a 2% decline from the automotive glass divestiture. Net income fell to $538 million, or $3.25 per diluted share, from $834 million, or $5.03 per share in 2007. The decline reflected a $163 million business restructuring charge, $94 million of flow-through inventory step-up costs from the acquisition, $161 million higher interest expense, and a $163 million restructuring charge, along with higher selling, general and administrative expenses, which rose to 21.7% of sales from 18.9%.
The balance sheet expanded materially, with total assets of $14.7 billionb and long-term debt of $3.0 billion, up from $1.2 billion. The debt-to-total-capitalization ratio rose to 54% from 42%. PPG ended the year with $1.0 billion of cash and cash equivalents, generated $1.36 billion of operating cash flow, repaid $681 million of debt, and paid $343 million in dividends.
The company also divested a majority interest in its automotive glass and services business, receiving $315 millionc in total proceeds and retaining an approximately 40% stake. Management flagged a weak outlook for 2009, citing a deepening recession, an expected global automotive production decline of nearly 10%, and pension costs projected to rise by $100 to $125 million.
The filing also describes significant legal and environmental exposures, including a proposed asbestos settlement with a current liability of $491 milliond and an accrued environmental reserve of $299 million, and an antitrust class action regarding flat glass. Management expects the environmental remediation cash outlays to be about $50 million in 2009.
02—Key points
Key Highlights
- Net sales increased 30% to $15.85 billion in 2008, from $12.22 billion in 2007, largely due to the SigmaKalon acquisition, which contributed a 28% increase.
- Net income declined to $538 million, or $3.25 per diluted share, from $834 million, or $5.03 per diluted share in 2007.
- Results were burdened by a $163 million business restructuring charge, $94 million of inventory step-up costs from the SigmaKalon acquisition, and $254 million in interest expense versus $93 million the prior year.
- Total debt increased substantially; long-term debt rose to $3.01 billion from $1.20 billion, and the debt-to-total-capitalization ratio reached 54% versus 42% in 2007.
- Operating cash flow was $1.36 billion, and PPG repaid $681 million of debt while ending the year with $1.02 billion of cash and cash equivalents.
- Management expects weak 2009 conditions, including a global automotive production decline of nearly 10% and pension and postretirement costs rising by approximately $100 to $125 million.
- A proposed asbestos settlement under the third amended PC plan of reorganization carries an obligation of $735 million, with $491 million classified as current, and the environmental reserve totals $299 million.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 19, 2009Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Revenue | $15.85B$12.22B | +29.7% |
| R&D Expenses | $468.00M— | — |
| SG&A Expenses | $3.43B$2.31B | +48.6% |
| Operating Income | $538.00M$856.00M | −37.1% |
| Interest Expense | $254.00M$93.00M | +173.1% |
| Net Income | $538.00M$834.00M | −35.5% |
| EPS (Basic) | $3.27$5.07 | −35.5% |
| EPS (Diluted) | $3.25$5.03 | −35.4% |
| Shares Outstanding (Basic) | 164.60M— | — |
| Shares Outstanding (Diluted) | 165.40M— | — |
05—Questions
Frequently Asked Questions
Why did PPG's net income fall in 2008 despite higher sales?
Net income fell to $538 million from $834 million, even though net sales rose 30%. The filing attributes the decline to a $163 million business restructuring charge, $94 million of flow-through inventory step-up costs from SigmaKalon, a $161 million increase in interest expense tied to acquisition financing, and higher selling, general and administrative expenses, which rose to 21.7% of sales from 18.9%.
How was the SigmaKalon acquisition financed?
The total transaction value was approximately $3.2 billion, consisting of $1,673 million in cash paid to the seller and $1,517 million of debt assumed. PPG financed the cash portion with bridge loans and a euro revolving credit facility, then refinanced in March 2008 with $1.54 billion of net proceeds from public notes due 2013, 2018 and 2038.
What is the status of PPG's asbestos exposure?
PPG was a defendant in asbestos lawsuits involving Pittsburgh Corning Corporation products, with approximately 114,000 open claims as of December 31, 2008. A third amended PC plan of reorganization, including a modified PPG settlement arrangement, was filed with the Bankruptcy Court on January 29, 2009. PPG's obligation under the settlement is $735 million, and it will not take effect until the plan receives final court approval.
What did PPG receive from the automotive glass divestiture?
PPG completed the transaction with affiliates of Kohlberg & Company on September 30, 2008, receiving total proceeds of $315 million, including $225 million in cash and two notes totaling $90 million. PPG also retained a minority interest of approximately 40% in the new company, Pittsburgh Glass Works LLC, which it accounts for under the equity method. The transaction produced a pretax gain of $15 million.
What outlook did management give for 2009?
Management described the economic outlook as extremely challenging and expects the recession to persist through at least the first half of 2009. It anticipates a generally stronger U.S. dollar, which would negatively affect translated sales and earnings from foreign affiliates. It also expects pension and postretirement costs to rise by approximately $100 to $125 million, and environmental remediation cash outlays of about $50 million, while capital spending is expected to be approximately $200 million.
06—Continue