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Letter to the Editor

PPG Q4 Profit Falls 38% Despite Record Q4 and Full Year Sales

The company continues to work on job cuts and other restructuring moves that would lead to a first-quarter charge of $50 million to $70 million.

In the fourth quarter 2004, PPG reported net income of $183 million, or $1.06 a share. This included aftertax charges of $6 million, or 3 cents a share, to reflect the net increase in the value of the company's asbestos settlement agreement. Sales were $2.41 billion.

For all of 2005, PPG recorded net income of $596 million, or $3.49 per share, including aftertax charges of $117 million, or 68 cents a share, for legal settlements net of insurance recoveries; $21 million, or 12 cents a share, for direct costs related to the impact of hurricanes Katrina and Rita; $17 million, or 10 cents a share, for the impairment of certain assets in the company's specialty chemicals business; $12 million, or 7 cents a share, for debt refinancing; and $13 million, or 8 cents a share, to reflect the net increase in the value of the company's obligation under its asbestos settlement agreement. The company estimates aftertax earnings were also reduced by approximately $17 million, or 10 cents a share, due to lower sales volumes resulting from the hurricanes. Sales for 2005 were $10.2 billion, a record for any year.

For all of 2004, PPG recorded net income of $683 million, or $3.95 per share. This included aftertax charges of $19 million, or 11 cents a share, to reflect the net increase in the value of the company's asbestos settlement agreement. Sales were $9.51 billion.

"We faced many notable headwinds this quarter and during the entire year, including the economic fallout from the hurricanes, historical peaks in energy costs and demanding conditions in some of the markets we serve," said Charles E. Bunch, PPG's chairman and chief executive officer. "Despite these challenges, we achieved record annual and fourth quarter sales, which were supported by all-time high chlor-alkali pricing. In addition, in the quarter we delivered on our commitment made earlier this year to fully recover our coatings margins to the prior year level.

"As we look ahead to 2006, we see continued profitable growth opportunities, but also see continued pressure due to the high energy and raw material pricing environment. As a result, in addition to the annual cost reductions that we consistently deliver, we are finalizing plans to take severance and restructuring actions to further streamline our operations that would result in first-quarter charges in the range of $50 million to $70 million.

"Our focus on profitable growth, meanwhile, remains unchanged. We anticipate continued organic growth, as evidenced by the performance of many of our businesses in 2005, including optical products, architectural coatings and aerospace products. Furthermore, we want to accelerate that growth through potential acquisitions, leveraging our strong balance sheet and consistent free cash flow. This growth will position us to continue our tradition of rewarding shareholders."

Coatings sales for the quarter increased $59 million, or 4 percent, as a result of improved selling prices across most businesses and higher volumes across all businesses. These increases were slightly offset by the impact of weakening foreign currencies. Operating earnings were up $12 million due to the benefits of the higher selling prices and volumes as well as improved manufacturing efficiencies. These increases were substantially offset by the negative impact of inflation, primarily raw materials costs.

Fourth quarter glass sales increased $24 million, or five percent, due to higher volumes across most businesses and higher selling prices, which were partially offset by the impact of weakening foreign currencies. The glass businesses posted an operating loss of $1 million for the quarter, down $29 million due to the impact of inflation, including $28 million in higher energy costs, and lower other income. These decreases were partially offset by improved volumes and selling prices, as well as lower manufacturing and overhead costs.

Chemicals sales for the quarter increased $11 million, or 2 percent, due to higher selling prices for chlor-alkali products of $75 million. These increases were partially offset by lower volumes for chlor-alkali products due primarily to the unfavorable impact of the hurricanes. Operating earnings were down $82 million primarily due to the impact of higher inflation, principally higher energy and ethylene costs of $72 million; $27 million due to the impairment of certain specialty chemical assets; $16 million due to direct facility start-up and equipment repair costs associated with the hurricanes; and higher environmental charges. These decreases were partially offset by higher selling prices.

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