Fourth quarter 2012 net income includes after-tax charges of $11 million, or 7 cents per diluted share, for acquisition-related costs and costs directly related to the separation of the commodity chemicals business and merger with a subsidiary of Georgia Gulf Corporation. The company anticipates additional acquisition- and separation-related costs in the first quarter 2013. There were no nonrecurring charges in last year’s fourth quarter or full year 2011. The 2011 results included a favorable catch-up impact from a fourth quarter adjustment of the full year 2011 tax rate from 26 percent to 25 percent and from a favorable tax audit settlement. A Regulation G Reconciliation of fourth quarter and full year 2012 adjusted net income and earnings per diluted share to reported net income and earnings per diluted share is included below.
“Our record fourth quarter results capped off an exceptional year for the company, driven by excellent operating performance and several significant strategic actions that have accelerated the pace of our portfolio transformation,” said Charles E. Bunch, PPG chairman and CEO. “During the quarter, as we did during the first nine months, we grew our sales and earnings despite moderate overall economic conditions that varied by region and end-use market, and continued negative impacts from currency translation.
“Our coatings businesses continued to perform well, growing earnings by 30 percent versus last year’s fourth quarter, and the Optical and Specialty Materials segment delivered similar earnings growth. Commodity Chemicals segment earnings strengthened versus last year despite lower than anticipated sales and higher costs stemming from two unplanned production outages. Full year earnings for the Commodity Chemicals segment exceeded the prior-year record. Glass segment earnings were lower, as market conditions for fiber glass remained challenging.
“In summary, 2012 was an excellent year for PPG and its shareholders. We achieved new adjusted-earnings-per-share records in each quarter and delivered higher full year earnings in each major region, including Europe, reflecting our strong operating execution,” Bunch said. “We continued our history of strong cash generation, delivering record full year cash from operations and ending the year with $2.4 billion of cash and short-term investments. We also raised our annual dividend payout for the 41st consecutive year, a legacy we are proud to continue.”
Looking ahead, Bunch said he anticipates economic trends will remain varied by region in 2013, with a solid growth bias remaining in North America, improving growth prospects in Asia and subdued activity levels in Europe. “We will continue to aggressively manage our businesses, including delivering incremental 2013 savings of between $70 million and $80 million from our previously announced restructuring program and targeted price increases in our coatings businesses, as we work to fully recapture inflation from the past two years,” he said.
“Strategically, we are continuing to complete the necessary actions to separate the commodity chemicals business, and we expect the transaction to close late this month. We also have a variety of acquisition-related activities underway and anticipate closing the acquisition of the AkzoNobel North American architectural coatings business by mid-second quarter 2013. Lastly, we continue to analyze prudent cash-deployment opportunities for our current strong cash position and anticipated 2013 free cash generation, with a primary focus on deploying that cash for profitable earnings-growth initiatives,” Bunch concluded.
The company reported today that cash and short-term investments totaled approximately $2.4 billion at the end of 2012, up from $1.5 billion at the end of 2011. Full year cash from operations was about $1.8 billion, up 25 percent versus the previous year.
Performance Coatings segment sales for the quarter were $1.2 billion, up 1 percent versus the prior year. Segment sales benefited from continued strength in aerospace demand, high single-digit percentage growth in U.S. architectural coatings sales and modest organic sales gains in automotive refinish. Sales in the quarter were negatively impacted by further weakening in marine new-build activity and lower architectural coatings volumes in emerging regions. Sales from acquisitions held for less than one year provided a modest benefit. Segment earnings grew 26 percent to $177 million. In addition to the earnings impact of the sales increase, the segment delivered lower costs through discretionary cost management and restructuring-related benefits, and while cost inflation continued, it was at lower rates than in prior periods of the year.