PPG INDUSTRIES INC

ANNUAL STATEMENT OF CASH FLOWS

2000

1999

1998

620
447

568
419

801
383

Extraordinary Items and Disc.

Operations
Deferred Taxes
Equity in Net Loss (Earnings)

0
0
C

0
0
C

0
0
C

Sale of Property, Plant, and Equipment

and Sale of Investments - Loss (Gain)
Funds from Operations - Other

0
53

0
82

-85
31

Accounts Receivable - Decrease

(Increase)
Inventory - Decrease (Increase)

-44
-92

-128
-7

-85
-73

Accounts Payable and Incrued Liab. Increase (Decrease)

-11

77

46

-103
870

-109
902

-85
942

C
C
0
C
C
115
-521
-636

C
C
0
C
C
1,343
-301
-1,644

C
C
0
C
C
390
-191
-581

22

247
276
32
55
244
20
-278
-3

82
264
821
203
477
15
773
-1

217
252
12
64
125
13
-361
-1

-47

30

-1

INDIRECT OPERATING ACTIVITIES

Income Before Extraordinary Items
Depreciation and Amortization

Income Taxes - Accrued - Increase

(Decrease)
Other Assets and Liabilities - Net
Change
Operating Activities - Net Cash Flow
INVESTING ACTIVITIES
Investments - Increase
Sale of Investments
Short-Term Investments - Change
Capital Expenditures
Sale of Property, Plant, and Equipment
Acquisitions
Investing Activities - Other
Investing Activities - Net Cash Flow
FINANCING ACTIVITIES
Sale of Common and Preferred Stock
Purchase of Common and Preferred
Stock
Cash Dividends
Long-Term Debt - Issuance
Long-Term Debt - Reduction
Current Debt - Changes
Financing Activities - Other
Financing Activities - Net Cash Flow
Exchange Rate Effect
Cash and Cash Equivalents - Increase
(Decrease)
DIRECT OPERATING ACTIVITIES

Interest Paid - Net

Income Taxes Paid

195
319

123
394

121
385

Payout to equity?

523

346

469

1997

1996

1995

1994

1993

1992

1991

714
373

744
363

768
352

515
335

295
350

319
373

201
373

0
0
C

0
0
C

0
0
C

0
0
C

0
0
C

0
0
C

0
0
C

-59
102

0
0

0
0

0
-74

0
42

0
64

0
107

-124
-60

-2
-56

-29
-47

-264
-26

-34
27

-41
85

-11
55

40

-3

24
1,007

-41
1,008

29
1,072

205
691

60
741

-130
670

-246
479

C
C
0
C
C
363
-220
-583

C
C
0
C
C
13
-456
-468

C
C
0
C
C
7
-269
-276

C
C
0
C
C
34
-212
-245

C
C
0
C
C
36
-201
-237

C
C
0
C
C
1
-255
-256

C
C
0
C
C
4
-271
-275

14

27

19

13

12

10

343
239
472
63
-212
11
-360
-5

635
237
158
153
257
8
-575
0

588
239
118
51
-4
4
-753
0

280
238
23
33
11
-1
-498
2

81
221
9
199
7
20
-452
-2

27
200
11
312
111
16
-389
-1

15
183
300
289
-65
16
-227
1

59

-36

44

-50

51

24

-22

106
452

109
402

91
358

93
254

112
210

154
142

163
231

582

872

827

518

302

226

198

EXPLAINING PPG'S MYSTERIOUS EQUITY ACCOUNTS

From Income Statement
Net Income (Loss)
Cash Dividends
Retained

2000
620
276
344

1999

From Balance Sheet

Common Stock
Capital Surplus
Retained Earnings
Less: Treasury Stock - Total Dollar Amount
Total stockholders equity

2000
484
102
6019
3508
3097

1999 D = change
484
0
104
-2
5786
233
3268
240
3106
-9

Net income
Other comprehensive loss, net of tax
Cash dividends
Purchase of treasury stock
Issuance of treasury stock
Loans to ESOP
Repayment of loans by ESOP
Other
Additional internal addition
Additional internal subtraction
Total change in equity accounts

620 Retained
-133 Retained
-276 Retained
-247 Treasury
These items
5 Treasury
-24 Retained
44 Retained
2 Retained
2 Treasury
-2 Capital surplus

Adjustments
Adjustments
Adjustments
Total change

233
-240
-2
-7

to retained
to Treasury
to capital surplus
in equity accounts

-9

#NAME?

ACCOUNTS

hese items

#NAME?

COMPUTING THE BETA FOR PPG

Uses monthly data, Dec. 1995 - Dec. 2000
Beta

0.8672

Date
Dec-95
Jan-96
Feb-96
Mar-96
Apr-96
May-96
Jun-96
Jul-96
Aug-96
Sep-96
Oct-96
Nov-96
Dec-96
Jan-97
Feb-97
Mar-97
Apr-97
May-97
Jun-97
Jul-97
Aug-97
Sep-97
Oct-97
Nov-97
Dec-97
Jan-98
Feb-98
Mar-98
Apr-98
May-98
Jun-98
Jul-98
Aug-98
Sep-98
Oct-98
Nov-98
Dec-98
Jan-99
Feb-99
Mar-99
Apr-99

SP500
Close
615.93
636.02
640.43
645.5
654.17
669.12
670.63
639.95
651.99
687.33
705.27
757.02
740.74
786.16
790.82
757.12
801.34
848.28
885.14
954.31
899.47
947.28
914.62
955.4
970.43
980.28
1049.34
1101.75
1111.75
1090.82
1133.84
1120.67
957.28
1017.01
1098.67
1163.63
1229.23
1279.64
1238.33
1286.37
1335.18

#NAME?

SP500
Return
3.21%
0.69%
0.79%
1.33%
2.26%
0.23%
-4.68%
1.86%
5.28%
2.58%
7.08%
-2.17%
5.95%
0.59%
-4.35%
5.68%
5.69%
4.25%
7.52%
-5.92%
5.18%
-3.51%
4.36%
1.56%
1.01%
6.81%
4.87%
0.90%
-1.90%
3.87%
-1.17%
-15.76%
6.05%
7.72%
5.74%
5.48%
4.02%
-3.28%
3.81%
3.72%

#NAME?

May-99
Jun-99
Jul-99
Aug-99
Sep-99
Oct-99
Nov-99
Dec-99
Jan-00
Feb-00
Mar-00
Apr-00
May-00
Jun-00
Jul-00
Aug-00
Sep-00
Oct-00
Nov-00
Dec-00

1301.84
1372.71
1328.72
1320.41
1282.71
1362.93
1388.91
1469.25
1394.46
1366.42
1498.58
1452.43
1420.6
1454.6
1430.83
1517.68
1436.51
1429.4
1314.95
1320.28

-2.53%
5.30%
-3.26%
-0.63%
-2.90%
6.07%
1.89%
5.62%
-5.22%
-2.03%
9.23%
-3.13%
-2.22%
2.37%
-1.65%
5.89%
-5.50%
-0.50%
-8.35%
0.40%

NG THE BETA FOR PPG

y data, Dec. 1995 - Dec. 2000

Date
Dec-95
Jan-96
Feb-96
Mar-96
Apr-96
May-96
Jun-96
Jul-96
Aug-96
Sep-96
Oct-96
Nov-96
Dec-96
Jan-97
Feb-97
Mar-97
Apr-97
May-97
Jun-97
Jul-97
Aug-97
Sep-97
Oct-97
Nov-97
Dec-97
Jan-98
Feb-98
Mar-98
Apr-98
May-98
Jun-98
Jul-98
Aug-98
Sep-98
Oct-98
Nov-98
Dec-98
Jan-99
Feb-99
Mar-99
Apr-99

PPG
Close
38.98
39.83
39.76
41.91
43.41
44.65
42.07
42.50
42.87
47.22
49.50
53.48
49.01
46.71
49.20
47.44
47.77
51.37
51.37
56.56
55.95
55.67
50.29
51.77
51.04
51.26
58.23
61.04
63.51
65.81
62.82
57.24
46.33
49.57
52.01
55.91
53.17
49.12
47.91
47.16
59.76

PPG
Return
2.16%
-0.18%
5.25%
3.52%
2.84%
-5.97%
1.02%
0.88%
9.65%
4.71%
7.75%
-8.74%
-4.79%
5.19%
-3.64%
0.69%
7.25%
0.00%
9.63%
-1.08%
-0.50%
-10.17%
2.90%
-1.41%
0.44%
12.75%
4.71%
3.97%
3.56%
-4.65%
-9.32%
-21.13%
6.75%
4.81%
7.23%
-5.03%
-7.93%
-2.49%
-1.57%
23.67%

#NAME?

May-99
Jun-99
Jul-99
Aug-99
Sep-99
Oct-99
Nov-99
Dec-99
Jan-00
Feb-00
Mar-00
Apr-00
May-00
Jun-00
Jul-00
Aug-00
Sep-00
Oct-00
Nov-00
Dec-00

56.16
54.66
55.18
55.93
55.87
56.45
54.88
58.63
51.60
46.62
49.39
51.34
47.14
42.15
38.70
38.90
38.11
42.85
40.39
44.87

-6.20%
-2.71%
0.95%
1.34%
-0.10%
1.04%
-2.83%
6.61%
-12.77%
-10.14%
5.78%
3.87%
-8.54%
-11.20%
-8.53%
0.53%
-2.07%
11.73%
-5.92%
10.52%

CALCULATING THE GORDON MODEL rE FOR PPG

Number of shares outstanding, Dec. 2000 (millio
Share price, 31Dec00
Equity value, Dec00

168.22
46.31
7,791

Method 1: rE Gordon using only dividends

Stock price, 31dec00
Dividend, 2000
Anticipated dividend growth
rE, cost of equity using only dividends

46.31
1.60
6.88%
10.57%

Method 2: rE Gordon using equity payout

Total equity payout, 2000
Anticipated growth of this payout
rE, cost of equity using total equity payout

518
11.91%
19.35%

Using the two-stage Gordon model

Number of high-growth years
Normal growth after high-growth years
rE, cost of equity using two-stage Gordon model

3
5.00%
#NAME?

DON MODEL rE FOR PPG

#NAME?

#NAME?

#NAME?

#NAME?

PPG: EARNINGS PER SHARE VERSUS EARNINGS

Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Compound growth

Earnings
per
Profits
share after taxes
0.95
276
1.90
276
3.01
319
2.78
22
2.43
515
3.80
768
3.96
744
3.97
714
4.52
801
3.27
568
3.60
620
14.25%

Source: Profit-loss 91-00 in this

workbook

8.43%

#NAME?

SUS EARNINGS

CALCULATING THE DIVIDENDS AND EQUITY PAYO

Year

Dividends
per share

Total cash
dividends

Minus increase
in common
stock and surplus

1992
1993
1994
1995
1996
1997
1998
1999
2000

0.94
1.04
1.12
1.18
1.26
1.33
1.42
1.52
1.60

200
221
238
239
237
239
252
264
276

-3
-65
-12
-14
-15
-2
-6
1
2

Growth

6.88%

4.13%

Net income
Cash Dividends

Dividend/Net income
Common shares outstanding

2000

1999

1998

620

568

801

276

264

252

45%

46%

31%

168

174

175

Dividend growth rate?

Next year's dividend/share
Total dividends

6%
1.70
286

Payout to
equity

D EQUITY PAYOUT FOR PPG

Plus increase
in treasury
stock
14
24
264
571
608
323
208
70
240

211
181
490
796
829
560
454
335
518

#NAME?

11.91%

#NAME?

1997

1996

1995

1994

714

744

767.6

514.6

239

237

239

238

33%

32%

31%

46%

178

183

194

207

1993

1992

22.2

319.4

221

200

995%

62%

107

106

106

TATA STEEL, FINANCIAL MODEL, 2001-2005

Profit and loss assumptions
Sales growth
COGS/Sales
SG&A/Sales
Depreciation/Gross fixed assets

Interest rate
Minority interest as % of PAT
Growth rate of total dividends
Tax rate
Balance sheet assumptions
Assets
Cash and short-term investments

Receivables/Sales
Inventories/Sales
Other Current Assets/Sales
Property, Plant, Equipment, Net/Sales
Investments and advances
Other Assets/Sales

3.89%
61.39%
18.38%
6.31%
6.70%
4.32%
4.13%
36.28%

constant
18.28%
12.24%
3.21%
34.08%
constant
7.93%

Liabilities

Accounts Payable/Sales
Accrued Expense/Sales
Other Current Liabilities/Sales

8.50%
7.25%
constant

Debt/Assets
Deferred Taxes
Minority Interest
Other liabilities, annual growth
Treasury stock

32.00%
growth at sales growth
assumed constant
12.53%
plug

PROFIT AND LOSS

2000

2001

2002

Sales
Cost of Goods Sold

8,629
5,334

8,965
5,503

9,313
5,718

Selling, General, and Administrative Expense

Operating Income Before Depreciation
Depreciation and Amortization
Interest Expense

1,646
1,649
447
193

1,648
1,813
465
200

1,712
1,884
503
204

Nonoperating Income (Expense) and Special Items

Pretax Income
Income Taxes - Total
Minority Interest
Net Income
Dividend
Accrued

8
1,017
369
28

8
1,140
414
18
709
287
421

8
1,168
424
18
726
299
427

620
276
344

ASSETS

2000

2001

2002

3,093

111
1,639
1,097
287
3,134

111
1,702
1,140
299
3,252

Property, Plant, and Equipment, Gross

Depreciation, Depletion, and Amortization
(Accumulated)
Property, Plant, and Equipment, Net

7,089

7,669

8,291

4,148
2,941

4,613
3,055

5,116
3,174

Investments and Advances

Intangibles
Other Assets
TOTAL ASSETS

320
1,700
1,071
9,125

320
1,700
1,156
9,366

320
1,700
1,248
9,694

Cash and Short-Term Investments

Receivables
Inventories - Total
Other Current Assets
Total Current Assets

LIABILITIES
Accounts Payable
Accrued Expense
Other Current Liabilities

111
1,563
1,121
298

2000

2001

2002

764
606
12

762
650
12

791
675
12

Debt
Deferred Taxes
Minority Interest
Other Liabilities

2,971
543
128
1,004

2,997
564
128
1,130

3,102
586
128
1,271

EQUITY
Common Stock
Capital Surplus
Retained Earnings
Less: Treasury Stock
Total stockholders equity
TOTAL LIABILITIES AND EQUITY

484
102
6,019
3,508
3,097
9,125

484
102
6,440
3,903
3,124
9,366

484
102
6,867
4,325
3,128
9,694

FREE CASH FLOW (FCF)

Profit after tax
Add back depreciation
Change in net working capital
Increase in operating current assets
Add increase in operating current liabilities
Subtract capital expenditures
Subtract increase in other assets
Add back after-tax interest
FCF

2001

2002

709
465

726
503

-41
41
-580
-85
127
636

-118
55
-622
-92
130
583

Valuing PPG
WACC
Long-term free cash flow growth rate

7.47%
4%

Year
FCF
Terminal
Total

2001

Discounted value
Add back initial cash
Firm value
Subtract total debt value, Dec.00
Implied equity value

15,509
111
15,620
4,646
10,974

Number of shares outstanding, Dec.00

Implied value per share
Market price per share, Dec. 00
PPG over or under-valued?

636

583

636

583

#NAME?

#NAME?

168.22

65.24
46.31
undervalued

#NAME?

=IF(B96>B97,B111,"nmf"
)

65.24

WACC -->

2002

6%
7%
8%
9%
10%
11%
12%
13%
14%

1%

43.81
32.35
24.17
18.03
13.25
9.43
6.30
3.69
1.48

DATA TABLE: SENSITIVITY OF PP

TO WACC AND LONG-TERM
Long-term FCF growth
3%

82.49
55.75
39.70
28.99
21.34
15.60
11.13
7.56
4.63

2001-2005

2003

2004

2005

9,676
5,940

10,052
6,171

10,443
6,411

1,779
1,957
544
212

1,848
2,033
587
219

1,920
2,112
634
227

8
1,194
433
19
742
312
430

8
1,219
442
19
757
324
433

8
1,243
451
19
773
338
435

2003

2004

2005

111
1,769
1,184
310
3,374

111
1,837
1,230
322
3,501

111
1,909
1,278
335
3,633

8,958

9,674

10,441

5,660
3,298

6,248
3,426

6,882
3,559

320
1,700
1,347
10,039

320
1,700
1,454
10,401

320
1,700
1,569
10,781

2003

2004

2005

822
701
12

854
728
12

887
757
12

3,212
609
128
1,431

3,328
633
128
1,610

3,450
657
128
1,812

484
102
7,297
4,760
3,124
10,039

484
102
7,730
5,209
3,107
10,401

484
102
8,165
5,673
3,078
10,781

2003

2004

2005

742
544

757
587

773
634

-122
57
-667
-99
135
589

-127
59
-716
-107
140
594

-132
62
-767
-115
145
598

2003

2004

589

594

589

594

2005

598
17,954
18,553

#NAME?

A TABLE: SENSITIVITY OF PPG'S STOCK VALUATION

TO WACC AND LONG-TERM GROWTH RATE
ong-term FCF growth
4%
5%
6%
7%

130.83
79.14
53.28
37.76
27.41
20.01
14.46
10.13
6.67

275.86
125.92
75.92
50.91
35.90
25.89
18.73
13.35
9.17

nmf
266.26
121.20
72.84
48.64
34.11
24.42
17.50
12.29

nmf
nmf
257.05
116.68
69.87
46.46
32.40
23.02
16.31