Increases in volumes across all of our business segments accounted for an increase in sales of 7%, while the positive effects of foreign currency translation, primarily from our European operations, accounted for an additional increase of 5%. Lower selling prices across all of our business segments reduced sales by 3%.
The gross profit percentage increased to 36.4% for the first quarter of 2004 compared to 35.2% for the first quarter of 2003. The benefits realized from improved manufacturing efficiencies across all of our business segments and the favorable mix of sales volume growth in our coatings and glass business segments increased our gross profit percentage. Lower selling prices across all of our business segments lowered our gross profit percentage.
Net income and earnings per share assuming dilution for the first quarter of 2004 were $115 million and $0.67, respectively, compared to $78 million and $0.46, respectively, for the first quarter of 2003. Net income for the first quarter of 2004 included an aftertax charge of $4 million, or 2 cents a share, to reflect the Company's decision to begin expensing stock options effective January 1, 2004, as discussed in Note 13. Net income for the first quarter of 2004 also included an aftertax charge of $3 million, or 2 cents a share, to reflect the net change in the current value of the Company's obligation under the asbestos settlement agreement, as discussed in Note 14. Net income for the first quarter of 2003 included aftertax charges of $6 million, or 3 cents a share, for the cumulative effect of an accounting change related to the accounting for asset retirement obligations, as discussed in Note 2, and $3 million, or 2 cents a share, to reflect the net change in the current value of the Company's obligation under the asbestos settlement agreement, as discussed in Note 14.
Net income for the first quarter of 2004 compared to the first quarter of 2003 was $37 million higher. The improvement in net income was due to the increased sales volumes and the favorable effects of foreign currency translation described above, improved manufacturing efficiencies, a lower effective tax rate and lower interest expense. The lower selling prices described above, higher overhead costs and the negative effects of inflation were factors reducing net income for the first quarter of 2004.
Performance of Business Segments
Coatings sales increased 13% to $1,274 million for the first quarter of 2004 compared to $1,124 million for the first quarter of 2003. Sales increased 7% due to improved volumes from our architectural, industrial, aerospace, automotive and refinish businesses and 7% due to the positive effects of foreign currency translation, primarily from our European operations. These sales increases were offset by a 1% decline due to lower selling prices, principally in our automotive business. Operating income was $185 million for the first quarter of 2004 compared to $142 million for the same quarter in 2003. Factors increasing operating income were the higher sales volumes described above, improved manufacturing efficiencies and the favorable effects of foreign currency translation. Factors decreasing operating income were the lower selling prices described above and higher selling costs associated with our sales volume growth.
Glass sales increased 4% to $537 million for the first quarter of 2004 compared to $516 million for the first quarter of 2003. Sales increased 8% due to improved volumes from our automotive
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original equipment, flat and fiber glass businesses and 3% due to the positive effects of foreign currency translation. These sales increases were offset by a 7% decline due to lower selling prices throughout our glass business. Operating income was $23 million for the first quarter of 2004 compared to $6 million for the same quarter of 2003. Factors increasing operating income were improved manufacturing efficiencies, the higher sales volumes described above, higher royalty income and increased equity earnings from our Asian affiliates. The lower selling prices described above decreased operating income.
Chemicals sales increased 5% to $453 million for the first quarter of 2004 compared to $431 million for the first quarter of 2003. Sales increased 6% due to improved volumes from our commodity, fine and optical products and 3% due to the positive effects of foreign currency translation, primarily from our European operations. These sales increases were offset by a 4% decline due primarily to lower selling prices for our commodity products. Operating income was $40 million for the first quarter of 2004 compared to $45 million for the same quarter in 2003. Factors decreasing operating income were the lower selling prices described above, higher energy and raw material costs and additional selling and advertising expenses in our optical business. Factors increasing operating income were improved manufacturing efficiencies and the higher sales volumes described above.
Net income for the first quarter of 2004 includes a pretax charge of $9 million, or 3 cents a share, of severance costs associated with continued efforts to lower our cost structure. The impact of these actions, which were initiated and completed during the first quarter of 2004 and relate primarily to our glass business segment, will be a net reduction in compensation expense for the full year.
The tax rate on earnings for the first quarter of 2004 was 35% and is the same as the full year tax rate for 2003. However, it is lower than the tax rate on earnings for the first quarter of 2003, which was 36%. The full year tax rate for 2004 may be lower than the first quarter tax rate of 35%.
Based on current estimates from our actuaries, the Company's pension and other postretirement benefit costs for 2004 are expected to be approximately $20 million lower than in 2003. This decrease in costs does not include the benefit of any anticipated reductions as a result of the implementation of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act). PPG is currently evaluating the provisions of the Act and its potential impact to our postretirement medical plans which we believe will ultimately reduce our accumulated postretirement benefit obligation and other postretirement benefit costs as discussed in Note 8.
Liquidity and Capital Resources
Cash from operating activities for the three months ended March 31, 2004 was $130 million compared with $113 million for the comparable period of 2003. Cash from operations and the Company's debt capacity have been and are expected to continue to be sufficient to fund capital spending, share repurchases, dividend payments, contributions to pension plans, amounts due under the asbestos settlement and operating requirements. During the first quarter of 2004, the Company repurchased 0.1 million shares of PPG common stock at a cost of $6 million under a previously authorized share repurchase program.
Our current estimate under existing U.S. pension funding regulations is that, with available funding credits, there will be no mandatory pension funding requirement until 2007 at the earliest. However, the Company made a voluntary contribution of $100 million to the U.S. pension plans in April 2004 and has approval from the PPG Board of Directors to contribute up
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to an additional $100 million later in 2004. As a result of the pension contribution, there will be a further slight reduction in pension expense for 2004 and it will allow the Company more flexibility in determining both the timing and amounts of future mandatory contributions under the complex ERISA and IRS pension funding regulations. We expect to make contributions to the Company's non-U.S. pension plans in 2004 of approximately $45 million.
New Accounting Standards
Note 2, "Newly Adopted Accounting Standards," to the accompanying condensed financial statements describes the Company's adoption of the fair value method of recording stock-based compensation, as defined in SFAS No. 123, effective January 1, 2004, and of the provisions of the FASB's standard on the accounting for asset retirement obligations, effective January 1, 2003. See Note 3, "Other New Accounting Standard," to the accompanying condensed financial statements for a description of the impact of adopting the FASB's Interpretation No. 46, "Consolidation of Variable Interest Entities."
Commitments and Contingent Liabilities, including Environmental Matters
PPG is involved in a number of lawsuits and claims, both actual and potential, including some that it has asserted against others, in which substantial monetary damages are sought. In a suit filed by Marvin Windows and Doors, PPG has appealed the $156 million judgment awarded by a federal jury. The appeals court has heard the parties' arguments, but has not yet rendered its decision. PPG believes it has meritorious defenses to the plaintiff's claims and has reasonable prospects of prevailing on appeal. See Note 14, "Commitments and Contingent Liabilities," to the accompanying condensed financial statements for an expanded description of this case and certain other lawsuits, including the proposed PPG Settlement Arrangement for asbestos claims announced on May 14, 2002. As discussed in Note 14, although the result of any future litigation of such lawsuits and claims is inherently unpredictable, management believes that, in the aggregate, the outcome of all lawsuits and claims involving PPG, including asbestos-related claims in the event the PPG Settlement Arrangement described in Note 14 does not become effective, will not have a material effect on PPG's consolidated financial position or liquidity; however, any such outcome may be material to the results of operations of any particular period in which the costs, if any, are recognized.
It is PPG's policy to accrue expenses for environmental contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Reserves for environmental contingencies are exclusive of claims against third parties and are generally not discounted. As of March 31, 2004 and December 31, 2003, PPG had reserves for environmental contingencies totaling $84 million and $92 million, respectively. Pretax charges against income for environmental remediation costs totaled $3 million and $2 million for the three months ended March 31, 2004 and 2003, respectively, and are included in "Other net" in the accompanying condensed statement of income. Cash outlays related to such environmental remediation aggregated $11 million and $3 million for the three months ended March 31, 2004 and 2003, respectively. In addition to the amounts currently reserved, the Company may be subject to loss contingencies related to environmental matters estimated to be as much as $200 million to $400 million, which range is unchanged from the prior year end. Such unreserved losses are reasonably possible but are not currently considered to be probable of occurrence. Management anticipates that the resolution of the Company's environmental contingencies will occur over an extended period of time. Over the past 10 years the pretax charges against income have ranged between $10 million and $49 million per year. We anticipate that charges against income in 2004 will be within that range. It is possible, however, that technological, regulatory and enforcement developments, the results of environmental studies and other factors could alter this expectation. See Note 14, for an expanded description of certain of these environmental contingencies. In management's opinion, the Company operates in an environmentally sound manner and the outcome of the Company's environmental contingencies will not have a material effect on PPG's financial position or liquidity.
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In June 2003, our partner in a fiber glass joint venture in South America filed for bankruptcy. Upon resolution of the bankruptcy proceedings, the partner's ownership interest may transfer to one of its senior secured creditors or be sold. While PPG expects operations at the joint venture to continue, the Company is currently evaluating its options with respect to this venture, which include its sale or the liquidation of the venture. Should liquidation occur, PPG's exposure to loss would be limited to $12 million, which includes a combination of the Company's investment, outstanding receivables and a loan guarantee related to this venture.
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. Management's Discussion and Analysis and other sections of this Form 10-Q contain forward-looking statements that reflect the Company's current views with respect to future events and financial performance.
Forward-looking statements are identified by the use of the words "aim," "believe," "expect," "anticipate," "intend," "estimate" and other expressions that indicate future events and trends. Any forward-looking statement speaks only as of the date on which such statement is made and the Company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our reports to the Securities and Exchange Commission. Also, note the following cautionary statements.
Many factors could cause actual results to differ materially from the Company's forward-looking statements. Among these factors are increasing price and product competition by foreign and domestic competitors, fluctuations in the cost and availability of raw materials, the ability to maintain favorable supplier relationships and arrangements, economic and political conditions in international markets, the ability to penetrate existing, developing and emerging foreign and domestic markets, which also depends on economic and political conditions, foreign exchange rates and fluctuations in those rates, and the unpredictability of existing and possible future litigation, including litigation that could result if PPG's Settlement Arrangement for asbestos claims does not become effective. Further, it is not possible to predict or identify all such factors. Consequently, while the list of factors presented here is considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements.
The consequences of material differences in the results as compared to those anticipated in the forward-looking statements could include, among other things, business disruption, operational problems, financial loss, legal liability to third parties and similar risks, any of which could have a material adverse effect on the Company's consolidated financial condition, operations or liquidity.