Form 10-Q for PPG Industries Inc

Performance OverviewSales increased 5% for the second quarter of 2004 to $2,429 million compared to$2,304 million for the second quarter of 2003.

Increases in volumes across allof our business segments accounted for an increase in sales of 6%, while thepositive effects of foreign currency translation, primarily from our Europeanoperations, accounted for an additional increase of 2%. Lower selling prices inall of our business segments reduced sales by 3%.

The gross profit percentage for the second quarter of 2004 and 2003 was 37.3%.The benefits realized from improved manufacturing efficiencies across all of ourbusiness segments and the favorable mix of sales volume growth were offset bythe lower selling prices mentioned above, higher energy costs in our glass andchemicals business segments and other inflationary cost increases.

Net income and earnings per share - assuming dilution, for the second quarter of2004 were $183 million and $1.06, respectively, compared to $152 million and$0.89, respectively, for the second quarter of 2003. Net income for the secondquarter of 2004 included an aftertax charge of $3 million, or 2 cents a share,to reflect the Company's decision to begin expensing stock options effectiveJanuary 1, 2004, as discussed in Note 13. Net income for the second quarter of2004 also included an aftertax charge of $6 million, or 3 cents a share, toreflect the net change in the current value of the Company's obligation underthe asbestos settlement agreement, as discussed in Note 14. Net income for thesecond quarter of 2003 included aftertax charges of $7 million, or 4 cents ashare, to reflect the net change in the value of the Company's obligation underthe asbestos settlement agreement, as discussed in Note 14, and $2 million, or 1cent a share, for restructuring costs, as discussed in Note 5.

Net income for the second quarter of 2004 compared to the second quarter of 2003was $31 million higher. The improvement in net income was due to the increasedsales volumes and the favorable effects of foreign currency translationdescribed above, improved manufacturing efficiencies, higher other income, lowerpension and postretirement medical costs and a lower effective tax rate. Thelower selling prices described above, the negative effects of inflation, higherenergy and overhead costs and increased stock option expense were factors inreducing net income for the second quarter of 2004.

Performance of Business Segments

Coatings sales increased 8% to $1,354 million for the second quarter of 2004compared to $1,249 million for the second quarter of 2003. Sales increased 6%due to improved volumes from our architectural, industrial, automotive,aerospace and automotive refinish businesses and 3% due to the positive effectsof foreign currency translation, primarily from our European operations. Thesesales increases were offset by a 1% decline due to lower selling prices,principally in our automotive business. Operating income was $223 million forthe second quarter of 2004 compared to $205 million for the same quarter in2003. Factors increasing operating income were the higher sales volumesdescribed above, improved manufacturing efficiencies and the favorable effectsof foreign currency translation. Factors decreasing operating income were theadditional selling expenses in our architectural business, the impact of costinflation and the lower selling prices described above.

Glass sales increased 2% to $584 million for the second quarter of 2004 comparedto $574 million for the second quarter of 2003. Sales increased 5% due toimproved volumes from our

600450 Form 10-Q for PPG Industries Inc glassonweb.com

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