PPG: Quarterly Report

The increase in sales was due to a 4% increase in volume primarily in our coatings and chemicals segments and the positive effects of foreign currency translation offset, in part, by a 1% decline in selling prices primarily in our glass and chemicals segments.

The gross profit percentage increased to 37.6% for the third quarter of 2002 compared to 36.9% for the third quarter of 2001. The increase in the gross profit percentage was due to improved manufacturing efficiencies in our glass and chemicals segments, lower raw material costs in our coatings segment and lower energy costs offset, in part, by lower selling prices in our glass and chemicals segments.

Net income and earnings per share - diluted, for the third quarter of 2002 were $148 million and $0.87, respectively, compared to $93 million and $0.55, respectively, for the same quarter in 2001. Net income for the third quarter of 2002 included after-tax income of $15 million, or $0.09 a share, to reflect the decline in fair value from June 30, 2002 to September 30, 2002 of the 1,388,889 shares of PPG stock which are to be transferred to the asbestos settlement trust as discussed in Note 11, "Commitments and Contingent Liabilities," to the condensed financial statements. Excluding this income, net income and earnings per share - diluted, for the third quarter of 2002 were $133 million and $0.78, respectively. The increase in net income is attributable to higher sales volumes in our coatings and chemicals segments, improved manufacturing efficiencies in our glass and chemicals segments, lower environmental remediation expenses primarily in our chemicals segment, lower overhead costs and the benefit of goodwill and certain trademarks no longer being amortized. These improvements were partially offset by lower selling prices primarily in our glass and chemicals segments and an increase in pension and postretirement medical costs of approximately $30 million.

Performance of Business Segments Coatings sales increased 6% to $1.14 billion compared to $1.07 billion for the third quarter of 2001. The combination of a 5% increase in sales volume, a 1% increase due to higher selling prices and the positive effects of foreign currency translation resulted in the sales improvement. Operating income was $178 million for the third quarter of 2002 compared to $123 million for the same quarter of 2001. The increase in operating income is attributable to higher sales volumes and prices, lower raw material costs and the benefit of goodwill and certain trademarks no longer being amortized. These were offset, in part, by higher selling costs in our architectural coatings business and higher pension and postretirement medical costs.

Glass sales decreased 3% to $536 million compared to $554 million for the third quarter of 2001. The decrease reflects the combination of a 2% decrease from lower selling prices throughout our glass businesses and a 1% decline from lower sales volumes. Operating income was $45 million for the third quarter of 2002 compared to $49 million for the same quarter of 2001. The decrease in operating income is attributable to lower sales volumes and prices, a shift in sales mix to lower margin products, lower equity earnings and higher pension and postretirement medical costs offset, in part, by lower overhead costs and improved manufacturing efficiencies.

Chemicals sales increased 5% to $396 million compared to $377 million for the third quarter of 2001. Sales increased due to a 10% improvement in sales volume across all of our businesses



offset by a 5% decline due to lower selling prices for our chlorine and other chlor-alkali products. Operating income was $41 million for the third quarter of 2002 compared to $25 million for the same quarter of 2001. The increase in operating income is attributable to higher sales volumes for our commodity chemicals and optical businesses, improved manufacturing efficiencies, lower energy costs and lower environmental remediation expenses offset, in part, by lower selling prices for our commodity chemicals, higher selling costs from our optical business and higher pension and postretirement medical costs.

Performance in the First Nine Months of 2002 Compared to the First Nine Months of 2001

Performance Overview Sales decreased 3% for the first nine months of 2002 to $6.1 billion compared to $6.3 billion for the first nine months of 2001. The sales decline is due to lower selling prices in our glass and chemicals segments. Lower volumes in our glass segment offset higher volumes in our coatings and chemicals segments.

The gross profit percentage increased slightly to 37.4% for the first nine months of 2002 compared to 37.3% for the first nine months of 2001. The increase in the gross profit percentage was due to improved manufacturing efficiencies across all of our business segments, lower energy costs and lower raw material costs in our coatings segment offset, in part, by lower selling prices in our glass and chemicals segments and a shift in sales mix of products sold in our glass segment to lower margin products.

As a result of a charge for the asbestos settlement discussed in Note 11, PPG had a net loss of $163 million, or a loss per share - diluted, of $0.96 for the first nine months of 2002 compared to net income of $304 million, or earnings per share - diluted, of $1.80 for the first nine months of 2001. The net loss for the first nine months of 2002 included an after-tax charge of $495 million, or $2.92 a share, for the asbestos settlement taken in the second quarter, reduced by $15 million, after-tax, or $0.09 a share, reflecting the decline in fair value from June 30, 2002 to September 30, 2002 of the shares of PPG common stock which are to be transferred to the asbestos settlement trust, an after-tax charge of $52 million, or $0.31 a share, for restructuring and other related activities and an after-tax charge of $9 million, or $0.05 a share, for the cumulative effect of an accounting change. Net income for the first nine months of 2001 included an after-tax charge of $71 million, or $0.42 a share, for restructuring and other related activities. Excluding these charges, net income and earnings per share - diluted, for the first nine months of 2002 were $378 million and $2.23, respectively, compared to $375 million and $2.22, respectively, for the first nine months of 2001. The cumulative effect of an accounting change of $9 million after-tax reflects the impairment in the carrying value of certain trademarks within the coatings segment resulting from the Company's adoption of the provisions of Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." Also, in accordance with this new standard, the carrying value of goodwill and trademarks will no longer be amortized and will instead be tested for impairment annually. Such amortization reduced earnings for the first nine months of 2001 by $24 million after-tax, or $0.15 a share. Aside from the factors described above, the increase in net income was due to improved manufacturing efficiencies, lower energy costs, lower overhead costs in our coatings and glass segments, lower environmental remediation expenses and higher insurance recoveries substantially offset by lower selling prices in our glass and chemicals segments and an increase in pension and postretirement medical costs of approximately $90 million.

Performance of Business Segments Coatings sales increased 1% to $3.38 billion compared to $3.34 billion for the first nine months of 2001. The sales increase relates primarily to higher sales volume in our architectural, North American automotive original equipment and industrial businesses offset, in part, by lower sales


volumes in our refinish and aerospace businesses. Operating income was $460 million for the first nine months of 2002 compared to $359 million for the first nine months of 2001. Operating income for the first nine months of 2002 and 2001 included pretax restructuring and other costs of $73 million and $83 million, respectively. Excluding these charges, operating income for the first nine months of 2002 and 2001 was $533 million and $442 million, respectively. The increase in operating income is attributable to higher sales volumes, lower raw material and overhead costs, improved manufacturing efficiencies and the benefit of goodwill and certain trademarks no longer being amortized due to the Company's adoption of SFAS No. 142 offset, in part, by higher pension and postretirement medical costs.

Glass sales decreased 10% to $1.58 billion compared to $1.75 billion for the first nine months of 2001. The combination of a decrease in sales volume of 7%, primarily in our automotive replacement glass, flat glass and fiber glass businesses and a 3% decline from lower selling prices across all of our glass businesses resulted in the sales decline. Operating income was $114 million for the first nine months of 2002 compared to $233 million for the first nine months of 2001. Operating income for the first nine months of 2002 and 2001 included pretax restructuring and other costs of $1 million and $10 million, respectively. Excluding these charges, operating income for the first nine months of 2002 and 2001 was $115 million and $243 million, respectively. The decrease in operating income is attributable to lower sales volumes and selling prices, a shift in sales mix to lower margin products, lower equity earnings and higher pension and postretirement medical costs offset, in part, by improved manufacturing efficiencies and lower overhead costs.

Chemicals sales decreased 5% to $1.12 billion compared to $1.18 billion for the first nine months of 2001. Lower selling prices of 13%, primarily of our chlor-alkali products, were offset, in part, by an 8% increase in sales volumes, principally in our optical and fine chemicals businesses. Operating income was $90 million for the first nine months of 2002 compared to $74 million for the first nine months of 2001. Operating income for the first nine months of 2002 and 2001 included pretax restructuring and other costs of $1 million and $7 million, respectively. Excluding these charges, operating income for the first nine months of 2002 and 2001 was $91 million and $81 million, respectively. The increase in operating income is attributable to lower energy costs, improved volumes in our optical business, improved manufacturing efficiencies across all of our chemicals businesses and lower environmental remediation expenses offset, in part, by lower selling prices for our chlorine and other chlor-alkali products and higher pension and postretirement medical costs.

Other Factors The reduction in other unallocated corporate expense - net for the first nine months of 2002 as compared to the first nine months of 2001 is principally due to the receipt of increased insurance litigation recoveries in 2002 offset, in part, by the loss on disposal of a corporate asset.

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