PPG Annual Report

Performance in 2002 Compared with 2001 Overall Performance The sales decreased 1% to $8.1 billion from $8.2 billion in 2001.

Sales declined 2% due to lower selling prices in our glass and chemicals segments. This decline was partially offset by higher volumes in our coatings and chemicals segments, net of lower volumes in our glass segment.

The gross profit percentage increased slightly to 37.2% in 2002 from 37.1% in 2001. The increase in gross profit percentage was due to improved manufacturing efficiencies across all of our business segments, lower raw material costs in our coatings segment and lower energy costs. These improvements were substantially offset by lower selling prices in our glass and chemicals segments and higher pension and postretirement medical costs.

Aside from the factors described above, the increase in net income was also due to lower overhead costs in our coatings and glass businesses, lower environmental remediation expenses, higher insurance recoveries, lower interest expense due to the lower debt levels in 2002 and the favorable effects of foreign currency translation primarily from our European operations. These favorable factors were substantially offset by an increase in pension and postretirement medical costs across all of our businesses, the negative effects of inflation and lower equity earnings primarily in our glass segment. Also, as a result of the Company’s adoption as of Jan. 1, 2002 of the provisions of Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets,” the carrying value of goodwill and certain trademarks will no longer be amortized and will instead be tested for impairment annually. Such amortization reduced earnings in 2001 by $32 million after-tax or $0.20 a share.

Coatings sales increased $72 million or 2% to $4.5 billion in 2002. Sales increased 1% from improved volumes primarily in our architectural, North American and Asian automotive original equipment and industrial businesses offset, in part, by lower sales volumes in our aerospace and refinish businesses. Sales also increased 1% due to the positive effects of foreign currency translation. Operating income increased to $605 million in 2002 compared to $495 million in 2001. Operating income in 2002 and 2001 included pretax restructuring and other related costs of $73 million and $83 million, respectively. Excluding these charges, operating income in 2002 was $678 million compared to $578 million in 2001. The increase in operating income is attributable to higher sales volume, 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. These were offset, in part, by higher selling costs in our architectural business, higher pension and postretirement medical costs, inflationary cost increases and $3 million in lower equity earnings primarily due to the write-off of a receivable from a customer by one of our Asian joint ventures.

Glass sales decreased 7% to $2.1 billion in 2002 from $2.2 billion in 2001. Sales volumes declined 5% principally in our automotive replacement glass, flat glass and fiber glass businesses. Sales also decreased 2% due to lower selling prices principally in our North American automotive original glass, flat glass and fiber glass businesses. Operating income decreased to $143 million in 2002 compared to $255 million in 2001. Operating income in 2002 and 2001 included pretax restructuring and other related costs of $1 million and $10 million, respectively. Excluding these charges, operating income in 2002 was $144 million compared to $265 million in 2001. The decrease in operating income is attributable to lower sales volume and selling prices described above. Operating income also decreased due to lower equity earnings, a shift in sales mix to lower margin products and higher pension and postretirement medical costs offset, in part, by improved manufacturing efficiencies and lower energy and overhead costs.

Chemicals sales were $1.5 billion in 2002 and 2001. Sales volumes increased 9% principally from our chlor-alkali, fine chemicals and optical products, offset by a 9% decrease in selling prices principally for our chlor-alkali products. Operating income increased to $124 million in 2002 from $91 million in 2001. Operating income in 2002.

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