Divestiture of Automotive Glass and Services Business

During the third quarter of 2007, the Company entered into an agreement to sell its automotive glass and services business to Platinum Equity, ("Platinum") for approximately $500 million. Accordingly, the assets and liabilities of this business were classified as held for sale and the results of operations and cash flows of this business were classified as discontinued operations. In the fourth quarter of 2007, PPG was notified that affiliates of Platinum had filed suit in the Supreme Court of the State of New York, County of New York, alleging that Platinum was not obligated to consummate the agreement. Platinum also terminated the agreement. PPG has sued Platinum and certain of its affiliates for damages, including the $25 million breakup fee stipulated by the terms of the agreement, based on various alleged actions of the Platinum parties. While the transaction with Platinum was terminated, PPG management remained committed to a sale of the automotive glass and services business and continued to classify its assets and liabilities as held for sale and report its results of operations and cash flows as discontinued operations through the first quarter of 2008.

In July 2008, PPG entered into an agreement with affiliates of Kohlberg & Company, LLC, under which PPG would divest the automotive glass and services business to a new company formed by affiliates of Kohlberg. Under the agreement, PPG would receive a minority interest in the new company, and, as such, the accounting requirements of Statement of Financial Accounting Standards, ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" for classifying the business as assets held for sale and reporting its results of operations and cash flows as discontinued operations had no longer been met. The assets and liabilities of the business have been classified as held for use in the condensed consolidated balance sheet as of December 31, 2007, and the results of operations and cash flows of the business have been classified as continuing operations in the Glass reportable segment in the accompanying condensed consolidated statements of income for the three and nine months ended September 30, 2008 and 2007, and cash flows for the nine months then ended under Item 1 of this Form 10-Q.

In the second quarter of 2008, as a result of the reclassification of the automotive glass and services business to continuing operations, PPG recorded a one-time, non-cash charge of $17 million ($11 million aftertax) to reflect a catch-up of depreciation expense, which was suspended when the business was classified as a discontinued operation. Additionally, in the second quarter of 2008, PPG recorded a charge of $19 million ($12 million aftertax) for special termination benefits and a pension curtailment loss relating to the impact of benefit changes including accelerated vesting negotiated as part of the sale.

The transaction with affiliates of Kohlberg was completed on September 30, 2008, with PPG receiving total proceeds of $315 million, including $225 million in cash and two 6-year notes totaling $90 million ($60 million at 8.5% interest and $30 million at 10% interest). Both notes, which may be prepaid at any time without penalty, are senior to the equity of the new company. In addition, PPG has received a minority interest of approximately 40 percent in the new company, Pittsburgh Glass Works LLC. This transaction resulted in a third quarter 2008 gain of $15 million pretax, net of transaction costs, and is included in "Other income" in the condensed consolidated statement of income for the three and nine months ended September 30, 2008 under Item 1 of this Form 10-Q. The aftertax gain on the transaction was $3 million, reflective of tax expense of $12 million. Tax expense on the gain includes the tax cost of repatriating certain transaction proceeds from Canada to the U.S. and the impact of certain permanent book/tax differences which resulted in a larger taxable gain. PPG will account for its interest in Pittsburgh Glass Works LLC under the equity method of accounting. PPG has retained certain liabilities for pension and post-employment benefits earned for service up to September 30, 2008.

Presentation of Discontinued Operations

In the third quarter of 2007, PPG entered into an agreement to sell its fine chemicals business to ZaCh System S.p.A., a subsidiary of Zambon Company S.p.A., for approximately $65 million. The sale of this business was completed in November 2007. Accordingly, the results of operations and cash flows of this business, which had previously been included in the Optical and Specialty Materials reportable segment, have been classified as discontinued operations in the condensed consolidated statements of income for the three and nine months ended September 30, 2007 and the condensed consolidated statement of cash flows for the nine months then ended under Item 1 of this Form 10-Q. PPG recorded a pretax loss related to the divestiture of the fine chemicals business of $21 million ($19 million aftertax) in the third quarter of 2007.

Performance in Third Quarter of 2008 Compared to Third Quarter of 2007

Performance Overview

Sales increased 37% in the third quarter of 2008 to $4,225 million compared to $3,073 million for the third quarter of 2007. Sales related to acquisitions accounted for an increase of 30% and higher selling prices increased sales by 6%. The positive effect of foreign currency translation accounted for an increase of 2% while lower volumes decreased sales by 1%.

Cost of sales, exclusive of depreciation and amortization, increased by $754 million for the third quarter of 2008 to $2,701 million compared to $1,947 million for the third quarter of 2007. This increase is consistent with the increase in sales. Cost of sales as a percentage of sales was 63.9% for the third quarter of 2008 compared to 63.4% for the third quarter of 2007.

Selling, general and administrative expenses increased by $282 million in the third quarter of 2008 compared to the third quarter of 2007 due to the impact of the acquisition of SigmaKalon and higher levels of cost to support growth in our coatings and optical businesses. Selling, general and administrative expenses as a percentage of sales were 20.8% for the third quarter of 2008 compared to 19.4% for the third quarter of 2007. The increase in selling, general and administrative expenses as a percentage of sales was due almost entirely to the addition of SigmaKalon and reflects the distribution nature of these businesses, which requires higher selling, distribution, advertising and regional management costs to serve their broad customer profile. Selling, general and administrative expenses as a percentage of sales in the Architectural Coatings - EMEA reportable segment are in line with PPG's other architectural coatings businesses.

In the third quarter of 2008, depreciation expense increased by $16 million due primarily to the acquisition of SigmaKalon. Research and development costs increased by $28 million and amortization increased by $19 million compared to the third quarter of 2007. These increases were primarily due to the acquisition of SigmaKalon. Interest expense increased by $40 million in the quarter due largely to debt incurred to finance the acquisition of SigmaKalon.

The third quarter 2008 charge for business restructuring of $163 million represents the impact of a restructuring plan that is part of PPG's global transformation strategy and the integration of its acquisition of SigmaKalon. As part of the restructuring, PPG will close several coatings manufacturing facilities, including those in Clarkson, Ont., Canada, and Geldermalsen, Netherlands, which are

anticipated to close in the second and third quarters 2009, respectively. The Geldermalsen closure will be implemented following consultation with the applicable works council. Other staffing reductions will occur in PPG's coatings businesses in North America and Europe. PPG also will close its Owen Sound, Ont., Canada, glass manufacturing facility in early 2009, and will idle one float glass production line at its Mt. Zion, Ill., facility in the second quarter of next year. Other actions will include writing off idle production assets in PPG's fiber glass and chemicals businesses. The charge of $163 million for business restructuring includes severance and other costs of $73 million, pension curtailments of $21 million and asset write-offs of $69 million.

Other charges increased by $9 million in the third quarter of 2008 as compared to the third quarter of 2007 as a result of uninsured losses resulting from weather-related property damage, including two hurricanes that hit the U.S. Gulf Coast in the third quarter of 2008. Other earnings increased by $26 million in the third quarter of 2008 compared to the third quarter of 2007. This increase is largely due to the $15 million gain on the divestiture of the automotive glass and services business.

The effective tax rate on pre-tax earnings was 32.0% for the third quarter of 2008 compared to a tax rate on earnings from continuing and discontinued operations of 32.4% for the third quarter of 2007. The third quarter 2008 rate of 32.0% includes a tax benefit of 32% related to the business restructuring charge, a benefit of 39% on the adjustment to increase the current value of the Company's obligation relating to asbestos claims under the PPG Settlement Arrangement and the tax expense related to the gain on divestiture of the automotive glass and services business. The effective tax rate on remaining pretax income was 30%. The third quarter 2007 rate of 32.4% includes a tax benefit of 39% on the adjustment to increase the current value of the Company's obligation relating to asbestos claims under the PPG Settlement Arrangement, a tax benefit of 37% on the curtailment charge related to the sale of the automotive glass and services business, a tax benefit of 12% on the adjustment to write down the assets of the fine chemicals business to fair value less cost to sell and income tax expense of 31.5% on the remaining pretax earnings. The decline in the tax rate on the remaining pretax earnings from 31.5% to 30% is due to a change in the mix of PPG's pretax earnings, as a larger proportion of PPG's pretax earnings are in lower tax regions such as Europe and Asia in 2008.

Net income and earnings per share - assuming dilution are summarized below:

  (Millions, except per share amounts)                               Net Income
  Three Months ended Sept. 30, 2008                                 $         EPS
  Net income                                                      $ 117     $  0.70
  Net income includes:
  Business restructuring                                            110        0.67
  Gain on divestiture of automotive glass and services business      (3 )     (0.02 )
  Charge related to asbestos settlement(1)                            3        0.02

                                                           Net Income
              Three Months ended Sept. 30, 2007            $      EPS
              Net income                                 $ 191   $ 1.15
              Net income includes:
              Charge related to asbestos settlement(1)       3     0.02
              Acquisition-related costs(2)                   4     0.03
              Glass divestiture charge(3)                   11     0.06
              Fine chemicals divestiture charge(4)          19     0.11

(1) Net increase in the current value of the Company's obligation relating to asbestos claims under the PPG Settlement Arrangement.

(2) Costs related to Barloworld Coatings Australia acquisition for the flow-through cost of sales of the step up to fair value of acquired inventory.

(3) Represents curtailment losses on certain defined benefit plans of the automotive glass and services business.

(4) Charge to write-down the assets of the fine chemicals business to fair value less cost to sell.

Performance of Reportable Business Segments

Performance Coatings sales increased 28% to $1,229 million for the third quarter of 2008 compared to $963 million for the third quarter of 2007. Sales increased 21% due to acquisitions, 4% due to higher selling prices, and 3% due to the positive impact of foreign currency translation. Sales volumes were flat as a result of declines in our architectural coatings Americas and Asia-Pacific business were offset by growth in all other businesses. Volume growth in the aerospace businesses occurred throughout the world, while the majority of volume growth in protective and marine coatings and refinish coatings occurred in Asia. Segment income was $148 million for the third quarter of 2008 compared to $140 million for the same quarter in 2007. The positive impacts of acquisitions and higher selling prices more than offset inflation, including higher raw material and freight costs.

Industrial Coatings sales increased 13% to $1,022 million for the third quarter of 2008 compared to $901 million for the third quarter of 2007. Sales increased 11% due to acquisitions, 3% due to the positive impact of foreign currency translation and 1% due to higher selling prices. Sales volumes decreased 2%, largely the result of volume declines in the automotive OEM coatings business in the U.S. and Canada, reflective of the deterioration in automotive OEM production levels in North America. The volume declines were partially offset by volume gains in Europe for this business. The industrial coatings business experienced volume declines in North America and Europe, which were partially offset by volume gains in other regions of the world. In the packaging coatings business, volume losses in Europe more than offset gains in all other regions of the world. Segment income was $48 million in the third quarter of 2008 compared to $89 million in the third quarter of 2007. The negative effects of lower volumes and inflation were not offset by increased selling prices and the positive impacts of acquisitions.

Architectural Coatings - EMEA (Europe, Middle East and Africa) is a newly formed segment in 2008 comprised of about 70% of the acquired SigmaKalon sales. The segment sales for the quarter were $632 million. Segment income was $61 million, which included amortization expense of $16 million related to acquired intangible assets and $14 million of depreciation expense.

Optical and Specialty Materials sales increased 13% to $290 million for the third quarter of 2008 compared to $257 million for the third quarter of 2007. Sales increased 7% due to higher volumes in our optical products business resulting from the launch of Transitions Optical's next generation lens product in the U.S., Latin America and Asia, 4% due to the positive impact of foreign currency translation and 2% due to increased selling prices. Segment income was $61 million for the third quarter of 2008 compared to $55 million for the same quarter in 2007. The increase in segment income was primarily the result of the increased sales volumes and increased selling prices, which were partially offset by increased marketing costs in optical products related to the Transitions Optical product launch.

Commodity Chemicals sales increased 25% to $500 million for the third quarter of 2008 compared to $400 million for the third quarter of 2007. Sales increased 24% due to higher selling prices and 1% due to improved sales volumes. Segment income was $116 million for the third quarter of 2008 compared to $89 million for the same quarter in 2007. The benefit from higher selling prices more than offset the negative impact of inflation, primarily higher raw material and natural gas costs.

Glass sales were $552 million in both the third quarter of 2008 and the third quarter of 2007. Sales increased 4% due to higher selling prices but decreased 4% due to lower sales volumes. Segment income was $17 million for the third quarter of 2008 compared to $35 million for the same quarter in 2007. Segment income decreased due to lower volumes and the negative impact of inflation, which factors were only partially offset by higher selling prices and lower manufacturing costs.

Performance in the First Nine Months of 2008 Compared to First Nine Months of 2007

Performance Overview

Sales increased 39% for the first nine months of 2008 to $12,661 million compared to $9,116 million for the first nine months of 2007. Sales related to acquisitions accounted for an increase of 30%, the positive effects of foreign currency translation accounted for an increase of 4%, an increase in selling prices accounted for an increase of 4% and improved sales volume accounted for an increase of 1%.

Cost of sales, exclusive of depreciation and amortization, increased by $2,315 million for the first nine months of 2008 to $8,126 million compared to $5,811 million for the first nine months of 2007. This increase corresponds with the increase in sales. Cost of sales as a percentage of sales was 64.2% for the first nine months of 2008 compared to 63.7% for the first nine months of 2007. Cost of sales in the first nine months of 2008 includes $94 million for the flow through cost of sales of the step up to fair value of acquired inventory, which more than accounts for the noted increase in cost of sales as a percentage of sales.

Selling, general and administrative expenses increased by $986 million in the first nine months of 2008 compared to the first nine months of 2007 due to increased sales volumes, the impact of the acquisition of SigmaKalon, higher levels of cost to support growth in our coatings and optical businesses and a second quarter charge of $19 million for special termination benefits and a pension curtailment loss relating to the impact of benefit changes, including accelerated vesting, negotiated as part of the divestiture of the automotive glass and services business. Selling, general and administrative expenses as a percentage of sales were 21.2% for the first nine months of 2008 compared to 18.6% for the first nine months of 2007. The increase in selling, general and administrative expenses as a percentage of sales was due largely to the addition of SigmaKalon and reflects the distribution nature of these businesses, which requires higher selling, distribution, advertising and regional management costs to serve their broad customer profile. Selling, general and administrative expenses in the Architectural Coatings - EMEA reportable segment are in line with PPG's other architectural coatings businesses.

In the first nine months of 2008, depreciation expense increased by $77 million due primarily to the acquisition of SigmaKalon. Research and development costs increased by $88 million and amortization increased by $61 million compared to the first nine months of 2007. These increases were primarily due to the acquisition of SigmaKalon. Interest expense increased by $126 million in the first nine months of 2008 due to debt incurred to finance the acquisition of SigmaKalon.

As more fully described on pages 36-37, the third quarter 2008 charge for business restructuring of $163 million represents the impact of a restructuring plan that is part of PPG's global transformation strategy and the integration of its acquisition of SigmaKalon.

Other charges decreased to $39 million for the first nine months of 2008 as compared to $48 million for the nine months of 2007, in part due to the absence in 2008 of a $10 million charge incurred in 2007 to write off PPG's investment in a Venezuelan fiber glass joint venture. Other earnings increased to $143 million for the first nine months of 2008 as compared to $101 million in the first nine months of 2007. The increase in other earnings was due primarily to the $15 million gain on the divestiture of the automotive glass and services business, higher interest income and higher royalty income in 2008.

The effective tax rate on pre-tax earnings was 30.5% for the first nine months of 2008 compared to a tax rate on earnings from continuing and discontinued operations of 29.7% for the first nine months of 2007. The 2008 rate of 30.5% includes a tax benefit of $6 million related to the settlement with the Internal Revenue Service of our U.S. tax returns for tax years 2004 and 2005. The 2008 rate also includes a tax benefit of 24% on costs related to the acquisition of SigmaKalon, a tax benefit of 36% on the charges for the catch-up of depreciation expense and the impact of benefit changes related to the divestiture of the automotive glass and services business, a tax benefit of 32% related to the business restructuring charge, a tax benefit of 39% on the adjustment to increase the current value of the Company's obligation relating to asbestos claims under the PPG Settlement Arrangement and the tax expense related to the gain on divestiture of the automotive glass and services business. Income tax expense of 39% was recognized on earnings from the automotive glass and services business. The effective tax rate on remaining pretax income was 30%. The 2007 rate of 29.7% includes the benefit of reversing a $19 million valuation allowance previously recorded against the benefit of tax net operating loss carryforwards, a tax benefit of 37% on the curtailment charge related to the sale of the automotive glass and services business, a tax benefit of 12% on the adjustment to write down the assets of the fine chemicals business to fair value less cost to sell and a tax benefit of 39% on the adjustment to increase the current value of the Company's obligation relating to asbestos claims under the PPG Settlement Arrangement. Income tax expense of 31.5% was recognized on the remaining pretax earnings. The decline in the tax rate on the remaining pretax earnings from 31.5% to 30% is due to a change in the mix of PPG's pretax earnings in 2008, as a larger proportion of PPG's pretax earnings are in lower tax regions such as Europe and Asia.

Net income and earnings per share - assuming dilution are summarized below:

  (Millions, except per share amounts)                               Net Income
  Nine Months ended Sept. 30, 2008                                  $         EPS
  Net income                                                      $ 467     $  2.82
  Net income includes:
  Business restructuring charge                                     110        0.67
  Gain on divestiture of automotive glass and services business      (3 )     (0.02 )
  Acquisition-related costs(1)                                       89        0.54
  Depreciation catch-up charge(2)                                    11        0.07
  Divestiture related benefit costs(3)                               12        0.07
  Charge related to asbestos settlement(4)                            5        0.03

                                                                     Net Income
  Nine Months ended Sept. 30, 2007                                  $         EPS
  Net income                                                      $ 634     $  3.82
  Net income includes:
  Charge related to asbestos settlement(4)                           14        0.08
  Acquisition-related costs(5)                                        4        0.03
  Glass divestiture charge(6)                                        11        0.06
  Fine chemicals divestiture charge(7)                               19        0.11

(1) Costs related to SigmaKalon acquisition, including $66 million aftertax for the flow-through cost of sales of the step up to fair value of acquired inventory and $23 million aftertax for the write-off of in-process research and development.

(2) Represents the catch-up of depreciation expense, which was suspended when the automotive glass and services business was classified previously as a discontinued operation.

(3) Represents special termination benefits and a pension curtailment loss relating to the impact of benefit changes, including accelerated vesting, negotiated as part of the sale of the automotive glass and services business.

(4) Net increase in the current value of the Company's obligation relating to asbestos claims under the PPG Settlement Arrangement.

(5) Costs related to Barloworld Coatings Australia acquisition for the flow-through cost of sales of the step up to fair value of acquired inventory.

(6) Represents curtailment losses on certain defined benefit plans of the automotive glass and services business.

(7) Charge to write-down the assets of the fine chemicals business to fair value less cost to sell.

Performance of Reportable Segments

Performance Coatings sales increased 29% to $3,612 million for the first nine months of 2008 compared to $2,792 million for the first nine months of 2007. Sales increased 22% due to acquisitions, 4% due to the positive impact of foreign currency translation and 3% due to higher selling prices. Sales volumes were flat as reduced volumes in architectural coatings Americas and Asia-Pacific offset equally by improved volumes in all other businesses. Volume growth in the aerospace businesses occurred throughout the world, while the volume growth in protective and marine coatings occurred primarily in Asia. In the refinish business, volume growth in

Asia and Latin America more than offset declines in Europe. Refinish volumes in the U.S. and Canada were essentially flat. Segment income was $439 million for the first nine months of 2008 compared to $420 million for the first nine months of 2007. The positive impact of acquisitions and the positive impact of foreign currency translation increased segment income. The negative impact of inflation, including higher raw material and freight costs, more than offset the benefit of higher selling prices. Segment income also decreased due to unfavorable margin mix in automotive refinish and the lower sales volumes in architectural coatings.

Industrial Coatings sales increased 19% to $3,232 million for the first nine months of 2008 compared to $2,713 million for the first nine months of 2007. Sales increased 11% due to acquisitions, 6% due to the positive impact of foreign currency translation, and 1% each from improved sales volumes and higher selling prices. Sales volumes increased in the automotive coatings business, as volume declines in the U.S. and Canada were more than offset by volume gains in the other regions of the world. Conversely, in the industrial coatings business, volumes declined as losses in the U.S. and Canada were only partially offset by gains in all other regions of the world. Sales volumes improved in packaging coatings, as gains in Asia and North America more than offset volume declines in Europe. Segment income was $252 million in the first nine months of 2008 compared to $293 million in the first nine months of 2007. The decline in segment income was largely due to inflation, including higher raw material and freight costs, the impact of which was only partially mitigated by the increased selling prices. Segment income also declined due to higher overhead costs to support growth. Factors increasing segment income were the positive impacts of acquisitions and foreign currency translation and lower manufacturing costs.

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