Performance in First Quarter of 2009 Compared to First Quarter of 2008

Performance Overview

Sales decreased 30% for the first quarter of 2009 to $2,783 million compared to $3,962 million for the first quarter of 2008. Lower volumes in all reportable segments accounted for a decrease of 20%, weaker foreign currency accounted for a decrease of 7% and the absence of sales from the divested automotive glass and services business accounted for a decrease of 6%. These sales decreases were slightly offset by a 3% increase stemming from improved selling prices.

Cost of sales, exclusive of depreciation and amortization, decreased by $878 million for the first quarter of 2009 to $1,718 million compared to $2,596 million for the first quarter of 2008. This decrease corresponds with the decrease in sales. Cost of sales as a percentage of sales was 61.7% for the first quarter of 2009 compared to 65.5% for the first quarter of 2008. Cost of sales in the first quarter of 2008 includes $94 million for the flow through cost of sales of the step up to fair value of acquired inventory, which accounts for the majority of the noted decrease in cost of sales as a percentage of sales. Increased selling prices in 2009 totaling $125 million also caused cost of sales as a percentage of sales to be lower.

Selling, general and administrative expenses decreased by $155 million in the first quarter of 2009 compared to the first quarter of 2008 due to lower sales volumes, specific overhead cost reduction actions taken in response to the decline in the global economy and the impact of foreign currency translation.

Depreciation expense declined to $88 million in the first quarter of 2009 as compared to $107 million in the first quarter of 2008 due to both the impact of foreign currency translation and our third quarter 2008 restructuring charge. Research and development costs declined from $112 million in the first quarter of 2008 to $94 million in the first quarter of 2009 largely due cost reduction efforts and the impact of foreign currency translation. Interest expense declined from $64 million to $48 million in the first quarter of 2009, reflective of the lower debt balances in the first quarter of 2009.

The charge for in-process research and development in the first quarter of 2008 of $23 million was related to the 2008 SigmaKalon acquisition.

The business restructuring charge of $186 million in the first quarter of 2009 represents costs under a restructuring plan focused on further reducing PPG's global cost structure. The actions included in the restructuring plan are expected to deliver pretax cost savings of approximately $60 million in 2009, growing to an annual run rate of about $140 million thereafter.

Other charges increased to $17 million in the first quarter of 2009 as compared to $6 million in the first quarter of 2008, due in part to foreign currency translation losses in 2009. Other earnings decreased to $7 million in the first quarter of 2009 as compared to $34 million for the first quarter of 2008. This decrease was largely due to lower equity earnings, including equity losses from PPG's investment in the former automotive glass and services business and lower equity earnings from our Asian fiber glass joint ventures.

The effective tax rate on pretax earnings in the first quarter of 2009 was 18% compared to approximately 31% in the first quarter of 2008. The first quarter 2009 effective tax rate includes a tax benefit of 24% on the charge for business restructuring and a tax benefit of 38.5% on the adjustment to increase the current value of the Company's obligation under the proposed asbestos settlement. The effective tax rate on remaining pretax earnings was 33% in 2009. The first quarter 2008 effective tax rate of approximately 31% included a tax benefit of $6 million related to the settlement with the Internal Revenue Service of our U.S. tax returns for the years 2004 and 2005, a tax benefit of 24% on costs related to the acquisition of SigmaKalon and a tax benefit 39% on the adjustment to increase the current value of the Company's obligation under the proposed asbestos settlement. The effective tax rate on remaining pretax earnings was 30%.

Net income (attributable to PPG) and earnings per share - assuming dilution (attributable to PPG) are summarized below:

                                                              Total
           (Millions, except per share amounts)           $          EPS
           Three Months ended March 31, 2009
           Net loss (attributable to PPG)               $ (111 )   $ (0.68 )
           Net loss (attributable to PPG) includes:
           Business restructuring charge                   141        0.86
           Charge related to asbestos settlement (1)         2        0.01

                                                              Total
                                                          $          EPS
           Three Months ended March 31, 2008
           Net income (attributable to PPG)             $  100     $  0.61
           Net income (attributable to PPG) includes:
           Acquisition-related costs (2)                    89        0.54

(1) Net increase in the current value of the Company's obligation under the proposed asbestos settlement.

(2) 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.

Performance of Reportable Business Segments

Performance Coatings sales decreased 17% to $928 million for the first quarter of 2009 compared to $1,114 million for the first quarter of 2008. Sales declined 13% as a result of lower sales volumes, particularly in the automotive refinish business and architectural coatings - Americas and Asia/Pacific business. The volume decline in automotive refinish was most pronounced in the U.S. and Europe, while the decline in architectural coatings was mainly in the U.S. and Latin America. Weaker foreign currency also reduced sales by 8%. Sales increased 4% due to improved pricing in all businesses. Segment income was $89 million for the first quarter of 2009 compared to $120 million for the first quarter of 2008. The lower volumes and weaker foreign currencies reduced segment income, while increased selling prices and lower overhead costs partially offset these decreases.

Industrial Coatings sales decreased 39% to $644 million for the first quarter of 2009 compared to $1,058 million for the first quarter of 2008. Sales decreased 34% due to lower sales volumes, most notably in the automotive and industrial businesses, reflecting the continued severe decline in global demand. Volume declines in these businesses occurred in all major regions. Sales also declined 8% due to the negative impact of foreign currency translation. Sales increased 2% due to the positive impact of acquisitions and 1% due to increased selling prices. Segment loss was $16 million for the first quarter of 2009 compared to segment income of $95 million for the same quarter in 2008. The lower sales volumes significantly reduced segment results. Factors increasing segment income were lower overhead and manufacturing costs, higher selling prices and currency.

Architectural Coatings - EMEA (Europe, Middle East and Africa) sales decreased 24% to $409 million for the first quarter of 2009 compared to $536 million for the first quarter of 2008. Sales decreased about equally due to the negative impact of foreign currency translation and from lower sales volumes, which were slightly offset by increased selling prices. Segment income was $3 million for the first quarter of 2009 compared to $9 million for the same quarter in 2008. The lower sales volumes and inflation reduced segment income. This decrease was not fully offset by lower overhead costs and higher selling prices.

Optical and Specialty Materials sales decreased 17% to $245 million for the first quarter of 2009 compared to $295 million for the first quarter of 2008. Sales volumes decreased 13% in part reflecting strong first quarter 2008 volumes associated with the launch of Transitions Optical's next generation lens product. Volumes were also lower in the silicas business as a result of the deterioration of the automotive OEM market. Sales declined 5% due to the negative impact of foreign currency translation, which was partially offset by a slight increase in selling prices. Segment income was $60 million for the first quarter of 2009 compared to $74 million for the same quarter in 2008. The decrease in segment income was primarily the result of lower sales volumes.

Commodity Chemicals sales decreased 15% to $361 million for the first quarter of 2009 compared to $423 million for the first quarter of 2008. Sales declined by 23% due to lower sales volumes and 2% due to the negative impact of foreign currency translation. These factors were partially offset by a 10% increase in selling prices. Segment income was $83 million for the first quarter of 2009 compared to $68 million for the same quarter in 2008. Segment income increased in large part due to higher selling prices and lower energy and raw material costs. The negative impact of lower sales volumes, higher pension costs and higher manufacturing costs stemming from the lower activity levels reduced segment income.

Glass sales decreased 63% to $196 million for the first quarter of 2009 compared to $536 million for the first quarter of 2008. About $240 million of the decline in sales was due to the divestiture of a majority interest in the automotive glass and services business, which was completed in September 2008. Sales also declined by 18% due to lower volumes reflecting reduced construction and general industrial demand and 2% due to weaker foreign currency. Sales increased by 1% due to higher selling prices. Segment loss was $27 million for the first quarter of 2009 compared to segment earnings of $30 million for the same quarter in 2008. The decline in segment earnings was due to the negative impact of lower sales volumes, lower equity earnings, higher manufacturing costs stemming from reduced operating rates, higher pension expenses and the absence of earnings from the divested automotive glass and services business. Increased selling prices and lower overhead costs positively impacted segment income.

Liquidity and Capital Resources

Cash used for operating activities for the three months ended March 31, 2009 was $291 million versus cash from operations of $49 million for the comparable period of 2008. Cash used for operating activities in 2009 includes the negative impact of pension contributions totaling $176 million, including a $160 million voluntary contribution that we made to our U.S. pension plans during the quarter. Pension contributions in the first quarter of 2008 totaled $19 million. Additionally, cash used for operating activities in 2009 includes the impact of the growth in working capital driven largely by lower payables at March 31, 2009 associated with lower production levels in the U.S. and Europe and payment of year-end benefit and customer rebate accruals. Cash from operations and the Company's debt capacity are expected to continue to be sufficient to fund operating activities, capital spending, including acquisitions, dividend payments, debt service, amounts due under the proposed asbestos settlement, share repurchases, and contributions to pension plans.

The ratio of total debt, including capital leases, to total debt and equity was 56% at March 31, 2009 and 53% at December 31, 2008. The increase at March 31, 2009 is primarily due to a reduction of equity driven by the first quarter net loss, dividends and adjustments to accumulated other comprehensive loss for unrealized currency translation adjustment.

We do not have a mandatory contribution to make to our U.S. defined benefit pension plans in 2009; however, due in large part to the negative investment return on pension plan assets in 2008, we made a voluntary contribution in the amount of $160 million to these plans in January 2009, and we may make additional voluntary contributions to these plans in 2009 in an amount up to $130 million. We expect to make mandatory contributions to our non-U.S. plans in 2009 of approximately $60 million, of which approximately $16 million was made in the first quarter of 2009.

In December of 2008, the Company entered into an agreement with a counterparty to repurchase 1.5 million shares of the Company's stock. Under the terms of the agreement, the counterparty purchased the shares in the open market in January of 2009 and is now holding the shares until such time as the Company pays the agreed upon price of $39.53 per share and takes possession of these shares. These shares are not considered outstanding for basic and diluted earnings per share calculations and total shareholders' equity at March 31, 2009 has been reduced by approximately $59 million, representing the amount that will be paid by PPG to the counterparty upon settlement.

New Accounting Standards

Note 2, "Newly Adopted Accounting Standards," to the accompanying condensed
consolidated financial statements describes the Company's adoption of SFAS No. 141 (revised 2007), "Business Combinations," SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51," Issue No. 07-1, "Accounting for Collaborative Arrangements," FSP FAS 157-2, "Effective Date of FASB Statement No. 157" and SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities."

Note 3, "Other New Accounting Standards," to the accompanying condensed
consolidated financial statements describes the potential impact on PPG of accounting standards that are not yet effective, including FSP FAS 157-4, "Determining Fair Value When Market Activity Has Decreased," FSP FAS 115-2 and FAS 124-2, "Other-Than-Temporary Impairment," and FSP FAS 107-1/APB 28-1, "Interim Fair Value Disclosures for Financial Instruments."

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. See Part II, Item 1, "Legal Proceedings" of this Form 10-Q and Note 19, "Commitments and Contingent Liabilities," to the accompanying condensed consolidated financial statements for a description of certain of these lawsuits, including a description of the proposed asbestos settlement. As discussed in Part II, Item 1 and Note 19, 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 19 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 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. 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; however, any such outcome may be material to the results of operations of any particular period in which costs, if any, are recognized. Management anticipates that the resolution of the Company's environmental contingencies will occur over an extended period of time.

As of March 31, 2009 and December 31, 2008, PPG had reserves for environmental contingencies totaling $292 million and $299 million, respectively, of which $45 million and $44 million, respectively, were classified as current liabilities. Pretax charges against income for environmental remediation costs totaled $2 million for the three months ended March 31, 2009 and 2008, respectively, and are included in "Other charges" in the accompanying condensed consolidated statement of income. Cash outlays related to such environmental remediation aggregated $5 million and $2 million for the three months ended March 31, 2009 and 2008, respectively. The impact of foreign currency translation decreased the liability by $4 million in 2009.

In addition to the amounts currently reserved for environmental remediation, the Company may be subject to loss contingencies related to environmental matters estimated to be as much as $200 million to $300 million, which range is unchanged since December 31, 2008. Such unreserved losses are reasonably possible but are not currently considered to be probable of occurrence. This range of reasonably possible unreserved loss relates to environmental matters at a number of sites; however, about 40% of this range relates to additional costs at the former chromium manufacturing plant site and related sites in Jersey City, N.J., and about 30% relates to three operating PPG plant sites in the Company's chemicals businesses. The loss contingencies related to these sites include significant unresolved issues such as the nature and extent of contamination at these sites and the methods that may have to be employed to remediate them.

Management expects cash outlays for environmental remediation costs to be approximately $40 million in 2009 and to range from $45 million to $75 million annually through 2013. It is possible that technological, regulatory and enforcement developments, the results of environmental studies and other factors could alter the Company's expectations with respect to charges against income and future cash outlays. Specifically, the level of expected cash outlays is highly dependent upon activity related to the former chromium manufacturing plant site in New Jersey, as PPG awaits approval of workplans that have been submitted to the applicable regulatory agencies.

Forward-Looking Statements

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 Annual Report 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. Such factors include global economic conditions, increasing price and product competition by foreign and domestic competitors, fluctuations in cost and availability of raw materials, the ability to maintain favorable supplier relationships and arrangements, difficulties in integrating acquired businesses and achieving expected synergies therefrom, 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 such rates, the impact of environmental regulations, unexpected business disruptions 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. However, it is not possible to predict or identify all such factors. Consequently, while the list of factors presented here and in the Company's Form 10-K for the year ended December 31, 2008 under the caption "Item 1a. Risk Factors" are 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.

Consequences of material differences in the results compared with those anticipated in the forward-looking statements could include, among other things, business disruption, operational problems, financial loss, legal liability to third parties, other factors set forth in "Item 1a Risk Factors" of the Company's Form 10-K for the year ended December 31, 2008 and similar risks, any of which could have a material adverse effect on the Company's consolidated financial condition, results of operations or liquidity.