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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

Commission File Number 1-1687

PPG INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: 412-434-3131

Securities Registered Pursuant to Section 12(b) of the Act:

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    YES  x    NO  ¨

The aggregate market value of common stock held by non-affiliates as of June 30, 2003 was $8,599 million.

As of January 31, 2004, 171,231,226 shares of the Registrant’s common stock, with a par value of $1.66 ²/3 per share, were outstanding. As of that date, the aggregate market value of common stock held by non-affiliates was $9,950 million.

DOCUMENTS INCORPORATED BY REFERENCE

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PPG INDUSTRIES, INC.

AND CONSOLIDATED SUBSIDIARIES

As used in this report, the terms “PPG,” “Company,” and “Registrant” mean PPG Industries, Inc. and its subsidiaries, taken as a whole, unless the context indicates otherwise.

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Note on Incorporation by Reference

Throughout this report, various information and data are incorporated by reference to the Company’s 2003 Annual Report (hereinafter referred to as “the Annual Report”). Any reference in this report to disclosures in the Annual Report shall constitute incorporation by reference only of that specific information and data into this Form 10-K.

10            2003 Annual Report and Form 10-K    •    PPG Industries, Inc.

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Part I

Item 1. Business

PPG Industries, Inc., incorporated in Pennsylvania in 1883, is comprised of three basic business segments: coatings, glass and chemicals. Within these business segments, PPG has followed a program of directing its resources of people, capital and technology into selected areas to build upon positions of leadership. Areas in which resources have been focused are industrial, aerospace, packaging, architectural, automotive original and refinish coatings; flat glass, automotive original and replacement glass, and continuous-strand fiber glass; and chlor-alkali and specialty chemicals. Each of the businesses in which PPG is engaged is highly competitive. However, the diversification of product lines and worldwide markets served tend to minimize the impact on PPG’s total sales and earnings of changes in demand for a particular product line or in a particular geographic area. Reference is made to Note 22, “Business Segment Information,” under Item 8 of this Form 10-K for financial information relating to business segments.

Coatings

PPG is a major supplier of protective and decorative coatings. The coatings business involves the supply of protective and decorative finishes for industrial equipment, appliances and packaging; factory-finished aluminum extrusions and coils; aircraft; automotive original equipment; and other industrial and consumer products. In addition to supplying finishes to the automotive original equipment market, PPG supplies automotive refinishes to the aftermarket. PPG is also using its product knowledge and experience to provide services to certain of its customers that extend beyond the sale of PPG products. PPG revenues from these service solutions, excluding the related sale of PPG products, were small in 2003 but are expected to be a source of future growth. The coatings industry is highly competitive and consists of a few large firms with global presence and many smaller firms serving local or regional markets. PPG competes in its primary markets with the world’s largest coatings companies, most of which have global operations, and many smaller regional coatings companies. Product development, innovation, quality and technical and customer service have been stressed by PPG and have been significant factors in developing an important supplier position by PPG’s coatings business.

In the industrial and automotive original portions of the coatings business, PPG sells directly to a variety of manufacturing companies. Industrial and automotive original coatings are formulated specifically for the customer’s needs and application methods. PPG also supplies adhesives and sealants for the automotive industry and metal pretreatments and related chemicals for industrial and automotive applications. The packaging portion of the coatings business supplies finishes for aerosol, food and beverage containers for consumer products. The automotive refinish business produces coatings products for automotive repair and refurbishing and specialty coatings for sign and fleet markets. Its products are sold primarily through distributors. Product performance, technology, quality and technical and customer service are major competitive factors in these coatings businesses.

The architectural finishes business consists primarily of coatings used by painting and maintenance contractors and by consumers for decoration and maintenance. PPG’s products are sold through company-owned stores, home centers, mass merchandisers, paint dealers, independent distributors, and directly to customers. Price, quality, distribution and brand recognition are key competitive factors in the architectural finishes market.

The aerospace business primarily supplies coatings, sealants and transparencies for aircraft serving the commercial, military and general aviation markets as well as sealants for architectural insulating glass units. The aerospace business distributes products directly to aircraft manufacturers, maintenance and aftermarket customers around the world.

The coatings businesses operate production facilities around the world. North American production facilities consist of 22 plants in the United States, two in Canada and one in Mexico. The three largest facilities in the United States are the Delaware, Ohio, plant, which primarily produces automotive refinishes and certain automotive original and industrial coatings; the Oak Creek, Wis., plant, which primarily produces industrial coatings and certain automotive original coatings; and the Cleveland, Ohio, plant, which primarily produces automotive original coatings. Outside North America, PPG operates five plants in Italy, three plants each in China, Germany and Spain, two plants each in Brazil, England and France, and one plant each in Argentina, Australia, Malaysia, the Netherlands, Thailand and Turkey. PPG owns equity interests in operations in Canada, India, South Korea and Taiwan. Additionally, the automotive coatings business operates seven service centers in the United States, two each in Mexico and Poland, and one each in Argentina, Canada, France and Portugal to provide just-in-time delivery and service to selected automotive assembly plants. Fifteen training centers each in the United States and Europe, 12 in Asia, three in South America, two in Canada, and one in Mexico are in operation. These centers provide training for automotive aftermarket refinish customers. The aerospace business operates a global network of 13 application support centers that provide customer technical support, on-time delivery of products, and improvements to customer efficiency and productivity. Also, four automotive original coatings application centers throughout the world that provide testing facilities for customer paint processes and new products are in operation. The average number of persons employed by the coatings segment during 2003 was 15,900.

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Glass

PPG is one of the major producers of flat glass, fabricated glass and continuous-strand fiber glass in the world. PPG’s major markets are residential and commercial construction, the furniture and electronics industries, automotive original equipment, automotive replacement and other markets. Most glass products are sold directly to manufacturing and construction companies, although in many instances products are sold directly to independent distributors and through PPG distribution outlets. PPG manufactures flat glass by the float process and fiber glass by the continuous-strand process. PPG also provides claims processing services to insurance companies and the automotive after market through its wholly-owned subsidiary LYNX Services, L.L.C.

The bases for competition are price, quality, technology and customer service. The Company competes with six major producers of flat glass, six major producers of fabricated glass and three major producers of fiber glass throughout the world. In certain glass and fiber glass markets, there is increasing competition from other producers in low labor cost countries.

PPG’s principal glass production facilities are in North America and Europe. Fourteen plants operate in the United States, of which six produce automotive original and replacement glass products, five produce flat glass, and three produce fiber glass products. There are three plants in Canada, two of which produce automotive original and replacement glass products and one produces flat glass. One plant each in England and the Netherlands produces fiber glass. PPG owns equity interests in operations in China, Mexico, Taiwan, the United States and Venezuela and a majority interest in a glass distribution company in Japan. Additionally, there are four satellite operations in the United States, two satellite operations in Canada and one in Mexico that provide limited fabricating or assembly and just-in-time product delivery to selected automotive customer locations, one satellite coating facility in the United States for flat glass products and one satellite tempering and fabrication facility in the United States for flat glass products. There are also three insurance claim management centers. The average number of persons employed by the glass segment during 2003 was 11,300.

Chemicals

PPG is a major producer and marketer of chlor-alkali chemicals and a supplier of specialty chemicals. The primary chlor-alkali products are chlorine, caustic soda, vinyl chloride monomer, chlorinated solvents, chlorinated benzenes and calcium hypochlorite. Most of these products are sold directly to manufacturing companies in the chemical processing, rubber and plastics, paper, minerals, metals, and water treatment industries. The primary products of PPG’s specialty chemicals businesses are Transitions^® lenses; optical monomers; amorphous silicas for tire, battery separator, and other businesses; and Teslin^® synthetic printing sheet; advanced intermediates and bulk active ingredients for the pharmaceutical industry; and phosgene derivatives used in plastics, agricultural, pharmaceutical and other industries. Transitions^® lenses are manufactured and distributed by PPG’s 51%-owned joint venture with Essilor International.

PPG competes with six other major producers of chlor-alkali products. Price, product availability, product quality and customer service are the key competitive factors. In the specialty chemicals area, PPG’s market share varies greatly by business; product quality and performance and technical service are the most critical competitive factors.

The chemicals businesses operate production facilities around the world including five plants in the United States and one each in Canada and Mexico. The two largest facilities, located in Lake Charles, La., and Natrium, W. Va., primarily produce chlor-alkali products. Outside North America, PPG operates two plants in France and one each in Australia, Brazil, Ireland, the Netherlands, Taiwan and the Philippines. PPG owns equity interests in operations in Japan and the United States. The average number of persons employed by the chemicals segment during 2003 was 4,600.

Raw Materials and Energy

The effective management of raw materials and energy is important to PPG’s continued success. The Company’s most significant raw materials are titanium dioxide and epoxy and other resins in the coatings segment; and sand, soda ash and polyvinyl butyral in the glass segment. Energy is a significant production cost in the chemicals and glass segments. Most of the raw materials and energy used in production are purchased from outside sources, and the Company has made, and will continue to make, supply arrangements to meet the planned operating requirements for the future. Supply of critical raw materials and energy is managed by establishing contracts, multiple sources, and identifying alternative materials or technology, whenever possible.

Research and Development

Research and development costs, including depreciation of research facilities, during 2003, 2002 and 2001 were $306 million, $289 million and $283 million, respectively. PPG owns and operates several research and development facilities to conduct research and development involving new and improved products and processes. Additional process and product research and development work is also undertaken at many of the Company’s manufacturing plants.

Patents

PPG considers patent protection to be important. The Company’s business segments are not materially dependent upon any single patent or group of related patents. PPG received $29 million in 2003 and $26 million in 2002 and 2001 from royalties and the sale of technical know-how.

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Backlog

In general, PPG does not manufacture its products against a backlog of orders. Production and inventory levels are geared primarily to projections of future demand and the level of incoming orders.

Non-U.S. Operations

Although PPG has a significant investment in non-U.S. operations, based upon the magnitude and location of investments, management believes that the risk associated with its international operations is not significantly greater than that of domestic operations.

Employee Relations

The average number of persons employed worldwide by PPG during 2003 was 32,900. The Company has numerous collective bargaining agreements throughout the world and believes it will be able to renegotiate any such agreements on satisfactory terms. The Company believes it has good relationships with its employees.

Environmental Matters

Like other companies, PPG is subject to the existing and evolving standards relating to the protection of the environment. Capital expenditures for environmental control projects were $9 million in 2003, $8 million in 2002 and $22 million in 2001. It is expected that expenditures for such projects in 2004 will approximate $14 million. Although future capital expenditures are difficult to estimate accurately because of constantly changing regulatory standards and policies, it can be anticipated that environmental control standards will become increasingly stringent and costly.

PPG is negotiating with various government agencies concerning 89 current and former manufacturing sites, and offsite waste disposal locations, including 23 sites on the National Priority List (NPL). The number of sites is comparable with the prior year. While PPG is not generally a major contributor of wastes to these offsite waste disposal locations, each potentially responsible party may face governmental agency assertions of joint and several liability. Generally, however, a final allocation of costs is made based on relative contributions of wastes to the site. There is a wide range of cost estimates for cleanup of these sites, due largely to uncertainties as to the nature and extent of their condition and the methods that may have to be employed for their remediation. The Company has established reserves for those sites where it is probable that a liability has been incurred and the amount can be reasonably estimated. As of Dec. 31, 2003 and 2002, PPG had reserves for environmental contingencies totaling $92 million and $87million, respectively. Pretax charges against income for environmental remediation costs in 2003, 2002 and 2001 totaled $21 million, $15 million and $29 million, respectively.

The Company’s experience to date regarding environmental matters leads PPG to believe that it will have continuing expenditures for compliance with provisions regulating the protection of the environment and for present and future remediation efforts at waste and plant sites. Management anticipates that such expenditures will occur over an extended period of time. Over the past 10 years the pretax charges against income have ranged between $10 million and $49 million per year. We anticipate that charges against income in 2004 will be within that range. It is possible, however, that technological, regulatory and enforcement developments, the results of environmental studies and other factors could alter this expectation. In management’s opinion, the Company operates in an environmentally sound manner, is well positioned, relative to environmental matters, within the industries in which it operates, and the outcome of these environmental contingencies will not have a material adverse effect on PPG’s financial position or liquidity. See Note 13, “Commitments and Contingent Liabilities,” under Item 8 of this Form 10-K for additional information related to environmental matters.

Internet Access

The website address for the Company is www.ppg.com. The Company’s recent filings on Forms 10-K, 10-Q and 8-K and any amendments to those documents can be accessed without charge on that website under Financial, SEC EDGAR.

Item 2. Properties

See “Item 1. Business” for information on PPG’s production and fabrication facilities.

Generally, the Company’s plants are suitable and adequate for the purposes for which they are intended, and overall have sufficient capacity to conduct business in the upcoming year.

Item 3. Legal Proceedings

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. These lawsuits and claims, the most significant of which are described below, relate to product liability, contract, patent, environmental, antitrust and other matters arising out of the conduct of PPG’s business. To the extent that these lawsuits and claims involve personal injury and property damage, PPG believes it has adequate insurance; however, certain of PPG’s insurers are contesting coverage with respect to some of these claims, and other insurers, as they had prior to the asbestos settlement described below, may contest coverage with respect to some of the asbestos claims if the settlement is not implemented. PPG’s lawsuits and claims against others include claims against insurers

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and other third parties with respect to actual and contingent losses related to environmental, asbestos and other matters.

The result of any future litigation of such lawsuits and claims is inherently unpredictable. However, management believes that, in the aggregate, the outcome of all lawsuits and claims involving PPG, including asbestos-related claims in the event the settlement described below 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.

The Company has been named as a defendant, along with various co-defendants, in a number of antitrust lawsuits filed in federal and state courts by various plaintiffs. These suits allege PPG was involved with competitors in fixing prices and allocating markets for the automotive refinish industry and for certain glass products. Twenty-nine glass antitrust cases were filed in federal courts, all of which have been consolidated in the U.S. District Court for the Western District of Pennsylvania located in Pittsburgh, Pa., and the Court has ruled that the case may proceed as a class action. All of the initial defendants in the glass class action antitrust case, other than PPG, have entered into settlement agreements with the plaintiffs. On May 29, 2003, the Court granted PPG’s motion for summary judgment dismissing the claims against PPG in the glass class action antitrust case. The plaintiffs in that case have appealed that order to the U.S. Third Circuit Court of Appeals.

In addition, approximately 60 cases alleging antitrust violations in the automotive refinish industry have been filed in various state and federal jurisdictions. The approximately 55 federal cases have been consolidated in the U.S. District Court for the Eastern District of Pennsylvania located in Philadelphia, Pa., but these proceedings are still at an early stage. The other state cases have either been stayed pending resolution of the federal proceedings or have been dismissed. The plaintiffs in these various cases are seeking economic and treble damages and injunctive relief. PPG believes it has meritorious defenses in these lawsuits.

The Company has been a defendant since April 1994 in a suit filed by Marvin Windows and Doors (Marvin) alleging numerous claims, including breach of warranty. All of the plaintiff’s claims, other than breach of warranty, were dismissed. However, on Feb. 14, 2002, a federal jury awarded Marvin $136 million on the remaining claim. Subsequently, the court added $20 million for interest bringing the total judgment to $156 million. PPG has appealed that judgment. The appeals court has heard the parties’ arguments, but has not yet rendered its decision. PPG believes it has meritorious defenses to the plaintiff’s claims and has reasonable prospects of prevailing on appeal.

For over years, PPG has been a defendant in lawsuits involving claims alleging personal injury from exposure to asbestos. For a description of asbestos litigation affecting the Company and the terms and status of the proposed PPG Settlement Arrangement announced May 14, 2002, see Note 13, “Commitments and Contingent Liabilities,” under Item 8 of this Form 10-K.

Over the past several years, the Company and others have been named as defendants in several cases in various jurisdictions claiming damages related to exposure to lead and remediation of lead-based coatings applications. PPG has been dismissed as a defendant from most of these lawsuits and has never been found liable in any of these cases.

Item 4. Submission of Matters to a Vote of Security Holders

None.

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Part II

Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters

The information required by Item 5 regarding market information, including stock exchange listings and quarterly stock market prices, dividends and holders of common stock is included in Exhibit 99.1 filed with this Form 10-K and is incorporated herein by reference. This information is also included in the PPG Shareholder Information on page 61 of the Annual Report.

Directors who are not also Officers of the Company receive Common Stock Equivalents pursuant to the Deferred Compensation Plan for Directors and, through 2002, the Directors’ Common Stock Plan. Common Stock Equivalents are hypothetical shares of Common Stock having a value on any given date equal to the value of a share of Common Stock. Common Stock Equivalents earn dividend equivalents that are converted into additional Common Stock Equivalents but carry no voting rights or other rights afforded to a holder of Common Stock. The Common Stock Equivalents credited to Directors under both plans are exempt from registration under Section 4(2) of the Securities Act of 1933 as private offerings made only to Directors of the Company in accordance with the provisions of the plans.

Under the Company’s Deferred Compensation Plan for Directors, each Director must defer receipt of such compensation as the Board mandates. Currently, the Board mandates deferral of one-third of the annual retainer of each Director. Each Director may also elect to defer the receipt of additional amounts of their Director’s compensation. All deferred payments are held in the form of Common Stock Equivalents. Payments out of the deferred accounts are made in the form of Common Stock of the Company (and cash as to any fractional Common Stock Equivalent). The Directors, as a group, were credited with 10,607; 8,217 and 8,545 Common Stock Equivalents in 2003, 2002 and 2001, respectively, under this plan. The values of the Common Stock Equivalents, when credited, ranged from $43.47 to $64.02 in 2003, $44.70 to $57.68 in 2002 and $45.10 to $54.95 in 2001.

Under the Directors’ Common Stock Plan, each Director who neither is, nor was, an employee of the Company was credited with Common Stock Equivalents worth one-half of the Director’s basic annual retainer. Effective Jan. 1, 2003, active Directors no longer participate in the Directors’ Common Stock Plan. On that date, the Common Stock Equivalents held in each active Directors’ account in the Directors’ Common Stock Plan were transferred to their accounts in the Deferred Compensation Plan for Directors. On Dec. 31, 2003, there were only two retired Directors with accounts remaining in the Directors’ Common Stock Plan. For one retired Director, the Common Stock Equivalents are converted to cash at the fair market value of the common stock and paid in cash. For the other retired Director, the Common Stock Equivalents are converted into and paid in Common Stock of the Company (and cash as to any fractional Common Stock Equivalent). The Directors, as a group, received 141; 3,325 and 3,820 Common Stock Equivalents in 2003, 2002 and 2001, respectively, under this plan. The values of those Common Stock Equivalents, when credited, ranged from $43.47 to $62.74 in 2003, $48.73 to $57.68 in 2002 and $45.10 to $54.70 in 2001.

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The plans described in the footnotes below and filed as Exhibits 10, 10.1, 10.2, 10.3 and 10.4 to this Form 10-K are incorporated by reference in their entirety. The following table provides information as of Dec. 31, 2003 regarding the number of shares of PPG Common Stock that may be issued under PPG’s equity compensation plans.

Equity Compensation Plan Information

Incentive Compensation and Management Award Plans – both annual bonus plans. The Incentive Compensation Plan applies to approved senior Company managers. The Management Award Plan covers additional approved managers who do not participate in the Incentive Compensation Plan. A participant may receive a bonus under the applicable plan based on individual performance and business unit and corporate financial performance. Bonuses can be paid in cash or shares of PPG stock or a combination of both. The Incentive Compensation Plan was approved by shareholders in 1980. The Management Award Plan has not been approved by shareholders. One pool of shares is available for issuance to pay awards under both Plans. As of Dec. 31, 2003, there were 111,083 shares available for future issuance under both plans.

PPG Deferred Compensation Plan – allows employees who participate in certain long-term incentive plans and annual bonus plans to defer the receipt of their awards under those plans as well as up to 50% of their salary. Deferrals are credited to phantom investment accounts, which include a phantom PPG stock account, selected by the participant, which are similar to investments available under PPG’s Employee Savings Plan, which is a 401(k) plan. Amounts credited to the PPG stock account are held as Common Stock Equivalents which have the same characteristics as those described above for the Deferred Compensation Plan for Directors. Payments from the phantom PPG stock account are made in the form of PPG Common Stock (and cash as to any fractional Common Stock Equivalent). As of Dec.31, 2003, there were 47,849 shares available for future issuance under this plan.

Challenge 2000 Stock Plan – a broad-based stock option plan under which on July 1, 1998, the Company granted to substantially all active employees of the Company and its majority owned subsidiaries the option to purchase 100 shares of common stock at its then fair market value of $70 per share. Options are exercisable beginning July 1, 2003 and expire on June 30, 2008.

Employee Recognition Program – provides a method to recognize and reward employees for special efforts or innovative actions. Officers and directors may not receive awards under this program. Awards can be made in the form of cash or stock. The Board of Directors has authorized a pool of shares of Common Stock, which can be used for awards under the program. As of Dec. 31, 2003, there were 47,219 shares available for future issuance under the program.

Employee Recruiting Program – allows the Officers-Directors Compensation Committee of the Board of Directors or the Company’s Compensation and Employee Benefits Committee to grant awards of shares of PPG Common Stock or cash, or a combination of both, to persons in order to attract them to work for the Company. The Board of Directors has authorized a pool of shares of Common Stock, which can be used for awards under the program. As of Dec. 31, 2003, there were 50,000 shares available for future issuance under the program.

Item 6. Selected Financial Data

The information required by Item 6 regarding the selected financial data for the five years ended Dec. 31, 2003 is included in Exhibit 99.2 filed with this Form 10-K and is incorporated herein by reference. This information is also reported in the Eleven-Year Digest on page 60 of the Annual Report under the captions net sales, income (loss) before accounting changes, cumulative effect of accounting changes, net income (loss), earnings (loss) per common share before accounting changes, cumulative effect of accounting changes on earnings (loss) per common share, earnings (loss) per common share, earnings (loss) per common share – assuming dilution, dividends per share, total assets and long-term debt for the years 1999 through 2003.

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Management’s Discussion and Analysis

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Performance in 2003 Compared with 2002

Overall Performance

Our sales increased 9% to $8.8 billion in 2003 from $8.1 billion in 2002. Sales increased 4% due to the positive effects of foreign currency translation, primarily from our European operations, 3% due to improved volumes across all of our business segments and 2% due to higher selling prices, primarily in our chemicals segment.

The gross profit percentage decreased slightly to 36.9% in 2003 from 37.2% in 2002. Higher pension and postretirement medical costs across all of our business segments, higher energy costs in our glass and chemicals segments and inflationary cost increases were offset by higher selling prices in our chemicals segment and the benefits realized from improved manufacturing efficiencies in our coatings and glass segments.

Net income (loss) and earnings (loss) per share — diluted for 2003 and 2002 are presented in the following table along with the more significant charges that were included in those amounts.

The notes referenced in the above table are found under Item 8 of this Form 10-K.

Net income for 2003 compared to 2002 was $563 million higher. The significant charges in the table above account for $514 million of this change. The remaining $49 million increase in net income was due to a combination of factors. The factors causing 2003 net income to be higher were higher selling prices in our chemicals segment, higher sales volumes across all of our business segments, the favorable effects of foreign currency translation, primarily from our European operations, improved manufacturing efficiencies and lower overhead costs in our coatings and glass segments, the gain on the sale of certain non-strategic assets, including marketable securities, and lower interest expense due to lower debt levels in 2003. Higher pension and postretirement medical costs across all of our business segments, higher energy costs in our glass and chemicals segments and the negative effects of inflation were factors reducing 2003 net income.

Results of Business Segments

Coatings sales increased $353 million or 8% in 2003. Sales increased 6% due to the positive effects of foreign currency translation, primarily from our European operations and 2% from improved volumes primarily from our aerospace, architectural, automotive and industrial businesses. Lower pricing in our automotive business offset higher pricing in our other coatings businesses. Operating income increased $102 million in 2003. Operating income in 2003 and 2002 included pretax restructuring and other related costs of $2 million and $73 million, respectively. Factors increasing operating income were lower restructuring costs in 2003, the higher sales volumes described above, improved manufacturing efficiencies, the favorable effects of foreign currency translation and lower overhead costs. Factors decreasing operating income were inflationary cost increases and higher pension and postretirement medical costs.

Glass sales increased $79 million or 4% in 2003. Sales increased 4% from improved volumes primarily from our automotive original equipment, automotive replacement glass and flat glass businesses, net of lower volumes from our fiber glass business. Sales also increased 3% due to the positive effects of foreign currency translation, primarily from our European fiber glass operations. These sales increases were offset by a 3% decline due to lower selling prices from our automotive original equipment, automotive replacement glass and fiber glass businesses. Operating income decreased $72 million in 2003. Operating income in 2003 and 2002 included pretax restructuring and other related costs of $2 million and $1 million, respectively. Factors decreasing operating income were lower selling prices of $68 million, higher pension and postretirement medical costs of $65 million and higher energy costs of $30 million. Factors increasing operating income in 2003 by $91 million were the improved manufacturing efficiencies, lower overhead costs, the higher sales volumes described above and the favorable effects of foreign currency translation. Our fiber glass business continues to experience significant sales and earnings declines principally as a result of global industry overcapacity, which has led to substantially lower pricing.

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Management’s Discussion and Analysis

Chemicals sales increased $257 million or 17% in 2003. Sales increased 13% from higher selling prices for our commodity products. Sales also increased 3% due to the positive effects of foreign currency translation, primarily from our European operations and 1% from higher optical, fine and silicas products volumes, net of lower commodity volumes. Operating income increased $108 million in 2003. Operating income in 2002 included pretax restructuring and other related costs of $1 million. Higher commodity product pricing in 2003 increased operating earnings by $200 million while higher energy and pension and postretirement medical costs decreased operating earnings by $70 million and $18 million, respectively.

Other Significant Factors

The Company’s pretax earnings in 2003 included net periodic pension expense of $176 million compared to $54 million in 2002. The increase in pension costs is due primarily to a decrease in the market value of pension plan assets through the end of 2002, a reduction in the expected return on plan assets assumption for 2003 and the amortization of accumulated actuarial losses. In addition, the cost of other postretirement benefits in 2003 was $115 million compared to $91 million in 2002. On a combined basis, the increase in net periodic benefit cost of $146 million was $52 million for the coatings segment, $65 million for the glass segment, $18 million for the chemicals segment and $11 million for corporate.

Although the majority of the Company’s defined benefit plans continued to be underfunded on an accumulated benefit obligation (ABO) basis as of Dec. 31, 2003, the underfunded amount was lower, which resulted in an increase in shareholders’ equity through a decrease in the accumulated other comprehensive income of $147 million, aftertax. See Note 12, “Pensions and Other Postretirement Benefits,” under Item 8 of this Form 10-K for additional information.

The effective tax rate for 2003 was approximately 35% and is expected to be the same for 2004.

Outlook

The U.S. economy continued to gain strength in late 2003. Consumer confidence, buoyed by tax cuts, low interest rates and overall improvements in the U.S. equity markets, improved during the year, particularly during the fourth quarter. The commercial construction sector remained at very low levels, but has been showing signs of improvement throughout the second half of the year. Increases in industrial production have been positive since July; however, for the full year, growth was only slightly positive. Strong consumer confidence has been a key driver of the current economic recovery, including its impact on automotive sales. European automotive markets were weak at the beginning of the year but have improved although, as with the U.S. markets, sales were below the high levels of the past few years. As the new year begins, the economic reports suggest that the U.S. economy is poised for growth, extending the improvement that was seen in the second half of the year.

For 2004, we expect the U.S. economy to settle into a more stable pattern in terms of quarterly GDP growth compared to 2003. Interest rates should remain at historically low levels much of this year and continue to support economic expansion. Increasing values of stock portfolios are likely to be a positive factor while the benefit from households refinancing their debt is unlikely to provide the same boost as it has during the industrial slowdown of the past few years.

Overall global economic growth in 2004 is expected to reach its highest level since 2000, possibly exceeding three percent in terms of real GDP growth. Growth in Europe is likely to be negatively impacted by the strength of the euro, which hit a new all-time high against the U.S. dollar in January of 2004. Economic growth in South America will probably remain relatively slow compared to most other regions. The Asian market should once again post solid growth, especially in China. The Chinese economy is the fastest growing of the world’s ten largest economies, with production of vehicles and consumer goods increasing at significant rates. While this provides an attractive market for our coatings products, it also encourages expansion of production in the region, which in turn contributes to the downward price pressure on some of our glass and fiber glass businesses, where there is excess global capacity and we compete against products produced in China and other low labor cost markets.

While we have consistently focused on reducing our costs, we continue to be challenged by high and rising costs for employee benefits, particularly pensions and medical. Prior to 2001, our pension income more than offset retiree medical costs. In 2003 pension expense combined with other postretirement benefit costs were nearly $300 million. This increase in costs results from a combination of the decline in the market value of the company’s pension plans assets, due primarily to negative investment returns in the U.S. equity market during 2000 – 2002, a reduction in our expected future rate of return on pension plan assets, lower discount rate assumption and rising medical costs, particularly for prescription drugs. This cost increase translates to about $1.19 per share in lower earnings in 2003 compared with 2000. While the current low interest rate environment is expected to continue, which raises the present value of future benefit obligations, there was some brighter news in 2003 with respect to our U.S. pension plans as a result of an actual return on plan assets for the year of a little more than 25%. Consequently, the underfunded status of these plans was reduced, along with our recorded minimum pension liability. Additionally, even though the plans continue to be underfunded, we will not be required to make a mandatory funding contribution to the U.S. plans under Pension Benefit Guarantee Corporation or IRS regulations until at least 2007, even if our plan assets stay flat with December 2003 levels. These developments are also good news for 2004 pension costs which are currently estimated to be slightly less than those in 2003. Other postretirement benefit costs, however, in 2004 are expected to be about $15 million higher than last year. This increase in costs does not include the benefit of any anticipated reductions

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Management’s Discussion and Analysis

as a result of the implementation of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act). PPG is currently evaluating the provisions of the Act and its potential impact to our postretirement medical plans which we believe will ultimately reduce our accumulated postretirement benefit obligation and other postretirement benefit costs.

High natural gas costs in North America continue to be a drag on earnings. Changes in natural gas prices have a significant impact on the operating performance of our chemicals and glass segments. Each one-dollar change in the price of natural gas per mmbtu (million British thermal units) would have a direct impact of approximately $60 million to $70 million on our annual operating costs. It is difficult to predict future natural gas prices, which continue to be high and volatile. In order to reduce the risks associated with volatile prices, we use a number of techniques, which include reducing consumption through improved manufacturing processes, switching to alternative fuels and hedging. As of Dec. 31, 2003, we had hedged approximately ten percent of our anticipated natural gas requirements for 2004 at an average price of $4.80 per mmbtu. Factoring in the expected benefit from these hedges, based on an average cost for January and February 2004 of approximately $6.00, the average cost for natural gas in the first quarter of 2004 would be approximately $5.90 per mmbtu, or an increase of about 6% over the average cost of natural gas in the first quarter of 2003.

In 2004, we see the potential for increases in the prices for raw materials used in our coatings businesses, especially as the economic expansion begins to gain momentum. At the same time the anticipated growth in industrial production may strengthen the end use markets of our chlor-alkali customers and support higher ECU prices, which had declined at the end of 2003 even though they rose significantly for the full year compared with 2002.

We expect to remain focused in 2004 on serving our customer needs, investing in technology to bring new products to market and reducing our costs. Further, we have a demonstrated track record of generating cash, as evidenced by the $3.1 billion in cash from operating activities over the 2001 – 2003 time period. After capital spending, which we have managed tightly, and payment of dividends to our shareholders, we have been directing our cash flow to reduce debt by more than $1.3 billion over the past three years. We plan to use our cash in a similar manner in 2004.

We are well positioned to face the challenges that come our way during 2004. We remain confident that our focus on growing revenues while continuously working to improve our manufacturing efficiencies and lower our costs will enable PPG to once again take advantage of economic growth, both in the U.S. and international markets.

Accounting Standard Adopted in 2004

Effective Jan. 1, 2004, we adopted the fair value method of recording stock-based compensation, as defined in Statement of Financial Accounting Standards (SFAS) No. 123, for stock options awarded to employees after the date of adoption and for previously issued stock options that were not vested as of Jan. 1, 2004 using the modified prospective transition method. We expect the impact of adoption to increase 2004 stock-based compensation expense by approximately $10 million, aftertax, or $0.06 per share. This impact reflects the fact that beginning in 2004 stock option grants under the PPG Stock Plan will vest three years after the date of grant. Previously, original grants of stock options under this plan vested after one year. As a result of this vesting provision and assuming the number of options granted in 2004 and 2005 and the fair value of those options is comparable to those granted in 2003, the impact of this accounting change will grow to approximately $0.09 and $0.12 per share in 2005 and 2006, respectively, at which time a full annual run rate of expense is reached. Additionally, under the modified prospective transition method we are required to record a deferred tax asset of $9 million and a corresponding increase to additional paid-in capital equal to the deferred tax benefit that would have been recognized in 2003 had compensation expense been recorded under the fair value provisions of SFAS No. 123 for options outstanding at the date of adoption but not fully vested.

Performance in 2002 Compared with 2001

Overall Performance

Our 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.

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Management’s Discussion and Analysis

Net (loss) income and (loss) earnings per share – diluted for 2002 and 2001 are presented in the following table along with the more significant charges that were included in those amounts.

The notes referenced in the above table are found under Item 8 of this Form 10-K.

Net (loss) income for 2002 compared to 2001 was $456 million lower. The significant charges in the table above account for $474 million of this change. The remaining $18 million increase in net (loss) income was 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 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 aftertax or $0.20 a share.

Results of Business Segments

Coatings sales increased $72 million or 2% 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 $110 million in 2002. Operating income in 2002 and 2001 included pretax restructuring and other related costs of $73 million and $83 million, respectively. The increase in operating income is attributable to higher sales volume, lower raw material and overhead costs, improved manufacturing efficiencies, lower restructuring costs in 2002 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 $165 million or 7% in 2002. 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 $112 million in 2002. Operating income in 2002 and 2001 included pretax restructuring and other related costs of $1 million and $10 million, respectively. 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, lower restructuring costs in 2002 and lower energy and overhead costs.

Chemicals sales decreased $9 million in 2002. 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
$33 million in 2002. Operating income in 2002 and 2001 included pretax restructuring and other related costs of $1 million and $7 million, respectively. The increase in operating income is attributable to improved sales volume, improved manufacturing efficiencies across all of our businesses, lower energy costs, lower restructuring costs in 2002, and lower environmental remediation expenses, partially offset by lower selling prices for our chlor-alkali products and higher pension and postretirement medical costs.

Other Significant Factors

The Company’s pretax loss in 2002 included net periodic pension expense of $54 million as compared to net periodic pension income of $53 million in 2001. The increase in net periodic pension expense is due primarily to a decrease in the market value of pension plan assets, a reduction of the expected return on plan assets assumption for 2002 and the amortization of accumulated actuarial losses.

Additionally as of Dec. 31, 2002, the majority of the Company’s defined benefit pension plans had an ABO in excess of plan assets. As a result, the Company recorded an additional minimum pension liability adjustment in 2002. This adjustment reduced the prepaid pension asset by $912

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Management’s Discussion and Analysis

million, increased the intangible pension asset by $96 million and the minimum pension liability by $326 million and reflected a deferred tax benefit of $416 million with a resulting reduction in shareholders’ equity through an increase in the accumulated other comprehensive loss of $726 million.

In 2002, the Company resolved all matters related to its federal income tax returns for the years 1994 to 1998, including matters that were on appeal related to the 1994 to 1996 tax returns. In connection with the resolution of these matters, the Company surrendered in July 2002 certain company-owned life insurance policies and received proceeds of $32 million, which are included in “Reductions of other property and investments” in the investing activities section in the Statement of Cash Flows under Item 8 of this Form 10-K.

The decrease in short-term debt during 2002 is due principally to the repayment of various U.S. and non-U.S. debt obligations.

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. In a suit filed by Marvin Windows and Doors, PPG has appealed the $156 million judgment awarded by a federal jury. The appeals court has heard the parties’ arguments, but has not yet rendered its decision. PPG believes it has meritorious defenses to the plaintiff’s claims and has reasonable prospects of prevailing on appeal. See Note 13, “Commitments and Contingent Liabilities,” under Item 8 of this Form 10-K for an expanded description of this case and certain other lawsuits, including the proposed PPG Settlement Arrangement for asbestos claims announced on May 14, 2002. As discussed in Note 13, 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 13 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. As of Dec. 31, 2003 and 2002, PPG had reserves for environmental contingencies totaling $92 million and $87 million, respectively. Pretax charges against income for environmental remediation costs in 2003, 2002 and 2001 totaled $21 million, $15 million and $29 million, respectively, and are included in “Other charges” in the accompanying statement of income. Cash outlays related to such environmental remediation aggregated $16 million, $22 million and $19 million in 2003, 2002 and 2001, respectively. In addition to the amounts currently reserved, the Company may be subject to loss contingencies related to environmental matters estimated to be as much as $200 million to $400 million, which range is unchanged from the prior year end. Such unreserved losses are reasonably possible but are not currently considered to be probable of occurrence. Management anticipates that the resolution of the Company’s environmental contingencies will occur over an extended period of time. Over the past 10 years the pretax charges against income have ranged between $10 million and $49 million per year. We anticipate that charges against income in 2004 will be within that range. See Note 13, “Commitments and Contingent Liabilities,” under Item 8 of this Form 10-K for an expanded description of certain of these environmental contingencies. 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.

In June 2003, our partner in a fiber glass joint venture in South America filed for bankruptcy. Upon resolution of the bankruptcy proceedings, the partner’s ownership interest may transfer to one of its senior secured creditors or be sold. While PPG expects operations at the joint venture to continue, the Company is currently evaluating its options with respect to this venture, which include its sale or the liquidation of the venture. Should liquidation occur, PPG’s exposure to loss would be limited to $12 million, which includes a combination of the Company’s investment, outstanding receivables and a loan guarantee related to this venture.

Impact of Inflation

PPG’s financial statements are prepared on the historical cost basis, which does not completely account for the effects of inflation.

In 2003, the increase in production costs due to the negative effects of inflation, including the impact of higher energy costs in our glass and chemicals segments, was offset by the impact of higher selling prices in our chemicals segment and the improved manufacturing efficiencies in our coatings and glass segments. In 2002, the decline in selling prices and the negative effects of inflation on our production costs were not fully recovered through improved manufacturing efficiencies across all of our businesses and lower raw material and natural gas costs. In 2001, the increase in production costs due to the negative effects of inflation was not fully recovered through price increases and manufacturing efficiencies, which were adversely impacted by lower production volumes.

In 2004, the expected inflationary and market pressures on costs as well as a decline in selling prices will not be fully recovered by ongoing improvements in manufacturing efficiencies.

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Management’s Discussion and Analysis

Liquidity and Capital Resources

During the past three years, we continued to have sufficient financial resources to meet our operating requirements, to fund our capital spending, share repurchase programs and pension plans and to pay increasing dividends to our shareholders.

Cash from operating activities was $1,123 million, $872 million and $1,060 million in 2003, 2002 and 2001, respectively. Capital spending was $220 million, $260 million and $301 million in 2003, 2002 and 2001, respectively. This spending related to modernization and productivity improvements, expansion of existing businesses, environmental control projects and business acquisitions, which amounted to $3 million, $22 million and $10 million in 2003, 2002 and 2001, respectively. Capital spending, excluding acquisitions, is expected to be in the range of $250 million to $300 million during 2004.

We periodically review our array of businesses in comparison to our overall strategic and performance objectives. As part of this review, we may acquire or divest of certain businesses or enter into joint ventures with other companies. During 2004, we anticipate that any acquisitions completed will be funded through a combination of cash generated from operations or from the sale of other businesses and, to a lesser extent, external funding sources or the issuance of stock.

Dividends paid to shareholders totaled $294 million, $287 million and $283 million in 2003, 2002 and 2001, respectively. PPG has paid uninterrupted dividends since 1899, and 2003 marked the 32nd consecutive year of increased dividend payments to shareholders. Over time, our goal is to sustain our dividends at approximately one-third of our earnings per share.

The Company has two authorized share repurchase programs. Under the program initiated in November 1998, there are 0.9 million of common stock authorized for repurchase remaining. In October 2000, we authorized another program to repurchase an additional 10 million shares of common stock. During 2003 and 2002, the Company did not repurchase any shares of its common stock and in 2001 repurchased only 0.1 million shares at a cost of $5 million. However, the Company announced on January 15, 2004, that it will begin to repurchase shares of common stock from time-to-time in market transactions of small amounts. Through mid-February 2004, we have repurchased 0.1 million shares of PPG common stock at a cost of $6 million.

While we had no mandatory funding contribution required in 2003 under Pension Benefit Guarantee Corporation or IRS regulations for our U.S. pension plans, we chose to make a voluntary contribution to these plans of $22 million. For 2004, we have no mandatory funding contribution required for our U.S. plans, although we may make further voluntary contributions. During 2003, 2002 and 2001 we made contributions to our non-U.S. pension plans totaling $41 million, $20 million and $13 million, respectively. We expect to make contributions to our non-U.S. plans in 2004 of approximately $30 million.

During 2003, after meeting the needs for funding the matters described above, we were able to repay nearly $400 million of debt, bringing the total reduction in debt over the last three years to more than $1.3 billion. Consequently, the ratio of total debt, including capital leases, to total debt and equity declined to 36% at Dec. 31, 2003 from 49% at Dec. 31, 2002. We were also able to increase our cash by about $375 million in 2003. The Company has invested this cash on a short-term basis in high credit quality cash equivalents.

Cash from operations and the Company’s debt capacity are expected to continue to be sufficient to fund capital spending, share repurchase, dividend payments, contributions to pension plans, amounts due under the asbestos settlement and operating requirements, including PPG’s significant contractual obligations, which are presented in the following table along with amounts due under the asbestos settlement:

The unconditional purchase commitments are principally take-or-pay obligations related to the purchase of certain materials, including industrial gases and natural gas, consistent with customary industry practice. These also include PPG’s commitment to purchase electricity and steam from the RS Cogen joint venture discussed in Note 5, “Investments,” under Item 8 of this Form 10-K.

See Note 7, “Debt and Bank Credit Agreements and Leases,” under Item 8 of this Form 10-K for details regarding the use and availability of committed and uncommitted lines of credit, letters of credit, guarantees, and debt covenants.

In addition to the amounts available under the lines of credit, the Company may issue up to $500 million aggregate principal amount of debt securities under a shelf registration statement filed with the Securities and Exchange Commission (SEC) in July 1999.

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Management’s Discussion and Analysis

Off-Balance Sheet Arrangements

The Company’s off-balance sheet arrangements include the operating leases and unconditional purchase obligations disclosed in the “Liquidity and Capital Resources” section in the contractual obligations table as well as letters of credit and guarantees as discussed in Note 7, “Debt and Bank Credit Arrangements and Leases,” under Item 8 of this Form 10-K.

Critical Accounting Estimates

Management has evaluated the accounting policies used in the preparation of the financial statements and related notes under Item 8 of this Form 10-K and believes those policies to be reasonable and appropriate. We believe that the most critical accounting estimates used in the preparation of our financial statements relate to accounting for contingencies, under which we accrue a loss when it is probable that a liability has been incurred and the amount can be reasonably estimated, and to accounting for pensions, other postretirement benefits, goodwill and other identifiable intangible assets with indefinite lives because of the importance of management judgment in making the estimates necessary to apply these policies.

Contingencies, by their nature, relate to uncertainties that require management to exercise judgment both in assessing the likelihood that a liability has been incurred as well as in estimating the amount of potential loss. The most important contingencies impacting our financial statements are those related to the collectibility of accounts receivable, environmental remediation, pending litigation against the Company and the resolution of matters related to open tax years. For more information on these matters, see Note 3, “Working Capital Detail,” Note 11, “Income Taxes” and Note 13, “Commitments and Contingent Liabilities” under Item 8 of this Form 10-K.

Accounting for pensions and other postretirement benefits involves estimating the cost of benefits to be provided well into the future and attributing that cost over the time period each employee works. To accomplish this, extensive use is made of assumptions about inflation, investment returns, mortality, turnover, medical costs and discount rates. These assumptions are reviewed annually. See Note 12, “Pensions and Other Postretirement Benefits,” under Item 8 of this Form 10-K for information on these plans and the assumptions used.

As discussed in Note 1, “Summary of Significant Accounting Policies,” under Item 8 of this Form 10-K, the Company tests goodwill and identifiable intangible assets with indefinite lives for impairment at least annually by comparing the fair value of the reporting units to their carrying values. Fair values are estimated using discounted cash flow methodologies that are based on projections of the amounts and timing of future revenues and cash flows. Based on this testing, none of our goodwill was impaired as of Dec. 31, 2003; however, the fair value of our fiber glass business declined during 2003. As a result, the related goodwill of $47 million is at risk in 2004 for impairment should our projected recovery in this business not occur.

As part of our ongoing financial reporting process, a collaborative effort is undertaken involving PPG managers with functional responsibility for financial, credit, environmental, legal, tax and benefit matters and outside advisors such as consultants, engineers, lawyers and actuaries. The results of this effort provide management with the necessary information on which to base their judgments on these contingencies and to develop the estimates and assumptions used to prepare the financial statements.

We believe that the amounts recorded in the financial statements under Item 8 of this Form 10-K related to these contingencies, pensions, other postretirement benefits, goodwill and other identifiable intangible assets with indefinite lives are based on the best estimates and judgments of the appropriate PPG management, although actual outcomes could differ from our estimates.

Currency

During 2003, the U.S. dollar weakened against the currencies of most of the countries in which PPG operates, most notably against the Euro, the British Pound Sterling and the Canadian dollar. The effects of translating the net assets of our operations denominated in non-U.S. currencies to the U.S. dollar increased consolidated net assets by $328 million. In addition, the weak U.S. dollar had a favorable impact on 2003 pretax earnings of approximately $50 million compared to 2002.

The Euro and the British Pound Sterling strengthened against the U.S. dollar 18% and 11%, respectively, during 2002. The effects of translating the net assets and net earnings of our operations denominated in these currencies to the U.S. dollar increased consolidated net assets by approximately $140 million but did not have a significant impact on the results of operations.

This was offset, in part, by the continued devaluation of the Argentine peso, which reduced our net investment in Argentina by $39 million to a total of $29 million as of Dec. 31, 2002. Any reduction in the value of these net assets resulting from a further devaluation of the Argentine peso will result in a direct charge to the accumulated other comprehensive loss component of shareholders’ equity.

Research and Development

Innovation and technology have been a hallmark of our Company’s success throughout its history. Research and development costs totaled over 3% of sales in each of the past three years, representing a level of expenditure that we expect to continue in 2004. These costs include technology-driven improvements to our manufacturing processes and customer technical service, as well as the costs of developing new products. Because of our broad array of products and customers, we are not materially dependent upon any single technology platform.

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made

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Management’s Discussion and Analysis

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 SEC. Also, note the following cautionary statements.

Many factors could cause actual results to differ materially from the Company’s forward-looking statements. Among these factors are increasing price and product competition by foreign and domestic competitors, fluctuations in the cost and availability of raw materials, the ability to maintain favorable supplier relationships and arrangements, 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 those rates, and the unpredictability of existing and possible future litigation, including litigation that could result if PPG’s Settlement Agreement for asbestos claims does not become effective. Further, it is not possible to predict or identify all such factors. Consequently, while the list of factors presented here is 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.

The consequences of material differences in the results as compared to those anticipated in the forward-looking statements could include, among other things, business disruption, operational problems, financial loss, legal liability to third parties and similar risks, any of which could have a material adverse effect on the Company’s consolidated financial condition, operations or liquidity.

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Item 7a. Quantitative and Qualitative Disclosures About Market Risk

PPG is exposed to market risks related to changes in foreign currency exchange rates, interest rates, natural gas prices and PPG’s stock price arising from transactions that are entered into in the normal course of business. The Company may enter into derivative financial instrument transactions in order to manage or reduce this market risk. A detailed description of these exposures and the Company’s risk management policies are provided in Note 9, “Derivative Financial Instruments,” under Item 8 of this Form 10-K.

The following disclosures summarize PPG’s exposure to market risks and information regarding the use and fair value of derivatives employed to manage our exposure to such risks. Quantitative sensitivity analyses have been provided to reflect how reasonable unfavorable changes in market rates can impact PPG’s financial results, cash flows and financial condition.

Foreign currency forward and option contracts outstanding during 2003 and 2002 were used to hedge PPG’s exposure to foreign currency transaction and translation risk. The fair value of these contracts was an asset of $0.2 million and $1 million as of Dec. 31, 2003 and 2002, respectively. The potential reduction in PPG’s earnings resulting from adverse changes in the exchange rates on the fair value of its outstanding foreign currency hedge contracts of 10% for European currencies and 20% for Asian and South American currencies would have totaled approximately $0.2 million and $1 million as of Dec.31, 2003 and 2002, respectively.

PPG had non-U.S. dollar-denominated debt of $28 million and $317 million as of Dec. 31, 2003 and 2002, respectively. The significant decrease in the debt levels is attributable to the Company’s ongoing efforts to reduce overall debt levels, by deploying a portion of its operating cash flows for this purpose. A weakening of the U.S. dollar by 10% against European currencies and by 20% against Asian and South American currencies would have resulted in unrealized translation losses of approximately $7 million and $46 million as of Dec. 31, 2003 and 2002, respectively.

Interest rate swaps are used to manage a portion of PPG’s interest rate risk and, as of Dec. 31, 2003 and 2002, the fair value of the interest rate swaps was an asset of $9 million and $23 million, respectively. The fair value of these swaps would have decreased by $10 million and $7 million as of Dec.31, 2003 and 2002, respectively, if variable interest rates increased by 10%. A 10% increase in interest rates in the U.S., Canada, Mexico and Europe and a 20% increase in interest rates in Asia and South America would have affected PPG’s variable rate debt obligations by increasing interest expense by approximately $1 million and $3 million as of Dec. 31, 2003 and 2002, respectively. Further, a 10% reduction in interest rates would have increased the present value of the Company’s fixed rate debt by approximately $40 million and $53 million as of Dec. 31, 2003 and 2002, respectively. Such changes would not have had a material effect on PPG’s annual earnings or cash flows.

The fair value of natural gas swap and option contracts was an asset of $3 million and $24 million as of Dec. 31, 2003 and 2002, respectively. These contracts were entered into to reduce PPG’s exposure to rising prices of natural gas. A 10% reduction in the price of natural gas would result in a loss in the fair value of the underlying natural gas swap and option contracts outstanding as of Dec.31, 2003 and 2002 of approximately $3 million and $8 million, respectively.

An equity forward arrangement was entered into to hedge the Company’s exposure to changes in fair value of its future obligation to contribute PPG stock into an asbestos settlement trust (see Note 9, “Derivative Financial Instruments” and Note 13, “Commitments and Contingent Liabilities,” under Item 8 of this Form 10-K). In addition to the change in PPG’s stock price, contributing to the change in fair value of this instrument was the increase in the number of shares purchased by the bank from 504,900 shares as of Dec. 31, 2002 to 904,900 shares as of Dec. 31, 2003. The fair value of this instrument as of Dec. 31, 2003 and 2002 was an asset of $15 million and $1 million, respectively. A 10% decrease in PPG’s stock price would have reduced the value of this instrument by $6 million and $3 million, as of Dec. 31, 2003 and 2002, respectively.

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Financial and Operating Review

Item 8. Financial Statements and Supplementary Data

Independent Auditors’ Report

To the Board of Directors and Shareholders of PPG Industries, Inc.:

We have audited the accompanying consolidated balance sheet of PPG Industries, Inc. and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of income, shareholders’ equity, comprehensive income and cash flows for each of the three years in the period ended December 31, 2003 set forth on pages 27 to 52. Our audits also included the financial statement schedule listed in Item 15 on page 54. These financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of PPG Industries, Inc. and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, on January 1, 2003, the Company changed its method of accounting for asset retirement obligations to adopt Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations”. Also as discussed in Note 1 to the consolidated financial statements, on January 1, 2002, the Company changed its method of accounting for goodwill and other intangible assets to adopt Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.”

/s/    Deloitte & Touche LLP

Deloitte & Touche LLP

Pittsburgh, Pennsylvania

January 15, 2004

Management Statement

Responsibility for Preparation of the Financial Statements

The management of PPG Industries, Inc. is responsible for the preparation of the financial statements included in this Annual Report.

To ensure the reliability of financial data, PPG has established, and maintains, an internal control system. We believe the internal controls in use give reasonable assurance that financial reports do not contain any material misstatement.

We believe that the financial statements and related notes in this report are accurate in all material respects, and that they were prepared according to accounting principles generally accepted in the United States of America. The financial statements include amounts that are based on the best estimates and judgments of management.

We believe, further, that the other financial information contained in this Annual Report is consistent with the financial statements.

/s/    Raymond W. LeBoeuf

Raymond W. LeBoeuf

Chairman of the Board

and Chief Executive Officer

/s/    William H. Hernandez

William H. Hernandez

Senior Vice President, Finance

26            2003 Annual Report and Form 10-K    •    PPG Industries, Inc.

Table of Contents

Statement of Income

The accompanying notes to the financial statements are an integral part of this consolidated statement.

2003 Annual Report and Form 10-K    •    PPG Industries, Inc.            27

Table of Contents

Balance Sheet

Shares outstanding were 170,926,639 and 169,442,193 as of Dec. 31, 2003 and 2002, respectively.

The accompanying notes to the financial statements are an integral part of this consolidated statement.

28            2003 Annual Report and Form 10-K    •    PPG Industries, Inc.

Table of Contents

Statement of Shareholders’ Equity

Statement of Comprehensive Income