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UNITED STATES

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

PPG INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

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.     ¨

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, 2004, was $10,710 million.

As of January 31, 2005, 172,176,411 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 $11,815 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 2004 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.

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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 focused resources on 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 2004 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 equipment portions of the coatings business, PPG sells directly to a variety of manufacturing companies. Industrial and automotive original equipment 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 cockpit transparencies for commercial, military, regional jet and general aviation aircraft, 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 23 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 Japan. 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. Thirteen training centers in the United States, 15 in Europe, 10 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 14 application support centers strategically located close to our customers around the world that provide technical support and just-in time delivery of customized solutions to improve 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 2004 was 15,700.

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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 the insurance and vehicle fleet segments.

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 three satellite operations each in the United States and 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 claims management centers. The average number of persons employed by the glass segment during 2004 was 10,500.

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 precipitated silicas for tire, battery separator, and other end-use markets and Teslin^® synthetic printing sheet used in such applications as waterproof labels and identification cards; 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 the United States. The average number of persons employed by the chemicals segment during 2004 was 4,400.

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 plans to 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 2004, 2003 and 2002 were $321 million, $306 million and $289 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 $40 million in 2004, $29 million in

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2003 and $26 million in 2002 from royalties and the sale of technical know-how.

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 its domestic operations.

Employee Relations

The average number of persons employed worldwide by PPG during 2004 was 31,800. The Company has numerous collective bargaining agreements throughout the world and believes it will be able to renegotiate 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 $11 million, $9 million and $8 million in 2004, 2003 and 2002, respectively. It is expected that expenditures for such projects in 2005 will approximate $12 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. Additionally, about 20% of our chlor-alkali production capacity currently utilizes mercury cell technology. These cells are operated in accordance with applicable laws and regulations and are reviewed at least annually by state authorities. The U.S. Environmental Protection Agency (“USEPA”) has issued new regulations imposing significantly more stringent requirements on mercury emissions. These new rules are scheduled to take effect in December 2006. In order to meet the USEPA’s new air quality standards, we will need to either invest in air emissions equipment or replace this capacity with newer, non-mercury based technology. We are evaluating our options and believe that either choice can be accomplished within the government required timeframe and within the range of PPG’s normal capital spending.

PPG is negotiating with various U.S. government agencies concerning 91 current and former manufacturing sites, and offsite waste disposal locations, including 22 sites on the National Priority List. 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, 2004 and 2003, PPG had reserves for environmental contingencies totaling $81 million and $92 million, respectively. Pretax charges against income for environ-mental remediation costs in 2004, 2003 and 2002 totaled $15 million, $21 million and $15 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 2005 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 Filings.

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

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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 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. These suits allege PPG acted with competitors to fix prices and allocate markets in the flat glass and automotive refinish industries.

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. The Court has ruled that the case may proceed as a class action. Similar state court actions are inactive pending resolution of the federal proceedings. 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 appealed that order to the U.S. Third Circuit Court of Appeals. On Sept. 30, 2004, the U.S. Third Circuit Court of Appeals affirmed in part and reversed in part the dismissal of PPG and remanded the case for further proceedings. PPG has since petitioned the U.S. Supreme Court for permission to appeal the decision of the U.S. Third Circuit Court of Appeals. If the U.S. Supreme Court rejects PPG’s petition for review, the case will likely proceed to trial in 2006.

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 as a class action in the U.S. District Court for the Eastern District of Pennsylvania located in Philadelphia, Pa. Certain of the defendants in the federal automotive refinish case have settled. This case is still at an early stage and discovery is continuing with the remaining defendants. Except for a case in California and a recently filed case in Vermont, the state automotive refinish cases have either been stayed pending resolution of the federal proceedings or have been dismissed.

The plaintiffs in these various antitrust cases are seeking economic and treble damages as well as injunctive relief. PPG believes it has meritorious defenses in these antitrust 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 pre-judgment interest bringing the total judgment to $156 million. PPG has appealed that judgment. The appeals court heard the parties’ arguments on June 9, 2003, but has not yet rendered its decision. Interest will be added to the $156 million judgment against PPG during the appeals process. As of Dec. 31, 2004, the amount of the total judgment against PPG, including interest, was approximately $166 million. PPG believes it has meritorious defenses to the plaintiff’s claims and has reasonable prospects of prevailing on appeal.

For over thirty 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, Related Stockholder Matters and Issuer Purchases of Equity Securities

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 65 of this Annual Report.

Directors who are not also Officers of the Company receive Common Stock Equivalents pursuant to the PPG Industries, Inc. Deferred Compensation Plan for Directors (“PPG Deferred Compensation Plan for Directors”) and, through 2002, the PPG Industries, Inc. Directors’ Common Stock Plan (“PPG 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 PPG Deferred Compensation Plan for Directors, each Director may elect to defer the receipt of all or any portion of the compensation paid to such Director for serving as a PPG Director. 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 12,877; 10,607 and 8,217 Common Stock Equivalents in 2004, 2003 and 2002, respectively, under this plan. The values of the Common Stock Equivalents, when credited, ranged from $57.69 to $65.09 in 2004, $43.47 to $64.02 in 2003 and $44.70 to $57.68 in 2002.

Under the PPG 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 PPG Directors’ Common Stock Plan. On that date, the Common Stock Equivalents held in each active Directors’ account in the PPG Directors’ Common Stock Plan were transferred to their accounts in the PPG Deferred Compensation Plan for Directors. On Dec. 31, 2004, there were only two retired Directors with accounts remaining in the PPG 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 93; 141 and 3,325 Common Stock Equivalents in 2004, 2003 and 2002, respectively, under this plan. The values of those Common Stock Equivalents, when credited, ranged from $57.69 to $65.09 in 2004, $43.47 to $62.74 in 2003 and $48.73 to $57.68 in 2002.

Issuer Purchases of Equity Securities

The following table summarizes the Company’s stock repurchase activity for the three months ended Dec. 31, 2004:

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The plans described in the footnotes below and included as Exhibits to this Form 10-K are incorporated herein by reference in their entirety. The following table provides information as of Dec. 31, 2004, regarding the number of shares of PPG Common Stock that may be issued under PPG’s equity compensation plans.

Equity Compensation Plan Information

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Item 6. Selected Financial Data

The information required by Item 6 regarding the selected financial data for the five years ended Dec. 31, 2004 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 64 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 2000 through 2004.

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

Performance in 2004 Compared with 2003

Overall Performance

Our sales increased 9% to $9.5 billion in 2004 from $8.8 billion in 2003. Sales increased 7% due to improved volumes across all of our business segments and 3% due to the positive effects of foreign currency translation, primarily from our European operations. These sales increases were offset by a 1% decline due to lower selling prices.

Gross profit increased $279 million while the gross profit percentage remained steady at 36.9% in 2004 and 2003. The sales volume increase, favorable impact of currency, improved manufacturing efficiencies, higher selling prices in our chemicals segment and lower pension and other postretirement benefit costs across all of our business segments increased our gross profit. Lower selling prices in our glass and coatings segments and higher natural gas, energy, raw material and labor costs lowered our gross profit.

Selling, general and administrative expense, depreciation and research and development costs declined slightly as a percentage of sales to 25% despite increasing $142 million in 2004. These costs increased in part to support sales volume growth in 2004 and also because of the impact of foreign currency, inflation and our decision to begin expensing stock options in 2004.

Interest expense was $17 million less in 2004 than in 2003 reflecting the year over year reduction in debt of $316 million. Other charges declined $30 million in 2004 due to a combination of lower environmental remediation, legal and workers compensation expenses and the absence of certain 2003 charges. Other earnings were $28 million higher in 2004 due primarily to higher earnings from our equity affiliates.

The effective tax rate for 2004 was 30.29% compared to 34.76% for the full year 2003. The reduction in the rate for 2004 reflects the benefit of the subsidy offered pursuant to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Medicare Act”), not being subject to tax, the continued improvement in the geographical mix of non-U.S. earnings and the favorable resolution during 2004 of matters related to two open U.S. federal income tax years.

Net income in 2004 totaled $683 million, an increase of $189 million over 2003, and earnings per share – diluted increased $1.06 to $3.95 per share.

Results of Business Segments

Coatings sales increased $440 million or 9% in 2004. Sales increased 6% from improved volumes across all our coatings businesses and 4% due to the positive effects of foreign currency translation, primarily from our European operations. Sales declined 1% due to lower selling prices, principally in our automotive business. Operating income increased $58 million in 2004. Factors increasing operating income were the higher sales volume ($135 million) and the favorable effects of currency translation described above and improved manufacturing efficiencies of $20 million. Factors decreasing operating income were inflationary cost increases of $82 million and lower selling prices.

Glass sales increased $54 million or 3% in 2004. Sales increased 6% from improved volumes primarily from our flat glass, fiber glass, and automotive original equipment businesses net of lower volumes in our automotive replacement glass business. Sales also increased 2% due to the positive effects of foreign currency translation, primarily from our European fiber glass operations. Sales declined 5% due to lower selling prices across all our glass businesses. Operating income in 2004 increased $98 million. Factors increasing operating income were improved manufacturing efficiencies of $110 million, higher sales volume ($53 million) described above, higher equity earnings and the gains on the sale/leaseback of precious metals of $19 million. The principal factor decreasing operating income was lower selling prices. Fiber Glass volumes were up 15% for the year, although pricing declined. With the shift of electronic printed wiring board production to Asia and the volume and pricing gains there, equity earnings from our joint venture serving that region grew in 2004. These factors combined with focused cost reductions and manufacturing efficiencies to improve the operating performance of this business, as we continue to position it for future growth in profitability.

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Management’s Discussion and Analysis

Chemicals sales increased $263 million or 15% in 2004. Sales increased 10% from improved volumes in our commodity and specialty businesses and 4% due to higher selling prices for our commodity products. Sales also increased 1% due to the positive effects of foreign currency translation, primarily from our European operations. Operating income increased $63 million in 2004. Factors increasing operating income were the higher selling prices for our commodity products and the higher sales volume ($73 million) described above, improved manufacturing efficiencies of $25 million and lower environmental expenses. Factors decreasing 2004 operating income were inflationary cost increases of $40 million and higher energy costs of $79 million. Market influences, such as fewer new drug approvals and increasing share of generic drugs, are putting pressure on the pharmaceutical industry resulting in a challenging environment for our fine chemicals business in the near-term that includes significantly lower pricing.

Other Significant Factors

The Company’s pension and other postretirement benefit costs for 2004 were $45 million lower than in 2003. This decrease reflects the market driven growth in pension plan assets that occurred in 2003, the impact of the $140 million in cash contributed to the pension plans by the Company in 2004 and the benefit of the subsidy offered pursuant to the Medicare Act, as discussed in Note 12 under Item 8 of this Form 10-K.

In October 2004, the American Jobs Creation Act of 2004 (“AJCA 2004”) was signed into law. Among its many provisions, the AJCA 2004 provides a limited opportunity in 2005 to repatriate the undistributed earnings of our non-U.S. subsidiaries at a U.S. tax cost that may be lower than the normal tax cost on such distributions. We are in the process of evaluating the impact of this provision on PPG and are awaiting final guidance from the Internal Revenue Service to complete that evaluation; however, our current estimate is that the tax cost of any dividends we decide to pay in 2005 will not increase our effective tax rate significantly. We have included the estimated net impact of the remaining provisions of the AJCA 2004, including the U.S. manufacturing deduction, in our current estimate of the effective tax rate for 2005 of 31.5%.

Outlook

In 2004, the U.S. economy continued to gain momentum from the expansion that began in late 2003. Consumer confidence has been strong and has been buoyed by low interest rates, employment growth and improved U.S. equity markets that reached their highest level in nearly three years. Industrial production, which grew at a rate of 7% at the beginning of 2004, slowed in the second half of the year, but still achieved a solid 4.5% growth rate for the year. Industrial production is the economic metric that most positively correlates with our volume growth because it reflects activity in PPG’s broad end-use markets. The commercial construction sector grew at a 2% rate for the year but showed signs of further improvement during the second half of the year. For the full year, North American sales of light vehicles were up slightly as were European automotive sales.

As the new year begins, most economists expect that the U.S. economy will continue to perform well in 2005 though growth may perhaps be at a slower pace. Inflation is expected to remain relatively low, despite rising energy costs and raw material prices, because of increasing productivity. Interest rates should remain at relatively low levels.

The healthy U.S. economy should help to support overall global economic growth in 2005. Global competition combined with productivity improvements will keep overall inflation in check and sustain worldwide economic growth. Growth in the European economy will likely be adversely impacted by the strength of the Euro, which at the end of 2004 was near its all-time high against the U.S. dollar. However, the strengthening economy of Eastern Europe may be a mitigating factor.

The Asian economies are expected to continue to record relatively high growth rates, especially in China. This growth remains strong, yet tempered due to a variety of government efforts aimed at preventing the economy from overheating. China’s infrastructure growth is expected to continue to impact the overall global economy via increased demand for basic goods and commodities. Additionally, China and other low labor cost countries will continue to put downward pressure on worldwide pricing of consumer goods. As was the case in 2004, we expect China’s expansion to benefit our coatings, fiber glass and optical businesses, while requiring our glass and commodity chemicals businesses to continue their ongoing focus on reducing costs.

In 2005, we will remain committed to our PPG Blueprint values of serving our customers, introducing new technologies and achieving operational excellence through our continuing focus on reducing costs. The prospect of favorable global economic conditions this year lead us to expect continued sales growth in 2005. Important cost issues in 2005 will continue to include pensions, other postretirement benefits, natural gas and raw materials.

While we have consistently focused on reducing our costs, we continue to be challenged by higher costs for employee benefits, particularly pensions and medical. Prior to 2001, our pension income more than offset other postretirement benefit costs. In 2004, pension expense combined with other postretirement benefit costs were nearly $250 million. This cost increase translates to over $1.05 per share in lower earnings in 2004 compared with 2000. 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

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Management’s Discussion and Analysis

in the equity markets during 2000-2002, a reduction in our expected future rate of return on pension plan assets, lower discount rate assumption and rising retiree medical costs, particularly for prescription drugs. The current low interest rate environment has continued and, in fact, the discount rate at Dec. 31, 2004, was approximately 25 basis points lower than at Dec. 31, 2003. This raises the present value of future benefit obligations and expense. Offsetting the negative impact of lower discount rates were the strong actual return on our U.S. plan assets of over 25% in 2003 and over 12% in 2004. Additionally, the benefit of the subsidy available under the Medicare Act reduced our accumulated postretirement benefit obligation and resulted in a reduction of our other postretirement benefit cost in 2004 of $19 million. This benefit is expected to be approximately $25 million in 2005. Based on current estimates, including the benefit of this subsidy, our pension and other postretirement benefit costs for 2005 are expected to rise only slightly from the 2004 level.

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. We currently estimate our average cost for natural gas in the first quarter of 2005 will be approximately $6.30 per mmbtu, including the impact of hedges we have in place on approximately one-third of our expected first quarter natural gas consumption. This estimate represents an increase of 12% over our first quarter 2004 cost of natural gas.

In the second half of 2004, we began to see increases in the prices for raw materials used in our coatings businesses, as a result of the industrial expansion, supply/demand imbalance and increases in supplier costs for oil and other inputs. Year-over-year coatings raw material costs will rise at least $50 million in the first quarter of 2005 and are likely to continue to be higher for the remainder of 2005. We plan to combat the impact of these rising costs by seeking alternate supply sources, reformulating our products, improving our production processes and yields and raising our selling prices.

These same factors, along with high capacity utilization, resulted in tighter supplies of chlor-alkali products. This led to a sharp increase in ECU prices in the second half of 2004 which benefited our commodity chemicals business. ECU prices in the fourth quarter 2004 were up 31% versus the fourth quarter of 2003. We expect these tight supply/demand conditions in the market to continue at least through the first half of 2005.

Our focus on our Blueprint values has