PPG Industries Inc. Business Report FY2006 (FY ended Dec. 2006)

Business Highlights

Business overview
Glass sales ales increased 1% due to improved volumes resulting from a combination of organic growth and an acquisition. A slight positive impact on sales due to foreign currency translation offset a slight decline in pricing. Volumes increased in the performance glazings, automotive replacement glass and services and fiber glass businesses. Automotive OEM glass volume declined during 2006. Pricing was also up in performance glazings, but declined in the other glass businesses. During 2006, the new joint venture in China started producing high labor content fiber glass reinforcement products, which will allow the Company to refocus its U.S. production capacity on higher margin, direct process products. The 2006 earnings of its automotive OEM glass operating segment declined year over year by $9 million, following a decline of $30 million in 2005.

Industrial Coatings sales increased 4% due to acquisitions, 4% due to increased volumes in the automotive, industrial and packaging coatings operating segments, 2% due to higher selling prices, particularly in the industrial and packaging coatings businesses and 1% due to the positive effects of foreign currency translation.

In June 2006, the Company acquired the remaining 50-percent share of Dongju Industrial Co., Ltd., from its partners led by Dongju chairman Yeong Kil Sohn. PPG has owned 50 percent of Dongju since 1985 and has accounted for this investment under the equity method of accounting. Dongju serves the automotive original equipment manufacture (OEM), refinish, industrial and packaging coatings segments in South Korea. Dongju has manufacturing locations in Chon Ahn and Busan, South Korea. Terms for the Dongju acquisition were not disclosed. PPG estimates that the company will increase its reported coatings revenues by approximately US$400 million, or 7 percent, on an annual basis as a result of this acquisition together with the acquisition of Performance Coatings and Finishes business of Ameron International Corporation announced on the same day. (From a press release on Jun. 29, 2006)

During the third quarter of 2006, the Company acquired Australian-based Protec Pty. Ltd. and the assets of Fortec Paints Ltd., Protec's New Zealand business. These businesses manufacture and distribute automotive refinish coatings and light industrial and high performance coatings.

In the Glass business Segment, the Company predicts that significant structural changes continue to occur in the North American automotive industry, including the loss of U.S. market share by General Motors, Ford and Daimler-Chrysler. This has created a challenging and competitive environment for all suppliers to the domestic OEMs, including its operating segment. In 2007, the automotive OEM glass business will continue to focus on cost reduction, developing new, value added products and increasing sales volume.


R&D Expenditure

(in million dollars) FY2006 FY2005 FY2004
318 309 303