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Financial Instruments, Hedging Activities and Fair Value Measurements | 9 Months Ended
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Sep. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Financial Instruments, Hedging Activities and Fair Value Measurements | Financial Instruments, Hedging Activities and Fair Value Measurements Financial instruments include cash and cash equivalents, short-term investments, cash held in escrow, marketable equity securities, accounts receivable, company-owned life insurance, accounts payable, short-term and long-term debt instruments, and derivatives. The fair values of these financial instruments approximated their carrying values at September 30, 2020 and December 31, 2019, in the aggregate, except for long-term debt instruments. Hedging Activities The Company has exposure to market risk from changes in foreign currency exchange rates and interest rates. As a result, financial instruments, including derivatives, have been used to hedge a portion of these underlying economic exposures. Certain of these instruments qualify as fair value, cash flow, and net investment hedges upon meeting the requisite criteria, including effectiveness of offsetting hedged or underlying exposures. Changes in the fair value of derivatives that do not qualify for hedge accounting are recognized in Income before income taxes in the period incurred. PPG’s policies do not permit speculative use of derivative financial instruments. PPG enters into derivative financial instruments with high credit quality counterparties and diversifies its positions among such counterparties in order to reduce its exposure to credit losses. The Company did not realize a credit loss on derivatives during the three and nine month periods ended September 30, 2020 and 2019. All of PPG's outstanding derivative instruments are subject to accelerated settlement in the event of PPG’s failure to meet its debt or payment obligations under the terms of the instruments’ contractual provisions. In addition, if the Company would be acquired and its payment obligations under its derivative instruments’ contractual arrangements are not assumed by the acquirer, or if PPG would enter into bankruptcy, receivership or reorganization proceedings, its outstanding derivative instruments would also be subject to accelerated settlement. There were no derivative instruments de-designated or discontinued as hedging instruments during the three and nine month periods ended September 30, 2020 and 2019 and there were no gains or losses deferred in Accumulated other comprehensive loss on the condensed consolidated balance sheet that were reclassified to Income before income taxes in the condensed consolidated statement of income in the nine month periods ended September 30, 2020 and 2019 related to hedges of anticipated transactions that were no longer expected to occur. Fair Value Hedges The Company uses interest rate swaps from time to time to manage its exposure to changing interest rates. When outstanding, the interest rate swaps are typically designated as fair value hedges of certain outstanding debt obligations of the Company and are recorded at fair value. PPG has interest rate swaps which converted $525 million of fixed rate debt to variable rate debt. These swaps are designated as fair value hedges and are carried at fair value. Changes in the fair value of these swaps and changes in the fair value of the related debt are recorded in interest expense in the accompanying condensed consolidated statement of income. The fair value of these interest rate swaps was $74 million and $35 million at September 30, 2020 and December 31, 2019, respectively. Cash Flow Hedges PPG designates certain foreign currency forward contracts as cash flow hedges of the Company’s exposure to variability in exchange rates on third party transactions denominated in foreign currencies. There were no outstanding cash flow hedges at September 30, 2020. The underlying notional amounts relating to foreign currency forward contracts were $43 million at December 31, 2019. As of December 31, 2019, the fair value of all foreign currency forward contracts designated as cash flow hedges was a liability of $1 million. Net Investment Hedges PPG uses cross currency swaps and foreign currency euro-denominated debt to hedge a significant portion of its net investment in its European operations, as follows: As of September 30, 2020 and December 31, 2019, PPG had U.S. dollar to euro cross currency swap contracts with a total notional amount of $875 million and designated these contracts as hedges of the Company's net investment in its European operations. During the term of these contracts, PPG will receive payment in U.S. dollars and make payments in euros to the counterparties. As of September 30, 2020 and December 31, 2019, the fair value of the U.S. dollar to euro cross currency swap contracts was a net asset of $34 million and a net asset of $48 million, respectively. As of September 30, 2020 and December 31, 2019, PPG had designated €2.0 billion of euro-denominated borrowings as hedges of a portion of its net investment in the Company's European operations. The carrying value of these instruments as of September 30, 2020 and December 31, 2019 was $2.3 billion and $2.2 billion, respectively. Other Financial Instruments PPG uses foreign currency forward contracts to manage net transaction exposures that do not qualify for hedge accounting; therefore, the change in the fair value of these instruments is recorded in Other charges in the condensed consolidated statement of income in the period of change. Underlying notional amounts related to these foreign currency forward contracts were $1.1 billion and $2.8 billion at September 30, 2020 and December 31, 2019, respectively. As of September 30, 2020 and December 31, 2019 the fair value of these contracts was a net a net liability of $3 million a nd $6 million, respectively. Gains/Losses Deferred in Accumulated Other Comprehensive Loss As of September 30, 2020, the Company had accumulated pretax unrealized translation gains in Accumulated other comprehensive loss on the condensed consolidated balance sheet related to the euro-denominated borrowings, foreign currency forward contracts and the cross currency swaps of $120 million. As of December 31, 2019, the Company had accumulated pretax unrealized translation gains of $235 million. The following table summarizes the location within the condensed consolidated financial statements and amount of gains/(losses) related to derivative and debt financial instruments for the nine months ended September 30, 2020 and 2019. All dollar amounts are shown on a pretax basis.
| September 30, 2020 |  |  |  | September 30, 2019 |  |  |  | Caption In Condensed Consolidated Statement of Income
($ in millions) | Gain Deferred in OCI |  | Gain Recognized |  | (Loss)Gain Deferred in OCI |  | Gain Recognized |  |
Economic |  |  |  |  |  |  |  |  |
Foreign currency forward contracts | $— |  |  | $27 |  |  | $— |  |  | $44 |  |  | Other charges
Fair Value |  |  |  |  |  |  |  |  |
Interest rate swaps | — |  |  | 8 |  |  | — |  |  | 2 |  |  | Interest expense
Cash Flow |  |  |  |  |  |  |  |  |
Foreign currency forward contracts | — |  |  | — |  |  | (4) |  |  | 4 |  |  | Other charges and Cost of sales
Total Cash Flow | $— |  |  | $35 |  |  | ($4) |  |  | $50 |  |  |
Net Investment |  |  |  |  |  |  |  |  |
Cross currency swaps | $14 |  |  | $13 |  |  | $34 |  |  | $12 |  |  | Interest expense
Foreign denominated debt | 101 |  |  | — |  |  | 130 |  |  | — |  |  |
Total Net Investment | $115 |  |  | $13 |  |  | $164 |  |  | $12 |  |  |
Fair Value Measurements The Company follows a fair value measurement hierarchy to measure its assets and liabilities. As of September 30, 2020 and December 31, 2019, the assets and liabilities measured at fair value on a recurring basis were cash equivalents, equity securities and derivatives. In addition, the Company measures its pension plan assets at fair value (see Note 13, "Employee Benefit Plans" under Item 8 in the 2019 Form 10-K for further details). The Company's financial assets and liabilities are measured using inputs from the following three levels: Level 1 inputs are quoted prices in active markets for identical assets and liabilities that the Company has the ability to access at the measurement date. Level 1 inputs are considered to be the most reliable evidence of fair value as they are based on unadjusted quoted market prices from various financial information service providers and securities exchanges. Level 2 inputs are directly or indirectly observable prices that are not quoted on active exchanges, which include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means. The fair values of the derivative instruments reflect the instruments' contractual terms, including the period to maturity, and uses observable market-based inputs, including forward curves. Level 3 inputs are unobservable inputs employed for measuring the fair value of assets or liabilities. The Company does not have any recurring financial assets or liabilities that are recorded in its condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019 that are classified as Level 3 inputs. Assets and liabilities reported at fair value on a recurring basis:
| September 30, 2020 |  |  |  |  |  | December 31, 2019 |  |  |  |
($ in millions) | Level 1 |  | Level 2 |  | Level 3 |  | Level 1 |  | Level 2 |  | Level 3
Assets: |  |  |  |  |  |  |  |  |  |  |
Other current assets: |  |  |  |  |  |  |  |  |  |  |
Marketable equity securities | $5 |  |  | $— |  |  | $— |  |  | $5 |  |  | $— |  |  | $— |
Foreign currency forward contracts (a) | — |  |  | 9 |  |  | — |  |  | — |  |  | 14 |  |  | — |
Investments: |  |  |  |  |  |  |  |  |  |  |
Marketable equity securities | $89 |  |  | $— |  |  | $— |  |  | $80 |  |  | $— |  |  | $— |
Other assets: |  |  |  |  |  |  |  |  |  |  |
Cross currency swaps (b) | $— |  |  | $39 |  |  | $— |  |  | $— |  |  | $52 |  |  | $— |
Interest rate swaps (c) | — |  |  | 74 |  |  | — |  |  | — |  |  | 35 |  |  | — |
Liabilities: |  |  |  |  |  |  |  |  |  |  |
Accounts payable and accrued liabilities: |  |  |  |  |  |  |  |  |  |  |
Foreign currency forward contracts (a) | $— |  |  | $12 |  |  | $— |  |  | $— |  |  | $20 |  |  | $— |
Cross currency swaps (b) | — |  |  | 4 |  |  | — |  |  | — |  |  | — |  |  | — |
Foreign currency forward contracts (d) | — |  |  | — |  |  | — |  |  | — |  |  | 1 |  |  | — |
Other liabilities: |  |  |  |  |  |  |  |  |  |  |
Cross currency swap (b) | $— |  |  | $1 |  |  | $— |  |  | $— |  |  | $4 |  |  | $— |
(a) Derivatives not designated as hedging instruments | (c) Fair value hedges
(b) Net investment hedges | (d) Cash flow hedges
Long-Term Debt
($ in millions) | September 30, 2020 (a) |  | December 31, 2019 (b)
Long-term debt - carrying value | $4,954 |  |  | $5,031 |
Long-term debt - fair value | $5,520 |  |  | $5,363 |
(a) Excluding finance lease obligations of $9 million and short-term borrowings of $540 million as of September 30, 2020. (b) Excluding finance lease obligations of $11 million and short-term borrowings of $10 million as of December 31, 2019. The fair values of the debt instruments were based on discounted cash flows and interest rates then currently available to the Company for instruments of the same remaining maturities and were measured using level 2 inputs.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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