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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
–––––––––––––––––––––––––––––––––––––––––––––––––
FORM 10-Q
–––––––––––––––––––––––––––––––––––––––––––––––––
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 1-1687
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
PPG INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
25-0730780
(I.R.S. Employer Identification No.)
Pennsylvania
(State or Other Jurisdiction of Incorporation or Organization)
One PPG Place, Pittsburgh, Pennsylvania
(Address of Principal Executive Offices)
15272
(Zip Code)
(412) 434-3131
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol(s) |  | Name of each exchange on which registered
Common Stock, par value $1.66 2/3 |  | PPG |  | New York Stock Exchange
0.875% Notes due 2022 |  | PPG 22 |  | New York Stock Exchange
0.875% Notes due 2025 |  | PPG 25 |  | New York Stock Exchange
1.400% Notes due 2027 |  | PPG 27 |  | New York Stock Exchange

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer | ☑ | Accelerated Filer | ☐
Non-accelerated Filer | ☐ | Smaller Reporting Company | ☐
|  | Emerging Growth Company | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
As of September 30, 2021, 237,400,853 shares of the Registrant’s common stock, par value $1.66 2/3 per share, were outstanding.

PPG INDUSTRIES, INC. AND SUBSIDIARIES
INDEX

|  | PAGE
Part I. Financial Information |
Item 1. | Financial Statements (Unaudited): |
| Condensed Consolidated Statement of Income | 2
| Condensed Consolidated Statement of Comprehensive Income | 3
| Condensed Consolidated Balance Sheet | 4
| Condensed Consolidated Statement of Shareholders' Equity | 5
| Condensed Consolidated Statement of Cash Flows | 7
| Notes to Condensed Consolidated Financial Statements | 8
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 27
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 41
Item 4. | Controls and Procedures | 42
Part II. Other Information |
Item 1. | Legal Proceedings | 42
Item 1A. | Risk Factors | 43
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 43
Item 6. | Exhibits | 43
Signatures |  | 45

1

Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PPG INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Income (Unaudited)
($ in millions, except per share amounts)

| Three Months Ended September 30 |  | Nine Months Ended September 30
| 2021 |  | 2020 |  | 2021 |  | 2020
Net sales | $4,372 |  |  | $3,685 |  |  | $12,612 |  |  | $10,077 |
Cost of sales, exclusive of depreciation and amortization | 2,733 |  |  | 2,026 |  |  | 7,594 |  |  | 5,637 |
Selling, general and administrative | 950 |  |  | 836 |  |  | 2,796 |  |  | 2,507 |
Depreciation | 100 |  |  | 96 |  |  | 286 |  |  | 280 |
Amortization | 46 |  |  | 36 |  |  | 126 |  |  | 104 |
Research and development, net | 114 |  |  | 92 |  |  | 323 |  |  | 279 |
Interest expense | 30 |  |  | 34 |  |  | 91 |  |  | 107 |
Interest income | (7) |  |  | (4) |  |  | (19) |  |  | (18) |
Impairment charge | 21 |  |  | — |  |  | 21 |  |  | — |
Business restructuring, net | — |  |  | — |  |  | (21) |  |  | 172 |
Other charges | — |  |  | 21 |  |  | 28 |  |  | 45 |
Other income | (56) |  |  | (24) |  |  | (146) |  |  | (53) |
Income before income taxes | $441 |  |  | $572 |  |  | $1,533 |  |  | $1,017 |
Income tax expense | 96 |  |  | 124 |  |  | 370 |  |  | 224 |
Income from continuing operations | $345 |  |  | $448 |  |  | $1,163 |  |  | $793 |
Income from discontinued operations, net of tax | — |  |  | — |  |  | — |  |  | 3 |
Net income attributable to controlling and noncontrolling interests | $345 |  |  | $448 |  |  | $1,163 |  |  | $796 |
Net income attributable to noncontrolling interests | (1) |  |  | (6) |  |  | (10) |  |  | (9) |
Net income (attributable to PPG) | $344 |  |  | $442 |  |  | $1,153 |  |  | $787 |
Amounts attributable to PPG: |  |  |  |  |  |  |
Income from continuing operations, net of tax | $344 |  |  | $442 |  |  | $1,153 |  |  | $784 |
Income from discontinued operations, net of tax | — |  |  | — |  |  | — |  |  | 3 |
Net income (attributable to PPG) | $344 |  |  | $442 |  |  | $1,153 |  |  | $787 |
Earnings per common share: |  |  |  |  |  |  |
Income from continuing operations, net of tax | $1.45 |  |  | $1.87 |  |  | $4.85 |  |  | $3.32 |
Income from discontinued operations, net of tax | — |  |  | — |  |  | — |  |  | 0.01 |
Earnings per common share (attributable to PPG) | $1.45 |  |  | $1.87 |  |  | $4.85 |  |  | $3.33 |
Earnings per common share – assuming dilution: |  |  |  |  |  |  |
Income from continuing operations, net of tax | $1.43 |  |  | $1.86 |  |  | $4.81 |  |  | $3.30 |
Income from discontinued operations, net of tax | — |  |  | — |  |  | — |  |  | 0.01 |
Earnings per common share (attributable to PPG) - assuming dilution | $1.43 |  |  | $1.86 |  |  | $4.81 |  |  | $3.31 |

The accompanying notes to the condensed consolidated financial statements are an integral part of this condensed consolidated statement.
2

Table of Contents
Condensed Consolidated Statement of Comprehensive Income (Unaudited)
($ in millions)

| Three Months Ended September 30 |  | Nine Months Ended September 30
| 2021 |  | 2020 |  | 2021 |  | 2020
Net income attributable to the controlling and noncontrolling interests | $345 |  |  | $448 |  |  | $1,163 |  |  | $796 |
Other comprehensive (loss)/income, net of tax: |  |  |  |  |  |  |
Defined benefit pension and other postretirement benefits | 6 |  |  | 3 |  |  | (1) |  |  | 9 |
Unrealized foreign currency translation adjustments | (215) |  |  | 136 |  |  | (276) |  |  | (453) |
Other comprehensive (loss)/income, net of tax | ($209) |  |  | $139 |  |  | ($277) |  |  | ($444) |
Total comprehensive income | $136 |  |  | $587 |  |  | $886 |  |  | $352 |
Less: amounts attributable to noncontrolling interests: |  |  |  |  |  |  |
Net income | (1) |  |  | (6) |  |  | (10) |  |  | (9) |
Unrealized foreign currency translation adjustments | 2 |  |  | (2) |  |  | 5 |  |  | 6 |
Comprehensive income attributable to PPG | $137 |  |  | $579 |  |  | $881 |  |  | $349 |

The accompanying notes to the condensed consolidated financial statements are an integral part of this condensed consolidated statement.
3

Table of Contents
PPG INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet (Unaudited)
($ in millions)

| September 30, 2021 |  | December 31, 2020
Assets |  |  |
Current assets: |  |  |
Cash and cash equivalents | $1,216 |  |  | $1,826 |
Short-term investments | 88 |  |  | 96 |
Receivables, net | 3,382 |  |  | 2,726 |
Inventories | 2,249 |  |  | 1,735 |
Other current assets | 365 |  |  | 415 |
Total current assets | $7,300 |  |  | $6,798 |
Property, plant and equipment (net of accumulated depreciation of $4,517 and $4,349) | 3,350 |  |  | 3,127 |
Goodwill | 6,206 |  |  | 5,102 |
Identifiable intangible assets, net | 2,842 |  |  | 2,351 |
Deferred income taxes | 311 |  |  | 379 |
Investments | 272 |  |  | 267 |
Operating lease right-of-use assets | 906 |  |  | 847 |
Other assets | 696 |  |  | 685 |
Total | $21,883 |  |  | $19,556 |
Liabilities and Shareholders’ Equity |  |  |
Current liabilities: |  |  |
Accounts payable and accrued liabilities | $4,378 |  |  | $3,792 |
Restructuring reserves | 187 |  |  | 281 |
Short-term debt and current portion of long-term debt | 704 |  |  | 578 |
Current portion of operating lease liabilities | 194 |  |  | 180 |
Total current liabilities | $5,463 |  |  | $4,831 |
Long-term debt | 6,092 |  |  | 5,171 |
Operating lease liabilities | 709 |  |  | 677 |
Accrued pensions | 933 |  |  | 945 |
Other postretirement benefits | 718 |  |  | 733 |
Deferred income taxes | 642 |  |  | 435 |
Other liabilities | 916 |  |  | 949 |
Total liabilities | $15,473 |  |  | $13,741 |
Commitments and contingent liabilities (Note 14) |  |  |
Shareholders’ equity: |  |  |
Common stock | $969 |  |  | $969 |
Additional paid-in capital | 1,065 |  |  | 1,008 |
Retained earnings | 20,226 |  |  | 19,469 |
Treasury stock, at cost | (13,136) |  |  | (13,158) |
Accumulated other comprehensive loss | (2,871) |  |  | (2,599) |
Total PPG shareholders’ equity | $6,253 |  |  | $5,689 |
Noncontrolling interests | 157 |  |  | 126 |
Total shareholders’ equity | $6,410 |  |  | $5,815 |
Total | $21,883 |  |  | $19,556 |

The accompanying notes to the condensed consolidated financial statements are an integral part of this condensed consolidated statement.
4

Table of Contents
PPG INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Shareholders' Equity (Unaudited)
($ in millions)

| Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive (Loss)/Income | Total PPG | Non-controlling Interests | Total
January 1, 2021 | $969 |  | $1,008 |  | $19,469 |  | ($13,158) |  | ($2,599) |  | $5,689 |  | $126 |  | $5,815 |
Net income attributable to the controlling and noncontrolling interests | — |  | — |  | 378 |  | — |  | — |  | $378 |  | 7 |  | $385 |
Other comprehensive loss, net of tax | — |  | — |  | — |  | — |  | (131) |  | ($131) |  | (2) |  | ($133) |
Cash dividends | — |  | — |  | (128) |  | — |  | — |  | ($128) |  | — |  | ($128) |
Issuance of treasury stock | — |  | 25 |  | — |  | 10 |  | — |  | $35 |  | — |  | $35 |
Stock-based compensation activity | — |  | (4) |  | — |  | — |  | — |  | ($4) |  | — |  | ($4) |
Reductions in noncontrolling interests | — |  | — |  | — |  | — |  | — |  | — |  | (1) |  | (1) |
March 31, 2021 | $969 |  | $1,029 |  | $19,719 |  | ($13,148) |  | ($2,730) |  | $5,839 |  | $130 |  | $5,969 |
Net income attributable to the controlling and noncontrolling interests | — |  | — |  | 431 |  | — |  | — |  | $431 |  | 2 |  | $433 |
Other comprehensive income/(loss), net of tax | — |  | — |  | — |  | — |  | 66 |  | $66 |  | (1) |  | $65 |
Cash dividends | — |  | — |  | (128) |  | — |  | — |  | ($128) |  | — |  | ($128) |
Issuance of treasury stock | — |  | 17 |  | — |  | 10 |  | — |  | $27 |  | — |  | $27 |
Stock-based compensation activity | — |  | 7 |  | — |  | — |  | — |  | $7 |  | — |  | $7 |
Dividends paid on subsidiary common stock to noncontrolling interests | — |  | — |  | — |  | — |  | — |  | — |  | (4) |  | ($4) |
Acquisition of noncontrolling interests (Note 3) | — |  | — |  | — |  | — |  | — |  | — |  | 53 |  | $53 |
Reductions in noncontrolling interests | — |  | — |  | — |  | — |  | — |  | — |  | (11) |  | ($11) |
June 30, 2021 | $969 |  | $1,053 |  | $20,022 |  | ($13,138) |  | ($2,664) |  | $6,242 |  | $169 |  | $6,411 |
Net income attributable to the controlling and noncontrolling interests | — |  | — |  | 344 |  | — |  | — |  | $344 |  | 1 |  | $345 |
Other comprehensive loss, net of tax | — |  | — |  | — |  | — |  | (207) |  | ($207) |  | (2) |  | ($209) |
Cash dividends | — |  | — |  | (140) |  | — |  | — |  | ($140) |  | — |  | ($140) |
Issuance of treasury stock | — |  | 3 |  | — |  | 2 |  | — |  | $5 |  | — |  | $5 |
Stock-based compensation activity | — |  | 9 |  | — |  | — |  | — |  | $9 |  | — |  | $9 |
Dividends paid on subsidiary common stock to noncontrolling interests | — |  | — |  | — |  | — |  | — |  | — |  | (1) |  | ($1) |
Reductions in noncontrolling interests | — |  | — |  | — |  | — |  | — |  | — |  | (10) |  | ($10) |
September 30, 2021 | $969 |  | $1,065 |  | $20,226 |  | ($13,136) |  | ($2,871) |  | $6,253 |  | $157 |  | $6,410 |

5

Table of Contents

| Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive (Loss)/Income | Total PPG | Non-controlling Interests | Total
January 1, 2020 | $969 |  | $950 |  | $18,906 |  | ($13,191) |  | ($2,350) |  | $5,284 |  | $119 |  | $5,403 |
Net income attributable to the controlling and noncontrolling interests | — |  | — |  | 243 |  | — |  | — |  | $243 |  | 5 |  | $248 |
Other comprehensive loss, net of tax | — |  | — |  | — |  | — |  | (692) |  | ($692) |  | (10) |  | ($702) |
Cash dividends | — |  | — |  | (120) |  | — |  | — |  | ($120) |  | — |  | ($120) |
Issuance of treasury stock | — |  | 12 |  | — |  | 4 |  | — |  | $16 |  | — |  | $16 |
Stock-based compensation activity | — |  | (8) |  | — |  | — |  | — |  | ($8) |  | — |  | ($8) |
March 31, 2020 | $969 |  | $954 |  | $19,029 |  | ($13,187) |  | ($3,042) |  | $4,723 |  | $114 |  | $4,837 |
Net income attributable to the controlling and noncontrolling interests | — |  | — |  | 102 |  | — |  | — |  | $102 |  | (2) |  | $100 |
Other comprehensive income, net of tax | — |  | — |  | — |  | — |  | 117 |  | $117 |  | 2 |  | $119 |
Cash dividends | — |  | — |  | (121) |  | — |  | — |  | ($121) |  | — |  | ($121) |
Issuance of treasury stock | — |  | 2 |  | — |  | 3 |  | — |  | $5 |  | — |  | $5 |
Stock-based compensation activity | — |  | 6 |  | — |  | — |  | — |  | $6 |  | — |  | $6 |
Dividends paid on subsidiary common stock to noncontrolling interests | — |  | — |  | — |  | — |  | — |  | — |  | (3) |  | ($3) |
Reductions in noncontrolling interests | — |  | — |  | — |  | — |  | — |  | — |  | (5) |  | ($5) |
June 30, 2020 | $969 |  | $962 |  | $19,010 |  | ($13,184) |  | ($2,925) |  | $4,832 |  | $106 |  | $4,938 |
Net income attributable to the controlling and noncontrolling interests | — |  | — |  | 442 |  | — |  | — |  | $442 |  | 6 |  | $448 |
Other comprehensive income, net of tax | — |  | — |  | — |  | — |  | 137 |  | $137 |  | 2 |  | $139 |
Cash dividends | — |  | — |  | (127) |  | — |  | — |  | ($127) |  | — |  | ($127) |
Issuance of treasury stock | — |  | 10 |  | — |  | 8 |  | — |  | $18 |  | — |  | $18 |
Stock-based compensation activity | — |  | 8 |  | — |  | — |  | — |  | $8 |  | — |  | $8 |
Dividends paid on subsidiary common stock to noncontrolling interests | — |  | — |  | — |  | — |  | — |  | — |  | (1) |  | (1) |
Reductions in noncontrolling interests | — |  | — |  | — |  | — |  | — |  | — |  | 1 |  | 1 |
September 30, 2020 | $969 |  | $980 |  | $19,325 |  | ($13,176) |  | ($2,788) |  | $5,310 |  | $114 |  | $5,424 |

The accompanying notes to the condensed consolidated financial statements are an integral part of this condensed consolidated statement.
6

Table of Contents
PPG INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows (Unaudited)

| Nine Months Ended September 30
($ in millions) | 2021 |  | 2020
Operating activities: |  |  |
Net income attributable to controlling and noncontrolling interests | $1,163 |  |  | $796 |
Less: Income from discontinued operations | — |  |  | (3) |
Income from continuing operations | 1,163 |  |  | 793 |
Adjustments to reconcile net income to cash from operations: |  |  |
Depreciation and amortization | 412 |  |  | 384 |
Pension (income) expense | (27) |  |  | 29 |
Debt extinguishment charge | — |  |  | 7 |
Environmental remediation charges | 26 |  |  | 12 |
Business restructuring, net | (21) |  |  | 172 |
Impairment charge | 21 |  |  | — |
Stock-based compensation expense | 39 |  |  | 29 |
Gain from sale of production facility | (34) |  |  | — |
Equity affiliate income, net of dividends | (6) |  |  | 2 |
Deferred income taxes | 58 |  |  | 4 |
Cash contributions to pension plans | (3) |  |  | (7) |
Cash used for restructuring actions | (60) |  |  | (98) |
Change in certain asset and liability accounts (net of acquisitions): |  |  |
Receivables | (376) |  |  | (63) |
Inventories | (334) |  |  | 36 |
Other current assets | 24 |  |  | 26 |
Accounts payable and accrued liabilities | 423 |  |  | (23) |
Taxes and interest payable | (52) |  |  | (72) |
Noncurrent assets and liabilities, net | (74) |  |  | 19 |
Other | (73) |  |  | (87) |
Cash from operating activities - continuing operations | $1,106 |  |  | $1,163 |
Cash from operating activities - discontinued operations | — |  |  | 1 |
Cash from for operating activities | $1,106 |  |  | $1,164 |
Investing activities: |  |  |
Capital expenditures | (220) |  |  | (170) |
Business acquisitions, net of cash balances acquired | (2,137) |  |  | (45) |
Proceeds from sale of production facility | 47 |  |  | — |
Payments for the settlement of cross currency swap contracts | (4) |  |  | (5) |
Proceeds from the settlement of cross currency swap contracts | 15 |  |  | 21 |
Other | 23 |  |  | 8 |
Cash used for investing activities | ($2,276) |  |  | ($191) |
Financing activities: |  |  |
Net change in borrowing with maturities of three months or less | — |  |  | (7) |
Proceeds from Term Loan Credit Agreement, net of fees | 699 |  |  | — |
Proceeds on commercial paper and short-term debt, net of payments | 375 |  |  | 1,397 |
Repayment of term loan | (400) |  |  | (1,000) |
Proceeds from revolving credit facility | — |  |  | 800 |
Repayment of revolving credit facility | — |  |  | (800) |
Proceeds from the issuance of debt, net of discounts and fees | 692 |  |  | 415 |
Repayment of long-term debt | (173) |  |  | (503) |
Repayment of acquired debt | (207) |  |  | (12) |
Issuance of treasury stock | 46 |  |  | 23 |
Dividends paid on PPG common stock | (396) |  |  | (368) |
Payments related to tax withholding on stock-based compensation awards | (18) |  |  | (11) |
Other | (12) |  |  | (39) |
Cash from financing activities | $606 |  |  | ($105) |
Effect of currency exchange rate changes on cash and cash equivalents | (46) |  |  | (76) |
Net (decrease)/increase in cash and cash equivalents | ($610) |  |  | $792 |
Cash and cash equivalents, beginning of period | 1,826 |  |  | 1,216 |
Cash and cash equivalents, end of period | $1,216 |  |  | $2,008 |
Supplemental disclosures of cash flow information: |  |  |
Interest paid, net of amount capitalized | $110 |  |  | $121 |
Taxes paid, net of refunds | $376 |  |  | $293 |

The accompanying notes to the condensed consolidated financial statements are an integral part of this condensed consolidated statement.
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PPG INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
1.Basis of Presentation
The condensed consolidated financial statements included herein are unaudited and have been prepared following the requirements of the Securities and Exchange Commission (the "SEC") and accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim reporting. Under these rules, certain footnotes and other financial information that are normally required for annual financial statements can be condensed or omitted. These statements include all adjustments, consisting only of normal, recurring adjustments, necessary for a fair presentation of the financial position and shareholders' equity of PPG as of September 30, 2021 and the results of its operations and cash flows for the three and nine months ended September 30, 2021 and 2020. All intercompany balances and transactions have been eliminated. Material subsequent events are evaluated through the report issuance date and disclosed where applicable. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in PPG's 2020 Annual Report on Form 10-K (the "2020 Form 10-K").
Net sales, expenses, assets and liabilities can vary during each quarter of the year. Accordingly, the results of operations for the three and nine months ended September 30, 2021 and the trends in these unaudited condensed consolidated financial statements may not necessarily be indicative of the results to be expected for the full year.
2.New Accounting Standards
Accounting Standards Adopted in 2021
Effective January 1, 2021, PPG adopted Accounting Standards Update ("ASU") No. 2019-12, "Income Taxes - Simplifying the Accounting for Income Taxes." This ASU is intended to simplify various aspects of accounting for income taxes by eliminating certain exceptions within Accounting Standards Codification Topic 740, "Income Taxes" and to clarify certain aspects of the current accounting guidance. Adoption of this standard did not materially impact PPG's consolidated financial position, results of operations or cash flows.
Accounting Standards to be Adopted in Future Years
In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40).” This ASU simplifies the accounting for convertible debt instruments by removing certain accounting separation models as well as the accounting for debt instruments with embedded conversion features that are not required to be accounted for as derivative instruments. The ASU also updates and improves the consistency of earnings per share calculations for convertible instruments. The amendments in this ASU are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. PPG is currently assessing the potential impacts this ASU may have on its consolidated financial position, results of operations and cash flows.
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform." This ASU provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as the London Interbank Offered Rate ("LIBOR"). The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The amendments in this ASU are effective through December 31, 2022. PPG is currently assessing the potential impacts this ASU may have on its consolidated financial position, results of operations and cash flows.
3.Acquisitions and Divestitures
Acquisitions
The pro-forma impact on PPG's sales and results of operations, including the pro-forma effect of events that are directly attributable to the following acquisitions, was not significant.
Tikkurila
On June 10, 2021, PPG completed its tender offer for all of the outstanding shares of Tikkurila Ojy ("Tikkurila"). Tikkurila is a leading Nordic producer and distributor of decorative paint and coatings, including an industrial paint business that produces paints and coatings for the wood and metal industries, among others.
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As of September 30, 2021, PPG had purchased approximately 97.9% of Tikkurila's issued and outstanding shares. All remaining outstanding shares will be acquired through a squeeze out process. As of March 31, 2021, PPG owned 9.32% of the outstanding shares. As of September 30, 2021, the minority interest is classified as Noncontrolling interests on the condensed consolidated balance sheet. The company paid an aggregate purchase price of $1.7 billion, net of cash acquired. The purchase price was allocated based on information available at the acquisition date and is subject to customary post-closing adjustments. The estimated fair value of assets acquired and liabilities assumed as reflected in the preliminary purchase price allocation included goodwill and identifiable intangible assets of $1.1 billion and $601 million, respectively. The acquired identifiable intangible assets consist of indefinite-lived trademarks of $405 million and other intangible assets with finite lives of $196 million, which consist primarily of customer relationships, trade names, and acquired technology, subject to amortization over a weighted average period of 15 years. The fair values assigned to assets acquired and liabilities assumed are based on management's best estimates and assumptions as of the reporting date and are considered preliminary pending finalization of the valuation of deferred tax assets, tax liabilities, and payroll tax liabilities. See Note 5 “Goodwill and Other Identifiable Intangible Assets” for additional information.
The results of this business since the date of acquisition have been reported within two operating segments: the architectural coatings – EMEA business and the industrial coatings business. The architectural coatings – EMEA business is included within the Performance Coatings reportable business segment and the industrial coatings business is included within the Industrial Coatings reportable business segment.
Other Acquisitions
On May 14, 2021, PPG completed the acquisition of Wörwag, a global manufacturer of coatings for industrial and automotive applications. The company specializes in developing sustainable liquid, powder and film coatings. The results of this business since the date of acquisition have been reported within the automotive original equipment manufacturer ("OEM") coatings business within the Industrial Coatings reportable business segment.
On April 19, 2021, PPG announced that it had acquired Cetelon Lackfabrik GmbH, a manufacturer of coatings for automotive and light truck wheel applications. The results of this business since the date of acquisition have been reported within the automotive OEM coatings business within the Industrial Coatings reportable business segment.
On February 22, 2021, PPG completed the acquisition of VersaFlex, a manufacturer specializing in polyurea, epoxy and polyurethane coatings for water and waste water infrastructure, flooring, transportation infrastructure, and industrial applications. The results of this business since the date of acquisition have been reported within the protective and marine coatings business within the Performance Coatings reportable business segment.
Divestitures
In December 2020, PPG committed to a plan to sell certain entities in smaller, non-strategic countries. The planned sale is expected to occur in 2021. In the third quarter 2021, an incremental impairment charge of $21 million was recorded in the condensed consolidated statement of income, representing the excess net book value of the net assets over the anticipated sales proceeds less costs to sell these entities. The assets and liabilities of these entities are reported as held for sale in Other current assets and Accounts payable and accrued liabilities, respectively, on the accompanying condensed consolidated balance sheet as of September 30, 2021 and December 31, 2020. The results of these entities are reported within the Performance Coatings reportable business segment.
The major classes of assets and liabilities of these entities included in the PPG consolidated balance sheet are as as follows:

($ in millions) | September 30, 2021 |  | December 31, 2020
Cash and cash equivalents | $14 |  |  | $20 |
Receivables | — |  |  | 5 |
Inventories | — |  |  | 5 |
Assets held for sale | $14 |  |  | $30 |
Accounts payable and accrued liabilities | $14 |  |  | $14 |
Operating lease liabilities | 6 |  |  | 6 |
Deferred income taxes | 3 |  |  | 3 |
Other liabilities | 1 |  |  | 1 |
Liabilities held for sale | $24 |  |  | $24 |

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4.Inventories

($ in millions) | September 30, 2021 |  | December 31, 2020
Finished products | $1,241 |  |  | $1,021 |
Work in process | 254 |  |  | 187 |
Raw materials | 714 |  |  | 490 |
Supplies | 40 |  |  | 37 |
Total Inventories | $2,249 |  |  | $1,735 |

Most U.S. inventories are valued using the last-in, first-out method. These inventories represented approximately 28% and 33% of total inventories at September 30, 2021 and December 31, 2020, respectively. If the first-in, first-out method of inventory valuation had been used, inventories would have been $153 million and $110 million higher as of September 30, 2021 and December 31, 2020, respectively.
5.Goodwill and Other Identifiable Intangible Assets
The Company tests indefinite-lived intangible assets and goodwill for impairment by either performing a qualitative evaluation or a quantitative test at least annually, or more frequently if an indication of impairment arises. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the fair value of a reporting unit or asset is less than its carrying amount.
Although it was determined that a triggering event had not occurred as of September 30, 2021, the Company will continue to monitor the impacts of the COVID-19 pandemic on the Company and significant changes in key assumptions that could result in future period impairment charges. The Company did not identify an indication of impairment for each of its reporting units and indefinite-lived intangible assets as of September 30, 2021.
The change in the carrying amount of goodwill attributable to each reportable segment for the nine months ended September 30, 2021 was as follows:

($ in millions) | Performance Coatings |  | Industrial Coatings |  | Total
January 1, 2021 | $4,023 |  |  | $1,079 |  |  | $5,102 |
Acquisitions, including purchase accounting adjustments | 1,156 |  |  | 135 |  |  | 1,291 |
Foreign currency impact | (156) |  |  | (31) |  |  | (187) |
September 30, 2021 | $5,023 |  |  | $1,183 |  |  | $6,206 |

A summary of the carrying value of the Company's identifiable intangible assets is as follows:

| September 30, 2021 |  | December 31, 2020
($ in millions) | Gross Carrying Amount |  | Accumulated Amortization |  | Net |  | Gross Carrying Amount |  | Accumulated Amortization |  | Net
Indefinite-Lived Identifiable Intangible Assets
Trademarks | $1,454 |  |  | N/A |  | $1,454 |  |  | $1,101 |  |  | N/A |  | $1,101 |
Definite-Lived Identifiable Intangible Assets
Acquired technology | $865 |  |  | ($607) |  |  | $258 |  |  | $813 |  |  | ($585) |  |  | $228 |
Customer-related | 1,968 |  |  | (1,043) |  |  | 925 |  |  | 1,849 |  |  | (994) |  |  | 855 |
Trade names | 340 |  |  | (140) |  |  | 200 |  |  | 277 |  |  | (129) |  |  | 148 |
Other | 51 |  |  | (46) |  |  | 5 |  |  | 64 |  |  | (45) |  |  | 19 |
Total Definite Lived Intangible Assets | $3,224 |  |  | ($1,836) |  |  | $1,388 |  |  | $3,003 |  |  | ($1,753) |  |  | $1,250 |
Total Identifiable Intangible Assets | $4,678 |  |  | ($1,836) |  |  | $2,842 |  |  | $4,104 |  |  | ($1,753) |  |  | $2,351 |

The Company’s identifiable intangible assets with definite lives are being amortized over their estimated useful lives.
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As of September 30, 2021, estimated future amortization expense of identifiable intangible assets is as follows:

($ in millions) | Future Amortization Expense
Remaining three months of 2021 | $45 |
2022 | $180 |
2023 | $170 |
2024 | $155 |
2025 | $145 |
2026 | $130 |
Thereafter | $563 |

6. Business Restructuring
The Company records restructuring liabilities that represent charges incurred in connection with consolidations of certain operations, including operations from acquisitions, as well as headcount reduction programs. These charges consist primarily of severance costs and certain other cash costs. As a result of these programs, the Company will also incur incremental non-cash accelerated depreciation expense for certain assets due to their reduced expected asset life. These charges are not allocated to the Company’s reportable business segments. Refer to Note 17, "Reportable Business Segment Information" for additional information.
2020 Restructuring Program
In June 2020, the Company approved a business restructuring plan which included actions to reduce its global cost structure. The program addresses weakened global economic conditions stemming from the COVID-19 pandemic and related pace of recovery in a few end-use markets along with further opportunities to optimize supply chain and functional costs. The plan included a voluntary separation program that was offered in the U.S. and Canada. The majority of these restructuring actions are expected to be completed by the end of 2021 with the remainder of the actions expected to be completed in the first half of 2022.
2019 and 2018 Restructuring Programs
In June 2019, the Company approved a business restructuring plan which included actions to reduce its global cost structure. The program is the result of a comprehensive internal operational assessment to identify further opportunities to improve the profitability of the overall business portfolio. This program includes further manufacturing optimization; targeted pruning of low-profit business in certain regions; exiting certain smaller product lines that are not meeting profitability objectives; reorganization of certain business unit cost structures based on the current economic climate; and certain redundancy actions related to recent acquisitions. The majority of these restructuring actions are expected to be completed by the end of 2021 with the remainder of the actions expected to be completed in the first half of 2022.
In April 2018, the Company approved a business restructuring plan which included actions to reduce its global cost structure. The program was in response to the impacts of customer assortment changes in our U.S. architectural coatings business during the first quarter 2018 and sustained, elevated raw material inflation. The program aims to further right-size employee headcount and production capacity in certain businesses based on product demand, as well as reductions in various global functional and administrative costs. The majority of these restructuring actions are complete with the remainder of the actions expected to be completed by the end of 2021.
The following table summarizes the reserve activity for the nine months ended September 30, 2021 and 2020:

| Total Reserve
($ in millions) | 2021 |  | 2020
January 1 | $293 |  |  | $224 |
Approved restructuring actions | 2 |  |  | 198 |
Release of prior reserves and other adjustments (a) | (23) |  |  | (26) |
Cash payments | (60) |  |  | (98) |
Foreign currency impact | (14) |  |  | 10 |
September 30 | $198 |  |  | $308 |

(a)Releases of $23 million and $26 million were recorded in the nine months ended September 30, 2021 and 2020, respectively, to reflect the current estimate of the costs to complete these actions.
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7.Borrowings
In June 2021, PPG borrowed $700 million under the $2.0 billion Term Loan Credit Agreement (the "Term Loan Credit Agreement") entered into in February 2021 to finance the Company’s acquisition of Tikkurila, and to pay fees, costs and expenses related thereto. The Term Loan Credit Agreement provides the Company with the ability to borrow up to an aggregate principal amount of $2.0 billion on an unsecured basis. Prior to December 31, 2021, the Company may make up to eleven additional borrowings of term loans under the Term Loan Credit Agreement, which may be used for working capital and general corporate purposes. The Term Loan Credit Agreement contains covenants that are usual and customary restrictive covenants for facilities of its type, which include, with specified exceptions, limitations on the Company’s ability to create liens or other encumbrances, to enter into sale and leaseback transactions and to enter into consolidations, mergers or transfers of all or substantially all of its assets. The Term Loan Credit Agreement matures and all outstanding borrowings are due and payable on the third anniversary of the date of the initial borrowing under the Agreement.
Also in the second quarter of 2021, two of PPG's long-term debt obligations matured; $134 million 9% non-callable debentures and non-U.S. debt of €30 million. The Company paid $170 million to settle these obligations using cash on hand.
In March 2021, PPG completed a public offering of $700 million aggregate principal amount of 1.200% notes due 2026. These notes were issued pursuant to PPG’s existing shelf registration statement and pursuant to the Indenture between the Company and the Bank of New York Mellon Trust Company, N.A., as trustee, as supplemented (the "2021 Indenture"). The 2021 Indenture governing these notes contains covenants that limit the Company’s ability to, among other things, incur certain liens securing indebtedness, engage in certain sale-leaseback transactions, and enter into certain consolidations, mergers, conveyances, transfers or leases of all or substantially all the Company’s assets. The terms of these notes also require the Company to make an offer to repurchase the notes upon a Change of Control Triggering Event (as defined in the 2021 Indenture) at a price equal to 101% of their principal amount plus accrued and unpaid interest. The Company may issue additional debt from time to time pursuant to the 2021 Indenture. The aggregate cash proceeds from the notes, net of discounts and fees, was $692 million.
In August 2020, PPG completed a public offering of $100 million aggregate principal amount of 3.75% notes due March 2028. These notes were issued as additional notes pursuant to PPG’s existing shelf registration statement and pursuant to the Indenture between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee, as supplemented (the "2018 Indenture"), which is is the same Indenture pursuant to which we previously issued $700 million in aggregate principle amount of our 3.75% notes due March 2028 on February 27, 2018. The new notes will be treated as a single series of notes with the existing notes under indenture, have the same CUSIP number as the existing notes, and be fungible with the existing notes for US federal income tax purposes. The 2018 Indenture governing these notes contains covenants that limit the Company’s ability to, among other things, incur certain liens securing indebtedness, engage in certain sale-leaseback transactions, and enter into certain consolidations, mergers, conveyances, transfers or leases of all or substantially all the Company’s assets. The terms of these notes also require the Company to make an offer to repurchase the notes upon a Change of Control Triggering Event (as defined in the 2018 Indenture) at a price equal to 101% of their principal amount plus accrued and unpaid interest. The Company may issue additional debt from time to time pursuant to the 2018 Indenture. The aggregate cash proceeds from the notes, including the premium received at issuance, net of fees, was $119 million.
In June 2020, PPG completed an early redemption of the $500 million 3.6% notes due November 2020 using proceeds from the May 2020 public offering and cash on hand. The Company recorded a charge of $7 million in the second quarter 2020 for the debt redemption which consists of the aggregate make-whole cash premium of $6 million and a balance of unamortized fees and discounts of $1 million related to the debt redeemed.
In May 2020, PPG completed a public offering of $300 million aggregate principal amount of 2.55% notes due 2030. These notes were issued pursuant to PPG’s existing shelf registration statement and pursuant to an indenture between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee, as supplemented (the "2020 Indenture"). The 2020 Indenture governing these notes contains covenants that limit the Company’s ability to, among other things, incur certain liens securing indebtedness, engage in certain sale-leaseback transactions, and enter into certain consolidations, mergers, conveyances, transfers or leases of all or substantially all the Company’s assets. The terms of these notes also require the Company to make an offer to repurchase the notes upon a Change of Control Triggering Event (as defined in the 2020 Indenture) at a price equal to 101% of their principal amount plus accrued and unpaid interest. The Company may issue additional debt from time to time pursuant to the 2020 Indenture. The aggregate cash proceeds from the notes, net of discounts and fees, was $296 million.
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In April 2020, PPG entered into a $1.5 billion 364-Day Term Loan Credit Agreement (the “Term Loan”). The Term Loan contains covenants that are consistent with those in the Credit Agreement discussed below and that are usual and customary restrictive covenants for facilities of its type, which include, with specified exceptions, limitations on the Company’s ability to create liens or other encumbrances, to enter into sale and leaseback transactions and to enter into consolidations, mergers or transfers of all or substantially all of its assets. In 2020, PPG repaid $1.1 billion of the Term Loan using cash on hand. In the first quarter 2021, PPG repaid the remaining $400 million of the Term Loan using cash on hand.
In August 2019, PPG amended and restated its five-year credit agreement (the “Credit Agreement”) with several banks and financial institutions. The Credit Agreement provides for a $2.2 billion unsecured revolving credit facility. The Company has the ability to increase the size of the Credit Agreement by up to an additional $750 million, subject to the receipt of lender commitments and other conditions precedent. The Credit Agreement will terminate on August 30, 2024. The Company has the right, subject to certain conditions set forth in the Credit Agreement, to designate certain subsidiaries of the Company as borrowers under the Credit Agreement. In connection with any such designation, the Company is required to guarantee the obligations of any such subsidiaries under the Credit Agreement. In March 2020, PPG borrowed $800 million under the Credit Agreement and repaid that amount in full in April 2020. There were no amounts outstanding under the credit agreement as of September 30, 2021 and December 31, 2020.
The Term Loan Credit Agreement and Credit Agreement require the Company to maintain a ratio of Total Indebtedness to Total Capitalization, as defined in the Term Loan Credit Agreement and Credit Agreement, of 60% or less; provided, that for any fiscal quarter in which the Company has made an acquisition for consideration in excess of $1 billion and for the next five fiscal quarters thereafter, the ratio of Total Indebtedness to Total Capitalization may not exceed 65% at any time. As of September 30, 2021, Total Indebtedness to Total Capitalization as defined under the Credit Agreement and Term Loan Credit Agreement was 49%.
The Credit Agreement also supports the Company’s commercial paper borrowings which are classified as long-term based on PPG’s intent and ability to refinance these borrowings on a long-term basis. Commercial paper borrowings of $625 million and $250 million were outstanding as of September 30, 2021 and December 31, 2020, respectively.
8.Other Income

| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Gain on sale of assets(a) | $34 |  |  | $1 |  |  | $38 |  |  | $4 |
Royalty income | 2 |  |  | 2 |  |  | 6 |  |  | 5 |
Share of net earnings of equity affiliates | 4 |  |  | 2 |  |  | 9 |  |  | 8 |
Income from legal settlements | — |  |  | — |  |  | 22 |  |  | — |
Other | 16 |  |  | 19 |  |  | 71 |  |  | 36 |
Total Other income | $56 |  |  | $24 |  |  | $146 |  |  | $53 |

(a)I n the third quarter 2021, PPG recognized a $34 million gain on the sale of a production facility in connection with the Company’s manufacturing footprint consolidation plans and associated restructuring programs.
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9.Earnings Per Common Share
The effect of dilutive securities on the weighted average common shares outstanding included in the calculation of earnings per diluted common share for the three and nine months ended September 30, 2021 and 2020 were as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
(number of shares in millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Weighted average common shares outstanding | 237.9 |  |  | 236.8 |  |  | 237.7 |  |  | 236.6 |
Effect of dilutive securities: |  |  |  |  |  |  |
Stock options | 1.1 |  |  | 0.5 |  |  | 1.0 |  |  | 0.4 |
Other stock compensation plans | 0.8 |  |  | 0.6 |  |  | 0.8 |  |  | 0.7 |
Potentially dilutive common shares | 1.9 |  |  | 1.1 |  |  | 1.8 |  |  | 1.1 |
Adjusted weighted average common shares outstanding | 239.8 |  |  | 237.9 |  |  | 239.5 |  |  | 237.7 |
Dividends per common share | $0.59 |  |  | $0.54 |  |  | $1.67 |  |  | $1.56 |

Excluded from the computation of earnings per diluted share due to their antidilutive effect were 1.5 million and 2.0 million of outstanding stock options for the three and nine months ended September 30, 2020, respectively. No shares have been excluded due to an antidilutive effect for the three and nine months ended September 30, 2021.
10.Income Taxes

| Nine Months Ended September 30
| 2021 |  | 2020
Effective tax rate on pretax income | 24.1 | % |  | 22.0 | %

In the second quarter 2021, PPG recorded a net tax charge of $22 million as a result of new legislation enacted in June 2021 that increased the United Kingdom's corporation tax rate. Income tax ex pense for the nine months ended September 30, 2020 reflects a benefit $38 million of discrete items associated with PPG's U.S. and foreign jurisdictions.
Income tax expense for the nine months of September 30, 2021 and 2020, is based on an estimated annual effective rate, which requires management to make it best estimate of annual pretax income or loss. During the year, PPG management regularly updates forecasted annual pretax results for the various countries in which PPG operates based on changes in factors such as prices, shipments, product mix, raw material inflation and manufacturing operations. To the extent that actual 2021 pretax results for U.S. and foreign income or loss vary from estimates, the actual Income tax expense recognized in 2021 could be different from the forecasted amount used to estimate the Income tax expense for the nine months ended September 30, 2021.
11.Pensions and Other Postretirement Benefits
Service cost for net periodic pension and other postretirement benefit costs is included in Cost of sales, exclusive of depreciation and amortization, Selling, general and administrative, and Research and development, net in the accompanying condensed consolidated statements of income. All other components of net periodic benefit cost are recorded in Other charges in the accompanying condensed consolidated statements of income.
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The net periodic pension and other postretirement benefit costs for the three and nine months ended September 30, 2021 and 2020 were as follows:

| Pension
| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Service cost | $3 |  |  | $6 |  |  | $8 |  |  | $18 |
Interest cost | 17 |  |  | 22 |  |  | 49 |  |  | 65 |
Expected return on plan assets | (38) |  |  | (36) |  |  | (114) |  |  | (108) |
Amortization of actuarial losses | 10 |  |  | 17 |  |  | 30 |  |  | 53 |
Curtailments | — |  |  | — |  |  | — |  |  | 1 |
Net periodic benefit cost | ($8) |  |  | $9 |  |  | ($27) |  |  | $29 |

| Other Postretirement Benefits
| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Service cost | $3 |  |  | $2 |  |  | $9 |  |  | $7 |
Interest cost | 3 |  |  | 5 |  |  | 10 |  |  | 15 |
Amortization of actuarial losses | 5 |  |  | 4 |  |  | 15 |  |  | 12 |
Amortization of prior service credit | (14) |  |  | (14) |  |  | (41) |  |  | (44) |
Net periodic benefit cost | ($3) |  |  | ($3) |  |  | ($7) |  |  | ($10) |

PPG expects 2021 net periodic pension and other postretirement benefit cost to be income of approximately $45 million, with pension and other postretirement benefits representing income of approximately $35 million and $10 million, respectively. In 2020, PPG's U.S. and Canadian defined benefit plans were frozen for all participants. As of January 1, 2021, these plans are mostly inactive and, as such, the amortization period of the accumulated net actuarial losses is now the average remaining life expectancy of the plan participants. This change in amortization period reduces future pension expense for PPG.
Contributions to Defined Benefit Pension Plans

| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Non-U.S. defined benefit pension mandatory contributions | $1 |  |  | $2 |  |  | $3 |  |  | $7 |

PPG expects to make contributions to its defined benefit pension plans in the range of $5 million to $10 million during the remaining three months of 2021. PPG may make voluntary contributions to its defined benefit pension plans in 2021 and beyond.
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12.Accumulated Other Comprehensive Loss

($ in millions) | Unrealized Foreign Currency Translation Adjustments |  | Pension and Other Postretirement Benefit Adjustments, net of tax (c) |  | Unrealized Gain on Derivatives, net of tax |  | Accumulated Other Comprehensive Loss
January 1, 2021 |  | ($1,663) |  |  |  | ($937) |  |  |  | $1 |  |  |  | ($2,599) |
Current year deferrals to AOCI (a) | (402) |  |  |  | (5) |  |  |  | — |  |  |  | (407) |  |
Current year deferrals to AOCI, net of tax (b) | 131 |  |  |  | — |  |  |  | — |  |  |  | 131 |  |
Reclassifications from AOCI to net income | — |  |  |  | 4 |  |  |  | — |  |  |  | 4 |  |
Period change |  | ($271) |  |  |  | ($1) |  |  |  | $— |  |  |  | ($272) |
September 30, 2021 |  | ($1,934) |  |  |  | ($938) |  |  |  | $1 |  |  |  | ($2,871) |
January 1, 2020 |  | ($1,627) |  |  |  | ($724) |  |  |  | $1 |  |  |  | ($2,350) |
Current year deferrals to AOCI (a) | (357) |  |  |  | — |  |  |  | — |  |  |  | (357) |  |
Current year deferrals to AOCI, net of tax (b) | (90) |  |  |  | (7) |  |  |  | — |  |  |  | (97) |  |
Reclassifications from AOCI to net income | — |  |  |  | 16 |  |  |  | — |  |  |  | 16 |  |
Period change |  | ($447) |  |  |  | $9 |  |  |  | $— |  |  |  | ($438) |
September 30, 2020 |  | ($2,074) |  |  |  | ($715) |  |  |  | $1 |  |  |  | ($2,788) |

(a)Except for income taxes of $1 million as of September 30, 2021 and $7 million as of September 30, 2020 related to foreign currency impacts of certain unasserted earnings, unrealized foreign currency translation adjustments related to translation of foreign denominated balance sheets are not presented net of tax given that no deferred U.S. income taxes have been provided on undistributed earnings of non-U.S. subsidiaries because they are deemed to be reinvested for an indefinite period of time.
(b)The tax cost (benefit) related to unrealized foreign currency translation adjustments on tax inter-branch transactions and net investment hedges as of September 30, 2021 and 2020 was $40 million and $(27) million, respectively.
(c)The tax cost related to the adjustment for pension and other postretirement benefits as of September 30, 2021 and 2020 wa s $1 million and $5 million, respectively. Reclassifications from AOCI are included in the computation of net periodic benefit costs (See Note 11, "Pensions and Other Postretirement Benefits").
13.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, 2021 and December 31, 2020, 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 may 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, 2021 and 2020.
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, 2021 and 2020, and there were no gains or losses deferred in Accumulated other comprehensive loss on the condensed consolidated balance sheet that were reclassified to
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Income before income taxes in the condensed consolidated statement of income in the nine month periods ended September 30, 2021 and 2020 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 $44 million and $67 million at September 30, 2021 and December 31, 2020, respectively.
Cash Flow Hedges
At times, 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, 2021 and December 31, 2020.
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, 2021 and December 31, 2020, PPG had U.S. dollar to euro cross currency swap contracts with total notional amounts of $775 million and $875 million, respectively, 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, 2021 and December 31, 2020, the fair value of the U.S. dollar to euro cross currency swap contracts was a net asset of $38 million and a net liability of $8 million, respectively.
As of September 30, 2021 and December 31, 2020, 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, 2021 and December 31, 2020 was $2.3 billion and $2.4 billion, respectively.
Other Financial Instruments
PPG uses foreign currency forward contracts to manage certain net transaction exposures that either have not been elected, or 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 $1.8 billion and $1.4 billion at September 30, 2021 and December 31, 2020, respectively. As of September 30, 2021 and December 31, 2020, the fair value of these contracts was a net liability and a net asset of $31 million an d $2 million, respectively.
Gains/Losses Deferred in Accumulated Other Comprehensive Loss
As of September 30, 2021, the Company had accumulated pretax unrealized translation gains in Accumulated other comprehensive loss on the condensed consolidated balance sheet related to euro-denominated borrowings, and cross currency swaps of $144 million. As of December 31, 2020, the Company had accumulated pretax unrealized translation losses of $22 million.
The following table summarizes the location within the condensed consolidated financial statements and amount of gains related to derivative and debt financial instruments for the nine months ended September 30, 2021 and 2020. All dollar amounts are shown on a pretax basis.
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| September 30, 2021 |  | September 30, 2020 |  | Caption In Condensed Consolidated Statement of Income
($ in millions) | Gain Deferred in OCI |  | Gain Recognized |  | Gain Deferred in OCI |  | Gain Recognized |
Economic |  |  |  |  |  |  |  |  |
Foreign currency forward contracts | $— |  |  | $14 |  |  | $— |  |  | $27 |  |  | Other charges
Fair Value |  |  |  |  |  |  |  |  |
Interest rate swaps | — |  |  | 11 |  |  | — |  |  | 8 |  |  | Interest expense
Total forward contracts and interest rate swaps | $— |  |  | $25 |  |  | $— |  |  | $35 |  |  |
Net Investment |  |  |  |  |  |  |  |  |
Cross currency swaps | $41 |  |  | $10 |  |  | $14 |  |  | $13 |  |  | Interest expense
Foreign denominated debt | 125 |  |  | — |  |  | 101 |  |  | — |  |  |
Total Net Investment | $166 |  |  | $10 |  |  | $115 |  |  | $13 |  |  |

Fair Value Measurements
The Company follows a fair value measurement hierarchy to measure its assets and liabilities. As of September 30, 2021 and December 31, 2020, 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 14, "Employee Benefit Plans" under Item 8 in the 2020 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, 2021 and December 31, 2020 that are classified as Level 3 inputs.
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Assets and liabilities reported at fair value on a recurring basis:

| September 30, 2021 |  | December 31, 2020
($ in millions) | Level 1 |  | Level 2 |  | Level 3 |  | Level 1 |  | Level 2 |  | Level 3
Assets: |  |  |  |  |  |  |  |  |  |  |
Other current assets: |  |  |  |  |  |  |  |  |  |  |
Marketable equity securities | $6 |  |  | $— |  |  | $— |  |  | $6 |  |  | $— |  |  | $— |
Foreign currency forward contracts (a) | — |  |  | 2 |  |  | — |  |  | — |  |  | 8 |  |  | — |
Investments: |  |  |  |  |  |  |  |  |  |  |
Marketable equity securities | $95 |  |  | $— |  |  | $— |  |  | $97 |  |  | $— |  |  | $— |
Other assets: |  |  |  |  |  |  |  |  |  |  |
Cross currency swaps (b) | $— |  |  | $41 |  |  | $— |  |  | $— |  |  | $13 |  |  | $— |
Interest rate swaps (c) | — |  |  | 44 |  |  | — |  |  | — |  |  | 67 |  |  | — |
Liabilities: |  |  |  |  |  |  |  |  |  |  |
Accounts payable and accrued liabilities: |  |  |  |  |  |  |  |  |  |  |
Foreign currency forward contracts (a) | $— |  |  | $33 |  |  | $— |  |  | $— |  |  | $6 |  |  | $— |
Cross currency swaps (b) | — |  |  | — |  |  | — |  |  | — |  |  | 8 |  |  | — |
Other liabilities: |  |  |  |  |  |  |  |  |  |  |
Cross currency swap (b) | $— |  |  | $3 |  |  | $— |  |  | $— |  |  | $13 |  |  | $— |

(a)Derivatives not designated as hedging instruments
(b)Net investment hedges
(c)Fair value hedges
Long-Term Debt

($ in millions) | September 30, 2021 (a) |  | December 31, 2020 (b)
Long-term debt - carrying value | $6,780 |  |  | $5,334 |
Long-term debt - fair value | $7,018 |  |  | $5,913 |

(a)Excluding finance lease obligations of $10 million and short-term borrowings of $6 million as of September 30, 2021.
(b)Excluding finance lease obligations of $12 million and short-term borrowings of $403 million as of December 31, 2020.
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.
14.Stock-Based Compensation
The Company’s stock-based compensation includes stock options, restricted stock units (“RSUs”) and grants of contingent shares that are earned based on achieving targeted levels of total shareholder return. All current grants of stock options, RSUs and contingent shares are made under the PPG Industries, Inc. Amended and Restated Omnibus Incentive Plan (“PPG Amended Omnibus Plan”), which was amended and restated effective April 21, 2016. Shares available for future grants under the PPG Amended Omnibus Plan were 5.1 million as of September 30, 2021.
Stock-based compensation and the income tax benefit recognized during the three and nine months ended September 30, 2021 and 2020 were as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Stock-based compensation | $4 |  |  | $14 |  |  | $39 |  |  | $29 |
Income tax benefit recognized | $1 |  |  | $3 |  |  | $9 |  |  | $7 |

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Grants of stock-based compensation during the nine months ended September 30, 2021 and 2020 were as follows:

| Nine Months Ended September 30
| 2021 |  | 2020
Grant Details | Shares |  | Fair Value |  | Shares |  | Fair Value
Stock options | 527,464 |  |  | $29.27 |  |  | 663,485 |  |  | $21.93 |
Restricted stock units | 201,068 |  |  | $134.54 |  |  | 203,574 |  |  | $109.99 |
Contingent shares (a) | 55,540 |  |  | $136.60 |  |  | 55,319 |  |  | $119.52 |

(a)The number of contingent shares represents the target value of the award.
Stock options are generally exercisable 36 months after being granted and have a maximum term of 10 years. Compensation expense for stock options is recorded over the vesting period based on the fair value on the date of grant. The fair value of the stock option grants issued during the nine months ended September 30, 2021 was calculated with the following weighted average assumptions:

Weighted average exercise price | $136.60
Risk free interest rate | 1.0 | %
Expected life of option in years | 6.5
Expected dividend yield | 1.6 | %
Expected volatility | 25.3 | %

The risk-free interest rate is determined by using the U.S. Treasury yield curve at the date of the grant and using a maturity equal to the expected life of the option. The expected life of options is calculated using the average of the vesting term and the maximum term, as prescribed by accounting guidance on the use of the simplified method for determining the expected term of an employee share option. The expected dividend yield and volatility are based on historical stock prices and dividend amounts over past time periods equal in length to the expected life of the options.
Time-based RSUs generally vest over the three-year period following the date of grant, unless forfeited, and will be paid out in the form of stock, cash or a combination of both at the Company’s discretion at the end of the vesting period. Performance-based RSUs vest based on achieving specific annual performance targets for earnings per share growth and cash flow return on capital over the three calendar year-end periods following the date of grant. Unless forfeited, the performance-based RSUs will be paid out in the form of stock, cash or a combination of both at the Company’s discretion at the end of the three-year performance period if PPG meets the performance targets.
For awards granted in 2021 and 2020, the amount paid upon vesting of performance-based RSUs may range from 0% to 200% of the original grant, based upon the level of earnings per share growth achieved and frequency with which the annual cash flow return on capital performance target is met over the three calendar year periods comprising the vesting period. For awards granted in 2019, the amount paid upon vesting of performance-based RSUs may range from 0% to 180% of the original grant.
Contingent share grants (referred to as “TSR awards”) are made annually and are paid out at the end of each three-year period following the date of grant based on PPG's performance. Performance is measured by determining the percentile rank of the total shareholder return of PPG common stock in relation to the total shareholder return of the S&P 500 as it existed at the beginning of the three-year performance period excluding any companies that have been removed from the index because they ceased to be publicly traded during the performance period. For awards granted in 2021 and 2020, the payment of awards following the three-year award period will be based on performance achieved in accordance with the scale set forth in the plan agreement and may range from 0% to 200% of the initial grant. For awards granted in 2019, the amount paid following the three-year award period may range from 0% to 220% of the initial grant. Any payments made at the end of the award period may be in the form of stock, cash or a combination of both at the Company's discretion. The TSR awards qualify as liability awards, and compensation expense is recognized over the three-year award period based on the fair value of the awards (giving consideration to the Company’s percentile rank of total shareholder return) remeasured in each reporting period until settlement of the awards.
15.Commitments and Contingent Liabilities
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 may relate to
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contract, patent, environmental, product liability, asbestos exposure, antitrust, employment, securities and other matters arising out of the conduct of PPG’s current and past business activities. To the extent that these lawsuits and claims involve personal injury, property damage, and certain other claims, 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. 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 results of any current or future litigation and claims are inherently unpredictable. However, management believes that, in the aggregate, the outcome of all lawsuits and claims involving PPG will not have a material effect on PPG’s consolidated financial position or liquidity; however, such outcome may be material to the results of operations of any particular period in which costs, if any, are recognized.
Asbestos Matters
Prior to 2000, the Company had been named as a defendant in numerous claims alleging bodily injury from (i) exposure to asbestos-containing products allegedly manufactured, sold or distributed by the Company, its subsidiaries, or for which they are otherwise alleged to be liable; (ii) exposure to asbestos allegedly present at a facility owned or leased by the Company; or (iii) exposure to asbestos-containing products of Pittsburgh Corning Corporation (“PC”) for which the Company was alleged to be liable under a variety of legal theories (the Company and Corning Incorporated were each 50% shareholders in PC prior to April 27, 2016).
Pittsburgh Corning Corporation asbestos bankruptcy
In 2000, PC filed for Chapter 11 in the U.S. Bankruptcy Court for the Western District of Pennsylvania in an effort to permanently and comprehensively resolve all of its pending and future asbestos-related liability claims. The Bankruptcy Court subsequently entered a series of orders preliminarily enjoining the prosecution of asbestos litigation against PPG until after the effective date of a confirmed PC plan of reorganization. During the pendency of this preliminary injunction staying asbestos litigation against PPG, PPG and certain of its historical liability insurers negotiated a settlement with representatives of present and future asbestos claimants. That settlement was incorporated into a PC plan of reorganization that was confirmed by the Bankruptcy Court on May 24, 2013 and ultimately became effective on April 27, 2016. With the effectiveness of the plan, the preliminary injunction staying the prosecution of asbestos litigation against PPG expired by its own terms on May 27, 2016. In accordance with the settlement, the Bankruptcy Court issued a permanent channeling injunction under Section 524(g) of the Bankruptcy Code that prohibits present and future claimants from asserting claims against PPG that arise, in whole or in part, out of exposure to asbestos or asbestos-containing products manufactured, sold and/or distributed by PC or asbestos on or emanating from any PC premises. The channeling injunction, by its terms, also prohibits codefendants in cases that are subject to the channeling injunction from asserting claims against PPG for contribution, indemnification or other recovery. The channeling injunction also precludes the prosecution of claims against PPG arising from alleged exposure to asbestos or asbestos-containing products to the extent that a claimant is alleging or seeking to impose liability, directly or indirectly, for the conduct of, claims against, or demands on PC by reason of PPG’s prior: (i) ownership of a financial interest in PC; (ii) involvement in the management of PC, or service as an officer, director or employee of PC or a related party; (iii) provision of insurance to PC or a related party; or (iv) involvement in a financial transaction affecting the financial condition of PC or a related party. The foregoing PC related claims are referred to as “PC Relationship Claims.”
The Bankruptcy Court's channeling injunction channels the Company’s liability for PC Relationship Claims to a trust funded in part by PPG and its participating insurers for the benefit of current and future PC asbestos claimants (the “Trust”). The Trust is the sole recourse for holders of PC Relationship Claims. PPG and its affiliates have no further liability or responsibility for, and are permanently protected from, pending and future PC Relationship Claims. The channeling injunction does not extend to present and future claims against PPG that arise out of alleged exposure to asbestos or asbestos-containing products historically manufactured, sold and/or distributed by PPG or its subsidiaries or for which they are alleged to be liable that are not PC Relationship Claims, and does not extend to claims against PPG alleging personal injury allegedly caused by asbestos on premises presently or formerly owned, leased or occupied by PPG. These claims are referred to as "non-PC Relationship Claims".
Non-PC relationship claims
With respect to the asbestos-related claims pending against the Company at the time PC filed for bankruptcy, the Company considers such claims to fall within one or more of the following categories: (1) claims that have been closed or dismissed as a result of processes undertaken during the bankruptcy; (2) claims that may have been previously filed on the dockets of state and federal courts in various jurisdictions, but are inactive as to the Company; and (3) claims that are subject, in whole or in part, to the channeling injunction and thus will be resolved,
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in whole or in part, in accordance with the Trust procedures established under the PC bankruptcy reorganization plan. As a result of the foregoing, the Company does not consider these three categories of claims to be open or active litigation against it, although the Company cannot now determine whether, or the extent to which, any of these claims may in the future be reinstituted, reinstated, or revived such that they may become open and active non-PC Relationship Claims against it.
Current open and active claims post-Pittsburgh Corning bankruptcy
As of September 30, 2021, the Company was aware of approximately 700 open and active asbestos-related claims pending against the Company and certain of its subsidiaries. These claims consist of non-PC Relationship Claims against PPG and claims against a PPG subsidiary the Company acquired on April 1, 2013. The Company is defending these open and active claims vigorously.
PPG has established reserves totaling approximately $190 million for asbestos-related claims that would not be channeled to the Trust which, based on presently available information, we believe will be sufficient to encompass all of PPG’s current and estimable potential future asbestos liabilities. These reserves, which are included within Other liabilities on the accompanying condensed consolidated balance sheets, represent PPG’s best estimate of its liability for these claims.
These reserves include a $162 million reserve established in 2009 in connection with an amendment to the PC plan of reorganization for non-PC Relationship Claims other than claims arising from premises-related exposures. PPG does not have sufficient current claim information or settlement history on which to base a better estimate of this liability in light of the fact that the Bankruptcy Court’s injunction staying most asbestos claims against the Company was in effect from April 2000 through May 2016.
PPG monitors the activity associated with its asbestos claims and evaluates, on a periodic basis, its estimated liability for such claims, its insurance assets then available, and all underlying assumptions to determine whether any adjustment to the reserves for these claims is required.
The amount reserved for asbestos-related claims by its nature is subject to many uncertainties that may change over time, including (i) the ultimate number of claims filed; (ii) the amounts required to resolve both currently known and future unknown claims; (iii) the amount of insurance, if any, available to cover such claims; (iv) the unpredictable aspects of the litigation process, including a changing trial docket and the jurisdictions in which trials are scheduled; (v) the outcome of any trials, including potential judgments or jury verdicts; (vi) the lack of specific information in many cases concerning exposure for which PPG is allegedly responsible, and the claimants’ alleged diseases resulting from such exposure; and (vii) potential changes in applicable federal and/or state tort liability law. All of these factors may have a material effect upon future asbestos-related liability estimates. As a potential offset to any future asbestos financial exposure, under the PC plan of reorganization PPG retained, for its own account, the right to pursue insurance coverage from certain of its historical insurers that did not participate in the PC plan of reorganization. While the ultimate outcome of PPG’s asbestos litigation cannot be predicted with certainty, PPG believes that any financial exposure resulting from its asbestos-related claims will not have a material adverse effect on PPG’s consolidated financial position, liquidity or results of operations.
Environmental Matters
It is PPG’s policy to accrue expenses for environmental contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Reserves for environmental contingencies are exclusive of claims against third parties and are generally not discounted. In management’s opinion, the Company operates in an environmentally sound manner and the outcome of the Company’s environmental contingencies will not have a material effect on PPG’s financial position or liquidity; however, any such outcome may be material to the results of operations of any particular period in which costs, if any, are recognized. Management anticipates that the resolution of the Company’s environmental contingencies will occur over an extended period of time. See Note 15, "Commitments and Contingent Liabilities," under Item 8 of the 2020 Form 10-K for additional descriptions of the following environmental matters.
As remediation at certain legacy environmental sites progresses, PPG continues to refine its assumptions underlying the estimates of the expected future costs of its remediation programs. PPG’s ongoing evaluation may result in additional charges against income to increase the reserves for these sites. Remediation activities at our legacy sites are not related to the ongoing operations of PPG. In 2021 and 2020, certain charges have been recorded based on updated estimates to increase existing reserves for these sites. C ertain other charges related to environmental remediation actions are also expensed as incurred.
As of September 30, 2021 and December 31, 2020, PPG had reserves for environmental contingencies associated with PPG’s former chromium manufacturing plant in Jersey City, New Jersey (“New Jersey Chrome”), glass and
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chemical manufacturing sites, and for other environmental contingencies, including current manufacturing locations and National Priority List sites. These reserves are reported as Accounts payable and accrued liabilities and Other liabilities in the accompanying condensed consolidated balance sheet.

Environmental Reserves
($ in millions) | September 30, 2021 |  | December 31, 2020
New Jersey Chrome | $94 |  |  | $102 |
Glass and chemical | 111 |  |  | 106 |
Other | 96 |  |  | 92 |
Total | $301 |  |  | $300 |
Current portion | $96 |  |  | $99 |

Pretax charges against income for environmental remediation costs are included in Other charges in the accompanying condensed consolidated statement of income. The pretax charges and cash outlays related to such environmental remediation for the three and nine months ended September 30, 2021 and 2020 were as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Environmental remediation pretax charges | $5 |  |  | $6 |  |  | $36 |  |  | $21 |
Cash outlays for environmental remediation activities | $17 |  |  | $15 |  |  | $34 |  |  | $52 |

In the first quarter 2021, PPG recognized a $16 million pretax charge to increase the existing reserve for New Jersey Chrome based on updated estimates of the underlying factors as described below largely related to groundwater remediation. In the second quarter 2021, PPG recognized a $10 million pretax charge to increase existing reserves for a legacy Glass and chemicals environmental site based upon updated remediation estimates.
Remediation: New Jersey Chrome
In June 2009, PPG entered into a settlement agreement with the New Jersey Department of Environmental Protection (“NJDEP”) and Jersey City, New Jersey (which had asserted claims against PPG for lost tax revenue) which was in the form of a Judicial Consent Order (the "JCO"). Under the JCO, PPG accepted sole responsibility for the remediation activities at its former chromium manufacturing location in Jersey City and 19 additional sites. The principal contaminant of concern is hexavalent chromium. The JCO also provided for the appointment of a court-approved Site Administrator who is responsible for establishing a master schedule for the remediation of the 20 PPG sites which existed at that time. One site was subsequently removed from the JCO process during 2014 and will be remediated separately at a future date. A total of 6 soil sites and 11 groundwater sites remain subject to the JCO process.
The most significant assumptions underlying the estimate of remediation costs for all New Jersey Chrome sites are those related to the extent and concentration of chromium impacts in the soil, as these determine the quantity of soil that must be treated in place, the quantity that will have to be excavated and transported for offsite disposal, and the nature of disposal required. Remediation of chromium contaminated soils at the location of the former manufacturing site has been completed pursuant to approved remedial action work plans. Remediation of chromium contaminated soils at certain other smaller sites is ongoing and is expected to continue through 2022. PPG regularly evaluates the assessments of costs incurred to date versus current progress and the potential cost impacts of the most recent information, including the extent of impacted soils, percentage of hazardous versus non-hazardous soils, daily soil excavation rates, and engineering, administrative and other associated costs. Based on these assessments, the reserve is adjusted accordingly. Principal factors affecting costs include refinements in the estimate of the mix of hazardous to non-hazardous soils to be excavated, an overall increase in soil volumes to be excavated, enhanced water management requirements, decreased daily soil excavation rates due to site conditions, initial estimates for remedial actions related to groundwater, and oversight and management costs.
Groundwater remediation at the former Garfield Avenue chromium manufacturing site and five adjacent sites is expected to occur over several years. A groundwater remedial action work plan was submitted to NJDEP in the first quarter of 2021.
PPG’s financial reserve for remediation of all New Jersey Chrome sites was $94 million at September 30, 2021. The major cost components of this liability continue to be related to excavation, transportation and disposal of impacted
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soil, as well as construction services. These components each account for approximately 14%, 6% and 34% of the accrued amount, respectively.
There are multiple, future events yet to occur, including further remedy selection and design, remedy implementation and execution and applicable governmental agency or community organization approvals. Considerable uncertainty exists regarding the timing of these future events for the New Jersey Chrome sites. Further resolution of these events is expected to occur over the next several years. As these events occur and to the extent that the cost estimates of the environmental remediation remedies change, the existing reserve for this environmental remediation matter will continue to be adjusted.
Remediation: Glass, Chemicals and Other Sites
Among other sites at which PPG is managing environmental liabilities, remedial actions are occurring at a chemical manufacturing site in Barberton, Ohio, where PPG has completed a Facility Investigation and Corrective Measure Study under the United States Environmental Protection Agency's Resource Conservation and Recovery Act Corrective Action Program. PPG has also been addressing the impacts from a legacy plate glass manufacturing site in Kokomo, Indiana under the Voluntary Remediation Program of the Indiana Department of Environmental Management and a site associated with a legacy plate glass manufacturing site near Ford City, Pennsylvania under the Pennsylvania Land Recycling Program under the oversight of the Pennsylvania Department of Environmental Protection. PPG is currently performing additional investigation and remedial activities at these locations.
With respect to certain other waste sites, the financial condition of other potentially responsible parties also contributes to the uncertainty of estimating PPG’s final costs. Although contributors of waste to sites involving other potentially responsible parties may face governmental agency assertions of joint and several liability, in general, final allocations of costs are made based on the relative contributions of wastes to such sites. PPG is generally not a major contributor to such sites.
Remediation: Reasonably Possible Matters
In addition to the amounts currently reserved for environmental remediation, the Company may be subject to loss contingencies related to environmental matters estimated to be as much as $100 million to $200 million. Such unreserved losses are reasonably possible but are not currently considered to be probable of occurrence. These reasonably possible unreserved losses relate to environmental matters at a number of sites, none of which are individually significant. The loss contingencies related to these sites include significant unresolved issues such as the nature and extent of contamination at these sites and the methods that may have to be employed to remediate them.
The impact of evolving programs, such as natural resource damage claims, industrial site re-use initiatives and domestic and international remediation programs, also adds to the present uncertainties with regard to the ultimate resolution of this unreserved exposure to future loss. The Company’s assessment of the potential impact of these environmental contingencies is subject to considerable uncertainty due to the complex, ongoing and evolving process of investigation and remediation, if necessary, of such environmental contingencies, and the potential for technological and regulatory developments.
Other Matters
The Company had outstanding letters of credit and surety bonds of $174 million and guarantees of $4 million as of September 30, 2021. The Company does not believe any loss related to such guarantees is likely.
16.Revenue Recognition
The Company recognizes revenue when control of the promised goods or services is transferred to the customer and in amounts that the Company expects to collect. The timing of revenue recognition takes into consideration the various shipping terms applicable to the Company’s sales. For most transactions, control passes in accordance with agreed upon delivery terms.
The Company delivers products to company-owned stores, home centers and other regional or national consumer retail outlets, paint dealers, concessionaires and independent distributors, company-owned distribution networks, and directly to manufacturing companies and retail customers. Each product delivered to a third party customer is considered to satisfy a performance obligation. Performance obligations generally occur at a point in time and are satisfied when control of the goods passes to the customer. The Company is entitled to collection of the sales price under normal credit terms in the regions in which it operates. Accounts receivable are recognized when there is an unconditional right to consideration. Payment terms vary from customer to customer, depending on creditworthiness, prior payment history and other considerations.
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The Company also provides services by applying coatings to customers' manufactured parts and assembled products and by providing technical support to certain customers. Performance obligations are satisfied over time as critical milestones are met and as services are provided. PPG is entitled to payment as the services are rendered. For the three and nine months ended September 30, 2021 and 2020, service revenue constituted approximately 5% of total revenue.
Net sales by segment and region for the three and nine months ended September 30, 2021 and 2020 were as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Performance Coatings |  |  |  |  |  |  |
United States and Canada | $1,177 |  |  | $958 |  |  | $3,374 |  |  | $2,825 |
Europe, Middle East and Africa ("EMEA") | 965 |  |  | 789 |  |  | 2,746 |  |  | 2,140 |
Asia Pacific | 325 |  |  | 274 |  |  | 913 |  |  | 728 |
Latin America | 291 |  |  | 230 |  |  | 793 |  |  | 635 |
Total | $2,758 |  |  | $2,251 |  |  | $7,826 |  |  | $6,328 |
Industrial Coatings |  |  |  |  |  |  |
United States and Canada | $579 |  |  | $526 |  |  | $1,714 |  |  | $1,444 |
EMEA | 453 |  |  | 382 |  |  | 1,380 |  |  | 1,018 |
Asia Pacific | 433 |  |  | 398 |  |  | 1,257 |  |  | 969 |
Latin America | 149 |  |  | 128 |  |  | 435 |  |  | 318 |
Total | $1,614 |  |  | $1,434 |  |  | $4,786 |  |  | $3,749 |
Total Net Sales |  |  |  |  |  |  |
United States and Canada | $1,756 |  |  | $1,484 |  |  | $5,088 |  |  | $4,269 |
EMEA | 1,418 |  |  | 1,171 |  |  | 4,126 |  |  | 3,158 |
Asia Pacific | 758 |  |  | 672 |  |  | 2,170 |  |  | 1,697 |
Latin America | 440 |  |  | 358 |  |  | 1,228 |  |  | 953 |
Total PPG | $4,372 |  |  | $3,685 |  |  | $12,612 |  |  | $10,077 |

Allowance for Credit Losses
All trade receivables are reported on the condensed consolidated balance sheet at the outstanding principal amount adjusted for any allowance for credit losses and any charge offs. PPG provides an allowance for credit losses to reduce trade receivables to their estimated net realizable value equal to the amount that is expected to be collected. This allowance is estimated based on historical collection experience, current regional economic and market conditions, the aging of accounts receivable, assessments of current creditworthiness of customers, and forward-looking information. The use of forward-looking information is based on certain macroeconomic and microeconomic indicators including, but not limited to, regional business environment risk, political risk, and commercial and financing risks.
PPG reviews its reserves for credit losses on a quarterly basis to ensure its reserves for credit losses reflect regional risk trends as well as current and future global operating conditions.
The following table summarizes the activity for the allowance for credit losses for the nine months ended September 30, 2021 and 2020:

| Trade Receivables Allowance for Credit Losses
($ in millions) | 2021 |  | 2020
January 1 | $44 |  |  | $22 |
Current-period provision for credit losses | 4 |  |  | 41 |
Trade receivables written off as uncollectible, net of recoveries | (12) |  |  | (15) |
Foreign currency impact | — |  |  | (1) |
September 30 | $36 |  |  | $47 |

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In March 2020, PPG recorded estimated future credit losses for trade receivables of $30 million related to the potential financial impacts of the COVID-19 pandemic. These amounts were estimated based on regional business information, including certain forward-looking information and other considerations. During the second quarter 2021, PPG released $14 million of the previously established reserve due to improvement in economic conditions in certain countries and a slower pattern of bankruptcies than expected.
17.Reportable Business Segment Information
PPG is a multinational manufacturer with 10 operating segments (which the Company refers to as “strategic business units”) that are organized based on the Company’s major products lines. The Company’s reportable business segments include the following two segments: Performance Coatings and Industrial Coatings. The operating segments have been aggregated based on economic similarities, the nature of their products, production processes, end-use markets and methods of distribution.
The Performance Coatings reportable business segment is comprised of the automotive refinish coatings, aerospace coatings, architectural coatings – Americas and Asia Pacific, architectural coatings – EMEA, protective and marine coatings and traffic solutions operating segments. This reportable business segment primarily supplies a variety of protective and decorative coatings, sealants and finishes along with paint strippers, stains and related chemicals, pavement marking products as well as transparencies and transparent armor.
The Industrial Coatings reportable business segment is comprised of the automotive OEM coatings, industrial coatings, packaging coatings, and the specialty coatings and materials operating segments. This reportable business segment primarily supplies a variety of protective and decorative coatings and finishes along with adhesives, sealants, metal pretreatment products, optical monomers and coatings, precipitated silicas and other specialty materials.
Reportable business segment net sales and segment income for the three and nine months ended September 30, 2021 and 2020 were as follows:

| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Net sales: |  |  |  |  |  |  |
Performance Coatings | $2,758 |  |  | $2,251 |  |  | $7,826 |  |  | $6,328 |
Industrial Coatings | 1,614 |  |  | 1,434 |  |  | 4,786 |  |  | 3,749 |
Total | $4,372 |  |  | $3,685 |  |  | $12,612 |  |  | $10,077 |
Segment income: |  |  |  |  |  |  |
Performance Coatings | $408 |  |  | $426 |  |  | $1,248 |  |  | $1,060 |
Industrial Coatings | 140 |  |  | 253 |  |  | 575 |  |  | 468 |
Total | $548 |  |  | $679 |  |  | $1,823 |  |  | $1,528 |
Corporate | (45) |  |  | (55) |  |  | (149) |  |  | (165) |
Interest expense, net of interest income | (23) |  |  | (30) |  |  | (72) |  |  | (89) |
Acquisition-related costs, net (a) | (43) |  |  | — |  |  | (81) |  |  | — |
Environmental remediation charges | — |  |  | — |  |  | (26) |  |  | (12) |
Impairment charge (b) | (21) |  |  | — |  |  | (21) |  |  | — |
Expenses incurred due to natural disasters (c) | — |  |  | (8) |  |  | (17) |  |  | (8) |
Change in allowance for doubtful accounts related to COVID-19 | — |  |  | — |  |  | 14 |  |  | (30) |
Income from legal settlements | — |  |  | — |  |  | 22 |  |  | — |
Business restructuring-related costs, net (d) | 25 |  |  | (14) |  |  | 40 |  |  | (200) |
Debt extinguishment charge | — |  |  | — |  |  | — |  |  | (7) |
Income before income taxes | $441 |  |  | $572 |  |  | $1,533 |  |  | $1,017 |

(a)Acquisition-related costs include advisory, legal, accounting, valuation, other professional or consulting fees, and certain internal costs directly incurred to effect acquisitions. These costs are included in Selling, general and administrative expense in the condensed consolidated statement of income. Acquisition-related costs also include the impact for the step up to fair value of inventory acquired in certain acquisitions which are included in Cost of Sales, exclusive of depreciation and amortization in the condensed consolidated statement of income.
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(b)An incremental impairment charge was recorded in the third quarter 2021 related to the previously planned sale of certain smaller entities in non-strategic regions.
(c)In 2020, two hurricanes damaged a southern U.S. factory supporting the Company's specialty coatings and materials business. In early 2021, a winter storm further damaged that factory as well as other Company factories in the southern U.S. Incremental expenses incurred due to these storms included costs related to maintenance and repairs of damaged property, freight and utility premiums and other incremental expenses directly related to the impacted areas.
(d)Included in business restructuring-related costs, net are business restructuring charges, accelerated depreciation of certain assets and other related costs, offset by releases related to previously approved programs and a $34 million gain on the sale of certain assets in connection with the Company’s manufacturing footprint consolidation plans and associated restructuring programs.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and the notes thereto included in the condensed consolidated financial statements in Part I, Item 1, “Financial Statements,” of this report and in conjunction with the 2020 Form 10-K.
Executive Overview
Below are our key financial results for the three months ended September 30, 2021:
•Net sales were approximately $4.4 billion, up 18.6% compared to the prior year.
•Cost of sales, exclusive of depreciation and amortization ("Cost of sales") was $2.7 billion, up 34.9% versus prior year primarily due to cost of sales attributable to acquired businesses and raw material inflation. As a percentage of sales, Cost of sales increased 7.5%.
•Selling, general and administrative ("SG&A") expense was $950 million, up 13.6% year-over-year primarily due to wage and other cost inflation and SG&A expense attributable to acquired businesses. As a percentage of sales, SG&A expense decreased 1.0%.
•Income before income taxes was $441 million.
•The effective tax rate was 21.8%.
•Net income attributable to PPG was $344 million.
•Earnings per diluted share attributable to PPG was $1.43.
For the nine months ended September 30, 2021:
•Cash flows from operating activities from continuing operations was $1,106 million, a decrease of $57 million year-over-year.
•Capital expenditures, including business acquisitions (net of cash acquired), was $2,357 million.
•The Company paid $396 million in dividends.
Performance in the third quarter of 2021 compared to the third quarter of 2020
Performance Overview
Net Sales by Region

| Three Months Ended September 30 |  | Percent Change
($ in millions, except percentages) | 2021 |  | 2020 |  | 2021 vs. 2020
United States and Canada | $1,756 |  |  | $1,484 |  |  | 18.3 | %
Europe, Middle East and Africa ("EMEA") | 1,418 |  |  | 1,171 |  |  | 21.1 | %
Asia Pacific | 758 |  |  | 672 |  |  | 12.8 | %
Latin America | 440 |  |  | 358 |  |  | 22.9 | %
Total | $4,372 |  |  | $3,685 |  |  | 18.6 | %

Net sales increased $687 million due to the following:
● Acquisition-related sales (+13%)
● Higher selling prices (+6%)
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● Favorable foreign currency translation (+2%)
Partially offset by:
● Lower sales volumes (-2%)
For specific business results, see the Performance of Reportable Business Segments section within Item 2 of this Form 10-Q.
Cost of Sales, exclusive of depreciation and amortization

| Three Months Ended September 30 |  | Percent Change
($ in millions, except percentages) | 2021 |  | 2020 |  | 2021 vs. 2020
Cost of sales, exclusive of depreciation and amortization | $2,733 |  |  | $2,026 |  |  | 34.9 | %
Cost of sales as a percentage of net sales | 62.5 | % |  | 55.0 | % |  | 7.5 | %

Cost of sales, exclusive of depreciation and amortization, increased $707 million primarily due to the following:
● Raw material inflation
● Cost of sales attributable to acquired businesses
● Unfavorable foreign currency translation
Selling, general and administrative expenses

| Three Months Ended September 30 |  | Percent Change
($ in millions, except percentages) | 2021 |  | 2020 |  | 2021 vs. 2020
Selling, general and administrative expenses (SG&A) | $950 |  |  | $836 |  |  | 13.6 | %
Selling, general and administrative expenses as a percentage of net sales | 21.7 | % |  | 22.7 | % |  | (1.0) | %

SG&A expense increased $114 million primarily due to the following:
● Selling, general and administrative expenses from acquired businesses
● Wage and other cost inflation
● Unfavorable foreign currency translation
Partially offset by:
● Restructuring cost savings
Other costs and other income

| Three Months Ended September 30 |  | Percent Change
($ in millions, except percentages) | 2021 |  | 2020 |  | 2021 vs. 2020
Interest expense, net of Interest income | $23 |  |  | $30 |  |  | (23.3) | %
Impairment charge | 21 |  |  | — |  |  | 100.0 | %
Other charges | — |  |  | $21 |  |  | (100.0) | %
Other income | ($56) |  |  | ($24) |  |  | 133.3 | %

Interest expense, net of Interest income
Interest expense, net of Interest income was lower in the three months ended September 30, 2021 compared to 2020 due to more favorable interest rates on outstanding debt.
Impairment charge
In the third quarter 2021, an incremental impairment charge was recorded for the write-down of certain assets related to the planned sale of certain entities in smaller, non-strategic countries. Refer to Note 3, "Acquisitions and Divestitures" to the accompanying condensed consolidated financial statements for further details.
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Other charges
Other charges were lower in the three months ended September 30, 2021 than in the prior year primarily due to lower non-service components of net periodic pension cost.
Other income
Other income was higher in the three months ended September 30, 2021 compared to the prior year due to a $34 million gain on the sale of a production facility in connection with the Company’s manufacturing footprint consolidation plans and associated restructuring programs.
Effective tax rate and earnings per diluted share

| Three Months Ended September 30 |  | Percent Change
($ in millions, except percentages and amounts per share) | 2021 |  | 2020 |  | 2021 vs. 2020
Income tax expense | $96 |  |  | $124 |  |  | (22.6) | %
Effective tax rate | 21.8 | % |  | 21.7 | % |  | 0.1 | %
Adjusted effective tax rate, continuing operations* | 22.1 | % |  | 22.2 | % |  | (0.1) | %
Earnings per diluted share, continuing operations | $1.43 |  |  | $1.86 |  |  | (23.1) | %
Adjusted earnings per diluted share* | $1.69 |  |  | $2.03 |  |  | (16.7) | %
*See Regulation G Reconciliation below

The effective tax rate for the three months ended September 30, 2021 and 2020 reflects the impact of certain discrete tax items for the quarter. The Company expects that its fourth quarter 2021 effective tax rate will be about 20%.
Adjusted earnings per diluted share for the three months ended September 30, 2021 decreased year-over-year primarily due to lower sales volumes stemming from worsening commodity raw material availability and semiconductor chip shortages reducing automotive original equipment manufacturer ("OEM") production, as well as commodity supply disruptions, which caused raw material cost inflation that was not fully offset by realized price increases.
Regulation G Reconciliations - Results from Operations
PPG believes investors' understanding of the Company’s performance is enhanced by the disclosure of net income from continuing operations, earnings per diluted share from continuing operations, PPG's effective tax rate and segment income adjusted for certain items. PPG’s management considers this information useful in providing insight into the Company’s ongoing performance because it excludes the impact of items that cannot reasonably be expected to recur on a quarterly basis or that are not attributable to our primary operations. Net income from continuing operations, earnings per diluted share from continuing operations, the effective tax rate and segment income adjusted for these items are not recognized financial measures determined in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") and should not be considered a substitute for net income from continuing operations, earnings per diluted share from continuing operations, the effective tax rate, segment income or other financial measures as computed in accordance with U.S. GAAP. In addition, adjusted net income, adjusted earnings per diluted share, the adjusted effective tax rate and segment income may not be comparable to similarly titled measures as reported by other companies.
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Income before income taxes from continuing operations is reconciled to adjusted income before income taxes from continuing operations, the effective tax rate from continuing operations is reconciled to the adjusted effective tax rate and net income (attributable to PPG) and earnings per share – assuming dilution (attributable to PPG) are reconciled to adjusted net income (attributable to PPG) and adjusted earnings per share – assuming dilution below:

| Three Months Ended September 30, 2021
($ in millions, except percentages and per share amounts) | Income Before Income Taxes |  | Tax Expense |  | Effective Tax Rate |  | Net income (attributable to PPG) |  | Earnings per diluted share(a)
As reported, continuing operations | $441 |  |  | $96 |  |  | 21.8 | % |  | $344 |  |  | $1.43 |
Adjusted for: |  |  |  |  |  |  |  |  |
Acquisition-related amortization expense | 46 |  |  | 11 |  |  | 24.6 | % |  | 35 |  |  | 0.15 |
Acquisition-related costs(b) | 43 |  |  | 10 |  |  | 24.9 | % |  | 33 |  |  | 0.14 |
Impairment charge(c) | 21 |  |  | 6 |  |  | 29.2 | % |  | 12 |  |  | 0.05 |
Business restructuring-related costs, net (d) | (25) |  |  | (7) |  |  | 29.9 | % |  | (18) |  |  | (0.08) |
Adjusted, continuing operations, excluding certain items | $526 |  |  | $116 |  |  | 22.1 | % |  | $406 |  |  | $1.69 |

| Three Months Ended September 30, 2020
($ in millions, except percentages and per share amounts) | Income Before Income Taxes |  | Tax Expense |  | Effective Tax Rate |  | Net income (attributable to PPG) |  | Earnings per diluted share(a)
As reported, continuing operations | $572 |  |  | $124 |  |  | 21.7 | % |  | $442 |  |  | $1.86 |
Adjusted for: |  |  |  |  |  |  |  |  |
Acquisition-related amortization expense | 32 |  |  | 9 |  |  | 26.1 | % |  | 23 |  |  | 0.10 |
Business restructuring-related costs, net (d) | 14 |  |  | 4 |  |  | 26.2 | % |  | 10 |  |  | 0.04 |
Expenses incurred due to a natural disaster (e) | 8 |  |  | 2 |  |  | 24.3 | % |  | 6 |  |  | 0.03 |
Adjusted, continuing operations, excluding certain items | $626 |  |  | $139 |  |  | 22.2 | % |  | $481 |  |  | $2.03 |

(a)Earnings per diluted share is calculated based on unrounded numbers. Figures in the table may not recalculate due to rounding.
(b)Acquisition-related costs include the impact for the step up to fair value of inventory acquired in certain acquisitions which are included in Cost of Sales, exclusive of depreciation and amortization in the condensed consolidated statement of income. Acquisition-related costs also include advisory, legal, accounting, valuation, other professional or consulting fees, and certain internal costs directly incurred to effect acquisitions. These costs are included in Selling, general and administrative expense in the condensed consolidated statement of income.
(c)An incremental impairment charge was recorded in the third quarter 2021 related to the previously planned sale of certain smaller entities in non-strategic regions. Net loss of $12 million is attributable to PPG and net loss of $3 million is attributable to noncontrolling interests.
(d)Included in business restructuring-related costs, net are business restructuring charges, accelerated depreciation of certain assets and other related costs, offset by releases related to previously approved programs and a $34 million gain on the sale of certain assets in connection with the Company’s manufacturing footprint consolidation plans and associated restructuring programs. This gain is included in Other income in the condensed consolidated statement of income.
(e)In the third quarter 2020, Hurricane Laura caused damages to a southern U.S. factory that supports the Company's specialty coatings and materials business.
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Performance of Reportable Business Segments
Performance Coatings

| Three Months Ended September 30 |  | $ Change |  | % Change
($ in millions, except percentages) | 2021 |  | 2020 |  | 2021 vs. 2020 |  | 2021 vs. 2020
Net sales | $2,758 |  |  | $2,251 |  |  | $507 |  |  | 22.5 | %
Segment income | $408 |  |  | $426 |  |  | ($18) |  |  | (4.2) | %
Amortization expense | $33 |  |  | $22 |  |  | $11 |  |  | 50.0 | %
Segment income, excluding amortization expense | $441 |  |  | $448 |  |  | ($7) |  |  | (1.6) | %

Performance Coatings net sales increased due to the following:
● Acquisition-related sales (17%)
● Higher selling prices (5%)
● Favorable foreign currency translation (2%)
Partially offset by:
● Lower sales volumes (-1%)
In the third quarter 2021, the acquisitions of Tikkurila, Ennis-Flint and VersaFlex increased net sales in the Performance Coatings segment by nearly $375 million versus prior year.
Architectural coatings - Americas and Asia Pacific net sales, excluding the impact of currency and acquisitions ("organic sales") decreased by a low-single-digit percentage. Sales were unfavorably impacted by raw material shortages and softening do-it-yourself ("DIY") paint demand. In Mexico, PPG Comex architectural coatings business organic sales increased by a low-teen percentage compared to the prior year as concessionaire network demand continued to be strong throughout the quarter and further selling price increases were implemented.
Architectural coatings – EMEA organic sales decreased by a mid-single-digit percentage. Sales were unfavorably impacted by raw material shortages and softening DIY paint demand. Demand in the trade (do-it-for-me) channel continued to recover in most countries.
Automotive refinish coatings organic sales increased by a high-single digit-percentage, primarily due to continued demand improvement in the U.S. and Latin America, but remain below pre-pandemic levels. In Europe, demand remained subdued as congestion during peak driving hours remained lower than pre-pandemic levels. In the U.S., body shop activity improved during the third quarter, due to higher miles driven and increased collision claims.
Aerospace coatings sales volumes increased by about 20% compared to the prior year, as commercial aftermarket demand improved during the quarter, but still remains below pre-pandemic levels. Net sales benefited from continued strong military demand.
Sales volumes in the protective and marine coatings business were higher by a low-teen percentage primarily due to strong demand in the Asia Pacific region and improving demand in the oil and gas industry in the U.S.
Segment income decreased $18 million year-over-year primarily due to raw material cost inflation and lower sales volumes, partially offset by higher selling prices, acquisition-related earnings and savings from previously approved restructuring actions.
Looking Ahead
Looking ahead for the Performance Coatings segment, raw material cost inflation is expected to be slightly higher in the fourth quarter compared to the third quarter. Coatings raw material supply disruptions, which are mostly impacting the U.S. architectural coatings and traffic solutions businesses, are anticipated to continue through the fourth quarter at comparable levels. Further selling price increases have been secured or will be initiated during the quarter. Fourth quarter sales are expected to follow historical seasonality patterns experienced before the pandemic. Tikkurila and Ennis-Flint have more of a seasonal impact than PPG’s legacy coatings businesses. The company will continue to execute against various cost-savings initiatives. Aggregate net sales volumes are anticipated to be down a low-single-digit percentage compared to the fourth quarter 2020.
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Industrial Coatings

| Three Months Ended September 30 |  | $ Change |  | % Change
($ in millions, except percentages) | 2021 |  | 2020 |  | 2021 vs. 2020 |  | 2021 vs. 2020
Net sales | $1,614 |  |  | $1,434 |  |  | $180 |  |  | 12.6 | %
Segment income | $140 |  |  | $253 |  |  | ($113) |  |  | (44.7) | %
Amortization expense | $13 |  |  | $10 |  |  | $3 |  |  | 30.0 | %
Segment income, excluding amortization expense | $153 |  |  | $263 |  |  | ($110) |  |  | (41.8) | %

Industrial Coatings segment net sales increased due to the following:
● Acquisition-related sales (8%)
● Higher selling prices (7%)
● Favorable foreign currency translation (2%)
Partially offset by:
● Lower sales volumes (-4%)
Automotive OEM coatings sales volumes decreased by a high-teen-percentage year-over-year, but outpaced global industry production rates. During the quarter, production disruptions worsened at many automotive OEM customers due to semiconductor chip shortages. In the U.S., automotive OEM dealer inventories remained at historically low levels as consumer demand remained very robust while production levels were constrained.
For the industrial coatings business, organic sales increased by a high-single-digit percentage year-over-year as global industrial production continued to improve in most regions. The growth was led by the EMEA and Latin America regions with the larger contributions coming from the appliance and heavy-duty equipment sub-segments.
Packaging coatings organic sales increased by about 20% year-over-year due to sales volume growth in most regions, with strong growth across the canned beverage segment partially offset by softening demand for the canned food segment compared to elevated levels in the prior year.
Segment income decreased $113 million year-over-year due to raw material cost inflation and lower automotive OEM coatings sales volumes, partially offset by higher selling prices and savings from previously approved restructuring actions.
Looking ahead
Looking ahead for the segment in aggregate, sales volumes are expected to be down a mid-teen-percentage compared to the prior-year fourth quarter, including ongoing impacts from customer supply disruptions and coatings raw material shortages. These factors are also expected to further elevate coatings raw material cost inflation in the fourth quarter sequentially compared to the third quarter. The company continues to prioritize working with customers to secure further selling price increases in all businesses.
Performance in the first nine months of 2021 compared to the first nine months of 2020
Performance Overview
Net Sales by Region

| Nine Months Ended September 30 |  | Percent Change
($ in millions, except percentages) | 2021 |  | 2020 |  | 2021 vs. 2020
United States and Canada | $5,088 |  |  | $4,269 |  |  | 19.2 | %
EMEA | 4,126 |  |  | 3,158 |  |  | 30.7 | %
Asia Pacific | 2,170 |  |  | 1,697 |  |  | 27.9 | %
Latin America | 1,228 |  |  | 953 |  |  | 28.9 | %
Total | $12,612 |  |  | $10,077 |  |  | 25.2 | %

Net sales increased $2,535 million due to the following:
● Acquisition-related sales (+9%)
● Higher sales volumes (+9%)
● Higher selling prices (+4%)
● Favorable foreign currency translation (+3%)
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For specific business results, see the Performance of Reportable Business Segments section within Item 2 of this Form 10-Q.
Cost of Sales, exclusive of depreciation and amortization

| Nine Months Ended September 30 |  | Percent Change
($ in millions, except percentages) | 2021 |  | 2020 |  | 2021 vs. 2020
Cost of sales, exclusive of depreciation and amortization | $7,594 |  |  | $5,637 |  |  | 34.7 | %
Cost of sales as a percentage of net sales | 60.2 | % |  | 55.9 | % |  | 4.3 | %

Cost of sales, exclusive of depreciation and amortization, increased $1,957 million primarily due to the following:
● Cost of sales attributable to acquired businesses
● Higher sales volumes
● Raw material inflation
● Foreign currency translation
Selling, general and administrative expenses

| Nine Months Ended September 30 |  | Percent Change
($ in millions, except percentages) | 2021 |  | 2020 |  | 2021 vs. 2020
Selling, general and administrative expenses (SG&A) | $2,796 |  |  | $2,507 |  |  | 11.5 | %
Selling, general and administrative expenses as a percentage of net sales | 22.2 | % |  | 24.9 | % |  | (2.7) | %

SG&A increased $289 million primarily due to the following:
● SG&A attributable to acquired businesses
● Unfavorable foreign currency translation
Partially offset by:
● Cost savings initiatives, including restructuring actions
Other costs and income

| Nine Months Ended September 30 |  | Percent Change
($ in millions, except percentages) | 2021 |  | 2020 |  | 2021 vs. 2020
Interest expense, net of Interest income | $72 |  |  | $89 |  |  | (19.1) | %
Impairment charge | $21 |  |  | $— |  |  | 100.0 | %
Other charges | $28 |  |  | $45 |  |  | (37.8) | %
Other income | ($146) |  |  | ($53) |  |  | 175.5 | %

Interest expense, net of Interest income
Interest expense, net of Interest income was lower in the nine months ended September 30, 2021 compared to prior year due to more favorable interest rates on outstanding debt and a premium paid in the prior year for the early redemption of debt.
Impairment charge
In the third quarter 2021, an incremental impairment charge was recorded for the write-down of certain assets related to the planned sale of certain entities in smaller, non-strategic countries. Refer to Note 3, "Acquisitions and Divestitures" to the accompanying condensed consolidated financial statements for further details.
Other charges
Other charges were lower in the nine months ended September 30, 2021 compared to the prior year primarily due to lower non-service components of net periodic pension cost. This reduction in costs was partially offset by higher environmental remediation charges in 2021.
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Other income
Other income was higher in the nine months ended September 30, 2021 compared to the prior year due to a $34 million gain on the sale of a production facility in the third quarter 2021 in connection with the Company’s manufacturing footprint consolidation plans and associated restructuring programs and favorable legal settlements in the second quarter 2021.
Effective tax rate and earnings per diluted share

| Nine Months Ended September 30 |  | Percent Change
($ in millions, except percentages and per share amounts) | 2021 |  | 2020 |  | 2021 vs. 2020
Income tax expense | $370 |  |  | $224 |  |  | 65.2 | %
Effective tax rate | 24.1 | % |  | 22.0 | % |  | 2.1 | %
Adjusted effective tax rate, continuing operations* | 22.8 | % |  | 22.9 | % |  | (0.1) | %
Earnings per diluted share, continuing operations | $4.81 |  |  | $3.30 |  |  | 45.8 | %
Adjusted earnings per diluted share* | $5.51 |  |  | $4.43 |  |  | 24.4 | %
*See Regulation G Reconciliation below

The effective tax rate for the nine months ended September 30, 2021 reflects the impact of certain discrete tax items.
Adjusted earnings per diluted share for the nine months ended September 30, 2021 increased year-over-year as sales volumes in 2020 were more significantly impacted by the global pandemic. The impact of the higher sales volumes was partially offset by the effect of commodity supply disruptions, which caused raw material inflation in excess of our realized price increases.
Regulation G Reconciliation - Results from Operations
PPG believes investors' understanding of the Company’s performance is enhanced by the disclosure of net income from continuing operations, earnings per diluted share from continuing operations and PPG's effective tax rate adjusted for certain items. PPG’s management considers this information useful in providing insight into the Company’s ongoing performance because it excludes the impact of items that cannot reasonably be expected to recur on a quarterly basis or that are not attributable to our primary operations. Net income from continuing operations, earnings per diluted share from continuing operations and the effective tax rate adjusted for these items are not recognized financial measures determined in accordance with U.S. GAAP and should not be considered a substitute for net income from continuing operations, earnings per diluted share from continuing operations, the effective tax rate or other financial measures as computed in accordance with U.S. GAAP. In addition, adjusted net income, adjusted earnings per diluted share and the adjusted effective tax rate may not be comparable to similarly titled measures as reported by other companies.
Income before income taxes from continuing operations is reconciled to adjusted income before income taxes from continuing operations, the effective tax rate from continuing operations is reconciled to the adjusted effective tax rate from continuing operations and net income from continuing operations (attributable to PPG) and earnings per share – assuming dilution (attributable to PPG) are reconciled to adjusted net income from continuing operations (attributable to PPG) and adjusted earnings per share – assuming dilution below:
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| Nine Months Ended September 30, 2021
($ in millions, except percentages and per share amounts) | Income Before Income Taxes |  | Tax Expense |  | Effective Tax Rate |  | Net income from continuing operations (attributable to PPG) |  | Earnings per diluted share(a)
As reported, continuing operations | $1,533 |  |  | $370 |  |  | 24.1 | % |  | $1,153 |  |  | $4.81 |
Adjusted for: |  |  |  |  |  |  |  |  |
Acquisition-related amortization expense | 126 |  |  | 31 |  |  | 24.6 | % |  | 95 |  |  | 0.40 |
Acquisition-related costs, net (b) | 81 |  |  | 16 |  |  | 19.8 | % |  | 65 |  |  | 0.27 |
Net tax charge related to UK statutory rate change | — |  |  | (22) |  |  | N/A |  | 22 |  |  | 0.09 |
Environmental remediation charges | 26 |  |  | 7 |  |  | 24.3 | % |  | 19 |  |  | 0.08 |
Expenses incurred due to natural disasters(c) | 17 |  |  | 4 |  |  | 24.3 | % |  | 13 |  |  | 0.06 |
Impairment charge(d) | 21 |  |  | 6 |  |  | 29.2 | % |  | 12 |  |  | 0.05 |
Decrease in allowance for doubtful accounts related to COVID-19 | (14) |  |  | (3) |  |  | 24.7 | % |  | (11) |  |  | (0.05) |
Income from legal settlements | (22) |  |  | (5) |  |  | 24.3 | % |  | (17) |  |  | (0.07) |
Business restructuring-related costs, net (e) | (40) |  |  | (10) |  |  | 25.0 | % |  | (30) |  |  | (0.13) |
Adjusted, continuing operations, excluding certain items | $1,728 |  |  | $394 |  |  | 22.8 | % |  | $1,321 |  |  | $5.51 |

| Nine Months Ended September 30, 2020
($ in millions, except percentages and per share amounts) | Income Before Income Taxes |  | Tax Expense |  | Effective Tax Rate |  | Net income from continuing operations (attributable to PPG) |  | Earnings per diluted share(a)
As reported, continuing operations | $1,017 |  |  | $224 |  |  | 22.0 | % |  | $784 |  |  | $3.30 |
Adjusted for: |  |  |  |  |  |  |  |  |
Business restructuring-related costs, net (e) | 200 |  |  | 52 |  |  | 26.0 | % |  | 148 |  |  | 0.62 |
Acquisition-related amortization expense | 99 |  |  | 25 |  |  | 25.3 | % |  | 74 |  |  | 0.32 |
Increase in allowance for doubtful accounts related to COVID-19 | 30 |  |  | 7 |  |  | 23.2 | % |  | 23 |  |  | 0.10 |
Environmental remediation charges | 12 |  |  | 3 |  |  | 24.3 | % |  | 9 |  |  | 0.04 |
Expenses incurred due to natural disasters(c) | 8 |  |  | 2 |  |  | 24.3 | % |  | 6 |  |  | 0.03 |
Debt extinguishment charge | 7 |  |  | 2 |  |  | 24.3 | % |  | 5 |  |  | 0.02 |
Adjusted, continuing operations, excluding certain items | $1,373 |  |  | $315 |  |  | 22.9 | % |  | $1,049 |  |  | $4.43 |

(a)Earnings per diluted share is calculated based on unrounded numbers. Figures in the table may not recalculate due to rounding.
(b)Acquisition-related costs include the impact for the step up to fair value of inventory acquired in certain acquisitions which are included in Cost of Sales, exclusive of depreciation and amortization in the condensed consolidated statement of income. Acquisition-related costs also include advisory, legal, accounting, valuation, other professional or consulting fees, and certain internal costs directly incurred to effect acquisitions. These costs are included in Selling, general and administrative expense in the condensed consolidated statement of income.
(c)In 2020, two hurricanes damaged a southern U.S. factory supporting the Company's specialty coatings and materials business. In early 2021, a winter storm further damaged that factory as well as other Company factories in the southern U.S. Incremental expenses incurred due to these storms included costs related to maintenance and repairs of damaged property, freight and utility premiums and other incremental expenses directly related to the impacted areas.
(d)An incremental impairment charge was recorded in the third quarter 2021 related to the previously planned sale of certain smaller entities in non-strategic regions. Net loss of $12 million is attributable to PPG and net loss of $3 million is attributable to noncontrolling interests.
(e)Included in business restructuring-related costs, net are business restructuring charges, accelerated depreciation of certain assets and other related costs, offset by releases related to previously approved programs and a $34 million gain on the sale of certain assets in the third quarter 2021 in connection with the Company’s manufacturing footprint consolidation plans and associated restructuring programs. This gain is included in Other income in the condensed consolidated statement of income.
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Performance of Reportable Business Segments
Performance Coatings

| Nine Months Ended September 30 |  | $ Change |  | % Change
($ in millions, except percentages) | 2021 |  | 2020 |  | 2021 vs. 2020 |  | 2021 vs. 2020
Net sales | $7,826 |  |  | $6,328 |  |  | $1,498 |  |  | 23.7 | %
Segment income | $1,248 |  |  | $1,060 |  |  | $188 |  |  | 17.7 | %
Amortization expense | $92 |  |  | $69 |  |  | $23 |  |  | 33.3 | %
Segment income, excluding amortization expense | $1,340 |  |  | $1,129 |  |  | $211 |  |  | 18.7 | %

Performance Coatings net sales increased due to the following:
● Acquisition-related sales (+12%)
● Favorable foreign currency translation (+4%)
● Higher sales volumes (+4%)
● Higher selling prices (+4%)
In the first nine months of 2021, the acquisitions of Tikkurila, Ennis-Flint and VersaFlex increased net sales in the Performance Coatings segment by approximately $760 million versus prior year.
Architectural coatings - Americas and Asia Pacific net sales increased a mid-single-digit percentage during the first nine months of the year with differences by channel and region. Despite a strong first quarter, the second and third quarters were negatively impacted by raw material shortages. Favorable foreign currency benefited net sales due to the strengthening of the Mexican peso and certain currencies in the Asia Pacific region. In Mexico, PPG Comex architectural coatings business organic sales increased by a low-teen percentage compared to the prior year as the concessionaire network sell-out of PPG products continued to be strong.
Architectural coatings – EMEA net sales increased nearly 30% versus prior year driven by strong volumes in the first half of the year and favorable foreign currency translation due to the strengthening of the euro. Sales volumes in the third quarter were negatively impacted by raw material shortages. Acquisition-related sales from Tikkurila also benefited the business.
Net sales for automotive refinish coatings increased nearly 30%, with significant growth in each region versus prior year driven by an increase in global miles driven and traffic density in most of the world versus 2020.
Aerospace coatings net sales decreased a low-single-digit percentage during the first nine months of the year primarily due to a decline in sales of commercial OEM and general aviation products. Net sales benefited from consistent demand for the company’s military applications.
Net sales in the protective and marine coatings business increased over 30% versus prior year due to strong demand in the Asia Pacific region and acquisition-related sales from VersaFlex.
Segment income increased $188 million year-over-year due to higher selling prices, higher sales volumes, acquisition-related earnings and savings from previously approved restructuring actions, partially offset by raw material and logistics cost inflation.
Industrial Coatings

| Nine Months Ended September 30 |  | $ Change |  | % Change
($ in millions, except percentages) | 2021 |  | 2020 |  | 2021 vs. 2020 |  | 2021 vs. 2020
Net sales | $4,786 |  |  | $3,749 |  |  | $1,037 |  |  | 27.7 | %
Segment income | $575 |  |  | $468 |  |  | $107 |  |  | 22.9 | %
Amortization expense | $34 |  |  | $30 |  |  | $4 |  |  | 13.3 | %
Segment income, excluding amortization expense | $609 |  |  | $498 |  |  | $111 |  |  | 22.3 | %

Industrial Coatings segment net sales increased due to the following:
● Higher sales volumes (+17%)
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● Acquisition-related sales (+4%)
● Higher selling prices (+4%)
● Favorable foreign currency translation (+3%)
Automotive OEM coatings net sales increased by about 25% year-over-year driven by strong growth in all regions. Sales volumes were negatively impacted by semiconductor chip shortages that constrained production levels in the second and third quarters. Sales volumes in the nine months ended September 30, 2020 were negatively impacted by the significant curtailment in global automotive industry production rates beginning in the second quarter. Net sales also benefited from acquisition-related sales from Wörwag and Cetelon and favorable foreign currency translation in Europe and Asia. In the U.S., automotive retail dealer inventories decreased to historically low levels as consumer demand remained robust while production levels were constrained.
For the industrial coatings business, net sales increased by nearly 30% as global industrial production continued to improve from the global pandemic in the prior year, most notably in electronic materials, heavy duty equipment, appliance and cookware segments.
Packaging coatings net sales increased nearly 20% year-over-year due to sales volume growth in all regions, with strong growth across the canned beverage segment. Net sales also benefited from higher selling prices.
Segment income increased $107 million year-over-year driven by the earnings impact of higher sales volumes, higher selling prices and the execution of cost-mitigation actions and restructuring savings, partially offset by raw material and logistics cost inflation.
Liquidity and Capital Resources
PPG had cash and short-term investments totaling $1.3 billion and $1.9 billion at September 30, 2021 and December 31, 2020, respectively.
Cash from operating activities from continuing operations for the nine months ended September 30, 2021 and 2020 was $1,106 million and $1,163 million, respectively. Operating cash flow decreased primarily due to unfavorable changes in working capital in the first nine months of 2021 compared to the prior year, partially offset by higher net income.
Other uses of cash during the nine months ended September 30, 2021 included:
•Capital expenditures, excluding acquisitions, of $220 million.
•Business acquisition cash spending (net of cash acquired) of $2,137 million.
•Cash dividends paid of $396 million.
In June 2021, PPG borrowed $700 million under the $2.0 billion Term Loan Credit Agreement (the "Term Loan Credit Agreement") entered into in February 2021 to finance the Company’s acquisition of Tikkurila, and to pay fees, costs and expenses related thereto. The Term Loan Credit Agreement provides the Company with the ability to borrow up to an aggregate principal amount of $2.0 billion on an unsecured basis. Prior to December 31, 2021, the Company may make up to eleven additional borrowings of term loans under the Term Loan Credit Agreement, which may be used for working capital and general corporate purposes. The Term Loan Credit Agreement contains covenants that are usual and customary restrictive covenants for facilities of its type, which include, with specified exceptions, limitations on the Company’s ability to create liens or other encumbrances, to enter into sale and leaseback transactions and to enter into consolidations, mergers or transfers of all or substantially all of its assets. The Term Loan Credit Agreement matures and all outstanding borrowings are due and payable on the third anniversary of the date of the initial borrowing under the Agreement.
Also in the second quarter of 2021, two of PPG's long-term debt obligations matured; $134 million 9% non-callable debentures and non-U.S. debt of €30 million. The Company paid $170 million to settle these obligations using cash on hand.
In March 2021, PPG completed a public offering of $700 million aggregate principal amount of 1.200% notes due 2026. These notes were issued pursuant to PPG’s existing shelf registration statement and pursuant to the Indenture between the Company and the Bank of New York Mellon Trust Company, N.A., as trustee, as supplemented (the "2021 Indenture"). The 2021 Indenture governing these notes contains covenants that limit the Company’s ability to, among other things, incur certain liens securing indebtedness, engage in certain sale-leaseback transactions, and enter into certain consolidations, mergers, conveyances, transfers or leases of all or substantially all the Company’s assets. The terms of these notes also require the Company to make an offer to repurchase the notes upon a Change of Control Triggering Event (as defined in the 2021 Indenture) at a price equal to 101% of their principal amount plus accrued and unpaid interest. The Company may issue additional debt from
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time to time pursuant to the 2021 Indenture. The aggregate cash proceeds from the notes, net of discounts and fees, was $692 million.
In August 2020, PPG completed a public offering of $100 million aggregate principal amount of 3.75% notes due March 2028. These notes were issued as additional notes pursuant to PPG’s existing shelf registration statement and pursuant to the Indenture between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee, as supplemented (the "2018 Indenture"), which is is the same Indenture pursuant to which we previously issued $700 million in aggregate principle amount of our 3.75% notes due March 2028 on February 27, 2018. The new notes will be treated as a single series of notes with the existing notes under indenture, have the same CUSIP number as the existing notes, and be fungible with the existing notes for US federal income tax purposes. The 2018 Indenture governing these notes contains covenants that limit the Company’s ability to, among other things, incur certain liens securing indebtedness, engage in certain sale-leaseback transactions, and enter into certain consolidations, mergers, conveyances, transfers or leases of all or substantially all the Company’s assets. The terms of these notes also require the Company to make an offer to repurchase the notes upon a Change of Control Triggering Event (as defined in the 2018 Indenture) at a price equal to 101% of their principal amount plus accrued and unpaid interest. The Company may issue additional debt from time to time pursuant to the 2018 Indenture. The aggregate cash proceeds from the notes, including the premium received at issuance, net of fees, was $119 million.
In June 2020, PPG completed an early redemption of the $500 million 3.6% notes due November 2020 using proceeds from the May 2020 public offering and cash on hand. The Company recorded a charge of $7 million in the second quarter 2020 for the debt redemption which consists of the aggregate make-whole cash premium of $6 million and a balance of unamortized fees and discounts of $1 million related to the debt redeemed.
In May 2020, PPG completed a public offering of $300 million aggregate principal amount of 2.55% notes due 2030. These notes were issued pursuant to PPG’s existing shelf registration statement and pursuant to an indenture between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee, as supplemented (the "2020 Indenture"). The 2020 Indenture governing these notes contains covenants that limit the Company’s ability to, among other things, incur certain liens securing indebtedness, engage in certain sale-leaseback transactions, and enter into certain consolidations, mergers, conveyances, transfers or leases of all or substantially all the Company’s assets. The terms of these notes also require the Company to make an offer to repurchase the notes upon a Change of Control Triggering Event (as defined in the 2020 Indenture) at a price equal to 101% of their principal amount plus accrued and unpaid interest. The Company may issue additional debt from time to time pursuant to the 2020 Indenture. The aggregate cash proceeds from the notes, net of discounts and fees, was $296 million.
In April 2020, PPG entered into a $1.5 billion 364-Day Term Loan Credit Agreement (the “Term Loan”). The Term Loan contains covenants that are consistent with those in the Credit Agreement discussed below and that are usual and customary restrictive covenants for facilities of its type, which include, with specified exceptions, limitations on the Company’s ability to create liens or other encumbrances, to enter into sale and leaseback transactions and to enter into consolidations, mergers or transfers of all or substantially all of its assets. In 2020, PPG repaid $1.1 billion of the Term Loan using cash on hand. In the first quarter 2021, PPG repaid the remaining $400 million of the Term Loan using cash on hand.
In August 2019, PPG amended and restated its five-year credit agreement (the “Credit Agreement”) with several banks and financial institutions. The Credit Agreement provides for a $2.2 billion unsecured revolving credit facility. The Company has the ability to increase the size of the Credit Agreement by up to an additional $750 million, subject to the receipt of lender commitments and other conditions precedent. The Credit Agreement will terminate on August 30, 2024. The Company has the right, subject to certain conditions set forth in the Credit Agreement, to designate certain subsidiaries of the Company as borrowers under the Credit Agreement. In connection with any such designation, the Company is required to guarantee the obligations of any such subsidiaries under the Credit Agreement. In March 2020, PPG borrowed $800 million under the Credit Agreement and repaid that amount in full in April 2020. There were no amounts outstanding under the credit agreement as of September 30, 2021 and December 31, 2020.
The Term Loan Credit Agreement and Credit Agreement require the Company to maintain a ratio of Total Indebtedness to Total Capitalization, as defined in the Term Loan Credit Agreement and Credit Agreement, of 60% or less; provided, that for any fiscal quarter in which the Company has made an acquisition for consideration in excess of $1 billion and for the next five fiscal quarters thereafter, the ratio of Total Indebtedness to Total Capitalization may not exceed 65% at any time. As of September 30, 2021, Total Indebtedness to Total Capitalization as defined under the Credit Agreement and Term Loan Credit Agreement was 49%.
The Credit Agreement also supports the Company’s commercial paper borrowings which are classified as long-term based on PPG’s intent and ability to refinance these borrowings on a long-term basis. Commercial paper
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borrowings of $625 million and $250 million were outstanding as of September 30, 2021 and December 31, 2020, respectively.
Total capital spending in 2021 is expected to be about $400 million in support of future organic growth opportunities. PPG expects to make mandatory contributions to its non-U.S. pension plans in the range of $5 million to $10 million during the remaining three months of 2021. PPG may make voluntary contributions to its defined benefit pension plans in 2021 and beyond.
A primary focus for the Company in 2021 will continue to be cash deployment focused on shareholder value creation, with a preference for business acquisitions. In the fourth quarter, the Company expects to execute stock repurchases and to continue to evaluate further debt reduction.
Operating working capital is a subset of total working capital and represents (1) trade receivables – net of the allowance for doubtful accounts (2) FIFO inventories and (3) trade liabilities. We believe operating working capital represents the key components of working capital under the operating control of our businesses. A key metric we use to measure our working capital management is operating working capital as a percentage of sales (current quarter sales annualized).

($ in millions, except percentages) | September 30, 2021 |  | December 31, 2020 |  | September 30, 2020
Trade receivables, net | $2,995 |  |  | $2,412 |  |  | $2,495 |
Inventories, FIFO | 2,402 |  |  | 1,845 |  |  | 1,784 |
Trade creditors’ liabilities | 2,726 |  |  | 2,259 |  |  | 2,055 |
Operating working capital | $2,671 |  |  | $1,998 |  |  | $2,224 |
Operating working capital as a % of Sales | 15.3 | % |  | 13.3 | % |  | 15.1 | %
Days sales outstanding | 57 |  |  | 54 |  |  | 56 |

Other Liquidity Information
The Company continues to believe that cash on hand and short-term investments, cash from operations and the Company's access to capital markets will continue to be sufficient to fund our operating activities, capital spending, acquisitions, dividend payments, debt service, share repurchases, contributions to pension plans and PPG's significant contractual obligations.
Environmental

| Three Months Ended September 30 |  | Nine Months Ended September 30
($ in millions) | 2021 |  | 2020 |  | 2021 |  | 2020
Cash outlays for environmental remediation activities | $17 |  |  | $15 |  |  | $34 |  |  | $52 |

($ in millions) | Remainder of 2021 |  | Annually 2022 - 2025
Projected future cash outlays for environmental remediation activities | $20 - $30 |  | $20 - $75

Restructuring
In June 2020, PPG initiated a $176 million restructuring program. The program addresses weakened global economic conditions stemming from the COVID-19 pandemic and related pace of recovery in a few end-use markets along with further opportunities to optimize supply chain and functional costs. The plan includes a voluntary separation program that was offered in the U.S. and Canada. PPG recognized $45 million of savings from this program in 2020. We expect to achieve annualized cost savings from the 2020 program of $160 to $170 million once fully implemented in 2022.
In June 2019, PPG initiated a $184 million restructuring program. This program is a result of a comprehensive internal operational assessment to identify further opportunities to improve the profitability of the overall business portfolio. PPG recognized $60 million of savings from this program in 2020. We expect to achieve annualized cost savings from the 2019 program of $125 million once fully implemented in 2022.
In April 2018, PPG initiated an $83 million global restructuring program. The program is largely centered around the change in customer assortment related to the U.S. architectural coatings DIY business. PPG recognized $10 million of savings from this program in 2020. We expect to achieve annualized cost savings from the 2018 program of $85 million once fully implemented in 2021.
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Aggregate restructuring savings related to the 2020, 2019 and 2018 programs was approximately $110 million for the nine months ended 2021. Total restructuring savings are expected to be at least $135 million in 2021. Releases of $23 million and $26 million were recorded in the nine months ended September 30, 2021 and 2020, respectively, to reflect the current estimate of the costs to complete these actions. There are no changes to the previously estimated restructuring program savings as a result of these adjustments. In addition, the Company continues to review its cost structure to identify additional cost savings opportunities. See Note 6, “Business Restructuring,” to the accompanying condensed consolidated financial statements for further details on the Company's business restructuring programs.
Currency
Comparing spot exchange rates at December 31, 2020 and at September 30, 2021, the U.S. dollar strengthened against currencies of many countries within the regions PPG operates. As a result, consolidated net assets at September 30, 2021 decreased by $271 million compared to December 31, 2020 primarily driven by the euro and the Mexican peso.
Comparing average exchange rates during the first nine months of 2021 to those of the first nine mon ths of 2020, the U.S. dollar weakened against currencies of most countries within the EMEA and Asia Pacific regions PPG operates. This had a favorable impact on Income before income taxes for the nine months ended September 30, 2021 of $63 million from the translation of these foreign earnings into U.S. dollars.
New Accounting Standards
See Note 2, “New Accounting Standards,” to the accompanying condensed consolidated financial statements for further details on recently issued accounting guidance.
Commitments and Contingent Liabilities, including Environmental Matters
PPG is involved in a number of lawsuits and claims, both actual and potential, including some that it has asserted against others, in which substantial monetary damages are sought. See Part II, Item 1, “Legal Proceedings” of this Form 10-Q and Note 15, “Commitments and Contingent Liabilities” to the accompanying condensed consolidated financial statements for a description of certain of these lawsuits.
As discussed in Part II, Item 1 and Note 15, 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, 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.
As also discussed in Note 15, PPG has significant reserves for environmental contingencies. Please refer to the Environmental Matters section of Note 15 for details of these reserves. A significant portion of our reserves for environmental contingencies relate to ongoing remediation at PPG's former chromium manufacturing plant in Jersey City, N.J. and associated sites ("New Jersey Chrome"). There are multiple, future events yet to occur, including further remedy selection and design, remedy implementation and execution and applicable governmental agency or community organization approvals. Considerable uncertainty exists regarding the timing of these future events for the New Jersey Chrome sites. Further resolution of these events is expected to occur over the next several years. As these events occur and to the extent that the cost estimates of the environmental remediation remedies change, the existing reserve for this environmental remediation matter will continue to be adjusted.
It is possible that technological, regulatory and enforcement developments, the results of environmental studies and other factors could alter the Company’s expectations with respect to future charges against income and future cash outlays. Specifically, the level of expected future remediation costs and cash outlays is highly dependent upon activity related to New Jersey Chrome.
Forward-Looking Statements
Management’s Discussion and Analysis and other sections of this Quarterly Report contain forward-looking statements that reflect the Company’s current views with respect to future events and financial performance. You can identify forward-looking statements by the fact that they do not relate strictly to current or historic facts. Forward-looking statements are identified by the use of the words “aim,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “outlook,” “forecast” and other expressions that indicate future events and trends. Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward looking statement, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our reports to the Securities and Exchange Commission ("SEC"). Also, note the following cautionary statements.
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Many factors could cause actual results to differ materially from the Company’s forward-looking statements. Such factors include statements related to the expected effects on our business of COVID-19, global economic conditions, increasing price and product competition by our competitors, fluctuations in cost and availability of raw materials, the ability to achieve selling price increases, the ability to recover margins, customer inventory levels, our ability to maintain favorable supplier relationships and arrangements, the timing of and the realization of anticipated cost savings from restructuring initiatives, the ability to identify additional cost savings opportunities, the timing and expected benefits of our acquisitions, difficulties in integrating acquired businesses and achieving expected synergies therefrom, economic and political conditions in the markets we serve, the ability to penetrate existing, developing and emerging foreign and domestic markets, foreign exchange rates and fluctuations in such rates, fluctuations in tax rates, the impact of future legislation, the impact of environmental regulations, unexpected business disruptions, the effectiveness of our internal control over financial reporting, the results of governmental investigations, and the unpredictability of existing and possible future litigation. However, it is not possible to predict or identify all such factors.
Consequently, while the list of factors presented here, in the 2020 Form 10-K under Item 1A and in this Form 10-Q under Item 1A 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.
Consequences of material differences in the results compared with those anticipated in the forward-looking statements could include, among other things, lower sales or income, business disruption, operational problems, financial loss, legal liability to third parties, other factors set forth in Item 1A of the 2020 Form 10-K and in Item 1A of this Form 10-Q and similar risks, any of which could have a material adverse effect on the Company’s consolidated financial condition, results of operations or liquidity.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Risk
At September 30, 2021 and December 31, 2020, PPG had non-U.S. dollar denominated borrowings outstanding of $2.3 billion and $2.4 billion, respectively. 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 on these borrowings of $258 million at September 30, 2021 and $273 million at December 31, 2020, respectively.
The fair values of foreign currency forward contracts outstanding at September 30, 2021 and December 31, 2020 were a net liability $31 million and net asset of $2 million, respectively. The potential reduction in PPG's Income before income taxes resulting from the impact of adverse changes in exchange rates on the fair value of its outstanding foreign currency hedge contracts of 10% for European and Canadian currencies and 20% for Asian and Latin American currencies for the three months ended September 30, 2021 was $306 million and $226 million for the year ended December 31, 2020.
PPG has U.S. dollar to euro cross currency swap contracts with a total notional amount of $775 million and $875 million outstanding at September 30, 2021 and December 31, 2020, respectively, resulting in a net asset of $38 million and a net liability of $8 million at September 30, 2021 and December 31, 2020, respectively. A 10% increase in the value of the euro to the U.S. dollar would have had an unfavorable effect on the fair value of these swap contracts by reducing the value of these instruments by $78 million and $95 million at September 30, 2021 and December 31, 2020, respectively.
Interest Rate Risk
The Company manages its interest rate risk of fixed and variable rates while attempting to minimize its interest costs. PPG has interest rate swaps which converted $525 million of fixed rate debt to variable rate debt. The fair values of these contracts were assets of $44 million and $67 million as of September 30, 2021 and December 31, 2020, respectively. An increase in variable interest rates of 10% would lower the fair values of these swaps and increase interest expense by less $1 million for the periods ended September 30, 2021 and December 31, 2020. 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 had an insignificant effect on PPG's variable rate debt obligations and interest expense for the periods ended September 30, 2021 and December 31, 2020. Further a 10% reduction in interest rates would have increased the fair value of the Company's fixed rate debt by approximately $70 million and $48 million at September 30, 2021 and December 31, 2020, respectively; however, such changes would not have had an effect on PPG's income before income taxes or cash flows.
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There were no other material changes in the Company’s exposure to market risk from December 31, 2020 to September 30, 2021. See Note 13, “Financial Instruments, Hedging Activities and Fair Value Measurements” for a description of our instruments subject to market risk.
Item 4. Controls and Procedures
a. Evaluation of disclosure controls and procedures. Based on their evaluation as of the end of the period covered by this Form 10-Q, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.
b. Changes in internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
PPG ("the Company") 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 may relate to contract, patent, environmental, product liability, asbestos exposure, antitrust, employment, securities and other matters arising out of the conduct of PPG’s current and past business activities. To the extent these lawsuits and claims involve personal injury, property damage and certain other claims, 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 may contest coverage. 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.
As previously disclosed, the SEC is conducting a non-public investigation of accounting matters described in the Explanatory Note and in Note 2, “Restatement of Previously Reported Consolidated Annual Financial Statements" under Item 8 of the Company’s 2017 Form 10-K/A. On September 26, 2019, PPG announced a final settlement with the SEC as to the Company. Without admitting or denying the findings in the SEC’s administrative cease-and-desist order, the Company consented to the entry of the order, which imposed no financial penalty. The Company continues to cooperate fully with the SEC’s ongoing investigation relating to these accounting matters. The Company is also cooperating fully with an investigation into the same accounting matters commenced by the U.S. Attorney’s Office for the Western District of Pennsylvania (“USAO”). As previously disclosed, the USAO has informed PPG that it will not pursue any action as to the Company.
From the late 1880’s until the early 1970’s, PPG owned property located in Cadogan and North Buffalo Townships, Pennsylvania which was used for the disposal of solid waste from PPG’s former glass manufacturing facility in Ford City, Pennsylvania. In October 2018, the Pennsylvania Department of Environmental Protection (the “DEP”) approved PPG’s cleanup plan for the Cadogan Property. In April 2019, PPG and the DEP entered into a consent order and agreement (“CO&A”) which incorporated PPG’s approved cleanup plan and a draft final permit for the collection and discharge of seeps emanating from the former disposal area. The CO&A includes a civil penalty of $1.2 million for alleged past unauthorized discharges. PPG’s former disposal area is also the subject of a citizens’ suit filed by the Sierra Club and PennEnvironment seeking remedial measures beyond the measures specified in PPG’s approved cleanup plan, a civil penalty in addition to the penalty included in the CO&A and plaintiffs’ attorneys fees. PPG and the plaintiffs settled plaintiffs’ claims for injunctive relief and PPG agreed to enhancements to the DEP approved cleanup plan and a $250,000 donation to a Pennsylvania nonprofit organization. This settlement has been memorialized by an amendment to the CO&A which was appended to a Consent Agreement between PPG and the plaintiffs which has been entered by the federal Court. The remaining claims in the case for attorneys’ fees and a civil penalty are not affected by this settlement. PPG believes that the remaining claims are without merit and intends to defend itself against these claims vigorously.
For many 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, see Note 15, “Commitments and
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Contingent Liabilities” to the accompanying condensed consolidated financial statements under Part I, Item 1 of this Form 10-Q.
In the past, 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. After having not been named in a new lead-related lawsuit for 15 years, PPG was named as a defendant in two Pennsylvania state court lawsuits filed by Montgomery County and Lehigh County in the respective counties on October 4, 2018 and October 12, 2018. Both suits seek declaratory relief arising out of alleged public nuisances in the counties associated with the presence of lead paint on various buildings constructed prior to 1980. The Company believes these actions are without merit and intends to defend itself vigorously.
Item 1A. Risk Factors
There were no material changes in the Company’s risk factors from the risks disclosed in the 2020 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
No shares were repurchased in the three months ended September 30, 2021 under the current $2.5 billion share repurchase program approved in December 2017. The maximum number of shares that may yet be purchased under this program is 10,561,194 shares as of September 30, 2021. This repurchase program has no expiration date.
Item 6. Exhibits
See the Index to Exhibits on page 44.
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PPG INDUSTRIES, INC. AND SUBSIDIARIES
Index to Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Form 10-Q.

†31.1 |  | Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
†31.2 |  | Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
††32.1 |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
††32.2 |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS* |  | Inline XBRL Instance Document
101.SCH** |  | Inline XBRL Taxonomy Extension Schema Document
101.CAL** |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF** |  | Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB** |  | Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE** |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 |  | Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set.

† Filed herewith.
†† Furnished herewith.
*The instance document does not appear in the Interactive Data File because its XBRL (Extensible Business Reporting Language) tags are embedded within the Inline XBRL document.
**Attached as Exhibit 101 to this report are the following documents formatted in Inline XBRL: (i) the Condensed Consolidated Statement of Income for the nine months ended September 30, 2021 and 2020, (ii) the Condensed Consolidated Balance Sheet at September 30, 2021 and December 31, 2020, (iii) the Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2021 and 2020, and (iv) Notes to Condensed Consolidated Financial Statements for the nine months ended September 30, 2021.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

|  |  |  | PPG INDUSTRIES, INC.
|  |  |  | (Registrant)
Date: | October 21, 2021 | By: |  | /s/ Vincent J. Morales
|  |  |  | Vincent J. Morales
|  |  |  | Senior Vice President and Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer)
|  | By: |  | /s/ Brian R. Williams
|  |  |  | Brian R. Williams
|  |  |  | Acting Controller (Principal Accounting Officer and Duly Authorized Officer)

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