PPG INDUSTRIES INC (PPG)

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

The following discussion includes a comparison of our results of operations and liquidity and capital resources for the years ended December 31, 2024, 2023 and 2022. The Company’s financial results have been recast to present the results of the architectural coatings business in the U.S. and Canada as discontinued operations for all periods presented.

Highlights

Net sales were approximately $15.8 billion in 2024, a decrease of 2% compared to the prior year, due to sales volumes declining and the combination of unfavorable foreign currency translation and divestitures reducing net sales. Despite decreased sales due to lower industry demand in automotive OEM coatings, industrial coatings and architectural coatings in Europe, results were supported by record sales in aerospace coatings and growth in several other key technology-driven businesses.

Income before income taxes was $1,852 million in 2024, an increase of $162 million compared to the prior year. This increase was primarily due lower raw material costs, lower performance-based compensation costs and restructuring savings, partially offset by overhead inflation and the impact of lower sales volumes.

Performance Overview

Net Sales by Region

2024 vs. 2023

Net sales decreased $397 million due to the following:

● Lower sales volumes (-1%)

● Unfavorable foreign currency translation and divestitures (-1%)

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For specific business results, see the Performance of Reportable Business Segments section within Item 7 of this Form 10-K.

2023 vs. 2022

Net sales increased $628 million due to the following:

● Higher selling prices (+5%)

● Favorable foreign currency translation (+1%)

Partially offset by:

● Lower sales volumes (-2%)

For specific business results, see the Performance of Reportable Business Segments section within Item 7 of this Form 10-K.

Cost of sales, exclusive of depreciation and amortization

2024 vs. 2023

Cost of sales, exclusive of depreciation and amortization, decreased $426 million due to the following:

● Moderating raw material costs

● Lower sales volume

2023 vs. 2022

Cost of sales, exclusive of depreciation and amortization, decreased $297 million due to the following:

● Moderating raw material costs

● Lower sales volume

Partially offset by:

● Wage and other cost inflation

Selling, general and administrative expenses

2024 vs. 2023

Selling, general and administrative expenses decreased $10 million primarily due to:

● Restructuring cost savings

● Lower performance-based compensation

Partially offset by:

● Wage and other cost inflation

2023 vs. 2022

Selling, general and administrative expenses increased $364 million primarily due to:

● Wage and other cost inflation

● Unfavorable foreign currency translation

● Higher performance-based compensation expense

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● Selling, general and administrative expenses from acquired businesses

Partially offset by:

● Restructuring cost savings

Other charges and other income

Interest expense

Interest expense decreased $6 million in 2024 versus 2023 primarily due to lower debt balances.

Interest expense increased $80 million in 2023 versus 2022 primarily due to the unfavorable impact of higher interest rates on PPG’s variable debt obligations.

Interest income

Interest income increased $37 million in 2024 versus 2023 primarily due to the favorable impact of higher interest rates.

Interest income increased $86 million in 2023 versus 2022 primarily due to strong cash generation, resulting in higher levels of cash and cash equivalents, as well as the favorable impact of higher interest rates.

Business restructuring, net

In October 2024, the Company approved a comprehensive cost reduction program focused on reducing structural costs primarily in Europe and in certain other global businesses, along with other corporate costs following the divestitures of PPG’s silicas products business and the architectural coatings business in the U.S. and Canada. In connection with approval of this restructuring program, the Company recorded a pretax restructuring charge of $239 million, representing employee severance and other cash costs. Refer to Note 8, “Business Restructuring” in Item 8 of this Form 10-K for additional information.

In 2022, the Company approved a business restructuring plan which included actions to reduce its global cost structure in response to economic conditions, including softening demand in Europe and lower than expected demand recovery in China. In connection with approval of this restructuring program, the Company recorded a pretax restructuring charge of $33 million.

Impairment and other related charges, net

During 2024, the Company received written approval from Russian regulatory authorities of a definitive agreement to sell the Company’s remaining Russian business. As a result, the Company classified the business as held for sale as of December 31, 2024 and recognized an impairment charge of $146 million, primarily related to accumulated foreign currency translation losses.

During 2023, as a result of its annual impairment testing performed in the fourth quarter, the Company recorded Impairment and other related charges, net of $158 million due to the goodwill impairment recognized for the traffic solutions reporting unit and $2 million to reduce the carrying value of certain indefinite-lived trademarks.

During 2022, the Company recorded Impairment and other related charges, net of $231 million primarily related to the wind down of the Company’s operations in Russia.

Refer to Note 6, “Goodwill and Other Identifiable Intangible Assets” and Note 7 ”Impairment and Other Related Charges, Net” in Item 8 of this Form 10-K for additional information.

Pension settlement charge

In March 2023, the Company purchased group annuity contracts that transferred to third-party insurance companies pension benefit obligations for certain of the Company’s retirees in the U.S. who were receiving their monthly retirement benefit payments from the U.S. pension plan. This transaction resulted in a pension settlement charge of $190 million. Refer to Note 14, “Employee Benefit Plans" in Item 8 of this Form 10-K for additional information.

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Other (income)/charges, net

Other (income)/charges, net was higher in 2024 compared to 2023 primarily due to a gain recognized on the divestiture of the silicas products business, partially offset by the recognition of accumulated foreign currency translation losses related to the Company’s exit of its Argentina operations. Refer to Note 18, “Other (Income)/Charges, Net” in Item 8 of this Form 10-K for additional information.

Other (income)/charges, net was lower in 2023 compared to 2022 due to an increase in the non-service cost components of pension and other postretirement benefit expense, an increase in environmental remediation costs and foreign currency losses recognized in Argentina related to a central bank adjustment to official foreign currency rates.

Effective tax rate and earnings per diluted share, continuing operations

The effective tax rate on continuing operations for the year ended December 31, 2024 was 25.6%, an increase of 0.3% compared to the prior year. The adjusted effective tax rate was 22.9%, which was higher than the prior year adjusted effective tax rate in part due to the adverse impact of the Pillar 2 global minimum tax.

The effective tax rate on continuing operations for the year ended December 31, 2023 was 25.3%, an increase of 1.7% compared to the prior year due in part to the goodwill impairment charge, for which there was no tax benefit. The adjusted effective tax rate for the year ended December 31, 2023 was 22.2%, an increase of 0.1% compared to the prior year.

Earnings per diluted share from continuing operations for the year ended December 31, 2024 increased year over year primarily due to lower overhead costs, restructuring cost savings and moderating raw material costs, partially offset by lower sales volumes. Earnings per diluted share from continuing operations for the year ended December 31, 2023 increased year over year primarily due to increased selling prices, moderating raw material cost inflation and favorable foreign currency translation impact, partially offset by lower sales volumes. Refer to the Regulation G Reconciliations - Results from Operations for additional information.

Review and Outlook

During 2024, PPG demonstrated resilience in a challenging industrial macroeconomic environment by growing adjusted EPS, improving aggregate segment margins and generating $1.4 billion in operating cash flow. Net sales were $15.8 billion, a decrease of 2% over the prior year. Results were supported by the breadth and diversity of the business portfolio, as the Company benefited from higher prices in several businesses which was more than offset by unfavorable foreign currency translation, divestitures and lower sales volumes. Net sales, excluding the impact of currency, acquisitions and divestitures ("organic sales") decreased 1% during the year with continued strong growth in our aerospace coatings business, which was more than offset by declines in the industrial coatings and automotive OEM coatings businesses. On a regional basis, sales volumes were modestly higher in the Asia Pacific and Latin America regions. Earnings per diluted share from continuing operations was $5.72, compared to $5.16 in the prior year. Adjusted earnings per diluted share was $7.87, up 6% compared to $7.42 in 2023. Combined, segment income increased by 2%. Aggregate segment margins were 70 basis points higher than the prior year, driven by sales of our technology-advantaged products and strong brands.

Demand for PPG products was mixed by end-use market and geographic region during 2024. Demand for aerospace coatings, which was impacted by mobility restrictions in 2020 and 2021, continues to recover. Global automotive OEM manufacturers’ production decreased by about 1% versus 2023 due to lower demand and extended maintenance periods in the U.S. and Europe. Despite the lower demand, PPG outperformed the market in both Latin America and Asia Pacific. In the U.S. and Canada, demand was strong for aerospace coatings, packaging coatings and traffic solutions but declined for most other businesses. In Latin America, demand was solid throughout the year with steady demand for architectural products and growth in automotive OEM products and packaging coatings. The PPG Comex business made strong contributions, supported by a focus on its omnichannel sales approach. Demand was soft in Europe with the largest impact on the automotive OEM coatings business and the architectural coatings business. In Asia, demand was strong

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with sales volume growth in aerospace coatings, protective and marine coatings, automotive OEM coatings, industrial coatings and packaging coatings.

We anticipate a slow start to 2025 as demand in Europe and in global industrial end-use markets remains challenged. Despite the macroeconomic environment, we expect to deliver organic sales growth of a low single-digit percentage for the year. We anticipate demand growth in China, India and Mexico, continued strength in aerospace coatings as well as protective and marine coatings and expect growth in automotive refinish coatings above industry rates. Gaining momentum in infrastructure spending should aid the traffic solutions business in 2025. Global industrial production is expected to be a headwind and remain at a low level in the first quarter with improvement in the Asia Pacific and Latin America regions offset by sluggishness in Europe and in the U.S. In general, most end-use markets do not have significant excess inventories, and any demand improvement should lead to a faster ramp-up of sales volumes.

Significant other factors

During the year, PPG successfully executed various strategic initiatives to strengthen the company. In December, the Company completed the divestitures of both the silicas products business and the architectural coatings U.S. and Canada business. These divestitures improve our financial profile, including higher operating margins, and result in a more focused organization which positions the Company to deliver sustainable organic growth. In conjunction with the divestiture of U.S. and Canada architectural coatings business, PPG entered into a supply agreement with the divested business to sell certain products, which will be recognized as Net sales in the refinish coatings, industrial coatings and protective and marine coatings businesses going forward. However, PPG has entered into transition services agreements to provide administrative services subsequent to the sale. The fees for services rendered under the transition services agreements are expected to offset the cost of providing the services.

PPG made significant progress to reduce costs and improve the profitability of the overall business portfolio through the global restructuring programs that were announced in 2022 and 2023. Total restructuring savings were approximately $40 million in 2024. In October 2024, the Company approved a comprehensive cost reduction program with anticipated annualized pre-tax savings of approximately $175 million once fully implemented, including savings of $60 million in 2025. The multi-year program is focused on reducing structural costs primarily in Europe and in certain other global businesses, along with other corporate costs following the divestitures of PPG’s silicas products business and the architectural coatings business in the U.S. and Canada. The Company will continue to monitor and manage its cost structure to ensure alignment with the overall demand environment.

Raw materials are the Company’s most significant input cost. PPG experiences fluctuating energy and raw material costs driven by various factors, including changes in supplier feedstock costs and inventories, global industry activity levels, foreign currency exchange rates, and global supply and demand factors.

In 2024, the company incurred wage inflation, which adversely impacted operating costs compared to 2023. There was an ample supply of commodity-related raw materials in all regions, and raw material costs were a favorable impact to our operating costs for 2024 versus 2023. In 2025, we anticipate that increased raw material costs and enacted tariffs will result in low single-digit percentage inflation. Additionally, we expect manufacturing efficiencies to improve as the year progresses.

We achieved selling price improvement across several businesses in 2024 stemming from our advantaged products and solutions. The Company will carefully monitor all costs during 2025 and assess the need for additional selling price increases.

In 2024, foreign currency exchange rates were volatile, with the U.S. dollar strengthening in the second half of the year against certain currencies in the countries within the regions where PPG operates, resulting in a net unfavorable impact to net income from continuing operations of approximately $20 million. We expect that foreign currency exchange rates will have a net unfavorable impact on net income from continuing operations in 2025; however, the Company generally purchases raw materials, incurs manufacturing costs and sells finished goods in the same currency, which reduces foreign currency transaction-related impacts to net income.

The 2025 effective tax rate from continuing operations is expected to be in the range of 23% to 25%, varying by quarter. This range is the Company’s best estimate and represents an increase compared to the 2024 adjusted effective tax rate driven by higher rates in certain countries, including the impact of recent global minimum tax standards, and the geographic mix of earnings.

Over the past four years, the Company used nearly $1.3 billion of cash to repurchase approximately nine million shares of PPG stock, including using $752 million to repurchase shares of PPG stock during 2024. The Company ended the year with approximately $2.8 billion remaining under its current share repurchase authorization. During 2024, the Company deployed $721 million for capital expenditures, $622 million for dividends and $31 million for acquisitions. In 2024, PPG marked the 53rd annual per share dividend increase and the 125th successive year of annual dividend payments.

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PPG ended 2024 with approximately $1.4 billion in cash and short-term investments. The Company expects strong cash generation in 2025.

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 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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(1)Earnings per diluted share is calculated based on unrounded numbers. Figures in the table may not recalculate due to rounding.

(2)Business restructuring-related costs, net include business restructuring charges, offset by releases related to previously approved programs, which are included in Business restructuring, net on the consolidated statement of income, accelerated depreciation of certain assets, which is included in Depreciation on the consolidated statement of income, and other restructuring-related costs, which are included in Cost of sales, exclusive of depreciation and amortization and Selling, general and administrative on the consolidated statement of income. Business restructuring-related costs, net also includes the fourth quarter 2024 recognition of accumulated foreign currency translation losses of $110 million related to the Company's exit of its Argentina operations in connection with a restructuring program, which are included in Other (income)/charges, net in the consolidated statement of income. No tax benefit was recorded on the fourth quarter 2024 recognition of the accumulated foreign currency translation losses.

(3)Portfolio optimization includes gains and losses related to the sale of certain assets, which are included in Other (income)/charges, net on the consolidated statement of income, including the gain of $129 million on the sale of the Company's silicas products business in the fourth quarter 2024, and the losses on the sales of the Company's traffic solutions business in Argentina in the second quarter 2024, the Company's European and Australian Traffic Solutions businesses in the fourth quarter 2023 and the Company's legacy industrial Russian operations in the third quarter 2023. Portfolio optimization includes advisory, legal, accounting, valuation, other professional or consulting fees and certain internal costs directly incurred to effect acquisitions, as well as similar fees and other costs to effect divestitures and other portfolio optimization exit actions. These costs are included in Selling, general and administrative expense on the consolidated statement of income. Portfolio optimization also includes an impairment charge of $146 million recognized during the fourth quarter 2024 when the Company's remaining operations in Russia were classified as held for sale, which is included in Impairment and other related charges, net on the consolidated statement of income. No tax benefit was recorded on the fourth quarter 2024 impairment charge.

(4)Legacy environmental remediation charges represent environmental remediation costs at certain non-operating PPG manufacturing sites. These charges are included in Other (income)/charges, net in the consolidated statement of income.

(5)In the fourth quarter 2023, the Company recorded impairment and other related charges due to a non-cash goodwill impairment recognized for the Traffic Solutions reporting unit as a result of its annual goodwill impairment test. The fair value of the Traffic Solutions reporting unit decreased primarily due to increases in the cost of capital (discount rate assumption) and declines in the reporting unit’s long-term forecast driven by challenges at its operations in Argentina due to the highly inflationary environment and changes to the reporting unit’s global footprint, including the fourth quarter 2023 divestiture of its European and Australian businesses. In 2022, the Company recorded impairment and other related charges due to the wind down of the Company’s operations in Russia.

(6)In December 2023, the central bank of Argentina adjusted the official foreign currency exchange rate for the Argentine peso, significantly devaluing the currency relative to the United States dollar. Argentina currency devaluation losses represent foreign currency translation losses recognized during December 2023 related to the devaluation of the Argentine peso, which is included in Other charges/(income), net on the consolidated statement of income.

(7)In the fourth quarter 2024 and the fourth quarter 2023, the Company received reimbursement for previously approved insurance claims under policies covering legacy asbestos-related matters. In the first quarter 2023, the Company received reimbursement under its insurance policies for damages incurred at a southern U.S. factory from a winter storm in 2020. These insurance recoveries are included in Other charges/(income), net on the consolidated statement of income.

(8)In the first quarter 2023, PPG purchased group annuity contracts that transferred pension benefit obligations for certain of the Company’s retirees in the U.S. to third-party insurance companies, resulting in a non-cash pension settlement charge.

Performance of Reportable Business Segments

Global Architectural Coatings

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2024 vs. 2023

Global Architectural Coatings net sales decreased due to the following:

● Lower sales volumes (-2%)

● Foreign currency translation (-1%)

Partially offset by:

● Higher selling prices (+1%)

The Global Architectural Coatings segment, which was previously reported as part of the Performance Coatings segment, is comprised of architectural coatings Europe, Middle East and Africa (EMEA) and architectural coatings Latin America and Asia Pacific. Net sales decreased during 2024, primarily driven by lower sales volumes.

Architectural coatings EMEA organic sales decreased by a low single-digit percentage year over year due to lower sales volumes partially offset by higher selling prices. Consumer confidence remained weak, and regional demand was uneven by country. Demand declined in all sub-regions in the fourth quarter; however, sales were higher for the full year in eastern and central Europe.

Architectural coatings Latin America and Asia Pacific organic sales were flat during the year primarily due to lower sales volumes offset by higher selling prices. In Mexico, architectural coatings organic sales increased compared to the prior year, as concessionaire network demand continued to be strong throughout 2024.

Segment income increased $5 million year over year primarily due to higher selling prices and moderating raw material costs, partially offset by wage and other cost inflation and lower sales volumes.

2023 vs. 2022

Global Architectural Coatings net sales increased due to the following:

● Higher selling prices (+6%)

● Foreign currency translation (+4%)

Partially offset by:

● Lower sales volumes (-5%)

● Divestitures (-1%)

In 2023, the Global Architectural Coatings business achieved organic sales growth of 1% as higher prices in all regions offset lower sales volumes.

Architectural coatings EMEA organic sales were flat year over year, with higher selling prices offset by lower sales volumes. Regional demand remained uneven by country, and positive sales trends occurred in some countries, including the United Kingdom, Poland and the Netherlands.

Architectural coatings Latin America and Asia Pacific organic sales increased during the year due to selling price increases. In Mexico, the concessionaire network demand was strong throughout 2023.

Segment income increased $115 million year over year primarily due to higher selling prices and moderating raw material costs, partially offset by wage and other cost inflation and lower sales volumes.

Looking Ahead

In the first quarter 2025, demand in Mexico is expected to continue to be robust, and consumer sentiment in Europe is expected to be tepid. Aggregate organic sales for the segment are expected to be in the range of flat to an increase of a low single-digit percentage compared to the first quarter 2024.

Performance Coatings

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2024 vs. 2023

Performance Coatings net sales increased due to the following:

● Higher selling prices (+3%)

● Higher sales volumes (+1%)

Partially offset by:

● Divestiture-related sales and other (-2%)

Net sales for the Performance Coatings segment, which is now comprised of aerospace coatings, automotive refinish coatings, protective and marine coatings, and traffic solutions, increased 2% during 2024. This increase was driven by higher selling prices and sales volumes, partially offset by the divestitures of the non-North American portion of the traffic solutions business.

Organic sales in automotive refinish coatings were flat year-over-year with sales volume declines offset by higher selling prices. In the U.S., sales volumes declined with benefits from share gains more than offset by lower industry collision claims. In Europe, organic sales increased modestly year over year driven by price. In China, demand for refinish products is recovering and is expected to improve.

Aerospace coatings organic sales increased by a double-digit percentage driven by increases in both price and sales volume in all regions. Demand remained strong and customer order backlogs are at similar levels to the prior year. Global air travel has improved year over year, but domestic flights remain about 3% below pre-pandemic levels. The Company remains focused on debottlenecking and expanding manufacturing capabilities to drive volume and earnings growth.

Protective and marine coatings organic sales increased by a low single-digit percentage compared to the prior year driven by higher sales volumes in Europe and Asia.

Traffic solutions organic sales increased by a low single-digit percentage year over year due to higher sales volumes, which benefited from market share gains across North America.

Segment income increased $123 million year over year primarily due to higher selling prices and moderating raw material costs, partially offset by wage and other cost inflation.

2023 vs. 2022

Performance Coatings net sales increased due to the following:

● Higher selling prices (+7%)

In 2023, all businesses within the Performance Coatings reportable business segment achieved higher selling prices.

Automotive refinish coatings organic sales increased a low single-digit percentage year over year. Price gains in all regions and sales volume growth in the Latin America and Asia Pacific regions were partially offset by lower sales volumes in all other regions.

Aerospace coatings organic sales were higher by 20% driven by increases in both price and volume. This strong organic sales growth was achieved despite global air travel remaining below pre-pandemic levels.

Protective and marine coatings organic sales increased by a mid-single-digit percentage driven by solid selling price realization and higher sales volumes.

Traffic solutions organic sales decreased by a mid-single-digit percentage year over year, with sales volume declines in all regions.

Segment income increased $172 million year over year primarily due to higher selling prices and moderating raw material costs, partially offset by wage and other cost inflation and lower sales volumes.

Looking Ahead

In the first quarter 2025, continued strength in aerospace coatings and protective and marine coatings is expected, as well as growth in automotive refinish coatings above industry rates. Traffic solutions is expected to follow typical seasonal trends and is well positioned to continue to benefit in the coming years from increased U.S. infrastructure spending. First quarter aggregate organic sales for the Performance Coatings segment are anticipated to increase by a low single-digit percentage to a mid-single-digit percentage compared to the first quarter 2024.

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Industrial Coatings

2024 vs. 2023

Industrial Coatings segment net sales decreased due to the following:

● Lower selling prices (-3%)

● Lower sales volumes (-2%)

● Unfavorable foreign currency translation and the silicas products business divestiture (-1%)

In 2024, Industrial Coatings segment Net sales decreased due to lower selling prices and lower sales volume driven by lower industry demand.

Automotive OEM coatings organic sales decreased by a high single-digit percentage year over year driven by lower sales volumes and lower indexed-based selling prices for certain customer contracts. Sales volume increases in the Latin America and Asia Pacific regions were more than offset by declines in the U.S. and Europe.

For the industrial coatings business, organic sales decreased by a mid-single-digit percentage due to lower selling prices and lower sales volumes driven by softening global industrial demand.

Packaging coatings organic sales increased by a low single-digit percentage year over year due to higher sales volumes in all regions, partially offset by lower selling prices in all regions.

Specialty products organic sales increased by a mid-single-digit percentage primarily due to higher sales volumes, partially offset by lower selling prices.

Segment income decreased $75 million year over year primarily due to lower selling prices, lower sales volumes and wage and other cost inflation, partially offset by moderating raw material costs and lower overhead costs, including restructuring savings.

2023 vs. 2022

Industrial Coatings net sales increased due to the following:

● Higher selling prices (+4%)

Partially offset by:

● Lower sales volumes (-2%)

In 2023, all businesses within the Industrial Coatings reportable business segment achieved higher selling prices, which helped to offset a decrease in sales volumes driven by lower global industrial production.

Automotive OEM coatings organic sales increased by a high single-digit percentage year over year driven by higher selling prices and strong sales volume growth in most regions. Sales volume growth was led by the EMEA and Asia Pacific regions.

For the industrial coatings business, organic sales decreased by a mid-single-digit percentage year over year as higher selling prices were more than offset by lower sales volumes in all regions due to softening global industrial demand.

Packaging coatings organic sales decreased by a mid-single-digit percentage year over year due to lower sales volumes in all regions due to broad demand weakness. These sales volume decreases were partially offset by higher selling prices in most regions.

Specialty coatings and materials organic sales decreased by a mid-single-digit percentage primarily due to lower sales volumes, partially offset by higher selling prices.

Segment income increased $322 million year over year primarily due to higher selling prices and moderating raw material costs, partially offset by wage and other cost of sales inflation and lower sales volumes.

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Looking Ahead

In the first quarter 2025, global industrial production is expected to remain at a relatively low level with improvement in the Asia Pacific and Latin America regions offset by sluggishness in Europe and in the U.S. Demand growth for PPG's industrial coatings in China is expected to continue for the next several quarters. Automotive OEM industry build rates are expected to decline in the first quarter, but are expected to outpace market growth in Latin America and the Asia Pacific region. Aggregate organic sales for the segment are anticipated to decrease by a mid-single-digit percentage to a low single-digit percentage compared to the first quarter 2024.

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. Refer to Item 3. “Legal Proceedings” and Note 15, “Commitments and Contingent Liabilities” in Item 8 of this Form 10-K for a description of certain of these lawsuits.

As discussed in Item 3 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. Refer to the Environmental Matters section of Note 15 for details of these reserves. It is PPG’s policy to accrue expenses for 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.

Accounting Standards Adopted in 2024

Note 1, “Summary of Significant Accounting Policies” in Item 8 of this Form 10-K describes the Company’s recently adopted accounting pronouncements.

Accounting Standards to be Adopted in Future Years

Note 1, “Summary of Significant Accounting Policies” in Item 8 of this Form 10-K describes accounting pronouncements that have been promulgated prior to December 31, 2024 but are not effective until a future date.

Liquidity and Capital Resources

During the past two years, PPG had sufficient financial resources to meet its operating requirements, to fund capital spending, including acquisitions, share repurchases and pension plans, and to pay increasing dividends to shareholders.

Cash and cash equivalents and short-term investments

Cash from operating activities - continuing operations

2024 vs. 2023

The $903 million decrease in Cash from operating activities - continuing operations was primarily due to unfavorable changes in working capital compared to the prior year. Accrued incentive compensation was lower at December 31, 2024 versus December 31, 2023, driving operating cash outflows during 2024 compared to 2023. The Company paid an additional $80 million in cash taxes during 2024 related to divestitures, primarily due to the taxable gain recognized on the sale of the silicas products business. The Company also recorded operating cash outflows of $55 million related to net

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payables paid on behalf of the divested United States and Canada architectural coatings business during 2024 that were reimbursed in 2025.

2023 vs. 2022

The $1,294 million increase in Cash from operating activities - continuing operations was primarily due to higher net income driven by higher selling prices and moderating raw material costs and favorable changes in working capital compared to the prior year.

Operating working capital

Operating working capital is a subset of total working capital and represents (1) receivables from customers, net of allowance for doubtful accounts, (2) inventories, and (3) trade liabilities. Refer to Note 3, “Working Capital Detail” in Item 8 of this Form 10-K for further information related to the components of the Company’s operating working capital. 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 (fourth quarter sales annualized).

Environmental expenditures

We expect cash outlays for environmental remediation activities to be between $20 million to $60 million annually from 2025 through 2029.

Cash used for investing activities - continuing operations

2024 vs. 2023

The $126 million decrease in cash used for investing activities - continuing operations was primarily due to proceeds from the sale of our silicas products business, partially offset by higher capital expenditures.

2023 vs. 2022

The $95 million increase in cash used for investing activities was primarily due to higher capital expenditures and lower proceeds from asset sales.

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Capital expenditures, including business acquisitions

(1)Includes modernization and productivity improvements, expansion of existing businesses and environmental control projects.

During 2025, capital expenditures, which are expected to be approximately $725 million to $775 million, will support future organic growth opportunities. The Company will continue to deploy cash focused on shareholder value creation.

Cash used for financing activities

2024 vs. 2023

The $125 million decrease in cash used for financing activities was primarily due to lower repayments of long-term debt, partially offset by higher share repurchases.

2023 vs. 2022

The $1,141 million increase in cash used for financing activities was primarily due to repayment of long-term debt and lower proceeds from the issuance of debt, partially offset by the absence of net payments on commercial paper.

Share repurchase activity

The Company has approximately $2.8 billion remaining under the current authorization from the Board of Directors. The Board of Directors authorized $2.5 billion of share repurchases in December 2017 and authorized an additional $2.5 billion of share repurchases in April 2024. The repurchase programs do not have an expiration date.

Dividends paid to shareholders

PPG has paid uninterrupted annual dividends since 1899, and 2024 marked the 53rd successive year of increased annual per-share dividend payments to shareholders. The Company raised its per-share quarterly dividend by approximately 5% to $0.68 per share in July 2024.

Debt issued and repaid

2024 PPG ANNUAL REPORT AND FORM 10-K 31

The Company’s commercial paper borrowings are classified as long-term debt based on PPG’s intent and ability to refinance these borrowings on a long-term basis. Net payments on commercial paper were zero for both the years ended December 31, 2024 and December 31, 2023 and $440 million for the year ended December 31, 2022.

Credit agreements and lines of credit

In April 2023, PPG entered into a €500 million 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. The Term Loan terminates and all amounts outstanding are payable in April 2026. In April 2023, PPG borrowed €500 million under the Term Loan. In December 2023, PPG obtained lender commitments sufficient to increase the size of the Term Loan by €250 million. In January 2024, PPG borrowed the additional €250 million. In December 2024, PPG obtained lender commitments sufficient to increase the size of the Term Loan by €300 million. In January 2025, PPG borrowed the additional €300 million.

In February 2021, PPG entered into a $2.0 billion term loan credit agreement (the "Term Loan Credit Agreement") to finance the Company’s acquisition of Tikkurila, and to pay fees, costs and expenses related thereto. The Term Loan Credit Agreement provided the Company with the ability to borrow up to an aggregate principal amount of $2.0 billion on an unsecured basis. The Term Loan Credit Agreement contained 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 included, 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 was scheduled to mature and all outstanding borrowings were due and payable on the third anniversary of the date of the initial borrowing under the Agreement. In June 2021, PPG borrowed $700 million under the Term Loan Credit Agreement to finance the Company’s acquisition of Tikkurila, and to pay fees, costs and expenses related thereto. In December 2021, PPG borrowed an additional $700 million under the Term Loan Credit Agreement to be used for working capital and general corporate purposes. In 2022 and 2023, PPG repaid $300 million and $1.1 billion, respectively, of the Term Loan Credit Agreement using cash on hand. The Term Loan Credit Agreement was fully repaid as of December 31, 2023.

In March 2023, PPG amended its five-year credit agreement (the “Credit Agreement”) dated as of August 30, 2019. The amendments to the Credit Agreement replaced the LIBOR-based reference interest rate option with a reference interest rate option based upon Term SOFR. The other terms of the Credit Agreement remained unchanged. In July 2023, PPG amended and restated the Credit Agreement, extending the term through July 27, 2028. The amended and restated Credit Agreement provides for a $2.3 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 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. There were no amounts outstanding under the Credit Agreement as of December 31, 2024, December 31, 2023 and December 31, 2022.

The Term Loan and the Credit Agreement require the Company to maintain a ratio of Total Indebtedness to Total Capitalization, as defined in the Term Loan and the 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 December 31, 2024, Total Indebtedness to Total Capitalization as defined under the Credit Agreement and the Term Loan was 45%.

In addition to the amounts available under lines of credit, the Company maintains access to the capital markets and may issue debt or equity securities from time to time, which may provide an additional source of liquidity.

Refer to Note 10, “Borrowings and Lines of Credit” in Item 8 of this Form 10-K for information regarding notes entered into and repaid as well as details regarding the use and availability of committed and uncommitted lines of credit, letters of credit and debt covenants.

2024 PPG ANNUAL REPORT AND FORM 10-K 32

Cash requirements

We continue to believe that our 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 cash requirements. The Company’s significant cash requirements include the following contractual obligations and commitments.

(1)Interest on all outstanding debt.

(2)Includes interest payments.

(3)The unconditional purchase commitments are principally take-or-pay obligations related to the purchase of certain materials, utilities and services consistent with customary industry practice.

The Company’s off-balance sheet arrangements include unconditional purchase commitments disclosed in the “Liquidity and Capital Resources” section in the cash requirements table as well as letters of credit as discussed in Note 10, “Borrowings and Lines of Credit” in Item 8 of this Form 10-K.

Other liquidity matters

At December 31, 2024, the total amount of unrecognized tax benefits for uncertain tax positions, including an accrual of related interest and penalties along with positions only impacting the timing of tax benefits, was $152 million. The timing of payments will depend on the progress of examinations by tax authorities. PPG does not expect a significant tax payment related to these obligations within the next year. The Company is unable to make a reasonably reliable estimate as to if, or when, any significant cash settlements with tax authorities may occur.

Critical Accounting Estimates

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

Contingencies

Contingencies, by their nature, relate to uncertainties that require management to exercise judgment both in assessing the likelihood that a liability has been incurred as well as in estimating the amount of potential loss. The most important contingencies impacting our financial statements are those related to environmental remediation, to pending, impending or overtly threatened litigation against the Company and to the resolution of matters related to open tax years. For more information on these matters, see Note 15, “Commitments and Contingent Liabilities” and Note 13, “Income Taxes” in Item 8 of this Form 10-K.

Defined Benefit Pension and Other Postretirement Benefit Plans

Accounting for pensions and other postretirement benefits involves estimating the cost of benefits to be provided well into the future and attributing that cost over the time period each employee works. To accomplish this, we make extensive use of assumptions about inflation, investment returns, mortality, turnover, medical costs and discount rates. The Company has established a process by which management reviews and selects these assumptions annually. Refer to Note 14, “Employee Benefit Plans” in Item 8 of this Form 10-K for information on these plans and the assumptions used.

Business Combinations

The Company uses the acquisition method of accounting to allocate costs of acquired businesses to the assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition. The excess costs of acquired businesses over the fair values of the assets acquired and liabilities assumed is recognized as goodwill. The valuations of the acquired assets and liabilities impacts the determination of future operating results. In addition to using management estimates and negotiated amounts, the Company uses a variety of information sources to determine the estimated fair values of acquired assets and liabilities including: third-party appraisals for the estimated value and lives of identifiable

2024 PPG ANNUAL REPORT AND FORM 10-K 33

intangible assets and property, plant and equipment; third-party actuaries for the estimated obligations of defined benefit pension plans and similar benefit obligations; and legal counsel or other experts to assess the obligations associated with legal, environmental and other contingent liabilities.

The business and technical judgment of management is used in determining which acquired intangible assets have indefinite lives and in determining the useful lives of acquired finite-lived intangible assets in accordance with the accounting guidance for goodwill and other intangible assets.

Goodwill and 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. In the quantitative test, fair values are estimated using a discounted cash flow model. Key assumptions and estimates used in the discounted cash flow model include projected future revenues, discount rates, operating cash flows, capital expenditures and tax rates. For more information on these matters, see Note 1, “Summary of Significant Accounting Policies” in Item 8 of this Form 10-K.

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

Currency

Comparing spot exchange rates at December 31, 2024 and at December 31, 2023, the U.S. dollar strengthened against the currencies of many countries within the regions PPG operates, most notably the Mexican peso. As a result, consolidated net assets at December 31, 2024 decreased by $905 million from December 31, 2023. Comparing spot exchange rates at December 31, 2023 and at December 31, 2022, the U.S. dollar weakened against the currencies of many countries within the regions PPG operates, most notably the Mexican peso. As a result, consolidated net assets at December 31, 2023 increased by $508 million from December 31, 2022.

Comparing average exchange rates during 2024 to those of 2023, the U.S. dollar strengthened against the currencies of certain countries where PPG operates, including the Mexican peso and the Chinese yuan. This had an unfavorable impact of approximately $20 million on full year 2024 Income before income taxes from the translation of this foreign income into U.S. dollars. Comparing average exchange rates during 2023 to those of 2022, the U.S. dollar weakened against the currencies of certain countries where PPG operates, including the Mexican peso and the euro, partially offset by strengthening against the Chinese yuan and Argentine peso. This had a favorable impact of approximately $25 million on full year 2023 Income before income taxes from the translation of this foreign income into U.S. dollars.

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. Management’s Discussion and Analysis and other sections of this Annual Report contain forward-looking statements that reflect the Company’s current views with respect to future events and financial performance. 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 SEC. Also, note the following cautionary statements.

Many factors could cause actual results to differ materially from the Company’s forward-looking statements. Such factors include statements related to global economic conditions, geopolitical issues, increasing price and product competition by our competitors, fluctuations in cost and availability of raw materials, energy, labor and logistics, the ability to achieve selling price increases, the ability to recover margins, customer inventory levels, PPG 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, the amount of future share repurchases, economic and political conditions in the markets we serve, the imposition of tariffs, 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, cybersecurity events, global human health issues, the unpredictability of existing and possible future

2024 PPG ANNUAL REPORT AND FORM 10-K 34

litigation, including asbestos litigation, and government investigations. However, it is not possible to predict or identify all such factors.

Consequently, while the list of factors presented here and in 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 this Form 10-K and similar risks, any of which could have a material adverse effect on the Company’s consolidated financial condition, results of operations or liquidity. PPG undertakes no obligation to update any forward-looking statement, except as otherwise required by applicable law.

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

The following discussion includes a comparison of our results of operations and liquidity and capital resources for the years ended December 31, 2023 and 2022. A discussion of changes in our results of operations for the year ended December 31, 2022 as compared to the year ended December 31, 2021 has been omitted from this Form 10-K, but may be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2022 Form 10-K, filed with the Securities and Exchange Commission on February 16, 2023.

Highlights

Net sales were approximately $18.2 billion in 2023, an increase of 3% compared to the prior year, driven by higher selling prices resulting from continued selling price initiatives. The Company increased net sales led by growth in aerospace coatings and automotive OEM coatings despite lower global industrial production and soft demand conditions in Europe.

Income before income taxes was $1,748 million in 2023, an increase of $367 million compared to the prior year. This increase was primarily due to higher selling prices and lower raw material costs, partially offset by higher selling, general and administrative expense and lower sales volumes.

Performance Overview

Net Sales by Region

Net sales increased $594 million due to the following:

● Higher selling prices (+5%)

Partially offset by:

● Lower sales volumes (-2%)

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For specific business results, see the Performance of Reportable Business Segments section within Item 7 of this Form 10-K.

Cost of sales, exclusive of depreciation and amortization

Cost of sales, exclusive of depreciation and amortization, decreased $351 million due to the following:

● Moderating raw material costs

● Lower sales volume

Partially offset by:

● Wage and other cost inflation

Selling, general and administrative expenses

Selling, general and administrative expenses increased $380 million primarily due to:

● Wage and other cost inflation

● Unfavorable foreign currency translation

● Higher performance-based compensation expense

● Selling, general and administrative expenses from acquired businesses

Partially offset by:

● Restructuring cost savings

Other charges and other income

Interest expense

Interest expense increased $80 million 2023 versus 2022 primarily due to the unfavorable impact of higher interest rates on PPG’s variable rate debt obligations.

Interest income

Interest income increased $86 million primarily due to strong cash generation, resulting in higher levels of cash and cash equivalents, as well as the favorable impact of higher interest rates.

Impairment and other related charges, net

During 2023, as a result of its annual impairment testing performed in the fourth quarter, the Company recorded Impairment and other related charges, net of $158 million due to the goodwill impairment recognized for the traffic solutions reporting unit and $2 million to reduce the carrying value of certain indefinite-lived trademarks.

During 2022, the Company recorded Impairment and other related charges, net of $227 million associated with the wind down of the Company’s operations in Russia. The Company also recorded impairment charges of $14 million related to the sale of certain small, non-strategic businesses and $4 million to reduce the carrying value of certain indefinite-lived trademarks based on the results of the annual impairment test.

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Refer to Note 6, “Goodwill and Other Identifiable Intangible Assets and Note 7 ”Impairment and Other Related Charges, Net” in Item 8 of this Form 10-K for additional information.

Pension settlement charge

In March 2023, the Company purchased group annuity contracts that transferred to third-party insurance companies pension benefit obligations for certain of the Company’s retirees in the U.S. who were receiving their monthly retirement benefit payments from the U.S. pension plan. This transaction resulted in a pension settlement charge of $190 million. Refer to Note 14, “Employee Benefit Plans" in Item 8 of this Form 10-K for additional information.

Other charges/(income), net

Other charges/(income), net was higher in 2023 compared to the prior year primarily due to an increase in the non-service cost components of pension and other postretirement benefit expense, an increase in environmental remediation costs and foreign currency losses recognized in Argentina related to a central bank adjustment to official foreign currency rates, partially offset by a decrease in net business restructuring expense. Refer to Note 18, “Other Charges/(Income), Net” in Item 8 of this Form 10-K for additional information.

Effective tax rate and earnings per diluted share, continuing operations

The effective tax rate for the year-ended December 31, 2023 was 25.1%, an increase of 1.6% from the prior year due in part to the goodwill impairment charge, for which there was no tax benefit. The adjusted effective tax rate was 22.0% for the years ended December 31, 2023 and 2022.

Earnings per diluted share from continuing operations for the year ended December 31, 2023 increased year over year primarily due to increased selling prices, moderating raw material cost inflation and favorable foreign currency translation impact, partially offset by lower sales volumes. Refer to the Regulation G Reconciliations - Results from Operations for additional information.

Review and Outlook

PPG achieved annual records for net sales, adjusted earnings per diluted share and operating cash flow in 2023. Net sales were $18.2 billion, an increase of 3% over the prior year. Results were supported by the breadth and diversity of the business portfolio, as the company benefited from higher prices in all businesses and favorable foreign currency translation, which offset lower sales volumes. Net sales, excluding the impact of currency, acquisitions, divestitures and the wind down of Russia operations ("organic sales") increased 3% during the year driven by continued strong growth in our aerospace coatings and automotive OEM coatings businesses. On a regional basis, sales volumes were modestly higher in the Asia Pacific and Latin America regions, and the EMEA, Asia Pacific, and Latin America regions all delivered record segment earnings for the year. Earnings per diluted share from continuing operations was $5.35, compared to $4.33 in the prior year. Adjusted earnings per diluted share was $7.67, up 27% compared to $6.05 in 2022. Combined, segment income increased by more than 30%. Aggregate segment margins were 310 basis points higher than the prior year, driven by strong selling price realization and moderating raw material costs, partially offset by higher selling, general and administrative costs and lower sales volumes.

During 2023, there was continued recovery in the end-use markets that were impacted by mobility restrictions in 2020 and 2021, such as automotive OEM and aerospace coatings; however, demand in these markets remains below 2019 levels. Global automotive OEM manufacturers’ production increased by about 9% versus 2022 due to strong underlying demand in all regions. Demand for PPG products was mixed by end-use market and geographic region. In the U.S. and Canada, demand was strong for aerospace coatings and protective and marine coatings but declined for most other businesses. In Latin America, demand was solid throughout the year with steady demand for architectural products and growth in automotive OEM products, protective and marine coatings and automotive refinish coatings. The PPG Comex business made strong contributions, expanding the number of concessionaire locations during 2023 to nearly 5,200 locations. Demand was soft in Europe with the largest impact on the architectural coatings business. In Asia, demand was mixed, as activity in China was impacted by pandemic-related restrictions and associated disruptions in the first quarter of 2023,

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while demand conditions in the rest of Asia were more stable. Raw material costs declined for most of the year, but still finished the fourth quarter above fourth quarter 2019 levels. Raw material costs continue to moderate and are anticipated to ease further in the beginning of 2024. Some other key costs are expected to increase in 2024, including logistics, employee wage and benefit costs and energy costs.

We expect softening global economic activity in 2024 that will likely be uneven by region and end use. In 2024, we expect an increase in volumes driven by demand growth in China, India and Mexico, industry growth in aerospace, and economic stabilization in Europe. We expect global demand for architectural coatings to remain subdued and global industrial production to persist at lower absolute levels. Demand for protective coatings is expected to be strong and growth in the traffic solutions business should be aided in 2024 as infrastructure spending gains momentum. In general, most end-use markets do not have significant excess inventories, and any demand improvement should lead to a faster ramp-up of sales volumes.

Significant other factors

During the year, PPG successfully executed on various strategic initiatives to strengthen the company, including key actions to position PPG for higher organic growth. The Company also continued its ongoing portfolio review leading to the divestitures of both our European and Australian traffic solutions businesses and the recently announced strategic alternatives review of the silicas products business.

We approved business restructuring actions to reduce costs and improve the profitability of our overall business portfolio during 2023, as well as made significant progress on the global restructuring programs that were announced in 2021 and 2022. Total restructuring savings, including the impact of acquisition synergies, was approximately $60 million in 2023. Total restructuring savings are expected to be approximately $35 million in 2024. We expect cash outlays related to restructuring actions of $80 million to $90 million in 2024. We will continue to monitor and aggressively manage the Company’s cost structure to ensure alignment with the overall demand environment.

Raw materials are our most significant input cost. PPG experiences fluctuating energy and raw material costs driven by various factors, including changes in supplier feedstock costs and inventories, global industry activity levels, foreign currency exchange rates, and global supply and demand factors.

In 2023, supply chain and pandemic-related disruptions experienced from 2020 through 2022 have eased, resulting in ample supply of commodity-related raw materials in all regions. For 2023 versus 2022, raw material costs moderated, resulting in a favorable impact to our operating costs. We expect manufacturing efficiencies to improve as the year progresses in 2024. While raw material costs declined during the current year, the Company continues to incur wage inflation, and anticipates further wage inflation impacts in 2024.

We achieved selling price improvement across all businesses in 2023, reflecting the Company’s efforts to offset various inflationary pressures. The Company will carefully monitor all costs during 2024 and assess the need for additional selling price increases.

In 2023, foreign currency rates were volatile, with the U.S. dollar strengthening against certain currencies and weakening against other currencies in the countries within the regions where PPG operates, resulting in a net favorable impact to net income of $25 million. Notably and separately, in December 2023, the central bank of Argentina adjusted the official foreign currency exchange rate for the Argentine peso, significantly devaluing the currency relative to the United States dollar, resulting in recognition of foreign currency losses of $20 million. We expect that foreign currency rates will continue to be volatile. However, the Company generally purchases raw materials, incurs manufacturing costs and sells finished goods in the same currency, so we typically incur only modest foreign currency transaction-related impacts.

The 2024 effective tax rate from continuing operations is expected to be in the range of 23% to 24%, varying by quarter. This range is the Company’s best estimate and represents an increase compared to the 2023 adjusted effective tax rate driven by higher rates in certain countries, including the impact of recent global minimum tax standards, and the geographic mix of earnings.

Over the past five years, the Company used over $800 million of cash to repurchase approximately six million shares of PPG stock, including using $86 million to repurchase shares of PPG stock during 2023. The Company ended the year with approximately $1 billion remaining under its current share repurchase authorization. During 2023, the Company deployed $109 million for acquisitions, $549 million for capital expenditures and $598 million for dividends. In 2023, PPG marked the 52nd annual per share dividend increase and the 124th successive year of annual dividend payments.

PPG ended 2023 with approximately $1.6 billion in cash and short-term investments. The Company expects strong cash generation in 2024.

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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 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.

(1)Earnings per diluted share is calculated based on unrounded numbers. Figures in the table may not recalculate due to rounding.

(2)Business restructuring-related costs, net include business restructuring charges, offset by releases related to previously approved programs, which are included in Other charges/(income), net on the consolidated statement of income, accelerated depreciation of certain assets, which is included in Depreciation on the consolidated statement of income, and other restructuring-related costs, which are included in Cost of sales, exclusive of depreciation and amortization and Selling, general and administrative on the consolidated statement of income.

(3)In the fourth quarter 2023, the Company recorded Impairment and other related charges, net due to goodwill impairment recognized for the traffic solutions reporting unit as a result of its annual goodwill impairment test. The fair value of the traffic solutions reporting unit decreased primarily due to increases in the cost of capital (discount rate assumption) and declines in the reporting unit’s long-term forecast driven by challenges at its operations in Argentina due to the highly inflationary environment and changes to the reporting unit’s global footprint, including the fourth quarter 2023 divestiture of its European and Australian businesses. In 2022, the Company recorded Impairment and other related charges, net due to the wind down of the company's operation in Russia.

(4)Portfolio optimization includes losses on the sale of non-core assets, including the losses recognized on the sales of the Company's European and Australian traffic solutions businesses in the fourth quarter 2023, which are included in Other charges/(income), net in the consolidated statement of income, accelerated amortization expense recognized related to the exit of a non-core business, which is included in Amortization in the consolidated statement of income, and the impact for the step up to fair value of inventory acquired in certain acquisitions, which is included in Cost of sales, exclusive of depreciation and amortization in the consolidated statement of income. Portfolio optimization also includes advisory, legal, accounting, valuation, other professional or consulting fees, and certain internal costs directly incurred to effect acquisitions, as well as similar fees

2023 PPG ANNUAL REPORT AND FORM 10-K 21

and other costs to effect divestitures and other portfolio optimization exit actions. These costs are included in Selling, general and administrative expense in the consolidated statement of income.

(5)Environmental remediation charges represent environmental remediation costs at certain legacy PPG manufacturing sites. These charges are included in Other charges/(income), net in the consolidated statement of income.

(6)In December 2023, the central bank of Argentina adjusted the official foreign currency exchange rate for the Argentine peso, significantly devaluing the currency relative to the United States dollar. Argentina currency devaluation losses represent foreign currency translation losses recognized during December 2023 related to the devaluation of the Argentine peso, which is included in Other charges/(income), net in the consolidated statement of income.

(7)In the first quarter 2023, the Company received reimbursement under its insurance policies for damages incurred at a southern U.S. factory from a winter storm in 2020. In the fourth quarter 2023, the Company received reimbursement for a previously approved insurance claim under a policy covering legacy asbestos-related matters. These insurance recoveries are included in Other charges/(income), net in the consolidated statement of income.

(8)In the first quarter 2023, PPG purchased group annuity contracts that transferred pension benefit obligations for certain of the Company’s retirees in the U.S. to third-party insurance companies, resulting in a non-cash pension settlement charge.

Performance of Reportable Business Segments

Performance Coatings

Performance Coatings net sales increased due to the following:

● Higher selling prices (+5%)

● Foreign currency translation (+1%)

Partially offset by:

● Lower sales volumes (-2%)

In 2023, all businesses within the Performance Coatings reportable business segment achieved higher selling prices, which helped to offset lower sales volumes due to soft demand conditions in Europe.

Architectural coatings – EMEA organic sales were flat year over year, with higher selling prices offset by lower sales volumes. Regional demand remains uneven by country, and positive sales trends occurred in some countries, including the United Kingdom, Poland and the Netherlands.

Architectural coatings – Americas and Asia Pacific organic sales increased a low single-digit percentage during the year primarily due to selling price increases. Sales in the U.S. and Canada were unfavorably impacted by soft do-it-yourself (“DIY”) demand. In Mexico, architectural coatings organic sales increased compared to the prior year, as concessionaire network demand continued to be strong throughout 2023 and further selling price increases were implemented.

Automotive refinish coatings organic sales increased a low single-digit percentage year over year. Price gains in all regions and sales volume growth in the Latin America and Asia Pacific regions were partially offset by lower sales volumes in all other regions. In the U.S., body shop activity remains solid, with sales volumes impacted mostly due to shifting order patterns from certain U.S. distribution customers. In Europe, sales volumes were below 2022 levels but began to turn positive in the second half of the year. In China, demand for PPG refinish products continues to recover.

Aerospace coatings organic sales were higher by 20% driven by increases in both price and volume. This strong organic sales growth was achieved despite global air travel remaining below pre-pandemic levels. Demand remained strong in all major product categories throughout the year.

Protective and marine coatings organic sales increased by a mid-single-digit percentage driven by solid selling price realization and higher sales volumes.

Traffic solutions organic sales decreased by a mid-single-digit percentage year over year, with sales volume declines in all regions. In the U.S., the Company continues to prioritize higher margin business.

Segment income increased $310 million year over year primarily due to higher selling prices and moderating raw material costs, partially offset by wage and other cost inflation and lower sales volumes.

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Looking Ahead

In the first quarter 2024, demand for aerospace coatings, protective and marine coatings and products sold in Mexico is expected to remain robust. Demand conditions in the Europe region, the Asia Pacific region and for DIY architectural coatings in the U.S are anticipated to remain at lower levels. Aggregate organic sales for the Performance Coatings segment are anticipated to increase by a low single-digit percentage compared to the first quarter 2023. The Company will continue to focus on executing various existing cost-savings initiatives.

Industrial Coatings

Industrial Coatings segment net sales increased due to the following:

● Higher selling prices (+4%)

Partially offset by:

● Lower sales volumes (-2%)

In 2023, all businesses within the Industrial Coatings reportable business segment achieved higher selling prices, which helped to offset a decrease in sales volumes driven by lower global industrial production.

Automotive OEM coatings organic sales increased by a high single-digit percentage year over year driven by higher selling prices and strong sales volume growth in most regions. Sales volume growth was led by the EMEA and Asia Pacific regions, where retail sales and industry build rates are beginning to return to pre-pandemic levels.

For the industrial coatings business, organic sales decreased by a mid-single-digit percentage year over year as higher selling prices were more than offset by lower sales volumes in all regions due to softening global industrial demand.

Packaging coatings organic sales decreased by a mid-single-digit percentage year over year due to lower sales volume in all regions driven by broad demand weakness. These sales volume decreases were partially offset by higher selling prices in most regions.

Specialty coatings and materials organic sales decreased by a mid-single-digit percentage primarily due to lower sales volumes, partially offset by higher selling prices.

Segment income increased $323 million year over year primarily due to higher selling prices and moderating raw material costs, partially offset by wage and other cost of sales inflation and lower sales volumes.

Looking Ahead

In the first quarter 2024, global industrial production is expected to remain at lower levels. Aggregate organic sales are anticipated to decrease by a low single-digit percentage compared to the first quarter 2023. Automotive industry build rates are expected to be flat to slightly lower in most regions, except in the Asia Pacific region where solid growth is anticipated. Additionally, sales volumes in the packaging coatings business are expected to increase compared to the prior-year first quarter. In the fourth quarter, the pricing gains negotiated in 2022 reached their anniversary, and price decreases are anticipated in 2024 due to index pricing with certain customers within the segment and reflecting the elimination of certain energy-based surcharges in Europe from early 2023. The Company will continue to focus on executing against various existing cost-savings initiatives.

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. Refer to Item 3. “Legal Proceedings” and Note 15, “Commitments and Contingent Liabilities” in Item 8 of this Form 10-K for a description of certain of these lawsuits.

As discussed in Item 3 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.

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As also discussed in Note 15, PPG has significant reserves for environmental contingencies. Refer to the Environmental Matters section of Note 15 for details of these reserves. It is PPG’s policy to accrue expenses for 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.

Accounting Standards Adopted in 2023

Note 1, “Summary of Significant Accounting Policies” in Item 8 of this Form 10-K describes the Company’s recently adopted accounting pronouncements.

Accounting Standards to be Adopted in Future Years

Note 1, “Summary of Significant Accounting Policies” in Item 8 of this Form 10-K describes accounting pronouncements that have been promulgated prior to December 31, 2023 but are not effective until a future date.

Liquidity and Capital Resources

During the past two years, PPG had sufficient financial resources to meet its operating requirements, to fund our capital spending, including acquisitions, share repurchases and pension plans, and to pay increasing dividends to shareholders.

Cash and cash equivalents and short-term investments

Cash from operating activities - continuing operations

2023 vs. 2022

The $1,448 million increase in Cash from operating activities - continuing operations was primarily due to higher net income driven by higher selling prices and moderating raw material costs and favorable changes in working capital compared to the prior year.

Operating working capital

Operating working capital is a subset of total working capital and represents (1) receivables from customers, net of allowance for doubtful accounts, (2) inventories, and (3) trade liabilities. Refer to Note 3, “Working Capital Detail” in Item 8 of this Form 10-K for further information related to the components of the Company’s operating working capital. 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 (fourth quarter sales annualized).

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Environmental expenditures

We expect cash outlays for environmental remediation activities in 2024 to be between $40 million and $60 million.

Cash used for investing activities

2023 vs. 2022

The $95 million increase in cash used for investing activities was primarily due to higher capital expenditures and lower proceeds from asset sales.

Capital expenditures, including business acquisitions

(1)Includes modernization and productivity improvements, expansion of existing businesses and environmental control projects.

During 2024, capital expenditures, which are expected to be approximately $600 million, will support future organic growth opportunities. The Company will continue to deploy cash focused on shareholder value creation, with a preference for business acquisitions, coupled with prudent debt reduction to enhance financial flexibility.

Cash used for financing activities

2023 vs. 2022

The $1,141 million increase in cash used for financing activities was primarily due to repayments of long-term debt and lower proceeds from the issuance of debt, partially offset by the absence of net payments on commercial paper.

Share repurchase activity

The Company has approximately $1.0 billion remaining under the current authorization from the Board of Directors, which was approved in December 2017. The current authorized repurchase program has no expiration date.

Dividends paid to shareholders

PPG has paid uninterrupted annual dividends since 1899, and 2023 marked the 52nd successive year of increased annual per-share dividend payments to shareholders. The Company raised its per-share quarterly dividend by approximately 5% to $0.65 per share in July 2023.

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Debt issued and repaid

The Company’s commercial paper borrowings are classified as long-term debt based on PPG’s intent and ability to refinance these borrowings on a long-term basis. Net payments on commercial paper were zero and $440 million for the years ended December 31, 2023 and December 31, 2022, respectively.

Credit agreements and lines of credit

In April 2023, PPG entered into a €500 million term loan credit agreement (the "Term Loan"). The Term Loan provides the Company with the ability to increase the size of the loan by an amount not to exceed €250 million. 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. The Term Loan terminates and all amounts outstanding are payable in April 2026. In April 2023, PPG borrowed €500 million under the Term Loan. In December 2023, PPG obtained lender commitments sufficient to increase the size of the Term Loan by €250 million. In January 2024, PPG borrowed the additional €250 million.

In February 2021, PPG entered into a $2.0 billion term loan credit agreement (the "Term Loan Credit Agreement") to finance the Company’s acquisition of Tikkurila, and to pay fees, costs and expenses related thereto. The Term Loan Credit Agreement provided the Company with the ability to borrow up to an aggregate principal amount of $2.0 billion on an unsecured basis. In addition to the amounts borrowed to finance the acquisition of Tikkurila, the Term Loan Credit Agreement allowed the Company to make up to eleven additional borrowings prior to December 31, 2021, to be used for working capital and general corporate purposes. The Term Loan Credit Agreement 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. 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. In June 2021, PPG borrowed $700 million under the Term Loan Credit Agreement to finance the Company’s acquisition of Tikkurila, and to pay fees, costs and expenses related thereto. In December 2021, PPG borrowed an additional $700 million under the Term Loan Credit Agreement. In 2022 and 2023, PPG repaid $300 million and $1.1 billion, respectively, of the Term Loan Credit Agreement using cash on hand. In March 2023, PPG amended the Term Loan Credit Agreement to replace the LIBOR-based reference interest rate option with a reference interest rate option based upon Term Secured Overnight Financing Rate ("SOFR"). The other terms of the Term Loan Credit Agreement remain unchanged. The Term Loan Credit Agreement was fully repaid as of December 31, 2023. Borrowings of $1.1 billion were outstanding under the Term Loan Credit Agreement as of December 31, 2022.

In March 2023, PPG amended its five-year credit agreement (the “Credit Agreement”) dated as of August 30, 2019. The amendments to the Credit Agreement replace the LIBOR-based reference interest rate option with a reference interest rate option based upon Term SOFR. The other terms of the Credit Agreement remained unchanged. In July 2023, PPG amended and restated the Credit Agreement, extending the term through July 27, 2028. The amended and restated Credit Agreement provides for a $2.3 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 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. There were no amounts outstanding under the Credit Agreement as of December 31, 2023 and December 31, 2022.

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The Term Loan and the Credit Agreement require the Company to maintain a ratio of Total Indebtedness to Total Capitalization, as defined in the Term Loan and the 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 December 31, 2023, Total Indebtedness to Total Capitalization as defined under the Credit Agreement and the Term Loan was 42%.

In addition to the amounts available under lines of credit, the Company maintains access to the capital markets and may issue debt or equity securities from time to time, which may provide an additional source of liquidity.

Refer to Note 10, “Borrowings and Lines of Credit” in Item 8 of this Form 10-K for information regarding notes entered into and repaid as well as details regarding the use and availability of committed and uncommitted lines of credit, letters of credit and debt covenants.

Cash requirements

We continue to believe that our 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 cash requirements. The Company’s significant cash requirements include the following contractual obligations and commitments.

(1)Interest on all outstanding debt.

(2)Includes interest payments.

(3)The unconditional purchase commitments are principally take-or-pay obligations related to the purchase of certain materials, utilities and services consistent with customary industry practice.

The Company’s off-balance sheet arrangements include unconditional purchase commitments disclosed in the “Liquidity and Capital Resources” section in the cash requirements table as well as letters of credit as discussed in Note 10, “Borrowings and Lines of Credit” in Item 8 of this Form 10-K.

Other liquidity matters

At December 31, 2023, the total amount of unrecognized tax benefits for uncertain tax positions, including an accrual of related interest and penalties along with positions only impacting the timing of tax benefits, was $135 million. The timing of payments will depend on the progress of examinations by tax authorities. PPG does not expect a significant tax payment related to these obligations within the next year. The Company is unable to make a reasonably reliable estimate as to if, or when, any significant cash settlements with tax authorities may occur.

Critical Accounting Estimates

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

Contingencies

Contingencies, by their nature, relate to uncertainties that require management to exercise judgment both in assessing the likelihood that a liability has been incurred as well as in estimating the amount of potential loss. The most important contingencies impacting our financial statements are those related to environmental remediation, to pending, impending or overtly threatened litigation against the Company and to the resolution of matters related to open tax years. For more information on these matters, see Note 15, “Commitments and Contingent Liabilities” and Note 13, “Income Taxes” in Item 8 of this Form 10-K.

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Defined Benefit Pension and Other Postretirement Benefit Plans

Accounting for pensions and other postretirement benefits involves estimating the cost of benefits to be provided well into the future and attributing that cost over the time period each employee works. To accomplish this, we make extensive use of assumptions about inflation, investment returns, mortality, turnover, medical costs and discount rates. The Company has established a process by which management reviews and selects these assumptions annually. Refer to Note 14, “Employee Benefit Plans” in Item 8 of this Form 10-K for information on these plans and the assumptions used.

Business Combinations

The Company uses the acquisition method of accounting to allocate costs of acquired businesses to the assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition. The excess costs of acquired businesses over the fair values of the assets acquired and liabilities assumed is recognized as goodwill. The valuations of the acquired assets and liabilities impacts the determination of future operating results. In addition to using management estimates and negotiated amounts, the Company uses a variety of information sources to determine the estimated fair values of acquired assets and liabilities including: third-party appraisals for the estimated value and lives of identifiable intangible assets and property, plant and equipment; third-party actuaries for the estimated obligations of defined benefit pension plans and similar benefit obligations; and legal counsel or other experts to assess the obligations associated with legal, environmental and other contingent liabilities.

The business and technical judgment of management is used in determining which acquired intangible assets have indefinite lives and in determining the useful lives of acquired finite-lived intangible assets in accordance with the accounting guidance for goodwill and other intangible assets.

Goodwill and 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. In the quantitative test, fair values are estimated using a discounted cash flow model. Key assumptions and estimates used in the discounted cash flow model include projected future revenues, discount rates, operating cash flows, capital expenditures and tax rates. For more information on these matters, see Note 1, “Summary of Significant Accounting Policies” in Item 8 of this Form 10-K.

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

Currency

Comparing spot exchange rates at December 31, 2023 and at December 31, 2022, the U.S. dollar weakened against the currencies of many countries within the regions PPG operates, most notably the Mexican peso. As a result, consolidated net assets at December 31, 2023 increased by $508 million from December 31, 2022.

Comparing average exchange rates during 2023 to those of 2022, the U.S. dollar weakened against the currencies of certain countries where PPG operates, including the Mexican peso and the euro, partially offset by strengthening against the Chinese yuan and Argentine peso. This had a favorable impact of approximately $25 million on full year 2023 Income before income taxes from the translation of this foreign income into U.S. dollars.

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. Management’s Discussion and Analysis and other sections of this Annual Report contain forward-looking statements that reflect the Company’s current views with respect to future events and financial performance. 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 SEC. Also, note the following cautionary statements.

Many factors could cause actual results to differ materially from the Company’s forward-looking statements. Such factors include statements related to the effects on our business of COVID-19, global economic conditions, geopolitical issues, increasing price and product competition by our competitors, fluctuations in cost and availability of raw materials, energy, labor and logistics, the ability to achieve selling price increases, the ability to recover margins, customer inventory levels,

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PPG 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, the amount of future share repurchases, 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 unpredictability of existing and possible future litigation, including asbestos litigation, and government investigations. However, it is not possible to predict or identify all such factors.

Consequently, while the list of factors presented here and in 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 this Form 10-K and similar risks, any of which could have a material adverse effect on the Company’s consolidated financial condition, results of operations or liquidity. PPG undertakes no obligation to update any forward-looking statement, except as otherwise required by applicable law.

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

The following discussion includes a comparison of our results of operations and liquidity and capital resources for the years ended December 31, 2022 and 2021. A discussion of changes in our results of operations for the year ended December 31, 2021 as compared to the year ended December 31, 2020 has been omitted from this Form 10-K, but may be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2021 Form 10-K, filed with the Securities and Exchange Commission on February 17, 2022.

Highlights

Net sales were approximately $17.7 billion in 2022, an increase of 5% compared to the prior year, driven by higher selling prices resulting from continued selling price initiatives. The Company increased net sales despite softer demand conditions in Europe due in part to geopolitical issues, pandemic-related demand disruptions in China and unfavorable foreign currency translation impacts due to the strong appreciation of the U.S. dollar versus many foreign currencies.

Income before income taxes was $1,381 million in 2022, a decrease of $434 million compared to the prior year. This decrease was primarily due to raw material and other cost inflation, lower sales volumes, unfavorable foreign currency translation impacts, higher manufacturing costs related to supply and labor disruptions and impairment and other related charges, partially offset by increased selling prices.

Performance Overview

Net Sales by Region

Net sales increased $850 million due to the following:

● Higher selling prices (+11%)

● Acquisition-related sales (+3%)

Partially offset by:

● Unfavorable foreign currency translation (-5%)

● Lower sales volumes (-3%)

● Divestiture-related sales and the wind down of Russia operations (-1%)

For specific business results, see the Performance of Reportable Business Segments section within Item 7 of this Form 10-K.

Cost of sales, exclusive of depreciation and amortization

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Cost of sales, exclusive of depreciation and amortization, increased $810 million due to the following:

● Raw material, energy, wage and other cost inflation

● Cost of sales from acquired businesses

Partially offset by:

● Favorable foreign currency translation

● Lower sales volumes

Selling, general and administrative expenses

Selling, general and administrative expenses increased $62 million primarily due to:

● Selling, general and administrative expenses from acquired businesses

● Wage and other cost inflation

Partially offset by:

● Favorable foreign currency translation

● Restructuring cost savings

Other charges and other income

Interest expense

Interest expense increased $46 million 2022 versus 2021 primarily due the unfavorable impact of higher interest rates on PPG’s variable rate debt obligations and slightly higher levels of debt in the current year.

Interest income

Interest income increased $28 million primarily due to higher interest rates.

Impairment and other related charges, net

Impairment and other related charges of $290 million were recorded in the first quarter 2022 associated with the wind down of the Company's operations in Russia. Subsequently, the Company released a portion of the previously established reserves due to the collection of certain trade receivables and recorded recoveries due to the realization of certain previously written-down inventories, resulting in recognition of income of $63 million. The Company continues to consider actions to exit Russia, including a possible sale of its Russian business or controlled withdrawal from the Russian market.

During 2022 and 2021, the Company recorded impairment charges of $14 million and $21 million, respectively, related to certain smaller, non-strategic businesses. PPG committed to plans to sell these business and they were reclassified as held for sale. The impairment charges recorded represent the excess net book value of the net assets over the anticipated sales proceeds less costs to sell. The revenue of these businesses represent less than 1% of PPG annual net sales.

In the fourth quarter 2022, the Company recorded an impairment charge of $4 million to reduce the carrying value of certain indefinite-lived trademarks based on the results of the annual impairment test.

Refer to Note 6, “Goodwill and Other Identifiable Intangible Assets and Note 7 ”Impairment and Other Related Charges, Net” in Item 8 of this Form 10-K for additional information.

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Pension settlement charge

In December 2021, the Company purchased group annuity contracts that transferred pension benefit obligations for certain of the Company’s retirees in Canada to a third-party insurance company. This transaction resulted in a pension settlement charge of $50 million. Refer to Note 14, “Employee Benefit Plans" in Item 8 of this Form 10-K for additional information.

Asbestos-related claims reserve adjustment

In 2021, the reserve for asbestos-related claims was reduced to reflect the Company’s current estimate of potential liability for these claims. Refer to Note 15 “Commitments and Contingent Liabilities” in Item 8 of this Form 10-K for additional information.

Business restructuring, net

Pretax restructuring charges of $84 million related to recent acquisitions were recorded in 2022, partially offset by certain changes in estimates to complete previously recorded programs of $51 million. Pretax restructuring charges of $54 million were recorded in 2021, offset by certain changes in estimates to complete previously recorded programs of $23 million. Refer to Note 8, "Business Restructuring" in Item 8 of this Form 10-K for additional information.

Other (income)/charges, net

Other (income)/charges, net was lower in 2022 compared to the prior year primarily due to a $34 million gain on the sale of a production facility in 2021 in connection with the Company’s manufacturing footprint consolidation plans and associated restructuring programs as well as favorable legal settlements in 2021. Refer to Note 18, “Other (Income)/Charges, Net” in Item 8 of this Form 10-K for additional information.

Effective tax rate and earnings per diluted share, continuing operations

The effective tax rate for the year-ended December 31, 2022 was 23.5%, an increase of 2.9% from the prior year primarily driven by charges associated with PPG’s operations in Russia along with a reduction in the release of reserves for uncertain tax positions compared to the prior year.

Earnings per diluted share and adjusted earnings per diluted share from continuing operations for the year ended December 31, 2022 decreased year over year primarily due raw material cost inflation, lower sales volumes, unfavorable foreign currency translation impact and higher manufacturing costs related to supply and labor disruptions, partially offset by increased selling prices. Refer to the Regulation G Reconciliations - Results from Operations for additional information.

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 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

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dilution (attributable to PPG) are reconciled to adjusted net income from continuing operations (attributable to PPG) and adjusted earnings per share – assuming dilution below.

(1)Earnings per diluted share is calculated based on unrounded numbers. Figures in the table may not recalculate due to rounding.

(2)In the first quarter 2022, the Company recorded impairment and other related charges due to the wind down of the company’s operations in Russia. Subsequently, the Company released a portion of the previously established reserves for Receivables and Inventories due to the collection of certain trade receivables and the realization of certain inventories. Also in 2022, impairment and other related charges were recorded for the write-down of certain assets and liabilities related to the planned sale of a non-core business and for certain asset write downs. In 2021, an impairment charge was recorded for the write-down of certain assets related to the previously planned sale of certain smaller entities in non-strategic regions. Net loss of $3 million related to the 2021 impairment charge was attributable to noncontrolling interests.

(3)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 2021 in connection with the Company’s manufacturing footprint consolidation plans and associated restructuring programs. This gain is included in Other (income)/charges, net in the consolidated statement of income.

(4)Transaction-related costs, net include advisory, legal, accounting, valuation, other professional or consulting fees, and certain internal costs directly incurred to effect acquisitions, as well as similar fees and other costs to effect disposals not classified as discontinued operations. These costs are included in Selling, general and administrative expense in the consolidated statement of income. Transaction-related costs also include losses on the sale of certain assets, which are included in Other income, net in the consolidated statement of income, and 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 consolidated statement of income.

(5)In early 2021, a winter storm damaged a southern U.S. factory supporting the Company's specialty coatings and materials business as well as other Company factories in the southern U.S. Incremental expenses incurred due to this storm included costs related to maintenance and repairs of damaged property, freight and utility premiums and other incremental expenses directly related to the impacted areas.

(6)In the fourth quarter 2021, the reserve for asbestos-related claims was reduced to reflect the Company’s current estimate of potential liability for these claims.

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Performance of Reportable Business Segments

Performance Coatings

Performance Coatings net sales increased due to the following:

● Higher selling prices (+10%)

● Acquisition-related sales (+3%)

Partially offset by:

● Unfavorable foreign currency translation (-5%)

● Lower sales volumes (-4%)

● Divestiture-related sales and the wind down of Russia operations (-1%)

In 2022, all businesses within the Performance Coatings reportable business segment achieved higher selling prices consistent with our focus on mitigating raw material and other cost inflation. These price increases also helped to offset softer demand conditions in Europe due in part to geopolitical issues, the impact of pandemic-related restrictions in China, softening do-it-yourself (“DIY”) demand and unfavorable foreign currency translation.

Architectural coatings – EMEA net sales, excluding the impact of currency, acquisitions, divestitures and the wind down of Russia operations (“organic sales”) were flat compared to prior year as selling price increases were offset by lower sales volumes. Sales were negatively impacted by geopolitical uncertainty, including the war in Ukraine, lower demand for DIY paint products and unfavorable foreign currency translation.

Architectural coatings – Americas and Asia Pacific organic sales increased a mid-single-digit percentage during the year primarily due to selling price increases that more than offset lower sales volumes. Sales in the U.S. and Canada were unfavorably impacted by raw material availability, which improved as the year progressed, and softening DIY demand. In Mexico, PPG Comex architectural coatings organic sales increased compared to the prior year as concessionaire network demand continued to be strong throughout 2022 and further selling price increases were implemented.

Automotive refinish coatings organic sales increased by a high-single-digit percentage due to selling price increases in all regions and volume growth in the U.S. stemming from higher miles driven, increased collision claims and more people returning to office work versus 2021. Sales were negatively impacted by softer demand in Europe and the impact of pandemic-related restrictions in China.

Aerospace coatings organic sales increased by a high-teen-percentage due to increased selling prices and sales volumes in all regions. Sales volumes increased in all regions compared to prior year, but still remain below pre-pandemic levels. Net sales benefited from continued strong demand for military applications and for PPG’s technology-advantaged products.

Organic sales in the protective and marine coatings business were higher by a mid-single-digit percentage due to selling price increases in all regions. Sales were negatively affected by pandemic-related restrictions in China.

Traffic solutions organic sales increased by a low-teen-percentage as higher selling prices and solid volume growth in the U.S. and Latin America were partially offset by lower sales volumes in Europe and the Asia Pacific region.

Segment income decreased $92 million year over year primarily due to raw material and logistics cost inflation, lower sales volumes and the impact of unfavorable foreign currency translation, partially offset by higher selling prices, savings from previously approved restructuring actions and acquisition-related earnings.

Looking Ahead

In the first quarter 2023, demand conditions in Europe and China are expected to remain similar to the fourth quarter 2022, including potential pandemic-related disruptions. Raw material and transportation availability continue to improve, with the biggest challenges remaining in the aerospace coatings business. Aggregate sales volumes are anticipated to be lower by a mid-single-digit percentage compared to the first quarter 2022 driven by the unfavorable impacts in Europe and China and continued soft architectural coatings DIY demand. The impact of divestiture-related sales and sales related to the Russia business, which the Company is in the process of winding down, are anticipated to reduce sales by about $40 million. The Company will continue to focus on executing various existing cost-savings initiatives.

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Industrial Coatings

Industrial Coatings segment net sales increased due to the following:

● Higher selling prices (+13%)

● Acquisition-related sales (+3%)

Partially offset by:

● Unfavorable foreign currency translation (-4%)

● Lower sales volumes (-3%)

● Divestiture-related sales and the wind down of Russia operations (-1%)

In 2022, all businesses within the Industrial Coatings reportable business segment achieved higher selling prices consistent with our focus on mitigating raw material and other cost inflation. These price increases also helped to offset softer demand conditions in Europe due in part to geopolitical issues, the impact of pandemic-related restrictions in China and unfavorable foreign currency translation.

Automotive OEM coatings organic sales increased by more than 10% led by higher selling prices in all regions and higher sales volumes in the U.S. and Latin America. Sales were unfavorably impacted by industry-wide production disruptions due to semiconductor chip shortages, which continued in 2022 but improved as the year progressed. Sales volumes were also impacted by lower automotive industry production due to the geopolitical uncertainty in Europe and the impact of pandemic-related disruptions in China.

For the industrial coatings business, organic sales increased by a high-single-digit percentage year over year as strong selling price increases in all regions and solid volume growth in the U.S. and Latin America were partially offset by reduced sales volumes in China and Europe reflecting lower economic activity in those regions.

Packaging coatings organic sales increased by a high-single-digit percentage year over year due to higher selling prices in all regions. Sales volumes were strong in the U.S. but were negatively impacted by geopolitical uncertainty in Europe and pandemic-related restrictions in China.

Specialty coatings and materials organic sales increased by nearly 20% versus the prior year driven by higher selling prices in all regions and volume growth in Europe.

Segment income decreased $37 million year over year primarily due to raw material and logistics cost inflation, lower sales volumes and the impact of unfavorable foreign currency translation, partially offset by higher selling prices and savings from previously approved restructuring actions.

Looking Ahead

In the first quarter 2023, global industrial production is expected to remain at lower levels. In China, pandemic-related disruptions are expected to continue into the first quarter. Aggregate sales volumes are anticipated to decline by a mid-single-digit percentage compared to the first quarter 2022. Sales volumes are expected to be similar to the prior year quarter in the automotive OEM coatings business but lower in the industrial coatings, packaging coatings, and specialty coatings and materials businesses. Positive selling price is expected to continue, although some of the strong selling prices realized in 2022 will begin to reach their anniversary in the first quarter. Year-over-year segment margins are expected to continue to improve on a sequential basis in the first quarter 2023. The Company will continue to focus on executing against various existing cost-savings initiatives.

Review and Outlook

PPG’s net sales, excluding foreign currency translation impact, increased approximately 10% versus the prior year and were a record $17.7 billion. Organic sales increased by about 8% driven by higher selling prices, partially offset by lower sales volumes. Acquisition-related sales contributed 3% to net sales growth compared to prior year as the Company benefited from four strategic acquisitions that were completed in 2021. Foreign currency translation was unfavorable for the year and impacted net sales by about 5%. During 2022, severe cost inflation, supply disruptions, geopolitical issues in Europe and continuing impacts from the pandemic significantly impacted net sales and earnings. There was partial recovery in the end-use markets that were impacted by mobility restrictions in 2020 and 2021, such as automotive OEM, automotive refinish coatings and aerospace coatings, but all three remained below 2019 global demand levels. Demand

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was mixed by geographic region. In the U.S. and Canada and Latin America regions, demand was solid throughout the year in most businesses despite supply disruptions constraining sales more than other regions. Demand was the softest in Europe due in part to geopolitical issues, including the war in Ukraine, with the largest impact on the architectural coatings business. In Asia, demand was mixed, as activity in China was impacted by ongoing pandemic-related restrictions and associated disruptions, while demand conditions in the rest of Asia were more stable. Despite ongoing component shortages that constrained global automotive OEM manufacturers’ production, global builds increased by about 6% versus 2021 due to strong underlying demand in most regions and supply deficits that are expected to remain into 2023. Raw material cost inflation trended higher for most of the year, finishing the fourth quarter about 35% above fourth quarter 2019 levels. In the fourth quarter 2022, raw material inflation began to moderate and is anticipated to ease further in 2023. Some other key costs continued to increase in 2022, including logistics, employee wage and benefit costs, and energy costs. The Company continued to collaborate with its customers to implement selling price increases to mitigate elevated input costs, resulting in an 11% increase in selling prices compared to 2021.

U.S. and Canada

In 2022, economic activity remained robust and continued to recover from the lower demand levels experienced in 2021 due to pandemic-related restrictions. For the full year, U.S. gross domestic product (“GDP”) and industrial production increased by approximately 2% and 4%, respectively. Demand in the residential and commercial construction markets was strong at the beginning of the year but softened as interest rates increased as the year progressed. New home starts decreased by a mid-single-digit percentage in 2022 versus a mid-teen percentage increase in 2021. Residential remodeling was down by approximately 10% in 2022 versus 2021 as solid housing fundamentals were offset by the impact of higher interest rates. Commercial construction was down approximately 10% compared to 2021. Market demand for architectural paint continued to shift back to do-it-for-me (“DIFM”) from the DIY channel during the year as lower U.S. unemployment and increased mobility resulted in consumers choosing to hire professional paint contractors. Earnings were aided by strong selling price increases, but negatively impacted by higher levels of inflation, including historically high raw material cost inflation and higher than normal salary and wage increases due to the high level of employment in the U.S. Architectural coatings sales volumes in the U.S. and Canada were negatively impacted by severe raw material shortages that prevented the Company from meeting the demand for its architectural products, mostly impacting the higher demand periods of spring and summer.

Automotive OEM industry builds were up nearly 10% compared to 2021 as component shortages began to moderate and underlying demand for new automobiles was solid. The aerospace coatings business continued what is expected to be a multi-year recovery to return to 2019 activity levels. Before the pandemic, the Company’s sales mix was approximately 70% commercial and 30% military. During the pandemic and through 2022, sales volumes for military applications remained solid, in part due to specification of PPG products with advantaged technology. The commercial segment remains down about 15%, as overall improved flying activity still remains below 2019 levels, mostly impacted by lower activity in China. With the lifting of pandemic-related restrictions in China, it is expected that global commercial aftermarket and new build demand will continue to improve in 2023. The automotive refinish coatings business experienced strong demand through the year as miles driven and collision claims trended closer to pre-pandemic levels. Sales were constrained due to ongoing supply disruptions, which has led to lower industry inventory levels. The packaging coatings business was favorably impacted by new business wins at several new packaged beverage can customers and overall solid demand for the Company’s sustainable products. The traffic solutions business, which represents the Ennis-Flint acquisition completed in December 2020, made good progress realizing synergies and achieved a low-teen percentage growth in organic sales.

U.S. and Canada organic sales increased by more than 10% compared to 2021 driven by higher selling prices in all businesses. Solid year-over-year sales volume increases in the aerospace, automotive refinish, industrial, automotive OEM and packaging coatings businesses were partially offset by lower year-over-year sales volumes in the architectural and protective and marine coatings businesses. Aggregate regional sales volumes remain more than 10% lower than the fourth quarter 2019. The U.S. and Canada remained PPG’s largest region, with sales of $7.4 billion, representing approximately 42% of 2022 net sales.

Europe, Middle East and Africa

European demand for coatings softened in 2022, mostly impacted by geopolitical issues and high levels of inflation. Supply chain disruptions lessened during 2022 but continued to impact certain end-use markets, most notably automotive OEM. In the first quarter, activity in this region was negatively impacted by mobility restrictions associated with pandemic-related disruptions. While the impact of the pandemic eased throughout the year, consumer confidence worsened as the year progressed due to elevated costs and the war in Ukraine, which significantly impacted demand for coating products. Component shortages continued to constrain automotive OEM sales volumes. Automotive builds in 2022 were at similar levels as 2021. Architectural coatings – EMEA organic sales were flat compared to the prior year as selling price increases were offset by lower sales volumes. Net sales for architectural DIFM products improved as compared to the prior year. Integration of the June 2021 acquisition of Tikkurila continued with good progress toward realizing targeted

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synergies. In addition, the integration efforts continued for the two automotive OEM acquisitions made in 2021, Wörwag and Cetelon, with PPG continuing to realize acquisition-related synergies and leverage acquired product technologies to drive sales growth. Net sales were aided by partial recovery in the aerospace and automotive refinish coatings businesses. Demand was soft for architectural coatings, packaging coatings and general industrial coatings products.

EMEA net sales of $5.5 billion represented 31% of PPG’s 2022 net sales, modestly higher than 2021. Organic sales improved by a mid-single-digit percentage compared to 2021 led by higher selling prices and acquisition-related sales, which were partially offset by lower sales volumes. Net sales, excluding the impact of foreign currency translation, increased by a low-teen percentage. Sales volumes in the region were down a mid-teen percentage compared to 2019.

Asia Pacific and Latin America

The regions of Asia Pacific and Latin America represented 27% of PPG’s 2022 net sales in aggregate, similar to the prior year.

Net sales were $2.8 billion in the Asia Pacific region, led by China, which remained PPG’s second largest country by revenue. Net sales in 2022 decreased by 5% compared to 2021 as higher selling prices and solid sales volume growth in India were more than offset by lower sales volumes in China due to pandemic-related restrictions and the impact of unfavorable foreign currency translation. Sales activity was most impacted in China during a period of heightened mandated shut-downs in the second quarter and during the fourth quarter as the country began to move away from its zero-COVID policy. In China, demand for coatings products is expected to improve in 2023 driven by stronger domestic consumption and fewer mobility restrictions. In the region, sales volumes were most unfavorable in the protective and marine, industrial, automotive refinish and packaging coatings businesses. In 2022, there were periods of strong automotive retail sales activity, partially due to government stimulus and strong sales of electric vehicles in China. During 2022, sales volume growth was strongest in India as the easing of pandemic-related restrictions led to increased economic activity. Sales volumes in the region were lower by about 10% compared to 2021 and were lower by a mid-teen-percentage compared to 2019.

Net sales in Latin America in 2022 were $2.0 billion, representing a 16% increase compared to 2021. Overall, demand in the region increased year over year driven by improved economic activity in most end-use markets. Organic sales were higher by a mid-teen-percentage compared to 2021 due to higher selling prices and sales volumes. The PPG Comex business made strong contributions, which continued to outpace the industry. The business added more concessionaire locations during 2022, bringing the total to over 5,100 locations. Additionally, both reportable segments delivered sales volume growth on a year-over-year basis. Sales volumes in the region increased by a low-single-digit percentage compared to 2019.

Outlook

We expect softening global economic activity in 2023 that will likely be uneven by region and end-use. As 2023 progresses, we expect demand for architectural coatings products in the U.S. to be negatively impacted by higher interest rates, while we anticipate demand to gradually improve in China as it transitions away from zero-COVID policies and supply chain disruptions continue to ease. In Europe, we expect demand to remain soft due to ongoing geopolitical issues and inflation. In general, most end-use markets do not have significant excess inventories, and any demand improvement should lead to a faster ramp-up of sales volumes. Continued recovery is expected in the automotive refinish, automotive OEM and aerospace coatings businesses, which collectively accounted for about 40% of the Company’s pre-pandemic sales and where the Company has broad, global businesses supported by advantaged technologies.

Supply chain and pandemic-related disruptions experienced during the past three years are expected to ease as 2023 progresses, which should allow for ample supply of commodity-related raw materials in all regions. We also expect the Company’s ability to manufacture and deliver product to improve as the year progresses, leading to better manufacturing efficiencies.

We anticipate that PPG’s growth in the U.S. and Canada will be led by the aerospace coatings, automotive refinish coatings and traffic solutions businesses. Automotive OEM industry builds in the region are expected to increase slightly compared to 2022. Architectural coatings demand is expected to moderate and may fall as the year progresses due to higher interest rates, lower single-family home construction and lower sales of existing homes. Traffic solutions and protective coatings demand should be aided later in 2023 as infrastructure spending continues to gain momentum.

We expect European industry demand trends in 2023 to remain similar to those experienced in the second half of 2022. Automotive OEM builds are expected to increase modestly from historical lows, and aerospace demand is expected to continue to recover from its pandemic lows. Overall demand is expected to be similar to 2022 but mixed by country in the architectural coatings business. The integration of Tikkurila will continue, and synergies from recent acquisitions should aid earnings growth. Unfavorable demand trends are expected to continue to impact the packaging, protective and marine, and industrial coatings businesses. We will continue to monitor the impacts of higher energy prices and challenges with respect to energy procurement in Europe and adapt our footprint, as necessary, to best serve our

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customers. Raw material availability is expected to continue to improve as the year progresses. A new cost savings program was announced in the third quarter 2022, which has a higher concentration of initiatives focused on Europe. We continue to monitor the economic environment in the U.K. as its exit from the European Union progresses, including monitoring the impacts on consumer sentiment, logistics, labor availability and coatings demand. To date, the U.K.'s exit from the European Union has not had a material impact on the Company's operations.

In the Asia Pacific region, we expect economic activity to improve in China after the first quarter as supply chain activity and mobility levels move closer to 2019 levels. Stimulus support is expected in the region to aid economic activity. Economic output in India is expected to remain robust, and activity in Southeast Asia is expected to benefit from the reopening of China’s borders. In China, we expect growth above the global average despite challenges in the real estate market and heightened risks as the Chinese economy continues to rely more on domestic consumption. The growth of China’s electric vehicle subsegment, including significant opportunities for export activity, should benefit the Company’s automotive OEM business. Marine coatings new-build demand is expected to be stable as order books for large vessels and container ships remain close to multi-year highs.

In Latin America, we anticipate continued stable economic conditions in Mexico, most of Central America and South America compared to 2022. We expect continued strong demand in the PPG Comex architectural coatings business.

Significant other factors

We made significant progress on the global restructuring programs that were announced in 2019, 2020 and 2021. The 2019 and 2020 programs have been substantially completed. In the third quarter 2022, the Company approved a business restructuring plan which included actions to reduce its global cost structure in response to current economic conditions. Total restructuring savings, including the impact of acquisition synergies, was approximately $65 million in 2022. Total restructuring savings are expected to be at least $60 million in 2023. We will continue to monitor and aggressively manage the Company’s cost structure to ensure alignment with the overall demand environment.

Raw materials are our most significant input cost. PPG experiences fluctuating energy and raw material costs driven by various factors, including changes in supplier feedstock costs and inventories, global industry activity levels, foreign currency exchange rates, and global supply and demand factors.

On an aggregate basis, average raw material costs were significantly higher in 2022 versus 2021. The increases in raw material costs were primarily driven by ongoing supply constraints, including various force majeure declarations, higher energy prices, production outages at many of our suppliers, energy surcharges in Europe, labor availability challenges, transportation shortages and higher ocean freight costs. PPG currently expects raw material costs to be higher by a low-single-digit percentage on a year-over-year basis in the first quarter 2023; however, we expect the negative impact of raw material inflation to lessen as 2023 progresses.

We achieved selling price improvement across all businesses in 2022, reflecting the Company’s efforts to offset various inflationary pressures. The Company will carefully monitor all costs during 2023 and assess the need for additional selling price increases.

In 2022, we experienced unfavorable foreign currency translation throughout the year, and we expect that foreign currency rates will continue to be volatile. However, the Company generally purchases raw materials, incurs manufacturing costs and sells finished goods in the same currency, so we typically incur only modest foreign currency transaction-related impacts.

The 2023 effective tax rate from continuing operations is expected to be in the range of 22% to 24%, varying by quarter. This range represents the Company’s best estimate.

Net periodic pension expense will be higher in 2023, primarily due to declines in the market value of pension investments during 2022, resulting in a lower asset base to generate returns on plan assets in 2023. The interest cost component of pension expense will also be higher due to an increase in discount rates.

Over the past five years, the Company used over $2 billion of cash to repurchase approximately 21 million shares of PPG stock, including using $190 million to repurchase shares of PPG stock during 2022. The Company ended the year with approximately $1.1 billion remaining under its current share repurchase authorization. During 2022, the Company deployed $114 million for acquisitions, $518 million for capital expenditures and $570 million for dividends. In 2022, PPG marked the 51st annual per share dividend increase and the 123rd successive year of annual dividend payments.

PPG ended 2022 with approximately $1.2 billion in cash and short-term investments. The Company expects strong cash generation in 2023.

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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. Refer to Item 3. “Legal Proceedings” and Note 15, “Commitments and Contingent Liabilities” in Item 8 of this Form 10-K for a description of certain of these lawsuits.

As discussed in Item 3 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. Refer to the Environmental Matters section of Note 15 for details of these reserves. It is PPG’s policy to accrue expenses for 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.

Accounting Standards Adopted in 2022

Note 1, “Summary of Significant Accounting Policies” in Item 8 of this Form 10-K describes the Company’s recently adopted accounting pronouncements.

Accounting Standards to be Adopted in Future Years

Note 1, “Summary of Significant Accounting Policies” in Item 8 of this Form 10-K describes accounting pronouncements that have been promulgated prior to December 31, 2022 but are not effective until a future date.

Liquidity and Capital Resources

During the past two years, PPG had sufficient financial resources to meet its operating requirements, to fund our capital spending, including acquisitions, share repurchases and pension plans, and to pay increasing dividends to shareholders.

Cash and cash equivalents and short-term investments

Cash from operating activities - continuing operations

2022 vs. 2021

The $599 million decrease in Cash from operating activities - continuing operations was primarily due to a larger increase in working capital in 2022 compared to the prior year, which reflects the impact of higher raw material costs on inventories and higher selling prices on trade receivables.

Operating working capital

Operating working capital is a subset of total working capital and represents (1) receivables from customers, net of allowance for doubtful accounts, (2) inventories, and (3) trade liabilities. Refer to Note 3, “Working Capital Detail” in Item 8 of this Form 10-K for further information related to the components of the Company’s operating working capital. We believe operating working capital represents the key components of working capital under the operating control of our businesses.

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A key metric we use to measure our working capital management is operating working capital as a percentage of sales (fourth quarter sales annualized).

Environmental expenditures

We expect cash outlays for environmental remediation activities in 2023 to be between $40 million and $60 million.

Cash used for investing activities

2022 vs. 2021

The $1,943 million decrease in cash used for investing activities was primarily due to the Company’s prior year acquisition of Tikkurila.

Capital expenditures, including business acquisitions

(1)Includes modernization and productivity improvements, expansion of existing businesses and environmental control projects.

During 2023, capital expenditures, which are expected to be in the range of $500 million to $550 million, will support future organic growth opportunities. The Company will continue to deploy cash focused on shareholder value creation, with a preference for business acquisitions, coupled with debt reduction to enhance financial flexibility.

Cash (used for)/from financing activities

2022 vs. 2021

The $502 million change was primarily due to the proceeds from the issuance of long-term debt in 2021 to finance the Company’s acquisition of Tikkurila.

Share repurchase activity

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The Company has approximately $1.1 billion remaining under the current authorization from the Board of Directors, which was approved in December 2017. The current authorized repurchase program has no expiration date.

Dividends paid to shareholders

PPG has paid uninterrupted annual dividends since 1899, and 2022 marked the 51st successive year of increased annual per-share dividend payments to shareholders. The Company raised its per-share quarterly dividend by more than 5% to $0.62 per share paid in September 2022.

Debt issued and repaid

The Company’s commercial paper borrowings are classified as long-term debt based on PPG’s intent and ability to refinance these borrowings on a long-term basis. Net payments on commercial paper were $440 million for the year ended December 31, 2022. Net proceeds from commercial paper were $190 million for the year ended December 31, 2021.

Credit agreements and lines of credit

In February 2021, PPG entered into a $2.0 billion Term Loan Credit Agreement (the "Term Loan Credit Agreement"). The Term Loan Credit Agreement provided the Company with the ability to borrow up to an aggregate principal amount $2.0 billion on an unsecured basis prior to December 31, 2021 as further discussed in Note 10, "Borrowings and Lines of Credit" in Item 8 of this Form 10-K. In June 2021, PPG borrowed $700 million under the $2.0 billion Term Loan Credit Agreement. In December 2021, PPG borrowed an additional $700 million under the Term Loan Credit Agreement. In 2022, PPG repaid $300 million of the Term Loan Credit Agreement 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 as further discussed in Note 10, "Borrowings and Lines of Credit" in Item 8 of this Form 10-K. The Credit Agreement amends and restates the Company's existing five year credit agreement dated as of December 18, 2015. The Credit Agreement provides for a $2.2 billion unsecured revolving credit facility. The Credit Agreement will terminate on August 30, 2024. There were no amounts outstanding under the credit agreement as of December 31, 2022 and December 31, 2021.

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 December 31, 2022, Total Indebtedness to Total Capitalization as defined under the Credit Agreement and the Term Loan was 49%.

In addition to the amounts available under lines of credit, the Company maintains access to the capital markets and may issue debt or equity securities from time to time, which may provide an additional source of liquidity.

Refer to Note 10, “Borrowings and Lines of Credit” in Item 8 of this Form 10-K for information regarding notes entered into and repaid as well as details regarding the use and availability of committed and uncommitted lines of credit, letters of credit and debt covenants.

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Cash Requirements

We continue to believe that our 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 cash requirements. The Company’s significant cash requirements include the following contractual obligations and commitments.

(1)Interest on all outstanding debt.

(2)Includes interest payments.

(3)The unconditional purchase commitments are principally take-or-pay obligations related to the purchase of certain materials, including industrial gases and electricity, consistent with customary industry practice.

The Company’s off-balance sheet arrangements include unconditional purchase commitments disclosed in the “Liquidity and Capital Resources” section in the cash requirements table as well as letters of credit as discussed in Note 10, “Borrowings and Lines of Credit” in Item 8 of this Form 10-K.

Other liquidity matters

At December 31, 2022, the total amount of unrecognized tax benefits for uncertain tax positions, including an accrual of related interest and penalties along with positions only impacting the timing of tax benefits, was $162 million. The timing of payments will depend on the progress of examinations with tax authorities. PPG does not expect a significant tax payment related to these obligations within the next year. The Company is unable to make a reasonably reliable estimate as to if, or when, any significant cash settlements with taxing authorities may occur.

Critical Accounting Estimates

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

Contingencies

Contingencies, by their nature, relate to uncertainties that require management to exercise judgment both in assessing the likelihood that a liability has been incurred as well as in estimating the amount of potential loss. The most important contingencies impacting our financial statements are those related to environmental remediation, to pending, impending or overtly threatened litigation against the Company and to the resolution of matters related to open tax years. For more information on these matters, see Note 15, “Commitments and Contingent Liabilities” and Note 13, “Income Taxes” in Item 8 of this Form 10-K.

Defined Benefit Pension and Other Postretirement Benefit Plans

Accounting for pensions and other postretirement benefits involves estimating the cost of benefits to be provided well into the future and attributing that cost over the time period each employee works. To accomplish this, we make extensive use of assumptions about inflation, investment returns, mortality, turnover, medical costs and discount rates. The Company has established a process by which management reviews and selects these assumptions annually. Refer to Note 14, “Employee Benefit Plans” in Item 8 of this Form 10-K for information on these plans and the assumptions used.

Business Combinations

The Company uses the acquisition method of accounting to allocate costs of acquired businesses to the assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition. The excess costs of acquired businesses over the fair values of the assets acquired and liabilities assumed is recognized as goodwill. The valuations of the acquired assets and liabilities impacts the determination of future operating results. In addition to using management estimates and negotiated amounts, the Company uses a variety of information sources to determine the estimated fair values of acquired assets and liabilities including: third-party appraisals for the estimated value and lives of identifiable

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intangible assets and property, plant and equipment; third-party actuaries for the estimated obligations of defined benefit pension plans and similar benefit obligations; and legal counsel or other experts to assess the obligations associated with legal, environmental and other contingent liabilities.

The business and technical judgment of management was used in determining which acquired intangible assets have indefinite lives and in determining the useful lives of acquired finite-lived intangible assets in accordance with the accounting guidance for goodwill and other intangible assets.

Goodwill and 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. In the quantitative test, fair values are estimated using a discounted cash flow model. Key assumptions and estimates used in the discounted cash flow model include discount rates, tax rates, future revenues, operating cash flows and capital expenditures. For more information on these matters, see Note 1, “Summary of Significant Accounting Policies” in Item 8 of this Form 10-K.

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

Currency

Comparing spot exchange rates at December 31, 2022 and at December 31, 2021, the U.S. dollar strengthened against the currencies of many countries within the regions where PPG operates, most notably the Chinese yuan, the euro, and the British pound. As a result, consolidated net assets at December 31, 2022 decreased by $266 million from December 31, 2021.

Comparing average exchange rates during 2022 to those of 2021, the U.S. dollar strengthened against the currencies of many countries within the regions PPG operates, including most of the countries in the EMEA region. This had an unfavorable impact of approximately $86 million on full year 2022 income before Income taxes from the translation of this foreign income into U.S. dollars.

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. Management’s Discussion and Analysis and other sections of this Annual Report contain forward-looking statements that reflect the Company’s current views with respect to future events and financial performance. 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 SEC. Also, note the following cautionary statements.

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, geopolitical issues in Europe, increasing price and product competition by our competitors, fluctuations in cost and availability of raw materials, energy, labor and logistics, the ability to achieve selling price increases, the ability to recover margins, customer inventory levels, PPG 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, the amount of future share repurchases, 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 unpredictability of existing and possible future litigation, including asbestos litigation, and government investigations. However, it is not possible to predict or identify all such factors.

Consequently, while the list of factors presented here and in 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.

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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 this Form 10-K and similar risks, any of which could have a material adverse effect on the Company’s consolidated financial condition, results of operations or liquidity. PPG undertakes no obligation to update any forward-looking statement, except as otherwise required by applicable law.

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

The following discussion includes a comparison of our results of operations and liquidity and capital resources for the years ended December 31, 2021 and 2020. A discussion of changes in our results of operations for the year ended December 31, 2020 as compared to the year ended December 31, 2019 has been omitted from this Form 10-K, but may be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2020 Form 10-K, filed with the Securities and Exchange Commission on February 18, 2021.

Performance Overview

Net Sales by Region

Net sales increased $2,968 million due to the following:

● Acquisition-related sales (+9%)

● Higher sales volumes (+5%)

● Higher selling prices (+5%)

● Favorable foreign currency translation (+2%)

Net sales increased versus prior year driven by higher sales volumes in each major region and higher selling prices across all businesses. Additionally, the five recent acquisitions (Ennis-Flint, VersaFlex, Cetelon, Wörwag and Tikkurila) increased net sales in 2021.

Foreign currency translation increased net sales by approximately 2% as the U.S. dollar, on an average basis, weakened against most foreign currencies versus the prior year, most notably the euro, the Chinese yuan, and the Mexican peso.

For specific business results, see the Performance of Reportable Business Segments section within Item 7 of this Form 10-K.

2021 PPG ANNUAL REPORT AND 10-K 16

Cost of sales, exclusive of depreciation and amortization

Cost of sales, exclusive of depreciation and amortization, increased $2,509 million due to the following:

● Raw material and logistics cost inflation

● Cost of sales attributable to acquired businesses

● Higher sales volumes

● Unfavorable foreign currency inflation

Selling, general and administrative expenses

Selling, general and administrative expenses increased $391 million primarily due to:

● Selling, general and administrative expenses from acquired businesses

● Wage and other cost inflation

● Unfavorable foreign currency inflation

Partially offset by:

● Cost savings initiatives, including restructuring actions

Other charges and other income

Interest expense, net of Interest income

Interest expense, net of Interest income decreased $20 million in 2021 versus 2020 primarily due to more favorable interest rates on outstanding debt.

Impairment charges

In 2021 and 2020, impairment charges were recorded for the write-down of certain assets related to the previously planned sale of certain smaller entities in non-strategic regions. Also, in 2020, an impairment charge was recorded to reduce the carrying value of an indefinite-lived trademark. Refer to Note 2, ”Acquisitions and Divestitures” and Note 6, “Goodwill and Other Identifiable Intangible Assets” in Item 8 of this Form 10-K for additional information.

Asbestos-related claims reserve adjustment

In 2021, the reserve for asbestos-related claims was reduced to reflect the Company’s current estimate of potential liability for these claims. Refer to Note 14 “Commitments and Contingent Liabilities” in Item 8 of this Form 10-K for additional information.

Business restructuring, net

Pretax restructuring charges of $54 million related to recent acquisitions were recorded in 2021, partially offset by certain changes in estimates to complete previously recorded programs of $23 million. Pretax restructuring charges of $203 million were recorded in 2020, offset by certain changes in estimates to complete previously recorded programs of $29 million. Refer to Note 7, "Business Restructuring" in Item 8 of this Form 10-K for additional information.

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Pension settlement charge

In December 2021, the Company purchased group annuity contracts that transferred pension benefit obligations for certain of the Company’s retirees in Canada to a third-party insurance company. This transaction resulted in a pension settlement charge of $50 million. Refer to Note 13, “Employee Benefit Plans" in Item 8 of this Form 10-K for additional information.

Other charges

Other charges were lower in 2021 as compared to the prior year primarily due to lower non-service components of net periodic pension cost.

Other income

Other income was higher in 2021 than prior year primarily 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, as well as favorable legal settlements.

Effective tax rate and earnings per diluted share, continuing operations

The effective tax rate for the year-ended December 31, 2021 was 20.6%, a decrease of 0.8% from the prior year primarily driven by a benefit from releases of reserves for uncertain tax positions.

Earnings per diluted share and adjusted earnings per diluted share from continuing operations for the year ended December 31, 2021 increased year-over-year, driven by increased net sales in 2021 due to acquisition-related sales, higher sales volumes and higher selling prices. The impact of higher net sales on earnings was partially offset by higher raw material costs due to ongoing supply constraints and higher transportation costs driven by supply chain disruptions related to COVID-19. Refer to the Regulation G Reconciliations - Results from Operations for additional information.

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 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.

2021 PPG ANNUAL REPORT AND 10-K 18

(1)    Earnings per diluted share is calculated based on unrounded numbers. Figures in the table may not recalculate due to rounding.

(2)    Beginning in 2021, the Company reports adjusted earnings per diluted share excluding amortization expense relating to intangible assets from completed acquisitions. Adjusted earnings per diluted share for 2020, as shown in the table above, has been recast to exclude acquisition-related amortization expense.

(3)    Acquisition-related costs, net 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 consolidated statement of income. Acquisition-related costs, net 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 consolidated statement of income.

(4)    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 2021 in connection with the Company’s manufacturing footprint consolidation plans and associated restructuring programs. This gain is included in Other income in the consolidated statement of income.

(5)    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.

(6)    In 2021 and 2020, impairment charges were recorded for the write-down of certain assets related to the previously planned sale of certain smaller entities in non-strategic regions. Also in 2020, an impairment charge was recorded to reduce the carrying value of an indefinite-lived trademark. In 2021 and 2020, net loss of $3 million and $4 million, respectively, was attributable to noncontrolling interests.

(7)    In the fourth quarter 2021, the reserve for asbestos-related claims was reduced to reflect the Company’s current estimate of potential liability for these claims.

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Performance of Reportable Business Segments

Performance Coatings

Performance Coatings net sales increased due to the following:

● Acquisition-related sales (+12%)

● Higher selling prices (+4%)

● Higher sales volumes (+3%)

● Favorable foreign currency translation (+3%)

In 2021, the acquisitions of Ennis-Flint, Tikkurila and VersaFlex increased net sales in the Performance Coatings segment versus prior year.

Architectural coatings – Americas and Asia Pacific net sales increased a mid-single-digit percentage during the year with differences by channel and region. Despite a strong first quarter, the remaining nine months of the year 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 net sales, excluding the impact of currency and acquisitions (organic sales) increased by about 10% compared to the prior year as the concessionaire network sell-out of PPG products continued to be strong.

Architectural coatings – EMEA net sales increased about 25% versus prior year largely driven by acquisition-related sales from Tikkurila and higher selling prices. Favorable foreign currency translation benefited net sales compared to the prior year. Sales volumes were strong in the first half of the year but were negatively impacted by raw material shortages in the second half.

Net sales for automotive refinish coatings increased over 20%, 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 coupled with higher selling prices.

Aerospace coatings net sales increased a low-single-digit percentage during the year primarily due to favorable foreign currency translation. Sales volumes were flat compared to prior year as a modest increase in demand for the Company’s military applications was offset by a decline in commercial OEM.

Net sales in the protective and marine coatings business increased over 35% versus prior year due to higher selling prices, strong demand in the Asia Pacific region and acquisition-related sales from VersaFlex.

Segment income increased $132 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.

Looking Ahead: First Quarter 2022

In the Performance Coatings reportable business segment, supply chain and manufacturing disruptions are expected to continue as the first quarter 2022 progresses. The supply of several key inputs remains tight, which will continue to constrain sales. Further selling price increases have been secured or are being initiated during the quarter for all businesses. The Company will continue to execute against various cost-savings initiatives. Aggregate sales volumes in the first quarter are anticipated to be lower by a mid-single-digit percentage compared to the first quarter 2021, which still exhibited elevated architectural do-it-yourself (“DIY”) demand in many regions. First quarter 2022 acquisition-related sales are estimated to be between $150 million and $170 million from Tikkurila and VersaFlex. Historically, Tikkurila sales improve sequentially in the first quarter compared to the fourth quarter as it supports building inventory in its distribution channel.

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Industrial Coatings