PPG INDUSTRIES INC (PPG) FY 2023 MD&A

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

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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.