PPG Industries (PPG) 10-K2020 FY Annual report

PPG Industries, Inc. manufactures and distributes a broad range of paints, coatings and specialty materials. PPG was incorporated in Pennsylvania in 1883. PPG’s vision is to be the world’s leading coatings company by consistently delivering high-quality, innovative and sustainable solutions that customers trust to protect and beautify their products and surroundings. 

PPG has a proud heritage and demonstrated commitment to innovation, sustainability, community engagement and developing leading-edge paint, coatings and specialty materials technologies. Through dedication and industry-leading expertise, we solve our customers’ biggest challenges, collaborating closely to find the right path forward. PPG is a global leader, serving customers in construction, consumer products, industrial and transportation markets and aftermarkets with manufacturing facilities and equity affiliates in more than 70 countries.

PPG supplies coatings and specialty materials to customers in a wide array of end-uses, including industrial equipment and components; packaging material; aircraft and marine equipment; automotive original equipment; automotive refinish; pavement marking products; as well as coatings for other industrial and consumer products. PPG also serves commercial and residential new build and maintenance customers by supplying coatings to painting and maintenance contractors and directly to consumers for decoration and maintenance. The coatings industry is highly competitive and consists of several large firms with global presence and many firms supplying local or regional markets. PPG competes in its primary markets with the world’s largest coatings companies, most of which have global operations, and many regional coatings companies.

(a) Original equipment manufacturer (OEM)

Technology innovation has been a hallmark of PPG’s success throughout its history. The Company seeks to optimize its investment in research and development to create new products to drive profitable growth. We align our product development with the macro trends in the markets we serve and leverage core technology platforms to develop products for unmet market needs. Additionally, we operate laboratories in close geographic proximity to our customers, and we customize our products for our customers' end-use applications. Our history of successful technology introductions is based on a commitment to an efficient and effective innovation process and disciplined portfolio management. We have obtained government funding for a small portion of the Company’s research efforts, and we will continue to pursue government funding where appropriate.

We own and operate several facilities to conduct research and development for new and improved products and processes. In addition to the Company’s centralized principal research and development centers (See Item 2. “Properties” of this Form 10-K), operating segments manage their development through centers of excellence. As part of our ongoing efforts to manage our formulations and raw material costs effectively, we operate global competitive sourcing laboratories. Because of our broad array of products and customers, we are not materially dependent upon any single technology platform.

The effective management of raw materials, energy and logistics is important to PPG’s continued success as PPG uses a wide variety of complex raw materials that serve as the building blocks of our manufactured products. The Company’s most significant raw materials are epoxy and other resins, titanium dioxide and other pigments, and solvents in the coatings businesses and sand and soda ash in the specialty coatings and materials business. Raw materials include both organic, primarily petroleum-derived, materials and inorganic materials, including titanium dioxide. These raw materials represent PPG’s single largest production cost component.

Most of the raw materials and energy used in production are purchased from outside sources, and the Company has made, and plans to continue to make, supply arrangements to meet our planned operating requirements for the future. Supply of critical raw materials and energy is managed by establishing contracts with multiple sources and identifying alternative materials or technology whenever possible. Our raw materials include bio-based materials as part of a product renewal strategy. While prices for certain raw materials typically fluctuate with energy prices and global supply and demand changes, such fluctuations are impacted by the fact that the manufacture of our raw materials is several steps downstream from crude oil, natural gas, and other key feedstocks.

We are subject to existing and evolving standards relating to the registration of chemicals which could potentially impact the availability and viability of some of the raw materials we use in our production processes. Our ongoing, global product stewardship efforts are directed at maintaining our compliance with these standards. Changes to chemical registration regulations have been proposed or implemented in the European Union and many other countries, including China, Canada, the United States (“U.S.”), the United Kingdom (“U.K.”), Brazil, Mexico and South Korea. Because implementation of many of these programs has not been finalized, the financial impact cannot be estimated at this time. We anticipate that the number of chemical registration regulations will continue to increase globally, and we have implemented programs to track and comply with these regulations.

PPG has joined a global initiative to eliminate child labor from the mica industry, and the Company is continuing to take steps, including audits of our suppliers, to ensure compliance with PPG’s policy against the use of child labor in our supply chains.

At PPG, our commitment to sustainability extends to our suppliers as an extension of our internal focus on sustainability. Our Global Supplier Code of Conduct clarifies our global expectations in the areas of business integrity, labor practices, associate health and safety, and environmental management. As a member of the Responsible Mica Initiative, PPG continues to be committed to establishing a fair, responsible and sustainable mica supply chain. In addition, in 2020, PPG engaged EcoVadis™, a leading global corporate social responsibility and sustainability ratings company, to leverage assessment processes, tools, resources and insights to drive sustainability standards and practices throughout PPG's

global supply base. The EcoVadis sustainability intelligence suite will assist PPG in providing broad-scale supply chain risk screening and mapping, more reliable supplier sustainability metric scorecards with actionable ratings, and complete audit and improvement management capabilities.

PPG earned a Gold rating from EcoVadis underscoring our ongoing commitment to corporate social responsibility (CSR) and our efforts to manage our economic, social and environmental impact.

We typically experience fluctuating prices for energy and raw materials driven by various factors, including changes in supplier feedstock costs and inventories, global industry activity levels, foreign currency exchange rates, government regulation, and global supply and demand factors. For 2020 versus 2019, we experienced deflationary movements in the majority of our costs, driven by a general slowdown in industrial demand due to the pandemic, affecting the global supply and demand balances. This was in addition to price and cost decreases in most of our key feedstocks through the first half of 2020.

Given the uncertainty of the global economic recovery from the pandemic, coupled with the continuing volatility in certain feedstock costs, particularly the volatility in oil and oil-based derivatives, and foreign currencies, we are not able to predict with certainty the 2021 full-year impact of changes in raw material pricing versus 2020.

Further, given the distribution nature of many of our businesses, logistics and distribution costs are sizable, as are wage and benefit changes. For 2020 versus 2019, PPG experienced a modest increase in logistics costs as a percentage of sales. This is due to inefficiencies in the global supply network and lower transportation agility due to restrictions associated with the global pandemic. Entering into 2021, transportation remains challenged with multiple supply and international trade factors, after the United Kingdom’s exit from the European Union led to equipment shortages, impacting availability. Through the year we see these factors waning as supply networks become stabilized with new global demand patterns and the reduced impact of COVID-19 through vaccination. As a result of these factors, offset by improved operating efficiencies, PPG expects low level increases in logistics costs as a percentage of sales in 2021.

PPG has a significant investment in non-U.S. operations. This broad geographic footprint serves to lessen the significance of economic impacts occurring in any one region on our total Net sales and Income before income taxes in the consolidated statement of income. As a result of our global footprint, we are subject to certain inherent risks, including economic and political conditions in international markets, trade protection measures and fluctuations in foreign currency exchange rates. During 2020, unfavorable foreign currency translation decreased Net sales by approximately $150 million and Income before income taxes by approximately $25 million.

Refer to Note 22, “Reportable Business Segment Information” under Item 8 of this Form 10-K for geographic information related to PPG’s property, plant and equipment, and for additional geographic information pertaining to sales.

PPG’s Income before income taxes has typically been greater in the second and third quarters and Cash from operating activities has been greatest in the fourth quarter due to end-use market seasonality, primarily in our architectural coatings and traffic solutions businesses. Demand for our architectural coatings and traffic solutions products is typically the strongest in the second and third quarters due to higher home improvement, maintenance and construction activity during the spring and summer months in the U.S., Canada and Europe. The Latin America paint season is the strongest in the fourth quarter. These cyclical activity levels result in the collection of outstanding receivables and lower inventory on hand in the fourth quarter generating higher Cash from operating activities.

The average number of people employed worldwide by PPG during 2020 was approximately 46,900. The Company has numerous collective bargaining agreements throughout the world. We observe local customs, laws and practices in labor relations when negotiating collective bargaining agreements. There were no significant work stoppages in 2020. While we have experienced occasional work stoppages as a result of the collective bargaining process and may experience some work stoppages in the future, we believe that we will be able to negotiate all labor agreements on satisfactory terms. To date, these work stoppages have not had a significant impact on our results of operations. Overall, we believe we have good relationships with our employees.

Launched in 2019, The PPG Way is how we enable, empower and engage each employee to implement the strategies needed to strengthen our position as an industry leader. It guides our employees and leaders as we strive to achieve our purpose of protecting and beautifying the world. Employee engagement is a measure of how authentically we are living our culture. We conduct PPG Pulse Surveys multiple times each year, even in the midst of the global pandemic in 2020, to increase dialogue among teams and implement meaningful action to improve results.

Our people strategies provide the foundation for our teams to thrive and deliver exceptional performance. We are committed to ensuring our employees are safe, healthy, enabled, engaged and valued for the diverse talents they bring to PPG. We believe that having quality dialogue with our people, recognizing the value they bring and championing an authentic culture generates engaged employees and a company that is more innovative, productive and competitive. Our focus on and investment in learning and development are crucial to ensuring we keep our people engaged, productive and successful at every stage of their careers. We are committed to promoting from within wherever possible while also bringing in new ideas, thoughts and insights.

One of PPG’s greatest strengths is the diversity of our people, who represent wide-ranging nationalities, cultures, languages, religions, ethnicities, lifestyles, and professional and educational backgrounds. Their unique perspectives enable us to meet challenges quickly, creatively and effectively, providing a significant competitive advantage in today’s global economy. To ensure our people feel valued and respected, we are committed to providing a workplace that embraces a culture of diversity and inclusion and is free from harassment and bullying. More information about PPG’s people strategies and our workforce can be found in the Proxy Statement for our 2021 Annual Meeting of Shareholders and our Sustainability Report and on our sustainability website at http://sustainability.ppg.com.

PPG is committed to operating in a sustainable manner and to helping our customers meet their sustainability goals. Our sustainability efforts are led by the Technology and Environment Committee of our Board of Directors and our Sustainability Committee, which is comprised of members of PPG’s senior management team. The Sustainability Committee establishes policies, programs, procedures and goals to address sustainability in our business practices, including resource management, climate change, innovation, communications, purchasing, manufacturing and employee wellness.

Our dedication to innovation is intertwined with sustainability. Once again, we increased the percent of our sales from sustainable products to 35% in 2020 from 33% in 2019. We are marketing an ever-growing variety of products and services that provide environmental, safety and other benefits to our customers. Our products contribute to lighter, more fuel-efficient vehicles, airplanes and ships, and they help our customers reduce their energy consumption, conserve water and reduce waste. These products include a compact automotive paint process that saves energy and reduces water usage; sustainable, waterborne coatings formulations; lightweight sealants and coatings for aircraft; coatings that cool surfaces; coatings for recyclable metal packaging; antimicrobial products; and solutions for autonomous and battery-powered vehicles.

The Company’s commitment to sustainability continues to yield tangible results. In 2020, we again made significant progress reducing our energy intensity, greenhouse gas emissions intensity and waste intensity. More information about PPG’s sustainability values, efforts, goals and data and our community and employee engagement programs can be found in our Sustainability Report and on our sustainability website at http://sustainability.ppg.com and on the CDP’s website at www.cdp.net.

We are subject to existing and evolving standards relating to the protection of the environment. In management’s opinion, the Company operates in an environmentally sound manner and is well positioned, relative to environmental matters, within the industries in which it operates. PPG is negotiating with various government agencies concerning current and former manufacturing sites and offsite waste disposal locations, including certain sites on the National Priority List. While PPG is not generally a major contributor of wastes to these offsite waste disposal locations, each potentially responsible party may face governmental agency assertions of joint and several liability. Generally, however, a final allocation of costs is made based on relative contributions of wastes to the site. There is a wide range of cost estimates for cleanup of these sites, due largely to uncertainties as to the nature and extent of their condition and the methods that may have to be employed for their remediation. The Company has established reserves for onsite and offsite remediation of those sites where it is probable that a liability has been incurred and the amount of loss can be reasonably estimated.

Our experience to date regarding environmental matters leads us to believe that we will have continuing expenditures for compliance with provisions regulating the protection of the environment and for present and future remediation efforts at waste and plant sites. Management anticipates that such expenditures will occur over an extended period of time.

In addition to the $300 million currently reserved for environmental remediation efforts, we may be subject to loss contingencies related to environmental matters estimated to be approximately $100 million to $200 million. These reasonably possible unreserved losses relate to environmental matters at a number of sites, none of which are individually significant. The loss contingencies related to these sites include significant unresolved issues such as the nature and extent of contamination at these sites and the methods that may have to be employed to remediate them.

It is expected that capital expenditures for such projects in 2021 will be in the range of $15 million to $25 million. Although future capital expenditures are difficult to estimate accurately because of constantly changing regulatory standards and policies, it can be anticipated that environmental control standards will become increasingly stringent and the cost of compliance will increase.

Management believes that the outcome of these environmental contingencies will not have a material adverse 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. See Note 15, “Commitments and Contingent Liabilities” under Item 8 of this Form 10-K for additional information related to environmental matters and our accrued liability for estimated environmental remediation costs.

As a global manufacturer of paints, coatings and specialty materials, we operate in a business environment that includes risks. These risks are not unlike the risks we have faced in the recent past nor are they unlike risks faced by our competitors. Each of the risks described in this section could adversely affect our results of operations, financial position and liquidity. While the factors listed here are considered to be the more significant factors, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles which may adversely affect our businesses and our results of operations, financial position and liquidity.

The effects of the public health crisis caused by the COVID-19 pandemic have interfered with the ability of PPG, our suppliers, customers, and others to conduct business and have negatively affected consumer confidence and the global economy. Public health officials have recommended or mandated certain precautions to mitigate the spread of COVID-19, including prohibitions on congregating in groups, shelter-in-place orders or similar measures. Preventative and protective actions that public health officials, governments or PPG have taken with respect to COVID-19 have and will continue to adversely impact our business, suppliers, distribution channels, and customers, including business shutdowns or

disruptions for an indefinite period of time, reduced operations, reduced ability to supply products, or reduced demand for our products. Our financial condition, liquidity and results of operations have been and will continue to be adversely impacted by these preventative actions and the disruption to our business and that of our suppliers and customers. As we cannot predict the duration or scope of the COVID-19 pandemic, the negative financial impact to our results cannot be reasonably estimated, but could be material.

Our financial results are significantly affected by the cost of raw materials. Raw materials include both organic, primarily petroleum-derived, materials and inorganic materials, including titanium dioxide. These raw materials represent PPG’s single largest production cost component.

While not our customary practice, we also import raw materials and intermediates, particularly for use at our manufacturing facilities in the emerging regions of the world. In most cases, those imports are priced in the currency of the supplier and, therefore, if that currency strengthens against the currency of our manufacturing facility, our margins may be lower.

Most of our raw materials are purchased from outside sources, and the Company has made, and plans to continue to make, supply arrangements to meet the planned operating requirements for the future. Adequate supply of critical raw materials is managed by establishing contracts, procuring from multiple sources, and identifying alternative materials or technology whenever possible. The Company is continuing its aggressive sourcing initiatives to effectively broaden our supply of high quality raw materials. These initiatives include qualifying multiple and local sources of supply, including suppliers from Asia and other lower cost regions of the world, adding on-site resin production at certain manufacturing locations, and a reduction in the amount of titanium dioxide and other raw materials used in our product formulations. Our raw materials include bio-based materials as part of a product renewal strategy.

An inability to obtain critical raw materials would adversely impact our ability to produce products. Increases in the cost of raw materials may have an adverse effect on our Income from continuing operations or Cash from operating activities in the event we are unable to offset these higher costs in a timely manner.

Demand for our products and services depends, in part, on the general economic conditions affecting the countries and markets in which we do business. Weak economic conditions in certain geographies and changing supply and demand balances in the markets we serve have negatively impacted demand for our products and services in the past and may do so in the future. Recently, global economic uncertainty has increased due to a number of factors, including the COVID-19 pandemic, slowing global growth, consumer sentiment and commodity market volatility, disruption in existing trade agreements, the imposition of tariffs and the threat of additional tariffs, the United Kingdom’s exit from the European Union and weaker demand in China. PPG provides products and services to a variety of end-use markets in many geographies. This broad end-use market exposure and expanded geographic presence lessens the significance of any individual decrease in activity levels; nonetheless, lower demand levels may result in lower sales, which would result in reduced Income from continuing operations and Cash from operating activities.

Environmental laws and regulations control, among other things, the discharge of pollutants into the air and water, the handling, use, treatment, storage and clean-up of hazardous and non-hazardous waste, and the investigation and remediation of soil and groundwater affected by hazardous substances. In addition, various laws regulate health and safety matters. The environmental laws and regulations we are subject to impose liability for the costs of, and damages resulting from, cleaning up current sites, past spills, disposals and other releases of hazardous substances. Violations of these laws and regulations can also result in fines and penalties. Future environmental laws and regulations may require substantial capital expenditures or may require or cause us to modify or curtail our operations, which may have a material adverse impact on our business, financial condition and results of operations.

PPG is involved in a number of lawsuits and claims, both actual and potential, in which substantial monetary damages are sought. Those lawsuits and claims relate to contract, patent, environmental, product liability, asbestos exposure, antitrust, employment, securities and other matters arising out of the conduct of PPG’s current and past business activities. Any such claims, whether with or without merit, could be time consuming, expensive to defend and could divert management’s attention and resources. We maintain insurance against some, but not all, of these potential claims, and the levels of insurance we do maintain may not be adequate to fully cover any and all losses. We believe that, in the aggregate, the outcome of all current lawsuits and claims involving PPG, including those described in Note 15, “Commitments and

Contingent Liabilities” under Item 8 of this Form 10-K, will not have a material effect on PPG’s consolidated financial position or liquidity; however, such outcome may be material to the results of operations of any particular period in which costs, if any, are recognized. Nonetheless, the results of any future litigation or claims are inherently unpredictable, and such outcomes could have a material adverse effect on our results of operations, Cash from operating activities or financial condition.

We earn revenues, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S. dollar. Because our consolidated financial statements are presented in U.S. dollars, we must translate revenues and expenses into U.S. dollars at the average exchange rate during each reporting period, as well as assets and liabilities into U.S. dollars at exchange rates in effect at the end of each reporting period. Therefore, increases or decreases in the value of the U.S. dollar against other currencies will affect our Net sales, Net income and the value of balance sheet items denominated in foreign currencies. We may use derivative financial instruments to reduce our net exposure to currency exchange rate fluctuations related to foreign currency transactions. However, fluctuations in foreign currency exchange rates, particularly the strengthening or weakening of the U.S. dollar against major currencies, could adversely or positively affect our financial condition and results of operations expressed in U.S. dollars.

We are subject to a wide variety of complex U.S. and non-U.S. laws and regulations, and legal compliance risks, including securities laws, tax laws, environmental laws, employment and pension-related laws, competition laws, U.S. and foreign export and trading laws, and laws governing improper business practices, including bribery. We are affected by new laws and regulations and changes to existing laws and regulations, as well as interpretations by courts and regulators. These laws and regulations effectively expand our compliance obligations and costs.

For example, regulations concerning the composition, use and transport of chemical products continue to evolve. Developments concerning these regulations could potentially impact the availability or viability of some of the raw materials we use in our product formulations and/or our ability to supply certain products to some customers or markets. Import/export regulations also continue to evolve and could result in increased compliance costs, slower product movements or additional complexity in our supply chains.

Further, although we believe that we have appropriate risk management and compliance programs in place, we cannot guarantee that our internal controls and compliance systems will always protect us from improper acts committed by employees, agents, business partners or businesses that we acquire. Any non-compliance or such improper actions or allegations could damage our reputation and subject us to civil or criminal investigations and shareholder lawsuits, could lead to substantial civil and criminal, monetary and non-monetary penalties, and could cause us to incur significant legal and investigatory fees.

PPG has a significant investment in global operations. This broad geographic footprint serves to lessen the significance of economic impacts occurring in any one region. Notwithstanding the benefits of geographic diversification, our ability to achieve and maintain profitable growth in international markets is subject to risks related to the differing legal, political, social and regulatory requirements and economic conditions of many countries. As a result of our operations outside the U.S., we are subject to certain inherent risks, including political and economic uncertainty, inflation rates, exchange rates, trade protection measures, local labor conditions and laws, restrictions on foreign investments and repatriation of earnings, and weak intellectual property protection. Our percentage of sales generated in 2020 by products sold outside the U.S. was approximately 65%.

As a multinational corporation, we are subject to various taxes in both the U.S. and non-U.S. jurisdictions. Due to economic and political conditions, tax rates in these various jurisdictions may be subject to significant changes. Our future effective income tax rate could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets or changes in tax laws or their interpretation. Further, PPG may continue to refine its estimates to incorporate new or better information as it becomes available. Recent developments, including the European Commission’s investigations on illegal state aid as well as the Organisation for Economic Co-operation and Development project on Base Erosion and Profit Shifting may result in changes to long-standing tax principles, which could adversely affect our effective tax rate or result in higher cash tax liabilities. If our effective income tax rate was to increase, our Cash from operating activities, financial condition and results of operations would be adversely affected.

Although we believe that our tax filing positions are appropriate, the final determination of tax audits or tax disputes may be different from what is reflected in our historical income tax provisions and accruals. If future audits find that additional taxes are due, we may be subject to incremental tax liabilities, possibly including interest and penalties, which could have a material adverse effect on our Cash from operating activities, financial condition and results of operations.

Unexpected events, including supply disruptions, temporary plant and/or power outages, work stoppages, natural disasters and severe weather events, significant public health issues, computer system disruptions, fires, war or terrorist activities, could increase the cost of doing business or otherwise harm the operations of PPG, our customers and our suppliers. It is not possible for us to predict the occurrence or consequence of any such events. However, such events could reduce our ability to supply products, reduce demand for our products or make it difficult or impossible for us to receive raw materials from suppliers or to deliver products to customers.

Part of the Company’s strategy is growth through acquisitions. Over the last decade, we have successfully completed more than 50 acquisitions, and we will likely acquire additional businesses and enter into additional joint ventures in the future. Growth through acquisitions and the formation of joint ventures involve risks, including:

These risks or other problems encountered in connection with our past or future acquisitions and joint ventures could cause delays in realizing the anticipated benefits of such acquisitions or joint ventures and could adversely affect our results of operations, Cash from operating activities or financial condition.

Our business relies on continued global demand for our brands and products. To achieve business goals, we must develop and sell products that appeal to customers. This is dependent on a number of factors, including our ability to produce products that meet the quality, performance and price expectations of our customers and our ability to develop effective sales, advertising and marketing programs. 

We believe the automotive industry will experience significant and continued change in the coming years. Vehicle manufacturers continue to develop new safety features such as collision avoidance technology and self-driving vehicles that may reduce vehicle collisions in the future, potentially lowering demand for our refinish coatings. In addition, through the introduction of new technologies, new business models or new methods of travel, such as ridesharing, the number of automotive OEM new-builds may decline, potentially reducing demand for our automotive OEM coatings and related automotive parts.

Additionally, the development of customer-facing digital platforms has and will continue to transform certain retail industries. An inability to develop such solutions and our customer’s pace of adoption of those solutions could negatively affect our business or the market demand for our products.

Our future growth will depend on our ability to continue to innovate our existing products and to develop and introduce new products. If we fail to keep pace with product innovation on a competitive basis or to predict market demands for our products, our businesses, financial condition and results of operations could be adversely affected.

With each of our businesses, an increase in competition may cause us to lose market share, lose a large regional or global customer, or compel us to reduce prices to remain competitive, which could result in reduced margins for our products. Additionally, our ability to achieve price increases may impact the overall economics for the products we offer.

Competitive pressures may not only reduce our margins but may also impact our revenues and our growth which could adversely affect our results of operations.

Increased global information technology security requirements, threats and sophisticated and targeted computer crime pose a risk to the security of our systems, networks and the confidentiality, availability and integrity of our data. Despite our efforts to protect sensitive information and confidential and personal data, our facilities and systems may be vulnerable to security breaches. This could lead to negative publicity, theft, modification or destruction of proprietary information or key information, manufacture of defective products, production downtimes and operational disruptions, which could adversely affect our reputation, competitiveness and results of operations.

As discussed in the Explanatory Note, Note 2, “Restatement of Previously Reported Consolidated Annual Financial Statements” and in Note 19, “Quarterly Financial Information (unaudited)” under Item 8 of the 2017 Form 10-K/A, in 2018 we concluded that our previously issued financial statements as of December 31, 2017 and 2016, and for each of the quarterly and year-to-date periods in 2017, and the final quarterly and year-to-date period in 2016, should no longer be relied upon. The determination that the applicable financial statements should no longer be relied upon and that these financial statements would be restated was made following the identification of misstatements. Although the Company restated these financial statements, remediated the material weakness in the Company’s internal control over financial reporting, reached a settlement with the SEC and is no longer the subject of an investigation by the U.S. Attorney’s Office, we continue to be subject to risks and uncertainties relating to these events, including advancement of legal expenses and potential indemnification obligations to certain current and former employees who are responding to investigations by the SEC and U.S. Attorney’s Office for alleged violations of the securities laws relating to the restatement described above, potential loss of investor confidence, potential reputational harm and a potential negative impact on our stock price.

None.

PPG’s corporate headquarters is located in the United States in Pittsburgh, Pa. The Company’s manufacturing facilities, sales offices, research and development centers and distribution centers are located throughout the world. See Item 1. “Business” of this Form 10-K for the principal manufacturing and distribution facilities by reportable business segment.

Our headquarters, certain distribution centers and substantially all company-owned paint stores are located in facilities that are leased while our other facilities are generally owned. Our facilities are considered to be suitable and adequate for the purposes for which they are intended and overall have sufficient capacity to conduct business in the upcoming year.

PPG is involved in a number of lawsuits and claims, both actual and potential, including some that it has asserted against others, in which substantial monetary damages are sought. These lawsuits and claims may relate to contract, patent, environmental, product liability, asbestos exposure, antitrust, employment, securities and other matters arising out of the conduct of PPG’s current and past business activities. To the extent these lawsuits and claims involve personal injury, property damage and certain other claims, PPG believes it has adequate insurance; however, certain of PPG’s insurers are contesting coverage with respect to some of these claims, and other insurers may contest coverage. PPG’s lawsuits and claims against others include claims against insurers and other third parties with respect to actual and contingent losses related to environmental, asbestos and other matters.

As previously disclosed, the SEC is conducting a non-public investigation of accounting matters described in the Explanatory Note and in Note 2, “Restatement of Previously Reported Consolidated Annual Financial Statements" under Item 8 of the Company’s 2017 Form 10-K/A. On September 26, 2019, PPG announced a final settlement with the SEC as to the Company. Without admitting or denying the findings in the SEC’s administrative cease-and-desist order, the Company consented to the entry of the order, which imposed no financial penalty. The Company continues to cooperate

fully with the SEC’s ongoing investigation relating to these accounting matters. The Company is also cooperating fully with an investigation into the same accounting matters commenced by the U.S. Attorney’s Office for the Western District of Pennsylvania (“USAO”). As previously disclosed, the USAO has informed PPG that it will not pursue any action as to the Company.

Between January and early April 2020, the Company, as a nominal defendant, and certain of its current or former officers and directors were named as defendants in four shareholder derivative actions. All of the actions were filed in Pittsburgh, three in the U.S. District Court for the Western District of Pennsylvania and one in the Court of Common Pleas for Allegheny County. The plaintiffs in these actions alleged breach of fiduciary duty, unjust enrichment and/or corporate waste arising out of various alleged acts, and alleged failures to act, by the individually named defendants following financial restatements by the Company. One of the federal court actions also alleged breach of fiduciary duty and unjust enrichment claims arising out of certain environmental liabilities the Company incurred, and continues to incur, related to its former Ford City glass plant. The three federal court derivative actions were consolidated. On May 28, 2020, a Motion to Dismiss these federal court actions was filed. Following the submission of legal briefs and oral argument, the federal court dismissed all three cases by Opinion and Order dated December 3, 2020. The plaintiffs to these actions did not appeal the ruling and the cases are closed. Following dismissal of the federal court cases, the plaintiff in the state court derivative action, which had been stayed pending the outcome of the federal court Motion to Dismiss, stipulated to a dismissal of that action with prejudice by Order dated January 6, 2021.

On May 20, 2018, a putative securities class action lawsuit was filed in the U.S. District Court for the Central District of California against the Company and three of its current and former officers.  On September 21, 2018, an Amended Class Action Complaint was filed in the lawsuit. The Amended Complaint, captioned Trevor Mild v. PPG Industries, Inc., Michael H. McGarry, Vincent J. Morales, and Mark C. Kelly, asserted securities fraud claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 on behalf of a putative class of persons who purchased or otherwise acquired stock of the Company between January 19, 2017 and May 10, 2018. The allegations related to, among other things, allegedly false and misleading statements and/or failures to disclose information about the Company’s business, operations and prospects. The parties reached a settlement in principal on May 1, 2019.  On June 2, 2019, the plaintiff filed with the court a Petition for Preliminary Approval of the proposed settlement, including the proposed settlement amount of $25 million. On November 22, 2019, the court entered final judgment approving the settlement. PPG’s insurance carriers fully funded the settlement escrow account and the court-approved settlement payments to class members are expected to be distributed by the claims administrator in 2021.

From the late 1880’s until the early 1970’s, PPG owned property located in Cadogan and North Buffalo Townships, Pennsylvania which was used for the disposal of solid waste from PPG’s former glass manufacturing facility in Ford City, Pennsylvania. In October 2018, the Pennsylvania Department of Environmental Protection (the “DEP”) approved PPG’s cleanup plan for the Cadogan Property. In April 2019, PPG and the DEP entered into a consent order and agreement (“CO&A”) which incorporated PPG’s approved cleanup plan and a draft final permit for the collection and discharge of seeps emanating from the former disposal area. The CO&A includes a civil penalty of $1.2 million for alleged past unauthorized discharges. PPG’s former disposal area is also the subject of a citizens’ suit filed by the Sierra Club and PennEnvironment seeking remedial measures beyond the measures specified in PPG’s approved cleanup plan, a civil penalty in addition to the penalty included in the CO&A and plaintiffs’ attorneys fees. PPG and the plaintiffs settled plaintiffs’ claims for injunctive relief and PPG agreed to enhancements to the DEP approved cleanup plan and a $250,000 donation to a Pennsylvania nonprofit organization. This settlement has been memorialized by an amendment to the CO&A which was appended to a Consent Agreement between PPG and the plaintiffs which has been lodged with the federal Court. The remaining claims in the case for attorneys’ fees and a civil penalty are not affected by this settlement. PPG believes that the remaining claims are without merit and intends to defend itself against these claims vigorously.

For many years, PPG has been a defendant in lawsuits involving claims alleging personal injury from exposure to asbestos. For a description of asbestos litigation affecting the Company, see Note 15, “Commitments and Contingent Liabilities” to the accompanying consolidated financial statements under Part I, Item 8 of this Form 10-K.

In the past, the Company and others have been named as defendants in several cases in various jurisdictions claiming damages related to exposure to lead and remediation of lead-based coatings applications. PPG has been dismissed as a defendant from most of these lawsuits and has never been found liable in any of these cases. After having not been named in a new lead-related lawsuit for 15 years, PPG was named as a defendant in two Pennsylvania state court lawsuits filed by Montgomery County and Lehigh County in the respective counties on October 4, 2018 and October 12, 2018. Both suits seek declaratory relief arising out of alleged public nuisances in the counties associated with the presence of lead paint on various buildings constructed prior to 1980. The Company believes these actions are without merit and intends to defend itself vigorously.

Set forth below is information related to the Company’s executive officers as of February 18, 2021. 

Not Applicable.

The information required by Item 5 regarding market information, including PPG’s stock exchange listing and quarterly stock market prices, dividends, holders of common stock, and the stock performance graph is included in Exhibit 13.1 filed with this Form 10-K and is incorporated herein by reference.

No shares were repurchased in the three months ended December 31, 2020 under the current $2.5 billion share repurchase program approved in December 2017. The maximum number of shares that may yet be purchased under this program is 10,472,586 shares as of December 31, 2020. This repurchase program has no expiration date.

No shares were withheld in satisfaction of the exercise price and/or tax withholding obligation by holders of employee stock options who exercised options granted under the Company’s equity compensation plans in the fourth quarter of 2020.

The information required by Item 6 regarding the selected financial data for the five years ended December 31, 2020 is included in Exhibit 13.2 filed with this Form 10-K and is incorporated herein by reference.

The following discussion includes a comparison of our results of operations and liquidity and capital resources for the years ended December 31, 2020 and 2019. A discussion of changes in our results of operations for the year ended December 31, 2019 as compared to the year ended December 31, 2018 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 2019 Form 10-K, filed with the Securities and Exchange Commission on February 20, 2020.

As a result of the COVID-19 pandemic and reduced global economic activity, lower sales volumes and unfavorable foreign currency translation reduced net sales in most regions and in both reportable business segments. Higher selling prices and acquisition-related sales partially offset this downturn.

Foreign currency translation decreased net sales by approximately $150 million as the U.S. dollar strengthened against several foreign currencies versus the prior year, most notably the Mexican peso.

For specific business results, see the Segment Results section within Item 7 of this Form 10-K.

Selling, general and administrative expenses decreased $215 million primarily due to:

Interest expense, net of Interest income increased $15 million in 2020 versus 2019 primarily due to the $1.5 billion 364-day term loan credit agreement entered into in April 2020. As of December 31, 2020, $400 million remains outstanding under this agreement.

In 2020, impairment charges were recorded for the write-down of certain assets and liabilities related to the planned sale of certain entities and the carrying value of an indefinite-lived trademark. Refer to Note 3, ”Acquisitions and Divestitures” and Note 7, “Goodwill and Other Identifiable Intangible Assets” in Item 8 of this Form 10-K for additional information.

Pretax restructuring charges of $203 million were recorded in 2020, offset by certain changes in estimates to complete previously recorded programs of $29 million. Pretax restructuring charges of $194 million were recorded in 2019, offset by certain changes in estimates to complete previously recorded programs of $18 million. Refer to Note 8, "Business Restructuring" in Item 8 of this Form 10-K for additional information.

Other charges consist primarily of environmental remediation charges. These charges were principally for environmental remediation at a former chromium manufacturing plant and associated sites in New Jersey. Refer to Note 15, "Commitments and Contingent Liabilities" in Item 8 of this Form 10-K for additional information.

Other income was lower in 2020 than prior year primarily due to slightly lower equity earnings and royalty income.

The effective tax rate for the year-ended December 31, 2020 was 21.4%, a decrease of 2.2% from the prior year. The lower effective income tax rate included higher net benefits for changes in valuation allowance reserves and for U.S. research and development credits. The Company expects that its full year 2021 effective tax rate will be between 22% and 24%.

As reported earnings per diluted share from continuing operations for the year ended December 31, 2020 decreased year-over-year due to the economic downturn caused by the COVID-19 pandemic and certain impairment charges. Refer to the Regulation G Reconciliations - Results from Operations for additional information.

PPG believes investor’s understanding of the Company’s performance is enhanced by the disclosure of net income from continuing operations, earnings per diluted share from continuing operations and PPG’s effective tax rate from continuing operations adjusted for certain items. PPG’s management considers this information useful in providing insight into the Company’s ongoing performance because it excludes the impact of items that cannot reasonably be expected to recur on a quarterly basis or that are not attributable to our primary operations. Net income from continuing operations, earnings per diluted share from continuing operations and the effective tax rate from continuing operations 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, earnings per diluted share, the effective tax rate or other financial measures as computed in accordance with U.S. GAAP. In addition, adjusted net income, adjusted earnings per diluted share from continuing operations and the adjusted effective tax rate from continuing operations may not be comparable to similarly titled measures as reported by other companies.

In 2020, businesses within the Performance Coatings reportable business segment suffered from lower sales volumes due to the COVID-19 pandemic but achieved higher selling prices across all regions.

Architectural coatings - Americas and Asia Pacific net sales, excluding the impact of currency and acquisitions (organic sales) increased a low-single-digit percentage during the year with differences by channel and region. Higher do-it yourself (“DIY”) sales volumes were more than offset by the unfavorable impact of retail store shutdowns in the U.S., Canada and Mexico and unfavorable foreign currency translation driven by the Mexican peso. PPG-Comex organic sales were higher by a mid-single-digit percentage, as the concessionaire network sell-out of PPG products was strong throughout the year.

Architectural coatings – EMEA organic sales increased by a mid-single-digit percentage driven by a strong volumes in the second half of the year offset by lower demand in Southern Europe earlier in the year when various countries mandated the temporary closure of retail paint stores due to COVID-19.

Net sales for automotive refinish coatings were down about 15% versus prior year consistent with the sharp decline in global miles driven and traffic density in most of the world due to mobility restrictions and stay-at-home mandates due to the pandemic. In the U.S., body shops were impacted by a reduction in collision claims activity throughout the year. In the Asia Pacific region, sales volumes did improve in the second half of 2020 as congestion in China neared 2019 levels.

Aerospace coatings sales volumes decreased about 25% year-over-year due to a sharp decline in commercial OEM, general aviation and after-market products. Net sales benefited from consistent demand for the company’s military applications and acquisition-related sales from Dexmet and Texstars.

Sales volumes in the protective and marine coatings business were down a mid-single-digit percentage driven by delayed projects as a result of the pandemic and lower demand for protective coatings products. Lower sales volumes in the U.S. were related to continued soft demand in the oil and gas industry. Sales volumes in Europe suffered from delayed projects due to the pandemic. In the Asia-Pacific region, sales volumes were flat versus 2019 reflecting strong demand for PPG’s technology-advantaged products and despite lower demand for marine coatings products.

Net sales in the traffic solutions business were entirely attributable to the Ennis-Flint acquisition which closed in late December 2020.

Segment income decreased $50 million year-over-year, including unfavorable foreign currency translation impacts of approximately $20 million. Segment income was impacted by lower sales volumes related to the pandemic and unfavorable foreign currency translation partially offset by higher selling prices, execution of cost-mitigation efforts and restructuring initiatives.

Looking ahead, overall segment net sales in the first quarter 2021, are anticipated to be generally similar to the fourth quarter. Sales volumes are expected to be slightly lower on a year-over-year basis. Sharp year-over-year declines in the commercial aerospace coatings business will continue. Lastly, acquisitions are forecast to add about $90 million of net sales, primarily from Ennis-Flint. First quarter sales and earnings for the Ennis-Flint business are historically low due to normal seasonality in that business. It is expected that raw material, logistics, and certain other costs will be inflationary in 2021. The company has already announced selling price increases in most of the businesses within the Performance Coatings reportable segment and will continue to execute various cost-savings initiatives. Finally, foreign currency translation is expected to have a favorable impact on segment net sales and earnings of about $80 million and $10 million, respectively, in the first quarter 2021 based on current exchange rates.

Automotive OEM coatings sales volumes decreased by approximately 15% year-over-year, driven by the significant curtailment in global automotive industry production rates due to the COVID-19 pandemic. Although sales volumes decreased year-over-year, strong sales volumes in China and the company’s strong technology and service capabilities led PPG to outpace the global industry build rate.

For the industrial coatings business, net sales decreased by about 10% compared to prior year. Acquisition-related sales from Whitford and modest increases in selling prices were more than offset by lower demand stemming from reduced industrial production in most regions due to customer shutdowns. Global industrial production improved during the second half of the year compared to the start of the pandemic.

Packaging coatings organic sales were slightly higher year-over-year as sales volume growth in the U.S. and Latin America offset softer demand in the Asia Pacific region. In the U.S. and Latin America, sales volume growth was driven by strong demand in the canned food and beverage segment.

Specialty coatings and materials net sales were lower by approximately 20% versus the prior year, driven by lower sales volumes in the U.S. and Europe. Additionally, in the second half of 2020, a company facility in Louisiana was damaged by both Hurricanes Laura and Delta, causing an estimated $10 million in lost revenues due to production interruptions.

Segment income decreased $112 million year-over-year, including unfavorable foreign currency translation impacts of about $10 million. Segment income was impacted by lower sales volumes driven by customer shutdowns related to the pandemic, partially offset by cost-mitigation actions, restructuring cost savings, and modestly higher selling prices.

Looking ahead, sales volumes for the Industrial Coatings reportable business segment in the first quarter 2021 are expected to be higher than the prior-year first quarter by a mid-to-high-single-digit percentage, including the benefit of an

easier comparison due to the lower industrial activity in China during the first quarter of 2020 due to the pandemic. It is expected that raw material, logistics, and certain other costs will be inflationary in early 2021. The company is planning or has instituted selling price increases to help mitigate these cost pressures, along with continued execution of the previously announced restructuring initiatives. Finally, foreign currency translation is expected to have a favorable impact on segment sales and earnings of about $40 million and $5 million, respectively, in the first quarter 2021 based on current exchange rates.

During 2020, the COVID-19 pandemic significantly impacted global economic conditions.The impact in the first quarter was concentrated in China and broadened to most of the rest of the world in the second quarter. Coatings end-use markets related to mobility were more negatively impacted, such as the aerospace and automotive refinish coatings businesses. Some end-use markets benefited from the government mandated restrictions, including architectural coatings DIY and the packaged food segment. PPG’s net sales, excluding foreign currency translation impact, decreased approximately 8% versus the prior year. Acquisition-related sales contributed 1% to net sales growth compared to prior year. Foreign currency translation was unfavorable throughout the year and impacted net sales by about 1%. Raw material costs moderated during the first half of the year and then increased sequentially throughout the second half of 2020 and are expected to continue to be inflationary into the first quarter of 2021. Some other key costs continued to increase in 2020 such as logistics, employee wage and benefit costs.

During 2020, economic activity was impacted by the COVID-19 pandemic with overall economic activity sharply falling in the first half of the year and then continuously improving in the second half of the year. For the full year, U.S. GDP fell by about 5%. Automotive OEM industry builds were down about 20% compared to 2019 with minimal production in the second quarter and improving trends in the second-half of the year. Demand in the residential and commercial construction markets were mixed in 2020 compared to 2019. New home starts advanced approximately 5% in 2020 versus approximately 2% in 2019. Residential remodeling was up 2% in 2020 versus 2019 supported by stay-at-home mandates. Commercial construction was down approximately 10% compared to 2019. Market demand for architectural paint shifted significantly to the DIY channel during the year as higher U.S. unemployment and increased work-from-home resulted in consumers choosing to spend more time renovating their homes. PPG’s architectural coatings sales volumes in the U.S. and Canada were positively impacted by DIY trends and negatively impacted by lower commercial demand trends. The aerospace coatings business was significantly impacted by the pandemic. Before the pandemic, the company’s sales mix was approximately 70% commercial and 30% military. During the pandemic, PPG sales volumes for military applications remained solid, in part due to specification of PPG products with advantaged technology. The commercial segment was down about 50% due to lower passenger miles flown and fewer industry OEM builds. The automotive refinish coatings business was impacted by stay-at-home mandates. These mandates led to less commuting to work, less congestion and fewer miles driven leading to lower collision claims. PPG’s packaging coatings business was favorably impacted by higher packaged food demand. PPG’s automotive OEM coatings business performance was slightly below industry demand levels due to customer mix. Higher acquisition-related sales partially offset lower sales volumes in the automotive OEM coatings business. For the industrial coatings business, acquisition-related sales and higher selling prices were more than offset by lower sales volumes. The U.S. and Canada remained PPG’s largest region, representing approximately 41% of 2020 net sales.

European economic activity was weak in 2020. Industrial production and manufacturing rates in the region were lower than 2019. The region was impacted by continuing uncertainty over the United Kingdom’s exit from the European Union and overall contracting demand in most end-use markets that PPG supplies due to the pandemic. Regional demand continued to be mixed by country and end-use. Demand for PPG products was impacted by a decline in demand for automotive refinish, automotive OEM, aerospace, and general industrial coatings products. Demand for architectural and packaging coatings products was better, led by higher coatings sales for architectural DIY and the packaged food segment. PPG’s architectural coatings - EMEA business’ organic sales were higher by a mid-single-digit percentage driven by higher selling prices and higher sales volumes.

EMEA represented approximately 31% of PPG’s 2020 net sales, similar to prior year levels. Regional coatings volumes remain approximately 20% below 2008 pre-recession levels. Net sales, excluding the impact of foreign currency translation, decreased in 2020 compared to 2019 as higher selling prices and acquisition-related sales were more than offset by lower sales volumes. Foreign currencies were relatively flat compared to 2019.

The emerging regions of Asia Pacific and Latin America represented 28% of PPG’s 2020 net sales in aggregate, similar to the prior year.

Asia Pacific remained the largest emerging region, with net sales of approximately $2.4 billion, led by China, which remained PPG’s second largest country by revenue. Overall net sales were lower in 2020 compared to 2019 driven by lower demand of coatings products due to the pandemic. First quarter sales in China were sharply lower due to a broad shut-down caused by the pandemic. As the year progressed, demand in China was the best of any major region and was higher than the levels seen in 2019 in each of the last three quarters of 2020. In China, the automotive OEM coatings business had retail sales higher than 2019 in each of the last 9 months of 2020. PPG’s organic sales in the Asia Pacific region were lower by about 5% as higher year-over-year sales in China were more than offset by lower sales in India and Southeast Asia due to the pandemic.

Overall, demand in Latin America declined year-over-year driven by lower automotive industry builds and overall softer economic conditions in most countries, including Mexico. In Mexico, the PPG-Comex business added a net of approximately 80 new concessionaire locations. The overall region’s performance was supported by strong growth in the packaging coatings business. Foreign currency translation was volatile and finished about 10% unfavorable compared to 2019, principally driven by weaker currencies, including the Mexican peso and Brazilian real.

We anticipate PPG’s U.S. and Canada regional growth will be led by automotive OEM and general industrial coatings as industrial production levels are expected to be higher than 2020. Automotive OEM builds are expected to be approximately a mid-teen percentage higher compared to 2020. We expect positive growth in housing and continued weakness in commercial construction and maintenance. Architectural DIY demand is expected to remain at elevated levels in the first half of 2021. Demand for aerospace and automotive refinish coatings is expected to remain subdued during the first half of 2021.

We expect industry demand trends in 2021 in Europe to improve from those experienced in 2020 with continuing improvement in profitability due to margin improvement. Regional growth is expected to remain mixed by sub-region and country. Favorable end-use trends are expected to continue in automotive OEM and general industrial coatings. Overall demand is expected to be higher but be mixed by country in the architectural coatings business. We continue to monitor the economic environment in the U.K., as its exit from the European Union progresses and impacts consumer sentiment and coatings demand. Demand for aerospace and automotive refinish coatings is expected to remain soft.

In Asia Pacific, we expect continued improvement in industrial production growth in China, Southeast Asia and India as the year progresses. In China, we foresee continued above global average growth with heightened risk as the Chinese economy continues to shift and rely more on domestic consumption. Industrial production in India is expected to be sharply higher in 2021 from a very low level in 2020 due to the pandemic. The recovery in marine coatings new-build demand is expected to remain subdued.

In Latin America, we anticipate slightly better economic conditions in Mexico, most of Central America and South America compared to 2020. We expect continued strong demand for the PPG-Comex architectural coatings business.

In June 2020, PPG initiated a $176 million pretax global restructuring program. The program addresses weakened global economic conditions stemming from the COVID-19 pandemic and related pace of recovery in a few end-use markets along with further opportunities to optimize supply chain and functional costs. The plan includes a voluntary separation program that was offered in the U.S. and Canada. PPG recognized approximately $45 million of savings from this program in 2020. The majority of these restructuring actions are expected to be completed by the end of 2021.

We made significant progress on the global restructuring programs that were announced in May 2018 and June 2019. The Company achieved approximately $70 million of savings in 2020 relating to these programs. The majority of these restructuring actions are expected to be completed by the end of the first quarter 2021 with the remainder of the actions expected to be completed by 2022. Aggregate restructuring savings related to the 2020, 2019 and 2018 programs was approximately $115 million in 2020.

We will continue to aggressively manage the Company’s cost structure to ensure alignment with the overall demand environment and will make adjustments as required to remain cost competitive in the marketplace. Aggregate restructuring savings are expected to be at least $120 million in 2021.

Raw materials are a significant input cost to the process of manufacturing coatings. 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 aggregate, average raw material costs were modestly lower in 2020 versus 2019 due to variety of reasons, including softer industry demand and lower crude oil prices. PPG currently expects overall raw material prices to increase by a low-single-digit percentage

in the first quarter 2021. Cost inflation is expected in several other areas including wage, benefit, and logistics costs in 2021. PPG expects certain regional logistics equipment shortages in 2021, impacting the Company’s supply chain and distribution channels.

In 2020, we achieved selling price improvement, primarily in the Performance Coatings reportable business segment, reflecting the Company’s efforts to offset various inflationary pressures. Further benefits from selling price actions are necessary in 2021 to recover operating margins, reflecting the value of our products. The Company will carefully monitor all costs during 2021 and assess the need for additional selling price increases.

In 2020, we experienced unfavorable foreign currency translation throughout the year. Based on mid-January 2021 exchange rates, the Company expects favorable year-over-year foreign currency translation in 2021. The foreign currency environment continues to be volatile, and the impact on 2021 net sales and income before income taxes could differ from this expectation. 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 2021 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.

Over the past five years, the Company used over $3.9 billion of cash to repurchase approximately 35 million shares of PPG stock. No shares were repurchased in 2020. The Company ended the year with approximately $1.5 billion remaining under its current share repurchase authorization. During 2020, the Company deployed nearly $1.2 billion for acquisitions, approximately $300 million for capital expenditures and approximately $495 million for dividends. PPG increased its per-share dividend in September 2020, marking the 49th annual per share dividend increase and the 121st consecutive year of annual dividend payments.

PPG ended 2020 with approximately $1.9 billion in cash and short-term investments. The Company expects continued strong cash generation in 2021.

Also, beginning in 2021, the Company will report adjusted earnings per diluted share excluding amortization expense relating to intangible assets from completed acquisitions.

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

Note 1, “Summary of Significant Accounting Policies” under Item 8 of this Form 10-K describes accounting pronouncements that have been promulgated prior to December 31, 2020 but are not effective until a future date.

PPG is involved in a number of lawsuits and claims, both actual and potential, including some that it has asserted against others, in which substantial monetary damages are sought. See Item 3. “Legal Proceedings” and Note 15, “Commitments and Contingent Liabilities” under 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.

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.

As also discussed in Note 15, PPG has significant reserves for environmental contingencies. Please refer to the Environmental Matters section of Note 15 for details of these reserves. A significant portion of our reserves for environmental contingencies relate to ongoing remediation at PPG's former chromium manufacturing plant in Jersey City, N.J. and associated sites ("New Jersey Chrome"). There are multiple, future events yet to occur, including further remedy selection and design, remedy implementation and execution and applicable governmental agency or community organization approvals. Considerable uncertainty exists regarding the timing of these future events for the New Jersey

Chrome sites. Further resolution of these events is expected to occur over the next several years. As these events occur and to the extent that the cost estimates of the environmental remediation remedies change, the existing reserve for this environmental remediation matter will continue to be adjusted.

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.

The $45 million increase in Cash from operating activities - continuing operations was primarily due to favorable changes in working capital, excluding the impact of business acquisitions.

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. See Note 4, “Working Capital Detail” under 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). 

We expect cash outlays for environmental remediation activities in 2021 to be between $80 million and $100 million.

Contributions to PPG’s non-U.S. defined benefit pension plans in 2020 were required by local funding requirements. PPG expects to make contributions to its defined benefit pension plans in the range of $10 million to $20 million in 2021. PPG may make voluntary contributions to its defined benefit pension plans in 2021 and beyond.

The $438 million increase in cash used for investing activities - continuing operations, was primarily due to higher spending on business acquisitions.

Capital expenditures related to modernization and productivity improvements, expansion of existing businesses and environmental control projects is expected to be approximately $450 million in 2021, reflecting a return to pre-pandemic levels of spending in support of future organic growth opportunities.

A primary focus for the Company in 2021 will continue to be cash deployment focused on shareholder value creation, with a preference for business acquisitions. The near-term cash deployment priority will be to complete the announced acquisitions using a combination of cash on hand and external financing.

The $699 million decrease in cash used for financing activities - continuing operations, was primarily due the issuance of short-term debt in 2020 and lower net purchases of treasury stock year-over-year.

The Company has approximately $1.5 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.

PPG has paid uninterrupted annual dividends since 1899, and 2020 marked the 49th consecutive year of increased annual per-share dividend payments to shareholders. The Company raised its per-share quarterly dividend by 6% to $0.54 per share paid in September 2020.

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" under 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. In March 2020, PPG borrowed $800 million under the Credit Agreement and repaid that amount in full in April 2020. There were no amounts outstanding under the credit agreement as of December 31, 2020 and December 31, 2019.

The Credit Agreement also supports the Company’s commercial paper borrowings which are classified as long-term based on PPG’s intent and ability to refinance these borrowings on a long-term basis. As of December 31, 2020 and 2019, there were $250 million and $100 million of commercial paper borrowings outstanding, respectively.

The Credit Agreement requires the Company to maintain a ratio of Total Indebtedness to Total Capitalization, as defined in 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, 2020, Total Indebtedness to Total Capitalization as defined under the Credit Agreement and the Term Loan was 46%.

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. 

See Note 10, “Borrowings and Lines of Credit” under 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, guarantees and debt covenants.

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 contractual obligations.

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

Management has evaluated the accounting policies used in the preparation of the financial statements and related notes presented under 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, 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” under Item 8 of this Form 10-K.

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. See Note 14, “Employee Benefit Plans” under Item 8 of this Form 10-K for information on these plans and the assumptions used.

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” under Item 8 of this Form 10-K.

We believe that the amounts recorded in the financial statements under 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.

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 Securities and Exchange Commission. 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 expected effects on our business of the COVID-19 pandemic, global economic conditions, increasing price and product competition by our competitors, fluctuations in cost and availability of raw materials, the ability to achieve selling price increases, the ability to recover margins, customer inventory levels, our ability to maintain favorable supplier relationships and arrangements, the timing of and the realization of anticipated cost savings from restructuring and other initiatives, the ability to identify additional cost savings opportunities, difficulties in integrating acquired businesses and achieving expected synergies therefrom, economic and political conditions in the markets we serve, the ability to penetrate existing, developing and emerging foreign and domestic markets, foreign exchange rates and fluctuations in such rates, fluctuations in tax rates, the impact of future legislation, the impact of environmental regulations, unexpected business disruptions, the effectiveness of our internal control over financial reporting, the results of governmental investigations and the unpredictability of existing and possible future litigation. However, it is not possible to predict or identify all such factors.

Consequently, while the list of factors presented here and under Item 1A is considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements.

Consequences of material differences in the results compared with those anticipated in the forward-looking statements could include, among other things, lower sales or income, business disruption, operational problems, financial loss, legal liability to third parties, other factors set forth in Item 1A of 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 is exposed to market risks related to changes in foreign currency exchange rates, interest rates, and was exposed to changes in PPG’s stock price. The Company may enter into derivative financial instrument transactions in order to manage or reduce these market risks. A detailed description of these exposures and the Company’s risk management policies are provided in Note 11, “Financial Instruments, Hedging Activities and Fair Value Measurements” under Item 8 of this Form 10-K.

The following disclosures summarize PPG’s exposure to market risks and information regarding the use of and fair value of derivatives employed to manage its exposure to such risks. Quantitative sensitivity analyses have been provided to reflect how reasonably possible, unfavorable changes in market rates can impact PPG’s consolidated results of operations, cash flows and financial position.

We are responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP, an independent registered public accounting firm, has issued their report, included on pages 31-32 of this Form 10-K, regarding the Company’s internal control over financial reporting.

The accompanying consolidated financial statements include the accounts of PPG Industries, Inc. (“PPG” or the “Company”) and all subsidiaries, both U.S. and non-U.S., that it controls. PPG owns more than 50% of the voting stock of most of the subsidiaries that it controls. For those consolidated subsidiaries in which the Company’s ownership is less than 100%, the outside shareholders’ interests are shown as noncontrolling interests. Investments in companies in which PPG owns 20% to 50% of the voting stock and has the ability to exercise significant influence over operating and financial policies of the investee are accounted for using the equity method of accounting. As a result, PPG’s share of income or losses from such equity affiliates is included in the consolidated statement of income and PPG’s share of these companies’ shareholders’ equity is included in Investments on the consolidated balance sheet. Transactions between PPG and its subsidiaries are eliminated in consolidation.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of income and expenses during the reporting period. Such estimates also include the fair value of assets acquired and liabilities assumed resulting from the allocation of the purchase price related to business combinations consummated. Actual outcomes could differ from those estimates.

Revenue is recognized as performance obligations with the customer are satisfied, at an amount that is determined to be collectible. For the sale of products, this generally occurs at the point in time when control of the Company’s products transfers to the customer based on the agreed upon shipping terms.

Amounts billed to customers for shipping and handling are reported in Net sales in the consolidated statement of income. Shipping and handling costs incurred by the Company for the delivery of goods to customers are included in Cost of sales, exclusive of depreciation and amortization in the consolidated statement of income.

Amounts presented in Selling, general and administrative in the consolidated statement of income are comprised of selling, customer service, distribution and advertising costs, as well as the costs of providing corporate-wide functional support in such areas as finance, law, human resources and planning. Distribution costs pertain to the movement and storage of finished goods inventory at company-owned and leased warehouses and other distribution facilities.

Advertising costs are charged to expense as incurred and totaled $223 million, $283 million and $280 million in 2020, 2019 and 2018, respectively.

Research and development costs, which consist primarily of employee related costs, are charged to expense as incurred.

Legal costs, which primarily include costs associated with acquisition and divestiture transactions, general litigation, environmental regulation compliance, patent and trademark protection and other general corporate purposes, are charged to expense as incurred.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to operating losses and tax credit carryforwards as well as differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in Income tax expense in the consolidated statement of income in the period that includes the enactment date.

A valuation allowance will be provided against deferred tax assets if PPG determines it is more likely than not such assets will not ultimately be realized.

PPG does not recognize a tax benefit unless it concludes that it is more likely than not that the benefit will be sustained on audit by the taxing authority based solely on the technical merits of the associated tax position. If the recognition threshold is met, PPG recognizes a tax benefit measured at the largest amount of the tax benefit that, in PPG’s judgment, is greater than 50 percent likely to be realized. PPG records interest and penalties related to uncertain tax positions in Income tax expense in the consolidated statement of income.

The functional currency of most significant non-U.S. operations is their local currency. Assets and liabilities of those operations are translated into U.S. dollars using year-end exchange rates; income and expenses are translated using the average exchange rates for the reporting period. Unrealized foreign currency translation gains and losses are deferred in Accumulated other comprehensive loss on the consolidated balance sheet.

Cash equivalents are highly liquid investments (valued at cost, which approximates fair value) acquired with an original maturity of three months or less.

Short-term investments are highly liquid, high credit quality investments (valued at cost plus accrued interest) that have stated maturities of greater than three months to less than one year. The purchases and sales of these investments are classified as Investing activities in the consolidated statement of cash flows.

The Company’s investment in marketable equity securities is recorded at fair market value and reported as Other current assets and Investments on the consolidated balance sheet with changes in fair market value recorded in income.

Inventories are stated at the lower of cost or net realizable value. Most U.S. inventories are stated at cost, using the last-in, first-out (“LIFO”) method of accounting, which does not exceed net realizable value. All other inventories are stated at cost, using the first-in, first-out (“FIFO”) method of accounting, which does not exceed net realizable value. PPG determines cost using either average or standard factory costs, which approximate actual costs, excluding certain fixed costs such as depreciation and property taxes. See Note 4, “Working Capital Detail” for further information concerning the Company’s inventory.

The Company recognizes all derivative financial instruments (a “derivative”) as either assets or liabilities at fair value on the consolidated balance sheet. The accounting for changes in the fair value of a derivative depends on the use of the instrument.

For derivative instruments that are designated and qualify as cash flow hedges, the unrealized gains or losses on the derivatives are recorded in the consolidated statement of comprehensive income. Amounts in Accumulated other comprehensive loss on the consolidated balance sheet are reclassified into Income before income taxes in the consolidated statement of income in the same period or periods during which the hedged transactions are recorded in Income before income taxes in the consolidated statement of income.

For derivative instruments that are designated and qualify as fair value hedges, the change in the fair value of the derivatives are reported in Income before income taxes in the consolidated statement of income, offsetting the gain or loss recognized for the change in fair value of the asset, liability, or firm commitment that is being hedged.

For derivatives, debt or other financial instruments that are designated and qualify as net investment hedges, the gains or losses associated with the financial instruments are reported as translation gains or losses in Accumulated other comprehensive loss on the consolidated balance sheet. Gains and losses in Accumulated other comprehensive loss related to hedges of the Company’s net investments in foreign operations are reclassified out of Accumulated other comprehensive loss and recognized in Income before income taxes in the consolidated statement of income upon a substantial liquidation, sale or partial sale of such investments or upon impairment of all or a portion of such investments. The cash flow impact of these instruments are classified as Investing activities in the consolidated statement of cash flows.

Changes in the fair value of derivative instruments not designated as hedges for hedge accounting purposes are recognized in Income before income taxes in the consolidated statement of income in the period of change.

Property, plant and equipment is recorded at cost. Depreciation is computed on a straight-line method based on the estimated useful lives of related assets. Additional depreciation expense is recorded when facilities or equipment are subject to abnormal economic conditions, restructuring actions or obsolescence.

The cost of significant improvements that add to productive capacity or extend the lives of properties are capitalized. Costs for repairs and maintenance are charged to expense as incurred. When a capitalized asset is retired or otherwise disposed of, the original cost and related accumulated depreciation balance are removed from the accounts and any related gain or loss is recorded in Income before income taxes in the consolidated statement of income. The amortization cost of finance lease assets are recorded in Depreciation expense in the consolidated statement of income. Property and other long-lived assets are reviewed for impairment whenever events or circumstances indicate that their carrying amounts may not be recoverable. See Note 5, “Property, Plant and Equipment” for further details.

Goodwill represents the excess of the cost over the fair value of acquired identifiable tangible and intangible assets less liabilities assumed from acquired businesses. Identifiable intangible assets acquired in business combinations are recorded based upon their fair value at the date of acquisition.

PPG is a multinational manufacturer with 10 operating segments (which the Company refers to as “strategic business units”) that are organized based on the Company’s major products lines. These operating segments are also the Company’s reporting units for purposes of testing goodwill for impairment, which is tested at least annually in connection with PPG’s strategic planning process or more frequently if an indication of impairment exists. The Company tests goodwill for impairment by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation is an assessment of factors, including reporting unit specific operating results as well as industry, market and general economic conditions, to determine whether it is more likely than not that the fair values of a reporting unit is less than its carrying amount, including goodwill. The Company may elect to bypass this qualitative assessment for some or all of its reporting units and perform a quantitative test. Quantitative goodwill impairment testing, if deemed necessary, is performed during the fourth quarter of each year by comparing the estimated fair value of an associated reporting unit as of September 30 to its carrying value. Fair value is 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. In 2020, the annual impairment testing review of goodwill did not result in impairment of the Company’s reporting units.

The Company has determined that certain acquired trademarks have indefinite useful lives. The Company tests the carrying value of these trademarks for impairment at least annually, or as needed whenever events and circumstances indicate that their carrying amount may not be recoverable. The annual assessment takes place in the fourth quarter of each year either by completing a qualitative assessment or quantitatively by comparing the estimated fair value of each trademark as of September 30 to its carrying value. Fair value is estimated by using the relief from royalty method (a discounted cash flow methodology). The qualitative assessment includes consideration of factors, including revenue relative to the asset being assessed, the operating results of the related business as well as industry, market and general economic conditions, to determine whether it is more likely than not that the fair value of the asset is less than its carrying amount. In 2020, the annual impairment testing review of indefinite-lived intangibles performed as of September 30, 2020 resulted in the Company recognizing a pretax impairment charge of $38 million. See Note 7, “Goodwill and Other Identifiable Intangible Assets” for further details.

Identifiable intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives (1 to 30 years) and are reviewed for impairment whenever events or circumstances indicate that their carrying amount may not be recoverable.

All trade receivables are reported on the consolidated balance sheet at the outstanding principal adjusted for any allowance for credit losses and any charge offs. The Company provides an allowance for credit losses to reduce receivables to their estimated net realizable value when it is probable that a loss will be incurred. Those estimates are based on historical collection experience, current regional economic and market conditions, the aging of accounts receivable, assessments of current creditworthiness of customers, and forward-looking information. See Note 2, “Allowance for Credit Losses” for further details.

The Company determines if a contract is a lease at the inception of the arrangement. The Company reviews all options to extend, terminate, or purchase its right of use assets at the inception of the lease and accounts for these options when they are reasonably certain of being exercised. Certain real estate leases contain lease and non-lease components, which

are accounted for separately. For certain equipment leases, lease and non-lease components are accounted for as a single lease component.

Leases with an initial term of twelve months or less are not recorded on the consolidated balance sheet. Lease expense for these leases is recognized on a straight-line basis over the lease term.

Variable lease expense is based on contractual arrangements with PPG’s lessors determined based on external indices or other relevant market factors. In addition, PPG’s variable lease expense also includes elements of a contract that do not represent a good or service but for which the lessee is responsible for paying.

Nearly all of PPG’s lease contracts do not provide a readily determinable implicit rate. For these contracts, PPG’s estimated incremental borrowing rate is based on information available at the inception of the lease.

The Company accrues for product warranties at the time the associated products are sold based on historical claims experience. The reserve, pretax charges against income and cash outlays for product warranties were not significant to the consolidated financial statements of the Company for any year presented.

An asset retirement obligation represents a legal obligation associated with the retirement of a tangible long-lived asset that is incurred upon the acquisition, construction, development or normal operation of that long-lived asset. PPG recognizes asset retirement obligations in the period in which they are incurred, if a reasonable estimate of fair value can be made. The asset retirement obligation is subsequently adjusted for changes in fair value. The associated estimated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and depreciated over its useful life. PPG’s asset retirement obligations are primarily associated with the retirement or closure of certain assets used in PPG’s manufacturing process. The accrued asset retirement obligation is recorded in Accounts payable and accrued liabilities and Other liabilities on the consolidated balance sheet and was $21 million as of December 31, 2020 and 2019.

PPG’s only conditional asset retirement obligation relates to the possible future abatement of asbestos contained in certain PPG production facilities. The asbestos in PPG’s production facilities arises from the application of normal and customary building practices in the past when the facilities were constructed. This asbestos is encapsulated in place and, as a result, there is no current legal requirement to abate it. Because there is no requirement to abate, the Company does not have any current plans or an intention to abate and therefore the timing, method and cost of future abatement, if any, are not known. The Company has not recorded an asset retirement obligation associated with asbestos abatement, given the uncertainty concerning the timing of future abatement, if any.

It is PPG’s policy to accrue expenses for environmental contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Reserves for environmental contingencies are exclusive of claims against third parties and are generally not discounted.

The Company classifies assets and liabilities as held for sale (a “disposal group”) when management commits to a plan to sell the disposal group, the sale is probable within one year and the disposal group is available for immediate sale in its present condition. The Company considers various factors, particularly whether actions required to complete the plan indicate it is unlikely that significant changes to the plan will be made or the plan will be withdrawn. Assets held for sale are measured at the lower of carrying value or fair value less costs to sell. Any loss resulting from the measurement is recognized in the period the held-for-sale criteria are met. Conversely, gains are not recognized until the date of the sale. When the disposal group is classified as held for sale, depreciation and amortization ceases and the Company tests the assets for impairment.

Effective January 1, 2020, PPG adopted Accounting Standards Update (“ASU”) No. 2016-13, "Financial Instruments - Credit Losses." This ASU requires an organization to measure all expected credit losses for financial assets, including trade receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable information. Organizations will now use forward-looking information to better estimate their credit losses. PPG adopted this ASU using a modified retrospective approach. Under this method of adoption, PPG determined that there was no cumulative-effect adjustment to beginning Retained earnings on the condensed consolidated balance sheet. Adoption of this standard did not impact PPG’s Income before income taxes and had no impact on the condensed consolidated statement of cash flows. See Note 2, Allowance for Credit Losses“” for further details.

Effective January 1, 2020, PPG adopted ASU No. 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.”

This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). PPG adopted this ASU prospectively. Under this method of adoption, PPG determined there was not a material impact to the condensed consolidated balance sheet, Income before income taxes or the condensed consolidated statement of cash flows.

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform." This ASU provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as the London Interbank Offered Rate ("LIBOR"). The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The amendments in this ASU are effective through December 31, 2022. PPG is currently assessing the potential impacts this ASU may have on its consolidated financial position, results of operations and cash flows.

In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes - Simplifying the Accounting for Income Taxes." This ASU is intended to simplify various aspects related to accounting for income taxes by eliminating certain exceptions within Accounting Standards Codification Topic 740, "Income Taxes" and clarifies certain aspects of the current accounting guidance. The amendments in this ASU are effective for fiscal years beginning after December 15, 2020 and for interim periods therein with early adoption permitted. PPG does not believe this ASU will have a material impact on its consolidated financial position, results of operations or cash flows.

All trade receivables are reported on the condensed consolidated balance sheet at the outstanding principal amount adjusted for any allowance for credit losses and any charge offs. PPG provides an allowance for credit losses to reduce trade receivables to their estimated net realizable value equal to the amount that is expected to be collected. This allowance is estimated based on historical collection experience, current regional economic and market conditions, the aging of accounts receivable, assessments of current creditworthiness of customers, and forward-looking information. The use of forward-looking information is based on certain macroeconomic and microeconomic indicators including, but not limited to, regional business environment risk, political risk, and commercial and financing risks.

PPG reviews its reserves for credit losses on a quarterly basis to ensure its reserves for credit losses reflect regional risk trends as well as current and future global operating conditions.

The following table summarizes the activity for the allowance for credit losses for the year ended December 31, 2020:

In March 2020, PPG recorded estimated future credit losses for trade receivables of $30 million related to the potential financial impacts of the COVID-19 global pandemic. These amounts were estimated based on regional business information, including certain forward-looking information and other considerations. During the third and fourth quarter of 2020, certain customers filed for bankruptcy as a result of the global pandemic and the trade receivables associated with those customers were written off against the previously established reserve. As of December 31, 2020, $22 million remains in the reserve for future global pandemic related matters. PPG will continue to monitor the adequacy of this reserve as new information becomes available.

On January 11, 2021, PPG announced that it reached a definitive agreement to acquire Wörwag, a global manufacturer of coatings for industrial and automotive applications. The company specializes in developing sustainable liquid, powder and film coatings. The transaction is expected to close in the first half of 2021, subject to customary closing conditions.

On January 5, 2021, PPG announced that it reached a definitive agreement to acquire VersaFlex, a manufacturer specializing in polyurea, epoxy and polyurethane coatings for water and waste water infrastructure, flooring, transportation infrastructure, and industrial applications. The transaction is expected to close in the first quarter of 2021, subject to customary closing conditions.

On December 18, 2020, PPG announced that it entered into a definitive agreement to acquire Tikkurila in an all-cash transaction. On February 4, 2021, PPG and Tikkurila entered into an amendment to the previously announced definitive combination agreement. Tikkurila is a leading Nordic producer and distributor of decorative paint and coatings. Under the terms of the amended agreement, PPG has commenced a tender offer to acquire all of the issued and outstanding stock of Tikkurila. The transaction is expected to close in the first half of 2021, subject to customary closing conditions.

On December 23, 2020, PPG completed the acquisition of Ennis-Flint, a global manufacturer of a broad portfolio of pavement marking products, including traffic paint, hot-applied and preformed thermoplastics, raised pavement markers and intelligent transportation systems. PPG funded this transaction using cash on hand. The pro-forma impact on PPG's sales and results of operations, including the pro-forma effect of events that are directly attributable to the acquisition, was not significant. The results of this business since the date of acquisition have been reported within the new traffic solutions business within the Performance Coatings reportable business segment.

On March 2, 2020, PPG completed the acquisition of Alpha Coating Technologies, LLC, a manufacturer of powder coatings for light industrial applications and heat sensitive substrates. The pro-forma impact on PPG's sales and results of operations, including the pro-forma effect of events that are directly attributable to the acquisition, was not significant. The results of this business since the date of acquisition have been reported within the industrial coatings business within the Industrial Coatings reportable business segment.

On January 31, 2020, PPG completed the acquisition of Industria Chimica Reggiana S.p.A, an Italian manufacturer of automotive refinish products. The pro-forma impact on PPG's sales and results of operations, including the pro-forma effect of events that are directly attributable to the acquisition, was not significant. The results of this business since the date of acquisition have been reported within the automotive refinish coatings business within the Performance Coatings reportable business segment.

On October 25, 2019, PPG completed the acquisition of Texstars, LLC, a manufacturer of high-performance transparencies, wingtip lenses and plastic components for aerospace and defense vehicles and a leader in advanced transparent coatings. The pro-forma impact on PPG's sales and results of operations, including the pro-forma effect of events that are directly attributable to the acquisition, was not significant. The results of this business since the date of acquisition have been reported within the aerospace coatings business within the Performance Coatings reportable business segment.

On August 14, 2019, PPG completed the acquisition of Dexmet Corporation, a specialty materials manufacturer. Dexmet Corporation specializes in customized, highly-engineered, expanded and perforated metal foils and polymers used for structural applications. The pro-forma impact on PPG's sales and results of operations, including the pro-forma effect of events that are directly attributable to the acquisition, was not significant. The results of this business since the date of acquisition have been reported within the aerospace coatings business within the Performance Coatings reportable business segment.

On April 16, 2019, PPG completed the acquisition of Hemmelrath, an automotive coatings manufacturer. Hemmelrath is a global manufacturer of coatings for automotive original equipment manufacturers ("OEMs"). The pro-forma impact on PPG's sales and results of operations, including the pro-forma effect of events that are directly attributable to the acquisition, was not significant. The results of this business since the date of acquisition have been reported within the automotive OEM coatings business within the Industrial Coatings reportable business segment.

On March 1, 2019, PPG completed the acquisition of Whitford Worldwide Company ("Whitford"), a global manufacturer that specializes in low-friction and nonstick coatings for industrial applications and consumer products. Whitford operates 10 manufacturing facilities globally. The pro-forma impact on PPG's sales and results of operations, including the pro-forma effect of events that are directly attributable to the acquisition, was not significant. The results of this business since the date of acquisition have been reported within the industrial coatings business within the Industrial Coatings reportable business segment.

In the fourth quarter of 2018, PPG completed the acquisition of SEM Products, Inc., a U.S.-based manufacturer of specialized automotive refinish products (“SEM”). SEM is a leading manufacturer of repair and refinish products used primarily for automotive and other transportation applications. The pro-forma impact on PPG's sales and results of operations, including the pro-forma effect of events that are directly attributable to the acquisition, was not significant. The results of this business since the date of acquisition have been reported within the automotive refinish coatings business within the Performance Coatings reportable business segment.

In January 2018, PPG acquired ProCoatings, a leading architectural paint and coatings wholesaler located in The Netherlands. ProCoatings, established in 2001, distributes a large portfolio of well-known professional paint brands through its network of 27 multi-brand stores. The results of this business since the date of acquisition have been reported within the architectural coatings - Europe Middle East and Africa (“EMEA”) business within the Performance Coatings reportable business segment.

In 2020, 2019, and 2018, the Company completed several smaller business acquisitions. The total consideration paid for these acquisitions, net of cash acquired, debt assumed and other post closing adjustments, was $1 million, $9 million and $108 million, respectively.

In December 2020, PPG committed to a plan to sell certain entities in smaller, non-strategic countries. The planned sale is expected to occur in 2021. As a result, the assets and liabilities of these entities were required to be reclassified as held for sale and an impairment charge of $52 million was recorded in the consolidated statement of income within Impairment charges for the year ended December 31, 2020, representing the recognition in earnings of the cumulative effect of foreign currency exchange losses previously recorded in equity since acquisition and the excess net book value of the net assets over the anticipated sales proceeds less costs to sell these entities. The assets and liabilities of these entities are reported as held for sale in Other current assets and Accounts payable and accrued liabilities, respectively, on the accompanying consolidated balance sheet as of December 31, 2020. The results of these entities are reported within the Performance Coatings reportable business segment.

The major classes of assets and liabilities of these entities included in the PPG consolidated balance sheet at December 31, 2020 were as follows:

In 2017, PPG completed a multi-year strategic shift in the Company's business portfolio, resulting in the exit of all glass operations which consisted of the global fiber glass business, PPG's ownership interest in two Asian fiber glass joint ventures and the flat glass business. The income from discontinued operations related to the former Glass segment for the three years ended December 31, 2020, 2019, and 2018 were as follows: