INDUSTRIAL COATINGS

(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, including a focus on sustainability, and leverage core technology platforms to develop products forto address 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(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 areinclude resins, reactants, solvents, titanium dioxide, 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.emulsions. Raw materials include both organic, primarily petroleum-derived, materials and inorganic materials, including titanium dioxide. These rawmaterials. 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 continuecontinues 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. OurIn support of our decarbonization efforts, we are increasing the amount of renewable energy secured for our operating facilities and increasingly evaluating alternative raw materials includethat offer sustainable benefits and support the circular economy, including recycled, bio-based, materials as partbio-circular feedstocks and biomass balance products. Prices for certain of a product renewal strategy. While prices for certainour raw materials typically fluctuate with energy prices and global supply and demand changes, such fluctuations arechanges; however, pricing may be impacted by the fact that the manufacture of our raw materials is several steps downstream from crude oil, and natural gas, inputs.and other key feedstocks.

Through effective management of raw materials, energy and logistics, the Company aims to maintain a competitive cost position and ensure ongoing security of supply. Security of a sufficient supply of high-quality raw materials is important to PPG’s continued success as it allows the Company to increase production as necessary to keep pace with customer demand. In 2022, we continued to experience shortages of certain raw materials, which negatively impacted our ability to fully meet some of our customers’ demand. We are continuingcontinue to focus on improving our aggressive sourcing initiatives to broadencompetitive cost position and expanding our supply of high qualityhigh-quality raw materials. Thesematerials, including strategic initiatives include qualifyingto qualify multiple sources of supply, both local and international, including suppliers from Asia and other lower cost regions of the world, adding on-site resin production at certain manufacturing locations and reducing the amount of titanium dioxide used in our product formulations.

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 20192022 versus 2018,2021, we experienced a deflationary movementincreases in our operating costs particularlyof more than $1 billion, including significant raw material and energy cost inflation. The increases in the second half of 2019, driven by a general slowdown in industrial demand affecting the global supply and demand balance in several of our key purchasing categories. This was in addition to pricing decreases in most of our key feedstocks throughout 2019. In contrast, average raw material costs rosewere primarily driven by a mid-single-digit percentagehigher supplier feedstock costs, higher energy prices, labor availability challenges, transportation shortages and higher ocean freight costs. Also in 2018 versus 2017 due to the rise2022, we experienced increases in feedstock prices, acuteother logistics costs, driven by supply chain disruptions, logistical challenges, labor shortages in key raw materials and the impactmanufacturing interruptions at both our factories and those of Chinese environmental regulations.our suppliers and customers.

Given the continuing volatility in certain energy-based input costs, particularlyuncertainty associated with the volatility in oil and oil-based derivatives, and foreign currencies,various factors that drive raw material prices, we are not able to predict with certainty the 20202023 full-year impact of changes in raw material pricingcosts versus 2022; however, we expect the negative impact of raw material inflation to lessen as 2023 progresses.

versus 2019. Further, given the distribution nature of manyOur commitment to sustainability extends to our suppliers as an extension of our businesses, logisticsinternal focus on sustainability. The PPG Global Supplier Code of Conduct clarifies our global expectations in the areas of business integrity, labor practices, associate health and distribution costs are sizable,safety, and environmental management. Our Supplier Sustainability Policy builds upon our Global Supplier Code of Conduct by establishing expectations for sustainability within our supply chain. This policy reinforces our expectations that our suppliers, as are wagewell as their subcontractors, will comply fully with applicable laws and benefit changes. For 2019 versus 2018, we experiencedadhere to internationally recognized environmental, social and corporate-governance standards.

In both 2022 and 2021, PPG earned a slight decrease inGold rating from EcoVadis™, a trusted business sustainability ratings platform. EcoVadis experts evaluate company performance on 21 factors related to environment, labor and human rights, ethics, and sustainable procurement. The rating methodology is based on international sustainability standards and initiatives, such as the Global Reporting Initiative (GRI) Standards, United Nations Global Compact and ISO 26000 standard (social responsibility). Maintaining a Gold rating from EcoVadis underscores PPG’s ongoing commitment to corporate social responsibility and our logistics costs as a percentage of sales driven by operational efficiency improvements and through sourcing efforts to take advantage of the reduction in industry surface transportation shipping rates due to an improvement in the availability of transportation assets. We expect these costs to remain steady or be slightly lower through 2020 given the continuing efforts by PPG to improvemanage our global operational efficiencies.economic, social and environmental impact.

PPG has a significant investment in non-U.S. operations. This broad geographic footprint serves to lessen the significance to us of economic impacts occurring in any one region on our total Net sales and Income before income taxes inof the consolidated statement of income.world. As a result of our expansion outside the U.S.,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 2019,2022, unfavorable foreign currency translation decreased Net sales by approximately $400$775 million and Income before income taxes by approximately $50$85 million.

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 AmericaAmerican 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 20192022 was approximately 47,600.52,000, of which approximately 15,600 were in the United States and approximately 36,400 were elsewhere in the world. 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 2019.2022. 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.

PPG is committed to operating in a sustainable manner and to helping our customers meet their sustainability goals. Our sustainability efforts are ledgoverned by the TechnologySustainability and EnvironmentInnovation Committee of our Board of DirectorsDirectors. At the management level, day-to-day implementation of our environmental, social and governance (“ESG”) initiatives is led by our Vice President, Global Sustainability, who is responsible for coordinating PPG’s ESG and sustainability programs and for communicating our ESG progress with our customers, shareholders and other stakeholders. The Vice President, Global Sustainability works with PPG’s Sustainability Committee, which is compriseda committee of membersmanagement consisting of PPG’s senior management team. The Sustainability Committee establishescorporate executives, to establish and monitor our sustainability goals, policies, programs and procedures and goals to addressthat incorporate sustainability ininto our business practices, including resource management, climate change impacts, innovation, community engagement, communications, purchasing,procurement, 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 33% in 2019 from 32% in 2018. We are marketing an ever-growing variety of products and services that protect the environment and 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 processprocesses and low cure capabilities that savessave energy and reducesreduce water usage;usage at customer manufacturing sites; sustainable,

The Company’s commitmentPPG is committed to using resources efficiently and driving sustainability continues to yield tangible results. In 2019, we again made significant progressthroughout our entire value chain, including continued focus on reducing our energy intensity, greenhouse gas emissions, intensitywater withdrawal and waste intensity.total energy use. More information about PPG’s sustainability values, efforts, goals and data and our community and employee engagement programs can be found in our SustainabilityESG Report and on our sustainability websitelocated at http://sustainability.ppg.com and on the CDP’s website at www.cdp.net.sustainability.ppg.com.

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 itwe 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 $304$217 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.