Financial instruments include cash and cash equivalents, short-term investments, cash held in escrow, marketable equity securities, accounts receivable, company-owned life insurance, accounts payable, short-term and long-term debt instruments, and derivatives. The fair values of these financial instruments approximated their carrying values at March 31, 2023 and December 31, 2022, in the aggregate, except for long-term debt instruments.

The Company has exposure to market risk from changes in foreign currency exchange rates and interest rates. As a result, financial instruments, including derivatives, have been used to hedge a portion of these underlying economic exposures. Certain of these instruments may qualify as fair value, cash flow, and net investment hedges upon meeting the requisite criteria, including effectiveness of offsetting hedged or underlying exposures. Changes in the fair value of derivatives that do not qualify for hedge accounting are recognized in Income before income taxes in the period incurred.

PPG’s policies do not permit speculative use of derivative financial instruments. PPG enters into derivative financial instruments with high credit quality counterparties and diversifies its positions among such counterparties in order to reduce its exposure to credit losses. The Company did not realize a credit loss on derivatives during the three months ended March 31, 2023 and 2022.

All of PPG's outstanding derivative instruments are subject to accelerated settlement in the event of PPG’s failure to meet its debt or payment obligations under the terms of the instruments’ contractual provisions. In addition, if the Company would be acquired and its payment obligations under its derivative instruments’ contractual arrangements are not assumed by the acquirer, or if PPG would enter into bankruptcy, receivership or reorganization proceedings, its outstanding derivative instruments would also be subject to accelerated settlement.

There were no derivative instruments de-designated or discontinued as hedging instruments during the three months ended March 31, 2023 and 2022, and there were no gains or losses deferred in Accumulated other comprehensive loss on the condensed consolidated balance sheet that were reclassified to Income before income taxes in the condensed consolidated statement of income in the three months ended March 31, 2023 and 2022 related to hedges of anticipated transactions that were no longer expected to occur.

The Company uses interest rate swaps from time to time to manage its exposure to changing interest rates. When outstanding, the interest rate swaps are typically designated as fair value hedges of certain outstanding debt obligations of the Company and are recorded at fair value.

PPG has interest rate swaps which converted $375 million and $525 million of fixed rate debt to variable rate debt as of March 31, 2023 and December 31, 2022, respectively. These swaps are designated as fair value hedges and

are carried at fair value. Changes in the fair value of these swaps and changes in the fair value of the related debt are recorded in interest expense in the accompanying condensed consolidated statement of income. The fair value of these interest rate swaps was a liability of $13 million and $20 million at March 31, 2023 and December 31, 2022, respectively.

At times, PPG designates certain foreign currency forward contracts as cash flow hedges of the Company’s exposure to variability in exchange rates on third party transactions denominated in foreign currencies. There were no outstanding cash flow hedges at March 31, 2023 and December 31, 2022.

PPG uses cross currency swaps and foreign currency euro-denominated debt to hedge a significant portion of its net investment in its European operations, as follows:

PPG had U.S. dollar to euro cross currency swap contracts with total notional amounts of $475 million and $775 million as of March 31, 2023 and December 31, 2022, respectively, and designated these contracts as hedges of the Company's net investment in its European operations. During the term of these contracts, PPG will receive payments in U.S. dollars and make payments in euros to the counterparties. As of March 31, 2023 and December 31, 2022, the fair value of the U.S. dollar to euro cross currency swap contracts were net assets of $46 million and $88 million, respectively.

As of both March 31, 2023 and December 31, 2022, PPG had designated €2.5 billion of euro-denominated borrowings as hedges of a portion of its net investment in the Company's European operations. The carrying value of these instruments were $2.7 billion and $2.6 billion as of March 31, 2023 and December 31, 2022, respectively.

PPG uses foreign currency forward contracts to manage certain net transaction exposures that either have not been elected, or do not qualify for hedge accounting; therefore, the change in the fair value of these instruments is recorded in Other income, net in the condensed consolidated statement of income in the period of change. Underlying notional amounts related to these foreign currency forward contracts were $2.0 billion and $1.8 billion at March 31, 2023 and December 31, 2022, respectively. The fair values of these contracts was a net asset of $51 million and $24 million as of March 31, 2023 and December 31, 2022, respectively.

The following table summarizes the amount of gains deferred in Other comprehensive income ("OCI") and the amount and location of gains recognized within the condensed consolidated statement of income related to derivative and debt financial instruments for the three months ended March 31, 2023 and 2022. All amounts are shown on a pretax basis.


	March 31, 2023		March 31, 2022		Caption In Condensed Consolidated Statement of Income
($ in millions)	Loss Deferred in OCI	Gain/(Loss) Recognized	Gain Deferred in OCI	Gain Recognized
Economic
Foreign currency forward contracts	$—	$13	$—	$12	Other income, net
Fair Value
Interest rate swaps	—	(2)	—	3	Interest expense


Total forward contracts and interest rate swaps	$—	$11	$—	$15
Net Investment

Cross currency swaps	($3)	$5	$5	$3	Interest expense
Foreign denominated debt	(33)	—	43	—
Total Net Investment	($36)	$5	$48	$3

The Company follows a fair value measurement hierarchy to measure its assets and liabilities. As of March 31, 2023 and December 31, 2022, the assets and liabilities measured at fair value on a recurring basis were cash equivalents, equity securities and derivatives. In addition, the Company measures its pension plan assets at fair value (see Note 14, "Employee Benefit Plans" under Item 8 in the 2022 Form 10-K for further details). The Company's financial assets and liabilities are measured using inputs from the following three levels:

Level 1 inputs are quoted prices in active markets for identical assets and liabilities that the Company has the ability to access at the measurement date. Level 1 inputs are considered to be the most reliable evidence of fair value as they are based on unadjusted quoted market prices from various financial information service providers and securities exchanges.

Level 2 inputs are directly or indirectly observable prices that are not quoted on active exchanges, which include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means. The fair values of the derivative instruments reflect the instruments' contractual terms, including the period to maturity, and uses observable market-based inputs, including forward curves.

Level 3 inputs are unobservable inputs employed for measuring the fair value of assets or liabilities. The Company did not have any recurring financial assets or liabilities recorded in its condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022 that were measured using Level 3 inputs.


	March 31, 2023			December 31, 2022
($ in millions)	Level 1	Level 2	Level 3	Level 1	Level 2	Level 3
Assets:
Other current assets:
Marketable equity securities	$9	$—	$—	$9	$—	$—
Foreign currency forward contracts (a)	—	53	—	—	27	—
Cross currency swaps (b)	—	—	—	—	39	—

Investments:
Marketable equity securities	$65	$—	$—	$61	$—	$—
Other assets:
Cross currency swaps (b)	$—	$46	$—	$—	$49	$—

Liabilities:
Accounts payable and accrued liabilities:
Foreign currency forward contracts (a)	$—	$2	$—	$—	$3	$—
Interest rate swaps (c)	—	—	—	—	1	—

Other liabilities:
Interest rate swaps (c)	$—	$13	$—	$—	$19	$—


($ in millions)	March 31, 2023 (a)	December 31, 2022 (b)
Long-term debt - carrying value	$7,075	$6,796
Long-term debt - fair value	$6,738	$6,375