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 December 31, 2021 and 2020, 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 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-year period ended December 31, 2021.

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.

In 2021 and 2020, there were no derivative instruments de-designated or discontinued as a hedging instrument. There were no gains or losses deferred in Accumulated other comprehensive loss on the consolidated balance sheet that were reclassified to Income before income taxes in the consolidated statement of income during the three-year period ended December 31, 2021 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.

In February 2018, PPG entered into interest rate swaps which converted $525 million of fixed rate debt to variable rate debt. The 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 consolidated statement of income. The fair value of these interest rate swaps was an asset of $36 million and $67 million at December 31, 2021 and 2020, 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 December 31, 2021 and December 31, 2020, respectively.

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:

As of December 31, 2021 and December 31, 2020, PPG had U.S. dollar to euro cross currency swap contracts with total notional amounts of $775 million and $875 million, 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 payment in U.S. dollars and make payments in euros to the counterparties. As of December 31, 2021 and 2020, the fair value of these contracts was a net asset of $50 million and a net liability of $8 million, respectively.

At December 31, 2021 and 2020, PPG had designated €1.4 billion and €2.0 billion, respectively, 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 at December 31, 2021 and 2020 was $1.6 billion and $2.4 billion, respectively.

There were no foreign currency forward contracts designated as net investment hedges used or outstanding as of and for the periods ended December 31, 2021, 2020 and 2019.

PPG uses foreign currency forward contracts to manage net transaction exposures that do not qualify for hedge accounting; therefore, the change in the fair value of these instruments is recorded in Other charges in the consolidated statement of income in the period of change. Underlying notional amounts related to these foreign currency forward contracts were $1.9 billion and $1.4 billion at December 31, 2021 and 2020, respectively. As of December 31, 2021 and 2020, the fair values of these contracts were net assets of $24 million and $2 million, respectively.

As of December 31, 2021 and 2020, the Company had accumulated pretax unrealized translation gains and losses in Accumulated other comprehensive loss on the consolidated balance sheet related to the euro-denominated borrowings, foreign currency forward contracts, and the cross currency swaps of $204 million and $22 million, respectively.

The following table summarizes the location within the consolidated financial statements and amount of gains/(losses) related to derivative and debt financial instruments for the years ended December 31, 2021, 2020 and 2019. All dollar amounts are shown on a pretax basis.


	2021		2020		2019		Caption in Consolidated Statement of Income
($ in millions)	Gain Deferred in AOCL	Gain Recognized	Loss Deferred in AOCL	Gain Recognized	Gain Deferred in AOCL	Gain/(Loss) Recognized
Fair Value
Interest rate swaps		$15		$12		$3	Interest expense
Total Fair Value		$15		$12		$3
Cash Flow
Foreign currency forward contracts	$—	$—	$—	$—	$2	($3)	Other charges and Cost of sales
Total Cash Flow	$—	$—	$—	$—	$2	($3)
Net Investment
Cross currency swaps	$53	$13	($57)	$16	$13	$18	Interest expense
Foreign denominated debt	173	—	(200)	—	61	—
Total Net Investment	$226	$13	($257)	$16	$74	$18
Economic
Foreign currency forward contracts		$23		$30		$55	Other charges

The Company follows a fair value measurement hierarchy to measure its assets and liabilities. As of December 31, 2021 and 2020, respectively, 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 13, “Employee Benefit Plans” 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 does not have any recurring financial assets or liabilities that are recorded in its consolidated balance sheets as of December 31, 2021 and 2020 that are classified as Level 3 inputs.


	December 31, 2021			December 31, 2020
($ in millions)	Level 1	Level 2	Level 3	Level 1	Level 2	Level 3
Assets:
Other current assets:
Marketable equity securities	$6	$—	$—	$6	$—	$—
Foreign currency forward contracts(a)	—	28	—	—	8	—
Other assets:
Cross currency swaps(b)	$—	$50	$—	$—	$13	$—
Interest rate swaps(c)	—	36	—	—	67	—
Investments:
Marketable equity securities	$98	$—	$—	$97	$—	$—
Liabilities:
Accounts payable and accrued liabilities:
Foreign currency forward contracts(a)	$—	$4	$—	$—	$6	$—
Cross currency swaps(b)	—	—	—	—	8	—

Other liabilities:
Cross currency swap(b)	$—	$—	$—	$—	$13	$—


($ in millions)	December 31, 2021 (a)	December 31, 2020 (b)
Long-term debt - carrying value	$6,565	$5,334
Long-term debt - fair value	$6,958	$5,913

The fair values of the debt instruments were based on discounted cash flows and interest rates then currently available to the Company for instruments of the same remaining maturities and were measured using level 2 inputs.