PPG Annual Report and 10K 2019

Notes to the Consolidated Financial Statements 2019 PPG ANNUAL REPORT AND FORM 10-K 77 aremet and as services are provided. PPG is entitled to payment as the services are rendered. For the years ended December 31, 2019, 2018 and 2017, service revenue constituted approximately 5% of total revenue. Net sales by segment and region for the years ended December 31, 2019, 2018 and 2017 were as follows: Performance Coatings Industrial Coatings Total Net Sales ($ in millions) 2019 2018 2017 2019 2018 2017 2019 2018 2017 United States and Canada $4,057 $4,062 $4,031 $2,418 $2,423 $2,276 $6,475 $6,485 $6,307 EMEA 2,869 2,936 2,761 1,680 1,742 1,628 4,549 4,678 4,389 Asia Pacific 1,095 1,071 970 1,447 1,547 1,553 2,542 2,618 2,523 Latin America 1,013 1,018 968 567 575 561 1,580 1,593 1,529 Total $9,034 $9,087 $8,730 $6,112 $6,287 $6,018 $15,146 $15,374 $14,748 21. Reportable Business Segment Information Segment Organization and Products PPG is a multinational manufacturer with 9 operating segments (which the Company refers to as “strategic business units”) that are organized based on the Company’s major products lines. The Company’s reportable business segments include the following two segments: Performance Coatings and Industrial Coatings. The operating segments have been aggregated based on economic similarities, the nature of their products, production processes, end-use markets and methods of distribution. ThePerformanceCoatings reportable business segment is comprised of the automotive refinish coatings, aerospace coatings, architectural coatings – Americas and Asia Pacific, architectural coatings - EMEA, and protective and marine coatings operating segments. This reportable business segment primarily supplies a variety of protective and decorative coatings, sealants and finishes along with paint strippers, stains and related chemicals, as well as transparencies and transparent armor. The Industrial Coatings reportable business segment is comprised of the automotive OEM coatings, industrial coatings, packaging coatings, and the specialty coatings andmaterials operating segments. This reportable business segment primarily supplies a variety of protective and decorative coatings and finishes along with adhesives, sealants, metal pretreatment products, optical monomers and coatings, precipitated silicas and other specialty materials. Production facilities and sales for Performance Coatings and Industrial Coatings are global. PPG’s reportable business segments continue to pursue opportunities to further develop their global reach, including efforts in Asia, Eastern Europe and Latin America. Each of the reportable business segments in which PPG is engaged is highly competitive. The diversification of our product lines and the worldwide sales tend to minimize the impact on PPG’s Net sales and Income before income taxes in the consolidated statement of income of changes in demand in a particular industry or in a particular geographic area. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies (See Note 1, “Summary of Significant Accounting Policies”). The Company allocates resources to operating segments and evaluates the performance of operating segments based upon segment income, which is income before interest expense – net, income taxes, and noncontrolling interests and excludes certain charges which are considered to be unusual or non- recurring. The Company also evaluates performance of operating segments based on working capital reduction, margin growth, and sales volume growth. Legacy items include current costs related to former operations of the Company not classified as discontinued operations at the time of the disposal, including pension and other postretirement benefit costs, certain charges for legal matters and certain environmental remediation costs, and certain other charges which are not associated with PPG’s current business portfolio. These legacy costs are excluded from the segment income that is used to evaluate the performance of the operating segments. Corporate unallocated costs include the costs of corporate staff functions not directly associated with the operating segments, certain legal cases, net of related insurance recoveries and the cost of certain insurance and stock-based compensation programs. The service cost component of net periodic pension expense related to current employees of each reportable business segment is allocated to that reportable business segment and the remaining portion of net periodic pension expense is included in the Corporate unallocated costs. Product movement between PerformanceCoatings and Industrial Coatings is limited, is accounted for as an inventory transfer, and is recorded at cost plus a mark-up, the impact of which is not significant to the net sales or segment income of the reportable business segments.

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