Good afternoon and welcome to the PPG Industries’ Fourth Quarter 2016 Earnings Conference Call. My name is Rocco and I will be your conference specialist today. [Operator Instructions] Please also note today’s event is being recorded. I would now like to turn the conference over to Mr. Vince Morales, Vice President, Finance. Please go ahead, sir.

Thank you, Rocco and good afternoon everyone. Once again, thanks for joining PPG’s fourth quarter and full year 2016 financial teleconference. Joining me today from PPG is Michael McGarry, Chairman and Chief Executive Officer and Frank Sklarsky, Executive Vice President and Chief Financial Officer. One item of note is Scott Minder, our Director, Investor Relations, is not able to join the call today due to a death in the family. Our thoughts and prayers go out to Scott and his family during this difficult time. Returning to today’s call, our remarks today relate to the financial information we released this morning, Thursday, January 19, 2016. I will remind everyone that we have posted detailed commentary and accompanying presentation slides on our Investor Center at www.ppg.com. The slides are also available on the webcast site for this call and provide additional supporting information for the opening comments Michael will make momentarily. Following Michael’s perspective on the company’s results for the quarter and full year and a brief financial assumptions update from Frank, we will move to Q&A. Both our prepared commentary and discussion and Q&A during the call may contain forward-looking statements reflecting the company’s current view of future events and their potential effect on PPG’s operating and financial performance. These statements may involve uncertainties and risks, which may cause actual results to differ. The company is under no obligation to provide subsequent updates to these forward-looking statements. Today’s presentation also contains certain non-GAAP financial measures. The company has provided in the appendix of the presentation materials reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. For additional information, please refer to the company’s filings with the SEC. Now, let me turn the call over to PPG’s Chairman and CEO, Michael McGarry.

Thank you, Vince. And before we start with my prepared remarks, I would like to take a minute to recognize the announcement today that we made that Frank Sklarsky will be retiring on March 1. Frank joined us 4 years ago and came to us with a very diverse background, serving as CFO for several companies in different industries. Frank has applied that past experience since he has arrived and has been truly a great thought leader, change agent and steady hand that has guided us through financially very strategic actions. Both internally and externally, including with our shareholders, Frank has brought a tremendous amount of skill and energy to the job. Frank, thank you for your many contributions to PPG and congratulations on your well-deserved retirement. I also want to congratulate Vince on his announcement appointing him as CFO, March 1. Vince has been an integral part of the PPG family for more than 30 years, served in a variety of internal and external facing financial roles. Over that time, he has proven to be a broad thinker, leader and valuable contributor to the executive team as we transform the company. His deep knowledge of PPG and our businesses, the coatings and chemical industries and the capital markets will serve him well in the new role. So once again, congratulations to both of you. And so now I want to talk a little bit about our fourth quarter performance. Today, we reported fourth quarter and full year 2016 results. For the fourth quarter, our net sales were $3.5 billion and our adjusted earnings per diluted share from continuing operations were $1.19. This represents an EPS growth rate of 3% for the quarter and we achieved an EPS growth rate of 7% for the year. While these figures fall short…

Thank you, Michael. Thanks for your kind words and good afternoon, everyone. I am going to cover several items that will assist in modeling PPG’s 2017 sales and earnings. We have included in today’s presentation materials a summary of these financial assumptions on Slide #12. Before we get to the discussion of 2017, however let me briefly cover one housekeeping item and provide you with our total 2016 sales and adjusted EPS figures from continuing operations for each quarter in 2016. These figures have all been adjusted to exclude the flat glass business, which is now being presented as discontinued operations. These have previously been reported in our SEC filings or earning reports, but I quickly want to summarize them for you. For the first quarter of 2016, net sales were $3.544 billion and adjusted earnings per share from continuing operations was $1.27. For the second quarter, sales were $3.921 billion, with EPS at $1.78. For Q3, net sales were $3.789 billion, with EPS at $1.56 and Q4 as you know, was $3.497 billion, with EPS at $1.19 for a total year of $14.751 billion and earnings per share of $5.82. Please note that the EPS of $5.82 for 2016 compares to $5.43 for 2015 on a comparable basis, and as Michael pointed out, that represents an increase of $0.39 or 7% year-over-year. Turning now to 2017, the first item relates to the impact from the MetoKote and Univer acquisitions that we completed in 2016 and the full year impact of the DEUTEK acquisition that we finalized in January of 2017. These acquisitions are expected to achieve full year sales of about $270 million in 2017. Since we realized about $90 million in sales in 2016, we expect an incremental $180 million in sales from these three acquisitions in 2017.…

Absolutely. [Operator Instructions] Today’s first question comes from David Begleiter of Deutsche Bank. Please go ahead.

Thank you. Good afternoon. Mike, just on these targeted selling price increases, can you discuss where you are getting them or targeting them, what regions, what product lines? And what portion of the portfolio you think can you capture price over the next 6 months?

So David, we have announced price increases in a number of regions. So, just Canada, U.S., Mexico, Brazil, Central America, UK, Ireland, the Benelux as well as select countries in Central America or Central Europe, excuse me. So we have been aggressive in doing that. As you know, historically, we have always told people that we work with our customers on a proactive basis. We expect that as they start to see the price increases coming through, they can expect us to come and talk to them. I think they can see it coming now and so we are in discussions with a number of our customers.

And Mike, just on gross margins, how would you expect gross margins to trend throughout the year? Can you see some gross margin expansion by Q3, Q4 do you think?

Well, I think gross margins are – you could see that we went down a little bit in industrial. I’m sure somebody will ask a question about that. And then raw materials will have some pressure. If you think about where we were in the first quarter last year with oil at $35, now we are at all oil at, let’s call it, $55 to round it up. So, you can expect that even though sequentially, raw materials are going to be rather flattish from fourth quarter to first quarter on a year-over-year basis, raw materials are up. So, I would say margins are going to be challenged in the beginning, but we have our restructuring program we announced and that will certainly provide us some benefit in the second half of the year.

Thank you very much.

And our next question today comes from Frank Mitsch of Wells Fargo. Please go ahead.

Hey, good afternoon gentlemen and Frank, congrats on your pending retirement. I will never forget your first PPG conference call when Chuck had laryngitis and you took over like a champ during that call. So certainly big shoes for Vince to fill, and of course, Vince, congrats. Looking forward to working with you in your new role. And so, Michael, I know that organic volume growth is an important metric and has become a more important metric for you and you have got two quarters now in a row of 1.5% organic volume growth. What should we be thinking you can do in the early part of ‘17 here in terms of volume and perhaps for the year as a whole?

Yes, Frank, clearly, we are still not happy with – it maybe our best quarter yet call it slightly under 2% for our coatings portfolio. So we have told people that we expect to be GDP and when we are performing at a high performance, we would be GDP plus. So you probably saw in the corporate line that corporate costs were down. That was partly driven by us not hitting our volume goals. So, you could expect to see us continue to push organic growth as a key lever for us in 2017 and I think we will continue to get better as the year goes by.

During your commentary, you mentioned – you gave the phrase of improving momentum in terms of economic activity, so that would almost imply that we are going to start seeing that 2% plus type organic volume growth sooner rather than later. Is that not the way for us to think about that?

Frank, this is Vince. If you look at our coatings volumes as Michael mentioned, they were actually higher than our total company volumes. Coatings volumes are 1.7%, 1.8%. That’s our best mark of the year, and that’s part of the reason why we feel there is some improved momentum. We did see a recovery in volumes in Europe as well. So those are pieces to the puzzle as to why we are hoping and continuing to see improvement as we go into ‘17.

Thank you.

Our next question today comes from Kevin McCarthy of Vertical Research Partners. Please go ahead.

Yes, good afternoon gentlemen. So, you announced a capital deployment program of $2.5 billion to $3.5 billion over the next 2 years. I was wondering if you could elaborate on the thought process behind establishing the bookends of the range, and Michael, I welcome any thoughts that you might have on the mix of likely repurchases versus what you are seeing in the M&A pipeline maybe not over the next 2 years, but perhaps over the next couple of quarters? Thank you.

Kevin, I will start out and then turn over to Michael. So the bookends, if you look at the center point, there is $2.5 billion to $3.5 billion. You think we are at the end of the year at $1.9 billion in cash and generate over $1 billion each in 2017 and 2018. That would still leave us a reasonable amount of cash on the balance sheet at any given time through the seasonal quarters. And of course in the recent past, we have been under $1 billion in cash. So what we want to do is deploy cash as we have it either on acquisitions, which would be our preference or share repurchases. That will depend on the pipeline in any given quarter, but returning that cash toward value creating activities, but that really relates to the center point. The variation around the mean, the $2.5 billion to the $3.5 billion really will depend upon business conditions and the amount of cash we have and the timing of any acquisitions that we might have over the period. And of course, always as before, we can always adjust that range as we did in the last program, where we started at one range and ended up at the top end of a higher range that we communicated later on and that was based on the fact that we had the affordability and the net cash to do so.

So Kevin, I will take the second half of the question, which is how do we think that will – mix will be. Right now, I would describe our acquisition pipeline as similar to what we have seen in the past. So we did slightly under $400 million the last couple of years in acquisitions. Obviously, the prices of acquisitions have gone up. We have adjusted our thinking on our own whack and those returns. At the end of the day though, we do see a lot of people think we see them paying exceptionally high prices for acquisitions. So we are going to continue to be disciplined and I would expect to see a similar type relationship between acquisitions and buying back shares.

Thanks. I appreciate the color.

And our next question comes from Ghansham Panjabi of Baird. Please go ahead.

Hi guys, how are you? Congrats Vince and Frank as well. I guess first off, on industrial coatings and the significant growth in auto OEM growth, did you see any change in pricing for that particular end market, one of your peers has been pointing towards seeing some pricing givebacks with the larger auto OEM customers, curious on what you are seeing in that market, too?

Well, I think the way I would describe that Ghansham is that we have always said our large, global, sophisticated customers typically kind of ply more price pressure than our businesses that go through distribution. And you saw some price degradation across the company. So you could probably make a pretty good guess of where that would be. What I would tell you though, is we have already started talking to all our customers about raw materials. So this is the early innings of that. I would tell you that overall though, they are paying for technology. So when you think about the industry, we have been growing at a faster rate than the industry in three of the four regions. And most of that has to do with technology, where we have captured additional share due to our Compact Process as well as bringing better productivity in their own OEM shops. So I think overall, our growth has been pretty much driven by meeting or exceeding our customer requirements.

Okay, that’s helpful. And then just Michael, in terms of your view on the macro trend line in Europe, the volume improvement in 4Q versus what you saw in 3Q, was that just sort of a catch-up from 3Q being sort of sub-par or do you sense any shift in the macro as you head into 2017 in that region?

Well, it’s such a choppy environment over there in Europe. We have a number of countries, I mean you take UK, Ireland, I mean they have just consistently performed at a very high level. Germany doing pretty well. The laggards – I would say Southern Europe is also improving. So five quarters out of the last six quarters, we have had positive growth in Europe. And I would anticipate that we would have positive growth, but uneven in 2017. What also is in that number that has held it back, of course has been Middle East. Middle East is an important market for us and that market has certainly been under a lot of pressure as well as Africa. So Continental Europe, I am constructive on it. I think it is improving. And of course, from the automotive builds, I would say that we are probably in the sixth or seventh inning. We have a long way to go. They only made 13 million cars in Western Europe and we can see 16 million or 17 million cars easily, so more growth there to come.

Okay. Thanks so much.

By the way, I misspoke as 14 million in Europe, builds.

And our next question comes from Dmitry Silversteyn of Longbow Research. Please go ahead.

Good afternoon, I should say. You mentioned a little – previously the sort of the expectations of price increases in your raw material costs and your ability to get out of them and get this pricing over the course of months or quarters, if you look at your 2017 guidance, how much of a raw material inflation have you sort of baked in and is it more weighted towards the second half of the year or do you expect inflation to happen in the first half of the year and pricing to sort of come into effect and start offsetting that in the second half of the year?

Dmitry, this is Vince. If you look at our 2017 year, a little bit of history here. If you look at the coatings industry historically, we typically see inflation. The industry and PPG’s work to get price in place, there is typically a 6-month to let’s call it 9-month lag between the earnest inflation and the price being adopted. So we are right in the let’s call it the second, third month of that window. So we would expect additional pricing to come from our customers over the course of the back half of the year. We are seeing, as Frank mentioned and Michael mentioned, we are seeing a little more inflation in the beginning of the year really just because last year’s first and second quarter were lower. We saw some step up in the back half of 2016. So we are anniversarying some inflation. So a little inflation in the first half of the year, offset by pricing in the second half, we expect that to neutralize the effect. And if not, we will take additional cost actions.

Got it. And as my follow-up, you have talked about and we have seen marine being a bad guy for you for going on 3 years now, are we getting close to the bottom on that business and/or maybe anniversarying some of the more tough comps and hopefully, seeing a little bit better results in performance coatings overall, has that business stabilized, is that a 2017 or 2018 type of outlook?

Okay. So let’s think about it this way, Dmitry. We typically paint a ship 9 months to 15 months after the order is taken. This year, orders in Korea are down 85% from the peak, and across Asia they are down 60% from the peak. So there is still more downward pressure in that market, but I don’t think orders are going to get worse. So I think from an order standpoint, it’s probably nearing the bottom. Now, the good news is we are aggressively managing our costs. So we can see as the order book thins, that we are taking aggressive action in that area and that’s part of the reason why you saw the fourth quarter announcement about restructuring. That was one of the businesses that was significantly impacted by that.

Got it, okay. So it sounds like another year at least. Thank you very much.

You’re welcome.

And our next question comes from Jeff Zekauskas of JPMorgan. Please go ahead.

Thanks very much. It looks like the after-tax costs asbestos were maybe $675 million, is that right, which I think is maybe originally you were expecting $500 million and are there additional taxes that have yet to be paid on some of the properties that you sold and if so, what is the magnitude of the tax payments?

Yes. As for asbestos, it’s a little bit lower than that in terms of the after-tax cost and the other number that you might have been quoting, it depends on the timing of the cash payments versus the P&L tax. But from a cash basis in 2016, it was in the low-600s. We are pretty much done with that. There are no real additional tax payments on the properties that were sold in ‘16 and there is minimal tax leakage due to some tax attributes and some tax planning that we were able to embark on. So with respect to the flat glass business and the fiber glass businesses and the JVs, we were able to really secure more than $1 billion in after-tax proceeds. Now that said, the cash taxes for 2017 will probably be closer to that adjusted tax rate than they were in 2016, where we were able to use some attributes to offset some of these gains, so that will be a dynamic going forward, but no additional taxes associated with the divestitures going forward.

Okay. And then for my follow-up, in the fourth quarter in both of your segments, both of your key coating segments, your operating profits were down year-over-year and you are talking about raw material inflation and lacking price increases. So, it sounds like you have a bearish point of view towards your first half and then maybe you have some growth in your second half. So in 2017, are we sort of looking for maybe a flat or a flat to up year in earnings for PPG?

Well, first, Jeff, just for the year, just to clarify, so each of the operating segments for full year had increases in what we call that PTPI ROS margin. Now fourth quarter...

[indiscernible] fourth quarter, yes.

Yes, for the fourth quarter, there were a couple of impacts and most notably as Michael mentioned before, industrial coatings was the one, where you saw a little bit of a reduction. That was driven really by a couple of different factors. There are probably a couple of tenths of a point driven by some acquisitions that haven’t been fully integrated yet. There is actually about 0.3% impact from currency in Q4 industrial coatings just because the dynamics between the top and the bottom line, about 0.5% associated with some of the additional cost that Michael referenced for logistics and transportation to meet some demands in Asia, that’s really a temporary dynamic. And then, of course, from the slide, you can back into the approximately 100 basis points of price in industrial for Q4 year-over-year. Now, I think the wildcard for 2017 will be exactly what the currency impact is going to be. The cost we are addressing clearly will fully integrate the acquisition, so that won’t be a dynamic going forward. We are going to manage very carefully as Michael mentioned the targeting of prices versus input costs. So that should improve. We will get restructuring benefits. So, it’s really the currency dynamic. So overall, for the year, margins were up. Q4 a little bit of a dip in the role, but based on some unique factors but going forward, we still expect the opportunity to accrete margins in ‘17.

And Jeff, let me just add. We are – I want to disabuse you of the thought that earnings would be flat. That’s not our base case at all, not only are we going to have volume growth that’s going to be a positive. We are going to have earnings accretive cash deployment, that will be a positive and we have the self-help from our restructuring program. So, that’s also a help. So, we will see positive EPS growth year-over-year.

Okay, great. Thank you so much.

Thanks, Jeff.

And our next question comes from PJ Juvekar of Citigroup. Please go ahead.

Thank you and congratulations both Frank and Vince.

Thanks, PJ.

Question on architectural paints, was there any inventory adjustment at the big boxes or was there anything going on there that you saw the decline on the national level and national chains?

Yes. So PJ, it’s always hard to draw inferences from the fourth quarter. Obviously, we have line reviews going on. One of the major differences ‘15 versus ‘16 if you remember ‘15 we had a very warm October, early November. We had very good stain sales in that regard. It did not repeat in 2016. We had positive POS. So, the sell-out is better than the sell-in. That gives us some good feelings going forward. Like I said, fourth quarter and first quarter are always difficult to think about it from the standpoint that the home centers can make adjustments in their inventories. But when we look at the POS data, we’re – I would say we are still optimistic.

Thank you. And secondly, there is significant consolidation going on in paints. Recently, we saw Nippon Paint coming into the U.S. with the acquisition of Dunn-Edwards. So where do you think the multiples are that are being paid today? And what is your comfort zone, Michael, when you deploy that capital?

Well, I don’t think I want to tell you my comfort zone, because people might know where we want to bid. But obviously, when you look at the Dunn-Edwards number, I would tell you that Nippon was aggressive, overly aggressive in our opinion. Clearly, they were wanting to get a toehold in the U.S. market. They viewed this as an opportunistic way to get in and they took advantage of that. So, I would tell you that the multiples are clearly higher, but we are just going to have to adapt to the changing environment.

Thanks, PJ. If I could, as Frank mentioned earlier, we are going to keep our financial discipline and we are going to try to reward our shareholders and create value for our shareholders as part of any transaction.

Thank you.

And our next question comes from Laurence Alexander of Jefferies. Please go ahead.

Hi, this is Dan Rizzo on for Laurence. You mentioned that the Comex performed pretty well in the quarter. Is there opportunity for expansion of Comex into other parts of Latin America? And that’s the first part of the question. And two, I mean, is the unrest in Mexico having a clean affect, where the growth – the pace of growth is slowing?

So, let me address a couple of those questions, Dan. The first one is we have taken the Comex model into Central America. We gave guidance that it would be $60 million to $70 million in new sales. We are tracking above that growth rate. We said that would be over a 3 to 5-year period. Central America for us grew a very small business obviously, but it grew nearly 40% year-over-year. So, it was an outstanding performer from that regard. The Comex team, we have said it would grow more than 2x GDP, has exceeded that significantly, so another good year by the PPG-Comex team. The current unrest because of the raise in gasoline prices, we have lost about 300 store days, which through the first, whatever, 20, 19 days, it’s really insignificant. It’s less than 1% of our total store days being opened. I looked at the sales through the first 19 days. The sales are ahead of last year’s pace. So we are tracking pretty well in that regard. So obviously, we are not happy with the unrest. But overall, it has not impacted our business. I am more concerned about the consumer sentiment. Right now, consumer sentiment in Mexico remains solid. And so we anticipate another good year. Last year, we opened 212 stores, which is more than one store every other day. We are up to 4,213 stores. We have a plan to open almost another 200 stores this year. So overall, we expect to have another very good year in Mexico.

Is consumer sentiment such that, I mean, it telegraphs well enough where you can see that’s changing and things like change – alter your plans or is it something you might be concerned that it happens kind of coincidentally, where consumer sentiment falls and sales falloff at the same time. I was just wondering if there is any lead time there?

Typically in the paint industry in architectural consumer sentiment is real-time or close to real-time, Dan.

Thank you.

And our next question today comes from Nils Wallin of CLSA. Please go ahead.

Great. Thanks for taking my question. I was just curious in terms of the restructuring, where you have mentioned that a lot of it was in marine. What, if you would give us, where some of the big buckets are in terms of your restructuring program?

Sure, Nils. It’s Frank. It’s pretty broad-based. It’s covering virtually all of our functions and virtually all of our business units and targeting those areas, mainly in USCA and EMEA is where the vast majority of the actions are taking place. It’s where we have most of our operations in any case. But really I would say, the administrative functions really runs the gamut, where we move more into shared services and consolidate operations from various countries into hub-and-spoke operations. And then when you look at the various business units – virtually every business unit as participating certainly you mentioned PMC. That’s one of them. All the businesses and fiberglass had gotten ahead of the game, because we knew we were divesting the European operations, so they got a little ahead of the game, ahead of this program, but nevertheless, they have made some reductions. But we haven’t singled out any particular business or any particular region. It’s just skewed more toward USCA and EMEA because of the size of the operations in those areas.

And Nils, we use USCA for U.S. Canada as abbreviation.

Right.

I finally figured out that one. Thanks. Just in terms of marine, does marine, the business on its own earned its cost of capital over the cycle?

I would say right now, it does. It’s certainly below the company average. But like many acquisitions, we do marine was cobbled together through various acquisitions. It starts lower. It appreciates over time. This business was pretty much at the company average prior to the downturn in the shipbuilding business and we fully expect it to be back at or above the industry or the company average, but certainly not until the industry recovers.

And it’s a great question, too, because we have now deployed significant new capital against some of the businesses that are having a challenging macroeconomic environment, we came in below our CapEx plan in 2016 by mid double-digits, primarily because we look at the macro environment, we try to our capital spending just in time, and we target the spending to those businesses where we think we can get the quickest return and gears much toward those areas that are growing, not just maintenance capital. So yes, the cost of capital might be less, but we are not deploying any new capital until we see the light at the end of the tunnel in terms of volume growth.

And there was one more comment because the marine shipbuilding is project oriented and we are able to very easily see with very good sight projects coming and getting completed, we are able to ratchet down our cost structure as projects get completed. So there is not a heavy fixed cost load. There is a lot of project costs. So, again, it’s not – we are able to manage it towards not decremental to the earnings of the segment or the company.

Understood. Thanks very much.

Thanks.

And our next question comes from John Roberts of UBS. Please go ahead.

Thank you. Do you think the antitrust review between two of your key peers will affect the timing of the North American spring channel sell-in, that is, do you think customers might want to delay a little bit here to see how that plays out?

John, I don’t sit in either Atlanta or Charlotte or D.C. from a regulatory standpoint. So I really would be total speculation. I think I should stay away from speculating. But I think they are all looking at it and they will all make their best judgments depending upon how it all works out.

Maybe I will try an easier one and you may have answered this on the last call, I apologize, but will glass continue to be a reported segment through 2017 or is the objective here to just exit the rest of glass as fast as you can and it just – it disappears as the segment that way?

Well, glass will continue to be a reported segment while we have in our portfolio the North American fiber glass business will continue to be in continuing operations. We stated before that the glass businesses are not necessarily part of the core business, but the businesses did well in 2016. It’s expected to continue to improve in 2017 based on the actions that the business has taken. They have done a good job. And it will continue to be reportable segment and continuing operations until otherwise.

And John, if I can just add if you look at the fourth quarter results, which just include the North American fiber glass business, they had significant improvement year-over-year in earnings, up I think 600 basis points and really reflective of the good work we are doing on the cost side and some good work we are doing on the technology side.

Thank you.

And our next question comes from Mike Harrison of Seaport Global Securities. Please go ahead.

Hi, good afternoon, I was wondering if you could talk a little bit about your strategy in Europe and the architectural business there, you have done a couple of acquisitions. First of all, can you talk about how long you expect it to take to integrate those businesses, are there additional consolidation opportunities there and are there ways to really leverage the PPG brand across the whole continent or do you continue to view it as kind of a set of individual sub-regions or individual country markets there?

So the first question deals with the acquisition. So we owned 50% of Univer. So there is zero integration except that we have lower costs now with the former ownership and some additional layers that we are able to take out post the prior owners leaving. So zero, totally integrated, already performing at a higher level than previously. Deutek in Romania, this is a standard PPG deal, where we go in and raw materials get brought in day 1. So January 4, raw material prices went down there. And then we are going to bring in our additional products. They can sell in Romania. So that will be a positive. And then we will roll the back office into our various back office centers in Europe. So that integration we expect to go very smoothly, and there are more opportunities in Europe to acquire. This is still a very regional business. We are constantly talking to families that own coatings companies in Europe. They are always part of our pipeline. And we just can’t predict when one generation will decide to sell. In regards to a pan-European brand, we have looked at that. We have also been asked by several of our larger DIY customers in Europe about that. We are expecting that they will roll out something similar but not quite pan-European in the early 2017 with one of our products. So we will wait to see how that launches. But by and large, it is still a very regional business.

Right. And then shifting over to the architectural side in North America, it seems like we are still seeing continued sluggish architectural volumes there even though the housing fundamentals look pretty good, how do you explain the current weak patch that we are seeing in the paint industry and do you think we are setting up to normalize next year and see some better growth in 2017?

Well, I would tell you that historically, we have been fairly accurate on the paint projections. We said last year in 2016, it would be 2% to 3%. I think that was borne out. I think people still underestimate the size of the maintenance business. I mean it’s let’s call it 70% to 80% of all paint is applied in a maintenance mode and so despite how strong housing looks in the house formation as well as new home sales, that doesn’t move the needle as much as the maintenance side of the business. So I would tell you that we expect to see 2% to 3% growth again in 2017. And I might add one other item to your prior question and that is we don’t participate in a number of countries in Europe, so there are still more growth opportunities in those countries that we don’t participate in.

Alright. Thanks very much.

Thanks Mike.

Sorry. And our next question today comes from Christopher Parkinson of Credit Suisse. Please go ahead.

Thank you. In terms of your general macro expectations, can you talk a little bit more about your growth outlooks and what you are hearing from customers in Europe and Mexico, especially across the industrial and I guess architectural parallels, you just hit on that. And just generally, do you anticipate any changes in spending behaviors over the next year or so due to recent elections or even in some cases, some modest uncertainty pertaining to upcoming elections in Western Europe, just any general thoughts on how we should think about that, that would be helpful? Thanks.

So when I think about Europe there is obviously elections in France, election later in the year in Germany. I don’t know when the elections in Italy will come because it’s a very complicated country for that. But consumer sentiment still is what I would call modest and most of our customers are kind of put that other back of their mind. They say, hey, we are going to continue to perform. We are going to continue to push our own customers to grow. And so that’s why we are thinking that Europe is going to grow 2 plus kind of percent next year for us. So I think that’s our sentiment there. For Mexico, from the supply chain standpoint, we paint cars in Mexico and we paint cars in the U.S. So whatever consternation may or may not be out there, we will paint cars wherever they are built. So for us, that is a bigger question for our customers than it is for us because they know we will be there whenever and wherever they need us.

In terms of some other macros Chris, we are seeing some early signs of recovery in energy CapEx. We think that’s been a large drag on the U.S. industrial production numbers. So we think that’s favorable. And as Michael mentioned in his prepared remarks, we are seeing a flattening in Brazil from – or South America from significant negatives. So those are two other data points.

Great. And just quickly turning back to the raw material basket outlook, can you just give us a quick update on [indiscernible] including ability to meet specs delivery numbers? And then any expectation you have for the cadence of the production ramp over the longer term? Thank you.

Yes, we can’t speak about the production ramp per se. It’s their process, their business, their facility. So, we will leave it up to them, but they are working with us. We continue to get product from them. We expect product to continue to flow certainly in the same manner, if not more in 2017 and they are still going through their normal startup process. So at this point, it’s been a success for us and we continue to expect it to do so going forward.

Great. Thank you.

And our next question comes from Tom Narayan of RBC Capital Markets. Please go ahead.

Hey, thanks for taking my question. Really appreciate Slide 12 here, the 2017 financial guidance. When I look at this and let’s see assuming that, I guess, the GDP 2% to 3% growth kind of thing, the FX assumptions and then all the puts and takes below the EBIT line, it would appear that a lot of the EPS growth that you guys maybe seeing in 2017 could be coming from the share buyback. To what extent do you guys use EPS as a rationale behind deciding on how you allocate that the $3 billion over 2017, 2018 or do you not really look at that at all?

Yes, we do. When you look at the $3 billion or the $2.5 billion to $3.5 billion over the 2-year period, the first determinant is how much cash we have in the balance sheet and how much cash we expect to generate and the fact that we do not need to carry more than I will say mid to high triple-digits millions of dollars on the balance sheet at any given time to run our operation. So it’s best used to create value for the shareholders. First priority on that, of course, this is after dividends and after CapEx, first priority being accretive acquisitions. But in any quarter where we don’t necessarily have an imminent acquisition or line of sight when it’s taking place, we would return the cash to the shareholders at a reasonable pattern. So in any given year, you would expect to see a balance between acquisitions and share repurchases with the first priority being acquisitions and then repurchases. But you are right, there is some element of EPS, EPS growth that is predicated upon deploying that cash either toward acquisitions that gets you additional EBITDA and against share repurchases which obviously increases the EPS just based on the arithmetic, but it is a component of that.

Okay, thanks. And then my last question, you guys just commented on the U.S. architectural market and what’s going on despite what’s going on with housing. I get the maintenance argument, that’s very helpful. What about the share shift from DIY to pro? And could you maybe comment on what’s going on like within your own U.S. architectural business in that dynamic. Could that be playing a role perhaps?

We don’t really see a significant share shift from DIY to pro. I mean, obviously, the bigger issue is pros are full up. There is not a lot of new painters coming in the market. So, I would say there is probably a little bit of a drag if anything from the professional side, because I don’t see a lot of young painters out there.

Understood. Thanks a lot.

Tom, if I could add to that, our mix of business between DIY and pro matches the industry. So we have said in the past we are channel agnostic.

Understood. Thanks.

And our next question comes from Richard O’Reilly of Revere Associates. Please go ahead. Richard O’Reilly: Thank you. Good afternoon, gentlemen. Just have a question about the cash from operations. I just want to understand the math. In 2016, you generated $1.25 billion and that was after the asbestos settlement of $800 million?

Yes, it was. The $1.25 billion was after the $800 million asbestos settlement. Keep in mind though that there was some tax benefit associated with that. So the way we like to do it in a full transparency is to say that, that $1.25 billion would have been close to $1.9 billion if you were to add back the after-tax cost of the asbestos settlement. Richard O’Reilly: Okay, $1.9 billion. So if the dividends and CapEx or your free cash, so to speak, was about $1.1 billion?

It was approaching $1.1 billion.

Including that adjustment.

Yes. Richard O’Reilly: Okay, yes including. Okay. So for this year and next, you are at the low end of that 2 point – if we double that, you are at the 2 point – at the low end of $2.5 billion range that you want to use?

And again we started the year with almost $1.9 billion in cash balance, which is more than we need to have because we – I got the after-tax proceeds from the divestitures all in Q4, so we started the year and then we add another $1 billion plus in each of the year. So we really have between $2.5 billion and $3.5 billion to deploy based on what we – I would add and still have plenty left to run the business. Richard O’Reilly: Okay. Second question, outside of North American fiber glass, there is nothing else that sticks out in your portfolio that doesn’t fit the core or whatever you want to use the word, am I right?

That’s correct, Tom [ph]. Richard O’Reilly: Okay, fine. And third question, I am surprised no one has asked you about titanium pigment pricing or your costs going into the New Year, do you have any comments on that?

So this is a little history lesson. We saw a little modest second quarter and third quarter increases in 2016. In the fourth quarter, no increases except a little bit in China. So we still believe this is a supply-demand driven business. Supply is slightly up. Demand is slightly up. So they are pretty much in balance from that standpoint. The only thing we can see is that we see some of our smaller companies that we have been looking at buy-in, some of them do price buy-in. Obviously, that’s an artificial demand. It’s not a good business practice, but they feel like they need to protect themselves because they are not like some of the larger coatings companies that can negotiate hard in this regard. So we don’t anticipate significant upward pressure. But again, it’s a supply-demand driven business and we will react accordingly. Richard O’Reilly: Okay, good. Thank you and congratulations to Vince. Thank you.

And our next question today comes from Vincent Andrews of Morgan Stanley. Please go ahead.

Hey guys. This is Matt Gingrich on for Vince. On the restructuring initiative, does that include potential cost synergies associated with the recent acquisitions or will those flow-through separately. And then also how should we think about the cadence of the 2017 restructuring savings?

Yes. They do not include the synergies from the acquisitions. Those would be separate and over and above. In terms of the cadence, we are trying to actually accelerate these actions as best we can based on what we see out there. We said 40 to 50 for the year, it will obviously ramp up through the year. So there will be more in the back half than the first half. And we are trying to get to the execution as quickly as we can, but it will ramp up ratably throughout the year. Hopefully, we will get some of those savings booked in the first half.

And then on packaging how much of the market at this point in North America and EMEA has now converted to non-BPA and where do you see that composition going?

I think the way I would describe that is we are in the third inning of a nine-inning ballgame. We have a number of trials still going on. We have a number of conversions that we have to get accomplished in 2017. And of course and then there is still more work to be done. They can’t take on all that work overnight and there are still a number of countries around the world that they haven’t converted. So like I said, we are in the third inning. And we have been winning more than our fair share. The brand owners really love PPG. They love the technology that we are bringing and that’s been a real positive for us.

Is your outgrowth in Asia Pacific related to non-BPA conversions or is that a product of other factors?

Our holistic growth in Asia Pacific is related to many businesses. Our packaging growth in Asia Pacific is certainly aided by the BPA-free technology.

Great. Thanks guys.

And our next question comes from James Sheehan of SunTrust Robinson Humphrey. Please go ahead.

Thank you. Can you talk about the performance of U.S. auto OEM business, you are showing it as having coming in a little bit below the market, is that because your technology is largely penetrated in that region or are there other factors to explain that?

No. James, we had covered this in previous calls. We had to make a choice on where to take business going into 2016 and we preferentially picked up business in Asia and Europe, where we saw the growth rates at a higher level. And so we have grown so much faster than the market. Our large customers wanted to make sure that we didn’t get too large in that space. So that’s what happened. We would – you should expect another one to two more quarters of negative comps versus the industry. And then we will anniversary it. Actually what I anticipate going forward is that they have not moved the Compact Process yet in the U.S. And when they decide to do some Brownfields in the U.S., we will then start to win at a very good rate. So I am optimistic going forward starting in 2000 probably – Brownfields will probably be a 2018, 2019 kind of initiative.

And just if I could elaborate Jim, again our math worked out. We matched the global growth rate build for 2016. Again with our regional differences, we expect to at least match that global growth rate in 2017 and likely start to exceed it again based on the comments Michael made and the actions we took.

Terrific and then could you also comment on the potential benefit you might see from any big increase in infrastructure spending from Washington and the timing of that?

Well, I would tell you that that’s highly speculative. It takes a while for policy changes to work its way through the executive and legislative branches. Infrastructure is good, so if it happens, we will be all over it. It does take a while to gear up to do some of these things. So we have not put that in our forward-looking plan for 2017.

Thank you.

And our next question comes from Don Carson of Susquehanna Financial. Please go ahead.

Thank you. Another question your heat map on Slide 5, Vince you mentioned that you are agnostic as to what architectural channel you sell-through, but you continue to have below market growth. So I am just wondering what’s driving that and specifically referring to the U.S. market, is it your product mix and your greater reliance on stain that drives that difference?

No. Don, if we hearken back to a few other calls we have had this year, one of our channels that’s nice channel for us, but it does have a shrinking nature to it is the independent dealer channel and so we are that channel shrinking natively and we expect that to continue. So it’s certainly one of the reasons why we are below overall market.

Okay. Thank you.

And ladies and gentlemen this concludes our question-and-answer session. I would like to turn the conference back over to Vince Morales for any closing remarks.

Again, I want to thank everybody for their time and participation today. We will certainly be available for calls after this call. So please reach out and we will handle any additional questions. Thank you.

And thank you, sir. Today’s conference has now concluded. And we thank you all for attending today’s presentation. You may now disconnect your lines and have a wonderful day.