PPG Industries's CEO Hosts 2011 Capital Markets Day - Event Transcript

| About: PPG Industries, (PPG)

PPG Industries, Inc. (NYSE:PPG)

2011 Capital Markets Day

December 05, 2011 1:30 pm ET


Vincent J. Morales - Vice President of Investor Relations

Charles E. Bunch - Chairman of the Board, Chief Executive Officer and Member of Operating Committee

Pierre-Marie De Leener - Executive Vice President of Global Automotive Refinish, Protective & Marine Coatings and Aerospace Businesses

J. Rich Alexander - Executive Vice President of Asia/Pacific Regional & Architectural Coatings and Member of Operating Committee

David B. Navikas - Chief Financial Officer, Senior Vice President of Finance and Member of Operating Committee

Charles F. Kahle - Chief Technology Officer and Vice President of Coatings Research & Development


Gregg A. Goodnight - UBS Investment Bank, Research Division

David L. Begleiter - Deutsche Bank AG, Research Division

James Barrineau - Citigroup Inc, Research Division

Unknown Analyst

Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

William Young

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Vincent J. Morales

Good afternoon, everybody. I'm Vince Morales, I'm Vice President of Investor Relations for PPG Industries. I'd like to welcome everybody to PPG's 2011 Capital Markets Day. We have a fairly full agenda today, and we certainly appreciate everybody's time both here in the room as well as those folks who are tuning in via the webcast.

Before I begin, let me quickly discuss our Safe Harbor statement. Today's discussion, including Q&A, will contain forward-looking statements reflecting the company's current view about future events and their potential effect on PPG's operating and financial performance. These statements involve risks and uncertainties which may cause actual results to differ. The company has no obligation to update these statements after today. Today's presentation also contains certain non-GAAP financial measures. The appendix of the presentation that appears both in the room as well as on the website have reconciliations of these non-GAAP financial measures to the most closely correlated GAAP financial measures.

Our agenda today consisted of strategic overview by our Chairman of the Board and CEO, Chuck Bunch; we will have a financial review by our CFO, David Navikas. Pierre-Marie De Leener and Rich Alexander, 2 Executive Vice Presidents, will provide some business updates for the business that they are running; Chuck Bunch will provide subsequent business updates for those businesses they're not running; we also have a Science and Technology update by our Chief Technology Officer, Chuck Kahle; and then we'll have some final commentary and final Q&A. We're expecting to have a break around 3:00 for about 10 minutes. It will be after Pierre-Marie De Leener's presentation.

And once again, I'd like to thank you for your time, and I introduce our Chairman and CEO, Chuck Bunch.

Charles E. Bunch

Thank you, Vince, and welcome, everyone. It's great to see all of you. We have a little construction in the background here but, hopefully, you'll be able to hear us. What I'd like to start with is a brief strategic update. These are the things that we said at this meeting last year, both about the macro environment, and you can see many of these trends and conditions that we talked about last year have been right on the mark, some of these unfortunately called for a slower growth at some of our markets, but certainly, I don't think we can be accused of being overly optimistic in our outlook at this time last year despite the great performance that we've had in 2011 for PPG. Here are some of the specific things we also talked about relative to our company: share gains in some of our key markets, continued growth globally in many of our key aftermarkets, inflation both in terms of our raw material input costs for coatings, but also for us, pricing opportunities in businesses like chlor-alkali and the determination on our part to raise prices where appropriate to offset some of these inflationary increases in our Coatings business. We've also had and continue to have this tailwind in U.S. natural gas prices. We've continued to execute both on our cost and our cash performance as a company. And as we've discussed in previous meetings last year and throughout this year, we're continuing to deploy that cash for PPG's growth, both in its businesses as well as returning this cash appropriately to our shareholders.

Let me just give you a brief update on current business conditions for PPG here in the fourth quarter. This is a seasonally lower quarter for us with demand typically weakening through the quarter. We have seen and we've commented already on a couple of end markets that are weak for us. This is marine OEM and the architectural businesses, both here in North America and in Europe, but we continue to have a good growth and strength in our aerospace and our automotive OEM markets. European markets in particular are a little soft. There is concern on the part of many of our end-use customers in Europe about where some of these overall debt concerns are going to take the markets. We've seen some softening, nothing dramatic, but they are on the whole a little bit softer with concerns being expressed by our customers about strength going into the beginning of 2012.

Raw material inflation. This has been a continuing story for us here in our coatings businesses at the end of 2010 and into 2011. We have seen a lessening of a raw material inflationary pressure in coatings, and it's somewhat of a tale of 2 markets. The organic side of our raw materials, we’re actually seeing some relief. Some of this is being reflected in purchases of items like resins or solvents. We still, however, have inflationary pressure on the inorganic side, pigments in particular, and specifically TiO2. We have expressed what we feel is an improving supply-demand picture for TiO2 in the sense from a coating standpoint that there seems to be, with this muted demand environment, more supply available. We've seen prices coming down in some of the regions, and I think it continues to be an item for discussion. Both here today, we brought our Chief Scientist, Chuck Kahle, to discuss some of our particular initiatives around, not only technology, but also addressing some of the questions around TiO2 usage and opportunities for PPG.

We have seen, I think in the light of these weakening, the -- let's say the concerns around the markets here and in Europe, but we have seen customers managing carefully their inventories here at year end. This has also been the case in our chlor-alkali market. We have seen some weakness as we've gone through the quarter in PBC exports and in some of our other chlorine uses here in North America. So chlorine weakness is affecting availability and supply of the co-product, in this case, the caustic soda. Some price increase initiatives, and you've seen that recently from us a little over a week ago with our announcement. We also have had -- and I'll comment briefly on the Thailand flooding. For those of you who weren't aware, Thailand is one of the production centers for the global optical industry, so the major floods that we've had over the last 2 months in Thailand have had a significant impact on the industry overall, on our operations in particular, not only in our optical monomers and our Intercast lens manufacturing operations, but also less severely on our transitions production facilities in Thailand, and more importantly, some of our key customers that we're supplying our transitions facilities from operations in Thailand. So we do have an impact in our Optical and Specialty Materials segment from those floods. And I'll just remind everyone that the fourth quarter is our best cash generation quarter. With the seasonality that we have in the business, we have continued to deploy our cash. You've seen the recent announcements over the last few months of some of the smaller acquisitions that we've made, and we have continued on our commitment to deploy cash in share repurchases through the fourth quarter of this year.

Now if I can switch from that brief fourth quarter update just to our PPG's strategy and vision, these are similar to what we have presented in the past. Our strategy has not changed. We are -- our vision is to become or continue to be the leading coatings and specialty products company in the world, accelerate profitable growth and enhance our operational excellence. And I can give you a few points about what we feel is the strategic direction. Coatings continues to be, we feel, a very attractive global industry. The industry has grown by over 40% since 2002. It's also continuing to consolidate. You can see here that today, some 60% of the market is controlled by the top 10 producers in coatings, and this is up 10 percentage points from the initial snapshot in 2002, where we held about -- the top 10 held about 50% of the market. So we continue to see these trends of global growth and consolidation. Solid industry growth rates, both here in North America as well as in Europe, and Asia Pacific coming out of the depths of the 2009 recession. We are projecting continued economic growth to outpace GDP on a global basis. This is both on a volume and value standpoint. So we think the growth trends remain in place for our industry.

And as this provides a little more background on the competitive landscape and the end-use markets, you can see here, if we look at the box on the left, that lower green bar would be now, 20% of the industry is in the hands of the 2 leading global players, Akzo and PPG. We both have more than $10 billion in global coatings sales. You have then an important band of 20 players making up some 45% of the industry that are in the range of $1 billion to $10 billion. And then the remainder of the industry is in the hands of smaller regional and local players, but I think this gives you a sense that there are still ample opportunities for further consolidation in this industry, and you've seen the bigger players leading this in 2011 as they have over the last 10 years or so.

End-use markets. The biggest single market is the architectural market, construction-related, also known as decorative coatings. And then special purpose and industrial make up some 55% of the remaining market. All now what we see as global trends both in terms of the market and our industries are increasingly global in nature.

Our coatings sales, if you look at our mix, we talked about in the last slide, 45% architectural, 55% special purpose for PPG, were more weighted to the special-purpose coatings, as so the aerospace, automotive OEM, automotive refinish, general industrial, protective and marine and packaging some 70%. Architectural for us is about 30% of our sales mix. And you can see in all of our markets, we are either 1, 2 or 3 globally, and 42% of our businesses have the #1 global position, 28% at #2 position, so you can see some 70% of our businesses are either 1 or 2 on a global basis.

If you look at the coatings markets in terms of the overall importance to PPG's portfolio, you can see that in the last 10 years, we have grown our coatings and optical business from about $5 billion in an overall portfolio of a little over $8 billion to now a 70% -- or 81%, rather, waiting in a portfolio of $13.5 billion. So we have more than doubled the size of our coatings and specialty businesses and increased the weighting over this last 8 or 9 years.

Our business portfolio, this is another snapshot. As you look here on the left, decreasing the weight in importance of our glass businesses, and our Commodity Chemical businesses with all the growth in terms of relative size and sales coming in our Coatings and the Optical and Specialty Materials business. You can see that the growth rates on the right, we have for these coatings and specialty businesses CAGR of 9% over the last 6 years. So we're getting very good organic growth out of these businesses as well as opportunities to continue to consolidate the industry. These businesses are managed at PPG on a global basis. You can see the emerging markets on the left, we have a 22% CAGR over the last 6 years. We're going to have another excellent year in 2011 in terms of our emerging market presence. And you can see now, emerging markets make up 35% of our coatings and specialty portfolio. So this is excellent growth, and we positioned ourselves, we think, in markets that are continuing to grow as we move into this phase of the economic expansion.

Global -- PPG's global presence. If you look at our acquisitions that have primarily been in our coatings businesses, some 60% were expanding into new regions; 15% expanding into new markets and only 25% have been building on strengths that we already had either in markets or regions. So some 75% of the acquired businesses resulted in expansions in either new markets or new regions. We've listed some of the key acquisitions there on the right. And here, if we look at a snapshot of 2001 versus 2010, emerging regions have gone from just 8% of our global sales to now 26%. So I think we've really gone where the growth is. We haven't gone, I think, to make -- because it's any easier to do this, but we've gone with the determination and a continued focus on execution in all of these markets. And as we talked in the past, these are profitable expansions for PPG, and our global profitability in businesses like Coatings are equivalent or, in some cases, better in Asia Pacific than they are in our traditional markets here in North America or in Europe.

If we look now at our execution roadmap, as you know, even in tough markets like we faced this year with the inflationary pressure, we've continued to focus on our margin leadership and supply chain excellence, disciplined cash deployment, so we have continued our emphasis and our focus even as we've gone after these additional growth opportunities. If you look at our margin leadership position in the coatings industry, total PPG on the left, PPG Coatings segment's full year 2010 EBITDA as a percent of sales for our Coatings business is 14.9%. That puts us as the margin leader in the coatings -- in our coatings industry.

We have also selectively invested to strengthen our businesses. Three of these acquisitions: Dyrup, Ducol and Colpisa, are in our Coatings businesses. These are ones that are either already been closed this year or announced and will be closed at the beginning of next year. These are all outside the U.S. and either establishing new regional market positions or strengthening what we already have in those markets. And we made one small regional acquisition here in North America in our chlor-alkali business. This was the Equa-Chlor acquisition in the Northwest in the second quarter of this year.

We continue to focus on strengthening our businesses through organic capital spending and growth. We have, however, significantly changed the profile for capital expenditure in PPG. We are now spending at less than 3% of sales. We are also investing, as you can see on this chart, at less than our depreciation and amortization level, but we haven't neglected the growth opportunities in our businesses. Here are 2 examples: in Zhangjiagang, our first coatings resin facility in China, as well as the Tianjin waterborne coatings investment in China; two key investments to keep up with the rapid growth that we've seen in our automotive and industrial businesses in China.

So if I could just give you a summary of our strategic initiatives, again, the strategy and successful execution are leading and yielding results for our company. Portfolio and geography have been improved. We are clearly positioned as the global leader and growing in these positions around the world. And our strong operating culture continues, so that means providing great customer value technologies. You're going to hear from Chuck Kahle, our Chief Technical Officer later today, disciplined cash deployment and the strengthened business portfolio. So I hope this gives you a good introduction to our strategy and our executional focus.

And now, I'd like to turn the program over to our Chief Financial Officer, Dave Navikas. Dave?

David B. Navikas

Thank you, Chuck. The next portion of the presentation, I will provide a financial update. My comments are going to address the key aspects of our sales, earnings and cash deployment trends.

If you look at our 9-months year-to-date results for 2011, sales in that period of time, about $11.4 billion, an increase of 13% year-on-year. Of that increase, about 6% coming from increased selling prices, with the largest pricing gains coming in our chlor-alkali business, followed by our coatings businesses. Volumes in the period were up 3%, with growth in the emerging regions leading the way. Currency is also a favorable deviation, that's principally related to our operations expressed in the euro and various Asian currencies. And finally, acquisitions of the entities that Chuck mentioned in his presentation contributing also to the sales growth in 2011.

Taking a little bit deeper look into the pricing issue, this chart summarizes the results of our pricing in our coatings businesses. You can see in the current year or period to date, our pricing in coatings' up 4%, reflecting the persistent raw material inflation that we have been experiencing. And as displayed in the chart, we've consistently delivered higher pricing in our coatings businesses in each of the past 7 years, as we worked through a series of inflationary impacts on our raw materials.

Looking at our volumes. After our volume dropped 14% in the recession in 2009, they've partially rebounded in 2010 and, again, over the course year to date of 2011. But through the end of September, our volumes were still down 6% compared to our pre-recession levels in 2008. But if you look at that same information, split between the emerging and the developing regions of the world -- developed regions of the world, you can see that our volume trends in 2008 are significantly different. Through 2010, our sales volumes in emerging regions were up 10% over 2008 levels, while our volumes in the U.S. and Europe had only partially recovered and were still down 11% from the pre-recession level. Our volumes have grown in both regions in 2012, and we expect further recovery in the developed regions, particularly when the housing and construction markets recover.

Our broad global footprint results in currency translation exposure from a variety of different currencies. On a sales basis, our top 10 currencies are identified in this chart. Given that most of our businesses buy, sell and manufacture in the same currency, we have a fairly modest currency transaction exposure.

In addition to our sales growth in 2011, we have also grown our total earnings and improved our earnings as a percentage of sales by 160 basis points. Our gross profit percentage is up modestly in a period of significant raw material cost inflation.

Following the recession, we've maintained our strong focus on cost management and have reduced our selling, general and administrative costs as a percentage of sales below the level that we had reached in 2008 despite what is still a lower level of sales. And we have been very measured in the addition of costs as our volumes have increased in 2010 and 2011. Also our sales per employee are up more than 10% versus the 2008 pre-recession level, reflecting the impact of difficult decisions we made during the recession to reduce our workforce.

A major issue that has impacted the coatings industry has been the rising raw material prices. On the left side of the chart, using the graph that Chuck had presented that distributes our total coatings business between architectural coatings and specialty coatings, you can see that the key raw materials differ between those 2 subsegments of our coatings businesses. In the specialty purpose coatings, resins, solvents and pigments are our most significant raw materials, while TiO2 is a key raw material in the architectural coatings business.

Over the first 9 months of this year, coatings raw material costs were up in the low teen percentages with significant increases in all categories of raw materials. As depicted by the heat charts, we are experiencing a gradual flattening of the inflation rate in the second half of the year except in the cost for TiO2. We expect that trend to continue into next year, with first half 2012 raw material costs expected to be up low single-digit percents.

As I mentioned before, our coatings sales are up 4% due to selling price increases during the first 9 months of 2011, which offset about 80% of the total raw material inflation. We're working now to secure additional pricing to offset the cost inflation we have absorbed in 2011, and our intention would be to fully offset any 2012 coatings raw material inflation through higher selling prices.

As a result of our pricing and volume gains and continued cost management, we have been able to hold our Coatings segment margin flat versus 2010 despite the significant inflationary pressure. Year to date in 2011, we are up less than 40 basis points in our combined coatings margins. Our Optical and Specialty Materials segment is posting record earnings, and we are benefiting from higher year-over-year earnings in our commodity chemicals business and solid results in the Glass segment. Our total segment earnings margin has grown 130 basis points to 14.4% over the first 9 months of 2011.

Another factor contributing to our higher EPS is our tax rate on ongoing operations that has continued to decline throughout the past decade. This improvement reflects the impact of our global expansion, with growth in our earnings in lower tax regions of the world particularly in Asia. For some added perspective, many of you know the corporate tax rate in the U.S. is higher than any other country in the world except Japan. The tax rates in many other countries have been reduced over the past several years, and many of the countries in emerging regions where we operate have tax rates in the range of 15% to 25%.

As a result of our sales growth, improved margins, lower tax rate and reduced shares outstanding, we have posted record EPS performance for each of the past 5 consecutive quarters. And again, we've achieved these results despite volumes that remain 6% below our pre-recession levels. In 2011, our EPS for the first 9 months year-to-date have already eclipsed our prior full year EPS record.

Our higher earnings and our focus on lowering our working capital have led to rising levels of cash from operations. We have generated record or near-record cash from operations in the past 3 years, illustrating the consistency of our cash generation and the benefits of our 2008 acquisition of SigmaKalon. We achieved this strong level of cash from operations even though we made significant voluntary contributions to our pension plans over the course of the last 3 years. We've also expanded our free cash flow or our cash from operations available after capital spending in dividends. Our average annual free cash flow is up, about $250 million the past 3 years since the SigmaKalon acquisition to about $700 million per year compared to $450 million in the prior 3 years.

At September 30 of this year, our cash and short-term investments totaled $1.3 billion. Our prioritized uses of cash have consistently been organic capital expenditure, dividends, debt and pension funding, acquisitions and share repurchase, and we are not changing the ranking of those priorities. This chart illustrates the consistency of our cash deployment, which utilized about 60% of our cash to grow our businesses through capital expenditure and acquisitions, and 40% has been returned to shareholders in the form of cash dividends and share repurchases. This balanced use of cash has been consistent over both the past 7 and 15 years.

Our growth in the free cash flow is due in part to a dramatic reduction in our capital spending needs. One of the benefits of our portfolio transformation is the shift in our capital intensity. Both the coatings and optical businesses are much less capital intensive than our glass and commodity chemical businesses. We've reduced our capital spending as a percentage of sales from 13% in 1980 down to 9% by 1990 and now, as Chuck mentioned, we're operating at a 3% of sales level of capital spending. And we believe that the 3% level is a sustainable level as we move forward. And this reduction has increased our free cash flow and enabled us to use that cash to support earnings growth.

One of the hallmarks of PPG's financial performance has been our rich dividend history. We've paid an uninterrupted annual dividend since 1899 and have increased the annual dividend for 40 consecutive years. With the strong cash generation, we have accelerated the time period between our dividend increases over the past 2 years.

This chart shows our debt maturity profile. We have about $1.1 billion of debt coming due over the next 4 years, which is about half of the $2 billion of debt repayment that we made over the past 4 years. This reduced call for cash, as we move forward, will provide additional cash for other earnings accretive uses.

Another potential use of cash is to fund our defined benefit pension plans. Over the past 5 years, we have made cash contributions to those plans, totaling about $1 billion, with about $125 million of those contributions being made in 2011. Currently, our U.S. plans are nearly fully funded under the Pension Protection Act. We anticipate that in 2012, our pension expense will range between $160 million and $180 million, up about $30 million versus 2011 pension expense. And we project now our pension contributions next year to be comparable to this year in the range of $125 million to $150 million.

I'll now comment on our share repurchase activity. Over the past 24 months, we have repurchased 18 million shares. It's about 10% of our shares outstanding. This year, we have spent nearly $1 billion on share repurchases, as completing acquisitions has proven more difficult. Since 1995, our average annual spend on repurchases has been about $250 million, but as you can see, the annual spending level has been quite variable. In addition, our Board approved an additional 10 million of share repurchase authorization in October. This chart provides a longer-term view of the impact of our share repurchase activity on our shares outstanding. And since 1984, we've repurchased 44% of our outstanding shares.

In summary, our sales increase in 2011 reflects growth in several of our key end markets and in the emerging regions, as well as our increased pricing. Inflation in our coatings raw materials costs have been significant. Our geographic expansion has helped to lower our tax rate and boost our earnings per share. Our cash from operating activities and free cash flow have grown to new levels following the acquisition of SigmaKalon. Our cash deployment has been balanced and aimed at supporting future earnings growth and looking ahead, we will maintain our focus on cost management. We expect to see a flattening in raw material cost inflation, but our prices will continue to rise to offset the inflation impact that we have absorbed in 2011. Using our cash will remain in earnings lever, and we anticipate ending 2012 with a cash balance below $1 billion. Our cash uses next year will include acquisitions, including the completion of the Dyrup and Colpisa acquisition, potential increases in our organic capital spending to support growth, our other earnings-related initiatives could include some recasting of our debt profile, and share buybacks will remain an option as well.

Thank you, and that concludes my comments, and I'll turn the program over to Pierre-Marie De Leener.

Pierre-Marie De Leener

All right. Thank you, David. I'm going to review 3 of the 4 businesses in our Performance Coatings segment, and that is Protective & Marine Coatings, Aerospace and Refinish. Rich Alexander will review the fourth business in the segment, Architectural Coatings, Americas and Asia Pacific.

From a geographic perspective, the Performance Coatings segment is about 50% U.S. and Canada, with the strong 30% presence in emerging regions. All the businesses in the segment require a high degree of distribution and customer service, and clearly, the differentiator from a competitive perspective is technology. The Performance Coatings segment is PPG's largest and most profitable Coatings segment, with sales at 10% versus last year. The segment has delivered solid profitability and margin consistency, with margins this year essentially flat with last year, and this is despite stiff raw materials headwind. Supporting this stability is the large aftermarket orientation of the segment mix, with about 80% of the segment sales going to aftermarket applications.

The first business unit I will cover is the Protective & Marine Coatings business. It is a $8.5 billion industry, with 1/3 of it in the marine business. The business serves a variety of different end markets. Providing technology-based coating to serve harsh customer requirements is the key deliverable here. While some technology may be transferable across some of the end markets, there is also differing technology requirements by end markets. The geographic footprints of the industries, primarily Asia based, driven by the fact that nearly all of the marine OEM business is in Asia and that a lot of new infrastructure is being built in Asia today.

The PPG sales mix is about half protective coatings. The marine half is equally split between OEM and aftermarket. From a growth trends perspective, the 25% of the business serving marine OEM is declining today. The marine aftermarket is expected to be flat and the remaining 50% in protective coatings is expected to experience solid growth. As I mentioned, we deploy a variety of different technologies based on the conditions and their respective customer requirements. I mentioned here some of the specifics: anti-fouling coatings for the marine industry, passive fire protection coatings in the oil and gas industry and infrastructure and special tank lining in the oil and gas and the chemical industry. Supporting the growth of our protective coatings business is a very strong global infrastructure spending, with the largest expected growth in the emerging regions.

Ship deliveries are peaking and expected to fall at the backlog in all of tails off [ph]. The aftermarket recovered over the past 18 months, as more ships were put into service, both from the new ship deliveries perspective as well as idle ships, and the active fleet is actually now stabilizing. So again, in about 1/4 of this business, we expect some decline in another 1/4, we expect that business conditions to be flat, but the remaining 50%, we expect to experience solid growth over the coming years.

The next business I will discuss is Aerospace. Technology is key in this business, and the products PPG provides are coatings; but not only Coatings, also sealants, transparencies or aircraft windows and some service activities. The industry also demands global distribution and a high degree of ongoing service. PPG sales mix is about 55% aftermarket and about 45% OEM. But unlike all of the industries, in this case, both OEM and aftermarket provide for very solid financial returns. There is a wide variety of different products we provide, and listed here are some of our new initiative coatings products: New structural and exterior primer without heavy metals or water-based, new functional coatings like solar reflectors, new systems like basecoat clearcoat coatings, providing additional productivity in the painting shop and durability to our customers. One in particular is Aerocron or forward technology for structural primers. It removes heavy metals from the coating while allowing an even application, which reduces weight. It reduces weight as it uses a dipping process instead of a spray process.

We also have advanced technology in transparencies, which are structural components to the plane. We supplemented to all position in this business a few years back with the acquisition of Sierracin adding to a composite technology -- adding to a technology -- composite technology aiding in airplane light-weighting. These transparencies provide for the traditional visual needs but also provides additional and other functionality. Chuck Kahle will discuss in a moment the Alteos electrochromic cabin windows. Let me mention here our new glass and plastic-forming technology which allows new and more effective designs of cockpit windows. Our recently introduced optical products providing lighter-weight windows with better weatherability, new P-Static coatings providing longer service, time and as well intelligent electronic incorporating cockpit windows, which allows better maintenance planning for the pits. Oil sealant technology also provides critical functionality, especially with additional composites on today's newest airplanes. All leading edge sealing technologies include new ways to cure sealants, providing productivity to our OEM customers and new generations of low density sealants providing weight savings [ph] to our customers. As we can see, we have a variety of high technology products in Aerospace that supports our leading position in this market.

All those success factors in Aerospace are distribution and service, and we have a network of PPG application support center located all over the world and close to our customers. They provide critical products and tailor-made services to our customers on that global basis. The approach provides for a high level of customer intimacy and reduces maintenance cycle time and calls for our customers, given that they are working to maximize their usage of the high fixed cost airplanes or OEM facilities.

The overall industry growth rates are expected to remain very robust. On the OEM side, major OEM backlogs are very long and production has continued to ramp-up to expedite deliveries. In addition, new products like Boeing -- the Boeing 787 are coming online, and we have doubled our content on that plane in particular compared to more traditional aircraft. From an aftermarket perspective, the overall global fleet of planes is expanding, driven by higher air traffic in the emerging regions. As many of you know, passenger aircraft is subject to required maintenance schedules based on flight hours, so the expanded fleet size will result in the carry-on aftermarket growth.

The last business I will discuss here is Refinish, which primarily, but not only, serves the global car collision repair market. There are several multinational competitors that are competing in the global marketplace, along with a variety of smaller local or regional competitors, as the business follows some regional dynamics. We have a broad geographic mix with growing positions in emerging regions. The emerging regions growth is both organic and through bolt-on acquisitions, including 2 acquisitions mentioned earlier and which were done this year: Ducol in Africa and Colpisa in South America. Distribution and service are key in this business as well, and PPG differentiated network allows for us to operate at world-class levels. In addition, leading technology and color matching allow customers to work more efficiently, saving them time and money.

Our business mix is about 75% car collision repair, but we also service commercial and fleet customers, representing about 25% of our business. That provides coating for fleet and light industrial applications given our very large and capillary distribution footprint.

PPG's operates were distribution network with single and multi-branded distributors. This distribution network, aided by PPG business expertise and training tools, provides for a high level of customer contact and service through the over 100,000 body shops that utilize our products worldwide. Establishing the hallmark of this strong and committed distribution network is critical to our success. Equally critical is the ability of our customers to quickly and accurately match colors. There are thousands of potential colors on damaged vehicles based on the model, make and year of the car, along with some of the attributes. The customers' single largest success factor is matching the color rapidly without error, as doing so saves them time and money. We provide a color catalog of over thousands of colors, and we have sophisticated color-matching tool to expedite this process for our customers, allowing them to be more efficient and more accurate in their applications, both of which are very critical to their success.

Finally, product technology is the key role, and PPG has led the industry in converting to water-based technology. Our internally developed technology provides more rapid application, fast drying time and does not require constant polish agitation, which reduces the ongoing costs for distributors. Legislations requiring water technology has been enacted in a variety of regions globally and in several states in the United States, with further legislations pending in several countries. This product has been so successful that in addition to conversion due to enacted legislation, many of the customers' adoptions are voluntary based on word of mouth from industry trade groups.

In addition to technology, there is also a brand-based industry. This is also a brand-based industry and PPG has several leading brands. We use a branding and pricing strategy based on the product technology and the market segments. Many of our premium products are prevalent in the developed markets, where premium is the vast majority of the product segmentation. But we also have mid-tier products available to address the growing emerging regions as the mid-tier segment is the largest segment in many of these markets. Our business has a very good global coverage, but there is still room to grow organically and through acquisitions. We have advantaged position in the U.S. and Canada, in some countries in South America, in countries in Southern Europe, China and Australia. We have felt our opportunities in Central and Eastern Europe and Central America, for example. In the developed regions, the overall organic market trend is generally with GDP, with miles driven and accidents rate fairly flat over time and slight growth in the car part. High insurance coverage promotes the premium product array. The emerging regions provide excellent growth prospects due to increases in all the key market drivers, including a rapidly expanding automotive parts.

In summary, in the Performance Coatings segment, we have to do with multinational coatings competitors, but also with smaller local and regional competition. Distribution and service, but also technology, color technology, are some key success factors and do present entry barriers to competition. PPG has a strong global presence, #1 or #2 in each end-use market, with heavy -- within heavy aftermarkets. PPG has been able to grow share, thanks to its leading technology. All new products allow us to price as we are providing differentiated benefits and productivity to our customers. We are able to offset raw materials inflation and general cost inflation, thanks to continued productivity improvement in our full value chain. The outlook is clearly for a lower marine OEM build, for a stable end-use market in refinish, protective coatings in mature regions and the marine aftermarket, but also for a strong aerospace industry growth supplemented by PPG market gains and the continuing emerging regions growth for all the parts of the segment: Protective, Aerospace and Refinish. This concludes my remarks.

Vincent J. Morales

We're going to keep going. Rich Alexander, if you're ready?

J. Rich Alexander

We're running a little bit ahead, so we thought maybe it was a little too early to take a break. I'm Rich Alexander. I'm Executive Vice President of PPG. I'm going to talk today on the agenda about architectural coatings. I'm going to provide a global landscape for you of the industry. I'm going to talk about our Architectural Coatings Americas and Asia Pacific business, then our business in EMEA, and I'll conclude with some comments regarding the Glass segment.

First, as Chuck pointed out earlier, $41 billion worth of demand in global architectural coatings, that's 44% of all coatings demand, and you can see the split there. 50% of the architectural demand is in emerging regions. You can also see the competitive split there. There really is a very fragmented industry with very few global players. I've noted them on this slide. This business really runs on regional market dynamics. There are considerable opportunities for growth in consolidation moving forward. And when I talk about regional dynamics, you can see here below the list of global players, certainly of which PPG is among them, along with Akzo, Valspar and Sherwin, a wide variety of regional players in this business. In fact, there are at least 20 deco companies with sales greater than $100 million and a handful of say 6 to 10, with sales over $500 million. So again, regional dynamics and opportunities for consolidation really are very lucrative in this business moving forward.

Now, let's take a look at PPG's global architectural business. You can see, we have a solid footprint with great growth opportunities. About half of our business now is in Western Europe, with the balance split about equally between emerging regions and the United States and Canada, and I will be reviewing each one of these sub-business units. I'll talk a little bit about Asia Pacific, Latin America, U.S., Canada, and then I'll drill into the business we have in EMEA, which as you all know, is today an external reporting segment.

First, let's look at our channel mix. You can see in the Americas' trade versus DIY, about 60-40. You can see in EMEA, a much higher concentration of trade. You'll see that that's worked to our benefit historically, and we expect it will continue to. And you can see in Asia Pacific, the split is about 55-45 trade to retail or DIY. When you wrap that all up, you can see that PPG's global business is 75% trade and 25% retail. I've also on a chart here shown how dramatically our stores business has increased over the last decade or so starting in 1999. We now have over 1,100 stores around the world. You can see 400 in the U.S., 660 in Europe and 50 in the emerging regions, and we intend to continue to grow our store business and our store count really throughout the world, so a dramatic growth for our company over the last decade.

Moving now to the United States architectural, I'll call it, conditions. I don't think I really have to tell anybody what's going on in the construction industry here over the last 5 years, but here's a couple of indices for you anyway.

If you look at 2006, which was the peak in the United States in residential construction, that indices has collapsed to about 50%. Nonresidential structures has held up a little bit better, but it's down 20% since the peak there.

And you can see, I've noted the reported Home Depot and Lowe's comps, it's been a difficult environment in that space as well. Certainly up until recently. Now we expect these difficult market conditions in both non-res and residential to continue. There will be a recovery, but we anticipate that it will be slow and has been mentioned by David Navikas, our plan is to continue pricing to cover our raw material inflation going forward.

In the U.S., our value drivers really are diverse channel strategy, that's a very important strategy for us. Maximizing the customer touch points. We have over 5,000 now, and I'll show you those in a minute. Leverage the fixed cost, footprint that we've got, increase our focus in the U.S., on maintenance. And I think we are very well-positioned for recovery in this business based on the cost actions that we've taken, as a result of the demand construction that you've seen, because of the construction industry.

Some of our key brands really in the United States are shown there, certainly PPG and Olympic, 2 of our biggest.

Now let's take a look at our mix in the U.S. It's not really divergent from the industrial mix, which is shown there on the chart, or the U.S. industry mix, I should say. With company stores being just north of 55% of the industry. What we call national accounts, you can think of as home centers here or they'd be called sheds in Europe. It's about 35% of the industry mix and the balance would be independent dealers.

And our mix is not dramatically different, 46% coming from captive stores, 35% coming from national accounts. Once again, company-owned stores, 400. And you can see the national accounts there, retail outlets, Lowe's, Menards, we'll talk about that in a second.

And total customer touch points of 5,000. And you can see on this map, our stores and our dealers are noted here. You can see that we also have some room for growth, particularly in the western part of the United States. And I think you know that store counts already with 2 of our large home center accounts or national accounts, Lowe's and Menards.

So we have significant coverage in all 3 channels in the United States. This our mix, 80% percent maintenance, 20% new construction. We're driving our business toward more maintenance right now. And in the third quarter, where we have just launched a new product, Olympic ONE at Lowe's, it's only been in the stores for about one quarter now. But I would tell you that we are very pleased with this launch and it has thus far, after only one quarter, certainly exceeded our expectations.

Let's shift now to Asia Pacific and Latin America. You can see combined, these 2 regions account for over 37% of the demand in Architectural Coatings. So these 2 very fragmented emerging regions are very significant and represents, I think, a very significant opportunity for PPG. Because you can also see by the chart, that we are at this point in time, a very regional player.

But we intend to prosecute the growth in these markets in architectural. We will be looking at very disciplined M&A opportunities going forward, in both Latin America and the Asia Pacific region.

These are just some of our key brands. Renner, for example, Brazil, Taubmans in Australia, both of those came through acquisition by the way. These markets are a strategic focus for us, and we plan to expand our presence there. As I mentioned, primarily through bolt-on and disciplined acquisitions.

Let's shift now then to Europe. I'm going to show you one slide, and only one slide. Now this is a PPG Industry's Coatings slide. I'll show you architectural, EMEA in just a second, but I think, I want to share this slide with you. These are our sales year-to-date. Year-to-date, our sales in Europe for all Coatings are up 14% compared to year prior, our earnings are 18% compared to prior year. And you can also see that we have expanded our margins in PPG Coatings Europe. A lot of that has to do with really improved performance in all of our businesses there. But I think, it gets to the headline on this slide, that we've had a very stable Architectural Coatings business, and it's been very consistent for us in Europe and of course, it's our largest business in Europe.

Now taking a look then at Architectural Coatings EMEA, you can see what we plotted here as 3Q -- beginning with 3Q '08 through the third quarter of this year. And you can really see that our performance has been, I think in a fairly chaotic environment, in terms of both demand and lots of issues with the Eurozone, pretty stable.

And if you look and you see the bridge there, you'll see that actually, 86% of the decline in our sales was really just due to currency. The euro-dollar conversion which has weakened about 15% since that time. So we're pretty much at prerecession levels in our Architectural Coatings EMEA business in local currencies.

Now we're going to go into the EMEA business architectural, a little bit closer. We really break it out by Western Europe, Central and Eastern Europe or CEE, and then other emerging regions. And you can see by the chart, we've got some very significant positions. We're #1 in France, we're #1 in the Netherlands, we're #2 in Belgium, and we're #2 in the U.K. In Central and Eastern Europe, we also have extremely strong positions, and I'll talk about those when I get there. And also, in the other emerging regions, in Africa and the Middle East, some very nice positions there as well.

First, in Western Europe, on a macro standpoint for Western Europe, we're #2. Compared to Akzo, I showed you the areas where we were #1. You can also see by this chart, that we have lots of room for expansion.

But as Chuck pointed out earlier in his talk, we are #1 or #2 in many of the SBUs we operate, but also in a number of other countries we're operating in architectural, and you can see where the next 7 competitors are there, 3 to 10.

So we have some room to grow our overall #2 position in Western Europe in Architectural. And I think, I mentioned earlier and again, I don't think I have to mention it, but the things have been very difficult in the Eurozone. And you can see the future -- some of the future forecast here. We have had limited exposure in our Architectural business to Southern Europe. In fact, you can see from the chart that only 1% of our exposure are in Eurozone countries that are now predicting that they will have contracting economies in 2012, and that has helped us get through the last few years. And the slide you saw, a couple of moments ago, showing relatively consistent performance.

The Dyrup acquisition was mentioned earlier, I just wanted to give you just a very brief update on this. Exactly one month from today, we will close on this acquisition. You can see that the price is 0.6 sales for Dyrup, this will give us a geographic expansion. But really, more importantly and strategically, it will give us a product extension in wood coatings, where we currently participate, but we lack some of the prominent brands that Dyrup has like Bondex.

So we're very pleased with this, that we're going to do this acquisition, we're again, integrating it in January of next year.

Let's shift now to Central and Eastern Europe. You can see from the chart there that we have had a consistent cadence of expansion in Central and Eastern Europe for over a decade, through acquisition with Dekoral in Poland, capped off here by Dyrup, which also has business in Poland.

And you can also see that CEE denoted by the blue pie there is a significant piece of our business. We are, as I mentioned, #1 in Poland, we're #1 in the Czech Republic, we're #1 in Hungary, and we're also #1 in Slovakia.

This is our footprint, our current footprint which covers about a population of about 90 million people in Central and Eastern Europe. And you can also see what we're calling potential growth opportunities, where we really don't have a presence today, primarily in South Eastern Europe. And these opportunities are populated with 145 million people.

So we have ample opportunity for continued growth in this region. This is a typical country dynamic in Central and Eastern Europe. I just wanted to show you this. Typically, what will be present in one of those countries is you'll have a #1 or #2 global. It could be Akzo and PPG for example. Then you'll have a local player of significance typically. Then you might have a regional, noted by the 10% there in the green. And then you'll have other locals. So you have a relatively fragmented markets in Central and Eastern Europe. And many of these countries look just like this. So again, local market dynamics, several local players, I think some more opportunities for consolidation in Central and Eastern Europe.

Now other emerging regions, Africa and French overseas territories in the Middle East. While not as large, there are some very significant businesses for us here. These are -- tend to be smaller, but we tend to have premium positions in these markets and we have a rich history here, really through our acquisition of SigmaKalon who has been precedent for example, present in West Africa since 1950.

So what we typically see here are more flexible factories, more of an entrepreneurial structure and we tend to get positioned in the premium segments. And these markets tend to have a local rather than regional competition.

If you look at the way we're framing in the discipline of the global management of our Architectural Coatings business, I would focus primarily here on brands and distribution. These are must haves. We feel like we're very well-represented. As you saw earlier, we're in over 40 countries around the world now, with over 40 prominent brands. So we're investing in these core brands and we're growing.

But the global management of the business comes in the operating cadence and the metrics around, which we believe we can drive synergies by running the business on a global basis. Things such as supply chain, things such as IT, and we have a very highly-disciplined and operational monthly cadence already in place for the management of the business.

So if you look now at what's going on historically, this is a volume chart and it's going to -- it's the USA or USCA, U.S. and Canada, and EMEA from peak to present. I mean, you can see that in the U.S., architectural volume is down about 25% from peak. And you can see it's down mid-teens from peak and the peak occurred a year later in Europe, than it did in the States down mid-teens.

So amidst this real volume issue, the business has performed, as I've shown you, going through the presentation. Now more importantly, it lends us very significantly, to leverage in any volume recovery that -- when it happens in both Europe and in United States.

So in summary, for Architectural Coatings, we're going to maintain our focus on operations, costs and profitability in delivering shareholder value, that is the number one thing we're focused on. But we believe we can do that, along with applying our methodology, the bolt-on acquisitions, primarily which will take place in emerging regions and which will be disciplined as they typically are with PPG. We're going to continue to maximize our multichannel strategy. We believe that's important. So that we don't gain too much reliance on one particular channel. And as I mentioned, the business remains highly levered to a volume recovery.

Now I'll switch to Glass. This is the PPG Glass segment. You can see it consists 2 SBUs, Flat Glass and Fiber Glass. You can see that there is a bias here in this $1 billion business geographically, towards North America.

Now if we were looking at this and including the joint ventures that we have in it, that bias would be a little bit different in that pie chart, 20% of our business would be in Asia, 20% would be in Europe and the balance or 55% would be in North America, and I'll show you those joint ventures in just a moment.

Let's first look at the Flat Glass industry and I've already shown you a lot of data which you probably already knew on what was going on the construction cycle. And you can see that, that has severely hurt the Flat Glass industry utilization rates even though 11 tanks or furnaces have been removed from production since 2006.

You can see most of the demand here is in commercial and residential, with also be a very large portion in automotive. Now over the last 5 years, what we've done is we have moved our mix to a more profitable mix in the Flat Glass business. And that means away from clear and auto glass toward a higher value added coatings, functional coatings, energy-efficient coatings. And that has helped us move this portfolio into a better place.

Switching now to Fiber Glass. If you look at this $7 billion industry and just as a reminder, we are in a continuous Fiber Glass business, not -- we don't produce or compete in the insulation part of Fiber Glass. And you can see the mix there, transportation, construction and infrastructure, but quite a different story in terms of growth rates. It's been a very positive story since the deep recession in '09, in the Fiber Glass business. And organically, this business supplies the Composites industry, and that business is growing, virtually every continent faster than the GDP of that continent. For example, right now, the Composites business is growing about 10% in China. This is our manufacturing footprint. As you can see, we have facilities wholly-owned in both the United States and in Western Europe. And we have 2 joint ventures in China. One with Nan Ya Plastics that primarily serves the printed circuit board industry and other one is PPG Sinoma, and that is primarily for reinforced plastic composites. So those joint ventures allow us to prosecute business in Fiber Glass outside of where we have wholly-owned operations.

This is the capacity utilization rates. The business has had a recovery financially. As you saw earlier, demand has been strong. It continued to be strong this year and the utilization rates in the fiber glass industry at this point in time, remain high. And we are coming -- or we are heading into closing up, I would say, a good year, another good year in the Fiber Glass business.

So looking at the total Glass segment then, 3Q year-to-date, you can see our margin has improved, and you can see that our sales are up. So positive on a year-to-date basis in Glass.

Looking at our headcount, we've obviously focused a lot on cost in this segment. You can see a dramatic reduction in headcount, and you can see the results of our transformative efforts, especially in Fiber Glass, to take cost out and you can see that on the manufacturing efficiencies line there, showing over $100 million of efficiency. So -- and this is really where we're continuing to focus in the Glass segment. We are very strongly cost focused as a company. But we are keenly focused in the Glass segment, and we anticipate continued growth in Fiber Glass. And we do, as I said earlier, when I talked about Architectural, we do expect though that in the near future, the U.S. construction market is going to remain sluggish. Thank you.

Vincent J. Morales

We're going to take a break and reconvene at 3:00.


Vincent J. Morales

Ladies and gentlemen, we're going to get started again. If you could take your seats. Okay, we're going to get started.

Charles E. Bunch

Okay, thank you. I'm going to now cover the business segments that Pierre-Marie or Rich did not cover. So this will be our Industrial Coatings, Optical and Specialty and Commodity Chemicals. And we're going to probably bring up our Chief Technical Officer, Chuck Kahle, and I'll make some closing remarks. And then we'll have time for Q&A. Someone mentioned that we hadn't had any questions so far, but we'll be here and try to cover as many of the questions that you have.

So let's now go through our Industrial Coatings segment. This consists of 3 business units, Automotive OEM Coatings, Industrial Coatings and Packaging coatings. Global business serving multinational customers with specified products. And you can see, it's very global in nature. The geographic sales mix on the right, emerging regions, greater than 40% of the market. And good balance between the North America, Europe and the Asia Pacific regions.

Industrial Coatings segment, the third quarter year-to-date results, excellent growth. As you can see, as we come out of the recessionary environment in North America and Europe, we've had growth in all regions in each quarter of this year, continued emerging region growth and expansion, margins that have kept pace with prior quarters, especially, or in spite of raw material inflation. And this has been helped by both strong cost, focus productivity, share gains, and some pricing initiatives to offset this inflationary pressure.

Automotive OEM Coatings, PPG has been a leader in this market segment for a generation. We have a broad geographic profile as we discussed for the industry, including all of the growth that we've experienced over the last 5 to 10 years in Asia Pacific, outside of Japan. PPG has the #1 position in this Automotive OEM market. We have then 4 global competitors that follow PPG, and then a smaller segment of regional or local competitors. And what we talked about, although it was really in the Pierre-Marie's Automotive Refinish segment, a strong aftermarket is being built in a number of these emerging regions. So we capture it in this segment and in this business unit at the OEM level. But it's developing key opportunities for PPG in the aftermarket.

Our automotive geographic mix, again, following the balance of the global industry between -- equally balanced between North America, Western Europe and the emerging regions including Eastern Europe. For PPG's business on the right, you can see U.S.-based and non U.S.-based customers make up some 2/3 of the business. All remaining customers, including many of these emerging domestics in regions like China, are now increasingly important to PPG. But obviously, tremendous geographic and customer diversity.

Automotive OEM industry production levels, you can see globally, this is a growth industry. So we anticipate growth this year, globally despite the events in Japan earlier this year, of some 4% on a global basis. A projection of 6% next year, globally. We have now, coming out of the severe recession in the North American industry, a growth profile both this year, we're going to get close to 13 million cars built. But still not back to the levels that we were prior to the recession in '07. But a solid forecast for next year in North America. And you can see at the sales level, a lot of momentum even in spite of what has been a fairly sluggish consumer environment here in North America.

The one area that we are not as optimistic about is Europe, where although we've had some good growth in Europe this year, you can see 5% led by the export-driven German manufacturers, we are forecasting now, a slight decline in European automotive production.

Again, highlighted by what I would call the non-German or export countries in Europe. Asia Pacific, we're going to forecast -- we are forecasting good growth in Japan coming out of their earthquake and tsunami, lower production levels, and continued growth in the Chinese automotive market, although certainly not at the levels that we saw in 2010, or in the first half of 2011.

So in 2012, we're still forecasting Chinese automotive production growth, but it will be more along the lines of mid single-digits, but with some additional opportunities for PPG, with what we think is our strong position there and market share gain opportunities.

The other -- one of the other segments, and again, an important one, is the Industrial Coatings businesses. This is end-use markets, anywhere from heavy-duty and Ag and construction equipment to electronics, automotive parts. This is also a consolidating industry segment. The second largest after Architectural. And what we feel presents continued opportunities for PPG to globally position our business, you can see it's consolidating. So if you look at 2005, the top 6 controlled some 38% of the overall market today, that's more like 50%, and we see these consolidation trends continuing.

Industrial production and which is really, the -- I think the best indicator to track this segment. We have historically outpaced global industrial production. And you can see that our growth in Asia Pacific has really positioned PPG to outperform in this segment. We have, as you can see on the right-hand side, Industrial Coatings growth that far outpaces what we see in the region in general. And again, this is enabling many of our key customers in export-oriented manufacturing economies like China, to give them globally-specified added-value products that enable them to export that production anywhere in the world.

The third and smallest segment, although an important one, is the Packaging Coatings segment. This is a metal canned coatings for beer and beverage, food, food production and other specialty applications. Again, global industry, well-balanced between the end-use segments and the geographies. And we're seeing, as these trends in emerging markets increased for improved diets, food production, there are strong growth opportunities outside of the developed regions for this business unit.

Traditionally, we have seen these emerging or less-developed economies relying on glass packaging and containers. We have seen these being replaced by more energy-efficient metal can containers. There's some 30 new production lines announced around the world for food and beverage can production. And PPG is very well-positioned to capture this growth in high population growth economies in Asia Pacific and South America, or Eastern Europe and to capitalize on the trends there.

So that's a brief wrap-up of our Industrial Coatings segment. I wanted to just briefly touch on our Optical and Specialty Materials segment again. This is our third quarter year-to-date segment financial results for this segment, which is both Optical and Specialty Materials, which is Silicas and Teslin. We've had strong performance segment, both in growth and earnings in this segment this year. We did talk briefly, at the beginning of the presentation, about the impact of the Thailand floods. Right now, we are still assessing damage to our facilities and those of our customers. But we are estimating the fourth quarter EPS impact of these floods to be somewhere between $0.08 and $0.14 for the fourth quarter, with what we believe, at least currently, to be very low to minimal impact in 2012. But we're still drying out at our facilities and a number of our customers and suppliers are still assessing the medium-term effects to their business. But we don't think that it will be significant moving into 2012.

The optical market, we feel remains one of the most attractive for PPG. It's led by our branded spectacle photochromic plastic lens business transition. Penetration rates, you can see for PPG and for our transitions business, significant opportunities for longer-term growth. We have now, some 20% of the market in spectacle lenses here and North America is currently are photochromic technology. But this is at lower levels in Western Europe and in the emerging regions such as Asia or South America. So we think we have excellent opportunities, not only to capture the growth in the overall market, but to increase the penetration of Transition lenses and these value-added products as consumers have more disposable income in these markets.

Transitions has been built on a foundation of technology and marketing, the branded -- the brand creation over the last 20 years has led to now, Transitions being the most recognized and valuable brand in the global spectacle lens market. And it's been, we think, a tremendous driver of our growth in this segment, with plenty of opportunities as we talked about, in terms of increased growth and market penetration.

The other segment that we have not talked about as much in the past in the Specialty Materials portion of the segment is the Silicas business, precipitated Silicas, to be exact. And we are experiencing here, excellent growth in the tire and battery markets, precipitated Silicas gives an improved rolling resistance in tires. So now, with the increased emphasis on meeting government mileage standards and improving overall fuel economy, this has been a very a nice growth opportunity, globally for this industry and for our business.

Similarly, the global automotive production and the increased use of batteries around the world has also driven the other key market segment for Silicas, which is battery separators, now into a very nice growth opportunity for PPG.

And then within that precipitated Silicas business, we have an inorganic Printing Sheet business called Teslin, which we've talked about over the years. This has continued to develop as an excellent substrate for a number of applications including E-passports, drivers licenses, other identification cards. We've globalized this business. This has unique properties that competes with a variety of plastic substrates, but really adds value. Especially, as we look at placing these chips in increasing card usage like passports. And this has been an excellent high-margin growth opportunity for PPG, and one we're very satisfied with this. So it's really complimenting both the Teslin and precipitated Silicas growth has complemented what has been an excellent Optical business within this overall segment, and we're quite excited about the opportunity.

Then, I'll conclude with some comments about our Commodity Chemical or Chlor-Alkali business. This is a snapshot of the global chlor-alkali industry. North America is about 18% of the global industry. We are predominantly, a North American producer, and PPG supplies about 3% of the global industry for chlor-alkali.

If you look at the landscape for the North American chlor-alkali industry, it is still a somewhat less consolidated industry. But strong positions from Dow and Oxy, as well as PPG Olin, and an array of integrated global manufacturers with important operations here in the North America. We did make, as we mentioned earlier, one small acquisition in the Northwest here, in North America Equa-Chlor, of a company that fit into our regional strategy for chlor-alkali.

The North American industry has been rationalizing over the last 10 years. You can see, as we track cumulative changes to supply, we've actually been reducing the supply availability in this industry, until the most recent increases that we've seen in the 2011. But it has been a relatively moderate to low growth industry, but one in which the supply balance has been kept in place through a number of strategic or supply chain initiatives on the part of many of the producers here in North America.

And you can see actually from 2001 to 2011, the capacity actually declined 11% in this industry over that time period. U.S. net caustic supply as a result of this has also been flat. We've seen the caustic market here remain in balance, and pricing has been stable over the long-term in this industry.

If we look at the costs, and this is one of the current topics in the industry here, which is the change in U.S. natural gas costs, and also, that the resulting effect also on ethane costs and production. So that one of the things that has changed in this industry is that the U.S. is now a globally competitive region in which to produce chlor-alkali. We think, as you look at some of the cost to import caustic soda or chlor-alkali into North America from the other regions, you can see that now, we are in a position to be competitive and domestically serve this market. And I think this has been one of the key changers and obviously, it's been driven in part by what's happened to the -- with the introduction of shale gas, large-scale unconventional gas sources like shale, that are really changing the dynamics for our chlor-alkali industry and many other chemical manufacturing industries here in North America.

We have seen some increase in announced capacity this year. But it is still not making up for what we consider the long-term trends in industrial production. And I think you're going to see, in terms of the end-use markets for caustic soda in particular, you're going to see, I think, a renewed optimism and more competitiveness in industries like automotive. You're seeing actually more automotive production moved here to North America, to take advantage of lower energy costs, lower labor costs. And I think, I am now more optimistic, not only about the chemical industry, but about the U.S. manufacturing, more broadly than I have been in many years.

One of the outgrowth of this shale gas production has obviously been lower costs of natural gas for our chlor-alkali businesses. It's an important source of energy for us. We also have been moving out of the earlier hedge position that we had put in place when the concerns a few years ago were more about price breakouts on the upside, led by weather events or declining production. So you can see that we have been benefiting from these lower natural gas costs, but also, for PPG specifically, the burning off of the hedges that we had in place. So that now, less than 5% of our natural gas costs will be hedged for 2010, at these higher $7 to $8 levels. We put in about another 10% hedges for 2012, but at lower than $4, in terms of total or hedge costs. So this we will -- we think will be an ongoing advantage for our industry and for PPG in particular.

If we look at our segment result, this segment has delivered excellent results for PPG. We've talked about the natural gas impact throughout -- through the first 3 quarters of 2011. Margins are now over 20%, but they've averaged some 17% over the last 5 years. We do however, have concerns about the fourth quarter. We talked in our most recent caustic price increase announcement, that our availability or supply of caustic soda was being constrained by low levels of production and demand on the chlorine side of the molecule. We're seeing the impact now, if we look at -- if we have a wider window, 10% to 20% lower sales for quarter 4, with an impact on earnings versus quarter 3, that could be in the range of 20% to 30% in terms of decline. And depending on how we finish up the quarter, it could have that size, a doubling of effect from what we see as the sales decline. So again, 10% to 20% down in sales from the third quarter, 20% to mid to high-30s actually, in terms of an earnings impact potentially. It's still -- we're still midway through the quarter, but we wanted to give everyone an indication of the weakness that we have been seeing and the impact it will have on fourth quarter.

In 2012, we think the market will recover in the second half. But we're probably going to start off a little weaker in the first half than we saw in the first half or the first quarter of 2011.

The industry was helped earlier this year by the events in Japan. And we've been helped most recently, by another plant related accident in Japan, unrelated to the tsunami or the earthquake. And that will, we think, limit some of the export capacity in the near-term for the Japanese industry, and especially, in liquid caustic soda. So again, we have some variables at work but we wanted to make sure that you saw, and were aware of the supply availability situation in caustic soda for our fourth quarter.

So in summary. For these business units, strong global industrial and automotive OEM activity levels are continuing. We think we're going to -- we have more to go in this recovery from recession. And we expect them to continue here in 2012, especially in North America, and continuing in Asia Pacific. Optical and Specialty Materials, well-positioned for continued growth and penetration, and our Commodity Chemical business remains balanced with the U.S. maintaining a solid domestic manufacturing cost advantage, and our profitability will be aided by these structurally lower natural gas costs.

So what I'd like to do now is turn the program over to our Chief Technology Officer, Chuck Kahle. I'll be back for some wrap up comments. And then we can take some question and answers. Chuck?

Charles F. Kahle

Good afternoon. I'm glad to be with you today. It's a pleasure to present to you our Science and Technology strategy, actions and describe some of the results from our work with you today.

I'll begin by describing PPG's strategic vision for Science and Technology. PPG is recognized as a technology leader in the majority of the markets we serve. We have a long history of technology innovation resulting in numerous and exciting new products addressing the needs of the marketplace.

Beginning with PPG's first R&D laboratory in 1910, PPG innovation has created numerous advances, as you've seen in the talks today, in coatings, chemicals, glass and fiber glass. Our strategy is focused on market-aligned R&D, a strong bench of technical capability and the flexibility to react to market conditions.

This allows for a focused, efficient spend on the largest opportunities to PPG. The ultimate goal is to be best-in-class for creating new products, driving profitable growth and carrying out the appropriate work to maintain margins in the competitive environment.

PPG leverages core technology platforms to address new opportunities to develop new products for the marketplace. As I mentioned, our R&D investment is aligned with the markets we serve and fall into a variety of macro trends. PPG's product development portfolio, as I mentioned before, is customer and market-aligned and focused.

By aligning that investment with these macro trends, we ensure the largest return on R&D investment and provide the most value to our customers and shareholders. Key initiatives within all the businesses drive value by addressing real-world problems, such as improving customers, manufacturing plant energy efficiency, by reducing paint cure temperatures. And eliminating steps in our customers paint plants via compact processes.

Products that lower customers' environmental impact by reducing waste and eliminating raw materials of environmental concern.

Breakthroughs and corrosion performance that will protect surfaces from rust for years to come. Products that enhance consumer safety and security and the optical products and transparencies that enhance the lives of consumers increasing the comfort levels indoors and outdoors.

The markets we serve look to PPG for products that address real-world needs. All of our businesses are involved in significant product commercializations within these 5 macro trends and examples are shown here. With the current trends -- I'll just give a few examples, with the current trends in energy, our automotive business has commercialized the waterborne base coat technology called the Compact Process or B1:B2, which provides the colors -- or consumers value for their cars with the reduced footprint for the automotive manufacturing facility. By reducing the manufacturing footprint, PPG's Compact Process provide significant energy savings in both brownfield and greenfield manufacturing locations.

Environmental considerations. These have been the key driver for many decades and we continue to see significant opportunities for technology to address new concerns in the marketplace.

For example, PPG is actively trialing new coatings for beverage and food cans that don't contain bisphenol A, a chemical intermediate in many epoxy-based coatings used today. PPG is excited about these new technologies we are trialing with our customers.

Next-generation electrodeposited coatings. New to the world pretreatments, the next-generation coatings used to line holding tanks for ships as an example, continue to provide our customers with best-in-class substrate protection and long service lives.

To enhance consumer security, our Silica business is introducing thinner Teslin synthetic printing substrate to meet the demands in the marketplace for RFID smart cards and the latest in secure passports.

Finally, technology leadership assists the businesses in gaining market leading positions in all the macro trends described here. Two examples of differentiated technologies for consumer health and comfort are highlighted on the next slide with clear to polarized transition lenses and electrochromic windows. PPG R&D creates unique and differentiated products for our customers by combining technology in new ways to address unmet needs in the marketplace. Two examples shown here include optical and aerospace customers. Transitions is now introducing Transitions Vantage. This unique and new-to-the-world adaptive lens is virtually clear indoors and then darkens and polarizes outdoors. As demonstrated in the photos on the left, polarization allows significant reduction in glare caused by reflected light allowing less eyestrain and crisper, sharper vision under bright light conditions. On the right, LTL's windows are the world's first electrically dimmable window for aerospace cabin windows. These electrochromic windows replace the old mechanical shapes previously used and they allow you or the user to adjust the amount of light entering the cabin at the touch of a button. First introduced on the Hawking (sic) [Hawker] King Air and now available in the Boeing 787 Dreamliner. Additional benefits to the OEMs include weight savings and reduced maintenance costs. Both technologies are examples where PPG continues to work closely with our customers to identify market-leading value added products. One of the strengths of PPG technical organization is the ability to leverage core technology to developments from one part of PPG to another for new markets and new applications. I’ll pick 2 examples but there are many more. For example, cationic and anionic electro deposition of coatings on conductive substrates continues to find new applications in new markets. PPG has extended its world class chemistry from historic markets like it automotive industrial to now coat-complex parts for aerospace. PPG is in the final stages of approval for electro deposited coatings for aerospace customers to provide corrosion protection with significant weight savings, environmental benefit by reducing or eliminating chrome. Windmills are more efficient at higher latitudes due to higher density of the cold air, the problems occur due to icing of the blades during bad weather, obviously. This problem can interfere with the efficiency and productivity of a wind farm. SigmaGlide, is a nonstick power release coating for ships sold by our Performance and Rain Coatings business. This technology has been tested for ice release and has given some of the best test results ever observed by outside testing laboratories. This technology is now in modification to meet the demands of customers in the wind market industry and may have application to other markets. Technical resources are focused on margin maintenance, in addition to new products. Finding technical solutions to maintain profitability, strengthening security of supply and reducing complexity is part of the job in Science and Technology. PPG invests significant resources and has a long track record of accomplishment in identifying unique solutions to these problems and is organized in multiple ways to accomplish our goals. We begin by talking broadly about how we organize to attack these issues.

First of all, Science and Technology works very closely with purchasing and the businesses to set strategy, to establish priorities, and implement action plans to deliver specific milestones. Internal processes are in place to rapidly evaluate and approve alternative suppliers to our material approval program and our resin tolling approval program. These 2 tools allow our teams work closely together on a global basis and has accelerated our ability to capitalize on opportunities much more quickly have been in the past. Complexity reduction is core to our initiatives to capitalize on synergies. Tools are in place to help manage the extinction of old recipes and formulas and manage new ones to ensure we are not recreating the wheel. A global sourcing laboratory has been in place for many years and has a strong track record of performance. Some details are included on the next slide. The global sourcing lab is chartered with identifying and gaining approvals for any new source of raw materials of interest to PPG. The contributions from the team continues to grow, actions include improving our ability or the supply of globally-sourced titanium dioxide or TiO2, actions to reduce impact of epoxy inflation, alternative sources of more -- of more -- or less expense expensive raw -- or more expensive raw materials such as fluoropolymers, used for highly durable coatings applications, and alternative sources of basic raw materials such as melamine. The last 7 quarters are highlighted here for example, and you can see the number of projects and savings generated from those initiatives. Now clearly, TiO2 or titanium dioxide has become a more significant focus topic for PPG in the sourcing laboratory. I'll elaborate on our strategy to address concerns with TiO2 inflation on the next few slides. But before I talk about specific actions, let me start by introducing what TiO2 is and why it is of interest to the coatings industry. So this is your only bit of chemistry you have to deal with here for me, hopefully.

Titanium dioxide, is most commonly derived from mined ilmenite or leuxocene ore and processed to produce a white pigment associated with hiding, durability and whiteness in paint. Two well known processes are used commercially to generate this pigment: the sulfate process and the chloride process. Generally, the chloride process is associated with the highest grades of this pigment. Although more complex than shown here, the processes can be roughly broken into 3 parts: extraction of the ore; chemical processing to produce the TiO2 pigment particle; and lastly the application of a surface treatment or surface coating to create a durable particle. The TiO2 core with surface treatment shown in the photo there on the right, and because of its whiteness and hiding properties, TiO2 is very desirable pigment in coatings. Escalating in volatile pricing of TiO2 as we discussed has caused us to develop strategies to offset the impact.

PPG in the coatings industry has been faced with many complex technical challenges for a variety of reasons through the years. And through our history, PPG has successfully innovated new solutions to these technical challenges. Solutions to meet or exceed VOC and environmental regulations, step changes in corrosion prevention by developing cationic electro-deposited coatings. The

consolidation of coatings steps in the compact processes all require breakthroughs in technology. New complex technical challenges including TiO2 inflation, [indiscernible]-free coatings, repackaging and metal-free coatings all require the same level of focus and creativity to bring the right solution to the market. Finding innovative solutions to these challenges are similar to challenges we have overcome in the past. PPG is organized and has a strategy for delivering solutions to these challenges.

The next slide details our strategy on TiO2. Specific objectives, plans and metrics are in place for all 3 approaches to offset the impact of TiO2. We are using both internally-developed and externally-developed technologies to optimize the amount of TiO2 without sacrificing performance. The first approach is to use technologies to space the TiO2 particles out so that the efficiency of hiding is as high as possible. And the second approach, organic and inorganic materials, are under evaluation for their ability to improve the light reflection of the coating again to optimize the amount of TiO2 in the coating. The question of whether TiO2 could be significantly displaced by any other materials is another component of our research strategy. We have discrete initiatives underway to identify new tools to improve the light reflection of a coating without using TiO2. We are not relying on internal ideas alone, and have active initiatives with suppliers to capture the best ideas possible. These confidential projects are designed to move quickly to answer fundamental questions about light reflection and defraction so the decisions could be made once the tools are demonstrated.

In addition, we are also actively engaged in qualifying new market entrants, and new suppliers to expand and strengthen the supply chain. PPG has a significant know-how and expertise concerning the manufacture of TiO2. Our intention is to leverage our intellectual property and know-how to identify opportunities in order to secure and enhance the supply of titanium dioxide. Consistent with our strategy to drive profitable growth through our new products, more than 25% of PPG's Coatings and Optical and Specialty Materials sales are generated by new products less than 4 years old. PPG's continued success in delivering technology innovation is dependent on a healthy and robust pipeline. Our R&D portfolio continues to evolve as we identify emerging opportunities to develop innovative products from unmet market needs. Opportunities under consideration include sustainable products derived from natural raw materials, smart surfaces, this requires smart coatings with more functionality and capability in order to respond to/or manage their environment. Work has also taken place to develop new products that provide solutions for reducing weight, managing heat, and lastly color continues to be an area for investment resulting in new technologies that will enhance our customers’ experience.

Our strategy is focused on market-aligned R&D, a strong bench of technical capability and the flexibility to react to market conditions. Initiatives to be best in class for creating new products while sustaining margins in a competitive environment. A strategy is in place to deliver on this mission. I appreciate your time this afternoon and your interest in PPG. And I'd like to turn the podium back to Chuck Bunch.

Charles E. Bunch

Thanks, Chuck. And again, we'll -- I'll just wrap up for a few minutes here and then we'll have plenty of opportunities for Q&A. I don't know if anyone was trying to gauge the audience reaction there to some of the things that Chuck was talking about. So hopefully, you did ring a few science bells there in the audience. I know a lot of you have a technical background so I'm sure you'll be able to think of some things to talk to Chuck about.

All right. Just to wrap up our strategic initiatives. Again, this is a consistent theme for PPG, our strategy, visions have not changed. We're going to drive EPS growth from our continued expansion in emerging regions. Further market penetration in our key markets, capitalize on what we think is a less well-known part of our story, which is the expanding automotive and aerospace aftermarkets around the world. And as we've continued to build on this install base or our automotive or aircraft parts around the world, it does present a number of key opportunities for PPG. We still have markets which we feel we can grow in that are either underrepresented in our portfolio or present further opportunities for market consolidation. And we are going to be aggressive in deploying the cash that we have in terms of acquisitions and a consistent program of share repurchases.

If you look at our view of the 2012 macro environment, we talked about it. We think it's going to be a good year. However, we're going to see some challenges in markets, notably architectural in the developed markets. But we think that we'll continue with growth in the emerging regions, albeit at a slightly lower rate. Europe will be, I think, one of the markets we're going to keep our eyes on as we look to any follow-on reactions to the sovereign debt issues that we're seeing. But in general, we think that the dynamics for the coatings industry remain positive, consolidation trends are intact, and we think that the inflationary challenges that we faced this year will lessen for 2012. PPG's specific items we've talked about them, again, good growth in share opportunities, global footprint and our presence in emerging markets, really contributing in the same way that we saw this year. We were able to drive earnings -- record earnings year, good sales growth, even if not all of our end-use markets were growing, but we think that as we get through some of the challenges, especially in the construction markets and some of the issues that we talked about in these developed markets, this will present further opportunities for PPG, our execution focus and the balance sheet and cash resources that we have.

This is our outlook for the end-use markets by region. I'm not sure we've given you this snapshot but I think it encapsulates our view of where we're going to see our growth opportunities. And where we're going to have to focus a little more in terms of execution where we don't see as much growth in 2012.

Vision and strategic direction remain consistent. Again profitable growth and operational excellence. David Navikas talked a little bit about what we think are some of the notable financial items that will impact our results, cost savings from previous restructurings, volume challenges in some of our key markets, but lower natural gas cost in the market in general and in PPG in particular as some of those hedges, those higher cost hedges are burned off completely in 2012. Lower interest cost, lower tax rate than we've been talking about for a while as we've driven profitable growth in regions around the world that are at advantageous corporate tax rates. And again, the benefits to our shareholders of the more aggressive PPG share buyback program that we've talked about this year, and what that's going to do for 2012 and beyond as we continue to not only offset dilution, but continue to make that an important part of our capital spending for the years to come.

Our margin leadership, as you've seen, all of the coatings companies in the industry in general has been challenged this year by the raw material inflation. We've held up relatively well. So on a year-to-date basis versus last year, we're down just 0.4% or 40 basis points. That is better than many of our large industry peers. As you can see, they've suffered a little more margin dilution in their coatings businesses. And I think this is -- this speaks to the strong execution, the cost focused and our global business portfolio at PPG that has really helped us to deliver this margin performance. We've talked about the increased cash return to shareholders, and the importance of some of the other acquisitions that we've made, such as SigmaKalon, have not only have changed the capital spending profile, but have been important cash contributors to PPG's overall portfolio and enabled us to be more aggressive going forward in deploying cash for share buybacks, for dividends and also for strategic acquisitions.

Finally, the -- one of the final metrics are shareholder value creation. If you will look back 2 years now to January of 2010, you can see that PPG is leading the pack of its industry peers during this 2-year period in terms of returns to shareholders. And this is a record that we're quite proud of and we think there are more opportunities for us going forward. We're clearly ahead as an industry of the S&P 500, and our financial results and our cash deployment have really, I think, created an opportunity for our shareholders to gain from our strategies and tactics.

So in summary, before we turn it over to questions and -- from the floor, strengthened PPG business portfolio, aggressive cost management, strong execution in cash deployment. I think this is the first time that we've brought along our Chief Technology Officer, and I think he gives you a better understanding of our culture and how we seek to derive long-term value from our investments in technology and creating value for our customers and the marketplace and our strong cash deployment capability remains intact.

So that concludes our presentation today. We've had a lot of material, so I thank you all for your attendance and attention. And we have time now for further questions from the floor. If any of you would like to ask me or any of our -- my colleagues.

Yes, David?

Question-and-Answer Session

David B. Navikas

If you could wait until you have a microphone in front of you and then also state your name and what company you're with for the people on the webcast.

David L. Begleiter - Deutsche Bank AG, Research Division

David Begleiter, Deutsche Bank. Chuck, the other Chuck, this Chuck. On TiO2, can you quantify the potential reduction and replacement TiO2 over, are we talking 5%, 25%, 50% will TiO2 simply you -- simply requires selling [indiscernible] thawing [ph] formulations post your effort?

Charles F. Kahle

The target for 2012 is a 4% to 6% reduction overall. And we're trying to eventually achieve double-digit in the out year, 2013.

Charles E. Bunch

Okay. Kevin, you have a microphone?

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Yes. Kevin McCarthy, Bank of America Merrill Lynch. Chuck, a 2-part question on Asia. First, with regard to external growth, your M&A activity has been spread around the world, U.S., Latin America, Europe and Africa, but not so much in Asia lately. Is that coincidence, perhaps you can talk a little bit about what you're seeing in the private market there and whether or not we might expect a resurgence of activity? And then second part, with regard to organic growth, a lot of talk in the market about potential deceleration of construction markets in place like -- places like China. Maybe you could -- if you could address a little bit of this in your heap map in the final comments. But be curious for any additional color on those markets in your forward-looking growth prospects there?

Charles E. Bunch

Okay. Yes, Kevin. We made our last acquisition in the China was in the fourth quarter of last year, by run, it was a Packaging Coatings acquisition. And what I would say about the market in China, in particular, but this is also is more broadly in Asia Pacific. But in China, the many of the coatings acquisition candidates, and there are a number of smaller regional, architectural and industrial players in China. But the secondary IPO market, some of the smaller stock exchanges in China have presented an attractive alternative for some of these small coatings companies. We've been surprised frankly that some of the -- we're talking about, and there are companies are certainly less than $100 million and in some cases, less than $50 million would be attractive candidates for us and some of our peers. They have this alternative to go to the secondary exchanges and become listed at very attractive valuations. And even considering what we would view as a normal premium for a higher growth market like China, these valuations are typically double what we're seeing, what we would be comfortable paying. So that is one of the key reasons why we have not been successful in making some of these smaller or midsize acquisitions in China. Now, it depends on your outlook in China, whether you think that over time, the valuations in markets in China, this is in financial markets or stock markets, will normalize. And those valuations will become more, let's say, look more like what we would expect here in North America or in the developed world. Even for paying for that additional growth. So right now, we think, there's a little bit of, let me call it, a hothouse effect. Maybe the markets in China aren't completely open on a global basis so that you have more cash, chasing fewer opportunities or an inability to move outside of China with some domestic sources of funds. We have a similar situation in India right now. So our strategy has been, we're going to stay disciplined in what we're willing to pay in terms of a premium. We're not going to chase valuations that we don't think will create value for PPG shareholders. We're very well positioned in a market like China with our existing businesses, so we don't feel that there's anything that we really have to do in terms of strategically positioning our business. So we're going to just continue to execute to ride -- to drive our organic growth in those markets. And we think over time, the opportunities will present themselves because we think the valuations are somewhat lofty. And they're somewhat lofty, I think in part to -- due your -- the second part of your question, is there is some deceleration or lower growth now in China. We are seeing a little bit of a reduction in growth rate. So I talked about the automotive OEM growth rates in China, they were double-digit last year. They were still probably 10% or over in the first half. We've seen the Chinese Automotive OEM market probably now moved down into the single digits. We've seen a similar slowdown in the construction markets, especially on the East Coast. Most of the growth has moved west to the second to -- or third-tier cities. And I think there is an attempt by the central bank in China to control some of that growth in the Chinese market. So we're still seeing growth in our end-use markets in China but at a lower level than what we have seen, let's say, in 2010 or even the first half of 2011. Some bank credit tightening, and this is also contributing to our lower growth rates. And I think there is also a -- inventory management, both in China and in -- here in the developed world, in North America or Europe. I think everyone's being a little cautious, so maybe the export-driven markets in China not quite as robust, still positive, but certainly lower growth profile.

Yes, Don?

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Yes, Don Carson of Susquehanna. Two questions, when you seem to be typing earnings down about $0.25 between optical and chlor-alkali. Chlor-alkali sounds like we could qualify those demands so that, that's going to last for good. On the optical side, is it a volume shift into next year? Can you make up those volumes that you're losing as a result of the flooding or is that truly forgone as well? And then just on share repurchase, you're buying back $900 million this year, that's well above the $250 million of longer-term average. What should we think of as a new norm on share repurchase per annum?

Charles E. Bunch

Well optical -- for our optical business, we don't foresee longer-term effects to this crisis in Thailand. We are -- we view this as a, let's call it a more temporary change in supply chains. We have a couple of our key customers who are even more dramatically affected than we are. But the longer term effects, we feel, will be minimal. And in terms of share buybacks, Don [ph], obviously at this -- with 2011 close to $1 billion, I would say that's probably not our long-term target. It would be lower than that, but we feel like it should be somewhere in the range above $250 million, as you said, the average probably double that but not at the $5 billion or $1 billion level if we can in fact, find the right acquisition opportunities.

Saul. Okay. Yes. Saul, oh, excuse me?

Unknown Analyst

Two questions on transitions. Any way to deal with the use of Transitions in cars?

Charles E. Bunch

Chuck, do you want to handle this?

Charles F. Kahle

The lenses I'm actually wearing right now work behind the windshield of the car and they work quite well. They're Extra-Active, I believe is the brand name.

Charles E. Bunch

Yes. That's our Transitions brand-name for -- is Extra-Active.

Charles F. Kahle

And you can see the clarity of them indoors but they work perfectly well as sunglasses inside a car without changing glasses. So I recommend that brand, try it.

Unknown Analyst

I don't know if I heard anything about you advertising or pushing that concept, is that something that's on the come?

Charles E. Bunch

Well, we have -- yes, we have continued to try to position that product. Chuck, you might want to describe it, it's more sensitive to visible light, not just UV light.

Charles F. Kahle

Right. In most car windshields have blocked a lot of UV lights that's the traditional transitions you're familiar with in the past. So by being more visible -- sensitive to visible light, the light coming through the side and the windshield is more than enough to make these absolutely appropriate as a sunglass inside the car.

Unknown Analyst

[Indiscernible] second question, last year in the fourth quarter, your tax rate dropped I think to 21%. Is there any way that -- the tax rates in the fourth quarter are tough to estimate -- but can that be a partial offset to some of the headwinds in optical and chemical?

Charles E. Bunch

David, are you going to…

David B. Navikas

Well, that impact last year was as our rate came down to 27%, we had a catch up effect on the first 3 quarters of the year. So that is a function of the accounting, if the rate changes late in the year. And certainly, there's the possibility that, that could occur again. Our rate has been holding pretty steadily at the 26% level this year. But certainly, there's some possibility of some pressure on the downside of that, so that could be a factor as we get here to year end in 2011 as well.

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Jeff Zekauskas, JPMorgan. Two questions. You've talked about your innovation in reducing your use of titanium dioxide. When you look across the industry, do you think innovation will lower the normalized growth in titanium dioxide demand? Or are you an outlier in the scheme of things in titanium dioxide will grow 2% or 3% as it's always grown? And secondly, over a 3 to 5-year period, which do you think will grow faster, your emerging markets, industrial coatings demand or your North American architectural demand?

Charles E. Bunch

Okay. Well, let's take the first question, maybe Chuck and I can team up on this. We've talked in the past about what we would call bending the demand curve for TiO2. Obviously, I think the TiO2 industry position has been there's -- it's a tight supply-demand curve. So it's in our best interest, as a coatings industry, to try and let's say improve the demands that our industry places on TiO2, and hopefully bring this thing into better balance. But Chuck, maybe you could respond to, how do you -- do you think all our coatings colleagues our competitors are working on similar technologies? But Chuck, I'll let you comment on where we are and then there was also -- well, then I'll get to the second component?

Charles F. Kahle

Sure. The -- as I've mentioned before, the original target is to reduce will be around 4% to 6%, but the idea of completely replacing TiO2 isn't -- it's something that's possible, I will say. But what that is, needs to be discovered yet. It's an invention that has yet to be made. Physics are such that we should be able to identify something eventually that could do that. Now when would that happen? That's a key question. But it could take years. But our target this year is to screen as many of those most basic ideas as we can and bring those forward as fast as possible. So it's a quick fail, fail quickly kind of mentality. We're going to do it, we'll find a way. The other part of the strategy is to bend that curve in terms of enabling the use of more TiO2, and getting it from other sources. So that's part of the third strategy, is to enable more TiO2 down to the marketplace.

Charles E. Bunch

Now, then -- the other part of your question was emerging market growth versus North American architectural growth.

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Yes. Over a 3 to 5-year period.

Charles E. Bunch

Over a 3 to 5-year period. Well I think, I'm a believer in the growth in the emerging markets. Even if right now, we see some lower growth rates in the China or India, I'd say the next 3 to 5 years, if you look at the demographics, if you look at disposable income or any other factor, I think you're going to see solid growth opportunities. Now what I do see in the North American architectural business though, is an opportunity at some point, as we get through our mortgage crisis, the housing valuation crisis. So I would -- if you give 3 to 5 years, I would say, "Yes, this market is going to make a comeback." And I think it will snap back at some point. I'm not a -- I don't believe that it's necessarily in 2012. But if you look at our industry today, 600,000 housing starts in the U.S. is an unsustainably low number. I mean we -- okay, fine, when we were over 2 million in 2005 or in '06, you'd say, that was maybe far in excess of the normal housing or household formation and the like. But 600,000 is at least half of what we would consider a sustainable housing start growth rate. So I feel like there is now pent-up demand. So if you look at another market that is surprising us right now, which is the automotive market here in the U.S. Right, everyone is being surprised on the upside by the strength in the automotive OEM business. Even in the face of the Japanese crisis, we're seeing growth rates, sales rates, excitement about getting new cars. And so even though many of us would say the macroeconomic data and all the concerns that we have about the global economy slowing down should signal a slowdown in automotive sales. But actually, if you look at November, October, I think December is going to be another good year and good month. I think that you have an effect in automotive -- in the automotive market where you're getting somewhat of a snapback, that people are costly [ph] aging and so there is now more strength in the underlying economy would give us reason to believe so. So I think that will happen in housing. Those would happen in 2012, maybe not. We have had a series of housing and construction data points that are kind of up and down. But at some point, it may not be next year, but I think it will start by 2013. You're going to see a snap back and I think it will benefit not only our Coatings businesses, but some of -- we're tied to the construction markets in some ways in our Industrial Coatings business as an example. So I think there's a good opportunity, if you get that 3 to 5-year window, that we're going to have solid growth in the North American construction markets in that period. It may take a little while longer to get that in Europe because they are probably going through some of the crisis that we went through 2 or 3 years ago. But certainly, I see North America getting better and being, I think, an attractive market for us in -- whether in -- and I think within 2 years you're going to start seeing the improvement. This is unsustainably low at 600,000 housing starts.

Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division

Frank Mitsch, Wells Fargo. I just want to say CEO Chuck, thanks for bringing along Scientist Chuck. I thought Scientist Chuck your comments on TiO2 were very elucidating, so thank you for that. You also talked about BPA in cans as well, and it's starting to get a lot more oppressed, in terms of soup cans and so forth. So I was curious from your perspective, is this something that we could see a commercial impact in 2012 in terms of BPA replacement the Packaging area? And then if I could also ask CEO Chuck a question. Just talking about the automotive sector, one of a large -- one of your large competitors has been suggested in the press to be -- going to exit the industry. So I'm curious if you're seeing any signs of behavior that would confirm that in terms of aggressiveness on sales or perhaps some of the OEM customers calling you up and trying to make sure that they're aligned with somebody who is showing longer term commitment to the industry?

Charles E. Bunch

Chuck, I want you to handle the BPA.

Charles F. Kahle

The first technologies are -- will be commercialized in 2012. You'll begin to see sales, the bigger sales in the end -- near the end of 2012 and out beyond. So it's just the beginning. What you have to -- the steps you have to go through to qualify new materials in the food industry, they go through what's called pack testing and typically they'll take the beverage or the food packet with your coating on the inside of the can and then they have to go through many months of test just to examine for corrosion or other problems, and if -- flavor, for example. And that's a series of tests, those trials go larger and larger. And we've been in a larger scale trials recently. And hope over the course, next 3 to 6 months to see those results and to move into commercialization.

Charles E. Bunch

This has been probably a case, Frank, if I could just add to Chuck's comments. We're, I think, we've been working for quite some time anticipating this trend. And I think it's only recently that you've seen the non-governmental organization and consumer-driven organizations really step up and you've had governments now banning the use of or the content of BPA. So I think we're a little -- we're better positioned in many cases with products that we think are going to be great value added products in the marketplace. So I think we're very well-positioned, and I think you're going to start to see that in 2012. In terms of one our -- one of our competitors, we -- in this case, you're probably referring to DuPont. We have no knowledge officially that they are planning any actions or decisions on those businesses. But obviously, the rumors have been active. I think we've had a number of customers, distributors, and a number of industry participants who have called us, asking for insights or what's happening. We can only say and what we tell them is, this is our core business. Our Coatings business, as you know, one of the foundations of our Coatings business in PPG is our position in Automotive OEM. So this is a market that we're committed to. We've driven growth around the world. We've positioned ourselves as the #1 supplier in China and around the world. So in response to any of those inquiries, we say we don't know. But we're committed and we will be a reliable supplier to this industry. And then we'll just have to see what would happen over the coming months, if some of these rumors are acted upon and does that percent some opportunities for us short to medium term. Or the ability for us to kind of afford some stronger relationships and solidify our position. But that's how we would take that. But certainly, we don't have any firm knowledge, just a lot of phone calls coming in, saying what's going on. We tell them we don't know. But we know what our strategy is and you can count on us. Yes, Gregg?

Gregg A. Goodnight - UBS Investment Bank, Research Division

This is Gregg Goodnight of UBS. But Chuck, you seem to imply that M&A activity this year was a bit below what perhaps your internal expectations were. And you mentioned the issue of valuations in China, My question then is, were there other factors involved, I think that sort of slowed down M&A? Is it -- was it merely a timing issue? Should we be expecting a increased activity in 2012? And then could you sort of give us an outlook for perhaps what your expectations are in the M&A front for 2012?

Charles E. Bunch

Well, M&A, is -- we're committed to the industry consolidation and participating in that. And so M&A activity for us is a part of our strategy and we're working very hard at it. But again, it is a strategy that we -- still remains within our kind of disciplined approach to things, especially financially. We're going to want to pay what we think is the right valuation, and sometimes, there's some dislocations in that. I think that we talked about some of the ones in China or in India in the public markets. But sometimes, there's perceptions about what's going to be the growth rates. We have some concerns about our growth in some of the markets in Europe. So you don't want to also jump in there and say, okay, well, this thing -- Europe is probably a bigger opportunity in terms of overall consolidation, it's a more fragmented Coatings industry there. But we're going to be realistic because we are there in the marketplace. We know what the outlook is for the next couple of years. And we're very interested in M&A in Europe, but it has to be what we would consider a realistic view of what the growth opportunities are going forward. So I would like to say that we're going to be able to find those. Coatings companies have or however, as you know good cash flow and less needs for capital expenditures. So it allows the Coatings industry to do very well, if you looked at our performance during the recession in 2009, both here and in Europe, and it was actually quite good. The margins were under some pressure from the volume declines, but we had raw material declines at that time, not in a lot of need for capital expenditures. So there were coatings companies that were getting into a lot of trouble because they've been too aggressive on debt and the like. So it's a more stable industry for that reason, so sometimes, you don't find quite as many kind of distressed cases where the valuations are good. We hope though that some of the shareholders of some of these other companies will lose a little bit of patience and say, “okay, well I'm more interested in making a transaction with PPG.” That was the case of Dyrup, that's a much more diversified industrial company. They've been playing in Coatings, it's a pretty good market for them, but I think they saw things getting tougher in terms of the consolidation, dealing with bigger players, some of the raw material inflation. So they were willing, I think, to part with that asset at an attractive price, so we're going to be opportunistic. But I would say that I'm disappointed a little bit. I'm not disappointed that we spent $900 million to $1 billion on shareholder -- on share buybacks. I thought that was a good use of our cash. And I think I gave you a good signal that we're committed to being more aggressive. But I would say I'm still a little disappointed that we couldn't find some better opportunities in M&A, so we're going to continue to look but we're not going to drop our disciplined focus.

William Young

It's Bill Young at Chemspeak. Chuck, you mentioned how reduced coating output was going to take a piece of your caustic volumes here in the current quarter. Could give us an idea of how much price momentum you've been gaining in the area of third quarter, fourth quarter. You said you might get into a hike in the first quarter? Can you give us some idea about it? Related to that, TiO2, how much momentum has there been in Europe paying higher prices from quarter-to-quarter, is it slowing down or is it just -- where do you stand on that?

Charles E. Bunch

Chlor-alkali, so right now, I think we've talked a little bit about the availability of caustic soda in this quarter because of the lower production of chlorine. Pricing however, you've seen some of the pricing initiatives over the last 10 days or so. We had some announcements that came out, again reflecting the shortage of caustic. You had industry announcements at the $80 levels, several participants announced at that level, we came back at $45 a ton in our announcement. And then we had another competitor come out with a price around or closer to our number because we went through this a couple of years ago when we did have a shortage, the price of caustic really, it really went high a couple of years ago. So I think at this point, we think this is a temporary situation in terms of availability. But we think that the pricing dynamics for caustic are on the high -- are moving up, we'll capture a lot of this increased announcement. But chlorine, the pricing at -- for chlorine has been stable, it's slightly lower, so that's a little bit of the offset as we go into -- as we go finish up here in the fourth quarter and go into the first quarter. And your second question was on TiO2. Well...

William Young


Charles E. Bunch

Right. Well, we think it's called -- the rate of increases are going to slow down. I've talked about, in some of my remarks, after the third quarter earnings release, there is supply availability in China. Prices have declined in China and in Asia, in general. Most of our usage in Asia is domestic or Asian supply which are coming in at not a lower increase, they are at lower prices right now. So there's plenty of availability, prices are lower in Asia. We understand that, that material now is making its way out of China and out of Asia. There have been a couple of production events however, at the kind of the global producers, so what -- how that's going to play out in terms of the overall supply demand. One of our suppliers called us and said, "Hey, we've had an incident on our plant, we're going to be shut down for a while." And we said, "Well, we have material right now so we're covered." So the supply-demand balance, I think is more favorable than it has been for some time. Pricing or discussions however, as we relate it in our remarks today, there is still a talk of higher prices for the global producers here in -- as we're ending up in 2011 or next year. It's a difficult discussion because we think that the supply-demand is more in balance right now. We actually -- we're a participant in the Chinese coatings market so we know that there is available supply, and there has been some announced capacity here outside of Asia but that's a longer-term play. So there's a lot of puts and takes here. But I would say, we view it as more favorable industry condition. But nonetheless, we're working hard, as Chuck said, to more efficiently use TiO2 in the products, replace it where possible. And also to facilitate supply whether that means working with suppliers in the industry that we haven't traditionally worked with, or using some of our PPG proprietary TiO2 technology from RDAs producer to improve the quality and capability of some of these alternative suppliers in the global marketplace. Yes Bill?

William Young

Just 2 graph interpretation questions, both from your Industrial Coatings section, Chuck. On your Graph 9, you quote 5% global industrial production growth in 2012. But could you just give the GDP and the global industrial production assumptions by region that you're using?

Charles E. Bunch

Well, I think if you look at the chart in the back, Bill, where we try to do by region, kind of the red, yellow, green by end-use market, by region, that will give you I think the best overall view of our outlook. But it would be a positive growth in Asia Pacific, positive growth in North America, flat growth in industrial production in Western Europe. But again, Asia Pacific is both continuation of growth in industrial production in the, let's call it, the emerging regions like China and India. Recovery in Japan from the earthquake and tsunami and continued good growth here in the North America, in industrial production as well as South America although it's a smaller part of the global marketplace. Is that helpful?

William Young

Yes. But it sounds like you're thinking north of 3% global GDP growth next year?

Charles E. Bunch

I would say it's around -- or our global GDP, it's probably industrial production is going to be a little -- 3%, is probably a little on the high side, it would be just a little below that.

William Young

Okay. And then the other graph interpretation, is [Audio Gap]

My chart is missing the Y axis. So just looking at the U.S. versus other regions the delivered cost…

Charles E. Bunch

This is chlor-alkali?

William Young

Is Chlor-alkali. Yes.

Charles E. Bunch

Were you looking for the X.

William Young

Actually, Y axis. It's just my book is missing.

Charles E. Bunch

No, it isn't. I think it's missing. We -- it's supposed to be missing. But we can, if we can provide some more color, we try -- in any of our businesses, we try to look at the landed cost for anyone that's importing or exporting. And so what we -- this was done more from the standpoint of what is the landed cost for offshore producers bringing material in. But we're now also starting to do the inverse equation which is how competitive is North American production to begin to export. So in the past, especially in markets like chlor-alkali or caustic soda, when the prices ran up, you saw a lot -- you saw some imported material coming in. And you also saw some concerns from the industry or the analysts, the community that said, "Hey, the U.S. is going to be uncompetitive going forward because of what's happening in the Middle East, et cetera, with -- in this industry or a lot of other industries in -- or markets in chemicals." So this is designed to support the theme that the chlor-alkali or chlor-vinyls channel -- chain will be domestically supplied in the U.S. But I think there's a lot of companies also looking now at can we -- will we and how competitive will we be exporting from North America. And if you look at what's happened or some of the questions around the Japanese auto industry. Now what's happened since the tsunami, 2 things: one, they had the increase in the yen; and then overall, supply chain concerns for the automotive industry. So now for the first time in the generation, the Japanese automotive industry is kind of rethinking their strategy of just exporting substantial quantities of their global production from Japan. And so we're the beneficiary, that's one of the reasons I'm more optimistic about the automotive industry here in North America because not only are we rebounding on the sales side, but there's more and more production coming in. Likewise, some of that capacity that's come back on in Japan other than this recent to-so accident in chlor-alkali, they were globally competitive only because they had very low cost nuclear power that was subsidized in a way by the state. So I think you're going to see now the Japanese kind of rethink their export strategy in energy intensive industries. We've already seen the Chinese change, well the Europeans do not have the advantages that we have with this low cost natural gas. So this chart, and we can give you maybe some more data, this is more from the kind of can we resist imports into the U.S. market. But that's probably just -- it's probably as more relevant to talk about, where can we expect to now as a region in terms of chemical manufacturing. And we're back to a situation like the '90s where the U.S. chemical industry was always a net exporter into the world because we had lower cost, natural gas at that time, it was only when this 10-year period of this past decade before the shale gas was being developed where we were being restricted from gulf sources, natural gas supplies were dwindling, costs were $8 plus. So I think the more relevant, actually data that we can help you with is how successful is the industry going to be exporting now.

We have some in the back, question?

James Barrineau - Citigroup Inc, Research Division

James Barrineau, Citigroup on the fixed income side. Just talking about chlor-alkali. A competitor of yours recently stated they felt that there is room for one more consolidation in the chlor-alkali industry, specifically in North America. First, do you agree with that? And secondly, would you, if that were the case, if there were consolidation, would you be a buyer or a seller?

Charles E. Bunch

I think there is still some consolidation opportunities. There is some very smaller producers, similar to the Equa-Chlor acquisition. So there's still a few smaller guys. And there are also a few new, I would say, there are other producers, although some of them are -- it's part of their integrated chemical production strategies. Our desire would be to be a seller in a consolidation opportunity. So that would be consistent with our strategy. But we're not -- if there are some changes in the industry, that's our strong preference would be to be a seller rather than a further consolidator. Although, we still have to look at the long-term value of our business and how that would be enhanced by any action buying or selling preferentially or buying, what would that impact be on our overall company.

James Barrineau - Citigroup Inc, Research Division

Chuck, can you give us any insight onto -- into your intention for your mercury-cell chlor-alkali plant? About any -- the timing of that?

Charles E. Bunch

We're still evaluating that. We're having discussions with the appropriate regulatory bodies in West Virginia and more broadly. So right now, we don't have any announcement on any proposed timing, that's obviously something that we're evaluating and have been for a number of years now. We're not ready at this point to announce what our intentions are.

Yes, David?

David L. Begleiter - Deutsche Bank AG, Research Division

Dave Begleiter, Deutsche Bank. Which -- on the Chinese deco market, how important is that the market to you guys? With the current size and what are the challenges for growing up -- growing your share organically versus the acquisition.

Charles E. Bunch

Well, it's about a $4 billion market, number one. Number two, it's -- it is strategic for PPG. And I think I to answer your final question, Dave. I think to gain the sort of scale there that we would like, that we would be looking at acquisitional growth there as opposed to organic.

Unknown Analyst

You spoke about a number of relatively newer products. If you can kind of rank order a few of them in terms of their contribution to incremental sales growth as you see it? If you kind of think about the percent of sales that might come from new products as you look out 3 to 5 years?

Charles E. Bunch

Chuck, do want to talk about your targets here? For new product sales.

Charles F. Kahle

If you look at the slides I used, there's a couple of products in there that will be large contributors to our new product sales going forward. There are 3 that I can point to directly: one is Olympic ONE; the other is what we called seventh -- the seventh generation electrocoat, it's been rolled out extensively in the past year and continues to grow, then the third largest contributor in our go-forward new product sales is the Compact Process B1:B2 in automotive with the growth in -- certainly in the emerging regions, and brownfield as well as greenfield in the developed regions. Those would be the top 3 contributors. Of course, the other large contributor, we talked about Transitions Vantage, that's an exciting new product that we'll have to look forward to. And I'd say the other -- in the category, if you're looking at the top 10 LTOs Windows, it will be a large contributor as well.

Unknown Analyst

What's your target? Do you have a percent target for sales from new product?

Charles F. Kahle

Yes, we have a percent target of 30%. Currently, at over 25% contribution from the Coatings and Optical businesses. And with a goal to grow it to that 30% or beyond.

Charles E. Bunch

Within 5 years.

Charles F. Kahle

Within 4, Chuck.

Charles E. Bunch


Charles F. Kahle

Four, Chuck.

Charles E. Bunch

So that -- and typically, you won't -- a product prior for our size company, you're going to -- I would say you have to hit at least $25 million to kind of make it onto our screen. But most of these opportunities are $50 million to $100 million-plus. Some of that, however, is product substitution. So these aren't necessarily -- although the transitions products are kind of new to the world things, some of these other products replace existing products in the portfolio.

Unknown Analyst

And can you comment on the LTOs as to whether the backlog is increasing on some other manufactural platforms?

Charles E. Bunch

Backlog is increasing? This is the LTO electrochromic windows. So you have some new opportunities, right Pierre?

Pierre-Marie De Leener

No, I thought of the 787 is concerned, so that -- this is really in line with the planning of the deliveries of the plane. They're at 1 to 2 planes a year and they expect to be to 25 to 30 next year. So this is an opportunity that will really take off end of 2013. It's already there in the market, but end of 2012 and the beginning of '13. However, we have a new customer interested in that technology so I won't go further than that, but that was in the commercial side of the aircraft but also on the business side.

Unknown Analyst

And if I may, is BMW a customer?

Charles E. Bunch

Yes, they are.

Unknown Analyst

I saw a show, Ultimate Factories, and they talked about how the paint room is generally a bottleneck for plants and they were highlighting there a new plant in South Carolina and how they were able to eliminate a step or 2 in terms of the coating process, I think they're going to pre-paint side and is that largely a function of some of the newer coatings that you have come up with that they've been able to do that?

Charles E. Bunch

Yes, actually that's what Chuck was referring, to this B1:B2 process, it's a new automotive OEM process. That's our technology in Spartanburg. And in fact, we had an Investor Day 2 years ago at that factory. And many of -- I think some of you probably attended that Investor Day and the tours and demonstrations. So BMW's an important customer. Paint shop for an automotive OEM manufacturer is the largest single capital investment. And it has been considered a bottleneck to either increasing speed and productivity. So they have been searching for new innovative technologies to lower, to improve energy usage, improve appearance, but also lower the capital intensity of that part of their production process. So we've been very pleased with our success in this B1:B2 Compact Process we're eliminating the primer step, reducing ovens and energy use. So it's been a very attractive new technology for the automotive companies, BMW included.

Unknown Analyst

And just last question, on the SigmaGlide products, you talked about the ice release off of windmills and such. Is that something that could have a housing or a roofing application?

Charles E. Bunch

I'm not aware of any -- a market poll for -- of that, but if you know someone, I'd love to talk to them. But it does have very good anti-icing properties.

Unknown Analyst

I know plenty of people have paid to have people shovel snow off their roofs.

Charles E. Bunch

Okay. Yes, I know. I think that's a good idea. We'll pursue it when we get out of the meeting, and we'll see if we'll -- if we get some traction on that, traction on the nonskid or slick coatings, we'll give you some credit for that. Good idea. Okay? Yes.

Unknown Analyst

Alina Heiken [ph] Credit Suisse. On -- based on these stories you mentioned that you wanted to grow in all regions. So how should we think about the growth rate by region and how will you get there by region? Either M&A or organically?

Charles E. Bunch

Well, I think take -- just take it a little bit by region. I think, as I mentioned, David's question earlier. In our -- our growth in China it's probably going to be acquisitive growth rather than organic. We have 660 stores in Europe. We would be growing those through potentially -- there's greenfield and new stores in the right places, we're also active in M&A by buying distribution in Western Europe, and for that matter in Central and Eastern Europe as well. We've been organically opening stores in Central Europe. This year, we have over 120 stores in Central Europe, we've opened probably about 15 stores in the last 6 months. In the United States, I think we're probably comfortable with the store count growing into about 1,000 stores. And I would say the same in Latin America, we're looking at acquisitions in that part of the world as well. And that's probably the way we would advance our store count in Chile and Brazil.

Charles E. Bunch

Okay, it looks like we've completed the Q&A portion. I wanted to thank all of you for your attendance and interest in our company. And we've really enjoyed being with you today and sharing our stories. So thank you very much, and we wish you all a happy holiday season, a great end to the year, all right? Thank you.

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