Ladies and gentlemen, thank you for standing by. Welcome to the Axalta Coating Systems' Second Quarter 2016 Earnings Conference Call. Presenting today will be Charlie Shaver, Chairman and Chief Executive Officer and Robert Bryant, Executive Vice President and Chief Financial Officer. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Today's call is being recorded and replays will be available through August 5. Those listening after today's call should please note that the information provided in this recording, will not be updated and therefore may no longer be current. At this time, I would like to turn the call over to Chris Mecray, Vice President of Investor Relations for few brief legal notices. Please go ahead sir.

Thank you and good morning. This is Chris Mecray, Axalta's VP of Investor Relations. We appreciate your continued interest in Axalta and welcome you to our second quarter 2016 financial results conference call. Joining us today are Charlie Shaver, Chairman and CEO and Robert Bryant, EVP and CFO. This morning, we released our second quarter financial results and posted a slide presentation to the Investor Relations section of our website at axaltacs.com, which we will be referencing during this call. Both prepared remarks and discussion during this call may contain Forward-Looking Statements reflecting the company's current view of future events and a potential effect on Axalta's operating and financial performance. These statements involve uncertainties and risks that may cause actual results to differ materially from those forward-looking statements. The company is under no obligation to provide subsequent updates to these forward-looking statements. The presentation also contains certain non-GAAP financial measures. The appendix to the presentation contains reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. For additional information regarding forward-looking statements and non-GAAP financial measures, please refer to our filings with the SEC. I would now like to turn the call over to Charlie.

Thank you and good morning everyone. We have a number of developments at Axalta, we are excited to share with you today. We delivered a great second quarter, we have announced three highly complementary high-return acquisitions in June and July and we continue to deliver on our long-term strategic goals. If you would turn to Slide 3 of our presentation, we generated solid organic sales growth and continued strong profitability as well as cash flow from business as a whole in second quarter. This gives us continued confidence and our ability to need the full-year goals that we laid out back in February and affirmed in April during our last quarterly call. Second quarter net sales rose 4.2% from last year before the impact of currency translation. This growth was driven by fairly balanced combination of organic volumes and strong price and mix including robust growth in performance coatings as well as stable transportation segment net sales in spite of demand challenges in certain commercial vehicle end-markets. Adjusted EBITDA was largely flat in the second quarter at $253 million, versus $256 million last year. You may recall that we mentioned on our last call, the comparison would be something of a hill to climb against last year’s particularly strong second quarter, which included strong refinish performance and robust volume growth rates in both transportation and end-markets. Accordingly, we are very satisfied with our results for the second quarter, given what is a difficult year-over-year comparison. Adjusted EBITDA margin for the second quarter was also very solid, up overall 30 basis points to 23.7% versus 23.4% last year. This outcome includes good volume and price drop through particularly from performance coatings. Focused on our productivity initiatives, we remain on-track for the full-year target of achieving $60 million in combined savings from…

Thanks Charlie, and good morning everyone. Please turn to Slide 4 for a summary of our second quarter consolidated results. Net sales in the second quarter on a constant currency basis increased 4.2% year-over-year, driven by strong 7.8% growth in performance coatings offset slightly by 0.7% contraction in transportation coatings. This growth was driven by a fairly balanced mix of 2.8% volume growth coupled with 1.4% average price realization. Foreign currency translation reduce reported net sales by 6.9% in the quarter, which was somewhat less than 11.1% currency headwind in the same quarter a year ago and fairly in-line with the 6.4% seen last quarter. The majority of the currency impact seen in the quarter and estimated to come in the second half of this year relates to the valuation of the Venezuelan Bolivar. We also review the basket of our largest currency exposures in the appendix for this presentation. Looking at sales volumes in the second quarter, we accomplish solid 2.8% volume growth led by performance coatings with growth in all regions. As well as in transportation coatings, which saw volume growth across developed markets offset by ongoing weaker results in emerging economies, particularly in South America. Positive price contribution of 1.4% in the second quarter was generally as expected, as we have noted overtime that we expect volume to exceed price as a bridge component of net sales. For the period, we also saw more price contribution from performance coatings and transportation coatings, again to be expected in the currency competitive environment. Second quarter adjusted EBITDA of $253 million was just shy of the very strong $256 million result same quarter last year. This profit growth included a 30 basis point bounce in adjusted EBITDA margin to 23.7% driven by positive volume and price leverage as well as…

Thank you. At this time, we conducted a question-and-answer session. [Operator Instructions] Our first question is from the line of PJ Juvekar, Citigroup Please proceed with your question.

Hi, good morning. This is Dan Jester on for PJ.

Hey, good morning Dan.

Good morning, Dan.

Good morning. So in your first quarter and this inclusive of the performance segment. In the first quarter, you had a pretty substantial foreign exchange headwind, but you were able to grow margins in that business year-over-year about 100 basis points. In the second quarter, I know you called out that FX was a little bit stronger sequentially, but margins decline. So is there something else going on there and maybe you could help me bridge kind of the first quarter versus the second quarter on margin close?

So the FX impact in Performance Coatings in general that we saw especially compared as we look at the Transportation Coatings segment, is really more reflective of the mix in sales in each period from the countries with the higher currency exposure. I know you are asking overall, but the since the overall is comprised by both performance and transportation just to highlight that. So part of what you are seeing is the fact that the OEM business in particular in some jurisdictions of higher levels of FX impacts such as in Latin America that business is smaller in size than it was given how much it's contracted and therefore you are seeing more of an FX impact relatively speaking as a percentage of the overall mix of Axalta in Performance Coatings.

Okay. And then moving to the commercial vehicle business. Thank you for the color that you gave in your prepared remarks. I’m just wondering what kind of visibility do you have on your customers second half plan may be kind of split between the truck and the non-truck market and it seems like at least for you that comparables do get a little bit you are going in the second half. So can you kind of talk about sort of the relevance - what the market is doing versus how we should think about your own business performance in the second half? Thanks.

Yes, this is Charlie. Our visibility when you think about in the developed markets like North America, we normally get one to two quarters as they look at their backlog and they let us know how things are going. And you are right, I think as we look into the second half of the year, when you look at truck bills North America large prime vehicles, the majority of the pullback is pretty much half and see pretty stable operating rates. I think this year number around 230,000 bills seems to make sense. In the non heavy-duty truck and bus segment when we get into just more spray customers that tends to be hundreds of accounts and I would say most of those customers at EMEA here in North America and Latin America they can normally look at about a quarter and get a pretty good view, those businesses are not that dynamic, they are pretty much GDP driven, but I think the second half of the year is a little more predictable than we saw in the first half. Certainly we see more stable conditions than we did as a couple of these markets for pulling back earlier, late last year and earlier to this year.

Great. Thanks very much.

Our next question is from the line of Ghansham Panjabi with Robert W. Baird. Please proceed with your questions.

Hey guys good morning.

Good morning Ghansham.

Good morning Ghansham.

On the auto refinish growth of 9.3% for the second quarter, I guess first of what do you think the market as a whole grew as you see relevant? And second, you also mentioned expected share gains from back half of the segment on Slide 3. I guess what segments of the refinish market are those share gains coming from?

I mean I think we saw growth in all four regions on refinish. So you kind of have to look at regionally how you think those markets are growing, I would tell you in North America and in EMEA, refinish markets are flat to may be up 1% to 2%. This year fairly Asia Pacific growing somewhat faster than that when you look at areas like China and India and in Latin America basically flat. So, I think that what we have seen on share gain versus just certainly picking up some from just slight market growth, but I think share gain is coming in the form of technology where more we are seeing really rapid growth in our water borne products around the world. So there is a mix change there going on as well, it certainly effect volume, but we are happy with that. But then also just people are looking for more productive systems and a lot of that growth around the world is coming from that as people not only shift from lower end products in some cases higher. But even in some of the lower products people looking for more productive systems better color match, all the things you have heard us talk about before. So I think it was a big step-up in the second quarter for some specific reasons, but overall, again I think its customers coming just looking for ways to be more efficient, more productive and we think across the chain whether it’s economy, mainstream or premium products, we saw growth in all four regions.

And Ghansham just to complement what Charlie said. As you know, we had a strong second quarter in refinish last year. So the strong performance this year, I’m sure calls out of couple of questions. And the short answer on that at the customer level is that we have had some quite a bit of customer win in North America and as we have converted those shops and been in the process over the last few quarters, we are starting to see the top-line impact of that. And then secondly in the European region, we have also had some nice wins and as those shops have interpreted over you are also starting to see that ramp up as well.

Okay. And I guess just my second question, I mean obviously we are halfway through the year, your EBITDA guidance is still quite wide. I guess what would drive the significant variance between the high and low-end from your perspective. Are you kind of factoring in some volatility or noise associated with Brexit? Thanks so much.

I think as we think about the year, we are very happy with the performance in the first half and I think it’s again just bears various mentioning that the overall markets have been quite volatile and there have been a few events. Brexit is not a major component for us, the UK is only 2% to 3% of our total sales as a company. Most of those sales are in refinish and industrial, which are pretty stable markets for us in that region. So given the overall low sales contribution or lower sales contribution coupled with the businesses that we are in there, that we don’t think will be major drive for us now. How that develops in the back half of the year in terms of how the overall European Union reacts to Brexit that could be something, but as it currently sits today, we don’t see that as a material change in terms of how we are thinking about the region. As we think about the guidance more broadly, the top end of the range or the bottom end of the range, as we have highlighted before, it’s really about global macro and if global macro is supportive, I think you will continue to see as perform well. If global macro pulls back, I think that would pull us down more towards the bottom end of the range.

Okay. Thanks so much.

Our next question is from the line of David Begleiter with Deutsche Bank. Please proceed with your question.

Hi. Good morning, gentlemen. This is actually Jermaine Brown filing in for David.

Good morning, Jermaine.

Good morning, Jermaine.

Good morning, good morning. In regards to these three bolt-on acquisitions. Can you just comment on the margin profile in relation to the overall companies EBITDA margins?

So the acquisitions that we have made over the last months, I think are reflective of companies that are in higher margin niche coatings markets that have similar competitive dynamics as many of our markets in which we already participate and also in geographies where those businesses have attractive margin profiles. So I think compared to the overall company margin, it’s in-line, with how we think about things and as we move forward I think we see opportunities to increase those margins as we integrate those companies into Axalta and go after some of the synergy opportunities.

Understood and in terms of the M&A pipeline can you just comment on the status of that and what sort of returns are you looking for going forward?

Yes this is Charlie. As part of the M&A pipeline I think it remains I will describe it pretty robust, it's really the last two years we have looked at numerous opportunities around the world, you certainly see the profile right now we have now done bolt-ons in EMEA, well will actually in all four regions now. So I think we continue to look at opportunities with equal weight around the world. Clearly North America is a preference in certain markets for us just because they help the economy, but I think we will continue to look at opportunities around the world and remain disciplined. I think we remain disciplined in the multiples we will pay, in some of these acquisitions we look to stagger the payments and do earn-outs to keep the owners involved and excited about to delivering on some of those synergies and growth opportunities. So I think we will remain disciplined on what we will pay for acquisitions, there is not a specific - every one of them is a little bit different in what we are looking for as far as our return, is some cases it's more growth, in some cases it's more synergy related, technology related, market access related. But overall as Robert said, I think we look at businesses that share the margin profile we have and we look to increase those along with being able to improve the growth prospects for the company. But again, the pipeline what I would say pretty active right now. We have certainly seen with some of the recent M&A activity out there some owners expectations as far as the multiples trying to go up. But we haven't actually found that we have had to pay anything more than we would have wanted to for these acquisitions and try to structure them for the advantage to the owner to stay with us and work with us for a while.

Understood. And finally, can you comment on the raw material environment?

So overall raw material environment as we look at our basket of products, I think we expect raw materials to be fairly flat in the third quarter compared to what we have seen in the second quarter of 2016. Oil prices of course have flattened out. Our expectation although we could be wrong is that we would expect to see oil prices and some of these prices kind of stay kind of in this range with the near future at least according to what we are seeing in the marketplace and some of the market [technical difficulty] that we are looking at. If we look across the basket of what we buy pretty much everything is either flat, slightly up or slightly down in terms of what we are seeing from a pricing perspective. Nothing is really material up or materially down. So I think that gives you a sense of how all these [indiscernible] moving forward.

Thank you very much.

Our next question is from the line of Christopher Parkins with Credit Suisse. Please proceed with your questions.

Perfect. Thank you very much to hit on this a little bit within the auto OEM segment can you just walk us there is very quickly any key trends in the US, Europe, and China and in China in particular if there is anything regarding comps versus 2015 as well as our Outlook for the ramp of some of the new facilities that would be particularly helpful. Thank you.

Yes, sure. This is Charlie, let me comments and then may be Robert will add a little detail. What we would look at is not so much overall country trends or region trends, we tend to build our forecast based on our specific OEMs and that’s how we kind of look at the world. I would say North America last year and this year continued favorable trends in our business both in technology shifts from some business that we've acquired, but also just certain of the OEMs we’re aligned with are doing particularly well. And in EMEA, again not year-over-year for us with the OEMs that we are aligned and we think both of the trends for North America and EMEA certainly will continue through the balance of the year. For North America, we include, although Mexico is part of Latin America for us, we always look at Mexico as part of North America from the standpoint of the OEMs balanced our production. In Latin America, specifically South America, Brazil, we've seen it flatten out now, no more downward pressure. It certainly seems to be maybe the Brazil is bottoming out with car build of around 2 million this year. we will just have to kind of wait and see over the next quarter or two, if there is some consumer optimism return once you get pass the Olympics, in dealing with trial and some things like that. In China, our OEMs continue to be pleased with overall China business. Certainly as we go into this year, it’s more stable than it was last year, we saw in third quarter last year if you remember certain OEMs took big shutdowns, extended those shutdowns. So we see the environment fairly stable in China for us. We've got some new businesses over the next year that comes online and the OEMs were more aligned with the multinational OEMs than we are from the Chinese OEMs. So I would say there growth is going to be slower over the next year, the multinational’s versus the Chinese OEM’s. But again, I think they are both segments that market tend to be pretty healthy, fairly stable and we just see normal shutdowns right now. Model changeovers, there is certainly a shift, more crossover SUVs and things like that going on. But overall fairly stable marketplace at this point, we are just kind of focused on some initiatives we have over the next year over there.

Perfect.

Just to complement what Charlie said there, on light vehicle again. North America is very strong consistent with what you are seeing in some of the market forecasts. EMEA, I think, I have mentioned on our last call that we want even better performance that we had in the first quarter and that came through in the second quarter, I think we are happy to report. Latin America continues to be challenged. And then as Charlie said, the overall market conditions in Asia-Pacific continues to be favorable. We did however have one of our large customers in China idle their plant for a few weeks in the quarter, which did somewhat impact our sales.

That’s very helpful. Thank you. And very quickly on your cash flow of $197 million it appears better than expectations with you in perpetuity to lower working capital use can you just comment on the trends that led to these improvements both in the present and probably more importantly the future, as well as you are balancing some of these improvements with the potential needs for growth prospects. Thank you.

Sure. Happy to do that, we had in material improvement in working capital as you see, if you look at some of the first half data total company work for the quarter. You will see it’s a substantial improvement. We have had a working capital improvement initiative that we launched at the beginning of the year and we believe attacking all aspects of working capital in the company. And I think in the previous calls we have mentioned of some of the changes in operations, as well as changes in supply chain management that we've been making that have then permitting some pretty interesting improvements in the area of inventories and then also through better systems and just overall management of our supply base. We have also been able to make some attractive improvements in the area of payables. And accounts receivable, although we've made a little bit of an investment this quarter given some large new business that we've won in the first quarter and second quarter. We have seen improvements in accounts receivable as well. As we move forward though, return on invested capital and you know that we are putting in the from a working capital perspective is a key area of focus.

That's very helpful. Thank you.

Our next question is from the line of Arun Viswanathan with RBC. Please go ahead with your question.

Good morning. Thanks guys first off on refinish very strong quarter maybe you can just discuss your expectations for the second half of 2017. Would you expect mid-single digit growth to continue and would it be driven by volume. I know that there was a price increase last year in Q3 in North America. Is that still on the table for this year? How do you expect that to play out this year?

Yes, I think as we look at our refinish business, we are very optimistic and very encouraged by what we are seeing in that market. We have also from a commercial execution perspective been doing very well. We spent a lot of time talking about North America in the past, but we've also been making some very important gains in Europe, as well as Asia Pacific and Mexico and you are starting to see the benefits of many of those commercial efforts in our results. So, I think we see a fairly positive outlook for the remainder of the year for refinish and moving forward in 2017 we haven't provided any the numerical guidance for 2017, but I think there is no reason that we would expect to see those trends to change. Refinish continues to be the core business of Axalta and it will continue to get our core focus and attention.

Okay. And then on the auto OEM side, you noted that there has been some change I guess in IHS expectations and we've all seen some moderation in global SAAR both in U.S. as well as I know European registration are still ticking pretty high. But, what are reasonable expectations to have over the next couple of years? I know at the Investor Day you talked about kind of mid-single digit growth globally. Is that still a fair expectation for next couple of years and what is the composition, is that more growth from India, potentially offsetting some swelling in North America and Latin America or how you see the regions kind of playing out? Thank you.

I think our expectations remain the same, we you may remember back at Investor Day we've said we expected modest contribution from increase in SAARs and again our plan is kind of built up by what we think our - the OEMs that we are strongest with are going to do. So I think we are thinking about it that we will get contribution from all four regions with some of the growth initiatives. We have even though overall SAARS in places like North America and EMEA, we don’t expect to see - we expect those SAAR to be more flat to maybe up a couple of percent. We do believe, there will be a recovery in Brazil albeit slow off of its base and we have a large business there. And then we would continue to see China with modest growth in SAAR the next couple of years. So between initiatives we already have on content. Again, you just saw us last couple of weeks acquire an interior coatings business here. So we are working on increasing our content on the vehicles and part of that growth comes from increasing content. So it’s less about what is going in SAARs and just some of our technology initiatives. Again, when you look at our overall R&D and technology spend of over $170 million a year, a significant amount of that goes into OEM. So, we will continue to increase content, increase technology. So if I had to look at it, I would say half is content and technology changes and the other half would just be the OEMs we are aligned within the four regions having growth.

That’s helpful. And then just lastly, I don’t know, if you quantify the cost savings that you achieved in the quarter and I know you are still targeting the $60 million for the year. Any chance that you would want to accelerate those savings or increase your target there?

So the cost savings programs both Axalta Way and Fit-For-Growth continue to move along consistent with our plan for 2016 and as we come into the back half for the year and we starts to talk about some of those targets and plans for 2017. We may be all the way through the EMEA Fit-For-Growth program, we will have to see in particular how FX plays out there, but we could be finished by the end of the year. We will wait and see. And then on the Axalta Way programs, we continue to perform exactly as grow our plan for 2016, so we are very excited about that. That being said, there are additional productivity improvement initiatives that we will have. We haven’t provided any guidance or any additional information about that just yet.

Great. Thank you.

Next question is from the line of Vincent Andrews with Morgan Stanley. Please go ahead with your question.

Good morning. This is Matt Grainger on for Vincent. I was wondering if you could quantify the impact of sales from the acquisitions for the back half for the year?

Matt as we think about the acquisitions, our goal for 2016 was to try to add around $100 million or a little more in top-line sales via M&A. With these three transactions together, we've done that, but they will ramp up in the back half for the year. So only a portion of that will actually come through for the full-year, but I think that should give you on just kind of a general sense.

Okay.

The other element is we still have one of the transactions, which still have to close and the timing of the closing of that transaction will also have an impact on that number.

Sounds good. Thank you.

Next question is from the line of Aleksey Yefremov with Nomura Securities. Please go ahead with your questions.

Good morning. Thank you.

Good morning, Aleksey.

Good morning. What level of financial leverage would you consider initiating share buybacks. Would you want to be at the high-end of your target range or the low-end?

Yes, this is Charlie. I think it’s a topic will take us in the second half of the year both as management as a board. Again, I think what we had said was, as we got into the 2.5 to three that range that was only start of discussions. So, if you think about, as we look at the next couple of quarters and certainly over the next year we think we get down in that range, so I would think it would be a discussion we will have in the second of the year as a board. I don't want us to put in place a buyback plan until we are actually really ready to it, I think that might be false expectations, but it is an active topic and one I think as a board and as management we will look at here in the second half of the year. Can't promise when we would do it, but as far as the high or low-end of the range I think my general view as a CEO is markets are stable and we are in a favorable macro environment where we feel pretty good about visibility going forward of our key markets. Then you could argue for as you get into that range there is certainly no reason you got to wait till you get to the lower-end of the range.

Thank you, Charlie. And as a follow-up could you comment on pricing, are you raising prices in any of your businesses in the second half and what has been better behavior especially in OEM market?

Yes probably not best to comment on overall pricing or pricing strategies or plans, just because it's competitive environment and customers don't appreciate that either as those tend to be individual discussions. But I think the environment overall, again we are now looking at raw materials that we think later this year start to rise and so we are always looking at pricing across all our markets and capturing value with technology change or shifts in the market. But I think it's kind of where we are. I think our plan as we look at the second half of the year really don't change in that view right now.

Thank you very much.

Our next question is from the line of Bob Koort with Goldman Sachs. Please proceed with your questions.

Good morning this is Chris Evans for Bob.

Good morning Chris.

I was just wondering if you can talk about the impact of new plant wins in the year and going forward you are kind of setting a big number there and just kind of wondering how these new plant wins might impact your OEM sales versus market?

I think as we stated before, as we look at OEM and we have pretty good visibility and where new plants are, there is always a certain amount of business out there that OEMs have out for [RFQ] (Ph) of markets. And I would say there is that as we are going through the year, we are pretty much where we would - we won the business that we thought we would win, we are competitive on other business we thought would be competitive. So, I don't think there is any change there on whether we won more than we thought we should or not or anything else, I would say we are pretty much where we thought we would be on business we are going after and business we are winning. The OE environment again, when you look at car builds, when you look at new plants out there, unlike may be three, four years ago where there was a lot of movement a lot of shift. I would say it's a pretty predictable environment right now. And where we have been winning business has really been on what people are doing model changes or technology changes and we will even work into effect it. But I don't see any major shifts in the market right now, I think we are winning the business we've wanted to and certainly have had no losses that were we pleased to believe in.

Okay. And just I wanted to get your comment on sort of the consternation many people had over North American SAARs peaking and just how justified are those worries and how do you see the growth rate is actually trending in that in North American market?

I think North America, our view is certainly as we came into this year was we thought it would be a fairly flat environment on car builds, when you look at lease rates cars coming off of leases, customers preferences, you certainly see customer preferences with lower gas prices, trucks are strong, SUVs, crossover SUVs are strong. So I think is really more about customer preference shifting, but we have very good insights into the aftermarket as well, not only because refinish, but some of our customers are big in aftermarket sales. And I think overall, they feel pretty comfortable about the overall balance in the environment, in the balance going forward. I don’t think anybody see a big upside, but right now it’s hard to see what the catalyst would be for a larger downside either. I think it’s going to be more people’s performance even like ours are going to be dictated more by as we go forward, are there more trucks sold, are there more crossover SUVs, what the customer preference is. And so for us, I think over the next year, we see even if SAARs were to go down a little bit or shift around, we don’t think that there is not certainly any shift in our business. But it’s hard to see what the catalyst would be for a large pullback, unless there were some geopolitical events out there.

And maybe just one real, quick one. Can you just tell me the impetus for the increase investment spend in performance and what you are specifically doing?

Sure. So again without indulging too much competitive information. We continue to grow the refinish business and that continues to be the primary focus of Axalta. Additionally, in industrial, we are making very important inroads, in that market and plan to grow in that market aggressively. And if you look at the acquisition of DuraCoat, our plan to build the material position in the coil coatings market in North America and overtime globally, those are indicative of the types of areas of focus that we have in the company.

Thanks guys. I appreciate it.

The next question comes from the line of John Roberts of UBS. Please proceed with your question.

Thank you. And my apologies if this was asked, I have been on another call at the same time, but I guess you get the flat to yourself in a quarter so. I have lost track of the depth of the commercial vehicle decline. Do you think that we need four quarters of stability to kind of lap how far down we come here? Do you think there is a chance we actually make it a balance before then?

I think if we look at commercial vehicle build volumes, back in 2015, 2014, we were peaking at about 320,000 units in North America heavy-duty truck. I think we’ve commented that our guidance was based on 230,000 to 250,000 builds for the North America market. The North America markets at the lower end of that range from a independent market forecast review at this point. But it is probably still John to your point a few quarters at least, before we would see a material uptick back that in that market, at least in terms of how we are planning and thinking about things.

Okay. And then Robert, when you mentioned the reduction in non-operating losses in North America, in the release. Is that just FX related loss or is there something else non-operating that you are referring to?

No. That relates entirely to the impairment of a real estate investment that we have in Latin America.

Okay. Got it. And how much was that?

The total amount for this quarter was $10.5 million and we had previously impaired that asset by about $31 million.

Thank you.

Our next question is from the line of Laurence Alexander with Jefferies. Please proceed with your questions.

Hi this is Dan Rizzo on for Laurence. Some of the consolidation were not in the industrial end-market is that increasing competitive pressures at all?

This is Robert it's always been a competitive market. We expect it to continue to be a competitive market, it's not a concentrated market as refinish or light vehicle or commercial vehicle, but there are a multitude of segments within industrial. And we're really trying to focus on the high margin segments where there are real products that have to specked in with a customer and have large notes from a competitive perspective where we can really bring to bear our competencies and our technology.

Okay. And then with M&A, is there any interested in may be moving downstream or just diversifying away from what guys are doing now?

I think right now our we do the pipeline is pretty full, I think there is always a danger when you go downstream that you are buying into what some of your customers may view as their marketplace. So I think as long as we continue to see so much room and specifically Performance followed Transportation, we see more than enough to do over the next couple of years in just the core markets we're in where we believe we can continue to effect and be a consolidator for businesses that had decent growth rates and good margins and we can bring appreciable synergies. So, going downstream and going upstream right now I think this size company we are and the opportunities in front of us, I’m not saying we wouldn't do it if it was opportunistic, but it's not part of our strategy.

Alright. Thank you guys.

Before we go to the next question, this is Robert. I did want to make one addition to the answer to John Robert's question and that was of the item that you asked about not only includes the impairment, but also includes exchange losses. Thank you.

Our next question is from the line of Mike Harrison with Seaport Global. Please proceed with your questions.

Hi good morning.

Good morning, Mike.

I was wondering if you could give a little more color on your comment that Q2 came in better than expected and Q3 sounds like it's going to be a little bit slower in terms of the growth rate relative to Q4? Does that suggest that you think there was some pull forward of demand into Q2 and if so what markets does that occur in?

I think as we look at the business, we've commented before, with each quarter especially dealing with the number of businesses that we have that involve distribution between us and between the customers, it just came out of inventory and the timing of price increases unrelated to foreign exchange. Just natural business price increases, the pattern of those and when those occur can cause more volume to go through in one quarter versus another. And I think just in terms of looking at what we think are inventories in the channel, as we look at Q2, we just had to outperform in a numbers of regions, particularly in the refinish market. And as a result of that I think from just a perspective of prudence and conservatism we would expect that to have some spillover effect in particular in our July sales.

Alright. Thank you. And then also was wondering if you could comment on the auto OEM business in China and just with respect to the tax incentive that’s in place. My understanding is that set to expire at the end of the year, pretty widely assume that they are going to extend it, but what is your view on the tax incentive and what does it mean if they extended it versus letting it expire. Thank you.

Yes. I mean, I think you described it pretty well. Certainly the incentive out there. I think the reason, most people would believe that they will extended is that China is working - first of all automotive is extremely important to that economy, because the number of jobs and GDP created. But also the fact that it continues to be something of a tool to help keep their economy going and it is an easy one to do. So I think, we would agree with you, they will probably [indiscernible] works, I mean, we have certainly seen changes in the past, I think if they don’t given that the China market has already in the last couple of years kind of come to more of a natural balance. I don’t think, we would see a dramatic effect, but you certainly could see a quarter or two some readjustment on people who probably would naturally wait to see, okay can I wait a quarter, can I wait a few months and the government put it back in. We've seen several of those over the past couple of years where the government takes away an incentive or they add something and customer no different than here in North America, customers will wait for few months to see well is it going to the replaced by something else. And then if it isn’t, then they move forward with a purchase that they probably would have may anyway. And sometimes you could just see three to six month delay in customer behavior. And we see that happen across all of the markets where tax incentives get changed or insurance premiums get changed and people change their decision making by usually after three to six months, the discretionary or non-discretionary purchase that they were going to make, they go ahead and make. But I think, I tend to lean in your camp where that the government needs to keep things moving over there and this is an easy one for them, it may take some different shape or form or size engine or something like that. But it’s hard to see why would pull it at this point given they are trying to keep the growth rate up in their economy.

Thanks very much.

At this time, I will turn the floor back to management for closing remarks.

Okay, great well listen, thanks everyone. Hopefully the information was helpful for you in our prepared remarks. And I appreciate the really good questions. Again, all-in-all, a good solid quarter for us as we’ve highlighted our markets remained fairly healthy. We’re certainly looking for some of our markets as we go through in next couple of quarters like Brazil to hopefully stabilize and do a little better. But overall, the business remain as Robert and I both pointed out pretty much on-track for the year and as always you have got to watch some of these events going on in Europe. Over the last month, Brexit gets a lot of attention, people should not slight what is going on in Turkey and some of the events in Germany and France. And the only reason being is I think those type of things in my history seem to effect consumer sentiment. And while demand always balances back half, it can always be moving parts there. So we watch those closely and not seen any effect on our business, but I think they are things to watch. But overall, our markets remain sound and we are pleased with our performance we've got this year. And look forward to being back and discussing third quarter with you. Thank you.

Thank you. This concludes today’s conference. Thank you for your participation. You may now disconnect your lines at this time.