Owens Corning (OC) Q1 2009 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Owens Corning First Quarter 2009 Earnings Conference Call. My name is Jane, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. Please note that during the Q&A, the company has requested that you limit yourself to one question and one follow-up question. [Operator instructions]. As a reminder this conference is being recorded for replay purposes. I would now like to turn the presentation over to Mr. Scott Deitz, Vice President, Investor Relations. Please proceed, sir.

Thank you, Jane. Good morning, everyone. Thank you for taking the time to join us today for our conference call and review of our business results for the first quarter of 2009. Joining us today are Mike Thaman, Owens Corning's Chairman and Chief Executive Officer and Duncan Palmer, Chief Financial Officer. Following our presentation this morning, we will open this one hour call to your questions. Please limit yourselves to one question and one follow-up so that we can answer as many of your questions as possible during the one hour call. Earlier this morning, we issued a news release that detailed our results for the first quarter of this year; a form 10-Q further detailing our results was also filed this morning. For the purposes of our discussion today, we prepared presentation slides that summarize our performance and our results for the first quarter of this year. We will refer to the slides during this call. For those of you listening via the internet or if you are on telephone and near a computer, you can access the slides at owenscorning.com. You'll find a link on our home page. There is also a link on the Investor Section of our website. This call and the supporting slides will be archived, and available on our website for future reference. And as a reminder, this call is being recorded. Before we begin, we offer a couple of reminders; first, today's presentation will include forward-looking statements based on our current forecasts and estimates of future events. Second, these statements are subject to risks, uncertainties, and other factors that could cause our actual results to differ materially. Please refer to the cautionary statements and the risk factors identified in our SEC filings for a more detailed explanation of the inherent limitations of such forward-looking statements. We ask that you understand that this presentation and today's prepared remarks contain non-GAAP financial measures. Also note that GAAP to non-GAAP reconciliations are found within the financial tables of our earnings release and our form 10-Q. For those of you following along with our slide presentation, we will begin on slide four. Now, opening remarks from our Chairman and CEO, Michael Thaman, followed by CFO, Duncan Palmer and then your questions. Mike?

Thanks Scott. Good morning everyone and thank you for joining us today. I'm pleased to report that the strong momentum we saw in our Roofing business beginning with the second quarter of 2008 has continued into the first half of 2009. On the strength of Roofing performance, we produced a solid first quarter, which positions Owens Corning for strong free cash flow in 2009. We're responding to the current economic environment to reset our cost structure and our capital spending levels. We're taking aggressive actions to reduce cost and to cut capital spending by a combined 300 million in 2009. These cost reductions combined with Roofing profits to utilize that utilize our net operating loss, give us confidence that a $150 million in free cash flow is achievable this year. In review of the first quarter, revenue totaled 1.1 billion compared with 1.4 billion in the first quarter of 2008. In the face of a much weaker global economy and markets that were equally challenging we delivered adjusted EBITDA of 32 million in the first quarter of 2009 compared with 56 million in the same quarter of 2008. During the first quarter of 2009, Owens Corning resilient balance sheet continued to provide ample liquidity to meet our financial needs. We have plenty of headroom with respect to our financial covenants and have no significant debt maturities until the fourth quarter of 2011. Duncan will provide a more detailed reconciliation of our first quarter results in his comments. On our fourth quarter call in February, we framed our outlook in expectations for 2009. I offer this review, we said that we'll continue our progress in creating an injury free workplace. During the first quarter 2009, our focus on safety resulted in a 15% reduction in the injuries compared with our performance in 2008. We said the weakness in a Composite segment would persist through the first half of 2009 and it has. I will address our expectations for the Composite segment later in my comments. We said the strong routine momentum we carry in to 2009 and it did. The routine business has generated EBIT margins of about 15% during the past 12 months, this is a well performing structurally sound business and in industry that has benefited greatly from consolidation. We said that the insulation business would face a difficult market in 2009 and it has. Due to seasonality we expected that first quarter would be quite weak and it was. We said that we'll take aggressive actions to manage our cost structure and decides our business to the market we have, we continue to curtail manufacturing capacity and to delay capital projects. Today, more than 40% of our reinforcements capacity and about 50% of our fiberglass insulation capacity is curtailed. We've reduced the number of employees in the company by 16% compared with year-end 2007. We said that we would be profitable in our Composite segment and our Building Materials segment in 2009. We believe that we're on target. You will see in our reported results that we had charges related to additional cost reduction programs. The team was very aggressive in the first quarter to target and execute cost reductions that we yield a 160 million in savings in 2009. We also re-planned our capital expenditures, primarily in response to a weaker Composites outwork and have lowered our estimate of CapEx to 225 million for 2009. This is a 140 million less than our 2008 expenditure and 50 million less than the guidance that we provided at the end of the last quarter. As I noted earlier, the cost and capital spending reductions already in progress are expected to total $300 million in 2009. Now I will provide a review of each of our segments with a look to what we see ahead. First, our Building Material segment, it was a great quarter for our Roofing business, with sales up 49% even improved by $116 million versus the first quarter of last year and operating margins came in at 22%, continuing a strong trended performance started in the second quarter of last year. This is outstanding performance and walls on the upside of the 8 to 12% operating margin goal that we established for the business. We are not surprised by this level of performance. I'd like to review the progress that we've made in Roofing since 2007. At that time, our business was suffering from a steep drop in hurricane related and new construction demand, and also the market challenges posed by the acquisition, integration work of GAFL (ph). We had operating margins in low single digits. And at that we felt comfortable that we should see improvement to high single digits or double-digit operating margins. We were comfortable taking this to view because we knew we had a pipeline of product launches and productivity programs that would significantly improved the performance of our business. We also saw an upside from the consolidation of the industry which could lead to a more profitable market and evaluate our overall performance. The results that we're seeing today are the virtuous combination of good execution by our team and an industry that is responding well to a challenging market. The Roofing industry is a competitive market and we can't guarantee that the industry dynamic will stay this positive. But the impact of our strong execution will persist. The insulation business lost money during the quarter, typically a seasonally weak period. Demand for residential insulation in the U.S. dropped further from already historical lows. Our insulation business typically works on a 90 days lag to housing starts. In the first quarter of 2009 we were selling insulation to service starts from the fourth quarter of last year. Actual housing starts in the fourth quarter of 2008 were 153,000 units. This is down 44% compared with the actual units in the fourth quarter of 2007. Demand for commercial and industrial insulation was also weaker but not to the extent the weakness that we have seen in the U.S. housing market. Selling prices are stable in the insulation business. We are managing capacity with discipline while reducing working capital and cost. We've established a lower level of fixed cost in our insulation business. We've maintained the market share of insulation and we are working hard to introduce innovations into the marketplace. Despite these efforts the outlook for insulation business is continued weakness in 2009. Our Composite segment enjoyed a significant year-over-year decline in demand during the first quarter. Sales were down 48% because of the global economic slowdown and excess inventories. We've mounted the business carefully in the first four months of 2009 and have taken aggressive actions to match our operations to our current estimate of the 2009 market. At the time of our last call, our comments on Composite outlook were based on an overall estimate of the industry shipments that would decline about 10% versus 2008; this estimate was based on our analysis of history in this industry. We have seen improvement in volumes every month this year. However, our current volume trend is weaker than previous Composites recoveries. We estimate now that the overall industry could be down as much as 20% versus 2008, as a result we've established the following expectations for the business. First, we will get production below demand levels and we will begin to reduce our inventories, this was achieved in the first quarter. Second, through aggressive management of cost, capital expenditures and working capital, we will begin to generate positive cash flow in the second quarter. Third, based on the current trajectory of demand growth and continued stable prices, we will return to profitability in the third quarter. Fourth, we restore our inventory balances to target levels by year-end. So, that we enter 2010 prepared to restore our operations to a more robust level. Finally, we expect we would be positioned in 2010 to return to the double digit operating margins that we demonstrated in 2008 through further synergy realization and cost reductions as well as stronger production levels to meet improved but still relatively weak demand. We're obviously in very uncertain markets. Like other companies, we're monitoring our businesses carefully and adjusting our spending plans on a real time basis. I believe that our first quarter results and our outlook for the year demonstrate the strength and breadth of our business franchises. While each of our major businesses is operating in the most challenging demand environment on our record. Owens Corning remains profitable and would generate healthy free cash flow. Now, here's Duncan to provide a detailed look at our quarterly performance in our financial position. Then we'll turn to your questions. Duncan.

Thanks Mike. Let's start on slide five, where we detail key financial figures for the third quarter of 2009. You'll find more detailed financial information in the tables of today's news release and the form 10-Q that was filed earlier. Today, we reported first quarter 2009 consolidated net sales of $1.1 billion, a 21% decrease compared to 2008. The quarter was highlighted by strong Roofing sales that were up 49% compared with the first quarter 2008, continuing momentum began in the second quarter of last year. Sales of insulation were lower because of the continued weakness in the U.S housing market. Composites sales declined primarily as a result of the global economic slowdown. As a reminder, when we look at our period of appeared comparability, our primary measure is adjusted earnings before interest and tax. Adjusted EBIT. In a moment, I will review our reconciliation of items to get to adjusted EBIT. These items totaled $50 million in first quarter 2009 compared to $35 million during the same period in 2008. Our adjusted EBIT for the first quarter 2009 was $32 million compared with $56 million in the first quarter 2008. We were very pleased with these results; particularly given the weaker year-over-year global economic environment and the continued decline in the U.S. housing market. Adjusted earnings for the first quarter 2009 were $5 million or $0.04 per diluted share as compared to first quarter 2008 adjusted earnings at $15 million or $0.11 per diluted share. In the first quarter, marketing and administrative expenses decreased by $18 million. This reduction was due to savings from various cost reduction actions taken during 2008 and 2009 as well as reduced performance based compensation expense and reduced acquisition, integration and transaction costs. Depreciation and amortization total $84 million for the first quarter. We currently estimate our depreciation and amortization will total approximately $340 million in 2009. This is a little lower than our prior guidance in range of $350 million primarily due to reduced capital expenditures throughout 2009. Our capital expenditures totaled $40 million in the first quarter. As Mike said, we expect that they will be about $225 million for the full year 2009, excluding purchases of precious metal. Net debt was $2.3 billion at the end of the quarter. We expect to reduce net debt to approximately $1.8 billion by the end of 2009. Moving to slide six, you can see the detail associated with the reconciliation of our first quarter adjusted EBIT of $32 million to reported EBIT of negative $18 million. We provide this analysis as a major of our current operating results. We are responding to the current environment to reassess our cost structure across the company. In the second half of 2008, and through the first quarter of 2009 we have taken various cost reduction actions including significant capacity curtailments, extending plants downtimes, reducing head count, underlying projects. These actions will contribute to cost reductions of about $160 million in 2009 of which we expect at least half will be permanent reductions where the cost will not return when we restart ideal production capacity. We expect that $46 million of charges in 2009 relates to achieving these savings of which we incurred $30 million in the first quarter. The integration of the Composites acquisition continues to deliver synergies well ahead of our original plans. In 2009 we expect to deliver a total of $75 million in synergies, up from the $50 million we realized in 2008. We incurred $6 million of integration costs in the first quarter associated with achieving these ongoing savings. Next, as you have seen in prior quarters we adjusted for the non-cash amortization of costs associated with the Employee emergence equity program, a total of $6 million. These shares which have a three year wasting schedule and will be amortized in the P&L until October 2009 were awarded to employees at the time of our -- from chapter 11 in 2006. Now, if you move to slide seven, you will see an illustration of adjusted EBIT performance, comparing first quarter 2009 with the same quarter in 2008 based on business contribution. We illustrate this to show how our businesses have evolved year-over-year. Adjusted EBIT declined $24 million from the first quarter 2008 to first quarter 2009. Our Roofing business continued to deliver outstanding results in the quarter and maintain the significant momentum that began in 2008. This improvement was offset by both insulation and Composite businesses, which faced weaker demand in their respective markets. With that as background, turn to slide eight and we will begin a more detailed review of our shipments segments starting with Building Materials. In the first quarter, Building Materials had net sales of $766 million, a 5% increase over the first quarter 2008. Building Materials delivered a significant turnaround in EBIT of $53 million compared to a negative EBIT of $4 million in 2008. The following two slides discuss these results in more detail by highlighting the key businesses within the Building Material segment, the Roofing business and the insulation business. First, slide nine provides an overview of our Roofing business, in the first quarter this business continued it's outstanding performance. Roofing net sales for the quarter improved nearly 50% from the first quarter 2008 as higher selling prices recovered prior increases in raw material costs, particularly asphalt. The business delivered $99 million of EBIT in the third quarter 2009, a record quarter for this business. This milestone also represents a tremendous turnaround from last years negative EBIT of $17 million. As Mike outlined in his earlier remarks, we have taken significant actions since 2007 to improve profitability of our business. We have achieved improvements in our production processes, including energy efficiencies and reduction in the raw material cost of our shingle design. We have also reduced overall manufacturing fixed costs. In addition, we have launched new product lines, improved our mix and grown our accessories business. These programs had a significant impact on 2008, by the end of 2009 these programs are expected to have delivered $100 million of improvement compared to 2007. In addition, the Roofing industry is attractive and we have demonstrated that our business can deliver operating margins well above 10%. We believe that this business will continue to see strong operating margins for the rest of 2009 and beyond. With this level of performance, Roofing has established itself as a strong business within our portfolio with enduring value. Next on to slide 10, our insulation business. Our insulation business continues to feel the impact of the 11 consecutive quarters of progressively declining US housing starts. First quarter net sales in this business were down 24% compared with the first quarter of 2008. This decline was primarily due to a reduction in volumes as prices have remained stable, since the second half of 2008. The decline in insulation net sales was less severe than the decline in US housing stocks due to our diversified portfolio of markets and geographies. The Insulation business lost money in the first quarter, the first quarter is seasonally weak our demand is driven by actual fourth quarter housing starts which are lower than the seasonally adjusted number. EBIT was a loss of $39 million due to the impact of lower demand on our sales and under utilization of our production capacity. In response to the prolonged weakness in demand we continue to take actions to reduce active production capacity and to align our cost structure with market demand. As a result of these actions about 50% of our fiberglass insulation capacity is now curtailed. Despite these actions this business will struggle to achieve profitability until demand improves. This is a great business in a well structured industry. Owens Corning Pink fiberglass insulation is a powerful and enduring brand. We are the clear market leader, well positioned to return to historical levels of performance when demand improves as we know it will. Next slide 11, provides an overview of our Composite segment. Composites net sales decreased 48% in the first quarter 2009 as compared to the same period in 2008. Approximately two third of this decrease was the result of a lower sales volumes quote by the global economic slowdown that began in the fourth quarter of 2008. The remainder of the decrease was due to the May 2008 divestiture of two firms in Europe and an unfavorable currency variance of $41 million from translating sales denominated in foreign currencies into U.S. dollars. First quarter EBIT for the business was negative $18 million compared to a positive $64 million for the same period in 2008. Substantially all of this decrease was a result of lower sales volumes including the impact of underutilization of our production capacity. In our fourth quarter call, we indicated that December reinforcement volumes were down by as much as 45% compared to the trend established in the first three quarters of 2008. We have seen demand increase every month in the first quarter. However, we are currently experiencing sales volumes down by about 35%. These trends were broadly consistent across our different products and geographic regions. We expect that industry demand could be down as much as 20% in 2009 compared to 2008. As Mike mentioned, we have curtailed more than 40% of our global reinforcement's production capacity. And as a result, we're now producing less than we sell each month. We expect the gradual increase in demand to persist throughout 2009. We will continue to produce at a lower level to return our business to cash generation in the second quarter. Then we expect our business will return to profitability in the third quarter. Next, we have a few additional items to cover before turning to our Q&A. On slide 12, in the first quarter 2009 the company changed its method of accounting for inventories held by our US companies from the LIFO method to the FIFO method. In addition to confirming the company's worldwide inventories to a consistent costing method, we believe that it will provide better matching of the company's expenses with its revenues. This change in accounting principle has been applied retrospectively to all prior periods we present, which in the first quarter of 2008 resulted in an EBIT increase of $2 million incorporate. Our reported business results have historically being based on the FIFO inventory costing method and so there is no change to prior periods for these. Next, you will see a description of both our cash tax position as well as reported tax expense. We expect the cash tax in 2009, will be less than 2008, but overall cash taxes paid were $33 million. In addition, we estimate that our long term effective tax rate will be 25% based on a blend of our U.S. and non-U.S. operations. Therefore, to improve comparability of our adjusted results we applied just 25% tax rates to pretax earnings to arrive at adjusted earnings. Now, slide 13, we have a resilient balance sheet. We have no material debt maturities coming due until the fourth quarter of 2011, and we have $428 million available in our revolving credit facility as of the end of the quarter. In addition, we have $90 million of cash on hand. We expect that the cash we have on hand coupled with future cash flows from operations and other available sources of funds will provide ample liquidity to allow us to meet our cash requirements, capital investment plans, and to endure significant additional market volatility. In addition this month Standard and Poor's rating services published an updated credit profile on the company affirming our investment grade corporate credit rating. We have taken significant actions to maximize our cash flow in 2009. We are driving $160 million of cost out of the business during the year and we're reducing capital expenditures by $140 million from 2008 levels. These measures, along with a strong performance of our Roofing business had improved our confidence and the outlook for free cash flow. We believe that free cash flow of $150 million is achievable in 2009. With that, Scott, back to you for Q&A.

Thank you, Duncan, and thank you, Mike. Jane, we're now ready to go to the Q&A session.

Good morning.

Good morning, Ken.

I am wondering, given the free cash flow guidance that you highlighted, meaning the 340 D&A and 225 in CapEx, the gap there -- 150 in free cash flow kind of implies may be 35 million net income. Could you talk about other factors that are influencing your free cash flow assumptions such as working cash usage like pension et cetera?

Sure, may be I'll start this of and then may be I'll pass it over Duncan. Obviously, one of the places we are investing cash today is in cost reduction. So we did have a realization cost in the first quarter. We gave some guidance on realization cost that will be use of cash in the year. We do have the use of cash in terms of pensions as well as we talked about our cash taxes which will maintain the results at a relatively low level. So, I think the big caption is outside of CapEx, that would be uses of cash would be those three and then obviously we're looking at volumes this year where we'll be weaker on the top-line and we would expect therefore that we get some working capital, coming back the other way that would be in forecast. So, the sources in uses, I thing you got the major elements of that. Duncan, I don't know if you want to talk and tell any of our specific guidance and need those elements.

Yeah, thanks Mike. I mean I think you talked about most of the elements in your response, I mean, cash taxes we've got to be less than we spend in 2008 which was $33 million also we have interest expense but that will be a material item. We talked about realization cost for the cost reduction actions in 2009 as also some element as we talked about on the call of cost associated with synergy acquisition from the Composite acquisitions we did in 2007. We're still capturing synergies actively in 2009. Mike mentioned the pension, I think we've provided some guidance in the 10-K and our contribution to the pension this year will be about $60 million. So, I think you can, those are the kind of major elements, I think.

Okay. Good just wanted to confirm that. And then can you just comment on in Composites, I know one of your competitors is reported kind of talked about inventories being low, if you could just kind of talk about that relative to the reinforcement of the downstream business and if there's been any change in actions by Chinese producers relative to other regions? Thank you.

Ken just to clarify one of our competitors reported that they believed the industry inventories were low?

That language was that inventories are low, is my interpretation.

Okay. I don't think I can comment directly on that, I can comment on what we think the industry dynamic that we're seeing out there is right now. In our prepared comments, we reflected on really the way, we've been trying to plan the business and if you look at our prior the investor presentation that we had put out about a month and a half ago. We had given anyways (ph) 30 years worth of Composite's industry data and in that data we showed that the most severe correction we had ever seen in the Composites industry year-over-year was about 7%. And on the basis of that data as we came into year with a correction we had seen in the fourth quarter of last year we'd estimated that we probably are looking at about a 10% down year. As we looked at the way to recovery January over December and then again February over January and then March over February and then now again as we work way through April. On the positive side we have seen demand recovering sequentially in each one of those months and really we have been seeing recovery sequentially in most regions of the world and also in most of the product lines which tend to be matched to end use applications. We've also seen that its recovering fairly slowly suggesting thus the both the level will roll industrial activity and also the inventories that are in the channels are relates that the industrial activity is relatively low and that the inventories in the channel is relatively high for us to be able to sustain the industry today at levels that are probably 35% below where we saw trend line last years. So we are operating, the industry we believe at a very low level we believe our business has sustained its market share positions so we kind of defended our position in the market effectively and that we're kind of balancing across the regions in a way that looks similar to the dynamic in the regions. But we see a number of months here, where we'll produce our low levels and see we think sequentially improvement in demand but still at a fairly slow level, kind of proverbial L-shape recovery to this very steep and severe downturn in the fourth quarter and we built our plans against that. We think this is effecting all the industry participants probably in China, the more recurrent thing has been delaying capacity expansions. I think most of us we've talked about this on a number of calls most of you know that what we've seen in China as a prevailing team is rapid expansion of competition also rapid expansion of that market. Generally, we're seeing some announcements from those competitors that they are slowing down the rate, which they intend to either bring up new capacity or built capacity and then in Western Europe, Eastern Europe and in the Americas, we're seeing more classical behavior of slowing down, rebuild, not bringing capacity backup from rebuilds are going right onto curtailments in order to balance capacity. Our census, we're doing about our fair share of that and the competition is doing a similar amount of curtailment in order to meet the market reality.

Appreciate that.

Thanks Ken.

The next question is from Michael Rehaut with JPMorgan.

Hi, thanks. Good morning, everyone.

Good morning, Michael.

First question I guess just to follow-up on the Composites. You've outlined a lot of steps there and recognized that at current right now where we are, its pretty challenging, but as you talk about getting back to a double-digit margin in 2010, I think initially last quarter you had talked about hoping to get back to that double-digit margin by the end of '09 or this back half of '09. So I guess two questions really or two parts of this question except like to press mail I can trying to get another one in. But what's changed relative to your expectations from a couple of the months ago? Is it primarily demand driven or the demand change or was it more of the just fact that inventories had build up so much the system? And -- are there sort of specific actions outside of perhaps an expectation for a recovery in demand in 2010 that allows you to make the statement that you can get back to that double-digit margin over the next 12 months?

Sure. I mean they are two very, very good questions. Let me start with the first one kind of on what's changed since the last call. When we were on the fourth quarter call in February, we had effectively seen a significant decline in demand from the September-October time frame into December. And in terms of recovery we basically had one data point; we had January in trying to estimate how we thought 2009 would play out relative to 2008. I think at that time we were much more reliant on the prior 28 years of history to try to extrapolate from that data point to figure out okay what does that mean for 2009. As we've seen here today, we would say we have four data point. So we have January, February, March and April and the slope of the demand recovery line that we're seeing over these four months is in a pronounced way a less robust than what we've typically seen in recoveries when Composites have gone through a correction. So our updated point of view on the business is really based on us trying to update and build some reasonably good forecasting models also the data points that we're seeing. That is what has lead us to I think a decidedly more sober outlook for 2009. Having said that, we started this downturn in Duncan's comments at kind of 45% below the trend level that we have seen through the first three quarters of last year, in his comments we said today we're probably at 35% below that trend level, so we may be recovered 10 points in that four month of period of time. If that were to continue and you were to extrapolate that out, we would still be below the robust demand we've seen through the first three quarters of last year, but we would obviously be well above where we are today. Given that operating our assets today at 60% or less utilization, by the end of this year I think you'd see two good things happening going into next year, one is demand while still below that 2008 trend level would be decidedly more robust than what we currently see and secondly you get tremendous operating leverage as we went from operating 60% of our assets to now bringing additional capacity on board to service an industry that's now operating at a level that's quiet a bit above the utilization that would be supported by that level of production. All the while, we're obviously working on cost reductions, fixed cost reductions and synergies which are building through this year but aren't really getting to the bottom line because of absorption issues. So as we go into next year, I think our confidence comes from believing that we'll be able to turn some assets back on, get the business back operating at a reasonable level of utilization and as a result, there'll be enough volume plus good cost work and decent utilization to get us back to the operating margin performance that we expect from the business.

Okay. I appreciate that detailed answer. And then just my second question really more relating to Roofing, obviously that segment continues to really beat expectations handily and kind of looking at the back half of '08 is certainly those were give the best results that you posted in the long time and then you even the beat that handily. So just I guess from a broader perspective, in the last, I guess five years or so in one of the better housing markets -- you guys never really topped a double-digit margin. How we suppose to think about this business over the next few years if -- let's say you had kind of positive intersection of very strong -- your storm related demands in '08 and higher raw material cost that we would pass through in pricing, some of the things that really would able to get the margins up nicely. On a longer term basis how much do you think you can hold on to? And given the fact that we might be in a more soft demand environment or of that storm related demand kind of adds over the next few quarters, where you see more of a steady state margin in that business?

Okay, thanks for the question. I think you laid out the right history which is, if you look over the last five years, I mean the business had a history for a period of time of producing operating margins kind of less than 5% and then a couple good years in the kind of '05 timeframe where our margins got a little bit higher to single digits. We would say you should think about the business in two pieces. How good a business does is Corning have, and then how good an industry is Roofing industry. And I'll take those in pieces. In terms of how good business we have, back in 2007 when the market was going through some disarray in our operating margins were less than 5%, we began talking about our business is being 10% operating margin business. And we did that not based on industry dynamics, we did that based on things that we believe, we can get down our business and Duncan talked about those, product-line reformulations, marketing strategies, productivity programs, asset rationalizations, better commercial performance in the business and we have a line of side on how we can take a business such in that period of time, our operating margins are less then five and getting to that 8 to 12% range that we are disclosed in our investor presentation. We also at that time sort of taking about the fact that it stands the reason that in industry the once had 20 plus competitors and was very, very fragmented had now consolidated down to four players comprising more then 90% of the market, and that the overall industry dynamic should be more positive, and we also I think plainly acknowledged that based on history there wasn't a good reason to believe that it would be. And in summer guards this industry in our view had underperformed its potential as a manufacturer for a lot, lot of years. I think what we're seeing right now is our business executing very, very well and performing much closer to its potential and I think we're seeing an industry that is beginning to operate as a better structured and more profitable industry. I guess in terms of what that means, in terms of guidance, we would still say today that we have line of sight (ph) 8 to 12% related to the actions we are taking in our business that we would certainly expect there's no reason why industry dynamics don't create an upside to that guidance. But that candidly, we think an investor should expect multiple quarters in a row at data points for us to demonstrate that dynamic before we would move that guidance upward.

And I guess just a follow-up to that. Are you aware of any changes that have occurred recently or that are about to occur either by yourself or competitors regarding capacity, coming on or being taken off?

This is much more of a material conversion business, so your big cost in this business is neither assets nor utilizations as the materials as you convert into shingles. Generally what the competition and Owens Corning does, I'll speak for us, what we do is we monitor our inventory levels and then we adjust shift activity on a plant-by-plant basis based on our inventory levels. So we know today that we're probably looking in a market that as much as 25% below normalized demand and probably has much as 40% below the peak demand we saw in 2005. And our view is that inventories and another things are in reasonably good shape through the channel and through the business. It's a little bit easier business to correct that way and it tends to be a business for people who just up and down. The problem tends to be in the winner. When you get into seasonal demand weakness, it's certainly true that there were some reasonably good storm related demand to healthcare to last winter. As we headed to the summer, we would expect that some seasonal strengthening of underlying demand should continue to keep the business pretty stable.

Okay, great. Thank you.

Thank you.

The next question is from Jack Kasprzak with BB&T Capital Markets. John Kasprzak - BB&T Capital Markets: Thanks. Good morning everyone.

Good morning, Jack. John Kasprzak - BB&T Capital Markets: Mike, also with regard to Roofing, its down that subject, you mentioned in your comments, obviously a great quarter there but can't guarantee the positive dynamics will continue. Is that suggested that you're seeing something in the marketplace that gives you some cause for concern?

No, I wouldn't conclude that from our comments. In both our press release and in my opening comments, we were very clear to say that the strong performance that we saw in the later half of last year had carried into the first half of this year. So, we believe as we sit now, we got a least reasonable line of site through the first half and we haven't seen anything on the dynamics that cause us to be concerned. John Kasprzak - BB&T Capital Markets: And on a saying, is that there was early March price increase on roofing residential shingles, asphalts shingles in the market place, is that true, did it hold, is it holding or I should say and can you tell us how much it was?

Well, there in fact was a march price increase. Typically in this business, asphalt prices tend to, begin to increase as you move from the winter months to the summer months, primarily because of alternative demand associated with paving (ph). I think as the stimulus bill move though Congress and looked more or like it was going to happen, the concern was kind of heightened in the industry or at least inside Owens Corning that a growth in governments spending could put additional pressure on asphalt demand during the summer and we could see a sizable run-up asphalt cause having into the summer. There was a price increase that was announced, we announced one in early March. Generally price performance in the business has been good, we've been satisfied where our pricing is and at least at this point as asphalt prices that maintained relative stability and we haven't seen short spikes associated with the reimbursement or recovery act, Although we would still go into the summer fairly cautious thinking that there could be some fairly sizable paving demand and that we would need to respond to that potential with further price actions. John Kasprzak - BB&T Capital Markets: Great. Okay, thanks. That's it for me.

Thank you.

The next question is from Garik Shmois with Longbow Research.

Hi, thanks for taking my call. First question on insulation prices. Mike you mentioned there have been pretty stable here for the last couple of quarters, it looks like just with energy cost coming off and housing at these levels, and how sustainable are prices are at these levels?

Well there is obviously a lot of pressure throughout the entire channel. In the insulation market, I think builders are under a lot pressure, obviously the contractors are under a lot of pressure, its putting a lot of pressure on the manufacturers. We're in unchartered territories in terms of our pricing model. So, we felt pretty comfortable that we knew the path that insulation pricing would trace as the market began to soften about three years ago, and it followed that pattern for probably the first six seven eight quarters of this downturn. Since then prices have been relatively stable and I think what's implied by that and I don't know that and I don't know that we can offer our data on this is that we're starting to get down to the cost of the industry participants. Clearly looking at our numbers, I mean our insulation business is now loosing money. We reported a number of segments of business groups inside that business which includes some of our non U.S. operations, it conclude our commercial and industrial business, it includes our phone and includes the insulation we sell through retail, so we didn't had there's a new construction residential contractor business that's been under more pressure than some of those other businesses. I think it's reasonable to conclude that the residential contractors section of what we're doing inside the insulation business is under even more pressure than what we're seeing in the EBIT margins of insulations in total. So there's a growing belief I guess inside these offices that must be down near cash cost for a number of industry participants and that's one of the things that's giving some amount of price stability in the market. We would be hopeful that we will continue to see price stability and that was some up tick in demand that we would then start to see some price recovery and some margin rehabilitation for the manufacturer.

Okay. And is there -- do you have a view on where or when that up tick in demand could be maybe you talk about your thoughts on the second half of this year or 2010?

Yeah. We've been very reluctant to forecast housing starts. I mean most of the people that forecast housing starts over the last three years don't get to be on earnings calls anymore. We look at the present and then we look at the broad dynamics of the marketplace. In a perverse way, the one real positive that we've seen is how much housing prices have comedown, most of the major affordability indexes whether you look at house price versus income or whether you look at mortgage cost versus renting cost would suggest that housing is starting to become a screaming buy. The fact that people have lost a lot of money in housing though means they're going to act rationally and then tell they are convinced housing prices have bottomed, its very expensive to buy a house because the first thing that happens if you a buy a house and its depreciating as you loose your equity in the house. So we're going to need to see pricing stabilize, that would be our first KPI on that. Once pricing stabilized, we would then expect to see a pretty significant increase in buyer demand and then once there was an increase in buyer demand, I think you'd see builders want get interested again in building houses. So its kind of a three step problem and we'd have a hard time guessing when pricing bottoms, because it certainly feels like the size of correction will cause it to overshoot historical affordability measures and we just don't know how far we need to overshoot historical affordability measures before we start to see some up tick in pricing.

Okay. Thank you very much.

The next question is from Dennis McGill with Zelman & Associates. Dennis McGill - Zelman & Associates: Thank you guys.

Good morning, Dennis. Dennis McGill - Zelman & Associates: Good morning. My one question just ask you around the insulation profitability, you talked about seasonality being a factor there and obviously fourth quarter starts kind of rolling through and we're starting to see starts may be stabilize or be less negative on a year-over-year basis. But if you think about as it pertains to your business and absolute level of starts, we're are till going to see in the first quarter starts were probably down 25% from where they were in the fourth quarter which would imply that the seasonality could even get worst from an absolute unit standpoint. So I'm trying to understand how that will play through in conjunction with what you've done the cost side as we look out the next couple of quarters in that segment specifically?

Yeah I would just kind of reaffirm your analysis which is because we don't really -- you can't sell to seasonality adjusted starts, you can actually sell to actual units or actual holes in the ground. The December numbers were weak. Its also a weak first quarter so the lag starts that we're looking at in the second quarter of the year are probably quite a bit weaker then we saw in the fourth quarter and we're expecting, we're expecting another tough quarter in insulation. We would expect that with potentially some up tick in seasonally adjust starts, it'll be off a very low levels in the second quarter and the third quarter that you would actually see seasonally adjusted starts to recover and therefore actual starts in the second and third quarter to be quiet a bit more robust than what we're going to see -- than what we've seen in the first quarter and what we expect to see in the second and as a result we would expect the volumes in the second half of the year to feel quiet a bit better than what we currently have. So our view on insulation is similarly that they have got another tough quarter coming in the second and then maybe we'll start to see some up tick where a lot of our capacity reduction and cost reduction efforts would maybe start to come through and even also losses or anything get through to the bottom. Dennis McGill - Zelman & Associates: And those cost reduction efforts as they pertained in the first quarter, where a lot of those in place for majority of the quarter or down towards end of the quarter?

Probably about half way through the quarter I mean, I think on average we have been in a mode now for really couple of years starting late in '07 we're on a month-by-month and quarter-by-quarter basis as we look at demand levels and say do we need to do more. When we build our plans for 2009, in October, November we had one level of cost reductions and activity we were targeting for the first quarter as we saw Composites and insulation unfold through the fourth quarter. We were back at it in January and February looking at new targets and new cost reduction targets, so because we were doing a lot of that work in the latter part of last year. I do expect that we saw some benefit in the first quarter but also because we were back at it again in the first quarter I'd expect see some acceleration of cost reductions also. Dennis McGill - Zelman & Associates: And just a quick follow up question on the Composites business. Just talking about volumes and proving month-over-month of the last several months. Can you compare that to what's normal seasonality would be, that a trend that you would normally see, or is it not really see some business that we need to worry about?

Yeah, it's not a particularly seasonal business. I mean, typically we see a tail off demand in August related to several activity in Europe, so that's a fairly predictable change in seasonality. And then we see normally a fair amount of volatility at year end as the manufacturers and some of the bigger customers trying to position their balance sheets for year end in terms of how much inventory they want to be carrying. So, we would say that the toughest months to guess in that business typically are August and then the late fourth quarter. And then once you get into the middle of spring, running through the summer and into the fall that you have fairly consistent months of demand. So, the fact that we're seeing, April, little bit stronger than March and March a little bit stronger than February, is a good sign and it's a sign of recovery, it's not a sign of seasonality. Dennis McGill - Zelman & Associates: Okay, perfect. Thanks.

Thank you.

Your next question is from Jim Barrett with CL King & Associates. Jim Barrett - CL King & Associates: Good morning, everyone.

Good morning, Jim. Jim Barrett - CL King & Associates: Mike, you may have touched upon it implicitly but what economic assumptions underpin the belief that in 2010 we'll see double-digit margins in Composites may vary by region but could you discuss that?

I mean, we would prior be using numbers that are similar to kind of the IMF just came out with, were there showing global demand, global GDP shrinking this year kind of 1 plus percent level and then going back positive again next year. At this time really because we've seen such a significant industry impact that's a bit to boost from what happened in global industrial output, I think that global industrial output were just basically stable and if hits the bottom in '09 and then continues forward stable, most of our guidance for 10 would just be related to the Composites industry getting back to a more normal level of activity related to a more stable level of industrial production. Jim Barrett - CL King & Associates: I see. And then a follow up, how would you describe the pricing discipline in the industry in the key regions around the globe?

Yeah, I think in Duncan's remarks and maybe my remarks we said that pricing has been relatively stable. If you go back to last summer, I mean the industry was in a position where in some products and some regions there was under supply. Price had been even a bit of a sellers market in that period of time. We've obviously foot over the other side. I think when you see those that this is not an industry that typically has taken a lot of price on the upside when demand is good and as a result, the best outcome for us would be if you didn't see a lot of price downside when demand is weak. We think stable pricing though the channels is really the way to work through the inventory position that we're in. So we have so far seen stability, we know that we need to defend our position in the market, but we're certainly not out there looking to some how aggressively use this opportunity to buy much of market share. Jim Barrett - CL King & Associates: Okay. Thank you very much.

The next question is from Keith Hughes with SunTrust.

My questions have been answered. Thank you.

Thanks Keith.

In this interest of time, this will conclude our Q&A session. I'll hand the call back to Mr. Scott Deitz for any closing remarks.

Thank you, Jane. And thanks to everyone for your questions. Good ones. Mike why don't we turn to you for any final comments? I know there are a few folks in the queue that we didn't get to with questions-and-answers. We'll follow up after this call. Mike?

Well, thanks Scott. Cleary, we're pleased with the quarter we just produced. It is good to be able to report that we've sustained profitability on an adjusted EBIT basis. We feel good about being able to give our investors guidance on strong free cash flow. We continue to feel stronger and stronger about our Roofing performance and both the sustainability of the actions that we've taken to improve the operating margins of that business, as well as some of the industry dynamics that suggest we could have a period of good stability and profitability and Roofing that would sustain. Obviously, we're working hard on the capital and cost side and I would imagine there's very little we said on this call that's not similar to what you're hearing from other companies. Managing your businesses closely, being very close to daily sales and weekly productions, making sure that you've got cost actions, capital actions and working capital actions that are aligned to the reality of the market place, taking care of every balance sheet and focusing our cash flow. And those are things that we're doing here, we continue to feel very, very comfortable that we've three great business franchises. Our insulation business is probably the most troubled for the longest period of time, we see the longest and slow recovery obviously in new construction. Right now, Roofing is the star of the portfolio and we think that will continue. But we expect a pretty strong and aggressive bounce back from our Composites business once we're able to get back to some positive operating leverage that allows us to show our synergies through the financial statements. I think you can expect that we will continue to focus on delivering the free cash flow number that we talked about in today's call and as the year continues and we get a few more data points in terms of recovery both on the housing side and the global economy related to Composites, we'll be able to give more comfort in terms of how the next two quarters will play out. So, we look forward to having all of you join us on our next call, which will be sometime in July, and that's posted on our website, I'm sorry, early August and that is posted on our website and we appreciate your interest in our company and you support as investors. Thank you.

Ladies and gentlemen, we thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.