Good day, ladies and gentlemen, and welcome to the Third Quarter 2010 Owens Corning Earnings Conference Call. My name is Feb, and I'll be your coordinator for today. [Operator Instructions] I would now like to turn the presentation over to Mr. Michael McMurray, Vice President of Investor Relations and Treasurer. Please proceed.

Thank you, Feb. Good morning, everyone. Thank you for taking the time to join us for today's conference call in review of our business results for the third quarter of 2010. 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. Earlier this morning, we issued a news release and filed a 10-Q that detailed our results for the quarter. For the purposes of our discussion today, we prepared presentation slides that summarize our performance and results for the third quarter. We'll refer to these slides during this call. You can access these slides at owenscorning.com. We have a link on our homepage and a link on the Investors section of our website. This call and the supporting slides will be recorded and available on our website for future reference. 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. This presentation and today's prepared remarks contain non-GAAP financial measures. Reconciliations of GAAP to non-GAAP are found within the financial tables of our earning release. For those of you following along our slide presentation, we will begin on Slide 4. And now opening remarks from our Chairman and CEO, Mike Thaman; followed by CFO, Duncan Palmer; and then our Q&A session. Mike?

Thank you, Michael. Good morning, everyone. Thank you for joining us today to discuss our third quarter results. Total revenue in the third quarter was $1.2 billion compared with $1.3 billion in the third quarter of 2009, a decrease of 12%. Adjusted EBIT was $90 million in the third quarter, a 33% decrease compared with the same period a year ago. Our third quarter financial report once again demonstrates the value of Owens Corning's portfolio of market-leading businesses. While we had to rapidly adjust our Roofing business to a sharp market correction, we're able to sustain strong profitability. The financial impact of volume weakness in Roofing was at least partially offset by continued strong performance in Composites, which has once again emerged as a powerful financial contributor for the company. And Insulation has continued to produce manageable losses in a very challenging market condition. We began the year by offering guidance that we could deliver $350 million or more of adjusted EBIT. As the building materials market appeared to strengthen in the first half, we felt confident in our ability to significantly exceed that guidance. We now know that the market's first half strength was a false start. And in fact, the full year market opportunity for both the Roofing and Insulation businesses will be well below the levels that we had anticipated when we entered 2010. Based on our year-to-date performance and the current operations of our businesses, we continue to remain confident that we will exceed our original $350 million guidance for the year. In light of the significant uncertainty in building materials demand for the remaining two months of the year, we believe that the range of our performance for the year will likely fall between $360 million and $390 million of adjusted EBIT. We repurchased $100…

Thanks, Mike. Let's start on Slide 5, where we show our key financial data for the third quarter 2010. You will 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 third quarter 2010 consolidated net sales of $1.2 billion, a 12% decrease compared to 2009. Roofing sales were lower as a result of a sharp decline in the U.S. shingle market. The quarter was highlighted by our Composites segment, which increased sales over third quarter last year on consistently strong global demand. In a moment, I will review our reconciliation of items to get to adjusted earnings before interest and taxes, adjusted EBIT. As a reminder, when we look at period-over-period comparability, our primary measure is adjusted EBIT. Adjusted EBIT for the third quarter 2010 was $90 million, down from $135 million in the third quarter 2009. Adjusted earnings for the third quarter 2010 were $44 million or $0.35 per diluted share as compared to third quarter 2009 adjusted earnings of $78 million or $0.61 per diluted share. Depreciation and amortization expense totaled $83 million for the third quarter. This is consistent with our guidance that full year 2010 depreciation and amortization expense will be about $325 million. Our capital expenditures for the quarter, excluding purchases of precious metal, totaled $73 million, and we anticipate that 2010 capital expenditures will be lower than depreciation and amortization expense for the year. We continue to demonstrate strong cash generation and produced $147 million operational cash flow during the quarter. Owens Corning's focus on cash flow and our strong ongoing cash generation capability has enabled us to repurchase $100 million of our stock in addition to reducing our net debt by more than $500 million over the past five…

Thank you, Duncan. Feb, we are now ready to begin the Q&A session.

[Operator Instructions] And your first question will come from the line of Keith Hughes from SunTrust.

Just a couple of questions, starting with roofing. Can you give us any sort of feel where you are, where the industry is on shingle demand year-to-date, year-over-year?

Sure, Keith. Good morning. I think on the second quarter call, we had talked that shingle demand we thought was up mid-single digits. We didn't think the first half was up a full 10%, but it was probably trending towards in the range of mid- to high-single digits. Obviously, with the third quarter being down, in Duncan's comments, 38%, we would expect on a year-to-date basis, you probably now see shingle demand down 10-plus percent. And therefore, the fourth quarter is kind of consistent with the idea that overall demand would be down 10% for the year, that the destocking is mostly done and that we'll see relatively weak volumes in the fourth quarter, but they won't be extraordinarily weak.

And you've got the benefit, as you talked about in the press release, on some asphalt shipments here for commercial roofing. It seems like that will probably continue into the fourth quarter. Will that be the case?

Yes. One of the things that we point out, I think, in each of our calls is that our Roofing and Asphalt segment does include an OEM and commercial roofing business component where we process asphalt for both roofing shingle manufacturers, as well as players in the commercial roofing market in commercial markets. That tends to be a lower margin business, so it can be somewhat dilutive to our operating margin. On the converse side, I think in this quarter, it was somewhat accretive to revenue in that overall shingle demand and shingle revenues were probably down a bit more than overall segment reported because the asphalt volume hung in there. We have a pretty diverse mix of asphalt that use applications that we ship into. You should expect that the residential roofing part of that where we ship other shingle manufacturers is probably down consistent with the market. Some of the commercial markets are a little bit more stable. Some of the specialty markets are a little bit more stable, and were probably a little bit positive on price, which has given us a little bit of positive contribution.

Final question on Insulation, more price increases coming. Can you give us any kind of feel on the magnitude of those and how much you realized from the summer increase?

Yes. The price increases that we've announced, which I guess we announced about a couple of weeks ago, are a little bit different for all products. But for most products where we've announced a price increase, they're in the 6% to 12% range. The prior price increase, which was the July 1 price increase, was at the 20% level across most products. Some products were as low as 12%. Some were as high as 20%. I think in today's comments, we expressed some optimism that we have realized a material portion of those increases and that could begin to contribute to our financial results, but I don't believe we're comfortable disclosing or talking about specifically what level of pricing we've achieved.

And you'll feel most some of that positive in the fourth quarter, is that correct? And it wasn't fully in, in the third, right?

Yes, I think that's fair. We would've seen some of it as we progressed through the third quarter, depending on different product lines, geographies and channels. Certainly, any of the price that we got associated with the first price increase, the July 1 increase, we should be seeing in the fourth quarter. We would potentially see a little bit of an uptick in demand in the fourth quarter related to pre-price buying, as our customers believe that the prices are going to be more expensive in the first quarter next year. So that also could be a bit of a positive in the fourth quarter.

Your next question will come from the line of Jack Kasprzak from BB&T. John Kasprzak - BB&T Capital Markets: Following up on Insulation, more I guess broadly speaking, given price increases that have been implemented and maybe the prospective price increases, do you think Insulation, which has seen some sequential improvement narrowing the loss, can get toward or at breakeven in the next couple of quarters based on that? Or is volume still just too weak to expect that?

It's a great question, and as you might imagine, it's one that we spent a lot of time on internally. We're challenging our team in studying the progress we've made about lowering our cash breakeven and lowering our P&L breakeven. I think it is a story fundamentally built about market demand. If you look at where we are today, the core new construction market on a lagged housing start basis will really be flat in 2010 versus '09. So while calendar year housing starts in '10, it will probably show some uptick versus '09. If you take the fourth quarter of '08 and the first three quarters of '09 and compare it to the fourth quarter of '09 and the first two quarters of '10, lagged housing starts are about flat. So we haven't really, in our book, seen much improvement in new construction demand. And in fact, we've seen some further weakening in commercial and industrial. So we would probably look in our overall demand opportunity in 2010 and say, best case it's flat, more likely probably down versus '09. To get real leverage in the business, we're going to need to see commercial industrial bottom and begin to recover, and then we're going to need to see some meaningful growth in the new construction segment. Fundamentally, it's going to be driven by your outlook on housing starts and when you think we get back to both some sustainable momentum in starts, which would help us tremendously, because that would help us get operating leverage and get us out of the stop-start, stop-start mode we've been in. And then secondly, when do we get to an absolute level of starts that actually sustains both pricing and also reasonable levels of operating performance. John Kasprzak - BB&T Capital Markets: And second question is, your guidance range for the year, $360 million to $390 million, just listening to your commentary, again, Insulation pricing may be up a little, the loss is sort of narrowing a bit and Composites expect may be even a little improvement. So it looks like Roofing is the segment that would cause the most variation within that range of guidance. Is that a fair commentary? I mean, is the just sort of uncertainty there going into the winter months in Roofing is kind of what would make you vary within that range?

Yes, absolutely, John. I think that's quite insightful. The issue that obviously we're dealing with today is Roofing continues to be very, very profitable. I think in Duncan's comments, from an accounting point of view, we'll have some timing associated with some cost absorption and other things that could impact gross margins and even EBIT margins. But our incremental margins, the basic price level of the market is still attractive. Our material cost structure is still attractive. So the incremental square of Roofing volume is still quite an attractive business proposition. So really, our fourth quarter forecast, we have to sharpen our pencil pretty fine on Roofing volumes in order to get the range narrowed down. And at this time, we just don't feel like we have the ability to do that. Really with Roofing, we look at it from a shareholder perspective though and say the timing of Roofing volumes is more of a timing issue than it is a shareholder value issue, that for the most part because it's a repair and replacement market, roofs that don't get repaired in the fourth quarter are still out there waiting to be repaired some time in 2011 or 2012. So as long as we can sustain profitability, I know it may be frustrating as an analyst that you'd like us to be able to come to narrower ranges in terms of our guidance. But from a cash flow point of view and a shareholder value point of view, the existence of this wonderful repair market that consumes our products today at very, very good margins is really, we think, the big theme that should drive shareholder value for us in Roofing.

Your next question will come from the line of Ivy Zelman from Zelman & Associates. Dennis McGill - Zelman & Associates: This is actually Dennis McGill. Just to follow up on that last comment, Mike, just to clarify, so the volatility in the fourth quarter guidance would really be volume-related? Do you feel comfortable with the margin outlook in the fourth quarter even with the accounting adjustments you were referring to?

Well, if Duncan wants to comment further, I'd pass this one to him. I think broadly, volume is going to impact margins. So when we look at how -- we use the term contribution margin internally to describe kind of revenue minus variable product cost. And even with contribution margins we think staying relatively attractive through the fourth quarter, depending where volumes come in, that could have a reasonable impact on both top line and also reported operating margins because of how it impacts fixed cost. I don't know, Duncan, if you'd add anything to that.

Yes, Mike. I think what I said in my remarks is as we look back maybe over the last 10 years, fourth quarter margins have generally been below third quarter margins and in some cases by as much as 11 points, driven by the seasonality in sales and also production that Mike talked about. And as we look at 2010, we would see lower utilization. There's also an accounting impact of some of the lower utilization that we saw in the third quarter coming through into the fourth quarter. And obviously, seasonally, it will be a low sales kind of quarter. So even though contribution margins are pretty attractive, as I said in my remarks, we would expect margins to be lower in the fourth quarter. Dennis McGill - Zelman & Associates: I apologize if I missed this, but did you offer any opinion on where you think distributor inventories are today heading into the year?

Yes. In my comments, we said that we think that the destocking at distribution is substantially behind us. So that's going to vary by regions and by channels because out-the-door demand has varied across the country. But in aggregate, when we try to do our best estimates of kind of industrywide capacity level, our production levels industrywide, inventory levels and the overall level in demand out the door at distribution, we feel like this is probably more in our rearview mirror than it is on our windshield. Dennis McGill - Zelman & Associates: And then just last question in Composites. Seeing the margin guidance move up the last couple of quarters now, you talked favorably about pricing utilization rates are at good levels. Do you feel like there's an opportunity where price could begin to add to the value here as you think about 2011 and '12, particularly with the tariff in Europe?

Yes, Dennis. I mean, price has been adding value to Composites as we've gone through recovery. I think if you look at the operating leverage we've been getting in Composites, I mean, the operating leverage numbers are really eye-poppingly good. So each incremental dollar of revenue in Composites has been driving nearly $1 of EBIT over the course of the last three or four quarters. That's probably because we're getting great operating leverage by turning assets back on, and then we're getting some level of sequential price improvement. I think pricing in Composites works a little bit different than our Building Materials businesses, and that our products tend to be spec-ed into and designed into our customers' products. And therefore, we tend to operate with them on a little bit longer-term pricing arrangements in order to make sure that they can manage their economics, we can manage ours. I think that's the reason why in 2009, with the market down 40%, we didn't see the dramatic deterioration in price in Composites. We're certainly in an environment today that where we feel like quarter-on-quarter and year-on-year, we should be able to continue to move prices north, and that should give us good operating leverage in the business. You mentioned the provisional antidumping duties in Europe. We have communicated on that, that the European authorities have imposed antidumping duties on Chinese importers at the request of the European Composites Manufacturing Association, of which we're a member. Those are provisional duties over the course of the next six months. They are substantial, 40-plus percent in some cases. We're working very carefully with our European customers to ensure stability of supply, to ensure that they can be confident that the European composites supplier network is capable of reliably meeting the needs of that market and also keeping the European customers competitive. We believe that's very much achievable. And that obviously will be a big input into the determination whether to make those provisional duties permanent.

Your next question will come from the line of Garik Shmois from Longbow Research.

The first question is on Roofing. Just want to dig on pricing a little bit, just trying to move slightly down based on the comments. But I was wondering if you could dig in a little bit if you're seeing any difference in the price competition as you sell into big boxes as opposed to standard distribution on the Roofing side given that there was some market share loss, I believe, in the quarter in some of your Southeast markets. I'm just wondering, in the big boxes, if you're seeing a bit more competition there?

Yes. The Roofing market, which we tend to describe in fairly national terms, I think you've kind of correctly surmised is both regional and channel-specific. So in broad brushes, we've said, I think in Duncan's comments, that we've seen prices weaken a bit. That would be our average price across the entire business, partially offset by improved mix as the market continues to be more interested in putting better-looking shingles on if you're going to do a job. And then also, some good marketing on our part on some proprietary and innovative products that we have, which we think continued to kind of sweetened the mix for Owens Corning. So good execution on the commercial side and yet in a weak volume market, a fair amount of competitive intensity, particularly in some specific regions, that's caused some price weakness, although not enough that our margins in the third quarter weren't still great. I think there has been pretty significant at times through the year price competition between some of the big-box retailers out their door. I don't think you should assume as the manufacturers that necessarily the volatility in their price out-the-door necessarily represents volatility to the price with which we sell them. We obviously have a great relationship with Lowe's, provide them promotional and marketing programs that help them move product through their store. Sometimes, that also includes them using price as a lever to bring foot traffic into their store. We certainly expect GAF probably has a similar relationship with Home Depot in how they manage that relationship. Lowe's did decide to bring certainty in as a second vendor for three states, which probably represents about 10% of the overall Lowe's business. Obviously, we would have loved to stay at 100% with Lowe's, but we welcome the challenge to demonstrate that our value proposition for the remaining 90% of that business is a winner, and we believe it is. Dennis McGill - Zelman & Associates: So we shouldn't necessarily assume that pricing, the intensity on price has accelerated significantly as we move through the third quarter into the fourth quarter?

No, I think that's a reasonable conclusion. I think one of the key things that obviously we spend a lot of time talking to our customers about, we spend a lot of time talking to our investors about, is in an absolute sense, lower prices don't actually help anybody in the industry. So if price levels were to drop, then all of our distributors would drop their prices, and the only thing that would happen is everyone would be making less margin off of a lower number. So I don't think the mindset which may be pervaded the roofing industry for a very long period of time, which was the most important thing, was having the lowest possible price. I think today the most important thing is to have a competitive price and a great value proposition. And certainly, what we're trying to do with the margin rates we have in our business is reinvest some of that profitability in great innovative ideas and outstanding marketing that helps our customers build their business. Dennis McGill - Zelman & Associates: And then just one question on the Composites business with your new China facility getting ready to start. Can you talk about your expectations with respect to margins coming out of that facility, if you expect margins as you ramp up that plant, how they would compare to the consolidated business?

Well, a couple of things. I mean, we think that facility is going to be a home run for us. And I think a year ago, when we were kind of in the depths of the post fourth quarter 2008 financial crisis, it was a tough decision for us to continue to spend capital and move forward with that facility. And we look back now in hindsight, we feel like that was one of the very good calls that we did make. What that facility is going to allow us to do is put a significant new tranche of capacity into China. That capacity will be lower cost than the capacity we're currently using to service China. So today, we are importing about the same number of tons into China as is required to fully utilize that facility. So really what we'll end up doing is loading that facility locally, which is very much our strategy, kind of local production for local markets, freeing up some capacity then in Europe and the Americas, which is where we're exporting. So I think we'll see three positives are. One is we'll have some additional incremental capacity in Europe and the Americas that allows us to grow our volumes in those countries. The second is we'll eliminate all the transportation costs and over-the-ocean costs of taking that production to China. And the third is the new tranche capacity that we'll bring on will probably be as low cost as any capacity we have anywhere in the world. So I'd expect that what you'd see there is the new volume in China comes on board, the new capacity in China comes on board at margins that are at or above the average margins for the business, that we get a cost elimination for the product that we're shipping, and Americas and Western Europe have the opportunity to then ship that production into their local market at kind of marginal contributions. So I think we'll see three positives. I don't believe we've got a lot more projects as we expand the business in the coming years. The next set of projects will be more just capacity expansions to meet growing demand. I think this project is kind of uniquely good, and that it really gives us the opportunity to get through places where we lever the business.

Your next question will come from the line of Michael Rehaut from JPMorgan. Michael Rehaut - JP Morgan Chase & Co: I was wondering if, with your comments regarding Insulation, you kind of mentioned that you think you're at the end or that it shouldn't continue past the end of this year with regards to some of the manufacturing challenges. I was wondering if you could help us in terms of taking a rough stab at what that impacted profitability from a dollar standpoint. If that's going to end by year end, I would assume that those higher costs could be contained or limited to just 2010. And then also, with the mothballing of the two facilities I think that you mentioned, if that would also...

I think we lost Michael, I don't know if we loss the call. I'll continue talking as though I understand Michael's question and then we'll make a check to see if the call is still intact. I think the nature of Michael's question really went to the issue of kind of how much negative issues were we having in manufacturing, how is it impacting the numbers. We had previously disclosed in the second quarter that those impacts were probably in the $5 million to $10 million range. I think in the third quarter, we've made some progress on that. So I think the impact has begun to subside a bit relative to where we were in the second. And as we said on the call today, we're hopeful that we would have all that behind us by the fourth. Obviously, when you're working on narrowing losses and you're so close to prior year, those type of manufacturing performance issues represent the difference between being able to make progress against losses versus not making progress against losses. So I think part of the reason we've highlighted those is not so much as they're material, but they really are kind of shadowing or overshadowing some positive operating leverage we've been getting in terms of cost reductions in its overhead cost, as well as some positive pricing. As we go into next year, we would hope to eliminate those out of our system, obviously. And then with these two plant that we idled, we do have the ability to get after fixed cost there. I don't believe those fixed costs are super material because these are not two of our larger facilities, but they'll also give us a little bit more tailwind as we head into 2011.

Your next question comes from the line of Bob Wetenhall from Royal Bank of America.

I just wanted to touch basically on the sort of Composite business, how much visibility you have into global demand. And kind of just looking out, how stable is that demand going into next year?

Well, Bob, I guess I have two minds on how to answer this question. Because on the one hand, we feel like demand is relatively stable and we think we have reasonably good visibility with our customers that they're feeling comfortable with their markets and they're feeling comfortable with their inventory levels. So we don't see any of the big kind of hiccups or bumps in the road that would cause us to see a major disruption in the demand that we have. Unfortunately, I'm saying that less than two years away from 2008, where a hiccup or a bump in the road that we couldn't imagine which was the Lehman bankruptcy and the ensuing financial crisis, which led a kind of tidal wave of credit issues around the world. In that time frame, we saw demand drop 45% in 45 days. So I would say broadly borrowing any major external shock another big credit issue, a terrorist-type issue, any of those types of issues that are big external shocks to the system, we think Composites right now is in the beginning of what should be a relatively extended economic cycle and prolonged recovery, where we see what we've always talked about in the business, which is demand growth at about 1.5x global GDP.

Just with that, I know you've taken a lot of cost out in the business in the downturn, what do you think achievable peak margins are? I mean, I don't think you've done 10% in the last five years, but it sounds like you're heading into double-digit territory in the fourth quarter. How much potential upside is left on a caveat that demand remains intact?

Well, in the investor presentation that we have, that we use at investor conferences and also I think we talked to last year at our Investor Day, we had given some ranges on operating margins for the different businesses. And in that presentation, we had said we saw operating margins through the cycle for Composites in the 10% to 14% range. Obviously, first goal has been to get back inside that range as volumes recover and profitability recover. I don't think we shied away from the top end of that range in any of our conversations with any of our investors. So I would still say at this time, we still feel comfortable that through the cycle performance of Composites of 10% to 14% is good guidance.

[Operator Instructions] And your next question will come from the line of Jim Barrett from CL King. James Barrett - CL King & Associates, Inc: Mike, I got cut off the call, but I do have two questions on composites. Can you tell us generally in Europe how much industry pricing in composites declined when the Chinese were dumping composites? And how much you'd expect industry pricing to improve with the implementation of the tariffs in Europe?

Yes. I did talk a little bit about the antidumping, but the question you asked about pricing is new information that I'd be happy to talk about. In 2009, we did say that broadly across the business, we lost some price. We also said that it was not a dramatic price loss, so it was single digit on a percentage basis kind of price loss in the business. At that time, we disclosed that some of the more pronounced price loss was in Europe. But I don't think you should conclude from that, that the price losses in Europe were dramatically out of line with what we said about the business on a global basis. I think generally, what we saw during that period of time as the Chinese were purportedly are accused of dumping in Europe by the European Union, what we saw during that period of time was the incremental volume that was coming into the market from China was being priced at prices that was well below market, and that we weren't really responding to that necessarily. So our overall price level didn't drop down to that floor. As you pull that bid out of the market, we would say first what will happen is prices in the market will stabilize. And then secondly, we'll have the ability to rehabilitate prices back to more long-term average-type pricing and restore our profitability in the region. So we don't see this as a major opportunity to drive pricing to new stratospheric heights in Europe. I don't think that's the mindset of Owens Corning as we compete in Europe. I do think we see it as an opportunity to have fair competition and to get fair prices for our products during reasonable returns and sustain a competitive supply base in Europe that can serve European customers. James Barrett - CL King & Associates, Inc: And Duncan, on a related note, you mentioned capacity utilization in Composites was comparable to 2008, the first part of 2008. Your Q3 sales were $477 million. In Q3 of '08, they were $589 million in Composites. Is the difference the sale of the two European plants? I mean, how should I reconcile those two numbers given the fact that capacity utilization is similar?

Yes. I mean, as we said, we were running in the first few quarters of 2008 at pretty good level of capacity utilization, but we haven't disclosed specifically how high they were. But I think they were really running fairly high, obviously well before the downturn that we saw in the fourth quarter. In the first half of the year, certainly, we did have the impact of owning the assets in Battice and in Birkeland that we had in Europe, which we sold I think during the second quarter of 2008. So it didn't have some impact in those. I would also point in terms of what we've done since 2008 to 2010 to the rationalizations that we've undertaken in capacity both in Europe and in Asia, we've shut down our facilities, certain facilities in Asia and in Europe, including the facility most recently that we talked about in Alcala, Spain this year. So those have contributed to our capacity between 2008 and 2009 probably going down. So having less capacity available means that when we're running pretty hard, we're running at a lower level of overall revenue. That probably would be the factors that I would point to.

Your next question will come from the line of Joshua Pollard from Goldman Sachs.

My first question is around your comments for 4Q Roofing margins, and again I apologize if someone already asked this, I got cut off. You said that margins could be as bad as 11% down from 3Q based on the historical performance. And then I'm trying to reconcile that with your above-20% guidance for the full year. If you run the math, you could be down as bad as 11% and hit 20% still for the year. In fact, you could actually do zero percent margins in Roofing and still be about 20% for the year. So I'm trying to ultimately understand what you all are applying for potential margins for the fourth quarter of 2010.

Well, Josh, let me take that in terms of broad themes and then maybe I'll turn it over to Duncan for a few specifics. But I think importantly, what Duncan pointed out today on the call is if you go back and do some historical analysis, which we did for you, it's consistently true that the fourth quarter margins tend to be weaker than margins in the third quarter. So it should come really as no surprise to investors that we're probably not as optimistic about margin rate in the fourth quarter as we would be in the third, and that in fact it's been as high as 11% in history. I think further in his comments, he pointed out that some of the curtailments and other things that we did in the third quarter put some cost in the inventory that may exacerbate that issue a bit here in the fourth. I think your point about if you do the math and you can conclude that even if we were breakeven in the fourth quarter, we would be 20-plus percent margins for the year. In some ways, I think that's the point we're trying to teach on today's call, which is if we get caught up in the volatility of the quarterly results in Roofing, whether it's the volume numbers that we saw in the third quarter or whether it's the quarterly margin rate, I think we're missing the forest for the trees, which is this in fact is a business that has some inventory issues with its customers that can create some volatility in demand. Those tend to even out through year. It can have some absorption issues, and manufacturing those tend to even out through the year. It can have ups and downs in overall market demand, those tend to even out in the year and can have some inflation. And price strength or weaknesses, those tend to even out through the year. And that what we really have as we finish the year or as we believe we'll finish the year is a business that's continuing to operate at very high contribution margins and at a high contribution margins with decent volumes. With the fixed cost level that we run our business, our outlook for the near term and the long term is this is a significant cash contributor and a very good business. I think we've talked broadly in today's call to make sure that people understand that you don't need to sustain the margin performance we've seen through first three quarters to something to a, level the business; and b, get to our goals. Duncan, is there anything you'd add to that?

I think you broadly covered it, Mike. I mean, what we said was that If we look back over the last decade, fourth quarter EBIT margins have been as much as 11 points below third quarter EBIT margins, they certainly were in 2009. And we've seen in other years they've been quite a lot less as well, and that's largely due to both production utilization and lower sales. So there's both those factors as you spread the fixed costs both in the SG&A of the business, but also the fixed cost in the manufacturing over that production base and sales base, you'll see those margins go down. What we're seeing this year, contribution margin still seemed very attractive, as Mike said, supporting a very attractive business on an annualized basis. But in the fourth quarter, because production levels will be lower and also because we actually reduced production in the third quarter, some of the inventory effects associated with that low production in the third quarter will spill over into the fourth quarter. So we are expecting margins in the fourth quarter this year to be below the third quarter.

I think your trying to get folks to think about this more annually than on a quarterly basis. And I think about that in context of the comment you made on your press release that says higher margins seen in the Roofing business in recent years will continue to drive profitability. I mean, is that the way of you all saying that you think that the level of profitability you hit in 2010 is more or less sustainable going forward?

Josh, I talked a little bit about the investor presentation in terms of long-term margin guidance as it relates to Composites. Certainly, a number of the investors who've been with us for a long time have also talked at length with us about the investor presentation that we have out there related to our Roofing business and our long-term margin guidance in Roofing. I mean, as we sit here today, the company really has not offered other long-term margin guidance than what's in that investor presentation, which suggest that we believe the long-term margins of 8% to 12%. We've been very open though in talking about that long-term margin guidance and saying that at the time we put that together, it was in the 2007 context where margins were in the mid-single digits. And importantly, what we're talking about in that presentation was our ability to improve our business by $100 million and drive our margin rate by another five or six points based on competitive advantage and proprietary things we believe we can do. We believe we've not only delivered on that. We've over-delivered on that. As a result, a lot of the margin improvement that we've seen over the course of the last three years is homegrown. It's stuff Owens Corning did in terms of cost reductions, marketing mix, commercial excellence to drive the business. And then some portion of it has been a widening out of margins associated with the good competitive environment in the market today. I think as we go forward, we're going to use our Investor Day and some other events to further educate on our long-term outlook on margins. But at this point, we still have not taken a position on long-term margins besides to say the execution of the business has certainly caused us to believe that what used to be the high-end of our margin range now looks more like the low end of what should be the expected performance on a go-forward basis.

I have another question on your buybacks quite frankly, the amount of shares. I expect that you guys to buy back less than you did, so congratulations on that. My thought process is what level of cash do you guys want to hold on your balance sheet? Because the way I'm looking at it, it seems as if any additional cash flow from here would be going to the share repurchase. Am I thinking about that wrong? Or is there a certain level of cash that you guys would like to build?

Josh, it's a great question, and I think we've had a chance on a number of these calls to kind of talk about the hierarchy of uses of cash. And obviously, the first opportunity we have is to continue to invest in our current operations to keep them cost competitive and also maintain readiness to serve and to drive productivity in our operations and keep them safe. And we certainly have more than enough cash flow inside depreciation to be able to that. We've been able to expand our Composites business over the course of the last couple of years and keep capital spending inside at the level of depreciation. We're not entirely confident that in any given year that we'll be able to stay to that level of spending, but we certainly look over the long term and believe that we can support ongoing growth in Composites and have a lot of leverage in Building Materials, as Building Materials grows back into its potential that the depreciation we have corporately is adequate to fund the expansions that we'll need over the next three, four, five years while even though we may outspend that a bit in Composites and in any given year, we may not reach that. Once we get beyond those opportunities to invest in existing operations, we'd love to be able to find great M&A ideas that add a lot of value for our shareholders. And certainly what we did with Vetrotex in the composite side of the business is an example of what we think we can go get done and we'd like to make sure that we are maintaining an investment-grade balance sheet. When we look at the refinancings we've done, that I think our treasury team has done an excellent job of getting long-maturity, long-laddered financings getting the bank banknote taken out of our permanent capital structure, getting us to a well positioned and cost competitive credit line. We look at our net debt level generally and say that we're comfortable with where we are today. You may see some cash in our operations from time to time, either in advance of a known cash use. So for instance, if we're building a facility in China, we may have reasons why we have cash offshore that we want to keep offshore rather than bring back because we can redeploy it towards a specific investment. But for the most part, our long-term goal would be kind of zero cash balance and not much revolver draw or a revolver draw about equal to our cash balance. So staying at our permanent debt structure. And the logical conclusion is leaving aside good M&A opportunities or faster growth in some of our markets that we would have significant cash flow available for share repurchase.

Thank you for joining us for today's call. With that, I'll turn it back to Mike Thaman, who has a few closing remarks.

Well, first of all, thank you, everyone, for your interest in our company. And an apology, it does appear that somewhere in the technology, we lost some of the folks who were on the call. We don't believe that was on our end, but we do believe that there will be a transcript and a recording of the call. That will be available so that nobody will miss any of the comments, but we'll certainly investigate and understand why that happened. My closing comments I think would sound a lot like what I said at the beginning of the call. I think our third quarter financial report really did demonstrate both the value of our portfolio and also the resilience of our portfolio. Obviously, the Building Materials side of our business is continuing to operate in a market were demand is not as reliable as we would like it to be, either as consistent or as strong as we would like it to be. I think in the quarter and for the year, we've demonstrated a nimbleness of being able to respond to the market as it goes up and as it comes down and still deliver financial results that are in line with where we thought we would be at the beginning of the year. And I think on the Composites side, what we're demonstrating is how much operating leverage and performance we can get out of the business when we actually do begin to see consistent, stable and strong demand like we're seeing on the composite sight of the business and you begin to see the benefits of both the fixed cost reductions that we've driven, as well as kind of the marginal leverage that exist in our business as our business is strengthened. We're obviously looking ahead…

Thank you, all, for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.