Owens Corning (OC) Q2 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 Owens Corning Earnings Conference Call. My name is Deana, and I'll be the operator for today. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Michael McMurray, Vice President, Investor Relations and Treasurer. Please proceed, sir.

Thank you, Deana. Good morning, everyone. Thanks for taking time to join us for today's conference call and review of our business results for the second quarter of 2011. Joining us today are Mike Thaman, Owens Corning's Chairman and Chief Executive Officer; and Duncan Palmer, Chief Financial Officer. [Operator Instructions] Early 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've prepared presentation slides that summarize our performance and results for the second quarter of 2011. We will refer to these slides during this call. You can access the slides at owenscorning.com. We have a link on our homepage and a link on the Investors section of our website. The call and the supporting slides will be recorded and available on our website for future reference. Please reference Slide 2 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 in 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 on our slide presentation, we will begin on Slide 4. And now, opening remarks from our Chairman and CEO, Mike Thaman, who will be followed by CFO, Duncan Palmer. Mike will then provide some comments on our outlook prior to the Q&A session. Mike?

Thanks, Michael. And good morning, everyone. We appreciate you joining us today to discuss our second quarter and first-half 2011 results. Owens Corning delivered a strong quarter. The actions we took in the quarter built significant momentum across the company and position us for a strong second half. As a result, we've increased our EBIT outlook for the year to $500 million or more, up from our previous guidance of $475 million. Let's begin by reviewing the key highlights for the quarter. Net sales totaled $1.5 billion, a 5% increase over the same period last year, and second quarter adjusted EBITDA improved to $135 million, a $5 million increase over 2010. The Roofing business saw a substantial increase in both volume and revenue, supported by the spike in first-half storm activity. The Composites business also delivered strong performance, although the growth was tempered by weakness in the Chinese wind energy market. The Insulation business continue to focus on strong cost control to mitigate the ongoing impact of the weak housing market, and it's positioned to make money in the second half of the year. We completed several significant transactions, including the divestiture of our composites plant in Capivari, Brazil; the acquisition of 2 FiberTEK businesses to increase our loosefill insulation capacity; the refinancing of our $800 million revolving credit facility; and the repurchase of 1.2 million shares of common stock during the quarter. The FiberTEK move is a further demonstration of our approach to capital deployment and portfolio management. We are a great owner of this business. We have strengthened our Insulation business with great assets that we will operate well. And, I would note, the investment is roughly on par with the overall proceeds we will receive from our Masonry Products divestiture that we made last year, a business for which we did not believe we were the best owner. Before Duncan provides a more detailed reconciliation of our second quarter results, I would like to also review how we are performing relative to the expectations we framed at the outset of this year. We said that we would continue our progress in creating an injury-free workplace. At the midpoint of 2011, our rate of injuries has improved by 21% over our full year 2010 performance. This positions us favorably to achieve a 10th consecutive year of safety improvement. We said Composites would deliver another year of double-digit revenue growth, and $75 million of EBIT growth. We grew second quarter Composites EBIT by more than 30% compared with the same period last year. EBIT growth was driven by continued pricing momentum and production leverage. Through the first half, we've grown the EBIT by $30 million, representing 41% growth. With recent volume developments, we believe that our previous goal of 40% EBIT growth in 2011 is now overly aggressive, but we do expect another strong year with growth of about 25% in EBIT. We said Insulation would narrow its losses and embark on a measured path to recovery in 2011. The Insulation business lost money in the quarter, primarily the result of a challenging market conditions. With actions we have taken, we now see a clear path to making money in Insulation during the second half of the year. Finally, we said that Roofing EBIT margins of 20% were achievable for the year. Aided by successful pricing actions and significant storm activity in the United States, Roofing delivered EBIT of $141 million and EBIT margins of 22% in the second quarter. We remain focused on growth and profitability and are well on track to achieve our 20% margin goal for the year in this business. At the midpoint of 2011, Owens Corning has delivered strong revenue and EBIT performance despite continued weakness in residential housing markets, substantial conversion costs and start-up costs and broader economic challenges. Now, let's turn to a review of our business segments. Composites continued to deliver strong performance with quarterly EBIT of $55 million, up 31% from the same period last year, and EBIT margins in excess of 10%. Composites revenue growth was at the low end of management expectations during the second quarter. This was primarily due to weakness in the China wind energy market negatively impacting volumes. Long term, we continue to believe that the wind energy market in China is a great opportunity for Composites. In fact, industry estimates suggest that China will show continued growth in 2011 for the amount of wind generation capacity connected to the grid. Our near-term challenges are being driven by the reduction of a fairly sizable inventory of turbines that had been constructed prior to 2011 but had not been connected to the grid. The current near-term priority in China is connecting these existing turbines to the power grid. This has created an inventory in the supply chain for new turbine builds and has reduced fiberglass shipments into the wind market by as much as 1/3 from 2010. We would expect a recovery in wind-related glass demand in 2012, as well as continued growth for our business in our non-wind volumes. Overall, these developments have caused us to delay our expectations for overall China performance by about 12 to 18 months. Now let's move to the Building Materials segment where Insulation business experienced a 5% decrease in net sales for both the second quarter and first half of this year. Second quarter sales were impacted by lagged housing starts from the first quarter, which were 7% lower than prior year. Costs associated with converting to production of our innovative EcoTouch insulation also had a negative impact on first-half results. With EcoTouch conversion now substantially launched in all of our North American residential markets, we will see these costs dissipate in the second half. In addition, we expect to see near-term benefits from continued sequential price gains, cost actions that we have been taking and will take through the remainder of 2011, and improved volumes from seasonal demand, a slowly improving housing market, fall retail sales activity and the broader impact of our expanded relationship with Masco. Strong execution on the opportunities we have created underpins our confidence to make money for the Insulation business in the second half of the year. Finally, we executed another action that strengthen the future of our Insulation business. The acquisition of FiberTEK Insulation, LLC and FiberTEK Insulation West, LLC. The FiberTEK acquisitions are a great addition for Owens Corning and our customers. With acquired manufacturing locations in Florida and Utah, we have strengthened our ability to serve the North American loosefill market. Existing FiberTEK customers will now have access to our award-winning EcoTouch family of high-performance residential and light commercial insulation products. These facilities will produce Owens Corning PROPINK Loosefill Insulation. This product line is often referred to as blown-in insulation. Through the U.S. housing downturn, our loosefill demand has been a relative bright spot for the business. First, loose was a great product for reinstallation retrofits used in existing homes to make them more comfortable and energy efficient. Second, increases in the energy efficiency standards in building codes at the state and local level have increased demand for insulation in the attic, which is often a blown-in solution. Finally, recent innovation in OC's loosefill product line have made a more productive and easy to use versus low-quality cellulose products, creating substitution opportunities for growth. Moving to our Roofing business. We continued to deliver strong profitability, responding well to market conditions. This year, storm-related volume is approaching the highest level we've seen in the last 15 years. It's important to remember that storm demand typically constitutes the smallest category of overall U.S. market demand for asphalt shingles. The bulk of this demand, composed of reroofing and new construction application, still remains at a 15 year low. In addition, we continued to experience higher raw material cost, particularly in asphalt. We've taken 4 pricing actions this year in response to this raw material inflation, which has enabled us to cover the increased cost of raw materials that we've seen to date. Duncan will now walk through more details on our segment performance and other key financial developments in the quarter, after which, I will return to speak to our outlook. Duncan?

Thanks, Mike. Let's start on Slide 5 where we show our key financial data for the second quarter 2011. You will find more detailed financial information in the tables of today's news release and the Form 10-Q. Today, we reported second quarter 2011 consolidated net sales of $1.45 billion, a 5% increase compared to 2010. Our Composites segment increased sales over last year by 8%, primarily on higher selling prices and favorable foreign exchange rates, while revenues in Building Materials rose 4% on stronger demand for our roofing shingles. In 2011, we have not had any adjusted items to our reported earnings before interest and taxes, EBIT. In recent years, we have excluded items that were unrepresentative of our ongoing operations to arrive at adjusted EBIT, our primary measure to look at period-over-period comparability. EBIT for the second quarter 2011 was $135 million as compared to $130 million of adjusted EBIT in the second quarter 2010. Results for the quarter continued to demonstrate the strength of our business portfolio and our ability to execute in the midst of end markets that are not performing to their potential. Adjusted earnings for the second quarter 2011 were $77 million or $0.61 per diluted share, as compared to adjusted earnings for the second quarter of 2010 of $73 million, or $0.57 per diluted share. As I mentioned on our last earnings call, we have adjusted our effective book tax rate to 28% in the second quarter to remove the effect of quarter-to-quarter fluctuations. We continue to enjoy a very favorable cash tax position. Depreciation and amortization expense totaled $85 million for the quarter. This is consistent with our guidance that full year 2011 depreciation and amortization expense will be about $340 million. Our capital expenditures for the quarter totaled $119 million, and we continue to anticipate that capital expenditures for the year will be around $400 million. Our businesses have experienced inflation, particularly in commodity prices at a higher level than we have anticipated as we entered the year. This inflation affects our input costs, particularly asphalt, other petroleum-related input materials and transportation costs. We anticipate inflationary pressures to persist during the remainder of 2011. We have taken action to address the impact of cost inflation through productivity programs and price actions in all businesses. Next on Slide 6, you will see adjusted EBIT performance comparing second quarter 2011 with the same period 2010 based on business contribution. Adjusted EBITDA increased $5 million from second quarter 2010 to second quarter 2011. EBIT in our Composites business increased $13 million, which was the result of higher selling prices and production leverage. This was partially offset by an $8 million decline in Roofing EBIT and a $12 million decline in Insulation EBIT. General corporate expenses and other in the quarter in 2011 were $12 million lower than the second quarter of 2010. This was primarily the result of the elimination of a loss in North American Masonry Products and a reduction in corporate expenses. Included in corporate for the second quarter 2011 was the $16 million gain on the previously announced sale of our reinforcements plant in Capivari, Brazil that was offset $17 million of charges related to cost actions that we took in our Insulation business. I will explain these charges further in my comments on Insulation. We now expect a slight increase in general corporate expenses to be between $90 million and $100 million based on the company's performance and increase in the stock price over the first half of the year. We have sustained a disciplined approach to managing our operating expenses despite growing our businesses over recent years. With that as background, turn to Slide 7, and we will begin a more detailed review of our segments starting with Building Materials. In the second quarter, Building Materials net sales were $971 million, a 4% increase from the second quarter 2010. Building Materials delivered $103 million in EBIT for the second quarter 2011, $15 million less than the same period in 2010. The following 2 slides present the results in more detail by highlighting the businesses within the Building Materials segment, the Roofing business and the Insulation business. First, Slide 8 provides an overview of our Roofing business. Roofing sales for the quarter were $645 million, an increase of 13% from second quarter 2010. On our last call, we expected that second quarter revenues would compare negatively with 2010 due to the very strong shipments we experienced in the first and second quarters of 2010. However, we have seen an increase in demand for our shingles due to the first-half storm activity, which resulted in second quarter 2011 sales exceeding those in the same period 2010. We believe that 2011 storm demand could approach the highest level seen in the last 15 years, resulting in overall market growth in the low- to mid-teens versus 2010. I remind you that despite this increase, shingle demand remains well below its long-term average level. In addition to revenue growth, in the second quarter, we delivered EBIT margins of 22%. We were extremely pleased with this performance in light of continued inflation in asphalt. We have implemented 3 sales price increases year-to-date. We expect the impact of these increases to expand margins in the third quarter along with continued strong volumes. We are confident that we will deliver 20% EBIT margins for 2011 as a whole. Next, on to Slide 9. In line with our expectations coming into the quarter, weakness in U.S. lagged housing starts negatively impacted sales in our Insulation business. As a result, Insulation sales for the second quarter were $326 million, a decrease of 3% from the same quarter in 2010. Prices have been stable or slightly increasing across many of our Insulation products. EBIT for the second quarter 2011 decreased by $12 million as compared to the same period in 2010. Insulation results were negatively impacted by lower sales volumes and operational investments associated with EcoTouch. We are extremely pleased to have completed the launch of our new EcoTouch residential insulation as our customers: the installer, builder and homeowner have all responded positively to our innovative product that delivers on our green without compromise promise. Given the weaker than anticipated performance of the U.S. market, we now believe that revenue growth in 2011 as a whole will be in the high single digits, representing significant growth in the second half versus 2010. This will be driven by higher sales volumes and increased selling prices. As we discussed on the first quarter call, we believe that we will experience higher sales volumes in the second half of the year driven by seasonality of housing activity, modest improvement in overall housing starts, additional volume from our supply position with Masco and higher retail activity. We have also taken actions across several product lines to increase prices. In addition, we anticipate lower costs in the second half arising from actions we have taken to reduce headcount and to rationalize unprofitable product lines, as well as the completion of the conversion of our residential product line to EcoTouch. These factors continue to give us confidence that we will be profitable in Insulation for the second half as a whole. In addition, we are pleased to announce the acquisitions of FiberTEK's insulation facilities in the United States for $84 million in cash and $25 million in deferred payments. Purchasing these 2 facilities will allow us to offset capital expenditures that were planned in the 2012 to 2014 timeframe. While we are excited about the contribution that these acquisitions will have on our results in the future, we do not foresee a material impact from them in 2011. As I remind you on each of our quarterly calls, this is a great business in a well-structured industry. Owens Corning's PINK 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 10 provides an overview of our Composites segment. Composites sales in the second quarter 2011 were $529 million, or 8% higher than the same period in 2010. This increase was primarily the result of higher selling prices and the impact of favorable foreign exchange rates during 2011 compared to the same period in 2010. Sales volumes were relatively flat as continued growth in most markets around the world was offset by weakness in the Chinese wind market. The Chinese wind market is forecasted to grow significantly in line with the Chinese government's 5-year plan and represents about 10% of the overall Chinese glass fiber reinforcements market. Owens Corning is the leading supplier of glass fiber reinforcements to Chinese wind. As Mike commented, there is excess inventory in the supply chain as wind turbine installations have exceeded what was connected to the grid. As a result, while we expect connected installed capacity to continue to grow in 2011 and beyond, the inventory effect will cause a correction in glass fiber demand of about 1/3 in 2011. We have responded to this by growing our business in non-wind applications in China significantly, and we continue to expect strong growth in our Chinese Reinforcements business in the future. However, the correction has set our overall Chinese growth plans back by about 12 to 18 months against what we had anticipated at the beginning of the year. This impact does not affect our long-term growth outlook for the overall global Reinforcements market. Second quarter 2011 EBIT was more than 30% ahead of the second quarter 2010. Composites achieved 10% EBIT margins and delivered $55 million in EBIT driven by the improved manufacturing productivity and increased selling prices that more than offset inflation. We have made good progress on both our Russia and Mexico expansions, which we expect to positively contribute to our results in 2012. For the third quarter 2011, we anticipate the Composites revenue and EBIT will be sequentially flat with second quarter. Despite weaker demand in the Chinese wind market and continued inflation, we are pleased with our full year outlook to improve EBIT by about 25% over 2010, with revenue growth of 8% to 9%. We have a few additional items to cover. And now on to Slide 11. We continue to focus on cash generation and maintaining an investment-grade balance sheet. In addition to our cash on hand and cash generated, we have access to an $800 million senior revolving credit facility, which, in July, we refinanced to take advantage of lower interest rates and to extend the maturity to 2016. We repurchased 1.2 million shares of our stock for about $43 million during the second quarter and, as of June 30, 6.5 million shares or 5% of the company's outstanding remain available for repurchase. We expect to complete the current authorization by the end of 2012. This represents a return of capital to our shareholders that reflects our strong outlook for earnings and free cash flow generation. We believe that our $2.3 billion tax NOL asset has delivered cash tax savings of about $140 million for the period 2009 to 2010. These ongoing savings demonstrate the value of the NOL. Due to our favorable tax position, we expect to incur less than $30 million in cash taxes in 2011. We project that our effective book tax rate for the year will be 28%, but some fluctuation quarter-to-quarter, based on a blend of our U.S. and non-U.S. operations. The results for the second quarter 2011 demonstrate the resiliency of our portfolio. In our Roofing business, we anticipate we will deliver another strong year of performance supported by the storm-related demand and price actions we have taken to offset inflation. We believe that full year EBIT in our Composites business will grow by about 25% over 2010. Actions that we have taken in our Insulation business will contribute to this business making money in the second half of 2011. This performance gives us confidence that adjusted EBIT for 2011 will be $500 million or more, which translates to growth in adjusted earnings per share of over 40% from last year. In addition, this keeps us on track to deliver on our goals of reaching $1 billion or more of EBITDA in 2013, and $1 billion of cumulative free cash flow over the period from 2011 to 2013. With that, Mike, back to you for some further comments on our outlook before we turn to Q&A.

Thank you, Duncan. In summarizing the quarter, I want to again emphasize how pleased we are to have delivered strong performance, while market conditions remain challenging for many of our businesses. And as we embark on the second half of the year, we continue to see positive development for each of over 3 primary businesses. In our first quarter call, we acknowledged that we had expected a bit of a slow start to the year with momentum building in the second quarter that should carry into the second half. I've been pleased with our execution as we progress against the broad agenda in all of our businesses. Our markets, as always, have drawn us a mix of positive and negative surprises versus our expectations coming into the year. The level of storm activity in the first half was unexpected and has supported a solid volume outlook for Roofing for the second half. On the negative side, asphalt cost increases and other inflation have been more than we had planned, the China wind market has hurt Composites, and the U.S. new construction market has continued to underperform virtually every forecast that was made 7 months ago. On balance, we are pleased to benefit from the diversity of market opportunity that Owens Corning enjoys. The result of our first half performance and second half expectations supports our upgraded guidance of $500 million or more in adjusted EBIT. Our upgraded outlook for 2011 brings us closer to our goals of achieving $1 billion or more of EBITDA in 2013. On our first quarter conference call, we acknowledged that our 2011 plan required strong financial results in the second quarter. I'm pleased that our team has executed on this imperative and created important momentum for the second half. As a result, we continue to see exciting growth opportunities for Owens Corning in 2011 and beyond. At this time, I will turn it back to Michael, who will lead us into the Q&A session. Michael?

Thank you, Mike. Deana, we are now ready to begin the Q&A session.

[Operator Instructions] And the first question will come from the line of Garik Shmois, Longbow Research.

First question is on Composites and your guidance. Is the estimate revision today, is that all coming from what you're seeing the Chinese wind market, or is there some cautious approach also baked in given some of the weaker macro indicators out there?

Good question. I think substantially, the change in our guidance in Composites is really related to China wind. We brought a facility online this year in China in the first quarter. And we had really expected that, that was going to power a lot of operating leverage in the Asia region and also would, therefore, give us some incremental capacity and operating leverage back in the Americas and Europe. That strategy has backed up on us a little bit because we haven't seen the demand levels for wind in China. So we haven't gotten that leverage. I'd characterize the other markets as being a little bit mixed. I think the North American market is probably a little bit stronger than we expected coming into the year. Don't forget that roofing and roofing mat is a significant composite application, one of the largest composite applications in the world. So our Composites business in the Americas has been quite strong. I think our Composites business in Europe has shown nice price progression, has shown nice improvement in terms of profitability. I think we've seen good volume growth there. Maybe a little bit weaker than what we had hoped coming into the year. And we're still really, I think, trying to sort out how much of that might be automotive build schedule and some of the other things that impacted first-half industrial production. I think we're taking a little bit of a cautious approach into the second half. We are not assuming a big turnaround in industrial production or big economic growth driven by automotive. But, we certainly think there are some things that would cause the second half of the year to be a bit more positive for Composites in some of our core markets in the Americas and Western Europe.

Okay. And you are bringing some Composites capacity on -- over the next 12 to 18 months. Just wondering if you could talk about how confident you are that the market will be able to absorb the capacity given the uncertain macro environment?

Yes, our strategy in Composites and, really, I think our strategy as a company is we tend to like to build capacity in a market for that market. So we're not big believers of exporting lots of products across oceans. So when we look at a capacity expansion, we tend to be looking to match that capacity to growth we see in that market. And I think our China investment is indicative of that. The next piece of capacity we have coming online is in Russia. That's not a sizable increase in capacity because that's really a reconfiguration and rebuild of an existing facility to make it very low cost and high quality. So that will probably happen very early next year. And I think the timing of that's not tremendously impacted by the market because we're getting a lot of productivity in cost reduction as we reconfigure that facility. The next piece of capacity that we've announced is Mexico. That would be primarily in a product line called rovings to serve the North American market. We think we've got a cost position there that we can export around the world to load that facility if we need to. And generally, that's a product line that we do have some opportunity today to meet some demand. So I think at this point, we would say we haven't seen anything that causes us to believe we needed to slow down or amend our plans to bring capacity online. But I think as you've seen -- as you listen to these call's over the years, we evaluate that as we go, and if we see some change that that's a knob to turn, we'll turn that knob.

The next question will come from the line of Mike Rehaut, JP Morgan. Michael Rehaut - JP Morgan Chase & Co: First question just on -- the Roofing segment continue to execute well and, as you said, benefiting from the storm activity. Just wanted to get a sense -- you had mentioned several prices increases through -- I think you said, and I just wanted some clarification here, that 3 price increases have already been implemented and realized, and there's a fourth one that is going to be put into motion, plus or minus right around current timeframe. And also the comment about margins expanding, even though it's almost a similar beta, are we talking sequentially or year-over-year, or -- I would think that it would be both, but just wanted to make sure on that.

Okay, let me talk first a little bit about pricing activities in the Roofing business and then I'll talk -- turn it over to Duncan to talk a little bit about asphalt costs. We have had and executed 3 pricing actions this year. There was one in the first quarter that was really effective kind of at the end of the first quarter. There was one that was announced late first quarter, which was effective kind of middle of second. And then there was another one announced in the second quarter that was really effective kind of at the end of the second quarter. So we've had 3 actions. I think coming into the year, we knew that we had exited the year with some margin compression. I think we talked about that a lot on our fourth quarter call and also our first quarter call. We expressed confidence that we thought we could take price action to get margins back to where we have grown accustomed to seeing them over the course of the last 2 or 3 years. I think the price actions that we had put in place, which got us to 22% margins here in the second quarter, probably would have widened our margins out a bit more had we not seen pretty aggressive asphalt cost inflation. And as a result, we do have another price increase that was recently announced, which will happen kind of mid- to late-third quarter. And we'll see as the quarter evolves what impact that has on margin rates. I think the news on that is not so much on the price side where I've been really happy with our execution and, really, I think pricing has played out about how we expected it to play coming into the year. But we have seen a little bit more asphalt cost inflation, and that's been a bit more persistent than what you might expect based on oil prices. And I'm going to let Duncan comment on that for a second. Duncan?

Thanks, Mike. Yes, I mean, as you'd note early in the year, crude ran up quite significantly, and asphalt tends to follow crude, and did so. And so quite a lot of asphalt inflation, I think, coming in the sort of in the first quarter and the beginning of the second quarter. And you'll notice we have executed several price increases on the back of that. And I think price -- asphalt prices probably stabilized a little bit towards the end of the second quarter, but coming into the end of June, maybe into July, we have seen some asphalt price inflation. It's not untypical at this time of the year to see asphalt go up a little given the seasonality, the paving season, but it has decoupled a little bit from crude oil, which really hasn't moved very much at all recently. So we have seen some asphalt inflation maybe also driven by some refinery turnarounds in the U.S. So we have seen some persistence inflation, as Mike talked about, coming into the third quarter. And as Mike also noted, we have announced a price increase would effect in September.

And Mike, I think specifically to your question about third quarter margins, I think Duncan's comments were sequential relative to the second quarter. I don't think we gave any guidance on where we thought margins would be relative to third quarter of last year. Michael Rehaut - JP Morgan Chase & Co: Right. Appreciate that. The second question on Composites, and I appreciate the detail with regards to what's going in China, but you had mentioned that a big part of this was due to some inventory that, I guess, had built up and the reduction of that kind of holding up production near term or perhaps even over the next 12 to 18 months. But, I guess, kind of a 2-part question: number one, as compared to maybe the inventory reduction, I was wondering if you could comment about the growth in the overall wind market. If you kind of take out the channel issues or the supply-chain issues or inventory reduction, how is the overall market still fairing and what your outlook is for 2011 and 2012? And the size of the wind market, I think you had historically said that the wind energy market is roughly 15% of Composites demand, if that's still the case or -- and if that's on an industry level, in a company specific level, so -- apologize for all the subsets of questions, but...

Okay. I think I can address virtually all of that. So let me just make some comments about wind broadly. I mean wind continues to be a very exciting market for our Composites business and one that we see growth over the coming decade. It's a different theme as you go to the different regions of the world. So if you look back 2 or 3 years, I mean, China was not a particularly big player in wind. Probably 3, 4 years ago they put up less than 5 gigawatts of total wind capacity. Last year, they probably put up between 15 million and 20 million gigawatts of capacity. So you can see, they've moved on to the global stage as the leading market for wind. I think the challenge that we saw is the process of putting wind power to the grid is: You have to erect the tower, you have to hang a turbine, you have to put on the blade set, and then you have to connect it. And while there was a lot of towers, turbines and blade sets put up last year, not enough of it was connected. The prior Chinese 5-year plan was very focused on the construction of wind energy. The 5-year plan that took effect at the beginning of this year is focused on wind energy generation, which means there's a lot more emphasis on getting turbines producing to the grid than there are building turbines. Now over the long term, if you want to increase the amount of energy you produce from wind, you've got to build towers, build turbines, hang blades and connect to the grid. So we know that we're in a short-term transition as this inventory or backlog of constructed turbines gets put to the grid. And it's a sizable amount. So that's what we're seeing in China, but we would expect China to grow and continue to get into the range of 15 million to 20 million gigawatts per year of turbines, both erected and connected to the grid when this comes back into the balance, making it the largest wind power market in the world and a market where we certainly have a leading position. Of all of our Composites businesses in the world, our China business is probably more dependent on wind than our other businesses, not because we don't see tremendous opportunity in the non-wind business in China, but because wind has grown so quickly, it's really consumed our capacity in region. And we've been very devoted to making sure that we keep our suppliers -- our customers in supply. And as a result, we haven't had a lot of available capacity to develop non-wind. So I think what you'll see, and I think Duncan talked about it -- I talked about it, we'll see a little bit of a slowdown in the growth of wind with a really good recovery over the next 4 or 5 years. And I think you'll see an opportunity for us to continue to expand our opportunity in some of the non-wind applications in China, which are also sizable. Remember, China is the largest wind -- the largest composite market in the world. We continue to be bullish, though, also on Western Europe, on India, on Brazil, on the Americas. The wind market continues to progress well in those markets. There's lots of talk of offshore wind development today in Europe because of Europe's historical dependence on nuclear power and some of the changes in kind of policy winds that are coming out of the Fukushima accident. You're seeing, at least in the near term, continued investment tax credits and production tax credits in the U.S. and Canada, driving renewable developments in this region. So we have a nice global footprint. We like the development of wind also in India. We think that's going to be another good market for us. So it's a market we will continue to focus sizable resources on, and I think we see great health in the 5-year plan for the China wind market, but we have to get through this period where some of the stuff that was built need to get connected. And I think that's going to be the theme probably for the next 12 months, 18 months, which is where we gave our guidance today. Michael Rehaut - JP Morgan Chase & Co: So just to round that out, the wind application in general, is that -- I think you talked about that being a 15% or so -- that, that is about 15% of your overall Composites business. Is that -- how would that change now with -- is that the case, and how do you think about that in terms of that market's overall global growth in 2011, 2012?

Yes, Mike, I think our estimates historically have been that wind is closer to 10% of the overall Composites, Mark. And I think we made that estimate in 2008 at our Investor Day. And I don't know that we've updated that estimate. Wind has probably been growing faster than other markets in China, and China has been the fastest growing market in the world. So I think it stands to reason that it at least kept up or maybe increased its importance to the global composites industry up to this year. We're now seeing that the China wind market in terms of glass shipments could be down about 1/3 from last year. So my guess is we're probably still bouncing around that 10% number. If I were to conjecture about the next 5 years, I certainly don't see anything that would cause me to believe that wind in total grows more slowly than the composites market, so it certainly at least keeps up in terms of being that important to the Composites market if not accelerates a bit and becomes a bigger portion of the overall mix.

And the next question will come from the line of Josh Levin, Citigroup.

I want to ask about the FiberTEK acquisition. When you think about sort of the cost curve in the insulation industry in terms of low-cost producers, high-cost producers, where does FiberTEK fit on that curve?

Yes, it's a great question, Josh, and I appreciate the opportunity to get to talk a little bit about FiberTEK. I'm going to go product-line specific and talk a little bit about this loosefill product line and how these assets fit in, in terms of where they are on the cost and production curve. I talked about 3 reasons why loosefill has been a bit of a bright spot. Building codes tend to favor increased insulation in the attic. That's a blown-in application. We now have a product with our PROPINK that you can blow attics in the reinsulation market, but you can also now blow in walls. So you can retrofit the insulation in walls using our insulation product, which is very good without tearing off the dry wall, which is obviously an important thing if you're trying to retrofit your home. And then we've known cellulose has continued to have some position in the blown-in market, and we think we've got a cost position and a quality position that allows us to continue to make slow but steady progress against cellulose. So we like the category. We have a couple configurations in Owens Corning of how we make this product. We have a standalone dedicated facility, which I would say is probably one of the leanest and best performing facilities in our entire company across really all of our product lines. And then we have a couple of loosefill lines that reside inside large-scale insulation plants that also make baths. We would've had 3 potential options on how we would have expanded our capacity in loosefill to address the growth opportunity we see. One would have been to either convert or build new lines in the existing bath facilities. That tends to be kind of a low capital cost solution but not quite as low an operating cost solution, because you're in an existing facility that's fairly complex. We could build a greenfield, which would be a little bit more capital and probably lower operating costs similar to our dedicated facility, which we like a lot. Or we could go out in the industry and try to buy existing assets that our technology would be able to fit in very easily and our technology can be retrofit. And we think what we're going to end up with is a lower capital cost solution than building dedicated Greenfield assets. We think we're going to end up with a lower cost solution than building assets in our existing, larger-scale, more complex insulation facilities. And we certainly have a footprint here that allows us to put our PROPINK insulation technology into these facilities and get a product that's at the quality level and the cost level of our dedicated facilities. So we think we've kind of solved all those pieces. We've got a nice capital cost solution with very good operating cost solution, and we've got some customers. So with this, because we're buying an existing business, we're acquiring not only the operating assets but their customer base, some of whom we currently do fair amount of business with, and this is a chance for us to broaden and deepen our relationship. And some of whom we believe will be new customers to Owens Corning, which will create an opportunity for us to grow, not just our Loosefill business but our EcoTouch line of bath products.

Okay. My second question is about share buybacks. The stock is off quite a bit, but you're going to earn more money and generate more cash this year than you had originally thought, so has your thinking about the timing and magnitude of potential buybacks changed?

Josh, it's Duncan. I'll take one. So as we've always indicated, we think about stock buybacks in terms of applications of free cash flow and how our outlook for free cash flow looks. And as you've indicated, we've got an outlook to free cash flow. Certainly, we've indicated over of period of '11 to '13, we could generate $1 billion of free cash flow. And we said that we'll complete the authorization by the end of 2012, reflecting that strong free cash flow generation in the second quarter. [indiscernible] free cash flow that we have, and we felt that, that was an appropriate way to spend some of our free cash flow. And I think we would continue to take a look at our outlook for free cash flow over time, look at the relative opportunities we have to invest that free cash flow including acquisitions, capital investments, our own business and repurchasing our own stock, and look to complete the authorization, as I said, in advance of the end of 2012.

And the next question will come from the line of Keith Hughes, SunTrust.

Two questions on Roofing. One, what kind of volume growth did you see in the quarter? And two, Mike, I wanted to dig into your comments on the storm season perhaps being the best in 15 years. Couple of years ago had a great storm season with multiple events from hurricanes and hail. What are you seeing right now that would make that statement? Is it more widespread than it's been reported? Just any sort of color on that would be helpful.

Great. Let me first start on kind of year-to-date volumes. I mean, year-to-date, we haven't actually experienced that much volume growth versus prior year. I mean, if you remember last year, we had a pretty good first quarter, and we actually had a quite strong second quarter. So while our second quarter this year was a bit stronger than last year, I would say that year-to-date, we have not seen dramatic or double-digit type volume growth, even though we are saying on this call we think the overall market for the full year will probably be up double digits. I think our optimism here is we do think the volume we saw in the second quarter carries over, whereas last year, clearly, it didn't. And last year, I think the optimism in the market was more built off of the first-time homebuyer tax credit, a belief that the economy was recovering, that we would start to see people back investing in their homes, that home prices had stopped falling. And I think as we look back in hindsight, all of that in fact turned out to not be true. And when we got into the second half of last year, the market got kind of quiet for reroof demand, which was where the optimism last year had driven market demand, and we backed up and had a volume miss in the third quarter last year. I think this year, we're seeing specific -- and I wouldn't say isolated, because it's fairly widespread. We're seeing significant sizable metropolitan areas where there were both hailstorms, tornadoes and high-wind-type storms in the second quarter. And there's weather services that report on this. I think what was very different about the first half of this year was the size and severity of some of these hail and high windstorms, and that they happened in major metropolitan areas. So I think we all saw the devastation of places like Joplin and Tuscaloosa, those made the front cover of the paper, but we've seen lots and lots of hail damage in places like Dallas, Charlotte, Pittsburgh and others. So there's been pretty widespread metropolitan areas that have gotten hit with severe weather. And it's our best assessment of that today that, that would create storm-related demand in the industry that probably powers double-digit overall growth in industry demand this year. Obviously, we would hope to achieve at least our share of that demand growth, which, if you put that into kind of the outlook, says we end up with a sizably better third quarter in terms of volumes than what we saw last year. And that gives us some optimism for the second half of the year.

So the second quarter, the 13% growth, that was all price in Roofing?

No, my comments were really related to the first half. So if you look at the first quarter of this year, our volumes were a little bit behind last year. Second quarter this year, our volumes were a little bit ahead. But in total, our volumes for the first half, while they're a little bit ahead of last year, is not really remarkably ahead of last year. We had reasonable volume growth in the second quarter, but just at this point in the year, we're not a lot ahead of last year in terms of volume.

And the next question will come from the line of Dennis McGill, Zelman.

Mike, I just was hoping you could maybe dig in a little bit more on the Composites. I know you spent a lot of time on it, but just trying to understand the magnitude of wind energy to the overall business because some of the numbers that you've given us is 1/3 of composites is Asia, and that's not all China, and somewhere in the 15% range is wind, and it's off 30% for the year. Struggling to get to much more than, call it, a 1- or 2-point impact in volume, yet, it's a $30-million or $25-million impact on the EBIT line. So just trying to understand how that kind of rolls through. I know you said that some of that is the impact on -- the derivative impact of leverage to the other plans. But it just seems like a big change in profits for a small change in volume. I'm trying to figure out what I'm missing. And then in conjunction with that, I think I've heard you talk in the past about sort of a delay in getting some of the wind hooked up to the grid in China. So what happened over the last 3 months that leads you to push up the recovery 12 to 18 months, which kind of sounds like a bit of a shock from a magnitude standpoint. And maybe those 2 things go together, I'm not sure.

Okay. I think your math isn't far from wrong from, so -- I mean, far from right. The China wind market, which we would say is probably in that 10% to 15% range of the overall China market, was a much higher percent of our business. So we were much more wind-dominant in China. And so obviously, the effect of that is going to be more pronounced on us. And it was a significant area of operating leverage for us in the business this year. So coming into the year -- we talked on a number of calls about how we were really happy with the fact that we had configured a facility in China to meet growing demand that allowed us to stop importing into China, which we had been doing, eliminate some of those supply lines and get our facility over there loaded. That is what has not happened, and the operating leverage in a new facility is very, very high. So one of the reasons why we've said we believe we can grow our Composites business to the mid-teens in terms of operating margins over the course of the next 3 to 5 years is as you bring new facilities on, on the margin, they're quite accretive to your operating rates, and they're quite accretive to your operating margins. We're just not getting that accretion right now from China. And that combined with some inflation, which is a little bit higher than what we expected, pricing has been reasonably good, inflation's eating up a bit of operating margin, and then the lack of that leverage is a measurable and significant multimillion dollar impact to 2011 results. When we say we've pushed it back 12, 18 months, I said that the amount of wind energy being connected to the grid is probably still in that 15 gigawatt level in China today. If we were building kind of at the 15 to 20 gigawatt level in 2010, but it wasn't getting connected, and then to correct that out, we maybe need to go and spend a year building 10 or less in order to absorb some of that inventory, it's going to take a couple of years to ramp back up to where shipments were last year where we were meeting a construction build of 15 to 20 gigawatts. Now the 5-year plan for China would certainly say that China is going to build and connect 15 to 20 gigawatts a year over the next 5 years. So it's really a timing issue, and it just looks like it's 1 year, 1.5 years before all this works through and we get back onto the old curve. We're still very, very bullish on the China wind market.

So does that change the trajectory of how we should think about margins gain to a mid-teen level in this business?

Well, I mean -- so on the margin, you have one plant in one region that was going to give us a bunch of operating leverage, which is probably 1 year behind. So I think if you look at the next 4 years and you say it takes us 1 year to get that or 1.5 years to get that to where we wanted it to, it is therefore maybe 1 year or 1.5 years later before we have an opportunity to put a second investment into China, which is potentially the next big tranche of operating leverage there. So I think it does delay that specific story. I don't think it changes the trajectory of the operating margin performance for the business. It just takes that one component, which was one of the building blocks of how we build there and kind of pushes that out of here.

And the last question will come from the line of Bob Wetenhall, RBC Capital Markets.

My question's for Duncan. You're -- I'm kind of looking to bridge into $60 million. And it looks like you're increasing your EBIT by $25 million, up to $500 million, and you're also increasing corporate spending by incremental $10 million, so that would get me to a cumulative $35 million. And then just picking up on your growth in the Composites segment EBIT, it looks like it's growing from a base of $175 million in 2011 to $220 million in the current year as opposed to $245 million. So that's a another $25 million in lost EBIT. So when I add those up, I'm trying to figure out where the extra $60 million in profitability is coming from. Is that just better performance in Roofing and a smaller loss in Insulation in the back half of the year?

Yes, I mean we haven't provided -- we've provided -- the guidance we've provided is that we think Composites will do about 25% improved EBIT year-over-year. We have said $75 million, so there's a delta there. We said that corporate expenses will be in the $90 million to $100 million range. We had said in the $80 million to $90 million range, and that was driven kind of by our performance and our stock price in the first half of the year, so there's a delta there. And we would expect the balance to get -- kind of get to increase our guidance from $475 million to $500 million or more to come from roofing, therefore, and insulation. So I think you would be correct in assuming that that's where those 2 come from. We said that insulation will be profitable in the second half of the year. We've kind of maintained that point of view. We haven't provided specific guidance change this time I don't think, and so therefore -- we've also said that we do think we'll see a very strong demand year from storms this year. Obviously, long-term demand is quite a lot higher than we're seeing this year, but short-term is going to be quite a big uptick in Roofing demand year-over-year. Probably earlier in the year we had not seen because it is kind of storm-related, so I think that certainly some upgrade in our view of how profitable our Roofing business would be along with our confidence and 20% EBIT margins for the year.

Got it. Sorry?

That makes sense to you?

Yes, that does. So it's really those 2 segments with the better half in Roofing driving that uptick in EBIT for the offsets. In the -- looking into 2012, it seems like you have better market share position in insulation, and you're changing the profile of the business as well in terms of products. What's your comfort level in terms of saying that could be a breakeven business in 2012 or at least a lose-less money?

I'll just make a couple of comments and then maybe Mike can make a comment. We haven't provided any guidance 2012 at this stage, and it's not our practice to. So we have indicated in our Investor Day last year at that time how we foresaw insulation evolving over the period '11 to '13 in terms of achieving 50% off of operating leverage on top line that was growing maybe around about 10%. So that sort of -- that framework was what we laid out at Investor Day last year. But we have not provided any specific guidance about Insulation for 2012. Mike?

Yes, I mean, I think the 2 things we've said consistently about Insulation is kind of in a flat new construction environment, it would be our goal to see the business continue to improve on a comparable basis and that we should continue to find actions and take actions that would cause it to be better in a flat environment. And then certainly, one of the things that we've laid out is, the last time we broke even in that business for a full year, we were operating at 1-million-plus housing starts on a lagged basis. We do think we've done some things to lower our breakeven point, and we'd like to be profitable on a full-year basis at a lower number. But we haven't really pegged to a specific target in terms of achieving that goal. But I think both of those are in the realm of continuous improvement and getting the business profitable at significantly lower levels of demand than where we were the last time we made money.

Got it. And one final question away from China wind business. How is the pricing environment for Composites outside of Asia? Is it getting more favorable?

Yes, it's generally been pretty favorable. So I'd go all the way back to the economic crisis that we saw late '08 and early '09, we saw a sizable but single-digit price loss through the couple quarters when volumes were dropping. And really, since the middle of '09, that business has had a nice ability to recover its inflation. It's had some reasonable pricing power. It's had the ability to increase prices. Now the nature of the sale is different, and I talk about this on each call. We tend to be working with our customers who are processing our product and oftentimes quoting into contracts or quoting into kind of fixed-priced-type deals, so price stability is very important and we tend to move our prices less often in Composites, unlike Roofing where we'll do it through a price increase letter [ph], it tends to be more of an annual-negotiation type environment. There are some distribution markets where that's not true, but through the course of our negotiations, I think we've been able to get good value for our product and be able to move back to reasonably good levels of profitability in the business.

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

Well, thank you, Michael. First, again, always, thank you for your interest in our company, and we appreciate your engagement on these calls. This is as we view it one of the primary ways that we have to communicate with our investors, and your enthusiasm and continued and ongoing interest in our company allows us to tell the story. We think it's a great story. Coming out of the first quarter, we had only gotten our way through about 10% or 15% of our overall EBIT goal for the year and expressed a fair amount of confidence in that call that we were on track. And I think the market digested that news very effectively and had high expectations for us coming into this quarter that we would show improvement. We think we've delivered on those expectations, and I think more importantly, saw as many things in this quarter that gave us confidence about the latter half of the year, as things that we saw that might have reduced our outlook. So as always, I think you've got a management team here that's going to deal with the facts on the ground and try to respond to them. We have seen some things through the first half of this year, and I think we talked about it here with China wind, that were not favorable, but at the same time, we've seen some other things that were favorable, and in particular, Roofing volumes, and net-net, we've been able to increase our guidance because we've been able to take the favorables and turn them into more performance, and we've been able to offset some of the unfavorables with additional actions and cost actions. The company, we continue to believe, is poised to deliver great results in 2011 and has impressive growth opportunities as we see our businesses rounding the form and some improvement in some of our end-use markets, we still operate well below their potential. So we're right where we had hoped to be at this point in the year. We've got pretty good outlook and strong plans for the second half of the year, and we're really looking forward to delivering another successful year for Owens Corning. Thank you.

And ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect and have a great day.