Good morning, ladies and gentlemen. My name is Aaron, and I’ll be your operator today. At this time, I would like to welcome everyone to the Q1 2014 Owens Corning Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After our speakers’ remarks, we will have a question-and-answer session. (Operator Instructions) I’d also like to remind you that today’s conference call is being recorded, Wednesday, April 23, 2014. I’d now like to turn the call over to Thierry Denis, Director of Investor Relations. Mr. Denis, you may begin.

Thank you, Aaron, and good morning, everyone. We appreciate you taking the time to join us for today’s conference call in review of our business results for the first quarter of 2014. Joining us today are Mike Thaman, Owens Corning’s Chairman and CEO; and Michael McMurray, 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 Form 10-Q that detailed our results for the first quarter. For the purposes of our discussion today, we’ve prepared presentation slides that summarize our performance and results for the quarter. We will refer to these slides during this call. You can access the slides at our website, owenscorning.com. We have a link on our homepage and a link on the Investor section of our website. This call and the supporting slides will be recorded and available on our website for future reference. Please reference slide two before we begin where we offer a couple of reminders. First, today’s remarks will include forward-looking statements based on our current forecasts and estimates of future events. These statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially and we undertake no obligation to update these statements beyond what is required under applicable securities laws. Please refer to the cautionary statements and the risk factors identified in our SEC filings for a more detailed explanation of the inherent risks and uncertainties affecting such forward-looking statements. Second, this presentation and today’s prepared remarks contain non-GAAP financial measures. Reconciliations of non-GAAP to GAAP measures maybe found within the financial tables of our earnings release on owenscorning.com. Adjusted EBIT is our primary measure of period-over-period comparisons and we believe it is a meaningful measure for investors to compare results from period to period. Consistent with our historical practice, we have excluded non-recurring items and items that we believe are not representative of our ongoing operations when calculating adjusted EBIT. We adjust our effective tax rate to remove the effect of quarter-to-quarter fluctuations, which have the potential to be significant in arriving at adjusted earnings and adjusted earnings per share. In the first quarter, we have utilized an effective tax rate of 29%, inline with our anticipated annual effective tax rate on adjusted earnings for 2014. For those of you following along with our slide presentation, we will begin on slide four. And now, opening remarks from our Chairman and CEO, Mike Thaman, who will be followed by CFO, Michael McMurray. Mike will then provide comments on our outlook prior to the Q&A session. Mike?

Thank you, Thierry. Good morning, everyone. We appreciate you joining us today to discuss our first quarter results. We are pleased to report that our financial performance in the first quarter, especially in our Insulation and Composites businesses has helped us maintain the momentum we generated last year. Our first quarter results were consistent with the first quarter of 2013, despite weaker than expected volumes in our Roofing business and challenging winter weather affecting Insulation demand. The company earned $77 million in adjusted EBIT, consolidated revenue for the first quarter was $1.3 billion and adjusted earnings were $35 million, all consistent with last year’s performance. At the outset of the year, we discussed a number of expectations for sustained or improved performance across our businesses in 2014. Let me review them now, starting with safety. As is the case each year, we said that we would continue to make progress toward our goal of creating an injury-free workplace. We continued our progress in safety by improving our recordable injury total by 23% year-on-year. Our company’s commitment to living safely was formally recognized on April 10th, when the National Safety Council awarded Owens Corning its Green Cross for Safety medal. In Roofing, we said that we will deliver another strong year in 2014. We had expected first quarter volumes to be down 10% and full year volumes to show some growth. In fact, Roofing volumes were weaker than expected in the quarter and trailed the overall market. While the volume performance in the quarter puts our 2014 outlook for this business at some additional risk, we are maintaining our full year view for the Roofing market and believe that we can make good progress in the coming quarters to recover volumes that we did not ship in the first quarter. In…

Thank you, Mike, and good morning, everyone. As Mike mentioned earlier, we posted first quarter results that were in line with the prior year as continued improvement in our Insulation and Composites businesses, helped offset weaker than expected roofing volumes. We believe confidence in our execution throughout the remainder of the year, combined with recovering markets will drive improved financial performance in 2014. Now, let’s start on slide five, which summarizes our key financial data for the first quarter. You will find more detailed financial information in the tables of today’s news release and the Form 10-Q. Today we reported first quarter 2014 consolidated net sales of $1.3 billion, which were down slightly with sales reported for the same period in 2013. In our roofing business, net sales were down 18% over the prior year on lower sales volumes. Net sales in our insulation business increased $25 million primarily on higher selling prices. Lastly, net sales in our composites business were up 4%, due to higher selling prices and higher sales volumes. In a moment, I’ll review our reconciliation of items to get to adjusted EBIT, our primary measure to look at period to period comparisons. Adjusted EBIT for the first quarter of 2014 was $77 million, flat compared to the same period one year ago. Adjusted earnings for the first quarter of 2014 and 2013 were $35 million or $0.29 per diluted share. Depreciation and amortization expense for the quarter was $76 million. Depreciation and amortization was $2 million lower than the first quarter of 2013, which included $3 million of accelerated depreciation related to our asset restructuring in Europe. Our capital expenditures for the quarter were $51 million. Now on slide six, let me reconcile 2014 first quarter adjusted EBIT of $77 million to our reported EBIT of…

Thank you, Michael. As I noted at the outset of today’s call, we are pleased to report that our financial performance in the first quarter of 2014, especially in our Insulation and Composites businesses, has helped us maintain the momentum we generated last year. We are delivering on the strategies we outlined for the year, addressing the areas we know we must improve, and establishing momentum for continued progress this year. This progress -- this performance, together with our current assessment of our markets, supports our full year outlook for $500 million in adjusted EBIT. With that, I would like to turn the call over to Thierry who will lead us in the question-and-answer session. Thierry?

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

Certainly. (Operator Instructions) And your first question comes from line of George Staphos from Bank of America Merrill Lynch. Please go ahead.

Hi. Good morning. It is actually Alex Wong sitting in for George. Thanks for taking the question. Can you talk about what was the driver of the operating cash flow being down about $100 million versus a year ago? I sense that was driven by inventory, so maybe you can comment on your outlook for inventories given current market trends?

Good morning, Alex. I’m now going to turn that over to Michael and let him address that question.

Yes. Thanks, Mike and thanks, Alex. You are right. If you look at working capital year-on-year it grew roughly about $100 million. Now, I will remind you that typically in the first quarter itself, we consume a fair amount of working capital and particular in our two Building Materials businesses because they happened to be somewhat seasonal, in large part due to the harsh winter weather. We build little bit more inventory than usual in both of our Building Materials businesses. Now on the one hand for our Insulation business, kind of given where we expect the full year to land from a starts perspective, given that on average we expect to run our assets at high utilization for a hot capacity, that doesn’t give us any concern at all. So, we are going to need that insulation volumes in the second and third quarters in particular. And then for our Roofing business, certainly build a little inventory there as well but as you know, manufacturing economics in the fourth and first quarter tend to be pretty attractive because some of our base costs tend to be a bit lower. So we took the point of view, our out the door sales were little bit less than what we had anticipated that from a financial perspective, it made sense to build a little inventory in the first quarter that we have confidence that we are going to sell later in the year.

Great. Thanks for that. And just as a follow-on, can you discuss what impact Roofings volume start to the year has on pricing and promotional strategies for the year?

Certainly, this is Mike. Yes, when we look at the normal pattern of the roofing year for us, the first quarter tends to be characterized by this winter buy programs, where there is discounting given to some of the channels to get them to take an inventory positions and gain placement. Other channels, and particularly channels where we tend to be a little bit more overrepresented, like lumberyards or retail, have a harder time taking inventories and they tend to replenish on the basis of sell-through. So part of our slower start to the year would have been a channel mix where some of the channels where we do a little bit better had a harder time are unable to take inventories, and as a result deferred some of their purchases and some of the sell-through where they expect until the second and third quarter when we would expect better sell-through and therefore better replenishment. In the first quarter with some of the channels they do take inventory in. The buy activity to our sense was reasonably consistent with last year. I think in Michael’s comments he said our first quarter margin rates were good and basically flat versus last year if you adjust for fixed cost absorption. So we are coming out of the quarter with we think good margins. We are looking in to the second quarter where we’ve announced the price increase. And historically, I would say over the last three or four years the spring price decrease has been very helpful for us as a manufacturer to recover expectations of asphalt cost inflation. In tends to be helpful toward distribution customers also for them to move pricing in the market so that they can improve their margins in the summer. So we think we are right now moving into a reasonably healthy volume environment and a reasonably pricing environment on an out to door basis for our customers, and we’ve got some work to do obviously to get back to our placement positions with some of those customers to take inventory. We think we can do that in an environment that is supportive of good volumes and supportive of constructive pricing which is why we are relatively optimistic about margins and volumes for the year.

Your next question comes from the line of Michael Rehaut from JPMorgan. Please go ahead.

Thanks. Good morning, everyone.

Good morning, Michael.

Just I guess a couple of questions on composite. You had a nice quarter there, a nice year-over-year profit improvement. And your comments around the rebuilding expenses, I mean essentially with that type of improvement in the first quarter and still reiterating the full year expectations, would mathematically point to a very moderate year-over-year improvement for the remaining quarters. And I just wanted to know if that’s the right way to think about it, or are you just perhaps being a little conservative and if the first quarter maybe came in a little better than expected? Also with the 3 -- comments around 3Q being the heaviest expense in terms of the rebuild, it would almost point to that having operating profit being down year-over-year, wanted to know first thing you met that correctly?

I think Michael did give some useful comments in his prepared remarks regarding the timing of the rebuilds and he did say in his comments that it is our expectation that the rebuild expenses would be heavier in the second half and probably peak in the third quarter. So as you look at the year, I think a lot of the forces that will shape the year and particularly our comparability quarter-on-quarter, I you think nailed them in your question, which is in the first half of the year we are comping against what were our too much weaker quarters in the first half of last year. And so as a result, we expected to get off on a comparable basis to a pretty fast start and get well ahead of last year in the first half, and I think you’ve seen us do that in the first quarter. We had decent results in the third quarter, then some acceleration in the fourth quarter of last year. So on those, we are going to be a little bit tougher comps. I think without the rebuilds, we would expect the volume and pricing momentum that we are gaining to allow us to continue to come positively. I don’t want to give specific guidance on a quarter-by-quarter basis, but obviously with that headwind coming in the second half of the year and that’s having a little bit tougher comps in the second quarter, I guess reasonable to think that if you see it’s getting a fair amount of head in the first half consistent with our guidance, then on the upside to that is probably going to be driven by either a more robust demand environment, which gives us a little bit volume or a more robust demand environment and price environment, which gives us a little bit demand and also a little bit more constructive pricing in the second half. So as we get later in the year, I think it was a better understanding of where volumes and pricing are going, which will give us a better sense of where we are versus the guidance we have given. The big thing we want to make sure our investors see in the way we are shaping the year though is we do believe we will actually have a bit more momentum in the business in the second half, that maybe what our reported financials would show because of the rebuild expense, which is really a source of our optimism for why we think 2014 is the year that really builds into 2015, and that’s where the underpin the confidence I gave in my comments where I said we are really beginning to see the improvements in both composite and insulation that gets our business back performing at levels we like.

Great. And I appreciate that, Mike. And I guess just also on composites, the $12 million restructuring or severance charges in terms of headcount, would we expect -- I mean is it reasonable to expect kind of a similar ongoing cost savings from those actions? I mean there is typically thinking about payback periods in 1 to 2 year timeframe. And is that also backed into your -- I mean was that something that was originally anticipated in terms of your ‘14 guidance outlook, or is that something that might benefit the company in ’15?

Yes. So I think your kind of high level estimate that that tends to be about a one for one that each dollar of severance and restructuring expense tends to produce about a $1 of cost savings. And that’s a decent rule of thumb for Owens Corning in general and for composite business specifically. We did contemplate coming into the year that we had some cost actions that we feel we needed to take in the business, mostly because of systems improvements and efficiencies that wade in our manufacturing operations just allowing us to reduce our headcount a bit and get the cost of the business a little bit lower, fixed cost little bit lower breakeven. It is included in our guidance. And having said that, we don’t actually anticipate a significant amount of savings from these actions this year, whether the actions will be taken through the year, and then on an annual basis I think you will see much more of those savings in 2015.

Great, thank you.

Our next question comes from the line of Kathryn Thompson from Thompson Research Group. Please go ahead.

Hi, thanks for taking my questions today. First, on composites, could you give a little bit more color on pricing particularly in Europe, definitely getting better feedbacks from there? And maybe dig a little bit more into how this has changed versus last year. And then also touching again in the Chinese market and what are you seeing in terms of pricing trends today versus last year?

Happy to do that. Thank you for the question. Michael said in this comments that this is -- the first quarter this year represents the third consecutive quarter that we’ve shown price improvement in deposits. Really prices declined a bit in the first quarter of last year, we actually reversed the decline and kind of got back to zero -- excuse me got back to zero in the second quarter of last year. And then since then, we have been on the positive side of price. So we’re really now kind of coming up on a year where we have been in a more positive price environment than before. So we are starting to gain some confidence and track record on the pricing side and composites that our assessment of the marketplace, our assessment of our competitive positions and our need for price improvement in order to impact our margins is in fact the correct strategy for the business. A lot of what we are seeing in the first quarter of composites would come from two things. It’s the carryover effect of some of the pricing we gained in market base pricing in the second half of 2013 as well as the benefits that we got in our year end price negotiations and some of our contractual business. So we would expect both of those pieces of price improvement to carry through all three quarter of this year that remain. In addition, we did have some price announcements by Owens Corning on a regional basis on more kind of market pricing, so not contract pricing but more of the day to day pricing. We had an announcement in the first quarter in China, India, and Brazil and are working hard in those areas of the world to try to affect…

So there is no negative pricing impact from the new Egypt plant in Europe?

No, I think we’ve seen some Egyptian volume coming out of the [Ducci] (ph) plant in Egypt. I think that's probably a bit of a headwind for Europe. I think a little bit of a tailwind in Europe has been that demand in Europe has probably been a little bit stronger to the second half of last year and the first half of this year than we had previously expected. So Europe is in a little bit better shape and maybe a little bit better able to absorb some of that production. The flipside is [Ducci] (ph) who is our competitor in both China and now with the plant in Egypt. We've seen actions in China in terms of inventory reductions and capacity curtailment that have balanced off of that capacity expansion in Egypt. So in total, we don't actually see a lot of capacity expansion from that particular competitor in 2014.

Thanks. And Mike, my second question is on roofing. Obviously, Q1 was a tough time, but we did get some feedback that there was a more aggressive competitor in the market, as the quarter progressed. How do you balance remaining competitive and when I say competitive, essentially maintaining your market share, but also at the same time maintaining margins, while attempting to push through a price increase in the market?

I mean it’s a challenging balance. I mean I think you've summarized kind of how the mechanisms of the roofing market in the first quarter work. And you know, our long-term view and our annual view is that our market share has been relatively stable over the last four or five years. And that our goal coming into each year has to pretty much move our volume position with the market. So we have not been on an aggressive market share accumulation campaign, but we also certainly have no interest in allowing our position to be diminished from the market. So we run a balancing act of how do we make sure we're getting enough value for our products and protect our margin. We’re also making sure that we protect our position in the marketplace. I think when you saw -- you know, we have to look at this kind of -- channel-by-channel, we have to look at this geography-by-geography. So there’s a lot of moving pieces in the business. And we talked about that last year in the third quarter. And you saw a decent bounce back for us in the fourth quarter of last year. Our view is that in the first quarter, if you ship too much volume at too low of a price, as we did in 2012, we think many of our competitors did in 2012, you can actually create an environment where there is just not enough volume left and aren't enough levers left for you to try to get to your annual goals. We think as we sit here today, there might have been market conditions in the first quarter where we didn't meet pricing. That might have allowed us to get some more volume as we now head into a market environment, where there has been better out the door sales. The price environment should be improving. There are some asphalt costs that are improving which should put some inflationary pressures on us as a manufacturer, which should incentivize us to try to get a better price environment that we've got enough levers and enough things available to us to go back and recover our position in the marketplace through the next three quarters, while at the same time maintaining margins. But it is going to be the same kind of balancing act through the course of 2014, as it was through 2013. And we generally felt like we had a pretty good outcome last year.

Great. Thanks for answering my questions.

(Operator Instructions)

Operator, there are no questions in the queue because we had received information that there were additional questions out there.

We’re just having a technical issue right now. So just hang on for a moment here.

Okay.

We will do our best here. I do apologize. We will be just another moment and we will get this corrected here for you.

Those of you who are still on the call. This is the management team. We have received words that there was a technical issue that the queue is being reloaded and we’re still here ready to answer the questions. So once we can get the telephonics worked out, we’ll get back to the Q&A. Aaron, this is Thierry. Can you give us a feel for how much longer do you think this will take?

I’m here right now. So we’re just going to go ahead and we will get this started back up here for you.

Okay. Great. Thank you.

No problem. So our next question comes from the line of Phillip Ng from Jefferies. Please go ahead.

Hey guys. Can you give us a sense or could you just quantify how roofing and insulation demand is tracking in April and what are you seeing from an order pattern standpoint in May?

Okay. Let me start with -- let me start with insulation. Clearly, as the weather changed through most of the country kind of the latter part of March and then into early April, we did see a change in our order book. And that obviously a much shorter supply chain for us. So particularly in the residential side of the business, it’s not uncommon for us to get an order on a Monday, ship it by the end of the week and have it be going into our house the following week. So getting a thaw and getting people back on our construction sites, we do think there was a longer lag between the timing of our housing start and when the insulation would have gone in.

Okay.

We do estimate that at 90 days. But in fact that was probably longer which affected demand in the first quarter as well as the weather affected the timing of starts which pushed those out a bit and could affect overall starts for the year. So we’ve definitely seen a movement in our insulation book. In the roofing side, I think that for the channels that we tend to replenish based on their sell-through. We’ve seen a progression from January, February, March, April, that makes good sense to us, that we would track their sales and therefore we're tracking our shipments to them. On the distribution side, given the inventory that went in, in the first quarter, under the winter buys, the first couple of weeks or the month of April tends to be pretty quiet for us and difficult to judge. And obviously, our teams are out there pretty aggressively right now trying to make sure that we understand where that market is and what volume opportunity that will create for us here in the second quarter.

Got you. That’s very helpful. In terms of the guidance for the full year, you provide some good color on how you think about demand. Within that guidance, are you baking in your incremental price increases for installation of roofing and composites that you just talked about in this call?

I was going to put broad color against our guidance. It steps all the way back to kind of what we said in the fourth quarter. We made a lot of progress in 2013 versus 2012 where roofing was a bit in the turn-around year. Roofing had not a great 2012 and therefore had a big positive comp in 2013 that helped us with then composites maybe a little bit more sideways in an insulation comping positively. Coming off of the good year in roofing in 2013, we really thought that the next leg of growth in earning for us was going to be more roofing continuing to perform at a high level with a lot of earnings growth not been driven by the composites recovery and pricing cycle and then the insulation operating leverage and the pricing cycle. I certainly think that two of the three pieces of that guidance are clearly evidence in our first quarter. So we’re seeing the insulation pricing cycle on operating leverage get that business back to profitability. We’re still no where near where we want to be or need to be in that business but we have had 11 consecutive quarter of improvement. And we’re not making money every quarter and we certainly would expect that with better pricing and good volumes that we would carry momentum through this year that will help us to get to the $500 million guidance we’ve provided as well as build momentum going into next year.

Okay.

Same thing in composites, probably more of a positive first half comp story than second half but momentum building because of some of the headwinds associated with our rebuilds depending on where volumes and pricing is in the second half, whether or not that creates upside or whether we see most of that upside in 2015. I think we’re going to have to see the year progress. We did say in our prepared remarks today that the start of year in roofing creates some risk to our guidance related to that business and therefore to our overall guidance. Not too much on the margin side but on the volume side. And then depending how the next couple of quarters play out as we try to make sure that our position in the market tracks the overall market, whether that has impact on the business outlook in terms of volume, margin and something we’re going to see. But we certainly see enough positive factors today in terms of expectations of demand, how the harsh winter could have had an impact on roofs that need to be re-roofed, a better economics in homes so that more people and more equity in the houses. Some of the things that would help re-roof demand, some of the things that could help new construction. We’ve got enough helps there that we certainly expected the goals that we set for I think at the beginning of the year reasonable.

Okay. Thanks for the color.

All right. Thanks.

The next question comes from the line of Keith Hughes from SunTrust. Please go ahead.

Thank you. Just back to composites on the rebuild. Will those be your rebuilds, will those be done by the end of this calendar year, and what is your sense on the rebuilds in China. How much longer those are going to persist?

Okay. Our current plan is that the rebuild activity we laid out which is about 20% of our productive capacity this year being rebuild. We characterize the business historically as about -- that melters last about 10 years. So you would expect to rebuild about 10% of your capacity or 10% of your melters every year. So this is about twice the normal load level, which is why it stands out in terms of being an earnings issue, otherwise you tend to comp 10% every year and its straight line through the business. We currently are planning to complete all the activity this year. We can affect the timing of rebuilds based on how the melters currently operating as the melter gets laid in its life. It becomes more difficult to operate in terms of efficiencies and also consumes more energy because you need to do some things in order to cool it down. So the production economics tend to get a little bit worst, the old melter gets. The flipside of that is we have very strong demand, sometimes we will limp the melter along, a little bit longer than we had expected in our original plan because we see market opportunity and don’t want to take that melter down. So we continue to monitor that based on what we’ve seen through the first quarter. Our expectation is that rebuild plan we have for this year is the rebuild plan we’ll execute and as a result that will mostly be on the rearview mirror for us by the end of 2014 and will give us positive comp in 2015. As it relates to China, we don’t have any competitive analysis that would cause us to believe that the rebuild cycle for our competitors and the rebuild impact on the business for our competitors is any different than what we experienced, that as their melter get probably into that 8 to 12 year time cycle. They’re going to need to be rebuilt similar to ours. We know when capacity was built in China. We know therefore when the melters hit that kind of magic period of time of 10 years plus or minus, where they’re going to need a rebuild. And so it's really just kind of a straight aging of the portfolio that we know there was dramatic capacity expansion in China kind of in the 2003 to 2009 time frame which is now entering into the 2013 to 2019 time window. So we expect that the team of capacity loss in China related to rebuilds, capital use in China related to rebuilds and therefore more pressure on cash flow and more pressure on capital formation for capacity expansion. So that’s with us not really for the next couple of years but that’s going to be with us really through the latter part of the decade of the 2010.

Your rebuild activity at Owens-Corning in ‘15, will it be incrementally lower than that 10% number?

No, not lower than the 10%. So it will be incremental with lower than 2014 but we’ll return back to a more normal level of rebuild in 2015.

Okay. Thank you.

And next question comes from the line of Will Randow from Citi. Your line is now open.

Hi, good morning. This is actually Scott Schrier in for Will today.

Hi Scott.

I wanted to ask again a little bit more on the insulation, and given your strong year-over-year performance in 1Q ‘14, I was assuming that some of that would be attributed to an increase in spec inventory on the builders. And then with that being said, given the new home sales print number, that came out today and particularly we got new housing starts that came out last week. How does that impact your outlook for insulation and the acceleration going through as we get into April and May?

Okay. We kind of have two things we’re working our way through in insulation from the demand side. So let me kind of frame those two issues for you. One is the housing starts that have been announced, the stuff that was announced in the fourth quarter of last year and what we have announced in -- what has been announced by the industry in the first quarter this year. We tend to model our business by taking those housing starts wagging them for 90 days and saying that’s about when we would expect to see the demand. And in the first quarter, our demand numbers didn't track exactly with a 90 day lag off of the fourth quarter housing starts. And we think that’s pretty explainable by weather. It is within the range of all the amount of shortfall that some extension of that cycle would explain why our volume growth in the first quarter was a quite robust. So we would say some of those houses that were announced as housing starts in the fourth quarter last year are still out there waiting to be insulated in the second quarter, which will give us a bit of a demand kick, where that demand was deferred or delayed out of the first quarter into the second but is already on the ground as the housing start. We also know that the housing start numbers in the first quarter, probably weren’t quite as robust as maybe with some of the estimates had been coming into the year. And that will impact the amount of second quarter volume we see and that would be modeled into our guidance. Our general view on housing is that we obviously read everything’s that written. Most of the economists and analysts who study housing continue…

Great. That's really helpful. And then I wanted to switch over and talk about the cash flow. So I know it was touched upon before how you had build up an inventory and you said the cash flow. Does that impact how you're looking at share repurchases going forward in the second quarter?

No, I wouldn’t say it does. I mean, we’ve talked in the past that forever on a day Owens-Corning has a kind of used the cash in the first half and then generated all of our free cash flow in the second half both in terms of recovering the cash we’ve invested in the business in the first half plus the free cash flow generation. So we see generally a very big shift in our balance sheet as we move through the summer as the seasonality particularly in our building materials business works its way through. I think during some pretty choppy days 2009, 2010, when housing was still falling when the financial markets were kind of bubbling around a bit, when our operating results weren’t quite as strong. We looked at some of our credit statistics, et cetera and felt like we wanted to be disciplined in our share repurchase and tried to time that up with the actual availability of free cash flow. I think now that we've seen coming out of the end of last year, better operating results. I think our credit statistics are better, certainly more confidence in our Composites business, more confidence in our Insulation business. So that we're not quite as dependent on just Roofing profitability for balance sheet management point of view. We've shown a little bit more willingness even in the times of the year that our cash lean to use the balance sheet a bit to buy shares that we think the share price that we can buy those at is a good number. And as we look at, not so much 2014, but as we look through 2014 to 2015, 2016 and imagine in Owens Corning with very, very strong Insulations results, strong Composites results and still great Roofing results. It's not hard for us at these kinds of share prices to say, we can maybe do some things for our investors that we buy some shares out of our cash flow for the year. Even at the time we buy, that’s not necessarily free cash flow coming out of the business.

Hey, Aaron. This is Thierry. We have time for one more set of questions.

Okay. Your next question comes from the line of Stephen Kim from Barclays. Please go ahead.

Thanks very much. Yeah, let me ask a question on Roofing and then a question on Insulation. I know that there has been a lot said on Roofing and you’ve talked about the importance of channel mix and indicated that the risk to your guidance, it is really more on the volume side than the margin. I just wanted to put that against what we understand happened in 1Q, which is that the, in the states where you have plants, it seems to us that the Roofing industry shipments were down about 5.5% and your inventories were up $100 million sequentially which I am going to assume is mostly Roofing because it is hard to store large quantities of Insulation. And we also heard, I think it was mentioned that one of your bigger competitors outsold industry volumes by getting more aggressive on price in the quarter. So, I'm just trying to understand, I want to make sure that we're hearing this correctly, that the share you obviously lost in the first quarter, that your goal is not necessarily to gain that back through promotional activity, if that's what's necessary, but rather, that you believe this is simply an issue of timing related to the channels which you are dominant in. And so it is really not an issue of promotional actions that is creating the risk in the outlook for this year. Is that correct?

Let me try to frame the issue or the opportunity from where we said. I think, I largely agree with your comments but I want to blanket agree with your comments because I'm not sure that they are exactly what we've said. What we've said is that the industry was down kind of mid-single-digits for the quarter. Our revenue was down about 18%. So clearly there was a significant difference between the volumes that we shipped and the volume shipped in the industry. We think about half of that is pure timing base on the channels in which we participate, that some of the channels that replenish as they sell through, couldn't take product in the first quarter. We know who those customers are. We know how that business works. We're expecting that that business will pick up as we work our away through the remainder of the year. And as their business picks up, we'll catch up some of the shipments that they weren’t be able to take from us in the first quarter, because they weren’t selling out the door, but that there is nothing in the marketplace that would cause us to believe that there out the door sales are going to be dramatically different than our expectations at the beginning of the year. The other half, we would say based on our estimates, it was probably related to promotional activity and some of our competitors to be more aggressive. At this time of the year that's really just inventory replacements. What really over the long-term determines market share is what homeowners want to buy, what contractors want to buy, what builders want to buy and what products end up going on roofs? We don't see anything in the first quarter that caused us to believe that our products aren’t any more desired in the end-use markets that our customers are any less motivated to want to sell our products. Now, we're going to have to get it right. Get the economics right that they can buy and resell our product and make money. And if there are some very specific geographies or various specific instances where we're not in the right spot to be able to do that than obviously that's going to be a sales issue for us to address and figure out. But broadly, we think that volumes in the first quarter in those channels can be made up through the year through good salesman ship and then also just more out the door sales.

Okay. Thank you for that. And then the second question relates to Insulation incrementals, ex- Thermafiber. So you mentioned you had 90% incrementals in the quarter. But if we adjust the numbers for roughly $17 million in price, and $13 million in sales from Thermafiber, I'm going to assume maybe $1 million to $2 million in profit from Thermafiber. This means that your EBIT improved about $3 million to $4 million on $5 million decline in volume. So there was either some kind of temporary benefit from something or you had significant improvement in efficiency which might be longer lasting? Am I thinking about that right and can you help me understand maybe where the very strong results operationally came from?

Well, Michael try to speak that issue in his prepared remarks and it's a very important issue for us and we try to take this on when our operating leverage is lower than 50% and then also make sure that we take out when our operating leverage is above 50%. You're in fact correct, which is if you adjust out Thermafiber revenue, the overall growth of the Insulation segment -- the Insulation business would be less than what we posted and as a result, since Thermafiber not producing that kind of operating leverage because it's basically a highly utilized profitable asset today. Our operating leverage would be even higher than the 90% or 85% operating leverage we reported today approaching 100%. We had a lot of nice price, I think we disclose that pretty clearly in our 10-Q. I would tell you most of that price or lot of that price was carried over, the first quarter price environment because demand was a little bit weak, was a little bit choppier. So as we move forward here into the second quarter with the price increased we've announced we do want to get back on path on improving pricing in the marketplace for ourselves and for our customers. But what we did see is on the operational side, some cost improvements but also you get into issues associated with the timing of when we turn assets on and off, inventory build, how cost gets absorbed in the inventory. Michael talk a little bit about the fact that we did have in inventory build in insulation in the first quarter which would have absorbs in costs in that would help us in operating leverage. So I wouldn't read too much into the first quarter operating leverage beside it’s consistent with our views through this cycle that we should be able to produce 50% operating leverage. I guess, said differently, that’s likely means there will be another quarter some place along the line where we don't have all those good guide and we're very -- operating leverage would drop a little bit below 50%. But our goal in total is still intact and we deliver nicely against that guidance.

Great. Thanks very much Mike.

And there are no further questions in the queue. And this concludes today's conference call. You may now disconnect.

Aaron.

Yes.

This is Thierry. We'd like to close the call with the few remarks from Mike Thaman.

Okay. Certainly, go ahead.

Okay. Hopefully, everyone is still on the call. I apologize for the blank spot we had in the call where we had some telephone issues. Obviously, we will come out of this meeting immediately and go look for corrective action to make sure that doesn't happen on our next call, but I'm sure we appreciate all of your patience on sticking with us and appreciate all the good questions. I think we, in our prepared remarks and then also in the Q&A had an opportunity to give you a good summary of how we feel about the quarter. Obviously, the highlights of the quarter for us would be the continued progress we're seeing in Insulation and Composite side. I characterized that as we're increasingly beginning to see those two businesses developed into the kind of performance we know they can be. Insulation obviously is coming out of four or five years of very, very challenge in losses into a year of profitability in 2013 now into a core first quarter profitability in 2014 which certainly speaks to continued improvements through the year and we have big expectations for that business can do through a new construction recovery here in the U.S. Composite obviously having some challenges late in ‘12 coming into the first half of ‘13, showing some positive signs in the second half of ‘13 and now I think following through on that with good pricing and good results, and good operating leverage in that business. So, those two businesses now giving us confidence through ‘14 and beyond, that we really have a great outlook for the improvement of our big glass business. Roofing, obviously, a little bit choppier message for the quarter and that we're very, very happy with our margin performance, trailed market a bit from a volume point of view, left ourselves on a year-to-go basis, I think at fair amount of time and opportunity to use the levers at our disposal to get that business absolutely back on track on where we measure to which is tracking the market in terms of volumes and producing great margins. With that, as our outlook we feel confident that $500 million of adjusted EBIT, which is our guidance for the year continues to be a good target for the company and we look forward to talking to you on our second quarter call and give you an update on the progress we made. Thanks again for your patience for today's call. We look forward to talking again soon.

Okay. And this concludes today’s call. You may now disconnect.