Good day, and welcome to the Quarter Two 2017 Owens Corning Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would like to now turn the conference over to Thierry Denis, VP, Investor Relations. Please go ahead.

Thank you, Brian and, good afternoon, everyone. Thank you for taking the time to join us for today's conference call and review of our business results for the second quarter of 2017. 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 yourself to one question and one follow-up. Earlier this morning, we issued a news release and filed a 10-Q that detailed our financial results for the second quarter 2017. For the purposes of our discussion today, we prepared presentation slides that summarize our performance and results for the second quarter of 2017. We will refer to these slides during the call. You can access the earnings press release, Form 10-Q and the presentation slides at our website, owenscorning.com. Refer to the Investors link under the Corporate section of our home page. A transcript and recording of this call and the supporting slides will be available on our website for future reference. Please reference slide 2 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. 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, the presentation slides in today's remarks contain non-GAAP financial measures. Explanations and reconciliations of non-GAAP to GAAP measures may be found in the text and financial tables of our earnings press release available 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 our results from period-to-period. Consistent with our historical practice, we've excluded certain items that we believe are not representative of our ongoing operations when calculating adjusted EBIT and adjusted earnings. 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. We also use free cash flow and free cash flow conversion of adjusted earnings as measures helpful to investors to evaluate the company's ability to generate cash and utilize that cash to pursue opportunities that enhance shareholder value. For those of you following along with our slide presentation, we will begin on slide 4. And now, opening remarks from our Chairman and CEO, Mike Thaman will be followed by CFO, Michael McMurray and our Q&A session. Mike?

Thank you, Thierry. Good morning, everyone, and welcome to our second quarter call. Owens Corning delivered another strong quarter and is continuing to gain momentum. Revenue was $1.6 billion, up 3% for the quarter, and $3.1 billion, up 11% for the first six months compared to the same period last year. This performance has led to strong adjusted EBIT of $401 million for the first two quarters. In addition, at the end of the quarter, we closed on the Pittsburgh Corning acquisition, which will accelerate our growth. This acquisition will further expand our commercial and industrial product offering as well as increase the footprint in Europe and Asia for our Insulation business. Similar to the InterWrap acquisition, we are moving rapidly into the integration and synergy capture. The teams are executing well, and we're pleased with what we've seen so far. Before I talk about our quarterly financial results, I'd like to give you an update on our safety program. As you know, safety is a critical value of our company and impacts everything we do. Our recordable incident rate for the second quarter was 0.48, an 11% improvement over the same period last year. Safety is a significantly priority in our onboarding of the Pittsburgh Corning team. We see an opportunity to significantly improve their safety performance. Our joint teams are already working together to execute plans to ensure our new employees will save lives. Now as we do every quarter, I'd like to review our financial performance as it relates to the expectations we've set, and then talk about our expectations for the full year. Our Roofing business delivered EBIT of $155 million, down $14 million with EBIT margins of 23%. These results reflect shingle volumes that track the market in the quarter. Pricing gains offset the impact…

Thank you, Mike, and good morning, everyone. Owens Corning had a great quarter, delivering financial performance that represents one of our strongest quarters in our history. For the first half, we grew revenue by 11%, and delivered record adjusted EBIT of $401 million. Commercial and operational execution continues to be strong across all three businesses and we are positioned to deliver another record year of financial performance. We also completed the acquisition of Pittsburgh Corning for approximately $560 million on a cash-free debt-free basis. This is a powerful addition to the Owens Corning portfolio. Since the second quarter of last year, we have successfully deployed about $1 billion on value-creating M&A. I will comment more on the Pittsburgh Corning acquisition later in my prepared remarks. Finally, our ability to generate significant free cash flow continues to be a bright spot. Now, let's start on slide 5, which summarizes our key financial data for the second quarter. You'll find more detailed financial information in the tables of today's news release and the Form 10-Q. Today, we reported second quarter 2017 consolidated net sales of $1.6 billion, up 3% or $52 million compared to sales reported for the same period in 2016. Insulation and Composites reported increased sales of $25 million and $20 million, respectively, primarily on higher sales volumes. Roofing reported increased sales of $5 million, primarily on higher selling prices and increased sale volumes of components. Adjusted EBIT for the second quarter of 2017 was $230 million, down $23 million compared to $253 million in the same period one year ago. The company delivered operating margins of 14%. Adjusted earnings for the second quarter of 2017 were $136 million or $1.20 per diluted share compared to $151 million or $1.30 per diluted share in 2016. Depreciation and amortization expense for…

Thank you, Michael. Bryan, we're ready to start the Q&A session.

The first question comes from John Lovallo with Bank of America. Please go ahead.

Hey, guys. Thank you for taking my call. The first question is, you highlighted successful pricing actions as a driver of the improved Insulation outlook. Is there any way you could dimension kind of the magnitude of the like-for-like price improvement that you saw in the quarter and perhaps what you're expecting heading into the remainder of the year?

Yeah, thanks, John, this is Mike. If you recall back to our first quarter call, we had said coming into the year, we had a little bit of a price headwind, and so the first thing we needed to accomplish in our January price increase is we needed to effectively achieve enough from that pricing action to kind of offset the headwind we had coming into the year and get back to 2016 average levels. And we reported on our first quarter call that we were successful in doing that. The most recent price increase was late in the second quarter, so with the June increase, did not have significant impact in our second quarter results. But obviously, we've expressed some optimism in today's prepared comments that we feel good about that pricing action and expect that that will impact the third and then fourth quarter. And then we also expressed today that we have a September price increase which won't have much impact at all on the third quarter but with some success in that pricing action, would give us a positive impact in the fourth quarter. I think probably, more importantly then how all of that adds up into this year is both the underlying momentum but also that then puts us in a position that we can execute against the outlook that we're discussing on how that positions us for 2018 in terms of entering the year actually with a positive tailwind related to price. So I think you know my comments about feeling that the business may be a bit of an inflection point is historically when we get into this type of pricing action and we can start carrying over a positive price tailwind from year-to-year that's really when we see great operating leverage in the business.

Okay that's helpful. And then you know with the litigation behind you guys I mean how are you feeling in terms of the likelihood of maybe starting some communications with your former top customer and you know maybe getting closer to kind of a commercial agreement?

Yeah without going into, you know, a lot of detail in terms of any specific customer relationship I would say that both companies, ourselves and TopBuild, really did a good job of separating the contract dispute from our day-to-day business activities. And we've had ongoing dialogue and ongoing business relationships with the TopBuild businesses throughout this entire period of time and more recently also with the TruTeam business which is the contractor side of the TopBuild entity. So you know in terms of our positioning in the market I think we had an overemphasis of our relationship historically because of the contractual relationship we have with them. I think now we're back to a much more normal and diversified position across the entire customer base in Insulation.

The next question comes from Matthew Bouley with Barclays. Please go ahead.

Good morning. Thank you for taking my questions. So just the full year guidance it implies sounds like about $200 million in Roofing EBIT in the second half of the year. So I was just hoping if you could parse through some of your assumptions in there just around pricing in asphalt if you're kind of calling for that to be neutral, it sounds like? And then you know with shingle volumes, it sounds like you're saying you know down mid-single digits or so in the second half. I mean do you think that growth in the Components business could ultimately lead reported volumes to look better than that? Thank you.

Yeah, thanks for your question. I mean you know I think if you heard in our prepared comments, our guidance simply put for Roofing is we think we're going to have another great year. I mean obviously we were very happy with the 2016 results. What we're looking at for this year is actually we think most of the key variables that would impact the profitability of the business are going to be relatively flat versus the prior year. So as we look at the overall market we've said is up mid-single digits in the first half, we expected to be flat for the overall year implying down mid-single digits in the second half. As it relates to margins, we've said that we liked our margin rates in 2016. So coming into the year we wanted to sustain those margin rates. And effectively we've been able to get enough price to offset the inflation that we've seen in the business related to asphalt through the first half of the year and we expect to be able to do that on a full year basis. So that gets you to kind of a flattish volume, flattish margin kind of outlook for the shingle part of the business. And then you're correct, we would expect to see some growth in our Components business. We do have some other inflation in the business outside of asphalt. So we have some other things that need to be overcome in terms of getting it all to the bottom. But we think between what we're doing in components and the growth we're getting there very, very good performance in our shingle business and shingle volumes that the outlook for the business for 2017 looks a lot like the great year we produced in 2016.

Okay, that's perfect. Thank you for that. Second question just back to Insulation, were you anticipating within the guide any further startup expenses or input cost inflation? So, A, just kind of trying to triangulate your pricing expectations for the second half. And then, I guess, just more broadly, looking out into 2018, and given just continued cyclical growth, I mean, is three price increases per year something that we can expect going forward? Thank you.

Yeah. So first of all, thanks for highlighting both the startup costs and the inflation, because we wanted to make sure that investors understood those well because, in fact, they're masking, I think, some of the underlying improvement we're seeing in other parts of the Insulation business. We did detail in the quarter that the startup in Joplin cost us about $7 million. That was a bit more than our expectations; I think Michael went through that. We would expect that cost to come down in the third. And really, we would expect it to be pretty well diminished by the end of the year. And then as you look into next year, obviously, we're going to comp with positive profitability out of that operation versus this year being a drag. So that's going to give us really tremendous operating leverage as we go into next year in terms of how that piece of the business will translate into our financial results. On top of that, you highlighted inflation. The one area where we've seen a fair amount of inflation is we do have a polystyrene foam business. We make an extruded polystyrene foam and we have seen a fair amount of inflation in polystyrene. We've had some success in recovering that in price, but we have not completely recovered that in price, so that piece of the business which has been performing at a very high level, did have a bit of margin compression, which I think it's also masking a bit of the improvement we're seeing in other parts of the business. As we look ahead into 2018, I wouldn't give a lot of forward guidance in terms of the number of pricing actions we'd expect in a year. But I think historically, two or three pricing actions in a year is not unprecedented, so the kind of environment we're in now is not dissimilar to what you would have seen in the 2000s, when our business was quite robust. And I think our goal is obviously to get pricing back to what we would consider to be fair levels and historical levels, consistent with our investment in the business and consistent with getting returns on capital that allow us to continue to invest in the business.

The next question comes from Michael Rehaut with JPMorgan. Please go ahead.

Thanks. Good morning, everyone. A nice quarter. First question, just going back to Insulation for a moment, and congrats on your – some of the traction with the price increases. So just trying to think about that properly in terms of, I guess, heading into next year. And obviously, you have a decent sense of how the June price increase is starting to have some traction, positive traction. Assuming a similar amount of positive traction for September, you kind of mentioned some pluses and minuses in terms of polystyrene foam and maybe, it seems like a pretty positive mix shift on the Pittsburgh acquisition. But should we be thinking about an incremental margin, let's say, taking the Pittsburgh acquisition out of the mix for a moment. Historically, you've kind of talked about a 50% contribution margin when pricing is working in this type of upswing in this part of the cycle. Is that something that we should be thinking about now that you have that price momentum coming as more of a tailwind for you?

Yeah. Thanks for your question, and certainly, I think your overview of the different factors that are affecting the current performance of the business was spot on. Michael, in his comments, talked about the period of time when the business was recovering from losses, where we had 20 consecutive quarters of year-over-year EBIT improvement and actually during that period of time, produced about 50% operating leverage. I think that's consistent with how we view the business through time. We've had four quarters here where we had some disruption in the business, our comparability and our operating leverage came a little bit off the rails. But I think starting with where we are now, looking for a 50% operating leverage over kind of any four quarter period is a reasonable way to think about the business. I think you rightfully excluded the Pittsburgh Corning business from that, that has a bit of different margin profile, it has a bit different cyclicality or seasonality to the business. So we have enough visibility, I think, in the way we've laid out the numbers that you're able to kind of look at the legacy business and then the legacy business plus Pittsburgh Corning. Pulling PC out of the second half of the year, I would expect that our guidance basically guides to better than 50% operating leverage in the second half of the year in the legacy business.

Great. Thank you for that, Mike. And I guess, just secondly, on Composites, obviously, continued very strong execution there. You had about 100 bps plus year-over-year margin improvement. And I think relative to perhaps earlier thoughts on the business, I mean, to do a 15%, 16% margin is something that I would assume really kind of beats some of your expectations for the business. Where can this go over the next two to three years? I mean, certainly, you have some incremental margins that benefit, but if you're kind of still in this supply demand dynamic that's remaining positive, you'd expect there to be a little bit of marginal price every year. Is this something where we should be kind of baking in a little bit of margin expansion over the next couple of years as long as the dynamics remain the way they are? Or are there certain things that maybe you're giving your business a little bit of an extra boost because, again, the margins in 2Q were just, seem to be hitting on all cylinders?

Yeah. Thanks for the question, Mike. Listen, I think we've established a pretty good track record really over the last five years with the Composites business. As you know, a lot of heavy lifting have gotten done around the portfolio. We've announced a few more additional actions, obviously, on the call here today. So we're going to deliver some really, really good progress on continued volume growth. I think with favorable macros and kind of given where capacity utilization is broadly from an industry perspective, I see no reason why we can't continue to grow earnings for this business for the foreseeable future.

The next question comes from Keith Hughes with SunTrust. Please go ahead.

Thank you. A question also back on Composites. You talk about in the volume growth which segments were the biggest drivers, and Roofing, obviously, we know what it did, but some of the other ones that were clearly doing well, could you identify those?

Yeah, sure, Keith. So, I think, first and foremost, we saw good growth in the quarter. On a quarter-to-quarter basis, it was up 7%. On a half year basis, that's 9% year-to-date. If you look at the macro that's most relevant to this business, which is global industrial production, it's actually up about 2x versus last year. Interestingly, if you back up over the last kind of three, four years, we'd start out with expectations of global industrial production of kind of 3%, 3.5%. And as the year went on, it basically got cut in half. For this year, expectations are kind of holding consistent. So, the volume growth that we're seeing is actually broad-based both from a geographic perspective but also from an end-use perspective. Obviously, you highlighted Roofing, so that's a sector for us that's obviously up year-over-year. But again, we've seen good growth in North America; we've seen good growth in Europe. China is doing very well this year as well. End markets, that would be construction, oil and gas, also India is showing nice growth for us year-over-year as well. So again, as I said, in my prepared remarks, it's broad-based and across most applications.

Okay. And the cost work you're doing there, you talked about taking out some higher cost capacity. And I guess, ramping up in India was one area excited (40:23), what specific regions are you taking out the higher cost furnaces?

No. That's a great question, Keith, and I appreciate it. I mean, essentially, what we're doing with these latest actions are kind of finishing the final moves for our low-delivered cost portfolio action. You'll see in the Q that we've highlighted closures that are in Asia and North America, and then a minor asset repositioning that we're doing in Europe. It's about $50 million in charges over the period 2017 and 2018, highlighted in my prepared remarks that its $13 million within the second quarter itself. And I also highlighted in my prepared remarks that the new India investment is providing us this flexibility. So the sub-scale melters that we're taking out represent roughly about half of the new melter that we're constructing in India right now. And it avoids about $50 million of CapEx over the next six quarters, enables us to attain the goal that we had laid out with you all at our last Investor Day. With CapEx coming down over the period 2017 to 2020 by about $120 million, and then a payback on a cash cost basis is less than two years.

The next question comes from Mike Wood with Nomura Instinet. Please go ahead.

Hi. Great job guys on the execution recently.

Thank you, Mike.

First question on Insulation, just hoping you can give us an update on what recent lines have come online in the industry in terms of the active lines? And how many more do you see can come on that are less – that are inactive?

Thanks, Mike. We maintain through our investor relations website and our road-show deck, some of the things that are pretty updated point of view on where we think industry capacity utilization is and what that outlook looks like. I would say, through the first half of this year, we haven't really seen much change in terms of our expectations or outlook related to capacity. And generally, we continue to feel pretty good about the quality of our competitive analysis, based on the information that we're able to pull together there. We're still, we believe, in the same position, which is we probably have a disproportionate share of the available capacity that can come online over the next two or three years. So if you look at the overall industry utilization numbers, we would expect that we're operating a bit below those utilization levels and by inference, our competitors, in aggregate, are operating above those utilization levels. And built into our outlook and built into our estimates is what we believe is available both in terms of timing and capacity that could be brought on. So we haven't seen much change in terms of our outlook on that. And to a certain extent, I think that's why we're feeling a little bit better about these two positive pricing actions and then our outlook for the second half because they seem to validate the framework that we've laid out probably two years ago, two-and-a-half years ago at this point. We have laid out a framework that said, when we got to about this point in housing starts, kind of moving from 1.2 million up to 1.3 million was when we thought we would see utilization levels that would support the kind of pricing to get us back to historical levels and get us back to decent returns.

Great. And Pittsburgh Corning, that has a high amount of energy-related exposure. Can you just give an update in terms of how those markets are doing now? What your expectations are there? Thank you.

Yeah, so just to detail the Pittsburgh Corning business a little bit, Michael talked about it, it's a product that is known as FOAMGLAS. They melt glass in every similar manner to what we would see in our melters, so we think this is really in the sweet spot of Owens Corning's technology footprint. And in terms of it being an adjacency technologically to the way we go-to-market in both Insulation and Composites. So we've got nice support for the Pittsburgh Corning footprint because of the Composites business and our technical teams around the world. We have nice technical capabilities related to both the melting technology and also how they deal with our value and thermal conductivity based on all the research and science Owens Corning built up on that capacity over the years. They do tend to be in the low temperature markets. Not exclusively, but that's certainly a sweet spot and they're also very, very strong. Or we are now very, very strong in applications that require a lot of compressive strengths. So one of the areas that's a very important market is the LNG market for Pittsburgh Corning, because you can see a lot of places where people want very long-term durability. They want the compressor strength, you're at low temperature, and they also need to know that they're getting a product that will continue to deliver thermal performance over years or even in some cases, decades. And this is a business that has a track record of being able to do that. Our view today is the LNG capital investment cycle, we're kind of coming out of a period of very strong investment in LNG. We have our eyes wide open on that issue as a part of our valuation of the acquisition. Our expectation is…

Next question comes from Stephen Kim with Evercore ISI. Please go ahead.

Yeah, thanks very much, guys. Congratulations on the quarter. Wanted to talk to you a little bit about Insulation. I think in your Q, you mentioned that pricing was up, it seems something on the order of like 2%, I think or something like that in the quarter, quarter-on-quarter. And I was curious if you could give us a sense for what the exit rate was at the end of the quarter. And sort of related to that in a way, I know that, I believe that you have not restored your preferred supplier relationship or moniker with BLD. And I was curious what is the functional difference between how would you relate to BLD today versus, let's say, in 2015 when you were in the preferred supplier status?

Yeah. Thanks for that question. Maybe I'll take the second half of your question first, and then come back on the pricing side because I talked about that a bit more already. Our historical relationship with TopBuild was a contractual relationship which I really would say is quite uncommon across at least all of Owens Corning's business relationships. We tend to do business with most of our customers on annual performance goals, annual volumes goals, pricing programs that are associated with helping our customers drive their business and also getting pricing in the marketplace that's fair and equitable across our customer base and functional in the way we do business together. The TopBuild relationship really came out of the depths of the recession. We were looking for a base load for our assets. They were the biggest supplier and we put together a contractual relationship which I don't necessarily think either company felt would last forever. So the issue between two companies was not so much was the business relationship headed in a new direction, it was really more of an issue of how the relationship was terminated and that issue is now completely resolved. So we would be back to doing business with them very similar to the way we would do business with other customers which is market-based pricing with programs that are consistent with what works for them and what works for us kind of at an arm's length basis. As it relates to pricing, I think I've said about everything I can say on that. I think looking at the second quarter, our price action in Insulation was in June of the second quarter. So we really didn't see a lot of the price that we would expect to see in the second half of the year in the June numbers, which is what's giving us some of the optimism, that I think you're hearing from us on the call about second half operating leverage. We would expect that the operating leverage in the second half is going to come from a little bit better run rate around price, exiting the quarter and that's going to benefit us in the third and fourth, and as I said earlier, certainly carry over into 2018.

Excellent. Thank you very much for that. Regarding Roofing, shifting gears a little bit, I just wanted to get a sense for whether you think we're starting to see any release of pent-up R&R replacement demand that had kind of gone missing for a few years there coming out of the housing downturn. And whether you felt that the long-term margin outlook for Roofing of mid-teens or better was still the right way to be thinking about that business?

Yeah. Related to R&R demand, I mean, I think we're very happy to see that we're probably seeing our fourth or fifth consecutive year of improvement in reroof demand. And that's really been I think that underlying foundational element of what has really led to a great performance in our Roofing business over that period of time. We've seen a couple of million squares a year of improvement in new construction following starts and we've seen a couple million squares a year of improvement in reroof demand just following pent-up demand and also I think following home price improvement. I think when a lot of people were underwater on their home either in terms of where their home price was relative to the historical peak or maybe how much equity they had in their home, that was holding back and now that home prices nationally have kind of come back to 2006 levels, I think most folks in a home today have some amount of equity in their house and some confidence that an investment in their home can get paid back through time. So, I think, that's why we're seeing the reroof market come back. Actually, if you look at the last couple of years, I think we published on the last year and said we thought age-related reroof demand was around 68 million squares in some of our investor work. The kind of 15-year average on that's probably somewhere in the low to mid-70s, so we're probably back to within 5% to 10% of what would be a historical average on age-related demand. So the market's operating effectively and at a decent level right now. Obviously, new construction, the long-term average there is going to be 1.5 million housing starts. We're not back to that level, so if we can see that run in new construction we'd expect to see some pick up there. And then the storm, which is very hard to predict, we had a couple really weak years in 2014 and 2015. 2016 comped amazingly well against a very weak year in 2015. We actually think 2017's going to comp reasonably well versus 2016. We had a little bit of carryover storm demand coming into the year, probably having a relatively normal storm demand year this year. And the combination of a little bit of that carryover demand plus growth in reroofing and new construction, we can see overall market to be about flat. I think you carry into next year, you'd expect, again, new construction growth, little bit more reroof growth. If we get another normal storm year, I think we can sustain these levels of market performance for a period of time.

The next question comes from Ken Zener with KeyBanc. Please go ahead.

Good morning, gentlemen.

Good morning, Ken.

So this quarter, I think, might represent what you've been aspiring to for a long time, Mike and Mike. To the extent we've seen global composites, I think, really at 16% EBIT, you're done with what had been past decades of oversupply. And it seems like it's back to where it was in the 1990s period. As it relates to that, you're optimizing your plant in India, so not investing in high cost production, right, because you can have a lower cost, new capacity. Could you take that notion and correlate into U.S. Insulation, where you do have outsized share of the untapped capacity, but it probably indicates you might have higher share of the higher cost capacity as well. And I think, Mike, was trying to address this earlier which is that, can you set the stage for – if we hear capacity additions, and I know, Mike, you guys have it on your presentation decks, and there'll be puts and takes, right? Some people will open up new capacity, but it doesn't change the underlying industry structure. Could you maybe try to delve into that a little bit more as we hear about competitors opening capacity, greenfield or adjacent, which will kind of mitigate your higher untapped cost, just like happened in India in Composites? But I do think the industry structure is good. I just really want you guys to have as much possibility to talk about that context, so we're not caught off-guard or take individual announcements out of context.

Okay. Thanks, Ken. Let me just maybe expand on a couple of Michael's comments regarding Composites and then I'll pivot over to Insulation. I think the big thing, and I think Michael hit these points, I just want to reemphasize them, is we're taking out three sub-scale melters that in aggregate add up to about half the capacity of a new scale line the one we're building in India. So this is really sub scale. If you do the math, these are effectively a-sixth of the size individually of a full-scale line on average. And it would have cost us $50 million of capital just to rebuild them. So the Composites play, this is a very, very positive step for us. Obviously, the business is profitable. We make good margins. We didn't want have to walk away from market opportunity. And we wanted to get ourselves positioned in a way that by taking these melters out, we certainly didn't have to walk away from what is still a profitable market share. So I think that's all good news. The insulation industry and the structure of our asset base has always been very different than the Composites industry. Quick technical sideline, the way we fiberize insulation is a bit more resilient and is a little bit broader process window than the way we fiberize composites. So as a result, Insulation got to scale melters at a much earlier stage of the evolution of that industry than Composites. Composites has been a continuous improvement story for 80 years since we invented the technology of making those melters bigger and bigger, and pulling them faster and faster. With Insulation really in the 1970s, that technology platform that came into being in the 1970s has been relatively consistent for almost all the industry participants…

Good. I think I have one more, a very full answer there. Specifically, in Insulation, if we look at the EBIT guidance you just gave us, it was a little squiggly in the first part of the year, but now $185 million, I mean, are there a lot of other acquisitions like Pittsburgh Corning that can really transform your Insulation business because just that EBIT addition this year and next year, it really changes the scope even though you talk about your core business at 50%, it could be quite different. Is there something else out there because your M&A has been very good with this acquisition and InterWrap? It just seems to be a real value add that you've been doing the last year. Thank you.

Yes, thanks, Ken. As a theme, the biggest opportunity for us when we look at M&A is the global expansion of our Insulation both in terms of product technologies and also geography. So if you look at, if you size any of our markets or do any market analysis, kind of the most fragmented market in which we currently play is the global Insulation market because there is a number of technologies, a number of different applications, very different temperature profiles and across the continuum of temperature profiles, applications and geographies, there's a lot of space for our company to expand our Insulation business. Up to now, one of the things that we needed to get done, and I think Pittsburgh Corning helps get us done, is we have not been in Europe at all. So we exited Europe in the late 1990s. So we really didn't have feet on the ground in Europe that were helping us see opportunities for growth in the Insulation business in Europe. We do have a nice business over in China. I think this strengthens our business in Asia. So we're now getting a little bit more Pan-Asian, we've got a foothold on the ground in Europe, we've got some new technologies and we would be looking across kind of that entire fragmented technology base and across the entire geographic base for additional opportunities. Having said that, I will tell you that we want to remind investors that our opportunities in acquisition tend to be a bit opportunistic. So when an opportunity comes along, we want to position ourselves to be able to act. If you look at the two acquisitions, InterWrap and Pittsburgh Corning, while on the surface they're both great acquisitions and similar profiles, in terms of execution, they couldn't be more different. InterWrap was something we were interested in. It came to market we were able to buy it. Probably from beginning to end, that was a 9-month or 12-month thought process of valuation, due diligence and closing. Pittsburgh Corning, we've been looking at that business for probably the better part of a decade. It was a long, long bankruptcy. They filed at the same time we did in 2000. They've spent 16 years in bankruptcy. We'd always thought it would be a good part of our portfolio and we waited for it to become actionable which probably was the better part of a decade in terms of our interest. So you're going to see timing issues and also a very different kind of topography of how we're able to go about getting deals done. But we're confident that we can continue to put really good ideas into the portfolio. And as Michael said, deploy meaningful amounts of capital to create shareholder value.

Hi, Bryan, this is Thierry. It looks like we have time maybe for one more question.

Okay. And the last question will come from Bob Wetenhall with RBC. Please go ahead.

Hey, guys. Good morning. Hey, Mike, just wanted to ask, the net working capital improvement just year-over-year basis is pretty solid. Is this sustainable, the reduction in net working capital investment and what's driving it?

Hey, Bob, thanks for the question. Quite frankly, I'm really proud of what we've accomplished over the last three years from a working capital perspective. And there's been a lot of hard work really in all three businesses, in all three categories, so working on inventories, working on payables and working on receivables. And you're right, we've made significant, significant progress. If my memory serves me correctly, I think in 2015, we delivered about a 280-basis-point improvement as a percent of sales. I think we did another 170 basis points last year, and on a year-to-date basis, today, we're about another 170 basis points better through the middle of the year. It's going to get harder so again, we're going to make some progress this year but as we move into 2018 and beyond, it's going to get harder but we're going to continue to work it really hard.

Got it. So it's a big improvement. You've had a lot more predictable results. You've had two very smart, successful acquisitions. You got tremendous free cash flow conversion. If you have to force rank your capital allocation priorities, what are they between M&A and reinvesting in the business and dividends and buybacks? And just given the positives, the momentum in the business, do you think the market is missing something in terms of the OC story on a bigger picture basis because I'm pretty impressed by what this company looks like now versus what it did three years ago that I think you have a pretty rational argument for a better share price. I'm just curious to ask your opinion if you think there's a piece of the story which is not just being explained or understood or is somehow overlooked?

Yeah, thanks, Bob, and thanks for the positive feedback on our performance. We're awfully proud of our execution as well. In terms of capital priority, I think they're really unchanged probably for the last six or seven years. I think we laid them out at our Investor Day and said, number one has always got to be reinvesting in your existing assets, making sure that you keep those assets safe, productive and low cost. We know that that pays bills for our shareholders for very long periods of time. And if we ever take our eye off of that ball, we're creating long-term fiction in our ability to improve cash flow and results. So we think we can do that for about the level of depreciation. So obviously, in today's environment, we're producing significant amounts of EBIT. We have a fantastic tax asset. A very low tax rate and huge cash generation that leaves us significant amount of capital available to be deployed for our shareholders. We like the dividend. We are glad we implemented that. We've been growing that. I think our three year compound annual growth rate of our dividend is kind of high single digits. That seems about right to us. I don't feel like we need to try to become a big dividend yield stock. I don't think that's the profile of our company but we do express confidence in the long-term outlook of our company through the way we handle our dividend. We like good deals and we've been, I think, pretty disciplined about finding good deals and we're going to continue to be very active, energized and aggressive about looking for good deals. But at the same time, I think, we've also demonstrated that we think buyback our stock's a good deal, or certainly has been over the last five years because we do think our valuation has lagged a little bit and we've been comfortable buying that share even as Michael said in his remarks, in the 60s, in the second quarter, we were still a buyer of our stock I think expressing optimism in our outlook that the price could go higher. I'm the wrong person to speculate on whether something is being missed about our story. Our belief is that when we make the story really simple, which is we're executing really well across all businesses, all of them are going and all of them are producing outstanding results that valuation will catch up with reality. I think our message on this call is all three businesses have great momentum, all three businesses are growing, all three businesses are executing well, and all three businesses are producing great results. So we'll look to the valuation to see whether that story is getting across the way we wanted to.

This concludes our question-and-answer session. I would like to turn the conference back over to Thierry Denis for any closing remarks.

Very good. Well, thank you, everyone, for joining us for today's call. And Mike, I think, that question was a very good summary. Do you want to add a few more closing remarks?

Well, I mean, I'll just go back to the last thing I said in my prepared remarks. We do believe there's a lot to be excited about at Owens Corning right now. In simple terms, our Roofing business, the market's strong, we're able to get price to offset inflation and our Components business is growing. In Composites, we've achieved and continue to achieve significant progress in driving that asset base to low-cost. Our volume outlook today is stronger than it's been over the last couple of years, and that's producing some operating leverage and results in the business as industrial production improves. In Insulation, we just got done with a great deal on Pittsburgh Corning. We're expanding the footprint and technology of that business. We're starting to see some realization, a price from the residential business. And as a result, we're going to get back, we hope, to that repeatable cadence of strong operating leverage year in year out in terms of how that business can push big time earnings through to the bottom line. Our teams are, I think, executing very, very well. We like the way our businesses are positioned and we like the opportunities that we've seen in terms of how to deploy capital. So we're feeling good about where we are. Obviously, ever vigilant to make sure that we're thinking through what are the risks and what are the things that could go wrong but right now I think our eyes are mostly focused down the field trying to figure out how we continue the performance that we've been delivering.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.