Good morning, ladies and gentlemen. Welcome to the Masco Corporation 2009 second quarter conference call. As a reminder, today's conference is being recorded and simultaneously webcast. If you have not received a press release and the supplemental information, they are available on Masco's website, along with today's slide presentation under the Investor Relations section at www.Masco.com. Before we begin management's presentation the company wants to direct your attention to the current slide and the note at the end of the earnings release, which are cautionary measures about statements that reflect the company's views about its future performance and about non-GAAP financial measures. After a brief discussion by management, the call will be open for analyst's questions. If we are unable to get to your question during this call, please call the Masco Corporation Investor Relations office at 313-792-5500. I'd now like to turn the call over to Timothy Wadhams, President and Chief Executive Officer of Masco. Mr. Wadhams, please go ahead, sir.

Thank you, [Michelle], and thank all of you for joining us today for Masco's 2009 second quarter earnings call. I'm joined today by Richard Manoogian, our Chairman, Donny DeMarie, our Executive Vice President and Chief Operating Officer, and John Sznewajs, our Chief Financial Officer. And if you would please move to Slide 3, well, second quarter was a tough quarter, obviously, with sales off 23%. Both our top line and our earnings were a little better than we anticipated. We continued to see volume declines in new home construction and home improvement markets in both North America and Europe. We had the negative impact of currency translation of approximately $80 million in the quarter. From an income perspective we reported $0.15 per common share of income for the second quarter of 2009. That compares with $0.20 in the prior second quarter of 2008, and we'll talk about EPS in a second. We continue to do a good job of working capital management, balance sheet management; working capital as a percent of sales and trailing 12 months continued to improve. And we're really pleased that gross margins in the quarter increased. They were up, benefiting from both the positive impact of price commodity relationship as well as cost reductions that we've been pursuing. In addition, from a free cash flow standpoint we've increased our estimate for the year from $300 million to $360 million and, very importantly, we ended the quarter with $900 million of cash on the balance sheet. If you'd please flip to Slide 4, I mentioned EPS of $0.15 versus $0.20 on a reported basis for the quarter. In the second quarter of 2009 we had $22 million of rationalization-related charges; that's about $0.04 a share. That compares to $15 million and $0.03 in the prior year quarter.…

Good morning and thank you, Tim. We continue to really focus on our efforts on operating in the current environment with really the goal of preparing for the future by doing the things we need to do today to drive long-term growth. If you'll flip to Slide 14, within the Masco builder cabinet group, I wanted to update you on a few key initiatives that we started and have spoken to you about before. Our common base architecture, where we can make any brand in any plant, is on schedule and we'll complete that in early 2010. Our ERP system implementation is also on schedule and will complete about the same time. And I want to remind you that within the builder cabinet group, it's really a world-class lean organization. But within this segment there's really more we can do. Our retail cabinet group has launched a major initiative, a major lean initiative, to continue to take costs out of the organization and we're pleased with the early results of those efforts. On the Installation and Other Services, sales being down 39%, housing starts were down 40%, but on a lag basis - a 90-day lag basis, which really translates more to our sales - housing starts were down in excess of 45%. So we continue to take share within this segment. At this level of housing starts it would be extremely difficult if not impossible for us to be able to show an operating profit; however, we're focused on maximizing our cash generation and continuing to do the things we can do to improve results. Some of those things are product rationalization, where we are eliminating those products that are not accretive to our operating profit; we continue to look at our hub-and-spoke business model, that's where we can…

Okay. Thank you, Donny. If you would flip to Slide 16 just to take a quick look at guidance before we move to Q&A. And I would remind everybody that forecasting, looking forward in this environment, continues to be extremely challenging. Having said that, we currently anticipate that our sales will decline in a range of 18% to 22%. That compares to our previous guidance, where we had a sales decline in the 20% to 25% range. We continue to believe that housing starts will approximate about 550,000 units in 2009 and, having said that, we currently anticipate that our loss per common share from continuing operations will be in a range of $0.05 loss to $0.25. That compares to a range previously of $0.15 to $0.35 and obviously the midpoint of the range has come down from negative $0.25 to negative $0.15. I mentioned free cash flow. We estimate currently that our free cash flow will increase to approximately $360 million from $300 million that we estimated three months ago, and that really reflects the midpoint of the guidance range, which reduces our loss in terms of net income, and also a slight decline in capital expenditures primarily. There's some other ups and downs, if you will. EPS includes rationalization charges of $0.15 per common share, our EPS range. That's an increase from $70 million to $85 million or approximately $0.13 a share to $0.15 a share. And we also continue to anticipate that pension costs compared to last year's expense will be up about $0.05 incrementally this year, including the curtailment charge that we had in the first quarter. We talked a little bit about tax earlier. We continue to estimate that tax will probably cost us about $0.04 to $0.06 a share this year. As I mentioned in the first half, I think we've got about $0.025 rounded to $0.03 in terms of tax. On a $3 million pre-tax loss we have a $9 million tax estimate. Obviously when you get around breakeven estimating tax is very challenging. The main issue for us is that we have losses in certain jurisdictions or municipalities that are not deductible against income in other areas. But, again, that's no different than it was before. So with that, [Michelle], we'll open up the lines for Q&A.

(Operator Instructions) Your first question comes from Nishu Sood - Deutsche Bank.

The first question I wanted to ask was about your guidance. You've improved the guidance by about $0.10. You mentioned, obviously, sales being the principal driver of that, but you obviously had a pretty nice performance in your margins as well. Even looking at the sales aspect of your guidance, your sales were down 24% in the first half of the year and you're assuming 18% to 22% for the year, so it sounds like you're assuming a pretty good improvement in the sales performance in the second half of the year as well. So I'm just wondering what's behind just taking up $0.10. Is that conservatism or are you seeing other sources of deterioration in the second half of the year?

Well, the reality, Nishu, is that if you look at the guidance and look at the first half, the second half sales, I think, really factor out or calculate out to be within about $40 or $50 million of the first half. And basically we lost $0.08 in the first half and if you go to the midpoint of the guidance of $0.15 in essence what we're saying is that the second half is going to look a fair amount like the first half. We obviously have better comparisons, if you will, later in the year just in terms of, as you recall, last year things really started to turn south in September. The third quarter and the fourth quarter were pretty tough. So basically we're not looking for necessarily any deterioration in performance but basically looking at sales relatively flat first half to the second half.

And the second question I wanted to ask was about the ERP implementation. This is something you folks have been talking about for some time now, obviously affecting the Cabinets group as well as the Installation Services group. I was wondering if you could give us more details on the ERP implementation? I know you might be doing that in your investor conference a few weeks from now, but what other divisions is that affecting, what types of changes might that mean for your operations, for your results? And, Donny, you mentioned that this is a pretty expensive program that you've undertaken over the last years; how much roughly are you spending on this ERP implementation across the company?

Nishu, I'll hit the first part of that question and then maybe you can follow up with [Maria] related to cost. We haven't gone into the full detail of the cost breakouts really to the ERP. But what I'd like to do is tell you on the Cabinets side, as we started on the builder cabinet group - and that ERP implementation really affects that group - to look at going to a common architecture between the Quality and the Merillat brand which would then allow us to produce any product in any brand in any plant, we had to have a common system. And so we had a different need related from the information technology to be able to receive those orders and then dispatch it and then be able to produce it in the facility which makes the most sense from a shipping point of view. So we launched the ERP initiative at the same time that we dove into the common architecture. So that will complete end of first quarter, maybe mid-year next year, but on schedule and will have a big impact on the builder cabinet group. The only other significant ERP implementation that we have going on is at MCS, and at MCS that initiative was, if you remember, that business was put together through a series of acquisitions and really one of the large acquisitions was a rollup of many contractors and we wound up buying the holding company, to speak, or BSI Holdings. So when we started really consolidating that to make it look like one company and act like one company, we had as many as 40 independent ERP systems, so the need to move to a modern system where we could put all the divisions on one system made a lot of sense. That only affects the Masco Contractor Services division within the platform because Service Partners has been on J.D. Edwards and really is on a very stable base. So this adds a lot of ability to do real-time scheduling. This allows us to extend. Where the current system really begins at the end of the job, this allows us to extend into actually doing the estimates, the quoting. We have tools that allow us to look at [inaudible] rates, bids versus permits. So we think it really improves the efficiency of that operation pretty dramatically.

Nishu, one thing in terms of the cost, if you look at the appendix we do have the ERP system-related costs broken out in the back that are going through the P&L. What's capitalized would end up in capital expenditures. So in the appendix we've got the second quarter costs for both the Cabinet group as well as MCS. We don't have the first quarter in here, but that was in the package for the first quarter. But we also have both '07 and '08 cumulative in the back of the deck and I think the cost for ERP implementations in '07 - '08 aggregated about $28 million.

One other point, Nishu. I think it's important. Really with MCS, their primary competitors being the small contractors, only MCS within this space has the size and scale to make this kind of investment and really will give us a technology that no one else has.

Your next question comes from Sam Darkatsh - Raymond James.

Just a clarification question and then a follow up. The change in your sales guidance, how much of that was because you surpassed your internal expectations for Q2 and how much of that is maybe a little bit more moderation or an improved outlook in the second half, if you could help me with that.

Well, we don't give quarterly guidance, as you know, Sam, so I won't necessarily get specific about the second quarter necessarily. But I think if you were to look at it in terms of the midpoint, about 2.5% improvement. That equates to about $240 million. I would point out that our expectation now in that $240 million is that about $100 million of that is a reduction in the negative impact of foreign currency translation. We've got about $165 million in the first half of the year. You might remember that our original guidance had about $300 million of expectation of negative impact of foreign currency. We've reduced that. That'll come in probably just a little bit above $200 million and the expectation right now is that we'll see a negative impact in the third quarter substantially offset by the fourth quarter. But, again, obviously second quarter did help that a little bit and there is certainly second half anticipation of having a little better sales environment.

So where specifically segment-wise are you seeing a little bit more of an improvement versus prior expectations in the second half? And, also, is that paint performance sustainable?

Where we're seeing the improvement, I mentioned the foreign currency, but most of that would be on the retail side of the business just in terms of, you know, we've got the builders' side pretty much consistent with the same assumption, but really, I think, a little bit better retail, if you will, primarily in North America. And what was the second part of your question?

Well, the retail, is it a particular segment that you're seeing it in, the improved -

Yes, that would be primarily in Plumbing and Decorative Architectural.

And then paint?

Well, paint's in Decorative Architectural.

So you're saying that this is a sustainable trend in terms of the recent outperformance?

Well, we don't give quarterly guidance and we're not giving segment guidance, but we're really pleased with the way that segment performed in the second quarter. Again, we all know it's very difficult, but we've got some new products coming out there. We've done a nice job with promotional activity. So I think that we'll continue to see some good opportunities there just in terms of new products. We had a load-in in the second quarter which helped second quarter a little bit with the new product that Donny mentioned, Premium Plus Ultra Interior. So, yes, we can keep the momentum going there.

Your next question comes from Peter Lisnic - Robert W. Baird & Co., Inc. Peter Lisnic - Robert W. Baird & Co., Inc.: I guess the first question on Cabinets, it looks like somewhere around $400 million might be the new establishment of the breakeven point for that business, but you mentioned some of these initiatives that you're going through on the builders' side and then also on the retail side with some lean programs. Can you maybe talk about how much more you can lower the breakeven point and what some of the benefits from the lean at retail might bring to the table?

Pete, we haven't given any targets out on that at this point in time. Obviously, the guys are kicking that off. You know, that's an ongoing process, as I'm sure you're very much aware, with a commitment to continuous improvement, [inaudible] program, six sigma approaches and that type of thing, and at this point we haven't given out any targets necessary. We do have an investor day coming up in September and we would anticipate getting a little more detailed at that point in time, but we do think there's a lot of opportunity there and, in fact, there has been some nice improvement in that particular segment so far.

I think the key here, Pete, is that we believe there's more we can do. We clearly see opportunities as we get to the common architecture on the builders' side and on the retail side we've really been heavily focused on lean and taking costs out and we've been very pleased with our ability to really attack the cost base. Peter Lisnic - Robert W. Baird & Co., Inc.: Is there more opportunity on the builders' side or on the lean at retail side?

I'd say both. I think there's a lot of opportunity. Donny talked about the common architecture on the builders' side, but, yes, we think we can continue to improve both side of that. And don't forget we've got some European businesses, too, that are in the Cabinet group that have had a pretty tough time this year so far. Peter Lisnic - Robert W. Baird & Co., Inc.: And then just on the price of materials, which you mentioned throughout the presentation, can you give us a sense as to how the expectations there have changed?

At this point we continue to believe that we'll benefit by about $120 million for the full year, and that's consistent with what we mentioned on the last call.

Your next question comes from Stephen East – Pali Research. Stephen East – Pali Research: Could you quantify a little bit more the op margin improvement? Everybody's really been - it seems like your guidance is awfully conservative for the second half. If you could just talk about your operating margin improvement in the second quarter versus the first in terms of if you could rank order the drivers as far as volumes, mix shift, the raw material and the rationalization that you've been going through for the last several quarters?

Yes. Well, volume certainly is up. The first quarter normally is the lowest quarter from a sales standpoint, so volume certainly contributes. We mentioned, Stephen, on the last call that we estimated that we had about $20 to $30 million of positive impact from the combination of the relationship between price and commodities as well as cost cutting. In the second quarter that number was probably somewhere around $70 to $80 million, so we did see an acceleration. At the end of the first quarter or during the call, we estimated that we would see about $200 million of benefit in the year - $120 million related to the relationship between price and commodities and about $80 million related to cost reductions. We now think that number might be a little closer to $220 million, with the increase primarily on the cost side. And we probably had a little more of a positive impact in the second quarter than we might have anticipated, particularly as it relates to the cost improvements coming through. But, again, that number was probably $70 to $80 million and compared to $20 to $30 million in the first quarter. I think that probably helps you with some of the understanding. Mix would not have changed. You mentioned mix and I don't think mix would have changed that dramatically, although Decorative Architectural obviously was up 6%. I think it was up 2% in the first quarter. So from that standpoint, we had a higher margin and so obviously that had some impact just in terms of operating margins.

And I know I asked you this question before on the Installation business. You're now at a 10% negative op margin and I know on a hugely depressed volume basis, but still no writedowns on goodwill, etc. Can you give us a better understanding of why we're not seeing that or how you all are looking at this?

Sure. Basically, Steve, that is an annual test that we do that is performed in the fourth quarter unless there is a trigger - what's called a triggering event - that might cause you to look at one of your business segments earlier than that. So we do an annual test every year in the fourth quarter and that test is based on a five-year discounted cash flow model. There was a fair amount of disclosure in the 10-K this year in terms of methodology and assumptions and basically one of the key issues there is really the terminal value when you do that calculation. When you get out into the fifth year - and as I think I mentioned on the fourth quarter call - the assumption that we had made when we did that calculation last year was that housing starts were going to be back at about 1.5 million - 1.55 million, I believe. And, again, that's in the 10-K. So what we've told investors is that as we start to put that analysis together again this year in the fourth quarter, the key drivers of that are basically going to be assumptions as to what we think housing starts will look like over the five-year period, with that fifth year being very important in that calculation. So at this point in time, again, we haven't really performed that exercise at this point and from our position right now it would be pretty hard for us not to see a start number that probably is going to be around 1.4, 1.5 five years out, which we think is reasonable. Last year we didn't pull that number out of the air. We basically went to, I think, Global Insight and some other consensus opinions, if you will, from economists, took their number, discounted that. So from that standpoint we continue to think that we'll probably have a number in that range. The one thing I would mention to you is that if you think about the longer term, you think about demographics, you think about household formations, we continue to think that the fundamentals are favorable. I think the Harvard Joint Center for Housing Studies recently estimated that household formations in the decade 2010 to 2020 would approximate, I think, 14 million, if my memory is right, and maybe with an average of 1.6 or 1.7 per year - obviously, a big driver in terms of new home construction. So from our standpoint at this stage, again, we've got to get into the detail but I wouldn't necessarily anticipate that we're going to have a major issue based on what I think those projections will look like when we get to the fourth quarter.

The bearish argument - one of the bearish arguments - around your equity is the liquidity, that type of thing. Have you all had any thoughts, conversations about going out and refunding your debt, etc., extending your maturities?

Well, as we've mentioned, Steve, we've got $300 million due next March, and we're positioned to pay that down with cash that we will generate. We continue to expect we'll end the year with $1 billion of cash on the balance sheet, so we're prepared. We'd like to refinance that if we can do that attractively. If we can't, we'll pay it down with cash from the balance sheet. The next major issue is 2012, when we have $850 million due. Would we consider buying some of that in early if we could find an attractive price? I think we would certainly take a look at that. Just in terms of the financial markets, we've got to think three years out that we ought to be able to refi that on some reasonably attractive terms. But, again, I think we generate a lot of cash, we'll continue to generate cash. We've got some financial investments that potentially could be monetized in a more attractive environment. We've got bank lines in place right now; we've got $1.2 billion roughly of undrawn bank lines. So I think we've got a fair amount of flexibility there. But certainly we're very focused on the balance sheet. I think on a longer-term basis we certainly would like to get debt down at 57% of debt plus equity at this point in time and I think as we think about the longer term, getting that down to somewhere between 45% and 50% is probably the right place for us to be. But at this point not a lot of concern about the 2012 maturity, but certainly it's on the radar screen.

Your next question comes from Dennis McGill - Zelman & Associates. Dennis McGill - Zelman & Associates : Just quickly on the comment you guys made in the slide deck about the promotional activity in Decorative Architectural, I think, in the paints and stains. Can you just go into that a little bit?

Sure, Dennis. The paints and stains, we've launched our Premium Plus Ultra Interior and that's really a successful continuation of a family of products we brought out last year on the exterior. And what you wind up getting with this product is you get superior hide characterizations and allows us to hide the deeper colors; you get a paint and primer in one. And what we find from a consumer's point of view is it takes less coats to get the job done, so it really makes painting a home simpler. The excitement in the aisle was a pleasant surprise for us because there's a higher price per gallon on this Ultra Interior, so really showing that if you have the right innovation and you're addressing a consumer need that you can upsell consumers even in a difficult time. Dennis McGill - Zelman & Associates : So when you're saying promotional you're saying marketing aspects, not necessarily discounting?

Yes, there was more emphasis on advertising is, I think, what we were referring to when we talk about promotional activity. There were several spots on TV as well as other media. Dennis McGill - Zelman & Associates : On the Installation Services side you mentioned, obviously, at these levels of housing starts it can be incredibly difficult to be profitable. Can you give us some sense on maybe a range or some indication of where starts need to return to for you to have a shot based on the systems that you're putting in place now?

Dennis, we continue to look at different ways to continue to take costs out as we modify our product portfolio through the rationalization. It's a little bit of a moving target, but we believe that our breakeven point in that segment is somewhere between 700,000 and 800,000 housing starts and, to the extent we continue to take costs out, we can continue to move that down.

Yes. And that's come down. We don't have a figure, but that's come down dramatically.

And again, Dennis, that's an area that we'll spend a little bit more time on in the investor conference when we meet in September. Dennis McGill - Zelman & Associates : Can you walk though the major components of your $360 million cash flow guidance between the non-cash items, working cap and then I think you said you brought down maybe your CapEx expectations, where that is for the year?

The big buckets are net income of about $65 million loss, depreciation and amortization of approximately $255 million, our other non-cash, which includes share-based comp, minority interest and deferred taxes and some other things in there of about $150 million, working capital generation of $160 million, offset by CapEx of about $150 million, so that totals $360 million.

Dennis, there's a slide in the deck - Slide 25, actually the last slide of the appendix - that has the detail that John just went through. And as I mentioned in the prepared remarks or the lead-in, if you will, the improvement from $300 million to $360 million is really a decrease in the loss, which affects net income, by I think about $30 million, if I recall, and then a decrease in CapEx from $170 to $150 million. There's some plusses and minuses on D&A, working capital. Working capital will be a little less than we anticipated given the increase in sales guidance, but those are the major pieces.

Your next question comes from Keith Hughes - Suntrust Robinson Humphrey.

Building on one of the last answers, with MCS you've been in the process of removing numerous traits from the portfolio. Can you tell us where you are on that and when you think you'll be done?

Yes, Keith. Good question. It's hard to judge a point in time because what we've challenged that group to do is continue to evaluate whether or not the individual trait is accretive to their operating income and that answer tends to be different within some of the operating companies and others, within some of the divisions and others. So if I was going to give you where I think we're at, maybe at midpoint in getting through the product rationalization. I think we're being careful to make sure that we're making good decisions for both the current environment as well as the rebound. What we don't want to do is make decisions today that would impact our ability to really perform on the way back up. And we've also done a deep dive and it's really where do we really create a competitive advantage for ourselves related to our scale, and so we're looking at a bunch of different attributes other than just singular performance-based metrics to really understand on the way back up how we're going to have a compelling business model that gives us a competitive advantage in the marketplace.

On thing that would be nice for the investor day, if we had some sort of a feel for the size of this business with the going forward traits, both historically and what you think it's going to look like in the future.

And Keith, what we've said to that point - and we certainly will go into a lot of detail at the investor day - but what we've said is that so far and so consistent with the work we're doing today is that we believe by focusing on fewer traits with higher market share expectations of those traits we can offset any of the loss related to some of the smaller traits that we're no longer going to be performing. And we still feel very comfortable with that assumption.

And one thing that I think just to reiterate and point out, Keith, that's probably important here is that we'd be looking at a mix shift back to insulation from diversified products. Insulation has historically had a higher margin just in terms of return on sales.

Why is that? Why has it been a higher-margin business?

Primarily because of our ability to buy.

I think if you really understand the manufacturing process, the manufacturers really need to run those furnaces all out. They have very little then can do to change the overall throughput of those furnaces, so it allows the scale to add some value to a manufacturer related to price. And I think we also are very, very efficient at it. It's how we started; it's a business that really started the whole Masco Contractor Services. And so we have a lot of efficiencies that we've gained over the years and we're obviously the largest buyer.

Your next question comes from [Unidentified Analyst] - J.P. Morgan.

I was just hoping to get a little bit more color on the guidance given the margins were so strong in 2Q and your improved sales outlook for the back half of the year. What does that mean for margins in the back half? Are you guys expecting some sequential decline in margins going into 3Q and 4Q?

Not necessarily. We don't give margin guidance typically. I think I did mention a little earlier that we currently anticipate that the second half in terms of top line is going to be somewhat comparable to the first half. I also mentioned that we had close to somewhere between $90 and $100 million of positive impact from the relationship of price and commodity and cost reductions come through. They were a little bit higher in the second quarter. We might have a little bit of upside to the midpoint of the guidance in the second half, but, again, it's very difficult to forecast, especially with a lot of the actions that are going on in the business units - not just the rationalization cost, charges and fixes that you're familiar with but a lot of the other profit improvement things that are going on. And the fourth quarter's always one of our lower quarters typically as well. I would say this: We don't necessarily see any deterioration in the second half and, to the extent that we continue to do a little better job on the cost side, there might be a little bit of opportunity for a little better performance than the first half. But, again, we'll wait and see how that comes out. You've got to keep in focus here that we're still looking at major sales declines in the second half. I mean, the comps are a little easier, but I think we're still projecting to be down 18% in the second half of the year and obviously that's got significant implications from a volume perspective.

And then just a follow up on the pricing. Aside from the paint segment, are you guys seeing any other pricing pressure, mix shift, customers trading down in any of the other segments, specifically Cabinets and Plumbing?

Well, I'm not sure we've talked about any specific pricing pressure, but we have pricing pressure with a variety of products. There's no question about that. That's been ongoing and is just a fact of life. Having said that, I think we've done a really good job over the course of the last three or four years in offsetting commodity cost increases. We've been able to do that. Sometimes there's a little bit of a lag in implementing that, but from our perspective we're in pretty good shape and, as I've mentioned earlier, we're anticipating that we're going to have about $120 million of positive impact this year between the relationship between price and commodities. So hopefully that gives you a little bit of perspective. The other thing is that obviously we've got some really strong brands. And with some of the product innovation that Donny talked about, you know, that gives you an opportunity just in terms of bringing out new products that have features that people are looking for. That gives you a little bit more pricing power.

Your final question comes from David Goldberg - UBS.

I want to go back to a conversation you guys had last quarter about the MCS business and trying to bring more repair/remodel activity into that business and focus a little bit more on that, and I'm just wondering how those plans are going and how that might eventually split out in terms of what's going to be new home construction versus repair/remodel.

David, we continue to focus on opportunities to pursue the retrofits. There's a significant opportunity to re-insulate existing homes and there's stimulus money available to do that for the consumer. And MCS is really performing as a subcontractor to some of our retail partners who are doing lead generation and offering those services to homeowners, and MCS is doing the order fulfillment for several of our retail customers as well as their own activities. We've been following the stimulus trail and, as you know, that's a windy road through many, many places, through local organizations. When we met with a group recently we had contacted over 500 local organizations that are involved in this and getting the money to the market to weatherize homes, so we're on top of it. In addition, we mentioned earlier that we're incubating a new business in the retrofit arena that really is focused more on the whole home energy approach, very similar to our environments for living program, and we'll update you on both those initiatives at the investor's day on September 17th.

I'm wondering as we look forward and think about free cash flow in the coming years if you can talk about the relationship between free cash flow and starts and if we were to see starts grow slowly/stay where they are for a couple of years, what kind of free cash flow generation would that imply?

Well, I think, David, to put it in perspective, right now new home construction represents about 25% of our business and so the real key going forward from that perspective is probably more on the repair/remodel side, the retail side. Having said that, I think from a modeling perspective whatever your top line assumption is, if you were to think in terms of inventories, receivables, payables - net of payables - averaging, just say, 16% of sales, you know, 15% to 16%, whatever your assumption is going forward, that's the amount of working capital we'll have to put back into the balance sheet absent any continued improvement in that. And I would expect that we'll be able to do a little better than that. I mean, the guys are doing a great job. We're continuing to really get aggressive on the payables side and the inventory side. There's some additional opportunity there. But just from a modeling perspective I think if you were to use 15% to 16% you're probably in the ballpark. CapEx is probably going to run 2% to 3% of sales. As we've said in the past, we don't really need any brick-and-mortar. We certainly have adequate capacity to work ourselves back into a much more favorable situation relative to the top line, so I wouldn't anticipate that being significant absent some growth opportunity that might develop.

And at this time I'd like to turn the call back over to our presenters for any additional or closing remarks.

Thank you, Michelle. And if you could all flip to Slide 18, which is basically our promo for our investor's day, I'd like to thank you again for joining us. We continue to aggressively manage our cost structure and have worked very hard over the past several quarters to offset the impacts of the current economic environment on our businesses. Although we expect market conditions in the near term to be very challenging, we continue to be confident that the long-term fundamentals for new home construction and home improvement products are positive. That confidence is buoyed by the dedication and energy of the Masco team. We believe we've made significant progress, transforming business models to enhance manufacturing flexibility, a better understanding of our customers' and ultimate end consumers' total experience with our products, working to enhance the quality and sustainability of our products and processes, driving continuous improvement in lean principles in everything we do, ensuring that our pipeline for innovation and new products and services is robust, and continuing to invest in development and opportunities for our employees worldwide that are making it all happen. As we mentioned, the second quarter came in a little better than we anticipated a couple months ago. We're starting to see improvement in the relationship between selling prices and commodities and the benefits of the cost reduction and profit improvement initiatives our folks are driving across the company. These actions will not only continue to partially offset the impact of the significant volume declines we are experiencing but, importantly, contribute to the ongoing leaning of our cost structure. Forecasting business conditions continues to be very difficult, particularly given job losses and potential foreclosures. However, there are signs that the economy and housing and home improvement markets may be stabilizing. Government stimulus and liquidity programs are in place, mortgage rates are at historically attractive rates, sales of existing homes have ticked up, home prices appear to be stabilizing in certain markets, and, importantly, consumer confidence is improved from where it was a year ago. There's a lot of energy at Masco and we will share that with you this fall at our investor conference on September 17th. Please hold that date. We will review with you how we are positioning Masco to win going forward. Thank you.

And this does conclude today's conference. We thank you for your participation.