Good day, ladies and gentlemen, and welcome to the Q2 2012 Owens Corning Earnings Conference Call. My name's Allison and I'll be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. And now I'd like to turn the call over to Mr. Thierry Denis, Director of Investor Relations. Please proceed, sir.

Thank you, Allison, and good morning, everyone. Thank you for taking the time to join us today for today's conference call in review of our business results for the second quarter of 2012. Joining us today are Mike Thaman, Owens Corning's Chairman and CEO; and Duncan Palmer, Chief Financial Officer. [Operator Instructions] Earlier this morning, we issued a news release and filed the 10-Q that detailed our results for the quarter. For the purposes of our discussion today, we've prepared presentation slides that summarize our performance and results for the second quarter and first half of 2012. We will refer to these slides during this call. You can access the slides at owenscorning.com. We have a link on our homepage and a link on the Investors section of our website. This call and the supporting slides will be recorded and available on our website for future reference. Please reference Slide 2 before we begin, where we offer a couple of reminders. First, today's presentation will include forward-looking statements based on our current forecasts and estimates of future events. Second, these statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially. Please refer to the cautionary statements and the risk factors identified in our SEC filings for a more detailed explanation of the inherent limitations of such forward-looking statements. This presentation and today's prepared remarks contain non-GAAP financial measures. Reconciliations of GAAP to non-GAAP are found within the financial tables of our earnings release. Consistent with our historical practice, we have excluded items that we believe are unrepresentative of our ongoing operations to arrive at adjusted EBIT, our primary measure to look at period-over-period comparisons. We typically exclude significant nonrecurring items such as the impact of the restructuring actions discussed in our most recent earnings call. We believe that adjusted EBIT is helpful to investors for comparing our results from period to period. 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 second quarter, we have utilized an effective tax rate of 25%, in line with our anticipated annual effective tax rate on adjusted earnings for 2012. 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, who will be followed by CFO Duncan Palmer. Mike will then provide comments on our outlook prior to the Q&A session. Mike?

Thanks, Thierry, and good morning, everyone. We appreciate you joining us today to discuss our second quarter 2012 results. Owens Corning revenue was $1.4 billion in the second quarter, down 4% compared with the same period last year. Adjusted EBIT was $117 million, down from $135 million 1 year ago. While we did demonstrate financial progress in the quarter, it was not sufficient to support our prior guidance. As we disclosed earlier today in our press release, we now anticipate full year adjusted EBIT in the range of $360 million to $420 million. Substantially all of this reduction and the associated range is a result of our current outlook for our Roofing business, which Duncan and I will discuss in our prepared comments. As I do each quarter, let me review our performance against the commitments and outlook I've previously provided. We said we would continue to make progress towards our goal creating an injury-free work place. As of June 30, our year-to-date rate of injuries has increased 13% over our full year 2011 performance. As you know, we've achieved 10 consecutive years of safety improvements, reducing the number of injuries in our company by more than 90% during this period. Given this performance, the bar for continued improvement is extremely high. We know that we are up to the challenge and remain committed to the pursuit of our goal of 0 injuries. We said that we expected another great year for our Roofing business in 2012, reflecting some carryover of 2011's storm demand, improvement in the reroof market and modest improvement in new construction. Coming into the year, we had expected that carryover storm demand and an improving U.S. housing market would allow us to get off to a fast start and deliver another year of 20% margins. While…

Thanks, Mike, and good morning, everyone. As Mike noted earlier, our second quarter results represent a significant improvement over first quarter profitability. However, in the second quarter, we saw weaker Roofing performance than we had expected. As a result, we have revised our full-year adjusted EBIT expectation to a range of $360 million to $420 million based on the outlook for Roofing in 2012. Let's start on Slide 5, which summarizes our key financial data for the quarter. You will find more detailed financial information in the tables of today's news release and the Form 10-Q. Today, we reported second quarter 2012 consolidated net sales of $1.4 billion, down 4% compared with the same period a year ago. Our Insulation business grew 4% on improved demand, net sales in our Roofing business were down 6% on lower sales volumes and net sales in our Composites business were down 6% due primarily to foreign currency translation. In a moment, I will review our reconciliation of items to get to adjusted EBIT. As Thierry noted at the beginning of the call, this is our primary measure to look at period-over-period comparisons. Adjusted EBIT for the second quarter of 2012 was $117 million compared to $135 million in the second quarter of 2011. Adjusted earnings for the second quarter of 2012 were $66 million or $0.54 per diluted share compared to $85 million or $0.68 per diluted share in 2011. Depreciation and amortization expense for the quarter was $91 million, including accelerated depreciation related to the asset restructuring in Europe. Our capital expenditures for the quarter were $91 million. We expect that full-year capital spending will be approximately $340 million. This is about 10% higher than our depreciation and amortization for the year, excluding the impact of the asset restructuring in Europe. Next,…

Thank you, Duncan. While we were disappointed to revise our guidance today, we have also reported continued progress on building the performance of Owens Corning for the future in our markets and our execution. We are seeing the beginnings of a U.S. housing recovery and have started to demonstrate the impact that can have on our insulation results. We are executing our plan in Composites well and are positioning this business to return to profit growth next year on lower costs and positive operating leverage and we continue to anticipate strong financial performance in our Roofing business. Before I turn it back to Thierry, I'd like to make a correction on one misstatement I made in my script. I characterized second quarter last year operating losses in Insulation as $35 million in fact they’re $38 million. So Duncan got that right that a couple of times in his comments but I didn't want there to be any confusion on that before we entered the Q&A. And with that, I'll turn it back to Thierry and we'll go into the Q&A.

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

[Operator Instructions] Your first question comes from the line of Michael Rehaut of JPMorgan. Michael Jason Rehaut - JP Morgan Chase & Co, Research Division: First question I had was on the Roofing segment. Certainly, you said for some time that you expect on a longer-term basis, your margins to be at least mid-teens but I think for 2012, we were still thinking as I believe you were of 20% or better. Can you go into more detail on your comments around competitive intensity in the first quarter that has continued into the second quarter, and I presume you expect to continue into the back half of the year. What's driving that? Are you actually seeing pricing slip from first quarter levels? That's my first question.

This is Mike. Yes, we talked about this on the first quarter call and maybe I'll go back and kind of reiterate some of those points and then roll it forward but what we saw in the first quarter this year, which was I think, unusual relative to what we've seen over the last 2 or 3 years was a pretty aggressive buying season with all of the manufacturers and certainly, Owens Corning in order to stay competitive, offering discounts on purchases of shingles in the first quarter. The result of that was that the early April price increase had the net effect of not only taking those buys out of the market, but also increasing the invoice price of the shingles. So we really had a fairly dramatic increase in the price of shingles early in the second quarter, which gave customers a big incentive to want to bring in a lot of inventory in the first quarter, and I think we characterized our first quarter volumes as being quite strong and I think even on the call we said we probably would've been happy to have a little bit less volume in the first quarter because we knew we were selling at somewhat lower margins than we would sell on a year ago basis. I think we've seen a little bit of a carryover effect of that phenomenon in that so much low cost inventory was loaded into the channels, that there's discrepancies today in the market in terms of some customers are working off of replenishment cost in terms of inventories they're buying, some customers still have low-cost inventory from the first quarter and I think it's made things a little bit more difficult on our customers in terms of how they're managing pricing in the market.…

Yes we saw -- I mean, second quarter prices were very nicely higher than first quarter prices and second quarter prices we've also reported are higher than they were in the second quarter of last year. Michael Jason Rehaut - JP Morgan Chase & Co, Research Division: And then In terms of Insulation, very solid progress there as you've been expecting. I believe you had previously talked about the second half and correct me if I'm wrong, but the second half being roughly breakeven. Is that still the case and maybe you could talk about also the success of pricing, how much was that a factor in 2Q relative to 1Q.

Yes, well, let me talk about the second half. We have not given specific guidance on the second half. Actually, last year in the second half, we had said that our goal in the second half of last year was to be breakeven and then as we got into the second half of last year, the market was not as strong and we were about breakeven in the fourth quarter but we did not overall achieve breakeven in the second half of last year. Given our comps in the first half of this year and of the second half of the year is always relatively stronger than the first half due to seasonality. I think we would expect to see similar levels of improvement in the second half of the year than what we've seen in the first half so we should come positively off of last year when our losses were not very deep. So as a result, we're looking forward to a pretty good second half. As it relates to pricing, and this is a little bit -- I might be taking a minute now to talk through this issue. We have seen price improvement in most all of our segments if you look sequentially back to the first quarter and also, if you look back to prior year. What we're seeing today is -- the fastest-growing segment for us is the U.S. new construction segment, which tends to be the lowest priced segment and I think Duncan talked about that in his comments. So if you look at top line growth in the first half, total top line in the first half is about in line with the amount of volume growth you would expect so it doesn't show a lot of pricing. We have some mix in these numbers though, so where we're seeing the growth tends to be lower price and as a result, the prices isn't coming through into the top line but it is coming through segment by segment. Michael Jason Rehaut - JP Morgan Chase & Co, Research Division: And just the degree of magnitude of that price in some of the segments?

Yes, we haven't disclosed on that.

And your next question comes from Stephen Kim of Barclays.

Two quick questions here. The first one relates to -- I was hoping you could provide a divisional breakdown or insight into your marketing and admin expenses and also, your inventory this quarter. You had very low marketing and admin, relatively higher inventory so I was curious if you can describe those levels a little bit or changes in those levels, either year-on-year or sequentially to division.

Let me make a few comments on that and then I'll let Duncan maybe emphasize a few of my points. Related to inventory, I think one of the achievements we talked about on the second quarter call is we did begin to make progress against our Composites inventory and we had inventory reduction, which you wouldn't see in our aggregated numbers but you would see if we disclosed segment numbers. We have had inventory reduction in Composites in the second quarter and in fact, we expect that inventory reduction to accelerate in the third quarter. So utilization levels are going to continue to be under pressure in composites as we drive for inventory reduction rather than production rates. Through the third quarter, our goal is to have most of that behind us as we enter into the fourth quarter. So we should start to have a little bit better operating leverage in the fourth and I expressed a little bit more optimism about fourth quarter results in Composites than third. We build a little bit of inventory in the Buildings Materials side. Last year, we were actually a bit deficient in inventory in Roofing. We had had a very strong storm demand in the first half and pretty much had shipped out all the inventory we were capable of shipping and were kind of down to mixing stock. This year I think we have a more balanced inventory. We're not particularly concerned about inventory levels but we're comping versus some very low inventory levels last year. On the G&A side, I'll let Duncan make some comments on G&A. I'll give a macro comment, which is generally, our expense control and expense discipline has really been unchanged for about the last 3 or 4 years. We've been managing the business, all of Owens Corning to flat headcount and to flat G&A and really trying to reinvest in places we see growth opportunities and get productivity and cost reductions in some of the businesses that are a little bit more challenged. Duncan, any additional comments on G&A?

Yes, I think Mike really covered it, I mean, Steve, as you know, we don't break out SG&A by business segment and I don't think there's any particular theme there other than the overall theme Mike mentioned which we're both being very disciplined on the headcount point of view. Obviously, I mentioned on the call that we've reduced our outlook for corporate expenses certainly this year from $110 million to $120 million to more like $100 million. Part of that is that we do expect versus our prior guidance, to see lower variable compensation expense this year and we're also taking some cost actions across our businesses but also in corporate to be disciplined on the cost side and that we expect to see some savings out of that versus what we previously guided to. On the inventory side, I think Mike was pretty clear. Across our businesses, we're taking a lot of actions in Composites, which impacted the second quarter. We expect to also reduce finished goods inventory in the rest of the year as well and have some pretty decent finished goods inventory there. On the Roofing side, last year we were running probably a little light in inventory by the end of the second quarter and so probably this year, we would expect to be running a little heavier and asphalt's obviously higher. So that would generally mean that our inventory is a bit more expensive. And in Insulation, we're in a growing market so we're also sort of running production in the second half probably a little higher than we ran it in the first half which is as I said, one of the reasons probably why our operating leverage is also better in the second quarter. So generally speaking, I think that all talks about kind of the features you talked about. Sorry we don't break out of those numbers at a segment level but those are probably the major themes.

Great. No, that's very helpful. So I take from your comments that the marketing expenses wasn't really such a big deal, which is good to hear. It sounds like it's more a lasting reduction to the marketing and admin which will help us going forward. My second question relates to Composites. I was curious if you could comment on what's underlying your outlook for next year, specifically in the realm of price. We know you've we've been taking a lot of actions related to cost and it sounds like that's well underway. But there has been some commentary in the past about how the Composites business has negotiated contracts, which tend to be somewhat more lasting in nature, maybe more like annual type of negotiations. And my sense was that a lot of those negotiations tend to happen around the fall. I was wondering if you could provide a little color as to, is fall a relatively important season for you in terms of price setting in terms of what sets the stage for the next 12 months or -- and if so, if there is any of that, how is the pricing outlook looking right now on the spot market?

Okay, let me start just with our overall optimism for why we're more bullish on 2013 results in Composites. We disclosed today in Duncan's comments that our goal is to take out about $70 million worth of inventory and it's not a terribly difficult calculation to get back to; that's in the range of about 1/2 a month's or maybe a little bit more production in the business. So obviously, if we're producing 11.5 months' worth of production for 12 months' worth of sales this year on an annualized basis next year, if we're able to match production to sales, we're going to get improved utilizations and get improved operating leverage. If we can get some growth next year, 3% or 4% growth, that will give us additional operating leverage in Composites and we'll be doing that on lower cost assets with high cost assets out of our network. So improving operating leverage, getting production matched to demand, a little bit of demand growth and getting low-cost assets up and running and eliminating those startup costs all annualize well as we go into 2013. We have expressed a bit more optimism about the outlook for Composites pricing. We lost some price last year in the fall and we talked about that on our fourth quarter call and also on our first quarter call. The fourth quarter or late third quarter tends to be an important time for Composites in terms of setting price expectations into the coming year. The big thing that's probably helping us in the near term is demand has been relatively stable now for 12 months and companies like Owens Corning are taking action to address inventory issues that were created when the market slowed down last year. I think the second thing we're seeing obviously is…

And your next question comes from Will Randow of Citi.

Just a question in terms of what is the optimal level of debt leverage and do you think about that from a debt to EBITDA perspective? And given how much dry powder or cash do you think you have to repurchase shares here?

Okay. Let me make a few comments and then I'll turn that one to Duncan also. Let's start with we are an investment-grade company. We have an investment-grade credit rating from 2 of the 3 rating agencies and that is important to us. So we see operating within parameters to keep us investment grade as an important part of our overall financial strategy. At this point in the market, at this point in the cycle, we'd be looking at probably debt to EBITDA as being a key variable for us. As we go through the cycle, as you get into better times and hopefully we do see a return back to housing starts in the mid-millions and a better Roofing market and a robust market that supports much higher levels of EBITDA for our business, I don't know that you would necessarily expect to see our overall debt level go up with that. So we tend to look at our debt and our leverage through the cycle and that's consistent with our philosophy of keeping long maturities and managing our balance sheet for predictability of repayments and predictability of liquidity. In terms of near-term liquidity, I'll let Duncan talk a little bit about what our near-term liquidity situation looks like.

Yes, thanks, Mike. I mean so we talked on the call about a couple of things. I mean, as we look out into sort of the medium term, we think our free cash flow conversion of adjusted earnings through the free cash flow over the next 5 years will average about 100% and that's pretty good. So we do expect to have, particularly in the context of a recovering U.S. housing cycle, quite a lot of free cash flow disposable in the sort of a more short-term, so to compare this year to last year. We talked about this as being a strong free cash flow year, I think one of the reasons for that is that we will be -- last year, we used cash for working capital. This year, we see that as a source of cash, so quite a big swing there. We talked specifically about the cash flow we're going to throw off out of finished goods inventory and in Composites, and a specific line of sight to that. So that's one thing that goes into that. We'll be contributing quite a lot less into the pension this year from a cash flow point of view than we did last year. So I think that's another contributor to that. And obviously, our cash tax position continues to be a very valuable asset for us and we don't expect to spend much more than about the $30 million of cash taxes this year as indeed we did last year. So there's a lot of elements that support our free cash flow conversion both in terms of the short term and the long term. Most of our free cash flow does show up in the second half of the year. That's kind of the seasonality of our business and our working capital cycle. Mike talked a little bit about new capacity in composites over the next couple of years. We have said that we do expect CapEx depreciation to be in the sort of range of CapEx being about 110% of depreciation certainly this year and sort of over the next few years. And so, there'll be a lot of free cash flow and that will provide us for availability of liquidity and of cash flow to return capital to shareholders and also to look at ways of using cash flow such as value-adding M&A.

I don't mean to beat a dead horse but regarding Roofing margins, I guess how should we think about those tracking in the third and fourth quarter? I understand you have a competitor bringing on capacity later this year. In addition, I understand historically you've achieved about 5 percentage points of margin expansion from taking material out of the shingle and new production lines. But have competitors caught up with your technology?

Yes, the question around how to think about second half operating margins in Roofing, we think the biggest impact on operating margins is in the second half from where we are right now, will likely be the effects of volume and absorption. So we think we're just looking at weaker volumes in the second half than what we had in the first and weaker volumes for the full year 2012 than what we saw in 2011, which is consistent with what we've been seeing through the year. And that we're coming out of the second quarter with a margin profile that's very attractive, 20% margins in the second quarter are something we're happy with, but not margins that are high enough that will allow us to sustain the level of EBIT and the level of operating margins that we produced last year. So we are expecting that operating margins for the full year will be less than 20% and that's kind of building on where we are year-to-date in terms of the progress going forward. There is -- ICO's bringing a facility on in the Southeast in the fourth quarter. We've talked about that on other calls. I mean this is -- it's a big market, we hope a growing market. We're comping negatively this year because of the amount of storms that we had in 2011, but generally, we would expect in 2013, 2014, that you'd see growth in new construction; that as home prices have now begun to stabilize as the equity in homes has stopped falling, that you'd start to see more reroof demand going with existing home sales and that we would see generally, a growing market in new homes and reroof for Roofing and that the growth in the market would help the market absorb some new capacity. A new facility like the one that ICO's putting in the Southeast probably represents 2% or 3% of the overall capacity of the industry based on our estimates. So we don't think that this creates a significant capacity overhang. ICO is an existing participant in the market also, so they have as much interest in seeing to it that, that capacity comes up into the market in an effective way as the other participants in the market would. So we don't shrug that off but we don't think that's a big game changer in terms of our outlook for how the industry will perform through the second half or how they'll perform -- how our business will perform in 2013.

And have competitors caught up with their new production lines in terms of the technology you think you have?

Well, we do a lot of competitive testing of our competitors' products as I imagine, they do of ours. And so we know the ingredients basis and our estimates of the cost basis of what goes into a shingle. We've said at our Investor Day and in other conferences, we think there are some places in the market where we're maybe at parity with leading technology and then there are other places of the market where we think those of us with leading materials technology and shingle design are a bit ahead of some of the others. I would say we still believe that's true. So while there are some shingles in the market that we believe utilize -- some of them, same material science and technology that we're utilizing to produce a low-cost shingle, there are other shingles in the market that we believe are still significantly higher cost than the shingle we produce and as a result, that does give us some natural margin benefit that we can take to the bottom line.

Your next question comes from Joshua Pollard of Goldman Sachs.

I wanted ask about Composites capacity utilization for both yourselves and for the industry and where you guys are expecting that to be in 2013. I sort of always look at this business as your margins and your capacity utilization go hand-in-hand. So as you guys talk about that, you talked just a little bit about the third quarter, you said that you had some higher inventories you're trying to get rid of. So should we see margin come down in 3Q as well?

Yes, our capacity utilization today is really being influenced by our decision to get our inventories reduced. So I kind of quantified some numbers earlier in my comments where I said our overall inventory reduction goal might be the equivalent of about 15 days of inventory or thereabouts, which is about 1/2 a month of production. The bulk of that inventory is going to come out in the second and third quarter so in effect, we're going to take basically 1/2 a month of production out in about 6 months. So as a result, that's going to be a pretty aggressive rate of inventory reduction. And have -- would have an overall impact on our capacity utilization of depressing utilization. When we bring that back on obviously, we get a lot of leverage. We look into 2013 and 2014 and believe that we can load our facilities at comfortable but attractive rates of utilization without adding any additional capacity. So when I kind of detailed our asset strategy in my prepared comments, we think we're going to get a little bit of a capital holiday here in terms of needing to build new melters and still be able to get leverage because we can move to comfortable utilization levels but attract utilization levels, which we've always characterized in Composites as being kind of high 80s, low 90s, much above the low 90s than you get into geographic mix, product mix type issues. We think generally, most of our competitors are also focused on trying to get inventories and utilizations into a sustainable level where they can make money, too. It's a little bit harder to see exactly how that's evolving with our competitors in China. Although we did disclose and review in our Investor Day that in terms of capacity expansions among our competitors in China, our best scoring of that is since the financial crisis in 2008, the rate of capacity expansion in China is less than the rate of market growth in China and that in fact, the number of tons available for export in China is on the decline. So that's going to contribute to utilization in China as we work through time but we have not talked about a specific level of utilization for our competitors in China.

Okay. So could you put just numbers around where you are today versus that 80s, low 90s that your goal is for '13 and '14?

Well, because of the curtailments that we're currently undergoing I mean, we're well below the high 80s, low 90s type utilization but that's largely self-inflicted. I mean, we're doing that in order to make sure that we get the inventories to where they need to be. We'll have the Russian melter come up. We have a big turnaround or rebuild in a facility in Texas, which is one of our biggest, lowest cost facilities in the second half of the year, which will also help us in terms of inventory reductions. We'll get a couple of plants out of Europe, which will then help us in terms of utilization and then with inventories out, we'll bring production back up to sales levels and when we bring production back up to sales levels with the European facilities out, then we'll be into that kind of high 80s, low 90s type utilization.

I would ask for a number but I'll move on to my next question. Should you all think about moving off of housing starts as the key factor for your guidance? It seems that over the last 2 years, you guys have gotten head fakes about the housing market and as the rest of us but one of the things that's been interesting is that just this quarter, you actually saw some acceleration in housing starts and not just yourselves but a lot of your friends in the business have missed their at least the street vibe that do expecting it to tie with housing starts. Is there another factor in your business that you guys are thinking about utilizing to better estimate for a look on your business.

Yes, I would say we think housing starts is an important macro for us but certainly not the only macro and that in fact, most of our guidance related housing starts is very specific to our Insulation business. So while housing starts have an impact on our Roofing business and also kind of have an impact on our Composites business because some of the composites production goes into the construction market. The big factor that drives the performance of our Insulation business is growth in new construction and its impact on capacity utilization and its impact on pricing, which is highly correlated to housing starts. So in terms of, to use your term, head fakes, if you look at the first half of this year, we disclosed that lagged housing starts are up about 23%. Our Insulation business in total in the first half grew from $615 million to $671 million, which is about 9% growth. We've said that the overall new construction market is about 39% or 38% of our overall Insulation business that's U.S. and Canada. You can make an estimate for Canada, maybe the U.S. is in the low 30s or around 30s. So if 23% -- if 30% of our Insulation business is growing at 23%, that would produce 7% or 8% top line, which is pretty well in line with what we've seen in the first half. So we think there's pretty good correlation there based on what we've given you in Slide 9 on the pie chart and how we segment out where revenue comes from in Insulation and then how that will drive the overall business. Ultimately, it should drive utilization, it should drive pricing, it should drive volume and in a more normal market, we would expect that new construction to be upwards of 60% or even as high as 65% of our overall Insulation mix. So today, it looks like a very low number just because housing, while improving, is still incredibly distressed versus historical levels.

I guess, the other part of that, Mike, is it seems like the housing starts links to your volumes are coming together very nicely but I think with a lot of investors are confused by right now, is it seems like the pricing component doesn't match up as well to housing starts. You made a comment about in Insulation, you got sort of lower mix on new construction that's your -- if that's been the case in the Roofing business but really, I want to hope to understand how new housing starts versus repair remodel affects your pricing and margins.

Yes, we're very focused on -- as we see improvements in demand and we see improvements in our utilization, also seeing improvements in the price of our product in the classic residential, new construction and remodel markets. So that's an important focus of ours and I think that's an accelerant to our outlook so as we get into an environment where we're seeing both operating leverage and positive price, you're going to see a further acceleration of the performance of Insulation.

Your next question comes from the line of Ken Zener of KeyBanc.

It's just going to be a follow-up on the prior question because I think you guys have actually laid out some of the data pretty well in your pie charts. That shows new sales are up 24%. So if I take that pie chart and I then think we've talked about this in the past where the $900 million of non-U.S. new business you guys said was profitable throughout the cycle at your Analyst Day. That's -- I'd say now that you're roughly $10 million EBIT, that generates a rather large loss for the new side. And I think where people get confused and I think since you guys have presented the data, it would be nice if you can tie it off in a public format. Your new businesses has had a far deeper EBIT than I think a lot of people appreciate. So I mean, could you give us a sense of how you think the operating leverage will be on that new side, which based on your pie chart is at 24% year-over-year versus the other 3 businesses in the Insulation.

Yes, I think the point you're making -- so let me just step back for a second to make sure that we layout the context on the question adequately. We lay out a 4-slice pie chart on Slide 9 of our investor presentation where we break the market into international, U.S. and Canadian commercial and industrial, U.S. and Canadian residential repair and remodel and then U.S. and Canadian new residential construction. Generally, your characterization is correct based on what we've said, which is we've said our international business, which is Latin America, a little bit of business in Europe, some things over in Asia, has been profitable through the downturn in the Insulation business and it's helped us. The Canadian and commercial -- the commercial and industrial business tends to be a little bit more specified and engineered type products and so we don't see as much pricing volatility there. We've seen some negative operating leverage from utilization. Some of those markets are a little bit weaker but that's been a pretty good business for us. The residential repair and remodel business tends to be manufactured on a lot of the same assets that we manufactured new construction on. So that business would've suffered a bit from the utilization issues associated with the new construction product. That's classic PINK FIBERGLAS batts, some of which are going into new construction, some of which are going into repair and remodel where we've had real leverage issues and utilization-type issues in our facilities. So I would say that portion of the business, residential new construction being most impacted because that tends to be the most price competitive and utilization-sensitive and then the repair and remodel may be a little bit more attractive in terms of pricing, but suffering from the same utilization-type issues…

And then the Composite, I think the numbers you put out here are very much appreciated. So if you're doing $70 million of inventory correction at call it 30% operating leverage, that's $20 million incremental. What was the headwind associated with the Mexico, Russia start up plant and the Amarillo I assume, changeover that are occurring in '12 for the Mexico, Russia and the Amarillo that won't be there by definition in '13 to $70 million inventory corrections off 3.5% of sales. And then can you clarify the last just on the roofing because I think there's some -- I'm a little confused, versus your prior estimate of millions of squares being down let's say 5 million from 122 million to 117 million, is this more of the manufacture issue because of the pre-buy as opposed to the end market falling roughly 10% in the second quarter because it seems as though the demand isn't falling as much, it was just overproduction.

There were kind of 2 questions buried in there so I'll try to take them apart and at least address each of them a bit. We said Roofing volumes through the first half are about flat with last year. So if we have an overall outlook for the year that the Roofing market will be down slightly kind of lower, mid-single digits. Just a map of that would say it's going to have to be down more than that in the second half in order to compensate for the fact that it was flat or maybe a little bit better than flat in the first half. Because we sold so many shingles at low margins in the first quarter, it's very difficult to recover because it's a bit of 0 sum game. I mean, the inventory -- the ability to ship inventories and buy inventories in the first quarter, these are not perishable. Obviously, these are 30-year, 40-year, lifetime shingles. Our customers are capable of buying them, storing them and putting them on roofs throughout the year. So if we sell them out in the first quarter, you've lost an opportunity to sell that shingle then in the second, third or fourth quarter. We haven't really changed our outlook for the overall performance of the roofing market and as a result of some of the trends that we've seen on margins through the first half of the year, we're just not positioned in the right place relative to last year to be able to kind of comp well with the roofing business last year and therefore, had to take our guidance down. On the composites side, you had asked a little bit about startup cost. We tend to not disclose on those costs specifically. They can be material to a quarter, they're not necessarily super material to a full year. We do have a lot of startups this year so it will give us a positive comp year-over-year. I guess, I would characterize it as, think about a startup as a couple of months, maybe 60 days of production where initially, we're operating 20% or 30% away from where we'd like to be in, by the end of those 60 days, we're operating where we'd like to be so kind of a learning curve type of approach. While it's very material to that facility, can be material to a region in a quarter in terms of the overall business. I think it's just one of the themes that gives us optimism for next year.

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

Sure, thanks, Thierry. When we looked at the year as the year started, we kind of had 2 thought processes around this year. Our first thought process was, we wanted to see enough improvement in Insulation that we had earnings improvement that could fund a year of correction in Composites. And that in fact, Insulation plus Composites in total could kind of comp flat versus 2011 and position both businesses then, for strong leverage going into 2013. I think that agenda is largely on track. So if you looked through our comments on today's call, looked through our numbers in fact, Insulation improvement in the second quarter pretty much offsets dollar for dollar composites, year-over-year comp negative and we think we've got both of those businesses in a position where they can together, produce a decent year and then next year, we can see both those businesses show really good progress. We also thought this year with some momentum coming out of the fourth quarter with some storm carryover and with a decent margin structure that Roofing could comp flat or even a bit better than 2011. I think what we've said today on this call is, we've seen some things through the first 6 months of this year and recent trends on volumes that we would say we just don't think there's enough margin rate and volume on a year to go basis to get to that guidance and as a result, we have brought our guidance down and we put, I think, a fairly healthy range out there that's reflective of the uncertainty that we have in terms of our ability to really forecast the margins and the volumes for the Roofing business on a year to go basis. I think all of that in total though is…

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and good day.