Oct 29, 2009
Executives
Scott Deitz - Vice President - Investor Relations and Corporate Communications Michael Thaman - Chairman and Chief Executive Officer Duncan Palmer - Chief Financial Officer
Analysts
Kenneth Zener - Macquarie Research Michael Rehaut - J.P. Morgan Ivy Zelman - Zelman & Associates Keith Hughes - SunTrust Robinson Garik Shmois - Longbow Research Jim Barrett - CL King & Associates John A.
Baugh - Stifel Nicolas
Operator
Good day ladies and gentlemen. And welcome to the Third Quarter 2009 Owens Corning Earning Conference Call.
My name is Michael and I will be your operator for today. At this time, all participants are in listen-only mode.
Later, we will conduct a question and answer session. (Operator Instructions).
As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr.
Scott Deitz, Vice President, Investor Relations. You may proceed.
Scott Deitz
Good morning and thank you Michael. Good morning everyone.
Thank you for taking the time to join us for today's conference call in review of our business results for the third quarter of 2009. Joining us today are Mike Thaman, Owens Corning's Chairman and Chief Executive Officer and Duncan Palmer, Chief Financial Officer.
Following our presentation this morning, we will open this one hour call to your questions. Please limit yourselves to one question and one follow-up.
Earlier this morning, we issued a news release and filed a 10-Q that detailed our results for the third quarter. For the purposes of our discussion today, we have prepared presentation slides that summarize our performance and our results for the third quarter of this year.
We will refer to the slides during this call. You can access the slides at owenscorning.com.
You will find 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.
Before we begin, we offer a couple of reminders. First, today's presentation will include forward-looking statements based on our current forecasts and estimates of future events.
Second, these statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially. Please refer to the cautionary statements and the risk factors identified in our SEC filings for more detailed explanation of the inherent limitations of such forward-looking statements.
We ask that you understand that this presentation and today's prepared remarks contain non-GAAP financial measures. Also note that GAAP to non-GAAP reconciliations are found within the financial tables of our earnings release.
For those of you following along with our slide presentation today, we will begin on slide four. Now, opening remarks from our Chairman and CEO, Mike Thaman followed by CFO, Duncan Palmer and then our Q&A session.
Mike?
Michael Thaman
Thanks, Scott. Good morning everyone.
Thank you for joining us today to discuss results for the third quarter of 2009. I am pleased to report that Owens Corning again demonstrated strong progress.
We delivered adjusted earnings growth driven by another great quarter Roofing and the return to profitability of our Composites' segment. Through the first nine months of 2009, Owens Corning generated $275 million of adjusted EBIT, an improvement versus 2008 in a more difficult market.
The diversity of our business portfolio served us well strong results in Roofing more than offset weak results in our other businesses. We continue our focus in generating cash and maintaining a strong balance sheet.
During the third quarter of this year, we generated $332 million in free cash flow compared with $8 million during the same quarter last year. At our Investor Day, on October, 1st we upgraded our free cash flow guidance to $250 million for the year.
We now believe that free cash flow for full year 2009 could be as much as $300 million based on our strong third quarter performance. In review of the third quarter, net sales totaled $1.3 billion compared with 1.6 billion in the third quarter of 2008.
Revenue was once again impacted by the prolonged weakness in the U.S. housing starts and a year-over-year weakness in the global economy.
We delivered third quarter 2009 adjusted earnings per share of $0.61 compared with $0.57 in the third quarter of 2008. In prior quarterly calls, I have measured our performance against our objectives for the year; I'll do the same today.
We said that we would continue our progress in creating an injury-free workplace. Our commitment to safety remains unconditional.
During the first nine months of this year, our safety performance improved 8% compared with our performance in 2008. We said the strong Roofing momentum would carry into 2009, and it has.
The Roofing business has generated EBIT margins that have averaged 26% for the last four quarters. We said that weakness in our Composite segment would persist through the first half of 2009 and that the segment would return to profitability sometime during the third quarter.
I am pleased to report that Composite not only returned to profitability during the third quarter, it achieved profitability for the full quarter. More on that in a moment.
We said that the Insulation business would face a difficult market in 2009; it has and will it likely carry into 2010. Although EBIT has improved sequentially each quarter during 2009, this business continues to operate at a loss hindered by U.S.
housing starts that have shown only modest improvement. Starts remain historically very weak.
We said that we will reduce expenses by $160 million and capital spending by $140 million versus 2008. We are on track on both goals.
We said that we would be profitable on our Composites and building material segments in 2009. In the last call, I shared that Composites was unlikely to achieve this goal.
Despite a profitable third quarter and a recovery plan that's on track, we continue to believe that Composites' will not be profitable for 2009. In summary, I'm pleased to report that Owens Corning portfolio of businesses continue to exceed expectations in 2009.
Now, we'll review each of our businesses. I do think we just had another excellent quarter.
EBIT was up $82 million compared with the third quarter of 2008. Higher selling prices, lower material costs and the sustainable actions that we've taken to improve our cost and our product mix drove the improvement.
The Roofing business delivered another record quarter. We achieved this, despite the fact that third quarter 2009 Roofing sales were actually down $55 million compared with the same period in 2008.
Because of lower volume associated with less storm activity and weaker new residential construction. Looking ahead, Roofing strategic priorities are clearly defined.
In a way to fuel our customer success, maintain effective margin discipline, be relentless about cost reductions and capitalize our market growth, which we do expect in 2010. Now, our Insulation business.
Our experience is that our Residential Insulation demand lags residential housing starts by about three months. Therefore, we typically see second quarter housing starts lead to Residential Insulation orders in our third quarter.
Second quarter 2009 housing starts with 46% lower than those in the second quarter of 2008, according to the U.S. Census Bureau.
Third quarter 2009 sales of Insulation were down 17% compared with last year. While residential new construction is important to this business.
It is clear from our revenue performance that our geographic diversity and multiple end markets are dampening the impact of new construction and Insulation. The Insulation business includes operations in the U.S., Canada, Asia Pacific and Latin America and a market mix of residential, commercial, industrial and other markets.
That said, weakness in many of these sectors has also become more pronounced during the past two quarters. Capacity is and will continue to be curtailed in this business.
During the third quarter this year, we continued to operate our glass fiber insulation business at only 50% of capacity. Going forward, our strategic priorities in the insulation business include aggressively managing costs and capacity, positioning the business for recovery, creating value by leveraging energy trends and delivering innovation through building science.
Now on to our improving Composites segment. Composites returned to profitability during the third quarter following two consecutive quarterly losses, resulting from the global demand collapse at the end of last year.
In response of these very difficult market conditions, we took immediate recovery actions to reduce inventories and operating costs while sharpening our focus on cash generation. In the first quarter, we brought Composites production to levels well below demand and began to reduce inventories.
In the second quarter, aggressive management of costs, working capital and capital expenditure led to positive cash flow. For the third quarter, improving global demand and continued operational discipline returned the business to modest profitability.
Importantly, we remain on track to restore inventory balances to target levels by year-end. This will allow us to restore production to meet market demand levels in 2010.
I am pleased with our achievements in Composites. In 2009, we will have improved the balance sheet, lowered our breakeven point, restructured our Asian operations and defended our market position.
Our 2010 priorities for Composites support further improvement in financial performance. We will remain focused on cost and efficiency, execute on our now announced China expansion, capitalize on a differentiated product range and leverage our downstream businesses.
Our Composites recovery plan is on track. We're turning this business to double-digit EBIT margins remains our target.
In summary, we are pleased with our third quarter results and our performance for the first nine months of the year. Owens Corning is performing in a difficult environment and is well positioned to benefit from the global economic recovery.
We remain focused on safety, winning with our customers, generating cash and positioning the company for continued success in 2010. Now, to provide more detailed look at our quarterly performance and our financial position, here's CFO, Duncan Palmer.
Duncan?
Duncan Palmer
Thanks Mike. Let's start on slide five and our key financial figures for the third quarter of 2009.
You will find more detailed financial information in the tables of today's new release and the Form 10-Q that was filed earlier. Today, we reported third quarter 2009 consolidated net sales of $1.3 billion, a 17% decrease compared to 2008.
Despite the decrease in net sales, we experienced increased year-over-year earnings in the quarter led by the excellent results in our Roofing business. In addition to our earning's performance, we also dramatically improved our free cash flow generation.
We delivered $332 million of free cash flow during the third quarter 2009 as compared to $8 million for the same period in 2008. In a moment, I will review our reconciliation of items to get to adjusted EBIT.
As a reminder, when we look at period-over-period comparability, our primary measure is adjusted earnings before interest and tax, adjusted EBIT. These items totaled $15 million in the third quarter of 2009 compared to $13 million during the same period in 2008.
And for the first three quarters, these items totaled $85 million in 2009 compared to $61 million in 2008. Given the market environment, we are extremely proud that we have grown our third quarter adjusted EBIT from $126 million in 2008 to $135 million in 2009.
Adjusted earnings for the third quarter 2009 was $78 million or $0.61 per diluted share as compared to third quarter 2008 adjusted earnings of $73 million or $0.57 per diluted share. Results for the quarter continued to demonstrate the strength of our business portfolio and our ability to execute in the midst of the weak global economic environment and U.S.
housing market. Marketing and administrative expenses decreased by $16 million in the third quarter and by $71 million in the first nine months compared to 2008.
Depreciation and amortization totaled $80 million in the third quarter. We estimate our depreciation and amortization will be approximately $320 million in 2009.
Our capital expenditures excluding purchases of precious metal through the first three quarters of 2009 totaled $147 million compared with $227 million in 2008. We are on track to meet our capital spending target of $225 million for the full year 2009 compared with $366 million in 2008.
In addition, we have continued to take actions to decrease working capital during the third quarter with the most significant results coming from inventory reductions in both Composites and Roofing. These actions have contributed $203 million to our cash generation for the third quarter 2009, a significant improvement over the $7 million of cash used relating to working capital in the third quarter of 2008.
Moving to slide six, you can see the reconciliation of our third quarter adjusted EBIT of $135 million to reported EBIT of $120 million. The integration of the Composites acquisitions continues to deliver synergies well ahead of our original plans.
In 2009, we are on track to achieve our synergy goal of $100 million in annual savings. While this is two years ahead of our original schedule, we will continue to pursue additional synergy opportunities.
We incurred $7 million of integration costs in the third quarter associated with achieving these ongoing savings. We are responding to the market environment to reset our cost structure across the company.
In 2009, we took further cost reduction actions including significant capacity curtailments extending plant downtimes, reducing headcount and delaying and canceling capital projects. These actions will contribute more than an $160 million in 2009, of which we expect at least half will be permanent reductions where the costs will not return when we restart idle production capacity.
We incurred charges of $4 million in the third quarter related to achieving these savings. Next, as you see in prior quarters, we adjusted for the non-cash amortization of costs associated with the employee emergence equity program for a total of $5 million.
These shares which have a three year vesting schedule and will be amortized in the P&L through October 2009 were awarded to employees at the time of our emergence from Chapter 11 in 2006. Now if you move to slide seven, you will see an illustration of adjusted EBIT performance comparing third quarter 2009 with the same period in 2008 based on business contribution.
This illustrates how our portfolio performance has improved year-over-year. Adjusted EBIT increased $9 million from the third quarter 2008 to third quarter 2009.
Our Roofing business delivered outstanding results in the quarter and sustained the momentum that began in the second quarter 2008. This improvement was partially offset by the Composites segment which faced a weaker market as a result of the global economic slowdown.
With that as background, turn to slide eight and we will begin a more detailed review of our segments starting with Building Materials. In the third quarter, Building Materials had net sales of $937 million, a 14% decrease over the third quarter 2008.
Despite these lower sales, Building Materials delivered a significant improvement in EBIT of $156 million compared to EBIT of $92 million in 2008. The following two slides discuss these results in more detail by highlighting the key businesses within the Building Materials segment, the Roofing business and the Insulation business.
First, slide nine provides an overview of our Roofing business. In the third quarter, this business maintained its outstanding level of profitability despite lower sales.
Roofing sales for the quarter decreased 9% from the third quarter 2008 due to lower demand from storm activity and new residential construction. We continued to see strong momentum in margins which has sustained our excellent performance from the second quarter and the business achieved $177 million of EBIT in the third quarter 2009, a tremendous improvement of 86% over the third quarter 2008.
We have taken significant actions since 2007 to improve the profitability of the Roofing business. We have achieved improvements in our production process including energy efficiencies and reductions in the raw material cost by single formulation.
We have also reduced overall manufacturing fixed costs. In addition, we have launched new product lines, improved our product mix and grown our accessories business.
These programs have a significant impact on this business beginning in 2008, by the end of the 2009 these programs will have delivered a $100 million improvement compared to 2007. In addition, Roofing industry is attractive.
We have seen stable selling prices since the fourth quarter 2008 that enabled this business to deliver operating margins to develop low double-digits. While it is very difficult this time to establish a long-term operating margin goal for this business, we certainly feel comfortable that we have demonstrated that we can deliver double-digit operating margins.
Next on to slide 10, our Insulation business continues to feel the impact of the weak North American housing market. Third quarter net sales in this business were down 17% when compared to third quarter 2008.
This decline was primarily due to a reduction in volume as prices have remained stable since second half of 2008. The decline in Insulation net sales was less severe than the decline in U.S.
housing stocks due large part to our diversified portfolio of markets and geographies. However, we have experienced weakness in many of these markets during the last two quarters.
EBIT for this business was a loss $9 million due to the impact of lower demand and underutilization of our production capacity. In response to the prolonged weakness in demand, we have taken actions to reduce active production capacity and to align our cost structure with market demand.
As a result, about half of our Glass Fiber insulation capacity continues to be curtailed. Despite sequential EBIT improvement for the quarter, this business will struggle to achieve and sustain profitability until demand improves.
This is a great business in a well structured industry. Owens Corning's pink fiber glass insulation is a powerful and enduring brand.
We are a clear market leader, well positioned to return to historical levels of performance when demand improves, as we know it will. Next, slide 11 provides an overview of our Composites segment.
Composites was profitable in the third quarter. This performance keeps us on track with the 2009 objectives that we have for this business.
The third quarter EBIT of $2 million compares to $54 million for the same period in 2008 and this decrease was the result of lower sales volumes including the impact of underutilization of our production capacity and lower selling prices. In the second half of 2008, under favorable market conditions, we increased selling prices in many regions and products.
In the first half of 2009, price levels declined in absolute terms particularly in Europe although price levels were higher at the beginning of 2009 than in the first half of 2008. In the third quarter, prices continued to decline although at a slower rate.
Price levels in the third quarter 2009 were lower than the third quarter 2008 which accounted for about half of the decline in EBIT between the two periods. In our previous calls, we noted that in 2009 we have seen a favorable trend in reinforcement demand after experiencing volumes down by as much as 45% in December 2008.
This favorable trend in demand for reinforcements has continued throughout the third quarter. We expect the gradual increase in demand to persist throughout 2009, but industry demand could be down by 20% in 2009 compared to 2008.
In our third quarter, we continued to produce significantly less than we sold. Also during previous calls, we said we would return our business to cash generation in the second quarter and profitability in the third quarter.
And we have achieved both these objectives. We continue to be in a position to reach our year-end inventory goals, which will allow us to match production to demand in 2010.
Next, we have a few additional items to cover before returning to our Q&A. Now to slide 12.
Throughout the year, we have further strengthened our balance sheet. We have $947 million available in our senior revolving credit facility as of the end of the quarter.
In addition, we have $387 million of cash on hand. We expect that the cash we have on hand coupled with future cash flows from operations and other available sources of funds will provide ample liquidity to allow us to meet our cash requirements and capital investment plans.
In connections with our bond offering in the second quarter, our credit ratings were reaffirmed with those S&P annuities. This month S&P improved their outlook on our investment grade rating from negative to stable.
Now on slide 13. We have continued to focus on actions to maximize free cash flow in 2009, which resulted in generating $332 million of free cash flow in the third quarter.
We will reduce cost by at least a $160 million in our business during the year and we are on target to reduce capital expenditures by $140 million from 2008 levels. We expect that cash taxes in 2009 will be less than 2008, when overall cash taxes paid were $33 million.
These measures along with the Company's excellent performance for the quarter have improved our confidence and the outlook for free cash flow. We now believe the free cash flow could be as much as $300 million in 2009.
And with that, Scott back to you for Q&A.
Scott Deitz
Thank you Mike and thank you Duncan. Michael, we are now ready to begin the Q&A session.
Operator
(Operator Instructions). And you first question comes form line of Ken Zener of Macquarie.
You may proceed.
Kenneth Zener - Macquarie Research
Good morning.
Michael Thaman
Good morning Ken.
Kenneth Zener - Macquarie Research
Insulation has delivered a significant margin quarter-to-quarter, when sales rose about 340 million versus 280 averaging in the first half. Is that gain that we saw margins largely tied to better absorption?
Michael Thaman
Ken, when you look at the that insulation performance in the third quarter, I think one of the things we talked about in the prepared remarks was we have seen the business improve sequentially. I think you're seeing two things going on there.
One is we've traditionally thought about this business as being a very new residential construction business. But in fact today, new residential construction only represents about 33% or 35% I guess, on slide 10, 35% of the overall business.
So while we did see seasonality that was giving us positive leverage in the business and helping third quarter results, we're also seeing that the other pieces of the business, the commercial and the industrial side of the business, our extruded polystyrene foam products, Latin America, Asia Pacific, the other pieces we report up through Insulation have started to form a bit of a bedrock of performance that underpins our residential performance. So I think we saw continued stable performance out of the non-new construction piece and then we saw positive leverage for the new construction piece, which is why you're seeing what looks like pretty good positive operating leverage in the quarter.
Kenneth Zener - Macquarie Research
Okay. And then if I'm looking at Composites, given that it's obviously, you posted positive numbers not just during the quarter but margins, but for the whole quarter.
Has the strength you've seen since your Analyst Day led you guys to change kind of I think the growth that you talked about at your Analyst Day for 2010 of 8 to 10% in Composites?
Michael Thaman
No, it really hasn't. At our Analyst Day, we did a fairly detailed analysis of the overall reinforcements market and I think any of the investors who were listening who haven't gone out to our investor website to see those presentations, I think they are valuable and some pretty high quality work.
We are pretty proud of that. What we show on that day was we expected that overall 2009 demand will be down as much as 20% versus 2008.
And that's a 2008 that included a pretty weak fourth quarter. So if you take it on kind of a fourth quarter to '08 to third quarter of '09 basis, we've probably seen more than a 20% decline during that four quarter period.
We did expect a recovery going into 2010. We don't expect that we're going to recover all the way back to 2008 levels for a couple of years here.
So I would say, we're still comfortable believing that next year's maybe high single digits maybe in a good case, maybe all the way to double digit in terms of demand growth. But the recovery we've seen in the last three or four months has not changed our mid-term outlook for how quickly the market will go back to 2008 demand levels.
Kenneth Zener - Macquarie Research
Thank you very much.
Michael Thaman
Thanks Ken.
Operator
Your next question comes from the line of Michael Rehaut of J.P. Morgan.
You may proceed.
Michael Rehaut - J.P. Morgan
Hi thanks. Good morning everyone.
Michael Thaman
Good morning Michael.
Michael Rehaut - J.P. Morgan
First question, just to go back to Composite' for a second and then I have a question on Roofing, you mentioned I think in the prepared remarks or in the press release that you continue to produce at a level below demand. And so you're able still to get back to a slight profit despite being suboptimal production even relative to today's depressed demand.
So the question, can you give us a sense of what margin would look like if you were to increase production to a level equal to today's demand? Number one.
And number two, given an outlook for some level of the growth in 2010, how far along to that double-digit longer term goal do you expect to get to progress along as we look through next year?
Michael Thaman
Okay. Well, I think that as you recognized in your question and as we recognized in our prepared remarks, we were pleased to get the business back to a positive operating margin in third quarter.
I know I went a little bit weak in the knees on the second quarter call, saying I wasn't totally sure we will get to that goal. At the time, I think the business was fully committed and believe they would get there and in fact we did get there.
So that was pleasing to be able to report good news today on that front. We are still producing quite a bit below demand levels.
So while demand has begun to come back versus what we were in 2008 we are still well below 2008 levels. I think the overall number of 20% for the year is probably a reasonably good approximation for where we are today in that journey of demand recovery.
We are still producing though in capacity utilization levels that are probably in the 50 to 60% levels, so we still have a lot of equipment turned off and a lot of our operations turned off. We turned on a bit of capacity in the third quarter.
I think we'll turn on some more here in the fourth quarter getting ready for 2009. And I would expect probably by the early second quarter of 2010, we'll find ourselves in a position where our production is about equaling demand.
If you think about that in margin terms, in the third quarter of last year or really three quarters year-to-date, which is what we show you slide 11, we had delivered double-digit operating margins on a year-to-date basis last year as of the end of the third quarter. So we demonstrated at 2008 demand levels the ability to get to double-digit margins.
We're demonstrating at today's demand levels the ability to go positive. So I think when we move back to maybe a production level that's somewhere between where we are today and where we were in 2008 and a demand level that's somewhere between where we are today and where we were in 2008, I think it's a reasonable assumption to believe that we'll do better than where we currently are, which is approximately breakeven but that we probably wouldn't be able to get all the way back to the double-digit number till we saw additional recovery in volumes.
Michael Rehaut - J.P. Morgan
Okay. Now I appreciate that Mike.
I know, kind of giving an exact number or a rough estimate even and can be challenging. So the second question on Roofing and asphalt.
Obviously, continued great margin performance there and as I look to the fourth quarter, just from a seasonal prospective. I would expect the margins to fall off as volume falls off.
But aside from that, what I'm trying to get a sense of is the raw materials and the input size of the equation, with oil going from a lower $50 up to 75-$80. How does that change in terms of asphalt and some of the other input prices that may or may not effect or impact margin as we look out into 2010?
Michael Thaman
Right, you're absolutely right in terms of what will happen with seasonal demand as we head into the fourth quarter. The Roofing market is much stronger in the second and third quarters than it tends to be in the fourth quarter and the first quarter.
We also know that our customers tend to buy, a bit ahead of demand so that we start to see some volumes build in the first quarter as people get prepared for Roofing season. But that as they get prepared for winter, volumes do drop off quite a bit more aggressively in the fourth quarter.
So we're not expecting as we head into the fourth quarter that we'll see much volume strength in the business. We positioned our operations and our inventories consistent with that view.
We have as we said in today's prepared remarks continue to see relatively stable pricing. I think with the recent run up in oil prices, on a regional basis that it had some impact on asphalt prices but generally asphalt prices also fall as you go into the winter.
So we have a little bit of the headwind from oil prices going up. But we do have some tailwind from the fact that we're coming out of paving season or we're coming out of the summer.
When there tends to be more demand for asphalt. So I don't think we feel that big inflation in asphalt is a theme today for our Roofing business.
I think we feel like we can manage our input costs pretty effectively. And that with reasonable stability and pricing that the key impact on margins would be volumes.
And that we would feel that impact through the first half, through the last quarter of this year and maybe through the first quarter of next year and with good fortune, enter the second half or the middle of next year with again very strong operating margins. So that's really the scenario, we're planning for.
Michael Rehaut - J.P. Morgan
So, thanks for the Mike and just to finish up on this and I'll get back into queue. To the extent that we were to see a revenue number and a volume number in 4Q '09 more similar to the level we saw in 1Q '09, everything else equal.
I assume it'd be fair to also look towards a low 20% type of margin. I believe it 21.7 in 1Q '09 is that again, I know you want to get into quarter, segment-by-segment, margin forecasting but is that reasonable approach, everything else equal or...
Michael Thaman
I'm going to agree with you two ways. One is I don't want to get into segment-by-segment, quarter-by-quarter margin forecasting.
So I'll give you thumbs up on that one. I do think that directionally, the belief that as volume slows down, we would see some compression of margins even in an environment where asphalt pricing is not all that volatile and Roofing prices is relatively stable.
I think you got that directionally right. The magnitude of the margin compression we would feel from that I think something that we are not really going to give guidance on.
Michael Rehaut - J.P. Morgan
Okay. Thank you.
Michael Thaman
Thanks Michael.
Operator
Your next question comes from the line Ivy Zelman of Zelman & Associates. You may proceed.
Ivy Zelman - Zelman & Associates
Thank you. Good morning guys.
Congratulations on a strong quarter. A lot of the questions I had on raw materials and have been answered I think.
Maybe you can talk a little bit about the Insulation business. As you pointed out, Mike with respect to the mix, you obviously are getting the benefit from the some of the other market strengths in the international arena.
I know one market in particular I'm interested just understanding what might the dynamics be in Australia. I understand that market sold out and actually maybe I'm not correct on that but there has been some positive benefits to your company as you guys are one of the largest producers to service that market.
Can you help us understand, what's going on there and is there a potential proxy for other markets and hope?
Michael Thaman
Well it's a great insight Ivy and you're right about Australia. What we've seen in Australia is a very effective stimulus package that was put in place by the Australian government where their decision in terms of how to stimulate the economy, they just pretty definitively put a stake in the ground and said, one of the things we going to do is not only made the homes in Australia more energy efficient; we're actually going to insulate the homes in Australia.
So they went directly to a solution, they challenged the marketplace to respond. We have a relationship in Australia with a manufacturer in Australia, New Zealand, with a manufacturer there who is a licensee.
And so we've been working very hard to support them in order to help them meet Australian market demand. The result of that has been, we have been shipping product really from all of our global insulation operations to Australia.
That helped us in the quarter. We think that will help us also a bit in the fourth quarter.
Obviously, we don't think it's an enduring positive impact on margins because kind of once this stimulus period passes in Australia and the houses get insulated, demand levels will fall back to normal. As a bridging, it has helped us keep some of our assets hot.
It's probably given us more absorption than it has margin. As you can imagine, by the time you pack insulation in a container and you ship it halfway around the world and try to do that at competitive market prices, the big opportunity for us is to keep some of our assets operating and for us to make some manufacturing margin on the product.
And that helped a bit in the third quarter. We expect that would also help a bit in the fourth quarter.
But I wouldn't say materially, it's kind of bending the curve or changing the trajectory of operating margins in insulation.
Ivy Zelman - Zelman & Associates
That's very helpful Mike. With respect to Insulation and then more broadly speaking, you've been always good at helping us understand what are your inputs that you're using for I guess forecasting.
And currently, I guess what are your expectations for housing starts and remodel... repair/model spending if you are using a forecast to help plan your business and your strategy going forward?
And then secondly, because you do service the non-residential market including industrial, commercial, maybe you can helps us with what you're seeing more specifically with maybe some differences within the end markets that you're serving where there might be strength and areas that you're either surprised by the strength or weakness has been most notable and a little bit more detail within those segments, within those sectors that you're servicing please.
Michael Thaman
Okay. Well let me start with new construction.
I think most of the economists and analysts who are looking at the new construction market do believe that 2010 will be a better year than 2009. I think in general, that makes sense to us.
If look at when the finical crisis hit and the kind of fall off we saw in second half of last year, housing starts dropped nearly 100,000 units a month for about six months running from June of last year to the end of last year. So we knew coming into this year, we were in an environment where we had just gone through a very decline and that continued really into the first quarter this year before it felt like starts may be stabilized in the summer of this year, but certainly have not recovered strongly.
So if you kind of do a greater than less than analysis, we have a hard time seeing how the first half of next year could be a lot worse than what we saw for the first half of this year. And so we would expect that on a lag basis, we're going to have a very weak first half but not one that's getting worse and that potentially by the second half of next year, we would actually start to see a little bit a improvement in the market.
So I think most of the economists that we follow probably have housing starts in the 700,000 plus level which will be about 100,000 better than where they are right now. I think likely, if that scenario happens, it will be because we do see some pretty good pickup kind of through this summer and into the second half of next year, which is not likely to have a big impact on us in 2010, but might give us some good momentum into '11.
So in terms of how we're planning the business, obviously we're very, very focused on cost, we're very focused on cash. We have a lot of capacity available and ready to turn on, but we're not turning it on in advance of demand.
And certainly if we saw some demand improvement, we'd like to see our margins start to improve at the same time. So I think we're not going to do anything differently.
If it's weaker than that, it's just a question of when we start taking action to try to respond to a stronger market. We're hoping that will happen in 2010.
On the repair and remodel side, similar analysis. I mean we do think that there is re-roofing demand that's being deferred into the future because people have concerns about the value of their home and the equity in their home.
They also have pretty limited access to financings and credit, which would cause you to want to patch or repair a roof as opposed to replace it. We don't think 2010 on those dimensions could really be worse than 2009.
So we're hoping that this is the high watermark in terms of tight credit. We're hoping it's the most difficult environment in terms of falling home prices and then maybe home prices have stabilized.
We're hoping that unemployment will begin the stabilize or be at a very high level, maybe 10% and that if you add up all those variables, as you go through next year people would start to feel more confident of investing in a fairly sizable capital projects in their home which is to replace their roof. We do believe that re-roof demand today is below kind of equilibrium and that there is going to be some need for re-roof market to recover and come back to something that would be in equilibrium.
And then in addition to that we have intention to get a bit of an up from new construction and then it's also been a relatively weak storm market. So, on a more normal storm market basis you can potentially see a little bit of stronger demand there.
So we do think Roofing demand for next year will be kind of flat to up as we look at all those different variables. As we look at...
Ivy Zelman - Zelman & Associates
Mike, can I interrupt for one second just under your Roofing comment. I think it would be helpful for people listening on the line to help us understand a little bit about the industry, the Roofing industry.
I know you've explained it before. But given that you had such weak demand and storms have been weak along with the impairment model differing large projects, re-roofing, et cetera.
Explain to us, how pricing can be stable right now. I'm realizing you've got four players that are all very well, I guess division with strong balance sheet.
The structural long-term change that we would expect that Roofing despite weak volumes can maintain much higher margin and what we saw historically and certainly it seems to be the case right now. But what are some of the dynamics, if you can reiterate as you've explained it before and what you guys see in the cards, related to this Roofing spectacular performance?
Michael Thaman
Well, thanks Ivy. I mean, we've tried to put a fair amount of information out there for our investors to talk about some of the changes we've seen in the Roofing market and certainly over the last couple of decades, if you go back 20 years, what you've seen is a fairly significant consolidation among all the manufacturers.
Today, there are really four big national manufacturers that have a footprint that can service the market nationally. We feel we are well positioned among those manufacturers from a cost perspective and from an asset and a footprint perspective and also from a brand perspective.
So we like our position in the market and we really think it's a very, very good market. Generally, Roofing prices have tried to be stable.
I think that tended to be the best market environment for our customers. Our Roofing distributor would typically carry a fairly large product line and a fair amount of inventory in their warehouse and a lot of price volatility, can have a lot of negative financial impact to distributor who is carrying inventory.
So there is a desire as we talk to our customers to see the market trade with fairly stable prices. What we saw last year was, the run up in oil prices was real catalyst that drove us to try to recover, what we were seeing in terms of significant inflation in the market place in the form of prices increases.
We were able to do that. We were able to successfully maintain our position in the market as well as recover the inflation that we saw due to oil price run ups.
And we were able to sustains our margin performance in the first half of '08 and then when we saw oil come off of it's peak and we saw as asphalt prices decline, we've been able to maintain a stable price environment for the our products which has a lot of margins right now. We've been very reluctant to project into the future that we know that these are kind of golden days for Roofing will sustain forever.
But at the same time, the dynamics that got us into the position that we're in today which is margins that have widened out, fairly stable pricing and a good cost environment based on our manufacturing footprint and our performance. At least for now, we see good momentum in the business that would allow us to believe in the near-term will continue to sustain that good operating margin performance.
Ivy Zelman - Zelman & Associates
Great. Thank you.
Michael Thaman
Okay. Thanks Ivy.
Operator
(Operator Instructions). Your next question from the line of Keith Hughes of SunTrust.
You may proceed.
Keith Hughes - SunTrust Robinson
Thank you. You referred to inventories earlier in the call.
I guess drilling into that a little bit more, particularly in Roofing and Insulation, where does your inventory stand versus prior year and how do you feel about the channel at this point? And in the Insulation market, is your inventory different when we look at the different end user markets whether it's renovation, residential construction and commercial?
Duncan Palmer
Thanks Keith. This is Duncan.
When we talked about as you can see in the third quarter, we had -- a big contributor to our free cash flow was reduction over in working capital which was about $200 million in the quarter. And a significant contributor to that was reductions in inventory.
We talked I think about Composites'. We continue to produce less than demand and we are able to reduce inventory significantly there.
As we look at the seasonality of our businesses, we would say that Roofing I think was a contributor to lower inventory in the third quarter. That's typical for the kind of way we schedule our production through the year as we compare that I think to how we saw last year.
I think that will be fairly much in line in what we would have seen in terms of inventory levels versus last year. Insulation, which you asked about, I mean that's fairly balanced in terms of our overall inventory.
We don't... inventory is not something which we want to keep a whole lot of in Insulation; it tends to be a relatively short cycle and little inventory in the channel.
So that's probably balanced, probably similar to what we would have seen last year. So I think it's something which we are managing, particularly in the businesses where we are producing less than we sell such as Composites and something which we'll continue to match going forward and something which has been a great contributor to us in terms of cash flow this year.
Keith Hughes - SunTrust Robinson
You have got an interesting program with Home Depot going on right now around insulation. Is that product similar to what we've seen in the new construction market?
Is that new different smaller sizes that would make it different production runs?
Michael Thaman
Keith, this is Mike. The products that we sell to retail distribution channels versus the products that we were selling to new construction are slightly different.
Typically, though, they are made on the same lines and we have the hot end of the asset and the fabrication into the asset. We tend to have a very similar configuration where we melt the glass, fiberize the glass and make the wall.
And then down at the fabrication end of the line, we have multiple packaging stations and flexible packaging equipment that allows us to take that product form and to cut it and to package it into different product forms for our different end use market. So in terms of balancing production or establishing production plans, as we see shifts in production or shifts in demand between different channels, we are able to manage that pretty flexibly in our production environment.
Keith Hughes - SunTrust Robinson
Okay, thank you.
Michael Thaman
Thanks Keith.
Operator
Your next question comes from the line of Garik Shmois of Longbow Research. You may proceed.
Garik Shmois - Longbow Research
Hi, thank you. Could you talk about pricing dynamics in the Composites business?
The press release indicated that you continue to see pressure there. Can you just talk about what you saw in the third quarter maybe relative to the second quarter and your expectations going forward?
Michael Thaman
Okay. Thanks Garik.
A lot of what we are seeing about Composites now is similar to some of things that we actually said about Insulation a couple of years ago in terms of looking at pricing on a sequential basis and then also looking at pricing on a comparable basis to prior year. So you kind of have to understand the story of Composites pricing through '08.
In the first part of '08, pricing was relatively stable and then as the market began to peak really in the summer of 08, we actually started to get some pricing power and saw our prices improve in the third quarter and fourth quarter of last year. So as a manufacturer, we did have some ability to gain some price with our customers in the latter half of '08.
We entered '09, therefore, with a little bit higher prices than we had entered '08. But we also saw with the tremendous global slowdown and the big reversal in demand that we saw in the last 45 days of last year that there was tremendous pressure on the market associated with big inventories and the lack of demand opportunity.
And we did see sequentially some price weakness in the first quarter and the second quarter that caused our prices to decline through the first half of the year, although on a comparable basis versus prior year, our overall pricing level at the end of the first half was about flat with where we had been through the first half of '08. Now we are getting into tougher comps.
So in the second half of '09, we are going to be comparing what we think is going to be a fairly stable price environment sequentially to a price environment last year that was pretty favorable. So we think for a couple quarters here, we'll probably show negative comps on pricing.
That might persist into the early part of next year. But we think sequentially, we'll probably have our most difficult price environment behind us and that the market has moved to a state of equilibrium where pricing today feels a bit more stable than maybe what we saw through the 180 days of this year.
So you have to kind of work your way through the movie of what's going in the market. But we do believe that from the first quarter of last year to maybe the end of the first half or the end of the third quarter 2009 that the market has moved to more of a state of equilibrium and that we would expect sequentially to see pretty stable pricing from here.
Garik Shmois - Longbow Research
Okay. Great, thank you for that.
And can you just talk about raw material costs in the Composites business? We understand that low fixed cost absorption and low utilization rates is leading to challenging performance here in the first three quarters of the year in that business.
But can you talk about what you have seen on the raw material side, expectations going forward there?
Michael Thaman
Yeah, I mean I think we have seen a fairly tame inflationary environment. Probably, the most volatile raw material input that we have has been energy, and we are a big energy user.
And in the U.S., it's a combination of gas and electricity and then in that case even a lot of the gas. I mean a lot of electricity is manufactured in natural gas electricity markets.
So we tend to be kind of a natural gas derivative in our energy cost in North America. Around the world, gas prices are a bit more pegged and we also use some alternative sources of energy in some of the developing countries where there is not good stable gas supply.
The outlook for energy has continued to be that in the spot market at least through this year, energy has been pretty cheap. But the expectation is that natural gas will go back to being more expensive in the out years.
Generally, for our planning purposes; we tend to use the forward curve. So our sense would be going into next year that we would see a fairly stable cost environment for energy and that wouldn't be a big theme in terms of how we are looking at margins for next year.
Garik Shmois - Longbow Research
Okay. Great, thank you.
Michael Thaman
Thank you.
Operator
Your next question comes from the line of Jim Barrett of CL King & Associates. You may proceed.
Jim Barrett - CL King & Associates
Good morning everyone.
Michael Thaman
Good morning Jim.
Jim Barrett - CL King & Associates
Mike, I have a question for you on Roofing. Are your roof shingle prices and margins fairly consistent across the U.S., or are there significant differences by region?
Michael Thaman
Well, it's a good thing for you to point out, Jim, which we often like to report out, which is we do talk about the business as being a national market. But in fact, the business operates as a set of very regional markets and in large capacity not just in terms of competitive envelope and where our capacity is located, but also our raw material costs are often very much correlated or dictated by where in the country we are manufacturing shingles.
So it is kind of a factor cost business. That said, I think today we would say what we are seeing is it's a high performing business in almost all geographies.
So we have a very nice position with our footprint. We tend to have a local plant in most of the major markets and we have invested in that footprint and in that network of plants so that we have the flexibility to service local demand.
So our factor costs, our freight costs have been pretty low. As we talked about in terms of pricing and margins, we are in a good margin profile today and so as result, we like the business in almost every place we compete.
Jim Barrett - CL King & Associates
And then the one follow up. Do you view it as a competitive advantage that you can forward by asphalt?
Can you stockpile that less expensively during the winter time and at least some of your competitors? How should we look at that?
Michael Thaman
Yeah, certainly, the fact that we are vertical integrated in asphalt we believe is a strength of our business. I mean if you think about our business, we are both integrated in glass and asphalt.
And so from a technology point of view and understanding asphalt technology, understanding glass technology as well as a purchasing point of view, we think we have good information and good data to make smart decisions about how and when to buy our glass and our asphalt. In terms of our ability to time the market, in effect, we do have storage and so as a result, we can take kind of physical hedging position with asphalt by either having our tanks be relatively full or relatively empty.
But that's measured in days or maybe a couple of months of capacity. It's not measured in our ability to really shift winter costs to the summer or summer costs to the winner.
It's more our ability to maybe shift a little bit of costs from quarters in terms of when we buy. The more important strategic issue for us is when to make shingles, because if you do have some low-cost asphalt, the shareholder value strategy is to make low-cost shingles.
And if you think asphalt prices are going down, then the smart strategy is to run your operations at a fairly low level of weighting lower cost asphalt and not to lay in extensive inventories. We tend therefore at this time of the year, when we are coming off of the summer where we think asphalt prices are a bit higher to try to run our inventories fairly lean and then as we get into the winter build inventories are bit as we have the opportunity to buy some low-cost asphalt, try to sell those through in the first half of the year and then for the remainder of the year balance production to demand.
Jim Barrett - CL King & Associates
Okay, that's helpful. Thanks.
Michael Thaman
Thank you Jim.
Operator
Your next question comes from the line of John Baugh of Stifel Nicolaus. You may proceed.
John Baugh - Stifel Nicolas
Yeah, two quick questions on Roofing, you had made the comment earlier that you expect that to be up in 2010. Was that strictly a volume comment I would love your color on what pricing and Roofing may or may not do?
Michael Thaman
Yeah, John. The comment that we made in terms of where we think Roofing will go in 2010 was entirely related to demand.
We look at the business in three demand segments there is the new constructions piece, there is the classic re-roof piece which is my rough guess to be 20 years old and that either starts to leak or starts to look bad, all my neighbors start to replace their roofs. So I decide to go ahead and do a re-roofing job and then there is this the storm awaited demand.
And again if you go back to our Investor presentation at earlier this month, we laid out our outlook for Roofing demand and we broke it into those three categories. We think because of what happened to home prices and home equity and the credit markets.
That there was a lot of pressure of re-roofing demand and as we have seen that in our overall demand numbers. We know there is a lot of pressure on new construction demand.
And then this has not been a particularly strong year for bad weather and or for severe weather. And so most of the severe weather demand we saw this year would carryover from 2008.
And some of strong in 2008, so when we just roll all those variables forward, we would expect to see re-roof demand a bit stronger, new construction demand a bit stronger. And we wouldn't expect to see severe weather demand, much weaker in aggregate.
As it relates to margins. I think Duncan said it in his prepared comments, we said that a bunch of times at Investor Day, our goal is to sustain the momentum that we see in our operating margins.
We definitely understand that delivering double-digit operating margins in the business is a good goal. We had actually laid out how to get the double-digit operating margins well before the business had approach to anything resembling double-digit when we are kind of low single or mid-single digits.
We feel very comfortable with the operational improvements and our ability to sustain margins in double digits. Any guidance beyond that we'd like to just put a few more quarters behind as to this level performance before we start estimating what we think long-term operating margins will be?
John Baugh - Stifel Nicolas
So much driving that margin and you probably stay away from as much as if we assume oil is going be a higher next year versus this year and then asphalt follows for getting the seasonality that's in between now and then, just looking at the year versus year. Should we think there could be some inflation in pricing assuming the industry is diligent about raising prices with rising import or would that be just bunch of a gas?
Michael Thaman
Well, I would want to speculate on what's going to happen in industry pricing. I have to look at recent history, clearly last year, when we saw very volatile asphalt prices and significant asphalt inflation that was a catalyst that did allow us to get our prices up in the market and did allow us to recover that cost from the market place.
I don't see anything changed in the dynamic of the industry then I wouldn't feel some amount of confidence in our ability to recover inflation we saw that kind of catalyst again.
John Baugh - Stifel Nicolas
Great, thank you.
Duncan Palmer
Michael, I think we will take one more question and then we will go to our close.
Operator
Your next question comes from the line Andrew Fimon of Meridian. You may proceed.
Unidentified Analyst
Thanks, you guys are doing a great job and I think that the it's clearly evidenced that you are managing the company better and one of the things in terms of the page to me is that you are spending less but your safety performance has improved. That to me that shows me that this is much as you guys are not just benefiting from better prices in the market place, you are benefiting from one of the company.
My question is, whether you can tell me if there is a general, typical seasonal pattern to general corporate expense and whether that, typical seasonal pattern is what we will see this year or whether it's going to be different this year? Obviously I'm trying to estimate what that number might be for the full year?
Michael Thaman
Thanks Andy. First of all thanks for your supportive comments.
I mean obviously, it's been a while since we've seen anything that resembles what we believe is a normal market in almost any of our businesses. So we have private ourselves, I'm trying to be fast and nimble and respond to the market.
And I particularly appreciate your kind words regarding our safety performance. We do talk about safety at the beginning of every meeting in our company.
It's exceedingly important to our employees and its something that our Investor's call we've kind of kept that tradition up and set as one of the first things we are going to talk about with investors. We do believe it's a measure of two important things.
One is the company's ability to care for its employees and the second is the company's ability to execute. So when we look at our safety performance, we see two things.
One is are we doing a good job of getting out of bed every morning and making sure that we're creating a safer work environment for our employees that expresses to our employees how important they are to us. And then secondly, can we execute that every single day.
So our track record of safety performance is very important to us as a measuring stick in terms of our execution. With regard to corporate expenses, I'll give a high level comment and then I don't know if Duncan can maybe put a little bit more color behind this.
But we see a little bit of seasonality in our corporate expenses, primarily related to some of our accruals. So some of our accruals just for external reporting reasons and internal measurement reasons we tend to accrue through the cycle of the year based on when we would expect to see our earnings, some of the management incentive programs and employee incentive programs which are tied to profitability and the achievement of profit goals.
We would say those costs tend to flow through the year, more related to when we make money than the passage of the days or when we earn our revenues. So we have some small differences in when we do accruals related to the time of the year.
You tend to see more changes in those accruals if we see a sudden or abrupt change in the performance of the business where we conclude that the rate at which we are accruing is either too low or is too high. Most years, we try to make sure that our accrual rate nears where we think the whole year will turn out.
And if in fact our forecast are pretty good and we're tracking consistent with where we expect to be, then those accruals tend to be pretty accurate. I'd say this year, while it was very volatile early, we've been pretty happy with our ability to forecast our business since about March or April of the year once we got the Composites recovery plan in place and once we saw good Roofing margins sustain themselves through the first quarter.
I think our ability to forecast business and guide to cash flow and some of the key metrics has been a little bit better. So I think this is a little volatile year.
I don't know if Duncan, if you can have anything you would add to that.
Duncan Palmer
Yeah, I think, that's right Mike. I mean also when we look at the things that kind of go through the other lines, I mean one of the things probably to note year-on-year that we've disclosed was probably just noting as you compare.
Last year is what we actually filed with this year. We used measure our inventory on a LIFO basis; we now measure it on a FIFO basis.
So we used to this LIFO charge or benefit that would go through kind of the corporate line. And in 2009, that no longer is happening.
So when we compare year-over-year, we're kind of cleaning that up if our comparisons exclude LIFO. So if you look at last year's numbers, you would have seen LIFO in them.
That's typically as we went through that line item. And the other thing, of course, as we adjust out our numbers every quarter, things like the $5 million expense in the third quarter was going to the post-emergence equity.
That goes away in October 2009, so that kind of item will disappear as we tail down in terms of synergy costs. That will also...
the integration costs associated with the acquisitions will disappear. And so some of those other items will also get cleaned up going forward.
There won't be as many of those. So I think as we look forward, some of the volatility maybe in the line item as well as general corporate expenses is probably worth noting that it is cleaning up and being a bit easier to understand and being a bit more transparent.
Unidentified Analyst
Thank you.
Michael Thaman
Thanks Andy.
Operator
I would now like to turn the call over to Mr. Scott Deitz for closing remarks.
Scott Deitz
Thank you, Michael, and certainly thank everyone for joining us today. I will offer a reminder that our fourth quarter and full year 2009 results are scheduled to be announced on Wednesday, February 17, 2010.
With that I'll turn it over to Mike for a close.
Michael Thaman
Well, thanks Scott. And thank you everyone for joining our call and your interest in our company and for many of you who are investors, your support of our company.
We were pleased with the quarter. In large part, we achieved the objectives that we set out for ourselves earlier in the year and believe that we are on track for 2009.
I think of note, if you look at the fact that on an adjusted EBIT basis, we are ahead of last year through the first nine months. We would consider that to be a pretty good accomplishment given how challenging our markets have been really across the board.
I think probably the highlight for the quarter for us was the cash flow generation. We had a pretty difficult cash position in the first half of the year.
We used a lot of cash in the first quarter. We knew that we needed to get very focused on cash.
We asked our team around the world to understand cash flow better and to make sure that we could drive against some aggressive goals. We started the year with a goal of 200 million of free cash flow.
We increased that a month ago to 250. And now with 332 million of free cash flow in the quarter, we feel comfortable saying that we believe cash flow for the full year could be as much as $300 million, which really not only is a demonstration of what we believe is good execution, but also puts us in a wonderful position in terms of net debt at year end to continue to work on the refinancings and the credit ratings which we think are very important to our long term.
Composites going positive in the quarter is a good checkmark for us. Obviously, we've talked about the strength of our portfolio and looked at the enduring value of these three great business franchises we have in Roofing, Insulation and Composites.
In terms of firing on all cylinders, it's kind of a... it was a three-cylinder engine that was firing on one through the first half of the year.
I think we are now seeing Composites return to profitability and we probably have line of sight on how 2010 could be a year that maybe we fire on two cylinders with both Composites and Roofing contributing. And then hopefully, if we are actually seeing the bottom in the new construction market, we start to see some positive operating leverage in Insulation in 2010 that might get us into a period of time here where all three of the businesses begin to fire as we move into the early part of the next decade.
We're working everyday to make sure that we keep the business well positioned to succeed in that kind of environment. In the near term, we continue to the cautious with both capital and costs.
We continue to make sure that we're doing things on the innovation side of the business to bring our customers new solutions that allow them to grow their business and money. We're defending our position in the marketplace to make sure that in this difficult period of time that we have a position the market that's fitting of our market leading position and that that position is well defended and well earned.
And we think those are the things that are going to serve our shareholders well as we move into 2010 and beyond. So I wouldn't necessarily say that we're excited to see 2009 behind us, but we certainly are excited to finish out the year strong in the next couple of months and position ourselves well for 2010.
And we're happy to have you join us three months from now as we report on our full year results as Scott said in early February. So thanks again and everyone have great day.
Operator
Thank you for your participation today conference. This concludes the presentation.
You may now disconnect. Have a good day.