Edgar Filing: Owens Corning

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-33100

Owens Corning

(Exact name of registrant as specified in its charter)


Delaware		43-2109021
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Owens Corning Parkway, Toledo, OH		43659
(Address of principal executive offices)		(Zip Code)

(419) 248-8000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer þ		Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)		Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No þ

As of October 15, 2013, 117,721,366 shares of registrant’s common stock, par value $0.01 per share, were outstanding.

Contents


Cover Page			1

PART I – FINANCIAL INFORMATION (unaudited)

	Item 1.	Financial Statements
		Consolidated Statements of Earnings	3
		Consolidated Statements of Comprehensive Earnings	4
		Consolidated Balance Sheets	5
		Consolidated Statements of Cash Flows	6
		Notes to Consolidated Financial Statements
		1. General	7
		2. Segment Information	7
		3. Inventories	9
		4. Derivative Financial Instruments	10
		5. Goodwill and Other Intangible Assets	12
		6. Property, Plant and Equipment	13
		7. Acquisitions	14
		8. Divestitures	14
		9. Warranties	14
		10. Cost Reduction Actions	14
		11. Debt	16
		12. Pension Plans and Other Postretirement Benefits	18
		13. Contingent Liabilities and Other Matters	19
		14. Stock Compensation	20
		15. Earnings per Share	23
		16. Fair Value Measurement	24
		17. Income Taxes	26
		18. Changes in Accumulated Other Comprehensive Income	27
		19. Condensed Consolidating Financial Statements	27

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51

	Item 4.	Controls and Procedures	51

PART II – OTHER INFORMATION

	Item 1.	Legal Proceedings	52

	Item 1A.	Risk Factors	52

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52

	Item 3.	Defaults Upon Senior Securities	52

	Item 4.	Mine Safety Disclosures	52

	Item 5.	Other Information	52

	Item 6.	Exhibits	52

		Signatures	53
		Exhibit Index	54

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PART I

ITEM 1. FINANCIAL STATEMENTS

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(unaudited)

(in millions, except per share amounts)


	Three Months Ended Sep. 30,						Nine Months Ended Sep. 30,
	2013			2012			2013			2012
NET SALES	$	1,320		$	1,276		$	4,017		$	4,013
COST OF SALES		1,067			1,074			3,284			3,386

Gross margin		253			202			733			627
OPERATING EXPENSES
Marketing and administrative expenses		128			115			395			380
Science and technology expenses		19			20			57			60
Charges related to cost reduction actions		6			-			8			36
Other (income) expenses, net		(6	)		8			(8	)		19

Total operating expenses		147			143			452			495

EARNINGS BEFORE INTEREST AND TAXES		106			59			281			132
Interest expense, net		29			29			87			85

EARNINGS BEFORE TAXES		77			30			194			47
Less: Income tax expense (benefit)		26			(14	)		71			8
Equity in net earnings of affiliates		-			-			-			-

NET EARNINGS		51			44			123			39
Less: Net earnings attributable to noncontrolling interests		-			-			1			2

NET EARNINGS ATTRIBUTABLE TO OWENS CORNING	$	51		$	44		$	122		$	37

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO OWENS CORNING COMMON STOCKHOLDERS
Basic	$	0.43		$	0.37		$	1.03		$	0.31
Diluted	$	0.43		$	0.37		$	1.02		$	0.31
WEIGHTED-AVERAGE COMMON SHARES
Basic		118.0			117.9			118.4			119.8
Diluted		118.8			118.8			119.3			120.6

The accompanying Notes to the Consolidated Financial Statements are an integral part of this Statement.

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OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(unaudited)

(in millions)


	Three Months Ended Sep. 30,					Nine Months Ended Sep. 30,
	2013		2012			2013			2012
NET EARNINGS	$	51	$	44		$	123		$	39
Currency translation adjustment		15		28			(30	)		9
Pension and other postretirement adjustment (net of tax of $2, $0 $7, and $0 for the three and nine months ended September 30, 2013 and 2012, respectively)		2		(1	)		11			(2	)
Deferred income on hedging (net of tax of $0 and $(1) for both the three and nine month periods ended September 30, 2013 and 2012, respectively)		-		2			-			3

COMPREHENSIVE EARNINGS		68		73			104			49
Less: Comprehensive earnings attributable to noncontrolling interests		-		-			1			2

COMPREHENSIVE EARNINGS ATTRIBUTABLE TO OWENS CORNING	$	68	$	73		$	103		$	47

The accompanying Notes to the Consolidated Financial Statements are an integral part of this Statement.

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OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)

(in millions)


ASSETS	Sep. 30, 2013			Dec. 31, 2012
CURRENT ASSETS
Cash and cash equivalents	$	51		$	55
Receivables, less allowances of $13 at Sep. 30, 2013, and $17 at Dec. 31, 2012		758			600
Inventories		834			786
Other current assets		270			176

Total current assets		1,913			1,617
Property, plant and equipment, net		2,905			2,903
Goodwill		1,166			1,143
Intangible assets		1,046			1,045
Deferred income taxes		482			604
Other non-current assets		215			256

TOTAL ASSETS	$	7,727		$	7,568


LIABILITIES AND EQUITY

CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	938		$	907
Short-term debt		8			5
Long-term debt – current portion		3			4

Total current liabilities		949			916
Long-term debt, net of current portion		2,175			2,076
Pension plan liability		452			480
Other employee benefits liability		265			274
Deferred income taxes		35			38
Other liabilities		200			209
OWENS CORNING STOCKHOLDERS’ EQUITY
Preferred stock, par value $0.01 per share (a)		-			-
Common stock, par value $0.01 per share (b)		1			1
Additional paid in capital		3,961			3,925
Accumulated earnings		573			451
Accumulated other comprehensive deficit		(382	)		(364	)
Cost of common stock in treasury (c)		(538	)		(475	)

Total Owens Corning stockholders’ equity		3,615			3,538
Noncontrolling interests		36			37

Total equity		3,651			3,575

TOTAL LIABILITIES AND EQUITY	$	7,727		$	7,568

(a)

10 shares authorized; none issued or outstanding at Sep. 30, 2013, and Dec. 31, 2012

(b)

400 shares authorized; 135.5 issued and 117.7 outstanding at Sep. 30, 2013; 135.6 issued and 118.3 outstanding at Dec. 31, 2012

(c)

17.8 shares at Sep. 30, 2013, and 17.3 shares at Dec. 31, 2012

The accompanying Notes to the Consolidated Financial Statements are an integral part of this Statement.

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OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in millions)


	Nine Months Ended Sep. 30,
	2013			2012
NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES
Net earnings	$	123		$	39
Adjustments to reconcile net earnings to cash provided by operating activities:
Depreciation and amortization		235			269
Gain on sale of fixed assets		(6	)		(3	)
Deferred income taxes		57			(25	)
Provision for pension and other employee benefits liabilities		27			33
Stock-based compensation expense		21			18
Other non-cash		(13	)		(9	)
Change in working capital		(214	)		(171	)
Pension fund contribution		(30	)		(42	)
Payments for other employee benefits liabilities		(16	)		(17	)
Other		(21	)		1

Net cash flow provided by operating activities		163			93

NET CASH FLOW USED FOR INVESTING ACTIVITIES
Additions to plant and equipment		(199	)		(235	)
Investment in subsidiaries and affiliates, net of cash acquired		(62	)		-
Proceeds from Hurricane Sandy insurance claims		26			-
Proceeds from sale of affiliates		17			12
Purchases of alloy		(15	)		-
Proceeds from sale of alloy		16			-

Net cash flow used for investing activities		(217	)		(223	)

NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES
Proceeds from senior revolving credit and receivables securitization facilities		1,063			1,205
Payments on senior revolving credit and receivables securitization facilities		(957	)		(929	)
Payments on long-term debt		(1	)		(13	)
Net increase (decrease) in short-term debt		3			(9	)
Purchases of noncontrolling interest		-			(22	)
Purchases of treasury stock		(63	)		(113	)
Other		7			9

Net cash flow provided by financing activities		52			128

Effect of exchange rate changes on cash		(2	)		1

Net decrease in cash and cash equivalents		(4	)		(1	)
Cash and cash equivalents at beginning of period		55			52

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	51		$	51

The accompanying Notes to the Consolidated Financial Statements are an integral part of this Statement.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.	GENERAL

Unless the context requires otherwise, the terms “Owens Corning,” “Company,” “we” and “our” in this report refer to Owens Corning, a Delaware corporation, and its subsidiaries.

The Consolidated Financial Statements included in this report are unaudited, pursuant to certain rules and regulations of the Securities and Exchange Commission, and include, in the opinion of the Company, adjustments necessary for a fair statement of the results for the periods indicated, which, however, are not necessarily indicative of results which may be expected for the full year. The December 31, 2012, balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States (U.S.). In connection with the Consolidated Financial Statements and Notes included in this report, reference is made to the Consolidated Financial Statements and Notes contained in the Company’s 2012 annual report on Form 10-K. Certain reclassifications have been made to the periods presented for 2012 to conform to the classifications used in the periods presented for 2013.

2.	SEGMENT INFORMATION

The Company has two reportable segments: Composites and Building Materials. Accounting policies for the segments are the same as those for the Company. The Company’s reportable segments are defined as follows:

Composites – comprised of our Reinforcements and Downstream businesses. Within the Reinforcements business, the Company manufactures, fabricates and sells glass reinforcements in the form of fiber. Within the Downstream business, the Company manufactures and sells glass fiber products in the form of fabrics, mat, veil and other specialized products.

Building Materials – comprised of our Insulation and Roofing businesses. Within the Insulation business, the Company manufactures and sells fiberglass insulation into residential, commercial, industrial and other markets for both thermal and acoustical applications. It also manufactures and sells glass fiber pipe insulation, energy efficient flexible duct media, bonded and granulated mineral wool insulation, and foam insulation used in above- and below-grade construction applications. Within the Roofing business, the Company manufactures and sells residential roofing shingles and oxidized asphalt materials used in residential and commercial construction and specialty applications.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

2.	SEGMENT INFORMATION (continued)

NET SALES

The following table summarizes our net sales by segment, geographic region and product group (in millions). External customer sales are attributed to geographic region based upon the location from which the product is shipped to the external customer.


	Three Months Ended Sep. 30,						Nine Months Ended Sep. 30,
	2013			2012			2013			2012
Reportable Segments
Composites	$	453		$	459		$	1,384		$	1,433
Building Materials		902			855			2,762			2,719

Total reportable segments		1,355			1,314			4,146			4,152
Corporate eliminations		(35	)		(38	)		(129	)		(139	)

NET SALES	$	1,320		$	1,276		$	4,017		$	4,013


External Customer Sales by Geographic Region
United States	$	909		$	856		$	2,797		$	2,755
Europe		135			133			412			431
Asia Pacific		156			165			455			477
Other		120			122			353			350

NET SALES	$	1,320		$	1,276		$	4,017		$	4,013


Sales by Product Group
Composites	$	453		$	459		$	1,384		$	1,433
Insulation		431			384			1,176			1,055
Roofing		471			471			1,586			1,664
Corporate Eliminations		(35	)		(38	)		(129	)		(139	)

NET SALES	$	1,320		$	1,276		$	4,017		$	4,013

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

2.	SEGMENT INFORMATION (continued)

EARNINGS BEFORE INTEREST AND TAXES

Earnings before interest and taxes (“EBIT”) by segment consist of net sales less related costs and expenses and are presented on a basis that is used internally for evaluating segment performance. Certain items, such as general corporate expenses or income and certain other expense or income items, are excluded from the internal evaluation of segment performance. Accordingly, these items are not reflected in EBIT for our reportable segments and are included in the Corporate, Other and Eliminations category.

The following table summarizes EBIT by segment (in millions):


	Three Months Ended Sep. 30,						Nine Months Ended Sep. 30,
	2013			2012			2013			2012
Reportable Segments
Composites	$	21		$	11		$	62		$	68
Building Materials		114			86			332			242

Total reportable segments	$	135		$	97		$	394		$	310


Corporate, Other and Eliminations
Charges related to cost reduction actions and related items (a)	$	(11	)	$	(22	)	$	(23	)	$	(109	)
Losses related to Hurricane Sandy		(2	)		-			(16	)		-
General corporate expense and other		(16	)		(16	)		(74	)		(69	)

EBIT	$	106		$	59		$	281		$	132

(a)

For the three months ended September 30, 2013 and 2012, includes $6 million and $0 million, respectively, of charges related to cost reduction actions and $5 million and $22 million, respectively, of other related cost reduction action items. For the nine months ended September 30, 2013 and 2012, includes $8 million and $36 million, respectively, of charges related to cost reduction actions and $15 million and $73 million, respectively, of other related items.

3.	INVENTORIES

Inventories consist of the following (in millions):


	Sep. 30, 2013		Dec. 31, 2012
Finished goods	$	584	$	554
Materials and supplies		250		232

Total inventories	$	834	$	786

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

4.	DERIVATIVE FINANCIAL INSTRUMENTS

The Company is exposed to, among other risks, the impact of changes in commodity prices, foreign currency exchange rates, and interest rates in the normal course of business. The Company’s risk management program is designed to manage the exposure and volatility arising from these risks, and utilizes derivative financial instruments to offset a portion of these risks. The Company uses derivative financial instruments only to the extent necessary to hedge identified business risks, and does not enter into such transactions for trading purposes.

The Company generally does not require collateral or other security with counterparties to these financial instruments and is therefore subject to credit risk in the event of nonperformance; however, the Company monitors credit risk and currently does not anticipate nonperformance by other parties. Contracts with counterparties generally contain right of offset provisions. These provisions effectively reduce the Company’s exposure to credit risk in situations where the Company has gain and loss positions outstanding with a single counterparty. It is the Company’s policy to offset on the Consolidated Balance Sheets the amounts recognized for derivative instruments with any cash collateral arising from derivative instruments executed with the same counterparty under a master netting agreement. As of September 30, 2013, and December 31, 2012, the Company did not have any amounts on deposit with any of its counterparties, nor did any of its counterparties have any amounts on deposit with the Company.

The following table presents the fair value of derivatives and hedging instruments and the respective location on the Consolidated Balance Sheets (in millions):


			Fair Value at
	Location		Sep. 30, 2013		Dec. 31, 2012
Derivative liabilities designated as hedging instruments:
Cash flow hedges:
Natural gas and electricity		Accounts payable and accrued liabilities	$	1	$	1
Amount of loss recognized in OCI (effective portion)		OCI	$	1	$	1

Fair value hedges:
Interest rate swaps		Accounts payable and accrued liabilities	$	1	$	-

Derivative assets not designated as hedging instruments:
Foreign exchange contracts		Other current assets	$	1	$	1

Derivative liabilities not designated as hedging instruments:
Foreign exchange contracts		Accounts payable and accrued liabilities	$	1	$	3

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

4.	DERIVATIVE FINANCIAL INSTRUMENTS (continued)

The following table presents the impact and respective location of derivative activities on the Consolidated Statements of Earnings (in millions):


		Three Months Ended Sep. 30,				Nine Months Ended Sep. 30,
	Location	2013		2012		2013		2012
Derivative activity designated as hedging instruments:
Natural gas and electricity:
Amount of loss reclassified from OCI into earnings (effective portion)	Cost of sales	$	1	$	1	$	-	$	6

Interest rate swaps:
Amount of loss recognized in earnings	Interest expense	$	-	$	-	$	-	$	-

Derivative activity not designated as hedging instruments:
Natural gas and electricity:
Amount of (gain) recognized in earnings	Other (income) expenses, net	$	-	$	-	$	-	$	(1	)

Foreign currency exchange contract:
Amount of loss recognized in earnings (a)	Other (income) expenses, net	$	1	$	1	$	12	$	5

(a)	Losses related to foreign currency derivatives were substantially offset by net revaluation impacts on foreign denominated balance sheet exposures, which were also recorded in other expenses.

Cash Flow Hedges

The Company uses forward and swap contracts, which qualify as cash flow hedges, to manage forecasted exposure to commodity prices. The effective portion of the change in the fair value of cash flow hedges is deferred in accumulated OCI and is subsequently recognized in cost of sales on the Consolidated Statements of Earnings for commodity hedges, when the hedged item impacts earnings. Changes in the fair value of derivative assets and liabilities designated as hedging instruments are shown in other within operating activities on the Consolidated Statements of Cash Flows. Any portion of the change in fair value of derivatives designated as hedging instruments that is determined to be ineffective is recorded in other (income) expenses, net on the Consolidated Statements of Earnings.

The Company currently has natural gas and electricity commodity derivatives designated as hedging instruments that mature within 15 months. The Company’s policy for natural gas exposures is to hedge up to 75% of its total forecasted exposures for the next two months, up to 50% of its total forecasted exposures for the following four months, and lesser amounts for the remaining periods. The Company’s policy for electricity exposures is to hedge up to 75% of its total forecasted exposures for the current calendar year and up to 65% of its total forecasted exposures for the first calendar year forward. Based on market conditions, approved variation from the standard policy may occur. The Company performs an analysis for effectiveness of its derivatives designated as hedging instruments at the end of each quarter based on the terms of the contract and the underlying item being hedged.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

4.	DERIVATIVE FINANCIAL INSTRUMENTS (continued)

As of September 30, 2013, $1 million of losses included in accumulated OCI on the Consolidated Balance Sheets relate to contracts that will impact earnings during the next 12 months. Transactions and events that are expected to occur over the next 12 months that will necessitate recognizing these deferred amounts include the recognition of the hedged item through earnings.

Fair Value Hedges

The Company manages its interest rate exposure by balancing the mixture of its fixed and variable rate instruments through interest rate swaps. The swaps are carried at fair value and recorded as other assets or liabilities, with the offset to long-term debt on the Consolidated Balance Sheets. Changes in the fair value of these swaps and that of the related debt are recorded in interest expense, net on the Consolidated Statements of Earnings.

Other Derivatives

The Company uses forward currency exchange contracts to manage existing exposures to foreign exchange risk related to assets and liabilities recorded on the Consolidated Balance Sheets. Gains and losses resulting from the changes in fair value of these instruments are recorded in other (income) expenses, net on the Consolidated Statements of Earnings.

5.	GOODWILL AND OTHER INTANGIBLE ASSETS

Intangible assets and goodwill consist of the following (in millions):


Sep. 30, 2013	Weighted Average Useful Life		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortizable intangible assets:
Customer relationships		18	$	180	$	(65	)	$	115
Technology		20		196		(71	)		125
Franchise and other agreements		14		36		(16	)		20
Indefinite-lived intangible assets:
Trademarks				786		-			786

Total intangible assets			$	1,198	$	(152	)	$	1,046

Goodwill			$	1,166


Dec. 31, 2012	Weighted Average Useful Life		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortizable intangible assets:
Customer relationships		19	$	169	$	(58	)	$	111
Technology		20		198		(64	)		134
Franchise and other agreements		14		37		(14	)		23
Indefinite-lived intangible assets:
Trademarks				777		-			777

Total intangible assets			$	1,181	$	(136	)	$	1,045

Goodwill			$	1,143

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

5.	GOODWILL AND OTHER INTANGIBLE ASSETS (continued)

The changes in the net carrying amount of goodwill by segment are as follows (in millions):


	Composites			Building Materials		Total
Balance as of December 31, 2012	$	56		$	1,087	$	1,143
Acquisitions (see Note 7)		2			22		24
Foreign currency adjustments		(1	)		-		(1	)

Balance as of September 30, 2013	$	57		$	1,109	$	1,166

Other Intangible Assets

The Company expects the ongoing amortization expense for amortizable intangible assets to be approximately $22 million in each of the next five fiscal years. The Company’s future cash flows are not materially impacted by its ability to extend or renew agreements related to our amortizable intangible assets.

Goodwill

The Company tests goodwill and indefinite-lived intangible assets for impairment during the fourth quarter of each year, or more frequently should circumstances change or events occur that would more likely than not reduce the fair value of a reporting unit below its carrying amount. No testing was deemed necessary in the third quarter of 2013.

6.	PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following (in millions):


	Sep. 30, 2013			Dec. 31, 2012
Land	$	222		$	222
Buildings and leasehold improvements		817			789
Machinery and equipment		3,302			3,223
Construction in progress		202			147

		4,543			4,381
Accumulated depreciation		(1,638	)		(1,478	)

Property, plant and equipment, net	$	2,905		$	2,903

Machinery and equipment includes certain precious metals used in our production tooling, which comprise approximately 17 percent and 18 percent of total machinery and equipment as of September 30, 2013, and December 31, 2012, respectively. Precious metals used in our production tooling are depleted as they are consumed during the production process, which typically represents an annual expense of less than 3% of the outstanding carrying value.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

7.	ACQUISITIONS

During the third quarter of 2013, the Company made cash payments of $10 million related to our July 31, 2011 acquisitions of FiberTEK Insulation West, LLC and FiberTEK Insulation, LLC. Deferred payments totaling $15 million remain outstanding and are due in annual installments through 2018. As of September 30, 2013, the deferred payments are recorded at their net present value of $5 million in accounts payable and accrued liabilities and $8 million in other liabilities on the Consolidated Balance Sheets.

During the second quarter of 2013 the Company completed the acquisitions of Thermafiber Inc., a leading manufacturer of mineral wool commercial and industrial insulation products located in Indiana and Tanaka Kikinzoku (Suzhou) Co., Ltd, a producer of glass fiber bushings in China.

The Company provided total consideration that had a fair value of $52 million at the acquisition dates. The acquisitions resulted in the recognition of $19 million in intangible assets; and $24 million in goodwill. The pro-forma effect of these acquisitions on revenues and earnings was not material.

8.	DIVESTITURES

On September 13, 2013, the Company signed an agreement to sell its Composites glass reinforcements facility in Hangzhou, Peoples Republic of China for total compensation of approximately $70 million to the Hangzhou Municipal Land Reservation Center and the Development and Construction Management Office of Taoyuan New Zone of Gongshu District in Hangzhou (“Hangzhou Government”), both of which are unrelated third party government entities. On September 17, 2013, the Company received $17 million in cash, which is recorded as a deposit on the sale. An additional deposit of $18 million is expected to be received in the fourth quarter of 2013. The balance of the compensation, approximately $35 million, is payable upon returning the land to the Hangzhou Government, which is expected during the first half of 2014. The sale will result in a pre-tax gain of approximately $30 million to $40 million, which will be recognized at the transaction closing.

9.	WARRANTIES

The Company records a liability for warranty obligations at the date the related products are sold. Adjustments are made as new information becomes available. A reconciliation of the warranty liability is as follows (in millions):


	Nine Months Ended Sep. 30, 2013
Beginning balance	$	41
Amounts accrued for current year		18
Settlements of warranty claims		(18	)

Ending balance	$	41

10.

COST REDUCTION ACTIONS

2013 Cost Reduction Actions

As a result of the Company’s decision to divest its Composites glass reinforcements facility in Hangzhou, Peoples Republic of China discussed in Note 8 above, we have recorded $6 million in charges related to cost reduction actions on the Consolidated Statements of Earnings for the three month period ended September 30, 2013.

- 15 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

10.

COST REDUCTION ACTIONS (continued)

The following table summarizes the status of the unpaid liabilities from the Company’s 2013 cost reduction actions (in millions):


	Beginning Balance Dec. 31, 2012		Costs Incurred		Payments		Ending Balance Sep. 30, 2013		Cumulative Charges Incurred
Severance	$	-	$	6	$	-	$	6	$	6

Total	$	-	$	6	$	-	$	6	$	6

2012 Cost Reduction Actions

As a result of evaluating market conditions in our Composites segment, we took actions to improve the competitive position of our global manufacturing network by closing certain facilities, with our most significant actions taking place in France, Spain and Italy. These actions were primarily due to market conditions that led to lower capacity requirements within the European region. In conjunction with these actions, the Company recorded $5 million and $17 million in charges related to cost reduction actions and related items for the three and nine months ended September 30, 2013, respectively; of which, $0 million and $2 million, respectively, is related to severance and is included in charges related to cost reduction actions on the Consolidated Statements of Earnings. The $5 million and $15 million of other charges consist of $2 million and $6 million in accelerated depreciation due to the shortened expected useful life of the closed facilities and $3 million and $9 million in other related charges that primarily consisted of facility closure and related other exit costs, respectively.

The following table summarizes the status of the unpaid liabilities from the Company’s 2012 cost reduction actions (in millions):


	Beginning Balance Dec. 31, 2012		Costs Incurred		Payments		Ending Balance Sep. 30, 2013		Cumulative Charges Incurred
Severance	$	45	$	2	$	15	$	32	$	53

Total	$	45	$	2	$	15	$	32	$	53

- 16 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

11.

DEBT

Details of the Company’s outstanding long-term debt are as follows (in millions):


	Sep. 30, 2013		Dec. 31, 2012
6.50% senior notes, net of discount, due 2016	$	400	$	400
9.00% senior notes, net of discount, due 2019		248		247
4.20% senior notes, net of discount, due 2022		599		599
7.00% senior notes, net of discount, due 2036		540		540
Accounts receivable securitization facility, maturing in 2016		212		141
Senior revolving credit facility, maturing in 2016		108		73
Various capital leases, due through and beyond 2050		50		52
Various floating rate debt, maturing through 2027		1		2
Fair value adjustment to debt		20		26

Total long-term debt		2,178		2,080
Less – current portion		3		4

Long-term debt, net of current portion	$	2,175	$	2,076

Senior Notes

The Company issued $600 million of senior notes on October 17, 2012, $350 million of senior notes on June 3, 2009, and $1.2 billion of senior notes on October 31, 2006, which are collectively referred to as the “Senior Notes.” The Senior Notes are general unsecured obligations of the Company and rank pari passu with all existing and future senior unsecured indebtedness of the Company.

The Senior Notes are fully and unconditionally guaranteed by each of the Company’s current and future domestic subsidiaries that are a borrower or guarantor under the Company’s Credit Agreement (as defined below). The guarantees are unsecured and rank equally in right of payment with all other existing and future senior unsecured indebtedness of the guarantors. The guarantees are effectively subordinated to existing and future secured debt of the guarantors to the extent of the assets securing that indebtedness.

The Company has the option to redeem all or part of the Senior Notes at any time at a “make whole” redemption price. The Company is subject to certain covenants in connection with the issuance of the Senior Notes that it believes are usual and customary. The Company was in compliance with these covenants as of September 30, 2013.

In the fourth quarter of 2011, the Company terminated all of its then existing interest rate swaps designated to hedge a portion of the 6.5% senior notes due 2016. The swaps were carried at fair value and recorded as other assets or liabilities, with a fair value adjustment to long-term debt on the Consolidated Balance Sheets. The fair value adjustment to debt will be amortized through 2016 as a reduction to interest expense in conjunction with the maturity date of the notes.

On June 28, 2013, the Company entered into interest rate swap agreements effective July 1, 2013 to manage its interest rate exposure by swapping $100 million of fixed rate to variable rate exposure designated against our 4.2% senior notes due 2022. The swaps are carried at fair value and recorded as other assets or liabilities, with a fair value adjustment to long-term debt on the Consolidated Balance Sheets.

- 17 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

11.

DEBT (continued)

Senior Credit Facility

In July 2011, the Company amended the credit agreement (the “Credit Agreement”) for the $800 million multi-currency senior revolving credit facility (the “Senior Revolving Credit Facility”) to extend the maturity to July 2016 and reduce the pricing. The Senior Revolving Credit Facility includes both borrowings and letters of credit. Borrowings under the Senior Revolving Credit Facility may be used for general corporate purposes and working capital. The Company has the discretion to borrow under multiple options, which provide for varying terms and interest rates including the United States prime rate or LIBOR plus a spread.

The Senior Revolving Credit Facility contains various covenants, including a maximum allowed leverage ratio and a minimum required interest expense coverage ratio that the Company believes are usual and customary for a senior unsecured credit agreement. The Company was in compliance with these covenants as of September 30, 2013.

The Company had $4 million of letters of credit outstanding under the Senior Revolving Credit Facility at September 30, 2013 and December 31, 2012.

Receivables Securitization Facility

Included in long-term debt on the Consolidated Balance Sheets are amounts outstanding under a Receivables Purchase Agreement (the “RPA”) that are accounted for as secured borrowings in accordance with ASC 860, Accounting for Transfers and Servicing. Owens Corning Sales, LLC and Owens Corning Receivables LLC, each a subsidiary of the Company, have a $250 million RPA with certain financial institutions. The securitization facility was amended in the third quarter of 2013 to extend maturity to July 2016 and reduce the size of the facility to $200 million during the months of November, December, and January each year. At September 30, 2013, the Company utilized the full amount permitted under the terms of the RPA. The Company had $38 million and $37 million of letters of credit outstanding under the receivables securitization facility at September 30, 2013 and December 31, 2012, respectively.

The RPA contains various covenants, including a maximum allowed leverage ratio and a minimum required interest expense coverage ratio that the Company believes are usual and customary for a securitization facility. The Company was in compliance with these covenants as of September 30, 2013.

Owens Corning Receivables LLC’s sole business consists of the purchase or acceptance through capital contributions of trade receivables and related rights from Owens Corning Sales, LLC and the subsequent retransfer of or granting of a security interest in such trade receivables and related rights to certain purchasers who are party to the RPA. Owens Corning Receivables LLC is a separate legal entity with its own separate creditors who will be entitled, upon its liquidation, to be satisfied out of Owens Corning Receivables LLC’s assets prior to any assets or value in Owens Corning Receivables LLC becoming available to Owens Corning Receivables LLC’s equity holders. The assets of Owens Corning Receivables LLC are not available to pay creditors of the Company or any other affiliates of the Company or Owens Corning Sales, LLC.

Short-Term Debt

At September 30, 2013 and December 31, 2012, short-term borrowings were $8 million and $5 million, respectively. The short-term borrowings for both periods consisted of various operating lines of credit and working capital facilities. Certain of these borrowings are collateralized by receivables, inventories or property. The borrowing facilities are typically for one-year renewable terms. The weighted average interest rate on short-term borrowings was approximately 5.5% for September 30, 2013, and 4.5% for December 31, 2012.

- 18 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

12.

PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

Pension Plans

The Company sponsors defined benefit pension plans. Under the plans, pension benefits are based on an employee’s years of service and, for certain categories of employees, qualifying compensation. Company contributions to these pension plans are determined by an independent actuary to meet or exceed minimum funding requirements. In our U.S. plan prior to 2013 and in all of our Non-U.S plans, the unrecognized cost of any retroactive amendments and actuarial gains and losses are amortized over the average future service period of plan participants expected to receive benefits. As of January 1, 2013, an increase in the number of inactive participants in our U.S. plan resulted in substantially all of the plan participants being inactive. Accordingly, we elected to begin amortizing the unrecognized cost of any retroactive amendments and actuarial gains and losses over the average remaining life expectancy of the inactive participants as opposed to the average remaining service period of the active participants.

The following tables provide information regarding pension expense recognized (in millions):


	Three Months Ended Sep. 30, 2013									Three Months Ended Sep. 30, 2012
	U.S.			Non-U.S.			Total			U.S.			Non-U.S.			Total
Components of Net Periodic Pension Cost
Service cost	$	2		$	-		$	2		$	3		$	1		$	4
Interest cost		11			5			16			12			5			17
Expected return on plan assets		(14	)		(7	)		(21	)		(15	)		(7	)		(22	)
Amortization of actuarial loss		4			1			5			6			2			8

Net periodic pension cost	$	3		$	(1	)	$	2		$	6		$	1		$	7


	Nine Months Ended Sep. 30, 2013									Nine Months Ended Sep. 30, 2012
	U.S.			Non-U.S.			Total			U.S.			Non-U.S.			Total
Components of Net Periodic Pension Cost
Service cost	$	7		$	4		$	11		$	7		$	5		$	12
Interest cost		33			16			49			37			17			54
Expected return on plan assets		(44	)		(19	)		(63	)		(45	)		(20	)		(65	)
Amortization of actuarial loss		11			4			15			18			4			22

Net periodic pension cost	$	7		$	5		$	12		$	17		$	6		$	23

The Company expects to contribute approximately $20 million in cash to the United States Pension Plans and another $18 million to non-United States plans during 2013. The Company made cash contributions of approximately $30 million to the plans during the nine months ended September 30, 2013.

Postemployment and Postretirement Benefits Other than Pension Plans

The Company maintains healthcare and life insurance benefit plans for certain retired employees and their dependents. The health care plans in the United States are non-funded and pay either (1) stated percentages of covered medically necessary expenses, after subtracting payments by Medicare or other providers and after stated deductibles have been met, or (2) fixed amounts of medical expense reimbursement.

- 19 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

12.

PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS (continued)

The following table provides the components of net periodic benefit cost for aggregated United States and non-United States Plans for the periods indicated (in millions):


	Three Months Ended Sep. 30,						Nine Months Ended Sep. 30,
	2013			2012			2013			2012
Components of Net Periodic Benefit Cost
Service cost	$	1		$	1		$	2		$	2
Interest cost		2			2			7			8
Amortization of prior service cost		(1	)		(1	)		(3	)		(3	)
Amortization of actuarial gain		(1	)		(1	)		(1	)		(2	)

Net periodic benefit cost	$	1		$	1		$	5		$	5

13.

CONTINGENT LIABILITIES AND OTHER MATTERS

Litigation

The Company is involved in various legal proceedings relating to employment, product liability and other matters (collectively, “Proceedings”). The Company regularly reviews the status of such Proceedings along with legal counsel. Liabilities for such Proceedings are recorded when it is probable that the liability has been incurred and when the amount of the liability can be reasonably estimated. Liabilities are adjusted when additional information becomes available. Management believes that the amount of any reasonably possible losses in excess of any amounts accrued, if any, with respect to such Proceedings or any other known claim, including the matters described below under the caption Environmental Matters (the “Environmental Matters”) will not be material to the Company’s financial statements. Management believes that the ultimate disposition of the Proceedings and the Environmental Matters will not have a material adverse effect on the Company’s operations or financial condition taken as a whole.

Environmental Matters

We have been deemed by the Environmental Protection Agency (“EPA”) to be a Potentially Responsible Party (“PRP”) with respect to certain sites under the Comprehensive Environmental Response Compensation and Liability Act. We have also been deemed a PRP under similar state or local laws and in other instances other PRPs have brought suits against us as a PRP for contribution under such federal, state, or local laws. At September 30, 2013, we had environmental remediation liabilities as a PRP at 20 sites where we have a continuing legal obligation to either complete remedial actions or contribute to the completion of remedial actions as part of a group of PRPs. For these sites we estimate a reserve to reflect environmental liabilities that have been asserted or are probable of assertion, in which liabilities are probable and reasonably estimable. At September 30, 2013, our reserve for such liabilities was $6 million.

Kearny, New Jersey Manufacturing Facility

During the week of October 29, 2012, the Company experienced a flood at its Kearny, New Jersey manufacturing facility as a result of Hurricane Sandy. This facility is insured for property damage and business interruption losses related to such events, subject to deductibles and policy limits. The Company believes that all costs/losses will be substantially covered by insurance; however, the timing of any recoveries may result in expenses being taken in periods before the insurance receipts

- 20 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

13.

CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

are recorded or received. For the three months ended September 30, 2013, the Company incurred losses related to clean up activities and business interruption in the amount of $4 million reported in Cost of Sales and $9 million reported in Other (income) expenses, net, on the Consolidated Statements of Earnings, partially offset by $11 million of insurance proceeds recorded in Other (income) expenses, net, on the Consolidated Statements of Earnings. For the nine months ended September 30, 2013, the Company incurred losses related to clean up activities and business interruption in the amount of $26 million reported in Cost of Sales and $16 million reported in Other (income) expenses, net, on the Consolidated Statements of Earnings, partially offset by $26 million of insurance proceeds recorded in Other (income) expenses, net, on the Consolidated Statements of Earnings.

14.

STOCK COMPENSATION

2013 Stock Plan

On April 18, 2013, the Company’s stockholders approved the Owens Corning 2013 Stock Plan (the “2013 Stock Plan”) which replaced the 2010 Stock Plan. The 2013 Stock Plan authorizes grants of stock options, stock appreciation rights, restricted stock awards, restricted stock units, bonus stock awards and performance stock awards. Under the 2013 Stock Plan, 1.5 million shares of common stock may be granted in addition to the shares of Company common stock that rolled over from the 2010 Stock Plan as of April 18, 2013. Such shares of common stock include shares that were available but not granted, or which were granted but were not issued or delivered due to expiration, termination, cancellation or forfeiture of such awards. There will be no future grants made under the 2010 Stock Plan. At September 30, 2013 the number of shares remaining available under the 2013 Stock Plan for all stock awards was 3.4 million.

Stock Options

The Company has granted stock options under its stockholder approved stock plans. The Company calculates a weighted-average grant-date fair value using a Black-Scholes valuation model for options granted. Compensation expense for options is measured based on the fair market value of the option on the date of grant, and is recognized on a straight-line basis over a four year vesting period. In general, the exercise price of each option awarded was equal to the market price of the Company’s common stock on the date of grant and an option’s maximum term is 10 years. The volatility assumption was based on a benchmark study of our peers.

During the nine months ended September 30, 2013, 329,800 stock options were granted with a weighted-average grant date fair value of $18.94. Assumptions used in the Company’s Black-Scholes valuation model to estimate the grant date fair value were expected volatility of 45.3%, expected dividends of 0%, expected term of 6.25 years and a risk-free interest rate of 1.2%.

During the three and nine months ended September 30, 2013, the Company recognized expense of $1 million and $4 million respectively, related to the Company’s stock options. During the three and nine months ended September 30, 2012, the Company recognized expense of $1 million and $3 million respectively, related to the Company’s stock options. As of September 30, 2013, there was $9 million of total unrecognized compensation cost related to stock options. That cost is expected to be recognized over a weighted-average period of 2.68 years. The total aggregate intrinsic value of options outstanding as of September 30, 2013 and 2012 was $25 million and $19 million.

- 21 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

14.

STOCK COMPENSATION (continued)

The following table summarizes the Company’s stock option activity for the nine months ended Sep. 30, 2013:


	Nine Months Ended Sep. 30 2013
	Number of Options			Weighted- Average Exercise Price
Beginning Balance		3,025,220		$	27.78
Granted		329,800			42.16
Exercised		(540,725	)		26.96
Forfeited		(56,500	)		34.58

Ending Balance		2,757,795		$	29.52

The following table summarizes information about the Company’s options outstanding and exercisable:


	Options Outstanding						Options Exercisable
	Options Outstanding		Weighted-Average				Number Exercisable at Sep. 30, 2013		Weighted-Average
Range of Exercise Prices	Options Outstanding		Remaining Contractual Life		Exercise Price		Number Exercisable at Sep. 30, 2013		Remaining Contractual Life		Exercise Price

$13.89- $42.16		2,757,795		5.60	$	29.52		1,948,220		4.45	$	26.73

Restricted Stock Awards and Restricted Stock Units

The Company has granted restricted stock awards and restricted stock units (collectively referred to as “restricted stock”) under its stockholder approved stock plans. Compensation expense for restricted stock is measured based on the market price of the stock at date of grant and is recognized on a straight-line basis over the four-year vesting period. Stock restrictions are subject to alternate vesting plans for death, disability, approved early retirement and involuntary termination, over various periods ending in 2017.

During the three and nine months ended September 30, 2013, the Company recognized expense of $4 million and $12 million respectively, related to the Company’s restricted stock. During the three and nine months ended September 30, 2012, the Company recognized expense of $3 million and $11 million respectively. As of September 30, 2013, there was $28 million of total unrecognized compensation cost related to restricted stock. That cost is expected to be recognized over a weighted-average period of 2.75 years. The total fair value of shares vested during the nine months ended September 30, 2013 and 2012 was $16 million and $11 million, respectively.

- 22 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

14.

STOCK COMPENSATION (continued)

A summary of the status of the Company’s plans that had restricted stock issued as of September 30, 2013, and changes during the nine months ended September 30, 2013, are presented below:


	Nine Months Ended Sep. 30, 2013
	Number of Shares			Weighted-Average Grant-Date Fair Value
Beginning Balance		1,875,065		$	27.14
Granted		497,694			41.13
Vested		(602,501	)		25.92
Forfeited		(75,869	)		34.54

Ending Balance		1,694,389		$	31.35

Performance Stock Awards and Performance Stock Units

The Company has granted performance stock awards and performance stock units (collectively referred to as “PSUs”) as a part of its long-term incentive plan. Outstanding grants issued in 2013 will be fully settled in stock and outstanding grants issued in 2011 and 2012 will be settled 50 percent in stock and 50 percent in cash. The amount of the stock and/or cash ultimately distributed is contingent on meeting various company or stockholder return goals.

Compensation expense for PSUs settled in stock is measured based on the grant date fair value and is recognized on a straight-line basis over the vesting period. Compensation expense for PSUs settled in cash is measured based on the fair value at the end of each quarter and is recognized on a straight-line basis over the vesting period. Vesting will be accelerated in the case of death or disability, and awards earned will be paid at the end of the three-year period.

In the first nine months of 2013, the Company granted PSUs. The 2013 grants vest after a three-year period based on the Company’s total stockholder return relative to the performance of the companies in the S&P 500 Index for the respective three-year period. The amount of stock distributed will vary from 0% to 200% of PSUs awarded depending on the relative stockholder return performance.

For all PSUs, respectively during the three and nine months ended September 30, 2013, the Company recognized a gain of $1 million and an expense of $5 million. During the three and nine months ended September 30, 2012, the Company recognized expense of $5 million and $11 million, respectively, related to PSUs. As of September 30, 2013, there was $12 million of total unrecognized compensation cost related to PSUs. That cost is expected to be recognized over a weighted-average period of 1.86 years.

- 23 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

14.

STOCK COMPENSATION (continued)

A summary of the status of the Company’s plans that had restricted stock issued as of September 30, 2013, and changes during the nine months ended September 30, 2013, are presented below:


	Nine Months Ended Sep. 30, 2013
	Number of PSUs			Weighted-Average Grant-Date Fair Value
Beginning Balance		412,910		$	49.14
Granted		207,050			56.71
Forfeited		(40,550	)		50.36

Ending Balance		579,410		$	51.76

2013 Employee Stock Purchase Plan

On April 18, 2013, the Company’s stockholders approved the Owens Corning Employee Stock Purchase Plan (“ESPP”). The ESPP is a tax-qualified plan under Section 423 of the Internal Revenue Code. The purchase price of shares purchased under the ESPP is equal to 85% of the lower of the fair market value of shares of Owens Corning common stock at the beginning or ending of the offering period, which is a six-month period ending on May 31 and November 30 of each year. There are 2 million shares available for purchase under the ESPP as of its approval date. During the three and nine months ended September 30, 2013, the Company had expense of $0.4 million and $0.6 million respectively. As of September 30, 2013, there was less than $1 million of total unrecognized compensation cost related to the ESPP.

15.

EARNINGS PER SHARE

The following table summarizes the number of shares outstanding as well as our basic and diluted earnings per-share (in millions, except per share amounts):


	Three Months Ended Sep. 30,				Nine Months Ended Sep. 30,
	2013		2012		2013		2012
Net earnings attributable to Owens Corning	$	51	$	44	$	122	$	37

Weighted-average number of shares outstanding used for basic earnings per share		118.0		117.9		118.4		119.8
Non-vested restricted and performance shares		0.4		0.6		0.4		0.5
Options to purchase common stock		0.4		0.3		0.5		0.3

Weighted-average number of shares outstanding and common equivalent shares used for diluted earnings per share		118.8		118.8		119.3		120.6

Earnings per common share attributable to Owens Corning common stockholders:

Basic	$	0.43	$	0.37	$	1.03	$	0.31
Diluted	$	0.43	$	0.37	$	1.02	$	0.31

- 24 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

15.

EARNINGS PER SHARE (continued)

Basic earnings per share is calculated by dividing earnings attributable to Owens Corning by the weighted-average number of shares of the Company’s common stock outstanding during the period. Outstanding shares consist of issued shares less treasury stock.

On April 25, 2012, the Company announced a new share buy-back program under which the Company is authorized to repurchase up to 10 million shares of the Company’s outstanding common stock (the “2012 Repurchase Program”). The 2012 Repurchase Program is in addition to the share buy-back program announced August 4, 2010, (the “2010 Repurchase Program” and collectively with the 2012 Repurchase Program, the “Repurchase Programs”). The Repurchase Programs authorize the Company to repurchase shares through the open market, privately negotiated, or other transactions. The actual number of shares repurchased will depend on timing, market conditions and other factors and will be at the Company’s discretion. We repurchased 1.4 million shares of the Company’s common stock for $54 million during the third quarter of 2013 under previously announced repurchase programs. As of September 30, 2013, 8.6 million shares remain available for repurchase under the authorized programs.

For the three and nine months ended September 30, 2013, the number of shares used in the calculation of diluted earnings per share did not include 0.2 million non-vested Restricted and Performance shares, 1.0 and 0.7 million of options to purchase common stock respectively, 17.5 million common equivalent shares from Series A Warrants or 7.8 million common equivalent shares from Series B Warrants due to their anti-dilutive effect.

For the three and nine months ended September 30, 2012, the number of shares used in the calculation of diluted earnings per share did not include 0.3 million options to purchase common stock, 17.5 million common equivalent shares from Series A Warrants or 7.8 million common equivalent shares from Series B Warrants due to their anti-dilutive effect.

16.

FAIR VALUE MEASUREMENT

Items Measured at Fair Value

The Company classifies and discloses assets and liabilities carried at fair value in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

- 25 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

16.

FAIR VALUE MEASUREMENT (continued)

The following table summarizes the fair values, and levels within the fair value hierarchy in which the fair value measurements fall, for assets and liabilities measured on a recurring basis as of September 30, 2013 (in millions):


	Total Measured at Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	18		$	18	$	-		$	-
Term deposits		2			-		2			-
Derivative assets		1			-		1			-

Total assets	$	21		$	18	$	3		$	-

Liabilities:
Derivative liabilities	$	(3	)	$	-	$	(3	)	$	-

Total liabilities	$	(3	)	$	-	$	(3	)	$	-


	Total Measured at Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	1		$	1	$	-		$	-
Term deposits		1			-		1			-
Derivative assets		1			-		1			-

Total assets	$	3		$	1	$	2		$	-

Liabilities:
Derivative liabilities	$	(4	)	$	-	$	(4	)	$	-

Total liabilities	$	(4	)	$	-	$	(4	)	$	-

Cash equivalents, by their nature and less than 90 day maturity, utilize Level 1 inputs in determining fair value. Term deposits utilize Level 2 inputs in determining fair value based on their longer term maturity. Term deposits are included in other current assets on the Consolidated Balance Sheets. The Company measures the value of its natural gas hedge contracts and foreign currency forward contracts using Level 2 inputs. The fair value of the Company’s natural gas hedges is determined by a mark to market valuation based on forward curves using observable market prices and the fair value of its foreign currency forward contracts is determined using observable market transactions in over-the-counter markets.

- 26 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

16.

FAIR VALUE MEASUREMENT (continued)

Items Disclosed at Fair Value

Long-term notes receivable

The fair value has been calculated using the expected future cash flows discounted at market interest rates. The Company believes that the carrying amounts reasonably approximate the fair values of long-term notes receivable. Long-term notes receivable were $10 million and $53 million as of September 30, 2013, and December 31, 2012, respectively. The decline in the fair value of long-term notes receivable was due to the reclassification of a receivable to other current assets related to the 2011 sale of our Stone business.

Long-term debt

The fair value of the Company’s long-term debt has been calculated based on quoted market prices for the same or similar issues, or on the current rates offered to the Company for debt of the same remaining maturities.

As of September 30, 2013, and December 31, 2012, respectively, the Company’s 6.50% senior notes due 2016 were trading at approximately 113% and 112% of par value, the 9.00% senior notes due 2019 were trading at approximately 122% and 127% of par value, the 4.2% senior notes due 2022 were trading at approximately 97% and 102% of par value, and the 7.00% senior notes due 2036 were trading at approximately 109% and 109% of par value.

At September 30, 2013, and December 31, 2012, the Company determined that the book value of the remaining long-term debt instruments approximates market value. This approach, using level 1 inputs and utilizing indicative market rates for a new debt issuance, approximated the fair value of the remaining long-term debt at $370 million and $268 million respectively.

17.

INCOME TAXES

Income tax expense for the three and nine months ended September 30, 2013, was $26 million and $71 million, respectively. For the third quarter and year-to-date 2013, the Company’s effective tax rate was 34 percent and 37 percent, respectively. For both periods, the difference between the effective tax rate and the statutory rate of 35 percent is primarily attributable to various tax planning initiatives and the tax accounting treatment related to various locations which are currently in a loss position.

Income tax expense for the three and nine months ended September 30, 2012, was a benefit of $14 million and an expense of $8 million, respectively. For the third quarter and year-to-date 2012, the Company’s effective tax rate was (47) percent and 17 percent, respectively. The third quarter 2012 effective tax rate is reflective of a cumulative adjustment attributable to lower estimated tax expense for 2012. For both periods, the difference between the effective tax rate and the statutory rate of 35 percent is primarily attributable to the tax accounting treatment related to various locations which are currently in a loss position and various tax planning initiatives.

- 27 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

18.

CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table summarizes the changes in accumulated other comprehensive income (“AOCI”) for the three months ended September 30, 2013 (in millions):


	Cash Flow Hedge Activity			Defined Benefit Pension Plan Activity			OCI Valuation Allowance activity			Foreign Currency Translation Adjustment			Total
Balance as of June 30, 2013, net of tax	$	(1	)	$	(270	)	$	(113	)	$	(15	)	$	(399	)
Amounts classified into AOCI, net of tax		(1	)		-			-			15			14
Amounts reclassified from AOCI, net of tax		1			2			-			-			3

Change in AOCI, net of tax		-			2			-			15			17

Balance as of September 30, 2013, net of tax	$	(1	)	$	(268	)	$	(113	)	$	-		$	(382	)

The following table summarizes the changes in AOCI for the nine months ended September 30, 2013 (in millions):


	Cash Flow Hedge Activity			Defined Benefit Pension Plan Activity			OCI Valuation Allowance activity			Foreign Currency Translation Adjustment			Total
Balance as of December 31, 2012, net of tax	$	(1	)	$	(279	)	$	(114	)	$	30		$	(364	)
Amounts classified into AOCI, net of tax		(2	)		2			1			(30	)		(29	)
Amounts reclassified from AOCI, net of tax		2			9			-			-			11

Change in AOCI, net of tax		-			11			1			(30	)		(18	)

Balance as of September 30, 2013, net of tax	$	(1	)	$	(268	)	$	(113	)	$	-		$	(382	)

The following table presents the impact and respective location of AOCI reclassifications on the Consolidated Statements of Earnings, net of tax (in millions):


		Three Months Ended Sep. 30,		Nine Months Ended Sep. 30,
	Location	2013		2013
Cash Flow Hedge Activity	Cost of sales	$	1	$	2
Defined Benefit Pension Plan Activity	Cost of sales		2		7
Defined Benefit Pension Plan Activity	Marketing and administrative expenses		-		2

Total reclassifications from AOCI		$	3	$	11

19.

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

The following Condensed Consolidating Financial Statements present the financial information required with respect to those entities which guarantee certain of the Company’s debt. The Condensed Consolidating Financial Statements are presented on the equity method. Under this method, the investments in subsidiaries are recorded at cost and adjusted for the Company’s share of the subsidiaries’ cumulative results of operations, capital contributions, distributions and other equity changes. The principal elimination entries eliminate investment in subsidiaries and intercompany balances and transactions.

- 28 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

19.

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

Guarantor and Nonguarantor Financial Statements

The Senior Notes and the Senior Revolving Credit Facility are guaranteed, fully, unconditionally and jointly and severally, by each of Owens Corning’s current and future 100% owned material domestic subsidiaries that is a borrower or a guarantor under Owens Corning’s Credit Agreement, which permits changes to the named guarantors in certain situations (collectively, the “Guarantor Subsidiaries”). The remaining subsidiaries have not guaranteed the Senior Notes and the Senior Revolving Credit Facility (collectively, the “Nonguarantor Subsidiaries”).

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF EARNINGS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2013

(in millions)


	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
NET SALES	$	-		$	921	$	497	$	(98	)	$	1,320
COST OF SALES		(3	)		739		429		(98	)		1,067

Gross margin		3			182		68		-			253
OPERATING EXPENSES												-
Marketing and administrative expenses		25			68		35		-			128
Science and technology expenses		-			13		6		-			19
Charges related to cost reduction actions		-			-		6		-			6
Other (income) expenses, net		(10	)		4		-		-			(6	)

Total operating expenses		15			85		47		-			147

EARNINGS BEFORE INTEREST AND TAXES		(12	)		97		21		-			106
Interest expense, net		27			-		2		-			29

EARNINGS BEFORE TAXES		(39	)		97		19		-			77
Less: Income tax expense (benefit)		(16	)		32		10		-			26
Equity in net earnings of subsidiaries		74			9		-		(83	)		-
Equity in net earnings of affiliates		-			-		-		-			-

NET EARNINGS		51			74		9		(83	)		51
Less: Net earnings attributable to noncontrolling interests		-			-		-		-			-

NET EARNINGS ATTRIBUTABLE TO OWENS CORNING	$	51		$	74	$	9	$	(83	)	$	51

- 29 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

19.

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF EARNINGS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012

(in millions)


	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
NET SALES	$	-		$	895		$	485		$	(104	)	$	1,276
COST OF SALES		(3	)		741			440			(104	)		1,074

Gross margin		3			154			45			-			202
OPERATING EXPENSES
Marketing and administrative expenses		24			58			33			-			115
Science and technology expenses		-			15			5			-			20
Charges related to cost reduction actions		-			-			-			-			-
Other (income) expenses, net		(6	)		24			(10	)		-			8

Total operating expenses		18			97			28			-			143

EARNINGS BEFORE INTEREST AND TAXES		(15	)		57			17			-			59
Interest expense, net		27			-			2			-			29

EARNINGS BEFORE TAXES		(42	)		57			15			-			30
Less: Income tax expense (benefit)		(16	)		11			(9	)		-			(14	)
Equity in net earnings of subsidiaries		70			25			-			(95	)		-
Equity in net earnings of affiliates		-			(1	)		1			-			-

NET EARNINGS		44			70			25			(95	)		44
Less: Net earnings attributable to noncontrolling interests		-			-			-			-			-

NET EARNINGS ATTRIBUTABLE TO OWENS CORNING	$	44		$	70		$	25		$	(95	)	$	44

- 30 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

19.

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF EARNINGS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013

(in millions)


	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
NET SALES	$	-		$	2,872	$	1,451	$	(306	)	$	4,017
COST OF SALES		(7	)		2,340		1,257		(306	)		3,284

Gross margin		7			532		194		-			733
OPERATING EXPENSES												-
Marketing and administrative expenses		89			202		104		-			395
Science and technology expenses		-			43		14		-			57
Charges related to cost reduction actions		-			-		8		-			8
Other (income) expenses, net		(17	)		-		9		-			(8	)

Total operating expenses		72			245		135		-			452

EARNINGS BEFORE INTEREST AND TAXES		(65	)		287		59		-			281
Interest expense, net		81			1		5		-			87

EARNINGS BEFORE TAXES		(146	)		286		54		-			194
Less: Income tax expense (benefit)		(57	)		91		37		-			71
Equity in net earnings of subsidiaries		211			16		-		(227	)		-
Equity in net earnings of affiliates		-			-		-		-			-

NET EARNINGS		122			211		17		(227	)		123
Less: Net earnings attributable to noncontrolling interests		-			-		1		-			1

NET EARNINGS ATTRIBUTABLE TO OWENS CORNING	$	122		$	211	$	16	$	(227	)	$	122

- 31 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

19.

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF EARNINGS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

(in millions)


	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
NET SALES	$	-		$	2,846		$	1,461		$	(294	)	$	4,013
COST OF SALES		-			2,353			1,327			(294	)		3,386

Gross margin		-			493			134			-			627
OPERATING EXPENSES
Marketing and administrative expenses		86			190			104			-			380
Science and technology expenses		-			47			13			-			60
Charges related to cost reduction actions		-			-			36			-			36
Other (income) expenses, net		(25	)		34			10			-			19

Total operating expenses		61			271			163			-			495

EARNINGS BEFORE INTEREST AND TAXES		(61	)		222			(29	)		-			132
Interest expense, net		76			2			7			-			85

EARNINGS BEFORE TAXES		(137	)		220			(36	)		-			47
Less: Income tax expense (benefit)		(52	)		56			4			-			8
Equity in net earnings of subsidiaries		122			(41	)		-			(81	)		-
Equity in net earnings of affiliates		-			(1	)		1			-			-

NET EARNINGS		37			122			(39	)		(81	)		39
Less: Net earnings attributable to noncontrolling interests		-			-			2			-			2

NET EARNINGS ATTRIBUTABLE TO OWENS CORNING	$	37		$	122		$	(41	)	$	(81	)	$	37

- 32 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

19.

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF COMPREHENSIVE EARNINGS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2013

(in millions)


	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
NET EARNINGS	$	51	$	74	$	9	$	(83	)	$	51
Currency translation adjustment		15		-		-		-			15
Pension and other postretirement adjustment (net of tax)		2		-		-		-			2
Deferred income (loss) on hedging (net of tax)		-		-		-		-			-

COMPREHENSIVE EARNINGS		68		74		9		(83	)		68
Less: Comprehensive earnings attributable to noncontrolling interests		-		-		-		-			-

COMPREHENSIVE EARNINGS ATTRIBUTABLE TO OWENS CORNING	$	68	$	74	$	9	$	(83	)	$	68

- 33 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

19.

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF COMPREHENSIVE EARNINGS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012

(in millions)


	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
NET EARNINGS	$	44		$	70	$	25	$	(95	)	$	44
Currency translation adjustment		28			-		-		-			28
Pension and other postretirement adjustment (net of tax)		(1	)		-		-		-			(1	)
Deferred income (loss) on hedging (net of tax)		2			-		-		-			2

COMPREHENSIVE EARNINGS		73			70		25		(95	)		73
Less: Comprehensive earnings attributable to noncontrolling interests		-			-		-		-			-

COMPREHENSIVE EARNINGS ATTRIBUTABLE TO OWENS CORNING	$	73		$	70	$	25	$	(95	)	$	73

- 34 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

19.

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF COMPREHENSIVE EARNINGS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013

(in millions)


	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
NET EARNINGS	$	122		$	211	$	17	$	(227	)	$	123
Currency translation adjustment		(30	)		-		-		-			(30	)
Pension and other postretirement adjustment (net of tax)		11			-		-		-			11
Deferred income (loss) on hedging (net of tax)		-			-		-		-			-

COMPREHENSIVE EARNINGS		103			211		17		(227	)		104
Less: Comprehensive earnings attributable to noncontrolling interests		-			-		1		-			1

COMPREHENSIVE EARNINGS ATTRIBUTABLE TO OWENS CORNING	$	103		$	211	$	16	$	(227	)	$	103

- 35 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

19.

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF COMPREHENSIVE EARNINGS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

(in millions)


	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
NET EARNINGS	$	37		$	122	$	(39	)	$	(81	)	$	39
Currency translation adjustment		9			-		-			-			9
Pension and other postretirement adjustment (net of tax)		(2	)		-		-			-			(2	)
Deferred income (loss) on hedging (net of tax)		3			-		-			-			3

COMPREHENSIVE EARNINGS		47			122		(39	)		(81	)		49
Less: Comprehensive earnings attributable to noncontrolling interests		-			-		2			-			2

COMPREHENSIVE EARNINGS ATTRIBUTABLE TO OWENS CORNING	$	47		$	122	$	(41	)	$	(81	)	$	47

- 36 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

19.

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

OWENS CORNING AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF SEPTEMBER 30, 2013

(in millions)


ASSETS	Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations			Consolidated
CURRENT ASSETS
Cash and cash equivalents	$	1		$	4	$	46		$	-		$	51
Receivables, less allowances		-			-		758			-			758
Due from affiliates		-			2,726		-			(2,726	)		-
Inventories		-			510		324			-			834
Other current assets		43			132		95			-			270

Total current assets		44			3,372		1,223			(2,726	)		1,913
Investment in subsidiaries		7,105			2,405		558			(10,068	)		-
Due from affiliates		-			66		966			(1,032	)		-
Property, plant and equipment, net		359			1,293		1,253			-			2,905
Goodwill		-			1,127		39			-			1,166
Intangible assets		-			1,017		283			(254	)		1,046
Deferred income taxes		60			405		17			-			482
Other non-current assets		20			68		127			-			215

TOTAL ASSETS	$	7,588		$	9,753	$	4,466		$	(14,080	)	$	7,727

LIABILITIES AND EQUITY

CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	31		$	599	$	308		$	-		$	938
Due to affiliates		1,550			-		1,176			(2,726	)		-
Short-term debt		-			-		8			-			8
Long-term debt – current portion		-			2		1			-			3

Total current liabilities		1,581			601		1,493			(2,726	)		949
Long-term debt, net of current portion		1,914			27		234			-			2,175
Due to affiliates		-			966		66			(1,032	)		-
Pension plan liability		313			-		139			-			452
Other employee benefits liability		-			247		18			-			265
Deferred income taxes		-			-		35			-			35
Other liabilities		165			249		40			(254	)		200
OWENS CORNING STOCKHOLDERS’ EQUITY
Preferred stock		-			-		-			-			-
Common stock		1			-		-			-			1
Additional paid in capital		3,961			6,558		1,962			(8,520	)		3,961
Accumulated earnings		573			1,105		443			(1,548	)		573
Accumulated other comprehensive deficit		(382	)		-		-			-			(382	)
Cost of common stock in treasury		(538	)		-		-			-			(538	)

Total Owens Corning stockholders’ equity		3,615			7,663		(2,405	)		(10,068	)		3,615
Noncontrolling interests		-			-		36			-			36

Total equity		3,615			7,663		2,441			(10,068	)		3,651

TOTAL LIABILITIES AND EQUITY	$	7,588		$	9,753	$	4,466		$	(14,080	)	$	7,727

- 37 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

19.

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

OWENS CORNING AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2012

(in millions)


ASSETS	Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
CURRENT ASSETS
Cash and cash equivalents	$	-		$	3	$	52	$	-		$	55
Receivables, less allowances		-			-		600		-			600
Due from affiliates		-			2,528		-		(2,528	)		-
Inventories		-			473		313		-			786
Other current assets		5			75		96		-			176

Total current assets		5			3,079		1,061		(2,528	)		1,617
Investment in subsidiaries		6,877			2,489		558		(9,924	)		-
Due from affiliates		-			65		1,022		(1,087	)		-
Property, plant and equipment, net		374			1,294		1,235		-			2,903
Goodwill		-			1,068		75		-			1,143
Intangible assets		-			939		302		(196	)		1,045
Deferred income taxes		54			525		25		-			604
Other non-current assets		62			74		120		-			256

TOTAL ASSETS	$	7,372		$	9,533	$	4,398	$	(13,735	)	$	7,568

LIABILITIES AND EQUITY

CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	8		$	620	$	279	$	-		$	907
Due to affiliates		1,419			-		1,109		(2,528	)		-
Short-term debt		-			-		5		-			5
Long-term debt – current portion		-			2		2		-			4

Total current liabilities		1,427			622		1,395		(2,528	)		916
Long-term debt, net of current portion		1,884			28		164		-			2,076
Due to affiliates		-			1,022		65		(1,087	)		-
Pension plan liability		331			-		149		-			480
Other employee benefits liability		-			254		20		-			274
Deferred income taxes		-			-		38		-			38
Other liabilities		192			172		41		(196	)		209
OWENS CORNING STOCKHOLDERS’ EQUITY
Preferred stock		-			-		-		-			-
Common stock		1			-		-		-			1
Additional paid in capital		3,925			6,541		2,062		(8,603	)		3,925
Accumulated earnings		451			894		427		(1,321	)		451
Accumulated other comprehensive deficit		(364	)		-		-		-			(364	)
Cost of common stock in treasury		(475	)		-		-		-			(475	)

Total Owens Corning stockholders’ equity		3,538			7,435		2,489		(9,924	)		3,538
Noncontrolling interests		-			-		37		-			37

Total equity		3,538			7,435		2,526		(9,924	)		3,575

TOTAL LIABILITIES AND EQUITY	$	7,372		$	9,533	$	4,398	$	(13,735	)	$	7,568

- 38 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

19.

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

OWENS CORNING AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013

(in millions)


	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations		Consolidated
NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES	$	(63	)	$	105		$	121		$	-	$	163
NET CASH FLOW USED FOR INVESTING ACTIVITIES
Additions to plant and equipment		(5	)		(70	)		(124	)		-		(199	)
Investment in subsidiaries and affiliates, net of cash acquired		-			(51	)		(11	)		-		(62	)
Proceeds from Hurricane Sandy insurance claims		-			26			-					26
Proceeds from the sale of affiliates		-			-			17			-		17
Purchases of alloy		-			-			(15	)		-		(15	)
Proceeds from sale of alloy		16			-			-			-		16

Net cash flow used for investing activities		11			(95	)		(133	)		-		(217	)

NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES
Proceeds from senior revolving credit and receivables securitization facilities		940			-			123			-		1,063
Payments on senior revolving credit and receivables securitization facilities		(906	)		-			(51	)		-		(957	)
Payments on long-term debt		-			-			(1	)		-		(1	)
Net increase (decrease) in short-term debt		-			-			3			-		3
Purchases of treasury stock		(63	)		-			-			-		(63	)
Other intercompany loans		75			(9	)		(66	)		-		-
Other		7			-			-			-		7

Net cash flow provided by financing activities		53			(9	)		8			-		52

Effect of exchange rate changes on cash		-			-			(2	)		-		(2	)

Net decrease in cash and cash equivalents		1			1			(6	)		-		(4	)
Cash and cash equivalents at beginning of period		-			3			52			-		55

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1		$	4		$	46		$	-	$	51

- 39 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

19.

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

OWENS CORNING AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

(in millions)


	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated
NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES	$	(64	)	$	37		$	120		$	-	$	93
NET CASH FLOW USED FOR INVESTING ACTIVITIES
Additions to plant and equipment		(22	)		(123	)		(90	)		-		(235	)
Proceeds from the sale of affiliates		-			5			7			-		12

Net cash flow used for investing activities		(22	)		(118	)		(83	)		-		(223	)

NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES
Proceeds from senior revolving credit and receivables securitization facilities		1,089			-			116			-		1,205
Payments on senior revolving credit and receivables securitization facilities		(835	)		-			(94	)		-		(929	)
Payments on long-term debt		(4	)		-			(9	)		-		(13	)
Net increase (decrease) in short-term debt		(8	)		-			(1	)		-		(9	)
Purchases of noncontrolling interest		-			(22	)		-					(22	)
Purchase of treasury stock		(113	)		-			-			-		(113	)
Other intercompany loans		(52	)		103			(51	)		-		-
Other		9			-			-			-		9

Net cash flow provided by financing activities		86			81			(39	)		-		128

Effect of exchange rate changes on cash		-			-			1			-		1

Net decrease in cash and cash equivalents		-			-			(1	)		-		(1	)
Cash and cash equivalents at beginning of period		-			-			52			-		52

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	-		$	-		$	51		$	-	$	51

- 40 -

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis (“MD&A”) is intended to help investors understand Owens Corning, our operations and our present business environment. MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and the accompanying Notes thereto contained in this report. Unless the context requires otherwise, the terms “Owens Corning,” “Company,” “we” and “our” in this report refer to Owens Corning and its subsidiaries.

GENERAL

Owens Corning is a leading global producer of glass fiber reinforcements and other materials for composites and of residential and commercial building materials. The Company’s business operations fall within two reportable segments, Composites and Building Materials. Composites includes our Reinforcements and Downstream businesses. Building Materials includes our Insulation and Roofing businesses. Through these lines of business, we manufacture and sell products worldwide. We maintain leading market positions in many of our major product categories.

EXECUTIVE OVERVIEW

We reported $106 million in earnings before interest and taxes (“EBIT”) for the third quarter 2013. We generated $119 million in adjusted earnings before interest and taxes (“Adjusted EBIT”) for the third quarter 2013. Third quarter EBIT in our Building Materials segment increased by $28 million and EBIT in our Composites segment increased by $10 million compared to the same period in 2012.

Restructuring actions initiated in 2012 represented $5 million of the amount adjusted out of reported EBIT to arrive at adjusted EBIT, with the majority of the charges related to the repositioning of our European assets in our Composites business. We have also adjusted out $6 million of charges related to cost reduction actions associated with closing and selling our Hangzhou, China Composites glass reinforcements facility further discussed in Note 8 and Note 10 of the Consolidated Financial Statements. Lastly, we have adjusted out $2 million of net losses related to a flood that occurred during October of 2012 in our Kearny, New Jersey roofing manufacturing facility as a result of Hurricane Sandy. The Company believes related costs and business interruption losses will be substantially covered by insurance. In the third quarter of 2013, we have reached full operating capacity at this facility and continue to service our customers without any interruption. See below for further information regarding adjusted EBIT, including the reconciliation to net earnings attributable to Owens Corning.

In our Composites segment, EBIT in the third quarter 2013 was $21 million compared to $11 million in the same period in 2012. The increase was primarily driven by lower plant start up and maintenance costs and improved capacity utilization.

In our Building Materials segment, EBIT in the third quarter 2013 was $114 million, compared to $86 million in the same period in 2012. In our Roofing business, EBIT increased $13 million due to higher selling prices and improved manufacturing productivity. Our Insulation business increased EBIT $15 million compared to the same period in 2012 on higher selling prices and sales volumes.

We maintain a strong balance sheet with ample liquidity. We have access to an $800 million senior revolving credit facility and a $250 million receivables securitization facility, both of which have a July 2016 maturity date. We have no significant debt maturities before 2016.

Year-to-date 2013, we have generated $163 million in cash flow from operating activities compared to $93 million over the same period of 2012. This improvement was primarily from improved earnings, partially offset by increased investment in working capital.

We repurchased 1.4 million shares of the Company’s common stock for $54 million during the third quarter of 2013 under previously announced repurchase programs. As of September 30, 2013, 8.6 million shares remain available for repurchase under the authorized programs.

- 41 -

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

RESULTS OF OPERATIONS

Consolidated Results (in millions)


	Three Months Ended Sep. 30,						Nine Months Ended Sep. 30,
	2013			2012			2013			2012
Net sales	$	1,320		$	1,276		$	4,017		$	4,013
Gross margin	$	253		$	202		$	733		$	627
% of net sales		19	%		16	%		18	%		16	%
Charges related to cost reduction actions	$	6		$	-		$	8		$	36
Earnings before interest and taxes	$	106		$	59		$	281		$	132
Interest expense, net	$	29		$	29		$	87		$	85
Income tax expense	$	26		$	(14	)	$	71		$	8
Net earnings attributable to Owens Corning	$	51		$	44		$	122		$	37

The Consolidated Results discussion below provides a summary of our results and the trends affecting our business, and should be read in conjunction with the more detailed Segment Results discussion that follows.

NET SALES

Third quarter and year-to-date net sales increased $44 million and $4 million, respectively, compared to the same periods in 2012. For both the third quarter and year-to-date comparisons, the increase in net sales was mainly due to higher sales volumes in our Insulation business which were partially offset by lower sales volumes in our Roofing business.

GROSS MARGIN

Gross margin as a percentage of sales was higher in both the third quarter and year-to-date comparisons. In the third quarter, the increase was due to higher contribution margins across all of our businesses. For year-to-date 2013, higher Roofing and Insulation contribution margins were the primary drivers of the increase. In addition, gross margin included $4 million and $26 million of charges in the third quarter and year-to-date 2013, respectively, resulting from net losses related to Hurricane Sandy. Gross margin also included $5 million and $15 million of charges in the third quarter and year-to-date 2013, respectively resulting from our 2012 restructuring actions. This compares to $22 million and $73 million of charges in the third quarter and year-to-date 2012, respectively, related to our 2012 restructuring actions.

CHARGES RELATED TO COST REDUCTION ACTIONS

On September 13, 2013, we entered into an agreement to sell our Composites glass reinforcements facility in Hangzhou, China to the Hangzhou Municipal Land Reservation Center and the Development and Construction Management Office of Taoyuan New Zone of Gongshu District in Hangzhou. This sale is expected to be complete in the first half of 2014. As a result of this action, we recognized $6 million in charges related to cost reduction actions.

During 2012, we took actions to improve the competitive position of our global Composites manufacturing network through the closure or optimization of certain facilities, with our most significant actions taking place in France, Spain and Italy. These actions were primarily due to market conditions that led to lower capacity requirements within the European region. As a result of these actions, in addition to the charges recorded in cost of sales discussed above, we recognized $2 million in severance charges year-to-date 2013, none of which occurred in the third quarter, compared to $36 million for year-to-date 2012, none of which occurred in the third quarter. The total charges related to cost reduction actions and related items for the third quarter and year-to-date 2013 were $5 million and $17 million, respectively, compared to $22 million and $109 million for the third quarter and year-to-date 2012, respectively.

- 42 -

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

EARNINGS BEFORE INTEREST AND TAXES

EBIT increased by $47 million for the third quarter 2013 compared to the same period in 2012. Third quarter EBIT in our Building Materials segment increased by $28 million and third quarter EBIT in our Composites segment increased by $10 million compared to the same period in 2012. Corporate EBIT losses for the third quarter decreased by $9 million, due primarily to the lower charges related to cost reduction actions and related items discussed above, compared to the same period in 2012. In addition to the Hurricane Sandy losses discussed above, corporate EBIT also included a net $2 million and $10 million gain in Other (income) expense, net for the three and nine month periods ended September 30, 2013, respectively. These gains were related to insurance proceeds that have been collected to date net of other Hurricane Sandy related expenses.

For year-to-date 2013, EBIT increased by $149 million compared to the same period in 2012. Year-to-date EBIT in our Building Materials segment increased by $90 million and year-to-date EBIT in our Composites segment decreased by $6 million compared to the same period in 2012. Corporate EBIT losses for year-to-date 2013 decreased by $65 million, due primarily to the lower charges related to cost reduction actions and related items discussed above, compared to the same period in 2012.

INTEREST EXPENSE, NET

Year-to-date 2013 interest expense was higher than in 2012 due primarily to higher average borrowing levels.

INCOME TAX EXPENSE