Edgar Filing: Owens Corning

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 June 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 July 15, 2013, 118,894,678 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 (Loss)	3
		Consolidated Statements of Comprehensive Earnings (Loss)	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	13
		8. Warranties	14
		9. Cost Reduction Actions	14
		10. Debt	15
		11. Pension Plans and Other Postretirement Benefits	17
		12. Contingent Liabilities and Other Matters	18
		13. Stock Compensation	19
		14. Earnings (Loss) per Share	22
		15. Fair Value Measurement	23
		16. Income Taxes	24
		17. Changes in Accumulated Other Comprehensive Income	25
		18. Condensed Consolidating Financial Statements	25

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48

	Item 4.	Controls and Procedures	48

PART II – OTHER INFORMATION

	Item 1.	Legal Proceedings	49

	Item 1A.	Risk Factors	49

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49

	Item 3.	Defaults Upon Senior Securities	49

	Item 4.	Mine Safety Disclosures	49

	Item 5.	Other Information	49

	Item 6.	Exhibits	49

		Signatures	50
		Exhibit Index	51

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PART I

ITEM 1. FINANCIAL STATEMENTS

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

(unaudited)

(in millions, except per share amounts)


	Three Months Ended June 30,					Six Months Ended June 30,
	2013			2012		2013			2012
NET SALES	$	1,347		$	1,391	$	2,697		$	2,737
COST OF SALES		1,080			1,152		2,217			2,312

Gross margin		267			239		480			425
OPERATING EXPENSES
Marketing and administrative expenses		134			128		267			265
Science and technology expenses		20			21		38			40
Charges related to cost reduction actions		1			2		2			36
Other (income) expenses, net		(6	)		3		(2	)		11

Total operating expenses		149			154		305			352

EARNINGS BEFORE INTEREST AND TAXES		118			85		175			73
Interest expense, net		29			28		58			56

EARNINGS BEFORE TAXES		89			57		117			17
Less: Income tax expense		39			17		45			22
Equity in net earnings of affiliates		-			-		-			-

NET EARNINGS (LOSS)		50			40		72			(5	)
Less: Net earnings attributable to noncontrolling interests		1			1		1			2

NET EARNINGS (LOSS) ATTRIBUTABLE TO OWENS CORNING	$	49		$	39	$	71		$	(7	)

EARNINGS (LOSS) PER COMMON SHARE ATTRIBUTABLE TO OWENS CORNING COMMON STOCKHOLDERS
Basic	$	0.41		$	0.32	$	0.60		$	(0.06	)
Diluted	$	0.41		$	0.32	$	0.59		$	(0.06	)
WEIGHTED-AVERAGE COMMON SHARES
Basic		119.1			120.8		118.8			120.9
Diluted		120.4			121.5		119.9			120.9

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 (LOSS)

(unaudited)

(in millions)


	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
NET EARNINGS (LOSS)	$	50		$	40		$	72		$	(5	)
Currency translation adjustment		(24	)		(43	)		(45	)		(19	)
Pension and other postretirement adjustment (net of tax of $5 and $0 for the periods ended June 30, 2013 and 2012, respectively)		7			-			9			(1	)
Deferred income (loss) on hedging (net of tax of $1, $(1), $0, and $(1) for the three and six months ended June 30, 2013 and 2012, respectively)		(2	)		3			-			1

COMPREHENSIVE EARNINGS (LOSS)		31			-			36			(24	)
Less: Comprehensive earnings attributable to noncontrolling interests		1			1			1			2

COMPREHENSIVE EARNINGS (LOSS) ATTRIBUTABLE TO OWENS CORNING	$	30		$	(1	)	$	35		$	(26	)

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	June 30, 2013			Dec. 31, 2012
CURRENT ASSETS
Cash and cash equivalents	$	72		$	55
Receivables, less allowances of $15 at June 30, 2013, and $17 at Dec. 31, 2012		789			600
Inventories		820			786
Other current assets		245			176

Total current assets		1,926			1,617
Property, plant and equipment, net		2,881			2,903
Goodwill		1,167			1,143
Intangible assets		1,051			1,045
Deferred income taxes		561			604
Other non-current assets		199			256

TOTAL ASSETS	$	7,785		$	7,568


LIABILITIES AND EQUITY

CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	918		$	907
Short-term debt		21			5
Long-term debt – current portion		3			4

Total current liabilities		942			916
Long-term debt, net of current portion		2,250			2,076
Pension plan liability		455			480
Other employee benefits liability		267			274
Deferred income taxes		35			38
Other liabilities		207			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		3,953			3,925
Accumulated earnings		522			451
Accumulated other comprehensive deficit		(399	)		(364	)
Cost of common stock in treasury (c)		(484	)		(475	)

Total Owens Corning stockholders’ equity		3,593			3,538
Noncontrolling interests		36			37

Total equity		3,629			3,575

TOTAL LIABILITIES AND EQUITY	$	7,785		$	7,568

(a)

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

(b)

400 shares authorized; 135.5 issued and 119.1 outstanding at June 30, 2013; 135.6 issued and 118.3 outstanding at Dec. 31, 2012

(c)

16.4 shares at June 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)


	Six Months Ended June 30,
	2013			2012
NET CASH FLOW USED FOR OPERATING ACTIVITIES
Net earnings (loss)	$	72		$	(5	)
Adjustments to reconcile net earnings to cash provided by operating activities:
Depreciation and amortization		157			180
Gain on sale of businesses and fixed assets		-			(3	)
Deferred income taxes		37			8
Provision for pension and other employee benefits liabilities		18			23
Stock-based compensation expense		14			13
Other non-cash		(12	)		(7	)
Change in working capital		(254	)		(209	)
Pension fund contribution		(20	)		(30	)
Payments for other employee benefits liabilities		(11	)		(12	)
Other		(13	)		2

Net cash flow used for operating activities		(12	)		(40	)

NET CASH FLOW USED FOR INVESTING ACTIVITIES
Additions to plant and equipment		(125	)		(163	)
Investment in subsidiaries and affiliates, net of cash acquired		(52	)		-
Proceeds from Hurricane Sandy insurance claims		15			-
Proceeds from the sale of assets or affiliates		-			7

Net cash flow used for investing activities		(162	)		(156	)

NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES
Proceeds from senior revolving credit and receivables securitization facilities		799			933
Payments on senior revolving credit and receivables securitization facilities		(621	)		(648	)
Payments on long-term debt		(1	)		(6	)
Net increase (decrease) in short-term debt		15			(4	)
Purchases of treasury stock		(9	)		(82	)
Other		11			6

Net cash flow provided by financing activities		194			199

Effect of exchange rate changes on cash		(3	)		(1	)

Net increase in cash and cash equivalents		17			2
Cash and cash equivalents at beginning of period		55			52

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	72		$	54

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 June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Reportable Segments
Composites	$	472		$	498		$	931		$	974
Building Materials		923			945			1,860			1,864

Total reportable segments		1,395			1,443			2,791			2,838
Corporate eliminations		(48	)		(52	)		(94	)		(101	)

NET SALES	$	1,347		$	1,391		$	2,697		$	2,737


External Customer Sales by Geographic Region
United States	$	924		$	954		$	1,888		$	1,899
Europe		139			152			277			298
Asia Pacific		161			164			299			312
Other		123			121			233			228

NET SALES	$	1,347		$	1,391		$	2,697		$	2,737


Sales by Product Group
Composites	$	472		$	498		$	931		$	974
Insulation		415			340			745			671
Roofing		508			605			1,115			1,193
Corporate Eliminations		(48	)		(52	)		(94	)		(101	)

NET SALES	$	1,347		$	1,391		$	2,697		$	2,737

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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 June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Reportable Segments
Composites	$	32		$	34		$	41		$	57
Building Materials		120			107			218			156

Total reportable segments	$	152		$	141		$	259		$	213


Corporate, Other and Eliminations
Charges related to cost reduction actions and related items (a)	$	(3	)	$	(32	)	$	(12	)	$	(87	)
Losses related to Hurricane Sandy		(3	)		-			(14	)		-
General corporate expense and other		(28	)		(24	)		(58	)		(53	)

EBIT	$	118		$	85		$	175		$	73

(a)

For the three months ended June 30, 2013 and 2012, includes $1 million and $2 million, respectively, of charges related to cost reduction actions and $2 million and $30 million, respectively, of other related items. For the six months ended June 30, 2013 and 2012, includes $2 million and $36 million, respectively, of charges related to cost reduction actions and $10 million and $51 million, respectively, of other related items.

3.	INVENTORIES

Inventories consist of the following (in millions):


	June 30, 2013		Dec. 31, 2012
Finished goods	$	571	$	554
Materials and supplies		249		232

Total inventories	$	820	$	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 June 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		June 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	$	-	$	-

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	$	4	$	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 June 30,						Six Months Ended June 30,
	Location	2013			2012			2013			2012
Derivative activity designated as hedging instruments:
Natural gas and electricity:
Amount of (gain) loss reclassified from OCI into earnings (effective portion)	Cost of sales	$	(1	)	$	5		$	(1	)	$	7

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

Derivative activity not designated as hedging instruments:
Natural gas and electricity:
Amount of loss (gain) recognized in earnings	Other (income) expenses, net	$	1		$	(1	)	$	-		$	(2	)

Foreign currency exchange contract:
Amount of loss (gain) recognized in earnings (a)	Other (income) expenses, net	$	2		$	(7	)	$	10		$	4

(a)	Losses (gains) 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 (Loss) 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 (Loss).

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 June 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 (Loss).

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 (Loss).

5.	GOODWILL AND OTHER INTANGIBLE ASSETS

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


June 30, 2013	Weighted Average Useful Life		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortizable intangible assets:
Customer relationships		18	$	180	$	(63	)	$	117
Technology		20		196		(69	)		127
Franchise and other agreements		15		36		(15	)		21
Indefinite-lived intangible assets:
Trademarks				786		-			786

Total intangible assets			$	1,198	$	(147	)	$	1,051

Goodwill			$	1,167


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		15		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

Balance as of June 30, 2013	$	58	$	1,109	$	1,167

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 second quarter of 2013.

6.	PROPERTY, PLANT AND EQUIPMENT

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


	June 30, 2013			Dec. 31, 2012
Land	$	220		$	222
Buildings and leasehold improvements		797			789
Machinery and equipment		3,263			3,223
Construction in progress		170			147

		4,450			4,381
Accumulated depreciation		(1,569	)		(1,478	)

Property, plant and equipment, net	$	2,881		$	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 June 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.

7.	ACQUISITIONS

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.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

7.	ACQUISITIONS (continued)

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 to the three and six months ended June 30, 2013.

8.	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):


	Six Months Ended June 30, 2013
Beginning balance	$	41
Amounts accrued for current year		12
Settlements of warranty claims		(11	)

Ending balance	$	42

9.	COST REDUCTION ACTIONS

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 $3 million and $12 million in charges related to cost reduction actions and related items for the three and six months ended June 30, 2013, respectively; of which, $1 million and $2 million is related to severance and is included in charges related to cost reduction actions on the Consolidated Statements of Earnings (Loss). The $2 million and $10 million of other charges consist of $1 million and $4 million in accelerated depreciation due to the shortened expected useful life of the closed facilities and $1 million and $6 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 June 30, 2013		Cumulative Charges Incurred
Severance	$	45	$	2	$	12	$	35	$	53

Total	$	45	$	2	$	12	$	35	$	53

- 15 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

10.

DEBT

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


	June 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 2014		212		141
Senior revolving credit facility, maturing in 2016		180		73
Various capital leases, due through and beyond 2050		51		52
Various floating rate debt, maturing through 2027		1		2
Fair value adjustment to debt		22		26

Total long-term debt		2,253		2,080
Less – current portion		3		4

Long-term debt, net of current portion	$	2,250	$	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 June 30, 2013.

In the fourth quarter of 2011, the Company terminated all 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.

- 16 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

10.

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 June 30, 2013.

The Company had $4 million of letters of credit outstanding under the Senior Revolving Credit Facility at June 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”). 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 fourth quarter of 2011 to extend maturity to December 2014. At June 30, 2013, the Company utilized the full amount permitted under the terms of the RPA. The Company had $37 million of letters of credit outstanding under the receivables securitization facility at June 30, 2013 and December 31, 2012.

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 June 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 June 30, 2013 and December 31, 2012, short-term borrowings were $21 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 6.9% for June 30, 2013, and 4.5% for December 31, 2012.

- 17 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

11.

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 June 30, 2013									Three Months Ended June 30, 2012
	U.S.			Non-U.S.			Total			U.S.			Non-U.S.			Total
Components of Net Periodic Pension Cost
Service cost	$	3		$	2		$	5		$	1		$	2		$	3
Interest cost		11			6			17			13			6			19
Expected return on plan assets		(15	)		(6	)		(21	)		(15	)		(6	)		(21	)
Amortization of actuarial loss		3			2			5			6			1			7

Net periodic pension cost	$	2		$	4		$	6		$	5		$	3		$	8


	Six Months Ended June 30, 2013									Six Months Ended June 30, 2012
	U.S.			Non-U.S.			Total			U.S.			Non-U.S.			Total
Components of Net Periodic Pension Cost
Service cost	$	5		$	4		$	9		$	4		$	4		$	8
Interest cost		22			11			33			25			12			37
Expected return on plan assets		(30	)		(12	)		(42	)		(30	)		(13	)		(43	)
Amortization of actuarial loss		7			3			10			12			2			14

Net periodic pension cost	$	4		$	6		$	10		$	11		$	5		$	16

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 $20 million to the plans during the six months ended June 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.

- 18 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

11.

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 June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Components of Net Periodic Benefit Cost
Service cost	$	-		$	-		$	1		$	1
Interest cost		3			3			5			6
Amortization of prior service cost		(1	)		(1	)		(2	)		(2	)
Amortization of actuarial gain		-			(1	)		-			(1	)

Net periodic benefit cost	$	2		$	1		$	4		$	4

12.

CONTINGENT LIABILITIES AND OTHER MATTERS

Litigation

The Company is involved in various legal proceedings relating to employment, product liability and other matters. The Company regularly reviews the status of these proceedings along with legal counsel. Liabilities for such items 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 ultimate disposition of these 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 June 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 June 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. For the three months ended June 30, 2013, the Company incurred $3 million (net of insurance proceeds) in losses related to clean up activities and business interruption, of which $11 million of losses have been reported in Cost of Sales, partially offset by an $8 million net gain reported in Other (income) expenses, net on the Consolidated Statements of Earnings (Loss). For the six months ended June 30, 2013, the Company incurred $14 million (net of insurance proceeds) in losses related to clean up activities and business interruption, of which $22 million of losses have been reported in Cost of Sales, partially offset by an $8 million net gain reported in Other (income) expenses, net on the

- 19 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

12.

CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

Consolidated Statements of Earnings (Loss). During the three months ended June 30, 2013, we received advances of $15 million that have been presented on the statement of cash flows as an investing activity based on the nature of the insured items. The Company believes that all costs/losses will be substantially covered by insurance. Also, the timing of any recoveries may result in expenses being taken in periods before the insurance receipts are recorded or received.

13.

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 June 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 six months ended June 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 six months ended June 30, 2013, the Company recognized expense of $1 million and $2.5 million respectively, related to the Company’s stock options. During the three and six months ended June 30, 2012, the Company recognized expense of $1 million and $2 million respectively, related to the Company’s stock options. As of June 30, 2013, there was $10 million of total unrecognized compensation cost related to stock options. That cost is expected to be recognized over a weighted-average period of 2.86 years. The total aggregate intrinsic value of options outstanding as of June 30, 2013 and 2012 was $28 million and $11 million.

- 20 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

13.

STOCK COMPENSATION (continued)

The following table summarizes the Company’s stock option activity for the six months ended June 30, 2013:


	Six Months Ended June 30, 2013
	Number of Options			Weighted- Average Exercise Price
Beginning Balance		3,025,220		$	27.78
Granted		329,800			42.16
Exercised		(528,425	)		26.99
Forfeited		(48,500	)		34.47

Ending Balance		2,778,095		$	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 June 30, 2013		Weighted-Average
Range of Exercise Prices	Options Outstanding		Remaining Contractual Life		Exercise Price		Number Exercisable at June 30, 2013		Remaining Contractual Life		Exercise Price

$13.89- $42.16		2,778,095		5.85	$	29.52		1,960,520		4.71	$	26.72

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 six months ended June 30, 2013 and 2012, the Company recognized expense of $4 million and $8 million respectively, related to the Company’s restricted stock. As of June 30, 2013, there was $31 million of total unrecognized compensation cost related to restricted stock. That cost is expected to be recognized over a weighted-average period of 2.93 years. The total fair value of shares vested during the six months ended June 30, 2013 and 2012 was $15 million and $11 million, respectively.

- 21 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

13.

STOCK COMPENSATION (continued)

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


	Six Months Ended June 30, 2013
	Number of Shares			Weighted-Average Grant-Date Fair Value
Beginning Balance		1,875,065		$	27.14
Granted		476,225			40.21
Vested		(594,215	)		25.86
Forfeited		(61,044	)		34.10

Ending Balance		1,696,031		$	31.01

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 six 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 six months ended June 30, 2013, the Company recognized expense of $2 million and $6 million. During the three and six months ended June 30, 2012, the Company recognized income of $2 million and expense of $6 million, respectively, related to PSUs. As of June 30, 2013, there was $15 million of total unrecognized compensation cost related to PSUs. That cost is expected to be recognized over a weighted-average period of 1.97 years.

A summary of the status of the Company’s plans that had issued PSUs as of June 30, 2013, and changes during the six months ended June 30, 2013, are presented below:


	Six Months Ended June 30, 2013
	Number of PSUs			Weighted-Average Grant-Date Fair Value
Beginning Balance		412,910		$	49.14
Granted		206,150			56.71
Forfeited		(33,300	)		50.03

Ending Balance		585,760		$	51.75

- 22 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

13.

STOCK COMPENSATION (continued)

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 six months ended June 30, 2013, the Company had no significant expense related to the Company ESPP. As of June 30, 2013, there was $1 million of total unrecognized compensation cost related to the ESPP.

14.

EARNINGS (LOSS) PER SHARE

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Net earnings (loss) attributable to Owens Corning	$	49	$	39	$	71	$	(7	)

Weighted-average number of shares outstanding used for basic earnings per share		119.1		120.8		118.8		120.9
Non-vested restricted and performance shares		0.7		0.4		0.6		-
Options to purchase common stock		0.6		0.3		0.5		-

Weighted-average number of shares outstanding and common equivalent shares used for diluted earnings per share		120.4		121.5		119.9		120.9

Earnings (loss) per common share attributable to Owens Corning common stockholders:

Basic	$	0.41	$	0.32	$	0.60	$	(0.06	)
Diluted	$	0.41	$	0.32	$	0.59	$	(0.06	)

Basic earnings (loss) 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. During the six months ended June 30, 2013, no shares were repurchased under the Repurchase Programs. As of June 30, 2013, 10 million shares remain available for repurchase under the Repurchase Programs.

For the three and six months ended June 30, 2013, the number of shares used in the calculation of diluted earnings per share did not include 0.3 million non-vested restricted shares, 0.8 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.

- 23 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

14.

EARNINGS (LOSS) PER SHARE (continued)

For the three and six months ended June 30, 2012, the number of shares used in the calculation of diluted earnings per share did not include zero and 0.5 million non-vested restricted shares, 0.4 million and 0.7 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.

15.

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.

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 June 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)
Liabilities:
Derivative liabilities	$	1	$	-	$	1	$	-

Total liabilities	$	1	$	-	$	1	$	-


	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		$	2	$	1		$	-

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

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

- 24 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

15.

FAIR VALUE MEASUREMENT (continued)

Cash equivalents and term deposits, by their nature, utilize Level 1 inputs in determining fair value. The 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.

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 $9 million and $53 million as of June 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 June 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 107% and 109% of par value.

At June 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 $444 million and $268 million respectively.

16.

INCOME TAXES

Income tax expense for the three and six months ended June 30, 2013, was $39 million and $45 million, respectively. For the second quarter and year-to-date 2013, the Company’s effective tax rate was 44 percent and 39 percent, respectively. 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.

Income tax expense for the three and six months ended June 30, 2012, was $17 million and $22 million, respectively. For the second quarter and year-to-date 2012, the Company’s effective tax rate was 30 percent and 129 percent, respectively. 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.

- 25 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

17.

CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table summarizes the changes in accumulated other comprehensive income (“AOCI”) (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		(1	)		2			1			(45	)		(43	)
Amounts reclassified from AOCI, net of tax		1			7			-			-			8

Change in AOCI, net of tax		-			9			1			(45	)		(35	)

Balance as of June 30, 2013, net of tax	$	(1	)	$	(270	)	$	(113	)	$	(15	)	$	(399	)

18.

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.

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”).

- 26 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

18.

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF EARNINGS (LOSS)

FOR THE THREE MONTHS ENDED JUNE 30, 2013

(in millions)


	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Eliminations			Consolidated
NET SALES	$	-			957			501		(111	)		1,347
COST OF SALES		(2	)		768			425		(111	)		1,080

Gross margin		2			189			76		-			267
OPERATING EXPENSES		1			1								2
Marketing and administrative expenses		31			67			36		-			134
Science and technology expenses		-			16			4		-			20
Charges related to cost reduction actions		-			-			1		-			1
Other (income) expenses, net		(6	)		(8	)		8		-			(6	)

Total operating expenses		25			75			49		-			149

EARNINGS BEFORE INTEREST AND TAXES		(23	)		114			27		-			118
Interest expense, net		27			1			1		-			29

EARNINGS BEFORE TAXES		(50	)		113			26		-			89
Less: Income tax expense		(19	)		40			18		-			39
Equity in net earnings of subsidiaries		80			7			-		(87	)		-

NET EARNINGS (LOSS)		49			80			8		(87	)		50
Less: Net earnings attributable to noncontrolling interest		-			-			1		-			1

NET EARNINGS (LOSS) ATTRIBUTABLE TO OWENS CORNING	$	49		$	80		$	7	$	(87	)	$	49

- 27 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

18.

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF EARNINGS (LOSS)

FOR THE THREE MONTHS ENDED JUNE 30, 2012

(in millions)


	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
NET SALES	$	-		$	989		$	508		$	(106	)	$	1,391
COST OF SALES		1			792			465			(106	)		1,152

Gross margin		(1	)		197			43			-			239
OPERATING EXPENSES		1			1			1			1
Marketing and administrative expenses		28			64			36			-			128
Science and technology expenses		-			17			4			-			21
Charges related to cost reduction actions		-			-			2			-			2
Other (income) expenses, net		(11	)		2			12			-			3

Total operating expenses		17			83			54			-			154

EARNINGS BEFORE INTEREST AND TAXES		(18	)		114			(11	)		-			85
Interest expense, net		24			2			2			-			28

EARNINGS BEFORE TAXES		(42	)		112			(13	)		-			57
Less: Income tax expense		(17	)		33			1			-			17
Equity in net earnings of subsidiaries		64			(15	)		-			(49	)		-

NET EARNINGS (LOSS)		39			64			(14	)		(49	)		40
Less: Net earnings attributable to noncontrolling interest		-			-			1			-			1

NET EARNINGS (LOSS) ATTRIBUTABLE TO OWENS CORNING	$	39		$	64		$	(15	)	$	(49	)	$	39

- 28 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

18.

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF EARNINGS (LOSS)

FOR THE SIX MONTHS ENDED JUNE 30, 2013

(in millions)


	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Eliminations			Consolidated
NET SALES	$	-		$	1,951		$	954	$	(208	)	$	2,697
COST OF SALES		(4	)		1,601			828		(208	)		2,217

Gross margin		4			350			126		-			480
OPERATING EXPENSES
Marketing and administrative expenses		64			134			69		-			267
Science and technology expenses		-			30			8		-			38
Charges related to cost reduction actions		-			-			2		-			2
Other (income) expenses, net		(7	)		(4	)		9		-			(2	)

Total operating expenses		57			160			88		-			305

EARNINGS BEFORE INTEREST AND TAXES		(53	)		190			38		-			175
Interest expense, net		54			1			3		-			58

EARNINGS BEFORE TAXES		(107	)		189			35		-			117
Less: Income tax expense		(41	)		59			27		-			45
Equity in net earnings of subsidiaries		137			7			-		(144	)		-

NET EARNINGS (LOSS)		71			137			8		(144	)		72
Less: Net earnings attributable to noncontrolling interest		-			-			1		-			1

NET EARNINGS (LOSS) ATTRIBUTABLE TO OWENS CORNING	$	71		$	137		$	7	$	(144	)	$	71

- 29 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

18.

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF EARNINGS (LOSS)

FOR THE SIX MONTHS ENDED JUNE 30, 2012

(in millions)


	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
NET SALES	$	-		$	1,951		$	976		$	(190	)	$	2,737
COST OF SALES		3			1,612			887			(190	)		2,312

Gross margin		(3	)		339			89			-			425
OPERATING EXPENSES														1
Marketing and administrative expenses		62			132			71			-			265
Science and technology expenses		-			32			8			-			40
Charges related to cost reduction actions		-			-			36			-			36
Other (income) expenses, net		(19	)		10			20			-			11

Total operating expenses		43			174			135			-			352

EARNINGS BEFORE INTEREST AND TAXES		(46	)		165			(46	)		-			73
Interest expense, net		49			2			5			-			56

EARNINGS BEFORE TAXES		(95	)		163			(51	)		-			17
Less: Income tax expense		(36	)		45			13			-			22
Equity in net earnings of subsidiaries		52			(66	)		-			14			-

NET EARNINGS (LOSS)		(7	)		52			(64	)		14			(5	)
Less: Net earnings attributable to noncontrolling interest		-			-			2			-			2

NET EARNINGS (LOSS) ATTRIBUTABLE TO OWENS CORNING	$	(7	)	$	52		$	(66	)	$	14		$	(7	)

- 30 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

18.

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF COMPREHENSIVE EARNINGS (LOSS)

FOR THE THREE MONTHS ENDED JUNE 30, 2013

(in millions)


	Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
NET EARNINGS	$	49		$	80	$	8	$	(87	)	$	50
Currency translation adjustment		(24	)		-		-		-			(24	)
Pension and other postretirement adjustment (net of tax)		7			-		-		-			7
Deferred income (loss) on hedging (net of tax)		(2	)		-		-		-			(2	)

COMPREHENSIVE EARNINGS (LOSS)		30			80		8		(87	)		31
Less: Comprehensive earnings attributable to noncontrolling interest		-			-		1		-			1

COMPREHENSIVE EARNINGS (LOSS) ATTRIBUTABLE TO OWENS CORNING	$	30		$	80	$	7	$	(87	)	$	30

- 31 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

18.

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF COMPREHENSIVE EARNINGS (LOSS)

FOR THE THREE MONTHS ENDED JUNE 30, 2012

(in millions)


	Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations			Consolidated
NET EARNINGS	$	39		$	64	$	(14	)	$	(49	)	$	40
Currency translation adjustment		(43	)		-		-			-			(43	)
Pension and other postretirement adjustment (net of tax)		-			-		-			-			-
Deferred income (loss) on hedging (net of tax)		3			-		-			-			3

COMPREHENSIVE EARNINGS (LOSS)		(1	)		64		(14	)		(49	)		-
Less: Comprehensive earnings attributable to noncontrolling interest		-			-		1			-			1

COMPREHENSIVE EARNINGS (LOSS) ATTRIBUTABLE TO OWENS CORNING	$	(1	)	$	64	$	(15	)	$	(49	)	$	(1	)

- 32 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

18.

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF COMPREHENSIVE EARNINGS (LOSS)

FOR THE SIX MONTHS ENDED JUNE 30, 2013

(in millions)


	Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
NET EARNINGS (LOSS)	$	71		$	137	$	8	$	(144	)	$	72
Currency translation adjustment		(45	)		-		-		-			(45	)
Pension and other postretirement adjustment (net of tax)		9			-		-		-			9
Deferred income (loss) on hedging (net of tax)		-			-		-		-			1

COMPREHENSIVE EARNINGS (LOSS)		35			137		8		(144	)		36
Less: Comprehensive earnings attributable to noncontrolling interest		-			-		1		-			1

COMPREHENSIVE EARNINGS (LOSS) ATTRIBUTABLE TO OWENS CORNING	$	35		$	137	$	7	$	(144	)	$	35

- 33 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

18.

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF COMPREHENSIVE EARNINGS (LOSS)

FOR THE SIX MONTHS ENDED JUNE 30, 2012

(in millions)


	Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations		Consolidated
NET EARNINGS	$	(7	)	$	52	$	(64	)	$	14	$	(5	)
Currency translation adjustment		(19	)		-		-			-		(19	)
Pension and other postretirement adjustment (net of tax)		(1	)		-0.1		-			-		(1	)
Deferred income (loss) on hedging (net of tax)		1			-		-			-		1

COMPREHENSIVE EARNINGS (LOSS)		(26	)		52		(64	)		14		(24	)
Less: Comprehensive earnings attributable to noncontrolling interest		-0.1			-		2			-		2

COMPREHENSIVE EARNINGS (LOSS) ATTRIBUTABLE TO OWENS CORNING	$	(26	)	$	52	$	(66	)	$	14	$	(26	)

- 34 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

18.

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

OWENS CORNING AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 30, 2013

(in millions)


ASSETS	Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
CURRENT ASSETS
Cash and cash equivalents	$	-		$	2	$	70	$	-		$	72
Receivables, net		-			-		789		-			789
Due from affiliates		-			2,611		-		(2,611	)		-
Inventories		-			493		327		-			820
Other current assets		72			80		93		-			245

Total current assets		72			3,186		1,279		(2,611	)		1,926
Investment in subsidiaries		7,014			2,471		558		(10,043	)		-
Due from affiliates		-			63		928		(991	)		-
Property, plant and equipment, net		372			1,264		1,245		-			2,881
Goodwill		-			1,068		99		-			1,167
Intangible assets		-			1,016		297		(262	)		1,051
Deferred income taxes		53			493		15		-			561
Other non-current assets		19			69		111		-			199

TOTAL ASSETS	$	7,530		$	9,630	$	4,532	$	(13,907	)	$	7,785

LIABILITIES AND EQUITY

CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	7		$	583	$	328	$	-		$	918
Due to affiliates		1,446			-		1,165		(2,611	)		-
Short-term debt		-			14		7		-			21
Long-term debt – current portion		-			2		1		-			3

Total current liabilities		1,453			599		1,501		(2,611	)		942
Long-term debt, net of current portion		1,988			28		234		-			2,250
Due to affiliates		-			928		63		(991	)		-
Pension plan liability		321			-		134		-			455
Other employee benefits liability		-			249		18		-			267
Deferred income taxes		-			-		35		-			35
Other liabilities		175			254		40		(262	)		207
OWENS CORNING STOCKHOLDERS’ EQUITY
Preferred stock		-			-		-		-			-
Common stock		1			-		-		-			1
Additional paid in capital		3,953			6,542		2,038		(8,580	)		3,953
Accumulated earnings (deficit)		522			1,030		433		(1,463	)		522
Accumulated other comprehensive deficit		(399	)		-		-		-			(399	)
Cost of common stock in treasury		(484	)		-		-		-			(484	)

Total Owens Corning stockholders’ equity		3,593			7,572		2,471		(10,043	)		3,593
Noncontrolling interest		-			-		36		-			36

Total equity		3,593			7,572		2,507		(10,043	)		3,629

TOTAL LIABILITIES AND EQUITY	$	7,530		$	9,630	$	4,532	$	(13,907	)	$	7,785

- 35 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

18.

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

- 36 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

18.

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

OWENS CORNING AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2013

(in millions)


	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations		Consolidated
NET CASH FLOW USED FOR OPERATING ACTIVITIES	$	(60	)	$	(65	)	$	113		$	-	$	(12	)
NET CASH FLOW USED FOR INVESTING ACTIVITIES
Additions to plant and equipment		(3	)		(35	)		(87	)		-		(125	)
Investment in subsidiaries and affiliates, net of cash acquired		-			(41	)		(11	)		-		(52	)
Proceeds from Hurricane Sandy insurance claims		-			15			-					15
Proceeds from the sale of assets or affiliates		-			-			-			-1		-

Net cash flow used for investing activities		(3	)		(61	)		(98	)		-		(162	)

NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES
Proceeds from senior revolving credit and receivables securitization facilities		701			-			98			-		799
Payments on senior revolving credit and receivables securitization facilities		(594	)		-			(27	)		-		(621	)
Payments on long-term debt		-			-			(1	)		-		(1	)
Net increase (decrease) in short-term debt		-			14			1			-		15
Purchases of treasury stock		(9	)		-			-			-		(9	)
Other intercompany loans		(46	)		111			(65	)		-		-
Other		11			-			-			-		11

Net cash flow provided by financing activities		63			125			6			-		194

Effect of exchange rate changes on cash		-			-			(3	)		-		(3	)

Net increase in cash and cash equivalents		-			(1	)		18			-		17
Cash and cash equivalents at beginning of period		-			3			52			-		55

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	-		$	2		$	70		$	-	$	72

- 37 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

18.

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

OWENS CORNING AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2012

(in millions)


	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations		Consolidated
NET CASH FLOW USED FOR OPERATING ACTIVITIES	$	(59	)	$	(72	)	$	91		$	-	$	(40	)
NET CASH FLOW USED FOR INVESTING ACTIVITIES
Additions to plant and equipment		(9	)		(87	)		(67	)		-		(163	)
Proceeds from the sale of assets or affiliates		-			-			7			-		7

Net cash flow used for investing activities		(9	)		(87	)		(60	)		-		(156	)

NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES
Proceeds from senior revolving credit and receivables securitization facilities		826			-			107			-		933
Payments on senior revolving credit and receivables securitization facilities		(595	)		-			(53	)		-		(648	)
Payments on long-term debt		(4	)		-			(2	)		-		(6	)
Net increase (decrease) in short-term debt		(8	)		1			3			-		(4	)
Purchase of treasury stock		(82	)		-			-			-		(82	)
Other intercompany loans		(75	)		158			(83	)		-		-
Other		6			-			-			-		6

Net cash flow provided by financing activities		68			159			(28	)		-		199

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

Net increase (decrease) in cash and cash equivalents		-			-			2			-		2
Cash and cash equivalents at beginning of period		-			-			52			-		52

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	-		$	-		$	54		$	-	$	54

- 38 -

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 the reader 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 $118 million in earnings before interest and taxes (“EBIT”) for the second quarter 2013. We generated $124 million in adjusted earnings before interest and taxes (“Adjusted EBIT”) for the second-quarter 2013. Second quarter EBIT in our Building Materials segment increased by $13 million and EBIT in our Composites segment declined by $2 million compared to the same period in 2012.

Restructuring actions initiated in 2012 represented $3 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 $3 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. There has been little impact to our customers as we continue to service all customers through our regional manufacturing network. 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 second quarter 2013 was $32 million compared to $34 million in the same period in 2012. The decline was primarily driven by unfavorable mix and inflation, partially offset by improved capacity utilization.

In our Building Materials segment, EBIT in the second quarter 2013 was $120 million, compared to $107 million in the same period in 2012. In our Roofing business, EBIT declined $7 million due to lower sales volumes, which was partially offset by the impact of higher selling prices in the quarter. Our Insulation business delivered its first profitable second quarter since 2008 and increased EBIT $20 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 with a July 2016 maturity date and a $250 million receivables securitization facility with a December 2014 maturity date. We have no other significant debt maturities before 2016.

Due to the normal seasonality of our business, we typically have negative cash flow from operations for the first half of the year. Year-to-date 2013, we used $12 million in cash flow from operating activities compared to a use of $40 million in the same period of 2012. This improvement was primarily from improved earnings, partially offset by increased investment in working capital.

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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 June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Net sales	$	1,347		$	1,391		$	2,697		$	2,737
Gross margin	$	267		$	239		$	480		$	425
% of net sales		20	%		17	%		18	%		16	%
Charges related to cost reduction actions	$	1			2		$	2		$	36
Earnings before interest and taxes	$	118		$	85		$	175		$	73
Interest expense, net	$	29		$	28		$	58		$	56
Income tax expense	$	39		$	17		$	45		$	22
Net earnings (loss) attributable to Owens Corning	$	49		$	39		$	71		$	(7	)

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

Net sales were $44 million lower in the second quarter of 2013 and $40 million lower in the first half of 2013 compared to the same periods in 2012 primarily due to lower sales volumes and unfavorable mix in our Roofing business, partially offset by higher volumes in our Insulation business.

GROSS MARGIN

Gross margin as a percentage of sales was higher in both the second quarter and year-to-date comparisons. In the second quarter, the increase was due primarily to higher Roofing and Insulation contribution margins. For the first half, the higher Roofing and Insulation contribution margins were partially offset by inflation in our Composites segment. In addition, gross margin included $11 million and $22 million of charges in the second quarter and first half of 2013, respectively, resulting from net losses related to Hurricane Sandy. Gross margin also included $2 million and $10 million of charges in the second quarter and first half of 2013, respectively resulting from our 2012 restructuring actions. This compares to $30 million and $51 million of charges in the second quarter and first half of 2012, respectively, related to our 2012 restructuring actions.

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 $1 million and $2 million in severance charges for the second quarter and year-to-date 2013, respectively, compared to $2 million and $36 million for the second quarter and year-to-date 2012, respectively. The total charges related to cost reduction actions and related items for the second quarter and year-to-date 2013 were $3 million and $12 million, respectively, compared to $32 million and $87 million for the second quarter and year-to-date 2012, respectively.

EARNINGS BEFORE INTEREST AND TAXES

EBIT increased by $33 million for the second quarter 2013 compared to the same period in 2012. Second quarter EBIT in our Building Materials segment increased by $13 million and second quarter EBIT in our Composites segment decreased by $2 million compared to the same period in 2012. Corporate EBIT losses for the second quarter decreased by $22 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, corporate EBIT included an $8 million net gain in Other (income) expense, net for both the three and six month period ended June 30, 2013, for Hurricane Sandy related expense and insurance proceeds.

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ITEM 2.

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

For the first half of 2013, EBIT increased by $102 million compared to the same period in 2012. First half EBIT in our Building Materials segment increased by $62 million and first half EBIT in our Composites segment decreased by $16 million compared to the same period in 2012. Corporate EBIT losses for the first half decreased by $56 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

We estimate that the effective tax rate on adjusted earnings for the full year 2013 will be about 25 percent to 28 percent. The difference between the effective tax rate of 25 percent to 28 percent and the statutory rate of 35 percent is primarily attributable to lower foreign tax rates and various tax planning initiatives.

The Company is currently under U.S. federal tax examination for the 2008 through 2010 tax years. The examination is expected to be completed by the end of 2013. The Company believes that its reserves for uncertain tax positions are adequately stated as of June 30, 2013.

Adjusted Earnings Before Interest and Taxes (“Adjusted EBIT”)

Adjusted EBIT excludes certain items that management does not allocate to our segment results because it believes they are not a result of the Company’s current operations. Adjusted EBIT is used internally by the Company for various purposes, including reporting results of operations to the Board of Directors of the Company, analysis of performance and related employee compensation measures. Although management believes that these adjustments result in a measure that provides a useful representation of our operational performance, the adjusted measure should not be considered in isolation or as a substitute for net earnings (loss) attributable to Owens Corning as prepared in accordance with accounting principles generally accepted in the United States.

Adjusting items are shown in the table below (in millions):


	Three Months Ended June 30,					Six Months Ended June 30,
	2013		2012			2013		2012
Charges related to cost reduction actions and related items	$	(3)	$	(32	)	$	(12)	$	(87	)
Loss related to Hurricane Sandy		(3)		-			(14)		-

Total adjusting items	$	(6)	$	(32	)	$	(26)	$	(87	)

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ITEM 2.

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

The reconciliation from net earnings attributable to Owens Corning to Adjusted EBIT is shown in the table below (in millions):


	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
NET EARNINGS (LOSS) ATTRIBUTABLE TO OWENS CORNING	$	49		$	39		$	71		$	(7	)
Less: Net earnings attributable to noncontrolling interests		1			1			1			2

NET EARNINGS (LOSS)		50			40			72			(5	)
Equity in net earnings of affiliates		-			-			-			-
Income tax expense		39			17			45			22

EARNINGS BEFORE TAXES		89			57			117			17
Interest expense, net		29			28			58			56

EARNINGS BEFORE INTEREST AND TAXES		118			85			175			73
Less: adjusting items from above		(6	)		(32	)		(26	)		(87	)

ADJUSTED EBIT	$	124		$	117		$	201		$	160

Segment Results

EBIT by segment consists 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, which is presented following the discussion of our reportable segments.

Composites

The table below provides a summary of net sales, EBIT and depreciation and amortization expense for the Composites segment (in millions):


	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Net sales	$	472		$	498		$	931		$	974
% change from prior year		-5	%		-6	%		-4	%		-5	%
EBIT	$	32		$	34		$	41		$	57
EBIT as a % of net sales		7	%		7	%		4	%		6	%
Depreciation and amortization expense	$	34		$	31		$	66		$	61

NET SALES

Second quarter and year-to-date net sales in our Composites business decreased $26 million and $43 million, respectively, compared to the same periods in 2012. For the second-quarter, the decline in sales was driven about equally by unfavorable mix, lower sales volumes and the impact of translating sales denominated in foreign currencies into United States dollars. For the first half, overall sales volumes were relatively flat and unfavorable mix and the impact of translating sales denominated in foreign currencies into United States dollars were the primary drivers of the decline. Selling prices stabilized in the second quarter after having a small unfavorable impact in the first quarter of 2013.

EBIT

EBIT in our Composites business decreased $2 million and $16 million, respectively, for the second quarter and year-to-date 2013 compared to the same periods in 2012. For the quarter, the decline in EBIT was driven primarily by $8 million in unfavorable mix and inflation, partially offset by improved capacity utilization. For the year-to-date comparison, about half of the decline in EBIT was driven by inflation with the remaining decline driven equally by unfavorable mix and slightly lower selling prices.

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ITEM 2.

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

OUTLOOK

Global glass reinforcements market demand has grown on average with global industrial production and we believe this relationship will continue. In the second quarter, global glass reinforcements market demand continued to grow less than the historical average of five percent. Based on the outlook for global industrial production, we expect the market will continue to grow for the remainder of 2013 although again at a rate below the five percent historical average. We continue to expect that the benefits of our asset transformation, increased utilization of our low-cost asset base, and modest growth in global reinforcements demand will result in improved margin in 2013 compared to 2012.

Building Materials

The table below provides a summary of net sales, EBIT and depreciation and amortization expense for the Building Materials segment and our businesses within this segment (in millions):


	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Net sales
Insulation	$	415		$	340		$	745		$	671
Roofing		508			605			1,115			1,193

Total Building Materials	$	923		$	945		$	1,860		$	1,864
% change from prior year		-2	%		-3	%		0	%		6	%

EBIT
Insulation	$	4		$	(16	)	$	(17	)	$	(50	)
Roofing		116			123			235			206