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.

GENERAL

Headquartered in Toledo, Ohio, 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, Roofing and Other 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 delivered $275 million in Adjusted EBIT for the nine months ended September 30, 2009 despite continued weakness in the United States housing market and the global economy. The diversity of our portfolio of businesses served us well. Strong results in our Roofing business more than offset weak results in our other businesses (see below for further information regarding Adjusted EBIT, including a reconciliation to net earnings (loss) attributable to Owens Corning).

Year-to-date, EBIT in our Roofing business improved $343 million over the same period in 2008. Higher selling prices, lower materials costs and actions we have taken to improve our cost and product mix drove this increase. Roofing EBIT was $182 million and $177 million for the second and third quarters of 2009, respectively. The second and third quarters are generally the highest earnings quarters for this business.

Demand in all of our businesses has been lower in 2009 as compared to 2008, with the weakness most pronounced in our Insulation and Reinforcements businesses. The positive trend in Reinforcements demand noted in the first two quarters of 2009 continued through the third quarter. This trend contributed to the first profitable quarter for Composites in 2009.

Demand weakness resulted in underutilization of our production capacity, particularly in our Composites segment and in our Insulation business. In response to this market weakness, we took various actions through the first nine months of 2009 to reduce our cost structure across the Company. These actions included curtailing significant capacity, extending furnace downtimes for rebuilds, reducing headcount and delaying capital projects. We anticipate that these actions will contribute to annual cost savings of at least $160 million in 2009 as compared to 2008.

We continue our focus on generating cash and maintaining a strong balance sheet with ample liquidity. During the third quarter 2009, we generated $367 million of cash flow from operating activities, over half of which was due to improvements in working capital. During the second quarter 2009, we further strengthened our liquidity position with the issuance of $350 million of 9.0% senior notes due 2019.

At the end of the third quarter 2009, we had $947 million available on our $1 billion senior revolving credit facility, and cash on hand of $387 million. The Company has no significant debt maturities until the fourth quarter 2011.

RESULTS OF OPERATIONS

Our results of operations for all periods presented have been retrospectively adjusted for our change in the first quarter 2009 from the last-in, first-out method of inventory accounting to the first-in, first-out method. See Note 3 to the Consolidated Financial Statements for additional information regarding this change in accounting principle.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Consolidated Results (in millions)



                                             Three Months Ended               Nine Months Ended
                                                  Sept. 30,                       Sept. 30,
                                             2009           2008              2009          2008
Net sales                                 $     1,348     $   1,629        $    3,641     $   4,556
Gross margin                              $       280     $     271        $      688     $     722
% of net sales                                    21%           17%               19%           16%
Marketing and administrative expenses     $       135     $     151        $      387     $     458
% of net sales                                    10%            9%               11%           10%
Charges related to cost reduction
actions                                   $         3     $       2        $       33     $       8
Earnings before interest and taxes        $       120     $     113        $      190     $     208
Interest expense, net                     $        30     $      29        $       81     $      90
Income tax expense                        $         8     $     892        $       23     $     896
Net earnings (loss) attributable to
Owens Corning                             $        80     $    (807 )      $       85     $    (779 )

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

The decrease in net sales for the third quarter and year-to-date period in 2009 compared to the same periods in 2008 was driven by lower net sales in our Insulation business within our Building Materials segment and lower net sales in our Composites segment. Partially offsetting the year-to-date decline was significantly higher net sales in our Roofing business through the first half 2009.

GROSS MARGIN

Gross margin as a percentage of sales improved in the third quarter and year-to-date period in 2009 compared to the same periods in 2008. This improvement was primarily the result of significant gross margin improvements in our Roofing business, coupled with our Roofing business representing a greater proportion of gross margin in the 2009 periods. The overall increase in gross margin as a percentage of sales was tempered by margin declines in our Insulation business and our Composites segment.

Certain items are excluded from management's internal view of segment performance and, therefore, are excluded from the segment gross margin discussion above, and are included in our Corporate, Other and Eliminations category. For the 2009 periods compared to the 2008 periods, the net impact of these items was not material to gross margin.

MARKETING AND ADMINISTRATIVE EXPENSES

Marketing and administrative expenses were lower in the third quarter and year-to-date period 2009 compared to the same periods in 2008. This was primarily the result of cost savings from our various cost reduction actions taken throughout 2008 and the first nine months of 2009 and synergies realized from our acquisition of Saint-Gobain's reinforcements and composite fabrics businesses (the "2007 Acquisition"). Additionally, acquisition integration and transaction costs were lower in the 2009 periods as compared to the 2008 periods. Acquisition integration and transaction costs impacting marketing and administrative expenses decreased by $7 million in the third quarter 2009 and $26 million for the nine months ended September 30, 2009, as compared to the same periods in the prior year.

CHARGES RELATED TO COST REDUCTION ACTIONS

Charges related to costs reduction actions were higher in the third quarter and year-to-date period 2009 compared to the same periods in 2008. During 2009, we took significant actions to reduce production and lower operating costs in response to weak market conditions, resulting in severance charges. Charges incurred during the nine months ended September 30, 2008 related to the cost reduction actions initiated in 2007.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EARNINGS BEFORE INTEREST AND TAXES

In addition to the items noted above, year-over-year comparability of earnings before interest and taxes were impacted by gains on sales of certain precious metals used in production tooling. For the third quarter and year-to-date period in 2009, we recorded a $6 million gain on the sale of certain precious metals used in production tooling. For the third quarter and year-to-date period in 2008, we recorded gains of $26 million and $48 million, respectively, on such sales. These items were recorded in other (income) expenses on the Consolidated Statements of Earnings (Loss).

INTEREST EXPENSE, NET

The increase in interest expense in the third quarter 2009 compared to the third quarter 2008 was due to slightly higher average borrowing levels and weighted-average interest rates in the 2009 period. Interest expense was lower for the first nine months of 2009 as compared to the same period in 2008 as lower average interest rates in 2009 were only partially offset by higher average borrowing levels. Borrowings in the 2009 periods included $350 million 9% senior notes issued in the second quarter 2009.

INCOME TAX EXPENSE

Income tax expense for the three and nine months ended September 30, 2009 was $8 million and $23 million, respectively. For the third quarter, excluding various discrete tax items of approximately $4 million that were incurred during the quarter, our effective tax rate would have been 4%. For the nine months ended as of September 30, 2009, excluding charges related to valuation allowances in foreign locations of approximately $14 million and other various discrete tax items of $3 million, our effective tax rate would have been 6%. The difference between the effective tax rates during these periods and the statutory tax rate of 35% is primarily attributable to the increased level of earnings in the United States, in which there is relatively little income tax expense due to the valuation allowance against the United States deferred tax assets. Also contributing to the lower effective rate are the various tax planning initiatives implemented in 2007 and 2008, which have significantly reduced our cash taxes and tax provision related to our international operations.

In the third quarter 2008, the Company recorded a non-cash charge of $901 million to establish an accounting valuation allowance against its United States deferred tax assets, related to its net operating losses. This non-cash charge resulted in income tax expense for the three and nine months ended September 30, 2008 of $892 million and $896 million, respectively.

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. Additionally, management views net precious metal lease expense as a financing item included in net interest expense rather than as a product cost included in cost of sales. 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 it 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              Nine Months Ended
                                                    Sept. 30,                       Sept. 30,
                                               2009             2008           2009             2008
Chapter 11-related reorganization items      $      (1 )       $    -        $      (1 )       $    -
Net precious metal lease income
(expense)                                            1             (1 )              -             (7 )
Charges related to cost reduction
actions and related items                           (4 )           (2 )            (45 )           (8 )
Acquisition integration and transaction
costs                                               (7 )          (20 )            (21 )          (62 )
Gains (losses) on sales of assets and
other                                                1             16               (1 )           36
Employee emergence equity program
expense                                             (5 )           (6 )            (17 )          (20 )

Total adjusting items                        $     (15 )       $  (13 )      $     (85 )       $  (61 )

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

                                                       Three Months                 Nine Months
                                                          Ended                        Ended
                                                        Sept. 30,                    Sept. 30,
                                                   2009           2008          2009           2008
NET EARNINGS (LOSS) ATTRIBUTABLE TO OWENS
CORNING                                           $    80       $   (807 )     $    85       $   (779 )
Less: Net earnings attributable to
noncontrolling interests                                1              1             1              2

NET EARNINGS (LOSS)                                    81           (806 )          86           (777 )
Equity in net earnings (loss) of affiliates            (1 )            2             -              1

EARNINGS (LOSS) BEFORE EQUITY IN NET EARNINGS
(LOSS) OF AFFILIATES                                   82           (808 )          86           (778 )
Income tax expense                                      8            892            23            896

EARNINGS BEFORE TAXES                                  90             84           109            118
Interest expense, net                                  30             29            81             90

EARNINGS BEFORE INTEREST AND TAXES                    120            113           190            208
Less: adjusting items from above                      (15 )          (13 )         (85 )          (61 )

ADJUSTED EBIT                                     $   135       $    126       $   275       $    269

Segment Results

In the first quarter of 2009, the Company's Chief Operating Decision Maker ("CODM") fully implemented the structure of assessing performance and allocating resources based on two operating segments, Composites and Building Materials. Beginning in the second half of 2008, certain organizational structure and other changes were made by the CODM to facilitate managing the business from two operating segments. These changes, which became fully functional in the first quarter 2009, included the hiring of a Building Materials Group President, restructuring the Company's incentive compensation plan for 2009, and changing the reporting structure of the CODM's leadership team.

Earnings (loss) before interest and taxes ("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). Prior periods
have been adjusted to reflect the change to two reportable segments.



                                            Three Months Ended         Nine Months Ended
                                                 Sept. 30,                 Sept. 30,
                                             2009         2008        2009           2008
  Net sales                               $       451   $     589   $   1,187      $  1,915
  % change from prior year                       -23%         48%        -38%           66%
  EBIT                                    $         2   $      54   $     (35 )    $    189
  EBIT as a % of net sales                         0%          9%         -3%           10%
  Depreciation and amortization expense   $        29   $      33   $      90      $     97

NET SALES

The rapid and significant global economic slow-down in the fourth quarter 2008 dramatically reduced overall demand for composite materials. Demand for our Reinforcements products was approximately 45 percent lower in December 2008 as

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

compared to the average monthly demand in 2008 through November. While demand has been steadily trending upward since that time, it has not yet recovered to levels seen in the first nine months of 2008. These declines represented approximately one-half, and approximately two-thirds, of the decrease in net sales for each of the three and nine months ended September 30, 2009, respectively, as compared to the same periods in the prior year.

For the third quarter comparison, 2009 was also negatively impacted by unfavorable product mix, lower selling prices and unfavorable currency translation. For the year-to-date comparison, 2009 was also negatively impacted by unfavorable currency translation and the May 2008 divestiture of two composite manufacturing plants in Battice, Belgium and Birkeland, Norway (the "May 2008 Divestiture").

EBIT

Our Composites segment EBIT was significantly lower in the three and nine months ended September 30, 2009 as compared to the same periods in 2008. These declines were driven by lower sales volumes, including the impact of underutilization of our production capacity, and lower selling prices. This segment includes a portfolio of various products across several geographic regions including Europe, the Americas and Asia Pacific. During the second half 2008 under favorable market conditions, we increased selling prices in many regions and products to partially recover inflation. In our European Reinforcements business, first quarter 2009 selling prices deteriorated from fourth quarter 2008 as a result of the significant decline in composites demand. Throughout 2009, this region has continued to experience competitive pressure resulting in gradual declines in price. The rate of price deterioration has slowed each quarter in 2009 as demand has continued to trend upward. Comparing year-over-year, approximately half of the third quarter decline in the overall Composites segment EBIT is due to lower selling prices, particularly in European Reinforcements. For the year-to-date comparison, price declines represent less than 10% of the decline in the overall Composites segment EBIT.

In response to market conditions, we took aggressive actions in this segment in the first half 2009 to reduce inventories and operating costs, focusing on cash generation. To that end, we have reduced our headcount, and have decreased production levels by idling and shutting down production lines. Beginning in the first quarter 2009 and continuing through the third quarter, we managed production capacity below demand. As a result of our cost reduction actions and improved demand, our EBIT margin improved in this segment from second quarter 2009 to third quarter 2009.

OUTLOOK

We believe that demand in this segment will generally continue to trend upward as global industrial demand improves. However, the rate of the market recovery remains uncertain. We have begun to slightly increase production levels although production remains below demand. We will ensure that there is adequate production capacity to support our Roofing business. Additionally, this segment will continue to realize the benefits of synergies from the 2007 Acquisition and the various cost reduction actions we took in 2008 and 2009.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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). Prior periods have been adjusted to reflect
the change to two reportable segments.



                                              Three Months Ended              Nine Months Ended
                                                  Sept. 30,                       Sept. 30,
                                             2009            2008           2009            2008
Net sales
Insulation                                 $     340       $    412       $    906       $    1,198
Roofing                                          561            616          1,560            1,397
Other                                             38             67            110              189
Eliminations                                      (2 )           (4 )           (8 )            (11 )

Total Building Materials                   $     937       $  1,091       $  2,568       $    2,773
% change from prior year                        -14%            19%            -7%               4%

EBIT
Insulation                                 $      (9 )     $      -       $    (76 )     $       23
Roofing                                          177             95            458              115
Other                                            (12 )           (3 )          (30 )            (11 )

Total Building Materials                   $     156       $     92       $    352       $      127
EBIT as a % of net sales                         17%             8%            14%               5%

Depreciation and amortization expense
Insulation                                 $      31       $     31       $     90       $       89
Roofing                                            9             11             31               30
Other                                              4              3             11                9

Total Building Materials                   $      44       $     45       $    132       $      128

NET SALES

Net sales in our Building Materials segment were lower in the 2009 periods as compared to 2008, primarily driven by demand weakness resulting from lower United States housing starts.

In our Roofing business, lower sales volumes decreased net sales by approximately 10% in the 2009 periods as compared to 2008. These volume declines were a result of lower demand associated with storm activity and new residential construction. Offsetting the impact of lower sales volumes was the impact of higher selling prices. Leading up to the fourth quarter 2008, our selling prices had been increasing to recover inflation in raw material costs, particularly asphalt. Since that time, selling prices have been generally stable.

In Insulation, declines in demand drove the decreases in net sales, representing approximately three-fourths and substantially all of the decline for the three month and the year-to-date comparison, respectively. Our experience is that our residential insulation demand lags residential housing starts by approximately three months. Second quarter 2009 United States housing starts were 46% lower than those in the second quarter 2008 according to data reported by the United States Census Bureau. Our Insulation business includes a diverse portfolio with a geographic mix of United States, Canada, Asia-Pacific and Latin America, a market mix of residential, commercial, industrial and other markets, and a channel mix of retail, contractor and distribution. Weakness we have seen in many of these sectors has become more pronounced in the last two quarters.

EBIT

In our Building Materials segment, EBIT improved substantially in the current year. This increase was driven by unit margin improvements in our Roofing business, partially offset by lower margins in our Insulation business.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In our Roofing business, unit margin improvements accounted for substantially all of the increase in EBIT for the three and nine months ended September 30, 2009 as compared to the same periods in 2008. Roofing unit margins began improving in the second quarter 2008 as selling price increases outpaced inflation. For the three month comparison, we also experienced lower raw material costs in 2009 than in 2008. Additional factors impacting the third quarter comparison were improvements in material efficiencies and lower sales volumes.

In our Insulation business, lower sales volumes, including the impact of underutilization of our production capacity, accounted for substantially all of the decrease in EBIT.

In response to the continued weak United States housing market, we took actions across our Building Materials segment throughout 2008 and during the nine months ended September 30, 2009 to reduce our production capacity and align our cost structure with market demand. We will continue to manage our production capacity relative to seasonal demand.

OUTLOOK

We expect continued weakness in the United States housing industry to affect negatively demand in our Building Materials segment through the remainder of 2009. In our Insulation business, despite our significant cost and capacity actions, we do not expect the cost savings associated with these actions to offset the impact of continued demand-driven weakness. Assuming sustained gross margins in our Roofing business, Roofing performance will continue to more than offset weakness in our Insulation business. Uncertainties that may impact our Roofing gross margins include competitive pricing pressure and the cost and . . .