##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2009
 OR
 o
    
    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 1-8864
 USG CORPORATION
  Delaware
    
    36-3329400(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)550 West Adams Street, Chicago, Illinois
    
    60661-3676(Address of principal executive offices)
    
    (Zip code)
 (312) 436-4000
 þ o
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o
 o þ
 Yes o No o




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Table of Contents
 PagePART I FINANCIAL INFORMATIONItem 1. Financial Statements:Condensed Consolidated Statements of Operations: Three Months and Nine Months Ended September 30, 2009 and 2008
    
    
    3Condensed Consolidated Balance Sheets: As of September 30, 2009 and December 31, 2008
    
    
    4Condensed Consolidated Statements of Cash Flows: Nine Months Ended September 30, 2009 and 2008
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 3. Quantitative and Qualitative Disclosures about Market Risks
    
    
    44Item 4. Controls and Procedures
    
    
    45PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    45Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    45Item 6. Exhibits
    
    
    45Signatures
    
    
    46Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
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PART I FINANCIAL INFORMATION
 
 ITEM 1.
    
    FINANCIAL STATEMENTS
 USG CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months
    
    
    Nine Monthsended September 30,
    
    
    ended September 30,(millions, except per-share and share data)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales
    
    $
    822
    
    
    $
    1,211
    
    
    $
    2,515
    
    
    $
    3,627Cost of products sold
    
    
    784
    
    
    
    1,147
    
    
    
    2,378
    
    
    
    3,441Gross profit
    
    
    38
    
    
    
    64
    
    
    
    137
    
    
    
    186Selling and administrative expenses
    
    
    67
    
    
    
    91
    
    
    
    219
    
    
    
    287Restructuring and long-lived asset impairment charges
    
    
    22
    
    
    
    5
    
    
    
    51
    
    
    
    30Goodwill and other intangible asset impairment charges
    
    
    41
    
    
    
    
    
    
    
    41
    
    
    
    Operating loss
    
    
    (92
    )
    
    
    (32
    )
    
    
    (174
    )
    
    
    (131
    )Interest expense
    
    
    42
    
    
    
    21
    
    
    
    120
    
    
    
    59Interest income
    
    
    (2
    )
    
    
    (2
    )
    
    
    (3
    )
    
    
    (5
    )Other (income) expense, net
    
    
    (1
    )
    
    
    3
    
    
    
    (10
    )
    
    
    2Loss before income taxes
    
    
    (131
    )
    
    
    (54
    )
    
    
    (281
    )
    
    
    (187
    )Income tax benefit
    
    
    (37
    )
    
    
    (18
    )
    
    
    (92
    )
    
    
    (73
    )Net loss
    
    $
    (94
    )
    
    $
    (36
    )
    
    $
    (189
    )
    
    $
    (114
    )Basic loss per common share
    
    $
    (0.96
    )
    
    $
    (0.36
    )
    
    $
    (1.91
    )
    
    $
    (1.15
    )Diluted loss per common share
    
    $
    (0.96
    )
    
    $
    (0.36
    )
    
    $
    (1.91
    )
    
    $
    (1.15
    )Average common shares
    
    
    99,254,483
    
    
    
    99,114,947
    
    
    
    99,219,560
    
    
    
    99,081,335Average diluted common shares
    
    
    99,254,483
    
    
    
    99,114,947
    
    
    
    99,219,560
    
    
    
    99,081,335
 See accompanying Notes to Condensed Consolidated Financial Statements.
  -3-




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USG CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 As of
    
    
    As ofSeptember 30,
    
    
    December 31,(millions)
    
    2009
    
    
    2008AssetsCurrent Assets:Cash and cash equivalents
    
    $
    621
    
    
    $
    471Restricted cash
    
    
    2
    
    
    
    1Receivables (net of reserves  $14 and $15)
    
    
    409
    
    
    
    467Inventories
    
    
    319
    
    
    
    404Income taxes receivable
    
    
    4
    
    
    
    15Deferred income taxes
    
    
    55
    
    
    
    68Other current assets
    
    
    88
    
    
    
    68Total current assets
    
    
    1,498
    
    
    
    1,494Property, plant and equipment (net of accumulated
depreciation and depletion  $1,499 and $1,368)
    
    
    2,454
    
    
    
    2,562Deferred income taxes
    
    
    446
    
    
    
    374Goodwill
    
    
    
    
    
    
    12Other assets
    
    
    256
    
    
    
    277Total assets
    
    $
    4,654
    
    
    $
    4,719Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable
    
    $
    242
    
    
    $
    220Accrued expenses
    
    
    276
    
    
    
    338Short-term debt
    
    
    
    
    
    
    190Current portion of long-term debt
    
    
    7
    
    
    
    4Income taxes payable
    
    
    6
    
    
    
    4Total current liabilities
    
    
    531
    
    
    
    756Long-term debt
    
    
    1,956
    
    
    
    1,642Deferred income taxes
    
    
    7
    
    
    
    7Other liabilities
    
    
    683
    
    
    
    764Commitments and contingenciesStockholders Equity:Preferred stock
    
    
    
    
    
    
    Common stock
    
    
    10
    
    
    
    10Treasury stock
    
    
    (194
    )
    
    
    (199
    )Capital received in excess of par value
    
    
    2,635
    
    
    
    2,625Accumulated other comprehensive loss
    
    
    (126
    )
    
    
    (227
    )Retained earnings (deficit)
    
    
    (848
    )
    
    
    (659
    )Total stockholders equity
    
    
    1,477
    
    
    
    1,550Total liabilities and stockholders equity
    
    $
    4,654
    
    
    $
    4,719
 See accompanying Notes to Condensed Consolidated Financial Statements.
  -4-




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USG CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Nine Monthsended September 30,(millions)
    
    2009
    
    
    2008Operating ActivitiesNet loss
    
    $
    (189
    )
    
    $
    (114
    )Adjustments to reconcile net loss to net cash:Goodwill and other intangible asset impairment charges
    
    
    41
    
    
    
    Depreciation, depletion and amortization
    
    
    157
    
    
    
    132Share-based compensation expense
    
    
    17
    
    
    
    21Deferred income taxes
    
    
    (89
    )
    
    
    (80
    )Gain on asset dispositions
    
    
    (8
    )
    
    
    Convertible debt embedded derivative
    
    
    (10
    )
    
    
    (Increase) decrease in working capital (net of acquisitions):Receivables
    
    
    58
    
    
    
    (101
    )Income taxes receivable
    
    
    12
    
    
    
    31Inventories
    
    
    82
    
    
    
    (60
    )Payables
    
    
    26
    
    
    
    28Accrued expenses
    
    
    (34
    )
    
    
    15Decrease (increase) in other assets
    
    
    7
    
    
    
    (28
    )(Decrease) increase in other liabilities
    
    
    (16
    )
    
    
    17Other, net
    
    
    16
    
    
    
    (4
    )Net cash provided by (used for) operating activities
    
    
    70
    
    
    
    (143
    )Investing ActivitiesCapital expenditures
    
    
    (36
    )
    
    
    (209
    )Investment in joint venture
    
    
    (7
    )
    
    
    Net proceeds from asset dispositions
    
    
    10
    
    
    
    Return (deposit) of restricted cash
    
    
    (1
    )
    
    
    Acquisition of business, net of cash acquired
    
    
    
    
    
    
    (1
    )Net cash used for investing activities
    
    
    (34
    )
    
    
    (210
    )Financing ActivitiesIssuance of debt
    
    
    319
    
    
    
    940Repayment of debt
    
    
    (194
    )
    
    
    (714
    )Payment of debt issuance fees
    
    
    (15
    )
    
    
    (7
    )Excess tax benefits from share-based compensation
    
    
    (1
    )
    
    
    (1
    )Net cash provided by financing activities
    
    
    109
    
    
    
    218Effect of exchange rate changes on cash
    
    
    5
    
    
    
    (3
    )Net increase (decrease) in cash and cash equivalents
    
    
    150
    
    
    
    (138
    )Cash and cash equivalents at beginning of period
    
    
    471
    
    
    
    297Cash and cash equivalents at end of period
    
    $
    621
    
    
    $
    159Supplemental Cash Flow Disclosures:Interest paid
    
    $
    98
    
    
    $
    61Income taxes refunded, net
    
    $
    (4
    )
    
    $
    (26
    )Payables adjustment for capital expenditures
    
    $
    (5
    )
    
    $
    (24
    )
 See accompanying Notes to Condensed Consolidated Financial Statements.
  -5-




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USG CORPORATION
 
 Notes to Condensed Consolidated Financial Statements
 (Unaudited)
 In the following Notes to Condensed Consolidated Financial Statements, USG, we, our and us
refer to USG Corporation, a Delaware corporation, and its subsidiaries included in the condensed
consolidated financial statements, except as otherwise indicated or as the context otherwise
requires.
 1. Preparation of Financial Statements
  10-K.
  2. Recent Accounting Pronouncements
    -6-




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3. Restructuring and Long-Lived Asset Impairment Charges
       -7-




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Balance
    
    
    2009 Activity
    
    
    Balanceas of
    
    
    
    
    
    
    Cash
    
    
    Asset
    
    
    as of(millions)
    
    12/31/08
    
    
    Charges
    
    
    Payments
    
    
    Impairment
    
    
    9/30/09Severance
    
    $
    27
    
    
    $
    12
    
    
    $
    (32
    )
    
    $
    
    
    
    $
    7Asset impairments
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    (16
    )
    
    
    Lease obligations
    
    
    23
    
    
    
    15
    
    
    
    (11
    )
    
    
    (6
    )
    
    
    21Other exit costs
    
    
    
    
    
    
    8
    
    
    
    (6
    )
    
    
    
    
    
    
    2Total
    
    $
    50
    
    
    $
    51
    
    
    $
    (49
    )
    
    $
    (22
    )
    
    $
    30
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4. Segments
  Three Months
    
    
    Nine Monthsended September 30,
    
    
    ended September 30,(millions)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net Sales:North American Gypsum
    
    $
    443
    
    
    $
    610
    
    
    $
    1,363
    
    
    $
    1,853Building Products Distribution
    
    
    329
    
    
    
    526
    
    
    
    1,019
    
    
    
    1,558Worldwide Ceilings
    
    
    173
    
    
    
    227
    
    
    
    517
    
    
    
    675Eliminations
    
    
    (123
    )
    
    
    (152
    )
    
    
    (384
    )
    
    
    (459
    )Total
    
    $
    822
    
    
    $
    1,211
    
    
    $
    2,515
    
    
    $
    3,627Operating Profit (Loss):North American Gypsum
    
    $
    (31
    )
    
    $
    (44
    )
    
    $
    (72
    )
    
    $
    (154
    )Building Products Distribution
    
    
    (73
    )
    
    
    5
    
    
    
    (109
    )
    
    
    13Worldwide Ceilings
    
    
    21
    
    
    
    26
    
    
    
    57
    
    
    
    80Corporate
    
    
    (12
    )
    
    
    (17
    )
    
    
    (53
    )
    
    
    (71
    )Eliminations
    
    
    3
    
    
    
    (2
    )
    
    
    3
    
    
    
    1Total
    
    $
    (92
    )
    
    $
    (32
    )
    
    $
    (174
    )
    
    $
    (131
    )
         -9-




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5. Earnings Per Share
  WeightedAverageNet
    
    
    Shares
    
    
    Per-Share(millions, except per-share and share data)
    
    Loss
    
    
    (000)
    
    
    AmountThree Months Ended September 30, 2009:Basic loss
    
    $
    (94
    )
    
    
    99,254
    
    
    $
    (0.96
    )Diluted loss
    
    $
    (94
    )
    
    
    99,254
    
    
    $
    (0.96
    )Three Months Ended September 30, 2008:Basic loss
    
    $
    (36
    )
    
    
    99,115
    
    
    $
    (0.36
    )Diluted loss
    
    $
    (36
    )
    
    
    99,115
    
    
    $
    (0.36
    )Nine Months Ended September 30, 2009:Basic loss
    
    $
    (189
    )
    
    
    99,220
    
    
    $
    (1.91
    )Diluted loss
    
    $
    (189
    )
    
    
    99,220
    
    
    $
    (1.91
    )Nine Months Ended September 30, 2008:Basic loss
    
    $
    (114
    )
    
    
    99,081
    
    
    $
    (1.15
    )Diluted loss
    
    $
    (114
    )
    
    
    99,081
    
    
    $
    (1.15
    )
    -10-




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6. Goodwill and Other Intangible Assets
     As of September 30, 2009
    
    
    As of December 31, 2008Gross
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Impairment
    
    
    Accumulated
    
    
    
    
    
    
    Carrying
    
    
    Impairment
    
    
    Accumulated(millions)
    
    Amount
    
    
    Charges
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Charges
    
    
    Amortization
    
    
    NetIntangible Assets with Definite Lives:Customer relationships
    
    $
    70
    
    
    $
    
    
    
    $
    (18
    )
    
    $
    52
    
    
    $
    70
    
    
    $
    
    
    
    $
    (13
    )
    
    $
    57Other
    
    
    9
    
    
    
    
    
    
    
    (4
    )
    
    
    5
    
    
    
    9
    
    
    
    
    
    
    
    (3
    )
    
    
    6Subtotal
    
    
    79
    
    
    
    
    
    
    
    (22
    )
    
    
    57
    
    
    
    79
    
    
    
    
    
    
    
    (16
    )
    
    
    63Intangible Assets with Indefinite Lives:Trade names
    
    
    53
    
    
    
    (29
    )
    
    
    
    
    
    
    24
    
    
    
    66
    
    
    
    (13
    )
    
    
    
    
    
    
    53Other
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    9Subtotal
    
    
    62
    
    
    
    (29
    )
    
    
    
    
    
    
    33
    
    
    
    75
    
    
    
    (13
    )
    
    
    
    
    
    
    62Total
    
    $
    141
    
    
    $
    (29
    )
    
    $
    (22
    )
    
    $
    90
    
    
    $
    154
    
    
    $
    (13
    )
    
    $
    (16
    )
    
    $
    125
   -11-




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7. Debt
  As of
    
    
    As ofSeptember 30,
    
    
    December 31,(millions)
    
    2009
    
    
    20086.3% senior notes
    
    $
    500
    
    
    $
    5007.75% senior notes, net of discount
    
    
    499
    
    
    
    4999.75% senior notes, net of discount
    
    
    295
    
    
    
    10% convertible senior notes, net of discount
    
    
    380
    
    
    
    379Ship mortgage facility
    
    
    50
    
    
    
    29Industrial revenue bonds
    
    
    239
    
    
    
    239Revolving credit facility
    
    
    
    
    
    
    190Total
    
    $
    1,963
    
    
    $
    1,836
        -12-




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-13-




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8. Derivative Instruments
      -14-




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S
        -15-




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Amount of Gain or (Loss)Recognized in
    
    
    Location of Gain or (Loss)
    
    Amount of Gain or (Loss)Derivatives in
    
    Other Comprehensive
    
    
    Reclassified from
    
    Reclassified fromCash Flow Hedging
    
    Income on Derivatives
    
    
    AOCI into Income
    
    AOCI into IncomeRelationships
    
    (Effective Portion)
    
    
    (Effective Portion)
    
    (Effective Portion)Commodity contracts
    
    $
    (24
    )
    
    Cost of products sold
    
    $
    (50
    )Foreign exchange contracts
    
    
    (2
    )
    
    Cost of products sold
    
    
    (1
    )Total
    
    $
    (26
    )
    
    
    
    $
    (51
    )
 Derivatives Not
    
    Location of Gain or (Loss)
    
    Amount of Gain or (Loss)Designated as Hedging
    
    Recognized in Income on
    
    Recognized in Income onInstruments
    
    Derivatives
    
    DerivativesInterest rate contracts
    
    Interest expense
    
    $
    (1
    )Interest rate contracts
    
    Other (income) expense, net
    
    
    1Commodity contracts
    
    Cost of products sold
    
    
    (4
    )Foreign exchange contracts
    
    Other (income) expense, net
    
    
    2Total
    
    
    
    $
    (2
    )
   Derivatives
    
    Assets
    
    
    LiabilitiesDesignated as Hedging
    
    Balance Sheet
    
    Fair
    
    
    Balance Sheet
    
    FairInstruments
    
    Location
    
    Value
    
    
    Location
    
    ValueCommodity contracts
    
    Other current assets
    
    $
    2
    
    
    Accrued expenses
    
    $
    20Commodity contracts
    
    Other assets
    
    
    1
    
    
    Other liabilities
    
    
    13Foreign exchange contracts
    
    Other current assets
    
    
    
    
    
    Accrued expenses
    
    
    1Total
    
    $
    3
    
    
    Total
    
    $
    34
 Derivatives Not
    
    Assets
    
    
    LiabilitiesDesignated as Hedging
    
    Balance Sheet
    
    Fair
    
    
    Balance Sheet
    
    FairInstruments
    
    Location
    
    Value
    
    
    Location
    
    ValueCommodity contracts
    
    Other current assets
    
    $
    
    
    
    Accrued expenses
    
    $
    4Foreign exchange contracts
    
    Other current assets
    
    
    4
    
    
    Accrued expenses
    
    
    Foreign exchange contracts
    
    Other assets
    
    
    1
    
    
    Other liabilities
    
    
    Total
    
    $
    5
    
    
    Total
    
    $
    4Total Derivatives
    
    
    
    $
    8
    
    
    
    
    $
    38
  -16-




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9. Fair Value Measurements
  Quoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantAs of
    
    
    Identical
    
    
    Observable
    
    
    UnobservableSeptember 30,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs(millions)
    
    2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Derivative assets
    
    $
    8
    
    
    $
    
    
    
    $
    8
    
    
    $
    Derivative liabilities
    
    
    (38
    )
    
    
    
    
    
    
    (38
    )
    
    
    
   10. Comprehensive Income (Loss)
  Three Months
    
    
    Nine Monthsended September 30,
    
    
    ended September 30,(millions)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net loss
    
    $
    (94
    )
    
    $
    (36
    )
    
    $
    (189
    )
    
    $
    (114
    )Gain (loss) on derivatives, net of tax
    
    
    14
    
    
    
    (64
    )
    
    
    15
    
    
    
    (16
    )Gain (loss) on unrecognized pension and
postretirement benefit costs, net of tax *
    
    
    (3
    )
    
    
    1
    
    
    
    42
    
    
    
    6Marketable securities, net of tax
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Foreign currency translation, net of tax
    
    
    23
    
    
    
    (31
    )
    
    
    44
    
    
    
    (28
    )Total comprehensive loss
    
    $
    (60
    )
    
    $
    (129
    )
    
    $
    (88
    )
    
    $
    (151
    )
 *
    
    Includes the impact of the actual results of the 2009 actuarial valuations for the pension
and postretirement benefit plans and the remeasurement described in Note 13.  -17-




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As of
    
    
    As ofSeptember 30,
    
    
    December 31,(millions)
    
    2009
    
    
    2008Unrecognized loss on pension and postretirement benefit plans, net of tax
    
    $
    (127
    )
    
    $
    (169
    )Loss on derivatives, net of tax
    
    
    (20
    )
    
    
    (35
    )Foreign currency translation, net of tax
    
    
    21
    
    
    
    (23
    )Total
    
    $
    (126
    )
    
    $
    (227
    )
  11. Inventories
  As of
    
    
    As ofSeptember 30,
    
    
    December 31,(millions)
    
    2009
    
    
    2008Finished goods and work in progress
    
    $
    258
    
    
    $
    312Raw materials
    
    
    61
    
    
    
    92Total
    
    $
    319
    
    
    $
    404
 12. Asset Retirement Obligations
  Nine Monthsended September 30,(millions)
    
    2009
    
    
    2008Balance as of January 1
    
    $
    89
    
    
    $
    85Accretion expense
    
    
    4
    
    
    
    4Liabilities incurred
    
    
    6
    
    
    
    2Asset retirements
    
    
    (1
    )
    
    
    (1
    )Foreign currency translation
    
    
    2
    
    
    
    (1
    )Balance as of September 30
    
    $
    100
    
    
    $
    89
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13. Employee Retirement Plans
  Three Months
    
    
    Nine Monthsended September 30,
    
    
    ended September 30,(millions)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Pension:Service cost of benefits earned
    
    $
    7
    
    
    $
    9
    
    
    $
    20
    
    
    $
    26Interest cost on projected benefit obligation
    
    
    17
    
    
    
    17
    
    
    
    51
    
    
    
    52Expected return on plan assets
    
    
    (17
    )
    
    
    (20
    )
    
    
    (51
    )
    
    
    (59
    )Net amortization
    
    
    1
    
    
    
    2
    
    
    
    3
    
    
    
    5Net pension cost
    
    $
    8
    
    
    $
    8
    
    
    $
    23
    
    
    $
    24Postretirement:Service cost of benefits earned
    
    $
    2
    
    
    $
    3
    
    
    $
    6
    
    
    $
    10Interest cost on projected benefit obligation
    
    
    3
    
    
    
    6
    
    
    
    14
    
    
    
    19Net amortization
    
    
    (4
    )
    
    
    (1
    )
    
    
    (9
    )
    
    
    (4
    )Net postretirement cost
    
    $
    1
    
    
    $
    8
    
    
    $
    11
    
    
    $
    25
   14. Share-Based Compensation
      -19-




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15. Income Taxes
     -20-




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16. Litigation
     In re Chinese-Manufactured Drywall Products Liability
Litigation
    -23-




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 In the following Managements Discussion and Analysis of Financial Condition and Results of
Operations, USG, we, our and us refer to USG Corporation, a Delaware corporation, and its
subsidiaries included in the condensed consolidated financial statements, except as otherwise
indicated or as the context otherwise requires.
 Overview
   North American Gypsum ® ® ® ®
 Building Products Distribution
 Worldwide Ceilings
 Geographic Information
    -25-




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®
       -27-




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
    
    extend our customer satisfaction leadership;
    
    achieve significant cost reductions; and
    
    maintain financial flexibility.
  -28-




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Consolidated Results of Operations
 % Increase(dollars in millions, except per-share data)
    
    2009
    
    
    2008(a)
    
    
    (Decrease)Three Months ended September 30:Net sales
    
    $
    822
    
    
    $
    1,211
    
    
    
    (32
    )%Cost of products sold
    
    
    784
    
    
    
    1,147
    
    
    
    (32
    )%Gross profit
    
    
    38
    
    
    
    64
    
    
    
    (41
    )%Selling and administrative expenses
    
    
    67
    
    
    
    91
    
    
    
    (26
    )%Restructuring and long-lived asset impairment charges
    
    
    22
    
    
    
    5
    
    
    
    Goodwill and other intangible asset impairment charges
    
    
    41
    
    
    
    
    
    
    
    Operating loss
    
    
    (92
    )
    
    
    (32
    )
    
    
    188
    %Interest expense
    
    
    42
    
    
    
    21
    
    
    
    100
    %Interest income
    
    
    (2
    )
    
    
    (2
    )
    
    
    Other (income) expense, net
    
    
    (1
    )
    
    
    3
    
    
    
    Income tax benefit
    
    
    (37
    )
    
    
    (18
    )
    
    
    106
    %Net loss
    
    
    (94
    )
    
    
    (36
    )
    
    
    161
    %Diluted loss per share
    
    
    (0.96
    )
    
    
    (0.36
    )
    
    
    167
    %Nine Months ended September 30:Net sales
    
    $
    2,515
    
    
    $
    3,627
    
    
    
    (31
    )%Cost of products sold
    
    
    2,378
    
    
    
    3,441
    
    
    
    (31
    )%Gross profit
    
    
    137
    
    
    
    186
    
    
    
    (26
    )%Selling and administrative expenses
    
    
    219
    
    
    
    287
    
    
    
    (24
    )%Restructuring and long-lived asset impairment charges
    
    
    51
    
    
    
    30
    
    
    
    70
    %Goodwill and other intangible asset impairment charges
    
    
    41
    
    
    
    
    
    
    
    Operating loss
    
    
    (174
    )
    
    
    (131
    )
    
    
    33
    %Interest expense
    
    
    120
    
    
    
    59
    
    
    
    103
    %Interest income
    
    
    (3
    )
    
    
    (5
    )
    
    
    (40
    )%Other (income) expense, net
    
    
    (10
    )
    
    
    2
    
    
    
    Income tax benefit
    
    
    (92
    )
    
    
    (73
    )
    
    
    26
    %Net loss
    
    
    (189
    )
    
    
    (114
    )
    
    
    66
    %Diluted loss per share
    
    
    (1.91
    )
    
    
    (1.15
    )
    
    
    66
    %
 (a)
    
    Financial Information for the 2008 periods was retrospectively adjusted for our change in the
fourth quarter of 2008 from the last-in, first-out method to the average cost method of
inventory accounting.   ®
 ®
  -29-




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®
 ®
         -30-




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Core Business Results of Operations
 Three Months
    
    
    Nine Monthsended September 30,
    
    
    ended September 30,(millions)
    
    2009 (a)
    
    
    2008 (b)(c)
    
    
    2009 (a)
    
    
    2008 (b)(c)Net Sales:North American Gypsum:United States Gypsum Company
    
    $
    354
    
    
    $
    494
    
    
    $
    1,117
    
    
    $
    1,518CGC Inc. (gypsum)
    
    
    69
    
    
    
    87
    
    
    
    194
    
    
    
    261USG Mexico, S.A. de C.V.
    
    
    37
    
    
    
    56
    
    
    
    106
    
    
    
    157Other (d)
    
    
    10
    
    
    
    23
    
    
    
    30
    
    
    
    61Eliminations
    
    
    (27
    )
    
    
    (50
    )
    
    
    (84
    )
    
    
    (144
    )Total
    
    
    443
    
    
    
    610
    
    
    
    1,363
    
    
    
    1,853Building Products Distribution:L&W Supply Corporation
    
    
    329
    
    
    
    526
    
    
    
    1,019
    
    
    
    1,558Worldwide Ceilings:USG Interiors, Inc.
    
    
    108
    
    
    
    146
    
    
    
    339
    
    
    
    422USG International
    
    
    60
    
    
    
    80
    
    
    
    167
    
    
    
    245CGC Inc. (ceilings)
    
    
    14
    
    
    
    14
    
    
    
    42
    
    
    
    48Eliminations
    
    
    (9
    )
    
    
    (13
    )
    
    
    (31
    )
    
    
    (40
    )Total
    
    
    173
    
    
    
    227
    
    
    
    517
    
    
    
    675Eliminations
    
    
    (123
    )
    
    
    (152
    )
    
    
    (384
    )
    
    
    (459
    )Total USG Corporation
    
    $
    822
    
    
    $
    1,211
    
    
    $
    2,515
    
    
    $
    3,627Operating Profit (Loss):North American Gypsum:United States Gypsum Company
    
    $
    (31
    )
    
    $
    (54
    )
    
    $
    (77
    )
    
    $
    (180
    )CGC Inc. (gypsum)
    
    
    1
    
    
    
    (1
    )
    
    
    2
    
    
    
    2USG Mexico, S.A. de C.V.
    
    
    4
    
    
    
    6
    
    
    
    9
    
    
    
    17Other (d)
    
    
    (5
    )
    
    
    5
    
    
    
    (6
    )
    
    
    7Total
    
    
    (31
    )
    
    
    (44
    )
    
    
    (72
    )
    
    
    (154
    )Building Products Distribution:L&W Supply Corporation
    
    
    (73
    )
    
    
    5
    
    
    
    (109
    )
    
    
    13Worldwide Ceilings:USG Interiors, Inc.
    
    
    16
    
    
    
    20
    
    
    
    48
    
    
    
    58USG International
    
    
    2
    
    
    
    4
    
    
    
    4
    
    
    
    12CGC Inc. (ceilings)
    
    
    3
    
    
    
    2
    
    
    
    5
    
    
    
    10Total
    
    
    21
    
    
    
    26
    
    
    
    57
    
    
    
    80Corporate
    
    
    (12
    )
    
    
    (17
    )
    
    
    (53
    )
    
    
    (71
    )Eliminations
    
    
    3
    
    
    
    (2
    )
    
    
    3
    
    
    
    1Total USG Corporation
    
    $
    (92
    )
    
    $
    (32
    )
    
    $
    (174
    )
    
    $
    (131
    )
 (a)
    
    The total operating loss for the third quarter of 2009 included restructuring and long-lived
asset impairment charges totaling $22 million. On a segment basis, $11 million of the charges
related to North American Gypsum, $8 million to Building Products Distribution, $2 million to
Worldwide Ceilings and $1 million to Corporate. The total operating loss for the first nine
months of 2009 included restructuring and long-lived asset impairment charges totaling $51
million. On a segment basis, $24 million of the charges related to North American Gypsum, $14
million to Building Products Distribution, $3 million to Worldwide Ceilings and $10 million to
Corporate. The total operating losses for the third quarter and first nine months of 2009 also
included goodwill and other intangible asset impairment charges of $41 million related to
Building Products Distribution.(b)
    
    The total operating loss for the third quarter of 2008 included restructuring and long-lived
asset impairment charges totaling $5 million. On a segment basis, $4 million of the charges
related to North American Gypsum and $1 million to Building Products Distribution. The total
operating loss for the first nine months of 2008 included restructuring and long-lived asset
impairment charges totaling $30 million. On a segment basis, $17 million of the charges
related to North American Gypsum, $6 million to Building Products Distribution, $2 million to
Worldwide Ceilings and $5 million to Corporate.(c)
    
    Financial information for the 2008 periods was retrospectively adjusted for our change in the
fourth quarter of 2008 from the last-in, first-out method to the average cost method of
inventory accounting.(d)
    
    Includes a shipping company in Bermuda and a mining operation in Nova Scotia, Canada.  -33-




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United States Gypsum Company ® ®
 ®
 ®
 ®
 ® ®
 ® ® ®
  -34-




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CGC Inc. ®
 USG Mexico, S.A. de C.V.
       -35-




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USG Interiors, Inc.
   USG International
 CGC Inc.
 Liquidity and Capital Resources
    -36-




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-37-




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Nine Monthsended September 30,(millions)
    
    2009
    
    
    2008Net cash provided by (used for):Operating activities
    
    $
    70
    
    
    $
    (143
    )Investing activities
    
    
    (34
    )
    
    
    (210
    )Financing activities
    
    
    109
    
    
    
    218Effect of exchange rate changes on cash
    
    
    5
    
    
    
    (3
    )Net increase (decrease) in cash and cash equivalents
    
    $
    150
    
    
    $
    (138
    )
 Operating Activities
 Investing Activities
 Financing Activities
   Cash and Cash Equivalents
 Receivables
 Inventories
  -38-




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Accounts Payable
 Accrued Expenses
     Realization of Deferred Tax Asset
   -39-




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-40-




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Legal Contingencies
      -41-




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Critical Accounting Policies
  Recent Accounting Pronouncements
    -42-




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Forward-Looking Statements
  
    
    economic conditions, such as the levels of new home and other construction activity,
employment levels, the availability of mortgage, construction and other financing, mortgage
and other interest rates, housing affordability and supply, the levels of foreclosures and
home resales, currency exchange rates and consumer confidence;
 
    
    capital markets conditions and the availability of borrowings under our credit agreement or
other financings;
 
    
    competitive conditions, such as price, service and product competition;
 
    
    shortages in raw materials;
 
    
    changes in raw material, energy, transportation and employee benefit costs;
 
    
    the loss of one or more major customers and our customers ability to meet their financial
obligations to us;
 
    
    capacity utilization rates;
 
    
    changes in laws or regulations, including environmental and safety regulations;
 
    
    the effects of acts of terrorism or war upon domestic and international economies and
financial markets; and
 
    
    acts of God.
   -43-




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ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
           -44-




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ITEM 4.
    
    CONTROLS AND PROCEDURES
 (a)
    
    Evaluation of disclosure controls and procedures.
  (b)
    
    Changes in internal control over financial reporting.
  
 PART II. OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
  
 ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 (a)
    
    Pursuant to our Deferred Compensation Program for Non-Employee Directors, two of our
non-employee directors deferred their quarterly retainers for service as directors that were
payable on September 30, 2009 into a total of approximately 2,411 deferred stock units. These
units will increase or decrease in value in direct proportion to the market value of our
common stock and will be paid in cash or shares of common stock, at the directors option,
following termination of service as a director. The issuance of these deferred stock units was
effected through a private placement under Section 4(2) of the Securities Act of 1933, as
amended, and was exempt from registration under Section 5 of that Act.
 
 ITEM 6.
    
    EXHIBITS
 4.1
    
    
    Supplemental Indenture No. 2, dated as of August 4, 2009, between USG Corporation, each of
United States Gypsum Company, L&W Supply Corporation, USG Foreign Investments, Ltd. and USG
Interiors, Inc., as guarantors, and HSBC Bank USA, National Association, as trustee
(incorporated by reference to Exhibit 4.01 to USG Corporations Current Report on Form 8-K
dated August 4, 2009)31.1
    
    
    Rule 13a-14(a) Certifications of USG Corporations Chief Executive Officer *31.2
    
    
    Rule 13a-14(a) Certifications of USG Corporations Chief Financial Officer *32.1
    
    
    Section 1350 Certifications of USG Corporations Chief Executive Officer *32.2
    
    
    Section 1350 Certifications of USG Corporations Chief Financial Officer *
 *
    
    Filed or furnished herewith  -45-




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SIGNATURES
  USG CORPORATIONBy
    /s/ William C. FooteWilliam C. Foote,Chairman and Chief Executive OfficerBy
    /s/ Richard H. FlemingRichard H. Fleming,Executive Vice President and
Chief Financial OfficerBy
    /s/ D. Rick LowesD. Rick Lowes,Senior Vice President and Controller   -46-




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EXHIBIT INDEX
 ExhibitNumber
    
    Exhibit4.1
    
    
    Supplemental Indenture No. 2, dated as of August 4, 2009, between USG Corporation, each of
United States Gypsum Company, L&W Supply Corporation, USG Foreign Investments, Ltd. and USG
Interiors, Inc., as guarantors, and HSBC Bank USA, National Association, as trustee
(incorporated by reference to Exhibit 4.01 to USG Corporations Current Report on Form 8-K
dated August 4, 2009)31.1
    
    
    Rule 13a-14(a) Certifications of USG Corporations Chief Executive Officer *31.2
    
    
    Rule 13a-14(a) Certifications of USG Corporations Chief Financial Officer *32.1
    
    
    Section 1350 Certifications of USG Corporations Chief Executive Officer *32.2
    
    
    Section 1350 Certifications of USG Corporations Chief Financial Officer *
 *
    
    Filed or furnished herewith