10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the Quarter Ended June 30, 2004

Commission File No. 1-3660

Owens Corning

One Owens Corning Parkway

Toledo, Ohio 43659

Area Code (419) 248-8000

A Delaware Corporation

I.R.S. Employer Identification No. 34-4323452

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 x      No ¨

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨      No x

Shares of common stock, par value $0.10 per share, outstanding at June 30, 2004

55,343,098

(i)

INDEX

		Page
Cover Page		1
PART I
Item 1.	Financial Statements
	Consolidated Statement of Income	2
	Consolidated Balance Sheet	3 - 4
	Consolidated Statement of Cash Flows	5
	Notes to Consolidated Financial Statements
	Voluntary Petition for Relief Under Chapter 11	6 - 21
	Segment Data	22 - 23
	General	24
	Inventories	24
	Goodwill and Other Intangibles	24 - 25
	Acquisitions and Divestitures of Businesses	25
	Warranties	26
	Restructuring of Operations and Other Charges	26
	Pension and Other Postretirement Benefits	26 - 28
	Contingent Liabilities and Other Matters	28 - 46
	Fibreboard Settlement Trust	46 - 48
	Stock Compensation	49
	Earnings per Share	50
	Comprehensive Income	50
	Income Taxes	50
	Leases	51
	Accounting Pronouncements	51 - 52
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	53 - 72
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	72
Item 4.	Controls and Procedures	72
PART II
Item 1.	Legal Proceedings	73 - 75
Item 2.	Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	75
Item 3.	Defaults Upon Senior Securities	75
Item 4.	Submission of Matters to a Vote of Security Holders	76
Item 5.	Other Information	76
Item 6.	Exhibits and Reports on Form 8-K	76
	Signatures	77
	Exhibit Index	78 - 79
	Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession (Bonds/Trade Term Sheet, dated as of June 3, 2004), Exhibit (2)
	Material Contracts (Owens Corning Key Employee Retention Incentive Plan), Exhibit (10)
	Certification (Chief Executive Officer), Exhibit (31)
	Certification (Chief Financial Officer), Exhibit (31)
	Section 1350 Certification (Chief Executive Officer), Exhibit (32)
	Section 1350 Certification (Chief Financial Officer), Exhibit (32)
	Subsidiaries of Owens Corning, Exhibit (99)

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PART I

ITEM 1. FINANCIAL STATEMENTS

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

(unaudited)

	Quarter Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
	(In millions, except per share data)
NET SALES	$	1,441		$	1,239		$	2,650		$	2,372
COST OF SALES		1,178			1,024			2,215			1,998
Gross margin		263			215			435			374
OPERATING EXPENSES
Marketing and administrative expenses		129			116			244			230
Science and technology expenses		11			10			22			21
Restructure costs (Note 8)		—			—			—			2
Chapter 11 related reorganization items (Notes 1 and 10)		28			38			38			70
Credit for asbestos litigation claims – Owens Corning (Note 10)		—			(4	)		—			(4	)
Other (Note 8)		1			12			3			4
Total operating expenses		169			172			307			323
INCOME FROM OPERATIONS		94			43			128			51
Interest expense, net		1			—			2			4
INCOME BEFORE INCOME TAX EXPENSE		93			43			126			47
Income tax expense		56			24			83			26
INCOME BEFORE MINORITY INTEREST AND EQUITY IN NET INCOME (LOSS) OF AFFILIATES		37			19			43			21
Minority interest		(1	)		(1	)		(3	)		(4	)
Equity in net income (loss) of affiliates		(3	)		—			(2	)		—
NET INCOME	$	33		$	18		$	38		$	17
NET INCOME PER COMMON SHARE
Basic net income per share (Note 13)	$	0.59		$	0.33		$	0.68		$	0.30
Diluted net income per share (Note 13)	$	0.55		$	0.30		$	0.63		$	0.28
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING AND COMMON EQUIVALENT SHARES DURING THE PERIOD
Basic		55.3			55.2			55.3			55.1
Diluted		59.9			59.9			59.9			59.8

The accompanying notes are an integral part of this statement.

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OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(unaudited)

	June 30, 2004			December 31, 2003
	(In millions of dollars)
ASSETS
CURRENT
Cash and cash equivalents (Note 1)	$	874		$	1,005
Receivables, less allowances of $18 million in 2004 and $19 million in 2003		625			464
Inventories (Note 4)		445			390
Other current assets		44			29
Total current		1,988			1,888
OTHER
Restricted cash - asbestos and insurance related (Note 10)		166			166
Restricted cash, securities, and other - Fibreboard (Notes 10 and 11)		1,392			1,395
Deferred income taxes		1,152			1,310
Pension-related assets		302			338
Goodwill (Note 5)		187			138
Investment in affiliates		63			81
Other noncurrent assets (Note 15)		157			92
Total other		3,419			3,520
PLANT AND EQUIPMENT, at cost
Land		77			70
Buildings and leasehold improvements		785			789
Machinery and equipment		3,213			3,232
Construction in progress		104			96
		4,179			4,187
Accumulated depreciation		(2,213	)		(2,237	)
Net plant and equipment		1,966			1,950
TOTAL ASSETS	$	7,373		$	7,358

The accompanying notes are an integral part of this statement.

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OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET (continued)

(unaudited)

	June 30, 2004			December 31, 2003
	(In millions of dollars)
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT
Accounts payable and accrued liabilities	$	782		$	767
Short-term debt		45			44
Long-term debt - current portion		47			53
Total current		874			864
LONG-TERM DEBT		64			73
OTHER
Pension plan liability		700			697
Other employee benefits liability		406			400
Other		186			143
Total other		1,292			1,240
LIABILITIES SUBJECT TO COMPROMISE (Notes 1 and 10)		9,202			9,258
COMPANY OBLIGATED SECURITIES OF ENTITIES HOLDING SOLELY PARENT DEBENTURES - SUBJECT TO COMPROMISE		200			200
COMMITMENTS AND CONTINGENCIES (Notes 10 and 11)
MINORITY INTEREST		45			51
STOCKHOLDERS’ DEFICIT
Common stock		6			6
Additional paid in capital		690			690
Accumulated deficit		(4,613	)		(4,651	)
Accumulated other comprehensive loss		(386	)		(371	)
Other		(1	)		(2	)
Total stockholders’ deficit		(4,304	)		(4,328	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	7,373		$	7,358

The accompanying notes are an integral part of this statement.

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OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited)

	Six Months Ended June 30,
	2004			2003
	(In millions of dollars)
NET CASH FLOW FROM OPERATIONS
Net income	$	38		$	17
Reconciliation of net cash from operating activities
Noncash items:
Provision for depreciation and amortization		111			101
Provision for impairment of fixed assets		—			28
Provision for deferred income taxes		42			(1	)
Provision for pension and other employee benefits liability		58			60
Other		13			(3	)
Increase in receivables		(153	)		(112	)
Increase in inventories		(49	)		(88	)
Increase (decrease) in accounts payable and accrued liabilities		10			(37	)
Pension fund contribution		(3	)		(7	)
Payments for other employee benefits liability		(13	)		(16	)
Increase in restricted cash - asbestos and insurance related		—			(1	)
Decrease (increase) in restricted cash, securities, and other - Fibreboard (Note 11)		3			(21	)
Proceeds from insurance for asbestos litigation claims, excluding Fibreboard		—			4
Other		(1	)		54
Net cash flow from operations		56			(22	)
NET CASH FLOW FROM INVESTING
Additions to plant and equipment		(99	)		(83	)
Investment in subsidiaries, net of cash acquired		(74	)		—
Proceeds from the sale of affiliate or business (Note 6)		6			61
Other		—			(1	)
Net cash flow from investing		(167	)		(23	)
NET CASH FLOW FROM FINANCING
Other additions to long-term debt		—			4
Other reductions to long-term debt (Note 16)		(13	)		(49	)
Net increase in short-term debt		1			6
Subject to compromise (Note 1)		(5	)		—
Other		2			—
Net cash flow from financing		(15	)		(39	)
Effect of exchange rate changes on cash		(5	)		16
NET DECREASE IN CASH AND CASH EQUIVALENTS		(131	)		(68	)
Cash and cash equivalents at beginning of period		1,005			875
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	874		$	807

The accompanying notes are an integral part of this statement.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11

On October 5, 2000 (the “Petition Date”), Owens Corning and the 17 United States subsidiaries listed below (collectively with Owens Corning, the “Debtors”) filed voluntary petitions for relief (the “Filing”) under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “USBC”):

CDC Corporation	Integrex Testing Systems LLC
Engineered Yarns America, Inc.	HOMExperts LLC
Falcon Foam Corporation	Jefferson Holdings, Inc.
Integrex	Owens-Corning Fiberglas Technology, Inc.
Fibreboard Corporation	Owens Corning HT, Inc.
Exterior Systems, Inc.	Owens-Corning Overseas Holdings, Inc.
Integrex Ventures LLC	Owens Corning Remodeling Systems, LLC
Integrex Professional Services LLC	Soltech, Inc.
Integrex Supply Chain Solutions LLC

The Debtors are currently operating their businesses as debtors-in-possession in accordance with provisions of the Bankruptcy Code. The Chapter 11 cases of the Debtors (collectively, the “Chapter 11 Cases”) are being jointly administered under Case No. 00-3837 (JKF).

The referenced Chapter 11 cases do not include any other United States or foreign subsidiaries of Owens Corning (collectively, the “Non-Debtor Subsidiaries”). As described more fully below under the heading “The Plan of Reorganization”, Owens Corning may cause certain of such Non-Debtor Subsidiaries that issued guarantees with respect to Owens Corning’s $1.8 billion pre-petition bank credit facility (the “Pre-Petition Credit Facility”, which is in default) to file petitions for relief under Chapter 11 of the Bankruptcy Code under certain circumstances.

The Debtors filed for relief under Chapter 11 to address the growing demands on Owens Corning’s cash flow resulting from its multi-billion dollar asbestos liability. This liability is discussed in greater detail in Note 10 to the Consolidated Financial Statements.

Overseeing Federal District Court

In late 2001, the asbestos-related Chapter 11 cases pending in the District of Delaware (the Chapter 11 Cases of Owens Corning and the cases of Armstrong World Industries, Inc., W.R. Grace & Co., Federal-Mogul Global, Inc., and USG Corporation) were ordered transferred to the United States District Court for the District of Delaware (the “District Court”) before Judge Alfred M. Wolin to facilitate development and implementation of a coordinated plan for management (the “Administrative Consolidation”). The District Court entered an order referring the Chapter 11 Cases back to the USBC, where they were previously pending, subject to its ongoing right to withdraw such referral with respect to any proceedings or issues (the applicable court from time to time responsible for any particular aspect of the Chapter 11 Cases being hereinafter referred to as the “Bankruptcy Court”).

On or about October 10, 2003, Kensington International Limited and Springfield Associates, LLC (collectively, “K&S”), two assignees of lenders under Owens Corning’s Pre-Petition Credit Facility, filed a motion in the USBC to recuse District Court Judge Wolin from further participation in the Chapter 11 Cases. After various proceedings before the District Court and the United States Court of Appeals for the Third Circuit (the “Third Circuit”), on May 17, 2004, the Third Circuit entered an order requiring Judge Wolin to recuse himself from further participation in the Chapter 11 Cases. On May 27, 2004, the Third Circuit assigned Judge John P. Fullam of the United States District Court, Eastern District of Pennsylvania, to replace Judge Wolin in the Chapter 11 Cases. In addition, the Third Circuit assigned

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 (continued)

other judges to sit on other of the cases that had previously been consolidated under the terms of the Administrative Consolidation, effectively terminating the consolidation. Owens Corning is unable to predict what impact the change in District Court Judge or the termination of the Administrative Consolidation will have on the timing, outcome, or other aspects of the Chapter 11 Cases.

Consequence of the Filing

As a consequence of the Filing, all pending litigation against the Debtors was stayed automatically by section 362 of the Bankruptcy Code and, absent further order of the Bankruptcy Court, no party may take any action to recover on pre-petition claims against the Debtors. In addition, pursuant to section 365 of the Bankruptcy Code, the Debtors may reject or assume pre-petition executory contracts and unexpired leases, and other parties to contracts or leases that are rejected may assert rejection damages claims as permitted by the Bankruptcy Code.

Two creditors’ committees, one representing asbestos claimants and the other representing unsecured creditors, have been appointed as official committees in the Chapter 11 Cases. In addition, the Bankruptcy Court has appointed James J. McMonagle as Legal Representative for the class of future asbestos personal injury claimants against one or more of the Debtors. The two committees and the Legal Representative have the right to be heard on all matters that come before the Bankruptcy Court.

Owens Corning anticipates that substantially all liabilities of the Debtors as of the date of the Filing will be resolved under one or more Chapter 11 plans of reorganization to be proposed and voted on in the Chapter 11 Cases in accordance with the provisions of the Bankruptcy Code. On January 17, 2003, the Debtors, together with the Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants, filed a proposed joint plan of reorganization in the USBC. The same proponents filed a proposed amended joint plan of reorganization in the USBC on March 28, 2003, a proposed second amended joint plan of reorganization in the USBC on May 23, 2003, a proposed third amended joint plan of reorganization in the USBC on August 8, 2003, and a proposed fourth amended joint plan of reorganization (as so amended through such fourth amendment, the “Plan”) in the USBC on October 24, 2003.

On June 7, 2004, Owens Corning announced that an agreement in principle (the “Agreement in Principle”) had been reached with the Official Committee of Asbestos Claimants, the Legal Representative for the class of future asbestos claimants, and the official representatives of Owens Corning’s pre-petition bondholders and trade creditors. Among other things, the Agreement in Principle provides that all holders of bonds, bank debt and senior trade debt would receive a recovery equal to 38.5% of their claims upon Owens Corning’s successful emergence from Chapter 11. The recoveries of all creditors are based on certain agreed and assumed values and would be comprised of cash, debt and equity. However, their actual recoveries could ultimately be higher or lower based on the value of the equity to be issued by Owens Corning upon emergence from Chapter 11 and other factors.

As a result of this Agreement in Principle, Owens Corning has now gained support for the Plan from all of its major creditor groups with the exception of the holders of the debt under the Pre-Petition Credit Facility, who continue to oppose the Plan.

It is expected that the Plan will be amended to reflect the terms of the Agreement in Principle. Certain terms, conditions and provisions of the Plan are discussed below. The Plan is subject to confirmation by the Bankruptcy Court.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 (continued)

Although the Debtors intend to seek confirmation of the Plan, as amended to reflect the Agreement in Principle, there can be no assurance that such Plan will not be further amended prior to confirmation, nor can there be any assurance that such Plan will be confirmed by the Bankruptcy Court and consummated. Owens Corning is unable to predict what impact the change in District Court Judge, the termination of the Administrative Consolidation, or the disposition of any of the litigation and other matters described below will have on the timing of the confirmation of a plan or plans of reorganization or its effect, if any, on the terms thereof.

Related Developments

PROPOSED ASBESTOS LEGISLATION

As previously disclosed, on May 22, 2003, the United States Senate introduced proposed legislation (S 1125, also known as the Fairness in Asbestos Injury Resolution Act of 2003). On April 7, 2004, the United States Senate introduced proposed substitute legislation (S 2290, also known as the Fairness in Asbestos Injury Resolution Act of 2004). References in the following discussion to the “FAIR Act” refer to each Bill separately.

If enacted into law, the FAIR Act would establish an administrative claims resolution structure through which all asbestos personal injury claims would be channeled and reviewed. The FAIR Act would also establish a national trust fund, funded through mandated contributions from defendant companies, insurance companies and existing trusts, that would be the source of compensation of all approved claims. Under the present terms of the FAIR Act, companies like Owens Corning and Fibreboard, that have filed for bankruptcy but have not yet emerged through a confirmed plan of reorganization, would be included as participants in the resolution structure.

The fate of the FAIR Act remains uncertain, and Owens Corning is unable to make any prediction as to whether the FAIR Act will be enacted or, if it is enacted, what its final form would be or what the effect, if any, would be on Owens Corning and Fibreboard or their plan or plans of reorganization. The provisions of any legislation ultimately enacted may have a material effect on the amount of liability that Owens Corning and Fibreboard ultimately have for asbestos-related claims, which could be more or less than the amounts reserved for in Owens Corning’s financial statements.

OTHER MATTERS FILED IN THE USBC

On or about October 15, 2003, Credit Suisse First Boston (“CSFB”), the bank agent and a lender under the Pre-Petition Credit Facility, filed a complaint in the USBC against Owens Corning and twenty unnamed law firms who are alleged to have received payments under Owens Corning’s National Settlement Program (the “NSP”, which is discussed more fully in Note 10 to the Consolidated Financial Statements under the heading “Asbestos Liabilities”). This complaint, which was captioned Credit Suisse First Boston v. Owens Corning, et al., sought to impose a constructive trust on all funds held by Owens Corning drawn under the Pre-Petition Credit Facility between March 1, 2000 and October 5, 2000, and to impose a constructive trust against the unnamed law firms. The complaint alleged that the NSP caused financial difficulties for Owens Corning that culminated in loan covenant breaches under the Pre-Petition Credit Facility that were not disclosed to CSFB, resulting in loans under the Pre-Petition Credit Facility that the lenders would not have been required to make. Following limited discovery by the plaintiffs, the proceeding was dismissed without prejudice by agreement of the parties, pursuant to order of the USBC dated June 23, 2004.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 (continued)

On or about October 17, 2003, the Official Committee of Unsecured Creditors filed a motion in the USBC requesting appointment of a Chapter 11 trustee to assume control of the Chapter 11 Cases due to alleged breach of the Debtors’ fiduciary duty of undivided loyalty to act in the best interest of all creditors. After such motion was dismissed by the USBC for failure to comply with local court rules, the Official Committee of Unsecured Creditors re-filed such motion on October 30, 2003. A supplement to the motion of the Official Committee of Unsecured Creditors was filed on May 28, 2004, and various filings in opposition to such supplemented motion were filed by the Debtors, the Legal Representative for the class of future asbestos claimants, and the Official Committee of Asbestos Creditors.

On or about May 24, 2004, Credit Suisse First Boston, Kensington International Limited, Springfield Associates LLC and Angelo Gordon filed a motion in the USBC requesting the appointment of a Chapter 11 Examiner to examine (i) allegations of improper conduct by management of the Debtors, (ii) alleged breaches of fiduciary duty by management of the Debtors resulting from the influence of the Legal Representative for the class of future asbestos claimants and the Official Committee of Asbestos Creditors on the process of developing a Plan and the tort estimation process, (iii) alleged connections between the asbestos plaintiffs’ interests, a Court appointed mediator, and the Debtors’ asbestos liability estimation firm, and (iv) other alleged improper conduct. Owens Corning, the Legal Representative for the class of future asbestos claimants, and the Official Committee of Asbestos Creditors have each filed responsive pleadings to the motion. Following a June 21, 2004 hearing, the USBC continued further proceedings on the motion pending issuance of a final order on the motion (described in the preceding paragraph) requesting appointment of a Chapter 11 trustee.

The Debtors believe that the two pending motions described above are without merit and intend to continue to vigorously oppose them in appropriate proceedings.

The Plan of Reorganization

Although the basic terms of the Plan, as amended to reflect the Agreement in Principle, have now been agreed to by all of Owens Corning’s major creditor constituencies, except the holders of its debt under the Pre-Petition Credit Facility, who continue to oppose the Plan, Owens Corning believes that it is likely that the terms, conditions and provisions of the Plan will remain the subject of continuing negotiations or litigation to resolve differences among the creditor constituencies as to their treatment. Accordingly, Owens Corning is unable to predict at this time what the treatment of creditors and equity holders of the respective Debtors will ultimately be under any plan or plans of reorganization finally confirmed. The current Plan, as amended to reflect the Agreement in Principle, provides for payment of 38.5% of the face amount of all unsecured creditors’ claims, in the form of distributions of new common stock and notes of the reorganized company, and cash. However, as described more fully below, the percentage recovery and value of the payments ultimately made under the Plan to each class of creditors will depend upon a number of factors, including the value of the shares of new common stock and notes to be issued by the Company. Additional distributions from potential insurance and other third-party claims may also be paid to certain classes of unsecured creditors, but it is expected that all classes of pre-petition unsecured creditors will be impaired. Therefore, the Plan also provides that the existing common stock of Owens Corning will be cancelled, and that current shareholders will receive no distribution or other consideration in exchange for their shares. It is impossible to predict at this time the terms and provisions of any plan or plans of reorganization that may ultimately be confirmed, when a plan or plans of reorganization will be confirmed, or the treatment of creditors thereunder.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 (continued)

The Plan is premised upon the substantive consolidation of the Debtors (but not the Fibreboard Settlement Trust (see Note 11 to the Consolidated Financial Statements)) for the purposes of voting, determining which claims and interests will be entitled to vote to accept or reject the Plan, confirmation of the Plan, and the resultant discharge of and cancellation of claims and interests and distribution of assets, interests and other property under the Plan. For these purposes, the Plan would treat all assets and liabilities of each Debtor (excluding the Fibreboard Settlement Trust) as though they were merged into one consolidated estate with the assets and liabilities of the other Debtors. Substantive consolidation under the Plan will not result in the merger of or the transfer or commingling of any assets of any of the Debtors or Non-Debtor Subsidiaries. Certain creditor constituencies have asserted that substantive consolidation is not appropriate and are challenging that approach in the Plan confirmation hearings described below.

As part of the Plan, Owens Corning intends to effect an internal restructuring in order to adopt a holding company structure. This internal restructuring is expected to be refined further as steps are taken to implement it.

Although the Plan, as amended to reflect the Agreement in Principle, provides for unsecured creditors to recover 38.5% of their claims, the percentage recovery and value of the payments ultimately made under the Plan to each class of creditors will depend upon a number of factors. Those factors include the value of the shares of new common stock and notes to be issued by the Company, the amount of cash available for distribution, the resolution of certain inter-creditor issues, and the ultimate aggregate asbestos liability. In addition, the Plan, as amended to reflect the Agreement in Principle, will provide that the unsecured creditors may elect to exchange cash or notes that they would otherwise be entitled to receive under the Plan for up to a maximum of 8 million shares of new Owens Corning common stock that would otherwise be distributable to asbestos claimants.

The Plan provides that liability for current and future asbestos personal injury claims against Owens Corning and Fibreboard would be determined by the Bankruptcy Court as part of the confirmation hearing on the Plan. The Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants have reserved the right to withdraw support of the Plan if such liability is determined to be less than $16 billion in the aggregate. Hearings concerning confirmation of the Plan began on April 8, 2003. Any disagreements raised by creditors with the terms of the Plan, including with respect to the appropriateness of substantive consolidation, are expected to be handled through litigation as part of the confirmation process. Owens Corning is unable to predict the outcome of such litigation, or the effect, if any, of the change in District Court Judge, on the schedule or other aspects of the confirmation process.

Under the Plan, a majority of the newly issued common stock, together with notes, and cash, as well as the assets of the existing Fibreboard Settlement Trust (see Note 11 to the Consolidated Financial Statements), will fund a new trust created under the Plan intended to qualify under Section 524(g) of the Bankruptcy Code. The Section 524(g) trust will assume all obligations of Owens Corning, Fibreboard, and their respective subsidiaries and affiliates, for current and future asbestos personal injury claims and demands, and will, through Owens Corning and Fibreboard sub-accounts, make payments to claimants in accordance with the trust distribution procedures included as part of the Plan. In addition, the Plan provides for an injunction by the Bankruptcy Court pursuant to Section 524(g) of the Bankruptcy Code that will enjoin actions against the reorganized Debtors for the purpose of, directly or indirectly, collecting, recovering or receiving payment of, on, or with respect to any claims resulting from asbestos-containing products allegedly manufactured, sold or installed by Owens Corning or Fibreboard, which claims will be paid in whole or in part by the Section 524(g) trust. Similar plans of reorganization have

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 (continued)

been confirmed in the Chapter 11 cases of other companies involved in asbestos-related litigation. Section 524(g) of the Bankruptcy Code provides that, if certain specified conditions are satisfied, a court may issue a supplemental permanent injunction barring the assertion of asbestos-related claims or demands against the reorganized company and channeling those claims to an independent trust.

Among other things, the Plan provides that (1) except as otherwise provided in the Plan, no distributions will be made under the Plan on account of inter-company claims among any of the Debtors, and (2) all guarantees of the Debtors of the obligations of any other Debtor will be deemed eliminated. Since, as described above, it is likely that the Plan will be the subject of continuing negotiations or litigation, Owens Corning is unable to predict at this time what the treatment of such matters, and other inter-company and intra-company arrangements, transactions and relationships that were entered into prior to the Petition Date, will ultimately be under any plan or plans of reorganization finally confirmed. Such matters and other arrangements, transactions and relationships may be challenged by various parties in the Chapter 11 Cases and payments and other obligations in respect thereof may be restricted or modified by order of, or subject to review and approval by, the Bankruptcy Court. The outcome of such challenges and other actions, if any, may have an impact on the treatment of various claims under the plan or plans ultimately confirmed and on the respective assets, liabilities and results of operations of Owens Corning and its subsidiaries. For example, Owens Corning is unable to predict at this time what the treatment will ultimately be under any such plan or plans with respect to (1) the guarantees issued by certain of Owens Corning’s U.S. subsidiaries, including Owens-Corning Fiberglas Technology Inc. (“OCFT”) and IPM Inc., a Non-Debtor Subsidiary that holds Owens Corning’s ownership interest in a majority of Owens Corning’s foreign subsidiaries (“IPM”), with respect to Owens Corning’s Pre-Petition Credit Facility or (2) OCFT’s license agreements with Owens Corning and Exterior Systems, Inc., an indirect wholly-owned subsidiary of Owens Corning (“Exterior”), pursuant to which OCFT licenses intellectual property to Owens Corning and Exterior. In the event that (1) the major creditor constituencies do not approve the Plan and (2) no other acceptable alternative agreement is reached to release such entities from their guaranty obligations, Owens Corning expects to cause IPM as well as Vytec Corporation and Owens-Corning Fiberglas Sweden Inc., two other Non-Debtor Subsidiaries that have issued guarantees in connection with the Pre-Petition Credit Facility, to file for relief under Chapter 11 of the Bankruptcy Code, and to join in the proposal of the Plan, and will also seek to cause those Non-Debtor Subsidiaries to be substantively consolidated with the current Debtors for the purposes set forth in the Plan.

The Bankruptcy Court may confirm a plan of reorganization only upon making certain findings required by the Bankruptcy Code, and a plan may be confirmed over the dissent of non-accepting creditors and equity security holders if certain requirements of the Bankruptcy Code are met. In this respect, the Plan, as amended to reflect the Agreement in Principle, is expected to provide for certain “cramdown” provisions, whereby the Plan could be confirmed over the objections of one or more classes of unapproving creditors in the event that certain percentages in dollar amount and in number of specified classes of creditors accept the Plan and vote in favor of it.

The payment rights and other entitlements of pre-petition creditors and Owens Corning’s shareholders may be substantially altered by any plan or plans of reorganization confirmed in the Chapter 11 Cases, and the pre-petition creditors of some Debtors may be treated differently than those of other Debtors.

- 12 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 (continued)

Pursuant to the Bankruptcy Code, schedules have been filed by the Debtors with the Bankruptcy Court setting forth the assets and liabilities of the Debtors as of the date of the Filing. Differences between amounts recorded by the Debtors and claims filed by creditors will be investigated and resolved as part of the proceedings in the Chapter 11 Cases.

Bar Dates for Filing Claims

GENERAL BAR DATE

In connection with the Chapter 11 Cases, the Bankruptcy Court set April 15, 2002 as the last date by which holders of certain pre-petition claims against the Debtors must file their claims (the “General Bar Date”). The General Bar Date does not apply to asbestos-related personal injury claims and asbestos-related wrongful death claims (other than claims for contribution, indemnity, reimbursement, or subrogation). Any holder of a claim that was required to file a claim by the General Bar Date and did not do so will be barred from asserting such claim against any of the Debtors and will not participate in any distribution in any of the Chapter 11 Cases on account of such claim.

Approximately 25,000 proofs of claim (including late-filed claims), totaling approximately $16.4 billion, alleging a right to payment from a Debtor were filed with the Bankruptcy Court in response to the General Bar Date. Owens Corning continues to investigate these claims to determine their validity. The Bankruptcy Court will ultimately determine liability amounts that will be allowed for claims in the Chapter 11 Cases.

In its review of the filed claims, Owens Corning identified approximately 16,000 claims, totaling approximately $8.5 billion, which it believed should be disallowed by the Bankruptcy Court, primarily because they appeared to be duplicate claims or claims that were not related to the indicated Debtor (the “Objectionable Claims”). Owens Corning filed omnibus objections to certain of these Objectionable Claims and likely will file additional objections. As of June 30, 2004, approximately 6,100 of the Objectionable Claims, totaling approximately $3.9 billion, had either been withdrawn by the claimants or disallowed by the Bankruptcy Court. While the Bankruptcy Court will ultimately determine liability amounts, if any, that will be allowed as part of the Chapter 11 Cases, Owens Corning believes that all or substantially all of the remaining Objectionable Claims will be disallowed.

In addition to the Objectionable Claims described above, the remaining filed proofs of claim included approximately 9,000 claims, totaling approximately $7.9 billion. As of June 30, 2004, approximately 1,000 of these claims, totaling approximately $0.2 billion, had either been withdrawn by the claimants, disallowed by the Bankruptcy Court, or otherwise resolved. The remaining claims consist of:

• Approximately 2,900 claims, totaling approximately $1.5 billion, associated with asbestos-related contribution, indemnity, reimbursement, or subrogation claims. Owens Corning will address all asbestos-related personal injury and wrongful death claims in the future as part of the Chapter 11 Cases. See Note 10 to the Consolidated Financial Statements for additional information concerning asbestos-related liabilities.

• Approximately 100 claims, totaling approximately $0.7 billion, alleging asbestos-related property damage. Most of these claims were submitted with insufficient documentation to assess their validity. Owens Corning expects to vigorously defend any asserted asbestos-related property damage claims in the Bankruptcy Court. Based upon its historic experience in respect of asbestos-related property damage claims, Owens Corning does not anticipate significant liability from any such claims.

- 13 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 (continued)

• Approximately 5,000 claims, totaling approximately $5.5 billion, alleging rights to payment for financing, environmental, trade debt and other matters (the “General Claims”). The Company has recorded approximately $3.7 billion in liabilities for these claims. Based upon the claims information submitted, the General Claims with the largest variance from the recorded amounts are: claims by the United States Department of Treasury, totaling approximately $538 million, in connection with taxes (see discussion under the heading “Tax Claim” in Note 10 to the Consolidated Financial Statements); a contingent claim for approximately $458 million by the Pension Benefit Guaranty Corporation, as described more fully under the heading “PBGC Claim” in Note 10 to the Consolidated Financial Statements; a $275 million class action claim involving alleged problems with a specialty roofing product, as described more fully under the heading “Specialty Roofing Claim” in Note 10 to the Consolidated Financial Statements; environmental claims totaling approximately $189 million; and claims for contract rejections, totaling approximately $170 million, of which approximately $98 million are protective claims covering contracts which have not been rejected by the Debtors as of June 30, 2004.

Owens Corning has recorded liability amounts for those claims that can be reasonably estimated and which it believes are probable of being allowed by the Bankruptcy Court. At this time, it is impossible to reasonably estimate the value of all the claims that will ultimately be allowed by the Bankruptcy Court, due to the uncertainties of the Chapter 11 process, the in-progress state of Owens Corning’s investigation of submitted claims, and the lack of documentation submitted in support of many claims. Owens Corning continues to evaluate claims filed in the Chapter 11 Cases and will make such adjustments as may be appropriate. Any such adjustments could be material to the Company’s consolidated financial position and results of operations in any given period. For a discussion of liability amounts in respect of asbestos personal injury claims, see Note 10 to the Consolidated Financial Statements.

ASBESTOS BAR DATE

A bar date for filing proofs of claim against the Debtors with respect to asbestos-related personal injury claims and asbestos-related wrongful death claims (other than claims for contribution, indemnity, reimbursement, or subrogation) has not been set. On April 11, 2003, the Official Committee of Unsecured Creditors filed a motion seeking establishment of a bar date for such asbestos-related claims. On April 25, 2003, the District Court entered an order withdrawing the reference of the Chapter 11 Cases to the USBC with respect to such motion, and staying all proceedings on such motion pending further order of the District Court.

As indicated above, the General Bar Date does not apply to asbestos-related personal injury claims and asbestos-related wrongful death claims (other than claims for contribution, indemnity, reimbursement, or subrogation). Despite this, approximately 3,100 proofs of claim (in addition to claims described above under “General Bar Date”), totaling approximately $2.3 billion, with respect to asbestos-related personal injury or wrongful death were filed with the Bankruptcy Court in response to the General Bar Date. Of these claims, Owens Corning has identified approximately 1,200, totaling approximately $0.5 billion, as Objectionable Claims. Of the remaining claims, Owens Corning believes that a substantial majority represent claimants that had previously asserted asbestos-related claims against the Company.

As noted above, under the Plan all asbestos-related personal injury and wrongful death claims will be channeled to the Section 524(g) trust, subject to approval by the Bankruptcy Court. See Note 10 to the Consolidated Financial Statements for additional information concerning asbestos-related liabilities.

- 14 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 (continued)

Avoidance Actions

Under the Bankruptcy Code, October 4, 2002 was the deadline by which the Debtors, on behalf of the bankruptcy estates, could bring adversary actions seeking the return of potentially avoidable transfers made by the Debtors to certain parties within a prescribed period prior to the commencement of the Chapter 11 proceedings. As part of their review of potentially avoidable transactions, the Debtors (1) negotiated tolling agreements with some of the recipients of the preferential transfers in order to toll the time period in which to bring an avoidance action; (2) determined not to prosecute certain of those potential avoidance actions that were not the subject of tolling agreements; and (3) instituted, prior to the October 4, 2002 deadline, a total of 19 adversarial actions, including 3 preference actions, 1 turnover action, and 15 avoidance actions, as described further below. All such actions were commenced in the USBC.

Among the parties who were identified by the Debtors as having received potentially avoidable transfers were (a) 12 present and former officers that received certain pre-petition incentive payments exceeding a threshold in the aggregate per officer; (b) one director that received a pre-petition pension payment; and (c) a joint venture affiliate of the Company that received approximately $3.8 million in the one-year period prior to the commencement of the Chapter 11 proceedings.

The Debtors have executed tolling agreements with all 12 present and former officers and the director, as well as with certain other parties identified as having received potentially avoidable transfers. After initially being covered by a tolling agreement, the claim against the joint venture affiliate was subsequently released as part of a Bankruptcy Court approved settlement with the affiliate, entered into in connection with the affiliate’s separate bankruptcy proceedings.

The adversary actions were commenced against various other defendants seeking, among other things, (a) avoidance of certain guarantees and certain preferential payments made in connection with Owens Corning’s Pre-Petition Credit Facility (the “Pre-Petition Credit Facility Action”); (b) the return of up to approximately $515 million paid by the Company to shareholders of Fibreboard in connection with the Company’s purchase of Fibreboard in 1997 (the “FBD Shareholder Action”); (c) the return of up to approximately $61.8 million paid by the Company to shareholders in dividends in the period 1996 through 2000 (the “Dividend Action”); and (d) the return of approximately $133 million paid by the Company to Bank of America Corp. in connection with Owens Corning’s purchase of Fibreboard in 1997. Both the FBD Shareholder Action and the Dividend Action are defendant class actions. Certain present or former officers or directors of the Company may be members of either or both defendant classes. Certain holders of Owens Corning debt securities have filed a Complaint in Intervention in connection with the Pre-Petition Credit Facility Action, seeking to assert securities fraud related claims against five subsidiaries of Owens Corning that issued guarantees in connection with the Pre-Petition Credit Facility. The Company has opposed such intervention. It is expected that such matter will be determined by the Bankruptcy Court in conjunction with the Pre-Petition Credit Facility Action.

Separately, and at the request of the Debtors’ Official Creditors’ Committee and the direction of the Bankruptcy Court, the Debtors either obtained tolling agreements from, or filed actions against, approximately 115 law firms that entered into NSP or non-NSP agreements (see Note 10 to the Consolidated Financial Statements) with the Debtors on behalf of claimants asserting asbestos-related personal injury or wrongful death claims. Lawsuits were brought initially against the 11 law firms that did not sign tolling agreements, seeking two forms of relief: (a) first, a declaratory judgment as to whether payments made, or obligations incurred, under NSP and non-NSP agreements were in exchange for reasonably equivalent value; and (b) second, in the event reasonably equivalent value was not received,

- 15 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 (continued)

the recovery or avoidance of payments made and obligations incurred under the relevant NSP and non-NSP agreements pursuant to applicable state and federal fraudulent conveyance law. On or before September 29, 2003, similar lawsuits were brought against 5 additional law firms whose tolling agreements were about to expire. The Official Creditors’ Committee was named as a defendant in all such lawsuits, solely with respect to the declaratory relief sought. During the first quarter of 2004, the lawsuit against one of the law firms was dismissed with the consent of the Official Creditors’ Committee and Bankruptcy Court approval.

By motions filed on or about October 16, 2002, and December 17, 2003, the Debtors sought an order of the Bankruptcy Court staying all of the foregoing litigation pending its disposition in a plan of reorganization. Pursuant to a ruling of the Bankruptcy Court, all of the foregoing litigation, other than the Pre-Petition Credit Facility Action, has been stayed until the earlier of (i) February 23, 2005, or (ii) 90 days after the confirmation of a plan of reorganization for Owens Corning. The Pre-Petition Credit Facility Action, previously scheduled for trial before the District Court commencing in June 2003, has been continued indefinitely by the Court.

Certain Post-Petition Matters

The Debtors have received approval from the Bankruptcy Court to pay or otherwise honor certain of their pre-petition obligations, including employee wages, salaries, benefits and other employee obligations, pre-petition claims of critical vendors, and certain other pre-petition claims including certain customer program and warranty claims.

As a result of the Filing, contractual interest expense has not been accrued or recorded on pre-petition debt of the Debtors since the Petition Date. From the Petition Date through June 30, 2004, contractual interest expense not accrued or recorded on pre-petition debt (calculated using ordinary, non-default interest rates and without regard to debt maturity) totaled approximately $585 million, of which $35 million relates to the second quarter of 2004, $69 million relates to the first six months of 2004, and $35 million and $70 million, respectively, relates to the same two periods of 2003.

At June 30, 2004, the Company had $874 million of cash and cash equivalents.

In connection with the Filing, the Debtors obtained a $500 million debtor-in-possession credit facility from a group of lenders led by Bank of America, N.A. (the “DIP Financing”), which was originally scheduled to expire November 15, 2002. Effective October 31, 2002, the DIP Financing was amended to, among other things, reduce the maximum available credit amount to $250 million and extend the scheduled expiration to November 15, 2004. There were no borrowings outstanding under the DIP Financing at June 30, 2004; however, approximately $82 million of the availability under this credit facility was utilized as a result of the issuance of standby letters of credit and similar uses.

As a consequence of the Filing and the impact of certain provisions of the Company’s DIP Financing and in a cash management order entered by the Bankruptcy Court, the Company and its subsidiaries are now subject to certain restrictions, including on their ability to pay dividends and to transfer cash and other assets to each other and to their affiliates.

- 16 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 (continued)

The Company believes, based on information presently available to it, that its cash and cash equivalents, and cash available from operations, will provide sufficient liquidity to allow it to continue as a going concern for the foreseeable future. However, the ability of the Company to continue as a going concern (including its ability to meet post-petition obligations of the Debtors and to meet obligations of the Non-Debtor Subsidiaries) and the appropriateness of using the going concern basis for its financial statements are dependent upon, among other things, (i) the Company’s ability to comply with the terms of any cash management order entered by the Bankruptcy Court from time to time in connection with the Chapter 11 Cases, (ii) the ability of the Company to maintain adequate cash on hand, (iii) the ability of the Company to generate cash from operations, (iv) the ability of the Non-Debtor Subsidiaries to obtain necessary financing, (v) confirmation of a plan or plans of reorganization under the Bankruptcy Code, and (vi) the Company’s ability to maintain profitability following such confirmation.

Financial Statement Presentation

The Company’s Consolidated Financial Statements have been prepared in accordance with AICPA Statement of Position 90-7 (“SOP 90-7”), “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code”, and on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business. However, as a result of the Filing, such realization of assets and liquidation of liabilities are subject to uncertainty. While operating as debtors-in-possession under the protection of Chapter 11 of the Bankruptcy Code, and subject to Bankruptcy Court approval or otherwise as permitted in the ordinary course of business, the Debtors, or some of them, may sell or otherwise dispose of assets and liquidate or settle liabilities for amounts other than those reflected in the Consolidated Financial Statements. Further, a plan of reorganization could materially change the amounts and classifications reported in the consolidated historical financial statements.

Substantially all of the Company’s pre-petition debt is now in default due to the Filing. As described below, the accompanying Consolidated Financial Statements present the Debtors’ pre-petition debt under the caption “Liabilities Subject to Compromise”. This includes debt under the Pre-Petition Credit Facility and approximately $1.4 billion of other outstanding debt. As required by SOP 90-7, at the Petition Date the Company recorded the Debtors’ pre-petition debt instruments at the allowed amount, as defined by SOP 90-7.

As reflected in the Consolidated Financial Statements, “Liabilities Subject to Compromise” refer to Debtors’ liabilities incurred prior to the commencement of the Chapter 11 Cases. The amounts of the various liabilities that are subject to compromise are set forth below following the debtor-in-possession financial statements. These amounts represent Owens Corning’s estimate of known or potential pre-petition claims to be resolved in connection with the Chapter 11 Cases. Such claims remain subject to future adjustments. Adjustments may result from (1) negotiations; (2) actions of the Bankruptcy Court; (3) further developments with respect to disputed claims; (4) rejection of executory contracts and unexpired leases; (5) the determination as to the value of any collateral securing claims; (6) proofs of claim; or (7) other events. Payment terms for these amounts will be established in connection with the Chapter 11 Cases.

- 17 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 (continued)

OWENS CORNING AND SUBSIDIARIES

DEBTOR-IN-POSSESSION STATEMENT OF INCOME

	Quarter Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
	(In millions of dollars)
NET SALES	$	1,234		$	1,074		$	2,280		$	2,061
COST OF SALES		1,042			915			1,966			1,791
Gross margin		192			159			314			270
OPERATING EXPENSES
Marketing and administrative expenses		114			102			214			204
Science and technology expenses		10			10			20			19
Restructure costs		—			—			—			2
Chapter 11 related reorganization items		28			38			38			70
Other		(16	)		(8	)		(29	)		(18	)
Total operating expenses		136			142			243			277
INCOME (LOSS) FROM OPERATIONS		56			17			71			(7	)
Interest expense, net		1			1			1			2
Interest income from non-Debtors		13			14			27			28
INCOME BEFORE INCOME TAX EXPENSE		68			30			97			19
Income tax expense		47			21			73			18
INCOME BEFORE EQUITY IN NET INCOME (LOSS) OF AFFILIATES		21			9			24			1
Equity in net income (loss) of affiliates		1			(1	)		1			(1	)
NET INCOME	$	22		$	8		$	25		$	—

- 18 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 (continued)

OWENS CORNING AND SUBSIDIARIES

DEBTOR-IN-POSSESSION BALANCE SHEET

	June 30, 2004			December 31, 2003
	(In millions of dollars)
ASSETS
CURRENT
Cash and cash equivalents	$	611		$	645
Receivables (net of allowance for doubtful accounts)		493			334
Receivables - non-Debtors		1,042			1,032
Inventories		310			278
Other current assets		40			31
Total current		2,496			2,320
OTHER
Restricted cash - asbestos and insurance related		166			166
Restricted cash, securities, and other – Fibreboard		1,393			1,395
Deferred income taxes		1,005			1,170
Pension-related assets		225			257
Goodwill		54			54
Investment in affiliates		27			25
Investment in non-Debtor subsidiaries		762			757
Other noncurrent assets		117			47
Total other		3,749			3,871
PLANT AND EQUIPMENT, at cost
Land		39			39
Buildings and leasehold improvements		597			589
Machinery and equipment		2,271			2,253
Construction in progress		79			79
		2,986			2,960
Accumulated depreciation		(1,607	)		(1,566	)
Net plant and equipment		1,379			1,394
TOTAL ASSETS	$	7,624		$	7,585

- 19 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 (continued)

OWENS CORNING AND SUBSIDIARIES

DEBTOR-IN-POSSESSION BALANCE SHEET (continued)

	June 30, 2004			December 31, 2003
	(In millions of dollars)
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT
Accounts payable and accrued liabilities	$	573		$	549
Accounts payable and accrued liabilities - non-Debtors		27			15
Long-term debt - current portion		(1	)		1
Total current		599			565
LONG-TERM DEBT		6			6
OTHER
Pension plan liability		581			581
Other employee benefits liability		391			384
Other		152			123
Total other		1,124			1,088
LIABILITIES SUBJECT TO COMPROMISE		9,929			9,985
STOCKHOLDERS’ DEFICIT
Common stock		6			6
Additional paid in capital		690			690
Accumulated deficit		(4,392	)		(4,417	)
Accumulated other comprehensive loss		(337	)		(336	)
Other		(1	)		(2	)
Total stockholders’ deficit		(4,034	)		(4,059	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	7,624		$	7,585

- 20 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 (continued)

OWENS CORNING AND SUBSIDIARIES

DEBTOR-IN-POSSESSION STATEMENT OF CASH FLOWS

	Six Months Ended June 30,
	2004			2003
	(In millions of dollars)
NET CASH FLOW FROM OPERATIONS
Net income	$	25		$	—
Reconciliation of net cash from operating activities
Noncash items:
Provision for depreciation and amortization		79			73
Provision for impairment of fixed assets		—			28
Provision for deferred income taxes		44			18
Provision for pension and other employee benefits / liabilities		52			55
Other		13			(3	)
Increase in receivables and receivables - non-Debtors		(167	)		(202	)
Increase in inventories		(33	)		(34	)
Increase in accounts payable and accrued liabilities and accounts payable and accrued liabilities - non-Debtors		32			8
Increase in restricted cash – asbestos and insurance related		—			(1	)
Decrease (increase) in restricted cash, securities, and other - Fibreboard		3			(21	)
Proceeds from insurance for asbestos litigation claims, excluding Fibreboard		—			4
Other		(3	)		26
Net cash flow from operations		45			(49	)
NET CASH FLOW FROM INVESTING
Additions to plant and equipment		(74	)		(61	)
Investment in subsidiaries, net of cash acquired		(1	)		—
Proceeds from the sale of affiliate or business		—			61
Other		—			(1	)
Net cash flow from investing		(75	)		(1	)
NET CASH FLOW FROM FINANCING
Other additions to long-term debt		—			2
Other reductions to long-term debt		—			(32	)
Subject to compromise		(5	)		—
Other		1			(1	)
Net cash flow from financing		(4	)		(31	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(34	)		(81	)
Cash and cash equivalents at beginning of period		645			622
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	611		$	541

- 21 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 (continued)

The amounts subject to compromise in the Consolidated and Debtor-in-Possession Balance Sheets consist of the following items:

	June 30, 2004		December 31, 2003
	(In millions of dollars)
Accounts payable	$	213	$	213
Accrued interest payable		40		42
Debt		2,892		2,896
Income taxes payable		183		233
Reserve for asbestos litigation claims - Owens Corning		3,565		3,565
Reserve for asbestos-related claims - Fibreboard		2,309		2,309
Total consolidated		9,202		9,258
Payables to non-Debtors		727		727
Total Debtor	$	9,929	$	9,985

The amounts for Chapter 11 related reorganization items in the Consolidated and Debtor-in-Possession Statements of Income consist of the following:

	Quarter Ended June 30,					Six Months Ended June 30,
	2004		2003			2004		2003
	(In millions of dollars)
Professional fees	$	11	$	22		$	28	$	41
Payroll and compensation		3		5			7		12
Settlement of Asian credit facility		—		—			—		18
Renegotiation of World Headquarters lease		—		21			—		21
Investment loss (income)		13		(13	)		1		(25	)
Other, net		1		3			2		3
Total	$	28	$	38		$	38	$	70

- 22 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

2. SEGMENT DATA

The Company has reviewed its segments in accordance with SFAS No. 131 and concluded that the aggregation of its operating segments into two reportable segments remains appropriate. The Company has reported financial and descriptive information about each of the Company’s two reportable segments below on a basis that is used internally for evaluating segment performance and deciding how to allocate resources to those segments.

	Quarter Ended June 30,				Six Months Ended June 30,
	2004		2003		2004		2003
	(In millions of dollars)
NET SALES
Reportable Segments
Building Materials Systems
United States	$	1,063	$	936	$	1,951	$	1,777
Europe		2		—		5		1
Canada and other		83		58		137		101
Total Building Materials Systems		1,148		994		2,093		1,879
Composite Solutions
United States		145		122		274		244
Europe		94		84		179		168
Canada and other		54		39		104		81
Total Composite Solutions		293		245		557		493
Total reportable segments	$	1,441	$	1,239	$	2,650	$	2,372
External Customer Sales by Geographic Region
United States	$	1,208	$	1,058	$	2,225	$	2,021
Europe		96		84		184		169
Canada and other		137		97		241		182
NET SALES	$	1,441	$	1,239	$	2,650	$	2,372

- 23 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

2. SEGMENT DATA (continued)

	Quarter Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
	(In millions of dollars)
INCOME FROM OPERATIONS
Reportable Segments
Building Materials Systems
United States	$	108		$	79		$	154		$	146
Europe		—			—			—			(1	)
Canada and other		17			10			22			14
Total Building Materials Systems		125			89			176			159
Composite Solutions
United States		6			—			5			3
Europe		8			6			6			9
Canada and other		12			9			21			19
Total Composite Solutions		26			15			32			31
Total reportable segments	$	151		$	104		$	208		$	190
Geographic Regions
United States	$	114		$	79		$	159		$	149
Europe		8			6			6			8
Canada and other		29			19			43			33
Total reportable segments	$	151		$	104		$	208		$	190
Reconciliation to Consolidated Income Before Income Tax Expense
Restructuring and other charges (Note 8)		—			(13	)		5			(43	)
Chapter 11 related reorganization items (Note 1)		(28	)		(38	)		(38	)		(70	)
Credit for asbestos litigation claims		—			4			—			4
General corporate expense		(29	)		(14	)		(47	)		(30	)
Interest expense, net		(1	)		—			(2	)		(4	)
CONSOLIDATED INCOME BEFORE INCOME TAX EXPENSE	$	93		$	43		$	126		$	47

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

3. GENERAL

The consolidated financial statements included in this Report are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, and include, in the opinion of the Company, adjustments necessary for a fair presentation of the results for the periods indicated, which, however, are not necessarily indicative of results which may be expected for the full year. Certain reclassifications have been made to the periods presented for 2003 to conform to the classifications used in the periods presented for 2004.

In connection with the consolidated financial statements and notes included in this Report, reference is made to the consolidated financial statements and notes thereto contained in the Company’s 2003 annual report on Form 10-K, as filed with the Securities and Exchange Commission.

4. INVENTORIES

Inventories are summarized as follows:

	June 30, 2004			December 31, 2003
	(In millions of dollars)
Finished goods	$	396		$	362
Materials and supplies		148			123
FIFO inventory		544			485
Excess of FIFO over LIFO		(99	)		(95	)
Total inventories	$	445		$	390

Approximately $138 million and $144 million of total inventories were valued using the LIFO method at June 30, 2004 and December 31, 2003, respectively.

5. GOODWILL AND OTHER INTANGIBLES

Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142), to account for goodwill and other intangibles. SFAS No. 142 requires at least an annual review for impairment using a fair value methodology. The Company conducts its annual review for impairment in the second quarter. The 2004 and 2003 reviews resulted in no change to recorded goodwill.

Excluding fluctuations in currency, the only change in goodwill during the quarter or six month periods ended June 30, 2004 was the result of the Company’s purchase of the remaining 60% ownership interest in our Mexican affiliate, Vitro-Fibras, S.A. (See Note 6). This purchase, subject to further adjustment, resulted in recording approximately $51 million of goodwill. The $187 million balance of goodwill at June 30, 2004 was made up of $45 million for the Composite Solutions segment and $142 million for the Building Materials Systems segment.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

5. GOODWILL AND OTHER INTANGIBLES (continued)

Substantially all of the Company’s acquired other intangible assets are subject to amortization. Other intangible asset amortization expense was approximately $1 million for the first six months of 2004 and $2 million for the first six months of 2003. The Company estimates that amortization of intangibles will be approximately $3 million annually for each of the next five years. The components of other intangible assets are as follows:

	June 30, 2004
	Weighted Average Lives	Gross Carrying Amount		Accumulated Amortization
	(In millions of dollars)
Contract-based	7	$	6	$	2
Technology-based	13		16		10
Marketing-related	8		14		11
		$	36	$	23

6. ACQUISITIONS AND DIVESTITURES OF BUSINESSES

Acquisitions

On April 2, 2004, the Company purchased the remaining 60% ownership interest in our Mexican affiliate, Vitro-Fibras, S.A. (“OC Mexico”) for approximately $72 million, subject to further adjustment. This purchase will allow the Company to have a strong operating position in Mexico, as well as supply low-cost manufacturing capacity to service the North American market for both fiberglass insulation and reinforcements. The Company accounted for this transaction under the purchase method of accounting, whereby the assets acquired and liabilities assumed will be recorded at their fair values. During the first quarter of 2004, this affiliate was accounted for under the equity method. The Company began consolidating this subsidiary in April 2004.

Divestitures

During the second quarter of 2003, the Company received Bankruptcy Court approval to sell the assets of its metal systems business. Net proceeds from the sale were $50 million, of which $40 million were received in the second quarter of 2003. A pretax loss of approximately $14 million was realized from the sale. Additionally, the Company received Bankruptcy Court approval to sell the assets of its mineral wool business. Net proceeds from the sale of $8 million were received in the second quarter of 2003. A pretax gain of approximately $1 million was realized from the sale.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

7. 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 liabilities for the six months ended June 30, 2004 is as follows:

	(In millions of dollars)
Balance at December 31, 2003	$	48
Amounts accrued		10
Settlements of warranty claims		(10	)
Balance at June 30, 2004	$	48

8. RESTRUCTURING OF OPERATIONS AND OTHER CHARGES

2004

During the first quarter of 2004, the Company recorded a pretax credit to cost of sales in the Consolidated Statement of Income of approximately $5 million. The $5 million credit represents an adjustment to reserves, originally recorded as cost of sales, estimated in 2002 for the shutdown costs of a manufacturing facility, which was sold in the first quarter of 2004.

2003

In the second quarter of 2003, the Company recorded a pretax charge of approximately $13 million, consisting of a $14 million loss on the sale of the Company’s metal systems business, offset by a $1 million credit representing the gain on the sale of assets of the Company’s mineral wool business. Such $13 million charge, along with a net $1 million credit for various other items, was reflected in the Consolidated Statement of Income under the caption, “Other”. See Note 6 to the Consolidated Financial Statements for additional information concerning these sales.

During the first quarter of 2003, the Company recorded $30 million in pretax charges, comprised of a $2 million pretax restructure charge (classified as a separate component of operating expense in the Consolidated Statement of Income) and a charge of $28 million to cost of sales. The $2 million restructure charge represented additional non-cash asset write-downs of previously closed non-strategic facilities to fair value. The $28 million charge to cost of sales represented the additional write-down of two groups of assets in the Building Materials segment to net realizable value based on valuations of the future cash flows of the assets using assumptions consistent with current market condition.

9. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

Pension Plans

The Company has several defined benefit pension plans covering most employees. 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. The unrecognized cost of retroactive amendments and actuarial gains and losses are amortized over the average future service period of plan participants expected to receive benefits.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

9. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS (continued)

In accordance with Statement of Financial Accounting Standards No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits”, the following table provides information regarding pension expense recognized during the year:

	Quarter Ended June 30,
	2004									2003
	U.S.			Non-U.S.			Total			U.S.			Non-U.S.			Total
	(In millions of dollars)
Components of Net Periodic Pension Cost
Service cost	$	5		$	1		$	6		$	4		$	1		$	5
Interest cost		15			5			20			13			4			17
Expected return on plan assets		(13	)		(5	)		(18	)		(12	)		(3	)		(15	)
Amortization of transition amount		—			(1	)		(1	)		—			(1	)		(1	)
Amortization of actuarial loss		10			3			13			6			2			8
Net periodic pension cost	$	17		$	3		$	20		$	11		$	3		$	14

	Six Months Ended June 30,
	2004									2003
	U.S.			Non-U.S.			Total			U.S.			Non-U.S.			Total
	(In millions of dollars)
Components of Net Periodic Pension Cost
Service cost	$	11		$	1		$	12		$	8		$	1		$	9
Interest cost		29			10			39			28			8			36
Expected return on plan assets		(27	)		(9	)		(36	)		(24	)		(7	)		(31	)
Amortization of transition amount		—			(1	)		(1	)		(1	)		(1	)		(2	)
Amortization of actuarial loss		20			5			25			12			4			16
Net periodic pension cost	$	33		$	6		$	39		$	23		$	5		$	28

Owens Corning expects to contribute $200 to $250 million in cash to the pension plans during 2004. The contributions are subject to legislative changes and approval of the Bankruptcy Court.

Postemployment and Postretirement Benefits Other than Pension Plans

The Company and its subsidiaries maintain health care and life insurance benefit plans for certain retired employees and their dependents. The health care plans in the U.S. 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.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

9. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS (continued)

In accordance with Statement of Financial Accounting Standards No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits”, the following table provides the components of net periodic benefits cost for aggregated U.S. and Non-U.S. Plans for the year:

	Quarter ended June 30,					Six months ended June 30,
	2004			2003		2004			2003
	(In millions of dollars)
Components of Net Periodic Pension Cost
Service cost	$	2		$	4	$	3		$	7
Interest cost		7			9		14			17
Amortization of loss		2			2		4			5
Amortization of prior service cost		(2	)		—		(3	)		—
Net periodic benefits cost	$	9		$	15	$	18		$	29

In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “MPD Act”) became law. The MPD Act expanded Medicare to include for the first time coverage for prescription drugs. Owens Corning sponsors retiree medical programs and the Company expects that this legislation will eventually reduce the Company’s costs for some of these programs. Because of various uncertainties related to the Company’s response to this legislation and the appropriate accounting methodology for this event, the Company, as permitted under FASB Staff Position FAS 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” made a one-time election to defer financial recognition of this legislation. As a result, measures of the accumulated postretirement benefits obligation and net periodic postretirement benefits cost included in these financial statements do not reflect the effects of the MPD Act. When implemented, these regulations could require the Company to change previously reported information.

10. CONTINGENT LIABILITIES AND OTHER MATTERS

Asbestos Liabilities

ITEM A. - OWENS CORNING (EXCLUDING FIBREBOARD)

Numerous claims have been asserted against Owens Corning alleging personal injuries arising from inhalation of asbestos fibers. Virtually all of these claims arise out of Owens Corning’s manufacture, distribution, sale or installation of an asbestos-containing calcium silicate, high temperature insulation product, the manufacture and distribution of which was discontinued in 1972. Owens Corning received approximately 18,000 asbestos personal injury claims during 2000, approximately 32,000 such claims during 1999 and approximately 69,000 such claims during 1998. Owens Corning cautions that it has limited information about many of such claims, and the actual numbers of claims asserted remain subject to adjustment.

Prior to October 5, 2000, when the Debtors, including Fibreboard (see Item B below), filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code, the vast majority of asserted asbestos personal injury claims were in the process of being resolved through the National Settlement

- 29 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

10. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

Program described below. As a result of the Filing, all pre-petition asbestos claims and pending litigation against the Debtors, including without limitation claims arising under the National Settlement Program, were automatically stayed (see Note 1 to the Consolidated Financial Statements). Owens Corning expects that all pending and future asbestos claims against Owens Corning and Fibreboard will be resolved pursuant to a plan or plans of reorganization. Owens Corning is unable to determine at this time whether asbestos-related claims asserted against Fibreboard will be treated in the same manner as those asserted against Owens Corning in any such plan or plans ultimately confirmed.

As more fully discussed in Note 1 to the Consolidated Financial Statements and under the heading “Reserve” below, the Debtors, together with the Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants, filed on October 24, 2003 a proposed fourth amended joint plan of reorganization for the Debtors and expect to file, together with the Official Committee of Unsecured Creditors and certain other unsecured creditors, a proposed fifth amended joint plan of reorganization reflecting the terms of the Agreement in Principle discussed in Note 1 to the Consolidated Financial Statements. Ultimately, as described more fully under the heading “Reserve” below, it is anticipated that Owens Corning’s total liability for asbestos claims will be determined after a lengthy period of negotiations and, if necessary, by the Bankruptcy Court, taking into account numerous factors not present in the Company’s pre-petition environment. Such factors include the claims of competing creditor groups as to the appropriate treatment of their allowed claims in the plan or plans of reorganization, the size of the total asbestos liability, the total number of present asbestos claims allowed, and the total amount of future asbestos claims allowed.

National Settlement Program Claims

Beginning in late 1998, Owens Corning implemented a National Settlement Program (“NSP”) to resolve personal injury asbestos claims through settlement agreements with individual plaintiffs’ law firms. The NSP was intended to better manage the asbestos liabilities of Owens Corning and Fibreboard (see Item B below), and to help Owens Corning better predict the timing and amount of indemnity payments for both pending and future asbestos claims.

The number of law firms participating in the NSP expanded from approximately 50 when the NSP was established to approximately 120 as of the Petition Date. Each of these participating law firms agreed to a long-term settlement agreement which varied by firm (“NSP Agreement”) extending through at least 2008 which provided for the resolution of their existing asbestos claims, including unfiled claims pending with the participating law firm at the time it entered into an NSP Agreement (“Initial Claims”). The NSP agreements also established procedures and fixed payments for resolving without litigation claims against either Owens Corning or Fibreboard, or both, arising after a participating firm entered into an NSP Agreement (“Future Claims”).

Settlement amounts for both Initial Claims and Future Claims were negotiated with each firm participating in the NSP, and each firm was to communicate with its respective clients to obtain authority to settle individual claims. Payments to individual claimants were to vary based on a number of factors, including the type and severity of disease, age and occupation. All such payments were subject to delivery of satisfactory evidence of a qualifying medical condition and exposure to Owens Corning’s and/or Fibreboard’s products, delivery of customary releases by each claimant, and other conditions. Certain claimants settling non-malignancy claims with Owens Corning and/or Fibreboard were entitled to an agreed pre-determined amount of additional compensation if they later developed a more severe asbestos-related medical condition.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

10. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

As to Future Claims, each participating NSP firm agreed (consistent with applicable legal requirements) to recommend to its future clients, based on appropriately exercised professional judgment, to resolve their asbestos personal injury claims against Owens Corning and/or Fibreboard through an administrative processing arrangement, rather than litigation. In the case of Future Claims involving non-malignancy, claimants were required to present medical evidence of functional impairment, as well as the product exposure criteria and other requirements set forth above, to be entitled to compensation.

As of the Petition Date, the NSP covered approximately 239,000 Initial Claims against Owens Corning, approximately 150,000 of which had satisfied all conditions to final settlement, including receipt of executed releases, or other resolution (the “Final NSP Settlements”) at an average cost per claim of approximately $9,300. As of the Petition Date, approximately 89,000 of such Final NSP Settlements had been paid in full or otherwise resolved, and approximately 61,000 were unpaid in whole or in part. As of such date, the remaining balance payable under NSP Agreements in connection with these unpaid Final NSP Settlements was approximately $510 million. Through the Petition Date, Owens Corning had received approximately 6,000 Future Claims under the NSP.

At this time, Owens Corning is unable to predict the manner in which the NSP Agreements and the resolution of claims thereunder will ultimately be treated under the terms of any plan or plans of reorganization.

Non-NSP Claims

As of the Petition Date, approximately 29,000 asbestos personal injury claims were pending against Owens Corning outside the NSP. This compares to approximately 25,000 such claims pending on December 31, 1999. The information needed for a critical evaluation of pending claims, including the nature and severity of disease and definitive identifying information concerning claimants, typically becomes available only through the discovery process or as a result of settlement negotiations, neither of which have occurred since the Filing. As a result, Owens Corning has limited information about many of such claims.

Owens Corning resolved (by settlement or otherwise) approximately 10,000 asbestos personal injury claims outside the NSP during 1998, 5,000 such claims during 1999 and 3,000 such claims during 2000 prior to the Petition Date. The average cost of resolution was approximately $35,900 per claim for claims resolved during 1998, $34,600 per claim for claims resolved during 1999, and $44,800 per claim for claims resolved during 2000 prior to the Petition Date. Generally, these claims were settled as they were scheduled for trial, and they typically involved more serious injuries and diseases. Accordingly, Owens Corning does not believe that such average costs of resolution are representative of the value of the non-NSP claims then pending against the Company.

At this time, Owens Corning is unable to predict the manner in which non-NSP claims will ultimately be treated under the terms of any plan or plans of reorganization.

- 31 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

10. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

Asbestos-Related Payments

As a result of the Filing, Owens Corning has not made any asbestos-related payments since the Petition Date except for approximately $20 million paid on its behalf by third parties pursuant to appeal bonds issued prior to the Petition Date. During 1999 and 2000 (prior to the Petition Date), Owens Corning (excluding Fibreboard) made asbestos-related payments falling within four major categories: (1) Settlements in respect of verdicts incurred or claims resolved prior to the implementation of the NSP (“Pre-NSP Settlements”); (2) NSP settlements; (3) Non-NSP settlements covering cases not resolved by the NSP; and (4) Defense, claims processing and administrative expenses, as follows:

	1999		2000 (through October 4, 2000)
	(In millions of dollars)
Pre-NSP Settlements	$	170	$	51
NSP Settlements		570		538
Non-NSP Settlements		30		42
Defense, Claims Processing and Administrative Expenses		90		54
	$	860	$	685

All amounts discussed above are before tax and application of insurance recoveries.

Prior to the Petition Date, Owens Corning deposited certain amounts in escrow accounts to facilitate claims processing under the NSP (“Administrative Deposits”). Amounts deposited into escrow in Administrative Deposits during a reporting period are included in the payments shown for NSP Settlements during the period. At June 30, 2004, approximately $106 million of Administrative Deposits previously made by Owens Corning had not been finally distributed to claimants (“Undistributed Administrative Deposits”) and, accordingly, are reflected in Owens Corning’s consolidated balance sheet as restricted assets (under the caption “Restricted cash - asbestos and insurance related”) and have not been subtracted from Owens Corning’s reserve for asbestos personal injury claims (discussed below).

At this time, Owens Corning is unable to predict what the treatment of funds held in Undistributed Administrative Deposits will ultimately be under the terms of any plan or plans of reorganization. However, in 2001, the holder of approximately $49 million of Undistributed Administrative Deposits for Owens Corning (and approximately $28 million of similar Undistributed Administrative Deposits for Fibreboard) filed a motion with the Bankruptcy Court requesting an order authorizing distribution of the deposits it holds (“Subject Deposits”) to the escrow beneficiaries. As the result of hearings held on June 20 and July 22, 2002, the Bankruptcy Court has ruled that escrow beneficiaries that had received both written notice of approval for payment and an initial payment from the Subject Deposits prior to the Petition Date would be entitled to receive their remaining payments (plus post-judgment interest after

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

10. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

June 20, 2002) from the principal of the Subject Deposits, with the balance of the Subject Deposits, if any, plus any other investment proceeds to be returned to Owens Corning (or Fibreboard, as appropriate) as contributor of the deposits. The Official Committee of Unsecured Creditors and the Legal Representative for the class of future asbestos claimants have each filed a notice of appeal from the order, and the matter has been fully briefed.

Reserve

Owens Corning estimates a reserve in accordance with generally accepted accounting principles to reflect asbestos-related liabilities that have been asserted or are probable of assertion, in which liabilities are probable and reasonably estimable. This reserve was established initially through a charge to income in 1991, with additional charges to income of $1.1 billion in 1996, $1.4 billion in 1998, $1.0 billion in 2000 and $1.4 billion in the third quarter of 2002.

As of June 30, 2004, a reserve of approximately $3.6 billion in respect of Owens Corning’s asbestos-related liabilities was one of the items included in Owens Corning’s consolidated balance sheet under the category “Liabilities Subject to Compromise”. For periods prior to the Petition Date, these liabilities were reflected as current or other liabilities (depending on the period in which payment was expected) under the category “Reserve for asbestos litigation claims”.

As Owens Corning has discussed in previous public filings, any estimate of its liabilities for pending and expected future asbestos claims is subject to considerable uncertainty because such liabilities are influenced by numerous variables that are inherently difficult to predict. As discussed further below, such uncertainties significantly increased as a result of the Chapter 11 Cases. Prior to the Petition Date, such variables included, among others, the cost of resolving pending non-NSP claims; the disease mix and severity of disease of pending NSP claims; the number, severity of disease, and jurisdiction of claims filed in the future (especially the number of mesothelioma claims); how many future claimants were covered by an NSP Agreement; the extent, if any, to which individual claimants exercised a right to opt out of an NSP Agreement and/or engage counsel not participating in the NSP; the extent, if any, to which counsel not bound by an NSP Agreement undertook the representation of asbestos personal injury plaintiffs against Owens Corning; the extent, if any, to which Owens Corning exercised its right to terminate one or more of the NSP Agreements due to excessive opt-outs or for other reasons; and Owens Corning’s success in controlling the costs of resolving future non-NSP claims.

The Chapter 11 Cases have significantly increased the inherent difficulties and uncertainties involved in estimating the number and cost of resolution of present and future asbestos-related claims against Owens Corning and will likely have the effect of increasing the number and ultimate cost of resolution of such claims substantially. In particular, the status of the NSP Agreements and the ultimate treatment of pending and future claims thereunder will depend on the outcome of negotiations among the various constituencies in the Chapter 11 Cases and determinations by the Bankruptcy Court as to the issues involved, none of which can be predicted at this time. The uncertainties associated with the status of the NSP Agreements and the treatment of claims thereunder include the following:

- 33 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

10. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

• It is possible that one or more constituencies in the Chapter 11 Cases may seek to set aside the NSP Agreements on various grounds. In any event, it is highly uncertain how any plan or plans of reorganization will ultimately treat the various types of NSP claims, including without limitation claims with no evidence of significant medical impairment, or whether such unimpaired claims will be treated as allowed claims thereunder.

• The settlement values for specified categories of disease set forth in the NSP Agreements were established by arm’s-length negotiations with the participating law firms in circumstances very different from those prevailing in the Chapter 11 Cases. The settlement values available to individual claimants under the arrangements to be included in any plan or plans of reorganization may vary substantially from those contemplated by the NSP Agreements. Because Owens Corning’s estimate of liabilities in respect of non-NSP claims assumed payment of settlement values similar to those contained in the NSP Agreements, such estimate is subject to similar uncertainty.

Additional uncertainties raised by the Chapter 11 Cases include the following:

• It is uncertain what claim submission process will be prescribed by the Bankruptcy Court for pre-petition asbestos claims against Owens Corning or Fibreboard and what effects such process may have, including on the number of such claims. Moreover, the Filing, including the significant publicity associated with the Chapter 11 Cases and notices required by the Bankruptcy Code that must be given to creditors and other parties in interest, has significantly increased the inherent difficulties and uncertainties involved in estimating the number and cost of resolution of not only pre-petition claims but also additional claims that may be asserted in the course of the Chapter 11 Cases.

• Owens Corning anticipates that the number and estimated aggregate value of allowed future claims will ultimately be determined either as a result of negotiations involving the Legal Representative for the class of future asbestos claimants and the other interested constituencies or, if necessary, by the Bankruptcy Court. It is not possible to predict the outcome of such negotiations, or Bankruptcy Court determination, at this time.

In connection with the negotiation of a plan or plans of reorganization, a number of interested constituencies, including the representatives of the pre-petition and future asbestos claimants and other pre-petition creditors, have developed or will develop analyses of liability for both pre-petition and future asbestos claims. Owens Corning and Fibreboard will also utilize their own analyses in the negotiation process. Such analyses by the Debtors and other interested constituencies will also be required in connection with the establishment, as part of the plan of reorganization, of a Section 524(g) trust for the benefit of asbestos claimants. Based on facts currently known to it, including positions that have been articulated by various interested constituencies, Owens Corning believes that the estimates included in most or all such analyses will vary substantially from the amounts of Owens Corning’s and Fibreboard’s respective asbestos reserves, and will also vary substantially from one another, for a number of reasons.

First, such analyses will not involve the same type of estimation process required in connection with the preparation of financial statements under generally accepted accounting principles. In general, such accounting principles require accruals with respect to contingent liabilities (including asbestos liabilities) only to the extent that such liabilities are both probable and reasonably estimable. With respect to such liabilities that are probable as to which a reasonable estimate can be made only in terms of a range (with no point within the range determined to be more probable than any other point in such range), such accounting principles require only the accrual of the amount representing the low point in such range.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

10. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

In contrast, analyses prepared by interested constituencies in asbestos-related bankruptcy cases customarily cover potential liabilities over a 50-year period (at the end of which it is anticipated that potential asbestos claimants would in any event have died as a result of other non-asbestos-related causes). Owens Corning believes that any such analyses, and any assumptions utilized in the preparation of such analyses, are inherently speculative for a number of reasons, including the variables and uncertainties described in this Note. Moreover, because such analyses are prepared solely for use in the negotiation of a plan of reorganization, they naturally reflect the respective interests of the different constituencies putting them forward. Certain constituencies, for example, may have an interest in presenting an analysis that estimates such liability at the highest level that can arguably be justified; others may have an interest in estimating such liability at the lowest possible level; while others may have an interest in estimating such liability at a point between the two extremes, in an effort to achieve consensus in the negotiation of the plan of reorganization. In addition, interested constituencies in Owens Corning’s bankruptcy proceedings may also take into account the implications of any such analyses prepared for use in Owens Corning’s bankruptcy proceedings on their position in one or more of the other asbestos-related bankruptcy cases pending in the District of Delaware or elsewhere.

None of the creditor constituencies has yet made available to Owens Corning a report of any such analysis of liability for pre-petition or future asbestos claims. However, based upon its discussions and negotiations with representatives of the creditor constituencies, Owens Corning believes that some of these creditor analyses associated with the resolution of Owens Corning’s and Fibreboard’s asbestos-related liabilities in the context of the Chapter 11 proceedings will be well in excess of Owens Corning’s and Fibreboard’s current asbestos-related reserves. For example, the Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants have taken the position that the aggregate amount of pre-petition and future asbestos claims for Owens Corning and Fibreboard, on a combined net present value basis, is in excess of $16 billion. In addition, in October 2002, Owens Corning and Fibreboard completed their own analyses of liability for purposes of facilitating plan discussions, which, as to future asbestos claims, were prepared by an outside consultant experienced in estimating asbestos-related claims in asbestos-related bankruptcies. These analyses indicate net present values for pre-petition and future asbestos claims of Owens Corning and Fibreboard combined of approximately $5.874 billion, if NSP settlement values are assumed, and $8.547 billion, if 5-year historical settlement values for Owens Corning and Fibreboard, respectively, are used. Based upon these analyses and the information derived from Owens Corning’s discussions and negotiations with the various creditor constituencies concerning their relative positions on the terms of an acceptable plan of reorganization, Owens Corning decided, in connection with its financial statements for the third quarter of 2002, to increase its and Fibreboard’s aggregate asbestos-related reserve to the lower of the two net present value numbers indicated by Owens Corning’s and Fibreboard’s analyses. Consequently, Owens Corning increased its reserves for the period ended September 30, 2002, through charges to income of $1.381 billion for Owens Corning asbestos-related liabilities and $975 million for Fibreboard asbestos-related liabilities, for an aggregate charge of $2.356 billion. In addition, since the reserve for Fibreboard asbestos-related liabilities exceeds the funds held in the Fibreboard Settlement Trust, the residual amount payable to charity under the terms of the Trust (see Note 11 to the Consolidated Financial Statements) was reduced to zero as of September 30, 2002.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

10. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

As noted above and in Note 1 to the Consolidated Financial Statements, the Debtors, together with the Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants, filed on October 24, 2003 a proposed fourth amended joint plan of reorganization for the Debtors and expect to file, together with the Official Committee of Unsecured Creditors and certain other unsecured creditors, a proposed fifth amended joint plan of reorganization reflecting the terms of the Agreement in Principle discussed in Note 1 to the Consolidated Financial Statements. The Plan provides that liability for current and future asbestos personal injury claims against Owens Corning and Fibreboard would be determined by the Bankruptcy Court as part of the confirmation hearing on the Plan. The Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants have reserved the right to withdraw support of the Plan if such liability is determined to be less than $16 billion in the aggregate. In this regard, the Company’s bank and bond creditor groups, for example, have continued to assert that such aggregate liability does not exceed the amount of Owens Corning’s existing reserves. It is therefore anticipated that the number and estimated aggregate value of current and future asbestos personal injury claims will ultimately be determined as a result of negotiations involving the Official Committee of Asbestos Claimants, the Legal Representative for the class of future asbestos claimants and other interested constituencies or, if necessary, by the Bankruptcy Court. It is not possible to predict the outcome of such negotiations or court determination at this time. The ultimate determination of such liabilities will take into account numerous factors not present in the Company’s pre-petition environment. Such factors include the claims of competing creditor groups as to the appropriate treatment of their allowed claims in the plan or plans of reorganization, the size of the total asbestos liability, the total number of present asbestos claims allowed, and the total amount of future asbestos claims allowed.

At June 30, 2004, the approximate balances of the components of Owens Corning’s asbestos-related reserve were:

	Balance
	(In billions of dollars)
Unpaid Final Settlements (NSP and other)	$	0.6
Other Pending and Future Claims		3.0

In connection with this asbestos reserve, Owens Corning notes that:

• The “Unpaid Final Settlements” component represented the remaining estimated cost for all asbestos personal injury claims pending against Owens Corning which were subject to final settlement agreements for which releases from claimants were obtained, and under which all other conditions to settlement had been satisfied, as of the Petition Date.

• The “Other Pending and Future Claims” component represented the estimated cost of resolving, through the Chapter 11 process, (i) asbestos personal injury claims pending against Owens Corning which were subject to resolution under NSP Agreements but for which releases were not obtained from claimants prior to the Petition Date; (ii) all other asbestos personal injury claims pending against Owens Corning which were not subject to any settlement agreement; and (iii) future asbestos personal injury claims against Owens Corning made after the Petition Date.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

10. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

Owens Corning believes that its reserve for asbestos claims represents at least a minimum in a range of possible outcomes of the plan negotiation process as to the amount of its total liability for asbestos-related claims against it as determined through the Chapter 11 process. Given the nature of the Chapter 11 proceedings, described above, Owens Corning cautions that the total asbestos-related liability ultimately established in the Chapter 11 proceedings may be either higher or lower than the Company’s reserve. Owens Corning notes that it expects an ongoing high level of negotiations and information exchanges with the various creditor constituencies and other parties for the duration of the Chapter 11 proceedings. Owens Corning will continue to review its asbestos reserve on a periodic basis and make such adjustments as may be appropriate. However, it is possible that Owens Corning will not be in a position to conclude that a further revision to the reserve is appropriate until additional significant developments occur during the course of the Chapter 11 Cases, including resolution by negotiation or the Bankruptcy Court of its total liability for asbestos claims. Any such revision could, however, be material to the Company’s consolidated financial position and results of operations in any given period.

As previously disclosed, on May 22, 2003, the United States Senate introduced proposed legislation (S 1125, also known as the Fairness in Asbestos Injury Resolution Act of 2003). On April 7, 2004, the United States Senate introduced proposed substitute legislation (S 2290, also known as the Fairness in Asbestos Injury Resolution Act of 2004). References in the following discussion to the “FAIR Act” refer to each Bill separately.

If enacted into law, the FAIR Act would establish an administrative claims resolution structure through which all asbestos personal injury claims would be channeled and reviewed. The FAIR Act would also establish a national trust fund, funded through mandated contributions from defendant companies, insurance companies and existing trusts, that would be the source of compensation of all approved claims. Under the present terms of the proposed FAIR Act, companies like Owens Corning and Fibreboard, that have filed for bankruptcy but have not yet emerged through a confirmed plan of reorganization, would be included as participants in the resolution structure.

The fate of the FAIR Act remains uncertain, and Owens Corning is unable to make any prediction as to whether the FAIR Act will be enacted or, if it is enacted, what its final form would be or what the effect, if any, would be on Owens Corning and Fibreboard or their plan or plans of reorganization. The provisions of any legislation ultimately enacted may have a material effect on the amount of liability that Owens Corning and Fibreboard ultimately have for asbestos-related claims, which could be more or less than the amounts reserved for in Owens Corning’s financial statements.

ITEM B. - FIBREBOARD (EXCLUDING OWENS CORNING)

Prior to 1972, Fibreboard manufactured asbestos containing products, including insulation products. Fibreboard has since been named as defendant in many thousands of personal injury claims for injuries allegedly caused by asbestos exposure. Fibreboard received approximately 22,000 asbestos personal injury claims during 2000. Prior to the Petition Date, the vast majority of Fibreboard asbestos personal injury claims were in the process of being resolved through the NSP, as described below. As a result of the Filing, all pre-petition asbestos claims and pending litigation against the Debtors were automatically stayed (see Note 1 to the Consolidated Financial Statements). Owens Corning expects that all pending and future asbestos claims against Owens Corning and Fibreboard will be resolved pursuant to a plan or plans of reorganization. Owens Corning is unable to determine at this time whether asbestos-related claims asserted against Fibreboard will be treated in the same manner as those asserted against Owens Corning in any such plan or plans ultimately confirmed.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

10. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

As discussed in Item A above and under the heading “Reserve” below, the Debtors (including Fibreboard), together with the Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants, filed on October 24, 2003 a proposed fourth amended joint plan of reorganization for the Debtors (including Fibreboard) and expect to file, together with the Official Committee of Unsecured Creditors and certain other unsecured creditors, a proposed fifth amended joint plan of reorganization reflecting the terms of the Agreement in Principle discussed in Note 1 to the Consolidated Financial Statements. Ultimately, as described more fully under the heading “Reserve” below, it is anticipated that Fibreboard’s (and Owens Corning’s) total liability for asbestos claims will be finally determined after a lengthy period of negotiations and, if necessary, by the Bankruptcy Court, taking into account numerous factors not present in the Company’s pre-petition environment. Such factors include the claims of competing creditor groups as to the appropriate treatment of their allowed claims in the plan or plans of reorganization, the size of the total asbestos liability, the total number of present asbestos claims allowed, and the total amount of future asbestos claims allowed.

National Settlement Program Claims

Fibreboard is a participant in the NSP and is a party to the NSP Agreements discussed in Item A. The NSP Agreements became effective as to Fibreboard in the fourth quarter of 1999, when the Insurance Settlement (discussed below) became effective. The NSP Agreements settled asbestos personal injury claims that had been filed against Fibreboard by participating plaintiffs’ law firms and claims that could have been filed against Fibreboard by such firms following the lifting, in the third quarter of 1999, of an injunction which had barred the filing of asbestos personal injury claims against Fibreboard.

As of the Petition Date, the NSP covered approximately 206,000 Initial Claims against Fibreboard, approximately 118,000 of which had satisfied all conditions to final settlement, including receipt of executed releases, or other resolution as Final NSP Settlements at an average cost per claim of approximately $7,400. As of the Petition Date, approximately 62,000 of such Final NSP Settlements had been paid in full or otherwise resolved and approximately 56,000 were unpaid in whole or in part. As of such date, the remaining balance payable under NSP Agreements in connection with these unpaid Final NSP Settlements was approximately $330 million. The NSP Agreements also provided for the resolution of Future Claims against Fibreboard through the administrative processing arrangement described in Item A. Through the Petition Date, Fibreboard had received approximately 6,000 Future Claims under the NSP.

At this time, Owens Corning is unable to predict the manner in which the NSP Agreements and the resolution of Fibreboard claims thereunder will ultimately be treated under the terms of any plan or plans of reorganization.

Non-NSP Claims

As of the Petition Date, approximately 9,000 asbestos personal injury claims were pending against Fibreboard outside the NSP. This compares to approximately 1,000 such claims pending on December 31, 1999. Fibreboard resolved (by settlement or otherwise) approximately 2,000 asbestos personal injury claims outside the NSP during 2000 prior to the Petition Date at an average cost of resolution of approximately $45,000 per claim. Generally, these claims were settled as they were scheduled for trial, and they typically involved more serious injuries and diseases. Accordingly, Owens Corning does not believe that such average cost of resolution is representative of the value of the non-NSP claims then pending against Fibreboard.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

10. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

At this time, Owens Corning is unable to predict the manner in which Fibreboard non-NSP claims will ultimately be treated under the terms of any plan or plans of reorganization.

Insurance Settlement

In 1993, Fibreboard and two of its insurers, Continental Casualty Company (“Continental”) and Pacific Indemnity Company (“Pacific”), entered into the Insurance Settlement. The Insurance Settlement became effective in the fourth quarter of 1999.

Since 1993, Continental and Pacific paid, either directly or through an escrow account funded by them, for substantially all settlements of asbestos claims reached prior to the initiation of the NSP. Under the Insurance Settlement, Continental and Pacific provided $1.873 billion during the fourth quarter of 1999 to fund costs of resolving pending and future Fibreboard asbestos-related liabilities, whether under the NSP, in the tort system, or otherwise.

As of June 30, 2004, the remaining Insurance Settlement funds were held in and invested by the Fibreboard Settlement Trust. As of that date, $1.265 billion was held in the Fibreboard Settlement Trust and $127 million was held in Undistributed Administrative Deposits in respect of Fibreboard claims. On an ongoing basis, the funds held in the Fibreboard Settlement Trust will be subject to investment earnings/losses and will be reduced if and as applied to satisfy asbestos-related liabilities. Under the terms of the Fibreboard Settlement Trust, any of such assets that ultimately are not used to fund Fibreboard’s asbestos-related liabilities must be distributed to charity. However, since the reserve for Fibreboard asbestos-related liabilities exceeds the funds held in the Fibreboard Settlement Trust, the residual amount payable to charity under the terms of the Trust (see Note 11 to the Consolidated Financial Statements) was reduced to zero as of September 30, 2002.

Funds held in the Fibreboard Settlement Trust and Fibreboard’s Undistributed Administrative Deposits are reflected on Owens Corning’s consolidated balance sheet as restricted assets. At June 30, 2004, these assets were reflected as non-current assets, under the category “Restricted cash, securities and other - Fibreboard”. See Note 11 to the Consolidated Financial Statements for additional information concerning the Fibreboard Settlement Trust.

At this time, Owens Corning is unable to predict what the treatment of funds held in the Fibreboard Settlement Trust and in Undistributed Administrative Deposits in respect of Fibreboard claims (see Item A) will ultimately be under the terms of any plan or plans of reorganization.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

10. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

Asbestos-Related Payments

As a result of the Filing, Fibreboard has not made any asbestos-related payments since the Petition Date. During 2000 (prior to the Petition Date), gross payments for asbestos-related claims against Fibreboard, all of which were paid/reimbursed by the Fibreboard Settlement Trust, fell within four major categories, as follows:

	2000 (through October 4, 2000)
	(In millions of dollars)
Pre-NSP Settlements	$	29
NSP Settlements		705
Non-NSP Settlements		41
Defense, Claims Processing and Administrative Expenses		45
	$	820

The payments for NSP Settlements include Administrative Deposits during the reporting period in respect of Fibreboard claims.

Reserve

Owens Corning estimates a reserve for Fibreboard in accordance with generally accepted accounting principles to reflect asbestos-related liabilities. As described in Item A above, this reserve was increased in the third quarter of 2002 through a charge to income of $975 million. As of June 30, 2004, a reserve of approximately $2.3 billion in respect of these asbestos-related liabilities was one of the items included in Owens Corning’s consolidated balance sheet under the category “Liabilities Subject to Compromise”. For periods prior to the Petition Date, they were reflected as current or other liabilities (depending on the period in which payment was expected) under the category “Asbestos-related liabilities - Fibreboard”.

As noted in Item A above as to Owens Corning, the estimate of Fibreboard’s liabilities for pending and expected future asbestos claims is subject to considerable uncertainty because such liabilities are influenced by numerous variables that are inherently difficult to predict, and such uncertainties significantly increased as a result of the Filing, including those set forth in Item A above. In addition, as noted above, the Debtors (including Fibreboard), together with the Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants, filed on October 24, 2003 a proposed fourth amended joint plan of reorganization for the Debtors (including Fibreboard) and expect to file, together with the Official Committee of Unsecured Creditors and certain other unsecured creditors, a proposed fifth amended joint plan of reorganization reflecting the terms of the Agreement in Principle discussed in Note 1 to the Consolidated Financial Statements. The Plan provides that liability for current and future asbestos personal injury claims against Owens Corning and Fibreboard would be determined by the Bankruptcy Court as part of the confirmation hearing on the Plan. The Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants have reserved the right to withdraw support of the Plan if such liability is determined to be less than $16 billion in the aggregate. In this regard, the Company’s bank and bond creditor groups, for example, have continued to assert that such aggregate liability does not exceed the amount of Owens Corning’s existing

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

10. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

reserves. It is therefore anticipated that the number and estimated aggregate value of current and future asbestos personal injury claims will ultimately be determined as a result of negotiations involving the Official Committee of Asbestos Claimants, the Legal Representative of the class of future asbestos claimants and other interested constituencies or, if necessary, by the Bankruptcy Court. It is not possible to predict the outcome of such negotiations or court determination at this time. The ultimate determination of such liabilities will take into account numerous factors not present in the Company’s pre-petition environment. Such factors include the claims of competing creditor groups as to the appropriate treatment of their allowed claims in the plan or plans of reorganization, the size of the total asbestos liability, the total number of present asbestos claims allowed, and the total amount of future asbestos claims allowed. In light of the above, at this time Owens Corning is unable to predict what the treatment of funds held in the Fibreboard Settlement Trust and in Undistributed Administrative Deposits in respect of Fibreboard claims will be under the terms of any plan or plans of reorganization ultimately confirmed.

At June 30, 2004, the approximate balances of the components of the Fibreboard asbestos-related reserve were:

	Balance
	(In billions of dollars)
Unpaid Final Settlements (NSP and other)	$	0.4
Other Pending and Future Claims		1.9

In connection with this asbestos reserve, Owens Corning notes that:

• The “Unpaid Final Settlements” component represented the remaining estimated cost for all asbestos personal injury claims pending against Fibreboard which were subject to final settlement agreements for which releases from claimants were obtained, and under which all other conditions to settlement had been satisfied, as of the Petition Date.

• The “Other Pending and Future Claims” component represented the estimated cost of resolving, through the Chapter 11 process, (i) asbestos personal injury claims pending against Fibreboard which were subject to resolution under NSP Agreements but for which releases were not obtained from claimants prior to the Petition Date; (ii) all other asbestos personal injury claims pending against Fibreboard which were not subject to any settlement agreement; and (iii) future asbestos personal injury claims against Fibreboard made after the Petition Date.

Owens Corning believes that Fibreboard’s reserve for asbestos claims represents at least a minimum in a range of possible outcomes of the plan negotiation process as to the amount of Fibreboard’s total liability for asbestos-related claims against it as determined through the Chapter 11 process. Given the nature of the Chapter 11 proceedings, described above, Owens Corning cautions that the total asbestos-related liability ultimately established in the Chapter 11 proceedings may be either higher or lower than Fibreboard’s reserve. Owens Corning notes that it expects an ongoing high level of negotiations and information exchanges with the various creditor constituencies and other parties for the duration of the Chapter 11 proceedings. Owens Corning will continue to review Fibreboard’s asbestos reserve on a periodic basis and make such adjustments as may be appropriate. However, it is possible that Owens Corning will not be in a position to conclude that a further revision to the reserve is appropriate until significant additional developments occur during the course of the Chapter 11 Cases, including resolution by negotiation or the Bankruptcy Court of Fibreboard’s total liability for asbestos claims. Any such revision could, however, be material to the Company’s consolidated financial position and results of operations in any given period.

- 41 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

10. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

As noted in Item A above, on May 22, 2003, the United States Senate introduced proposed legislation (S 1125, also known as the Fairness in Asbestos Injury Resolution Act of 2003). On April 7, 2004, the United States Senate introduced proposed substitute legislation (S 2290, also known as the Fairness in Asbestos Injury Resolution Act of 2004). References in the following discussion to the “FAIR Act” refer to each Bill separately.

If enacted into law, the FAIR Act would establish an administrative claims resolution structure through which all asbestos personal injury claims would be channeled and reviewed. The FAIR Act would also establish a national trust fund, funded through mandated contributions from defendant companies, insurance companies and existing trusts, that would be the source of compensation of all approved claims. Under the present terms of the FAIR Act, companies like Owens Corning and Fibreboard, that have filed for bankruptcy but have not yet emerged through a confirmed plan of reorganization, would be included as participants in the resolution structure.

The fate of the FAIR Act remains uncertain, and Owens Corning is unable to make any prediction as to whether the FAIR Act will be enacted or, if enacted, what its final form would be or what the effect, if any, would be on Owens Corning and Fibreboard or their plan or plans of reorganization. The provisions of any legislation ultimately enacted may have a material effect on the amount of liability that Owens Corning and Fibreboard ultimately have for asbestos-related claims, which could be more or less than the amounts reserved for in Owens Corning’s financial statements.

ITEM C. - OTHER ASBESTOS-RELATED MATTERS

Other Asbestos-Related Litigation

As previously reported, the Company believes that it has spent significant amounts to resolve claims of asbestos claimants whose injuries were caused or exacerbated by cigarette smoking. As described below, Owens Corning and Fibreboard instituted litigation against tobacco companies to obtain payment of monetary damages (including punitive damages) for payments made by Owens Corning and Fibreboard to asbestos claimants who developed smoking-related diseases.

In October 1998, the Circuit Court for Jefferson County, Mississippi granted leave to file an amended complaint in an existing action to add claims by Owens Corning against seven tobacco companies and several other tobacco industry defendants. On June 17, 2001, the Jefferson court entered an order dismissing Owens Corning’s case in response to the defendants’ motion for summary judgment on the basis that Owens Corning’s injuries were indirect and thus too remote under Mississippi law to allow recovery. The Supreme Court of Mississippi issued an opinion upholding the dismissal on March 18, 2004.

In addition to the Mississippi lawsuit, a lawsuit brought in December 1997 by Owens Corning and Fibreboard is pending in the Superior Court for Alameda County, California against the same tobacco companies. In August 2001, the defendants filed motions to dismiss Owens Corning’s and Fibreboard’s claims on the basis of the decision in the Mississippi lawsuit as well as California law. As the result of a hearing on these motions on November 20, 2001, the California court denied the motion to dismiss Fibreboard’s claims on the basis of the decision in the Mississippi lawsuit and otherwise stayed the proceeding pending the outcome of the Mississippi suit. The proceeding remains stayed. There can be no assurance that this litigation will go to trial or be successful.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

10. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

Insurance

As of June 30, 2004, Owens Corning’s consolidated financial statements reflect $4 million in unexhausted insurance coverage (net of deductibles and self-insured retentions) under its liability insurance policies applicable to asbestos personal injury claims. This amount represented unconfirmed potential non-products coverage with excess level insurance carriers, as to which Owens Corning had estimated its probable recoveries.

Owens Corning also has other unconfirmed potential non-products coverage with excess level carriers. Owens Corning is actively pursuing non-products insurance recoveries under these policies. In October, 2001, Owens Corning filed a lawsuit in Lucas County, Ohio, against ten excess level carriers for declaratory relief and damages for failure to make payments under its non-products insurance coverage. The amount and timing of recoveries from excess level policies will depend on the outcome of litigation or other proceedings, possible settlements of those proceedings, or other negotiations.

As previously reported, late in the second quarter of 2001, Owens Corning entered into a settlement agreement with one of its excess insurance carriers, resolving a dispute concerning coverage from such insurer for non-products asbestos-related personal injury claims. As a result, during the third quarter of 2001, the carrier funded $55 million into an escrow account to be released in conjunction with implementation of an approved plan of reorganization. The escrowed funds plus earnings are reflected on Owens Corning’s consolidated balance sheet as restricted assets, under the category “Restricted cash - asbestos and insurance related”.

Also as previously reported, during the second quarter of 2003, Owens Corning received an additional $4 million payment in respect of a previous settlement with a bankrupt insurance carrier concerning coverage for asbestos-related personal injury claims. This amount was recorded as pre-tax income in the second quarter of 2003.

Other Matters

SECURITIES AND CERTAIN OTHER LITIGATION

On or about April 30, 2001, certain of the Company’s current and former directors and officers, as well as certain underwriters, were named as defendants in a lawsuit captioned John Hancock Life Insurance Company, et al. v. Goldman, Sachs & Co., et al. in the United States District Court for the District of Massachusetts. An amended complaint was filed by the plaintiffs on or about July 5, 2001. Owens Corning is not named in the lawsuit. The suit purports to be a securities class action on behalf of purchasers of certain unsecured debt securities of Owens Corning in offerings occurring on or about April 30, 1998 and July 23, 1998. The complaint alleges that the registration statements pursuant to which the offerings were made contained untrue and misleading statements of material fact and omitted to state material facts which were required to be stated therein and which were necessary to make the statements therein not misleading, in violation of sections 11, 12(a)(2) and 15 of the Securities Act of 1933. The amended complaint seeks an unspecified amount of damages or, where appropriate, rescission of the plaintiffs’ purchases. The defendants filed a motion to dismiss the action on November 20, 2001. A hearing was held on this motion on April 11, 2002, and the Court issued a decision denying the motion on August 26, 2002. On March 9, 2004, the Court granted class certification as to those claims relating to written representations but denied certification as to claims relating to alleged oral representations. Owens Corning believes that the claim is without merit.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

10. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

On or about January 27, 2003, certain of the Company’s current and former directors and officers were named as defendants in a lawsuit captioned Robert Greenburg, et al. v. Glen Hiner, et al. in the United States District Court for the Northern District of Ohio, Western Division. Subsequent to January 27, 2003, three substantially similar actions, with named plaintiffs Nicholas Radosevich, Howard E. Leppla, and William Benanchietti, respectively, were filed against the same defendants in the same court. On July 30, 2003, the court consolidated the four cases under the caption Robert Greenburg, et al. v. Glen Hiner, et al., and appointed lead plaintiffs JKF Investment Co., Icarus Trading, Inc. and HGK Asset Management. An amended complaint was filed by the plaintiffs on or about September 8, 2003. Owens Corning is not named in the lawsuit. The suit purports to be a class action for securities fraud under sections 10(b) and 20(a) of the Securities Exchange Act of 1934, on behalf of a class comprised of persons who purchased stock of Owens Corning during the period from September 20, 1999, through October 4, 2000. The complaint seeks an unspecified amount of damages and/or, where appropriate, rescission. The defendants have filed a motion to dismiss the action, and the matter is fully briefed. Owens Corning believes that the claim is without merit.

On or about September 2, 2003, certain of the Company’s current and former directors and officers were named as defendants in a lawsuit captioned Kensington International Limited, et al. v. Glen Hiner, et al. in the Supreme Court of the State of New York, County of New York. Owens Corning is not named in the lawsuit. The suit, which was brought by Kensington International Limited and Springfield Associates, LLC, two assignees of lenders under the Pre-Petition Credit Facility, alleges causes of action (1) against all defendants for breach of fiduciary duty, and (2) against certain defendants for fraud in connection with certain loans made under the Pre-Petition Credit Facility. The complaint seeks an unspecified amount of damages. On October 6, 2003, the Company filed in the USBC a Complaint for Temporary Restraining Order, Preliminary Injunction and Enforcement of the Automatic Stay, requesting a preliminary injunction against further prosecution of the suit until after confirmation of a plan of reorganization for the Company. By order of the USBC, the New York action has been stayed until August 23, 2004. Owens Corning believes that the claim is without merit.

Owens Corning holds an indirect ownership interest in ServiceLane.com, Inc. (“ServiceLane”), which is in Chapter 7 bankruptcy proceedings in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division, Case No. 01-36044-HCA-7 (Abrahamson, B.J.). Two former employees of ServiceLane (the “SL Plaintiffs”) have filed proofs of claim (Claims No. 8651 and 8622) against Owens Corning in the Chapter 11 Cases, alleging fraud and misrepresentation. Additionally, on July 24, 2003, the SL Plaintiffs, along with ServiceLane’s Chapter 7 trustee, brought suit against two Owens Corning officers, who also were directors of ServiceLane, in the United States District Court for the Northern District of Ohio, Western Division, under the caption ServiceLane.com, Inc., et al. v. Stein, et al. In the complaint, ServiceLane alleges a breach of fiduciary duty against both officers and the SL Plaintiffs allege fraud against one officer. Owens Corning is not named in the lawsuit. On September 10, 2003, Owens Corning filed in the USBC an objection to the proofs of claim filed by the SL Plaintiffs as well as a counterclaim seeking declaratory relief in the form of a declaration that neither Owens Corning nor the two officers harmed the SL Plaintiffs. On October 1, 2003, the two officers filed a similar adversary proceeding in the USBC. In October 2003, the SL Plaintiffs filed a motion to dismiss Owens Corning’s counterclaim and, in November 2003, the SL Plaintiffs filed a motion to dismiss the adversary proceeding by the two officers. Hearings on both motions to dismiss were held on January 23, 2004. The USBC denied the motion to dismiss Owens Corning’s counterclaim and deferred action on the other motion to dismiss. Subsequently, the SL Plaintiffs and the two officers agreed to a dismissal of the Ohio action and a refiling in the USBC. As a result, all such proceedings are now pending in the USBC. Owens Corning believes that the claims of the SL Plaintiffs and the claims of ServiceLane’s Chapter 7 trustee are without merit.

- 44 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

10. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

The named officer and director defendants in each of the above proceedings have each filed contingent indemnification claims with respect to such litigation against Owens Corning pursuant to the General Bar Date process described below.

GENERAL BAR DATE CLAIMS

In connection with the Chapter 11 Cases, the Bankruptcy Court set April 15, 2002 as the last date by which holders of certain pre-petition claims against the Debtors must file their claims (the “General Bar Date”). The General Bar Date does not apply to asbestos-related personal injury claims and asbestos-related wrongful death claims (other than claims for contribution, indemnity, reimbursement, or subrogation). Approximately 25,000 proofs of claim (including the claims described below under the headings “PBGC Claim”, “Tax Claim” and “Specialty Roofing Claim”), totaling approximately $16.4 billion, alleging a right to payment from a Debtor were filed with the Bankruptcy Court in response to the General Bar Date. For further information concerning these claims, see Note 1 to the Consolidated Financial Statements, under the heading “General Bar Date”.

PBGC CLAIM

In connection with the General Bar Date described above, the Pension Benefit Guaranty Corporation (“PBGC”), an agency of the United States, has filed a claim, in the amount of approximately $458 million, in connection with statutory liability for unfunded benefit liabilities of the Owens Corning Merged Retirement Plan (the “Pension Plan”). The claim states that it is contingent upon termination of the Pension Plan. Since Owens Corning does not anticipate that the Debtors’ plan or plans of reorganization will provide for termination of the Pension Plan, it believes that this claim ultimately will become moot.

TAX CLAIM

Owens Corning’s federal income tax returns typically are audited by the Internal Revenue Service (“IRS”) in multi-year audit cycles. The audit for the years 1992-1995 was completed in late 2000. Due to the Filing, the IRS also accelerated and completed the audit for the years ended 1996-1999 by March of 2001. As the result of these audits and unresolved issues from prior audit cycles, the IRS has asserted claims for approximately $390 million in income taxes plus interest of approximately $175 million. The Company is involved in settlement negotiations with the IRS and expects to resolve these claims on a more favorable basis.

Pending audit of Owens Corning’s federal income tax return for the year 2000, the IRS has also filed a protective claim in the amount of approximately $50 million, covering a tax refund received by Owens Corning for such year, plus interest.

As described in Note 1 to the Consolidated Financial Statements, under the heading “General Bar Date”, the United States Department of Treasury has filed proofs of claim, totaling approximately $538 million, in connection with these tax claims.

In accordance with generally accepted accounting principles, Owens Corning maintains tax reserves to cover audit issues. While Owens Corning believes that the existing reserves are appropriate in light of the audit issues involved, its defenses, its prior experience in resolving audit issues, and its ability to realize certain challenged deductions in subsequent tax returns if the IRS were successful, there can be no assurance that such reserves will be sufficient. Owens Corning will continue to review its tax reserves on a periodic basis and make such adjustments as may be appropriate. Any such revision could be material to the Company’s consolidated financial position and results of operations in any given period.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

10. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

SPECIALTY ROOFING CLAIM

Three purchasers of a specialty roofing product have filed proofs of claim in the aggregate amount of $275 million on behalf of themselves individually and on behalf of a purported class of pre-petition claimants with respect to such product, and have moved the USBC to certify such class and to lift the automatic stay of proceedings as to post-petition claimants with respect to such product. A hearing on the pre-petition class certification has been set for January 2005 and the USBC has continued proceedings with respect to the lift stay motion until January 2005. Based upon its historic experience with servicing its warranty program for such product, Owens Corning does not believe that the class action claim is meritorious.

AVOIDANCE ACTIONS

Under the Bankruptcy Code, October 4, 2002 was the deadline by which the Debtors, on behalf of the bankruptcy estates, could bring adversary actions seeking the return of potentially avoidable transfers made by the Debtors to certain parties within a prescribed period prior to the commencement of the Chapter 11 proceedings. As part of their review of potentially avoidable transactions, the Debtors (1) negotiated tolling agreements with some of the recipients of the preferential transfers in order to toll the time period in which to bring an avoidance action; (2) determined not to prosecute certain of those potential avoidance actions that were not the subject of tolling agreements; and (3) instituted, prior to the October 4, 2002 deadline, a total of 19 adversarial actions, including 3 preference actions, 1 turnover action, and 15 avoidance actions, as described further below. All such actions were commenced in the USBC.

Among the parties who were identified by the Debtors as having received potentially avoidable transfers were (a) 12 present and former officers that received certain pre-petition incentive payments exceeding a threshold in the aggregate per officer; (b) one director that received a pre-petition pension payment; and (c) a joint venture affiliate of the Company that received approximately $3.8 million in the one-year period prior to the commencement of the Chapter 11 proceedings.

The Debtors have executed tolling agreements with all 12 present and former officers and the director, as well as with certain other parties identified as having received potentially avoidable transfers. After initially being covered by a tolling agreement, the claim against the joint venture affiliate was subsequently released as part of a Bankruptcy Court approved settlement with the affiliate, entered into in connection with the affiliate’s separate bankruptcy proceedings.

The adversary actions were commenced against various other defendants seeking, among other things, (a) avoidance of certain guarantees and certain preferential payments made in connection with Owens Corning’s Pre-Petition Credit Facility (the “Pre-Petition Credit Facility Action”); (b) the return of up to approximately $515 million paid by the Company to shareholders of Fibreboard in connection with the Company’s purchase of Fibreboard in 1997 (the “FBD Shareholder Action”); (c) the return of up to approximately $61.8 million paid by the Company to shareholders in dividends in the period 1996 through 2000 (the “Dividend Action”); and (d) the return of approximately $133 million paid by the Company to Bank of America Corp. in connection with Owens Corning’s purchase of Fibreboard in 1997. Both the FBD Shareholder Action and the Dividend Action are defendant class actions. Certain present or former officers or directors of the Company may be members of either or both defendant classes. Certain holders of Owens Corning debt securities have filed a Complaint in Intervention in connection with the Pre-Petition Credit Facility Action, seeking to assert securities fraud related claims against five subsidiaries of Owens Corning that issued guarantees in connection with the Pre-Petition Credit Facility. The Company has opposed such intervention. It is expected that such matter will be determined by the Bankruptcy Court in conjunction with the Pre-Petition Credit Facility Action.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

10. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

Separately, and at the request of the Debtors’ Official Creditors’ Committee and the direction of the Bankruptcy Court, the Debtors either obtained tolling agreements from, or filed actions against, approximately 115 law firms that entered into NSP or non-NSP agreements with the Debtors on behalf of claimants asserting asbestos-related personal injury or wrongful death claims. Lawsuits were brought initially against the 11 law firms that did not sign tolling agreements, seeking two forms of relief: (a) first, a declaratory judgment as to whether payments made, or obligations incurred, under NSP and non-NSP agreements were in exchange for reasonably equivalent value; and (b) second, in the event reasonably equivalent value was not received, the recovery or avoidance of payments made and obligations incurred under the relevant NSP and non-NSP agreements pursuant to applicable state and federal fraudulent conveyance law. On or before September 29, 2003, similar lawsuits were brought against 5 additional law firms whose tolling agreements were about to expire. The Official Creditors’ Committee was named as a defendant in all such lawsuits, solely with respect to the declaratory relief sought. During the first quarter of 2004, the lawsuit against one of the law firms was dismissed with the consent of the Official Creditors’ Committee and Bankruptcy Court approval.

By motions filed on or about October 16, 2002, and December 17, 2003, the Debtors sought an order of the Bankruptcy Court staying all of the foregoing litigation pending its disposition in a plan of reorganization. Pursuant to a ruling of the Bankruptcy Court, all of the foregoing litigation, other than the Pre-Petition Credit Facility Action, has been stayed until the earlier of (i) February 23, 2005, or (ii) 90 days after the confirmation of a plan of reorganization for Owens Corning. The Pre-Petition Credit Facility Action, previously scheduled for trial before the District Court commencing in June 2003, has been continued indefinitely by the Court.

L’ARDOISE, FRANCE MANUFACTURING FACILITY

In the fourth quarter of 2003, the Company experienced a flood at its L’Ardoise, France manufacturing facility. This facility is insured for property damage and business interruption losses relating to such events, subject to a $5 million deductible (which was expensed in 2003) and applicable policy limits. The Company estimates it has incurred, or will incur, a total of $50 to $60 million of property damage costs and business interruption losses associated with the L’Ardoise flood, which the Company believes will be substantially covered by insurance. In connection with the flood, the Company has recorded approximately $12 million in receivables for property damage costs, offset by an $18 million insurance advance. In addition, approximately $10 million of business interruption costs have been expensed and $10 million of capital expenditures have been recorded. Should the expected insurance recoveries not be received, they could have a material adverse impact on the Composite Solutions business. Also, the timing of any recoveries may result in expenses being taken and capital expenditures recorded in periods before the insurance receipts are recorded.

11. FIBREBOARD SETTLEMENT TRUST

Under the Insurance Settlement described in Note 10 to the Consolidated Financial Statements, two of Fibreboard’s insurers provided $1.873 billion during the fourth quarter of 1999 to fund the costs of resolving pending and future Fibreboard asbestos-related liabilities. As of June 30, 2004, the remaining Insurance Settlement funds were held in and invested by the Fibreboard Settlement Trust (the “Trust”). On an ongoing basis, the funds held in the Trust will be subject to investment earnings/losses and will be

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

11. FIBREBOARD SETTLEMENT TRUST (continued)

reduced if and as applied to satisfy Fibreboard asbestos-related liabilities. Under the terms of the Trust, any Trust assets that ultimately are not used to fund Fibreboard’s asbestos-related liabilities must be distributed to charity. Based on currently available information, Owens Corning does not believe that any such assets will remain for distribution at the conclusion of the Chapter 11 Cases.

The Trust is a qualified settlement fund for federal income tax purposes, and is taxed separately from Owens Corning on its net taxable income, after deduction for related administrative expenses.

At this time, Owens Corning is unable to predict what the treatment of the Fibreboard Settlement Trust will ultimately be under the terms of any plan or plans of reorganization.

General Accounting Treatment

The assets of the Trust are comprised of cash and marketable securities (collectively, the “Trust Assets”) and, with Fibreboard’s Undistributed Administrative Deposits, are reflected on Owens Corning’s consolidated balance sheet as restricted assets. At June 30, 2004, these assets were reflected as non-current assets, under the category “Restricted cash, securities and other - Fibreboard”. Owens Corning estimates a reserve for Fibreboard in accordance with generally accepted accounting principles to reflect asbestos-related liabilities (see Note 10, Item B, to the Consolidated Financial Statements). As of June 30, 2004, these liabilities were one of the items included in Owens Corning’s consolidated balance sheet under the category “Liabilities Subject to Compromise”. For periods prior to the Petition Date, they were reflected as current or other liabilities (depending on the period in which payment was expected) under the category “Asbestos-related liabilities - Fibreboard”. At June 30, 2004, the Consolidated Financial Statements reflect Fibreboard’s reserve for asbestos litigation claims at $2.309 billion.

For accounting purposes, the Trust Assets are classified as “trading securities” and are reported in the Consolidated Financial Statements in accordance with Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities”. Accordingly, marketable securities classified as trading securities are recorded at fair market value. Unrealized increase/decrease in fair market value is reflected as an increase/decrease in the carrying amount of such assets on the Consolidated Balance Sheet as well as a decrease/increase in Chapter 11 related reorganization items on the Consolidated Statement of Income. Earnings and realized gains/losses are reflected as an increase/decrease in the carrying amount of such assets on the Consolidated Balance Sheet as well as a decrease/increase in Chapter 11 related reorganization items on the Consolidated Statement of Income. Cost for purposes of computing realized gains/losses is determined using the specific identification method.

Through the third quarter of 2002, the residual obligation to charity, included in liabilities subject to compromise on the Consolidated Balance Sheet, increased/decreased with the related decrease/increase to other expense/income on the Consolidated Statement of Income. As of September 30, 2002, the residual obligation to charity was reclassified to Fibreboard’s reserve for asbestos litigation claims as the asbestos-related liabilities exceeded the Trust Assets. Consequently, for periods subsequent to the third quarter of 2002, no amounts have been recorded to the residual obligation to charity, and earnings/losses on Trust Assets have been recorded as Chapter 11 related reorganization items.

Results for the Periods Ended June 30, 2004 and 2003

The Trust Assets generated interest/dividend earnings of approximately $14 million and $15 million, respectively, during the second quarters of 2004 and 2003, and $29 million for the first six months of both years. These amounts were recorded in Chapter 11 related reorganization items in the Consolidated Statement of Income.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

11. FIBREBOARD SETTLEMENT TRUST (continued)

During the second quarters of 2004 and 2003, the Company recorded unrealized losses related to the fair market value adjustment for those securities designated as trading securities of approximately $24 million and $1 million, respectively, as a change in the carrying amount of the assets on the Consolidated Balance Sheet. For the six months ended June 30, 2004 and 2003, the Company recorded losses of $27 million and $6 million, respectively. These losses were recorded as Chapter 11 related reorganization items on the Consolidated Statement of Income.

As a result of the Filing, there were no payments for asbestos litigation claims from the Trust during the quarterly or six month periods ended June 30, 2004 or 2003. No payments were made for taxes during the quarterly or six month periods ended June 30, 2004 or 2003. The sale of securities resulted in a realized loss of approximately $4 million and $1 million during the second quarters of 2004 and 2003, respectively (a loss of $5 million and $2 million, respectively, during the first six months of such years). Realized gains or losses from the sale of securities are reflected on the Company’s financial statements in the same manner as actual returns on Trust Assets, described above.

At June 30, 2004, the fair value of Trust Assets and Administrative Deposits was $1.392 billion, which was comprised of Trust Assets of $1.265 billion of marketable securities and Administrative Deposits of $127 million.

The following table summarizes Trust and Administrative Deposits activity for the six months ended June 30, 2004:

	Balance 12/31/03			Interest and Dividends		Unrealized Loss			Realized Loss			Other		Balance 6/30/04
	(In millions of dollars)
Assets
Trust Assets:
Marketable securities - trading	$	1,268		$	29	$	(27	)	$	(5	)	$	—	$	1,265
Administrative Deposits		127			—		—			—			—		127
Total assets	$	1,395		$	29	$	(27	)	$	(5	)	$	—	$	1,392
Liabilities
Accounts payable	$	19		$	—	$	—		$	—		$	—	$	19
Asbestos litigation claims		2,309			—		—			—			—		2,309
Total Trust liabilities		2,328			—		—			—			—		2,328
Liabilities in excess of assets		(933	)		29		(27	)		(5	)		—		(936	)
Total Trust liabilities net of liabilities in excess of assets	$	1,395		$	29	$	(27	)	$	(5	)	$	—	$	1,392

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

12. STOCK COMPENSATION

The Company applies Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS No 123) and Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123” (SFAS No. 148) for disclosures of its stock based compensation plans. The Company applies Accounting Principles Board Opinion No. 25 and related Interpretations for expense recognition as permitted by SFAS No. 123 and SFAS No. 148. The expenses recorded in the quarterly and six month periods ended June 30, 2004 and 2003 were not material.

Had compensation cost for the Company’s stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method described in SFAS No. 123, the Company’s net income and net income per share would have been adjusted to the pro forma amounts indicated below. The stock based compensation adjustments recorded below are for stock based employee compensation expense determined under the fair value based method for all awards, net of related tax effects.

	Quarter Ended June 30,					Six months ended June 30,
	2004		2003			2004		2003
	(In millions of dollars)
	(except per share amounts)
Net income, as reported	$	33	$	18		$	38	$	17
Total stock-based compensation adjustments		—		(1	)		—		(2	)
Pro forma net income	$	33	$	17		$	38	$	15
Basic net income per share
As reported	$	0.59	$	0.33		$	0.68	$	0.30
Pro forma		0.59		0.31			0.68		0.27
Diluted net income per share
As reported	$	0.55	$	0.30		$	0.63	$	0.28
Pro forma		0.55		0.29			0.63		0.25

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

13. EARNINGS PER SHARE

The following table reconciles the weighted average number of shares used in the basic earnings per share calculation to the weighted average number of shares used to compute diluted earnings per share.

	Quarter Ended June 30,				Six Months Ended June 30,
	2004		2003		2004		2003
Net income used for basic and diluted earnings per share (millions)	$	33	$	18	$	38	$	17
Weighted-average number of shares outstanding used for basic earnings per share (thousands)		55,310		51,169		55,305		55,134
Non-vested restricted shares (thousands)		34		106		39		113
Deferred awards (thousands)		24		24		24		24
Shares from assumed conversion of preferred securities (thousands)		4,566		4,566		4,566		4,566
Weighted-average number of shares outstanding and common equivalent shares used for diluted earnings per share (thousands)		59,934		59,865		59,934		59,837

14. COMPREHENSIVE INCOME

The Company’s comprehensive income for the quarters ended June 30, 2004 and 2003 was $24 million and $53 million, respectively. Comprehensive income for the six months ended June 30, 2004 and 2003 was $23 million and $60 million, respectively. The Company’s comprehensive income includes: (1) net income; (2) currency translation adjustments; (3) minimum pension liability adjustments; and (4) deferred gains and losses on certain hedging transactions to record at fair value.

15. INCOME TAXES

The Company’s effective tax rate was 60% for the second quarter of 2004, resulting in a 66% rate for the first half of 2004. The Company currently projects that its effective tax rate for the full year 2004 will be 51%, compared to 56% for the full year 2003. Based on recent legislation and enforcement related to the deductibility of certain items for state tax, the Company increased its valuation allowance by approximately $12 million in the second quarter of 2004. The effective tax rates for 2004 reflect the aforementioned item and reserves associated with the deductibility of Chapter 11 related reorganization expenses. The effective tax rates for 2003 reflect reserves associated with the deductibility of Chapter 11 related reorganization expenses.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

16. LEASES

During the second quarter of 2003, the Company took various actions with the collective effect of reducing its effective cost of occupying its World Headquarters, including (1) renegotiation of the lease structure of the facility, including extension of the lease term, reduction of the payments and modification of the end-of-term purchase option, resulting in a classification change from an operating lease to a capital lease, (2) purchase of certain bonds issued by the lessor (the “Bonds”) in connection with the initial financing of the facility, and (3) obtaining a legal right of offset, which allows the Company to apply interest/principal receipts due it under the Bonds toward its lease liability. Classifying the lease as a capital lease resulted in (1) the recording of a lease liability of approximately $39 million, (2) the reduction of the previously recorded prepaid rent attributable to the original operating lease by approximately $45 million, and (3) the recording of building and furniture at a total value of approximately $84 million.

The Bonds, which had a par value at the purchase date of approximately $53 million, were purchased in exchange for cash payments totaling approximately $32 million. Such payments resulted in the Company reducing the lease liability by the $32 million. Also as part of the agreement, the Company allowed the selling bondholders a claim in its Chapter 11 proceedings of approximately $21 million related to the discount on the purchase of the Bonds. The Company recorded a liability Subject to Compromise in its Consolidated Balance Sheet and a Chapter 11 related reorganization item in its Consolidated Statement of Income related to this claim.

17. ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2003, the Company adopted Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations”. This statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The effect of adoption was not material to the Company, and the prospective effects of adoption are not expected to be material to the Company.

Effective January 1, 2003, the Company adopted Statement of Financial Accounting Standards No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections as of April 2002”. This Statement (1) rescinds FASB Statement No. 4, “Reporting Gains and Losses from Extinguishment of Debt”, FASB Statement No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements”, and FASB Statement No. 44, “Accounting for Intangible Assets of Motor Carriers”, (2) amends FASB Statement No. 13, “Accounting for Leases”, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions, and (3) amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The effect of adoption was not material to the Company.

Effective January 1, 2003, the Company adopted Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”. This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. The effect of adoption was not material to the Company, however, prospectively the timing of related future charges may be different than those recorded in prior periods.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

17. ACCOUNTING PRONOUNCEMENTS (continued)

In December 2002, the Financial Accounting Standards Board issued Financial Accounting Standards Board Interpretation No. 45, “Guarantor´s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others - an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34”. This Interpretation clarifies disclosures that are required to be made for certain guarantees at the time the guarantees are issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. Effective December 31, 2002, the Company adopted the disclosure requirements in this Interpretation, including those relating to warranty obligations. Effective January 1, 2003, the Company adopted the initial recognition and initial measurement provisions of this Interpretation on a prospective basis for guarantees issued or modified after December 31, 2002. The effect of adoption was not material to the Company, and the prospective effects of adoption are not expected to be material to the Company.

In December 2003, the Financial Accounting Standards Board issued a revised Interpretation No. 46, “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51”, (FIN 46R). FIN 46R requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. The provisions of FIN 46R are generally effective for existing (prior to February 1, 2003) variable interest relationships of a public entity no later than the end of the first reporting period that ends after March 15, 2004. However, prior to the required application of this interpretation a public entity that is not a small business issuer shall apply FIN 46R to those entities that are considered to be special-purpose entities no later than the end of the first reporting period that ends after December 15, 2003. The Company applied the portion of FIN 46R that is applicable to special purpose entities effective December 31, 2003, with no material effects, and applied the remainder of FIN 46R to its first quarter 2004 financial statements with no material effects.

In December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123”. Effective December 31, 2002, the Company adopted the amendments to Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”), provided in paragraphs 2(a)-2(e) of this Statement. Effective January 1, 2003, the Company adopted the amendment to SFAS No. 123 provided in paragraph 2(f) of this Statement, and the amendment to Opinion 28 provided in paragraph 3. The effect of adoption was not material to the Company. Please see Note 12 to the Consolidated Financial Statements for additional information concerning Stock Compensation.

In April 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”. SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. The provisions of SFAS No. 149 are generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company adopted these provisions as of June 30, 2003. The effect of adoption was not material to the Company, and the prospective effects of adoption are not expected to be material to the Company.

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

(All per share information discussed below is on a diluted basis. References in this Report to the “Consolidated Financial Statements” refer to the Consolidated Financial Statements included in this Report.)

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

Our disclosure and analysis in this report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements present our current forecasts and estimates of future events. These statements do not strictly relate to historical or current results and can be identified by words such as “anticipate”, “believe”, “estimate”, “expect”, “intend”, “likely”, “may”, “plan”, “project”, “strategy”, “will”, and other terms of similar meaning or import in connection with any discussion of future operating, financial or other performance. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the statements. Some of the important factors that may influence possible differences include:

• competitive factors

• pricing pressures

• availability and cost of energy and materials

• construction activity

• interest rate movements

• issues involving implementation of new business systems

• achievement of expected cost reductions and/or productivity improvements

• developments in and the outcome of the Chapter 11 proceedings described below

• general economic and political conditions, including new legislation

• foreign exchange fluctuations

• the success of research and development activities

• difficulties or delays in manufacturing

• labor disputes

• issuance of new laws or regulations

OVERVIEW

Chapter 11 Proceedings

The Company is nearing the end of the fourth year of our Chapter 11 reorganization to resolve our asbestos liability. Our strategy for managing the Chapter 11 process has been to steadily advance our case while attempting to facilitate a consensual Plan of Reorganization supported by all of our creditors (“Consensual Plan”). We believe that a Consensual Plan will allow us to emerge from Chapter 11 earlier than our current track while still maximizing the value of our estate for all creditors.

We have been unable to reach a Consensual Plan to date. However, in recent months we have made progress towards that goal. In June of this year, we announced an agreement that allowed the official representatives of the holders of our pre-petition bond and trade debt, the Official Committee of Asbestos Claimants, and the Legal Representative for the class of future asbestos claimants to support our proposed Plan of Reorganization (our “Plan”), as revised per the agreement. We now have only one class of creditors, the holders of our pre-petition bank debt, that continues to oppose our Plan as so revised.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Under the terms of the recently-announced agreement, our bondholders, trade creditors and holders of our bank debt would receive a recovery of approximately 38.5% of the total amount of their claims, based on certain assumptions. We intend to amend our existing Plan to reflect this agreement. Because the holders of our bank debt do not support the terms of the agreement, however, we expect them to continue to oppose our efforts to move our Plan forward towards emergence.

There are three primary factors that have thus far prevented us from reaching a fully Consensual Plan with our Creditors:

(1) First, the holders of our bank debt believe that our Plan should not be conditioned upon substantive consolidation. They believe that certain guarantees provided to them by subsidiaries of the Company (including several that currently are not Debtors) should allow them to receive a higher recovery than other creditors. The Company, along with all other classes of creditors, believes that substantive consolidation is appropriate.

(2) The second factor relates to proposed asbestos reform legislation (the “FAIR Act”), in the form of both a bill that has been pending for some time and substitute legislation introduced in April 2004. The Company’s non-asbestos creditors believe that this legislation would reduce the asbestos liability owed by the Company, and would therefore potentially increase the recoveries of all other creditors. While Congress has not acted on the FAIR Act, as long as it remains possible that the FAIR Act could be enacted into law, it will likely remain a factor in the negotiations among our various creditor groups.

(3) The third factor is the significant disagreement as to the value of the Company’s current and future asbestos liability. Our Plan provides that the liability for current and future asbestos personal injury claims against Owens Corning and Fibreboard will be determined by the Court as part of the confirmation of our Plan. The Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants have to date reserved the right to withdraw support of the Plan if such liability is determined to be less than $16 billion in the aggregate. Our non-asbestos creditors have indicated that they believe that the amount of such liability is significantly lower than $16 billion. The determination of the value of the aggregate asbestos liability could significantly impact the relative recoveries of the parties.

We believe that the uncertainty surrounding these three factors, among others, has made it difficult for all of our creditors to reach a Consensual Plan to date. Without a Consensual Plan, our only alternative is to proceed with a Plan of Reorganization that is supported by most, but not all, of our creditors.

A significant development occurred in May when the Third Circuit Court of Appeals, in a 2 to 1 split decision, decided to recuse federal district judge Alfred Wolin from our case. The Third Circuit had previously appointed Judge Wolin to supervise all activities in our Chapter 11 case, as well as several other ongoing asbestos-related Chapter 11 cases. The Third Circuit based its decision to recuse Judge Wolin on an appearance of impropriety, and it stressed that there was no evidence of any actual conflict or impropriety on the part of Judge Wolin. The appearance of impropriety arose from the fact that Judge Wolin had appointed several individuals to advise him regarding asbestos issues, and those individuals represented the interests of future asbestos claimants in another unrelated Chapter 11 case. The Third Circuit was also concerned about ex parte meetings that Judge Wolin had with many of the parties involved in our Chapter 11 proceedings. On May 27, the Third Circuit then appointed Judge John P. Fullam to replace Judge Wolin. Judge Fullam is an experienced Federal District Court Judge from the Eastern District of Pennsylvania (Philadelphia). At this point, we are unable to predict what impact, if any, this change in District Court Judge may have on the timing or other aspects of our Chapter 11 proceedings.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Our going forward strategy is two-fold: (1) continue to look for a compromise that will result in a Consensual Plan supported by all of our creditors and, otherwise, (2) proceed as quickly as possible to confirm our Plan, including obtaining judicial resolution of the two significant open issues in our case (asbestos valuation and substantive consolidation).

As long as the holders of our bank debt continue to oppose our Plan of Reorganization, it is difficult to estimate when we will emerge from Chapter 11. There does not appear to be any realistic way for the Company to emerge in 2004. However, for the foreseeable future, we do not believe that continuing to operate in Chapter 11 will inhibit our ability to successfully run our business.

Results of Operations

The Company’s 2004 net sales and income from operations continued to outpace the comparable period in the prior year. The following factors had significant impact during the first half of 2004 and continue into the third quarter:

• Strength in the United States housing market has continued to drive volumes in the majority of our Building Materials product lines. This strength has provided us opportunities to continue to invest in capacity and improve sales volumes in the Building Materials Systems segment.

• An improving global economy has increased demand for glass fibers used in the construction, transportation, consumer, industrial, and infrastructure markets. This increased demand has benefited the Composite Solutions segment in improved operating performance.

• Both reportable segments have experienced inflation pressures, primarily associated with energy related commodities and services due to increased global demand and uncertainties associated with oil supplies.

These factors, along with lower Chapter 11 related reorganization items, assisted the Company in achieving income from operations for the six months ended June 30, 2004 of $128 million, compared to $51 million for the same period of 2003. However, because of the nature of certain of the costs and expenses that impact reported income from operations, management does not find it to be the most useful financial measure of the Company’s on-going operational performance. Rather, when management reviews the Company’s year-to-year operational performance, we typically look at income from operations excluding Chapter 11 related reorganization items, restructuring and other charges, and provision (credit) for asbestos litigation claims (recoveries). To help understand that measure of on-going operational performance, you can refer to the segmental data appearing in Note 2 to the Consolidated Financial Statements. Using that data, we would typically compare year-to-year operations on the basis of income before income tax expense on a total reportable segment basis reduced only by general corporate expense. On that basis, the Company’s income from operations, while essentially flat for the first six months compared to last year, improved approximately 35% for the second quarter.

During the second quarter of 2004, Building Materials markets remained strong as the result of a continued attractive interest rate environment for mortgages and refinancing, which drove strong new residential construction and remodeling markets. Income from operations was up 40%, driven primarily by higher volume, improved pricing, and improved manufacturing productivity.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

In Composite Solutions, income from operations improved 67% for the second quarter of 2004, compared to the same period of 2003, but was flat for the first six months of both years. Results for both periods of 2004 reflect higher volumes, offset by year over year price pressures and higher energy related costs.

Looking ahead, we are somewhat optimistic about the U.S. economy for the remainder of 2004. Our businesses are sensitive to interest rates in North America as they have a significant impact on new residential construction, residential remodeling markets, and automotive markets, which are major end-use markets for many of our products. While interest rates have increased recently, we continue to experience historically low rates, which is advantageous to our businesses. An environment of rising interest rates would create a concern for us as we look ahead.

The Company’s 2003 safety initiative in asking all employees to make an unconditional commitment to work safely continues to be our priority. This initiative has resulted in reducing our recordable injuries 24% in the first half of 2004 compared to 2003. Our goals for the remainder of 2004 call for continued progress in our unconditional commitment to working safely. We also intend to continue efforts for focusing all the employees of the Company on serving our customers and meeting the needs of our markets. Both our Building Materials and Composite Solutions businesses will continue to be focused on improving gross margin performance.

VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11

On October 5, 2000 (the “Petition Date”), Owens Corning and the 17 United States subsidiaries listed below (collectively with Owens Corning, the “Debtors”) filed voluntary petitions for relief (the “Filing”) under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “USBC”):

CDC Corporation	Integrex Testing Systems LLC
Engineered Yarns America, Inc.	HOMExperts LLC
Falcon Foam Corporation	Jefferson Holdings, Inc.
Integrex	Owens-Corning Fiberglas Technology, Inc.
Fibreboard Corporation	Owens Corning HT, Inc.
Exterior Systems, Inc.	Owens-Corning Overseas Holdings, Inc.
Integrex Ventures LLC	Owens Corning Remodeling Systems, LLC
Integrex Professional Services LLC	Soltech, Inc.
Integrex Supply Chain Solutions LLC

The Debtors are currently operating their businesses as debtors-in-possession in accordance with provisions of the Bankruptcy Code. The Chapter 11 cases of the Debtors (collectively, the “Chapter 11 Cases”) are being jointly administered under Case No. 00-3837 (JKF).

The referenced Chapter 11 cases do not include any other United States or foreign subsidiaries of Owens Corning (collectively, the “Non-Debtor Subsidiaries”). As described more fully below under the heading “The Plan of Reorganization”, Owens Corning may cause certain of such Non-Debtor Subsidiaries that issued guarantees with respect to Owens Corning’s $1.8 billion pre-petition bank credit facility (the “Pre-Petition Credit Facility”, which is in default) to file petitions for relief under Chapter 11 of the Bankruptcy Code under certain circumstances.

The Debtors filed for relief under Chapter 11 to address the growing demands on Owens Corning’s cash flow resulting from its multi-billion dollar asbestos liability. This liability is discussed in greater detail in Note 10 to the Consolidated Financial Statements.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Overseeing Federal District Court

In late 2001, the asbestos-related Chapter 11 cases pending in the District of Delaware (the Chapter 11 Cases of Owens Corning and the cases of Armstrong World Industries, Inc., W.R. Grace & Co., Federal-Mogul Global, Inc., and USG Corporation) were ordered transferred to the United States District Court for the District of Delaware (the “District Court”) before Judge Alfred M. Wolin to facilitate development and implementation of a coordinated plan for management (the “Administrative Consolidation”). The District Court entered an order referring the Chapter 11 Cases back to the USBC, where they were previously pending, subject to its ongoing right to withdraw such referral with respect to any proceedings or issues (the applicable court from time to time responsible for any particular aspect of the Chapter 11 Cases being hereinafter referred to as the “Bankruptcy Court”).

On or about October 10, 2003, Kensington International Limited and Springfield Associates, LLC (collectively, “K&S”), two assignees of lenders under Owens Corning’s Pre-Petition Credit Facility, filed a motion in the USBC to recuse District Court Judge Wolin from further participation in the Chapter 11 Cases. After various proceedings before the District Court and the United States Court of Appeals for the Third Circuit (the “Third Circuit”), on May 17, 2004, the Third Circuit entered an order requiring Judge Wolin to recuse himself from futher participation in the Chapter 11 Cases. On May 27, 2004, the Third Circuit assigned Judge John P. Fullam of the United States District Court, Eastern District of Pennsylvania, to replace Judge Wolin in the Chapter 11 Cases. In addition, the Third Circuit assigned other judges to sit on other of the cases that had previously been consolidated under the terms of the Administrative Consolidation, effectively terminating the consolidation. Owens Corning is unable to predict what impact the change in District Court Judge or the termination of the Administrative Consolidation will have on the timing, outcome, or other aspects of the Chapter 11 Cases.

Consequence of the Filing

As a consequence of the Filing, all pending litigation against the Debtors was stayed automatically by section 362 of the Bankruptcy Code and, absent further order of the Bankruptcy Court, no party may take any action to recover on pre-petition claims against the Debtors. In addition, pursuant to section 365 of the Bankruptcy Code, the Debtors may reject or assume pre-petition executory contracts and unexpired leases, and other parties to contracts or leases that are rejected may assert rejection damages claims as permitted by the Bankruptcy Code.

Two creditors’ committees, one representing asbestos claimants and the other representing unsecured creditors, have been appointed as official committees in the Chapter 11 Cases. In addition, the Bankruptcy Court has appointed James J. McMonagle as Legal Representative for the class of future asbestos personal injury claimants against one or more of the Debtors. The two committees and the Legal Representative have the right to be heard on all matters that come before the Bankruptcy Court.

Owens Corning anticipates that substantially all liabilities of the Debtors as of the date of the Filing will be resolved under one or more Chapter 11 plans of reorganization to be proposed and voted on in the Chapter 11 Cases in accordance with the provisions of the Bankruptcy Code. On January 17, 2003, the Debtors, together with the Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants, filed a proposed joint plan of reorganization in the USBC. The same proponents filed a proposed amended joint plan of reorganization in the USBC on March 28, 2003, a proposed second amended joint plan of reorganization in the USBC on May 23, 2003, a proposed third amended joint plan of reorganization in the USBC on August 8, 2003, and a proposed fourth amended joint plan of reorganization (as so amended through such fourth amendment, the “Plan”) in the USBC on October 24, 2003.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

On June 7, 2004, Owens Corning announced that an agreement in principle (the “Agreement in Principle”) had been reached with the Official Committee of Asbestos Claimants, the Legal Representative for the class of future asbestos claimants, and the official representatives of Owens Corning’s pre-petition bondholders and trade creditors. Among other things, the Agreement in Principle provides that all holders of bonds, bank debt and senior trade debt would receive a recovery equal to 38.5% of their claims upon Owens Corning’s successful emergence from Chapter 11. The recoveries of all creditors are based on certain agreed and assumed values and would be comprised of cash, debt and equity. However, their actual recoveries could ultimately be higher or lower based on the value of the equity to be issued by Owens Corning upon emergence from Chapter 11 and other factors.

As a result of this Agreement in Principle, Owens Corning has now gained support for the Plan from all of its major creditor groups with the exception of the holders of the debt under the Pre-Petition Credit Facility, who continue to oppose the Plan.

It is expected that the Plan will be amended to reflect the terms of the Agreement in Principle. Certain terms, conditions and provisions of the Plan are discussed below. The Plan is subject to confirmation by the Bankruptcy Court.

Although the Debtors intend to seek confirmation of the Plan, as amended to reflect the Agreement in Principle, there can be no assurance that such Plan will not be further amended prior to confirmation, nor can there be any assurance that such Plan will be confirmed by the Bankruptcy Court and consummated. Owens Corning is unable to predict what impact the change in District Court Judge, the termination of the Administrative Consolidation, or the disposition of any of the litigation and other matters described below will have on the timing of the confirmation of a plan or plans of reorganization or its effect, if any, on the terms thereof.

Related Developments

PROPOSED ASBESTOS LEGISLATION

As previously disclosed, on May 22, 2003, the United States Senate introduced proposed legislation (S 1125, also known as the Fairness in Asbestos Injury Resolution Act of 2003). On April 7, 2004, the United States Senate introduced proposed substitute legislation (S 2290, also known as the Fairness in Asbestos Injury Resolution Act of 2004). References in the following discussion to the “FAIR Act” refer to each Bill separately.

If enacted into law, the FAIR Act would establish an administrative claims resolution structure through which all asbestos personal injury claims would be channeled and reviewed. The FAIR Act would also establish a national trust fund, funded through mandated contributions from defendant companies, insurance companies and existing trusts, that would be the source of compensation of all approved claims. Under the present terms of the FAIR Act, companies like Owens Corning and Fibreboard, that have filed for bankruptcy but have not yet emerged through a confirmed plan of reorganization, would be included as participants in the resolution structure.

The fate of the FAIR Act remains uncertain, and Owens Corning is unable to make any prediction as to whether the FAIR Act will be enacted or, if it is enacted, what its final form would be or what the effect, if any, would be on Owens Corning and Fibreboard or their plan or plans of reorganization. The provisions of any legislation ultimately enacted may have a material effect on the amount of liability that Owens Corning and Fibreboard ultimately have for asbestos-related claims, which could be more or less than the amounts reserved for in Owens Corning’s financial statements.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

OTHER MATTERS FILED IN THE USBC

On or about October 15, 2003, Credit Suisse First Boston (“CSFB”), the bank agent and a lender under the Pre-Petition Credit Facility, filed a complaint in the USBC against Owens Corning and twenty unnamed law firms who are alleged to have received payments under Owens Corning’s National Settlement Program (the “NSP”, which is discussed more fully in Note 10 to the Consolidated Financial Statements under the heading “Asbestos Liabilities”). This complaint, which was captioned Credit Suisse First Boston v. Owens Corning, et al., sought to impose a constructive trust on all funds held by Owens Corning drawn under the Pre-Petition Credit Facility between March 1, 2000 and October 5, 2000, and to impose a constructive trust against the unnamed law firms. The complaint alleged that the NSP caused financial difficulties for Owens Corning that culminated in loan covenant breaches under the Pre-Petition Credit Facility that were not disclosed to CSFB, resulting in loans under the Pre-Petition Credit Facility that the lenders would not have been required to make. Following limited discovery by the plaintiffs, the proceeding was dismissed without prejudice by agreement of the parties, pursuant to order of the USBC dated June 23, 2004.

On or about October 17, 2003, the Official Committee of Unsecured Creditors filed a motion in the USBC requesting appointment of a Chapter 11 trustee to assume control of the Chapter 11 Cases due to alleged breach of the Debtors’ fiduciary duty of undivided loyalty to act in the best interest of all creditors. After such motion was dismissed by the USBC for failure to comply with local court rules, the Official Committee of Unsecured Creditors re-filed such motion on October 30, 2003. A supplement to the motion of the Official Committee of Unsecured Creditors was filed on May 28, 2004, and various filings in opposition to such supplemented motion were filed by the Debtors, the Legal Representative for the class of future asbestos claimants, and the Official Committee of Asbestos Creditors.

On or about May 24, 2004, Credit Suisse First Boston, Kensington International Limited, Springfield Associates LLC and Angelo Gordon filed a motion in the USBC requesting the appointment of a Chapter 11 Examiner to examine (i) allegations of improper conduct by management of the Debtors, (ii) alleged breaches of fiduciary duty by management of the Debtors resulting from the influence of the Legal Representative for the class of future asbestos claimants and the Official Committee of Asbestos Creditors on the process of developing a Plan and the tort estimation process, (iii) alleged connections between the asbestos plaintiffs’ interests, a Court appointed mediator, and the Debtors’ asbestos liability estimation firm, and (iv) other alleged improper conduct. Owens Corning, the Legal Representative for the class of future asbestos claimants, and the Official Committee of Asbestos Creditors have each filed responsive pleadings to the motion. Following a June 21, 2004 hearing, the USBC continued further proceedings on the motion pending issuance of a final order on the motion (described in the preceding paragraph) requesting appointment of a Chapter 11 trustee.

The Debtors believe that the two pending motions described above are without merit and intend to continue to vigorously oppose them in appropriate proceedings.

The Plan of Reorganization

Although the basic terms of the Plan, as amended to reflect the Agreement in Principle, have now been agreed to by all of Owens Corning’s major creditor constituencies, except the holders of its debt under the Pre-Petition Credit Facility, who continue to oppose the Plan, Owens Corning believes that it is likely that the terms, conditions and provisions of the Plan will remain the subject of continuing negotiations or litigation to resolve differences among the creditor constituencies as to their treatment. Accordingly, Owens Corning is unable to predict at this time what the treatment of creditors and equity holders of the respective Debtors will ultimately be under any plan or plans of reorganization finally confirmed. The

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

current Plan, as amended to reflect the Agreement in Principle, provides for payment of 38.5% of the face amount of all unsecured creditors’ claims, in the form of distributions of new common stock and notes of the reorganized company, and cash. However, as described more fully below, the percentage recovery and value of the payments ultimately made under the Plan to each class of creditors will depend upon a number of factors, including the value of the shares of new common stock and notes to be issued by the Company. Additional distributions from potential insurance and other third-party claims may also be paid to certain classes of unsecured creditors, but it is expected that all classes of pre-petition unsecured creditors will be impaired. Therefore, the Plan also provides that the existing common stock of Owens Corning will be cancelled, and that current shareholders will receive no distribution or other consideration in exchange for their shares. It is impossible to predict at this time the terms and provisions of any plan or plans of reorganization that may ultimately be confirmed, when a plan or plans of reorganization will be confirmed, or the treatment of creditors thereunder.

The Plan is premised upon the substantive consolidation of the Debtors (but not the Fibreboard Settlement Trust (see Note 11 to the Consolidated Financial Statements)) for the purposes of voting, determining which claims and interests will be entitled to vote to accept or reject the Plan, confirmation of the Plan, and the resultant discharge of and cancellation of claims and interests and distribution of assets, interests and other property under the Plan. For these purposes, the Plan would treat all assets and liabilities of each Debtor (excluding the Fibreboard Settlement Trust) as though they were merged into one consolidated estate with the assets and liabilities of the other Debtors. Substantive consolidation under the Plan will not result in the merger of or the transfer or commingling of any assets of any of the Debtors or Non-Debtor Subsidiaries. Certain creditor constituencies have asserted that substantive consolidation is not appropriate and are challenging that approach in the Plan confirmation hearings described below.

As part of the Plan, Owens Corning intends to effect an internal restructuring in order to adopt a holding company structure. This internal restructuring is expected to be refined further as steps are taken to implement it.

Although the Plan, as amended to reflect the Agreement in Principle, provides for unsecured creditors to recover 38.5% of their claims, the percentage recovery and value of the payments ultimately made under the Plan to each class of creditors will depend upon a number of factors. Those factors include the value of the shares of new common stock and notes to be issued by the Company, the amount of cash available for distribution, the resolution of certain inter-creditor issues, and the ultimate aggregate asbestos liability. In addition, the Plan, as amended to reflect the Agreement in Principle, will provide that the unsecured creditors may elect to exchange cash or notes that they would otherwise be entitled to receive under the Plan for up to a maximum of 8 million shares of new Owens Corning common stock that would otherwise be distributable to asbestos claimants.

The Plan provides that liability for current and future asbestos personal injury claims against Owens Corning and Fibreboard would be determined by the Bankruptcy Court as part of the confirmation hearing on the Plan. The Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants have reserved the right to withdraw support of the Plan if such liability is determined to be less than $16 billion in the aggregate. Hearings concerning confirmation of the Plan began on April 8, 2003. Any disagreements raised by creditors with the terms of the Plan, including with respect to the appropriateness of substantive consolidation, are expected to be handled through litigation as part of the confirmation process. Owens Corning is unable to predict the outcome of such litigation, or the effect, if any, of the change in District Court Judge, on the schedule or other aspects of the confirmation process.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Under the Plan, a majority of the newly issued common stock, together with notes, and cash, as well as the assets of the existing Fibreboard Settlement Trust (see Note 11 to the Consolidated Financial Statements), will fund a new trust created under the Plan intended to qualify under Section 524(g) of the Bankruptcy Code. The Section 524(g) trust will assume all obligations of Owens Corning, Fibreboard, and their respective subsidiaries and affiliates, for current and future asbestos personal injury claims and demands, and will, through Owens Corning and Fibreboard sub-accounts, make payments to claimants in accordance with the trust distribution procedures included as part of the Plan. In addition, the Plan provides for an injunction by the Bankruptcy Court pursuant to Section 524(g) of the Bankruptcy Code that will enjoin actions against the reorganized Debtors for the purpose of, directly or indirectly, collecting, recovering or receiving payment of, on, or with respect to any claims resulting from asbestos-containing products allegedly manufactured, sold or installed by Owens Corning or Fibreboard, which claims will be paid in whole or in part by the Section 524(g) trust. Similar plans of reorganization have been confirmed in the Chapter 11 cases of other companies involved in asbestos-related litigation. Section 524(g) of the Bankruptcy Code provides that, if certain specified conditions are satisfied, a court may issue a supplemental permanent injunction barring the assertion of asbestos-related claims or demands against the reorganized company and channeling those claims to an independent trust.

Among other things, the Plan provides that (1) except as otherwise provided in the Plan, no distributions will be made under the Plan on account of inter-company claims among any of the Debtors, and (2) all guarantees of the Debtors of the obligations of any other Debtor will be deemed eliminated. Since, as described above, it is likely that the Plan will be the subject of continuing negotiations or litigation, Owens Corning is unable to predict at this time what the treatment of such matters, and other inter-company and intra-company arrangements, transactions and relationships that were entered into prior to the Petition Date, will ultimately be under any plan or plans of reorganization finally confirmed. Such matters and other arrangements, transactions and relationships may be challenged by various parties in the Chapter 11 Cases and payments and other obligations in respect thereof may be restricted or modified by order of, or subject to review and approval by, the Bankruptcy Court. The outcome of such challenges and other actions, if any, may have an impact on the treatment of various claims under the plan or plans ultimately confirmed and on the respective assets, liabilities and results of operations of Owens Corning and its subsidiaries. For example, Owens Corning is unable to predict at this time what the treatment will ultimately be under any such plan or plans with respect to (1) the guarantees issued by certain of Owens Corning’s U.S. subsidiaries, including Owens-Corning Fiberglas Technology Inc. (“OCFT”) and IPM Inc., a Non-Debtor Subsidiary that holds Owens Corning’s ownership interest in a majority of Owens Corning’s foreign subsidiaries (“IPM”), with respect to Owens Corning’s Pre-Petition Credit Facility or (2) OCFT’s license agreements with Owens Corning and Exterior Systems, Inc., an indirect wholly-owned subsidiary of Owens Corning (“Exterior”), pursuant to which OCFT licenses intellectual property to Owens Corning and Exterior. In the event that (1) the major creditor constituencies do not approve the Plan and (2) no other acceptable alternative agreement is reached to release such entities from their guaranty obligations, Owens Corning expects to cause IPM as well as Vytec Corporation and Owens-Corning Fiberglas Sweden Inc., two other Non-Debtor Subsidiaries that have issued guarantees in connection with the Pre-Petition Credit Facility, to file for relief under Chapter 11 of the Bankruptcy Code, and to join in the proposal of the Plan, and will also seek to cause those Non-Debtor Subsidiaries to be substantively consolidated with the current Debtors for the purposes set forth in the Plan.

The Bankruptcy Court may confirm a plan of reorganization only upon making certain findings required by the Bankruptcy Code, and a plan may be confirmed over the dissent of non-accepting creditors and equity security holders if certain requirements of the Bankruptcy Code are met. In this respect, the Plan, as amended to reflect the Agreement in Principle, is expected to provide for certain “cramdown” provisions, whereby the Plan could be confirmed over the objections of one or more classes of unapproving creditors in the event that certain percentages in dollar amount and in number of specified classes of creditors accept the Plan and vote in favor of it.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

The payment rights and other entitlements of pre-petition creditors and Owens Corning’s shareholders may be substantially altered by any plan or plans of reorganization confirmed in the Chapter 11 Cases, and the pre-petition creditors of some Debtors may be treated differently than those of other Debtors.

Pursuant to the Bankruptcy Code, schedules have been filed by the Debtors with the Bankruptcy Court setting forth the assets and liabilities of the Debtors as of the date of the Filing. Differences between amounts recorded by the Debtors and claims filed by creditors will be investigated and resolved as part of the proceedings in the Chapter 11 Cases.

Bar Dates for Filing Claims

GENERAL BAR DATE

In connection with the Chapter 11 Cases, the Bankruptcy Court set April 15, 2002 as the last date by which holders of certain pre-petition claims against the Debtors must file their claims (the “General Bar Date”). The General Bar Date does not apply to asbestos-related personal injury claims and asbestos-related wrongful death claims (other than claims for contribution, indemnity, reimbursement, or subrogation). Any holder of a claim that was required to file a claim by the General Bar Date and did not do so will be barred from asserting such claim against any of the Debtors and will not participate in any distribution in any of the Chapter 11 Cases on account of such claim.

Approximately 25,000 proofs of claim (including late-filed claims), totaling approximately $16.4 billion, alleging a right to payment from a Debtor were filed with the Bankruptcy Court in response to the General Bar Date. Owens Corning continues to investigate these claims to determine their validity. The Bankruptcy Court will ultimately determine liability amounts that will be allowed for claims in the Chapter 11 Cases.

In its review of the filed claims, Owens Corning identified approximately 16,000 claims, totaling approximately $8.5 billion, which it believed should be disallowed by the Bankruptcy Court, primarily because they appeared to be duplicate claims or claims that were not related to the indicated Debtor (the “Objectionable Claims”). Owens Corning filed omnibus objections to certain of these Objectionable Claims and likely will file additional objections. As of June 30, 2004, approximately 6,100 of the Objectionable Claims, totaling approximately $3.9 billion, had either been withdrawn by the claimants or disallowed by the Bankruptcy Court. While the Bankruptcy Court will ultimately determine liability amounts, if any, that will be allowed as part of the Chapter 11 Cases, Owens Corning believes that all or substantially all of the remaining Objectionable Claims will be disallowed.

In addition to the Objectionable Claims described above, the remaining filed proofs of claim included approximately 9,000 claims, totaling approximately $7.9 billion. As of June 30, 2004, approximately 1,000 of these claims, totaling approximately $0.2 billion, had either been withdrawn by the claimants, disallowed by the Bankruptcy Court, or otherwise resolved. The remaining claims consist of:

• Approximately 2,900 claims, totaling approximately $1.5 billion, associated with asbestos-related contribution, indemnity, reimbursement, or subrogation claims. Owens Corning will address all asbestos-related personal injury and wrongful death claims in the future as part of the Chapter 11 Cases. See Note 10 to the Consolidated Financial Statements for additional information concerning asbestos-related liabilities.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

• Approximately 100 claims, totaling approximately $0.7 billion, alleging asbestos-related property damage. Most of these claims were submitted with insufficient documentation to assess their validity. Owens Corning expects to vigorously defend any asserted asbestos-related property damage claims in the Bankruptcy Court. Based upon its historic experience in respect of asbestos-related property damage claims, Owens Corning does not anticipate significant liability from any such claims.

• Approximately 5,000 claims, totaling approximately $5.5 billion, alleging rights to payment for financing, environmental, trade debt and other matters (the “General Claims”). The Company has recorded approximately $3.7 billion in liabilities for these claims. Based upon the claims information submitted, the General Claims with the largest variance from the recorded amounts are: claims by the United States Department of Treasury, totaling approximately $538 million, in connection with taxes (see discussion under the heading “Tax Claim” in Note 10 to the Consolidated Financial Statements); a contingent claim for approximately $458 million by the Pension Benefit Guaranty Corporation, as described more fully under the heading “PBGC Claim” in Note 10 to the Consolidated Financial Statements; a $275 million class action claim involving alleged problems with a specialty roofing product, as described more fully under the heading “Specialty Roofing Claim” in Note 10 to the Consolidated Financial Statements; environmental claims totaling approximately $189 million; and claims for contract rejections, totaling approximately $170 million, of which approximately $98 million are protective claims covering contracts which have not been rejected by the Debtors as of June 30, 2004.

Owens Corning has recorded liability amounts for those claims that can be reasonably estimated and which it believes are probable of being allowed by the Bankruptcy Court. At this time, it is impossible to reasonably estimate the value of all the claims that will ultimately be allowed by the Bankruptcy Court, due to the uncertainties of the Chapter 11 process, the in-progress state of Owens Corning’s investigation of submitted claims, and the lack of documentation submitted in support of many claims. Owens Corning continues to evaluate claims filed in the Chapter 11 Cases and will make such adjustments as may be appropriate. Any such adjustments could be material to the Company’s consolidated financial position and results of operations in any given period. For a discussion of liability amounts in respect of asbestos personal injury claims, see Note 10 to the Consolidated Financial Statements.

ASBESTOS BAR DATE

A bar date for filing proofs of claim against the Debtors with respect to asbestos-related personal injury claims and asbestos-related wrongful death claims (other than claims for contribution, indemnity, reimbursement, or subrogation) has not been set. On April 11, 2003, the Official Committee of Unsecured Creditors filed a motion seeking establishment of a bar date for such asbestos-related claims. On April 25, 2003, the District Court entered an order withdrawing the reference of the Chapter 11 Cases to the USBC with respect to such motion, and staying all proceedings on such motion pending further order of the District Court.

As indicated above, the General Bar Date does not apply to asbestos-related personal injury claims and asbestos-related wrongful death claims (other than claims for contribution, indemnity, reimbursement, or subrogation). Despite this, approximately 3,100 proofs of claim (in addition to claims described above under “General Bar Date”), totaling approximately $2.3 billion, with respect to asbestos-related personal injury or wrongful death were filed with the Bankruptcy Court in response to the General Bar Date. Of these claims, Owens Corning has identified approximately 1,200, totaling approximately $0.5 billion, as Objectionable Claims. Of the remaining claims, Owens Corning believes that a substantial majority represent claimants that had previously asserted asbestos-related claims against the Company.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

As noted above, under the Plan all asbestos-related personal injury and wrongful death claims will be channeled to the Section 524(g) trust, subject to approval by the Bankruptcy Court. See Note 10 to the Consolidated Financial Statements for additional information concerning asbestos-related liabilities.

RESULTS OF OPERATIONS

Sales and Profitability for the Quarter Ended June 30, 2004 and 2003

NET SALES

Net sales for the quarter ended June 30, 2004 were $1.441 billion, a 16% increase from the 2003 level of $1.239 billion. In Building Materials, sales were up 15%, reflecting volume increases due to growth in the North American housing and remodeling markets and consolidation of OC Mexico, our former Mexican affiliate, which become wholly owned in April 2004. In Composite Solutions, sales were up 20% from last year, reflecting increased volume in our core business, favorable changes in foreign currency exchange rates, and the consolidation of OC Mexico. Composite Materials pricing was lower than in the second quarter 2003.

Sales outside the United States represented 16% of total sales for the quarter ended June 30, 2004, compared to 15% during the same time period in 2003. The increase was primarily attributable to our expansion in Mexico through the acquisition of OC Mexico, as well as the impact of selling our U.S.-based metal systems assets and the exiting of certain other U.S.-based product lines in 2003, and the impact of favorable changes in foreign currency exchange rates in 2004.

GROSS MARGIN

Gross margin for the quarter ended June 30, 2004 increased to 18% of net sales, a 1% increase from the second quarter of 2003. The increase in 2004 resulted primarily from increased prices for some products and improved manufacturing performance, partially offset by higher delivery, energy and material costs. Other factors impacting the comparative gross margin results were business interruption costs in 2004 of $4 million associated with the flood in L’Ardoise, France and a benefit in 2003 from a gain of approximately $6 million from the settlement of certain vendor payables at a discount.

MARKETING AND ADMINISTRATIVE EXPENSES

Marketing and administrative expenses for the quarter ended June 30, 2004 were $129 million, an increase of $13 million from the quarter ended June 30, 2003. This increase was driven primarily by the increase in net sales during 2004. As a percentage of sales, Marketing and Administrative expenses remained flat at 9% for the quarters ended June 30, 2004 and 2003.

INCOME FROM OPERATIONS

Income from operations was $94 million for the quarter ended June 30, 2004, compared to $43 million in the second quarter 2003. The increase was primarily attributable to improved margins and operating efficiencies, lower charges related to Chapter 11 reorganization items in 2004, and a loss on the sale of the Company’s metal systems business which adversely impacted 2003 results. The decrease in Chapter 11 reorganization items was primarily attributable to the $21 million settlement of the World Headquarters lease in 2003 and decreased professional fees in 2004, partially offset by investment losses in 2004.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

INCOME TAXES

The Company’s effective tax rate for the second quarter of 2004 was 60%. The Company currently projects that its effective tax rate for the full year 2004 will be 51%, compared to 56% for the full year 2003. Based on recent legislation and enforcement related to the deductibility of certain items for state tax, the Company recorded additional state tax liability of approximately $12 million in the second quarter of 2004. The effective tax rates for 2004 reflect the aforementioned item and reserves associated with the deductibility of Chapter 11 related reorganization expenses. The effective tax rates for 2003 reflect reserves associated with the deductibility of Chapter 11 related reorganization expenses.

NET INCOME

For the quarter ended June 30, 2004, Owens Corning reported net income of $33 million, or $0.55 per diluted share, compared to net income of $18 million, or $0.30 per diluted share, for the second quarter of the prior year. The increase in 2004 was primarily due to the factors described above.

As a result of the Filing, contractual interest expense has not been accrued or recorded on pre-petition debt of the Debtors since the Petition Date. From the Petition Date through June 30, 2004, contractual interest expense not accrued or recorded on pre-petition debt (calculated using ordinary, non-default interest rates and without regard to debt maturity) totaled approximately $585 million, of which $35 million each relates to the second quarters of 2004 and 2003. See Note 1 to the Consolidated Financial Statements.

Sales and Profitability for the Six Months Ended June 30, 2004 and 2003

NET SALES

Net sales for the six months ended June 30, 2004 were $2.650 billion, a 12% increase from the 2003 level of $2.372 billion. In Building Materials, sales were up 11%, reflecting volume increases due to growth in the North American housing and remodeling markets and consolidation of OC Mexico beginning in the second quarter. In Composite Solutions, sales were up 13% from last year, reflecting increased volume in our core business, a positive effect from foreign currency exchange rates, and the consolidation of OC Mexico. Competitive pressures and lower industry capacity utilization has kept composite material pricing lower than in 2003.

Sales outside the United States represented 16% of total sales for the six months ended June 30, 2004, compared to 15% during the same time period in 2003. The increase was primarily attributable to the impact of the sale of our U.S.-based metal systems assets and the exiting of certain other U.S.-based product lines in 2003, the acquisition of the remaining 60% ownership interest in OC Mexico in April 2004, and a positive effect from foreign currency exchange rates.

GROSS MARGIN

Gross margins for the six months ended June 30, 2004 and 2003 were 16%. The results for the six months ended June 30, 2004 reflect business interruption costs of $10 million associated with the flood in L’Ardoise, France, and a $5 million credit relating to a reduction in the estimated shut down costs of a manufacturing facility which was sold in the first quarter 2004. The gross margin results for the six months ended June 30, 2003 reflect charges of $28 million to cost of sales, representing additional write-downs of assets in the Building Materials segment to net realizable value prior to their eventual sale during the year, and a gain of approximately $6 million resulting from the settlement of certain vendor payables at a discount.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

After eliminating the impact of the charges or credits referenced above, gross margin as a percentage of net sales in 2004 remained flat compared to 2003 due to stronger volumes and manufacturing performance, offset by higher delivery, energy and material costs.

MARKETING AND ADMINISTRATIVE EXPENSES

Marketing and administrative expenses for the first half of 2004 were $244 million, compared to $230 million in 2003. On a percentage of sales basis, marketing and administrative expenses for the first six months declined from 10% in 2003 to 9% in 2004.

INCOME FROM OPERATIONS

Income from operations for the six months ended June 30, 2004 was $128 million, compared to $51 million in the first half of 2003. The increase was primarily attributable to increased sales and lower charges related to Chapter 11 reorganization items in 2004, and a loss on the sale of the Company’s metal systems business in 2003. Offsetting the increase were lower gains on foreign currency exchange transactions and lower gains on sales of assets compared to the first half of 2003. The decrease in Chapter 11 reorganization items was primarily attributable to the $21 million settlement of the World Headquarters lease and $18 million of costs associated with restructuring an Asian credit facility in 2003 and decreased professional fees in 2004, partially offset by investment losses in 2004.

NET INCOME

For the six months ended June 30, 2004, Owens Corning reported net income of $38 million, or $0.63 per diluted share, compared to net income of $17 million, or $0.28 per diluted share, for the first half of 2003. The increase in 2004 was primarily due to the factors described above. Net interest expense was $2 million during the six months ended June 30, 2004. From the Petition Date through June 30, 2004, contractual interest expense not accrued or recorded on pre-petition debt (calculated using ordinary, non-default interest rates and without regard to debt maturity) totaled approximately $585 million, of which $69 million relates to the first six months of 2004 and $70 million relates to the same period of 2003. See Note 1 to the Consolidated Financial Statements.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

RESTRUCTURING OF OPERATIONS AND OTHER CHARGES

Ongoing Business Review

In connection with the Chapter 11 proceedings and the development of a plan or plans of reorganization, the Company initiated a comprehensive strategic review of its businesses. As a result of that review, which is ongoing, the Company anticipates that additional restructuring and similar charges, including asset impairment and wind-up costs, may be identified and recorded in future periods. Such charges could be material to the consolidated financial position and results of operations of the Company in any given period. In addition, Owens Corning notes that certain of its businesses are operated wholly or in part through subsidiary entities. To the extent that any restructuring or similar charges impact such subsidiary entities, the financial condition or results of operations of such subsidiary entities, and potentially other entities holding obligations of such subsidiary entities, may be adversely impacted, perhaps materially.

The Company did not incur any restructuring or similar charges in the second quarter of 2004. During the first quarter of 2004, the Company recorded a pretax credit to cost of sales in the Consolidated Statement of Income of approximately $5 million. The $5 million credit represents an adjustment to reserves estimated in 2002 for the shutdown costs of a manufacturing facility, which was sold in the first quarter of 2004.

During the second quarter of 2003, the Company recorded a pretax charge of approximately $13 million, consisting of a $14 million loss on the sale of the Company’s metal systems business, offset by a $1 million credit representing the gain on the sale of assets of the Company’s mineral wool business. Such $13 million charge, along with a net $1 million credit for various other items, was reflected in the Consolidated Statement of Income under the caption, “Other.” In the first quarter of 2003, the Company recorded $30 million in pretax charges, comprised of a $2 million pretax restructuring charge (classified as a separate component of operating expense in the Consolidated Statement of Income), and a charge of $28 million to cost of sales. The $2 million restructure charge represented additional non-cash asset write-downs of previously closed non-strategic facilities to fair value. The $28 million charge to cost of sales represented the additional write-down of two groups of assets in the Building Materials segment to net realizable value based on valuations of the future cash flows of the assets using assumptions consistent with current market condition.

L’Ardoise, France manufacturing facility

In the fourth quarter of 2003, the Company experienced a flood at its L’Ardoise, France manufacturing facility. This facility is insured for property damage and business interruption losses relating to such events, subject to a $5 million deductible (which was expensed in 2003) and applicable policy limits. The Company estimates it has incurred, or will incur, a total of $50 to $60 million of property damage costs and business interruption losses associated with the L’Ardoise flood, which the Company believes will be substantially covered by insurance. In connection with the flood, the Company has recorded approximately $12 million in receivables for property damage costs, offset by an $18 million insurance advance. In addition, approximately $10 million of business interruption costs have been expensed and $10 million of capital expenditures have been recorded. Should the expected insurance recoveries not be received, they could have a material adverse impact on the Composite Solutions business. Also, the timing of any recoveries may result in expenses being taken and capital expenditures recorded in periods before the insurance receipts are recorded.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

RESTRUCTURING OF OPERATIONS AND OTHER CHARGES (continued)

Leases

During the second quarter of 2003, the Company took various actions with the collective effect of reducing its effective cost of occupying its World Headquarters, including (1) renegotiation of the lease structure of the facility, including extension of the lease term, reduction of the payments and modification of the end-of-term purchase option, resulting in a classification change from an operating lease to a capital lease, (2) purchase of certain bonds issued by the lessor (the “Bonds”) in connection with the initial financing of the facility, and (3) obtaining a legal right of offset, which allows the Company to apply interest/principal receipts due it under the Bonds toward its lease liability. Classifying the lease as a capital lease resulted in (1) the recording of a lease liability of approximately $39 million, (2) the reduction of the previously recorded prepaid rent attributable to the original operating lease by approximately $45 million, and (3) the recording of building and furniture at a total value of approximately $84 million.

The Bonds, which had a par value at the purchase date of approximately $53 million, were purchased in exchange for cash payments totaling approximately $32 million. Such payments resulted in the Company reducing the lease liability by the $32 million. Also as part of the agreement, the Company allowed the selling bondholders a claim in its Chapter 11 proceedings of approximately $21 million related to the discount on the purchase of the Bonds. The Company recorded a liability Subject to Compromise in its Consolidated Balance Sheet and a Chapter 11 related reorganization item in its Consolidated Statement of Income related to this claim.

LIQUIDITY, CAPITAL RESOURCES AND OTHER RELATED MATTERS

Cash flow from operations was a positive $56 million for the six month period ended June 30, 2004, versus negative $22 million for the same period of 2003. The increase in cash flow from operations compared to the prior year was primarily driven by improved earnings, increases in accounts payable, increases in deferred income taxes, a lower inventory build, and an impairment charge in 2003. These factors were slightly offset by greater increases in receivables in 2004.

At June 30, 2004, the net working capital was $1.114 billion and the current ratio was 2.27, compared to $1.024 billion and 2.19, respectively, at December 31, 2003. The changes in net working capital and current ratio reflect normal seasonal trends.

Investing activities, net of proceeds from the sale of businesses, consumed $167 million during the six months ended June 30, 2004, compared to $23 million during the same period of 2003. This increase in investing activities primarily reflects $72 million for the acquisition of OC Mexico in 2004, while 2003 includes $55 million of additional proceeds from the sale of businesses.

Spending for capital and investments was $99 million in the first half of 2004, compared to $83 million in the first half of 2003. We anticipate that 2004 spending for capital and investments will be approximately $270 million, a portion of which is uncommitted. We expect that these expenditures will be funded from the Company’s operations and existing cash on hand. In addition, in April 2004, the Company completed the acquisition of the remaining 60% ownership interest in our Mexican affiliate, OC Mexico, for approximately $72 million, net of cash acquired. The Company also expects to make certain capital expenditures in connection with the 2003 flood of its L’Ardoise, France manufacturing facility that it expects will be substantially reimbursed by insurance.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

At June 30, 2004, the Company had $874 million of cash and cash equivalents as compared to $807 million at June 30, 2003 and $1.005 billion at December 31, 2003. The decline from December reflects normal seasonal changes in working capital as well as the acquisition of OC Mexico.

At June 30, 2004, the Company had $2.892 billion of debt subject to compromise and $156 million of other debt (of which $75 million was in default as a consequence of the Filing and therefore classified as current on the Consolidated Balance Sheet). At December 31, 2003, we had $2.896 billion of debt subject to compromise and $170 million of other debt (of which $75 million was in default as a consequence of the Filing and therefore classified as current on the Consolidated Balance Sheet).

The Company has significant liabilities related to pension plans for its employees. The Company expects to make contributions to the pension plans in the range of $200 million to $250 million in 2004. The contributions will be made from the Company’s current cash balance and cash from operations. The Company’s pension related assets increased to $302 million at June 30, 2004 from $91 million at June 30, 2003, primarily due to contributions to the pension plans and return on plan assets, partially offset by additional service costs, interest cost accrued and amortization of prior actuarial losses. The Company’s recorded long-term pension plan liability increased to $700 million at June 30, 2004 from $525 million at June 30, 2003. The ultimate cash flow impact to the Company, if any, of the pension plan liability and the timing of any such impact will depend on numerous variables, including future changes in actuarial assumptions and market conditions.

In connection with the Filing, the Debtors obtained a $500 million debtor-in-possession credit facility from a group of lenders led by Bank of America, N.A. (the “DIP Financing”), which was originally scheduled to expire November 15, 2002. Effective October 31, 2002, the DIP Financing was amended to, among other things, reduce the maximum available credit amount to $250 million and extend the scheduled expiration to November 15, 2004. There were no borrowings outstanding under the DIP Financing at June 30, 2004; however, approximately $82 million of the availability under this credit facility was utilized as a result of the issuance of standby letters of credit and similar uses.

As a consequence of the Filing and the impact of certain provisions of the Company’s DIP Financing and in a cash management order entered by the Bankruptcy Court, the Company and its subsidiaries are now subject to certain restrictions, including on their ability to pay dividends and to transfer cash and other assets to each other and to their affiliates.

The Company believes, based on information presently available to it, that its cash and cash equivalents, and cash available from operations, will provide sufficient liquidity to allow it to continue as a going concern for the foreseeable future. However, the ability of the Company to continue as a going concern (including its ability to meet post-petition obligations of the Debtors and to meet obligations of the Non-Debtor Subsidiaries) and the appropriateness of using the going concern basis for its financial statements are dependent upon, among other things, (i) the Company’s ability to comply with the terms of any cash management order entered by the Bankruptcy Court from time to time in connection with the Chapter 11 Cases, (ii) the ability of the Company to maintain adequate cash on hand, (iii) the ability of the Company to generate cash from operations, (iv) the ability of the Non-Debtor Subsidiaries to obtain necessary financing, (v) confirmation of a plan or plans of reorganization under the Bankruptcy Code, and (vi) the Company’s ability to maintain profitability following such confirmation.

OFF BALANCE SHEET ARRANGEMENTS

The Company enters into certain off balance sheet arrangements in the ordinary course of business, such as securitization of accounts receivable, operating leases, and guarantees with respect to unconsolidated affiliates and other entities. There have been no significant changes in the Company’s off balance sheet arrangements for the quarter or six months ended June 30, 2004.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Other than those effects inherent to the types of arrangements described, the Company does not believe these arrangements will have a material effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

CONTRACTUAL OBLIGATIONS

In the course of business, the Company enters into contractual obligations to make payments to third parties. During the second quarter and first half of 2004, there were no material changes to such contractual obligations outside the ordinary course of the Company’s business.

ADOPTION OF NEW ACCOUNTING STANDARDS

Effective January 1, 2003, the Company adopted Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations”. This statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The effect of adoption was not material to the Company, and the prospective effects of adoption are not expected to be material to the Company.

Effective January 1, 2003, the Company adopted Statement of Financial Accounting Standards No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections as of April 2002”. This Statement (1) rescinds FASB Statement No. 4, “Reporting Gains and Losses from Extinguishment of Debt”, FASB Statement No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements”, and FASB Statement No. 44, “Accounting for Intangible Assets of Motor Carriers”, (2) amends FASB Statement No. 13, “Accounting for Leases”, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions, and (3) amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The effect of adoption was not material to the Company.

Effective January 1, 2003, the Company adopted Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”. This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. The effect of adoption was not material to the Company, however, prospectively the timing of related future charges may be different than those recorded in prior periods.

In December 2002, the Financial Accounting Standards Board issued Financial Accounting Standards Board Interpretation No. 45, “Guarantor´s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others - - an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34”. This Interpretation clarifies disclosures that are required to be made for certain guarantees at the time the guarantees are issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. Effective December 31, 2002, the Company adopted the disclosure requirements in this Interpretation, including those relating to warranty obligations. Effective January 1, 2003, the Company adopted the initial recognition and initial measurement provisions of this Interpretation on a prospective basis for guarantees issued or modified after December 31, 2002. The effect of adoption was not material to the Company, and the prospective effects of adoption are not expected to be material to the Company.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

In December 2003, the Financial Accounting Standards Board issued a revised Interpretation No. 46, “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51”, (FIN 46R). FIN 46R requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. The provisions of FIN 46R are generally effective for existing (prior to February 1, 2003) variable interest relationships of a public entity no later than the end of the first reporting period that ends after March 15, 2004. However, prior to the required application of this interpretation a public entity that is not a small business issuer shall apply FIN 46R to those entities that are considered to be special-purpose entities no later than the end of the first reporting period that ends after December 15, 2003. The Company applied the portion of FIN 46R that is applicable to special purpose entities effective December 31, 2003, with no material effects, and applied the remainder of FIN 46R to its first quarter 2004 financial statements with no material effects.

In December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123”. Effective December 31, 2002, the Company adopted the amendments to Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”), provided in paragraphs 2(a)-2(e) of this Statement. Effective January 1, 2003, the Company adopted the amendment to SFAS No. 123 provided in paragraph 2(f) of this Statement, and the amendment to Opinion 28 provided in paragraph 3. The effect of adoption was not material to the Company. Please see Note 12 to the Consolidated Financial Statements for additional information concerning Stock Compensation.

In April 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”. SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. The provisions of SFAS No. 149 are generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company adopted these provisions as of June 30, 2003. The effect of adoption was not material to the Company, and the prospective effects of adoption are not expected to be material to the Company.

ENVIRONMENTAL MATTERS

The Company has been deemed by the United States 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 (Superfund). The Company has also been deemed a PRP under similar state or local laws. In other instances, other PRPs have brought suits against the Company as a PRP for contribution under such federal, state or local laws. At June 30, 2004, a total of 60 such PRP designations remained unresolved by the Company. In most cases the Company is only one of many PRPs with potential liability for investigation and remediation at the applicable site. The Company is also involved with environmental investigation or remediation at a number of other sites at which it has not been designated a PRP.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

The Company estimates a reserve in accordance with generally accepted accounting principles to reflect environmental liabilities that have been asserted or are probable of assertion, in which liabilities are probable and reasonably estimable. At June 30, 2004, the Company’s reserve for such liabilities was $16 million. In connection with the Filing, the Company initiated a program to identify and discharge contingent environmental liabilities as part of its plan or plans of reorganization. Under the program, the Company is seeking settlements, subject to approval of the Bankruptcy Court, with various federal, state and local authorities, as well as private claimants. On July 23, 2003, the Bankruptcy Court approved one such settlement agreement with the United States resolving certain environmental liabilities with respect to the EPA, including liabilities associated with some of the PRP designations noted above. The Company will continue to review its environmental reserve in light of such program and make such adjustments as may be appropriate.

The 1990 Clean Air Act Amendments (“Act”) provide that the EPA will issue regulations on a number of air pollutants over a period of years. The EPA issued final regulations for wool fiberglass and mineral wool in June 1999, for amino/phenolic resin manufacturing in January 2000, for wet formed fiberglass mat production in April 2002, and for reinforced plastic composites production and asphalt roofing and processing in April 2003. The Company anticipates that other relevant sources to be regulated in the near future include large burners and boilers. Based on information now known to the Company, including the nature and limited number of regulated materials Owens Corning emits, we do not expect the Act to have a materially adverse effect on our results of operations, financial condition or long-term liquidity.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Please refer to the Company’s 2003 annual report on Form 10-K for the Company’s quantitative and qualitative disclosure about market risk.

ITEM 4. CONTROLS AND PROCEDURES

The Company maintains (a) disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported on a timely basis, and (b) internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective.

There have not been any changes in the Company’s internal control over financial reporting during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II

ITEM 1. LEGAL PROCEEDINGS

Note 10 to the Consolidated Financial Statements, entitled “Contingent Liabilities and Other Matters”, is incorporated here by reference.

On October 5, 2000 (the “Petition Date”), Owens Corning and the 17 United States subsidiaries listed below (collectively with Owens Corning, the “Debtors”) filed voluntary petitions for relief (the “Filing”) under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “USBC”):

CDC Corporation	Integrex Testing Systems LLC
Engineered Yarns America, Inc.	HOMExperts LLC
Falcon Foam Corporation	Jefferson Holdings, Inc.
Integrex	Owens-Corning Fiberglas Technology, Inc.
Fibreboard Corporation	Owens Corning HT, Inc.
Exterior Systems, Inc.	Owens-Corning Overseas Holdings, Inc.
Integrex Ventures LLC	Owens Corning Remodeling Systems, LLC
Integrex Professional Services LLC	Soltech, Inc.
Integrex Supply Chain Solutions LLC

The Debtors are currently operating their businesses as debtors-in-possession in accordance with provisions of the Bankruptcy Code. The Chapter 11 cases of the Debtors (collectively, the “Chapter 11 Cases”) are being jointly administered under Case No. 00-3837 (JKF).

The referenced Chapter 11 cases do not include any other United States or foreign subsidiaries of Owens Corning (collectively, the “Non-Debtor Subsidiaries”).

In late 2001, the asbestos-related Chapter 11 cases pending in the District of Delaware (the Chapter 11 Cases of Owens Corning and the cases of Armstrong World Industries, Inc., W.R. Grace & Co., Federal-Mogul Global, Inc., and USG Corporation) were ordered transferred to the United States District Court for the District of Delaware (the “District Court”) before Judge Alfred M. Wolin to facilitate development and implementation of a coordinated plan for management (the “Administrative Consolidation”). The District Court entered an order referring the Chapter 11 Cases back to the USBC, where they were previously pending, subject to its ongoing right to withdraw such referral with respect to any proceedings or issues (the applicable court from time to time responsible for any particular aspect of the Chapter 11 Cases being hereinafter referred to as the “Bankruptcy Court”).

On or about October 10, 2003, Kensington International Limited and Springfield Associates, LLC (collectively, “K&S”), two assignees of lenders under Owens Corning’s Pre-Petition Credit Facility, filed a motion in the USBC to recuse District Court Judge Wolin from further participation in the Chapter 11 Cases. After various proceedings before the District Court and the United States Court of Appeals for the Third Circuit (the “Third Circuit”), on May 17, 2004, the Third Circuit entered an order requiring Judge Wolin to recuse himself from futher participation in the Chapter 11 Cases. On May 27, 2004, the Third Circuit assigned Judge John P. Fullam of the United States District Court, Eastern District of Pennsylvania, to replace Judge Wolin in the Chapter 11 Cases. In addition, the Third Circuit assigned other judges to sit on other of the cases that had previously been consolidated under the terms of the Administrative Consolidation, effectively terminating the consolidation.

As a consequence of the Filing, all pending litigation against the Debtors was stayed automatically by section 362 of the Bankruptcy Code and, absent further order of the Bankruptcy Court, no party may take any action to recover on pre-petition claims against the Debtors. See Note 1 to the Consolidated Financial Statements.

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ITEM 1. LEGAL PROCEEDINGS (continued)

Two creditors’ committees, one representing asbestos claimants and the other representing unsecured creditors, have been appointed as official committees in the Chapter 11 Cases. In addition, the Bankruptcy Court has appointed James J. McMonagle as Legal Representative for the class of future asbestos personal injury claimants against one or more of the Debtors. The two committees and the Legal Representative have the right to be heard on all matters that come before the Bankruptcy Court.

Owens Corning anticipates that substantially all liabilities of the Debtors as of the date of the Filing will be resolved under one or more Chapter 11 plans of reorganization to be proposed and voted on in the Chapter 11 Cases in accordance with the provisions of the Bankruptcy Code. On January 17, 2003, the Debtors, together with the Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants, filed a proposed joint plan of reorganization in the USBC. The same proponents filed a proposed amended joint plan of reorganization in the USBC on March 28, 2003, a proposed second amended joint plan of reorganization in the USBC on May 23, 2003, a proposed third amended joint plan of reorganization in the USBC on August 8, 2003, and a proposed fourth amended joint plan of reorganization (as so amended through such fourth amendment, the “Plan”) in the USBC on October 24, 2003.

On June 7, 2004, Owens Corning announced that an agreement in principle (the “Agreement in Principle”) had been reached with the Official Committee of Asbestos Claimants, the Legal Representative for the class of future asbestos claimants, and the official representatives of Owens Corning’s pre-petition bondholders and trade creditors. Among other things, the Agreement in Principle provides that all holders of bonds, bank debt and senior trade debt would receive a recovery equal to 38.5% of their claims upon Owens Corning’s successful emergence from Chapter 11. The recoveries of all creditors are based on certain agreed and assumed values and would be comprised of cash, debt and equity. However, their actual recoveries could ultimately be higher or lower based on the value of the equity to be issued by Owens Corning upon emergence from Chapter 11 and other factors.

It is expected that the Plan will be amended to reflect the terms of the Agreement in Principle. The Plan is subject to confirmation by the Bankruptcy Court.

Although the basic terms of the Plan, as amended to reflect the Agreement in Principle, have now been agreed to by all of Owens Corning’s major creditor constituencies, except the holders of its debt under the Pre-Petition Credit Facility, who continue to oppose the Plan, Owens Corning believes that it is likely that the terms, conditions and provisions of the Plan will remain the subject of continuing negotiations or litigation to resolve differences among the creditor constituencies as to their treatment. Accordingly, Owens Corning is unable to predict at this time what the treatment of creditors and equity holders of the respective Debtors will ultimately be under any plan or plans of reorganization finally confirmed. The current Plan, as amended to reflect the Agreement in Principle, provides for payment of 38.5% of the face amount of all unsecured creditors’ claims, in the form of distributions of new common stock and notes of the reorganized company, and cash. However, the percentage recovery and value of the payments ultimately made under the Plan to each class of creditors will depend upon a number of factors, including the value of the shares of new common stock and notes to be issued by the Company. Additional distributions from potential insurance and other third-party claims may also be paid to certain classes of unsecured creditors, but it is expected that all classes of pre-petition unsecured creditors will be impaired. Therefore, the Plan also provides that the existing common stock of Owens Corning will be cancelled, and that current shareholders will receive no distribution or other consideration in exchange for their shares. It is impossible to predict at this time the terms and provisions of any plan or plans of reorganization that may ultimately be confirmed, when a plan or plans of reorganization will be confirmed, or the treatment of creditors thereunder. The Plan, as amended to reflect the Agreement in Principle, is discussed in greater detail in Note 1 to the Consolidated Financial Statements.

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ITEM 1. LEGAL PROCEEDINGS (continued)

On or about October 15, 2003, Credit Suisse First Boston (“CSFB”), the bank agent and a lender under the Pre-Petition Credit Facility, filed a complaint in the USBC against Owens Corning and twenty unnamed law firms who are alleged to have received payments under Owens Corning’s National Settlement Program (the “NSP”, which is discussed more fully in Note 10 to the Consolidated Financial Statements under the heading “Asbestos Liabilities”). This complaint, which was captioned Credit Suisse First Boston v. Owens Corning, et al., sought to impose a constructive trust on all funds held by Owens Corning drawn under the Pre-Petition Credit Facility between March 1, 2000 and October 5, 2000, and to impose a constructive trust against the unnamed law firms. The complaint alleged that the NSP caused financial difficulties for Owens Corning that culminated in loan covenant breaches under the Pre-Petition Credit Facility that were not disclosed to CSFB, resulting in loans under the Pre-Petition Credit Facility that the lenders would not have been required to make. Following limited discovery by the plaintiffs, the proceeding was dismissed without prejudice by agreement of the parties, pursuant to order of the USBC dated June 23, 2004.

On or about October 17, 2003, the Official Committee of Unsecured Creditors filed a motion in the USBC requesting appointment of a Chapter 11 trustee to assume control of the Chapter 11 Cases due to alleged breach of the Debtors’ fiduciary duty of undivided loyalty to act in the best interest of all creditors. After such motion was dismissed by the USBC for failure to comply with local court rules, the Official Committee of Unsecured Creditors re-filed such motion on October 30, 2003. A supplement to the motion of the Official Committee of Unsecured Creditors was filed on May 28, 2004, and various filings in opposition to such supplemented motion were filed by the Debtors, the Legal Representative for the class of future asbestos claimants, and the Official Committee of Asbestos Creditors.

On or about May 24, 2004, Credit Suisse First Boston, Kensington International Limited, Springfield Associates LLC and Angelo Gordon filed a motion in the USBC requesting the appointment of a Chapter 11 Examiner to examine (i) allegations of improper conduct by management of the Debtors, (ii) alleged breaches of fiduciary duty by management of the Debtors resulting from the influence of the Legal Representative for the class of future asbestos claimants and the Official Committee of Asbestos Creditors on the process of developing a Plan and the tort estimation process, (iii) alleged connections between the asbestos plaintiffs’ interests, a Court appointed mediator, and the Debtors’ asbestos liability estimation firm, and (iv) other alleged improper conduct. Owens Corning, the Legal Representative for the class of future asbestos claimants, and the Official Committee of Asbestos Creditors have each filed responsive pleadings to the motion. Following a June 21, 2004 hearing, the USBC continued further proceedings on the motion pending issuance of a final order on the motion (described in the preceding paragraph) requesting appointment of a Chapter 11 trustee.

ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

As a consequence of the Filing and the impact of certain provisions of the Company’s DIP Financing and in a cash management order entered by the Bankruptcy Court, the Company and its subsidiaries are subject to certain restrictions on their ability to pay dividends and to transfer cash and other assets to each other and to their affiliates. See Note 1 to the Consolidated Financial Statements. Also see Part II, Item 1, above.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Substantially all of the Company’s pre-petition debt is now in default due to the Filing. See Note 1 to the Consolidated Financial Statements. As described in Note 1, the Consolidated Financial Statements present the Debtors’ pre-petition debt under the caption “Liabilities Subject to Compromise.” This includes debt under the Pre-Petition Credit Facility and approximately $1.4 billion of other outstanding debt. As required by Statement of Position (SOP) 90-7, at the Petition Date the Company recorded the Debtors’ pre-petition debt instruments at the allowed amount, as defined by SOP 90-7. The Consolidated Financial Statements present pre-petition debt of Non-Debtor Subsidiaries that is in default due to the Filing, in the amount of approximately $75 million, as current on the Consolidated Balance Sheet as of June 30, 2004.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders during the quarter ended June 30, 2004.

ITEM 5. OTHER INFORMATION

No information is reported under this Item.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.

See Exhibit Index below, which is incorporated here by reference.

(b) Reports on Form 8-K.

During the quarter ended June 30, 2004, Owens Corning filed the following current report on Form 8-K:

• Dated June 7, 2004, under Items 5 and 7, in connection with a press release of Owens Corning dated June 7, 2004.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, Owens Corning has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		OWENS CORNING
		Registrant
Date:	August 4, 2004	By:	/s/    MICHAEL H. THAMAN
			Michael H. Thaman
			Chairman of the Board and Chief Financial Officer
			(as duly authorized officer)
Date:	August 4, 2004	By:	/s/    ROY D. DEAN
			Roy D. Dean
			Vice President and Corporate Controller

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EXHIBIT INDEX

Exhibit Number		Document Description
(2	)	Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession.
		Press release of Owens Corning, dated June 7, 2004 (incorporated herein by reference to Exhibit (99) to Owens Corning’s current report on Form 8-K (File No. 1-3660), filed June 7, 2004).
		Bonds/Trade Term Sheet, dated as of June 3, 2004 (filed herewith).
		Fourth Amended Joint Plan of Reorganization of Owens Corning and Its Affiliated Debtors and Debtors-In-Possession, filed in the United States Bankruptcy Court for the District of Delaware on October 24, 2003 (incorporated herein by reference to Exhibit (2) to Owens Corning’s current report on Form 8-K (File No. 1-3660), filed October 27, 2003).
		Third Amended Joint Plan of Reorganization of Owens Corning and Its Affiliated Debtors and Debtors-In-Possession, filed in the United States Bankruptcy Court for the District of Delaware on August 8, 2003 (incorporated herein by reference to Exhibit (2) to Owens Corning’s current report on Form 8-K (File No. 1-3660), filed August 8, 2003).
		Second Amended Joint Plan of Reorganization of Owens Corning and Its Affiliated Debtors and Debtors-In-Possession, filed in the United States Bankruptcy Court for the District of Delaware on May 23, 2003 (incorporated herein by reference to Exhibit (2) to Owens Corning’s current report on Form 8-K (File No. 1-3660), filed May 27, 2003).
		Amended Joint Plan of Reorganization of Owens Corning and Its Affiliated Debtors and Debtors-In-Possession, filed in the United States Bankruptcy Court for the District of Delaware on March 28, 2003 (incorporated herein by reference to Exhibit (2) to Owens Corning’s current report on Form 8-K (File No. 1-3660), filed March 28, 2003).
		Joint Plan of Reorganization of Owens Corning and Its Affiliated Debtors and Debtors-In -Possession, filed in the United States Bankruptcy Court for the District of Delaware on January 17, 2003 (incorporated herein by reference to Exhibit (2) to Owens Corning’s current report on Form 8-K (File No. 1-3660), filed January 17, 2003).
(3	)	Articles of Incorporation and By-Laws.
		(i)     Certificate of Incorporation of Owens Corning, as amended (incorporated herein by reference to Exhibit (3) to Owens Corning’s quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended March 31, 1997).
		(ii)    By-Laws of Owens Corning, as amended (incorporated herein by reference to Exhibit (3) to Owens Corning’s annual report on Form 10-K (File No. 1-3660) for the year 1999).
(4	)	Instruments Defining the Rights of Security Holders, Including Indentures.
		Press release of Owens Corning, dated June 7, 2004 (incorporated herein by reference to Exhibit (99) to Owens Corning’s current report on Form 8-K (File No. 1-3660), filed June 7, 2004).
		Bonds/Trade Term Sheet, dated as of June 3, 2004 (filed as Exhibit (2) to this quarterly report on Form 10-Q and incorporated here by reference).

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EXHIBIT INDEX

Exhibit Number		Document Description
		Fourth Amended Joint Plan of Reorganization of Owens Corning and Its Affiliated Debtors and Debtors-In-Possession, filed in the United States Bankruptcy Court for the District of Delaware on October 24, 2003 (incorporated herein by reference to Exhibit (2) to Owens Corning’s current report on Form 8-K (File No. 1-3660), filed October 27, 2003).
		Third Amended Joint Plan of Reorganization of Owens Corning and Its Affiliated Debtors and Debtors-In-Possession, filed in the United States Bankruptcy Court for the District of Delaware on August 8, 2003 (incorporated herein by reference to Exhibit (2) to Owens Corning’s current report on Form 8-K (File No. 1-3660), filed August 8, 2003).
		Second Amended Joint Plan of Reorganization of Owens Corning and Its Affiliated Debtors and Debtors-In-Possession, filed in the United States Bankruptcy Court for the District of Delaware on May 23, 2003 (incorporated herein by reference to Exhibit (2) to Owens Corning’s current report on Form 8-K (File No. 1-3660), filed May 27, 2003).
		Amended Joint Plan of Reorganization of Owens Corning and Its Affiliated Debtors and Debtors-In-Possession, filed in the United States Bankruptcy Court for the District of Delaware on March 28, 2003 (incorporated herein by reference to Exhibit (2) to Owens Corning’s current report on Form 8-K (File No. 1-3660), filed March 28, 2003).
		Joint Plan of Reorganization of Owens Corning and Its Affiliated Debtors and Debtors-In-Possession, filed in the United States Bankruptcy Court for the District of Delaware on January 17, 2003 (incorporated herein by reference to Exhibit (2) to Owens Corning’s current report on Form 8-K (File No. 1-3660), filed January 17, 2003).
(10	)	Material Contracts
		Owens Corning Key Employee Retention Incentive Plan (filed herewith).
(31	)	Rule 13a-14(a)/15d-14(a) Certifications
		Certification of Chief Executive Officer (principal executive officer) (filed herewith).
		Certification of Chief Financial Officer (principal financial officer) (filed herewith).
(32	)	Section 1350 Certifications
		Certification of Chief Executive Officer (principal executive officer) (filed herewith).
		Certification of Chief Financial Officer (principal financial officer) (filed herewith).
(99	)	Subsidiaries of Owens Corning, as amended (filed herewith).

EX-2

Exhibit (2)

BONDS/TRADE TERM SHEET

This Term Sheet, dated as of June 3, 2004, is intended to reflect the principal terms of a Fifth Amended Plan of Reorganization (the “Plan”) for Owens Corning and its affiliated debtors (the “Debtors”) agreed to by and on behalf of the Designated Members of the Official Committee of Unsecured Creditors (the “Designated Members”), the present and future Asbestos PI Claimants and the Debtors. The Proponents of the Plan are the Debtors, the Official Committee of Asbestos Personal Injury Claimants (the “ACC”) and the Futures Representative (collectively, the “Plan Proponents”). The Designated Members and the Plan Proponents hereto agree to work together in good faith to take any and all actions necessary to incorporate these terms in the Plan, Disclosure Statement, and any and all Schedules and Exhibits that are a part thereof. Terms not otherwise defined herein shall have the meaning ascribed to them in the Fourth Amended Plan of Reorganization currently on file with the Court (the “Current Plan”).

Substantive Consolidation

Predicated on total substantive consolidation, including non-debtor affiliates, to the extent provided for in the Current Plan provided that, if the Plan Proponents consensually agree to a modification of such degree of substantive consolidation with any third party, then the Bond and Trade claims shall nevertheless receive the benefit of the same or better treatment in all respects as set forth herein including, by way of illustration and not limitation, all of the provisions hereof relating to Substantive Consolidation, Fixed Values, Recovery and Exchange Option.

Fixed Values

The following values are fixed for all purposes relevant to this Term Sheet and the distributions to be made pursuant to the Plan implementing this Term Sheet (collectively, the “Fixed Values”): (i) Bond debt is $1.389BB; (ii) Senior Trade/Unsecured claims are $265MM; (iii) Bank debt is $1.472 BB; (iv) Asbestos PI Claims are $16BB; (v) Junior Trade/Unsecured claims are $109MM; (vi) enterprise value is $3.9BB; (vii) distributable cash is $562MM;¹ (viii) distributable debt is $1.260BB;² (ix) equity value is $2.4BB (exclusive of any New Common Stock reserved for issuance under the Management Incentive and Employee Equity Programs) based upon a total of

¹ Excludes $70MM of cash required to pay administrative expenses, priority tax claims, DIP Facility obligations and other secured claims.

² Excludes $140MM of debt to be distributed to satisfy priority tax claims and $100 MM of existing debt owed by foreign subsidiaries.

80 million outstanding shares at a price of $30 per share; and (x) the Debtors will have net cash of $250MM available on the Effective Date of the Plan for working capital. The distributions to the Bonds/Trade and the Banks shall not be adjusted if actual values differ from the Fixed Values.

Bondholder and Senior Trade/Unsecured Recovery

Subject to the Exchange Option described below, each holder of an allowed Bond claim or Trade or other unsecured claim that is deemed senior to the MIPS claims (“Senior Trade/Unsecured”) shall receive its pro rata share of the following: cash ($86.2MM), debt ($193.3MM), and approximately 11.912 million shares of New Common Stock.³ Therefore, based on the Fixed Values, the holders of Bonds and holders of Senior Trade/Unsecured claims shall receive a total recovery in cash, debt and equity of 38.5%.⁴

Junior Trade/Unsecured Recovery

Subject to the Exchange Option described below, each holder of an allowed Trade or other unsecured claim that is not deemed senior to the MIPS claims (“Junior Trade/Unsecured”) shall receive its pro rata share of the following: cash ($5.3MM), debt ($11.9MM), and approximately 0.734 million shares of New Common Stock. Therefore, based on the Fixed Values, the holders of Junior Trade/Unsecured claims shall receive a total recovery in cash, debt and equity of 36.0%.⁵

Bank Recovery

Subject to the Exchange Option described below, each holder of an allowed Bank claim shall receive its pro rata share of the following: cash ($76.2MM), debt ($172.0MM), and approximately 10.601 million shares of New Common Stock.⁶ Therefore, based on the Fixed Values, the holders of Bank claims shall receive a total recovery in cash, debt and equity of 38.5%.⁷

³ This recovery includes any recovery in respect of MIPS claims or any other subordinated debt claims.

⁴ While the number of shares of the New Common Stock to be distributed will be fixed, the value of such shares may increase or decrease depending on whether enterprise value increases or decreases.

⁵ While the number of shares of the New Common Stock to be distributed will be fixed, the value of such shares may increase or decrease depending on whether enterprise value increases or decreases.

⁶ This recovery includes any recovery in respect of MIPS claims or any other subordinated debt claims.

⁷ While the number of shares of the New Common Stock to be distributed will be fixed, the value of such shares may increase or decrease depending on whether enterprise value increases or decreases.

The outstanding undrawn letters of credit as of May 29, 2003 (approximately $76MM) shall be repaid or refinanced in full as of the Effective Date.

Exchange Option

Each holder of an allowed Bank claim, Bondholder claim, Senior Trade/Unsecured claim and Junior Trade/Unsecured claim shall have the right to elect (an “Election Holder”) to receive (the “Election Option”) in lieu of cash and/or debt otherwise distributable to such holder under the Plan, shares of New Common Stock otherwise distributable to the Asbestos Personal Injury Trust (the “PI Trust”) under the Plan.

The maximum number of shares of New Common Stock available for the Election Option is 8 million shares (the “Maximum Election Shares”). The Election Option price for the Election Shares shall be $30 per share (the “Election Share Price”).

The maximum number of Election Shares which an Election Holder may be entitled to receive shall be equal to the quotient obtained by dividing (a) the sum of the cash and face amount of debt otherwise distributable to the Election Holder under the Plan by (b) $30.

For each Election Share issued to an Election Holder under the Plan, the PI Trust shall receive, in lieu of such Election Share, cash in the amount of $30 that was otherwise distributable to the Election Holder under the Plan had the Election Holder not made the Election Option. In the event that the Aggregate Election Share Price (the product of (a) the number of Election Shares which are the subject of an Election Option by an Election Holder and (b) $30) exceeds the aggregate amount of cash otherwise distributable to the Election Holder under the Plan had the Election Holder not made the Election Option, then the PI Trust shall receive, in addition to the cash otherwise distributable to the Election Holder under the Plan, the debt, otherwise distributable to the Election Holder under the Plan, in a face amount equal to the difference between (x) the Aggregate Election Share Price and (y) the aggregate amount of cash otherwise distributable to the Election Holder under the Plan had the Election Holder not made the Election Option.

In the event that the Election Option is oversubscribed, i.e., the aggregate number of Election Shares requested exceeds 8 million, then each Election Holder shall be entitled to its pro rata share of Election Shares derived from the following calculation:

• Step 1: Divide 8 million by the total number of Election Shares requested (the “Oversubscription Percentage”).

• Step 2: The number of Election Shares an Election Holder shall be entitled to equals the product of (a) the number of Election Shares requested by an Election Holder and (b) the Oversubscription Percentage (the “Oversubscribed Shares”).

Fractional shares of Election Shares shall not be issued or distributed; instead fractional amounts shall be rounded down to the nearest whole share and the Election Share Price of fractional Election Shares shall be satisfied in cash.

The Election Option shall be set forth on the ballot for voting to accept or reject the Plan and can be exercised only by holders of Bank claims, Bondholder claims, Senior Trade/Unsecured claims and Junior Trade/Unsecured claims allowed as of the Record Date for voting purposes.

The “exchange” contemplated by the Election Option shall not require an actual transaction between the holder of an allowed Bank claim, Bondholder claim, Senior Trade/Unsecured claim and Junior Trade/Unsecured claim, on the one hand, and the PI Trust, on the other hand, but shall be accounted for in the allocations actually made under the Plan on the Effective Date and in the distributions to be made pursuant to the Plan.

Board of Directors Designations

The Designated Members and/or the Banks, respectively, shall each have the right to nominate a member of the board of directors of Reorganized OCD as and to the extent provided for in Exhibit A hereto.

Registration Rights

Without limitation of the terms and conditions of Exhibit A hereto with respect to registration rights, any person or entity who receives under the Plan 5% or more of the New Common Stock outstanding as of the Effective Date shall be entitled to piggy back registration rights in those registrations in which the PI Trust participates.

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Cramdown

In the event that more than two thirds in dollar amount and fifty-one percent in number of those holders of Bank claims who have voted on the Plan accept the Plan and/or more than two thirds in dollar amount and fifty-one percent in number of those holders of Bond claims who have voted on the Plan accept the Plan, then the Plan Proponents shall, if necessary due to the rejection of the Plan by a class(es) of creditors or equity security holders, pursue cramdown of the Plan (which shall contain the terms and conditions set forth herein). In the event that more than two thirds in dollar amount and fifty-one percent in number of the holders of Bank claims who have voted on the Plan accept the Plan and less than two thirds in dollar amount and fifty-one percent in number of those holders of Bond claims who have voted on the Plan accept the Plan, then the Plan Proponents shall pursue cramdown of the Plan (which shall contain the terms and conditions set forth herein). In the event that more than two thirds in dollar amount and fifty-one percent in number of the holders of Bond claims who have voted on the Plan accept the Plan and less than two thirds in dollar amount and fifty-one percent in number of those holders of Bank claims who have voted on the Plan accept the Plan, then the Plan Proponents shall pursue cramdown of the Plan (which shall contain the terms and conditions set forth herein). In the event that less than two thirds in dollar amount and fifty-one percent in number of those holders of Bank claims who have voted on the Plan accept the Plan and less than two thirds in dollar amount and fifty-one percent in number of those holders of Bond claims who have voted on the Plan accept the Plan, then the Plan Proponents may in their sole discretion elect to either pursue cramdown of the Plan (which shall contain the terms and conditions set forth herein) or amend, modify or withdraw the Plan.

Support for the Plan

To the extent permitted by applicable law, and subject to applicable orders of the Court, including, without limitation the June 13, 2003 Order Approving the Joint Professionals Use Agreement, the Designated Members agree to take any and all actions reasonably necessary (at no cost to them personally) to support confirmation of the Plan implementing the terms of this Term Sheet, and all issues incidental thereto, including recommending acceptance of the Plan to Bondholders and Trade pursuant to a writing that will be approved by the Court pursuant to 11 U.S.C. Sec. 1125.

Corporate and Liquidity Matters

Except as otherwise provided herein, certain corporate matters and liquidity issues are resolved in accordance with Exhibit A hereto.

Avoidance Actions

The Designated Members, Asbestos PI Claimants, the Futures Representative and the Debtors (collectively, the “Parties”) agree to the dismissal with prejudice of all Avoidance Actions, whether pending or tolled; provided, however, that notwithstanding anything to the contrary herein, the issues relating to certain payments made by Foster & Sear and Waters & Kraus (the “Objectionable Payments”), as previously identified in correspondence to those firms from Debtors’ counsel, must be resolved to the satisfaction of the parties hereto.

Except with regard to the Objectionable Payments, the parties agree that the Debtors shall not be deemed to have any legal or beneficial title in the Administrative Deposits held by Baron & Budd, Foster & Sear, Waters & Kraus or Weitz & Luxenberg (the “Depository Law Firms”) or in the interest or proceeds generated therefrom. Such Administrative Deposits shall not be deemed property of the estate, and (if not already so paid) shall be paid to claimants qualifying under the NSP Agreement pursuant to which the Debtor paid the Administrative Deposit. The amount of any payment out of any such Administrative Deposit received by the holder of an Asbestos Personal Injury Claim shall be a credit against and shall reduce the claim of any such holder against the applicable Debtor and, after confirmation, against the Asbestos Personal Injury Trust.

Except with respect to the Objectionable Payments, the Parties agree that neither the Debtors nor the Litigation Trust shall pursue any litigation seeking the return of Administrative Deposits held by the Depository Law Firms, and any claim asserting any right to recover the Administrative Deposit (whether such claim is asserted against the actual claimant, the Depository Law Firm or otherwise) shall be released by the applicable Debtor’s estate. Except with respect to the Objectionable Payments, neither the Debtors nor the Litigation Trust shall pursue any litigation seeking the return of any payments already made to any client of a Depository Law Firm by any Depository Law Firm out of any Administrative Deposit (whether such claim is asserted against the actual claimant, the Depository Law Firm or otherwise), and any claim asserting any right to recover any such payment shall be released by the applicable Debtor’s estate.

The Parties agree that it shall be a condition precedent of the effectiveness of the Plan that the items in the first three paragraphs of this section shall be approved by bankruptcy court order. Upon the Effective Date of the Plan, all parties to the appeal of the bankruptcy court order relating to the Baron & Budd Administrative Deposit (the “Baron & Budd Appeal”) shall consent to the prompt dismissal of the Baron & Budd Appeal. The obligations of the Parties set forth in the above three paragraphs of this section are subject to and conditioned upon the effectiveness of the Plan.

Miscellaneous Provisions

The Plan Proponents agree to promptly modify the Current Plan, Disclosure Statement and any and all Schedules and Exhibits thereto to implement this Term Sheet and to make them consistent with this Term Sheet.

The Designated Members of the Creditors’ Committee shall recommend that the Bonds/Trade creditors (Senior Trade/Unsecured claims and Junior Trade/Unsecured claims) approve the Term Sheet in its present form and the Plan incorporating and implementing the terms hereof and the Plan as may be modified provided that such modified Plan shall provide for the same or better treatment in all respects as set forth herein including, by way of illustration and not limitation, all of the provisions hereof relating to Substantive Consolidation, Fixed Values, Recovery and Exchange Option.

Except to the extent, if any, otherwise required by applicable law, the Parties agree that the terms set forth in this Term Sheet shall remain confidential and shall not be disclosed to any third party until the Debtors agree.

The parties shall use their best efforts to confirm the Plan and have an Effective Date no later than the end of the fourth quarter of calendar year 2004. The Effective Date shall occur fifteen days after entry of the Confirmation Order, provided no stay of the Confirmation Order is then in effect.

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The Plan shall not contravene the effect of any asbestos reform legislation enacted prior to the Effective Date of the Plan.

The foregoing terms are set forth in the context of settlement negotiations and shall not be deemed an admission for any purpose.

AGREED TO THIS 3^RD DAY OF JUNE, 2004

ASBESTOS CLAIMANTS COMMITTEE

By:

Committee Representative

James J. McMonagle

Legal Representative for Future Claimants

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DESIGNATED MEMBERS OF THE OFFICIAL UNSECURED CREDITORS

COMMITTEE

PPM AMERICA, INC.

By:

Joel Klein, Executive Vice President

JOHN HANCOCK LIFE INSURANCE COMPANY

By:

Willma H. Davis, Sr. Managing Director

OWENS CORNING AND ITS AFFILIATED DEBTORS

By:

Michael Thaman

Chairman and Chief Financial Officer

Exhibit A

OWENS CORNING/ASBESTOS PERSONAL INJURY TRUST

DEBT/EQUITY TERM SHEET

This document (this “Term Sheet”) describes the key terms of the agreement in principle between OCD and the Asbestos Personal Injury Trust with respect to (i) certain registration rights of the Asbestos Personal Injury Trust with respect to any debt or equity securities it receives under the Plan⁸ and (ii) certain other general corporate matters with respect to Reorganized OCD post-emergence from bankruptcy protection. This Term Sheet is also an Exhibit to, and subject to the provisions of, the Bonds/Trade Term Sheet dated as of June 3, 2004 by and among OCD, the Designated Members of the Official Committee of Unsecured Creditors (the “Designated Members”) and the present and future Asbestos PI Claimants.

Provisions Relating to Debt Securities:

The following key provisions with respect to the debt securities issued to the Asbestos Personal Injury Trust under the Plan will be set forth, as appropriate, in the definitive documentation relating to the Debt or in a registration rights agreement between Reorganized OCD and the Asbestos Personal Injury Trust:

Features of Debt:

Senior Notes; term, interest rate, covenants, guarantees, etc. to be agreed upon by the parties based upon prevailing market convention at the time of issuance for securities of comparable rating; structure intended to provide investment grade rating at issuance.

Registration:

Reorganized OCD, within 90 days of the Effective Date, will file a registration statement with the Securities and Exchange Commission (“SEC”) to register a minimum aggregate principal amount of Senior Notes to be agreed upon for resale by the Asbestos Personal Injury Trust and shall use commercially reasonable efforts to cause such registration statement to become effective as soon as practicable but in no event no later than 180 days after the Effective Date.9 After such time as Reorganized OCD has become S-3 eligible, Reorganized OCD shall use commercially reasonable efforts to cause to be filed with the SEC, within 30 days of becoming

⁸ OCD’s Fifth Amended Plan of Reorganization.

⁹ If Reorganized OCD is not S-3 eligible within some period of time to be agreed upon by the parties, the parties will agree upon another registration arrangement.

	S-3 eligible, a shelf registration statement (the “Shelf Registration Statement”) pursuant to Rule 415 of the Securities Act of 1933, as amended (the “Act”), relating to the Senior Notes issued to the Asbestos Personal Injury Trust under the Plan and shall use commercially reasonable efforts to cause it to become effective within 60 days of such filing. Reorganized OCD will keep the Shelf Registration Statement continuously effective for a period of three years from its initial effectiveness (or such shorter period ending when all Senior Notes have been sold pursuant to the Shelf Registration Statement or all Senior Notes can be sold pursuant to Rule 144 under the Act without regard to the volume and manner of sale limitations imposed under Rule 144), as extended by any period during which the availability of the Shelf Registration Statement is suspended. If the Asbestos Personal Injury Trust continues to hold Senior Notes after the expiration of the three year effectiveness period applicable to the Shelf Registration Statement (as it may have been extended) and all of such Senior Notes could not then be sold pursuant to Rule 144 under the Act without regard to the volume and manner of sale limitations imposed under Rule 144, the Asbestos Personal Injury Trust shall have the right to request one additional shelf registration (or a continuation or extension of the effectiveness of the Shelf Registration Statement) for a period to be agreed upon. In any case, Reorganized OCD will have the right to suspend the availability of the Shelf Registration Statement, or any continuation or extension thereof, or any replacement therefor, for up to an agreed upon number of days in the aggregate during any 365 day period under certain customary circumstances.
Expenses:	To be borne by Reorganized OCD, including reasonable fees and expenses of one counsel to the Asbestos Personal Injury Trust, but excluding (i) underwriting fees or commissions and similar sales expense relating to the sales of securities by the Asbestos Personal Injury Trust and (ii) other expenses customarily borne by selling shareholders.
Covenant:	Reorganized OCD will use commercially reasonable efforts to register, and maintain registration of, the Senior Notes with DTC.

Transfer of Rights:

The registration rights may be transferred by the Asbestos Personal Injury Trust to a transferee or transferees of at least $50 million aggregate principal amount of Senior Notes issued to the Asbestos Personal Injury Trust under the Plan in one transaction or a series of related transactions, (provided that such transferee(s) agrees to be bound by the applicable provisions of the registration rights agreement of Reorganized OCD). Registration rights will not be transferable to any purchaser under a registration statement or any purchaser in sales made pursuant to Rule 144.

Other Provisions:

The section of the registration rights agreement relating to debt registration rights shall contain other customary provisions with respect to registration rights relating to debt securities of similar rating, including crossindemnification and underwriting arrangements (provided that, in the event that the registration is for an underwritten offering, the underwriter(s) shall be selected by the Asbestos Personal Injury Trust and be reasonably acceptable to Reorganized OCD).

Provisions Relating to Equity Securities:

The following key provisions with respect to the equity securities issued to the Asbestos Personal Injury Trust under the Plan will be set forth in the definitive registration rights agreement between Reorganized OCD and the Asbestos Personal Injury Trust:

Registration Rights: Except as provided in the proviso below, the Asbestos Personal Injury Trust will not have any “demand” registration rights relating to New OCD Common Stock prior to nine months after the Effective Date. If, at the date that is 270 days after the Effective Date, it appears reasonably likely that Reorganized OCD will not be S-3 eligible by the date that is 450 days after the Effective Date or if Reorganized OCD is not S-3 eligible 450 days after the Effective Date, then Reorganized OCD, if requested by the Trust, will file one registration statement to register an agreed upon minimum amount of New OCD Common Stock. After Reorganized OCD becomes S-3 eligible, the Asbestos Personal Injury Trust will be entitled to exercise demand registration rights on two occasions each year until the fifth anniversary of the Effective Date of the Plan, and 1 demand registration right each year thereafter until all shares of New OCD Common Stock can be sold without regard to the volume and manner of sale

	limitations imposed under Rule 144; provided, however, that Reorganized OCD shall not be required to effect a registration pursuant to a demand registration by the Asbestos Personal Injury Trust more than once in any six month period, and Reorganized OCD shall not be required to effect a registration unless common stock having a value of at least $100 million, or such lesser amount that the Trust then holds, is proposed to be sold. The Asbestos Personal Injury Trust will also have unlimited piggy-back registration rights, provided, that in the event that the piggy-back registration is with respect to an offering of securities by Reorganized OCD for its own account, Reorganized OCD shall be allowed to include up to such amount of securities that it wishes to sell for its own account prior to the inclusion of any shares by the Asbestos Personal Injury Trust so long as no other holder is permitted to include any shares of New OCD Common Stock; provided further, that if Reorganized OCD is offering New OCD Common Stock for its own account and the Asbestos Personal Injury Trust has not sold New OCD Common Stock for its own account for the prior 12 months, the Asbestos Personal Injury Trust shall be permitted, in its sole discretion, to include New OCD Common Stock for sale for its own account up to a maximum of 20% of the total New OCD Common Stock included in such offering.
Selection of Underwriters:	In any demand registration, the underwriter(s) shall be selected by the Asbestos Personal Injury Trust and be reasonably acceptable to Reorganized OCD.
Expenses:	To be borne by Reorganized OCD, including reasonable fees and expenses of one counsel to the Asbestos Personal Injury Trust, but excluding (i) underwriting fees or commissions and similar sales expense relating to the sales of securities by the Asbestos Personal Injury Trust and (ii) other expenses customarily borne by selling shareholders.
Transfer of Rights:	The registration rights may be transferred by the Asbestos Personal Injury Trust to a transferee of an agreed upon minimum amount of equity securities issued to the Asbestos Personal Injury Trust under the Plan in one transaction or a series of transactions, provided that such Transferee agrees to be bound by the applicable provisions of the registration rights agreement. Registration rights will not be transferable to any purchaser under a registration statement or any purchaser in sales made pursuant to Rule 144.

Piggyback Registration Rights:

Any person or entity who receives under the Plan 5% or more of the New Common Stock outstanding as of the Effective Date shall be entitled to piggyback registration rights in those registration rights in which the Asbestos Personal Injury Trust participates.

Other Provisions:

The section of the registration rights agreement relating to equity registration rights shall contain other customary provisions with respect to registration rights, including crossindemnification, underwriting arrangements and the period of time in which any registration statement shall be kept effective (which period shall be 180 days or such shorter period during which the distribution described in the registration statement shall have been completed).

Governance Considerations:

To the extent applicable, the Article of Incorporation of Reorganized OCD and the By-Laws of Reorganized OCD, as appropriate, will contain provisions giving effect to the following terms:

Directors and Officers: Reorganized OCD initially (i.e., upon consummation of the Plan) shall have twelve directors (determined as indicated below). The directors shall be such that Reorganized OCD shall satisfy the standards for listing the New OCD Common Stock on the NYSE, so that the New OCD Common Stock could be listed on such market (as well as satisfying the requirements necessary for the board to be able to establish committees, including an audit committee, that qualify under the NYSE rules and applicable laws and SEC Rule 16b-3 and I.R.C. § 162(m)). In addition, one of the directors shall qualify as a “audit committee financial expert” within the meaning of the SEC Regulation S-K, Item 401(h). The initial term of the initial directors shall be until the first annual meeting of shareholders following the second anniversary date of the effective date of the Plan (the “Initial Term”). The initial directors will be identified as follows: the Official Committee of Asbestos Personal Injury Claimants and the Future Claimants Representative will jointly designate seven

directors, who shall be reasonably acceptable to (a) Reorganized OCD, (b) the Designated Members, if more than two thirds in dollar amount and fifty-one percent in number of those holders of Bonds/Trade claims who have voted on the Plan accept the Plan and (c) the Banks, if more than two thirds in dollar amount and fifty-one percent in number of those holders of Bank claims who have voted on the Plan accept the Plan. Reorganized OCD’s existing board of directors will designate five directors, one of which shall be Reorganized OCD’s Chief Executive Officer; provided, however, that in the event (a) (a) more than two thirds in dollar amount and fifty-one percent in number of those holders of Bonds/Trade claims who have voted on the Plan accept the Plan, then the Designated Members may designate one of the five directors who would otherwise be designated by OCD, and (b) more than two thirds in dollar amount and fifty-one percent in number of those holders of Bank claims who have voted on the Plan accept the Plan, then the Banks may designate one of the five directors who would otherwise be designated by OCD. The directors to be designated by OCD, the Designated Members and/or the Banks shall be reasonably acceptable to (a) Reorganized OCD, (b) the Official Committee of Asbestos Personal Injury Claimants, (c) the Future Claimants Representative, (d) the Banks, if more than two thirds in dollar amount and fifty-one percent in number of those holders of Bank claims who have voted on the Plan accept the Plan, and (e) the Designated Members, if more than two thirds in dollar amount and fifty-one percent in number of those holders of Bonds/Trade claims who have voted on the Plan accept the Plan. In the event that less than two thirds in dollar amount and/or less than fifty-one percent in number of those holders of Bonds/Trade claims and/or Bank claims, as the case may be, who have voted on the Plan accept the Plan, then the Designated Members and/or Banks, as the case may be, shall not have a right to designate one director and Reorganized OCD shall instead designate such director(s). Such designees shall be identified reasonably in advance of the confirmation hearing on the Plan.

In addition, for so long as the Asbestos Personal Injury Trust owns 20% of the outstanding common equity of Reorganized OCD, the Official Committee of Asbestos Personal Injury

	Claimants and the Future Claimants Representative shall each be entitled to designate a board observer, which board observer will be entitled to participate in all of the Reorganized OCD’s board of directors meetings. The board observers shall receive (i) notice of each meeting of the board of directors at the same time that notice is provided to members of the board of directors, and (ii) copies of all materials distributed to members of the board of directors prior to any such meeting. The board observers shall not be entitled to directors fees, but shall be entitled to reimbursement from Reorganized OCD of all out-of-pocket expenses incurred in connection with attending and participating in board of directors meetings.
Charter and Bylaws:	Reorganized OCD’s new certificate of incorporation and new bylaws shall include the provisions specified in this Term Sheet and otherwise shall be in substance mutually acceptable to Reorganized OCD, the Asbestos Claimants Committee, the Creditors’ Committee and the Future Claimants’ Representative.
Protective Provisions:	So long as the Asbestos Personal Injury Trust owns at least 35% of the equity securities issued to it under the Plan, without the approval of the Asbestos Personal Injury Trust, Reorganized OCD shall not: (i) Authorize or effect any amendment or waiver of any provision of the new certificate of incorporation or bylaws of Reorganized OCD in a manner that would reduce or eliminate rights or claims the Asbestos Personal Injury Trust has under the certificate of incorporation or the Delaware General Corporation Law or elevate a class or series of capital stock to have rights equal or senior to the rights of Asbestos Personal Injury Trust, (ii) authorize, create, designate or issue any new class or series of capital stock or any other securities convertible into or exchangeable for capital stock of Reorganized OCD, or issue any shares of common stock or securities convertible into or exchangeable for common stock of Reorganized OCD, other than options to purchase up to an agreed number of shares of common stock granted under an employee stock option plan or stock incentive plan, (iii) authorize or effect any change in the size of the Board of Directors, (iv) subject to specified exceptions to be agreed upon, authorize, enter into or effect any transaction (or related series of transactions) which involve(s) any of the following changes to Reorganized OCD or any of

its subsidiaries: (A) a merger, consolidation or sale or lease providing for the transfer of all or substantially all of the assets of Reorganized OCD or any Material Subsidiary or of any assets the disposition or leasing of which would have a material effect on the business of Reorganized OCD and its subsidiaries taken as a whole, (B) any other transaction or series of transactions which involve(s) the liquidation, dissolution, sale or winding up of Reorganized OCD or any of its Material Subsidiaries or has such effect or (C) any other transaction or series of transactions in which more than 10% of the voting power or capital stock of Reorganized OCD or any of its subsidiaries is disposed of, (v) subject to specified exceptions, allow any Material Subsidiary to issue any capital stock or other equity interests or securities convertible into or exchangeable for capital stock or other equity interests of such subsidiary to any person or entity other than Reorganized OCD or one of Reorganized OCD’s wholly-owned subsidiaries (exceptions to be provided for joint ventures and similar arrangements and for non-wholly-owned subsidiaries), (vi) authorize, declare or pay dividends, other than regular quarterly dividends, or distributions of any kind on any equity securities of Reorganized OCD, or (vii) subject to specified exceptions, authorize or effect the purchase, repurchase, redemption, retirement or other acquisition of any securities or the retirement or other acquisition of any securities of Reorganized OCD other than in accordance with the terms of such security or other than for specified exceptions to be determined. The protective provisions would be inserted into the new certificate of incorporation of Reorganized OCD.

Opt-Out:

Reorganized OCD should “opt out” of the application of Section 203 of the Delaware Corporation Law.

EX-10

Exhibit (10)

OWENS CORNING

KEY EMPLOYEE RETENTION INCENTIVE PLAN

1. Purpose. This Owens Corning Key Employee Retention Incentive Plan has been established by Owens Corning for designated key employees of the Company. The purpose of the Plan is to provide an incentive to Participants to remain in the employ of the Company through the date of the Company’s emergence from Chapter 11 bankruptcy.

2. Definitions. For purposes of this Plan:

a. “Board” shall mean the Board of Directors of Owens Corning.

b. “Cause” shall mean acts of gross misconduct, gross insubordination, embezzlement, fraud, misappropriation of funds, property or trade secrets (in each case as determined by the Committee), or the commission of any felony under state or federal law.

c. “Committee” shall mean the Compensation Committee of the Board.

d. “Company” shall mean Owens Corning, a Delaware Corporation, and each of its subsidiaries and affiliates.

e. “Disability” shall mean the Participant’s entitlement to benefits under any long term disability plan or program of the Company.

f. “Effective Date” means January 1, 2004.

g. “Emergence” shall mean the effective date of a Plan of Reorganization confirmed in the Chapter 11 proceedings.

h. “Retention Amount” shall mean, with respect to each Participant, the amount payable under the Plan in accordance with Section 5(a) hereof.

i. “Emergence Date” shall mean the date of Emergence, as defined.

j. “Nonqualifying Severance” shall mean any termination of a Participant’s employment with the Company after the Effective Date and before the earlier of the Emergence Date or December 31, 2004, in other than a Qualifying Severance.

k. “Participant” shall mean an employee of the Company who participates in the Plan in accordance with Section 4 hereof.

l. “Plan” shall mean this Owens Corning Key Employee Retention Incentive Plan, as amended from time to time.

m. “Qualifying Severance” shall mean the termination of a Participant’s employment with the Company after the Effective Date and before the earlier of the Emergence Date or December 31, 2004: (i) by the Company other than for Cause, or (ii) by reason of death or Disability.

3. Administration.

a. The Plan shall be administered by the Committee, which shall have complete authority to determine who shall participate herein and the Retention Amount applicable to each Participant, to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, and to make all other determinations necessary or advisable for the administration of the Plan.

b. The Committee is authorized, on behalf of the Plan, to engage accountants, legal counsel and such other personnel as it deems necessary or advisable to assist it in the performance of its duties under the Plan. All reasonable expenses thereof shall be borne by the Company.

c. All decisions made by the Committee pursuant to the provisions of the Plan shall be final, conclusive and binding on all persons, including the Company and the Participants. No member of the Board or the Committee, nor any officer or employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected in respect of any such action, determination or interpretation.

d. The Committee may delegate any of its duties hereunder to such person or persons as it may designate from time to time.

4. Participation. The Committee shall, in its sole discretion, select the employees of the Company who shall participate in the Plan. As a condition to participation in the Plan, each such employee shall execute a document, in such form as the Committee may require, acknowledging his or her participation in the Plan and his or her intent to remain employed by the Company through the Emergence Date.

5. Payments.

a. In General. Each Participant who remains employed by the Company through December 31, 2004 shall receive a cash payment from the Company equal to the Retention Amount established by the Committee for the Participant, as set forth in the letter informing the Participant of his or her participation in the Key Employee Retention Incentive Plan. There shall be no requirement of uniformity of Retention Amount among Participants.

b. Qualifying Severance. Each Participant who terminates employment with the Company under a Qualifying Severance shall receive a cash payment from the Company equal to his or her Retention Amount multiplied by a fraction, the numerator of which is the number of calendar months (including fractional months) from the Effective Date until the date of the Qualifying Severance, and the denominator of which is 12.

c. Nonqualifying Severance. No payment shall be made under the Plan in respect of a Participant who incurs a Nonqualifying Severance.

d. Payment Upon Emergence. If the Company Emerges prior to December 31, 2004, each participant shall receive a cash payment from the Company equal to his or her Retention Amount multiplied by a fraction, the numerator of which is the number of calendar months (including fractional months) from the Effective Date until the date of Emergence, and the denominator of which is 12.

e. Form and Timing of Payment. In general, payments under this Section 5 shall be made in a lump sum. Such payment shall be made as soon as practicable following the earlier of the Emergence Date or December 31, 2004, and in the case of a payment pursuant to subsection (b) above, such payment shall be made as soon as practicable following the date of the Qualifying Severance. Retention amounts are expressed in US dollars, and any payments under this Plan in other currency will be based on the exchange rate in effect at the time of payout.

6. General Provisions.

a. Compliance with Legal Requirements. The Plan, the payment of amounts hereunder, and the other obligations of the Company under the Plan shall be subject to all applicable federal and state laws, rules and regulations, and to such approvals by any regulatory or governmental agency as may be required.

b. Nontransferability. No Participant shall have the right to alienate, anticipate, commute, pledge, encumber or assign any of the benefits or payments which he or she may expect to receive, contingently or otherwise, under this Plan.

c. No Right To Continued Employment. Nothing in the Plan shall confer upon any Participant the right to continue in the employ of the Company or to be entitled to any remuneration or benefits not set forth in the Plan or to interfere with or limit in any way the right of the Company to terminate such Participant’s employment, which remains “at will.”

d. Effect on Other Benefits. Amounts paid or payable hereunder shall not be treated as compensation for purposes of determining benefit amounts or accruals under any employee pension or benefit plan, program or arrangement maintained by the Company.

e. Severability. If any provision of this Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and this Plan shall be construed and enforced as if such provisions had not been included.

f. Successors. This Plan shall be binding upon the heirs, executors, administrators, successors and assigns of the parties, including each Participant and any successor to the Company.

g. Construction. The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be used in the construction of the Plan.

h. Withholding Taxes. All amounts to be paid hereunder to Participants shall be paid net of any taxes that the Company may be required to withhold therefrom in respect of any federal, state, local or other taxes.

i. Amendment, Termination and Duration of the Plan. The Committee may at any time and from time to time alter, amend, suspend, or terminate the Plan in whole or in part. The Plan shall terminate on the earlier of the Emergence Date or December 31, 2004, provided that all amounts not yet paid on the Emergence Date shall be paid thereafter in accordance with the terms hereof.

j. Unfunded Plan. The Plan is intended to constitute an “unfunded” plan for incentive compensation. With respect to any payments not yet made to a Participant hereunder, nothing contained in the Plan shall give any such Participant any rights in any assets of the Company that are greater than those of a general creditor of the Company.

k. Beneficiary. A Participant may file with the Committee a written designation of a beneficiary on such form as may be prescribed by the Committee and may, from time to time, amend or revoke such designation. If no designated beneficiary survives the Participant, the executor or administrator of the Participant’s estate shall be deemed to be the Participant’s beneficiary.

l. Governing Law. The Plan and all determinations made and actions taken pursuant hereto shall be governed by the laws of the State of Delaware without giving effect to the conflict of laws principles thereof.

EX-31

Exhibit (31)

CERTIFICATION

I, David T. Brown, Chief Executive Officer of the registrant, certify that:

I have reviewed this quarterly report on Form 10-Q of Owens Corning;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 4, 2004

/s/    DAVID T. BROWN        

David T. Brown

Chief Executive Officer

EX-31

Exhibit (31)

CERTIFICATION

I, Michael H. Thaman, Chief Financial Officer of the registrant, certify that:

I have reviewed this quarterly report on Form 10-Q of Owens Corning;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 4, 2004

/s/    MICHAEL H. THAMAN        

Michael H. Thaman

Chief Financial Officer

EX-32

Exhibit (32)

SECTION 1350 CERTIFICATION

In connection with the Quarterly Report of Owens Corning (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2004 (the “Report”), I, David T. Brown, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/    DAVID T. BROWN        

Chief Executive Officer

August 4, 2004

EX-32

Exhibit (32)

SECTION 1350 CERTIFICATION

In connection with the Quarterly Report of Owens Corning (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2004 (the “Report”), I, Michael H. Thaman, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/    MICHAEL H. THAMAN        

Chief Financial Officer

August 4, 2004

EX-99

Exhibit (99)

Subsidiaries of Owens Corning (06/30/2004)	State or Other Jurisdiction Under the Laws of Which Organized
CDC Corporation	Wisconsin
Comercializadora Owens Corning, S.A. de C.V.	Mexico
Crown Manufacturing Inc.	Canada
Engineered Pipe Systems, Inc.	Delaware
Engineered Yarns America, Inc.	Massachusetts
EPS Holdings AS	Norway
Eric Company	Delaware
European Owens-Corning Fiberglas, S.A.	Belgium
Exterior Systems, Inc.	Delaware
Falcon Foam Corporation	Delaware
Fibreboard Corporation	Delaware
Flowtite Offshore Services Ltd.	Cyprus
Goodman Ventures, Inc.	Delaware
HOMExperts LLC	Delaware
Integrex	Delaware
Integrex Professional Services LLC	Delaware
Integrex Supply Chain Solutions LLC	Delaware
Integrex Testing Systems LLC	Delaware
Integrex Ventures LLC	Delaware
IP Owens Corning Ltd.	Switzerland
IPM Inc.	Delaware
Jefferson Holdings, Inc.	Delaware
LMP Impianti Srl	Italy
Norske EPS Botswana AS	Norway
OC (Belgium) Holdings, Inc.	Delaware
OC Celfortec Inc.	Canada
O.C. Funding B.V.	The Netherlands
OCF Mexico S.A. de C.V.	Mexico
OCW Acquisition Corporation	Delaware
Owens Corning (Anshan) Fiberglass Co., Ltd.	China
Owens Corning Argentina Sociedad de Responsabilidad Limitada	Argentina
Owens Corning Australia Pty Limited	Australia
Owens Corning Automotive (UK) Ltd.	United Kingdom
Owens-Corning Britinvest Limited	United Kingdom
Owens Corning Building Materials Espana S.A.	Spain
Owens Corning Canada Inc.	Canada
Owens-Corning Capital Holdings I, Inc.	Delaware
Owens-Corning Capital Holdings II, Inc.	Delaware
Owens-Corning Capital L.L.C.	Delaware
Owens Corning Cayman (China) Holdings	Cayman Islands
Owens-Corning Cayman Limited	Cayman Islands
Owens Corning (China) Investment Company, Ltd.	China
Owens Corning Commercial Insulation Systems, LLC	Delaware
Owens Corning Composites Italia S.r.l.	Italy
Owens Corning Composites SPRL	Belgium
Owens Corning Enterprise (India) Pvt. Ltd.	India
Owens Corning Espana SA	Spain
Owens Corning Fiberglas A.S. Limitada	Brazil
Owens-Corning Fiberglas Deutschland GmbH	Germany
Owens-Corning Fiberglas Espana, S.A.	Spain

Subsidiaries of Owens Corning (06/30/2004) (continued)	State or Other Jurisdiction Under the Laws of Which Organized
Owens-Corning Fiberglas France S.A.	France
Owens-Corning Fiberglas (G.B.) Ltd.	United Kingdom
Owens-Corning Fiberglas Norway A/S	Norway
Owens Corning Fiberglas S.A.	Uruguay
Owens-Corning Fiberglas Sweden Inc.	Delaware
Owens-Corning Fiberglas Technology Inc.	Illinois
Owens-Corning Fiberglas (U.K.) Pension Plan Ltd.	United Kingdom
Owens-Corning FSC, Inc.	Barbados
Owens-Corning Funding Corporation	Delaware
Owens-Corning (Guangzhou) Fiberglas Co., Ltd.	China
Owens-Corning Holdings Limited	Cayman Islands
Owens Corning HT, Inc.	Delaware
Owens-Corning (India) Limited	India
Owens Corning Integrated Acoustic Systems, LLC	Delaware
Owens Corning (Japan) Ltd.	Japan
Owens Corning Korea	Korea
Owens Corning Mexico, S.A. de C.V.	Mexico
Owens Corning NRO Inc.	Canada
Owens Corning NRO II Inc.	Canada
Owens-Corning Overseas Holdings, Inc.	Delaware
Owens Corning (Nanjing) Foamular Board Co. Ltd.	China
Owens-Corning Real Estate Corporation	Ohio
Owens Corning Remodeling Systems, LLC	Delaware
Owens Corning Sales Company	Mexico
Owens Corning (Shanghai) Composites Co. Ltd.	China
Owens Corning (Shanghai) Fiberglas Co., Ltd.	China
Owens Corning (Shanghai) International Trading Co., Inc.	China
Owens Corning (Singapore) Pte Ltd.	Singapore
Owens-Corning (Sweden) AB	Sweden
Owens Corning (Tianjin) Building Materials Co., Ltd.	China
Owens Corning Trading (Korea) Co., Ltd.	Korea
Owens-Corning Veil Netherlands B.V.	The Netherlands
Owens-Corning Veil U.K. Ltd.	United Kingdom
Owens Corning VF Holdings, Inc.	Canada
Palmetto Products, Inc.	Delaware
Quest Industries, LLC	Delaware
Soltech, Inc.	Kentucky
Tecnologia Owens Corning Ltd.	Switzerland
Trumbull Asphalt Co. of Delaware	Delaware
Vytec Corporation	Ontario
Wall Technology, Inc.	Colorado
Willcorp, Inc.	Delaware
Wrexham A.R. Glass Ltd.	United Kingdom