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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549



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FORM 10-K



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Annual Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act
of 1934



For the Fiscal Year Ended December 31, 2004



Commission File No. 1-3660



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Owens Corning



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One Owens Corning Parkway



Toledo, Ohio 43659



Area Code (419) 248-8000



A Delaware Corporation



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



Securities registered pursuant to Section 12(b) of the Act:



|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of Each Class |  | Name of Each Exchange on Which Registered
|None                |  |                                          



Securities
registered pursuant to Section 12(g) of the Act:



Common
Stock - $.10 Par Value



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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form
10-K. x



Indicate by check
mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ̈No x



On June 30, 2004, the last business day of Registrants
most recently completed second fiscal quarter, the aggregate market value of Registrants $.10 par value common stock (Registrants voting stock) held by non-affiliates was $32,652,428 (assuming for purposes of this computation only that
the Registrant had no affiliates).



At January 31, 2005, there
were outstanding 55,341,765 shares of Registrants $.10 par value common stock.



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INDEX



|           |  |                                                                                                                  |  |        
|---------- |  | ---------------------------------------------------------------------------------------------------------------- |  | -------
|           |  |                                                                                                                  |  | Page   
|Cover Page |  |                                                                                                                  |  | 1      
|           |  |                                                                                                                 
|PART I     |  |                                                                                                                  |  |        
|           |  |                                                                                                                 
|Item 1.    |  | Business                                                                                                         |  | 2 - 3  
|           |  | Building Materials Systems                                                                                       |  | 4      
|           |  | Composite Solutions                                                                                              |  | 5      
|           |  | General                                                                                                          |  |        
|           |  | Raw Materials and Patents                                                                                        |  | 6      
|           |  | Working Capital                                                                                                  |  | 6      
|           |  | Number of Employees                                                                                              |  | 6      
|           |  | Research and Development                                                                                         |  | 6      
|           |  | Environmental Control                                                                                            |  | 6 - 7  
|           |  | Competition                                                                                                      |  | 7      
|           |  |                                                                                                                 
|Item 2.    |  | Properties                                                                                                       |  |        
|           |  | Plants                                                                                                           |  | 8      
|           |  | Building Materials Systems Segment                                                                               |  | 8 - 10 
|           |  | Composite Solutions Segment                                                                                      |  | 10     
|           |  | Other Properties                                                                                                 |  | 10     
|           |  |                                                                                                                 
|Item 3.    |  | Legal Proceedings                                                                                                |  | 11 - 14
|           |  |                                                                                                                 
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                              |  | 14     
|           |  |                                                                                                                 
|           |  | Executive Officers of Owens Corning                                                                              |  | 15     
|           |  |                                                                                                                 
|PART II    |  |                                                                                                                  |  |        
|           |  |                                                                                                                 
|Item 5.    |  | Market for Owens Cornings Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities |  | 16 - 17
|           |  |                                                                                                                 
|Item 6.    |  | Selected Financial Data                                                                                          |  | 18 - 19
|           |  |                                                                                                                 
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                            |  | 20 - 46
|           |  |                                                                                                                 
|Item 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                                                       |  | 47 - 48
|           |  |                                                                                                                 
|Item 8.    |  | Financial Statements and Supplementary Data                                                                      |  | 48     
|           |  |                                                                                                                 
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                             |  | 48     
|           |  |                                                                                                                 
|Item 9A.   |  | Controls and Procedures                                                                                          |  | 48     
|           |  |                                                                                                                 
|Item 9B.   |  | Other Information                                                                                                |  | 49     



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(ii)



|         |  |                                                                                                |  |          
|-------- |  | ---------------------------------------------------------------------------------------------- |  | ---------
|         |  |                                                                                                |  | Page     
|         |  |                                                                                               
|PART III |  |                                                                                                |  |          
|         |  |                                                                                               
|Item 10. |  | Directors and Executive Officers of Owens Corning                                              |  | 49 - 53  
|         |  |                                                                                               
|Item 11. |  | Executive Compensation                                                                         |  | 54 - 60  
|         |  |                                                                                               
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |  | 60 - 62  
|         |  |                                                                                               
|Item 13. |  | Certain Relationships and Related Transactions                                                 |  | 62       
|         |  |                                                                                               
|PART IV  |  |                                                                                                |  |          
|         |  |                                                                                               
|Item 14. |  | Principal Accountant Fees and Services                                                         |  | 63       
|         |  |                                                                                               
|Item 15. |  | Exhibits and Financial Statement Schedules                                                     |  | 63       
|         |  |                                                                                               
|         |  | Signatures                                                                                     |  | 64       
|         |  |                                                                                               
|         |  | Index to Consolidated Financial Statements                                                     |  | 65       
|         |  |                                                                                               
|         |  | Managements Report on Internal Control Over Financial Reporting                               |  | 66       
|         |  |                                                                                               
|         |  | Report of Registered Independent Public Accounting Firm                                        |  | 67 - 69  
|         |  |                                                                                               
|         |  | Consolidated Financial Statements                                                              |  | 70 - 154 
|         |  |                                                                                               
|         |  | Index to Consolidated Financial Statement Schedule                                             |  | 155      
|         |  |                                                                                               
|         |  | Schedule II                                                                                    |  | 156      
|         |  |                                                                                               
|         |  | Exhibit Index                                                                                  |  | 157 - 163
|         |  |                                                                                               
|         |  | Key Management Severance Agreement with Joseph C. High, Exhibit (10)                           |  |          
|         |  |                                                                                               
|         |  | Subsidiaries of Owens Corning, Exhibit (21)                                                    |  |          
|         |  |                                                                                               
|         |  | Consent of Registered Independent Public Accounting Firm, Exhibit (23)                         |  |          
|         |  |                                                                                               
|         |  | 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)                             |  |          



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PART I



ITEM 1. BUSINESS



Owens Corning, a global company
incorporated in Delaware in 1938, serves consumers and industrial customers with building materials systems and composites systems. Owens Cornings executive offices are at One Owens Corning Parkway, Toledo, Ohio 43659; telephone (419)
248-8000. Owens Cornings web site provides information on our business and products, and assists our customers in various building projects. It is located at www.owenscorning.com. Owens Corning makes available, free of charge, through its
website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the
Securities and Exchange Commission. Unless the context requires otherwise, the terms Owens Corning, Company, we and our in this report refer to Owens Corning and its subsidiaries.



PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE



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). The Chapter 11 Cases are discussed in greater detail in Note 1 to the Consolidated Financial Statements included in this Annual Report on Form 10-K (the
Consolidated Financial Statements).



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 19 to the Consolidated Financial Statements.



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



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ITEM 1. BUSINESS (continued)



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. The Plan is subject to confirmation by the
Bankruptcy Court. The Plan is premised upon the substantive consolidation of Owens Corning and certain of its direct and indirect subsidiaries 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. Owens Corning believes that it is likely that the terms,
conditions and provisions of the Plan will be 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 provides for partial payment of all unsecured creditors allowed claims, in the
form of distributions of new common stock and notes of the reorganized company, and cash. 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 discussed in greater detail in Note 1 to the Consolidated Financial Statements.



BUSINESS DESCRIPTION



Owens Corning operates in two segments - Building Materials Systems and Composite Solutions. In 2004, the Building Materials Systems segment accounted for approximately 80% of our total sales while Composite Solutions
accounted for the remainder. The products and systems provided by our Building Materials Systems segment are used in residential remodeling and repair, commercial improvement, new residential and commercial construction, and other related markets.
The products and systems offered by our Composite Solutions segment are used in end-use markets such as building construction, automotive, telecommunications, marine, aerospace, energy, appliance, packaging and electronics. Many of Owens
Cornings products are marketed under registered trademarks, including Cultured Stone®, Propink®,
Advantex®, and/or the color PINK.



Owens Corning has affiliate companies in a number of countries. Generally, affiliated
companies sales, earnings and assets are not included in either operating segment unless we own more than 50% of the affiliate and the ownership is not considered temporary.



In April 2004, we acquired the outstanding 60% ownership interest in our Mexican joint venture, Vitro-Fibras, S.A. (OC Mexico).
This acquisition strengthened our operating position in Mexico and provides a supply of low-cost manufacturing capacity to service the North American market for both fiberglass insulation and reinforcements.



Revenue from external customers, income from operations and total assets attributable to each
of Owens Cornings operating segments and geographic regions, as well as information concerning the dependence of our operating segments on foreign operations, for each of the years 2004, 2003, and 2002, are contained in Note 3 to the
Consolidated Financial Statements.



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ITEM 1. BUSINESS (continued)



BUILDING MATERIALS SYSTEMS



Principal
Products And Methods Of Distribution



Building Materials Systems
operates primarily in the United States and Canada. It also has a growing presence in Asia Pacific and Mexico. Building Materials Systems sells a variety of products and systems in two major categories: (i) insulating systems, including thermal and
acoustical insulation, air ducts formed from glass wool fibers, and foam insulation, and (ii) exterior systems for the home, including roofing shingles, vinyl siding and accessories, windows and doors, stone veneer building products, and branded
housewrap. These products are used primarily in the home improvement, new residential construction, manufactured housing, and commercial construction markets.



We sell building insulation systems, roofing shingles and accessories, housewrap, and vinyl siding through home centers, lumberyards, retailers and distributors. Other
channels of distribution for insulation systems in North America include insulation contractors, wholesalers, specialty distributors, metal building insulation laminators, mechanical insulation distributors and fabricators, manufactured housing
producers, and appliance, office products and automotive manufacturers. Foam insulation and related products are sold to distributors and retailers who resell to residential builders, remodelers and do-it-yourself customers; commercial and
industrial markets through specialty distributors; and, in some cases, large contractors, particularly in the agricultural and cold storage markets. Vinyl siding and accessories are also sold through the Companys retail distribution centers.



Owens Corning sells asphalt products that are used internally in the
manufacture of residential roofing products and are also sold to other shingle manufacturers. In addition, asphalt is sold to roofing contractors and distributors for Built-Up Roofing Asphalt (BURA) systems and to manufacturers in a variety of other
industries, including automotive, chemical, rubber and construction. Owens Corning sells glass fiber and/or glass fiber mat directly to a small number of major shingle manufacturers, including our own roofing manufacturing facilities.



In Latin America, Owens Corning sells building and mechanical insulation primarily through OC
Mexico, as well as exports from U.S. plants. In Asia Pacific, we sell primarily mechanical insulation through joint venture businesses, including two majority owned insulation plants and an insulation fabrication center in China, a minority owned
joint venture in Saudi Arabia, and licensees.



Seasonality



Sales in the Building Materials Systems segment tend to follow
seasonal home improvement, remodeling and renovation, and new construction industry patterns. The peak season for home construction and remodeling generally corresponds with the second and third calendar quarters. Sales levels for the segment,
therefore, are typically higher during these quarters and lower in the winter months.



Major Customers



No customer in the Building Materials
Systems segment accounted for more than 6% of the segments sales in 2004.



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ITEM 1. BUSINESS (continued)



COMPOSITE SOLUTIONS



Principal Products and
Methods of Distribution



Composite Solutions operates in North
America, Europe, Latin America and Asia Pacific, with affiliates and licensees around the world.



Owens Corning is a leading producer of glass fiber materials used in composites. Composites are made up of two or more components (e.g., plastic resin and a fiber, traditionally a glass fiber) and are used in various
applications to replace traditional materials, such as aluminum, wood, and steel. We are increasingly providing systems that are designed for a specific end-use application, and entail a material, a proprietary process and a fully assembled part or
system. The global composites industry has thousands of end-use applications. Owens Corning has selected strategic markets and end-users where we provide integral solutions, such as the building construction and transportation markets.



Tubs, showers and other related internal building components used for both remodeling and
new construction are major applications of composite materials in the construction market. These end-use products are some of the first successful material substitution conversions normally encountered in developing countries. Glass fiber
reinforcements and composite material solutions for these markets are sold to direct accounts and to distributors around the world, who in turn service thousands of customers.



A significant portion of transportation-related composite solutions are used in automotive applications. Non-automotive transportation
applications include heavy trucks, rail cars, shipping containers, refrigerated containers, trailers and commercial ships. Growth continues in automotive applications, as composite systems create new applications or displace other materials in
existing applications. There are hundreds of automotive composites applications, including body panels, door modules, integrated front-end systems, instrument panels, chassis and underbody components and systems, pick-up truck beds, and heat and
noise shields. These composite parts are either produced by original equipment manufacturers (OEMs) or are purchased by OEMs from first-tier suppliers.



The Composite Solutions segment also serves thousands of applications within the consumer, industrial and infrastructure markets, which
include sporting goods and marine applications. Owens Corning sells composite materials to OEMs and other finished goods manufacturers, both directly and through distributors.



Major Customers



No customer in the Composite Solutions segment accounted for more than 8% of the segments sales in 2004.



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ITEM 1. BUSINESS (continued)



GENERAL



Raw Materials and Patents



Owens Corning
considers the sources and availability of raw materials, supplies, equipment and energy necessary for the conduct of business in each of our operating segments to be adequate.



Owens Corning has numerous United States and foreign patents issued and applied for relating to our products and processes in each operating
segment, resulting from research and development efforts.



We have issued
royalty-bearing patent licenses to companies in several foreign countries. The licenses cover technology relating to both operating segments.



Including registered trademarks for the Owens Corning logo and the color PINK, Owens Corning has approximately 350 trademarks registered in the United States and
approximately 1,400 trademarks registered in other countries.



We consider our
patent and trademark positions to be adequate for the present conduct of business in each of our operating segments.



Working Capital



Owens Cornings
manufacturing operations in each operating segment are generally continuous in nature, and we warehouse much of our production prior to sale since we operate primarily with short delivery cycles.



Number of Employees



Owens Corning averaged
approximately 18,000 employees during 2004 and had approximately 19,000 employees at December 31, 2004.



Research and Development



During 2004, 2003,
and 2002, Owens Corning spent approximately $47 million, $43 million, and $42 million, respectively, for science and technology activities related to research and development. Customer-sponsored research and development was not material in any of
the last three years.



Environmental Control



Owens Cornings
capital expenditures relating to compliance with environmental control requirements were approximately $2 million in 2004. We currently estimate that such capital expenditures will be approximately $7 million in 2005 and $3 million in 2006.



We have not experienced a material adverse effect upon our capital
expenditures or competitive position as a result of environmental control legislation and regulations. Operating costs associated with environmental compliance were approximately $42 million in 2004. We continue to invest in equipment and process
modifications to remain in compliance with applicable environmental laws and regulations worldwide.



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ITEM 1. BUSINESS (continued)



The 1990 Clean Air Act Amendments (Act) provide that the United States Environmental Protection Agency
(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 manufacturing in April 2002, and for reinforced plastic composites manufacturing 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 by 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.



Competition



Owens Cornings products
compete with a broad range of products made from numerous basic, as well as high-performance, materials.



We compete with a number of manufacturers in the United States of glass fibers in primary forms, not all of which produce a broad line of glass fiber products. Approximately one-half of these producers compete with
our Building Materials Systems operating segment in the sale of glass fibers in primary form. The other producers compete with our Composite Solutions operating segment. Companies in other countries export moderate quantities of glass fiber products
to the United States. We also compete outside the United States with a number of manufacturers of glass fibers in primary forms.



We also compete with many manufacturers, fabricators and distributors in the sale of products made from glass fibers. In addition, we compete with many other
manufacturers in the sale of roofing materials for sloped roofing, industrial asphalts, vinyl siding, windows and patio doors, and other products.



Methods of competition include brand recognition, product performance, price, terms, service and warranty.



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ITEM 2. PROPERTIES



PLANTS



Owens Cornings principal plants,
and certain other facilities, as of December 31, 2004, are listed below by operating segment and primary products, and are owned except as noted. We consider that these properties are in good condition and well maintained, and are suitable and
adequate to carry on our business. The capacity of each plant varies depending upon product mix.



Certain of the facilities listed below are shown as leased properties. Pursuant to the Bankruptcy Code, Owens Corning and the other Debtors in the Chapter 11 Cases may elect to reject or assume unexpired
pre-petition leases. The Debtors are currently reviewing the leases for which such an election exists to determine whether they should be assumed or rejected. The Bankruptcy Court has extended the time period within which the Debtors must make their
elections through June 4, 2005, and may grant further extensions. In the process of their review, the Debtors may conclude that certain of the arrangements constitute secured financings rather than leases, in which event the Debtors may take action
to obtain a court determination that the applicable facility is owned rather than leased.



BUILDING MATERIALS SYSTEMS



Thermal and
Acoustical Insulation



|                    |  |                        
|------------------- |  | -----------------------
|Delmar, New York    |  | Newark, Ohio           
|Eloy, Arizona       |  | Salt Lake City, Utah   
|Fairburn, Georgia   |  | Santa Clara, California
|Kansas City, Kansas |  | Waxahachie, Texas      
|                    | 
|Anshan, China       |  | Mexico City, Mexico    
|Candiac, Canada     |  | Scarborough, Canada    
|Edmonton, Canada    |  | Shanghai, China        
|Guangzhou, China    |  |                        



Foam Insulation



|                    |  |                   
|------------------- |  | ------------------
|Rockford, Illinois  |  | Tallmadge, Ohio   
|                    | 
|Nanjing, China      |  | Volpiano, Italy(1)
|Valleyfield, Canada |  |                   



|(1) | Facility is leased.
|--- | -------------------



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ITEM 2. PROPERTIES (continued)



OEM Solutions



|                           |  |                           
|-------------------------- |  | --------------------------
|Cleveland, Tennessee(1)    |  | Ladysmith, Wisconsin(1)   
|                           | 
|Columbus, Ohio(1)          |  | Los Angeles, California(1)
|                           | 
|Dallas, Texas(1)           |  | Louisville, Kentucky(1)   
|                           | 
|Indianapolis, Indiana(1)   |  | Springfield, Tennessee(1) 
|                           | 
|Johnson City, Tennessee(1) |  | Tiffin, Ohio(1)           
|                           | 
|Brantford, Canada          |  |                           



|(1) | Facility is leased.
|--- | -------------------



Roofing



|                      |  |                       
|--------------------- |  | ----------------------
|Atlanta, Georgia      |  | Kearny, New Jersey    
|                      | 
|Brookville, Indiana   |  | Medina, Ohio          
|                      | 
|Compton, California   |  | Memphis, Tennessee    
|                      | 
|Denver, Colorado      |  | Minneapolis, Minnesota
|                      | 
|Houston, Texas        |  | Portland, Oregon      
|                      | 
|Irving, Texas         |  | Savannah, Georgia     
|                      | 
|Jacksonville, Florida |  | Summit, Illinois      
|                      | 
|Jessup, Maryland      |  |                       



Asphalt Processing



|                          |  |                                 
|------------------------- |  | --------------------------------
|Atlanta, Georgia          |  | Jessup, Maryland                
|                          | 
|Channelview, Texas        |  | Kearny, New Jersey              
|                          | 
|Compton, California       |  | Medina, Ohio                    
|                          | 
|Denver, Colorado          |  | Memphis, Tennessee              
|                          | 
|Detroit, Michigan         |  | Minneapolis, Minnesota          
|                          | 
|Ennis, Texas              |  | Mobile, Alabama(2)              
|                          | 
|Ft. Lauderdale, Florida   |  | Morehead City, North Carolina(1)
|                          | 
|Granite City, Illinois(1) |  | North Bend, Ohio                
|                          | 
|Houston, Texas            |  | Oklahoma City, Oklahoma         
|                          | 
|Irving, Texas             |  | Portland, Oregon                
|                          | 
|Jacksonville, Florida     |  | Summit, Illinois                



|(1) | Facility is leased.
|--- | -------------------



|(2) | Operated under management agreement.
|--- | ------------------------------------



Glass Mat/Wet Chop



|                      |  |                   
|--------------------- |  | ------------------
|Aiken, South Carolina |  | Jackson, Tennessee
|                      | 
|Fort Smith, Arkansas  |  |                   



Manufactured Stone Veneer



|                           |  |              
|-------------------------- |  | -------------
|Chester, South Carolina(1) |  | Navarre, Ohio
|                           | 
|Napa, California           |  |              



|(1) | Facility is leased.
|--- | -------------------



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ITEM 2. PROPERTIES (continued)



Vinyl Siding



|                                            |  |                          
|------------------------------------------- |  | -------------------------
|Claremont, North Carolina  Joplin, Missouri |  | Olive Branch, Mississippi
|                                            | 
|London, Ontario                             |  |                          



In addition, Owens Corning has
approximately 170 distribution centers in 39 states in the United States, substantially all of which are leased. The Company also provides residential construction services through 22 leased locations in 12 states.



COMPOSITE SOLUTIONS



Textiles and
Reinforcements



|                           |  |                            
|-------------------------- |  | ---------------------------
|Amarillo, Texas            |  | Huntingdon, Pennsylvania(1)
|                           | 
|Anderson, South Carolina   |  | New Braunfels, Texas(1)    
|                           | 
|Apeldoorn, The Netherlands |  | Liversedge, United Kingdom 
|                           | 
|Battice, Belgium           |  | Mexico City, Mexico        
|                           | 
|Birkeland, Norway          |  | Rio Claro, Brazil          
|                           | 
|Guelph, Canada             |  | San Vincente deCastellet/  
|                           | 
|Kimchon, Korea             |  | Barcelona, Spain           
|                           | 
|LArdoise, France          |  | Taloja, India              



|(1) | Facility is leased.
|--- | -------------------



Manufactured Housing/Recreational Vehicles/Specialty Parts



|                |  |                  
|--------------- |  | -----------------
|Goshen, Indiana |  | Nappanee, Indiana



Automotive



|                             |  | 
|---------------------------- |  | 
|Lancaster, United Kingdom(1) |  | 



|(1) | Facility is leased.
|--- | -------------------



OTHER PROPERTIES



Owens Cornings principal
executive offices are located in the Owens Corning World Headquarters, Toledo, Ohio, a leased facility of approximately 400,000 square feet.



Owens Cornings research and development activities are primarily conducted at our Science and Technology Center, located on approximately 500 acres of land outside
Granville, Ohio. It consists of more than 20 structures totaling more than 600,000 square feet. In addition, we have Application Development and other product and market focused research and development centers in Novi, Michigan, Summit, Illinois,
Tallmadge, Ohio, Apeldoorn, The Netherlands, Battice, Belgium, Mexico City, Mexico, Rio Claro, Brazil, and Shanghai, China.



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ITEM 3. LEGAL PROCEEDINGS



Note 19 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 May 27, 2004, the United States Court of Appeals for the Third Circuit (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.



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. See Note 1 to the Consolidated Financial Statements.



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ITEM 3. 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 the Company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.



The holders of the debt under the Pre-Petition Credit Facility, and certain other members of the major creditor groups, have indicated that they continue to oppose the
Plan, including a group identifying itself as an Ad Hoc Committee of Bondholders that claims to have a blocking position that will allow them to prevent a vote in favor of the Plan by Owens Cornings bondholders.



The Plan is subject to confirmation by the Bankruptcy Court. There can be no assurance that
the 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.



The Plan is premised upon the substantive consolidation of Owens Corning and certain of its direct and indirect subsidiaries (but not the
Fibreboard Settlement Trust (see Note 20 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. On October 5, 2004, the District Court issued a Memorandum and Order Concerning Substantive Consolidation. In that
Memorandum and Order, the District Court granted the Debtors motion for substantive consolidation and ordered that counsel for the participating parties meet for the purpose of attempting to achieve an agreed-upon plan of reorganization. On
October 13, 2004, the holders of the debt under the Pre-Petition Credit



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ITEM 3. LEGAL PROCEEDINGS (continued)



Facility filed an appeal of the Memorandum and Order with the Third Circuit. On November 2, 2004, the Debtors, the Official Committee of Asbestos Claimants,
the Legal Representative for the class of future asbestos claimants, and the official representatives of the Companys pre-petition bondholders and trade creditors filed a joint motion to dismiss such appeal on the grounds that the Memorandum
and Order is not a final judgment or otherwise appealable. The Third Circuit denied the motion to dismiss on January 26, 2005, and heard oral arguments on the appeal of the Memorandum and Order on February 7, 2005. Because our currently proposed
Plan of Reorganization is based upon substantive consolidation, a Third Circuit reversal of the District Courts Order could potentially result in significant delays in our case.



A six-day claims estimation hearing was held before the District Court beginning January 13,
2005. The purpose of the claims estimation hearing was to establish the amount of current and future asbestos liability to be allowed in the Chapter 11 Cases. In general, the holders of the debt under the Pre-Petition Credit Facility argued that the
amount of the Companys current and future asbestos liability should be set at an amount significantly lower than the amounts reserved for asbestos claims on the financial statements of the Debtors, and the Official Committee of Asbestos
Claimants and the Legal Representative for the class of future asbestos claimants argued that such asbestos liability should be set at a significantly higher level. Post-trial briefs in this matter were filed by February 18, 2005. The District Court
has not indicated when it expects to render a decision on this matter, and no assurance can be given as to whether the amount of current and future asbestos liability established as a result of such claims estimation hearing will be more or less
than the amounts reserved for asbestos claims on the financial statements of the Debtors or will be more or less than the $16 billion amount that the Official Committee of Asbestos Claimants and the Legal Representative for the class of future
asbestos claimants have established as the level below which they have reserved the right to withdraw support of 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 provides for partial payment of all unsecured creditors allowed claims, in the form of distributions of new common stock and notes of the reorganized company, and cash. 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 discussed in greater detail in Note 1 to the
Consolidated Financial Statements.



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 Claimants. Further proceedings on this matter have been continued until a status conference on the motion.



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ITEM 3. LEGAL PROCEEDINGS (continued)



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 Claimants 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 Claimants have each filed responsive pleadings to the motion. The USBC has 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



Owens Corning has nothing to report under this Item.



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Executive Officers of Owens Corning

(as of January 31, 2005)



The name, age and business experience during the past five years of Owens Cornings
executive officers as of January 31, 2005 are set forth below. Each executive officer holds office until his or her successor is elected and qualified or until his or her earlier resignation, retirement or removal. All those listed have been
employees of Owens Corning during the past five years except as indicated.



|                        |  |                                                                                                                                                                                                                                                                                                                              
|----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name and Age            |  | Position*                                                                                                                                                                                                                                                                                                                    
|Sheree L. Bargabos (49) |  | Vice President and President, Exterior Systems Business since August 2002; formerly Vice President, Training and Development (2001), and Vice President and General Manager, Foam, Insulating
Systems Business.                                                                                                              
|                        | 
|David T. Brown (56)     |  | President and Chief Executive Officer since April 2002; formerly Executive Vice President and Chief Operating Officer (2001), and Vice President and President, Insulating Systems Business.
Director since January 2002.                                                                                                    
|                        | 
|Charles E. Dana (49)    |  | Vice President and President, Composite Solutions Business since February 2004; formerly Vice President - Corporate Controller and Global Sourcing (2002), Vice President, Global Sourcing and
eBusiness (2001), Vice President, Owens Corning Supply Chain Solutions (2000), and Vice President, Global Sourcing Management.
|                        | 
|Roy D. Dean (45)        |  | Vice President and Corporate Controller since March 2004; formerly Vice President and Controller, Insulating Systems Business.                                                                                                                                                                                               
|                        | 
|Daniel J. Dietzel (50)  |  | Vice President and President, Siding Solutions Business since July 2002; formerly Vice President, Distribution - Exterior Systems Business.                                                                                                                                                                                  
|                        | 
|Joseph C. High (50)     |  | Senior Vice President, Human Resources since January 2004; formerly Vice President, Human Resources for ConocoPhillips (2001), and Vice President, Human Resources for Rockwell
Automation.                                                                                                                                  
|                        | 
|David L. Johns (46)     |  | Senior Vice President and Chief Supply Chain and Information Technology Officer since April 2001; formerly Vice President and Chief Technology Officer.                                                                                                                                                                      
|                        | 
|George E. Kiemle (57)   |  | Vice President and President, Insulating Systems Business since February 2001; formerly Vice President, Manufacturing, Insulating Systems Business.                                                                                                                                                                          
|                        | 
|Stephen K. Krull (40)   |  | Senior Vice President, General Counsel and Secretary since February 2003; formerly Vice President, Corporate Communications (2002), and Vice President and General Counsel,
Operations.                                                                                                                                      
|                        | 
|Michael H. Thaman (40)  |  | Chairman of the Board and Chief Financial Officer since April 2002; formerly Senior Vice President and Chief Financial Officer (2000), and Vice President and President, Exterior Systems
Business. Director since January 2002.                                                                                             



|* | Information in parentheses indicates year in which service in position began.
|- | -----------------------------------------------------------------------------



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PART II



ITEM 5. MARKET FOR OWENS CORNINGS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES



Prior to December 19, 2002, Owens Cornings common stock traded on the New York Stock Exchange (the NYSE) under the symbol OWC. On December
16, 2002, the NYSE determined that Owens Cornings common stock should be suspended from trading on the NYSE before the opening of the trading session on December 19, 2002, because the Company had fallen below the NYSEs continued listing
standards requiring (a) average global market capitalization over a consecutive 30 trading-day period of not less than $50 million and total stockholders equity of not less than $50 million and (b) an average closing price of the
Companys common stock of not less than $1.00 over a consecutive 30 trading-day period. Pursuant to subsequent application of the NYSE, the Companys common stock was removed from listing and registration on the NYSE effective January 30,
2003.



Effective December 19, 2002, Owens Cornings common stock has been
traded on the Over The Counter Bulletin Board (OTCBB) under the symbol OWENQ. During 2004 and 2003, the high and low bid prices on the OTCBB were as follows:



|               |  |      |  |      |  |                |  |      |  |     
|-------------- |  | ---- |  | ---- |  | -------------- |  | ---- |  | ----
|2004           |  | High |  | Low  |  | 2003           |  | High |  | Low 
|               |  |      |  |      | 
|First Quarter  |  | 0.67 |  | 0.39 |  | First Quarter  |  | 0.74 |  | 0.05
|               |  |      |  |      | 
|Second Quarter |  | 0.92 |  | 0.34 |  | Second Quarter |  | 1.25 |  | 0.05
|               |  |      |  |      | 
|Third Quarter  |  | 0.83 |  | 0.47 |  | Third Quarter  |  | 1.20 |  | 0.50
|               |  |      |  |      | 
|Fourth Quarter |  | 5.71 |  | 0.54 |  | Fourth Quarter |  | 0.91 |  | 0.30



The number of stockholders of record
of Owens Cornings common stock on January 31, 2005 was 6,774.



As a
result of the Filing on October 5, 2000, Owens Corning (1) did not pay any dividends during its two most recent fiscal years and (2) will not pay cash dividends for the foreseeable future.



NOTICE PROCEDURES AND TRANSFER RESTRICTIONS ON TRADING



On March 1, 2005, the USBC issued an order (the Interim Order) imposing certain
notice procedures and transfer restrictions on the trading of equity securities of Owens Corning. The Interim Order was sought by Owens Corning and certain of its subsidiaries to avoid limitations on the use of their tax net operating loss
carryforwards and certain other tax attributes. Under the Interim Order, all persons or entities who currently or in the future beneficially own at least 4.75% of the outstanding equity securities of Owens Corning, or who would own that amount upon
completion of an acquisition of such securities, are required to provide notice of such status, or before effecting that transaction, as the case may be. The Debtors have the right to object in the USBC if the acquisition or sale would pose a
material risk of adversely affecting the Debtors ability to utilize their tax net operating loss carryforwards or certain related tax attributes. Any purchase, sale or other transfer of Owens Corning equity securities in violation of the
restrictions of the Interim Order would be null and void ab initio. A hearing on the Debtors motion to make the Interim Order a Final Order will be held in the USBC on April 25, 2005. Any objections to the interim relief granted in the Interim
Order becoming final, or the entry of a Final Order granting the relief sought in the motion, must be filed with the USBC by 4:00 pm prevailing Eastern time on April 8, 2005. For the full text of the Order, see Exhibit 99 to this Annual Report.



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ITEM 5. MARKET FOR OWENS CORNINGS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES (continued)



SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS



Owens Corning has various pre-Filing equity compensation plans under which equity securities
are authorized for issuance. Information regarding these securities as of December 31, 2004, is as follows:



|                                                           |  |                                                                                          |     |  |                                                                          |       |     |                                                                                                                                        |           |    
|---------------------------------------------------------- |  | ---------------------------------------------------------------------------------------- | --- |  | ------------------------------------------------------------------------ | ----- | --- | -------------------------------------------------------------------------------------------------------------------------------------- | --------- | ---
|                                                           |  | (a)                                                                                      |     |  | (b)                                                                      |       |     | (c)                                                                                                                                    |          
|Plan Category                                              |  | Number of Securities tobe issued upon exerciseof outstanding options,warrants and rights |     |  | Weighted-averageexercise price ofoutstanding options,warrants and rights |       |     | Number of securitiesremaining available forfuture issuance underequity
compensationplans (excluding securitiesreflected in column (a)) |          
|                                                           |  |                                                                                          |    
|Equity compensation plans approved by security holders     |  | 2,486,183                                                                                | (1) |  | $                                                                        | 33.43 | (1) |                                                                                                                                        | 389,000   | (2)
|                                                           |  |                                                                                          |    
|Equity compensation plans not approved by security holders |  | 1,889,359                                                                                | (3) |  | $                                                                        | 30.84 | (3) |                                                                                                                                        | 1,204,831 | (3)
|                                                           |  |                                                                                          |    
|Total                                                      |  | 4,375,542                                                                                |     |  | $                                                                        | 32.31 |     |                                                                                                                                        | 1,593,831 |    



|(1) | Relates to the Companys Stock Performance Incentive Plan and 1987 Stock Plan for
Directors.
|--- | --------------------------------------------------------------------------------------------



|(2) | Relates to the Companys 1987 Stock Plan for Directors.
|--- | -------------------------------------------------------



|(3) | Relates to the Companys 1995 Stock Plan.
|--- | -----------------------------------------



For additional information concerning these plans, including the number of securities available for future issuance, please see Note 21 to the Consolidated Financial
Statements. No securities were granted under these plans in 2004, and the Company does not anticipate additional grants for the foreseeable future.



ISSUER PURCHASES OF EQUITY SECURITIES



No purchase of Owens Corning equity securities was made by Owens Corning during the fourth quarter of 2004.



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ITEM 6. SELECTED FINANCIAL DATA



The following is
a summary of certain financial information of the Company.



|                                                                                       |  |                                                                 |        |   |         |   |        |         |  |   |         |   |  |         |        |   |  |   |        |  
|-------------------------------------------------------------------------------------- |  | --------------------------------------------------------------- | ------ | - | ------- | - | ------ | ------- |  | - | ------- | - |  | ------- | ------ | - |  | - | ------ | -
|                                                                                       |  | 2004(a)                                                         |        |   | 2003(b) |   |        | 2002(c) |  |   | 2001(d) |   |  | 2000(e) |       
|                                                                                       |  | (In millions of dollars, except per share data and where noted) |       
|Net sales                                                                              |  | $                                                               | 5,675  |   |         | $ | 4,996  |         |  | $ | 4,872   |   |  | $       | 4,762  |   |  | $ | 4,940  |  
|Cost of sales                                                                          |  |                                                                 | 4,649  |   |         |   | 4,170  |         |  |   | 4,130   |   |  |         | 3,938  |   |  |   | 4,014  |  
|Marketing, administrative and other expenses                                           |  |                                                                 | 522    |   |         |   | 438    |         |  |   | 505     |   |  |         | 565    |   |  |   | 659    |  
|Science and technology expenses                                                        |  |                                                                 | 47     |   |         |   | 43     |         |  |   | 42      |   |  |         | 37     |   |  |   | 52     |  
|Restructure costs                                                                      |  |                                                                 |       |   |         |   | (2     | )       |  |   | 61      |   |  |         | 26     |   |  |   | 32     |  
|Provision (credit) for asbestos litigation claims                                      |  |                                                                 | (24    | ) |         |   | (5     | )       |  |   | 2,351   |   |  |         | (7     | ) |  |   | 790    |  
|Chapter 11 related reorganization items                                                |  |                                                                 | 54     |   |         |   | 85     |         |  |   | 96      |   |  |         | 87     |   |  |   | 24     |  
|Income (loss) from operations                                                          |  |                                                                 | 427    |   |         |   | 267    |         |  |   | (2,313  | ) |  |         | 116    |   |  |   | (631   | )
|Interest expense, net                                                                  |  |                                                                 | (12    | ) |         |   | 8      |         |  |   | 16      |   |  |         | 16     |   |  |   | 155    |  
|Other                                                                                  |  |                                                                 |       |   |         |   |       |         |  |   |        |   |  |         | (2     | ) |  |   | 5      |  
|Income (loss) before income tax expense (benefit)                                      |  |                                                                 | 439    |   |         |   | 259    |         |  |   | (2,329  | ) |  |         | 102    |   |  |   | (791   | )
|Income tax expense (benefit)                                                           |  |                                                                 | 227    |   |         |   | 145    |         |  |   | 31      |   |  |         | 57     |   |  |   | (312   | )
|Cumulative effect of change in accounting principle, net of tax                        |  |                                                                 |       |   |         |   |       |         |  |   | (441    | ) |  |         |       |   |  |   |       |  
|Net income (loss)                                                                      |  |                                                                 | 204    |   |         |   | 115    |         |  |   | (2,809  | ) |  |         | 39     |   |  |   | (478   | )
|Net income (loss) before cumulative effect of change in accounting principle per share |  |                                                                 |        |   |         |   |        |         |  |   |         |   |  |         |        |   |  |   |        |  
|Basic                                                                                  |  |                                                                 | 3.68   |   |         |   | 2.08   |         |  |   | (43.01  | ) |  |         | 0.72   |   |  |   | (8.71  | )
|Diluted                                                                                |  |                                                                 | 3.40   |   |         |   | 1.92   |         |  |   | (43.01  | ) |  |         | 0.66   |   |  |   | (8.71  | )
|Net income (loss) per share                                                            |  |                                                                 |        |   |         |   |        |         |  |   |         |   |  |         |        |   |  |   |        |  
|Basic                                                                                  |  |                                                                 | 3.68   |   |         |   | 2.08   |         |  |   | (51.02  | ) |  |         | 0.72   |   |  |   | (8.71  | )
|Diluted                                                                                |  |                                                                 | 3.40   |   |         |   | 1.92   |         |  |   | (51.02  | ) |  |         | 0.66   |   |  |   | (8.71  | )
|Dividends per share on common stock                                                    |  |                                                                 |        |   |         |   |        |         |  |   |         |   |  |         |        |   |  |   |        |  
|Declared                                                                               |  |                                                                 |       |   |         |   |       |         |  |   |        |   |  |         |       |   |  |   | 0.2250 |  
|Paid                                                                                   |  |                                                                 |       |   |         |   |       |         |  |   |        |   |  |         |       |   |  |   | 0.2250 |  
|Weighted-average number of shares outstanding (in thousands)                           |  |                                                                 |        |   |         |   |        |         |  |   |         |   |  |         |        |   |  |   |        |  
|Basic                                                                                  |  |                                                                 | 55,307 |   |         |   | 55,196 |         |  |   | 55,054  |   |  |         | 55,056 |   |  |   | 54,816 |  
|Diluted                                                                                |  |                                                                 | 59,933 |   |         |   | 59,874 |         |  |   | 55,054  |   |  |         | 59,945 |   |  |   | 54,816 |  
|Net cash flow from operations                                                          |  |                                                                 | 449    |   |         |   | 295    |         |  |   | 357     |   |  |         | 478    |   |  |   | (190   | )
|Additions to plant and equipment                                                       |  |                                                                 | 232    |   |         |   | 208    |         |  |   | 248     |   |  |         | 270    |   |  |   | 476    |  
|Total assets                                                                           |  |                                                                 | 7,639  |   |         |   | 7,358  |         |  |   | 7,016   |   |  |         | 7,162  |   |  |   | 6,912  |  
|Long-term debt(f)                                                                      |  |                                                                 | 38     |   |         |   | 73     |         |  |   | 71      |   |  |         | 5      |   |  |   | 7      |  
|Liabilities subject to compromise(f)                                                   |  |                                                                 | 9,171  |   |         |   | 9,258  |         |  |   | 9,236   |   |  |         | 6,804  |   |  |   | 6,935  |  
|Average number of employees (in thousands)                                             |  |                                                                 | 18     |   |         |   | 18     |         |  |   | 18      |   |  |         | 19     |   |  |   | 20     |  



|(a) | During 2004, the Company recorded pretax income of $5 million ($3 million after-tax) for restructuring and other charges, pretax charges of $54 million ($27 million
after-tax) for Chapter 11 related reorganization expenses, and pretax income of $24 million ($14 million after-tax) for asbestos-related insurance recoveries.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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ITEM 6. SELECTED FINANCIAL DATA (continued)



|(b) | During 2003, the Company recorded pretax charges of $34 million ($18 million after-tax) for
restructuring and other charges, $85 million ($37 million after-tax) for Chapter 11 related reorganization expenses, and pretax income of $5 million ($3 million after-tax) for asbestos-related insurance recoveries.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(c) | During 2002, the Company recorded pretax charges of $166 million ($103 million after-tax) for
restructuring and other charges, $96 million ($48 million after-tax) for Chapter 11 related reorganization expenses, $2,351 million ($2,351 million after-tax) for asbestos litigation claims, and $491 million ($441 million after-tax) for the
cumulative effect of change in accounting principle related to the adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, effective January 1, 2002.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(d) | During 2001, the Company recorded pretax charges of $140 million ($89 million after-tax) for
restructuring and other charges and $87 million ($54 million after-tax) for Chapter 11 related reorganization expenses, and pretax income of $7 million ($4 million after-tax) for asbestos-related insurance recoveries.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(e) | During 2000, the Company recorded pretax charges of $790 million ($486 million after-tax) for
asbestos litigation claims, $24 million ($15 million after-tax) for Chapter 11 related reorganization expenses, and $229 million ($149 million after-tax) for restructuring and other charges.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(f) | On October 5, 2000, Owens Corning and 17 of its United States subsidiaries filed voluntary
petitions for relief under Chapter 11 of the United States Bankruptcy Code. In accordance with AICPA Statement of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code, beginning in October 2000, the
Company classified substantially all pre-petition liabilities of the Debtors (see Note 1 to the Consolidated Financial Statements) as Liabilities Subject to Compromise on the Consolidated Balance Sheet. Included in this item at December
31, 2004 and 2003 were:
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                       |  |                          |       |      |   |      
|------------------------------------------------------ |  | ------------------------ | ----- | ---- | - | -----
|                                                       |  | 2004                     |       | 2003
|                                                       |  | (In millions of dollars)
|Accounts payable and accrued liabilities               |  | $                        | 209   |      | $ | 213  
|Accrued interest payable                               |  |                          | 40    |      |   | 42   
|Debt                                                   |  |                          | 2,958 |      |   | 2,896
|Income taxes payable                                   |  |                          | 90    |      |   | 233  
|Reserve for asbestos litigation claims - Owens Corning |  |                          | 3,565 |      |   | 3,565
|Reserve for asbestos-related claims - Fibreboard       |  |                          | 2,309 |      |   | 2,309
|                                                       |  |                          |       |      |   |      
|Total consolidated                                     |  | $                        | 9,171 |      | $ | 9,258
|                                                       |  |                          |       |      |   |      



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I
TEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



(All per share information discussed below is on a diluted basis.)



OVERVIEW



General Business Overview



Owens
Corning is a global producer of a variety of products to serve consumers and industrial customers with building materials and composite systems. Our purpose is to deliver solutions, transform markets and enhance lives. Our people have been focused
on safety and the elimination of all injuries. We continued to make progress on this goal during 2004 as measured by reducing our incident rate by more than 7 percent. We are also focused on delivering value by improving operational efficiencies,
effectively deploying capital to meet market demands, growing end use markets through application development and executing on our pricing strategies.



Owens Corning operates in two reportable business segments  Building Materials Systems and Composite Solutions. The Building Materials Systems segment operates
primarily in the United States and Canada, with a growing presence in Asia Pacific and Mexico. This segment serves customers in the home improvement and new residential and new commercial construction markets. Our Composite Solutions segment has
operations around the world, including several licensees and affiliates, serving customers in multiple markets, such as building construction, transportation, consumer, industrial, and infrastructure.



On October 5, 2000, Owens Corning and 17 of its subsidiaries filed voluntary petitions for
relief under Chapter 11 of the United States Bankruptcy Code in order to address the growing demands on our cash flow resulting from our multi-billion dollar asbestos liability. An overview of our bankruptcy proceedings appears below, and a more
detailed review begins on page 29.



Chapter 11 Overview



In 2004, the Company marked the fourth anniversary of its filing
under Chapter 11 to resolve our asbestos liability. Since our filing in 2000, we have worked diligently to formulate a Plan of Reorganization that deals fairly and equitably with all of our creditors and their claims. Our strategy has been to
steadily advance our case while attempting to facilitate a Plan that could be supported by all of our creditors (Consensual Plan). Having a Consensual Plan would allow Owens Corning to move towards emergence from Chapter 11 without
opposition from any of our major creditor groups. As a result, we would emerge sooner while still maximizing the value of our estate for all creditors. To date, we have been unable to reach a Consensual Plan, but we remain committed to emerging as
soon as possible even if the Plan of Reorganization does not have the support of all creditor groups.



We are pleased with the progress that we made in 2004 in our Chapter 11 proceeding. We began the year with two primary issues that were preventing forward progress in our case. Those issues were (1) the substantive
consolidation of Owens Corning and the other Debtor entities for purposes of the Chapter 11 proceedings and (2) estimation of the total amount of the Companys asbestos liabilities. Both issues were advanced substantially during the year.



With respect to substantive consolidation, Judge Fullam, the Federal District
Court Judge overseeing our case, issued an Order granting our motion requesting substantive consolidation. With substantive consolidation, the assets of our estate, whether held at the parent company or subsidiary level, would be consolidated for
purposes of our Plan and all creditors that have claims against Owens Corning or any of its Debtor subsidiaries would then seek recovery from the consolidated estate. The holders of the Companys bank debt have taken the position that the
estate should not be substantively consolidated.



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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)



They argue that certain pre-petition loan guarantees provided to the bank lenders by subsidiaries of Owens Corning
should entitle them to a preferred recovery over all other unsecured creditors. They have therefore appealed Judge Fullams Order, and that appeal is currently pending before the Third Circuit Court of Appeals. Because our currently proposed
Plan of Reorganization is based upon substantive consolidation, a Third Circuit reversal of Judge Fullams Order could potentially result in significant delays in our case.



The other primary issue in our Chapter 11 proceeding is the determination of the value of the Companys current and future asbestos
liability. The greater the amount of that liability, the lower the recovery will likely be for the Companys non-asbestos creditors. Judge Fullam conducted a six-day asbestos estimation hearing in mid-January of 2005, and all post-trial briefs
were filed by February 18, 2005. The holders of our bank debt have argued that Owens Cornings asbestos liability is lower than the amount that we have currently reserved, and our Asbestos Claimants Committee and Asbsetos Futures Representative
have argued that it is higher. We look forward to Judge Fullams decision on this important issue. We are hopeful that eliminating the uncertainty around the amount of the Companys asbestos liability will serve as a catalyst for
productive settlement discussions among our creditors.



While the Company will
look for any opportunity to engage our creditors in settlement discussions, we believe that it will be difficult to reach a Consensual Plan until the issues of substantive consolidation and the value of our asbestos liability are finally resolved.



An external factor that also has weighed heavily upon the negotiations among
our various creditor groups was the proposed Federal asbestos reform legislation that was pending in the Senate for much of 2003 and 2004 (the FAIR Act). The Companys non-asbestos creditors have believed that the FAIR Act would
reduce the amount of asbestos liability owed by the Company, and would therefore potentially increase the recoveries of non-asbestos creditors. While the FAIR Act did not pass in 2004, there have been ongoing discussions within the Senate regarding
the possible introduction of a new version of the Fair Act in 2005. We cannot currently predict whether the FAIR Act will ultimately be enacted or, if enacted, what impact it would have on our creditors. However, as long as it remains possible that
it could be enacted into law, it is likely to remain a factor in the negotiations among our various creditor groups.



Our going forward strategy continues to be two-fold: (1) look for a compromise that will result in a Consensual Plan supported by all of our creditors and (2) in the
absence of a Consensual Plan, proceed as quickly as possible to confirm our Plan of Reorganization even if it does not have the support of all creditor groups and emerge from Chapter 11.



The Asbestos Claimants Committee and the Asbestos Futures Representative continue to be co-plan proponents with Owens Corning with respect
to our Plan of Reorganization. While there are other non-asbestos creditors who also support our Plan, there continues to be those who have objections to it, including the holders of our bank debt. While we can emerge from Chapter 11 and discharge
our current and future asbestos liability without the support of non-asbestos creditors, we continue to believe that a Consensual Plan will allow us to emerge more quickly. At this time, however, we cannot predict when the Company will be able to
confirm its Plan of Reorganization and successfully emerge.



Throughout 2004,
we profitably grew our business while operating in Chapter 11. For the foreseeable future, we do not believe that continuing to operate in Chapter 11 will inhibit our ability to successfully run and grow our business.



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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)



Operations Overview



The table below provides a summary of our sales and income from operations for the last three years.



|                                                    |  |                          |       |   |      |   |       |      |  |   |        |   
|--------------------------------------------------- |  | ------------------------ | ----- | - | ---- | - | ----- | ---- |  | - | ------ | --
|                                                    |  | 2004                     |       |   | 2003 |   |       | 2002 | 
|                                                    |  | (In millions of dollars) |      
|Sales                                               |  | $                        | 5,675 |   |      | $ | 4,996 |      |  | $ | 4,872  |   
|                                                    |  |                          |       |   |      |   |       |      |  |   |        |   
|Percent change from prior year                      |  |                          | 13.6  | % |      |   | 2.5   | %    |  |   |        |   
|                                                    |  |                          |      
|Income (Loss) From Operations                       |  | $                        | 427   |   |      | $ | 267   |      |  | $ | (2,313 | ) 
|                                                    |  |                          |       |   |      |   |       |      |  |   |        |   
|Income (Loss) From Operations as a percent of sales |  |                          | 7.5   | % |      |   | 5.3   | %    |  |   | (47.5  | )%



Our operating performance in 2004
improved significantly. Compared to 2003, we grew revenue 13.6% and improved income from operations by 59.9%. However, because of the nature of certain costs and expenses related to our Chapter 11 proceedings, asbestos liability, and restructuring
activities as we move towards emergence from bankruptcy, management does not find reported income from operations to be the most useful financial measure of the Companys year-to-year operational performance. Rather, when management reviews the
Companys year-to-year operational performance, we find it useful to exclude such items. The table below provides detail of the items management excludes when evaluating year-to-year operating performance.



|                                                                               |  |                          |     |   |      |   |     |      |  |   |      
|------------------------------------------------------------------------------ |  | ------------------------ | --- | - | ---- | - | --- | ---- |  | - | -----
|                                                                               |  | 2004                     |     |   | 2003 |   |     | 2002
|                                                                               |  | (In millions of dollars)
|Chapter 11 related reorganization items                                        |  | $                        | 54  |   |      | $ | 85  |      |  | $ | 96   
|Provision (credit) for asbestos litigation claims (recoveries) - Owens Corning |  |                          | (24 | ) |      |   | (5  | )    |  |   | 1,376
|Provision for asbestos litigation claims - Fibreboard                          |  |                          |    |   |      |   |    |      |  |   | 975  
|Restructuring and other charges                                                |  |                          | (5  | ) |      |   | 34  |      |  |   | 166  
|                                                                               |  |                          |     |   |      |   |     |      |  |   |      
|Total of items                                                                 |  | $                        | 25  |   |      | $ | 114 |      |  | $ | 2,613
|                                                                               |  |                          |     |   |      |   |     |      |  |   |      



Excluding these items, operating
performance improved approximately 18.6% in 2004 compared to 2003 and 27% in 2003 compared to 2002. In addition to this measure of operating performance, management evaluates operating results through other financial metrics including cash flow and
return on net assets.



Our operating performance led to a strong cash flow
performance during 2004. Cash flow provided by operations was $449 million while our cash provided by operations net of capital spending for plant and equipment was $217 million. We ended the year with a cash balance of $1.125 billion.



A key performance measure used internally by Owens Corning, including as the performance
measure for outstanding cycles of the Companys Long Term Incentive Plan, is a Company defined measure of return on net assets. The measure the Company uses adjusts both income from operations and average net assets for certain items to
determine how effectively management is utilizing Company net assets to produce results. For example, because of our Chapter 11 proceedings, cash and bankruptcy related items are excluded from the Companys calculation. This Company defined
performance measure improved approximately 16% as of December 31, 2004 compared to 2003 and 42% as of December 31, 2003 compared to 2002.



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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)



Major factors affecting the performance of our Building Materials Systems segment during 2004 include:



| |  |  | Low mortgage rates resulted in continued strength in the United States housing markets, positively impacting volumes in the Building Materials Systems segment and our ability to
achieve price increases to recover energy, material, and labor cost inflation.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The continued strength in the marketplace has provided the Building Materials Systems segment with growth opportunities and has enabled us to improve our operating efficiency. Since
several of our product lines were operating at very high utilization rates, we were able to operate our plants at capacities that allowed for improved operating efficiencies.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Increasing costs for energy-related commodities (including natural gas, asphalt and resin) and services (including delivery costs) adversely impacted all of our product lines within
this segment to some extent. While not the case for each product line, in total we were able to achieve price increases to offset the impact of these higher costs.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The acquisition of the remaining 60% ownership interest in Vitro Fibras (OC Mexico) in April 2004 positively contributed to the segments financial performance.
This strategic acquisition provides both the Building Materials and the Composite Solutions segments a greater presence in Latin America and low cost operations that can provide product to serve the North American markets.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Major factors affecting the performance of our Composite Solutions segment during 2004
include:



| |  |  | An improving global economy has increased the demand for glass fibers used in the construction, transportation, consumer, industrial, and infrastructure markets. This increased
demand has allowed us to realize increased volume and improved operating performance in our Composite Solutions segment. With these improvements in market conditions, we believe that the outlook for prices has improved and we have negotiated price
increases into some of our contracts for 2005.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Increasing costs for energy-related commodities and services adversely impacted this segment, primarily through increased raw material costs.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | As global economies improved during 2004, the dollar weakened against most other currencies. Since we have operations around the world, this resulted in favorable foreign currency
exchange gains during the latter half of 2004.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | During 2004, we invested $19 million in our joint venture manufacturing affiliate, Violet Reinforcements, which provides low cost operations in Latin America to serve our United
States markets.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)



Safety



We believe that safety is everyones responsibility and that all accidents are preventable. Consequently, in 2003, we made safety a top Company priority. We measure
our progress on safety based on two measures, the OSHA Recordable Incidents Rate (ORIR) and the Combined Occupational Disability Index (CODI). CODI is a subset of ORIR and includes the more severe incidents that involve lost
or restricted time. The table below provides our performance on these measures for the past three years.



|                    |  |       |   |  |       |   |  |     
|------------------- |  | ----- | - |  | ----- | - |  | ----
|                    |  | 2004  |   |  | 2003  |   |  | 2002
|                    |  |       |  
|ORIR                |  | 3.03  |   |  | 3.85  |   |  | 5.55
|Percent improvement |  | 21.30 | % |  | 30.63 | % |  |     
|                    |  |       |  
|CODI rate           |  | 1.91  |   |  | 2.06  |   |  | 2.92
|Percent improvement |  | 7.28  | % |  | 29.45 | % |  |     



Our goal for 2005 and beyond continues
to be the elimination of all injuries.



Outlook for 2005



During 2005, we plan to continue to invest to improve the
manufacturing efficiency of our current plants while expanding our manufacturing capacity both domestically and internationally, with a focus on Asia Pacific. We have already announced investments in additional capacity for our laminated shingle,
manufactured stone veneer, and insulation product lines, including plans for a new greenfield facility for fiberglass insulation. While most all of our markets were strong as we ended 2004, we continue to closely monitor these markets for any sign
of a potential downturn.



For 2005, we expect interest rates to increase
somewhat but remain low compared to historical averages. The continuing low interest rates should allow the United States housing market to remain strong through at least the first half of 2005. While the current interest rate environment is
advantageous to our performance, we are concerned about a potential environment of rising interest rates as we look ahead.



We believe that demand for energy related commodities is likely to continue to exert an upward pressure on the costs of energy related commodities and services, which we
must continue to mitigate through improved performance and increased prices for our products. While our goal for 2005 is to continue to focus on eliminating waste and inefficiencies in our business and manufacturing processes, we anticipate that we
will still need to realize price increases with our customers to offset cost inflation. Inability to do so may adversely impact our operating results. However, we are coming off an excellent operating performance in 2004 and look forward to carrying
this momentum through 2005.



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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)



RESULTS OF OPERATIONS



Sales and Profitability for the Years ended December 31, 2004 and 2003



NET SALES



Net sales for the year ended December 31, 2004, were $5.675 billion, a 14% increase from the
2003 level of $4.996 billion. This increase was primarily the result of increased volumes in both of our segments and improved pricing in our Building Materials Systems segment. The increased volumes are a result of growth in the United States
housing and remodeling markets and an improving global economy. Our Building Materials Systems segment was able to achieve some price increases in 2004 which, on a consolidated basis, more than offset the price lost in our Composite Solutions
segment. The effect of foreign currency, principally in our Composite Solutions segment, was favorable and contributed approximately $42 million to the $679 million sales increase.



Sales outside the United States represented 16% of total sales in 2004, compared to 15% during 2003. This increase was primarily
attributable to our expansion in Mexico through the acquisition of the outstanding interest in OC Mexico in 2004 and the sale of our U.S.-based metal systems assets and the exiting of certain other U.S.-based product lines in 2003. We expect the
percentage of sales outside the United States to continue to increase as our investments in Asia Pacific begin to mature.



PROFITABILITY



|                             |  |                                                    |       |   |            |      |   |      |   |       |            |  |      |  
|---------------------------- |  | -------------------------------------------------- | ----- | - | ---------- | ---- | - | ---- | - | ----- | ---------- |  | ---- | -
|                             |  | 2004                                               |       |   | % of sales |      |   | 2003 |   |       | % of sales | 
|                             |  | (In millions of dollars, except per share amounts) |      
|                             |  |                                                    |       |  
|Sales                        |  | $                                                  | 5,675 |   |            |      |   |      | $ | 4,996 |            |  |      |  
|                             |  |                                                    |       |  
|Gross margin                 |  |                                                    | 1,026 |   |            | 18.1 | % |      |   | 826   |            |  | 16.5 | %
|                             |  |                                                    |       |  
|Marketing and administrative |  |                                                    | 530   |   |            | 9.3  | % |      |   | 459   |            |  | 9.2  | %
|                             |  |                                                    |       |  
|Income from operations       |  |                                                    | 427   |   |            | 7.5  | % |      |   | 267   |            |  | 5.3  | %
|                             |  |                                                    |       |  
|Income tax expense           |  |                                                    | 227   |   |            |      |   |      |   | 145   |            |  |      |  
|                             |  |                                                    |       |  
|Effective tax rate           |  |                                                    | 52    | % |            |      |   |      |   | 56    | %          |  |      |  
|                             |  |                                                    |       |  
|Net income                   |  |                                                    | 204   |   |            | 3.6  | % |      |   | 115   |            |  | 2.3  | %
|Diluted net income per share |  | $                                                  | 3.40  |   |            |      |   |      | $ | 1.92  |            |  |      |  



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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)



GROSS MARGIN



Gross margin as a percent of sales improved by 1.6% during 2004. Strong demand in the markets in which we operate enabled us to gain
operating efficiencies which improved our margin. Contributing to the increase in margin was an increase in pricing for some of our products. However, the price increases we were able to achieve were substantially offset by higher costs associated
with energy related commodities (particularly oil, natural gas, and resin) and transportation. We have a process to monitor these costs and have partially hedged our near term exposures to increases in the cost of energy and some energy-related
commodities. While the higher energy-related costs are currently being offset by higher prices for some of our products and operating efficiencies, they represent a potential risk to future results.



MARKETING AND ADMINISTRATIVE EXPENSES



Marketing and administrative expenses were $530 million for the year ended December 31,
2004, compared to $459 million for the year ended December 31, 2003. As a percent of sales, these expenses were essentially flat for the two years.



INCOME FROM OPERATIONS



Income from operations increased $160 million, or 59.9%, during 2004 compared to 2003. Approximately $89 million of this increase was due to a $39 million decrease in
restructuring and other charges, a $31 million decrease in Chapter 11 related charges, and an additional $19 million of recoveries for asbestos litigation claims in 2004 compared to 2003. Additionally, during the fourth quarter of 2004 we finalized
our recoveries of insurance proceeds related to the December 2003 flood at our LArdoise, France facility. As a result, we recognized $7 million in gains on the replacement of equipment and $21 million of other income representing business
interruption losses (primarily attributable to the first half of 2004). The balance of the improvement in income from operations was primarily driven by increased sales and improved operating efficiencies derived from the strong demand for our
residential insulation products. Partially offsetting our improvement in income from operations compared to 2003 were foreign exchange losses of approximately $4 million in 2004 compared to gains of $12 million in 2003, and an additional allowance
for doubtful accounts of $5 million in 2004 compared to a reduction of $6 million in 2003.



INCOME TAXES



During 2004, we reached an agreement in principle with the Internal Revenue Service to settle all issues from open tax years from 1986-1999 for approximately $99 million.
The recording of the settlement resulted in several balance sheet reclassifications between various deferred, accrued, and subject to compromise tax related accounts. We also adjusted our tax reserves based on our review of the likelihood of the
deductibility of Chapter 11 related reorganization items, as well as new legislation and other developments during 2004 related to the deductibility of certain items at the state tax level. Due in part to these tax adjustments, our effective tax
rate for 2004 was 52%. During 2004, we utilized a large portion of our net operating loss carryforward, and we expect cash payments for taxes to increase in 2005.



On October 22, 2004, the President signed the American Jobs Creation Act of 2004 (the Act). The Act creates a temporary
incentive for U.S. corporations to repatriate accumulated income earned abroad by providing an 85 percent dividend received deduction for certain dividends from controlled foreign corporations. The deduction is subject to a number of limitations,
and uncertainty remains as to how to interpret numerous provisions of the Act. As such, we are not yet in a position to reevaluate whether, and to what extent, we might repatriate foreign earnings that have not yet been remitted to the United
States. Based on our analysis of this incentive to date, however, it appears possible that we might reevalute the



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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)



repatriation of between $150 million and $200 million of earnings currently considered as permanently reinvested, resulting in a respective tax liability
ranging from $7 million to $11 million. We expect to be in a position to finalize our assessment in the first half of 2005.



As stated above under Item 5, Market for Owens Cornings Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities, on March
1, 2005, the USBC issued an Interim Order imposing certain notice procedures and transfer restrictions on the trading of equity securities of Owens Corning. The Interim Order was sought by Owens Corning and certain of its subsidiaries to avoid
limitations on the use of their tax net operating loss carryforwards and certain other tax attributes. Under the Interim Order, all persons or entities who currently or in the future beneficially own at least 4.75% of the outstanding equity
securities of Owens Corning, or who would own that amount upon completion of an acquisition of such securities, are required to provide notice of such status, or before effecting that transaction, as the case may be. The Debtors have the right to
object in the USBC if the acquisition or sale would pose a material risk of adversely affecting the Debtors ability to utilize their tax net operating loss carryforwards or certain related tax attributes. Under applicable U.S. tax rules, such
tax attributes are generally subject to significant limitations if Owens Corning were to experience a greater than 50 percentage point change in its equity ownership during a rolling three-year period. A hearing on the Debtors motion to make
the Interim Order a Final Order will be held in the USBC on April 25, 2005. For the full text of the Order, see Exhibit 99 to this Annual Report.



NET INCOME



Net income for the year ended December 31, 2004 was $204 million, or $3.40 per share, compared to $115 million, or $1.92 per share, for the prior year. In addition to the
items discussed above, the 2004 results included $16 million in income related to the release of certain guaranteed subsidiary debt. During 2004, we finalized a settlement with certain holders of third party debt by allowing the releasing
debtholders various claims in our Chapter 11 proceedings. This settlement resulted in the reversal of $16 million of accrued interest which we recorded as interest income during 2004. This settlement also resulted in approximately $32 million of
short-term debt and $35 million of long-term debt being reclassified as liabilities subject to compromise on our Consolidated Balance Sheet.



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 December 31, 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 $658 million, of which $142
million relates to 2004, $138 million relates to 2003, and $148 million relates to 2002. Of the total calculated amount, approximately $223 million relates to the Pre-Petition Credit Facility, which is the subject of pre-petition guarantees issued
by certain of Owens Cornings Debtor and non-Debtor subsidiaries. Actual post-petition interest determined under the terms of pre-petition debt may vary from the calculated amounts, perhaps significantly. See Note 1 to the Consolidated
Financial Statements for further information concerning the Chapter 11 proceedings.



Sales and Profitability for the Years ended December 31, 2003 and 2002



NET SALES



Sales during 2003 increased 3% from 2002, to $4.996 billion. In Building Materials Systems, sales were up 3%, with volume increasing in our insulation and manufactured
stone veneer businesses, reflecting growth in the housing and remodeling markets. In addition, sales in our residential roofing business improved as the result of a continuation of product mix shifts to higher-end and premium roofing shingles.



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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)



Prices in Building Materials in 2003 compared to 2002 reflected increases in residential roofing and asphalt product
lines, largely driven by higher material costs. These increases were partially offset by lower insulation prices during 2003. In Composite Solutions, 2003 sales were up 2% from 2002, reflecting increased volume in our core business, partially offset
by the effects of exiting certain non-strategic product lines. During 2003, composite material pricing was lower than 2002, generally as a result of lower industry capacity utilization and competitive pressures. However, this pricing decrease was
more than offset by changes in foreign currency exchange rates, which increased net sales in 2003 by 6% in Composite Solutions, primarily reflecting the benefit of the weaker U.S. dollar relative to the Euro.



Sales outside the United States represented 15% of total sales in 2003, compared to 14%
during 2002. This increase was primarily attributable to the impact of favorable changes in foreign currency exchange rates, which positively impacted sales outside the United States, and the sale of our metal systems assets, and the exiting of
other product lines, which negatively impacted sales in the United States.



PROFITABILITY



|                                                                |  |                                                    |       |   |            |      |   |      |   |        |            |  |       |   
|--------------------------------------------------------------- |  | -------------------------------------------------- | ----- | - | ---------- | ---- | - | ---- | - | ------ | ---------- |  | ----- | --
|                                                                |  | 2003                                               |       |   | % of sales |      |   | 2002 |   |        | % of sales | 
|                                                                |  | (In millions of dollars, except per share amounts) |      
|Sales                                                           |  | $                                                  | 4,996 |   |            |      |   |      | $ | 4,872  |            |  |       |   
|Gross margin                                                    |  |                                                    | 826   |   |            | 16.5 | % |      |   | 742    |            |  | 15.2  | % 
|Marketing and administrative                                    |  |                                                    | 459   |   |            | 9.2  | % |      |   | 522    |            |  | 10.7  | % 
|Income (loss) from operations                                   |  |                                                    | 267   |   |            | 5.3  | % |      |   | (2,313 | )          |  | (47.5 | )%
|Income tax expense                                              |  |                                                    | 145   |   |            |      |   |      |   | 31     |            |  |       |   
|Effective tax rate                                              |  |                                                    | 56    | % |            |      |   |      |   | 1      | %          |  |       |   
|Cumulative effect of change in accounting principle, net of tax |  |                                                    |      |   |            |      |   |      |   | (441   | )          |  | (9.1  | )%
|Net income (loss)                                               |  |                                                    | 115   |   |            | 2.3  | % |      |   | (2,809 | )          |  | (57.7 | )%
|Diluted net income (loss) per share                             |  | $                                                  | 1.92  |   |            |      |   |      | $ | (51.02 | )          |  |       |   



GROSS
MARGIN



Gross margin as a percent of sales improved by 1.3% during 2003.
Results for 2003 reflect charges to cost of sales of $28 million for the write-down of assets, compared to charges of $110 million in 2002 for the write-down of assets and charges in connection with the realignment of our Newark, Ohio manufacturing
facility. Gross margin in 2003 benefited from previous restructuring actions but was negatively impacted by higher raw material costs, mainly attributable to asphalt, PVC and polystyrene, and higher energy costs, principally attributable to natural
gas.



MARKETING AND ADMINISTRATIVE EXPENSES



Marketing and administrative expenses were $459 million and 9.2% of net sales
during the year ended December 31, 2003, compared to $522 million and 10.7% during the year ended December 31, 2002. The decreases in both dollar amount and as a percent of sales were primarily attributable to cost-cutting measures entered into
during 2002 and the beginning of 2003. Please see Restructuring of Operations and Other Charges below for further information on the cost-cutting measures taken.



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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)



INCOME FROM OPERATIONS



The increase in income from operations in 2003 compared to 2002 was primarily attributable
to the $2.356 billion provision for asbestos litigation claims taken in the third quarter of 2002. Other factors contributing to the increase were reduced marketing and administrative expenses, lower restructuring costs, lower Chapter 11 related
reorganization expenses, the beneficial effect of foreign currency exchange rates, and a gain of $10 million in our Composite Solutions business from the sale of fixed assets (recorded as Other in the Consolidated Statement of Income (Loss)). Income
from operations for 2003 was negatively impacted by approximately $5 million in expense for an insurance deductible associated with the flood of our LArdoise, France manufacturing facility.



INCOME TAXES



The Companys effective tax rate for 2003 was approximately 56%, compared to 1% for
2002. The 2003 rate reflects tax reserves in connection with the deductibility of certain Chapter 11 related reorganization expenses. The 2002 rate reflects valuation reserves in connection with the Companys increase, in the third quarter of
2002, of its asbestos-related reserves 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 (see Note 19 to
the Consolidated Financial Statements for further information concerning the Companys asbestos-related liabilities). In connection with such charges, management evaluated the likelihood of allowable tax deductions in light of the
Companys financial position and the Chapter 11 proceedings. As the result of such assessment, management determined that a valuation allowance was required for the full amount of the increase in the asbestos reserves. As a result, no tax
benefit was recorded in connection with the third quarter 2002 asbestos-related charges discussed above.



NET INCOME



For the year ended December 31, 2003, Owens Corning reported net income of $115 million, or $1.92 per share, compared to a net loss of $2.809 billion, or $(51.02) per
share, for the prior year. In addition to the items discussed above, 2002 results reflected a non-cash charge of $491 million ($441 million net of tax) recorded in the first quarter of 2002 as the result of the Companys adoption of Statement
of Financial Accounting Standards No. 142, effective January 1, 2002. Please see Accounting Changes below for additional information.



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 |  |                                         



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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)



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 19 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 May 27, 2004, the United States Court of
Appeals for the Third Circuit (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.



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



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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)



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 the Company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.



The holders of the
debt under the Pre-Petition Credit Facility, and certain other members of the major creditor groups, have indicated that they continue to oppose the Plan, including a group identifying itself as an Ad Hoc Committee of Bondholders that
claims to have a blocking position that will allow them to prevent a vote in favor of the Plan by Owens Cornings bondholders.



Certain terms, conditions and provisions of the Plan are discussed below. The Plan is subject to confirmation by the Bankruptcy Court. There can be no assurance that the
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 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.



As described more fully below under the heading The Plan of Reorganization, the Plan is premised upon the substantive consolidation of Owens Corning and
certain of its direct and indirect subsidiaries (but not the Fibreboard Settlement Trust (see Note 20 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. On October 5, 2004, the District Court issued a Memorandum
and Order Concerning Substantive Consolidation. In that Memorandum and Order, the District Court granted the Debtors motion for substantive consolidation and ordered that counsel for the participating parties meet for the purpose of attempting
to achieve an agreed-upon plan of reorganization. On October 13, 2004, the holders of the debt under the Pre-Petition Credit Facility filed an appeal of the Memorandum and Order with the Third Circuit. On November 2, 2004, the Debtors, the Official
Committee of Asbestos Claimants, the Legal Representative for the class of future asbestos claimants, and the official representatives of the Companys pre-petition bondholders and trade creditors filed a joint motion to dismiss such appeal on
the grounds that the Memorandum and Order is not a final judgment or otherwise appealable. The Third Circuit denied the motion to dismiss on January 26, 2005, and heard oral arguments on the appeal of the Memorandum and Order on February 7, 2005.
Because our currently proposed Plan of Reorganization is based upon substantive consolidation, a Third Circuit reversal of the District Courts Order could potentially result in significant delays in our case.



A six-day claims estimation hearing was held before the District Court beginning January 13,
2005. The purpose of the claims estimation hearing was to establish the amount of current and future asbestos



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liability to be allowed in the Chapter 11 Cases. In general, the holders of the debt under the Pre-Petition Credit Facility argued that the amount of the
Companys current and future asbestos liability should be set at an amount significantly lower than the amounts reserved for asbestos claims on the financial statements of the Debtors, and the Official Committee of Asbestos Claimants and the
Legal Representative for the class of future asbestos claimants argued that such asbestos liability should be set at a significantly higher level. Post-trial briefs in this matter were filed by February 18, 2005. The District Court has not indicated
when it expects to render a decision on this matter, and no assurance can be given as to whether the amount of current and future asbestos liability established as a result of such claims estimation hearing will be more or less than the amounts
reserved for asbestos claims on the financial statements of the Debtors or will be more or less than the $16 billion amount that the Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants
have established as the level below which they have reserved the right to withdraw support of the Plan.



Related Developments



PROPOSED ASBESTOS LEGISLATION



The United
States Senate introduced proposed asbestos reform legislation (the FAIR Act) in the prior session of Congress on May 22, 2003 and April 7, 2004 (known as the Fairness in Asbestos Injury Resolution Act of 2003 and the Fairness in Asbestos
Injury Resolution Act of 2004, respectively), each of which lapsed upon the adjournment of such Congress. While the FAIR Act did not pass in 2004, there have been ongoing discussions within the Senate regarding the possible introduction of a new
version of the FAIR Act in 2005.



If enacted into law as previously proposed,
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 terms of the previously introduced 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 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 Claimants. Further proceedings on this
matter have been continued until a status conference on the motion.



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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)



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 Claimants 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 Claimants have each filed responsive pleadings to the motion. The USBC has 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 motions described above are without merit and intend to continue to vigorously oppose them in appropriate proceedings.



The Plan of Reorganization



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 provides for partial payment of all unsecured creditors allowed claims, in the form of distributions of new common stock and notes of the reorganized company, and cash. 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 Owens Corning and certain of its direct and indirect subsidiaries (but not the
Fibreboard Settlement Trust (see Note 20 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 substantively consolidated entity (excluding
the Fibreboard Settlement Trust) as though they were merged into one consolidated estate with the assets and liabilities of the other substantively consolidated entities. 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 continue to challenge that approach.



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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)



As described above, on October 5, 2004, the District Court issued a Memorandum and Order Concerning Substantive
Consolidation. In that Memorandum and Order, the District Court granted the Debtors motion for substantive consolidation and ordered that counsel for the participating parties meet for the purpose of attempting to achieve an agreed-upon plan
of reorganization. On October 13, 2004, the holders of the debt under the Pre-Petition Credit Facility filed an appeal of the Memorandum and Order with the Third Circuit. The Third Circuit heard oral arguments on the appeal of the Memorandum and
Order on February 7, 2005. Because our currently proposed Plan of Reorganization is based upon substantive consolidation, a Third Circuit reversal of the District Courts Order could potentially result in significant delays in our case.



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.



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.



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. A six-day claims estimation hearing was held before the District Court beginning January 13, 2005. The purpose of the
claims estimation hearing was to establish the amount of current and future asbestos liability to be allowed in the Chapter 11 Cases. In general, the holders of the debt under the Pre-Petition Credit Facility argued that the amount of the
Companys current and future asbestos liability should be set at an amount significantly lower than the amounts reserved for asbestos claims on the financial statements of the Debtors, and the Official Committee of Asbestos Claimants and the
Legal Representative for the class of future asbestos claimants argued that such asbestos liability should be set at a significantly higher level. 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. Post-trial briefs in this matter were filed by February 18, 2005. The District Court has not
indicated when it expects to render a decision on this matter, and no assurance can be given as to whether the amount of current and future asbestos liability established as a result of such claims estimation hearing will be more or less than the
amounts reserved for asbestos claims on the financial statements of the Debtors or will be more or less than the $16 billion amount established by the Official Committee of Asbestos Claimants and the Legal Representative for the class of future
asbestos claimants as the level below which they have reserved the right to withdraw support of the Plan.



Any disagreements raised by creditors with the terms of the Plan are expected to be handled through negotiation or litigation as part of the confirmation process. Owens Corning is unable to predict the timing or
outcome of such negotiation or litigation.



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ITEM 7. 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 20 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 direct and
indirect 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 arrangement is reached to release such entities from their guaranty
obligations, Owens Corning may 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.



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, unless a consensual arrangement among all impaired creditor classes is agreed to, the Plan is expected to be amended 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 7. 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 $16.6 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 $8.6 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 December 31, 2004, approximately 6,400 of the Objectionable Claims, totaling approximately $5.3 billion,
had either been withdrawn by the claimants or disallowed by the Bankruptcy Court, and other of such claims had been reduced by the claimants by approximately $1.8 billion. 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 $8.0 billion. As of December 31, 2004, approximately 1,000 of these claims, totaling approximately $0.3 billion, had either been withdrawn by the claimants, disallowed by the Bankruptcy Court, or otherwise resolved, and other of such
claims had been reduced by the claimants by approximately $0.3 billion. The remaining claims consist of:



| |  |  | Approximately 2,900 claims, totaling approximately $1.4 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 19 to the Consolidated Financial Statements for additional information concerning asbestos-related liabilities.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | 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 $5.3 billion, alleging rights to payment for financing, environmental, trade debt and other matters (the General
Claims). The Company has recorded approximately $3.5 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 regarding the tax claims and related pending settlement under the heading Tax Claim in Note 19 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 19 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 19 to the Consolidated Financial Statements; environmental claims totaling approximately
$109 million; and claims for contract rejections, totaling approximately $120 million, of which approximately $49 million are protective claims covering contracts which have not been rejected by the Debtors as of December 31, 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 19 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 described above, the
District Court held a claims estimation hearing beginning January 13, 2005 to establish the amount of current and future asbestos liability to be allowed in the Chapter 11 Cases.



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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)



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 3,200 proofs of claim (in addition to claims described above under General Bar Date),
totaling approximately $2.5 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 19 to the Consolidated Financial Statements for additional information concerning asbestos-related liabilities.



RESTRUCTURING OF OPERATIONS AND OTHER CHARGES



2004 Charges



During 2004, the Company recorded a pretax credit to cost of sales in the Consolidated Statement of Income of approximately $5 million,
representing a gain realized on the sale of a manufacturing facility during the first quarter of 2004. The assets associated with this sale were previously written down when the facility was shutdown in 2002.



2003 Charges



During 2003, the Company recorded $34 million in pretax charges, as the Company continued a comprehensive strategic review of its businesses
in connection with the Chapter 11 proceedings and development of a plan or plans of reorganization. The $34 million pretax charge was comprised of $36 million of pretax other charges and a $2 million pretax restructure credit. The Company recorded
$(10) million in the fourth quarter of 2003, $1 million in the third quarter, $13 million in the second quarter, and $30 million in the first quarter.



The $36 million in other pretax charges were recorded as a $23 million charge to cost of sales and a $13 million pretax charge in the Consolidated Statement of Income
(Loss) under the caption Other. The $23 million charge to cost of sales includes a $28 million charge for the additional write-down of two groups of assets in the Building Materials Systems segment to net realizable value based on
valuations of the future cash flows of the assets using assumptions consistent with current market conditions, offset by a credit of $5 million to reduce the reserve for certain facility closure costs to the current estimate. The $13 million pretax
charge consisted of a $15 million loss on the sale of the Companys metal systems assets, offset by a $1 million gain on the sale of the Companys mineral wool business and a $1 million credit for the revision of previous estimates of the
costs associated with closures of non-strategic facilities.



The $2 million
credit to restructure charges was recorded as a $2 million additional non-cash asset write-down of previously closed facilities and a $4 million credit as the result of the completion of previous restructure actions at a lower than estimated cost.



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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)



2002 Charges



As a result of its comprehensive strategic review and actions taken, the Company recorded approximately $166 million in pretax charges during 2002, comprised of a $61
million pretax restructure charge and $105 million of pretax other charges. The Company recorded $113 million in the fourth quarter of 2002, $44 million in the third quarter, $(3) million in the second quarter, and $12 million in the first quarter.



The $61 million restructure charge included $17 million of severance costs
associated with the elimination of 830 positions due to plant closures in the United States and the United Kingdom and $18 million of severance costs associated with the elimination of 349 other positions, primarily impacting administrative
personnel. The remaining $26 million restructure charge represented the cost of closure of non-strategic facilities, comprised of $24 million in non-cash asset write-downs to fair value and $2 million of other exit cost liabilities.



The $105 million in other pretax charges was recorded as a $110 million charge to cost of
sales and a credit of $5 million to other operating expenses. The $110 million charge to cost of sales includes: (1) charges of $66 million to write-down assets to net realizable value; (2) a $19 million charge for obsolete inventory; (3) a charge
of $6 million associated with realignment of the Companys Newark, Ohio manufacturing facility; and (4) $19 million of other charges.



RENEGOTIATION OF WORLD HEADQUARTERS LEASE



During the second quarter of 2003, the Company completed actions to reduce the effective cost of occupying its World Headquarters facility, 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 and principal receipts due 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 equipment 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 (Loss) related to this claim.



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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)



LIQUIDITY, CAPITAL RESOURCES AND OTHER RELATED MATTERS



We ended 2004 with a cash balance of $1.125 billion, an increase of $120 million from
December 31, 2003. The following table provides information regarding our liquidity.



|                                       |  |                                         |       |   |      |   |       |      |  |   |      |  
|-------------------------------------- |  | --------------------------------------- | ----- | - | ---- | - | ----- | ---- |  | - | ---- | -
|                                       |  | 2004                                    |       |   | 2003 |   |       | 2002 | 
|                                       |  | (In millions of dollars, except ratios) |      
|Cash balance                           |  | $                                       | 1,125 |   |      | $ | 1,005 |      |  | $ | 875  |  
|Cash flow from operations              |  | $                                       | 449   |   |      |   | 295   |      |  | $ | 357  |  
|Cash flow used in investing activities |  | $                                       | (320  | ) |      |   | (145  | )    |  | $ | (250 | )
|Unused committed credit lines          |  | $                                       | 113   |   |      |   | 167   |      |  | $ | 188  |  
|                                       |  |                                         |      
|Working capital analysis               |  |                                         |       |   |      |   |       |      |  |   |      |  
|Net working capital                    |  | $                                       | 1,177 |   |      | $ | 1,024 |      |  | $ | 913  |  
|Current ratio                          |  |                                         | 2.24  |   |      |   | 2.19  |      |  |   | 2.06 |  
|Days sales outstanding(a)              |  |                                         | 34    |   |      |   | 34    |      |  |   | 32   |  
|Days of inventory on hand(b)           |  |                                         | 44    |   |      |   | 42    |      |  |   | 47   |  
|Days payable outstanding(c)            |  |                                         | 35    |   |      |   | 29    |      |  |   | 27   |  



|(a) | Days sales outstanding is defined as receivables divided by average daily sales. Average daily sales is calculated by dividing annual sales by 365.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Days of inventory on hand is defined as FIFO inventory, divided by cost of sales divided by 365.
|--- | ------------------------------------------------------------------------------------------------



|(c) | Days payable outstanding is defined as accounts payable, divided by cost of sales divided by 365.
|--- | -------------------------------------------------------------------------------------------------



The increase in cash flow from operations in 2004 compared to 2003 was primarily the result
of improved income from operations. Net working capital and the current ratio increased to $1,177 million and 2.24, respectively, for 2004. We were able to decrease our overall cash collection cycle (defined as days sales outstanding plus days of
inventory on hand less days payable outstanding) to 43 days, from 47 days in 2003. Cash flow from operations was also impacted by contributions of $231 million to the Companys pension plans during 2004, compared to contributions of $185
million in 2003.



Investing activities consumed $320 million in cash during
2004, compared to $145 million during 2003. The increase in net cash used in investing activities during 2004 is primarily attributable to:



| |  |  | Our $73 million purchase of the outstanding ownership interest in OC Mexico during 2004.
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | Approximately $24 million of additional spending for additions to plant and equipment in 2004 compared to 2003. This increased spending reflects capacity expansion opportunities in
2004 which we expect to continue in 2005.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A decrease of approximately $80 million in the proceeds from the sale of assets, primarily related to the sale of our metals and mineral wool businesses in 2003.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



Spending for capital and investments was $328 million in 2004
and $233 million in 2003. Under expected market conditions, we anticipate that 2005 spending for capital investments will be approximately $350 million, substantially all of which is uncommitted. We expect these expenditures will be funded from the
Companys operations and existing cash on hand.



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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)



Financing activities during 2004 resulted in a use of cash of $24 million in 2004 compared to $43 million in 2003.
The use of cash in 2004 primarily relates to payments of $20 million to reduce outstanding debt in India. The cash usage in 2003 includes payments of approximately $32 million to purchase bonds underlying the Companys World Headquarters
facility, which was accounted for as a reduction of debt discussed above under Renegotiation of World Headquarters Lease, and payments of $20 million to reduce outstanding debt in India.



At December 31, 2004, we had $2.958 billion of debt subject to compromise and $80 million of
other debt. At December 31, 2003, we had $2.896 billion of debt subject to compromise and $170 million of other debt. Of the other debt amounts for 2004 and 2003, $7 million and $75 million, respectively, was in default as a consequence of the
Filing and therefore classified as current on the Consolidated Balance Sheet. The increase in debt subject to compromise and corresponding decrease in other debt relates to a settlement entered into with certain holders of third party debt during
2004 whereby such holders released a non-Debtor subsidiary from all obligations related to such debt, including $16 million of accrued post-petition interest, and Owens Corning allowed the releasing debtholders various claims in its Chapter 11
proceedings with respect to its guarantees of such debt and its indebtedness to the subsidiary. Prior to this settlement, the guaranteed debt was recorded on the Consolidated Balance Sheet as components of Short-term debt and
Long-term debt  current portion, $32 million and $35 million, respectively. As a result of this settlement, the Company reclassified the guaranteed debt to Liabilities subject to compromise on the Consolidated Balance
Sheet.



The Company has significant liabilities related to pension plans for
its employees. The Company contributed $231 million to the pension plans in 2004. The Company currently projects additional contributions, in the range of $100 million to $150 million, during 2005. The Companys pension-related assets increased
to $499 million at December 31, 2004, from $338 million at December 31, 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 $731 million at December 31, 2004, from $697 million at December 31, 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. Effective September 20, 2004, the DIP Financing was further amended by a Second Amendment which, among other things, extended the scheduled expiration to November 15, 2006. There were no borrowings
outstanding under the DIP Financing at December 31, 2004; however, approximately $137 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 affiliates.



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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)



The Company believes, based on information currently 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 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 achieve profitability following such
confirmation.



OFF BALANCE SHEET ARRANGEMENTS



The Company enters into certain off balance sheet arrangements, as defined under Securities
and Exchange Commission rules, in the ordinary course of business. These arrangements include securitization of accounts receivable and guarantees with respect to unconsolidated affiliates and other entities (see Notes 4, 10, and 22 to the
Consolidated Financial Statements for further information regarding these arrangements). 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
ordinary course of business, the Company enters into contractual obligations to make payments to third parties. The Companys known contractual obligations as of December 31, 2004 are as follows:



|                                                                                  |  |                        |     |      |   |      |  |      |     |      |   |                |  |       |    |  |   |     |  |   |    
|--------------------------------------------------------------------------------- |  | ---------------------- | --- | ---- | - | ---- |  | ---- | --- | ---- | - | -------------- |  | ----- | -- |  | - | --- |  | - | ---
|                                                                                  |  | Payments due by period
|                                                                                  |  | 2005                   |     | 2006 |   | 2007 |  | 2008 |     | 2009 |   | 2010 andBeyond |  | Total
|Long-term debt obligations                                                        |  | $                      | 28  |      | $ | 7    |  | $    | 11  |      | $ | 8              |  | $     | 1  |  | $ |    |  | $ | 55 
|Capital lease obligations                                                         |  |                        | 3   |      |   | 2    |  |      | 2   |      |   | 1              |  |       |   |  |   | 6   |  |   | 14 
|Operating lease obligations                                                       |  |                        | 61  |      |   | 47   |  |      | 37  |      |   | 28             |  |       | 17 |  |   | 58  |  |   | 248
|Purchase obligations*                                                             |  |                        | 295 |      |   | 136  |  |      | 78  |      |   | 63             |  |       | 15 |  |   | 48  |  |   | 635
|Other long-term liabilities reflected in the Companys Consolidated Balance Sheet |  |                        |    |      |   |     |  |      |    |      |   |               |  |       |   |  |   |    |  |   |   
|                                                                                  |  |                        |     |      |   |      |  |      |     |      |   |                |  |       |    |  |   |     |  |   |    
|Total                                                                             |  | $                      | 387 |      | $ | 192  |  | $    | 128 |      | $ | 100            |  | $     | 33 |  | $ | 112 |  | $ | 952
|                                                                                  |  |                        |     |      |   |      |  |      |     |      |   |                |  |       |    |  |   |     |  |   |    



|* | Purchase obligations include all take-or-pay arrangements, capital expenditures, and contractual commitments to purchase equipment. We did not include ordinary course of business
purchase orders in this amount as the majority of such purchase orders may be canceled and are reflected in historical operating cash flow trends. We do not believe such purchase orders will adversely affect our liquidity position.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The contractual obligations above exclude obligations subject to
compromise and obligations to fund our employee benefit or pension plans. The Company currently projects contributions to our pension plans in the range of $100 million to $150 million during 2005.



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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)



CRITICAL ACCOUNTING POLICIES



The Companys discussion and analysis of its financial condition and results of operations is based upon its financial statements,
which have been prepared in accordance with generally accepted accounting principles in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management
evaluates its estimates and judgments related to these assets, liabilities, revenues and expenses. Management bases its estimates and judgments on historical experience, expected future outcomes, and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The
Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.



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.



The Company recognizes revenue when title and risk pass to the customer, generally when goods
are shipped. Provisions for discounts and rebates to customers, returns, warranties and other adjustments are provided in the same period that the related sales are recorded.



Inventories are stated at lower of cost or market value. Inventory costs include material, labor and manufacturing overhead. The majority of
inventories is valued using the first-in, first-out (FIFO) method and the balance of inventories is generally valued using the last-in, first-out (LIFO) method.



The Company exercises judgment in evaluating tangible and intangible long-lived assets for impairment. This requires estimating useful lives, future operating cash
flows and estimated fair value of the assets under review. Changes in management intentions, market conditions or operating performance could indicate that impairment charges might be necessary that would be material to the Companys
consolidated financial statements in any given period.



Accounting for pensions
and other postretirement benefits involves estimating the cost of benefits to be provided well into the future and attributing that cost over the time period each employee works. To accomplish this, extensive use is made of assumptions about
inflation, investment returns, mortality, turnover, medical costs and discount rates through a collaborative effort by management and outside advisors such as consultants, lawyers and actuaries. The results of this effort provide management with the
necessary information on which to base its judgment and develop the estimates used to prepare the financial statements. Changes in assumptions used could result in a material impact to the Companys consolidated financial statements in any
given period.



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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)



Two key assumptions that have a significant impact on the measurement of pension liability and pension expense are
the discount rate and expected return on plan assets. For the Companys largest plan, the U.S. plan, the discount rate was derived by performing a bond matching exercise using a bond portfolio of non-callable AA bonds or better. This exercise
resulted in the selection of a discount rate of 5.85% for the October 31, 2004 measurement, a decrease from 6.25% in the previous year. The lower discount rate reflects market interest rate conditions. A 25 basis point increase in the discount rate
would decrease the liability by approximately $31 million and 2005 pension expense by approximately $2 million. A 25 basis point decrease in the discount rate would increase the liability by approximately $32 million and 2005 pension expense by
approximately $2 million.



Expected return on plan assets is derived by taking
into consideration the current and expected plan asset allocation and the historical rates of return on those assets. For the U.S. plan, pension expense for 2004 and 2003 was calculated using a rate of return of 8.00%; pension expense for 2002 was
calculated using a rate of return of 9.00%. Due to a shift in asset allocation during 2004, the rate used in determining the Companys 2005 pension expense will be 7.50%. A 25 basis point increase (decrease) in return on plan assets would
result in a decrease (increase) of 2005 pension expense by $2 million.



The
Company estimates a reserve for asbestos-related liabilities that have been asserted or are probable of assertion. The estimate of 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 Chapter 11 Cases. The Company will continue to review its asbestos reserve on a periodic
basis and make such adjustments as may be appropriate. Any such adjustment could be material to the Companys consolidated financial statements in any given period. Please see Note 19 to the Consolidated Financial Statements for further
discussion.



The determination of the Companys tax provision is complex
due to operations in several tax jurisdictions outside the United States. In addition, realization of certain deferred tax assets is dependent upon our ability to generate future taxable income. The Company records a valuation allowance to reduce
its deferred tax assets to the amount that it believes is more likely than not to be realized. While the Company has considered future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance, in the event
the Company was to determine that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made. With respect
to the valuation allowance for deferred tax assets related to charges for asbestos-related liabilities, the amount of the valuation allowance was determined in part by assumptions relating to the expected enterprise value at the time of emergence
from bankruptcy and other matters that will ultimately be resolved through the bankruptcy process. Changes in the plan of reorganization could result in a material increase or decrease in the valuation allowance. In addition, the Company maintains
tax reserves to cover Internal Revenue Service (IRS) claims for income taxes and interest attributable to audits of open tax years. While the Company 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.
The Company 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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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)



ACCOUNTING PRONOUNCEMENTS



Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets (SFAS No. 142), which it uses to account for goodwill and other intangible assets. SFAS No. 142 eliminates the amortization of goodwill and indefinite-lived intangible assets; identifiable intangible assets with a
determinable useful life will continue to be amortized. SFAS No. 142 requires an annual review for impairment using a fair value methodology. The impact of adoption of SFAS No. 142 resulted in a non-cash charge of $491 million ($441 million net of
tax). This charge was determined during the second quarter of 2002 and, as required by SFAS No. 142, was recorded as a cumulative effect of a change in accounting principle in the first quarter of 2002.



The Companys adoption of new accounting standards during 2003 and 2004 did not have a
material impact.



In December 2004, the Financial Accounting Standards Board
issued a revised Statement of Financial Accounting Standards No. 123, Share-Based Payment. This statement eliminates the intrinsic value method as an allowed method for valuing stock options granted to employees. Under the intrinsic
value method, compensation expense was generally not recognized for the issuance of stock options. The revised statement requires compensation expense to be recognized in exchange for the services received based on the fair value of the equity
instruments on the grant-date. This statement becomes effective for the Company as of July 1, 2005. The effect of adoption of this statement is not expected to be material.



In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 151, Inventory Costs
- an amendment of ARB No. 43, Chapter 4 (SFAS No. 151). SFAS No. 151 amends the guidance in ARB No. 43 and clarifies accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage).
The statement requires that certain items that may have previously been included in inventory costs be recognized as current-period charges regardless of whether they meet the criterion of so abnormal. SFAS No. 151 also requires
allocation of fixed manufacturing overheads to the costs of conversion based on the normal capacity of the manufacturing facilities. This statement becomes effective for the Company as of January 1, 2006. The effect of adoption of this statement is
not expected to be material.



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 December 31, 2004, a total of 61 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.



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 December 31, 2004, the Companys
reserve for such liabilities was $14 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,



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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)



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. 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 manufacturing
in April 2002, and for reinforced plastic composites manufacturing 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.



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
| | - |  | --------------------------------------------------------------------



| |  |  | overall global economic environment
| | - |  | -----------------------------------



| |  |  | foreign exchange fluctuations
| | - |  | -----------------------------



| |  |  | the success of research and development activities
| | - |  | --------------------------------------------------



| |  |  | difficulties or delays in manufacturing
| | - |  | ---------------------------------------



| |  |  | labor disputes
| | - |  | --------------



In addition to the list above, in connection with the Chapter 11 proceedings and the development of a plan or plans of reorganization, we anticipate 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 our 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.



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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



The Company is exposed to the impact of changes in foreign currency exchange rates, interest rates, natural gas prices and transportation costs in the normal course of business. The Company did not experience any
significant changes in such exposures during 2004. The Company manages such exposures through the use of certain financial and derivative financial instruments. The Companys objective with these instruments is to reduce exposure to
fluctuations in earnings and cash flows, which has not changed from the Companys objective during 2004 and is not expected to change in 2005.



The Companys policy is to use foreign currency, interest rate and commodity derivative financial instruments only to the extent necessary to manage exposures as
described above. The Company does not enter into such transactions for trading purposes.



A discussion of the Companys accounting policies for derivative financial instruments is included in Note 2 to the Consolidated Financial Statements. Further information on the Companys exposure to market
risk is included in Note 22 to the Consolidated Financial Statements.



The
Company uses sensitivity analysis disclosures that express the potential loss in fair values of market risk sensitive instruments resulting from a 10% change in interest rates, foreign currency exchange rates, and commodity prices that assume
instantaneous, parallel shifts in exchange rates, interest rate yield curves, and commodity prices. The following analysis provides such quantitative information regarding market risk. For options and instruments with nonlinear returns, models
appropriate to the instrument are utilized to determine the impact of market shifts. There are certain shortcomings inherent in the sensitivity analyses presented, primarily due to the assumption that exchange rates change in parallel fashion and
that interest rates change instantaneously. In addition, the analyses are unable to reflect the complex market reactions that normally would arise from the market shifts modeled.



Foreign Exchange Rate Risk



The Company has foreign currency exposures related to buying, selling, and financing in currencies other than the local currencies in which it operates. More
specifically, the Company enters into various forward contracts and options, which change in value as foreign currency exchange rates change, to preserve the carrying amount of foreign currency-denominated assets, liabilities, commitments, and
certain anticipated foreign currency transactions. The net fair value liability of financial instruments with exposure to foreign currency risk was approximately $2 million and $1 million at December 31, 2004 and December 31, 2003, respectively. The
potential loss in fair value for such financial instruments from a 10% adverse change in quoted foreign currency exchange rates would be approximately $12 million and $6 million for 2004 and 2003, respectively.



Interest Rate Risk



The Company is subject to market risk from exposure to changes in interest rates due to its
financing, investing, and cash management activities. During 2004 and 2003, the Companys exposure to interest rate sensitive securities primarily related to the investments held by the Fibreboard Settlement Trust. At December 31, 2004 and
2003, the net fair value of these investments was approximately $1.355 billion and $1.328 billion, respectively. The potential loss in fair value resulting from a 10% adverse shift in quoted interest rates would be approximately $7 million for 2004
and $6 million for 2003.



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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (continued)



Commodity Price Risk



The Company is exposed to changes in prices of commodities used in its operations, primarily associated with energy, such as natural gas,
and raw materials, such as asphalt, PVC and polystyrene. The Company enters into cash-settled natural gas futures contracts to protect against changes in natural gas prices; however, no financial instruments are currently used to protect against
changes in raw material costs. At December 31, 2004, the net fair value of such futures contracts was a liability of approximately $3 million, compared to a liability of approximately $2 million at December 31, 2003. The potential loss in fair value
resulting from a 10% adverse change in the underlying commodity prices would be approximately $6 million and $4 million for 2004 and 2003, respectively. This amount excludes the offsetting impact of the price risk inherent in the physical purchase
of the underlying commodities.



The Company is also exposed to changes in
diesel fuel costs associated with transporting finished goods to customers. The Company utilizes cash-settled heating oil futures contracts to protect against changes in diesel fuel costs. At December 31, 2004, the net fair value of contracts was
approximately $1 million. The potential loss in fair value resulting from a 10% adverse change in the underlying commodity prices would be approximately $1 million.



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



Pages 66 through 154 hereof are incorporated here by reference.



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE



There were no changes in or disagreements with accountants during the two most recent fiscal years.



ITEM 9A. 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.



A report of the Companys management on the Companys internal control over
financial reporting is contained on page 66 hereof and is incorporated here by reference. PricewaterhouseCoopers LLPs attestation report on managements assessment of the Companys internal control over financial reporting is
included in the Report of Independent Registered Public Accounting Firm beginning on page 67 hereof.



There have not been any changes in the Companys internal control over financial reporting during the last quarter of 2004 that have materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.



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ITEM 9B. OTHER INFORMATION



Owens Corning has
nothing to report under this Item.



PART III



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF OWENS CORNING



INFORMATION CONCERNING DIRECTORS



At
January 31, 2005, Owens Cornings Board of Directors was composed of ten directors, divided into three classes. Each class of directors serves for a term expiring at the third succeeding annual meeting of stockholders after the year of election
of such class, and until their successors are elected and qualified. As of January 31, 2005, Owens Corning has not scheduled an annual meeting of stockholders for 2005 or any subsequent period.



Information concerning each director of Owens Corning as of January 31, 2005, is set forth
below.



Class Expiring At First Succeeding Annual Meeting Of Stockholders



Gaston Caperton, 64. President and Chief Executive Officer of
The College Board, not-for-profit educational association, New York, NY and Chairman of The Caperton Group, a business investment and development company, Shepherdstown, WV; former Governor of the State of West Virginia. Director since 1997.



A graduate of the University of North Carolina, Mr. Caperton began his career
in a small insurance agency, became its principal owner and chief operating officer, and led the firm to become the tenth largest privately-owned insurance brokerage firm in the U.S. He also has owned a bank and mortgage banking company. Mr.
Caperton was elected Governor of West Virginia in 1988 and 1992. In 1997, Mr. Caperton taught at Harvard University as a fellow at the John F. Kennedy Institute of Politics. Prior to beginning his current position in mid-1999, Mr. Caperton also
taught at Columbia University, where he served as Director of the Institute on Education and Government at Teachers College.



Mr. Caperton is a director of United Bankshares, Inc., Energy Corporation of America, West Virginia Media Holdings, and Prudential Financial. He was the 1996 Chair of the
Democratic Governors Association, served on the National Governors Association executive committee and as a member of the Intergovernmental Policy Advisory Committee on U.S. Trade, and was Chairman of the Appalachian Regional Commission,
Southern Regional Education Board, and Southern Growth Policy Board.



William W. Colville, 70. Retired; former Senior Vice President, General Counsel and Secretary of Owens Corning. Director since 1995.



A graduate of Yale University and the Columbia University Law School, Mr. Colville began his career at Owens Corning in 1984 as Senior Vice President and General Counsel.
Prior to joining Owens Corning, he was President of the Sohio Processed Minerals Group from 1982 to 1984, and General Counsel of Kennecott Corporation from 1980 to 1982.



Mr. Colville is a director of Nordson Corporation.



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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF OWENS CORNING (continued)



Landon Hilliard, 65. Partner, Brown Brothers Harriman & Co., private bankers, New York, NY. Director since
1989.



A graduate of the University of Virginia, Mr. Hilliard began his career
at Morgan Guaranty Trust Company of New York. He joined Brown Brothers Harriman in 1974 and became a partner in 1979.



Mr. Hilliard is a director of Norfolk Southern Corporation, Western World Insurance Company, and Russell Reynolds Associates, Inc. He is also Chairman of the Board of
Trustees of the Provident Loan Society of New York and Secretary of The Economic Club of New York.



Robert B. Smith, Jr., 67. Director, Virginia Environmental Endowment, a nonprofit, funded, grant making corporation dedicated to improving the environment. Director since 2004.



A graduate of the University of North Carolina and the University of North Carolina Law
School, Mr. Smiths previous experience included serving as Trustee of the Dalkon Shield Claimants Trust, a public interest trust created by the Federal Bankruptcy Court to compensate those damaged by the Dalkon Shield, and as Vice President
for Government Relations of the Pharmaceutical Manufacturers Association. His prior experience also included various positions related to the U.S. Senate, including: Chief Counsel and Staff Director, U.S. Senate Government Operations Committee;
Chief Counsel, U.S. Senate Subcommittee on Revision and Codification of the Laws; Chief Legislative Assistant, Senator Sam J. Ervin, Jr.; Special Counsel, U.S. Senate Antitrust and Monopoly Subcommittee; and Counsel, U.S. Senate Subcommittee on
Constitutional Rights.



Class Expiring At Second Succeeding Annual
Meeting Of Stockholders



Ann Iverson, 60. President and Chief
Executive Officer of International Link, an international consulting firm, Scottsdale, AZ. Director since 1996.



Ms. Iverson began her career in retailing and held various buying and executive positions at retail stores in the U.S. through 1989, including Bloomingdales, Dayton
Hudson, and US Shoe. She then joined British Home Stores as Director of Merchandising and Operations in 1990; Mothercare as Chief Executive Officer in 1992; Kay-Bee Toy Stores as President and Chief Executive Officer in 1994; and Laura Ashley
Holdings plc. as Group Chief Executive in 1995. In 1998, she founded and became President and Chief Executive Officer of International Link.



Ms. Iverson is a director of several privately-held companies. She is also a member of the Board of Trustees of the Thunderbird School of International Management, and a
member of Financo Global Consulting.



W. Walker Lewis, 60. Chairman,
Devon Value Advisers, financial consulting and investment banking firm, Greenwich, CT and New York, NY. Director since 1993.



Previously, Mr. Lewis served as Senior Advisor to SBC Warburg Dillon Read; Senior Advisor to Marakon Associates; and Managing Director, Kidder, Peabody & Co., Inc.
Prior to April 1994, he was President, Avon U.S. and Executive Vice President, Avon Products, Inc. Prior to March 1992, Mr. Lewis was Chairman of Mercer Management Consulting, Inc., a wholly-owned subsidiary of Marsh & McLennan, which is the
successor to Strategic Planning Associates, a management consulting firm he founded in 1972. He is a graduate of Harvard College, where he was President and Publisher of the Harvard Lampoon.



Mr. Lewis is Chairman of London Fog Industries, Inc. and a director of Mrs. Fields
Original Cookies, Inc. He is also a member of the Council on Foreign Relations and the Washington Institute of Foreign Affairs.



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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF OWENS CORNING (continued)



Michael H. Thaman, 40. Chairman of the Board and Chief Financial Officer, Owens Corning. Director since 2002.



A graduate of Princeton University, Mr. Thaman joined Owens Corning in 1992.
He was elected Chairman of the Board of Owens Corning in April 2002, and became Chief Financial Officer in 2000. Before assuming his current positions, Mr. Thaman held a variety of leadership positions at Owens Corning, including serving as
President of the Exterior Systems Business beginning in 1999 and President of the Engineered Pipe Systems Business beginning in 1997.



Prior to joining Owens Corning, Mr. Thaman was a Vice President in the New York office of Mercer Management Consulting, a strategy consulting firm.



Mr. Thaman is a director of Florida Power & Light Group, Inc.



Class Expiring At Third Succeeding Annual Meeting Of Stockholders



Norman P. Blake, Jr., 63. Former Chairman, President and Chief Executive Officer
of Comdisco, Inc., global technology services, Rosemont, IL. Director since 1992.



A graduate of Purdue University, Mr. Blake also previously has served as Chief Executive Officer of the United States Olympic Committee; Chairman, President and Chief Executive Officer of Promus Hotel Corporation; Chairman, President and
Chief Executive Officer of USF&G Corporation; and Chairman and Chief Executive Officer of Heller International Corporation of Chicago.



Mr. Blake is a member of the Purdue Research Foundation, Purdue Universitys Presidents Council and Deans Advisory Council, Krannert Graduate School of
Management. He is the recipient of the degree of Doctor of Economics honoris causa from Purdue University, granted jointly by the Krannert Graduate School of Management and School of Liberal Arts. He has also been awarded The Ellis Island Medal of
Honor.



David T. Brown,56. President and Chief Executive Officer, Owens
Corning. Director since January 2002.



A graduate of Purdue University, Mr.
Brown assumed his current position in April 2002. Before that, he served as Executive Vice President and Chief Operating Officer of Owens Corning since January 2001. Previously, he held numerous leadership positions in sales and marketing at Owens
Corning, including serving as President of the Insulating Systems Business beginning in 1997, President of Building Materials Sales and Distribution beginning in 1996, and President of the Roofing and Asphalt Business beginning in 1994. Mr. Brown
joined Owens Corning in 1978 after working for Procter & Gamble, Shearson Hammill and Eli Lilly.



Mr. Brown is a director of BorgWarner Inc. He also is on the Board of Directors of the Toledo Museum of Art and the Deans Advisory Council for Purdues Krannert Graduate School of Management. He is a past
board member of the Asphalt Roofing Manufacturers Association Executive Committee, National Roofing Contractors Association Advisory Board, Thermal Insulation Manufacturers Association, and Executive Committee of the North American Insulation
Manufacturers Association.



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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF OWENS CORNING (continued)



W. Ann Reynolds, 67. Former President and Professor of Biology of The University of Alabama at Birmingham,
Birmingham, AL, 1997-2003. Director since 1993.



A graduate of Kansas State
Teachers College and the University of Iowa, Dr. Reynolds previously served as Chancellor of City University of New York for seven years and served eight years as Chancellor of the California State University System.



Dr. Reynolds is a director of Humana, Inc., Abbott Laboratories, Maytag Corporation, and the
Post-Gazette, Champaign-Urbana, IL. She is also a member of the Society for Gynecological Investigation and the Perinatal Research Society.



INFORMATION CONCERNING EXECUTIVE OFFICERS



Certain information concerning Owens Cornings executive officers is included on page 15 hereof.



INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS



As indicated in Item 1 above, Owens Corning and 17 of its domestic subsidiaries filed for protection under Chapter 11 of the United States Bankruptcy Code on October 5,
2000. Of the executive officers listed on page 15 hereof, Messrs. Brown, Johns and Thaman served as executive officers of Owens Corning at or within two years before the time of such filing. In addition, Messrs. Brown, Dean, Dietzel, Krull and
Thaman also served as executive officers of one or more of such domestic subsidiaries at or within two years before the time of such filing. Director Norman P. Blake, Jr., served as an executive officer of Comdisco, Inc. in July 2001, when such firm
filed for protection under Chapter 11 of the United States Bankruptcy Code.



IDENTIFICATION OF AUDIT COMMITTEE



Owens Corning has a
separately-designated standing Audit Committee presently consisting of Norman P. Blake, Jr. (Chairman), Ann Iverson, W. Walker Lewis and W. Ann Reynolds. No other persons served on the Audit Committee during 2004.



AUDIT COMMITTEE FINANCIAL EXPERT



Owens Cornings Board of Directors has determined that Norman P. Blake, Jr., Chairman
of the Audit Committee, is an audit committee financial expert and that he is independent as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act.



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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF OWENS CORNING (continued)



SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE



Section 16(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission
regulations require Owens Cornings directors, and certain officers and greater than ten percent stockholders, to file reports of ownership on Form 3 and changes in ownership on Forms 4 or 5 with the Securities and Exchange Commission. Owens
Corning undertakes to file such forms on behalf of the reporting directors and officers pursuant to a power of attorney given to certain attorneys-in-fact. Such reporting officers, directors and ten percent stockholders are also required by
Securities and Exchange Commission rules to furnish Owens Corning with copies of all Section 16(a) reports they file.



Based solely on its review of copies of such reports received or written representations from such executive officers, directors and ten percent stockholders, Owens
Corning believes that all Section 16(a) filing requirements applicable to its directors, executive officers and ten percent stockholders were complied with during fiscal year 2004.



CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS



Owens Corning has adopted a code of ethics applicable to its Chief Executive Officer (principal executive officer), Chief Financial Officer
(principal financial officer), and Controller.



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ITEM 11. EXECUTIVE COMPENSATION



EXECUTIVE
OFFICER COMPENSATION



The following tables provide information on
compensation and stock-based awards received by Owens Cornings Chief Executive Officer serving during 2004 and the four other highest paid individuals who were serving as executive officers of Owens Corning at the end of 2004 (these five
individuals collectively are referred to as the Named Executive Officers).



Summary Compensation Table



The following table
contains information about compensation paid, and certain awards made, by Owens Corning to the Named Executive Officers for the three-year period ended December 31, 2004.



|                                                                         |  |                     |  |              |  |                       |  |                             |        |  |                                |  |                               |  |                                        |  |                    |        |  |                          |    
|------------------------------------------------------------------------ |  | ------------------- |  | ------------ |  | --------------------- |  | --------------------------- | ------ |  | ------------------------------ |  | ----------------------------- |  | -------------------------------------- |  | ------------------ | ------ |  | ------------------------ | ---
|                                                                         |  |                     |  |              |  |                       |  |                             |        |  |                                |  | Long Term Compensation        |  |                                        |  |                   
|                                                                         |  | Annual Compensation |  |              |  |                       |  |                             | Awards |  | Payouts                        |  |                               |  |                                       
|Name and Principal Position(1)                                           |  |                     |  | Year         |  | Salary($)             |  | Bonus ($)(2)                |        |  | Other AnnualCompensation($)(3) |  | RestrictedStockAward(s)($)(4) |  | SecuritiesUnderlyingOptions/SARs(#)(5) |  | LTIPPayouts ($)    |        |  | All OtherCompensation($) |    
|David T. BrownPresident and ChiefExecutive Officer                       |  |                     |  | 200420032002 |  | 750,000750,000647,916 |  | 3,062,6401,470,0001,713,199 | (6)(6) |  |                                |  |                               |  |                                        |  | 3,008,2502,625,000 | (6)(6) |  | 6,25010,00015,300        | (7)
|Michael H. ThamanChairman of the Board and Chief Financial Officer       |  |                     |  | 200420032002 |  | 650,000650,000584,375 |  | 1,902,680828,0001,380,000   | (6)(6) |  |                                |  |                               |  |                                        |  | 2,483,0002,145,000 | (6)(6) |  | 5,41710,00015,300        | (7)
|George E. KiemleVice President andPresident, Insulating Systems Business |  |                     |  | 200420032002 |  | 284,625275,000266,667 |  | 788,819270,000528,800       | (6)(6) |  |                                |  |                               |  |                                        |  | 652,361577,500     | (6)(6) |  | 10,25010,00015,300       | (7)
|Charles E. DanaVice President andPresident, CompositeSolutions Business  |  |                     |  | 200420032002 |  | 271,875250,000250,000 |  | 755,294275,000495,000       | (6)(6) |  |                                |  |                               |  |                                        |  | 623,137525,000     | (6)(6) |  | 10,25010,00015,300       | (7)
|Joseph C. HighSenior Vice President,Human Resources                      |  |                     |  | 2004         |  | 325,000               |  | 803,316                     | (6)    |  | 54,258                         |  |                               |  |                                        |  | 744,900            | (6)    |  | 10,250                   | (7)



|(1) | Prior to April 2002, Mr. Brown served as Executive Vice President and Chief Operating
Officer. Prior to April 2002, Mr. Thaman served as Senior Vice President and Chief Financial Officer. Prior to February 2004, Mr. Dana served as Vice President - Corporate Controller and Global Sourcing. Mr. High joined Owens Corning in January
2004.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | In addition to payments under Owens Cornings annual Corporate Incentive Plan, the
amounts shown for 2004 include (1) payments under Owens Cornings Key Employee Retention Incentive Plan as follows: Mr. Brown, $750,000; Mr. Thaman, $650,000; Mr. Kiemle, $286,000; Mr. Dana, $275,000; and Mr. High, $244,000 and (2) in the case
of Mr. High, a one-time sign-on bonus of $100,000.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Other Annual Compensation includes perquisites and personal benefits, where such
perquisites and personal benefits exceed the lesser of $50,000 or 10% of the Named Executive Officers annual salary and bonus for the year, as well as certain other items of compensation. For the years shown, none of the Named Executive
Officers received perquisites and/or personal benefits in excess of the applicable threshold. Mr. High received $54,258 as payment of certain taxes on his sign-on bonus.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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ITEM 11. EXECUTIVE COMPENSATION (continued)



|(4) | There were no restricted stock awards to any of the Named Executive Officers in 2002, 2003,
or 2004.
|--- | ----------------------------------------------------------------------------------------------------



At the end of 2004, Messrs. Brown and
Thaman each held a total of 6,666 shares of restricted stock, valued at $31,330; Messrs. Kiemle and Dana each held a total of 2,666 shares of restricted stock, valued at $12,530; and Mr. High held no shares of restricted stock. The value of these
aggregate restricted stock holdings was calculated by multiplying the number of shares held by the closing price of Owens Corning common stock on December 31, 2004 (as reported on the Over The Counter Bulletin Board). Dividends are paid by Owens
Corning on restricted stock held by the Named Executive Officers if paid on stock generally.



|(5) | No stock options or stock appreciation rights (SARs) were awarded to any of the Named Executive Officers in 2002, 2003, or 2004.
|--- | --------------------------------------------------------------------------------------------------------------------------------



|(6) | The amounts reflected in the LTIP Payouts column represent amounts payable pursuant to Owens
Cornings Long Term Incentive Plan with respect to one-year transition performance period cycles adopted in connection with phase-in of the new plan, which became effective January 1, 2003.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | The amount shown for each of the Named Executive Officers represents contributions made by
Owens Corning to such officers account in the Owens Corning Savings Plan during the year.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Option Grant Table



No stock
options or stock appreciation rights (SARs) were granted to any of the Named Executive Officers during 2004.



Option/SAR Exercises and Year-End Value Table



The following table contains information about the options for Owens Corning common stock that were exercised in 2004 by the Named Executive Officers, and the aggregate values of these officers unexercised
options at the end of 2004. None of the Named Executive Officers held stock appreciation rights (SARs) at December 31, 2004.



Aggregated Option/SAR Exercises in 2004, and 12/31/04 Option/SAR Values



|                  |  |                              |  |                   |  |                                                                     |  |                                                              
|----------------- |  | ---------------------------- |  | ----------------- |  | ------------------------------------------------------------------- |  | -------------------------------------------------------------
|Name              |  | SharesAcquiredonExercise (#) |  | ValueRealized ($) |  | Number ofSecuritiesUnderlyingUnexercisedOptions/SARs at12/31/04 (#) |  | Value ofUnexercisedIn-the-MoneyOptions/SARs at12/31/04 ($)(1)
|                  |  |                              |  |                   |  | Exercisable/Unexercisable                                           |  | Exercisable/Unexercisable                                    
|David T. Brown    |  | 0                          |  | 0               |  | 103,000/0                                                           |  | 0/0                                                          
|Michael H. Thaman |  | 0                          |  | 0               |  | 73,657/0                                                            |  | 0/0                                                          
|George E. Kiemle  |  | 0                          |  | 0               |  | 53,000/0                                                            |  | 0/0                                                          
|Charles E. Dana   |  | 0                          |  | 0               |  | 40,500/0                                                            |  | 0/0                                                          
|Joseph C. High    |  | 0                          |  | 0               |  | 0/0                                                                 |  | 0/0                                                          



|(1) | No options were in-the-money at December 31, 2004.
|--- | --------------------------------------------------



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ITEM 11. EXECUTIVE COMPENSATION (continued)



Long-Term Incentive Plan Awards Table



Effective January 1, 2003, Owens Corning adopted a Long Term Incentive Plan applicable to certain key employees selected by the Compensation
Committee in an effort to more effectively drive long-term business results. The plan is intended to create a strong link between compensation and predetermined business goals designed to increase the value of the Company over a longer horizon and
better align executive interests with those of the Companys stakeholders. The plan envisions three-year performance cycles with payouts under the plan dependent upon corporate performance against long term performance goals set by the
Committee for each cycle. A new three-year cycle commenced January 1, 2004 and will conclude on December 31, 2006, with payouts, if any, in early 2007. Information concerning the awards for this cycle to the Named Executive Officers is set forth in
the table below.



Long Term Incentive Plan - Three-Year Cycle
Awards in 2004



|                  |  |                                           |  |                                                      |  |                                                               |  |            |  |           
|----------------- |  | ----------------------------------------- |  | ---------------------------------------------------- |  | ------------------------------------------------------------- |  | ---------- |  | ----------
|                  |  |                                           |  |                                                      |  | Estimated Future Payouts under Non-Stock Price-Based Plans(1)
|Name              |  | Number ofShares, Units orOther Rights (#) |  | Performance or OtherPeriod UntilMaturation or Payout |  | Threshold($)                                                  |  | Target ($) |  | Maximum($)
|David T. Brown    |  | 0                                         |  | 1/1/04-12/31/06                                      |  | 0                                                             |  | 1,875,000  |  | 3,750,000 
|Michael H. Thaman |  | 0                                         |  | 1/1/04-12/31/06                                      |  | 0                                                             |  | 1,592,500  |  | 3,185,000 
|George E. Kiemle  |  | 0                                         |  | 1/1/04-12/31/06                                      |  | 0                                                             |  | 438,750    |  | 742,000   
|Charles E. Dana   |  | 0                                         |  | 1/1/04-12/31/06                                      |  | 0                                                             |  | 472,500    |  | 675,000   
|Joseph C. High    |  | 0                                         |  | 1/1/04-12/31/06                                      |  | 0                                                             |  | 438,750    |  | 877,500   



|(1) | Each award shown represents the opportunity to earn the amount shown in the maximum column of the table if certain maximum performance goals
established by the Compensation Committee at the beginning of the performance period are attained or exceeded during the performance period. In the event these maximum performance goals are not attained, then the Named Executive Officers
may earn the amounts shown in the target column if the target levels of performance are attained, or the amounts shown in the threshold column if the threshold levels of performance are attained.
Participants will earn intermediate amounts for performance between the maximum and target levels, or between the target and threshold levels, and will earn no amounts for performance below the threshold level. The estimates of potential future
payouts displayed in the table are based on current salaries; actual payouts, if any, will be based on average annualized salaries over the three-year performance cycle. The performance goals for this three-year cycle are based on the Companys
return on net assets.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition to the three-year performance
cycle award, the Committee also established a one-year transition performance period cycle for 2004 in connection with phase-in of the new plan. Payouts pursuant to this performance cycle are reflected in the Summary Compensation Table above.



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ITEM 11. EXECUTIVE COMPENSATION (continued)



Retirement Benefits



Owens Corning maintains a tax-qualified Cash Balance Plan covering certain of its salaried and hourly employees in the United States,
including each of the Named Executive Officers, in replacement of the qualified Salaried Employees Retirement Plan maintained prior to 1996 (Prior Plan), which provided retirement benefits primarily on the basis of age at
retirement, years of service and average earnings from the highest three consecutive years of service. In addition, Owens Corning has a non-qualified Executive Supplemental Benefit Plan (ESBP) to pay eligible employees leaving the
Company the difference between the benefits payable under Owens Cornings tax-qualified retirement plan and those benefits which would have been payable except for limitations imposed by the Internal Revenue Code. Named Executive Officers are
eligible to participate in both the Cash Balance Plan and the ESBP.



Cash
Balance Plan - Under the Cash Balance Plan, each covered employees earned retirement benefit under the Prior Plan (including the ESBP) was converted to an opening cash balance. Each year, eligible employees earn a benefit based on a
percentage of such employees covered pay. Prior to July 1, 2003, the percentage was 2% for covered pay up to 50% of the Social Security Taxable Wage Base and 4% for covered pay in excess of such wage base; effective July 1, 2003, the
percentage became 4% for all subsequent covered pay. For this purpose, covered pay includes base pay and certain annual incentive bonuses payable during the year. Accrued benefits earn monthly interest based on the average interest rate for
five-year U.S. treasury securities. Employees vest in the Plan on completion of five years of service. Vested employees may receive their benefit under the Cash Balance Plan as a lump sum or as a monthly payment when they leave Owens Corning.



For employees who were at least age 40 with 10 years of service as of December
31, 1995 (Grandfathered Employees), including Messrs. Brown and Kiemle, the credit percentages applied to covered pay are increased pursuant to a formula based on age and years of service on such date. In addition, Grandfathered
Employees are entitled to receive the greater of their benefit under the Prior Plan frozen as of December 31, 2000, or under the Cash Balance Plan (in each case including the ESBP).



The estimated annual annuity amounts payable under the Cash Balance Plan (including the ESBP) to the Named Executive Officers at age 65 are:
Mr. Brown, $344,391; Mr. Thaman, $320,027; Mr. Kiemle, $183,433; Mr. Dana, $87,214; and Mr. High, $44,030. These estimated amounts assume continued employment and current levels of base salary, plus target annual incentive, through age 65, and are
based on estimated interest rates.



Supplemental Executive Retirement Plan -Owens Corning maintains a Supplemental Executive Retirement Plan (SERP) covering certain employees, including Mr. High, who join Owens Corning in mid-career. The SERP provides for a lump sum payment following termination of
employment equal to a multiple of the covered employees Cash Balance Plan balance minus an offset equal to the present value of retirement benefits attributable to prior employment. The applicable multiplier for each covered employee ranges
from 0.5 to 4.0 (determined by the covered employees age when first employed by Owens Corning) and is 2.4 in the case of Mr. High. The estimated annual annuity amount payable to Mr. High to satisfy the lump sum obligation under this plan at
age 65, under the assumptions described in the preceding paragraph, is $105,672, less the annualized offset due to prior employment.



Other Arrangements - Owens Corning has agreed to provide Mr. Dana a supplemental pension benefit, under Owens Cornings pension plan formula in existence on
his employment date, determined as if he had earned 1 1⁄2 years of service for each year worked, provided that he remains an Owens Corning employee for no less than ten years following his November 15, 1995 employment date. The estimated
supplemental annual annuity amount payable to Mr. Dana at age 65 to satisfy this benefit, assuming continued employment and current levels of covered pay, is $211,606.



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ITEM 11. EXECUTIVE COMPENSATION (continued)



In 1992, Owens Corning established a Pension Preservation Trust for amounts payable under the ESBP as well as under
the individual pension arrangements described above. The Compensation Committee determines the participants in and any amounts to be paid with respect to the Pension Preservation Trust, which may include a portion of benefits earned under the ESBP
and the pension agreements described above. Amounts paid into the Trust and income from the Trust reduce the pension otherwise payable at retirement. During 2004, no payments were made to the Trust.



Employment, Severance, and Certain Other Agreements



Owens Corning maintains a Corporate Incentive Plan under which participating employees,
including each of the Named Executive Officers, are eligible to receive annual cash incentive awards based on their individual performance and on corporate performance against annual performance goals set by the Compensation Committee. For the 2004
and 2005 annual performance periods, the funding measures set by the Compensation Committee are based on income from operations (weighted at 75%) and cash flow from operations (weighted at 25%). Cash awards paid to the Named
Executive Officers under the Corporate Incentive Plan for the 2004 performance period are reflected in the Summary Compensation Table above.



Effective beginning with calendar year 2004, Owens Corning maintains a Key Employee Retention Incentive Plan (KERP) to provide an incentive to designated key
employees, including each of the Named Executive Officers, to remain in the employ of the Company through the date of the Companys emergence from Chapter 11. Under the KERP, each eligible employee is entitled to a cash payment equal to (1) a
specified percentage of his or her annual base salary if such employee remains employed by the Company through the end of the applicable calendar year or (2) a prorated portion of such specified percentage in the event of the Companys
emergence from Chapter 11 proceedings (or such employees termination of employment due to death, disability, or termination other than for cause) prior to the end of the applicable calendar year. As of the current time, the Bankruptcy Court
has approved the KERP for calendar years 2004 and 2005. Cash awards paid to the Named Executive Officers under the KERP for calendar year 2004 are reflected in the Summary Compensation Table above.



Owens Corning has entered into severance arrangements with each of the Named Executive
Officers. These agreements generally provide for the payment of an amount equal to two times base salary plus annual incentive bonuses (based on an average of the three previous years annual incentive payments or the average of the three
previous years annual incentive targets, whichever is greater) plus continuation of insurance benefits for a period of up to two years and, in the case of Messrs. Brown, Thaman, and Kiemle, a payment equal to the additional lump sum pension
benefit that would have accrued had such individuals been three years older, with three additional years of service, at the time of employment termination and, in the case of Mr. Dana, a payment equal to the greater of (1) the additional lump sum
pension benefit so calculated and (2) Mr. Danas supplemental pension arrangement described above. Effective February 16, 2005, the base salaries of the Named Executive Officers are: Mr. Brown, $750,000; Mr. Thaman, $650,000; Mr. Kiemle,
$325,000; Mr. Dana, $350,000; and Mr. High, $325,000.



Directors
Compensation



Retainer and Meeting Fees - Owens Corning
compensates each director who is not an Owens Corning employee pursuant to a standard annual retainer/meeting fee arrangement. Effective July 1, 2004, such arrangement provides each non-employee director an annual retainer of $100,000, a fee of
$1,500 for attendance at each meeting of a Board Committee of which such director is a member, no fees for attendance at meetings of the Board of Directors, and a fee of $1,500 for each days attendance at other functions in which directors are
requested to participate. In addition, Chairmen of Board Committees receive an



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ITEM 11. EXECUTIVE COMPENSATION (continued)



additional annual retainer of $7,500. Prior to July 1, 2004, Owens Corning paid each director who was not an Owens Corning employee an annual retainer of
$35,000 and a fee of $1,200 for (a) attendance at one or more meetings of the Board of Directors on the same day, (b) attendance at one or more meetings of each Committee of the Board of Directors on the same day, and (c) each days attendance
at other functions in which directors were requested to participate. In addition, Committee Chairmen received an additional retainer of $4,000 each year.



Prior to December 2000, a director could elect to defer all or a portion of his or her annual retainer and meeting fees under the Directors Deferred Compensation
Plan, in which case his or her account was credited with the number of shares of common stock that such deferred compensation could have purchased on the date of payment. The account was also credited with the number of shares that dividends on
previously credited shares could have purchased on dividend payment dates. The Deferred Compensation Plan provides that account balances are payable in cash based on the value of the account, which is determined by the then fair market value of
Owens Corning common stock, at the time the participant ceases to be a director. Under the terms of the Deferred Compensation Plan, the claims of directors to the cash value of such deferred shares is effectively equivalent to a claim as a general
unsecured creditor of Owens Corning. Although no assurance can be given as to the value, if any, that would be attributed to such a claim under any plan or plans of reorganization ultimately confirmed in the Chapter 11 proceedings, any value
ascribed to such a claim may be greater than the value of the number of shares of Owens Corning common stock the receipt of which was deferred if, as anticipated, the outstanding Owens Corning common stock is cancelled as part of the implementation
of such plan or plans of reorganization.



Stock Plan for Directors- Owens Corning has a pre-petition stockholder approved Stock Plan for Directors, applicable to each director who is not an Owens Corning employee. The plan provides for two types of grants to each eligible director: (1) a one-time
non-recurring grant of options to each new outside director to acquire 10,000 shares of common stock at a per share exercise price of 100 percent of the value of a share of common stock on the date of grant, and (2) an annual grant of 500 shares of
common stock on the fourth Friday in April.



Initial option grants
become exercisable in equal installments over five years from date of grant, subject to acceleration in certain events, and generally expire ten years from date of grant. No grant may be made under the plan after August 20, 2007, and a director may
not receive an annual grant of common stock in the same calendar year he or she receives an initial option grant. A director entitled to receive an annual grant may elect to defer receipt of the common stock until he or she leaves the Board of
Directors.



Pursuant to action of the Board of Directors, additional option
grants and annual grants under the Plan were suspended effective April 1, 2002, pending further action by the Board. No initial option grants or annual grants were made under the Plan during 2004.



Indemnity Agreements- Owens Corning has entered into an indemnity agreement
with each member of the Board of Directors which provides that, if the director becomes involved in a claim (as defined in the agreement) by reason of an indemnifiable event (as defined in the agreement), Owens Corning will indemnify the director to
the fullest extent authorized by Owens Cornings by-laws, notwithstanding any subsequent amendment, repeal or modification of the by-laws, against any and all expenses, judgments, fines, penalties and amounts paid in settlement of the claim.



The indemnity agreement also provides that, in the event of a potential change
of control (as defined in the agreement), the director is entitled to require the creation of a trust for his or her benefit, the assets of which would be subject to the claims of Owens Cornings general creditors, and the funding of such trust
from time to time in amounts sufficient to satisfy Owens Cornings indemnification obligations reasonably anticipated at the time of the funding request.



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ITEM 11. EXECUTIVE COMPENSATION (continued)



Charitable Award Program- To recognize the interest of Owens Corning and its directors in supporting
worthy educational institutions and other charitable organizations, Owens Corning permits each director who joined the Board prior to December 31, 2001 (subject to certain vesting requirements) to nominate up to two organizations to share a
contribution of $1 million to be made in ten annual installments after the death of the director. Owens Corning expects to fully fund its contributions (as well as insurance premiums) from the proceeds of life insurance policies that it maintains on
directors. Directors will receive no financial benefit from this program, since the charitable deduction and insurance proceeds accrue solely to Owens Corning.



Compensation Committee Interlocks and Insider Participation



The Compensation Committee presently consists of Landon Hilliard (Chairman), Gaston Caperton, Ann Iverson, and W. Ann Reynolds. No other persons served on the
Compensation Committee during 2004 except Furman C. Moseley, Jr., a former director.



Mr. Hilliard is a partner of Brown Brothers Harriman & Co. (BBH), a private banking firm. BBH acts as one of the investment managers for the Fibreboard Settlement Trust, which holds certain assets that are available to fund
asbestos-related liabilities of Fibreboard Corporation, a subsidiary of Owens Corning. During 2004, BBH was paid fees of approximately $758,000 from the Trust for these services. In addition, BBH serves as the custodian and investment advisor of
certain escrow accounts funded by the Companys excess insurance carriers (see Note 19, Item C, to the Consolidated Financial Statements). During 2004, BBH earned fees of approximately $86,000 for these services.



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS



Information concerning securities authorized for issuance under equity compensation plans is contained in Item 5 above, under the heading Securities Authorized For
Issuance Under Equity Compensation Plans. Such information is incorporated here by reference.



MAJOR STOCKHOLDERS



Based on statements
filed with the Securities and Exchange Commission pursuant to section 13(d) or 13(g) of the Securities Exchange Act of 1934, stockholders holding more than 5% of Owens Corning common stock (as of February 16, 2005 and December 31, 2004,
respectively, for those listed) were:



|                                                                    |  |                                                                                                                 |  |           |     |  |     
|------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------- |  | --------- | --- |  | ----
|NAME                                                                |  | ADDRESS                                                                                                         |  | SHARES    |     |  | %   
|Harbert Distressed InvestmentMaster Fund, Ltd. and related entities |  | c/o International Fund Services (Ireland)
Limited Third Floor, Bishops Square Redmonds
Hill Dublin 2, Ireland |  | 5,525,000 | (1) |  | 10.0
|                                                                    |  |                                                                                                                
|                                                                    |  |                                                                                                                
|                                                                    |  |                                                                                                                
|                                                                    |  |                                                                                                                
|                                                                    |  |                                                                                                                 | 
|Lehman Brothers Holdings Inc.and related entities                   |  | 745 Seventh Avenue New York, New York
10019                                                                     |  | 3,476,903 | (2) |  | 6.3 



|(1) | Shared voting and dispositive powers
|--- | ------------------------------------



|(2) | Sole voting and dispositive powers
|--- | ----------------------------------



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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
(continued)



As of January 31, 2005, Owens Corning employees, including officers, beneficially owned 1,185,928 shares (2.1%) of
Owens Corning common stock under Owens Corning sponsored savings plans in the United States.



STOCK OWNERSHIP OF MANAGEMENT



The
following table shows information concerning beneficial ownership of Owens Corning common stock on January 31, 2005, by each of the directors, by each of the Named Executive Officers, and by all directors and executive officers as a group. Each
ownership shown represents less than 1% of the shares of common stock outstanding.



|                                                                                       |  |                                          |             
|-------------------------------------------------------------------------------------- |  | ---------------------------------------- | ------------
|Name                                                                                   |  | Amount And NatureOf Beneficial Ownership |             
|Norman P. Blake, Jr.                                                                   |  | 4,620                                    | (3)         
|David T. Brown                                                                         |  | 114,954                                  | (1)(2)      
|Gaston Caperton                                                                        |  | 12,032                                   | (1)(3)      
|William W. Colville                                                                    |  | 10,000                                   | (1)         
|Charles E. Dana                                                                        |  | 43,166                                   | (1)(2)      
|Joseph C. High                                                                         |  | 0                                        |             
|Landon Hilliard                                                                        |  | 7,075                                    | (3)         
|Ann Iverson                                                                            |  | 12,532                                   | (1)(3)      
|George E. Kiemle                                                                       |  | 56,378                                   | (1)(2)      
|W. Walker Lewis                                                                        |  | 4,120                                    | (3)         
|W. Ann Reynolds                                                                        |  | 6,327                                    | (3)(4)      
|Robert B. Smith, Jr.                                                                   |  | 0                                        |             
|Michael H. Thaman                                                                      |  | 86,796                                   | (1)(2)      
|All Directors and Executive Officers (including Named Executive Officers) (18 persons) |  | 446,251                                  | (1)(2)(3)(4)



|(1) | Includes shares which are not owned but are unissued shares subject to exercise of options, or which will be subject to exercise of options under Owens Corning
benefit plans within 60 days after January 31, 2005, as follows: Mr. Brown, 103,000; Mr. Caperton, 10,000; Mr. Colville, 10,000; Mr. Dana, 40,500; Ms. Iverson, 10,000; Mr. Kiemle, 53,000; Mr. Thaman, 73,657; All Directors and Executive Officers (18
persons), 377,358.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Includes shares over which there is sole voting power, but no investment power, as follows: Mr. Brown, 6,666; Mr. Dana, 2,666; Mr. Kiemle, 2,666; Mr. Thaman, 6,666;
All Directors and Executive Officers (18 persons), 24,328.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Includes deferred shares over which there is currently no voting or investment power, as follows: Mr. Blake, 3,620; Mr. Caperton, 1,532; Mr. Hilliard, 2,575; Ms.
Iverson, 1,532; Mr. Lewis, 3,620; Dr. Reynolds, 3,097; All Directors and Executive Officers (18 persons), 15,976. Under the terms of the Deferred Compensation Plan for Directors under which such deferred shares were issued, the claims of directors
to the cash value of such deferred shares is effectively equivalent to a claim as a general unsecured creditor of Owens Corning. Although no assurance can be given as to the value, if any, that would be attributed to such a claim under any plan or
plans of reorganization ultimately confirmed in the Chapter 11 proceedings, any value ascribed to such a claim may be greater than the value of the number of shares of Owens Corning common stock the receipt of which was deferred if, as anticipated,
the outstanding Owens Corning common stock is cancelled as part of the implementation of such plan or plans of reorganization.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Does not include shares of common stock held by family members as to which beneficial interest is disclaimed, as follows: Dr. Reynolds, 700; All Directors and
Executive Officers (18 persons), 700.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
(continued)



POTENTIAL CHANGES IN CONTROL



The following matters are described in response to the requirement to describe any arrangements the operation of which may at a subsequent
date result in a change in control of Owens Corning:



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. As described more fully in Note 1 to the Consolidated Financial Statements, on October 24, 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 fourth amended joint plan of reorganization (the Plan) in the USBC. The Plan is subject to confirmation by the Bankruptcy Court.



Owens Corning believes that it is likely that the terms, conditions and provisions of the Plan will be 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 provides for partial payment of all unsecured creditors claims, in the form of distributions of new common stock and notes of the
reorganized company, and cash. 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 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.



In addition, the Plan provides, and it is expected that any plan or plans of
reorganization finally confirmed will provide, that a majority of the common stock of Owens Corning will be held by a trust established pursuant to Section 524(g) of the Bankruptcy Code that will assume all obligations of Owens Corning, Fibreboard,
and their respective subsidiaries and affiliates for current and future asbestos personal injury claims. While Owens Corning is unable to predict the exact amount of common stock that will be issued to the trust, it is expected that the trust would
have the power to name a majority of Owens Cornings directors, and that as a result of its stock ownership a change in control of Owens Corning would occur.



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



During 2004, Owens Corning entered into a contract with Applied Predictive Technologies (APT) providing for APT to implement a pilot project for the Company using certain of APTs proprietary market analysis tools. The
contract provides for fees not to exceed $150,000 plus reimbursement of certain expenses. Performance under such contract commenced in 2004 and continues into 2005. During 2004, APT earned fees of approximately $75,000 under the contract. If results
of the pilot contract are successful, the Company may enter into further arrangements with APT. W. Walker Lewis, a Director of the Company, is Chairman of the Board, and owns approximately 11 percent of the equity, of APT.



Information concerning certain relationships and transactions involving Landon Hilliard, a
Director of the Company, is contained in Item 11 above, under the heading Compensation Committee Interlocks and Insider Participation.



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PART IV



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES



The aggregate accounting fees billed and services provided by the Companys principal accountants for the years ended December 31, 2004 and 2003 are as follows:



|                         |  |                           |       |      |   |      
|------------------------ |  | ------------------------- | ----- | ---- | - | -----
|                         |  | 2004                      |       | 2003
|                         |  | (in thousands of dollars)
|Audit Fees(1)            |  | $                         | 4,192 |      | $ | 2,193
|Audit-Related Fees(2)(3) |  |                           | 226   |      |   | 236  
|Tax Fees(2)(4)           |  |                           | 173   |      |   | 5    
|All Other Fees(2) (5)    |  |                           | 12    |      |   |     
|                         |  |                           |       |      |   |      
|Total fees               |  | $                         | 4,603 |      | $ | 2,434
|                         |  |                           |       |      |   |      



|(1) | Amounts shown reflect fees for the years ended December 31, 2004 and 2003, respectively.
|--- | ----------------------------------------------------------------------------------------



|(2) | Amounts shown reflect fees billed in the years ended December 31, 2004 and 2003, respectively.
|--- | ----------------------------------------------------------------------------------------------



|(3) | Includes fees related to Sarbanes-Oxley Section 404 implementation consulting, due diligence
for acquisitions and divestitures, and review of accounting for certain business transactions.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Includes fees for services related to preparation of corporate tax returns, assistance with tax audits and tax consulting. The fees shown for 2004 relate to services
rendered prior to 2002.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Includes fees related to benchmarking services and accounting research software.
|--- | --------------------------------------------------------------------------------



The above amounts do not include $69 thousand and $65 thousand of fees billed in 2004 and 2003, respectively, for audits of Company
sponsored employee benefit plans. These fees were billed directly to the respective benefit plans.



It is the Companys practice that all services provided the Company by its independent auditors be pre-approved either by the Audit Committee or by the Chairman of the Audit Committee pursuant to authority
delegated by the Committee. No part of the independent auditor services related to the Audit-Related Fees, Tax Fees, or All Other Fees listed in the table above was approved by the Audit Committee pursuant to the exemption from pre-approval provided
by paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.



ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



|(a) | DOCUMENTS FILED AS PART OF THIS REPORT
|--- | --------------------------------------



|1. | See Index to Financial Statements on page 65 hereof.
|-- | ----------------------------------------------------



|2. | See Index to Financial Statement Schedule on page 155 hereof.
|-- | -------------------------------------------------------------



|3. | See Exhibit Index beginning on page 157 hereof.
|-- | -----------------------------------------------



Management contracts and compensatory plans and arrangements required to be filed as an exhibit pursuant to Form 10-K are denoted in the Exhibit Index by
an asterisk (*).



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Signatures



Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|              |  |                                       |  |  |  |                        |  | 
|------------- |  | ------------------------------------- |  |  |  | ---------------------- |  | 
|OWENS CORNING |  |                                       |  | 
|              |  |                                       | 
|By            |  | /s/ David T. Brown                    |  |  |  | Date     March 8, 2005
|              |  | David T. Brown,                       |  |  |  |                        |  | 
|              |  | President and Chief Executive Officer |  |  |  |                        |  | 



Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.



| |  |                                                             |  |  |  |                        |  | 
| |  | ----------------------------------------------------------- |  |  |  | ---------------------- |  | 
| |  |                                                             | 
| |  | /s/ David T. Brown                                          |  |  |  | Date     March 8, 2005
| |  | David T. Brown,                                             |  |  |  |                        |  | 
| |  | President, Chief Executive Officer and Director             |  |  |  |                        |  | 
| |  |                                                             | 
| |  | /s/ Michael H. Thaman                                       |  |  |  | Date     March 8, 2005
| |  | Michael H. Thaman,                                          |  |  |  |                        |  | 
| |  | Chairman of the Board, Chief Financial Officer and Director |  |  |  |                        |  | 
| |  |                                                             | 
| |  | /s/ Roy D. Dean                                             |  |  |  | Date     March 8, 2005
| |  | Roy D. Dean,                                                |  |  |  |                        |  | 
| |  | Vice President and Corporate Controller                     |  |  |  |                        |  | 
| |  |                                                             | 
| |  | /s/ Norman P. Blake, Jr.                                    |  |  |  | Date     March 7, 2005
| |  | Norman P. Blake, Jr.,                                       |  |  |  |                        |  | 
| |  | Director                                                    |  |  |  |                        |  | 
| |  |                                                             | 
| |  | /s/ Gaston Caperton                                         |  |  |  | Date     March 3, 2005
| |  | Gaston Caperton,                                            |  |  |  |                        |  | 
| |  | Director                                                    |  |  |  |                        |  | 
| |  |                                                             | 
| |  | /s/ William W. Colville                                     |  |  |  | Date     March 8, 2005
| |  | William W. Colville,                                        |  |  |  |                        |  | 
| |  | Director                                                    |  |  |  |                        |  | 
| |  |                                                             | 
| |  | /s/ Landon Hilliard                                         |  |  |  | Date     March 2, 2005
| |  | Landon Hilliard,                                            |  |  |  |                        |  | 
| |  | Director                                                    |  |  |  |                        |  | 
| |  |                                                             | 
| |  | /s/ Ann Iverson                                             |  |  |  | Date     March 8, 2005
| |  | Ann Iverson,                                                |  |  |  |                        |  | 
| |  | Director                                                    |  |  |  |                        |  | 
| |  |                                                             | 
| |  | /s/ W. Walker Lewis                                         |  |  |  | Date     March 8, 2005
| |  | W. Walker Lewis,                                            |  |  |  |                        |  | 
| |  | Director                                                    |  |  |  |                        |  | 
| |  |                                                             | 
| |  | /s/ W. Ann Reynolds                                         |  |  |  | Date     March 8, 2005
| |  | W. Ann Reynolds,                                            |  |  |  |                        |  | 
| |  | Director                                                    |  |  |  |                        |  | 
| |  |                                                             | 
| |  | /s/ Robert B. Smith, Jr.                                    |  |  |  | Date     March 8, 2005
| |  | Robert B. Smith, Jr.,                                       |  |  |  |                        |  | 
| |  | Director                                                    |  |  |  |                        |  | 



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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                       |  |         
|------------------------------------------------------------------------------------------------------ |  | --------
|Item                                                                                                   |  | Page    
|                                                                                                       | 
|Managements Report on Internal Control Over Financial Reporting                                       |  | 66      
|                                                                                                       | 
|Report of Independent Registered Public Accounting Firm                                                |  | 67 - 69 
|                                                                                                       | 
|Consolidated Statement of Income (Loss) - for the years ended December 31, 2004, 2003 and 2002         |  | 70      
|                                                                                                       | 
|Consolidated Balance Sheet - December 31, 2004 and 2003                                                |  | 71 - 72 
|                                                                                                       | 
|Consolidated Statement of Stockholders Deficit - for the years ended December 31, 2004, 2003 and 2002 |  | 73      
|                                                                                                       | 
|Consolidated Statement of Cash Flows - for the years ended December 31, 2004, 2003 and 2002            |  | 74      
|                                                                                                       | 
|Notes to Consolidated Financial Statements Notes 1 through 24                                          |  | 75 - 154



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LOGO



Managements Report on Internal Control Over Financial Reporting



Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act
of 1934, as amended).



Management assessed the effectiveness of the
Companys internal control over financial reporting as of December 31, 2004. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control-Integrated Framework.



Based on our assessment, management
determined that, as of December 31, 2004, the Companys internal control over financial reporting was effective.



The Companys Independent Registered Public Accounting Firm, PricewaterhouseCoopers LLP, has issued an integrated audit report that includes the firms
attestation report on our assessment of the effectiveness of the Companys internal control over financial reporting. Such audit report appears on pages 67 through 69.



|                                                  |  |  |  |                   
|------------------------------------------------- |  |  |  | ------------------
|                                                  |  | 
|/s/ David T. Brown                                |  |  |  | Date March 8, 2005
|David T. Brown,                                   |  |  |  |                   
|President and Chief Executive Officer             |  |  |  |                   
|                                                  |  | 
|/s/ Michael H. Thaman                             |  |  |  | Date March 8, 2005
|Michael H. Thaman,                                |  |  |  |                   
|Chairman of the Board and Chief Financial Officer |  |  |  |                   



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LOGO



| |  |                                                                                                 
| |  | ------------------------------------------------------------------------------------------------
| |  | PricewaterhouseCoopers LLP One SeaGate, Suite 1800 Toledo OH 43604-1574 Telephone (419) 254 2500



Report of Independent Registered Public Accounting Firm



To the Board of Directors and Stockholders of Owens Corning:



We have completed an integrated audit of Owens Cornings 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2004 and audits of its 2003 and 2002 consolidated financial
statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.



Consolidated financial statements and financial statement schedule



In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Owens Corning and its subsidiaries (the
Company) at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States
of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and the financial
statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



The accompanying financial statements have been prepared assuming that the Company will
continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company voluntarily filed for Chapter 11 bankruptcy protection on October 5, 2000. This action, which was taken primarily as a result of asbestos
litigation as discussed in Note 19 to the consolidated financial statements, raises substantial doubt about the Companys ability to continue as a going concern. Managements plans in regard to these matters are also described in Note 1.
The financial statements do not include any adjustments that might result from the outcome of this uncertainty.



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LOGO



As discussed in Note 7 of the consolidated financial
statements, the Company changed its method of accounting for goodwill and other intangible assets in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142), which
was adopted by the Company as of January 1, 2002.



Internal control over financial reporting



Also, in our
opinion, managements assessment, included in Managements Report on Internal Control Over Financial Reporting appearing on page 66, that the Company maintained effective internal control over financial reporting as of December 31, 2004
based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria.
Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control - Integrated Framework issued by the COSO.
The Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on
managements assessment and on the effectiveness of the Companys internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating managements assessment, testing and evaluating the design and operating effectiveness
of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.



A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.



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LOGO



Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.



|             
|-------------
|             
|LOGO         
|             
|March 8, 2005



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OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME (LOSS)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002



|                                                                                                    |  |                                      |       |   |      |   |       |      |  |   |        |  
|--------------------------------------------------------------------------------------------------- |  | ------------------------------------ | ----- | - | ---- | - | ----- | ---- |  | - | ------ | -
|                                                                                                    |  | 2004                                 |       |   | 2003 |   |       | 2002 | 
|                                                                                                    |  | (In millions, except per share data) |      
|NET SALES                                                                                           |  | $                                    | 5,675 |   |      | $ | 4,996 |      |  | $ | 4,872  |  
|COST OF SALES                                                                                       |  |                                      | 4,649 |   |      |   | 4,170 |      |  |   | 4,130  |  
|                                                                                                    |  |                                      |       |   |      |   |       |      |  |   |        |  
|Gross margin                                                                                        |  |                                      | 1,026 |   |      |   | 826   |      |  |   | 742    |  
|                                                                                                    |  |                                      |       |   |      |   |       |      |  |   |        |  
|OPERATING EXPENSES                                                                                  |  |                                      |       |   |      |   |       |      |  |   |        |  
|Marketing and administrative expenses                                                               |  |                                      | 530   |   |      |   | 459   |      |  |   | 522    |  
|Science and technology expenses                                                                     |  |                                      | 47    |   |      |   | 43    |      |  |   | 42     |  
|Restructure costs                                                                                   |  |                                      |      |   |      |   | (2    | )    |  |   | 61     |  
|Chapter 11 related reorganization items                                                             |  |                                      | 54    |   |      |   | 85    |      |  |   | 96     |  
|Provision (credit) for asbestos litigation claims (recoveries) - Owens Corning                      |  |                                      | (24   | ) |      |   | (5    | )    |  |   | 1,376  |  
|Provision for asbestos litigation claims - Fibreboard                                               |  |                                      |      |   |      |   |      |      |  |   | 975    |  
|Other                                                                                               |  |                                      | (8    | ) |      |   | (21   | )    |  |   | (17    | )
|                                                                                                    |  |                                      |       |   |      |   |       |      |  |   |        |  
|Total operating expenses                                                                            |  |                                      | 599   |   |      |   | 559   |      |  |   | 3,055  |  
|                                                                                                    |  |                                      |       |   |      |   |       |      |  |   |        |  
|INCOME (LOSS) FROM OPERATIONS                                                                       |  |                                      | 427   |   |      |   | 267   |      |  |   | (2,313 | )
|                                                                                                    |  |                                      |      
|Interest expense, net                                                                               |  |                                      | (12   | ) |      |   | 8     |      |  |   | 16     |  
|                                                                                                    |  |                                      |       |   |      |   |       |      |  |   |        |  
|INCOME (LOSS) BEFORE INCOME TAX EXPENSE                                                             |  |                                      | 439   |   |      |   | 259   |      |  |   | (2,329 | )
|                                                                                                    |  |                                      |      
|Income tax expense                                                                                  |  |                                      | 227   |   |      |   | 145   |      |  |   | 31     |  
|                                                                                                    |  |                                      |       |   |      |   |       |      |  |   |        |  
|INCOME (LOSS) BEFORE MINORITY INTEREST AND EQUITY IN NET INCOME (LOSS) OF AFFILIATES                |  |                                      | 212   |   |      |   | 114   |      |  |   | (2,360 | )
|                                                                                                    |  |                                      |      
|Minority interest and equity in net earnings of affiliates                                          |  |                                      | (8    | ) |      |   | 1     |      |  |   | (8     | )
|                                                                                                    |  |                                      |       |   |      |   |       |      |  |   |        |  
|NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                        |  |                                      | 204   |   |      |   | 115   |      |  |   | (2,368 | )
|                                                                                                    |  |                                      |      
|Cumulative effect of change in accounting principle, net of tax                                     |  |                                      |      |   |      |   |      |      |  |   | (441   | )
|                                                                                                    |  |                                      |       |   |      |   |       |      |  |   |        |  
|NET INCOME (LOSS)                                                                                   |  | $                                    | 204   |   |      | $ | 115   |      |  | $ | (2,809 | )
|                                                                                                    |  |                                      |       |   |      |   |       |      |  |   |        |  
|NET INCOME (LOSS) PER COMMON SHARE                                                                  |  |                                      |       |   |      |   |       |      |  |   |        |  
|Basic net income (loss) per share                                                                   |  | $                                    | 3.68  |   |      | $ | 2.08  |      |  | $ | (51.02 | )
|                                                                                                    |  |                                      |       |   |      |   |       |      |  |   |        |  
|Diluted net income (loss) per share                                                                 |  | $                                    | 3.40  |   |      | $ | 1.92  |      |  | $ | (51.02 | )
|                                                                                                    |  |                                      |       |   |      |   |       |      |  |   |        |  
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING AND COMMON EQUIVALENT SHARES DURING THE PERIOD |  |                                      |       |   |      |   |       |      |  |   |        |  
|Basic                                                                                               |  |                                      | 55.3  |   |      |   | 55.2  |      |  |   | 55.1   |  
|Diluted                                                                                             |  |                                      | 59.9  |   |      |   | 59.9  |      |  |   | 55.1   |  



The accompanying notes
to consolidated financial statements are an integral part of this statement.



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OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

DECEMBER 31, 2004 AND 2003



|                                                                            |  |                          |        |   |      |   |        |  
|--------------------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | -
|                                                                            |  | 2004                     |        |   | 2003 |  
|                                                                            |  | (In millions of dollars) |       
|ASSETS                                                                      |  |                          |        |  
|CURRENT                                                                     |  |                          |        |   |      |   |        |  
|Cash and cash equivalents                                                   |  | $                        | 1,125  |   |      | $ | 1,005  |  
|Receivables, less allowances of $18 million in 2004 and $19 million in 2003 |  |                          | 527    |   |      |   | 464    |  
|Inventories                                                                 |  |                          | 445    |   |      |   | 390    |  
|Other current assets                                                        |  |                          | 31     |   |      |   | 29     |  
|                                                                            |  |                          |        |   |      |   |        |  
|Total current                                                               |  |                          | 2,128  |   |      |   | 1,888  |  
|                                                                            |  |                          |        |   |      |   |        |  
|OTHER                                                                       |  |                          |        |   |      |   |        |  
|Restricted cash - asbestos and insurance related                            |  |                          | 188    |   |      |   | 166    |  
|Restricted cash, securities, and other - Fibreboard                         |  |                          | 1,418  |   |      |   | 1,395  |  
|Deferred income taxes                                                       |  |                          | 999    |   |      |   | 1,310  |  
|Pension-related assets                                                      |  |                          | 499    |   |      |   | 338    |  
|Goodwill                                                                    |  |                          | 198    |   |      |   | 138    |  
|Investments in affiliates                                                   |  |                          | 82     |   |      |   | 81     |  
|Other noncurrent assets                                                     |  |                          | 117    |   |      |   | 92     |  
|                                                                            |  |                          |        |   |      |   |        |  
|Total other                                                                 |  |                          | 3,501  |   |      |   | 3,520  |  
|                                                                            |  |                          |        |   |      |   |        |  
|PLANT AND EQUIPMENT, at cost                                                |  |                          |        |   |      |   |        |  
|Land                                                                        |  |                          | 80     |   |      |   | 70     |  
|Buildings and leasehold improvements                                        |  |                          | 803    |   |      |   | 789    |  
|Machinery and equipment                                                     |  |                          | 3,293  |   |      |   | 3,232  |  
|Construction in progress                                                    |  |                          | 128    |   |      |   | 96     |  
|                                                                            |  |                          |        |   |      |   |        |  
|                                                                            |  |                          | 4,304  |   |      |   | 4,187  |  
|Accumulated depreciation                                                    |  |                          | (2,294 | ) |      |   | (2,237 | )
|                                                                            |  |                          |        |   |      |   |        |  
|Net plant and equipment                                                     |  |                          | 2,010  |   |      |   | 1,950  |  
|                                                                            |  |                          |        |   |      |   |        |  
|TOTAL ASSETS                                                                |  | $                        | 7,639  |   |      | $ | 7,358  |  
|                                                                            |  |                          |        |   |      |   |        |  



The accompanying notes
to consolidated financial statements are an integral part of this statement.



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OWENS CORNING AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

DECEMBER 31, 2004 AND 2003 (continued)



|                                                                                                  |  |                          |        |   |      |   |        |  
|------------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | -
|                                                                                                  |  | 2004                     |        |   | 2003 |  
|                                                                                                  |  | (In millions of dollars) |       
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                             |  |                          |        |  
|CURRENT                                                                                           |  |                          |        |   |      |   |        |  
|Accounts payable and accrued liabilities                                                          |  | $                        | 909    |   |      | $ | 767    |  
|Short-term debt                                                                                   |  |                          | 11     |   |      |   | 44     |  
|Long-term debt - current portion                                                                  |  |                          | 31     |   |      |   | 53     |  
|                                                                                                  |  |                          |        |   |      |   |        |  
|Total current                                                                                     |  |                          | 951    |   |      |   | 864    |  
|                                                                                                  |  |                          |        |   |      |   |        |  
|LONG-TERM DEBT                                                                                    |  |                          | 38     |   |      |   | 73     |  
|                                                                                                  |  |                          |        |   |      |   |        |  
|OTHER                                                                                             |  |                          |        |   |      |   |        |  
|Pension plan liability                                                                            |  |                          | 731    |   |      |   | 697    |  
|Other employee benefits liability                                                                 |  |                          | 401    |   |      |   | 400    |  
|Other                                                                                             |  |                          | 178    |   |      |   | 143    |  
|                                                                                                  |  |                          |        |   |      |   |        |  
|Total other                                                                                       |  |                          | 1,310  |   |      |   | 1,240  |  
|                                                                                                  |  |                          |        |   |      |   |        |  
|LIABILITIES SUBJECT TO COMPROMISE                                                                 |  |                          | 9,171  |   |      |   | 9,258  |  
|                                                                                                  |  |                          |        |   |      |   |        |  
|COMPANY-OBLIGATED SECURITIES OF ENTITIES HOLDING SOLELY PARENT DEBENTURES - SUBJECT TO COMPROMISE |  |                          | 200    |   |      |   | 200    |  
|                                                                                                  |  |                          |        |   |      |   |        |  
|COMMITMENTS AND CONTINGENCIES (Notes 10, 19 and 22)                                               |  |                          |        |   |      |   |        |  
|MINORITY INTEREST                                                                                 |  |                          | 49     |   |      |   | 51     |  
|                                                                                                  |  |                          |        |   |      |   |        |  
|STOCKHOLDERS DEFICIT                                                                             |  |                          |        |   |      |   |        |  
|Preferred stock, no par value; authorized 8 million shares, none outstanding                      |  |                          |       |   |      |   |       |  
|Common stock, par value $.10 per share; authorized 100 million shares; issued 55.3 million shares |  |                          | 6      |   |      |   | 6      |  
|Additional paid in capital                                                                        |  |                          | 692    |   |      |   | 690    |  
|Accumulated deficit                                                                               |  |                          | (4,447 | ) |      |   | (4,651 | )
|Accumulated other comprehensive loss                                                              |  |                          | (330   | ) |      |   | (371   | )
|Other                                                                                             |  |                          | (1     | ) |      |   | (2     | )
|                                                                                                  |  |                          |        |   |      |   |        |  
|Total stockholders deficit                                                                       |  |                          | (4,080 | ) |      |   | (4,328 | )
|                                                                                                  |  |                          |        |   |      |   |        |  
|TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT                                                       |  | $                        | 7,639  |   |      | $ | 7,358  |  
|                                                                                                  |  |                          |        |   |      |   |        |  



The accompanying notes
to consolidated financial statements are an integral part of this statement.



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OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002



|                                                                                                                         |  |                          |        |   |      |   |        |      |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------ |  | ------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                                                         |  | 2004                     |        |   | 2003 |   |        | 2002 | 
|                                                                                                                         |  | (In millions of dollars) |       
|COMMON STOCK                                                                                                             |  |                          |        |   |      |   |        |      |  |   |        |  
|Balance beginning and end of year                                                                                        |  | $                        | 6      |   |      | $ | 6      |      |  | $ | 6      |  
|                                                                                                                         |  |                          |        |   |      |   |        |      |  |   |        |  
|ADDITIONAL PAID IN CAPITAL                                                                                               |  |                          |        |   |      |   |        |      |  |   |        |  
|Balance beginning of year                                                                                                |  |                          | 690    |   |      |   | 690    |      |  |   | 691    |  
|Forfeitures of stock under stock compensation plans                                                                      |  |                          |       |   |      |   |       |      |  |   | (1     | )
|Other                                                                                                                    |  |                          | 2      |   |      |   |       |      |  |   |       |  
|                                                                                                                         |  |                          |        |   |      |   |        |      |  |   |        |  
|Balance end of year                                                                                                      |  |                          | 692    |   |      |   | 690    |      |  |   | 690    |  
|                                                                                                                         |  |                          |        |   |      |   |        |      |  |   |        |  
|DEFICIT                                                                                                                  |  |                          |        |   |      |   |        |      |  |   |        |  
|Balance beginning of year                                                                                                |  |                          | (4,651 | ) |      |   | (4,766 | )    |  |   | (1,957 | )
|Net income (loss)                                                                                                        |  |                          | 204    |   |      |   | 115    |      |  |   | (2,809 | )
|                                                                                                                         |  |                          |        |   |      |   |        |      |  |   |        |  
|Balance end of year                                                                                                      |  |                          | (4,447 | ) |      |   | (4,651 | )    |  |   | (4,766 | )
|ACCUMULATED OTHER COMPREHENSIVE LOSS                                                                                     |  |                          |        |   |      |   |        |      |  |   |        |  
|Balance beginning of year                                                                                                |  |                          |        |   |      |   |        |      |  |   |        |  
|Currency translation adjustment                                                                                          |  |                          | 33     |   |      |   | (59    | )    |  |   | (133   | )
|Minimum pension liability adjustment                                                                                     |  |                          | (403   | ) |      |   | (337   | )    |  |   | (230   | )
|Other                                                                                                                    |  |                          | (1     | ) |      |   | 1      |      |  |   | 8      |  
|                                                                                                                         |  |                          |        |   |      |   |        |      |  |   |        |  
|Balance at beginning of year                                                                                             |  |                          | (371   | ) |      |   | (395   | )    |  |   | (355   | )
|Adjustments                                                                                                              |  |                          |        |   |      |   |        |      |  |   |        |  
|Currency translation adjustment                                                                                          |  |                          | 70     |   |      |   | 92     |      |  |   | 74     |  
|Minimum pension liability adjustment (net of taxes of $13 million in 2004, $14 million in 2003, and $88 million in 2002) |  |                          | (25    | ) |      |   | (66    | )    |  |   | (107   | )
|Other                                                                                                                    |  |                          | (4     | ) |      |   | (2     | )    |  |   | (7     | )
|                                                                                                                         |  |                          |        |   |      |   |        |      |  |   |        |  
|Other comprehensive income (loss)                                                                                        |  |                          | 41     |   |      |   | 24     |      |  |   | (40    | )
|Balance end of year                                                                                                      |  |                          |        |   |      |   |        |      |  |   |        |  
|Currency translation adjustment                                                                                          |  |                          | 103    |   |      |   | 33     |      |  |   | (59    | )
|Minimum pension liability adjustment                                                                                     |  |                          | (428   | ) |      |   | (403   | )    |  |   | (337   | )
|Other                                                                                                                    |  |                          | (5     | ) |      |   | (1     | )    |  |   | 1      |  
|                                                                                                                         |  |                          |        |   |      |   |        |      |  |   |        |  
|Balance end of year                                                                                                      |  |                          | (330   | ) |      |   | (371   | )    |  |   | (395   | )
|                                                                                                                         |  |                          |        |   |      |   |        |      |  |   |        |  
|OTHER                                                                                                                    |  |                          |        |   |      |   |        |      |  |   |        |  
|Balance beginning of year                                                                                                |  |                          | (2     | ) |      |   | (3     | )    |  |   | (2     | )
|Net increase (decrease)                                                                                                  |  |                          | 1      |   |      |   | 1      |      |  |   | (1     | )
|                                                                                                                         |  |                          |        |   |      |   |        |      |  |   |        |  
|Balance end of year                                                                                                      |  |                          | (1     | ) |      |   | (2     | )    |  |   | (3     | )
|                                                                                                                         |  |                          |        |   |      |   |        |      |  |   |        |  
|STOCKHOLDERS DEFICIT                                                                                                    |  | $                        | (4,080 | ) |      | $ | (4,328 | )    |  | $ | (4,468 | )
|                                                                                                                         |  |                          |        |   |      |   |        |      |  |   |        |  
|TOTAL COMPREHENSIVE INCOME (LOSS)                                                                                        |  |                          |        |   |      |   |        |      |  |   |        |  
|Net income (loss)                                                                                                        |  | $                        | 204    |   |      | $ | 115    |      |  | $ | (2,809 | )
|Other comprehensive income (loss)                                                                                        |  |                          | 41     |   |      |   | 24     |      |  |   | (40    | )
|                                                                                                                         |  |                          |        |   |      |   |        |      |  |   |        |  
|COMPREHENSIVE INCOME (LOSS)                                                                                              |  | $                        | 245    |   |      | $ | 139    |      |  | $ | (2,849 | )
|                                                                                                                         |  |                          |        |   |      |   |        |      |  |   |        |  



The accompanying notes
to consolidated financial statements are an integral part of this statement.



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OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002



|                                                                             |  |                          |       |   |      |   |       |      |  |   |        |  
|---------------------------------------------------------------------------- |  | ------------------------ | ----- | - | ---- | - | ----- | ---- |  | - | ------ | -
|                                                                             |  | 2004                     |       |   | 2003 |   |       | 2002 | 
|                                                                             |  | (In millions of dollars) |      
|NET CASH FLOW FROM OPERATIONS                                                |  |                          |       |   |      |   |       |      |  |   |        |  
|Net income (loss)                                                            |  | $                        | 204   |   |      | $ | 115   |      |  | $ | (2,809 | )
|Reconciliation of net cash flow from operations:                             |  |                          |       |   |      |   |       |      |  |   |        |  
|Noncash items:                                                               |  |                          |       |   |      |   |       |      |  |   |        |  
|Provision for asbestos litigation claims                                     |  |                          |      |   |      |   |      |      |  |   | 2,356  |  
|Provision for depreciation                                                   |  |                          | 228   |   |      |   | 206   |      |  |   | 205    |  
|Provision for impairment of fixed assets                                     |  |                          | 7     |   |      |   | 28    |      |  |   | 67     |  
|Provision (credit) for deferred income taxes                                 |  |                          | 133   |   |      |   | 51    |      |  |   | (21    | )
|Provision for pension and other employee benefits liabilities                |  |                          | 120   |   |      |   | 126   |      |  |   | 96     |  
|Cumulative effect of accounting change                                       |  |                          |      |   |      |   |      |      |  |   | 441    |  
|Other                                                                        |  |                          | 20    |   |      |   | 62    |      |  |   | 132    |  
|(Increase) decrease in receivables                                           |  |                          | (23   | ) |      |   | (27   | )    |  |   | 6      |  
|(Increase) decrease in inventories                                           |  |                          | (42   | ) |      |   | 11    |      |  |   | (4     | )
|Increase (decrease) in accounts payable and accrued liabilities              |  |                          | 69    |   |      |   | (67   | )    |  |   | (88    | )
|Change in liabilities subject to compromise                                  |  |                          |      |   |      |   |      |      |  |   | (1     | )
|Proceeds from insurance for asbestos litigation claims, excluding Fibreboard |  |                          | 24    |   |      |   | 5     |      |  |   | 5      |  
|Pension fund contribution                                                    |  |                          | (231  | ) |      |   | (185  | )    |  |   | (3     | )
|Payments for other employee benefits liabilities                             |  |                          | (34   | ) |      |   | (30   | )    |  |   | (35    | )
|Increase in restricted cash - asbestos and insurance related                 |  |                          | (22   | ) |      |   | (1    | )    |  |   | (7     | )
|Increase in restricted cash, securities, and other - Fibreboard              |  |                          | (23   | ) |      |   | (30   | )    |  |   |       |  
|Other                                                                        |  |                          | 19    |   |      |   | 31    |      |  |   | 17     |  
|                                                                             |  |                          |       |   |      |   |       |      |  |   |        |  
|Net cash flow from operations                                                |  |                          | 449   |   |      |   | 295   |      |  |   | 357    |  
|                                                                             |  |                          |       |   |      |   |       |      |  |   |        |  
|NET CASH FLOW FROM INVESTING                                                 |  |                          |       |   |      |   |       |      |  |   |        |  
|Additions to plant and equipment                                             |  |                          | (232  | ) |      |   | (208  | )    |  |   | (248   | )
|Investment in subsidiaries and affiliates, net of cash acquired              |  |                          | (96   | ) |      |   | (25   | )    |  |   | (15    | )
|Proceeds from the sale of assets or affiliates                               |  |                          | 8     |   |      |   | 88    |      |  |   | 13     |  
|                                                                             |  |                          |       |   |      |   |       |      |  |   |        |  
|Net cash flow from investing                                                 |  | $                        | (320  | ) |      | $ | (145  | )    |  | $ | (250   | )
|                                                                             |  |                          |       |   |      |   |       |      |  |   |        |  
|NET CASH FLOW FROM FINANCING                                                 |  |                          |       |   |      |   |       |      |  |   |        |  
|Proceeds from long-term debt                                                 |  | $                        |      |   |      | $ | 10    |      |  | $ |       |  
|Payments on long-term debt                                                   |  |                          | (21   | ) |      |   | (56   | )    |  |   | (3     | )
|Net increase (decrease) in short-term debt                                   |  |                          |      |   |      |   | 3     |      |  |   | (4     | )
|Net (decrease) increase in subject to compromise                             |  |                          | (5    | ) |      |   |      |      |  |   | 1      |  
|Other                                                                        |  |                          | 2     |   |      |   |      |      |  |   | 1      |  
|                                                                             |  |                          |       |   |      |   |       |      |  |   |        |  
|Net cash flow from financing                                                 |  |                          | (24   | ) |      |   | (43   | )    |  |   | (5     | )
|                                                                             |  |                          |       |   |      |   |       |      |  |   |        |  
|Effect of exchange rate changes on cash                                      |  |                          | 15    |   |      |   | 23    |      |  |   | 9      |  
|                                                                             |  |                          |       |   |      |   |       |      |  |   |        |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                    |  |                          | 120   |   |      |   | 130   |      |  |   | 111    |  
|Cash and cash equivalents at beginning of year                               |  |                          | 1,005 |   |      |   | 875   |      |  |   | 764    |  
|                                                                             |  |                          |       |   |      |   |       |      |  |   |        |  
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                   |  | $                        | 1,125 |   |      | $ | 1,005 |      |  | $ | 875    |  
|                                                                             |  |                          |       |   |      |   |       |      |  |   |        |  
|DISCLOSURE OF CASH FLOW INFORMATION                                          |  |                          |       |   |      |   |       |      |  |   |        |  
|Cash paid during the year for income taxes                                   |  | $                        | 38    |   |      | $ | 27    |      |  | $ | 27     |  
|Cash paid during the year for interest expense                               |  | $                        | 9     |   |      | $ | 5     |      |  | $ | 7      |  



The accompanying notes
to consolidated financial statements are an integral part of this statement.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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 19 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 May 27, 2004, the United States Court of Appeals for the Third Circuit (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.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



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



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 the Company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.



The holders of the
debt under the Pre-Petition Credit Facility, and certain other members of the major creditor groups, have indicated that they continue to oppose the Plan, including a group identifying itself as an Ad Hoc Committee of Bondholders that
claims to have a blocking position that will allow them to prevent a vote in favor of the Plan by Owens Cornings bondholders.



Certain terms, conditions and provisions of the Plan are discussed below. The Plan is subject to confirmation by the Bankruptcy Court. There can be no assurance that the
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 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.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



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



As described more fully below under the heading The Plan of Reorganization, the Plan is premised upon the
substantive consolidation of Owens Corning and certain of its direct and indirect subsidiaries (but not the Fibreboard Settlement Trust (see Note 20 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. On October 5,
2004, the District Court issued a Memorandum and Order Concerning Substantive Consolidation. In that Memorandum and Order, the District Court granted the Debtors motion for substantive consolidation and ordered that counsel for the
participating parties meet for the purpose of attempting to achieve an agreed-upon plan of reorganization. On October 13, 2004, the holders of the debt under the Pre-Petition Credit Facility filed an appeal of the Memorandum and Order with the Third
Circuit. On November 2, 2004, the Debtors, the Official Committee of Asbestos Claimants, the Legal Representative for the class of future asbestos claimants, and the official representatives of the Companys pre-petition bondholders and trade
creditors filed a joint motion to dismiss such appeal on the grounds that the Memorandum and Order is not a final judgment or otherwise appealable. The Third Circuit denied the motion to dismiss on January 26, 2005, and heard oral arguments on the
appeal of the Memorandum and Order on February 7, 2005. Because our currently proposed Plan of Reorganization is based upon substantive consolidation, a Third Circuit reversal of the District Courts Order could potentially result in
significant delays in our case.



A six-day claims estimation
hearing was held before the District Court beginning January 13, 2005. The purpose of the claims estimation hearing was to establish the amount of current and future asbestos liability to be allowed in the Chapter 11 Cases. In general, the holders
of the debt under the Pre-Petition Credit Facility argued that the amount of the Companys current and future asbestos liability should be set at an amount significantly lower than the amounts reserved for asbestos claims on the financial
statements of the Debtors, and the Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants argued that such asbestos liability should be set at a significantly higher level. Post-trial briefs
in this matter were filed by February 18, 2005. The District Court has not indicated when it expects to render a decision on this matter, and no assurance can be given as to whether the amount of current and future asbestos liability established as
a result of such claims estimation hearing will be more or less than the amounts reserved for asbestos claims on the financial statements of the Debtors or will be more or less than the $16 billion amount that the Official Committee of Asbestos
Claimants and the Legal Representative for the class of future asbestos claimants have established as the level below which they have reserved the right to withdraw support of the Plan.



Related Developments



PROPOSED ASBESTOS LEGISLATION



The United States Senate introduced proposed asbestos reform legislation (the FAIR Act) in the prior session of Congress on May 22, 2003 and April 7,
2004 (known as the Fairness in Asbestos Injury Resolution Act of 2003 and the Fairness in Asbestos Injury Resolution Act of 2004, respectively), each of which lapsed upon the adjournment of such Congress. While the FAIR Act did not pass in 2004,
there have been ongoing discussions within the Senate regarding the possible introduction of a new version of the FAIR Act in 2005.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



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



If enacted into law as previously proposed, 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 terms of the previously introduced 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 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 Claimants. Further proceedings on this matter have been continued until a status conference on the
motion.



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 Claimants 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 Claimants have each filed responsive pleadings to the motion. The USBC has 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 motions described above are without merit and intend to continue to vigorously oppose them in appropriate proceedings.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



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



The Plan of Reorganization



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 provides for partial payment of all unsecured creditors allowed claims, in the form of distributions of new common stock and notes of the reorganized
company, and cash. 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 Owens Corning and certain of its
direct and indirect subsidiaries (but not the Fibreboard Settlement Trust (see Note 20 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 substantively consolidated entity (excluding the Fibreboard Settlement Trust) as though they were merged into one consolidated estate with the assets and liabilities of the other substantively consolidated entities. 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
continue to challenge that approach.



As described above, on October 5, 2004,
the District Court issued a Memorandum and Order Concerning Substantive Consolidation. In that Memorandum and Order, the District Court granted the Debtors motion for substantive consolidation and ordered that counsel for the participating
parties meet for the purpose of attempting to achieve an agreed-upon plan of reorganization. On October 13, 2004, the holders of the debt under the Pre-Petition Credit Facility filed an appeal of the Memorandum and Order with the Third Circuit. The
Third Circuit heard oral arguments on the appeal of the Memorandum and Order on February 7, 2005. Because our currently proposed Plan of Reorganization is based upon substantive consolidation, a Third Circuit reversal of the District Courts
Order could potentially result in significant delays in our case.



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.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



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



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.



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. A six-day claims estimation hearing was held before the District
Court beginning January 13, 2005. The purpose of the claims estimation hearing was to establish the amount of current and future asbestos liability to be allowed in the Chapter 11 Cases. In general, the holders of the debt under the Pre-Petition
Credit Facility argued that the amount of the Companys current and future asbestos liability should be set at an amount significantly lower than the amounts reserved for asbestos claims on the financial statements of the Debtors, and the
Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants argued that such asbestos liability should be set at a significantly higher level. 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. Post-trial briefs in this matter were filed by
February 18, 2005. The District Court has not indicated when it expects to render a decision on this matter, and no assurance can be given as to whether the amount of current and future asbestos liability established as a result of such claims
estimation hearing will be more or less than the amounts reserved for asbestos claims on the financial statements of the Debtors or will be more or less than the $16 billion amount established by the Official Committee of Asbestos Claimants and the
Legal Representative for the class of future asbestos claimants as the level below which they have reserved the right to withdraw support of the Plan.



Any disagreements raised by creditors with the terms of the Plan are expected to be handled through negotiation or litigation as part of the confirmation process. Owens
Corning is unable to predict the timing or outcome of such negotiation or litigation.



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 20 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



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



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



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 direct and indirect 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. (Exterior), an indirect wholly-owned subsidiary
of Owens Corning, 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 arrangement is reached to
release such entities from their guaranty obligations, Owens Corning may 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.



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, unless a consensual arrangement among all impaired creditor classes is agreed to, the Plan is expected to be amended 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.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



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 $16.6 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 $8.6 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 December 31, 2004, approximately 6,400 of the Objectionable Claims, totaling approximately $5.3 billion,
had either been withdrawn by the claimants or disallowed by the Bankruptcy Court, and other of such claims had been reduced by the claimants by approximately $1.8 billion. 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 $8.0 billion. As of December 31, 2004, approximately 1,000 of these claims, totaling approximately $0.3 billion, had either been withdrawn by the claimants, disallowed by the Bankruptcy Court, or otherwise resolved, and other of such
claims had been reduced by the claimants by approximately $0.3 billion. The remaining claims consist of:



| |  | Approximately 2,900 claims, totaling approximately $1.4 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 19 to the Consolidated Financial Statements for additional information concerning asbestos-related liabilities.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 (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 $5.3 billion, alleging rights to payment for financing, environmental, trade debt and other matters (the General
Claims). The Company has recorded approximately $3.5 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 regarding the tax claims and related pending settlement under the heading Tax Claim in Note 19 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 19 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 19 to the Consolidated Financial Statements; environmental claims totaling approximately
$109 million; and claims for contract rejections, totaling approximately $120 million, of which approximately $49 million are protective claims covering contracts which have not been rejected by the Debtors as of December 31, 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 19 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 described above, the
District Court held a claims estimation hearing beginning January 13, 2005 to establish the amount of current and future asbestos liability to be allowed in the Chapter 11 Cases.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



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



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 3,200 proofs of claim (in addition to claims described above under General Bar Date),
totaling approximately $2.5 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 19 to the Consolidated Financial Statements for additional information concerning asbestos-related liabilities.



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



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



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



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 19 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, 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. Pursuant to Court rule, such stay remains in effect pending a hearing by the Court on the Debtors motion, filed January 19, 2005, to
extend such stay until August 31, 2005, other than with respect to two commercial preference actions. 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.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



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



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 December 31, 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 $658 million, of which $142 million relates to 2004, $138 million relates to 2003, and $148 million relates to 2002. Of the total calculated amount, approximately $223 million relates to the
Pre-Petition Credit Facility, which is the subject of pre-petition guarantees issued by certain of Owens Cornings Debtor and non-Debtor subsidiaries. Actual post-petition interest determined under the terms of pre-petition debt may vary from
the calculated amounts, perhaps significantly.



At December 31, 2004, the
Company had $1.125 billion 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. Effective September 20, 2004, the DIP Financing was further amended
by a Second Amendment which, among other things, extended the scheduled expiration to November 15, 2006. There were no borrowings outstanding under the DIP Financing at December 31, 2004; however, approximately $137 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.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



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



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 $1.5 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 refers 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.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



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



OWENS CORNING AND SUBSIDIARIES

DEBTOR-IN-POSSESSION STATEMENT OF INCOME (LOSS)

FOR THE YEARS ENDED DECEMBER
31, 2004, 2003 AND 2002



|                                                                                         |  |                          |       |   |      |   |       |      |  |   |        |  
|---------------------------------------------------------------------------------------- |  | ------------------------ | ----- | - | ---- | - | ----- | ---- |  | - | ------ | -
|                                                                                         |  | 2004                     |       |   | 2003 |   |       | 2002 | 
|                                                                                         |  | (In millions of dollars) |      
|NET SALES                                                                                |  | $                        | 4,870 |   |      | $ | 4,338 |      |  | $ | 4,302  |  
|COST OF SALES                                                                            |  |                          | 4,118 |   |      |   | 3,735 |      |  |   | 3,715  |  
|                                                                                         |  |                          |       |   |      |   |       |      |  |   |        |  
|Gross margin                                                                             |  |                          | 752   |   |      |   | 603   |      |  |   | 587    |  
|                                                                                         |  |                          |       |   |      |   |       |      |  |   |        |  
|OPERATING EXPENSES                                                                       |  |                          |       |   |      |   |       |      |  |   |        |  
|Marketing and administrative expenses                                                    |  |                          | 466   |   |      |   | 405   |      |  |   | 473    |  
|Science and technology expenses                                                          |  |                          | 41    |   |      |   | 37    |      |  |   | 37     |  
|Restructure costs                                                                        |  |                          |      |   |      |   | (1    | )    |  |   | 44     |  
|Chapter 11 related reorganization items                                                  |  |                          | 54    |   |      |   | 85    |      |  |   | 96     |  
|Owens Corning provision (credit) for asbestos litigation claims (recoveries)             |  |                          | (24   | ) |      |   | (5    | )    |  |   | 1,376  |  
|Fibreboard provision for asbestos litigation claims                                      |  |                          |      |   |      |   |      |      |  |   | 975    |  
|Other (including interest income from non-Debtors of $56 million in 2004, 2003 and 2002) |  |                          | (105  | ) |      |   | (124  | )    |  |   | (122   | )
|                                                                                         |  |                          |       |   |      |   |       |      |  |   |        |  
|Total operating expenses                                                                 |  |                          | 432   |   |      |   | 397   |      |  |   | 2,879  |  
|                                                                                         |  |                          |       |   |      |   |       |      |  |   |        |  
|INCOME (LOSS) FROM OPERATIONS                                                            |  |                          | 320   |   |      |   | 206   |      |  |   | (2,292 | )
|                                                                                         |  |                          |      
|Interest expense, net                                                                    |  |                          | 2     |   |      |   | 3     |      |  |   | 5      |  
|                                                                                         |  |                          |       |   |      |   |       |      |  |   |        |  
|INCOME (LOSS) BEFORE INCOME TAX EXPENSE                                                  |  |                          | 318   |   |      |   | 203   |      |  |   | (2,297 | )
|                                                                                         |  |                          |      
|Income tax expense                                                                       |  |                          | 173   |   |      |   | 135   |      |  |   | 34     |  
|                                                                                         |  |                          |       |   |      |   |       |      |  |   |        |  
|INCOME (LOSS) BEFORE EQUITY IN NET INCOME (LOSS) OF AFFILIATES                           |  |                          | 145   |   |      |   | 68    |      |  |   | (2,331 | )
|                                                                                         |  |                          |      
|Equity in net income (loss) of affiliates                                                |  |                          | 1     |   |      |   |      |      |  |   | (3     | )
|                                                                                         |  |                          |       |   |      |   |       |      |  |   |        |  
|NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE             |  |                          | 146   |   |      |   | 68    |      |  |   | (2,334 | )
|                                                                                         |  |                          |       |   |      |   |       |      |  |   |        |  
|Cumulative effect of change in accounting principle, net of tax                          |  |                          |      |   |      |   |      |      |  |   | (409   | )
|                                                                                         |  |                          |       |   |      |   |       |      |  |   |        |  
|NET INCOME (LOSS)                                                                        |  | $                        | 146   |   |      | $ | 68    |      |  | $ | (2,743 | )
|                                                                                         |  |                          |       |   |      |   |       |      |  |   |        |  



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



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



OWENS CORNING AND SUBSIDIARIES

DEBTOR-IN-POSSESSION BALANCE SHEET

DECEMBER 31, 2004 AND 2003



|                                                           |  |                          |        |   |      |   |        |  
|---------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | -
|                                                           |  | 2004                     |        |   | 2003 |  
|                                                           |  | (In millions of dollars) |       
|ASSETS                                                     |  |                          |        |   |      |   |        |  
|CURRENT                                                    |  |                          |        |   |      |   |        |  
|Cash and cash equivalents                                  |  | $                        | 725    |   |      | $ | 645    |  
|Receivables, net of allowance for doubtful accounts        |  |                          | 408    |   |      |   | 334    |  
|Receivables - non-Debtors                                  |  |                          | 1,085  |   |      |   | 1,032  |  
|Inventories                                                |  |                          | 295    |   |      |   | 278    |  
|Other current assets                                       |  |                          | 34     |   |      |   | 31     |  
|                                                           |  |                          |        |   |      |   |        |  
|Total current                                              |  |                          | 2,547  |   |      |   | 2,320  |  
|                                                           |  |                          |        |   |      |   |        |  
|OTHER                                                      |  |                          |        |   |      |   |        |  
|Restricted cash and other - asbestos and insurance related |  |                          | 188    |   |      |   | 166    |  
|Restricted cash, securities and other - Fibreboard         |  |                          | 1,418  |   |      |   | 1,395  |  
|Deferred income taxes                                      |  |                          | 887    |   |      |   | 1,170  |  
|Pension-related assets                                     |  |                          | 415    |   |      |   | 257    |  
|Goodwill                                                   |  |                          | 55     |   |      |   | 54     |  
|Investments in affiliates                                  |  |                          | 30     |   |      |   | 25     |  
|Investments in non-Debtor subsidiaries                     |  |                          | 762    |   |      |   | 757    |  
|Other noncurrent assets                                    |  |                          | 68     |   |      |   | 47     |  
|                                                           |  |                          |        |   |      |   |        |  
|Total other                                                |  |                          | 3,823  |   |      |   | 3,871  |  
|                                                           |  |                          |        |   |      |   |        |  
|PLANT AND EQUIPMENT, at cost                               |  |                          |        |   |      |   |        |  
|Land                                                       |  |                          | 39     |   |      |   | 39     |  
|Buildings and leasehold improvements                       |  |                          | 597    |   |      |   | 589    |  
|Machinery and equipment                                    |  |                          | 2,270  |   |      |   | 2,253  |  
|Construction in progress                                   |  |                          | 93     |   |      |   | 79     |  
|                                                           |  |                          |        |   |      |   |        |  
|                                                           |  |                          | 2,999  |   |      |   | 2,960  |  
|Accumulated depreciation                                   |  |                          | (1,632 | ) |      |   | (1,566 | )
|                                                           |  |                          |        |   |      |   |        |  
|Net plant and equipment                                    |  |                          | 1,367  |   |      |   | 1,394  |  
|                                                           |  |                          |        |   |      |   |        |  
|TOTAL ASSETS                                               |  | $                        | 7,737  |   |      | $ | 7,585  |  
|                                                           |  |                          |        |   |      |   |        |  



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



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



OWENS CORNING AND SUBSIDIARIES

DEBTOR-IN-POSSESSION BALANCE SHEET

DECEMBER 31, 2004 AND 2003 (continued)



|                                                       |  |                          |        |   |      |   |        |  
|------------------------------------------------------ |  | ------------------------ | ------ | - | ---- | - | ------ | -
|                                                       |  | 2004                     |        |   | 2003 |  
|                                                       |  | (In millions of dollars) |       
|LIABILITIES AND STOCKHOLDERS DEFICIT                  |  |                          |        |  
|CURRENT                                                |  |                          |        |   |      |   |        |  
|Accounts payable and accrued liabilities               |  | $                        | 649    |   |      | $ | 549    |  
|Accounts payable and accrued liabilities - non-Debtors |  |                          | 25     |   |      |   | 15     |  
|Long-term debt - current portion                       |  |                          | 1      |   |      |   | 1      |  
|                                                       |  |                          |        |   |      |   |        |  
|Total current                                          |  |                          | 675    |   |      |   | 565    |  
|                                                       |  |                          |        |   |      |   |        |  
|LONG-TERM DEBT                                         |  |                          | 7      |   |      |   | 6      |  
|OTHER                                                  |  |                          |        |   |      |   |        |  
|Pension plan liability                                 |  |                          | 617    |   |      |   | 581    |  
|Other employee benefits liability                      |  |                          | 384    |   |      |   | 384    |  
|Other                                                  |  |                          | 159    |   |      |   | 123    |  
|                                                       |  |                          |        |   |      |   |        |  
|Total other                                            |  |                          | 1,160  |   |      |   | 1,088  |  
|                                                       |  |                          |        |   |      |   |        |  
|LIABILITIES SUBJECT TO COMPROMISE                      |  |                          | 9,831  |   |      |   | 9,985  |  
|                                                       |  |                         
|STOCKHOLDERS DEFICIT                                  |  |                          |        |   |      |   |        |  
|Common stock                                           |  |                          | 6      |   |      |   | 6      |  
|Additional paid in capital                             |  |                          | 692    |   |      |   | 690    |  
|Accumulated deficit                                    |  |                          | (4,271 | ) |      |   | (4,417 | )
|Accumulated other comprehensive loss                   |  |                          | (358   | ) |      |   | (336   | )
|Other                                                  |  |                          | (5     | ) |      |   | (2     | )
|                                                       |  |                          |        |   |      |   |        |  
|Total stockholders deficit                            |  |                          | (3,936 | ) |      |   | (4,059 | )
|                                                       |  |                          |        |   |      |   |        |  
|TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT            |  | $                        | 7,737  |   |      | $ | 7,585  |  
|                                                       |  |                          |        |   |      |   |        |  



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



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



OWENS CORNING AND SUBSIDIARIES

DEBTOR-IN-POSSESSION STATEMENT OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31,
2004, 2003 AND 2002



|                                                                                                                           |  |                          |      |   |      |   |      |      |  |   |        |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ---- | - | ---- | - | ---- | ---- |  | - | ------ | -
|                                                                                                                           |  | 2004                     |      |   | 2003 |   |      | 2002 | 
|                                                                                                                           |  | (In millions of dollars) |     
|NET CASH FLOW FROM OPERATIONS                                                                                              |  |                          |      |   |      |   |      |      |  |   |        |  
|Net income (loss)                                                                                                          |  | $                        | 146  |   |      | $ | 68   |      |  | $ | (2,743 | )
|Reconciliation of net cash flow from operations:                                                                           |  |                          |      |   |      |   |      |      |  |   |        |  
|Noncash items:                                                                                                             |  |                          |      |   |      |   |      |      |  |   |        |  
|Provision for asbestos litigation claims                                                                                   |  |                          |     |   |      |   |     |      |  |   | 2,356  |  
|Provision for depreciation                                                                                                 |  |                          | 163  |   |      |   | 147  |      |  |   | 149    |  
|Provision for impairment of fixed assets                                                                                   |  |                          | 7    |   |      |   | 28   |      |  |   | 44     |  
|Provision for deferred income taxes                                                                                        |  |                          | 112  |   |      |   | 81   |      |  |   | 14     |  
|Provision for pension and other employee benefits liabilities                                                              |  |                          | 114  |   |      |   | 112  |      |  |   | 93     |  
|Cumulative effect of accounting change                                                                                     |  |                          |     |   |      |   |     |      |  |   | 409    |  
|Other                                                                                                                      |  |                          | 14   |   |      |   | 48   |      |  |   | 89     |  
|Increase in receivables and receivables - non-Debtors                                                                      |  |                          | (127 | ) |      |   | (116 | )    |  |   | (111   | )
|Increase in inventories                                                                                                    |  |                          | (17  | ) |      |   | (10  | )    |  |   | (25    | )
|Increase (decrease) in accounts payable and accrued liabilities and accounts payable and accrued liabilities - non-Debtors |  |                          | 105  |   |      |   | (33  | )    |  |   | (102   | )
|Change in liabilities subject to compromise                                                                                |  |                          |     |   |      |   |     |      |  |   | (1     | )
|Proceeds from insurance for asbestos litigation claims, excluding Fibreboard                                               |  |                          | 24   |   |      |   | 5    |      |  |   | 5      |  
|Pension fund contribution                                                                                                  |  |                          | (223 | ) |      |   | (178 | )    |  |   |       |  
|Payments for other employee benefits liabilities                                                                           |  |                          | (33  | ) |      |   | (29  | )    |  |   | (34    | )
|Increase in restricted cash - asbestos and insurance related                                                               |  |                          | (22  | ) |      |   | (1   | )    |  |   | (7     | )
|Increase in restricted cash, securities, and other - Fibreboard                                                            |  |                          | (23  | ) |      |   | (30  | )    |  |   |       |  
|Other                                                                                                                      |  |                          | 8    |   |      |   | 39   |      |  |   | 35     |  
|                                                                                                                           |  |                          |      |   |      |   |      |      |  |   |        |  
|Net cash flow from operations                                                                                              |  |                          | 248  |   |      |   | 131  |      |  |   | 171    |  
|                                                                                                                           |  |                          |      |   |      |   |      |      |  |   |        |  
|NET CASH FLOW FROM INVESTING                                                                                               |  |                          |      |   |      |   |      |      |  |   |        |  
|Additions to plant and equipment                                                                                           |  |                          | (159 | ) |      |   | (156 | )    |  |   | (162   | )
|Investment in subsidiaries and affiliates, net of cash acquired                                                            |  |                          | (3   | ) |      |   | (5   | )    |  |   | (6     | )
|Proceeds from the sale of assets or affiliates                                                                             |  |                          | 2    |   |      |   | 85   |      |  |   | 12     |  
|                                                                                                                           |  |                          |      |   |      |   |      |      |  |   |        |  
|Net cash flow from investing                                                                                               |  |                          | (160 | ) |      |   | (76  | )    |  |   | (156   | )
|                                                                                                                           |  |                          |      |   |      |   |      |      |  |   |        |  
|NET CASH FLOW FROM FINANCING                                                                                               |  |                          |      |   |      |   |      |      |  |   |        |  
|Other additions to long-term debt                                                                                          |  |                          |     |   |      |   | 2    |      |  |   |       |  
|Other reductions to long-term debt                                                                                         |  |                          |     |   |      |   | (34  | )    |  |   |       |  
|Subject to compromise                                                                                                      |  |                          | (5   | ) |      |   |     |      |  |   | 1      |  
|Other                                                                                                                      |  |                          | (3   | ) |      |   |     |      |  |   | 1      |  
|                                                                                                                           |  |                          |      |   |      |   |      |      |  |   |        |  
|Net cash flow from financing                                                                                               |  |                          | (8   | ) |      |   | (32  | )    |  |   | 2      |  
|                                                                                                                           |  |                          |      |   |      |   |      |      |  |   |        |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                                                                  |  |                          | 80   |   |      |   | 23   |      |  |   | 17     |  
|                                                                                                                           |  |                          |     
|Cash and cash equivalents at beginning of year                                                                             |  |                          | 645  |   |      |   | 622  |      |  |   | 605    |  
|                                                                                                                           |  |                          |      |   |      |   |      |      |  |   |        |  
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                                                 |  | $                        | 725  |   |      | $ | 645  |      |  | $ | 622    |  
|                                                                                                                           |  |                          |      |   |      |   |      |      |  |   |        |  



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



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 at December 31:



|                                                       |  |                          |       |      |   |      
|------------------------------------------------------ |  | ------------------------ | ----- | ---- | - | -----
|                                                       |  | 2004                     |       | 2003
|                                                       |  | (In millions of dollars)
|Accounts payable                                       |  | $                        | 209   |      | $ | 213  
|Accrued interest payable                               |  |                          | 40    |      |   | 42   
|Debt                                                   |  |                          | 2,958 |      |   | 2,896
|Income taxes payable                                   |  |                          | 90    |      |   | 233  
|Reserve for asbestos litigation claims - Owens Corning |  |                          | 3,565 |      |   | 3,565
|Reserve for asbestos-related claims - Fibreboard       |  |                          | 2,309 |      |   | 2,309
|                                                       |  |                          |       |      |   |      
|Total consolidated                                     |  |                          | 9,171 |      |   | 9,258
|Payables to non-Debtors                                |  |                          | 660   |      |   | 727  
|                                                       |  |                          |       |      |   |      
|Total Debtor                                           |  | $                        | 9,831 |      | $ | 9,985
|                                                       |  |                          |       |      |   |      



The amounts for Chapter 11 related
reorganization items in the Consolidated and Debtor-in-Possession Income Statements consist of the following for the years ended December 31:



|                             |  |                          |     |   |      |   |     |      |  |   |     |  
|---------------------------- |  | ------------------------ | --- | - | ---- | - | --- | ---- |  | - | --- | -
|                             |  | 2004                     |     |   | 2003 |   |     | 2002 | 
|                             |  | (In millions of dollars) |    
|Professional fees            |  | $                        | 63  |   |      | $ | 63  |      |  | $ | 70  |  
|Payroll and compensation     |  |                          | 16  |   |      |   | 12  |      |  |   | 24  |  
|Investment income            |  |                          | (28 | ) |      |   | (35 | )    |  |   | (22 | )
|Loss on settlement of claims |  |                          |    |   |      |   | 39  |      |  |   | 13  |  
|Other, net                   |  |                          | 3   |   |      |   | 6   |      |  |   | 11  |  
|                             |  |                          |     |   |      |   |     |      |  |   |     |  
|Total                        |  | $                        | 54  |   |      | $ | 85  |      |  | $ | 96  |  
|                             |  |                          |     |   |      |   |     |      |  |   |     |  



Substantially all of the amounts for
professional fees, payroll and compensation, investment income, and other, net, were paid or received in cash. The remaining items are primarily non-cash charges relating to the settlement of claims.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Principles of Consolidation



The consolidated financial statements of Owens Corning and its subsidiaries (the Company) generally include the accounts of majority owned subsidiaries.
Intercompany accounts and transactions are eliminated.



Reclassifications



Certain reclassifications have been made to the 2003 and 2002
Consolidated Financial Statements to conform with the classifications used in 2004.



Use of Estimates and Assumptions



The preparation of
financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.



Revenue Recognition



The Company recognizes revenue when title and risk of loss pass to the customer. Provisions
for discounts and rebates to customers, returns, warranties and other adjustments are provided in the same period that the related sales are recorded and are based on historical experience.



Shipping and Handling Costs



The Company incurs certain expenses related to preparing, packaging and shipping its
products to its customers, mainly third-party transportation fees. All costs related to these activities are included as a component of cost of sales and all costs billed to the customer are included as revenue in the Consolidated Statement of
Income (Loss).



Marketing and Advertising Costs



Marketing and advertising costs are expensed the first time the advertising takes place.
Marketing and advertising costs include advertising, substantiated customer incentive programs, and marketing communications. Marketing and advertising expenses for 2004, 2003 and 2002 were $111 million, $77 million, and $83 million, respectively.



Science and Technology Expenses



The Company incurs certain expenses related to science and technology. These expenses
include salaries, building costs, utilities, administrative expenses, materials, and supplies for the Company to improve and develop its products. These costs are expensed as incurred.



Reorganization Items and Other Expenses



In accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, Financial Reporting by Entities
in Reorganization under the Bankruptcy Code (SOP 90-7), revenues, expenses (including professional fees), realized gains and losses, and provisions for losses that can be directly associated with the reorganization and
restructuring of the business are reported separately as reorganization items in the Consolidated Statement of Income (Loss).



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



Stock Based Compensation Plans



The Company applies Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS
123), and Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based CompensationTransition and Disclosure, An Amendment of FAS No. 123 (SFAS 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 123 and SFAS 148.



Net Income per Share



Basic net income per share is computed using the weighted average number of common shares outstanding during the period. Diluted net income per share reflects the
dilutive effect of common equivalent shares and increased shares that would result from the conversion of debt and equity securities. The effects of anti-dilution are not presented. Unless otherwise indicated, all per share information included in
the Notes to the Consolidated Financial Statements is presented on a diluted basis.



Cash and Cash Equivalents



The Company defines cash and
cash equivalents as cash and time deposits with maturities of three months or less when purchased.



Accounts Receivable



Trade
accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is an estimate of the amount of probable credit losses in our existing accounts receivable. Account balances are charged off
against the allowance when we feel it is probable the receivable will not be recovered.



Inventory Valuation



Inventories are stated at lower of
cost or market value. Inventory costs include material, labor and manufacturing overhead. The majority of inventories is valued using the first-in, first-out (FIFO) method and the balance of inventories is generally valued using the last-in,
first-out (LIFO) method.



Investments in Affiliates



The Company accounts for investments in affiliates of 20% to 50% ownership with
significant influence using the equity method under which the Companys share of earnings of the affiliate is reflected in income as earned and dividends are credited against the investment in affiliate when declared. If the Companys
ownership is less than 20%, or its ownership is 50% or less and the Company determines that it does not have significant influence, the Company accounts for its investments using the cost method.



Goodwill



Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets (SFAS No. 142). SFAS No. 142 eliminates the amortization of goodwill and indefinite-lived intangible assets; identifiable intangible assets with a determinable useful life will continue to be amortized. SFAS No. 142 requires
at least an annual review for impairment using a fair value methodology. In performing the annual review, the Company uses an estimate of the discounted cash flows of the related business over the remaining life of the goodwill in assessing whether
the goodwill is recoverable on a reporting unit basis.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



Properties and Depreciation



The Companys plant and equipment is depreciated principally using the straight-line method. Depreciation expense for the years ended
December 31, 2004, 2003, and 2002 was $228 million, $206 million, and $205 million, respectively. The range of useful lives for the major components of the Companys plant and equipment is as follows:



|                                     |  |             
|------------------------------------ |  | ------------
|Buildings and leasehold improvements |  | 15 -40 years
|Machinery and equipment              |  | 5 - 20 years
|Information systems                  |  | 5 - 10 years



Capitalization of Software
Developed for Internal Use



The Company capitalizes the direct
external and internal costs incurred in connection with the development, testing and installation of software for internal use. Internally developed software is included in plant and equipment and is amortized over its estimated useful life using
the straight-line method, not to exceed 5 years.



Property Impairments



The Company exercises judgment in evaluating tangible and intangible
long-lived assets for impairment. This requires estimating useful lives, future operating cash flows and estimated fair value of the assets under review. Changes in management intentions, market conditions or operating performance could indicate
that impairment charges might be necessary that would be material to the Companys consolidated financial statements in any given period.



Income Taxes



The Company recognizes current tax liabilities and assets for the estimated taxes payable or refundable on the tax returns for the current year. Deferred tax balances reflect the impact of temporary differences
between the carrying amount of assets and liabilities and their tax basis. Amounts are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. In addition, realization of certain deferred tax assets is
dependent upon our ability to generate future taxable income. The Company records a valuation allowance to reduce its deferred tax assets to the amount that it believes is more likely than not to be realized. In addition, the Company estimates tax
reserves to cover taxing authority claims for income taxes and interest attributable to audits of open tax years.



Pension and Other Postretirement Benefits



Accounting for pensions and other postretirement benefits involves estimating the cost of benefits to be provided well into the future and attributing that cost over the
time period each employee works. To accomplish this, extensive use is made of assumptions about inflation, investment returns, mortality, turnover, medical costs and discount rates. The results of this effort provide management with the necessary
information on which to base its judgment and develop the estimates used to prepare the financial statements.



Reserve for Asbestos Litigation Claims



The Company estimates reserves for asbestos-related liabilities that have been asserted or are probable of assertion. The estimate of 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 Chapter 11 Cases. The Company will continue to review its asbestos reserves on a
periodic basis and make such adjustments as may be appropriate. Any such adjustment could be material to the Companys consolidated financial statements in any given period. See Note 19 to the Consolidated Financial Statements for further
discussion.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



Derivative Financial Instruments



Effective January 1, 2001, the Company implemented Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS No. 133). This statement and its interpretations establish accounting and reporting standards requiring derivative instruments (including certain derivative instruments embedded in other
contracts) to be recorded in the balance sheet as either an asset or liability measured at its fair value and related gains and losses to be recorded in income or other comprehensive income, as appropriate. See Note 22 to the Consolidated Financial
Statements for further discussion.



Foreign Currency Translation



The functional currency of the Companys subsidiaries is
generally the applicable local currency. Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at the period-end rate of exchange and their statement of income (loss) and statement of cash flows are converted on an ongoing
basis at the rate of exchange when transactions occur. The resulting translation adjustment is included in Accumulated other comprehensive loss in the Consolidated Balance Sheet and Statement of Stockholders Deficit. Transaction
gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the Consolidated Statement of Income (Loss) as incurred.



3. SEGMENT DATA



The Company discloses its segments in accordance with Statement of Financial Accounting Standards No. 131, Disclosures about Segments
of an Enterprise and Related Information and has concluded that the aggregation of its operating segments into two reportable segments is appropriate. Accounting policies for the segments are the same as those for the Company.



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.



The Companys two reportable segments are defined as follows:



Building Materials Systems



Manufacture and sale of glass wool fibers formed into thermal and acoustical insulation and air ducts; foam insulation; roofing shingles; glass fiber
mat and asphalt materials; vinyl siding and accessories; windows and doors; cast stone building products; and branded housewrap.



Composite Solutions



Manufacture and sale of glass fiber used in a wide variety of composites material systems in the transportation, building construction, telecommunications
and electronics markets.



Income (loss) from operations by segment consists of
net sales less related costs and expenses and is presented on a basis that is used internally for evaluating segment performance. Certain categories of expenses - such as cost of borrowed funds, general corporate expenses or income, and certain
expense or income items - are excluded from the internal evaluation of segment performance. Accordingly, these items are not reflected in income (loss) from operations for the Companys reportable segments. Reference is made to the
reconciliation of reportable segment income from operations to consolidated income (loss) before income tax expense below for additional information about such items.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



3. SEGMENT DATA (continued)



Total assets by reportable segment are those assets that are used in the Companys operations in each segment
and do not include general corporate assets. General corporate assets consist primarily of cash and cash equivalents, deferred taxes, asbestos-related assets, and corporate property and equipment. Reference is made to the reconciliation of
reportable segment assets to consolidated total assets below for additional information about such items.



External customer sales are attributed to geographic region based upon the location from which the product is shipped. Long-lived assets by geographic region are attributed based upon the location of the assets and
include net plant and equipment.



|                                             |  |                          |       |      |   |       |  |   |      
|-------------------------------------------- |  | ------------------------ | ----- | ---- | - | ----- |  | - | -----
|NET SALES                                    |  | 2004                     |       | 2003 |   | 2002 
|                                             |  | (In millions of dollars)
|Reportable Segments                          |  |                          |       |      |   |       |  |   |      
|Building Materials Systems                   |  |                          |       |      |   |       |  |   |      
|United States                                |  | $                        | 4,215 |      | $ | 3,751 |  | $ | 3,688
|Europe                                       |  |                          | 8     |      |   | 4     |  |   | 2    
|Canada and other                             |  |                          | 323   |      |   | 237   |  |   | 196  
|                                             |  |                          |       |      |   |       |  |   |      
|Total Building Materials Systems             |  |                          | 4,546 |      |   | 3,992 |  |   | 3,886
|                                             |  |                          |       |      |   |       |  |   |      
|Composite Solutions                          |  |                          |       |      |   |       |  |   |      
|United States                                |  |                          | 540   |      |   | 491   |  |   | 523  
|Europe                                       |  |                          | 372   |      |   | 333   |  |   | 294  
|Canada and other                             |  |                          | 217   |      |   | 180   |  |   | 169  
|                                             |  |                          |       |      |   |       |  |   |      
|Total Composite Solutions                    |  |                          | 1,129 |      |   | 1,004 |  |   | 986  
|                                             |  |                          |       |      |   |       |  |   |      
|Total reportable segments                    |  | $                        | 5,675 |      | $ | 4,996 |  | $ | 4,872
|                                             |  |                          |       |      |   |       |  |   |      
|                                             |  |                          |      
|External Customer Sales by Geographic Region |  |                          |       |      |   |       |  |   |      
|United States                                |  | $                        | 4,755 |      | $ | 4,242 |  | $ | 4,211
|Europe                                       |  |                          | 380   |      |   | 337   |  |   | 296  
|Canada and other                             |  |                          | 540   |      |   | 417   |  |   | 365  
|                                             |  |                          |       |      |   |       |  |   |      
|NET SALES                                    |  | $                        | 5,675 |      | $ | 4,996 |  | $ | 4,872
|                                             |  |                          |       |      |   |       |  |   |      



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



3. SEGMENT DATA (continued)



|                                                                                 |  |                          |      |   |      |   |     |      |  |   |        |  
|-------------------------------------------------------------------------------- |  | ------------------------ | ---- | - | ---- | - | --- | ---- |  | - | ------ | -
|INCOME (LOSS) BEFORE INCOME TAX EXPENSE                                          |  | 2004                     |      |   | 2003 |   |     | 2002 | 
|                                                                                 |  | (In millions of dollars) |     
|Reportable Segments                                                              |  |                          |      |   |      |   |     |      |  |   |        |  
|Building Materials Systems                                                       |  |                          |      |   |      |   |     |      |  |   |        |  
|United States                                                                    |  | $                        | 437  |   |      | $ | 338 |      |  | $ | 274    |  
|Europe                                                                           |  |                          |     |   |      |   | (1  | )    |  |   | (1     | )
|Canada and other                                                                 |  |                          | 69   |   |      |   | 46  |      |  |   | 27     |  
|                                                                                 |  |                          |      |   |      |   |     |      |  |   |        |  
|Total Building Materials Systems                                                 |  |                          | 506  |   |      |   | 383 |      |  |   | 300    |  
|                                                                                 |  |                          |      |   |      |   |     |      |  |   |        |  
|Composite Solutions                                                              |  |                          |      |   |      |   |     |      |  |   |        |  
|United States                                                                    |  |                          | 19   |   |      |   | 20  |      |  |   | (16    | )
|Europe                                                                           |  |                          | 47   |   |      |   | 16  |      |  |   | 22     |  
|Canada and other                                                                 |  |                          | 39   |   |      |   | 30  |      |  |   | 27     |  
|                                                                                 |  |                          |      |   |      |   |     |      |  |   |        |  
|Total Composite Solutions                                                        |  |                          | 105  |   |      |   | 66  |      |  |   | 33     |  
|                                                                                 |  |                          |      |   |      |   |     |      |  |   |        |  
|Total reportable segments                                                        |  | $                        | 611  |   |      | $ | 449 |      |  | $ | 333    |  
|                                                                                 |  |                          |      |   |      |   |     |      |  |   |        |  
|Geographic Regions                                                               |  |                          |      |   |      |   |     |      |  |   |        |  
|United States                                                                    |  | $                        | 456  |   |      | $ | 358 |      |  | $ | 258    |  
|Europe                                                                           |  |                          | 47   |   |      |   | 15  |      |  |   | 21     |  
|Canada and other                                                                 |  |                          | 108  |   |      |   | 76  |      |  |   | 54     |  
|                                                                                 |  |                          |      |   |      |   |     |      |  |   |        |  
|Total reportable segments                                                        |  | $                        | 611  |   |      | $ | 449 |      |  | $ | 333    |  
|                                                                                 |  |                          |      |   |      |   |     |      |  |   |        |  
|Reconciliation to Consolidated Income (Loss) Before Income Tax Expense (Benefit) |  |                          |      |   |      |   |     |      |  |   |        |  
|Restructuring                                                                    |  | $                        |     |   |      | $ | 2   |      |  | $ | (61    | )
|Other charges                                                                    |  |                          | 5    |   |      |   | (36 | )    |  |   | (105   | )
|Chapter 11 related reorganization items                                          |  |                          | (54  | ) |      |   | (85 | )    |  |   | (96    | )
|(Provision) credit for asbestos litigation (claims) recoveries                   |  |                          | 24   |   |      |   | 5   |      |  |   | (2,351 | )
|General corporate expense                                                        |  |                          | (159 | ) |      |   | (68 | )    |  |   | (33    | )
|Interest expense, net                                                            |  |                          | 12   |   |      |   | (8  | )    |  |   | (16    | )
|                                                                                 |  |                          |      |   |      |   |     |      |  |   |        |  
|CONSOLIDATED INCOME (LOSS) BEFORE INCOME TAX EXPENSE                             |  | $                        | 439  |   |      | $ | 259 |      |  | $ | (2,329 | )
|                                                                                 |  |                          |      |   |      |   |     |      |  |   |        |  



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



3. SEGMENT DATA (continued)



|                                                   |  |                          |       |   |      |   |       |  
|-------------------------------------------------- |  | ------------------------ | ----- | - | ---- | - | ----- | -
|                                                   |  | December 31,             |      
|TOTAL ASSETS                                       |  | 2004                     |       |   | 2003 |  
|                                                   |  | (In millions of dollars) |      
|Reportable Segments                                |  |                          |       |   |      |   |       |  
|Building Materials Systems                         |  |                          |       |   |      |   |       |  
|United States                                      |  | $                        | 1,628 |   |      | $ | 1,526 |  
|Europe                                             |  |                          | 7     |   |      |   | 9     |  
|Canada and other                                   |  |                          | 332   |   |      |   | 186   |  
|                                                   |  |                          |       |   |      |   |       |  
|Total Building Materials Systems                   |  |                          | 1,967 |   |      |   | 1,721 |  
|                                                   |  |                          |       |   |      |   |       |  
|Composite Solutions                                |  |                          |       |   |      |   |       |  
|United States                                      |  |                          | 430   |   |      |   | 456   |  
|Europe                                             |  |                          | 404   |   |      |   | 375   |  
|Canada and other                                   |  |                          | 348   |   |      |   | 301   |  
|                                                   |  |                          |       |   |      |   |       |  
|Total Composite Solutions                          |  |                          | 1,182 |   |      |   | 1,132 |  
|                                                   |  |                          |       |   |      |   |       |  
|Total reportable segments                          |  | $                        | 3,149 |   |      | $ | 2,853 |  
|                                                   |  |                          |       |   |      |   |       |  
|Reconciliation to Consolidated Total Assets        |  |                          |       |   |      |   |       |  
|Cash and cash equivalents                          |  |                          | 1,125 |   |      |   | 1,005 |  
|LIFO inventory valuation adjustment                |  |                          | (119  | ) |      |   | (95   | )
|Restricted cash - asbestos and insurance related   |  |                          | 188   |   |      |   | 166   |  
|Restricted cash, securities and other - Fibreboard |  |                          | 1,418 |   |      |   | 1,395 |  
|Deferred income taxes                              |  |                          | 999   |   |      |   | 1,310 |  
|Pension-related assets                             |  |                          | 499   |   |      |   | 338   |  
|Investments in affiliates                          |  |                          | 82    |   |      |   | 81    |  
|Corporate fixed assets and other assets            |  |                          | 298   |   |      |   | 305   |  
|                                                   |  |                          |       |   |      |   |       |  
|CONSOLIDATED TOTAL ASSETS                          |  | $                        | 7,639 |   |      | $ | 7,358 |  
|                                                   |  |                          |       |   |      |   |       |  
|LONG-LIVED ASSETS BY GEOGRAPHIC REGION             |  |                          |       |   |      |   |       |  
|United States                                      |  | $                        | 1,378 |   |      | $ | 1,406 |  
|Europe                                             |  |                          | 266   |   |      |   | 248   |  
|Canada and other                                   |  |                          | 366   |   |      |   | 296   |  
|                                                   |  |                          |       |   |      |   |       |  
|TOTAL LONG-LIVED ASSETS                            |  | $                        | 2,010 |   |      | $ | 1,950 |  
|                                                   |  |                          |       |   |      |   |       |  



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



3. SEGMENT DATA (continued)



|                                                          |  |                          |     |      |   |      |  |   |    
|--------------------------------------------------------- |  | ------------------------ | --- | ---- | - | ---- |  | - | ---
|PROVISION FOR DEPRECIATION                                |  | 2004                     |     | 2003 |   | 2002
|                                                          |  | (In millions of dollars)
|Reportable Segments                                       |  |                          |     |      |   |      |  |   |    
|Building Materials Systems                                |  |                          |     |      |   |      |  |   |    
|United States                                             |  | $                        | 111 |      | $ | 93   |  | $ | 96 
|Europe                                                    |  |                          |    |      |   |     |  |   |   
|Canada and other                                          |  |                          | 12  |      |   | 10   |  |   | 9  
|                                                          |  |                          |     |      |   |      |  |   |    
|Total Building Materials Systems                          |  |                          | 123 |      |   | 103  |  |   | 105
|                                                          |  |                          |     |      |   |      |  |   |    
|Composite Solutions                                       |  |                          |     |      |   |      |  |   |    
|United States                                             |  |                          | 22  |      |   | 23   |  |   | 22 
|Europe                                                    |  |                          | 27  |      |   | 24   |  |   | 18 
|Canada and other                                          |  |                          | 23  |      |   | 24   |  |   | 23 
|                                                          |  |                          |     |      |   |      |  |   |    
|Total Composite Solutions                                 |  |                          | 72  |      |   | 71   |  |   | 63 
|                                                          |  |                          |     |      |   |      |  |   |    
|Total reportable segments                                 |  |                          | 195 |      |   | 174  |  |   | 168
|                                                          |  |                          |     |      |   |      |  |   |    
|Geographic Regions                                        |  |                          |     |      |   |      |  |   |    
|United States                                             |  | $                        | 133 |      | $ | 116  |  | $ | 118
|Europe                                                    |  |                          | 27  |      |   | 24   |  |   | 18 
|Canada and other                                          |  |                          | 35  |      |   | 34   |  |   | 32 
|                                                          |  |                          |     |      |   |      |  |   |    
|Total reportable segments                                 |  | $                        | 195 |      | $ | 174  |  | $ | 168
|                                                          |  |                          |     |      |   |      |  |   |    
|Reconciliation to Consolidated Provision for Depreciation |  |                          |     |      |   |      |  |   |    
|General Corporate Depreciation                            |  |                          | 33  |      |   | 32   |  |   | 37 
|                                                          |  |                          |     |      |   |      |  |   |    
|CONSOLIDATED PROVISION FOR DEPRECIATION                   |  | $                        | 228 |      | $ | 206  |  | $ | 205
|                                                          |  |                          |     |      |   |      |  |   |    



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



3. SEGMENT DATA (continued)



|                                                                |  |                          |     |      |   |      |  |   |    
|--------------------------------------------------------------- |  | ------------------------ | --- | ---- | - | ---- |  | - | ---
|ADDITIONS TO PLANT AND EQUIPMENT                                |  | 2004                     |     | 2003 |   | 2002
|                                                                |  | (In millions of dollars)
|Reportable Segments                                             |  |                          |     |      |   |      |  |   |    
|Building Materials Systems                                      |  |                          |     |      |   |      |  |   |    
|United States                                                   |  | $                        | 125 |      | $ | 122  |  | $ | 117
|Europe                                                          |  |                          |    |      |   |     |  |   |   
|Canada and other                                                |  |                          | 32  |      |   | 10   |  |   | 15 
|                                                                |  |                          |     |      |   |      |  |   |    
|Total Building Materials Systems                                |  |                          | 157 |      |   | 132  |  |   | 132
|                                                                |  |                          |     |      |   |      |  |   |    
|Composite Solutions                                             |  |                          |     |      |   |      |  |   |    
|United States                                                   |  |                          | 14  |      |   | 26   |  |   | 14 
|Europe                                                          |  |                          | 34  |      |   | 30   |  |   | 69 
|Canada and other                                                |  |                          | 9   |      |   | 7    |  |   | 4  
|                                                                |  |                          |     |      |   |      |  |   |    
|Total Composite Solutions                                       |  |                          | 57  |      |   | 63   |  |   | 87 
|                                                                |  |                          |     |      |   |      |  |   |    
|Total Reportable Segments                                       |  | $                        | 214 |      | $ | 195  |  | $ | 219
|                                                                |  |                          |     |      |   |      |  |   |    
|Geographic Regions                                              |  |                          |     |      |   |      |  |   |    
|United States                                                   |  | $                        | 139 |      | $ | 148  |  | $ | 131
|Europe                                                          |  |                          | 34  |      |   | 30   |  |   | 69 
|Canada and other                                                |  |                          | 41  |      |   | 17   |  |   | 19 
|                                                                |  |                          |     |      |   |      |  |   |    
|Total Reportable Segments                                       |  | $                        | 214 |      | $ | 195  |  | $ | 219
|                                                                |  |                          |     |      |   |      |  |   |    
|Reconciliation to Consolidated Additions to Plant and Equipment |  |                          |     |      |   |     
|General Corporate Additions                                     |  |                          | 18  |      |   | 13   |  |   | 29 
|                                                                |  |                          |     |      |   |      |  |   |    
|CONSOLIDATED ADDITIONS TO PLANT AND EQUIPMENT                   |  | $                        | 232 |      | $ | 208  |  | $ | 248
|                                                                |  |                          |     |      |   |      |  |   |    



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



4. ACCOUNTS RECEIVABLE



In 2004, 2003 and 2002, the Company sold certain accounts receivable of certain European operations. At December 31, 2004 and 2003, $17
million and $16 million, respectively, had been sold and reflected as a reduction of accounts receivable in the Companys Consolidated Balance Sheet.



The Company maintains an allowance for doubtful accounts based upon the expected collectibility of all consolidated trade accounts receivable, including receivables sold.
Discounts on receivables sold of $1 million for each of the years ended December 31, 2004, 2003 and 2002, were recorded as other expenses on the Companys Consolidated Statement of Income (Loss).



5. INVENTORIES



Inventories are summarized as follows:



|                         |  |                          |      |   |      |   |     |  
|------------------------ |  | ------------------------ | ---- | - | ---- | - | --- | -
|                         |  | 2004                     |      |   | 2003 |  
|                         |  | (In millions of dollars) |     
|Finished goods           |  | $                        | 425  |   |      | $ | 362 |  
|Materials and supplies   |  |                          | 139  |   |      |   | 123 |  
|                         |  |                          |      |   |      |   |     |  
|FIFO inventory           |  |                          | 564  |   |      |   | 485 |  
|Excess of FIFO over LIFO |  |                          | (119 | ) |      |   | (95 | )
|                         |  |                          |      |   |      |   |     |  
|Total inventories        |  | $                        | 445  |   |      | $ | 390 |  
|                         |  |                          |      |   |      |   |     |  



Approximately $155 million and
approximately $144 million of total inventories were valued using the LIFO method at December 31, 2004 and 2003, respectively.



During 2003, inventory quantities were reduced. This reduction resulted in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years as
compared with the cost of 2003 purchases, the effect of which decreased cost of goods sold by approximately $2 million and increased net income by approximately $1 million, or $0.01 per share.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



6. INCOME TAXES



|                                                   |  |                          |     |      |   |     |      |  |   |        |  
|-------------------------------------------------- |  | ------------------------ | --- | ---- | - | --- | ---- |  | - | ------ | -
|                                                   |  | 2004                     |     | 2003 |   |     | 2002 | 
|                                                   |  | (In millions of dollars) |    
|Income (loss) before income tax expense (benefit): |  |                          |     |      |   |     |      |  |   |        |  
|United States                                      |  | $                        | 265 |      | $ | 145 |      |  | $ | (2,422 | )
|Foreign                                            |  |                          | 174 |      |   | 114 |      |  |   | 93     |  
|                                                   |  |                          |     |      |   |     |      |  |   |        |  
|Total                                              |  | $                        | 439 |      | $ | 259 |      |  | $ | (2,329 | )
|                                                   |  |                          |     |      |   |     |      |  |   |        |  
|Income tax expense (benefit):                      |  |                          |     |      |   |     |      |  |   |        |  
|Current                                            |  |                          |     |      |   |     |      |  |   |        |  
|United States                                      |  | $                        | 43  |      | $ | 32  |      |  | $ | 10     |  
|State and local                                    |  |                          | 6   |      |   | 11  |      |  |   | 3      |  
|Foreign                                            |  |                          | 42  |      |   | 33  |      |  |   | 46     |  
|                                                   |  |                          |     |      |   |     |      |  |   |        |  
|Total current                                      |  |                          | 91  |      |   | 76  |      |  |   | 59     |  
|                                                   |  |                          |     |      |   |     |      |  |   |        |  
|Deferred                                           |  |                          |     |      |   |     |      |  |   |        |  
|United States                                      |  |                          | 110 |      |   | 66  |      |  |   | (14    | )
|State and local                                    |  |                          | 22  |      |   | 8   |      |  |   | (5     | )
|Foreign                                            |  |                          | 4   |      |   | (5  | )    |  |   | (9     | )
|                                                   |  |                          |     |      |   |     |      |  |   |        |  
|Total deferred                                     |  |                          | 136 |      |   | 69  |      |  |   | (28    | )
|                                                   |  |                          |     |      |   |     |      |  |   |        |  
|TOTAL INCOME TAX EXPENSE                           |  | $                        | 227 |      | $ | 145 |      |  | $ | 31     |  
|                                                   |  |                          |     |      |   |     |      |  |   |        |  



The reconciliation between the U.S.
federal statutory rate and the Companys effective income tax rate is:



|                                                         |  |      |   |  |      |   |  |      |   
|-------------------------------------------------------- |  | ---- | - |  | ---- | - |  | ---- | --
|                                                         |  | 2004 |   |  | 2003 |   |  | 2002 |   
|United States federal statutory rate                     |  | 35   | % |  | 35   | % |  | (35  | )%
|State and local income taxes, net of federal tax benefit |  | 5    |   |  | 5    |   |  | (4   | ) 
|Foreign tax rate differential                            |  | (3   | ) |  | (4   | ) |  |     |   
|Change in valuation allowance                            |  |     |   |  |     |   |  | 39   |   
|Adjustment to estimated liability for tax claims         |  | 9    |   |  | 15   |   |  | 1    |   
|Other, net                                               |  | 6    |   |  | 5    |   |  |     |   
|                                                         |  |      |   |  |      |   |  |      |   
|Effective tax rate                                       |  | 52   | % |  | 56   | % |  | 1    | % 
|                                                         |  |      |   |  |      |   |  |      |   



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



6. INCOME TAXES (continued)



As of December 31, 2004, the Company has not provided for withholding or United States federal income taxes on
approximately $782 million of accumulated undistributed earnings of its foreign subsidiaries as they are considered by management to be permanently reinvested. If these undistributed earnings were not considered to be permanently reinvested,
approximately $301 million of deferred income taxes would have been provided. However, on October 22, 2004, the President signed the American Jobs Creation Act of 2004 (the Act). The Act creates a temporary incentive for U.S.
corporations to repatriate accumulated income earned abroad by providing an 85 percent dividend received deduction for certain dividends from controlled foreign corporations. The deduction is subject to a number of limitations and, as of today,
uncertainty remains as to how to interpret numerous provisions of the Act. As such, we are not yet in a position to reevaluate whether, and to what extent we might repatriate foreign earnings that have not yet been remitted to the United States.
Based on our analysis of this incentive to date, it appears possible that we might reevaluate the repatriation of between $150 million and $200 million of earnings currently considered as permanently reinvested, resulting in a respective tax
liability ranging from $7 million to $11 million. We expect to be in a position to finalize our assessment in the first half of 2005.



At December 31, 2004, the Company had state and foreign net operating loss carryforwards of $2.476 billion and $100 million, respectively. We had no federal net operating
loss carryforwards. If not utilized, the state net operating loss carryforwards will expire from 2005 through 2024 while the foreign net operating loss carryforwards will begin to expire in 2005, with the majority having no expiration date.



The cumulative temporary differences giving rise to the deferred tax assets
and liabilities at December 31, 2004 and 2003 are as follows:



|                             |  |                          |       |      |                        |   |                   |  |   |                        |   |  |   |    
|---------------------------- |  | ------------------------ | ----- | ---- | ---------------------- | - | ----------------- |  | - | ---------------------- | - |  | - | ---
|                             |  | 2004                     |       | 2003
|                             |  | DeferredTaxAssets        |       |      | DeferredTaxLiabilities |   | DeferredTaxAssets |  |   | DeferredTaxLiabilities
|                             |  | (In millions of dollars)
|Asbestos litigation claims   |  | $                        | 1,828 |      |                        | $ |                  |  | $ | 1,820                  |   |  | $ |   
|Other employee benefits      |  |                          | 172   |      |                        |   |                  |  |   | 168                    |   |  |   |   
|Pension plans                |  |                          | 262   |      |                        |   | 17                |  |   | 257                    |   |  |   | 17 
|Operating loss carryforwards |  |                          | 177   |      |                        |   |                  |  |   | 475                    |   |  |   |   
|Depreciation                 |  |                          | 6     |      |                        |   | 283               |  |   | 6                      |   |  |   | 243
|State and local taxes        |  |                          | 88    |      |                        |   | 63                |  |   | 83                     |   |  |   | 63 
|Other                        |  |                          | 190   |      |                        |   | 366               |  |   | 387                    |   |  |   | 563
|                             |  |                          |       |      |                        |   |                   |  |   |                        |   |  |   |    
|Subtotal                     |  |                          | 2,723 |      |                        |   | 729               |  |   | 3,196                  |   |  |   | 886
|Valuation allowances         |  |                          | (995  | )    |                        |   |                  |  |   | (1,000                 | ) |  |   |   
|                             |  |                          |       |      |                        |   |                   |  |   |                        |   |  |   |    
|Total deferred taxes         |  | $                        | 1,728 |      |                        | $ | 729               |  | $ | 2,196                  |   |  | $ | 886
|                             |  |                          |       |      |                        |   |                   |  |   |                        |   |  |   |    



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



6. INCOME TAXES (continued)



The Company records valuation allowances related to the realization of certain tax assets. The balances as of
December 31, 2004 and 2003 consisted of (1) $936 million in both years for tax assets related to charges for asbestos-related liabilities, (2) $54 million and $57 million, respectively, for tax assets related to certain state and foreign net
operating loss carryforwards, and (3) $5 million and $7 million, respectively, of other allowances. In 2002, the Company increased its asbestos-related reserves 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 (see Note 19 to the Consolidated Financial Statements). In connection with such charges, management evaluated the amount of deferred
tax assets attributable to such charges and also assessed the likelihood of realization of such deferred tax assets in light of the Companys financial position and the Chapter 11 proceedings, including assumptions relating to the expected
enterprise value at the time of emergence from bankruptcy and other matters that will ultimately be resolved through the bankruptcy process. As the result of such assessment, management determined that a valuation allowance was required for the
amount of deferred tax assets for which future realization did not meet a more likely than not criteria. As a result, no tax benefit was recorded in connection with the asbestos-related charges.



Management expects to realize its net deferred tax assets through income from future
operations.



7. GOODWILL AND OTHER INTANGIBLES



The Company complies with 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 the recorded goodwill.



During 2004, the Company purchased the remaining 60% ownership interest in our Mexican affiliate, Vitro-Fibras, S.A. This purchase resulted in the recording of $54
million of goodwill.



The changes in goodwill by segment during the years ended
December 31, 2004 and 2003 were as follows:



|                             |  |                          |     |                    |   |    |       |  |   |    
|---------------------------- |  | ------------------------ | --- | ------------------ | - | -- | ----- |  | - | ---
|                             |  | BuildingMaterialsSystems |     | CompositeSolutions |   |    | Total
|                             |  | (In millions of dollars)
|Balance at December 31, 2002 |  | $                        | 104 |                    | $ | 18 |       |  | $ | 122
|Additions / Disposals        |  |                          |    |                    |   | 3  |       |  |   | 3  
|Reallocation                 |  |                          | 3   |                    |   | (3 | )     |  |   |   
|Foreign Exchange             |  |                          | 11  |                    |   | 2  |       |  |   | 13 
|                             |  |                          |     |                    |   |    |       |  |   |    
|Balance at December 31, 2003 |  |                          | 118 |                    |   | 20 |       |  |   | 138
|Additions / Disposals        |  |                          | 36  |                    |   | 18 |       |  |   | 54 
|Foreign Exchange             |  |                          | 5   |                    |   | 1  |       |  |   | 6  
|                             |  |                          |     |                    |   |    |       |  |   |    
|Balance at December 31, 2004 |  | $                        | 159 |                    | $ | 39 |       |  | $ | 198
|                             |  |                          |     |                    |   |    |       |  |   |    



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



7. 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 $3 million in 2004, $5 million in 2003, and $4 million in 2002. The Company estimates that amortization of other intangible assets will be approximately $2 to $3 million for each of the next
five years. The components of other intangible assets are as follows:



|                  |  |                      |  |                          |    |                         |   |   
|----------------- |  | -------------------- |  | ------------------------ | -- | ----------------------- | - | --
|                  |  | December 31, 2004   
|                  |  | WeightedAverageLives |  | GrossCarryingAmount      |    | AccumulatedAmortization
|                  |  |                      |  | (In millions of dollars)
|Contract-based    |  | 7                    |  | $                        | 6  |                         | $ | 2 
|Technology-based  |  | 13                   |  |                          | 16 |                         |   | 11
|Marketing-related |  | 8                    |  |                          | 14 |                         |   | 12
|                  |  |                      |  |                          |    |                         |   |   
|                  |  |                      |  | $                        | 36 |                         | $ | 25
|                  |  |                      |  |                          |    |                         |   |   



8. ACQUISITIONS AND DIVESTITURES OF
BUSINESSES



Acquisition



On April 2, 2004, the Company purchased the remaining 60% ownership
interest in our Mexican affiliate, Vitro-Fibras, S.A. (OC Mexico) for approximately $73 million. This purchase strengthens the Companys operating position in Mexico, as well as provides a supply of 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 were 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. The proforma effect of this acquisition on revenues and earnings was not
material.



In June 2002, the Company received Bankruptcy Court approval to
consummate the restructuring of the Companys Indian joint venture, Owens-Corning (India) Limited (OCIL), a producer of composite material. As part of the restructuring, the Company, through its wholly-owned subsidiary, IPM Inc.,
contributed approximately $3 million of cash into OCIL and the Company agreed to allow a guarantee claim in the amount of approximately $19 million in its Chapter 11 proceedings in respect of OCILs junior debt. In addition, OCILs senior
debt maturities were extended, and its junior debt was converted to approximately $7 million of redeemable convertible debentures. Through these restructuring efforts the Companys ownership interest in OCIL increased from approximately 50% to
approximately 60%. The Company consolidated OCIL on July 1, 2002 when the restructuring was consummated by all of the parties to the restructuring and approved by the Indian Government, at which time the allowed claim of approximately $19 million
was added to liabilities subject to compromise. The Company accounted for this transaction under the purchase method of accounting, whereby the assets acquired and liabilities assumed, including approximately $57 million of senior debt (consisting
of approximately $33 million of



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



8. ACQUISITIONS AND DIVESTITURES OF BUSINESSES (continued)



debentures due in 2009 at a variable interest rate and approximately $24 million of debentures due in 2009 at a fixed interest rate of 10%), approximately $7
million of redeemable convertible debentures due in 2010, and approximately $4 million of other debt, were recorded at their fair values and the Company began consolidating this subsidiary on July 1, 2002. The $19 million allowed claim was recorded
at its estimated fair value of approximately $6 million as an additional investment in OCIL and the difference of approximately $13 million was recorded as reorganization expense in the Companys consolidated statement of income (loss). Prior
to July 1, 2002, the Company accounted for this joint venture under the equity method. The proforma effect of this acquisition on revenues and earnings was not material.



Divestitures



On May 22, 2003, the Company received Bankruptcy Court approval to sell the assets of its metal systems business. Net proceeds from the sale
were $48 million, of which $40 million were received in the second quarter of 2003 and $5 million were received in the third quarter of 2003. The remaining $3 million are recorded as a long-term note receivable, which is due in 2006. A pretax loss
of approximately $15 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, excluding the impact of asset impairments taken in prior periods.



9. INVESTMENTS IN AFFILIATES



At December 31, 2004 and 2003, the Companys affiliates, which generally are engaged in the manufacture of fibrous glass and related products for the insulation,
construction, reinforcements, and textile markets, included:



|                                                           |  |                   |   |  |      |  
|---------------------------------------------------------- |  | ----------------- | - |  | ---- | -
|                                                           |  | Percent Ownership |  
|                                                           |  | 2004              |   |  | 2003 |  
|(a) Advanced Glassfiber Yarns, LLC (U. S.)                 |  |                  |   |  | 49   | %
|Arabian Fiberglass Insulation Company, Ltd. (Saudi Arabia) |  | 49                | % |  | 49   | %
|Automotive Composite Solutions (International)             |  | 26                | % |  | 26   | %
|Fiberteq LLC (U. S.)                                       |  | 50                | % |  | 50   | %
|Neptco LLC (U.S.)                                          |  | 50                | % |  | 50   | %
|Owens Corning South Africa (Pty) Ltd.                      |  | 46                | % |  | 46   | %
|Violet Reinforcements, S. de R.L. (Mexico)                 |  | 50                | % |  | 50   | %
|(b) Vitro-Fibras, S.A. (Mexico)                            |  | 100               | % |  | 40   | %



|(a) | During 2002, the Companys joint venture affiliate, Advanced Glassfiber Yarns, LLC filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code.
Owens Cornings investment in this affiliate was written off during 2002, the effect of which was approximately a $1 million loss recorded in the Consolidated Statement of Income (Loss). Advanced Glassfiber Yarns filed its plan of
reorganization in 2003 and emerged from bankruptcy in 2004. Based on this reorganization, the Company no longer has an equity investment in Advanced Glassfiber Yarns.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



9. INVESTMENTS IN AFFILIATES (continued)



|(b) | On April 2, 2004, the Company purchased the remaining 60% ownership interest in Vitro-Fibras, S.A. for approximately $73 million. In 2003, the Company developed significant
influence in Vitro-Fibras, S.A., therefore this investment was accounted for using the equity method beginning in the fourth quarter of 2003 and continuing through the acquisition date of April 2, 2004. Prior to the fourth quarter of 2003, this
investment was accounted for using the cost method because the Company determined that it did not have significant influence in this affiliate.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following table provides summarized financial information on a combined 100% basis for the Companys affiliates accounted for under the equity method:



|                                |  |                          |     |      |   |      |  |   |      |  
|------------------------------- |  | ------------------------ | --- | ---- | - | ---- |  | - | ---- | -
|                                |  | 2004                     |     | 2003 |   | 2002 | 
|                                |  | (In millions of dollars) |    
|At December 31:                 |  |                          |     |      |   |      |  |   |      |  
|Current assets                  |  | $                        | 83  |      | $ | 134  |  | $ | 111  |  
|Noncurrent assets               |  |                          | 146 |      |   | 154  |  |   | 309  |  
|Current liabilities             |  |                          | 35  |      |   | 67   |  |   | 445  |  
|Noncurrent liabilities          |  |                          | 9   |      |   | 32   |  |   | 65   |  
|For the year ended December 31: |  |                          |     |      |   |      |  |   |      |  
|Net sales                       |  |                          | 162 |      |   | 177  |  |   | 297  |  
|Gross margin                    |  |                          | 20  |      |   | 35   |  |   | 60   |  
|Net income (loss)               |  |                          | 11  |      |   | 10   |  |   | (213 | )



The Companys equity in
undistributed earnings of affiliates was a $1 million loss at December 31, 2004.



10. LEASES



The Company leases certain equipment and
facilities under operating leases, some of which include cost-escalation clauses, expiring on various dates through 2020. Total rental expense charged to operations was $81 million in 2004, $100 million in 2003, and $104 million in 2002. At December
31, 2004, the minimum future rental commitments under noncancellable operating leases with initial maturities greater than one year payable over the remaining lives of the leases are:



|                  |  |                                  |    
|----------------- |  | -------------------------------- | ---
|Period            |  | Minimum FutureRental Commitments
|                  |  | (In millions of dollars)        
|2005              |  |                                  | 61 
|2006              |  |                                  | 47 
|2007              |  |                                  | 37 
|2008              |  |                                  | 28 
|2009              |  |                                  | 17 
|2010 through 2021 |  |                                  | 58 
|                  |  |                                  |    
|                  |  | $                                | 248
|                  |  |                                  |    



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



10. LEASES (continued)



Pursuant to the Bankruptcy Code, Owens Corning and the other Debtors in the Chapter 11 Cases may elect to reject or
assume unexpired pre-petition leases. The Debtors are currently reviewing the leases for which such an election exists to determine whether they should be accepted or rejected. The Bankruptcy Court has extended the time period within which the
Debtors must make their elections through June 4, 2005, and may grant further extensions. In the process of their review, the Debtors may conclude that certain of the arrangements constitute secured financings rather than leases, in which event the
Debtors may take action to obtain a court determination that the applicable facility is owned rather than leased.



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
facility, 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 and principal receipts due 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 equipment 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 (Loss)
related to this claim.



11. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES



Accounts payable and accrued liabilities consist of the following as of
December 31, 2004 and 2003:



|                                           |  |                          |     |      |   |    
|------------------------------------------ |  | ------------------------ | --- | ---- | - | ---
|                                           |  | 2004                     |     | 2003
|                                           |  | (In millions of dollars)
|Accounts payable                           |  | $                        | 443 |      | $ | 336
|Payroll and vacation pay                   |  |                          | 189 |      |   | 141
|Payroll, property, and miscellaneous taxes |  |                          | 73  |      |   | 65 
|Other employee benefits liability          |  |                          | 34  |      |   | 30 
|Other                                      |  |                          | 170 |      |   | 195
|                                           |  |                          |     |      |   |    
|Total                                      |  | $                        | 909 |      | $ | 767
|                                           |  |                          |     |      |   |    



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



12. RESTRUCTURING OF OPERATIONS AND OTHER CHARGES



2004 Charges



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,
representing a gain realized on the sale of a manufacturing facility during the first quarter of 2004. The assets associated with this sale were previously written down when the facility was shutdown in 2002.



2003 Charges



During 2003, the Company recorded $34 million in pretax charges, as the Company continued its strategic review of its businesses in
connection with the Chapter 11 proceedings and development of a plan or plans of reorganization. The $34 million pretax charge was comprised of $36 million of pretax other charges and a $2 million pretax restructure credit. The Company recorded
$(10) million in the fourth quarter, $1 million in the third quarter, $13 million in the second quarter, and $30 million in the first quarter.



The $36 million in other pretax charges were recorded as a $23 million charge to cost of sales and a $13 million pretax charge in the Consolidated Statement of Income
(Loss) under the caption Other. The $23 million charge to cost of sales includes a $28 million charge for the additional write-down of two groups of assets in the Building Materials Systems segment to net realizable value based on
valuations of the future cash flows of the assets using assumptions consistent with current market conditions, offset by a credit of $5 million to reduce the reserve for certain facility closure costs to the current estimate. The $13 million pretax
charge consisted of a $15 million loss on the sale of the Companys metal systems assets, offset by a $1 million gain on the sale of the Companys mineral wool assets and a $1 million credit for the revision of previous estimates of the
costs associated with closures of non-strategic facilities.



The $2 million
credit to restructure charges was recorded as a $2 million additional non-cash asset write-down of previously closed facilities and a $4 million credit as the result of the completion of previous restructure actions at a lower than estimated cost.



2002 Charges



As a result of its comprehensive strategic review and actions taken, the Company recorded
approximately $166 million in pretax charges during 2002, comprised of a $61 million pretax restructure charge and $105 million of pretax other charges. The Company recorded $113 million in the fourth quarter of 2002, $44 million in the third
quarter, $(3) million in the second quarter, and $12 million in the first quarter.



The $61 million restructure charge includes $17 million of severance costs associated with the elimination of 830 positions due to plant closures in the United States and United Kingdom and $18 million of severance costs associated with the
elimination of 349 other positions, primarily impacting administrative personnel. As of December 31, 2003, all of these positions were eliminated or the reserve was adjusted to actual costs incurred, and approximately $34 million had been paid and
charged against the reserve. The remaining $26 million restructure charge represents the cost of closure of non-strategic facilities, comprised of $24 million in non-cash asset write-downs to fair value and $2 million of other exit cost liabilities.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



12. RESTRUCTURING OF OPERATIONS AND OTHER CHARGES (continued)



The $105 million in other pretax charges was recorded as a $110 million charge to cost of sales and a credit of $5
million to other operating expenses. The $110 million charge to cost of sales includes: (1) charges of $66 million to write-down assets to net realizable value based on valuations of the future cash flows of the assets using assumptions consistent
with current market conditions, $28 million in the Composite Solutions segment, primarily as the result of a plant closure, and $38 million in the Building Materials Systems segment, primarily as the result of plans to sell certain facilities; (2) a
$19 million charge for inventory made obsolete by changes in the Companys manufacturing and marketing processes; (3) a charge of $6 million associated with realignment of the Companys Newark, OH manufacturing facility; and (4) $19
million of other charges.



Status of Liability for Restructuring Programs



The following table summarizes the status of the unpaid liabilities
from the Companys restructuring actions since 2001, including spending and adjustments. There was no remaining balance as of December 31, 2003.



|                             |  |                          |     |   |                                |   |    |       |  |   |     |  
|---------------------------- |  | ------------------------ | --- | - | ------------------------------ | - | -- | ----- |  | - | --- | -
|                             |  | PersonnelCosts           |     |   | Facility andBusiness ExitCosts |   |    | Total | 
|                             |  | (In millions of dollars) |    
|Balance at December 31, 2001 |  |                          | 9   |   |                                |   |   |       |  |   | 9   |  
|                             |  |                          |    
|Charges to expense           |  |                          | 35  |   |                                |   | 2  |       |  |   | 37  |  
|Payments                     |  |                          | (16 | ) |                                |   | (1 | )     |  |   | (17 | )
|                             |  |                          |     |   |                                |   |    |       |  |   |     |  
|Balance at December 31, 2002 |  |                          | 28  |   |                                |   | 1  |       |  |   | 29  |  
|                             |  |                          |    
|Charges to expense           |  |                          | (4  | ) |                                |   |   |       |  |   | (4  | )
|Payments                     |  |                          | (24 | ) |                                |   | (1 | )     |  |   | (25 | )
|                             |  |                          |     |   |                                |   |    |       |  |   |     |  
|Balance at December 31, 2003 |  | $                        |    |   |                                | $ |   |       |  | $ |    |  
|                             |  |                          |     |   |                                |   |    |       |  |   |     |  



13. 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 years ended December 31, 2004 and 2003 is as follows:



|                                       |  |                          |     |   |      |   |     |  
|-------------------------------------- |  | ------------------------ | --- | - | ---- | - | --- | -
|                                       |  | 2004                     |     |   | 2003 |  
|                                       |  | (In millions of dollars) |    
|Beginning balance                      |  | $                        | 48  |   |      | $ | 57  |  
|Amounts accrued for current year       |  |                          | 14  |   |      |   | 13  |  
|Adjustments of prior accrual estimates |  |                          | 7   |   |      |   | (3  | )
|Transfer of metals systems warranties  |  |                          |    |   |      |   | (4  | )
|Settlements of warranty claims         |  |                          | (21 | ) |      |   | (15 | )
|                                       |  |                          |     |   |      |   |     |  
|Ending balance                         |  | $                        | 48  |   |      | $ | 48  |  
|                                       |  |                          |     |   |      |   |     |  



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



14. SHORT-TERM DEBT



|                                                                              |  |                          |     |   |      |   |     |  
|----------------------------------------------------------------------------- |  | ------------------------ | --- | - | ---- | - | --- | -
|                                                                              |  | 2004                     |     |   | 2003 |  
|                                                                              |  | (In millions of dollars) |    
|Short-Term Debt:                                                              |  |                          |     |  
|Balance outstanding at December 31                                            |  | $                        | 11  |   |      | $ | 44  |  
|Weighted average interest rates on short-term debt outstanding at December 31 |  |                          | 4.3 | % |      |   | 6.5 | %



The Company had no unused short-term
lines of credit at December 31, 2004 and 2003.



Prior to the Filing, a
consolidated non-Debtor European subsidiary of Owens Corning incurred debt to third parties pursuant to three financing transactions. Such debt was guaranteed by Owens Corning, and the proceeds of the transactions were loaned by the subsidiary to
Owens Corning. After the Filing, Owens Corning discontinued debt payments to the subsidiary on the intercompany loans. As this subsidiary has no assets other than the intercompany receivable, it was unable to make required payments to the third
party debt holders and was in default. During the third quarter of 2004, the Company finalized a settlement with certain holders of such third party debt whereby the holders released the non-Debtor subsidiary from all obligations related to this
debt, including $16 million of accrued post-petition interest, and Owens Corning allowed the releasing debt holders various claims in its Chapter 11 proceedings with respect to its guarantees of such debt and its indebtedness to the subsidiary.
Prior to this settlement, the guaranteed debt was recorded on the Consolidated Balance Sheet as components of Short-term debt and Long-term debt  current portion, $32 million and $35 million, respectively.



As a result of this settlement, the Company reclassified the guaranteed debt to
Liabilities subject to compromise on the Consolidated Balance Sheet and recognized a $16 million gain on the release of accrued interest as a component of Interest expense, net on its Consolidated Statement of Income.
Additionally, the components of Subject to compromise in the Debtors-in-possession Balance Sheet now reflect an increase in Debt and corresponding decrease in Payables to non-Debtors.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



15. LONG-TERM DEBT



Detail of our outstanding long-term debt for the years ended December 31, 2004 and 2003 is as follows:



|                                                                     |  |                          |     |   |      |   |     |  
|-------------------------------------------------------------------- |  | ------------------------ | --- | - | ---- | - | --- | -
|                                                                     |  | 2004                     |     |   | 2003 |  
|                                                                     |  | (In millions of dollars) |    
|Long-Term Debt:                                                      |  |                          |     |   |      |   |     |  
|Guaranteed debentures due in 2001, 10%                               |  | $                        | 7   |   |      | $ | 42  |  
|Term loan due 2009, 3 month LIBOR plus 1.75%                         |  |                          | 15  |   |      |   | 21  |  
|Asian credit facility due in 2005, LIBOR plus 2.5%                   |  |                          | 18  |   |      |   | 18  |  
|Term loan due 2009, 11.5%                                            |  |                          | 12  |   |      |   | 16  |  
|Various capital leases due through and beyond 2008                   |  |                          | 14  |   |      |   | 15  |  
|Redeemable convertible debentures due 2010, 12.25%                   |  |                          |    |   |      |   | 7   |  
|Other long-term debt due through 2009, at rates from 7.24% to 11.45% |  |                          | 3   |   |      |   | 7   |  
|                                                                     |  |                          |     |   |      |   |     |  
|                                                                     |  |                          | 69  |   |      |   | 126 |  
|Less - current portion                                               |  |                          | (31 | ) |      |   | (53 | )
|                                                                     |  |                          |     |   |      |   |     |  
|Total long-term debt                                                 |  | $                        | 38  |   |      | $ | 73  |  
|                                                                     |  |                          |     |   |      |   |     |  



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. In October 2002, the Debtors
reached agreement with the lenders to renew the DIP Financing for an additional term of two years, with a reduced maximum availability of $250 million. In September 2004, the credit facility was renewed for an additional 2 years. The interest rate
on amounts borrowed is a floating rate of LIBOR plus a margin that varies from 0.75% to 1.25%, based upon the average daily outstanding balance. The facility had a commitment fee on the unused portions of 0.375% at December 31, 2004 and 2003. The
amount available under the facility is calculated based on a borrowing base of qualifying receivables and inventory of the Debtors. As of December 31, 2004, there was no reduction in the amount available as a result of a borrowing base shortfall.
While the Company had no outstanding borrowings from the facility at year-end 2004 or 2003, approximately $137 million and $83 million, respectively, of this facility was utilized at such times for standby letters of credit and similar uses.
Consequently, $113 million was available under this facility at December 31, 2004. This facility has super priority in the bankruptcy proceeding.



The Asian credit facility is payable in U.S. dollars and had a rate of interest at December 31, 2004 and 2003 of 4.8% and 4.0%, respectively. In 2003, the Company reached
an agreement with the financial institution to restructure this facility. In exchange for an allowed guarantee claim against the Debtors of the full amount of the facility, the financial institution agreed to reduce the debt of the responsible
subsidiary by approximately $4 million, and extend the term of the facility.



The agreements relating to the facilities described above contain restrictive covenants, including requirements for minimum earnings before income taxes, depreciation and amortization, and limitations on additional borrowings, among other
restrictions. The agreements include a provision that would result in all of the unpaid principal and accrued interest of the facilities becoming due immediately upon a change of control in ownership of the Company. A material adverse change in the
Companys business, assets, liabilities, financial condition or results of operations constitutes default under the agreements.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



15. LONG-TERM DEBT (continued)





The aggregate maturities for all
long-term debt issues for each of the five years following December 31, 2004 and thereafter are:



|           |  |                         
|---------- |  | ------------------------
|Year       |  | (In millions of dollars)
|2005       |  | 31                      
|2006       |  | 9                       
|2007       |  | 13                      
|2008       |  | 9                       
|2009       |  | 1                       
|thereafter |  | 6                       



Due to the Filing (see Note 1),
pre-petition long-term debt of the Debtors has been reclassified to the caption Subject to Compromise on the Consolidated Balance Sheet. From the Petition Date through December 31, 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 $658 million, of which $142 million relates to 2004, $138 million relates to 2003, and $148 million relates to 2002.
Of the total calculated amount, approximately $223 million relates to the Pre-Petition Credit Facility, which is the subject of pre-petition guarantees issued by certain of Owens Cornings Debtor and non-Debtor subsidiaries. Actual
post-petition interest determined under the terms of pre-petition debt may vary from the calculated amounts, perhaps significantly. The components of debt subject to compromise as of December 31, 2004 and 2003 are as follows:



|                                                                     |  |                          |       |      |   |      
|-------------------------------------------------------------------- |  | ------------------------ | ----- | ---- | - | -----
|                                                                     |  | 2004                     |       | 2003
|                                                                     |  | (In millions of dollars)
|Debt Subject to Compromise:                                          |  |                          |       |      |   |      
|United States credit facility due in 2002, variable                  |  | $                        | 1,451 |      | $ | 1,451
|Debentures due in 2018, 7.5%                                         |  |                          | 400   |      |   | 400  
|Debentures due in 2005, 7.5%                                         |  |                          | 300   |      |   | 300  
|Debentures due in 2009, 7.0%                                         |  |                          | 250   |      |   | 250  
|Debentures due in 2008, 7.7%                                         |  |                          | 250   |      |   | 250  
|Bonds due in 2000, 7.25%, payable in Deutsche marks                  |  |                          | 60    |      |   | 60   
|Debentures due in 2002, 8.875%                                       |  |                          | 40    |      |   | 40   
|Claims from the settlement of certain guaranteed subsidiary debt     |  |                          | 22    |      |   | 22   
|Claim from renegotiation of World Headquarters lease                 |  |                          | 21    |      |   | 21   
|Debentures due in 2012, 9.375%                                       |  |                          | 7     |      |   | 7    
|Guaranteed debentures due in 2001, 10%                               |  |                          | 67    |      |   |     
|Other long-term debt due through 2012, at rates from 6.25% to 13.80% |  |                          | 90    |      |   | 95   
|                                                                     |  |                          |       |      |   |      
|Total long-term debt subject to compromise                           |  | $                        | 2,958 |      | $ | 2,896
|                                                                     |  |                          |       |      |   |      



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



16. 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.



In accordance with Statement of Financial Accounting Standards No. 132 (revised 2003), Employers Disclosures about Pensions and Other Postretirement
Benefits, the following tables provide a reconciliation of the changes in the projected pension benefits obligation, the changes in the pension plan assets (both measured as of October 31, 2004 and 2003), the net pension liability, and the
accrued benefits cost liability as of December 31, 2004 and 2003:



|                                                |  |                               |       |   |          |   |     |       |  |   |       |   |  |          |      |   |       |   |     |   |  |   |       |  
|----------------------------------------------- |  | ----------------------------- | ----- | - | -------- | - | --- | ----- |  | - | ----- | - |  | -------- | ---- | - | ----- | - | --- | - |  | - | ----- | -
|                                                |  | Measurement date - October 31 |      
|Change in Projected Pension Benefits Obligation |  | 2004                          |       |   | 2003     |  
|                                                |  | U.S.                          |       |   | Non-U.S. |   |     | Total |  |   | U.S.  |   |  | Non-U.S. |      |   | Total |  
|                                                |  | (In millions of dollars)      |      
|                                                |  |                               |       |   |          |   |     |       |  |   |       |   |  |          |      |   |       |   |     |   |  |   |       |  
|Benefits obligation at beginning of period      |  | $                             | 984   |   |          | $ | 331 |       |  | $ | 1,315 |   |  | $        | 922  |   |       | $ | 284 |   |  | $ | 1,206 |  
|Service cost                                    |  |                               | 22    |   |          |   | 3   |       |  |   | 25    |   |  |          | 16   |   |       |   | 2   |   |  |   | 18    |  
|Interest cost                                   |  |                               | 58    |   |          |   | 19  |       |  |   | 77    |   |  |          | 59   |   |       |   | 17  |   |  |   | 76    |  
|Amendments                                      |  |                               | 1     |   |          |   |    |       |  |   | 1     |   |  |          | 2    |   |       |   |    |   |  |   | 2     |  
|Actuarial loss                                  |  |                               | 80    |   |          |   | 6   |       |  |   | 86    |   |  |          | 103  |   |       |   | 6   |   |  |   | 109   |  
|Currency loss                                   |  |                               |      |   |          |   | 32  |       |  |   | 32    |   |  |          |     |   |       |   | 35  |   |  |   | 35    |  
|Acquisitions                                    |  |                               |      |   |          |   | 4   |       |  |   | 4     |   |  |          |     |   |       |   |    |   |  |   |      |  
|Benefits paid                                   |  |                               | (99   | ) |          |   | (12 | )     |  |   | (111  | ) |  |          | (118 | ) |       |   | (13 | ) |  |   | (131  | )
|                                                |  |                               |       |   |          |   |     |       |  |   |       |   |  |          |      |   |       |   |     |   |  |   |       |  
|Benefits obligation at end of period            |  | $                             | 1,046 |   |          | $ | 383 |       |  | $ | 1,429 |   |  | $        | 984  |   |       | $ | 331 |   |  | $ | 1,315 |  
|                                                |  |                               |       |   |          |   |     |       |  |   |       |   |  |          |      |   |       |   |     |   |  |   |       |  



Benefits paid during 2003 include
payments resulting from the Companys restructuring program and the sale of certain businesses (see Notes 8 and 12).



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



16. PENSION PLANS (continued)



|                                                                            |  |                          |      |   |          |   |     |       |  |   |       |   |  |          |      |   |       |   |     |   |  |   |      |  
|--------------------------------------------------------------------------- |  | ------------------------ | ---- | - | -------- | - | --- | ----- |  | - | ----- | - |  | -------- | ---- | - | ----- | - | --- | - |  | - | ---- | -
|Change in Pension Plan Assets                                               |  | 2004                     |      |   | 2003     |  
|                                                                            |  | U.S.                     |      |   | Non-U.S. |   |     | Total |  |   | U.S.  |   |  | Non-U.S. |      |   | Total |  
|                                                                            |  | (In millions of dollars) |     
|Fair value of plan assets at beginning of period                            |  | $                        | 630  |   |          | $ | 261 |       |  | $ | 891   |   |  | $        | 491  |   |       | $ | 220 |   |  | $ | 711  |  
|Actual return on plan assets                                                |  |                          | 59   |   |          |   | 22  |       |  |   | 81    |   |  |          | 79   |   |       |   | 19  |   |  |   | 98   |  
|Currency gain                                                               |  |                          |     |   |          |   | 25  |       |  |   | 25    |   |  |          |     |   |       |   | 30  |   |  |   | 30   |  
|Employer contributions                                                      |  |                          | 223  |   |          |   | 3   |       |  |   | 226   |   |  |          | 178  |   |       |   | 7   |   |  |   | 185  |  
|Acquisitions                                                                |  |                          |     |   |          |   | 2   |       |  |   | 2     |   |  |          |     |   |       |   |    |   |  |   |     |  
|Defined contribution adjustment                                             |  |                          |     |   |          |   |    |       |  |   |      |   |  |          |     |   |       |   | (2  | ) |  |   | (2   | )
|Benefits paid                                                               |  |                          | (99  | ) |          |   | (12 | )     |  |   | (111  | ) |  |          | (118 | ) |       |   | (13 | ) |  |   | (131 | )
|                                                                            |  |                          |      |   |          |   |     |       |  |   |       |   |  |          |      |   |       |   |     |   |  |   |      |  
|Fair value of plan assets at end of period                                  |  | $                        | 813  |   |          | $ | 301 |       |  | $ | 1,114 |   |  | $        | 630  |   |       | $ | 261 |   |  | $ | 891  |  
|                                                                            |  |                          |      |   |          |   |     |       |  |   |       |   |  |          |      |   |       |   |     |   |  |   |      |  
|Funded status                                                               |  | $                        | (233 | ) |          | $ | (82 | )     |  | $ | (315  | ) |  | $        | (354 | ) |       | $ | (70 | ) |  | $ | (424 | )
|Unrecognized net transition asset                                           |  |                          |     |   |          |   | (2  | )     |  |   | (2    | ) |  |          |     |   |       |   | (4  | ) |  |   | (4   | )
|Unrecognized net actuarial loss                                             |  |                          | 582  |   |          |   | 158 |       |  |   | 740   |   |  |          | 547  |   |       |   | 149 |   |  |   | 696  |  
|Unrecognized prior service cost                                             |  |                          | 31   |   |          |   | 3   |       |  |   | 34    |   |  |          | 30   |   |       |   | 3   |   |  |   | 33   |  
|Employer contributions made subsequent to October 31, 2004 measurement date |  |                          |     |   |          |   | 5   |       |  |   | 5     |   |  |          |     |   |       |   |    |   |  |   |     |  
|                                                                            |  |                          |      |   |          |   |     |       |  |   |       |   |  |          |      |   |       |   |     |   |  |   |      |  
|Net amount recognized                                                       |  | $                        | 380  |   |          | $ | 82  |       |  | $ | 462   |   |  | $        | 223  |   |       | $ | 78  |   |  | $ | 301  |  
|                                                                            |  |                          |      |   |          |   |     |       |  |   |       |   |  |          |      |   |       |   |     |   |  |   |      |  
|                                                                            |  |                          |      |   |          |  
|Amounts Recognized in the Consolidated Balance Sheet                        |  |                          |      |   |          |   |     |       |  |   |       |   |  |          |      |   |       |   |     |   |  |   |      |  
|                                                                            |  |                          |      |   |          |  
|Prepaid benefits cost (see below)                                           |  | $                        |     |   |          | $ | 37  |       |  | $ | 37    |   |  | $        |     |   |       | $ | 35  |   |  | $ | 35   |  
|Accrued benefits liability                                                  |  |                          | (233 | ) |          |   | (69 | )     |  |   | (302  | ) |  |          | (354 | ) |       |   | (70 | ) |  |   | (424 | )
|Intangible asset                                                            |  |                          | 31   |   |          |   | 2   |       |  |   | 33    |   |  |          | 30   |   |       |   |    |   |  |   | 30   |  
|Accumulated other comprehensive loss                                        |  |                          | 582  |   |          |   | 112 |       |  |   | 694   |   |  |          | 547  |   |       |   | 113 |   |  |   | 660  |  
|                                                                            |  |                          |      |   |          |   |     |       |  |   |       |   |  |          |      |   |       |   |     |   |  |   |      |  
|Net amount recognized (prepaid benefits cost)                               |  | $                        | 380  |   |          | $ | 82  |       |  | $ | 462   |   |  | $        | 223  |   |       | $ | 78  |   |  | $ | 301  |  
|                                                                            |  |                          |      |   |          |   |     |       |  |   |       |   |  |          |      |   |       |   |     |   |  |   |      |  



Information for pension plans with an
accumulated benefits obligation in excess of plan assets:



|                                |  |                          |       |          |   |       |  |      |       |          |   |       |  |   |     |  |   |      
|------------------------------- |  | ------------------------ | ----- | -------- | - | ----- |  | ---- | ----- | -------- | - | ----- |  | - | --- |  | - | -----
|                                |  | 2004                     |       | 2003    
|                                |  | U.S.                     |       | Non-U.S. |   | Total |  | U.S. |       | Non-U.S. |   | Total
|                                |  | (In millions of dollars)
|Projected benefits obligation   |  | $                        | 1,046 |          | $ | 328   |  | $    | 1,374 |          | $ | 984   |  | $ | 278 |  | $ | 1,262
|Accumulated benefits obligation |  |                          | 1,046 |          |   | 311   |  |      | 1,357 |          |   | 984   |  |   | 267 |  |   | 1,251
|Fair value of assets            |  |                          | 813   |          |   | 238   |  |      | 1,051 |          |   | 630   |  |   | 197 |  |   | 827  



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



16. PENSION PLANS (continued)



Certain of the Companys pension plans have an accumulated benefit obligation (ABO) in excess of the
fair value of plan assets. The ABO and fair value of plan assets for such plans are $1.357 billion and $1.051 billion, respectively, at October 31, 2004, and $1.251 billion and $827 million, respectively, at October 31, 2003. The ABO for all of the
Companys pension plans was $1.406 billion and $1.302 billion, respectively, at October 31, 2004 and 2003.



Certain of the Companys pension plans are not funded. The portion of the total projected benefit obligation attributable to unfunded plans is approximately $10
million and $8 million at October 31, 2004 and 2003, respectively.



Weighted-average assumptions used to determine benefits obligations as of October 31



|                              |  |      |   |  |          |   |  |      |   |  |          |  
|----------------------------- |  | ---- | - |  | -------- | - |  | ---- | - |  | -------- | -
|                              |  | 2004 |   |  | 2003     |  
|                              |  | U.S. |   |  | Non-U.S. |   |  | U.S. |   |  | Non-U.S. |  
|Discount rate                 |  | 5.85 | % |  | 5.60     | % |  | 6.25 | % |  | 5.75     | %
|Rate of compensation increase |  | 5.44 | % |  | 3.80     | % |  | 6.00 | % |  | 4.00     | %



The following table presents the
components of net periodic pension cost for aggregated U.S. and Non-U.S. Plans during 2004, 2003 and 2002:



Components of Net Periodic Pension Cost





|                                  |  |                          |     |   |      |   |     |      |  |   |     |  
|--------------------------------- |  | ------------------------ | --- | - | ---- | - | --- | ---- |  | - | --- | -
|                                  |  | 2004                     |     |   | 2003 |   |     | 2002 | 
|                                  |  | (In millions of dollars) |    
|Service cost                      |  | $                        | 25  |   |      | $ | 18  |      |  | $ | 14  |  
|Interest cost                     |  |                          | 77  |   |      |   | 76  |      |  |   | 75  |  
|Expected return on plan assets    |  |                          | (73 | ) |      |   | (64 | )    |  |   | (80 | )
|Amortization of transition amount |  |                          | (1  | ) |      |   | (4  | )    |  |   | (4  | )
|Amortization of loss              |  |                          | 49  |   |      |   | 33  |      |  |   | 23  |  
|Curtailment/settlement loss       |  |                          | 1   |   |      |   | 1   |      |  |   | 2   |  
|                                  |  |                          |     |   |      |   |     |      |  |   |     |  
|Net periodic benefit cost         |  | $                        | 78  |   |      | $ | 60  |      |  | $ | 30  |  
|                                  |  |                          |     |   |      |   |     |      |  |   |     |  



Weighted-average assumptions
used to determine net periodic pension cost for the years ended December 31



|                               |  |      |   |  |          |   |  |      |   |  |          |  
|------------------------------ |  | ---- | - |  | -------- | - |  | ---- | - |  | -------- | -
|                               |  | 2004 |   |  | 2003     |  
|                               |  | U.S. |   |  | Non-U.S. |   |  | U.S. |   |  | Non-U.S. |  
|Discount rate                  |  | 6.25 | % |  | 5.70     | % |  | 6.75 | % |  | 5.75     | %
|Expected return on plan assets |  | 8.00 | % |  | 6.70     | % |  | 8.00 | % |  | 6.50     | %
|Rate of compensation increase  |  | 6.00 | % |  | 3.80     | % |  | 6.00 | % |  | 4.00     | %



The expected rate of return on assets
assumption for the U.S. Plan is based on gross expected rates of return less anticipated expenses. The gross expected rates of return are the sum of expected real rates of return plus anticipated inflation. Real rates of return were derived for each
asset class based on historical rates of returns. To assess volatility and determine the total gross expected rates of return, a distribution of portfolio returns is developed taking into account the variance and correlation of the asset classes.
The total gross expected rate of return is selected near the mean of the distribution of portfolio returns.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



16. PENSION PLANS (continued)



Plan Assets



The U.S. asset allocations at October 31, 2004 and 2003 by asset category are as follows:



|                                  |  |                                           |   |  |                                           |  
|--------------------------------- |  | ----------------------------------------- | - |  | ----------------------------------------- | -
|Asset category                    |  | Percentage of Plan AssetsOctober 31, 2004 |   |  | Percentage of Plan AssetsOctober 31, 2003 |  
|Equity                            |  | 33                                        | % |  | 61                                        | %
|Fixed income and cash equivalents |  | 67                                        | % |  | 39                                        | %
|Total                             |  | 100                                       | % |  | 100                                       | %



Prior to 2004, the Plans target
allocation was 73% in equity securities and 27% in fixed income securities (with a 10% allowance for variance). The current investment policy is to have existing assets (excluding contributions made from 2003 to 2007) invested 50% in equity
securities and 50% in a bond portfolio whose duration matches expected benefit payments after 2007 (with a 7.5% allowance for variance). Contributions that will be used to satisfy anticipated benefit payment obligations through 2007 will be invested
in an index fund which replicates the return of the Lehman Aggregate Bond Index Fund.



Estimated Future Benefit Payments



The following table
shows estimated future benefit payments from the Companys pension plans:



|          |  |                          |    
|--------- |  | ------------------------ | ---
|Year      |  | (In millions of dollars)
|2005      |  | $                        | 128
|2006      |  |                          | 112
|2007      |  |                          | 107
|2008      |  |                          | 105
|2009      |  |                          | 103
|2010-2014 |  |                          | 480



Contributions



Owens Corning expects to contribute $100 to $150 million in cash to
the U.S. pension plan during 2005 (subject to approval of the Bankruptcy Court).



Defined Contribution Plans



The Company also sponsors
defined contribution plans available to substantially all U.S. employees. Company contributions reflect a matching of a percentage of employee savings up to a maximum savings level and, through 2002, certain profit-sharing awards. The Company
recognized expense of $22 million in 2004, $20 million in 2003, and $34 million in 2002 for contributions to these plans.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



17. POSTEMPLOYMENT AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS



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 unfunded 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.



Employees become eligible to participate in the U.S. health care plans upon retirement if they have accumulated 10 years of service after age 50 or, depending on the category of employee, after age 45. Some of the plans are contributory,
with some retiree contributions adjusted annually. The Company has reserved the right to change or eliminate these benefit plans subject to the terms of collective bargaining agreements.



In accordance with Statement of Financial Accounting Standards No. 132, Employers Disclosures about Pensions and Other
Postretirement Benefits, the following tables provide a reconciliation of the changes in the accumulated postretirement benefits obligation, measured as of October 31, 2004 and 2003, and the accrued benefits cost liability at December 31, 2004
and 2003:



|                                                                                                      |      |                               |      |      |          |   |     |       |  |   |      |   |  |          |      |   |       |   |     |   |  |   |      |  
|----------------------------------------------------------------------------------------------------- | ---- | ----------------------------- | ---- | ---- | -------- | - | --- | ----- |  | - | ---- | - |  | -------- | ---- | - | ----- | - | --- | - |  | - | ---- | -
|Change in Accumulated Postretirement Benefits Obligation                                              |      | Measurement date - October 31 |     
|                                                                                                      | 2004 |                               |      | 2003 |         
|                                                                                                      |      | U.S.                          |      |      | Non-U.S. |   |     | Total |  |   | U.S. |   |  | Non-U.S. |      |   | Total |  
|                                                                                                      |      | (In millions of dollars)      |     
|Benefits obligation at beginning of period                                                            |      | $                             | 451  |      |          | $ | 18  |       |  | $ | 469  |   |  | $        | 488  |   |       | $ | 15  |   |  | $ | 503  |  
|Service cost                                                                                          |      |                               | 9    |      |          |   |    |       |  |   | 9    |   |  |          | 14   |   |       |   |    |   |  |   | 14   |  
|Interest cost                                                                                         |      |                               | 27   |      |          |   | 1   |       |  |   | 28   |   |  |          | 32   |   |       |   | 1   |   |  |   | 33   |  
|Amendments                                                                                            |      |                               | 6    |      |          |   |    |       |  |   | 6    |   |  |          | (34  | ) |       |   |    |   |  |   | (34  | )
|Actuarial (gain)                                                                                      |      |                               | (19  | )    |          |   |    |       |  |   | (19  | ) |  |          | (23  | ) |       |   |    |   |  |   | (23  | )
|Currency loss                                                                                         |      |                               |     |      |          |   | 3   |       |  |   | 3    |   |  |          |     |   |       |   | 3   |   |  |   | 3    |  
|Employee contributions                                                                                |      |                               |     |      |          |   |    |       |  |   |     |   |  |          | 5    |   |       |   |    |   |  |   | 5    |  
|Benefits paid                                                                                         |      |                               | (26  | )    |          |   | (1  | )     |  |   | (27  | ) |  |          | (31  | ) |       |   | (1  | ) |  |   | (32  | )
|                                                                                                      |      |                               |      |      |          |   |     |       |  |   |      |   |  |          |      |   |       |   |     |   |  |   |      |  
|Benefits obligation at end of period                                                                  |      | $                             | 448  |      |          | $ | 21  |       |  | $ | 469  |   |  | $        | 451  |   |       | $ | 18  |   |  | $ | 469  |  
|                                                                                                      |      |                               |      |      |          |   |     |       |  |   |      |   |  |          |      |   |       |   |     |   |  |   |      |  
|Funded status                                                                                         |      | $                             | (448 | )    |          | $ | (21 | )     |  | $ | (469 | ) |  | $        | (451 | ) |       | $ | (18 | ) |  | $ | (469 | )
|Unrecognized net actuarial loss                                                                       |      |                               | 75   |      |          |   | 4   |       |  |   | 79   |   |  |          | 100  |   |       |   | 3   |   |  |   | 103  |  
|Unrecognized prior service costs                                                                      |      |                               | (21  | )    |          |   |    |       |  |   | (21  | ) |  |          | (33  | ) |       |   |    |   |  |   | (33  | )
|Benefit payments net of additional accruals subsequent to October 31, 2004 and 2003 measurement dates |      |                               | 7    |      |          |   |    |       |  |   | 7    |   |  |          | 4    |   |       |   |    |   |  |   | 4    |  
|                                                                                                      |      |                               |      |      |          |   |     |       |  |   |      |   |  |          |      |   |       |   |     |   |  |   |      |  
|Accrued benefit cost (includes current liabilities of $29 million in 2004 and $26 million in 2003)    |      | $                             | (387 | )    |          | $ | (17 | )     |  | $ | (404 | ) |  | $        | (380 | ) |       | $ | (15 | ) |  | $ | (395 | )
|                                                                                                      |      |                               |      |      |          |   |     |       |  |   |      |   |  |          |      |   |       |   |     |   |  |   |      |  



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



17. POSTEMPLOYMENT AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (continued)



Weighted-average assumptions used to determine benefits obligations as of October 31



|              |  |      |   |  |          |   |  |      |   |  |          |  
|------------- |  | ---- | - |  | -------- | - |  | ---- | - |  | -------- | -
|              |  | 2004 |   |  | 2003     |  
|              |  | U.S. |   |  | Non-U.S. |   |  | U.S. |   |  | Non-U.S. |  
|Discount rate |  | 5.85 | % |  | 5.85     | % |  | 6.25 | % |  | 6.25     | %



The following table presents the
components of net periodic benefits cost for aggregated U.S. and Non-U.S. Plans during 2004, 2003 and 2002:



Components of net periodic benefits cost



|                                   |  |      |    |   |      |   |    |      |  |   |   
|---------------------------------- |  | ---- | -- | - | ---- | - | -- | ---- |  | - | --
|                                   |  | 2004 |    |   | 2003 |   |    | 2002
|                                   |  |      |   
|Service cost                       |  | $    | 9  |   |      | $ | 14 |      |  | $ | 14
|Interest cost                      |  |      | 28 |   |      |   | 33 |      |  |   | 33
|Amortization of loss               |  |      | 6  |   |      |   | 10 |      |  |   | 11
|Amortization of prior service cost |  |      | (6 | ) |      |   | (1 | )    |  |   |  
|                                   |  |      |    |   |      |   |    |      |  |   |   
|Net periodic benefits cost         |  | $    | 37 |   |      | $ | 56 |      |  | $ | 58
|                                   |  |      |    |   |      |   |    |      |  |   |   



Weighted-average assumptions
used to determine net periodic benefits cost for the years ended December 31



|              |  |      |   |  |          |   |  |      |   |  |          |  
|------------- |  | ---- | - |  | -------- | - |  | ---- | - |  | -------- | -
|              |  | 2004 |   |  | 2003     |  
|              |  | U.S. |   |  | Non-U.S. |   |  | U.S. |   |  | Non-U.S. |  
|Discount rate |  | 6.25 | % |  | 6.25     | % |  | 6.75 | % |  | 6.50     | %



Health Care Cost Trend Rates



|                                       |  |           |  |          |  |          |  |         
|-------------------------------------- |  | --------- |  | -------- |  | -------- |  | --------
|                                       |  | 2004      |  | 2003    
|                                       |  | U.S.      |  | Non-U.S. |  | U.S.     |  | Non-U.S.
|Initial rate at end of year            |  | 8% - 9.5% |  | 10%      |  | 9% - 11% |  | 8.9%    
|Ultimate rate                          |  | 5.0%      |  | 4.5%     |  | 5.0%     |  | 4.5%    
|Year in which ultimate rate is reached |  | 2007      |  | 2009     |  | 2008     |  | 2008    



The health care cost trend rate
assumption has a significant effect on the amounts reported. To illustrate, a one-percentage point change in the assumed health care cost trend rate would have the following effects as of October 31, 2004 and 2003:



|                                                          |  |                    |    |          |                    |     |          |  |          |    |  |   |     |  
|--------------------------------------------------------- |  | ------------------ | -- | -------- | ------------------ | --- | -------- |  | -------- | -- |  | - | --- | -
|                                                          |  | 2004               |    |          | 2003               |    
|                                                          |  | 1-Percentage point |    |          | 1-Percentage point |    
|                                                          |  | Increase           |    | Decrease |                    |     | Increase |  | Decrease |   
|Effect on total service cost and interest cost components |  | $                  | 4  |          | $                  | (3  | )        |  | $        | 6  |  | $ | (5  | )
|                                                          |  |                    |    |         
|Effect on accumulated postretirement benefits obligation  |  |                    | 42 |          |                    | (35 | )        |  |          | 46 |  |   | (38 | )



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



17. POSTEMPLOYMENT AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (continued)



Estimated Future Benefit Payments



The following table shows estimated future benefit payments from the Companys postretirement plans:



|          |  |                                                    |     |                 |   |                                                  |  |   |    
|--------- |  | -------------------------------------------------- | --- | --------------- | - | ------------------------------------------------ |  | - | ---
|Year      |  | Estimated BenefitPayments Prior toMedicare Subsidy |     | MedicareSubsidy |   | Estimated BenefitPayments Net ofMedicare Subsidy
|          |  | (In millions of dollars)                          
|2005      |  | $                                                  | 34  |                 | $ |                                                 |  | $ | 34 
|2006      |  |                                                    | 36  |                 |   | 3                                                |  |   | 33 
|2007      |  |                                                    | 36  |                 |   | 3                                                |  |   | 33 
|2008      |  |                                                    | 37  |                 |   | 3                                                |  |   | 34 
|2009      |  |                                                    | 37  |                 |   | 3                                                |  |   | 34 
|2010-2014 |  |                                                    | 190 |                 |   | 12                                               |  |   | 178



Medicare Prescription Drug,
Improvement and Modernization Act of 2003



In December 2003, the
Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the MPD Act) became law. The MPD Act establishes a prescription drug benefit under Medicare, known as Medicare Part D, as well as a federal subsidy to
sponsors of retiree healthcare benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. In May 2004, the FASB issued FASB Staff Position No. FAS 106-2, Accounting for the Disclosure Requirements Related
to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (FAS 106-2), which became effective for the first interim period beginning after June 15, 2004.



During the third quarter of 2004, the Companys independent actuary performed a
measurement of the effects of the MPD Act on the accumulated postretirement benefit obligation (APBO) for certain Company retiree healthcare plans. As a result of the measurement, it was determined that benefits provided by those plans
were at least actuarially equivalent to Medicare Part D. The determination was based on application of proposed regulations set forth by the Center for Medicare and Medicaid Services (CMS) in August 2004. In January 2005, the CMS released final
guidance on determining actuarial equivalence. The final regulations did not have a significant impact on the calculations previously provided by the actuary. The Company expects to be entitled to the subsidy on the plans deemed eligible for the
subsidy in all years after 2005.



The Company adopted the provisions of the MPD
Act on a retrospective basis, which required remeasurement of plan assets and the APBO as of December 31, 2003. In accordance with the implementation guidance provided by FAS 106-2, the effects of the remeasurement impacted the Companys
financial statements beginning on March 1, 2004. The remeasurement of plan assets and the APBO resulted in a $24 million decrease in the plans APBO, which was treated as an actuarial gain and will be recognized through reduced retiree health
care expense over the related employees future service lives. Other than this change, the impact of the adoption of the MPD Act was immaterial to the financial statements.



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17. POSTEMPLOYMENT AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (continued)



Postemployment Benefits



The Company may also provide benefits to former or inactive employees after employment but before retirement under certain conditions. These
benefits include continuation of benefits such as health care and life insurance coverage. The accrued postemployment benefits liabilities at October 31, 2004 and 2003, as reflected on the balance sheet at December 31, 2004 and 2003, were $31
million and $35 million, including current liabilities of $5 million in 2004 and $4 million in 2003. The net postemployment benefits expense was approximately $5 million in 2004, $6 million in 2003, and $8 million in 2002.



18. CONVERTIBLE MONTHLY INCOME PREFERRED SECURITIES



In 1995, Owens Corning Capital, LLC (OC Capital), a Delaware limited liability
company in which Owens Corning indirectly owns all of the common limited liability company interests (the Common Securities), completed a private offering of 4 million shares of 6-1/2% Convertible Monthly Income Preferred Securities
(Preferred Securities). The aggregate purchase price for the offering was $200 million.



The only asset of OC Capital is $253 million of 6-1/2% Convertible Subordinated Debentures due 2025 of Owens Corning (the Debentures), which were issued in exchange for the proceeds of the Preferred
Securities and the Common Securities.



As a result of the Filing (see Note 1),
Owens Corning is no longer making interest payments to OC Capital on the Debentures. As a result, OC Capital no longer has funds available to pay distributions on the Preferred Securities and stopped paying such distributions in October 2000.



19. 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.



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19. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)



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 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. 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. In this respect, a six-day claims estimation hearing to establish the amount of current and future asbestos liability to
be allowed in the Chapter 11 Cases was held before the District Court beginning January 13, 2005. In general, the holders of the debt under the Pre-Petition Credit Facility argued that the amount of the Companys current and future asbestos
liability should be set at an amount significantly lower than the amounts reserved for asbestos claims on the financial statements of the Debtors, and the Official Committee of Asbestos Claimants and the Legal Representative for the class of future
asbestos claimants argued that it should be set at a significantly higher level. 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. Post trial briefs in this matter were filed by February 18, 2005. The District Court has not indicated when it expects to render a decision on this matter, and no
assurance can be made as to whether the amount of current and future asbestos liability established as a result of such claims estimation hearing will be more or less than the amounts reserved for asbestos claims on the financial statements of the
Debtors or will be more or less than the $16 billion amount established by the Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants as the level below which they have reserved the right to
withdraw support of the Plan.



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19. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)



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.



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.



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19. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)



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.



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(throughOctober 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.



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19. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)



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 December 31, 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 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 approximately $1.1 billion in 1996, $1.4 billion in 1998, $1.0 billion in 2000 and $1.4 billion in 2002.



As of December 31, 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



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19. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)



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, including any determinations made as a result of the estimation hearing held in January 2005, 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:



| |  | 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, if any, 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, including through the estimation hearing held in January 2005. It is not possible to predict the outcome of
such negotiations, or Bankruptcy Court determination, at this time.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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19. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)



In connection with the process of negotiating a plan or plans of reorganization, or other resolution of the Chapter
11 Cases by the Bankruptcy Court, 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 have also developed their own analyses in connection with the Chapter 11 Cases. Such analyses by the Debtors and other interested constituencies are 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. In this regard, in October 2002, Owens Corning and Fibreboard completed analyses of liability for pre-petition and future
asbestos claims, 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 then available 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 through charges to income for the three-month period ended September 30, 2002 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 20 to the Consolidated Financial Statements) was reduced to zero as of September 30, 2002.



Owens Corning notes that, as part of the District Courts order scheduling the estimation hearing for January 13, 2005, the Court ordered that all parties intending
to present expert testimony at such hearing must file any expert reports by October 15, 2004. In response, in addition to the analyses of liability prepared on behalf of Owens Corning and Fibreboard (described above), asbestos liability estimates
were filed with the District Court on behalf of various interested parties, including the Official Committee of Asbestos Claimants, the Legal Representative for the class of future asbestos claimants, and the holders of the debt under the
Pre-Petition Credit Facility. The net present values of the aggregate asbestos liabilities estimated in such filings range from approximately $2.2 billion to approximately $11.1 billion for Owens Corning, and up to approximately $7.5 billion for
Fibreboard.



Owens Corning notes that the amounts estimated in the above
analyses of asbestos liabilities vary substantially from one another, and certain of them vary substantially from the amounts of Owens Cornings and Fibreboards respective asbestos reserves. Owens Corning believes that these variances
occur for a number of reasons. First, such analyses generally do 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



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any other point in such range), such accounting principles require only the accrual of the amount representing the low point in such range. In contrast,
analyses prepared by interested constituencies in asbestos-related bankruptcy cases (including those developed by Owens Corning and Fibreboard) 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 or otherwise resolving the Chapter 11 Cases, 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 or otherwise facilitate resolution of the Chapter 11 Cases. 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.



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. 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. It is therefore anticipated that the 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, including through the estimation hearing held in January 2005. 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 December 31, 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



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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.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 final 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.



The United States Senate introduced proposed asbestos reform legislation (the FAIR Act) in the prior session of Congress on May
22, 2003 and April 7, 2004 (known as the Fairness in Asbestos Injury Resolution Act of 2003 and the Fairness in Asbestos Injury Resolution Act of 2004, respectively), each of which lapsed upon the adjournment of such Congress. While the FAIR Act did
not pass in 2004, there have been ongoing discussions within the Senate regarding the possible introduction of a new version of the FAIR Act in 2005.



If enacted into law as previously proposed, 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 terms of the previously introduced 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 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.



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). 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, including through the estimation hearing held in January 2005, 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.



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19. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)



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.



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 December 31, 2004, the remaining Insurance Settlement funds were held in
and invested by the Fibreboard Settlement Trust. As of that date, $1.291 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 20 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 December 31, 2004, these assets were reflected as non-current assets, under the category Restricted cash, securities and other - Fibreboard. See Note 20 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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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 (throughOctober 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 December 31, 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). 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. It is therefore anticipated that the 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



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asbestos claimants and other interested constituencies or, if necessary, by the Bankruptcy Court, including through the estimation hearing held in January
2005. 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 December 31, 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 final
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.



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As noted in Item A above, the United States Senate introduced proposed asbestos reform legislation (the FAIR
Act) in the prior session of Congress on May 22, 2003 and April 7, 2004 (known as the Fairness in Asbestos Injury Resolution Act of 2003 and the Fairness in Asbestos Injury Resolution Act of 2004, respectively), each of which lapsed upon the
adjournment of such Congress. While the FAIR Act did not pass in 2004, there have been ongoing discussions within the Senate regarding the possible introduction of a new version of the FAIR Act in 2005.



If enacted into law as previously proposed, 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 terms of the previously introduced 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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Insurance



As of December 31, 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. As described in the following paragraph, Owens Corning reached final settlements with two of such carriers in late 2004. The amount and timing of
recoveries from excess level policies with the remaining carriers will depend on the outcome of litigation or other proceedings, possible settlements of those proceedings, or other negotiations.



As indicated above, in late 2004 Owens Corning entered into settlement agreements with two of
its excess insurance carriers, resolving disputes concerning coverage from such insurers for non-products asbestos-related personal injury claims. As a result, during the fourth quarter of 2004, the two carriers funded approximately $21 million into
escrow accounts to be released in conjunction with implementation of an approved plan of reorganization. As previously reported, in 2001, Owens Corning entered into a settlement agreement with another of its excess insurance carriers, whereby the
carrier funded $55 million into a similar escrow account. 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.



During the third quarter of 2004, Owens Corning also received a
payment of approximately $3 million in respect of a previous settlement with a bankrupt insurance carrier concerning coverage for asbestos-related personal injury claims. Owens Corning received approximately $4 million of similar payments during the
second quarter of 2003.



The insurance recoveries described above were recorded
as pre-tax income in their respective period of receipt.



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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.



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 was not
named in the lawsuit. The suit purported 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 sought an unspecified amount of damages and/or, where appropriate, rescission. On March 3, 2005, the court granted the defendants motion to dismiss the action, on the
grounds that the plaintiffs claims are time-barred under the applicable statute of limitations.



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



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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, with limited exceptions, until the earlier of the entry of an order
confirming a plan of reorganization for the Company or further order of the Court. 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 alleged a breach of fiduciary duty against both
officers and the SL Plaintiffs alleged fraud against one officer. Owens Corning was 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. On January 19, 2005, the USBC denied the motion of the SL Plaintiffs for leave to amend their complaint. Owens Corning believes that the claims of the SL Plaintiffs and the claims
of ServiceLanes Chapter 7 trustee are without merit.



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 $16.6 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.



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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 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. As the result of settlement negotiations, the Company and the IRS
have reached an agreement in principle to settle such claims in return for total settlement payments by the Company of approximately $99 million. The recording of the settlement resulted in various adjustments to our tax reserves as well as balance
sheet reclassifications between various deferred, accrued, and subject to compromise tax related accounts. The settlement was approved by the Bankruptcy Court by order dated November 15, 2004 but remains subject to approval by the Congressional
Joint Committee on Taxation.



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 plus interest, covering a tax refund received by Owens Corning for such year.



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. Upon finalization of the agreement in principle described above, the filed
proofs of claim will be amended appropriately.



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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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. A hearing on the pre-petition class certification
has been set for May 2005. In addition, Owens Corning has been named a defendant in a purported class action, filed in the Superior Court for the County of San Joaquin, California, on behalf of post-petition claimants with respect to such product.
Subsequently, Owens Corning removed the California proceeding to the United States Bankruptcy Court for the Eastern District of California (CBC) and moved the CBC to transfer the proceeding to the USBC, and the plaintiffs moved the CBC
to remand the proceeding back to the Superior Court or to abstain from exercising jurisdiction. The motions to transfer or remand/abstain were heard by the CBC on November 9, 2004, and the CBC ordered that the proceedings be transferred to the USBC.
Based upon its historic experience with servicing its warranty program for such specialty roofing product, Owens Corning does not believe that either of the two proceedings 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.



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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 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. Pursuant to Court rule, such stay remains in effect pending a hearing by the Court on the Debtors motion, filed January 19, 2005, to extend such stay until August 31, 2005, other than with respect to two commercial preference actions.
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.



OTHER BANKRUPTCY RELATED MATTERS



See Note 1 to the Consolidated Financial Statements for a discussion of other bankruptcy related matters, including the impact of certain
inter-company and intra-company arrangements, transactions and relationships.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



19. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)



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 was 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. During the fourth quarter
of 2004, the Company finalized settlement of, and received final payment under, its insurance claim. The payments received covered substantially all of the Companys property damage costs and business interruption losses resulting from the
flood, other than the referenced deductible. The reimbursement for business interruption losses was $21 million, which was recorded as other income in the Consolidated Statement of Income (Loss).



20. FIBREBOARD SETTLEMENT TRUST



Under the Insurance Settlement described in Note 19 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 December 31, 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 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 December 31, 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



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



20. FIBREBOARD SETTLEMENT TRUST (continued)



asbestos-related liabilities (see Note 19, Item B, to the Consolidated Financial Statements). As of December 31, 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 December 31, 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.



Through the third quarter of 2002, any earnings, realized gains/losses and unrealized increases/decreases in fair market value of the Trust Assets were reflected as a change in the carrying amount of the assets on the Consolidated Balance
Sheet as well as other income/expense on the Consolidated Statement of Income (Loss). Subsequent to the third quarter of 2002, any earnings, realized gains/losses and unrealized increases/decreases in fair market value of the Trust Assets 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 (Loss). Cost for purposes of
computing realized gains/losses is determined using the specific identification method.



Since the third quarter of 2002, the residual obligation to charity has been included within Fibreboards reserve for asbestos litigation claims as the asbestos-related liabilities have 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 Years Ended December 31, 2004 and 2003



During 2004 and 2003, Trust Assets generated interest/dividend earnings of approximately $59
million and $58 million, respectively, recorded in Chapter 11 related reorganization items in the Consolidated Statement of Income (Loss).



During 2004 and 2003, the fair market value adjustment for those securities designated as trading securities resulted in an unrealized loss of approximately $25 million
and $19 million, respectively, recorded as a change in the carrying amount of the assets on the Consolidated Balance Sheet. These losses were recorded as Chapter 11 related reorganization items on the Consolidated Statement of Income (Loss).



As a result of the Filing, there were no payments for asbestos litigation
claims from the Trust during 2004 or 2003. However, approximately $0.2 million was paid during 2003 for taxes related to earnings of the Trust. These payments were funded by existing cash in the Trust or proceeds from the sale of securities. The
sale of securities in 2004 and 2003 resulted in realized losses of approximately $11 million and $7 million, respectively. 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.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



20. FIBREBOARD SETTLEMENT TRUST (continued)



At December 31, 2004, the fair value of Trust Assets and Administrative Deposits was $1.418 billion, which was
comprised of Trust Assets of $1.291 billion of marketable securities and Administrative Deposits of $127 million.



The table below summarizes Trust and Administrative Deposits activity for the twelve months ended December 31, 2004:



|                                                               |  |                 |       |   |                      |   |                |  |   |              |   |  |                 |     |   |  |   |       |  
|-------------------------------------------------------------- |  | --------------- | ----- | - | -------------------- | - | -------------- |  | - | ------------ | - |  | --------------- | --- | - |  | - | ----- | -
|                                                               |  | Balance12/31/03 |       |   | InterestandDividends |   | UnrealizedLoss |  |   | RealizedLoss |   |  | Balance12/31/04 |    
|Assets                                                         |  |                 |       |   |                      |   |                |  |   |              |   |  |                 |     |   |  |   |       |  
|Trust Assets:                                                  |  |                 |       |   |                      |   |                |  |   |              |   |  |                 |     |   |  |   |       |  
|Marketable securities - trading                                |  | $               | 1,268 |   |                      | $ | 59             |  | $ | (25          | ) |  | $               | (11 | ) |  | $ | 1,291 |  
|Administrative Deposits                                        |  |                 | 127   |   |                      |   |               |  |   |             |   |  |                 |    |   |  |   | 127   |  
|                                                               |  |                 |       |   |                      |   |                |  |   |              |   |  |                 |     |   |  |   |       |  
|Total assets                                                   |  | $               | 1,395 |   |                      | $ | 59             |  | $ | (25          | ) |  | $               | (11 | ) |  | $ | 1,418 |  
|                                                               |  |                 |       |   |                      |   |                |  |   |              |   |  |                 |     |   |  |   |       |  
|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  | ) |                      |   | 59             |  |   | (25          | ) |  |                 | (11 | ) |  |   | (910  | )
|                                                               |  |                 |       |   |                      |   |                |  |   |              |   |  |                 |     |   |  |   |       |  
|Total Trust liabilities net of liabilities in excess of assets |  | $               | 1,395 |   |                      | $ | 59             |  | $ | (25          | ) |  | $               | (11 | ) |  | $ | 1,418 |  
|                                                               |  |                 |       |   |                      |   |                |  |   |              |   |  |                 |     |   |  |   |       |  



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



20. FIBREBOARD SETTLEMENT TRUST (continued)



The table below summarizes Trust and Administrative Deposits activity for the twelve months ended December 31, 2003:



|                                                               |  |                          |       |   |                      |   |                |  |   |              |   |  |       |    |   |                 |   |    |   |  |   |       |  
|-------------------------------------------------------------- |  | ------------------------ | ----- | - | -------------------- | - | -------------- |  | - | ------------ | - |  | ----- | -- | - | --------------- | - | -- | - |  | - | ----- | -
|                                                               |  | Balance12/31/02          |       |   | InterestandDividends |   | UnrealizedLoss |  |   | RealizedLoss |   |  | Other |    |   | Balance12/31/03 |  
|                                                               |  | (In millions of dollars) |      
|Assets                                                         |  |                          |       |   |                      |   |                |  |   |              |   |  |       |    |   |                 |   |    |   |  |   |       |  
|Trust Assets:                                                  |  |                          |       |   |                      |   |                |  |   |              |   |  |       |    |   |                 |   |    |   |  |   |       |  
|Marketable securities - trading                                |  | $                        | 1,238 |   |                      | $ | 58             |  | $ | (19          | ) |  | $     | (7 | ) |                 | $ | (2 | ) |  | $ | 1,268 |  
|Administrative Deposits                                        |  |                          | 127   |   |                      |   |               |  |   |             |   |  |       |   |   |                 |   |   |   |  |   | 127   |  
|                                                               |  |                          |       |   |                      |   |                |  |   |              |   |  |       |    |   |                 |   |    |   |  |   |       |  
|Total assets                                                   |  | $                        | 1,365 |   |                      | $ | 58             |  | $ | (19          | ) |  | $     | (7 | ) |                 | $ | (2 | ) |  | $ | 1,395 |  
|                                                               |  |                          |       |   |                      |   |                |  |   |              |   |  |       |    |   |                 |   |    |   |  |   |       |  
|Liabilities                                                    |  |                          |       |   |                      |   |                |  |   |              |   |  |       |    |   |                 |   |    |   |  |   |       |  
|Accounts payable                                               |  | $                        | 18    |   |                      | $ |               |  | $ |             |   |  | $     |   |   |                 | $ | 1  |   |  | $ | 19    |  
|Asbestos litigation claims                                     |  |                          | 2,310 |   |                      |   |               |  |   |             |   |  |       |   |   |                 |   | (1 | ) |  |   | 2,309 |  
|                                                               |  |                          |       |   |                      |   |                |  |   |              |   |  |       |    |   |                 |   |    |   |  |   |       |  
|Total Trust liabilities                                        |  |                          | 2,328 |   |                      |   |               |  |   |             |   |  |       |   |   |                 |   |   |   |  |   | 2,328 |  
|Liabilities in excess of assets                                |  |                          | (963  | ) |                      |   | 58             |  |   | (19          | ) |  |       | (7 | ) |                 |   | (2 | ) |  |   | (933  | )
|                                                               |  |                          |       |   |                      |   |                |  |   |              |   |  |       |    |   |                 |   |    |   |  |   |       |  
|Total Trust liabilities net of liabilities in excess of assets |  | $                        | 1,365 |   |                      | $ | 58             |  | $ | (19          | ) |  | $     | (7 | ) |                 | $ | (2 | ) |  | $ | 1,395 |  
|                                                               |  |                          |       |   |                      |   |                |  |   |              |   |  |       |    |   |                 |   |    |   |  |   |       |  



21. STOCK COMPENSATION PLANS



During 2004, the Company had two stock-based compensation plans
applicable to employees. The Companys stockholder approved Stock Performance Incentive Plan (SPIP) authorized grants of stock options, restricted stock, performance restricted stock and phantom performance units. Effective May
2002, the SPIP expired as to new grants, but outstanding awards continue according to their terms. The Owens Corning 1995 Stock Plan (95 Stock Plan) authorizes grants of options, restricted stock and performance stock awards
(collectively, the 95 Stock Plan and the SPIP are referred to as the Employee Plans). The 95 Stock Plan permits up to 1% of common shares outstanding at the beginning of each calendar year to be awarded as stock options and restricted
stock (with 25% of this amount as the maximum permitted number of restricted stock awards). The Company may carry forward, for the 95 Stock Plan, unused shares from prior years and may increase the shares available for awards in any calendar year
through an advance of up to 25% of the subsequent years allocation (determined by using 25% of the current years allocation). These shares are also subject to the 25% limit for restricted stock awards. At December 31, 2004, the maximum
number of shares available under the 95 Stock Plan for stock awards was 1,204,831 shares. The following are descriptions of the awards granted under the Employee Plans:



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



21. STOCK COMPENSATION PLANS (continued)



Stock Options



The exercise price of each option awarded under the Employee Plans equals the market price of the Companys common
stock on the date of grant and an options maximum term is 10 years. Shares issued from the exercise of options are recorded in the common stock accounts at the option price. The awards and vesting periods of such awards are determined at the
discretion of the Compensation Committee of the Board of Directors. No stock options were awarded in 2004, 2003 or 2002.



Restricted Stock Awards



Compensation expense for restricted stock awards is measured based on the market price of the stock at date of grant and is recognized on a straight-line
basis over the vesting period. Stock restrictions lapse, subject to alternate vesting plans for death, disability, approved early retirement and involuntary termination, over various periods ending in 2006. At December 31, 2004, the Company had
31,486 shares of restricted stock outstanding. There were no restricted stock grants in 2004, 2003 or 2002.



Performance Restricted Stock Awards



Performance restricted stock awards represent the opportunity to earn up to a specified number of shares of the Companys common stock, if the
Company achieves specified performance goals during the designated performance period. Any portion of the award not earned during the performance period is forfeited by the holder at the end of such period. Compensation expense is measured based on
market price of the Companys common stock and is recognized over the performance period, which is generally three years. At December 31, 2004, the Company had no performance restricted stock awards outstanding and none were granted during
2004, 2003 or 2002.



Phantom Performance Units



Phantom performance units provide the holder the
opportunity to earn a cash award equal to the fair market value of the Companys common stock upon the attainment of certain performance goals. Any portion of the award not earned during the performance period is forfeited by the holder at the
end of such period. Compensation expense is measured based on the market price of the Companys common stock and is recognized over the performance period, which is generally three years. At December 31, 2004, the Company had no performance
units outstanding and none were granted during 2004, 2003 or 2002.



Performance Stock Awards



Performance stock
awards provide the holder the opportunity to earn unrestricted stock based upon achievement of specified goals within a designated performance period. Compensation cost for these awards is accrued over the performance period based upon a base
compensation level and the performance level achieved. Stock awards are issued in the year subsequent to the performance period. No performance stock awards were issued in 2004, 2003 or 2002.



The Company also has a plan to award stock and stock options to non-employee directors. The
receipt of the stock awards may be deferred at the discretion of the directors. Approximately 389,000 shares were available under this plan at December 31, 2004. As of December 31, 2004, 24,260 deferred awards were outstanding. No options were
issued in 2004, 2003 or 2002. In 2004, 2003 and 2002, no stock awards were granted. By action of the Board of Directors, additional option grants and annual stock grants were suspended effective April 1, 2002, pending further action by the Board.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



21. STOCK COMPENSATION PLANS (continued)



The Company applies Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123), and Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, An Amendment of FAS No. 123 (SFAS 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 123 and SFAS 148. All stock options issued by the Company are exercisable
at a price equal to the market price at the date of grant. Accordingly, no compensation cost has been recognized for any of the options granted under the Employee Plans or the plan for non-employee directors. The compensation cost that has been
recorded for awards other than options was less than $1 million in 2004 and 2003 and less than $2 million in 2002.



A summary of the status of the Companys plans that issue options as of December 31, 2004, 2003, and 2002 and changes during the years ended on those dates is
presented below:



|                                                               |  |                  |   |      |                               |       |                  |            |   |                                 |   |                  |  |           |                               |  |   |      
|-------------------------------------------------------------- |  | ---------------- | - | ---- | ----------------------------- | ----- | ---------------- | ---------- | - | ------------------------------- | - | ---------------- |  | --------- | ----------------------------- |  | - | -----
|                                                               |  | 2004             |   | 2003 |                               | 2002 
|                                                               |  | Number of Shares |   |      | Weighted-AverageExercisePrice |       | Number of Shares |            |   | Weighted-Average Exercise Price |   | Number of Shares |  |           | Weighted-AverageExercisePrice
|Beginning of year                                              |  | 4,897,952        |   |      | $                             | 32.44 |                  | 6,489,874  |   |                                 | $ | 33.39            |  | 7,206,400 |                               |  | $ | 33.27
|Options granted                                                |  |                 |   |      | $                             |      |                  |           |   |                                 | $ |                 |  |          |                               |  | $ |     
|Options exercised                                              |  |                 |   |      | $                             |      |                  |           |   |                                 | $ |                 |  |          |                               |  | $ |     
|Options canceled                                               |  | (628,315         | ) |      | $                             | 32.87 |                  | (1,591,922 | ) |                                 | $ | 36.31            |  | (716,526  | )                             |  | $ | 32.20
|                                                               |  |                  |   |      |                               |       |                  |            |   |                                 |   |                  |  |           |                               |  |   |      
|End of year                                                    |  | 4,269,637        |   |      | $                             | 32.38 |                  | 4,897,952  |   |                                 | $ | 32.44            |  | 6,489,874 |                               |  | $ | 33.39
|                                                               |  |                  |   |      |                               |       |                  |            |   |                                 |   |                  |  |           |                               |  |   |      
|Exercisable                                                    |  | 4,269,404        |   |      | $                             | 32.38 |                  | 4,710,655  |   |                                 | $ | 32.35            |  | 5,419,864 |                               |  | $ | 35.79
|Weighted-average fair-value of options granted during the year |  |                  |   |      | $                             |      |                  |            |   |                                 | $ |                 |  |           |                               |  | $ |     



The following table summarizes
information about options outstanding at December 31, 2004:



|                         |  |                              |  |                           |  |               |        |                              |           |                                |   |       
|------------------------ |  | ---------------------------- |  | ------------------------- |  | ------------- | ------ | ---------------------------- | --------- | ------------------------------ | - | ------
|                         |  | Options Outstanding          |  | Options Exercisable      
|                         |  |                              |  | Weighted-Average          |  |              
|Range of Exercise Prices |  | NumberOutstandingat 12/31/04 |  | RemainingContractual Life |  | ExercisePrice |        | NumberExercisableat 12/31/04 |           | Weighted-AverageExercise Price
|$ 14.188 - $ 14.750      |  | 2,700                        |  | 5.18                      |  | $             | 14.333 |                              | 2,700     |                                | $ | 14.333
|$ 15.375 - $ 15.375      |  | 991,642                      |  | 4.75                      |  | $             | 15.375 |                              | 991,409   |                                | $ | 15.375
|$ 28.438 - $ 34.813      |  | 1,440,493                    |  | 3.25                      |  | $             | 32.860 |                              | 1,440,493 |                                | $ | 32.860
|$ 35.250 - $ 37.813      |  | 767,028                      |  | 1.86                      |  | $             | 37.619 |                              | 767,028   |                                | $ | 37.619
|$ 38.375 - $ 45.500      |  | 1,067,774                    |  | 1.75                      |  | $             | 43.797 |                              | 1,067,774 |                                | $ | 43.797



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



21. STOCK COMPENSATION PLANS (continued)



Had compensation cost for the Employee Plans been determined based on the fair value at the grant dates for awards
under those plans consistent with the method described in SFAS 123, the Companys net income (loss) and net income (loss) per share would have been reduced to the pro forma amounts indicated below:



|                                                                                                                                    |  |                                             |      |      |   |      |      |  |   |        |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------- | ---- | ---- | - | ---- | ---- |  | - | ------ | -
|                                                                                                                                    |  | 2004                                        |      | 2003 |   |      | 2002 | 
|                                                                                                                                    |  | (In millions of dollars, except share data) |     
|Net income (loss), as reported                                                                                                      |  | $                                           | 204  |      | $ | 115  |      |  | $ | (2,809 | )
|Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                             |     |      |   | (2   | )    |  |   | (4     | )
|                                                                                                                                    |  |                                             |      |      |   |      |      |  |   |        |  
|Pro forma net income                                                                                                                |  | $                                           | 204  |      | $ | 113  |      |  | $ | (2,813 | )
|                                                                                                                                    |  |                                             |      |      |   |      |      |  |   |        |  
|Basic net income (loss) per share                                                                                                   |  |                                             |      |      |   |      |      |  |   |        |  
|As reported                                                                                                                         |  | $                                           | 3.68 |      | $ | 2.08 |      |  | $ | (51.02 | )
|Pro forma                                                                                                                           |  |                                             | 3.68 |      |   | 2.05 |      |  |   | (51.09 | )
|Diluted net income (loss) per share                                                                                                 |  |                                             |      |      |   |      |      |  |   |        |  
|As reported                                                                                                                         |  | $                                           | 3.40 |      | $ | 1.92 |      |  | $ | (51.02 | )
|Pro forma                                                                                                                           |  |                                             | 3.40 |      |   | 1.89 |      |  |   | (51.09 | )



The following table presents the net
income (loss) before and after cumulative effect of change in accounting principle used in the basic and diluted earnings per share and reconciles 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.



|                                                                                                                           |  |                                                         |        |      |   |        |  |   |        |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------- | ------ | ---- | - | ------ |  | - | ------ | -
|                                                                                                                           |  | 2004                                                    |        | 2003 |   | 2002   | 
|                                                                                                                           |  | (In millions of dollars, exceptshare data in thousands) |       
|Net income (loss) before cumulative effect of change in accounting principle used for basic and diluted earnings per share |  | $                                                       | 204    |      | $ | 115    |  | $ | (2,368 | )
|                                                                                                                           |  |                                                         |        |      |   |        |  |   |        |  
|Net income (loss) used for basic and diluted earnings per share                                                            |  | $                                                       | 204    |      | $ | 115    |  | $ | (2,809 | )
|                                                                                                                           |  |                                                         |        |      |   |        |  |   |        |  
|Weighted-average number of shares outstanding used for basic earnings per share                                            |  |                                                         | 55,307 |      |   | 55,196 |  |   | 55,054 |  
|Non-vested restricted shares                                                                                               |  |                                                         | 36     |      |   | 88     |  |   |       |  
|Deferred awards                                                                                                            |  |                                                         | 24     |      |   | 24     |  |   |       |  
|Shares from assumed conversion of preferred securities (see Note 18)                                                       |  |                                                         | 4,566  |      |   | 4,566  |  |   |       |  
|                                                                                                                           |  |                                                         |        |      |   |        |  |   |        |  
|Weighted-average number of shares outstanding and common equivalent shares used for diluted earnings per share             |  |                                                         | 59,933 |      |   | 59,874 |  |   | 55,054 |  
|                                                                                                                           |  |                                                         |        |      |   |        |  |   |        |  



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



21. STOCK COMPENSATION PLANS (continued)



The Companys net income (loss) per common share before and after cumulative effect of change in accounting
principle per common share for the years ended December 31, 2004, 2003, and 2002 were as follows:



|                                                                                              |  |      |      |      |   |      |  |   |        |  
|--------------------------------------------------------------------------------------------- |  | ---- | ---- | ---- | - | ---- |  | - | ------ | -
|                                                                                              |  | 2004 |      | 2003 |   | 2002 | 
|NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE PER COMMON SHARE |  |      |      |      |   |      |  |   |        |  
|Basic net income (loss) per share                                                             |  | $    | 3.68 |      | $ | 2.08 |  | $ | (43.01 | )
|                                                                                              |  |      |      |      |   |      |  |   |        |  
|Diluted net income (loss) per share                                                           |  | $    | 3.40 |      | $ | 1.92 |  | $ | (43.01 | )
|                                                                                              |  |      |      |      |   |      |  |   |        |  
|NET INCOME (LOSS) PER COMMON SHARE                                                            |  |      |      |      |   |      |  |   |        |  
|Basic net income (loss) per share                                                             |  | $    | 3.68 |      | $ | 2.08 |  | $ | (51.02 | )
|                                                                                              |  |      |      |      |   |      |  |   |        |  
|Diluted net income (loss) per share                                                           |  | $    | 3.40 |      | $ | 1.92 |  | $ | (51.02 | )
|                                                                                              |  |      |      |      |   |      |  |   |        |  



For the year ended 2002, the number of
shares used in the calculation of diluted earnings per share did not include 164 thousand common equivalent shares of non-vested restricted stock, 25 thousand common equivalent shares of deferred awards and 4,566 thousand common equivalent shares
from assumed conversion of preferred securities due to their anti-dilutive effect.



22. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS



The Company is exposed to the impact of changes in foreign currency exchange rates, interest rates and certain commodity prices in the normal course of business. The Companys risk management program is designed
to manage the exposure and volatility arising from these risks by offsetting gains and losses on the underlying exposures with gains and losses on derivative financial instruments. The policy of the Company is to use financial instruments only to
the extent necessary to hedge identified business risks. The Company does not enter into such transactions for trading purposes. The Company generally does not require collateral or other security with other parties to these financial instruments
and is therefore subject to credit risk in the event of nonperformance; however, the Company does not anticipate nonperformance by other parties.



The Company performs an analysis for effectiveness of its financial instruments for each contract period based on the terms of the contract and the underlying item being
hedged. If at any time the derivative ceases to be highly effective, any change in fair value of the derivative is recorded as other income (loss) in the Consolidated Statement of Income (Loss).



Assets and liabilities designated as hedged items are assessed for impairment or for the need
to recognize an increased obligation, respectively, according to generally accepted accounting principles that apply to those assets or liabilities. Such assessments are made after hedge accounting has been applied to the asset or liability and
exclude a consideration of (1) any anticipated effects of hedge accounting and (2) the fair value of any related hedging instrument that is recognized as a separate asset or liability. The assessment for an impairment of an asset, however, includes
a consideration of the losses that have been deferred in other comprehensive income as a result of a cash flow hedge of that asset.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



22. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)



Cash Flow Hedges



The Company uses forward and swap contracts, which qualify as cash flow hedges, to manage forecasted exposure to foreign exchange and diesel
fuel and natural gas commodity price risk. The effective portion of the changes in the fair value of cash flow hedges is deferred in accumulated other comprehensive income (OCI) and is subsequently recognized in other income (loss) for
foreign exchange hedges, and in cost of sales for commodity hedges, when the hedged item impacts earnings. The Company excludes the time value component of derivatives on certain commodity hedges and recognizes those amounts in other income (loss).
The amounts recognized were not material in any year presented.



The Company
typically enters into financial instruments that mature within eighteen months. As of December 31, 2004, approximately $7 million of losses on financial instruments included in accumulated other comprehensive loss in the Consolidated Balance Sheet
will be recognized as charges against earnings during the next twelve months. Transactions and events that are expected to occur over the next twelve months that will necessitate recognizing the deferred losses as charges against earnings include
actual foreign currency denominated sales or purchases and, for commodity hedges, the recognition of the hedged item through earnings.



Summary of OCI Activity



The following table summarizes activity in OCI resulting from the Companys cash flow hedging activities for the years ended December 31, 2004 and 2003:



|                                      |  |                          |    |   |      |   |    |  
|------------------------------------- |  | ------------------------ | -- | - | ---- | - | -- | -
|                                      |  | 2004                     |    |   | 2003 |  
|                                      |  | (In millions of dollars) |   
|Beginning balance  gains/(losses)    |  | $                        | (2 | ) |      | $ |   |  
|Decrease in fair value of derivatives |  |                          | (2 | ) |      |   | (8 | )
|Reclassifications from OCI            |  |                          | (3 | ) |      |   | 6  |  
|                                      |  |                          |    |   |      |   |    |  
|Ending balance  gains/(losses)       |  | $                        | (7 | ) |      | $ | (2 | )
|                                      |  |                          |    |   |      |   |    |  



Fair Value Hedges



The Company uses forward and swap contracts, which qualify as fair value
hedges, to manage existing exposures to foreign exchange and interest rate risk related to items recorded on the Consolidated Balance Sheet. Gains and losses resulting from the changes in fair value of these instruments are recorded in other income
(loss), the effect of which was not material in any year presented. The fair value of these instruments, which are recorded as other current assets in the Consolidated Balance Sheet, was not material as of December 31, 2004 or 2003.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



22. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)



Other Financial Instruments with Off-Balance-Sheet Risk



As of December 31, 2004 and 2003, the Company was contingently liable for guarantees of
indebtedness owed by certain unconsolidated affiliates of approximately $2 million and $6 million, respectively. As of December 31, 2004 and 2003, approximately $1 million and $4 million, respectively, of such indebtedness was alleged to be in
default as a result of the Filing. Subject to the foregoing, the Company is of the opinion that its unconsolidated affiliates will be able to perform under their respective payment obligations in connection with such guaranteed indebtedness and that
no payments will be required and no losses will be incurred by the Company under such guarantees.



Concentrations of Credit Risk



As of December 31, 2004, one customer comprised more than 10% but less than 13% of our outstanding receivable balance. All receivables with this customer were current. As of December 31, 2003, the Company had no significant group
concentrations of credit risk.



Fair Value of Financial Instruments



The following methods and assumptions were used to determine the fair
value of each category of financial instruments:



Cash and
short-term financial instruments



The carrying amount
approximates fair value due to the short maturity of these instruments.



Restricted cash - asbestos and insurance related



The fair values of cash and marketable securities classified as restricted cash have been determined by traded market values or by obtaining quotations from brokers.



Restricted cash, securities and other - Fibreboard



The fair values of cash and marketable securities in the Fibreboard Settlement Trust have been determined by traded market
values or by obtaining quotations from brokers.



Long-term
notes receivable



The fair value has been calculated using
the expected future cash flows discounted at market interest rates.



Long-term debt



The fair value of the
Companys long-term debt that is not subject to compromise has been calculated based on quoted market prices for the same or similar issues, or on the current rates offered to the Company for debt of the same remaining maturities. The Company
is unable to estimate the fair value of long-term debt of the Debtors that is subject to compromise at December 31, 2004, due to the uncertainties associated with the Filing.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



22. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)



The Company believes that the fair values of financial instruments reasonably approximate the carrying amounts. These
financial instruments include long-term notes receivable of $12 million and $9 million as of December 31, 2004 and 2003, respectively, and long-term debt of $38 million and $73 million as of December 31, 2004 and 2003, respectively.



Fair Value of Derivative Financial Instruments



Foreign currency swaps and interest rate swaps



The fair values of foreign currency swaps and interest rate swaps have been
estimated by traded market values or by obtaining quotations from brokers.



Forward currency exchange contracts, option contracts, and financial guarantees



The fair values of forward currency exchange contracts, option contracts, and financial guarantees are based on the estimated cost to acquire similar
agreements or on the estimated cost to terminate these agreements or otherwise settle the obligations with the counter parties at the reporting date.



Diesel fuel and natural gas commodity contracts



The fair values of diesel fuel and natural gas commodity contracts are calculated based on traded market values.



The Companys estimates of fair value approximate carrying value for all derivative
financial instruments.



As of December 31, 2004 and 2003, the Company is
contingently liable for guarantees of indebtedness owed by certain unconsolidated affiliates. There is no market for these guarantees and they were issued without explicit cost. Therefore, establishing their fair value is not practicable.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



23. QUARTERLY FINANCIAL INFORMATION (unaudited)



|                                    |  |                                             |       |   |        |   |       |  |        |       |  |   |      
|----------------------------------- |  | ------------------------------------------- | ----- | - | ------ | - | ----- |  | ------ | ----- |  | - | -----
|                                    |  | Quarter                                    
|                                    |  | First                                       |       |   | Second |   | Third |  | Fourth
|                                    |  | (In millions of dollars, except share data)
|2004                                |  |                                             |       |   |        |   |       |  |        |       |  |   |      
|Net sales                           |  | $                                           | 1,209 |   |        | $ | 1,441 |  | $      | 1,541 |  | $ | 1,484
|Cost of sales                       |  |                                             | 1,037 |   |        |   | 1,178 |  |        | 1,244 |  |   | 1,190
|                                    |  |                                             |       |   |        |   |       |  |        |       |  |   |      
|Gross margin                        |  | $                                           | 172   |   |        | $ | 263   |  | $      | 297   |  | $ | 294  
|                                    |  |                                             |       |   |        |   |       |  |        |       |  |   |      
|Income from operations              |  | $                                           | 34    |   |        | $ | 94    |  | $      | 153   |  | $ | 146  
|                                    |  |                                             |       |   |        |   |       |  |        |       |  |   |      
|Income tax expense                  |  | $                                           | 27    |   |        | $ | 56    |  | $      | 71    |  | $ | 73   
|                                    |  |                                             |       |   |        |   |       |  |        |       |  |   |      
|Net income (loss)                   |  | $                                           | 5     |   |        | $ | 33    |  | $      | 94    |  | $ | 72   
|                                    |  |                                             |       |   |        |   |       |  |        |       |  |   |      
|Net income (loss) per share:        |  |                                             |       |   |        |   |       |  |        |       |  |   |      
|Basic net income (loss) per share   |  | $                                           | 0.09  |   |        | $ | 0.59  |  | $      | 1.70  |  | $ | 1.30 
|                                    |  |                                             |       |   |        |   |       |  |        |       |  |   |      
|Diluted net income (loss) per share |  | $                                           | 0.09  |   |        | $ | 0.55  |  | $      | 1.57  |  | $ | 1.20 
|                                    |  |                                             |       |   |        |   |       |  |        |       |  |   |      
|                                    | 
|                                    |  | Quarter                                    
|                                    |  | First                                       |       |   | Second |   | Third |  | Fourth
|                                    |  | (In millions of dollars, except share data)
|2003                                |  |                                             |       |   |        |   |       |  |        |       |  |   |      
|Net sales                           |  | $                                           | 1,133 |   |        | $ | 1,239 |  | $      | 1,349 |  | $ | 1,275
|Cost of sales                       |  |                                             | 974   |   |        |   | 1,024 |  |        | 1,127 |  |   | 1,045
|                                    |  |                                             |       |   |        |   |       |  |        |       |  |   |      
|Gross margin                        |  | $                                           | 159   |   |        | $ | 215   |  | $      | 222   |  | $ | 230  
|                                    |  |                                             |       |   |        |   |       |  |        |       |  |   |      
|Income from operations              |  | $                                           | 8     |   |        | $ | 43    |  | $      | 104   |  | $ | 112  
|                                    |  |                                             |       |   |        |   |       |  |        |       |  |   |      
|Income tax expense                  |  | $                                           | 2     |   |        | $ | 24    |  | $      | 47    |  | $ | 72   
|                                    |  |                                             |       |   |        |   |       |  |        |       |  |   |      
|Net income (loss)                   |  | $                                           | (1    | ) |        | $ | 18    |  | $      | 55    |  | $ | 43   
|                                    |  |                                             |       |   |        |   |       |  |        |       |  |   |      
|Net income (loss) per share:        |  |                                             |       |   |        |   |       |  |        |       |  |   |      
|Basic net income (loss) per share   |  | $                                           | (0.02 | ) |        | $ | 0.33  |  | $      | 0.99  |  | $ | 0.78 
|                                    |  |                                             |       |   |        |   |       |  |        |       |  |   |      
|Diluted net income (loss) per share |  | $                                           | (0.02 | ) |        | $ | 0.30  |  | $      | 0.92  |  | $ | 0.72 
|                                    |  |                                             |       |   |        |   |       |  |        |       |  |   |      



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



24. ACCOUNTING PRONOUNCEMENTS



Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets (SFAS No. 142), which it uses to account for goodwill and other intangible assets. SFAS No. 142 eliminates the amortization of goodwill and indefinite-lived intangible assets; identifiable intangible assets with a
determinable useful life will continue to be amortized. SFAS No. 142 requires an annual review for impairment using a fair value methodology. The impact of adoption of SFAS No. 142 resulted in a non-cash charge of $491 million ($441 million net of
tax). This charge was determined during the second quarter of 2002 and, as required by SFAS No. 142, was recorded as a cumulative effect of a change in accounting principle in the first quarter of 2002.



In December 2004, the Financial Accounting Standards Board issued a revised Statement of
Financial Accounting Standards No. 123, Share-Based Payment. This statement eliminates the intrinsic value method as an allowed method for valuing stock options granted to employees. Under the intrinsic value method, compensation expense
was generally not recognized for the issuance of stock options. The revised statement requires compensation expense to be recognized in exchange for the services received based on the fair value of the equity instruments on the grant-date. This
statement becomes effective for the Company as of July 1, 2005. The effect of adoption of this statement is not expected to be material.



In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 151, Inventory Costs - an amendment of ARB No. 43,
Chapter 4 (SFAS No. 151). SFAS No. 151 amends the guidance in ARB No. 43 and clarifies accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). The statement requires that
certain items that may have previously been included in inventory costs be recognized as current-period charges regardless of whether they meet the criterion of so abnormal. SFAS No. 151 also requires allocation of fixed manufacturing
overheads to the costs of conversion based on the normal capacity of the manufacturing facilities. This statement becomes effective for the Company as of January 1, 2006. The effect of adoption of this statement is not expected to be material.



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INDEX TO FINANCIAL STATEMENT SCHEDULE



|       |  |                                                                                                        |  |     
|------ |  | ------------------------------------------------------------------------------------------------------ |  | ----
|Number |  | Description                                                                                            |  | Page
|       |  |                                                                                                       
|II     |  | Valuation and Qualifying Accounts and Reserves - for the years ended December 31, 2004, 2003, and 2002 |  | 156 



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OWENS CORNING AND SUBSIDIARIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002



|                                                    |  |                             |       |                            |   |     |                         |  |   |            |   |  |                       |    |     |  |   |      
|--------------------------------------------------- |  | --------------------------- | ----- | -------------------------- | - | --- | ----------------------- |  | - | ---------- | - |  | --------------------- | -- | --- |  | - | -----
|                                                    |  |                             |       | Additions                  |   |     |                         |  |   |           
|Classification                                      |  | BalanceatBeginningof Period |       | Chargedto CostsandExpenses |   |     | Chargedto OtherAccounts |  |   | Deductions |   |  | Balanceat EndofPeriod
|                                                    |  | (In millions of dollars)   
|FOR THE YEAR ENDED DECEMBER 31, 2004:               |  |                             |       |                            |   |     |                         |  |   |            |   |  |                       |    |     |  |   |      
|Allowance deducted from asset to which it applies - |  |                             |       |                            |   |     |                         |  |   |            |   |  |                       |    |     |  |   |      
|Doubtful accounts                                   |  | $                           | 19    |                            | $ | 5   |                         |  | $ |           |   |  | $                     | 6  | (A) |  | $ | 18   
|Tax valuation allowance                             |  |                             | 1,000 |                            |   | 16  |                         |  |   |           |   |  |                       | 21 |     |  | $ | 995  
|FOR THE YEAR ENDED DECEMBER 31, 2003:               |  |                             |       |                            |   |     |                         |  |   |            |   |  |                       |    |     |  |   |      
|Allowance deducted from asset to which it applies - |  |                             |       |                            |   |     |                         |  |   |            |   |  |                       |    |     |  |   |      
|Doubtful accounts                                   |  | $                           | 29    |                            | $ | (4  | )                       |  | $ | (2         | ) |  | $                     | 4  | (A) |  | $ | 19   
|Tax valuation allowance                             |  |                             | 998   |                            |   | 2   |                         |  |   |           |   |  |                       |   |     |  |   | 1,000
|FOR THE YEAR ENDED DECEMBER 31, 2002:               |  |                             |       |                            |   |     |                         |  |   |            |   |  |                       |    |     |  |   |      
|Allowance deducted from asset to which it applies - |  |                             |       |                            |   |     |                         |  |   |            |   |  |                       |    |     |  |   |      
|Doubtful accounts                                   |  | $                           | 29    |                            | $ | 3   |                         |  | $ |           |   |  | $                     | 3  | (A) |  | $ | 29   
|Tax valuation allowance                             |  |                             | 81    |                            |   | 917 |                         |  |   |           |   |  |                       |   |     |  |   | 998  



Notes:



|(A) | Uncollectible accounts written off, net of recoveries.
|--- | ------------------------------------------------------



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EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                                                                                                                                           
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Document Description                                                                                                                                                                                                                                                                                                                                      
|              | 
|(2)           |  | Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession.                                                                                                                                                                                                                                                                              
|              | 
|              |  | Bonds/Trade Term Sheet, dated as of June 3, 2004 (incorporated herein by reference to Exhibit (2) to Owens Cornings quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended
June 30, 2004).                                                                                                                                                
|              | 
|              |  | 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 ended December 31, 1999).                                                                                                                                                      



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EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Document Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|              | 
|(4)           |  | Instruments Defining the Rights of Security Holders, Including Indentures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|              | 
|              |  | Post-Petition Credit Agreement, dated as of December 8, 2000, among Owens Corning and the subsidiaries of Owens Corning named therein, the financial institutions named therein, and Bank of
America, N.A., as Agent (incorporated herein by reference to Exhibit (4) to Owens Cornings annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 2000), as amended by First Amendment to Post-Petition Credit Agreement,
dated as of October 31, 2002 (incorporated herein by reference to Exhibit (4) to Owens Cornings annual report on Form 10-K (file No. 1-3660) for the year ended December 31, 2002), as amended by Second Amendment to Post-Petition Credit
Agreement, dated as of September 20, 2004 (incorporated herein by reference to Exhibit 4 to Owens Cornings current report on Form 8-K (file No. 1-3660), filed November 1, 2004).
|              | 
|              |  | Bonds/Trade Term Sheet, dated as of June 3, 2004 (incorporated herein by reference to Exhibit (2) to Owens Cornings quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended
June 30, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|              | 
|              |  | 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).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 



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EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Document Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|              | 
|              |  | Standstill and Waiver Agreement among Owens Corning, certain affiliates of Owens Corning, Credit Suisse First Boston, and certain bank lenders (incorporated herein by reference to Exhibit
(99) to Owens Cornings quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 2001), as amended by Amendment No. 1 thereto, dated as of November 25, 2002 (incorporated herein by reference to Exhibit (4) to Owens
Cornings annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 2002).                                                                                                                                                                                    
|              | 
|              |  | Final Order Under 11 U.S.C. §§ 105, 345(b) and 363 (I) Authorizing (A) Maintenance of Certain Existing Bank Accounts, (B) Continued Use of Existing Business Forms, (C) Use of
Modified Cash Management System, and (D) Transfers of Funds to Debtor and Non-Debtor Affiliates; and (II) Waiving Investment and Deposit Requirements of 11 U.S.C. § 345(b) (incorporated herein by reference to Exhibit (4) to Owens Cornings
annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 2001).                                                                                                                                                                                                        
|              | 
|              |  | The following documents are incorporated herein by reference to Exhibit (4) to Owens Cornings annual report on Form 10-K (File No. 1-3660) for the year ended December 31,
2000:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|              | 
|              |  | -        License Agreement, made as of October 1, 1991, between Owens Corning and Owens-Corning
Fiberglas Technology Inc., and Amendment thereto, dated as of December 8, 1993.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|              | 
|              |  | -        Standstill Agreement, dated as of January 30, 2001, between Owens Corning and
Owens-Corning Fiberglas Technology Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|              | 
|              |  | -        License Agreement, made as of April 27, 1999, between Owens-Corning Fiberglas Technology
Inc. and AmeriMark Building Products, Inc. (now Exterior Systems, Inc.).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|              | 
|              |  | -        Standstill Agreement, dated as of January 30, 2001, between Exterior Systems, Inc. and
Owens-Corning Fiberglas Technology Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|              | 
|              |  | Indenture, dated as of May 5, 1997, between Owens Corning and The Bank of New York, as Trustee (incorporated herein by reference to Exhibit 4.5.1 to Owens Cornings current report on
Form 8-K (File No. 1-3660), filed May 14, 1997).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|              | 
|              |  | Credit Agreement, dated as of June 26, 1997, among Owens Corning, other Borrowers and Guarantors, the Banks listed on Annex A thereto, and Credit Suisse First Boston, as Agent (incorporated
herein by reference to Exhibit (4) to Owens Cornings quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 1997), as amended by Amendment No. 1 thereto (incorporated herein by reference to Exhibit (4) to Owens
Cornings annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1997) and Amendment No. 2 thereto (incorporated herein by reference to Exhibit (4) to Owens Cornings annual report on Form 10-K (File No. 1-3660) for
the year ended December 31, 1998).
|              | 
|              |  | Owens Corning agrees to furnish to the Securities and Exchange Commission, upon request, copies of all instruments defining the rights of holders of long-term debt of Owens Corning where the
total amount of securities authorized under each issue does not exceed ten percent of Owens Cornings total assets.                                                                                                                                                                                                                                                                                                                                                                                                        



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|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Document Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|              | 
|(10)          |  | Material Contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|              | 
|              |  | Post-Petition Credit Agreement, dated as of December 8, 2000, among Owens Corning and the subsidiaries of Owens Corning named therein, the financial institutions named therein, and Bank of
America, N.A., as Agent (incorporated herein by reference to Exhibit (4) to Owens Cornings annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 2000), as amended by First Amendment to Post-Petition Credit Agreement,
dated as of October 31, 2002 (incorporated herein by reference to Exhibit (4) to Owens Cornings annual report on Form 10-K (file No. 1-3660) for the year ended December 31, 2002), as amended by Second Amendment to Post-Petition Credit
Agreement, dated as of September 20, 2004 (incorporated herein by reference to Exhibit 4 to Owens Cornings current report on Form 8-K (file No. 1-3660), filed November 1, 2004).
|              | 
|              |  | Standstill and Waiver Agreement among Owens Corning, certain affiliates of Owens Corning, Credit Suisse First Boston, and certain bank lenders (incorporated herein by reference to Exhibit
(99) to Owens Cornings quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 2001), as amended by Amendment No. 1 thereto, dated as of November 25, 2002 (incorporated herein by reference to Exhibit (4) to Owens
Cornings annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 2002).                                                                                                                                                                                                                                                                                                                                      
|              | 
|              |  | The following documents are incorporated herein by reference to Exhibit (4) to Owens Cornings annual report on Form 10-K (File No. 1-3660) for the year ended December 31,
2000:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|              | 
|              |  | -        License Agreement, made as of October 1, 1991, between Owens Corning and Owens-Corning
Fiberglas Technology Inc. and Amendment thereto, dated as of December 8, 1993.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|              | 
|              |  | -        Standstill Agreement, dated as of January 30, 2001, between Owens Corning and
Owens-Corning Fiberglas Technology Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|              | 
|              |  | -        License Agreement, made as of April 27, 1999, between Owens-Corning Fiberglas Technology
Inc. and AmeriMark Building Products, Inc. (now Exterior Systems, Inc.).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|              | 
|              |  | -        Standstill Agreement, dated as of January 30, 2001, between Exterior Systems, Inc. and
Owens-Corning Fiberglas Technology Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|              | 
|              |  | Credit Agreement, dated as of June 26, 1997, among Owens Corning, other Borrowers and Guarantors, the Banks listed on Annex A thereto, and Credit Suisse First Boston, as Agent (incorporated
herein by reference to Exhibit (4) to Owens Cornings quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 1997), as amended by Amendment No. 1 thereto (incorporated herein by reference to Exhibit (4) to Owens
Cornings annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1997) and Amendment No. 2 thereto (incorporated herein by reference to Exhibit (4) to Owens Cornings annual report on Form 10-K (File No. 1-3660) for
the year ended December 31, 1998).                                                                                                                                                  



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|              |  |                                                                                                                                                                                                                                                    
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Document Description                                                                                                                                                                                                                               
|              | 
|              |  | *  Key Management Severance Agreement with Joseph C. High (filed herewith).                                                                                                                                                                        
|              | 
|              |  | *  Owens Corning Key Employee Retention Incentive plan (2005) (incorporated herein by reference to Exhibit (10) to Owens
Cornings current report on Form 8-K (File No. 1-3660), filed February 23, 2005).                                         
|              | 
|              |  | *  Standard Retainer/Meeting Fee Arrangement for Non-Employee Directors, as amended (incorporated herein by reference to Exhibit
(10) to Owens Cornings quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended September 30, 2004).
|              | 
|              |  | *  Owens Corning Key Employee Retention Incentive Plan (2004) (incorporated herein by reference to Exhibit (10) to Owens
Cornings quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 2004).                           
|              | 
|              |  | The following documents are incorporated herein by reference to Exhibit (10) to Owens Cornings annual report on Form 10-K (File No. 1-3660) for the year ended December 31,
2003:                                                                 
|              | 
|              |  | *    -    Key Management Severance Agreement with Charles E. Dana.                                                                                                                                                                                 
|              | 
|              |  | *    -    Agreement with Charles E. Dana.                                                                                                                                                                                                          
|              | 
|              |  | *  Owens Corning Long Term Incentive Plan (incorporated herein by reference to Exhibit (10) to Owens Cornings quarterly
report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 2003).                                               
|              | 
|              |  | *  Executive Supplemental Benefit Plan, as amended (incorporated herein by reference to Exhibit (10) to Owens Cornings
quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended March 31, 2003).                                     
|              | 
|              |  | The following documents are incorporated herein by reference to Exhibit (10) to Owens Cornings annual report on Form 10-K (File No. 1-3660) for the year ended December 31,
2002:                                                                 
|              | 
|              |  | *    -    Key Management Severance Agreement with George E. Kiemle.                                                                                                                                                                                
|              | 
|              |  | *    -    Owens Corning 1995 Stock Plan.                                                                                                                                                                                                           



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|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Document Description                                                                                                                                                                                                                                                                                                                                                                                                                       
|              | 
|              |  | *  Directors Charitable Award Program, as amended (incorporated herein by reference to Exhibit (10) to Owens Cornings
annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 2001).                                                                                                                                                                                                                                
|              | 
|              |  | *  Key Management Severance Agreement with Michael H. Thaman (incorporated herein by reference to Exhibit (10) to Owens
Cornings annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 2000).                                                                                                                                                                                                                      
|              | 
|              |  | *  Key Management Severance Agreement with David T. Brown (incorporated herein by reference to Exhibit (10) to Owens
Cornings annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1999).                                                                                                                                                                                                                         
|              | 
|              |  | *  Corporate Incentive Plan Terms Applicable to Key Employees Other Than Certain Executive Officers (incorporated herein by
reference to Exhibit (10) to Owens Cornings quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 1999).                                                                                                                                                                             
|              | 
|              |  | The following documents are incorporated herein by reference to Exhibit (10) to Owens Cornings quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended March 31,
1999:                                                                                                                                                                                                                                                      
|              | 
|              |  | *    -    Owens Corning Deferred Compensation Plan.                                                                                                                                                                                                                                                                                                                                                                                        
|              | 
|              |  | *    -    Corporate Incentive Plan Terms Applicable to Certain Executive Officers.                                                                                                                                                                                                                                                                                                                                                         
|              | 
|              |  | *  Stock Performance Incentive Plan, as amended (incorporated herein by reference to Exhibit (10) to Owens Cornings annual
report on Form 10-K (File No. 1-3660) for the year ended December 31, 1998).                                                                                                                                                                                                                                   
|              | 
|              |  | *  Owens Corning Supplemental Executive Retirement Plan, effective as of January 1, 1998 (incorporated herein by reference to
Exhibit (10) to Owens Cornings quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 1998).                                                                                                                                                                                        
|              | 
|              |  | *  1987 Stock Plan for Directors, as amended (incorporated herein by reference to Exhibit (10) to Owens Cornings quarterly
report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 1997), as amended per Description of Amendment of 1987 Stock Plan For Directors (incorporated herein by reference to Exhibit (10) to Owens Cornings quarterly report on Form
10-Q (File No. 1-3660) for the quarter ended June 30, 2002).
|              | 
|              |  | *  Form of Directors Indemnification Agreement (incorporated herein by reference to Exhibit (10) to Owens Cornings
annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1989).                                                                                                                                                                                                                                   



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EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                                                                                                                              
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Document Description                                                                                                                                                                                                                                                                                                                         
|              | 
|              |  | *  Deferred Compensation Plan for Directors, as amended (incorporated herein by reference to Exhibit (10) to Owens Cornings
annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1987).                                                                                                                             
|              | 
|(14)          |  | Code of Ethics.                                                                                                                                                                                                                                                                                                                              
|              | 
|              |  | Ethics Policy for Chief Executive and Senior Financial Officers (incorporated herein by reference to Exhibit (14) to Owens Cornings annual report on Form 10-K (File No. 1-3660) for the
year ended December 31, 2003).                                                                                                                     
|              | 
|(21)          |  | Subsidiaries of Owens Corning (filed herewith).                                                                                                                                                                                                                                                                                              
|              | 
|(23)          |  | Consent of PricewaterhouseCoopers LLP (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)          |  | Additional Exhibits                                                                                                                                                                                                                                                                                                                          
|              | 
|              |  | Interim Order Pursuant to Sections 105(a), 362(a)(3) and 541 of the Bankruptcy Code (A) Limiting Certain Transfers of Equity Securities of the Debtors and (B) Approving Related Notice
Procedures (incorporated herein by reference to Exhibit (99.1) to Owens Cornings current report on Form 8-K (File No. 1-3660), filed March 3, 2005).
|              | 
|              |  | *  Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Form
10-K.