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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, 2005



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 Identificatin No. 34-4323452



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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



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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes ̈No  x



Indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.    Yes ̈No  x



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 a large accelerated filer, an accelerated filer, or a non-accelerated filer.

Large accelerated
Filer ̈Accelerated Filer  x                             Non-Accelerated Filer ̈



Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the act).

|Yes ̈No  x | 
|--------- | 



On June 30, 2005, 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 $201,997,442 (assuming for purposes of this computation only that the Registrant had no affiliates).



At January 31, 2006, there were outstanding 55,340,432 shares of Registrants $.10 par value common stock.



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##### Table of Contents

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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 1A.   |  | Risk Factors                                                                                                    |  | 7 - 10 
|           |  |                                                                                                                
|Item 1B.   |  | Unresolved Staff Comments                                                                                       |  | 10     
|           |  |                                                                                                                
|Item 2.    |  | Properties                                                                                                      |  |        
|           |  | Plants                                                                                                          |  | 11     
|           |  | Building Materials Systems Segment                                                                              |  | 11 - 12
|           |  | Composite Solutions Segment                                                                                     |  | 13     
|           |  | Other Properties                                                                                                |  | 13     
|           |  |                                                                                                                
|Item 3.    |  | Legal Proceedings                                                                                               |  | 14 - 17
|           |  |                                                                                                                
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                             |  | 17     
|           |  |                                                                                                                
|           |  | Executive Officers of Owens Corning                                                                             |  | 18 - 19
|           |  |                                                                                                                
|PART II    |  |                                                                                                                 |  |        
|           |  |                                                                                                                
|Item 5.    |  | Market for Owens Cornings Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 20 - 22
|           |  |                                                                                                                
|Item 6.    |  | Selected Financial Data                                                                                         |  | 23 - 24
|           |  |                                                                                                                
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                           |  | 25 - 54
|           |  |                                                                                                                
|Item 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                                                      |  | 55 - 56
|           |  |                                                                                                                
|Item 8.    |  | Financial Statements and Supplementary Data                                                                     |  | 56     
|           |  |                                                                                                                
|Item 9.    |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                            |  | 56     
|           |  |                                                                                                                
|Item 9A.   |  | Controls and Procedures                                                                                         |  | 57     
|           |  |                                                                                                                
|Item 9B.   |  | Other Information                                                                                               |  | 57     



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(ii)



|                                                                 |  |                                                                                                |  |        
|---------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------- |  | -------
|                                                                 |  |                                                                                                |  | Page   
|PART III                                                         |  |                                                                                                |  |        
|                                                                 |  |                                                                                               
|Item 10.                                                         |  | Directors and Executive Officers of Owens Corning                                              |  | 58 - 62
|                                                                 |  |                                                                                               
|Item 11.                                                         |  | Executive Compensation                                                                         |  | 62 - 68
|                                                                 |  |                                                                                               
|Item 12.                                                         |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |  | 68 - 70
|                                                                 |  |                                                                                               
|Item 13.                                                         |  | Certain Relationships and Related Transactions                                                 |  | 70     
|                                                                 |  |                                                                                               
|PART IV                                                          |  |                                                                                                |  |        
|                                                                 |  |                                                                                               
|Item 14.                                                         |  | Principal Accountant Fees and Services                                                         |  | 71     
|                                                                 |  |                                                                                               
|Item 15.                                                         |  | Exhibits and Financial Statement Schedules                                                     |  | 71     
|                                                                 |  |                                                                                               
|Signatures                                                       |  |                                                                                                |  | 72     
|                                                                 | 
|Index to Consolidated Financial Statements                       |  | 73                                                                                            
|Managements Report on Internal Control Over Financial Reporting |  | 74                                                                                            
|Report of Registered Independent Public Accounting Firm          |  | 75 - 76                                                                                       
|Consolidated Financial Statements                                |  | 77-158                                                                                        
|                                                                 | 
|Index to Consolidated Financial Statement Schedule               |  | 159                                                                                           
|Schedule II                                                      |  | 160                                                                                           
|                                                                 | 
|Exhibit Index                                                    |  | 161 - 167                                                                                     



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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, located at www.owenscorning.com, provides information on our business and products, and assists our customers in various building projects. 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 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 (the Fourth Amended Plan) in the USBC on October 24, 2003.



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ITEM 1. BUSINESS (continued)



On December 31, 2005, the Debtors, together with the Official Committee of Asbestos Claimants and the Legal
Representative for the class of future asbestos claimants, filed a proposed fifth amended joint plan of reorganization (as so amended through such fifth amendment, the Plan) in the USBC along with a related disclosure statement (the
Disclosure Statement). The steering committee of holders of obligations under Owens Cornings primary pre-petition bank credit facility (the Pre-Petition Credit Facility) supports the Plan pursuant to the terms of the
letter, dated December 30, 2005, appended to the Disclosure Statement as Appendix K. The Plan (and any other plan of reorganization) is subject to confirmation by the Bankruptcy Court.



The Plan has been significantly amended from the Fourth Amended Plan. In particular, the Plan
is no longer 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.



The Plan contemplates that most classes of pre-petition unsecured creditors of Owens Corning will be impaired. Therefore, the Plan 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.



The USBC has set July 10, 17 and 18, 2006 as hearing dates on the confirmation of the Plan. At this time, Owens Corning is unable to
predict the outcome of the hearing on the confirmation of the Plan or the final terms of the Plan (or other plan of reorganization) as may ultimately be confirmed. The Plan is discussed in greater detail in Note 1 to the Consolidated Financial
Statements.



BUSINESS DESCRIPTION



Owens Corning has two reportable segments - Building Materials Systems and Composite
Solutions. In 2005, 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 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. However, sales, earnings and assets are included if we own more than 50% of the affiliate and the ownership is not considered temporary.



Note 3 to the Consolidated Financial Statements contains information regarding revenue from external customers and total assets attributable to each of Owens
Cornings reportable segments and geographic regions, income from operations for each of Owens Cornings reportable segments, and information concerning the dependence of our reportable segments on foreign operations, for each of the years
2005, 2004, and 2003.



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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, housewrap, and vinyl siding and accessories primarily 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
fabricators, manufactured housing producers, and appliance 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. Some of our Building Materials products are also sold through the Companys
retail distribution centers.



Owens Corning sells asphalt products used
internally to manufacture residential roofing products to other roofing 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.



In Latin
America, Owens Corning sells exports from U.S. plants and sells building and mechanical insulation primarily through Vitro-Fibras, S.A. (OC Mexico). In Asia Pacific, we sell primarily 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 7% of the segments sales in 2005.



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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. In addition to providing basic glass reinforcement materials, we are increasingly fabricating more specialized composite systems that are designed for a particular
end-use application, and entail a material, a proprietary process or a fully assembled part or system. The global composites industry has many such end-use applications, and Owens Corning has selected strategic markets and end-users where we provide
integral solutions, such as the building construction and transportation markets.



Within the building construction market, Owens Corning sells glass fiber and/or mat directly to a small number of major shingle manufacturers, including its own roofing business. 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 provides materials for use in 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 7% of the segments sales in 2005.



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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 1,300 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 20,000 employees during 2005 and had approximately 20,000 employees at December 31, 2005.



Research and Development



During 2005, 2004,
and 2003, Owens Corning spent approximately $58 million, $47 million, and $43 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 $6 million in 2005. We currently estimate that such capital expenditures will be approximately $11 million in 2006 and $4 million in 2007.



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 $47 million in 2005. 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.



ITEM 1A. RISK FACTORS



Based on the
current terms of our Plan, we expect our existing shareholders investment to be extinguished.



If our currently proposed Plan is confirmed and implemented, existing common stock will be cancelled and current shareholders will receive no distribution or other consideration in exchange for their shares.



Operating in bankruptcy imposes significant risks on our operations. We
cannot predict when we will confirm a plan of reorganization and successfully emerge from bankruptcy.



We have been unable to formulate a plan of reorganization in our Chapter 11 bankruptcy proceeding that all of our creditors have supported and are not certain about when we will emerge from bankruptcy. The timing of
our emergence from bankruptcy and the terms of our emergence may affect our relationships with our creditors, customers, suppliers and employees and have a significant impact on our business, financial condition and results of operations. Our
ability to continue operating in bankruptcy as a going concern and to emerge from bankruptcy will depend upon the following factors, among others:



| |  |  | possible government legislation;
| | - |  | --------------------------------



| |  |  | the actual cost of asbestos liabilities;
| | - |  | ----------------------------------------



| |  |  | our ability to reach agreement with our creditors regarding a plan of reorganization or otherwise to cramdown a plan in order to emerge from bankruptcy;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



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ITEM 1A. RISK FACTORS (continued)



| |  |  | our ability to comply with and operate under the terms of the debtor-in-possession financing we obtained upon filing for bankruptcy and any cash management orders entered by the
bankruptcy court from time to time, which subject the debtor entities to restrictions, including restrictions on paying dividends and transferring cash and other assets;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to maintain adequate debtor-in-possession financing and cash on hand and to generate cash from operations;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | the ability of our non-debtor subsidiaries to obtain necessary financing;
| | - |  | -------------------------------------------------------------------------



| |  |  | our ability to obtain exit financing sufficient to fund emergence and to fund our operations after emergence from the bankruptcy process on reasonable terms;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to retain key employees; and
| | - |  | ----------------------------------------



| |  |  | our ability to maintain good customer and supplier relationships in light of developments in our bankruptcy proceedings and the terms of our emergence.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



For further information regarding our asbestos liability and the status of our Chapter 11
proceedings, please see the Voluntary Petition for Relief Under Chapter 11 section in Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-K.



Our results of operations will be negatively impacted by any downturns in residential and
commercial construction activity.



A significant portion of our products
are used in the residential and commercial construction, repair and improvement markets. Construction activity has historically been cyclical and is influenced by prevailing economic conditions, including employment levels, availability of
financing, interest rates and consumer confidence. We cannot predict and plan for the effects of changes in those conditions with certainty. Any deterioration in those conditions can lower the demand for and pricing of our products and cause our net
sales and net income to decrease.



We are exposed to increases in energy,
materials and delivery costs which could reduce our margins and harm our results of operations, and our hedging activities may not be successful in offsetting future increases in those costs.



Our business relies heavily on certain commodities and raw materials used in our
manufacturing and distribution processes, such as energy related commodities (including natural gas), asphalt, PVC, polystyrene and diesel fuel. Price increases for these inputs could reduce our margins if we are not able to offset them. For
example, we estimate that a $1 increase in the cost of natural gas per million British thermal units would increase our annual operating expense by approximately $22 million. Historically, on a long term basis, we have been able to increase the
selling prices of products that we manufacture in order to recover energy and material cost inflation, but we cannot be certain that we will be able to do so in the future. In order to mitigate short-term variation in our operating results due to
commodity price fluctuation, we partially hedge a variable portion of our near term exposure to the cost of energy and some energy related commodities. Under the recent environment of rising commodity prices, our hedging activities have served to
partially offset our increased energy costs. Going forward, the results of our hedging practice could be positive, neutral or negative in any period depending on price changes in the hedged exposures. In particular, should commodity prices
stabilize, the benefits experienced from our hedging program during 2005 will decrease over time, and should commodity prices decline, our hedging instruments could adversely impact our margins and cost position compared to the market, thereby
adversely impacting our results of operations and financial condition. In addition, our hedging activities are not designed to mitigate against long-term commodity price fluctuations and, therefore, will not protect us from long-term commodity price
increases.



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ITEM 1A. RISK FACTORS (continued)



Failure to achieve planned productivity gains could reduce margins and harm our results of operations.



We target annual productivity gains to assist in offsetting the effects
of inflation and in achieving planned results. If we cannot achieve targeted productivity gains, our margins, results of operations, and financial condition could be adversely affected.



We could face potential product liability or warranty claims relating to products we manufacture, and we may not have sufficient
insurance coverage available to cover all potential claims.



We face an
inherent business risk of exposure to product liability claims in the event that the use of our products is alleged to have resulted in harm to others or to property. Aside from existing asbestos-related claims which will be resolved through our
bankruptcy proceedings, we may in the future incur liability if other product liability lawsuits against us are successful. Moreover, any such lawsuits, whether or not successful, could result in adverse publicity to us, which could cause our sales
to decline. In addition, consistent with industry practice, we provide warranties on many of our products and we may experience costs of warranty claims if our products have defects in manufacture or design. We estimate our future warranty costs
based on historical trends and product sales, but we may fail to accurately estimate those costs and thereby fail to establish adequate warranty reserves for them. We maintain insurance coverage to protect us against product liability and warranty
claims, but that coverage may not be adequate to cover all claims that may arise or we may not be able to maintain adequate insurance coverage in the future at an acceptable cost. Any liability not covered by insurance or that exceeds our
established reserves could materially and adversely affect our results of operations and financial condition.



Increases in the cost of labor, union organizing activity and work stoppages at our facilities could delay or impede our production, reduce sales of our products and increase our costs.



Currently, a portion of our employees are represented by labor unions. We are subject to the
risk that strikes or other types of conflicts with personnel may arise or that we may become the subject of union organizing activity at additional facilities. In particular, renewal of collective labor agreements typically involves negotiation,
with the potential for work stoppages at affected plants. Any interruption in the production of our products could reduce sales of our products and increase our costs. We also may not be able to renew our labor agreements on terms that are favorable
to us, which could result in increased labor costs and adversely affect our results of operations and financial condition.



We face competition in the markets we serve. If we are unable to compete successfully, we could lose customers and our sales could decline.



All of the markets we serve are highly competitive. We compete with manufacturers, both
within and outside the United States, in the sale of glass fibers and glass fiber products. We also compete with other manufacturers in the sale of roofing materials, industrial asphalts, vinyl siding, windows and patio doors and other products.
Market competition or overcapacity may limit our ability to raise prices for our products when necessary, and may also result in reduced levels of demand for our products. The loss of customers and pricing pressures caused by such competition or
overcapacity could reduce the sales of our products and our revenues, thereby adversely affecting our results of operations and financial condition.



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ITEM 1A. RISK FACTORS (continued)



We may be subject to liability under and may make substantial future expenditures to comply with environmental
laws and regulations.



Our manufacturing facilities are subject to
numerous foreign, federal, state and local laws and regulations relating to the presence of hazardous materials, pollution and the protection of the environment, including those governing emissions to air, discharges to water, use, storage and
transport of hazardous materials, storage, treatment and disposal of waste, remediation of contaminated sites and protection of worker health and safety. Liability under these laws involves inherent uncertainties. Violations of environmental, health
and safety laws are subject to civil, and, in some cases, criminal sanctions. As a result of these uncertainties, we may incur unexpected interruptions to operations, fines, penalties or other reductions in income which would negatively impact our
financial condition and results of operations. Continued government and public emphasis on environmental issues can be expected to result in increased future investments for environmental controls at ongoing operations, which will be charged against
income from future operations. Present and future environmental laws and regulations applicable to our operations, and changes in their interpretation, may require substantial capital expenditures or may require or cause us to modify or curtail our
operations, which may have a material adverse effect on our business, financial condition and results of operations.



We are subject to risks associated with our international operations.



We sell products and operate plants throughout the world. Our international sales and operations are subject to risks and uncertainties, including:



| |  |  | possible government legislation;
| | - |  | --------------------------------



| |  |  | difficulties and costs associated with complying with a wide variety of complex laws, treaties and regulations;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | unexpected changes in regulatory environments;
| | - |  | ----------------------------------------------



| |  |  | economic and political conditions;
| | - |  | ----------------------------------



| |  |  | tax rates that may exceed those in the United States;
| | - |  | -----------------------------------------------------



| |  |  | tax inefficiencies and currency exchange controls that may adversely affect our ability to repatriate cash from non-United States subsidiaries;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the imposition of tariffs or other import or export restrictions;
| | - |  | -----------------------------------------------------------------



| |  |  | nationalization of properties by foreign governments; and
| | - |  | ---------------------------------------------------------



| |  |  | currency exchange rate fluctuations between the United States dollar and foreign currencies, as discussed in Quantitative and Qualitative Disclosures About Market
RiskForeign Exchange Rate Risk.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As we continue to
expand our business globally, we may have difficulty anticipating and effectively managing these and other risks that our international operations may face.



ITEM 1B. UNRESOLVED STAFF COMMENTS



Owens Corning has nothing to report under this item.



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ITEM 2. PROPERTIES



PLANTS



Owens Cornings principal plants,
and certain other facilities, as of December 31, 2005, 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 5, 2006, 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       |  | Ridgeview, South Carolina (1)
|Fairburn, Georgia   |  | Salt Lake City, Utah         
|Kansas City, Kansas |  | Santa Clara, California      
|Waxahachie, Texas   |  |                              
|                    | 
|Anshan, China       |  | Mexico City, Mexico          
|Candiac, Canada     |  | Scarborough, Canada          
|Edmonton, Canada    |  | Shanghai, China              
|Guangzhou, China    |  |                              

---

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



Foam Insulation



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

---

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



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



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ITEM 2. PROPERTIES (continued)



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

---

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

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



Manufactured Stone Veneer



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

---

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



Vinyl Siding



|                          |  |                          
|------------------------- |  | -------------------------
|Claremont, North Carolina |  | Olive Branch, Mississippi
|Joplin, Missouri          |  |                          
|                          | 
|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.



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ITEM 2. PROPERTIES (continued)



COMPOSITE SOLUTIONS



Glass Mat/Wet Chop



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



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   |  | Riverside, California (1)
|Nappanee, Indiana |  |                          

---

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



Automotive



|                              |  |                         
|----------------------------- |  | ------------------------
|Lancaster, United Kingdom (1) |  | Louisville, Kentucky (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, all of 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 (the Official Committee of Asbestos Claimants) and the other representing unsecured
creditors (the Official Committee of Unsecured Creditors), have been appointed as official committees in the Chapter 11 Cases. In addition, the



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ITEM 3. LEGAL PROCEEDINGS (continued)



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 Petition Date will be resolved under the Plan (as defined below) or some other
Chapter 11 plan of reorganization to be 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 (the Fourth Amended
Plan) in the USBC on October 24, 2003.



On December 31, 2005,
the Debtors, together with the Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants, filed a proposed fifth amended joint plan of reorganization (as so amended through such fifth amendment,
the Plan) in the USBC along with a related disclosure statement (the Disclosure Statement). The steering committee of holders of obligations under the Pre-Petition Credit Facility supports the Plan pursuant to the terms of
the letter, dated December 30, 2005, appended as Appendix K to the Disclosure Statement. Certain other members of the major non-asbestos creditor groups have indicated that they may oppose the Plan. There can be no assurance that the Plan or
any other plan supported by Owens Corning and less than all of the major creditor groups will be ultimately confirmed by the Bankruptcy Court and consummated. The Debtors have the exclusive right to file and solicit acceptances to a plan of
reorganization through July 31, 2006. The Plan (and any other plan of reorganization) is subject to confirmation by the Bankruptcy Court.



The Plan has been significantly amended from the Fourth Amended Plan. In particular, the Plan is no longer 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. On October 5, 2004, the District Court issued a Memorandum and Order Concerning Substantive Consolidation (the Substantive Consolidation
Order). In the Substantive Consolidation Order, the District Court granted the Debtors motion for substantive consolidation. On October 13, 2004, the holders of the debt under the Pre-Petition Credit Facility filed an appeal of the
Substantive Consolidation Order with the Third Circuit. On August 15, 2005, the Third Circuit reversed the Substantive Consolidation Order. The Legal Representative for the class of future asbestos personal injury claimants and certain
designated members of the Official Committee of Unsecured Creditors subsequently filed petitions for rehearing en banc of the Third Circuits decision. Those petitions for rehearing were denied by the Third Circuit on September 28, 2005.
The Legal Representative for the class of future asbestos personal injury claimants and certain bondholders have filed petitions for certiorari with the United States Supreme Court with respect to the Third Circuits decision on the Substantive
Consolidation Order.



A six-day claims estimation hearing was held before the
District Court beginning January 13, 2005 to establish the amount of Owens Cornings and Fibreboards current and future asbestos liability in the Chapter 11 Cases. In general, the holders of the debt under the Pre-Petition Credit
Facility argued that the amount of such 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. On March 31, 2005, the District Court issued a Memorandum and Order estimating the total
amount of contingent and unliquidated claims



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ITEM 3. LEGAL PROCEEDINGS (continued)



against Owens Corning for personal injury or death caused by exposure to asbestos (including pending claims, future claims and contract claims) at $7
billion. After the District Court denied their motion for reconsideration, the holders of the debt under the Pre-Petition Credit Facility, as well as certain other parties, appealed the District Courts ruling to the Third Circuit. Certain
parties have filed briefs with respect to such appeal, but the briefing has not yet been completed and oral arguments have not yet been scheduled. As a result of the District Courts estimation, Owens Corning increased its reserve for potential
asbestos-related liability by $3.435 billion for the period ended March 31, 2005, so that its recorded reserve equaled the level of asbestos liability estimated by the District Court (see Note 19 to the Consolidated Financial Statements).
Although the District Courts Memorandum and Order did not specifically address the potential asbestos-related liability of Fibreboard, based upon the analysis that the District Court had followed in establishing estimated asbestos liability
for Owens Corning, Owens Corning also increased Fibreboards recorded reserve for potential asbestos-related liability by $907 million for the period ended March 31, 2005.



The Plan currently provides that, after the payment of secured and priority claims, the residual distributable value of Owens Corning will
generally be allocated ratably in the form of cash and new common stock to holders of allowed general unsecured claims against Owens Corning (other than holders of claims under the Pre-Petition Credit Facility), including asbestos claimants,
bondholders, trade creditors and other general unsecured creditors. 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, which are described
in detail in the Disclosure Statement, include, among other things, the value of the shares of new common stock and notes to be issued by Owens Corning, the amount of cash available for distribution, and the outcome of the voting on the Plan. As to
Fibreboard, the Plan contemplates that the assets available to satisfy Fibreboard liabilities (which are primarily asbestos-related liabilities) will be limited to the assets of the Fibreboard Settlement Trust and certain other specified assets.



Under the Plan, a trust, which is intended to qualify under section 524(g) of
the Bankruptcy Code (the 524(g) Trust), will be created from which asbestos claimants will be paid. The Plan provides that a majority of the newly issued common stock of reorganized Owens Corning, as well as cash, the assets of the
existing Fibreboard Settlement Trust (see Note 20 to the Consolidated Financial Statements) and specified other assets, will fund the 524(g) Trust. The 524(g) Trust will, through separate sub-accounts for Owens Corning and Fibreboard, assume all
asbestos-related liability of Owens Corning, Fibreboard and the other entities set forth in the Plan and will, through those separate sub-accounts, make payments to claimants in accordance with the trust distribution procedures included as part of
the Plan. The Plan contemplates that the assets of the Fibreboard Settlement Trust and certain other specified assets will fund only the separate Fibreboard sub-account and, as a result, those amounts will not be available under the Plan to pay
claims against Owens Corning. Conversely, only the assets in the Fibreboard sub-account will be available to pay claims against Fibreboard. 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, their respective subsidiaries, and certain of their affiliates, for the purpose of, directly or indirectly, collecting, recovering or receiving payment of, on, or with respect
to any asbestos claims which will be subject to the 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 permanent injunction barring the assertion of asbestos-related claims or demands against the reorganized company and channeling those claims to an independent trust.



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ITEM 3. LEGAL PROCEEDINGS (continued)



As previously noted, the Plan currently contemplates that most classes of pre-petition unsecured creditors of Owens
Corning will be impaired. Therefore, the Plan 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.



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 voluntarily continued by the movants on a monthly basis.



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.



On or about December 20, 2005, an ad hoc committee of preferred and equity security
holders filed a motion in the USBC seeking appointment of an official preferred and equity security holders committee. Owens Corning, the Legal Representative for the class of future asbestos claimants, the Official Committee of Asbestos Claimants,
the United States Trustee and the agent to the holders of debt under the Pre-Petition Credit Facility each filed objections to the motion. At a hearing on January 30, 2006, the USBC denied the motion.



On or about December 20, 2005, an ad hoc committee of preferred and equity security
holders filed a motion in the USBC seeking (i) confirmation that Owens Corning shareholders are entitled to prosecute an action in the Delaware Chancery Court to compel a shareholders meeting, or (ii) in the alternative, relief from the
automatic stay to prosecute such action. Owens Corning objected to the motion, and the Legal Representative for the class of future asbestos claimants joined in such objection. At a hearing on January 30, 2006, the USBC refused to grant the
relief requested in the motion and continued the motion indefinitely, pending further developments with respect to the FAIR Act.



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, 2006)



The name, age and business experience during the past five years of Owens Cornings
executive officers as of January 31, 2006 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 (50)       |  | Vice President and President, Roofing and Asphalt Business since October 2005; formerly Vice President and President, Exterior Systems Business (2002), and Vice President, Training and
Development.                                                                   
|                              | 
|David T. Brown (57)           |  | President and Chief Executive Officer since April 2002; formerly Executive Vice President and Chief Operating Officer. Director since January 2002.                                                                                                                     
|                              | 
|Brian D. Chambers (39)        |  | Vice President and President, Siding Solutions Business since October 2005; formerly Vice President and General Manager, Residential Roofing Business (2003), Product Manager, Residential Roofing
Business (2002), and Sales/Market Leader, Specialty Roofing Business.
|                              | 
|Charles E. Dana (50)          |  | Vice President and President, Composite Solutions Business since February 2004; formerly Vice President - Corporate Controller and Global Sourcing (2002), and Vice President, Global Sourcing and
eBusiness.                                                           
|                              | 
|Roy D. Dean (46)**            |  | Vice President and Corporate Controller since March 2004; formerly Vice President and Controller, Insulating Systems Business.                                                                                                                                          
|                              | 
|Joseph C. High (51)           |  | Senior Vice President, Human Resources since January 2004; formerly Vice President, Human Resources for ConocoPhillips.                                                                                                                                                 
|                              | 
|David L. Johns (47)           |  | Senior Vice President and Chief Supply Chain and Information Technology Officer since April 2001; formerly Vice President and Chief Technology Officer.                                                                                                                 
|                              | 
|George E. Kiemle (58)**       |  | Vice President and President, Insulating Systems Business since February 2001; formerly Vice President, Manufacturing, Insulating Systems Business.                                                                                                                     
|                              | 
|Stephen K. Krull (41)         |  | Senior Vice President, General Counsel and Secretary since February 2003; formerly Vice President, Corporate Communications (2002), and Vice President and General Counsel,
Operations.                                                                                 
|                              | 
|Frank C. OBrien-Bernini (49) |  | Vice President, Science and Technology since April 2003; formerly Vice President, Corporate Science and Technology (2002), and Vice President, Science and Technology, Insulating Systems
Business.                                                                     



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##### Table of Contents

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|                           |  |                                                                                                                                                                                                                                                                                                                   
|-------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Charles W. Stein, Jr. (41) |  | Vice President and President, Cultured Stone Business since October 2005; formerly Vice President and General Manager, OC Construction Services (2005), Vice President and General Manager,
HOMExperts (2003), Vice President, Residential Services and Solutions (2002), and Vice President, Remodeling Services.
|                           | 
|Michael H. Thaman (41)     |  | Chairman of the Board and Chief Financial Officer since April 2002; formerly Senior Vice President and Chief Financial Officer. Director since January 2002.                                                                                                                                                      

---

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

|** | Mr. Kiemle has announced his retirement from the Company as of the end of June 2006, after 36 years of service. Mr. Dean has been elected Vice President and President,
Insulating Systems Business, effective March 1, 2006.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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.



Since December 19, 2002, Owens
Cornings common stock has been traded on the Over The Counter Bulletin Board (OTCBB) under the symbol OWENQ. During 2005 and 2004, the high and low bid prices on the OTCBB were as follows:



|               |  |      |  |     
|-------------- |  | ---- |  | ----
|               |  | High |  | Low 
|2005           |  |      |  |     
|First Quarter  |  | 4.91 |  | 1.57
|Second Quarter |  | 5.70 |  | 1.68
|Third Quarter  |  | 5.54 |  | 2.88
|Fourth Quarter |  | 4.09 |  | 2.32
|               |  |     
|2004           |  |      |  |     
|First Quarter  |  | 0.67 |  | 0.39
|Second Quarter |  | 0.92 |  | 0.34
|Third Quarter  |  | 0.83 |  | 0.47
|Fourth Quarter |  | 5.71 |  | 0.54



The
number of stockholders of record of Owens Cornings common stock on January 31, 2006 was 6,516.



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 February 23, 2005, the Debtors filed a motion in the USBC for the entry of interim
and final orders pursuant to Sections 105(a), 362(a)(3) and 541 of the Bankruptcy Code to enable the Debtors to avoid limitations on the use of their tax net operating loss carryforwards and certain other tax attributes by imposing certain notice
procedures and transfer restrictions on the trading of equity securities of Owens Corning. The USBC granted the requested interim order (the Interim Equity Order) on March 1, 2005, and granted the requested final order (the
Final Equity Order) on April 15, 2005.



In general, the Final
Equity Order applies to any person or entity that, directly or indirectly, beneficially owns (or would beneficially own as a result of a proposed transfer) at least 4.75% of the outstanding equity securities of Owens Corning. Under the Final Equity
Order, all persons or entities who at the time of the Final Equity Order or in the future beneficially own at least 4.75% of the outstanding equity securities of Owens Corning (each a Substantial Equityholder) are required to file with
the USBC and serve upon the Debtors and the Debtors counsel a notice of such status. In addition, the Final Equity Order provides that a person or entity that would become a Substantial Equityholder by reason of a proposed acquisition of
equity securities of Owens Corning is also required to comply with the notice and service provisions before effecting that transaction. The Final Equity Order gives the Debtors the right to



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



object in the USBC to certain acquisitions or sales of Owens Corning common stock if the acquisition or sale would pose a material risk of adversely
affecting the Debtors ability to utilize such tax attributes.



Under the
Final Equity Order, prior to any proposed acquisition of equity securities that would result in an increase in the amount of Owens Corning equity securities owned by a Substantial Equityholder, or that would result in a person or entity becoming a
Substantial Equityholder, such person, entity or Substantial Equityholder is required to file with the USBC, and serve on the Debtors and the Debtors counsel, a Notice of Intent to Purchase, Acquire or Otherwise Accumulate an Equity Security.
In addition, prior to effecting any disposition of Owens Cornings equity securities that would result in a decrease in the amount of Owens Corning equity securities beneficially owned by a Substantial Equityholder, such Substantial
Equityholder is required to file with the USBC, and serve on the Debtors and the Debtors counsel, a Notice of Intent to Sell, Trade or Otherwise Transfer Equity Securities.



Any purchase, sale or other transfer of Owens Corning equity securities in violation of the restrictions of the Final Equity Order would be
null and void ab initio as an act in violation of the Final Equity Order and would therefore confer no rights on a proposed transferee.



A copy of the Interim Equity Order is filed as Exhibit 99.1 to Owens Cornings current report on Form 8-K filed March 3, 2005, and is incorporated here by
reference. A copy of the Final Equity Order is filed as Exhibit 99.1 to Owens Cornings current report on Form 8-K filed April 19, 2005, and is incorporated here by reference.



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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, 2005, is as follows:



|                                                           |  |                                                                                           |     |  |                                                                          |       |     |                                                                                                                                        |           |    
|---------------------------------------------------------- |  | ----------------------------------------------------------------------------------------- | --- |  | ------------------------------------------------------------------------ | ----- | --- | -------------------------------------------------------------------------------------------------------------------------------------- | --------- | ---
|                                                           |  | (a)                                                                                       |     |  | (b)                                                                      |       |     | (c)                                                                                                                                    |          
|Plan Category                                              |  | Number of Securities tobe issued upon exercise of outstanding options,warrants and rights |     |  | Weighted-averageexercise price ofoutstanding options,warrants and rights |       |     | Number of securitiesremaining available forfuture issuance underequity compensation plans(excluding securitiesreflected in
column (a)) |          
|Equity compensation plans approved by security holders     |  | 2,112,862                                                                                 | (1) |  | $                                                                        | 32.91 | (1) |                                                                                                                                        | 399,000   | (2)
|Equity compensation plans not approved by security holders |  | 1,536,203                                                                                 | (3) |  | $                                                                        | 30.35 | (3) |                                                                                                                                        | 1,216,332 | (3)
|Total                                                      |  | 3,649,065                                                                                 |     |  | $                                                                        | 31.84 |     |                                                                                                                                        | 1,615,332 |    

---

|(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 2005, 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 or any affiliated purchaser during the fourth quarter of 2005.



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ITEM 6. SELECTED FINANCIAL DATA



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



|                                                                                       |  |                                                                 |        |   |         |   |        |         |  |   |         |   |  |         |        |   |  |   |        |  
|-------------------------------------------------------------------------------------- |  | --------------------------------------------------------------- | ------ | - | ------- | - | ------ | ------- |  | - | ------- | - |  | ------- | ------ | - |  | - | ------ | -
|                                                                                       |  | 2005(a)                                                         |        |   | 2004(b) |   |        | 2003(c) |  |   | 2002(d) |   |  | 2001(e) |       
|                                                                                       |  | (In millions of dollars, except per share data and where noted) |       
|Net sales                                                                              |  | $                                                               | 6,323  |   |         | $ | 5,675  |         |  | $ | 4,996   |   |  | $       | 4,872  |   |  | $ | 4,762  |  
|Cost of sales                                                                          |  |                                                                 | 5,165  |   |         |   | 4,649  |         |  |   | 4,170   |   |  |         | 4,130  |   |  |   | 3,938  |  
|Marketing, administrative and other expenses                                           |  |                                                                 | 565    |   |         |   | 522    |         |  |   | 438     |   |  |         | 505    |   |  |   | 565    |  
|Science and technology expenses                                                        |  |                                                                 | 58     |   |         |   | 47     |         |  |   | 43      |   |  |         | 42     |   |  |   | 37     |  
|Restructure costs                                                                      |  |                                                                 |       |   |         |   |       |         |  |   | (2      | ) |  |         | 61     |   |  |   | 26     |  
|Provision (credit) for asbestos litigation claims                                      |  |                                                                 | 4,267  |   |         |   | (24    | )       |  |   | (5      | ) |  |         | 2,351  |   |  |   | (7     | )
|Chapter 11 related reorganization items                                                |  |                                                                 | 45     |   |         |   | 54     |         |  |   | 85      |   |  |         | 96     |   |  |   | 87     |  
|Income (loss) from operations                                                          |  |                                                                 | (3,743 | ) |         |   | 427    |         |  |   | 267     |   |  |         | (2,313 | ) |  |   | 116    |  
|Interest expense (income), net                                                         |  |                                                                 | 739    |   |         |   | (12    | )       |  |   | 8       |   |  |         | 16     |   |  |   | 16     |  
|Other                                                                                  |  |                                                                 |       |   |         |   |       |         |  |   |        |   |  |         |       |   |  |   | (2     | )
|Income (loss) before income tax expense (benefit)                                      |  |                                                                 | (4,482 | ) |         |   | 439    |         |  |   | 259     |   |  |         | (2,329 | ) |  |   | 102    |  
|Income tax expense (benefit)                                                           |  |                                                                 | (387   | ) |         |   | 227    |         |  |   | 145     |   |  |         | 31     |   |  |   | 57     |  
|Cumulative effect of change in accounting principle, net of tax                        |  |                                                                 |       |   |         |   |       |         |  |   |        |   |  |         | (441   | ) |  |   |       |  
|Net income (loss)                                                                      |  |                                                                 | (4,099 | ) |         |   | 204    |         |  |   | 115     |   |  |         | (2,809 | ) |  |   | 39     |  
|Net income (loss) before cumulative effect of change in accounting principle per share |  |                                                                 |        |   |         |   |        |         |  |   |         |   |  |         |        |   |  |   |        |  
|Basic                                                                                  |  |                                                                 | (74.08 | ) |         |   | 3.68   |         |  |   | 2.08    |   |  |         | (43.01 | ) |  |   | 0.72   |  
|Diluted                                                                                |  |                                                                 | (74.08 | ) |         |   | 3.40   |         |  |   | 1.92    |   |  |         | (43.01 | ) |  |   | 0.66   |  
|Net income (loss) per share                                                            |  |                                                                 |        |   |         |   |        |         |  |   |         |   |  |         |        |   |  |   |        |  
|Basic                                                                                  |  |                                                                 | (74.08 | ) |         |   | 3.68   |         |  |   | 2.08    |   |  |         | (51.02 | ) |  |   | 0.72   |  
|Diluted                                                                                |  |                                                                 | (74.08 | ) |         |   | 3.40   |         |  |   | 1.92    |   |  |         | (51.02 | ) |  |   | 0.66   |  
|Weighted-average number of shares outstanding (in thousands)                           |  |                                                                 |        |   |         |   |        |         |  |   |         |   |  |         |        |   |  |   |        |  
|Basic                                                                                  |  |                                                                 | 55,324 |   |         |   | 55,307 |         |  |   | 55,196  |   |  |         | 55,054 |   |  |   | 55,056 |  
|Diluted                                                                                |  |                                                                 | 55,324 |   |         |   | 59,933 |         |  |   | 59,874  |   |  |         | 55,054 |   |  |   | 59,945 |  
|Net cash flow from operations                                                          |  |                                                                 | 746    |   |         |   | 449    |         |  |   | 295     |   |  |         | 357    |   |  |   | 478    |  
|Additions to plant and equipment                                                       |  |                                                                 | 288    |   |         |   | 232    |         |  |   | 208     |   |  |         | 248    |   |  |   | 270    |  
|Total assets                                                                           |  |                                                                 | 8,735  |   |         |   | 7,639  |         |  |   | 7,358   |   |  |         | 7,016  |   |  |   | 7,162  |  
|Long-term debt                                                                         |  |                                                                 | 36     |   |         |   | 38     |         |  |   | 73      |   |  |         | 71     |   |  |   | 5      |  
|Liabilities subject to compromise (f)                                                  |  |                                                                 | 13,520 |   |         |   | 9,171  |         |  |   | 9,258   |   |  |         | 9,236  |   |  |   | 6,804  |  
|Average number of employees (in thousands)                                             |  |                                                                 | 20     |   |         |   | 18     |         |  |   | 18      |   |  |         | 18     |   |  |   | 19     |  



No dividends were declared or paid for
any of the periods presented above.



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ITEM 6. SELECTED FINANCIAL DATA (continued)



|(a) | During 2005, the Company recorded pretax charges of $4.267 billion ($3.958 billion after tax) for additional provision for asbestos liability claims net of asbestos-related
insurance recoveries, pretax charges of $735 million ($445 million after-tax) for accrued post petition interest for the period from the Petition Date through December 31, 2005 on the Companys primary pre-petition bank credit facility,
pretax charges of $45 million ($27 million after-tax) for Chapter 11 related reorganization expenses, pre-tax income of $13 million ($8 million after-tax) due to changes in the Ohio tax law during 2005, and pre-tax income of $5 million ($3 million
after tax) in gains on the early extinguishment of Asian debt.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | 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.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(c) | During 2003, the Company recorded pretax charges of $34 million ($18 million after-tax) for restructuring and other charges and $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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(d) | 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 billion ($2.351 billion 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.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(e) | 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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(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, 2005 and 2004 were:
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                       |  |                          |        |      |   |      
|------------------------------------------------------ |  | ------------------------ | ------ | ---- | - | -----
|                                                       |  | 2005                     |        | 2004
|                                                       |  | (In millions of dollars)
|Accounts payable and accrued liabilities               |  | $                        | 227    |      | $ | 209  
|Accrued interest payable                               |  |                          | 40     |      |   | 40   
|Debt                                                   |  |                          | 2,952  |      |   | 2,958
|Income taxes payable                                   |  |                          | 85     |      |   | 90   
|Reserve for asbestos litigation claims - Owens Corning |  |                          | 7,000  |      |   | 3,565
|Reserve for asbestos-related claims - Fibreboard       |  |                          | 3,216  |      |   | 2,309
|                                                       |  |                          |        |      |   |      
|Total consolidated                                     |  | $                        | 13,520 |      | $ | 9,171
|                                                       |  |                          |        |      |   |      



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ITEM 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 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 37.



Chapter 11 Overview



Since the Companys filing for Chapter 11 protection on October 5, 2000, we have worked diligently and consistently to formulate a plan of reorganization that
would serve to resolve our Companys historic asbestos liability in a manner that treats all of our creditors fairly and equitably. Our objective has been to work with all of our creditor groups in an attempt to reach a consensus as to the
terms of such a plan of reorganization so that it could be fully supported (Consensual Plan) as we move towards emerging from Chapter 11. On December 31, 2005, we filed a Fifth Amended Plan of Reorganization (the Plan)
and an accompanying Disclosure Statement. While we did not receive a full consensus, we did achieve the support of the Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants, who agreed to
act as co-proponents of the Plan. We also received the written support of the steering committee of holders of obligations under the Pre-Petition Credit Facility. We have not yet received the support of the holders of our bond and trade debt, but we
continue to discuss the framework for a Consensual Plan with their representatives.



On January 30, 2006, the USBC scheduled a hearing on our Disclosure Statement for April 4, and a hearing on the confirmation of our Plan for July 10, 17 and 18. The USBC also extended our exclusive right to file a plan of
reorganization through July 31. We are committed to confirming a plan of reorganization on that schedule, even if our plan does not enjoy the support of all of our creditor groups and we are required to seek its confirmation over the objections
of certain creditors. However, we continue to believe that a Consensual Plan is feasible and preferable, and we will continue to negotiate with all creditors in an attempt to reach a full consensus prior to the scheduled confirmation hearing.



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



Over the past few years, uncertainty surrounding two primary issues slowed progress in our case. Those issues were
(1) the substantive consolidation of Owens Corning and its debtor subsidiaries for purposes of our Chapter 11 proceedings, and (2) estimation of the total amount of the Companys asbestos liabilities. In 2005, the uncertainty related
to those two issues was largely resolved and cleared the way for substantial progress to be made towards emerging from Chapter 11.



Substantive Consolidation



Applying substantive consolidation in our case would result in all of the distributable value of our estate, whether held at the parent company or subsidiary level, being
consolidated for purposes of our plan of reorganization. All creditors having claims against Owens Corning or any of its Debtor subsidiaries would then seek recovery from the consolidated estate rather than from the individual debtor entities.



The plan of reorganization that we originally filed in 2003 (Fourth
Amended Plan) was premised upon substantive consolidation. The holders of the Companys pre-petition bank debt, however, took the position that the Companys estate should not be substantively consolidated. They argued that certain
pre-petition loan guarantees provided to them by subsidiaries of Owens Corning should entitle them to a preferred recovery over all other unsecured creditors to the extent of the value in those subsidiaries.



Judge Fullam, the Federal District Court Judge overseeing our case, issued an Order in 2004
granting the Companys motion requesting substantive consolidation. The holders of the companys pre-petition bank debt then appealed Judge Fullams Order to the Third Circuit Court of Appeals. On August 15, 2005, the Third
Circuit Court of Appeals reversed Judge Fullams decision. The Third Circuit created a new test and, when applied to the facts of our case, the Third Circuit held that substantive consolidation was not appropriate. The Third Circuit also denied
a motion for reconsideration of its decision that was filed by the Legal Representative for the class of future asbestos claimants and holders of the bond debt in our case. Several parties, including the bondholders, have appealed the Third
Circuits decision to the United States Supreme Court. While some uncertainty will remain regarding this issue until the Supreme Court decides whether or not to accept that appeal, we intend to proceed with moving our Plan forward towards
emergence.



The Plan recognizes the Third Circuits ruling, and therefore
does not provide for substantive consolidation. Instead, our Plan contemplates an entity-by-entity analysis of the assets and liabilities of the Company and its Debtor subsidiaries and then a determination of each creditors recovery based on
those facts. As a result, the Plan contemplates that the bank creditors will receive full principal and compounded interest on their claims, and they will receive a significantly greater recovery than they would have received under the Fourth
Amended Plan. The asbestos claimants and bondholder/trade creditors will then generally share equally and ratably under the Plan. Because the value of the Company has grown over the past few years, however, it is contemplated that all creditors
should receive a higher percentage recovery under the Plan than they would have received under the Fourth Amended Plan.



Asbestos Estimation



The other primary issue which created uncertainty in our Chapter 11 was the determination of the Companys current and future asbestos liability. Judge Fullam
conducted a six-day asbestos estimation hearing in mid-January of 2005. On March 31, 2005, he then issued an Order estimating Owens Cornings asbestos liability at $7 billion. Judge Fullams Order did not specifically address the
asbestos liability of Fibreboard. However, based on the reasoning of his decision regarding Owens Cornings liability, it should not be necessary for him to assign a specific number to Fibreboards liability to enable Owens Corning to
emerge from Chapter 11 under either a Consensual or non-Consensual Plan.



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



Holders of the Companys bank debt and bond debt and certain insurance companies have appealed Judge
Fullams order to the Third Circuit Court of Appeals, but the Third Circuit has not yet ruled on that appeal.



An additional factor that has also weighed upon the negotiations among our various creditor groups has been the proposed Federal asbestos reform legislation pending in
the United States Senate (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 increase the recoveries of
non-asbestos creditors.



Senators Arlen Specter (R-PA) and Patrick Leahy (D-VT)
co-sponsored the FAIR Act introduced in the United States Senate as S-852 on April 19, 2005. On May 26, 2005, the Senate Judiciary Committee passed the FAIR Act out of Committee. On February 15, 2006, the U.S. Senate failed to secure the
votes required to waive a budget point of order that was raised against the proposed legislation. The legislative fate of the FAIR Act continues to remain uncertain, and Owens Corning is unable to predict 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.



As a result of the uncertainty surrounding the FAIR Act, and given the confirmation schedule set by the Bankruptcy Court, the Company will continue to move forward in our
Chapter 11 notwithstanding the pendency of the bill. The Company will continue to monitor the legislative progress of the FAIR Act, and we will evaluate any significant developments and their potential impact on our Chapter 11 Cases depending upon
when and if the FAIR Act is passed and what its actual provisions are.



Our
strategy going forward continues to be two-fold: (1) look for a continued compromise that will result in a Consensual Plan supported by all rather than most of our creditors and (2) in the absence of a Consensual Plan, proceed to confirm
our plan of reorganization on the schedule set by the Bankruptcy Court, even if the Plan does not have the support of all creditor groups, and particularly since it enjoys the support of the Official Committee of Asbestos Claimants, the Legal
Representative for the class of future asbestos claimants, and the steering committee of holders of obligations under the Pre-Petition Credit Facility. With confirmation of a Plan and emergence from Chapter 11 more clearly in sight, we intend to
continue to drive aggressively toward that goal. While several potential obstacles remain to be overcome, we believe that we have made significant progress towards that end.



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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.



|                                                    |  |                          |        |    |      |   |       |      |  |   |       |  
|--------------------------------------------------- |  | ------------------------ | ------ | -- | ---- | - | ----- | ---- |  | - | ----- | -
|                                                    |  | 2005                     |        |    | 2004 |   |       | 2003 | 
|                                                    |  | (In millions of dollars) |       
|Sales                                               |  | $                        | 6,323  |    |      | $ | 5,675 |      |  | $ | 4,996 |  
|                                                    |  |                          |        |    |      |   |       |      |  |   |       |  
|Percent change from prior year                      |  |                          | 11.4   | %  |      |   | 13.6  | %    |  |   | 2.5   | %
|                                                    |  |                          |       
|Income (Loss) From Operations                       |  | $                        | (3,743 | )  |      | $ | 427   |      |  | $ | 267   |  
|                                                    |  |                          |        |    |      |   |       |      |  |   |       |  
|Income (Loss) From Operations as a percent of sales |  |                          | (59.2  | )% |      |   | 7.5   | %    |  |   | 5.3   | %



Continued strong demand in many of our
markets combined with year over year price increases for some products, largely reflective of the pass through of higher costs, enabled us to grow our sales in 2005 by more than 11%, to over $6.3 billion. However, during the first quarter of 2005,
the District Court that oversees our Chapter 11 proceedings issued an opinion estimating Owens Cornings contingent personal injury asbestos liability. As a result of that opinion, Owens Corning recorded an additional $4.342 billion provision
for asbestos liability during the first quarter of 2005. Due primarily to this provision, we had a loss from operations in 2005 of $3.743 billion compared to income of $427 million in 2004 and $267 million in 2003.



Some of the significant items impacting the year over year comparability of reported income
from operations are noted in the table below:



|                                                                               |  |                          |       |   |      |   |     |      |  |   |     |  
|------------------------------------------------------------------------------ |  | ------------------------ | ----- | - | ---- | - | --- | ---- |  | - | --- | -
|                                                                               |  | 2005                     |       |   | 2004 |   |     | 2003 | 
|                                                                               |  | (In millions of dollars) |      
|Chapter 11 related reorganization items                                        |  | $                        | 45    |   |      | $ | 54  |      |  | $ | 85  |  
|Provision (credit) for asbestos litigation claims (recoveries) - Owens Corning |  |                          | 3,365 |   |      |   | (24 | )    |  |   | (5  | )
|Provision for asbestos litigation claims - Fibreboard                          |  |                          | 902   |   |      |   |    |      |  |   |    |  
|Restructuring and other charges (credits)                                      |  |                          | (18   | ) |      |   | (5  | )    |  |   | 34  |  
|                                                                               |  |                          |       |   |      |   |     |      |  |   |     |  
|Total of items                                                                 |  | $                        | 4,294 |   |      | $ | 25  |      |  | $ | 114 |  
|                                                                               |  |                          |       |   |      |   |     |      |  |   |     |  



Excluding the items affecting
comparability noted above, income from operations improved approximately 22% compared to 2004 and 19% in 2004 compared to 2003. This improvement in 2005 was largely driven by favorable pricing actions and our ability to leverage costs over a larger
sales base, partially offset by higher energy, material and delivery costs. The adjustments noted above are related primarily to the Chapter 11 process, liabilities that are not the result of current operations of the Company and activities
necessitated by our anticipated plan of reorganization. Management does not expect these costs and expenses to continue on an ongoing basis after the Company emerges from bankruptcy.



Due to the nature of the costs associated with the items noted in the table above, management does not find reported income from operations
to be the most useful financial measure of the Companys year-to-year operational performance. Management measures operating performance by excluding Chapter 11 related reorganization items, provisions for asbestos litigation claims and the
other costs and expenses referenced in the table above for various purposes, including reporting results to the Board of Directors of the Company, and for analysis of performance and related employee compensation measures. Although management
believes that these adjustments to income from operations provide a more meaningful



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



representation of the Companys year-over-year performance, our operating performance excluding these items should not be considered in isolation or as
a substitute for income from operations prepared in accordance with generally accepted accounting principles. In addition, such presentation is not necessarily indicative of the results that the Company would have achieved if the Company was not
subject to Chapter 11 proceedings.



Major
factors affecting the performance of our Building Materials Systems segment during 2005 include:



| |  |  | A continued attractive interest rate environment for mortgages and refinancing in 2005 resulted in continued strength in the United States housing markets, positively impacting
demand for products, particularly insulation and roofing. However, recent increases in interest rates are expected to exert pressure on demand.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The high demand for Building Materials Systems segment products has enabled us to improve our operating efficiency, with several of our manufacturing facilities continuing to
operate at very high utilization rates.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Continued increases in costs for energy related commodities (including natural gas, asphalt, and resin) and services (including delivery costs) impacted all of our product lines
within this segment. While not the case for each product line, in total we have been able to mitigate the impact of these higher costs through improved operating efficiencies and by achieving price increases where appropriate.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | During the first half of 2005, we experienced increased demand for our residential roofing products in the southeastern United States driven in part by the Florida hurricanes in
2004. Although this demand returned to historical levels during the third quarter of 2005, increased demand returned in the fourth quarter due in part to the 2005 hurricanes.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Major factors affecting the performance of our Composite
Solutions segment during 2005 include:



| |  |  | Overall global demand for glass fiber reinforcements remained strong during 2005 with favorable growth in certain regions. We focused on composite products that create value for our
customers while providing us with growth and investment opportunities.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We have maintained market share in regions where growth is not as robust and have capitalized on our strategy of obtaining long term contracts with industry-leading customers.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Continued increases in costs of energy related commodities and services adversely impacted this segment and created some margin compression which was partially offset through
productivity gains.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sales of surplus assets resulted in the recognition of approximately $10 million of gains. Partially offsetting these gains were approximately $6 million in costs associated with
the 2005 flood of our manufacturing facility in Taloja, India. We expect substantially all of these costs to be recovered through insurance proceeds in future periods.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



Liquidity



Our operating performance led to a strong cash flow performance during 2005. Cash flow provided by operations was $746 million, while cash provided by operations net of
capital spending for plant and equipment was $458 million. We ended the year with a cash balance of $1.559 billion.



To mitigate some of the near term volatility in our earnings and cash flows, we use financial and derivative financial instruments to hedge certain exposures, principally
currency and energy related. Our current hedging practice has been to hedge a variable percentage of certain energy and energy related exposures on a rolling 12  36 month forward basis. The unprecedented increases in energy and energy related
commodities during 2005 has been favorable to our hedging portfolio, resulting in unrealized gains in commodity derivatives of approximately $16 million as of December 31, 2005, the majority of which relates to hedges maturing in the next 12
months. Should prices remain at current levels, such gains will be realized through income to partially offset purchases of the hedged items. During 2005, we recognized $26 million of income to offset increased costs of purchases of energy and
energy related commodities. Going forward, the results of our hedging practice could be positive, neutral, or negative in any period depending on price changes in the hedged exposures, and will tend to mitigate near term volatility in the exposures
hedged. The practice is neither intended nor expected to mitigate longer term exposures.



Safety



We have 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. The numbers shown reflect information available as of December 31, 2005 and are based on the
Companys active work sites for 2005; such numbers are subject to change based upon receipt of additional information or change in the Companys active work sites.



|                    |  |      |   |  |      |   |  |     
|------------------- |  | ---- | - |  | ---- | - |  | ----
|                    |  | 2005 |   |  | 2004 |   |  | 2003
|ORIR                |  | 2.01 |   |  | 3.15 |   |  | 3.84
|Percent improvement |  | 36   | % |  | 18   | % |  |     
|                    |  |      |  
|CODI rate           |  | 1.23 |   |  | 1.93 |   |  | 2.05
|Percent improvement |  | 36   | % |  | 6    | % |  |     



Outlook for 2006



In 2006, our strategy around growth and customer satisfaction will
continue. In December of 2005, we reached an agreement to purchase Asahi Glass Co. Ltd.s composite manufacturing facility located near Tokyo, Japan to support the growth of customers in the automotive, consumer and electrical, building and
construction, and infrastructure markets. This acquisition positions the Company to capitalize on emerging opportunities within the Asia Pacific region and this deal is expected to close in the second quarter of 2006.



Although our markets remained strong through the end of 2005 and sales in some of our markets
are constrained due to available production capacity, we continue to be cautious about the ability of the United States economy to maintain the current level of housing demand and believe a continued rising interest rate environment could cause the
United States housing market to soften from the recent high levels. Two factors that may serve to mitigate the softening in demand for our products are the Energy Policy Act of 2005 and the effect of the 2005 hurricanes in the southeastern United
States.



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



On August 8, 2005, the Energy Policy Act of 2005 (Energy Act) became law. Beginning January 1,
2006, the Energy Act provides, among other things, that homebuilders may receive tax credits for the construction of homes that are significantly more energy efficient than the current standards and consumers may receive tax credits for energy
efficient improvements such as insulation or other systems designed to reduce heat loss. We believe the Energy Act will stimulate additional demand for our products in 2006 and 2007.



Historically, natural disasters such as hurricanes have led to increased short term demand for our products, particularly residential
roofing and siding. Consequently, we expect additional demand due to the 2005 hurricanes affecting the northern Gulf Coast and Florida. However, due to the levels of devastation and population impacted by the hurricanes in the northern Gulf Coast,
we believe the rebuilding in this area will take several years and will not create as large of a demand surge for our products as we experienced from the 2004 hurricanes in Florida. Consequently, while we believe that sales of roofing products will
remain strong through 2006, we anticipate they will be lower than the record highs in 2005.



Increased costs for energy related commodities and services are likely to continue to exert pressure on our margins. We anticipate such inflation may not be recovered completely through price increases and will
require us to achieve additional productivity gains. We will continue to focus on maintaining cost control, and eliminating inefficiencies in our business and manufacturing processes to assist in offsetting the effects of inflation and in achieving
planned results. If we cannot achieve targeted productivity gains, our margins, results of operations, and financial condition could be adversely affected.



RESULTS OF OPERATIONS



Sales and Profitability for the Years ended December 31, 2005 and 2004



NET SALES



Net sales for the year ended December 31, 2005, were $6.323 billion, an 11% increase from the 2004 level of $5.675 billion. This increase was primarily the result of
favorable pricing actions and higher volumes in both operating segments. The increased volumes are a result of growth in the United States housing and remodeling markets, an improved global economy, and strong demand for our residential roofing
products in the southeastern United States, driven in part by the hurricanes in 2004 and 2005. The effect of translating sales denominated in foreign currencies into U.S. dollars, principally in our Composite Solutions segment, was favorable and
contributed approximately $15 million to the $648 million sales increase.



Sales outside the United States represented 16% of total sales during both 2005 and 2004.



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



PROFITABILITY



|                                                  |  |                          |        |   |      |   |       |  
|------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ----- | -
|                                                  |  | 2005                     |        |   | 2004 |  
|                                                  |  | (In millions of dollars) |       
|Sales                                             |  | $                        | 6,323  |   |      | $ | 5,675 |  
|                                                  |  |                         
|Gross margin                                      |  | $                        | 1,158  |   |      | $ | 1,026 |  
|As a percent of Sales                             |  |                          | 18.3   | % |      |   | 18.1  | %
|                                                  |  |                         
|Marketing and administrative                      |  | $                        | 565    |   |      | $ | 530   |  
|As a percent of Sales                             |  |                          | 8.9    | % |      |   | 9.3   | %
|                                                  |  |                         
|Provision (credit) for asbestos litigation claims |  | $                        | 4,267  |   |      | $ | (24   | )
|                                                  |  |                         
|Income (loss) from operations                     |  | $                        | (3,743 | ) |      | $ | 427   |  
|                                                  |  |                         
|Interest expense (income), net                    |  | $                        | 739    |   |      | $ | (12   | )
|                                                  |  |                         
|Income tax expense (benefit)                      |  | $                        | (387   | ) |      | $ | 227   |  
|                                                  |  |                         
|Net income                                        |  | $                        | (4,099 | ) |      | $ | 204   |  



GROSS
MARGIN



Gross margin as a percent of sales improved only slightly during 2005.
Strong demand in the markets in which we operate enabled us to improve our margin through increased pricing for some of our products and realization of some operating efficiencies. However, these price increases and efficiency improvements were
substantially offset by higher costs associated with energy related commodities (particularly oil, natural gas, and resin) and transportation. As described above, to mitigate near term volatility in our operating results, we partially hedge our
exposures to the cost of energy and some energy related commodities. During 2005, such hedges resulted in a $26 million reduction in prices paid for the purchases of the underlying commodities. Under the recent environment of rising commodity
prices, our hedging activities have served to reduce our costs, however, should commodity prices stabilize, the benefits experienced from our hedging program during 2005 will decrease over time, and should commodity prices decline, our hedging
instruments could adversely impact gross margins and our cost position compared to the market.



MARKETING AND ADMINISTRATIVE EXPENSES



Marketing and administrative expenses were $565 million for the year ended December 31, 2005, compared to $530 million for the year ended December 31, 2004. As
a percent of sales, these expenses improved 0.4%.



PROVISION (CREDIT) FOR ASBESTOS LITIGATION CLAIMS



During the first
quarter of 2005, the District Court that oversees our Chapter 11 proceedings provided an estimate of $7 billion for Owens Cornings contingent personal injury asbestos liability. While uncertainty remains concerning the amount of such
liability, as a result of this ruling, the Company determined that this estimate was a more likely outcome than any other in the range of possible outcomes and recorded an additional provision for asbestos litigation claims for Owens Corning of
$3.435 billion, bringing the total reserve recorded for Owens Corning to $7 billion.



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



The Company also re-evaluated its reserve for Fibreboards asbestos claims. Although the District Court did not
provide an estimate for Fibreboards asbestos liability, management evaluated the District Courts process for determining Owens Cornings liability and determined that the range of possible outcomes had narrowed. Consequently, the
Company determined that an additional $907 million liability should be recorded for Fibreboard, bringing the total reserve recorded for Fibreboard to $3.216 billion. The total non-cash provision recorded for asbestos litigation claims during the
first quarter 2005 was $4.342 billion.



During both 2005 and 2004, the Company
also received various recoveries from insurance carriers for asbestos litigation claims reducing the total net asbestos related provision for 2005 to $4.267 billion compared to a credit of $24 million in 2004. See Note 19 to the Consolidated
Financial Statements for further information concerning the provision for asbestos litigation claims.



INCOME FROM OPERATIONS



The decrease in income from operations was primarily due to the $4.267 billion net provision for asbestos litigation claims taken during 2005. Our 2004 results for the
Composites Solutions segment also reflect recoveries of insurance proceeds related to the 2003 flood at our LArdoise, France facility resulting in $28 million in gains. The overall decline in income from operations was partially offset through
improved sales and our ability to achieve some operating efficiencies derived from the strong demand in our largest markets, a decrease of approximately $9 million in Chapter 11 related expenses in 2005 compared to 2004, foreign exchange gains of
approximately $3 million in 2005 compared to losses of $4 million in 2004 and a $5 million gain on the extinguishment of certain debt in Asia. Our Composites Solutions segment also recognized approximately $10 million in gains in the United
States related to the sale of surplus assets. Additionally, as described more fully below, as the result of Ohio state tax legislation during the second quarter of 2005, the Company recorded $13 million of other income to establish a long term asset
for credits that can be used to offset certain future Ohio tax obligations.



INTEREST EXPENSE



The 2005 results include
expenses of $735 million with respect to the Pre-Petition Credit Facility for the period from the Petition Date through December 31, 2005 relating to post-petition interest and certain other fees. Of these expenses, (a) $538 million were
recorded for the period ended September 30, 2005 as the result of the Third Circuits reversal of the District Courts Substantive Consolidation Order and Owens Cornings evaluation of the distributable values (considered on a
non-substantively consolidated basis) of Owens Corning and certain of its Debtor and non-Debtor subsidiaries, and (b) the remaining $197 million were recorded for the period ended December 31, 2005 in light of the terms of the
Companys revised Plan and Owens Cornings view of the likelihood of the amounts that may be paid under the Plan to holders of debt under the Pre-Petition Credit Facility.



The 2004 results include a $16 million pre-tax gain due to the reversal of accrued interest from the settlement 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 recording interest income in 2004 for
the reversal of $16 million of accrued interest. 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 in our Consolidated Balance
Sheet.



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



INCOME TAXES



During the first quarter of 2005, in connection with the incremental provision for asbestos litigation claims, management recorded deferred
taxes and a valuation allowance to record the asset at realizable value. This resulted in a net tax benefit of $75 million. In addition, primarily due to our most recent plan of reorganization filed in December of 2005 which contains a distributable
value of the Company upon emergence that is greater than previously estimated, management recorded a reduction of its valuation allowance for deferred tax assets related to asbestos litigation claims of approximately $282 million with a
corresponding tax benefit. Primarily as a result of these items, our effective tax rate for 2005 was 9%.



On June 30, 2005, new Ohio state tax legislation was signed into law, the net impact of which is expected to be favorable to the Company in the future. However, the impact of this new legislation on net income
during 2005 was a charge of $18 million. This charge was the result of an additional tax provision of approximately $31 million, primarily due to the write-off of Ohio deferred tax assets, including net operating loss carryforwards that will no
longer be utilized to offset income taxes. This charge was offset by a credit of $13 million recorded as other income representing the present value of a portion of the amounts written off that may be used as credits against a new gross receipts tax
in the future.



Income tax expense includes approximately $12 million of
additional tax provision for the impact of our decision under the American Jobs Creation Act to repatriate approximately $220 million of earnings previously considered permanently reinvested outside of the United States.



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%.



As stated above under Item 5, Market for Owens Cornings Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities, on April 15, 2005, the USBC issued the Final
Equity Order imposing certain notice procedures and transfer restrictions on the trading of equity securities of Owens Corning. The Final Equity 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.



NET INCOME (LOSS)



Net income for the year
ended December 31, 2005 was a loss of $4.099 billion, or ($74.08) per share, compared to income of $204 million, or $3.40 per share, for the prior year. The decrease in 2005 reflects the non-cash provision for asbestos litigation claims, the
accrual of post-petition interest and fees on the Pre-Petition Credit Facility and other items mentioned above.



TALOJA, INDIA MANUFACTURING FACILITY



During the week of July 24, 2005, the Company experienced a flood at its Taloja, India manufacturing facility, a 60% owned joint venture. The Company consolidates
this joint venture such that all losses and recoveries related to the flood are or will be recorded within the Companys financial statements. The portion of losses and recoveries related to our joint venture partner appear in Minority
interest and equity in net earnings of affiliates and Minority interest in our Consolidated Statement of Income (Loss) and Consolidated Balance Sheet, respectively. The facility is insured for property damage and business



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



interruption losses relating to such events under a policy maintained by the joint venture and under the Owens Corning global insurance policy, each subject
to policy limits. The losses are subject to a deductible of $250,000, which was incurred and expensed in the third quarter of 2005.



The Company estimates it has incurred, or will incur, a total of $25 million to $35 million of property damage costs and business interruption losses in 2005 and 2006
associated with the Taloja flood. The Company believes these costs/losses will be substantially covered by insurance. During 2005, the Company recorded approximately $2 million in receivables for flood related costs net of $7 million of insurance
advances. In addition, approximately $6 million ($4 million in the fourth quarter) of business interruption costs related to the flood were expensed during the year. Should the expected recoveries not be received, the uncovered costs and losses
could have a material adverse impact on the Composite Solutions business. Also, the timing of any recoveries may result in expenses being taken in periods before the insurance receipts are recorded or received.



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.



PROFITABILITY



|                             |  |                          |       |   |      |   |       |  
|---------------------------- |  | ------------------------ | ----- | - | ---- | - | ----- | -
|                             |  | 2004                     |       |   | 2003 |  
|                             |  | (In millions of dollars) |      
|Sales                        |  | $                        | 5,675 |   |      | $ | 4,996 |  
|                             |  |                         
|Gross margin                 |  |                          | 1,026 |   |      |   | 826   |  
|As a percent of Sales        |  |                          | 18.1  | % |      |   | 16.5  | %
|                             |  |                         
|Marketing and administrative |  |                          | 530   |   |      |   | 459   |  
|As a percent of Sales        |  |                          | 9.3   | % |      |   | 9.2   | %
|                             |  |                         
|Income from operations       |  |                          | 427   |   |      |   | 267   |  
|                             |  |                         
|Income tax expense           |  |                          | 227   |   |      |   | 145   |  
|                             |  |                         
|Net income                   |  |                          | 204   |   |      |   | 115   |  



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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.



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.



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 the $16 million in income related to the release of certain guaranteed subsidiary debt.



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



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, it is possible that certain of such Non-Debtor Subsidiaries,
namely IPM, Inc., Vytec Corporation and Owens-Corning Fiberglas Sweden Inc., that issued guarantees with respect to Owens Cornings primary pre-petition bank credit facility (the Pre-Petition Credit Facility), may initiate Chapter
11 proceedings in order to be covered by the terms of the Plan (as defined below). The timing of any such filing would permit the inclusion of such entities as part of the Plan confirmation process.



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, all of 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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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(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 (the Official Committee of Asbestos Claimants) and the other
representing unsecured creditors (the Official Committee of 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 Petition Date will be resolved under the Plan (as defined below) or some other Chapter 11 plan of reorganization to be 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 (the Fourth Amended Plan) in the USBC on October 24, 2003.



On December 31, 2005, the Debtors, together with the Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos
claimants, filed a proposed fifth amended joint plan of reorganization (as so amended through such fifth amendment, the Plan) in the USBC along with a related disclosure statement (the Disclosure Statement). The steering
committee of holders of obligations under the Pre-Petition Credit Facility supports the Plan pursuant to the terms of the letter, dated December 30, 2005, appended as Appendix K to the Disclosure Statement. Certain other members of the major
non-asbestos creditor groups have indicated that they may oppose the Plan. There can be no assurance that the Plan or any other plan supported by Owens Corning and less than all of the major creditor groups will be ultimately confirmed by the
Bankruptcy Court and consummated. The Debtors have the exclusive right to file and solicit acceptances to a plan of reorganization through July 31, 2006. In addition, 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 the Plan (or any other plan of reorganization) or its effect, if any, on the terms thereof. The Plan (and any other plan of reorganization) is subject to
confirmation by the Bankruptcy Court.



The Plan has been significantly amended
from the Fourth Amended Plan. In particular, the Plan is no longer 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. On October 5,
2004, the District Court issued a Memorandum and Order Concerning Substantive Consolidation (the Substantive Consolidation Order). In the Substantive Consolidation



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



Order, the District Court granted the Debtors motion for substantive consolidation. On October 13, 2004, the holders of the debt under the
Pre-Petition Credit Facility filed an appeal of the Substantive Consolidation Order with the Third Circuit. On August 15, 2005, the Third Circuit reversed the Substantive Consolidation Order. The Legal Representative for the class of future
asbestos personal injury claimants and certain designated members of the Official Committee of Unsecured Creditors subsequently filed petitions for rehearing en banc of the Third Circuits decision. Those petitions for rehearing were denied by
the Third Circuit on September 28, 2005. The Legal Representative for the class of future asbestos personal injury claimants and certain bondholders have filed petitions for certiorari with the United States Supreme Court with respect to the
Third Circuits decision on the Substantive Consolidation Order.



As
previously disclosed, as a result of the Third Circuits reversal of the District Courts Substantive Consolidation Order and Owens Cornings evaluation of the distributable values (considered on a non-substantively consolidated
basis) of Owens Corning and certain of its Debtor and non-Debtor subsidiaries, Owens Corning recorded, for the period ended September 30, 2005, expenses with respect to the Pre-Petition Credit Facility for the period from the Petition Date
through September 30, 2005 in the amount of $538 million relating to post-petition interest and certain other post-petition fees. With respect to post-petition interest, such expenses reflected the application of the Base Rate plus 2% (as
described below) applied on a non-compounding basis. The Plan provides that, if the holders of debt under the Pre-Petition Credit Facility are deemed unimpaired, or are deemed to be impaired and the class of such holders accepts the Plan, (and the
Plan is confirmed and becomes effective) then the holders of debt under the Pre-Petition Credit Facility will be paid an amount in cash which reflects post-petition interest with respect to the Pre-Petition Credit Facility on a compounding basis
(compounded quarterly) and Facility Fees (as defined in the Pre-Petition Credit Facility). In light of such terms of the Plan, Owens Corning (i) has recorded, for the period ended December 31, 2005, additional expenses of $147 million for
the period from the Petition Date through September 30, 2005, and (ii) has recorded, for the quarter ended December 31, 2005, additional expenses of $50 million reflecting post-petition interest with respect to the Pre-Petition Credit
Facility on a compounding basis (compounded quarterly) and post-petition fees, including Facility Fees. However, this estimate is based on numerous factual and legal uncertainties, including the interpretation of contractual provisions concerning
such interest and other fees, and Owens Corning reserves the right to object, if and as appropriate in its judgment, to the ultimate entitlements to such interest and other fees and to the amount of such interest and other fees in the Chapter 11
Cases (or other proceedings) in the event the holders of debt under the Pre-Petition Credit Facility are deemed impaired and vote against the Plan. Absent developments that alter Owens Cornings view of the likelihood of amounts that may be
paid under the Plan to holders of debt under the Pre-Petition Credit Facility, Owens Corning expects to continue to accrue interest on the Pre-Petition Credit Facility in future periods, to the extent required under applicable law, at a rate equal
to the Base Rate plus 2%, applied on a compounding basis (compounded quarterly), and post-petition fees, including Facility Fees. The Base Rate (as defined in the Pre-Petition Credit Facility) is a floating rate equal to the higher of (i) the
prime commercial lending rate of Credit Suisse First Boston and (ii) the Federal Funds Rate plus 0.50% per annum. Actual amounts of post-petition interest and other fees, if any, that are ultimately determined payable under the
Pre-Petition Credit Facility for the period from the Petition Date through December 31, 2005 or for future periods may be significantly higher or lower than the amounts indicated above.



A six-day claims estimation hearing was held before the District Court beginning
January 13, 2005 to establish the amount of Owens Cornings and Fibreboards current and future asbestos liability in the Chapter 11 Cases. In general, the holders of the debt under the Pre-Petition Credit Facility argued that the
amount of such 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. On March 31, 2005, the District Court issued a Memorandum and Order estimating the total amount of contingent and
unliquidated claims against Owens Corning for personal injury or death caused by exposure to asbestos (including pending claims, future claims and contract claims) at $7 billion. After the District Court denied their motion for reconsideration, the
holders of the debt under the Pre-Petition Credit Facility, as well as certain other



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



parties, appealed the District Courts ruling to the Third Circuit. Certain parties have filed briefs with respect to such appeal, but the briefing has
not yet been completed and oral arguments have not yet been scheduled. As a result of the District Courts estimation, Owens Corning increased its reserve for potential asbestos-related liability by $3.435 billion for the period ended
March 31, 2005, so that its recorded reserve equaled the level of asbestos liability estimated by the District Court (see Note 19 to the Consolidated Financial Statements). Although the District Courts Memorandum and Order did not
specifically address the potential asbestos-related liability of Fibreboard, based upon the analysis that the District Court had followed in establishing estimated asbestos liability for Owens Corning, Owens Corning also increased Fibreboards
recorded reserve for potential asbestos-related liability by $907 million for the period ended March 31, 2005.



Related Developments



PROPOSED ASBESTOS LEGISLATION



Senators Arlen Specter (R-PA) and Patrick Leahy (D-VT) co-sponsored an asbestos litigation reform bill (S-852) introduced in the United States Senate on April 19,
2005. The proposed legislation is entitled the Fairness in Asbestos Injury Resolution Act of 2005 (the FAIR Act).



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



The proposed legislation was voted out of the Senate Judiciary Committee on May 26, 2005. On
February 15, 2006, the U.S. Senate failed to secure the votes required to waive a budget point of order that was raised against the proposed legislation.



The legislative fate of the FAIR Act remains uncertain, and Owens Corning is unable to predict 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 the Plan (or any other plan of reorganization), including in the event that the effective date of the Plan has not occurred prior to the enactment of the FAIR Act.
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 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 voluntarily continued by the movants on a monthly basis.



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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



As described above, on December 31, 2005, the Debtors, together with the Official Committee of Asbestos Claimants and the Legal Representative for the class of
future asbestos claimants, filed the Plan and the related Disclosure Statement. The steering committee of holders of obligations under the Pre-Petition Credit Facility supports the Plan pursuant to the terms of the letter, dated December 30,
2005, appended to the Disclosure Statement as Appendix K. In light of the Third Circuits reversal of the Substantive Consolidation Order described above, the current Plan is premised upon non-consolidation of the Debtors, including separate
classification and treatment of the claims against and interests in each of the Debtors. In addition, 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 USBC has set July 10, 17 and 18, 2006 as hearing dates on the confirmation of the Plan. At this time, Owens Corning is unable to predict the outcome of the
hearing on the confirmation of the Plan or the final terms of the Plan (or other plan of reorganization) as may ultimately be confirmed.



The Plan currently provides that, after the payment of secured and priority claims, the residual distributable value of Owens Corning will generally be allocated ratably
in the form of cash and new common stock to holders of allowed general unsecured claims against Owens Corning (other than holders of claims under the Pre-Petition Credit Facility, which will receive the treatment described below), including asbestos
claimants, bondholders, trade creditors and other general unsecured creditors. 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, which are
described in detail in the Disclosure Statement, include, among other things, the value of the shares of new common stock and notes to be issued by Owens Corning, the amount of cash available for distribution, and the outcome of the voting on the
Plan. As to Fibreboard, the Plan contemplates that the assets available to satisfy Fibreboard liabilities (which are primarily asbestos-related liabilities) will be limited to the assets of the Fibreboard Settlement Trust and certain other specified
assets.



As described in greater detail in the Plan and Disclosure Statement,
if the holders of debt under the Pre-Petition Credit Facility are deemed unimpaired, or are deemed to be impaired and the class of such holders accepts the Plan, (and the Plan is confirmed and becomes effective) then the holders of debt under the
Pre-Petition Credit Facility will be paid cash in an aggregate amount equal to the amount of their allowed claims plus post-petition interest on a compounding basis (compounded quarterly) and Facility Fees (as defined in the Pre-Petition Credit
Facility) under the Pre-Petition Credit Facility. If the holders of



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



debt under the Pre-Petition Credit Facility are deemed to be impaired and the class of such holders rejects the Plan, then the holders of debt under the
Pre-Petition Credit Facility will be paid cash and cash pay notes in an amount to be determined by the Bankruptcy Court. As previously disclosed, as of December 31, 2005, Owens Corning has recorded expenses of $735 million reflecting
post-petition interest with respect to the Pre-Petition Credit Facility on a compounding basis (compounded quarterly) and post-petition fees, including Facility Fees. However, this estimate is based on numerous factual and legal uncertainties,
including the interpretation of contractual provisions concerning such interest and other fees, and Owens Corning reserves the right to object, if and as appropriate in its judgment, to the ultimate entitlements to such interest and other fees and
to the amount of such interest and other fees in the Chapter 11 Cases (or other proceedings) in the event the holders of debt under the Pre-Petition Credit Facility are deemed impaired and vote against the Plan. Absent developments that alter Owens
Cornings view of the likelihood of amounts that may be paid under the Plan to holders of debt under the Pre-Petition Credit Facility, Owens Corning expects to continue to accrue interest on the Pre-Petition Credit Facility in future periods,
to the extent required under applicable law, at a rate equal to the Base Rate plus 2%, applied on a compounding basis (compounded quarterly), and post-petition fees, including Facility Fees. The Base Rate (as defined in the Pre-Petition Credit
Facility) is a floating rate equal to the higher of (i) the prime commercial lending rate of Credit Suisse First Boston and (ii) the Federal Funds Rate plus 0.50% per annum. Actual amounts of post-petition interest and other fees, if
any, that are ultimately determined payable under the Pre-Petition Credit Facility for the period from the Petition Date through December 31, 2005 or for future periods may be significantly higher or lower than the amounts indicated above.



As described above, the Plan (which is co-proposed by the Official Committee
of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants) provides that Owens Corning asbestos claimants will receive a partial payment proportionately similar to other general unsecured creditors of Owens
Corning. In order to estimate the amount of the current and future asbestos personal injury claims in the Chapter 11 Cases, a six-day claims estimation hearing 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 such asbestos liability should be set at a significantly higher level. On
March 31, 2005, the District Court issued a Memorandum and Order estimating the total amount of contingent and unliquidated claims against Owens Corning for personal injury or death caused by exposure to asbestos (including pending claims,
future claims and contract claims) at $7 billion. As a result of the District Courts estimation, Owens Corning increased its reserve for potential asbestos-related liability by $3.435 billion for the period ended March 31, 2005, so that
its recorded reserve equaled the level of asbestos liability estimated by the District Court. Although the District Courts Memorandum and Order did not specifically address the potential asbestos-related liability of Fibreboard, based upon the
analysis that the District Court had followed in establishing estimated asbestos liability for Owens Corning, Owens Corning also increased Fibreboards recorded reserve for potential asbestos-related liability by $907 million for the period
ended March 31, 2005. After the District Court denied their motion for reconsideration, the holders of the debt under the Pre-Petition Credit Facility, as well as certain other parties, appealed the District Courts estimation ruling to
the Third Circuit. Certain parties have filed briefs with respect to this appeal, but the briefing has not yet been completed and oral arguments have not yet been scheduled.



Under the Plan, a trust, which is intended to qualify under section 524(g) of the Bankruptcy Code (the 524(g) Trust), will be
created from which asbestos claimants will be paid. The Plan provides that a majority of the newly issued common stock of reorganized Owens Corning, as well as cash, the assets of the existing Fibreboard Settlement Trust (see Note 20 to the
Consolidated Financial Statements) and



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



specified other assets, will fund the 524(g) Trust. The 524(g) Trust will, through separate sub-accounts for Owens Corning and Fibreboard, assume all
asbestos-related liability of Owens Corning, Fibreboard and the other entities set forth in the Plan and will, through those separate sub-accounts, make payments to claimants in accordance with the trust distribution procedures included as part of
the Plan. The Plan contemplates that the assets of the Fibreboard Settlement Trust and certain other specified assets will fund only the separate Fibreboard sub-account and, as a result, those amounts will not be available under the Plan to pay
claims against Owens Corning. Conversely, only the assets in the Fibreboard sub-account will be available to pay claims against Fibreboard. 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, their respective subsidiaries, and certain of their affiliates, for the purpose of, directly or indirectly, collecting, recovering or receiving payment of, on, or with respect
to any asbestos claims which will be subject to the 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 permanent injunction barring the assertion of asbestos-related claims or demands against the reorganized company and channeling those claims to an independent trust.



As previously noted, the Plan currently contemplates that most classes of
pre-petition unsecured creditors of Owens Corning will be impaired. Therefore, the Plan 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.



In general, in light of the Third Circuits
reversal of the Substantive Consolidation Order, intercompany claims are classified separately under the Plan but receive treatment similar to that of other unsecured claims. However, as described more fully in the Plan, holders of allowed
intercompany claims do not receive distributions of new common stock and cash on account of such claims but, instead, are credited with value on account of such claims. In addition, the arrangements, transactions and relationships that gave rise to
certain intercompany claims 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 any other plan ultimately confirmed and on the respective assets, liabilities and results of operations of Owens Corning
and its direct and indirect subsidiaries.



Although they have not filed Chapter
11 Cases at the present time, Owens Corning reserves the right to initiate Chapter 11 proceedings on behalf of three subsidiaries, IPM, Inc., Vytec Corporation and Owens-Corning Fibreglas Sweden Inc., that issued guarantees with respect to the
Pre-Petition Credit Facility, in the event Owens Corning deems it necessary to do so in order for such subsidiaries to be covered by the terms of the Plan. The timing of any such filing would permit the inclusion of such entities as part of the Plan
confirmation process.



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 Petition Date. 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.



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)



The Bankruptcy Court may confirm a plan of reorganization only upon making certain findings required by the
Bankruptcy Code, and a plan may be confirmed over the dissent of non-accepting creditors and equity security holders if certain requirements of the Bankruptcy Code are met. In this respect, the Plan provides for certain cramdown
provisions, whereby the Plan may 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.



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). Generally, 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. As to the Pre-Petition Credit Facility, the claim total reflects only a single claim (in the amount of approximately $1.6 billion) although the holders have asserted this claim against Owens
Corning and each of six other Debtors that issued a guarantee with respect to the facility. Owens Corning continues to investigate the filed 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, 2005, approximately 7,000 of the
Objectionable Claims, totaling approximately $5.7 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, 2005, approximately 1,000 of these claims, totaling approximately $0.4 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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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)



| |  | Approximately 100 claims, totaling approximately $0.6 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 $534 million, in connection with taxes (see discussion regarding the tax claims and related 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 (see discussion of this claim and pending settlement 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 $95 million, of which approximately $28 million are protective claims covering contracts which have not been rejected by the Debtors as of
December 31, 2005.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 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 3,300 proofs of claim (in addition to claims described above under General Bar
Date), totaling approximately $2.6 billion, with respect to asbestos-related personal injury or wrongful death were filed with the Bankruptcy Court in response to the General Bar Date. Of these claims, Owens Corning has identified
approximately 1,200, totaling approximately $0.5 billion, as Objectionable Claims. Of the remaining claims, Owens Corning believes that a substantial majority represent claimants that had previously asserted asbestos-related claims against the
Company.



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



As noted above, under the Plan, all asbestos-related personal injury and wrongful death claims will be channeled to
the section 524(g) trust, subject to approval by the Bankruptcy Court. See Note 19 to the Consolidated Financial Statements for additional information concerning asbestos-related liabilities.



As described above, on March 31, 2005, the District Court issued a Memorandum and Order
estimating the total amount of contingent and unliquidated claims against Owens Corning for personal injury or death caused by exposure to asbestos (including pending claims, future claims and contract claims) at $7 billion. After the District
Court denied their motion for reconsideration, the holders of the debt under the Pre-Petition Credit Facility, as well as certain other parties, appealed the District Courts ruling to the Third Circuit. Certain parties have filed briefs with
respect to such appeal, but the briefing has not yet been completed and oral arguments have not yet been scheduled. The Memorandum and Order did not specifically address the potential asbestos-related liability of Fibreboard. In addition, the
Memorandum and Order did not address whether a bar date would be established for asbestos-related personal injury or wrongful death claims as to either Owens Corning or Fibreboard.



RESTRUCTURING OF OPERATIONS AND OTHER CHARGES (CREDITS)



2005 Credits



During 2005, due to new Ohio state tax legislation, the Company recorded a pretax credit in the Consolidated Statement of Income (Loss) under the caption
Other of approximately $13 million representing the present value of the net operating losses that will be allowed to be taken as credits against a new gross receipts tax. The Company also renegotiated certain Asian debt resulting in a
gain of $5 million related to the forgiveness of such debt which was recorded in the Consolidated Statement of Income (Loss) under the caption Other.



2004 Credits



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 $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.



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



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.



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.



LIQUIDITY, CAPITAL RESOURCES AND OTHER RELATED
MATTERS



We ended 2005 with a cash balance of $1.559 billion, an increase
of $434 million from December 31, 2004. The following table provides information regarding our liquidity.



|                                       |  |                                         |       |   |      |   |       |      |  |   |       |  
|-------------------------------------- |  | --------------------------------------- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                       |  | 2005                                    |       |   | 2004 |   |       | 2003 | 
|                                       |  | (In millions of dollars, except ratios) |      
|Cash balance                           |  | $                                       | 1,559 |   |      | $ | 1,125 |      |  | $ | 1,005 |  
|Cash flow from operations              |  | $                                       | 746   |   |      | $ | 449   |      |  |   | 295   |  
|Cash flow used in investing activities |  | $                                       | (283  | ) |      | $ | (320  | )    |  |   | (145  | )
|Unused committed credit lines          |  | $                                       | 81    |   |      | $ | 113   |      |  |   | 167   |  
|                                       |  |                                         |      
|Working capital analysis               |  |                                         |       |   |      |   |       |      |  |   |       |  
|Net working capital                    |  | $                                       | 919   |   |      | $ | 1,177 |      |  | $ | 1,024 |  
|Current ratio                          |  |                                         | 1.51  |   |      |   | 2.24  |      |  |   | 2.19  |  
|Days sales outstanding (a)             |  |                                         | 35    |   |      |   | 34    |      |  |   | 34    |  
|Days of inventory on hand (b)          |  |                                         | 44    |   |      |   | 44    |      |  |   | 42    |  
|Days payable outstanding (c)           |  |                                         | 37    |   |      |   | 35    |      |  |   | 29    |  

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|(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, excluding subject to compromise, divided by cost of sales divided by 365.
|--- | ----------------------------------------------------------------------------------------------------------------------------------



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



The increase in cash flow from operations in 2005 compared to 2004 was primarily the result of improved income
excluding non-cash charges for asbestos and interest and fees on pre-petition debt. Net working capital and the current ratio decreased to $919 million and 1.51, respectively, for 2005 primarily due to the accrual of $735 million of interest and
fees with respect to the Pre-Petition Credit Facility. 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 42 days, from 43 days in 2004. Cash
flow from operations on a comparable basis also reflects contributions of $49 million to the Companys pension plans during 2005, compared to contributions of $231 million in 2004.



Although our spending on additions to plant and equipment increased to $288 million in 2005 from $232 million in 2004, overall
investing activities consumed only $283 million in cash during 2005, compared to $320 million during 2004. The decrease in net cash used in investing activities during 2005 is primarily attributable to:



| |  |  | A decrease in the amount of cash invested in affiliates or used to acquire new entities in 2005 compared to 2004.
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | Larger proceeds from the sale of surplus assets during 2005 than 2004.
| | - |  | ----------------------------------------------------------------------



Total spending for capital and investments, including investments in affiliates net of cash acquired, was $302 million in 2005 and $328 million in 2004. Under expected
market conditions, we anticipate that 2006 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.



Financing activities resulted in a use of cash of $30 million in
2005 compared to $24 million in 2004. The use of cash in 2005 primarily relates to payments of $13 million to reduce outstanding debt in China, payments of $14 million to reduce debt in India partially offset by $7 million in new borrowings in
India, and payments of approximately $6 million on short term debt in Asia. The cash usage in 2004 includes payments of $20 million to reduce outstanding debt in India.



At December 31, 2005, we had $2.952 billion of debt subject to compromise and $55 million of other debt. At December 31, 2004, we
had $2.958 billion of debt subject to compromise and $80 million of other debt. Of the other debt amounts for 2005 and 2004, $7 million was in default as a consequence of the Filing and therefore classified as current on the Consolidated Balance
Sheet.



The Company has significant liabilities related to pension plans for
its employees. The Company contributed $49 million to the pension plans in 2005. The Company currently projects additional contributions in the range of $40 million to $60 million during 2006. The Companys pension-related assets decreased to
$471 million at December 31, 2005, from $499 million at December 31, 2004, primarily due to additional service costs, interest cost accrued and amortization of prior actuarial losses exceeding contributions to the pension plans and
return on plan assets. The Companys recorded long-term pension plan liability decreased to $684 million at December 31, 2005, from $731 million at December 31, 2004. 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



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



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, 2005; however, approximately $169 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.



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 maintain 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 23 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.



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



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, 2005 are as follows:



|                                                                                  |  |                        |     |      |   |      |  |      |     |      |   |                |  |       |    |  |   |     |  |   |    
|--------------------------------------------------------------------------------- |  | ---------------------- | --- | ---- | - | ---- |  | ---- | --- | ---- | - | -------------- |  | ----- | -- |  | - | --- |  | - | ---
|                                                                                  |  | Payments due by period
|(in millions of dollars)                                                          |  | 2006                   |     | 2007 |   | 2008 |  | 2009 |     | 2010 |   | 2011 andBeyond |  | Total
|Long-term debt obligations                                                        |  | $                      | 17  |      | $ | 19   |  | $    | 5   |      | $ |               |  | $     |   |  | $ |    |  | $ | 41 
|Capital lease obligations                                                         |  |                        | 3   |      |   | 3    |  |      | 3   |      |   | 3              |  |       | 1  |  |   | 5   |  |   | 18 
|Operating lease obligations                                                       |  |                        | 72  |      |   | 57   |  |      | 42  |      |   | 26             |  |       | 18 |  |   | 104 |  |   | 319
|Purchase obligations*                                                             |  |                        | 228 |      |   | 97   |  |      | 82  |      |   | 26             |  |       | 15 |  |   | 26  |  |   | 474
|Other long-term liabilities reflected in the Companys Consolidated Balance Sheet |  |                        |    |      |   |     |  |      |    |      |   |               |  |       |   |  |   |    |  |   |   
|                                                                                  |  |                        |     |      |   |      |  |      |     |      |   |                |  |       |    |  |   |     |  |   |    
|Total                                                                             |  | $                      | 320 |      | $ | 176  |  | $    | 132 |      | $ | 55             |  | $     | 34 |  | $ | 135 |  | $ | 852
|                                                                                  |  |                        |     |      |   |      |  |      |     |      |   |                |  |       |    |  |   |     |  |   |    

---

|* | 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, post-petition interest on pre-petition debt and obligations to fund our employee benefit or pension plans. The Company currently projects contributions to our pension plans in the range of $40 million to $60 million during 2006.



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-



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



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. Approximately half of our inventories are 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, such as 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.



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 bonds rated
AA- or better. The bonds were selected so that the expected cash flows of the pension plan were reasonably matched by available coupons and maturities. In developing the hypothetical portfolio, the use of any specific issue was limited to 30% of the
outstanding bonds available as of the measurement date, and the amount of the projected benefit obligation that could be matched by any one bond issue was limited to 20%. This bond matching exercise supported a discount rate of 5.80% for the pension
plans October 31, 2005 measurement, a decrease from 5.85% in the previous year. The lower discount rate for 2005 reflects market interest rate conditions, which generally increased for short-term instruments and decreased for long-term
instruments. A 25 basis point increase in the discount rate would decrease the U.S. pension projected benefit obligation by approximately $32 million and 2006 pension expense by approximately $2 million. A 25 basis point decrease in the discount
rate would increase the benefit obligation by approximately $33 million and 2006 pension expense by approximately $2 million.



The discount rate for the Companys U.S. postretirement plan was selected using the same method as described for the pension plan. The bond matching exercise
supported a discount rate of 5.80% for the plans October 31, 2005 measurement, a decrease from 5.85% in the previous year. A 25 basis point increase in the discount rate would decrease the U.S. postretirement benefit obligation by
approximately $7 million and 2006 postretirement benefit expense by a nominal amount. A 25 basis point decrease in the discount rate would increase the benefit obligation by approximately $9 million and 2006 postretirement benefit expense by a
nominal amount.



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



The expected return on plan assets was derived by taking into consideration the current plan asset allocation,
historical rates of return on those assets and projected future asset class returns. An asset return model was used to develop an expected range of returns on plan investments over a 20 year period, with the expected rate of return selected from a
best estimate range within the total range of projected results. This process resulted in the selection of an expected return of 7.50% at the October 31, 2004 measurement date, which was used to determine 2005 pension expense. The expected rate of
return used to determine pension expense in 2003 and 2004 was 8.00%. The decrease from 8.00% in 2003 and 2004 to 7.50% in 2005 was the result of a change in the asset allocation. At the October 31, 2005 measurement date, the calculation resulted in
the selection of an expected return on plan assets of 7.50%, which is consistent with the prior year. This rate will be used to determine the Companys 2006 pension expense. A 25 basis point increase (decrease) in return on plan assets
assumption would result in a decrease (increase) of 2006 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 were 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



In November 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).
This statement became effective for the Company as of January 1, 2006. The effect of adoption of this standard is not material.



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. The Company adopted the provisions of this statement during 2005. The effect of
adoption of this standard was not material as none of the Companys previously issued stock-based awards were materially impacted. Additionally, the Company does not expect to issue stock-based compensation while it remains in Chapter 11
proceedings.



In March 2005, the Financial Accounting Standards Board issued
Interpretation Number 47, Accounting for Conditional Asset Retirement Obligations (FIN 47). This statement clarifies the meaning of the term conditional asset retirement as used in Statement of Financial
Accounting Standards No. 143, Accounting for Asset Retirement Obligations, and clarifies when an entity has sufficient information to reasonably estimate the fair value of an asset retirement obligation. The statement requires the
accelerated recognition of certain asset retirement obligations when a fair value of such obligations can be estimated. This statement became effective for the Company in the fourth quarter of 2005. The effect of adoption of this standard was not
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, 2005, a total of 60 such PRP designations remained unresolved by the
Company. In most cases, the Company is only one of many PRPs with potential liability for investigation and remediation at the applicable site. The Company is also involved with environmental investigation or remediation at a number of other sites
at which it has not been designated a PRP.



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, 2005, the Companys
reserve for such liabilities was $13 million. In connection with the Filing, the Company initiated a program to identify and discharge contingent environmental liabilities as part of its plan or plans of reorganization. Under the program, the
Company is seeking settlements, subject to approval of the Bankruptcy Court, with various federal, state, and local authorities, as well as private claimants. On July 23, 2003, the Bankruptcy Court approved one such settlement agreement with the
United States resolving certain environmental liabilities with respect to the EPA. The Company will continue to review its environmental reserve in light of such program and make such adjustments as may be appropriate.



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



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 has issued final regulations for wool fiberglass and mineral wool, amino/phenolic resin manufacturing, wet formed fiberglass mat production, reinforced plastic composites production, and for asphalt roofing
and processing. 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. During 2005, as the result of the Third
Circuits reversal of the District Courts Substantive Consolidation Order and Owens Cornings evaluation of the distributable values (considered on a non-substantively consolidated basis) of Owens Corning and certain of its Debtor
and non-Debtor subsidiaries, the Company accrued post-petition interest and fees related to its Pre-Petition Credit Facility. This facility is exposed to floating interest rates based on the higher of the prime rate or the Federal Funds Rate plus
0.5% (plus, in either case, 2%). This was the only significant change during 2005 to the Companys inventory of exposures or the objectives for managing those exposures. At this time, no significant changes are anticipated in 2006.



To mitigate some of the near term volatility in our earnings and cash flows, the Company
manages certain of our 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. 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 23 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. The Company enters into various forward and option contracts, 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 of financial instruments used to limit exposure to foreign currency
risk was an asset of less than $1 million at December 31, 2005, and a liability of approximately $2 million at December 31, 2004. 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 for each year.



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



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. As described above, the Companys Pre-Petition Credit Facility is exposed to floating interest rates. The total outstanding balance of the credit facility, including all accrued interest and fees, was approximately $2.186 billion as
of December 31, 2005. The effective interest rate for 2005 was 8.87 percent. If the market interest rates underlying this facility increase by a full percentage point, interest expense for 2006 would increase by approximately $22 million. Annual
cash flow is not impacted by interest rate changes since we are not currently paying interest on pre-petition debt.



During 2005 and 2004, the Company also held interest rate sensitive securities in the Fibreboard Settlement Trust. At December 31, 2005 and 2004, the net fair value of
these investments was approximately $1.371 billion and $1.355 billion, respectively. The potential loss in fair value resulting from a 10% adverse shift in quoted interest rates would be approximately $11 million for 2005 and $7 million for 2004.



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 swap contracts to protect against changes in natural gas prices on a rolling 12-36 month forward
basis; however, no financial instruments are currently used to protect against changes in raw material costs. At December 31, 2005, the net fair value of such swap contracts was an asset of approximately $21 million, compared to a liability of
approximately $3 million at December 31, 2004. The potential loss in fair value resulting from a 10% adverse change in the underlying commodity prices would be approximately $14 million and $6 million for 2005 and 2004, 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 delivering finished goods to customers. The Company utilizes cash-settled heating oil swap
contracts to protect against changes in diesel fuel costs on a rolling 12-36 month forward basis. At December 31, 2005, the net fair value of these contracts was a liability of less than $1 million, compared to an asset of approximately $1 million
at December 31, 2004. The potential loss in fair value resulting from a 10% adverse change in the underlying commodity prices would be approximately $2 million and $1 million for 2005 and 2004, respectively. This amount excludes the offsetting
impact of the price risk inherent in the physical purchase of the underlying commodities.



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



Pages 74 through 158 of this filing are incorporated here by reference.



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



Owens Corning has nothing to report under this Item.



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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)), (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 74 hereof and is incorporated here by reference. PricewaterhouseCoopers LLPs 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 75 hereof.



There have not been any changes in the Companys internal control over financial reporting during 2005 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial
reporting.



ITEM 9B. OTHER INFORMATION



Following Bankruptcy
Court approval on January 26, 2006, Owens Corning has amended its pre-existing Key Management Severance Agreements with David T. Brown, President and Chief Executive Officer, and Michael H. Thaman, Chairman of the Board and Chief Financial Officer,
as of February 20, 2006. The amended sections include the definitions of Change of Control and Constructive Termination, provision for reimbursement with respect to certain taxes and the pro rata payment of certain incentive
payments, and the duration of the agreements. Copies of the amended and restated agreements are filed as Exhibit (10) to this Form 10-K.



Also following Bankruptcy Court approval on January 26, 2006, Owens Corning has continued the Key Employee Retention Plan that will be utilized for calendar year 2006
under its Bankruptcy Court-approved retention program. A copy of the 2006 plan is filed as Exhibit (10) to this Form 10-K.



The Compensation Committee of the Board of Directors also has approved, subject to Bankruptcy Court approval, the funding measures applicable to Owens Cornings
Corporate Incentive Plan for the 2006 performance period and for Owens Cornings Long Term Incentive Plan for the 2006-2008 performance period, as follows:



| | 1. | The funding measures applicable to the Corporate Incentive Plan for the 2006 performance period are Income From Operations (weighted at 75%) and Cash Flow From
Operations (weighted at 25%).
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | The funding measures applicable to the Long Term Incentive Plan for the 2006-2008 performance period are Average Annual Return On Net Assets (weighted at 75%) and
cumulative Earnings Before Interest, Taxes, Depreciation and Amortization during the performance period (weighted at 25%).
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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PART III



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF OWENS CORNING



INFORMATION CONCERNING DIRECTORS



At
January 31, 2006, 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, 2006, Owens Corning has not scheduled an annual meeting of stockholders for 2006 or any subsequent period.



Information concerning each director of Owens Corning as of January 31, 2006, is set forth
below.



Class Expiring At First Succeeding Annual Meeting Of
Stockholders



Gaston Caperton, 65. 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 the Southern Growth Policy Board.



William W. Colville, 71. 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, 66. 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., 68. 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 of $3 billion 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, 61.
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 member of the Board of Trustees of the Thunderbird School of International Management, and a member of Financo Global Consulting.



W. Walker Lewis,61. 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.



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



Mr. Lewis is a director of Ameriprise Financial, Inc. and Mrs. Fields Original Cookies, Inc. and is Chairman of
Applied Predictive Technologies. He is also a member of the Council on Foreign Relations and the Washington Institute of Foreign Affairs.



Michael H. Thaman, 41. Chairman of the Board and Chief Financial Officer, Owens Corning. Director since January 2002.



A graduate of Princeton University, Mr. Thaman joined Owens Corning in 1992. He was elected
Chairman of the Board 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 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.,64. 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 School of
Management. He is the recipient of the degree of Doctor of Economics honoris causa from Purdue University, granted jointly by the Krannert School of Management and School of Liberal Arts. He has also been awarded The Ellis Island Medal of Honor.



David T. Brown, 57. 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 beginning in 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 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, 68. Former President and Professor of Biology of The University of Alabama at Birmingham,
Birmingham, AL. Director since 1993.



A graduate of Kansas State Teachers
College and the University of Iowa, Dr. Reynolds previously served as Chancellor of the City University of New York System 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,
Invitrogen 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 pages 18 to 19 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 pages 18 to 19 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, 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 2005.



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, utilizing the definition for
audit committee independence of the New York Stock Exchange, Inc.



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.



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



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 2005.



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.



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 2005 and the four other highest paid individuals who were serving as executive officers of Owens Corning at the end of 2005 (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, 2005.



|                                                                                              |  |              |        |                       |         |                             |        |  |                                  |     |  |                                  |  |                                           |  |                             |        |  |                           |          
|--------------------------------------------------------------------------------------------- |  | ------------ | ------ | --------------------- | ------- | --------------------------- | ------ |  | -------------------------------- | --- |  | -------------------------------- |  | ----------------------------------------- |  | --------------------------- | ------ |  | ------------------------- | ---------
|                                                                                              |  |              |        |                       |         |                             |        |  |                                  |     |  | Long Term Compensation           |  |                                           |  |                            
|Annual Compensation                                                                           |  |              | Awards |                       | Payouts |                             |        |  |                                 
|Name and Principal
Position(1)                                                                |  | Year         |        | Salary ($)            |         | Bonus ($)(2)                |        |  | Other Annual Compensation ($)(3) |     |  | Restricted Stock Award(s) ($)(4) |  | Securities Underlying Options/ SARs(#)(5) |  | LTIP Payouts ($)            |        |  | All OtherCompensation ($) |          
|David T. BrownPresident and Chief Executive Officer                                           |  | 200520042003 |        | 750,000750,000750,000 |         | 2,856,1953,062,6401,470,000 | (6)(6) |  |                                  |     |  |                                  |  |                                           |  | 3,750,0003,008,2502,625,000 | (6)(6) |  | 10,5006,25010,000         | (7)(7)(7)
|Michael H. ThamanChairman of the Board and Chief Financial Officer                            |  | 200520042003 |        | 650,000650,000650,000 |         | 1,823,4521,902,680828,000   | (6)(6) |  |                                  |     |  |                                  |  |                                           |  | 3,185,0002,483,0002,145,000 | (6)(6) |  | 10,5005,41710,000         | (7)(7)(7)
|George E. KiemleVice President and President, Insulating Systems Business                     |  | 200520042003 |        | 320,124284,625275,000 |         | 703,389788,819270,000       | (6)(6) |  |                                  |     |  |                                  |  |                                           |  | 791,774652,361577,500       | (6)(6) |  | 10,50010,25010,000        | (7)(7)(7)
|Joseph C. HighSenior Vice President, HumanResources                                           |  | 20052004     |        | 325,000325,000        |         | 976,918803,316              | (6)    |  | 54,258                           | (3) |  |                                  |  |                                           |  | 585,000744,900              | (6)    |  | 10,50010,250              | (7)(7)   
|David L. JohnsSenior Vice President and Chief Supply Chain and Information Technology Officer |  | 200520042003 |        | 367,500367,500367,500 |         | 718,301643,421264,000       | (6)(6) |  |                                  |     |  |                                  |  |                                           |  | 992,250842,310771,750       | (6)(6) |  | 10,50010,25010,000        | (7)(7)(7)

---

|(1) | Mr. High joined Owens Corning in January 2004.
|--- | ----------------------------------------------



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ITEM 11. EXECUTIVE COMPENSATION (continued)



|(2) | In addition to payments under Owens Cornings annual Corporate Incentive Plan, the amounts shown for 2005 include payments under Owens Cornings Key Employee Retention
Plan as follows: Mr. Brown, $750,000; Mr. Thaman, $650,000; Mr. Kiemle, $286,000; Mr. High, $325,000 and Mr. Johns, $276,000.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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. In 2004, Mr. High received $54,258 as payment of certain taxes on a sign-on bonus.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | There were no restricted stock awards to any of the Named Executive Officers in 2003, 2004, or 2005.
|--- | ----------------------------------------------------------------------------------------------------

At the end of 2005, Messrs. Brown and Thaman each held a total of 3,333 shares of restricted stock, valued at $9,999; Messrs. Kiemle and Johns each held a
total of 1,333 shares of restricted stock, valued at $3,999; 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, 2005 (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 2003, 2004, or 2005.
|--- | --------------------------------------------------------------------------------------------------------------------------------

|(6) | The amounts reflected in the LTIP Payouts column for 2003 and 2004 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 2005.



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 2005 by the Named Executive Officers, and the aggregate values of these officers unexercised options at the end of 2005. None of the Named Executive Officers held stock appreciation rights
(SARs) at December 31, 2005.



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ITEM 11. EXECUTIVE COMPENSATION (continued)



Aggregated Option/SAR Exercises in 2005, and 12/31/05 Option/SAR Values



|                  |  |                                |                            |                    |                            |                                                                          |  |                                                                
|----------------- |  | ------------------------------ | -------------------------- | ------------------ | -------------------------- | ------------------------------------------------------------------------ |  | ---------------------------------------------------------------
|Name              |  | SharesAcquired on Exercise (#) |                            | Value Realized ($) |                            | Number of Securities Underlying Unexercised Options/SARs at 12/31/05 (#) |  | Value ofUnexercised In-the-Money Options/SARs at 12/31/05($)(1)
|                  |  |                                | Exercisable/ Unexercisable |                    | Exercisable/ Unexercisable
|David T. Brown    |  | 0                            |                            | 0                |                            | 88,000/0                                                                 |  | 0/0                                                            
|Michael H. Thaman |  | 0                            |                            | 0                |                            | 70,657/0                                                                 |  | 0/0                                                            
|George E. Kiemle  |  | 0                            |                            | 0                |                            | 46,000/0                                                                 |  | 0/0                                                            
|Joseph C. High    |  | 0                            |                            | 0                |                            | 0/0                                                                      |  | 0/0                                                            
|David L. Johns    |  | 0                            |                            | 0                |                            | 27,478/0                                                                 |  | 0/0                                                            

---

|(1) | No options were in-the-money at December 31, 2005.
|--- | --------------------------------------------------



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, 2005 and will conclude on December 31, 2007, with payouts, if any, in early 2008. 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 2005



|                  |  |                                           |               |                                                      |            |                                                                |             |           |  |          
|----------------- |  | ----------------------------------------- | ------------- | ---------------------------------------------------- | ---------- | -------------------------------------------------------------- | ----------- | --------- |  | ---------
|Name              |  | Number ofShares, Units orOther Rights (#) |               | Performance orOther Period UntilMaturation or Payout |            | Estimated Future Payouts under Non-Stock Price-Based Plans (1)
|                  |  |                                           | Threshold ($) |                                                      | Target ($) |                                                                | Maximum ($)
|David T. Brown    |  | 0                                         |               | 1/1/05-12/31/07                                      |            | 0                                                              |             | 1,875,000 |  | 3,750,000
|Michael H. Thaman |  | 0                                         |               | 1/1/05-12/31/07                                      |            | 0                                                              |             | 1,592,500 |  | 3,185,000
|George E. Kiemle  |  | 0                                         |               | 1/1/05-12/31/07                                      |            | 0                                                              |             | 438,750   |  | 877,500  
|Joseph C. High    |  | 0                                         |               | 1/1/05-12/31/07                                      |            | 0                                                              |             | 438,750   |  | 877,500  
|David L. Johns    |  | 0                                         |               | 1/1/05-12/31/07                                      |            | 0                                                              |             | 496,125   |  | 992,250  

---

|(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 at or below the
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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ITEM 11. EXECUTIVE COMPENSATION (continued)



| | threshold level. The estimates of potential future payouts displayed in the table are based on salaries at the start of the current year; 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 through at least June 30, 2006. 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, $374,638; Mr. Thaman, $341,690; Mr. Kiemle, $190,371; Mr. High, $46,923; and Mr. Johns, $120,315. 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 and currently applicable benefit accrual percentage.



Supplemental Executive Retirement Plan -Owens Corning maintains a Supplemental Executive Retirement Plan (SERP) covering certain employees, including
Mr. High and Mr. Johns, 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 and 1.1 in the case of Mr. Johns. The estimated annual annuity amounts payable to Mr. High and Mr. Johns to satisfy the lump sum obligation under this plan at age 65, under the assumptions described in the preceding paragraph, are
$112,615 and $132,346, respectively, less the annualized offset due to prior employment.



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ITEM 11. EXECUTIVE COMPENSATION (continued)



Other Arrangements - 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 2005, 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 2005
annual performance period, the funding measures set by the Compensation Committee were 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 2005 performance period are reflected in the Summary Compensation Table above.



Effective beginning with calendar year 2004, Owens Corning maintains a Key Employee Retention Plan (KERP) to provide an incentive to designated key employees
to remain in the employ of the Company through the date of the Companys emergence from Chapter 11. During 2005, the KERP applied to each of the Named Executive Officers; for 2006, the KERP applies to each of the Named Executive Officers except
Messrs. Brown and Thaman. 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, 2005 and 2006. Cash awards paid to the Named Executive Officers under the KERP for calendar year
2005 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 actual or constructive employment termination and, in
the case of Messrs. Brown and Thaman, reimbursement with respect to certain taxes. The base salaries of the Named Executive Officers for 2006 remained unchanged from 2005, as follows: Mr. Brown, $750,000; Mr. Thaman, $650,000; Mr. Kiemle, $325,000;
Mr. High, $325,000; and Mr. Johns, $367,500.



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. 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 additional annual retainer of $7,500.



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ITEM 11. EXECUTIVE COMPENSATION (continued)



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 2005.



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 2005.



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 2005, BBH was paid fees of approximately $767,000 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 2005, BBH earned fees of approximately $117,000 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 December 15, 2005 and December 31, 2005,
respectively, for those listed) were:



|                                                                     |  |                                                                                                                 |  |           |     |  |     
|-------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------- |  | --------- | --- |  | ----
|NAME                                                                 |  | ADDRESS                                                                                                         |  | SHARES    |     |  | %   
|Harbert Distressed Investment Master 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
|                                                                     |  |                                                                                                                 | 
|Glenview Capital Management, LLC And related entities                |  | 399 Park Avenue Floor 39 New York, New York 10022                                                               |  | 2,913,500 | (1) |  | 5.3 

---

|(1) | Shared 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, 2006, Owens Corning employees, including officers, beneficially owned 953,789 shares (1.7%) 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, 2006, 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 Nature Of Beneficial Ownership |             
|Norman P. Blake, Jr.                                                                   |  | 4,620                                     | (3)         
|David T. Brown                                                                         |  | 86,918                                    | (1)(2)      
|Gaston Caperton                                                                        |  | 12,032                                    | (1)(3)      
|William W. Colville                                                                    |  | 0                                         |             
|Joseph C. High                                                                         |  | 0                                         |             
|Landon Hilliard                                                                        |  | 7,075                                     | (3)         
|Ann Iverson.                                                                           |  | 12,532                                    | (1)(3)      
|David L. Johns                                                                         |  | 31,350                                    | (1)(2)      
|George E. Kiemle                                                                       |  | 41,448                                    | (1)(2)      
|W. Walker Lewis                                                                        |  | 4,120                                     | (3)         
|W. Ann Reynolds                                                                        |  | 6,327                                     | (3)(4)      
|Robert B. Smith, Jr.                                                                   |  | 0                                         |             
|Michael H. Thaman                                                                      |  | 82,722                                    | (1)(2)      
|All Directors and Executive Officers (including Named Executive Officers) (20 persons) |  | 359,075                                   | (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, 2006, as follows: Mr. Brown, 76,000; Mr. Caperton, 10,000; Ms. Iverson, 10,000; Mr. Johns, 27,478; Mr. Kiemle, 38,500; Mr. Thaman, 70,657; All Directors and Executive Officers (20 persons), 297,957.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes shares over which there is sole voting power, but no investment power, as follows: Mr. Brown, 3,333; Mr. Johns, 1,333; Mr. Kiemle, 1,333; Mr. Thaman, 3,333; All Directors
and Executive Officers (20 persons), 10,665.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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 (20 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 (20
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 Petition Date will be resolved under the Plan or some other Chapter 11 plan of reorganization to be voted on in the Chapter 11 Cases in accordance with the provisions of
the Bankruptcy Code. The Plan (and any other plan of reorganization) is subject to confirmation by the Bankruptcy Court.



The Plan currently provides that, after the payment of secured and priority claims, the residual distributable value of Owens Corning will generally be
allocated ratably in the form of cash and new common stock to holders of allowed general unsecured claims against Owens Corning (other than holders of claims under the Pre-Petition Credit Facility), including asbestos claimants, bondholders, trade
creditors and other general unsecured creditors. 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.



The Plan currently contemplates that most classes of pre-petition unsecured
creditors of Owens Corning will be impaired. Therefore, the Plan 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.



In addition, the Plan provides that a majority of the
common stock of reorganized Owens Corning will be held by a trust established pursuant to Section 524(g) of the Bankruptcy Code that will assume all asbestos-related liability of Owens Corning, Fibreboard, and the other entities set forth in the
Plan and will make payments to claimants in accordance with the trust distribution procedures included as part of the Plan. 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 provided for fees not to exceed $150,000 plus reimbursement of certain expenses. Performance under such contract commenced in 2004 and continued into 2005. In March 2005, Owens Corning entered into a three-year contract with APT for use of
the APT market analysis tools during the contract period. The three-year contract provides for license and support fees of approximately $457,000 per year, installation fees of approximately $195,000 for the three month installation project, and
reimbursement of certain expenses. APT was paid approximately $816,000 during 2005 under both the completed pilot contract and the new three-year contract ($75,000 of which were accrued, but not paid, under the pilot contract in 2004). 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, 2005 and 2004 are as follows:



|                          |  |                           |       |      |   |      
|------------------------- |  | ------------------------- | ----- | ---- | - | -----
|                          |  | 2005                      |       | 2004
|                          |  | (in thousands of dollars)
|Audit Fees (1)            |  | $                         | 3,600 |      | $ | 4,192
|Audit-Related Fees (2)(3) |  |                           | 108   |      |   | 226  
|Tax Fees (2)(4)           |  |                           | 15    |      |   | 173  
|All Other Fees (2) (5)    |  |                           | 10    |      |   | 12   
|                          |  |                           |       |      |   |      
|Total fees                |  | $                         | 3,733 |      | $ | 4,603
|                          |  |                           |       |      |   |      

---

|(1) | Amounts shown reflect fees for the years ended December 31, 2005 and 2004, respectively.
|--- | ----------------------------------------------------------------------------------------

|(2) | Amounts shown reflect fees billed in the years ended December 31, 2005 and 2004, respectively.
|--- | ----------------------------------------------------------------------------------------------

|(3) | Amounts shown for 2005 are for audits of foreign employee benefit plans and other miscellaneous foreign statutory reporting requirements. Amounts shown for 2004 are for due
diligence work associated with acquisitions and divestitures, audits of foreign employee benefit plans and review of accounting for certain business transactions.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Amounts shown for 2005 are for tax compliance services related to value added taxes for a foreign entity. Amounts shown for 2004 relate to tax services rendered prior to 2002.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Amounts shown include fees related to benchmarking services and accounting research software.
|--- | ---------------------------------------------------------------------------------------------



The above amounts do not include $80 thousand and $69 thousand of fees billed in 2005 and 2004, 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 registered public accounting firm 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 registered public accounting firm 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 Consolidated Financial Statements on page 73 hereof.
|-- | -----------------------------------------------------------------



|2. | See Index to Financial Statement Schedule on page 159 hereof.
|-- | -------------------------------------------------------------



|3. | See Exhibit Index beginning on page 161 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 February 21, 2006
|              |  | 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 February 21, 2006
| |  | David T. Brown, President,                |  |                       
| |  | Chief Executive Officer and Director      |  |                       
| |  |                                          
| |  | /s/ Michael H. Thaman                     |  | Date February 21, 2006
| |  | Michael H. Thaman, Chairman of the Board, |  |                       
| |  | Chief Financial Officer and Director      |  |                       
| |  |                                          
| |  | /s/ Roy D. Dean                           |  | Date February 21, 2006
| |  | Roy D. Dean, Vice President and           |  |                       
| |  | Corporate Controller                      |  |                       
| |  |                                          
| |  | /s/ Norman P. Blake, Jr.                  |  | Date February 21, 2006
| |  | Norman P. Blake, Jr., Director            |  |                       
| |  |                                          
| |  | /s/ Gaston Caperton                       |  | Date February 21, 2006
| |  | Gaston Caperton, Director                 |  |                       
| |  |                                          
| |  | /s/ William W. Colville                   |  | Date February 21, 2006
| |  | William W. Colville, Director             |  |                       
| |  |                                          
| |  | /s/ Landon Hilliard                       |  | Date February 21, 2006
| |  | Landon Hilliard, Director                 |  |                       
| |  |                                          
| |  | /s/ Ann Iverson                           |  | Date February 21, 2006
| |  | Ann Iverson, Director                     |  |                       
| |  |                                          
| |  | /s/ W. Walker Lewis                       |  | Date February 21, 2006
| |  | W. Walker Lewis, Director                 |  |                       
| |  |                                          
| |  | /s/ W. Ann Reynolds                       |  | Date February 21, 2006
| |  | W. Ann Reynolds, Director                 |  |                       
| |  |                                          
| |  | /s/ Robert B. Smith, Jr.                  |  | Date February 21, 2006
| |  | 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                                       |  | 74      
|                                                                                                       | 
|Report of Independent Registered Public Accounting Firm                                                |  | 75 -76  
|                                                                                                       | 
|Consolidated Statement of Income (Loss) - for the years ended December 31, 2005, 2004 and 2003         |  | 77      
|                                                                                                       | 
|Consolidated Balance Sheet - December 31, 2005 and 2004                                                |  | 78 - 79 
|                                                                                                       | 
|Consolidated Statement of Stockholders Deficit - for the years ended December 31, 2005, 2004 and 2003 |  | 80      
|                                                                                                       | 
|Consolidated Statement of Cash Flows - for the years ended December 31, 2005, 2004 and 2003            |  | 81      
|                                                                                                       | 
|Notes to Consolidated Financial Statements Notes 1 through 25                                          |  | 82 - 158



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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, 2005. 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, 2005, 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 report
on our assessment of the effectiveness of the Companys internal control over financial reporting. Such audit report begins on page 75.



|                                      |  |                       
|------------------------------------- |  | ----------------------
|/s/ David T. Brown                    |  | Date February 21, 2006
|David T. Brown,                       |  |                       
|President and Chief Executive Officer |  |                       
|                                      | 
|/s/ Michael H. Thaman                 |  | Date February 21, 2006
|Michael H. Thaman,                    |  |                       
|Chairman of the Board and             |  |                       
|Chief Financial Officer               |  |                       







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LOGO



Report of Independent Registered Public Accounting Firm



To the Board of Directors and Stockholders of Owens Corning:



We have
completed integrated audits of Owens Cornings 2005 and 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2005, and an audit of its 2003 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 at
December 31, 2005 and December 31, 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 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 financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and 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 consolidated 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 plan in regard to this matter is also described in Note 1. The consolidated financial statements do
not include any adjustments that might result from the outcome of this uncertainty.



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LOGO



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 74, that the Company maintained effective internal control over financial reporting as of December 31, 2005 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, 2005, 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.



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



PricewaterhouseCoopers LLP



February 21, 2006



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OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME (LOSS)

FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003



|                                                                                                    |  |                                      |        |   |      |   |       |      |  |   |       |  
|--------------------------------------------------------------------------------------------------- |  | ------------------------------------ | ------ | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                                                                                    |  | 2005                                 |        |   | 2004 |   |       | 2003 | 
|                                                                                                    |  | (In millions, except per share data) |       
|NET SALES                                                                                           |  | $                                    | 6,323  |   |      | $ | 5,675 |      |  | $ | 4,996 |  
|COST OF SALES                                                                                       |  |                                      | 5,165  |   |      |   | 4,649 |      |  |   | 4,170 |  
|                                                                                                    |  |                                      |        |   |      |   |       |      |  |   |       |  
|Gross margin                                                                                        |  |                                      | 1,158  |   |      |   | 1,026 |      |  |   | 826   |  
|                                                                                                    |  |                                      |        |   |      |   |       |      |  |   |       |  
|OPERATING EXPENSES                                                                                  |  |                                      |        |   |      |   |       |      |  |   |       |  
|Marketing and administrative expenses                                                               |  |                                      | 565    |   |      |   | 530   |      |  |   | 459   |  
|Science and technology expenses                                                                     |  |                                      | 58     |   |      |   | 47    |      |  |   | 43    |  
|Restructure costs                                                                                   |  |                                      |       |   |      |   |      |      |  |   | (2    | )
|Chapter 11 related reorganization items                                                             |  |                                      | 45     |   |      |   | 54    |      |  |   | 85    |  
|Provision (credit) for asbestos litigation claims (recoveries) - Owens Corning                      |  |                                      | 3,365  |   |      |   | (24   | )    |  |   | (5    | )
|Provision for asbestos litigation claims - Fibreboard                                               |  |                                      | 902    |   |      |   |      |      |  |   |      |  
|Other                                                                                               |  |                                      | (34    | ) |      |   | (8    | )    |  |   | (21   | )
|                                                                                                    |  |                                      |        |   |      |   |       |      |  |   |       |  
|Total operating expenses                                                                            |  |                                      | 4,901  |   |      |   | 599   |      |  |   | 559   |  
|                                                                                                    |  |                                      |        |   |      |   |       |      |  |   |       |  
|INCOME (LOSS) FROM OPERATIONS                                                                       |  |                                      | (3,743 | ) |      |   | 427   |      |  |   | 267   |  
|                                                                                                    |  |                                      |       
|Interest expense (income), net                                                                      |  |                                      | 739    |   |      |   | (12   | )    |  |   | 8     |  
|                                                                                                    |  |                                      |        |   |      |   |       |      |  |   |       |  
|INCOME (LOSS) BEFORE INCOME TAXES                                                                   |  |                                      | (4,482 | ) |      |   | 439   |      |  |   | 259   |  
|                                                                                                    |  |                                      |       
|Income tax expense (benefit)                                                                        |  |                                      | (387   | ) |      |   | 227   |      |  |   | 145   |  
|                                                                                                    |  |                                      |        |   |      |   |       |      |  |   |       |  
|INCOME (LOSS) BEFORE MINORITY INTEREST AND EQUITY IN NET INCOME (LOSS) OF AFFILIATES                |  |                                      | (4,095 | ) |      |   | 212   |      |  |   | 114   |  
|                                                                                                    |  |                                      |       
|Minority interest and equity in net earnings of affiliates                                          |  |                                      | (4     | ) |      |   | (8    | )    |  |   | 1     |  
|                                                                                                    |  |                                      |        |   |      |   |       |      |  |   |       |  
|NET INCOME (LOSS)                                                                                   |  | $                                    | (4,099 | ) |      | $ | 204   |      |  | $ | 115   |  
|                                                                                                    |  |                                      |        |   |      |   |       |      |  |   |       |  
|NET INCOME (LOSS) PER COMMON SHARE                                                                  |  |                                      |        |   |      |   |       |      |  |   |       |  
|Basic net income (loss) per share                                                                   |  | $                                    | (74.08 | ) |      | $ | 3.68  |      |  | $ | 2.08  |  
|                                                                                                    |  |                                      |        |   |      |   |       |      |  |   |       |  
|Diluted net income (loss) per share                                                                 |  | $                                    | (74.08 | ) |      | $ | 3.40  |      |  | $ | 1.92  |  
|                                                                                                    |  |                                      |        |   |      |   |       |      |  |   |       |  
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING AND COMMON EQUIVALENT SHARES DURING THE PERIOD |  |                                      |        |   |      |   |       |      |  |   |       |  
|Basic                                                                                               |  |                                      | 55.3   |   |      |   | 55.3  |      |  |   | 55.2  |  
|Diluted                                                                                             |  |                                      | 55.3   |   |      |   | 59.9  |      |  |   | 59.9  |  



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



---

##### Table of Contents

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OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

DECEMBER 31, 2005 AND 2004



|                                                             |  |                          |        |   |      |   |        |  
|------------------------------------------------------------ |  | ------------------------ | ------ | - | ---- | - | ------ | -
|                                                             |  | 2005                     |        |   | 2004 |  
|                                                             |  | (In millions of dollars) |       
|ASSETS                                                       |  |                          |        |   |      |   |        |  
|                                                             |  |                         
|CURRENT                                                      |  |                          |        |   |      |   |        |  
|Cash and cash equivalents                                    |  | $                        | 1,559  |   |      | $ | 1,125  |  
|Receivables, less allowances of $18 million in 2005 and 2004 |  |                          | 608    |   |      |   | 527    |  
|Inventories                                                  |  |                          | 477    |   |      |   | 445    |  
|Other current assets                                         |  |                          | 61     |   |      |   | 31     |  
|                                                             |  |                          |        |   |      |   |        |  
|Total current                                                |  |                          | 2,705  |   |      |   | 2,128  |  
|                                                             |  |                          |        |   |      |   |        |  
|OTHER                                                        |  |                          |        |   |      |   |        |  
|Restricted cash - asbestos and insurance related             |  |                          | 189    |   |      |   | 188    |  
|Restricted cash, securities, and other - Fibreboard          |  |                          | 1,433  |   |      |   | 1,418  |  
|Deferred income taxes                                        |  |                          | 1,432  |   |      |   | 999    |  
|Pension-related assets                                       |  |                          | 471    |   |      |   | 499    |  
|Goodwill                                                     |  |                          | 215    |   |      |   | 198    |  
|Investments in affiliates                                    |  |                          | 77     |   |      |   | 82     |  
|Other noncurrent assets                                      |  |                          | 201    |   |      |   | 117    |  
|                                                             |  |                          |        |   |      |   |        |  
|Total other                                                  |  |                          | 4,018  |   |      |   | 3,501  |  
|                                                             |  |                          |        |   |      |   |        |  
|PLANT AND EQUIPMENT, at cost                                 |  |                          |        |   |      |   |        |  
|Land                                                         |  |                          | 85     |   |      |   | 80     |  
|Buildings and leasehold improvements                         |  |                          | 796    |   |      |   | 803    |  
|Machinery and equipment                                      |  |                          | 3,346  |   |      |   | 3,293  |  
|Construction in progress                                     |  |                          | 177    |   |      |   | 128    |  
|                                                             |  |                          |        |   |      |   |        |  
|                                                             |  |                          | 4,404  |   |      |   | 4,304  |  
|Accumulated depreciation                                     |  |                          | (2,392 | ) |      |   | (2,294 | )
|                                                             |  |                          |        |   |      |   |        |  
|Net plant and equipment                                      |  |                          | 2,012  |   |      |   | 2,010  |  
|                                                             |  |                          |        |   |      |   |        |  
|TOTAL ASSETS                                                 |  | $                        | 8,735  |   |      | $ | 7,639  |  
|                                                             |  |                          |        |   |      |   |        |  



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



---

##### Table of Contents

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OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

DECEMBER 31, 2005 AND 2004 (continued)



|                                                                                                  |  |                          |        |   |      |   |        |  
|------------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | -
|                                                                                                  |  | 2005                     |        |   | 2004 |  
|                                                                                                  |  | (In millions of dollars) |       
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                             |  |                          |        |   |      |   |        |  
|                                                                                                  |  |                         
|CURRENT                                                                                           |  |                          |        |   |      |   |        |  
|Accounts payable and accrued liabilities                                                          |  | $                        | 1,032  |   |      | $ | 909    |  
|Accrued post-petition interest                                                                    |  |                          | 735    |   |      |   |       |  
|Short-term debt                                                                                   |  |                          | 6      |   |      |   | 11     |  
|Long-term debt - current portion                                                                  |  |                          | 13     |   |      |   | 31     |  
|                                                                                                  |  |                          |        |   |      |   |        |  
|Total current                                                                                     |  |                          | 1,786  |   |      |   | 951    |  
|                                                                                                  |  |                          |        |   |      |   |        |  
|LONG-TERM DEBT                                                                                    |  |                          | 36     |   |      |   | 38     |  
|                                                                                                  |  |                          |        |   |      |   |        |  
|OTHER                                                                                             |  |                          |        |   |      |   |        |  
|Pension plan liability                                                                            |  |                          | 684    |   |      |   | 731    |  
|Other employee benefits liability                                                                 |  |                          | 410    |   |      |   | 401    |  
|Other                                                                                             |  |                          | 199    |   |      |   | 178    |  
|                                                                                                  |  |                          |        |   |      |   |        |  
|Total other                                                                                       |  |                          | 1,293  |   |      |   | 1,310  |  
|                                                                                                  |  |                          |        |   |      |   |        |  
|LIABILITIES SUBJECT TO COMPROMISE                                                                 |  |                          | 13,520 |   |      |   | 9,171  |  
|                                                                                                  |  |                          |        |   |      |   |        |  
|COMPANY-OBLIGATED SECURITIES OF ENTITIES HOLDING SOLELY PARENT DEBENTURES - SUBJECT TO COMPROMISE |  |                          | 200    |   |      |   | 200    |  
|                                                                                                  |  |                          |        |   |      |   |        |  
|COMMITMENTS AND CONTINGENCIES (Notes 10, 19 and 23)                                               |  |                          |        |   |      |   |        |  
|MINORITY INTEREST                                                                                 |  |                          | 47     |   |      |   | 49     |  
|                                                                                                  |  |                          |        |   |      |   |        |  
|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    |   |      |   | 692    |  
|Accumulated deficit                                                                               |  |                          | (8,546 | ) |      |   | (4,447 | )
|Accumulated other comprehensive loss                                                              |  |                          | (297   | ) |      |   | (330   | )
|Other                                                                                             |  |                          | (2     | ) |      |   | (1     | )
|                                                                                                  |  |                          |        |   |      |   |        |  
|Total stockholders deficit                                                                       |  |                          | (8,147 | ) |      |   | (4,080 | )
|                                                                                                  |  |                          |        |   |      |   |        |  
|TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT                                                       |  | $                        | 8,735  |   |      | $ | 7,639  |  
|                                                                                                  |  |                          |        |   |      |   |        |  



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



---

##### Table of Contents

- 80 -



OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003



|                                                                                                                                  |  |                          |        |   |      |   |        |      |  |   |        |  
|--------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                                                                  |  | 2005                     |        |   | 2004 |   |        | 2003 | 
|                                                                                                                                  |  | (In millions of dollars) |       
|COMMON STOCK                                                                                                                      |  |                          |        |   |      |   |        |      |  |   |        |  
|Balance beginning and end of year                                                                                                 |  | $                        | 6      |   |      | $ | 6      |      |  | $ | 6      |  
|                                                                                                                                  |  |                          |        |   |      |   |        |      |  |   |        |  
|ADDITIONAL PAID IN CAPITAL                                                                                                        |  |                          |        |   |      |   |        |      |  |   |        |  
|Balance beginning of year                                                                                                         |  |                          | 692    |   |      |   | 690    |      |  |   | 690    |  
|Other                                                                                                                             |  |                          |       |   |      |   | 2      |      |  |   |       |  
|                                                                                                                                  |  |                          |        |   |      |   |        |      |  |   |        |  
|Balance end of year                                                                                                               |  |                          | 692    |   |      |   | 692    |      |  |   | 690    |  
|                                                                                                                                  |  |                          |        |   |      |   |        |      |  |   |        |  
|ACCUMULATED DEFICIT                                                                                                               |  |                          |        |   |      |   |        |      |  |   |        |  
|Balance beginning of year                                                                                                         |  |                          | (4,447 | ) |      |   | (4,651 | )    |  |   | (4,766 | )
|Net income (loss)                                                                                                                 |  |                          | (4,099 | ) |      |   | 204    |      |  |   | 115    |  
|                                                                                                                                  |  |                          |        |   |      |   |        |      |  |   |        |  
|Balance end of year                                                                                                               |  |                          | (8,546 | ) |      |   | (4,447 | )    |  |   | (4,651 | )
|                                                                                                                                  |  |                          |       
|ACCUMULATED OTHER COMPREHENSIVE LOSS                                                                                              |  |                          |        |   |      |   |        |      |  |   |        |  
|Balance beginning of year                                                                                                         |  |                          |        |   |      |   |        |      |  |   |        |  
|Currency translation adjustment                                                                                                   |  |                          | 103    |   |      |   | 33     |      |  |   | (59    | )
|Minimum pension liability adjustment                                                                                              |  |                          | (428   | ) |      |   | (403   | )    |  |   | (337   | )
|Deferred gains (losses) on hedging transactions                                                                                   |  |                          | (5     | ) |      |   | (1     | )    |  |   | 1      |  
|                                                                                                                                  |  |                          |        |   |      |   |        |      |  |   |        |  
|Balance at beginning of year                                                                                                      |  |                          | (330   | ) |      |   | (371   | )    |  |   | (395   | )
|                                                                                                                                  |  |                          |       
|Adjustments                                                                                                                       |  |                          |        |   |      |   |        |      |  |   |        |  
|Currency translation adjustment                                                                                                   |  |                          | (19    | ) |      |   | 70     |      |  |   | 92     |  
|Minimum pension liability adjustment (net of taxes of $13 million in 2005, $13 million in 2004, and $14 million in 2003)          |  |                          | 35     |   |      |   | (25    | )    |  |   | (66    | )
|Deferred gains (losses) on hedging transactions (net of taxes of $6 million in 2005, $1 million in 2004, and $1 million in
2003.) |  |                          | 17     |   |      |   | (4     | )    |  |   | (2     | )
|                                                                                                                                  |  |                          |        |   |      |   |        |      |  |   |        |  
|Other comprehensive income                                                                                                        |  |                          | 33     |   |      |   | 41     |      |  |   | 24     |  
|Balance end of year                                                                                                               |  |                          |        |   |      |   |        |      |  |   |        |  
|Currency translation adjustment                                                                                                   |  |                          | 84     |   |      |   | 103    |      |  |   | 33     |  
|Minimum pension liability adjustment                                                                                              |  |                          | (393   | ) |      |   | (428   | )    |  |   | (403   | )
|Deferred gains (losses) on hedging transactions                                                                                   |  |                          | 12     |   |      |   | (5     | )    |  |   | (1     | )
|                                                                                                                                  |  |                          |        |   |      |   |        |      |  |   |        |  
|Balance end of year                                                                                                               |  |                          | (297   | ) |      |   | (330   | )    |  |   | (371   | )
|                                                                                                                                  |  |                          |        |   |      |   |        |      |  |   |        |  
|OTHER                                                                                                                             |  |                          |        |   |      |   |        |      |  |   |        |  
|Balance beginning of year                                                                                                         |  |                          | (1     | ) |      |   | (2     | )    |  |   | (3     | )
|Net increase (decrease)                                                                                                           |  |                          | (1     | ) |      |   | 1      |      |  |   | 1      |  
|                                                                                                                                  |  |                          |        |   |      |   |        |      |  |   |        |  
|Balance end of year                                                                                                               |  |                          | (2     | ) |      |   | (1     | )    |  |   | (2     | )
|                                                                                                                                  |  |                          |        |   |      |   |        |      |  |   |        |  
|STOCKHOLDERS DEFICIT                                                                                                             |  | $                        | (8,147 | ) |      | $ | (4,080 | )    |  | $ | (4,328 | )
|                                                                                                                                  |  |                          |        |   |      |   |        |      |  |   |        |  
|TOTAL COMPREHENSIVE INCOME (LOSS)                                                                                                 |  |                          |        |   |      |   |        |      |  |   |        |  
|Net income (loss)                                                                                                                 |  | $                        | (4,099 | ) |      | $ | 204    |      |  | $ | 115    |  
|Other comprehensive income (loss)                                                                                                 |  |                          | 33     |   |      |   | 41     |      |  |   | 24     |  
|                                                                                                                                  |  |                          |        |   |      |   |        |      |  |   |        |  
|COMPREHENSIVE INCOME (LOSS)                                                                                                       |  | $                        | (4,066 | ) |      | $ | 245    |      |  | $ | 139    |  
|                                                                                                                                  |  |                          |        |   |      |   |        |      |  |   |        |  



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



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##### Table of Contents

- 81 -



OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003



|                                                                             |  |                          |        |   |      |   |       |      |  |   |       |  
|---------------------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                                                             |  | 2005                     |        |   | 2004 |   |       | 2003 | 
|                                                                             |  | (In millions of dollars) |       
|NET CASH FLOW FROM OPERATIONS                                                |  |                          |        |   |      |   |       |      |  |   |       |  
|                                                                             |  |                          |       
|Net income (loss)                                                            |  | $                        | (4,099 | ) |      | $ | 204   |      |  | $ | 115   |  
|Reconciliation of net cash flow from operations:                             |  |                          |        |   |      |   |       |      |  |   |       |  
|Noncash items:                                                               |  |                          |        |   |      |   |       |      |  |   |       |  
|Provision for asbestos litigation claims                                     |  |                          | 4,277  |   |      |   |      |      |  |   |      |  
|Provision for depreciation                                                   |  |                          | 231    |   |      |   | 228   |      |  |   | 206   |  
|Provision for impairment of fixed assets                                     |  |                          | 8      |   |      |   | 7     |      |  |   | 28    |  
|Provision (credit) for deferred income taxes                                 |  |                          | (467   | ) |      |   | 133   |      |  |   | 51    |  
|Provision for pension and other employee benefits liabilities                |  |                          | 113    |   |      |   | 120   |      |  |   | 126   |  
|Provision for post-petition interest/fees on pre-petition debt               |  |                          | 735    |   |      |   |      |      |  |   |      |  
|Other                                                                        |  |                          | 4      |   |      |   | 20    |      |  |   | 62    |  
|Increase in receivables                                                      |  |                          | (94    | ) |      |   | (23   | )    |  |   | (27   | )
|(Increase) decrease in inventories                                           |  |                          | (42    | ) |      |   | (42   | )    |  |   | 11    |  
|Increase (decrease) in accounts payable and accrued liabilities              |  |                          | 163    |   |      |   | 69    |      |  |   | (67   | )
|Proceeds from insurance for asbestos litigation claims, excluding Fibreboard |  |                          | 10     |   |      |   | 24    |      |  |   | 5     |  
|Pension fund contribution                                                    |  |                          | (49    | ) |      |   | (231  | )    |  |   | (185  | )
|Payments for other employee benefits liabilities                             |  |                          | (29    | ) |      |   | (34   | )    |  |   | (30   | )
|Increase in restricted cash - asbestos and insurance related                 |  |                          | (1     | ) |      |   | (22   | )    |  |   | (1    | )
|Increase in restricted cash, securities, and other - Fibreboard              |  |                          | (15    | ) |      |   | (23   | )    |  |   | (30   | )
|Other                                                                        |  |                          | 1      |   |      |   | 19    |      |  |   | 31    |  
|                                                                             |  |                          |        |   |      |   |       |      |  |   |       |  
|Net cash flow from operations                                                |  |                          | 746    |   |      |   | 449   |      |  |   | 295   |  
|                                                                             |  |                          |        |   |      |   |       |      |  |   |       |  
|NET CASH FLOW FROM INVESTING                                                 |  |                          |        |   |      |   |       |      |  |   |       |  
|Additions to plant and equipment                                             |  |                          | (288   | ) |      |   | (232  | )    |  |   | (208  | )
|Investment in subsidiaries and affiliates, net of cash acquired              |  |                          | (14    | ) |      |   | (96   | )    |  |   | (25   | )
|Proceeds from the sale of assets or affiliates                               |  |                          | 19     |   |      |   | 8     |      |  |   | 88    |  
|                                                                             |  |                          |        |   |      |   |       |      |  |   |       |  
|Net cash flow from investing                                                 |  | $                        | (283   | ) |      | $ | (320  | )    |  | $ | (145  | )
|                                                                             |  |                          |        |   |      |   |       |      |  |   |       |  
|NET CASH FLOW FROM FINANCING                                                 |  |                          |        |   |      |   |       |      |  |   |       |  
|Proceeds from long-term debt                                                 |  | $                        | 9      |   |      | $ |      |      |  | $ | 10    |  
|Payments on long-term debt                                                   |  |                          | (31    | ) |      |   | (21   | )    |  |   | (56   | )
|Net increase (decrease) in short-term debt                                   |  |                          | (6     | ) |      |   |      |      |  |   | 3     |  
|Net decrease in liabilities subject to compromise                            |  |                          | (3     | ) |      |   | (5    | )    |  |   |      |  
|Other                                                                        |  |                          | 1      |   |      |   | 2     |      |  |   |      |  
|                                                                             |  |                          |        |   |      |   |       |      |  |   |       |  
|Net cash flow from financing                                                 |  |                          | (30    | ) |      |   | (24   | )    |  |   | (43   | )
|                                                                             |  |                          |        |   |      |   |       |      |  |   |       |  
|Effect of exchange rate changes on cash                                      |  |                          | 1      |   |      |   | 15    |      |  |   | 23    |  
|                                                                             |  |                          |        |   |      |   |       |      |  |   |       |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                    |  |                          | 434    |   |      |   | 120   |      |  |   | 130   |  
|                                                                             |  |                          |       
|Cash and cash equivalents at beginning of year                               |  |                          | 1,125  |   |      |   | 1,005 |      |  |   | 875   |  
|                                                                             |  |                          |        |   |      |   |       |      |  |   |       |  
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                   |  | $                        | 1,559  |   |      | $ | 1,125 |      |  | $ | 1,005 |  
|                                                                             |  |                          |        |   |      |   |       |      |  |   |       |  
|DISCLOSURE OF CASH FLOW INFORMATION                                          |  |                          |        |   |      |   |       |      |  |   |       |  
|Cash paid during the year for income taxes                                   |  | $                        | 51     |   |      | $ | 38    |      |  | $ | 27    |  
|Cash paid during the year for interest expense                               |  | $                        | 6      |   |      | $ | 9     |      |  | $ | 5     |  



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



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##### Table of Contents

- 82 -



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, it is possible that certain of such Non-Debtor Subsidiaries,
namely IPM, Inc., Vytec Corporation and Owens-Corning Fiberglas Sweden Inc., that issued guarantees with respect to Owens Cornings primary pre-petition bank credit facility (the Pre-Petition Credit Facility), may initiate Chapter
11 proceedings in order to be covered by the terms of the Plan (as defined below). The timing of any such filing would permit the inclusion of such entities as part of the Plan confirmation process.



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, all of 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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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 (the Official Committee of Asbestos Claimants) and the other
representing unsecured creditors (the Official Committee of 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 Petition Date will be resolved under the Plan (as defined below) or some other Chapter 11 plan of reorganization to be 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 (the Fourth Amended Plan) in the USBC on October 24, 2003.



On December 31, 2005, the Debtors, together with the Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants,
filed a proposed fifth amended joint plan of reorganization (as so amended through such fifth amendment, the Plan) in the USBC along with a related disclosure statement (the Disclosure Statement). The steering committee of
holders of obligations under the Pre-Petition Credit Facility supports the Plan pursuant to the terms of the letter, dated December 30, 2005, appended as Appendix K to the Disclosure Statement. Certain other members of the major non-asbestos
creditor groups have indicated that they may oppose the Plan. There can be no assurance that the Plan or any other plan supported by Owens Corning and less than all of the major creditor groups will be ultimately confirmed by the Bankruptcy Court
and consummated. The Debtors have the exclusive right to file and solicit acceptances to a plan of reorganization through July 31, 2006. In addition, 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 the Plan (or any other plan of reorganization) or its effect, if any, on the terms thereof. The Plan (and any other plan of reorganization) is subject to confirmation by the
Bankruptcy Court.



The Plan has been significantly amended from the Fourth
Amended Plan. In particular, the Plan is no longer 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. On October 5, 2004, the District Court
issued a Memorandum and Order Concerning Substantive Consolidation (the Substantive Consolidation Order). In the Substantive Consolidation Order, the



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



District Court granted the Debtors motion for substantive consolidation. On October 13, 2004, the holders of the debt under the Pre-Petition Credit
Facility filed an appeal of the Substantive Consolidation Order with the Third Circuit. On August 15, 2005, the Third Circuit reversed the Substantive Consolidation Order. The Legal Representative for the class of future asbestos personal injury
claimants and certain designated members of the Official Committee of Unsecured Creditors subsequently filed petitions for rehearing en banc of the Third Circuits decision. Those petitions for rehearing were denied by the Third Circuit on
September 28, 2005. The Legal Representative for the class of future asbestos personal injury claimants and certain bondholders have filed petitions for certiorari with the United States Supreme Court with respect to the Third Circuits
decision on the Substantive Consolidation Order.



As previously disclosed, as a
result of the Third Circuits reversal of the District Courts Substantive Consolidation Order and Owens Cornings evaluation of the distributable values (considered on a non-substantively consolidated basis) of Owens Corning and
certain of its Debtor and non-Debtor subsidiaries, Owens Corning recorded, for the period ended September 30, 2005, expenses with respect to the Pre-Petition Credit Facility for the period from the Petition Date through September 30, 2005 in the
amount of $538 million relating to post-petition interest and certain other post-petition fees. With respect to post-petition interest, such expenses reflected the application of the Base Rate plus 2% (as described below) applied on a
non-compounding basis. The Plan provides that, if the holders of debt under the Pre-Petition Credit Facility are deemed unimpaired, or are deemed to be impaired and the class of such holders accepts the Plan, (and the Plan is confirmed and becomes
effective) then the holders of debt under the Pre-Petition Credit Facility will be paid an amount in cash which reflects post-petition interest with respect to the Pre-Petition Credit Facility on a compounding basis (compounded quarterly) and
Facility Fees (as defined in the Pre-Petition Credit Facility). In light of such terms of the Plan, Owens Corning (i) has recorded, for the period ended December 31, 2005, additional expenses of $147 million for the period from the Petition Date
through September 30, 2005, and (ii) has recorded, for the quarter ended December 31, 2005, additional expenses of $50 million reflecting post-petition interest with respect to the Pre-Petition Credit Facility on a compounding basis (compounded
quarterly) and post-petition fees, including Facility Fees. However, this estimate is based on numerous factual and legal uncertainties, including the interpretation of contractual provisions concerning such interest and other fees, and Owens
Corning reserves the right to object, if and as appropriate in its judgment, to the ultimate entitlements to such interest and other fees and to the amount of such interest and other fees in the Chapter 11 Cases (or other proceedings) in the event
the holders of debt under the Pre-Petition Credit Facility are deemed impaired and vote against the Plan. Absent developments that alter Owens Cornings view of the likelihood of amounts that may be paid under the Plan to holders of debt under
the Pre-Petition Credit Facility, Owens Corning expects to continue to accrue interest on the Pre-Petition Credit Facility in future periods, to the extent required under applicable law, at a rate equal to the Base Rate plus 2%, applied on a
compounding basis (compounded quarterly), and post-petition fees, including Facility Fees. The Base Rate (as defined in the Pre-Petition Credit Facility) is a floating rate equal to the higher of (i) the prime commercial lending rate of Credit
Suisse First Boston and (ii) the Federal Funds Rate plus 0.50% per annum. Actual amounts of post-petition interest and other fees, if any, that are ultimately determined payable under the Pre-Petition Credit Facility for the period from the Petition
Date through December 31, 2005 or for future periods may be significantly higher or lower than the amounts indicated above.



A six-day claims estimation hearing was held before the District Court beginning January 13, 2005 to establish the amount of Owens Cornings and Fibreboards
current and future asbestos liability in the Chapter 11 Cases. In general, the holders of the debt under the Pre-Petition Credit Facility argued that the amount of such 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



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



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. On March 31, 2005, the District Court issued a Memorandum and Order estimating the total amount of contingent and unliquidated claims against Owens Corning for personal injury or death caused by exposure to asbestos (including pending claims,
future claims and contract claims) at $7 billion. After the District Court denied their motion for reconsideration, the holders of the debt under the Pre-Petition Credit Facility, as well as certain other parties, appealed the District Courts
ruling to the Third Circuit. Certain parties have filed briefs with respect to such appeal, but the briefing has not yet been completed and oral arguments have not yet been scheduled. As a result of the District Courts estimation, Owens
Corning increased its reserve for potential asbestos-related liability by $3.435 billion for the period ended March 31, 2005, so that its recorded reserve equaled the level of asbestos liability estimated by the District Court (see Note 19 to the
Consolidated Financial Statements). Although the District Courts Memorandum and Order did not specifically address the potential asbestos-related liability of Fibreboard, based upon the analysis that the District Court had followed in
establishing estimated asbestos liability for Owens Corning, Owens Corning also increased Fibreboards recorded reserve for potential asbestos-related liability by $907 million for the period ended March 31, 2005.



Related Developments



PROPOSED ASBESTOS LEGISLATION



Senators Arlen Specter (R-PA) and Patrick Leahy (D-VT) co-sponsored an asbestos litigation reform bill (S-852) introduced in the United
States Senate on April 19, 2005. The proposed legislation is entitled the Fairness in Asbestos Injury Resolution Act of 2005 (the FAIR Act).



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



The proposed legislation was voted out of the Senate Judiciary Committee on May 26, 2005. On
February 15, 2006, the U.S. Senate failed to secure the votes required to waive a budget point of order that was raised against the proposed legislation.



The legislative fate of the FAIR Act remains uncertain, and Owens Corning is unable to predict 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 the Plan (or any other plan of reorganization), including in the event that the effective date of the Plan has not occurred prior to the enactment of the FAIR Act.
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 less than the amounts reserved for in Owens
Cornings financial statements.



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



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 voluntarily continued by the movants on a monthly basis.



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



As described above, on December 31, 2005, the Debtors, together with the Official Committee
of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants, filed the Plan and the related Disclosure Statement. The steering committee of holders of obligations under the Pre-Petition Credit Facility supports the
Plan pursuant to the terms of the letter, dated December 30, 2005, appended to the Disclosure Statement as Appendix K. In light of the Third Circuits reversal of the Substantive Consolidation Order described above, the current Plan is premised
upon non-consolidation of the Debtors, including separate classification and treatment of the claims against and interests in each of the Debtors. In addition, 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 USBC has set July 10, 17 and 18, 2006 as hearing dates on the confirmation of the Plan. At this time, Owens
Corning is unable to predict the outcome of the hearing on the confirmation of the Plan or the final terms of the Plan (or other plan of reorganization) as may ultimately be confirmed.



As set forth in the Plan and the Disclosure Statement, the Plan currently provides that, after the payment of secured and priority claims,
the residual distributable value of Owens Corning will generally be allocated ratably in the form of cash and new common stock to holders of allowed general unsecured claims against Owens Corning (other than holders of claims under the Pre-Petition
Credit Facility, which



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



will receive the treatment described below), including asbestos claimants, bondholders, trade creditors and other general unsecured creditors. 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, which are described in detail in the Disclosure Statement, include, among other things, the value of
the shares of new common stock and notes to be issued by Owens Corning, the amount of cash available for distribution, and the outcome of the voting on the Plan. As to Fibreboard, the Plan contemplates that the assets available to satisfy Fibreboard
liabilities (which are primarily asbestos-related liabilities) will be limited to the assets of the Fibreboard Settlement Trust and certain other specified assets.



As described in greater detail in the Plan and Disclosure Statement, if the holders of debt under the Pre-Petition Credit Facility are
deemed unimpaired, or are deemed to be impaired and the class of such holders accepts the Plan, (and the Plan is confirmed and becomes effective) then the holders of debt under the Pre-Petition Credit Facility will be paid cash in an aggregate
amount equal to the amount of their allowed claims plus post-petition interest on a compounding basis (compounded quarterly) and Facility Fees (as defined in the Pre-Petition Credit Facility) under the Pre-Petition Credit Facility. If the holders of
debt under the Pre-Petition Credit Facility are deemed to be impaired and the class of such holders rejects the Plan, then the holders of debt under the Pre-Petition Credit Facility will be paid cash and cash pay notes in an amount to be determined
by the Bankruptcy Court. As previously disclosed, as of December 31, 2005, Owens Corning has recorded expenses of $735 million reflecting post-petition interest with respect to the Pre-Petition Credit Facility on a compounding basis (compounded
quarterly) and post-petition fees, including Facility Fees. However, this estimate is based on numerous factual and legal uncertainties, including the interpretation of contractual provisions concerning such interest and other fees, and Owens
Corning reserves the right to object, if and as appropriate in its judgment, to the ultimate entitlements to such interest and other fees and to the amount of such interest and other fees in the Chapter 11 Cases (or other proceedings) in the event
the holders of debt under the Pre-Petition Credit Facility are deemed impaired and vote against the Plan. Absent developments that alter Owens Cornings view of the likelihood of amounts that may be paid under the Plan to holders of debt under
the Pre-Petition Credit Facility, Owens Corning expects to continue to accrue interest on the Pre-Petition Credit Facility in future periods, to the extent required under applicable law, at a rate equal to the Base Rate plus 2%, applied on a
compounding basis (compounded quarterly), and post-petition fees, including Facility Fees. The Base Rate (as defined in the Pre-Petition Credit Facility) is a floating rate equal to the higher of (i) the prime commercial lending rate of Credit
Suisse First Boston and (ii) the Federal Funds Rate plus 0.50% per annum. Actual amounts of post-petition interest and other fees, if any, that are ultimately determined payable under the Pre-Petition Credit Facility for the period from the Petition
Date through December 31, 2005 or for future periods may be significantly higher or lower than the amounts indicated above.



As described above, the Plan (which is co-proposed by the Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos
claimants) provides that Owens Corning asbestos claimants will receive a partial payment proportionately similar to other general unsecured creditors of Owens Corning. In order to estimate the amount of the current and future asbestos personal
injury claims in the Chapter 11 Cases, a six-day claims estimation hearing 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 such asbestos liability should be set at a significantly higher level. On March 31, 2005, the District Court issued a Memorandum and Order estimating the total amount of



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



contingent and unliquidated claims against Owens Corning for personal injury or death caused by exposure to asbestos (including pending claims, future claims
and contract claims) at $7 billion. As a result of the District Courts estimation, Owens Corning increased its reserve for potential asbestos-related liability by $3.435 billion for the period ended March 31, 2005, so that its recorded reserve
equaled the level of asbestos liability estimated by the District Court. Although the District Courts Memorandum and Order did not specifically address the potential asbestos-related liability of Fibreboard, based upon the analysis that the
District Court had followed in establishing estimated asbestos liability for Owens Corning, Owens Corning also increased Fibreboards recorded reserve for potential asbestos-related liability by $907 million for the period ended March 31, 2005.
After the District Court denied their motion for reconsideration, the holders of the debt under the Pre-Petition Credit Facility, as well as certain other parties, appealed the District Courts estimation ruling to the Third Circuit. Certain
parties have filed briefs with respect to this appeal, but the briefing has not yet been completed and oral arguments have not yet been scheduled.



Under the Plan, a trust, which is intended to qualify under section 524(g) of the Bankruptcy Code (the 524(g) Trust), will be created from which asbestos
claimants will be paid. The Plan provides that a majority of the newly issued common stock of reorganized Owens Corning, as well as cash, the assets of the existing Fibreboard Settlement Trust (see Note 20 to the Consolidated Financial Statements)
and specified other assets, will fund the 524(g) Trust. The 524(g) Trust will, through separate sub-accounts for Owens Corning and Fibreboard, assume all asbestos-related liability of Owens Corning, Fibreboard and the other entities set forth in the
Plan and will, through those separate sub-accounts, make payments to claimants in accordance with the trust distribution procedures included as part of the Plan. The Plan contemplates that the assets of the Fibreboard Settlement Trust and certain
other specified assets will fund only the separate Fibreboard sub-account and, as a result, those amounts will not be available under the Plan to pay claims against Owens Corning. Conversely, only the assets in the Fibreboard sub-account will be
available to pay claims against Fibreboard. 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, their respective
subsidiaries, and certain of their affiliates, for the purpose of, directly or indirectly, collecting, recovering or receiving payment of, on, or with respect to any asbestos claims which will be subject to the 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 permanent
injunction barring the assertion of asbestos-related claims or demands against the reorganized company and channeling those claims to an independent trust.



As previously noted, the Plan currently contemplates that most classes of pre-petition unsecured creditors of Owens Corning will be impaired. Therefore, the Plan 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.



In general, in light of the Third Circuits reversal of the Substantive Consolidation Order, intercompany claims are classified
separately under the Plan but receive treatment similar to that of other unsecured claims. However, as described more fully in the Plan, holders of allowed intercompany claims do not receive distributions of new common stock and cash on account of
such claims but, instead, are credited with value on account of such claims. In addition, the arrangements, transactions and relationships that gave rise to certain intercompany claims 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



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



any, may have an impact on the treatment of various claims under the Plan or any other plan ultimately confirmed and on the respective assets, liabilities
and results of operations of Owens Corning and its direct and indirect subsidiaries.



Although they have not filed Chapter 11 Cases at the present time, Owens Corning reserves the right to initiate Chapter 11 proceedings on behalf of three subsidiaries, IPM, Inc., Vytec Corporation and Owens-Corning Fibreglas Sweden Inc.,
that issued guarantees with respect to the Pre-Petition Credit Facility, in the event Owens Corning deems it necessary to do so in order for such subsidiaries to be covered by the terms of the Plan. The timing of any such filing would permit the
inclusion of such entities as part of the Plan confirmation process.



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 Petition Date. 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.



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.



The Bankruptcy Court may confirm a
plan of reorganization only upon making certain findings required by the Bankruptcy Code, and a plan may be confirmed over the dissent of non-accepting creditors and equity security holders if certain requirements of the Bankruptcy Code are met. In
this respect, the Plan provides for certain cramdown provisions, whereby the Plan may 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.



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). Generally, 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. As to the Pre-Petition Credit Facility, the claim total reflects only a single claim (in the amount of approximately $1.6 billion) although the holders have asserted this claim against Owens
Corning and each of six other Debtors that issued a guarantee with respect to the facility. Owens Corning continues to investigate the filed claims to determine their validity. The Bankruptcy Court will ultimately determine liability amounts that
will be allowed for claims in the Chapter 11 Cases.



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



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, 2005, approximately 7,000 of the Objectionable Claims, totaling approximately $5.7 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, 2005, approximately 1,000 of these claims, totaling approximately $0.4 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.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Approximately 100 claims, totaling approximately $0.6 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 $534 million, in connection with taxes (see discussion regarding the tax claims and related 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 (see discussion of this claim and pending settlement 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 $95 million, of which approximately $28 million are protective claims covering contracts which have not been rejected by the Debtors as of December 31,
2005.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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 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 3,300 proofs of claim (in addition to claims described above under General Bar Date), totaling approximately $2.6 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.



As described above, on March 31, 2005, the District Court issued a Memorandum and Order estimating the total amount of contingent and unliquidated claims against Owens Corning for personal injury or death caused by
exposure to asbestos (including pending claims, future claims and contract claims) at $7 billion. After the District Court denied their motion for reconsideration, the holders of the debt under the Pre-Petition Credit Facility, as well as certain
other parties, appealed the District Courts ruling to the Third Circuit. Certain parties have filed briefs with respect to such appeal, but the briefing has not yet been completed and oral arguments have not yet been scheduled. The Memorandum
and Order did not specifically address the potential asbestos-related liability of Fibreboard. In addition, the Memorandum and Order did not address whether a bar date would be established for asbestos-related personal injury or wrongful death
claims as to either Owens Corning or Fibreboard.



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
Cases. As part of their review of potentially avoidable transactions, the Debtors (1) negotiated



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



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



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 Cases.



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



The adversary actions were commenced against various other defendants seeking, among other
things, (a) avoidance of certain guarantees and certain preferential payments made in connection with Owens Cornings Pre-Petition Credit Facility (the Pre-Petition Credit Facility Action); (b) the return of up to approximately $515
million paid by the Company to shareholders of Fibreboard in connection with the Companys purchase of Fibreboard in 1997 (the FBD Shareholder Action); (c) the return of up to approximately $61.8 million paid by the Company to
shareholders in dividends in the period 1996 through 2000 (the Dividend Action); and (d) the return of approximately $133 million paid by the Company to Bank of America Corp. in connection with Owens Cornings purchase of Fibreboard
in 1997. Both the FBD Shareholder Action and the Dividend Action are defendant class actions. Certain present or former officers or directors of the Company may be members of either or both defendant classes.



Certain holders of Owens Corning debt securities have filed a Complaint in Intervention in
connection with the Pre-Petition Credit Facility Action, seeking to assert securities fraud related claims against five subsidiaries of Owens Corning that issued guarantees in connection with the Pre-Petition Credit Facility. The Company has opposed
such intervention. On January 20, 2006, the official representatives of the bondholder and trade creditor constituencies of Owens Corning filed a motion for leave to file an amended complaint in intervention in connection with the Pre-Petition
Credit Facility Action and to seek authority to prosecute existing claims and commence others on behalf of the Debtors estates (the Derivative Complaint). The Plan contemplates that the claims belonging to the Debtors under the
Pre-Petition Credit Facility Action, which are the subject of the Derivative Complaint, will be released. However, Owens Corning is currently unable to predict the outcome of the hearing on the confirmation of the Plan or the final terms of the Plan
(or other plan of reorganization), including the applicable release provisions, as may ultimately be confirmed.



Separately, and at the request of the Official Committee of Unsecured Creditors 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



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



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



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. On or about October 3, 2005 similar lawsuits were brought against 2 additional law firms whose tolling agreements were
about to expire and who could not be contacted to extend the tolling agreements because of Hurricane Katrina. The Official Committee of Unsecured Creditors 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 Committee of Unsecured Creditors and Bankruptcy Court approval.



By motions filed on various dates, the Debtors have requested a stay of the foregoing
litigation pending its disposition in the Plan (or any other plan of reorganization). Pursuant to rulings of the Bankruptcy Court, all of the foregoing litigation, other than the Pre-Petition Credit Facility Action and two commercial preference
actions, has been stayed.



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.



While operating in Chapter 11 proceedings, a
debtor company is generally prohibited from paying interest on unsecured pre-petition debts. As a result of the Filing, contractual interest expense on pre-petition debt of the Debtors other than the Pre-Petition Credit Facility has not been accrued
or recorded since the Petition Date. From the Petition Date through December 31, 2005, the contractual interest expense not accrued or recorded on such pre-petition debt (calculated using ordinary, non-default interest rates and without regard to
debt maturity) totaled approximately $538 million, of which $26 million relate to the fourth quarter of 2005, $103 million relate to the twelve months ended December 31, 2005, and $26 million and $102 million, respectively, relate to the same two
periods of 2004. As previously disclosed, as a result of the Third Circuits reversal of the District Courts Substantive Consolidation Order and Owens Cornings evaluation of the distributable values (considered on a
non-substantively consolidated basis) of Owens Corning and certain of its Debtor and non-Debtor subsidiaries, Owens Corning recorded, for the period ended September 30, 2005, expenses with respect to the Pre-Petition Credit Facility for the period
from the Petition Date through September 30, 2005 in the amount of $538 million relating to post-petition interest and certain other post-petition fees. With respect to post-petition interest, such expenses reflected the application of the Base Rate
plus 2% applied on a non-compounding basis. Owens Corning notes that the Plan provides that, if the holders of debt under the Pre-Petition Credit Facility are deemed unimpaired, or are deemed to be impaired and the class of such holders accepts the
Plan, (and the Plan is confirmed and becomes effective) then the holders of debt under the Pre-Petition Credit Facility will be paid an amount in cash which reflects post-petition interest with respect to the Pre-Petition Credit Facility on a
compounding basis (compounded quarterly) and Facility Fees (as defined in the Pre-Petition Credit Facility). In light of such terms of the Plan, Owens Corning (i) has recorded, for the period ended December 31, 2005, additional expenses of $147
million for the period from the Petition Date through September 30, 2005, and (ii) has recorded, for the quarter ended December 31, 2005, additional expenses of $50 million reflecting post-petition interest with respect to the



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



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



Pre-Petition Credit Facility on a compounding basis (compounded quarterly) and post-petition fees, including Facility Fees. However, this estimate is based
on numerous factual and legal uncertainties, including the interpretation of contractual provisions concerning such interest and other fees, and Owens Corning reserves the right to object, if and as appropriate in its judgment, to the ultimate
entitlements to such interest and other fees and to the amount of such interest and other fees in the Chapter 11 Cases (or other proceedings) in the event the holders of debt under the Pre-Petition Credit Facility are deemed impaired and vote
against the Plan. Absent developments that alter Owens Cornings view of the likelihood of amounts that may be paid under the Plan to holders of debt under the Pre-Petition Credit Facility, Owens Corning expects to continue to accrue interest
on the Pre-Petition Credit Facility in future periods, to the extent required under applicable law, at a rate equal to the Base Rate (as defined in the Pre-Petition Credit Facility) plus 2%, applied on a compounding basis (compounded quarterly), and
post-petition fees, including Facility Fees. The Base Rate (as defined in the Pre-Petition Credit Facility) is a floating rate equal to the higher of (i) the prime commercial lending rate of Credit Suisse First Boston and (ii) the Federal Funds Rate
plus 0.50% per annum. Actual amounts of post-petition interest and other fees, if any, that are ultimately determined payable under the Pre-Petition Credit Facility for the period from the Petition Date through December 31, 2005 or for future
periods may be significantly higher or lower than the amounts indicated above.



At December 31, 2005, the Company had $1.559 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, 2005;
however, approximately $169 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 the Plan (or any other plan 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, the Plan (or any other 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.



As noted above, the Consolidated Financial Statements reflect expenses with respect to the Pre-Petition Credit Facility in the amount of $735 million relating to
post-petition interest and certain other post-petition fees for the period from the Petition Date through December 31, 2005. Since the Company is in default on the debt underlying these amounts, the accrual is recorded as a current liability on the
Consolidated Financial Statements.



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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, 2005, 2004 AND 2003



|                                                                             |  |                          |        |   |      |   |       |      |  |   |       |  
|---------------------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                                                             |  | 2005                     |        |   | 2004 |   |       | 2003 | 
|                                                                             |  | (In millions of dollars) |       
|NET SALES                                                                    |  | $                        | 5,410  |   |      | $ | 4,870 |      |  | $ | 4,338 |  
|COST OF SALES                                                                |  |                          | 4,540  |   |      |   | 4,118 |      |  |   | 3,735 |  
|                                                                             |  |                          |        |   |      |   |       |      |  |   |       |  
|Gross margin                                                                 |  |                          | 870    |   |      |   | 752   |      |  |   | 603   |  
|                                                                             |  |                          |        |   |      |   |       |      |  |   |       |  
|OPERATING EXPENSES                                                           |  |                          |        |   |      |   |       |      |  |   |       |  
|Marketing and administrative expenses                                        |  |                          | 493    |   |      |   | 466   |      |  |   | 405   |  
|Science and technology expenses                                              |  |                          | 51     |   |      |   | 41    |      |  |   | 37    |  
|Restructure costs                                                            |  |                          |       |   |      |   |      |      |  |   | (1    | )
|Chapter 11 related reorganization items                                      |  |                          | 45     |   |      |   | 54    |      |  |   | 85    |  
|Owens Corning provision (credit) for asbestos litigation claims (recoveries) |  |                          | 3,365  |   |      |   | (24   | )    |  |   | (5    | )
|Fibreboard provision for asbestos litigation claims                          |  |                          | 902    |   |      |   |      |      |  |   |      |  
|Other                                                                        |  |                          | (90    | ) |      |   | (49   | )    |  |   | (68   | )
|                                                                             |  |                          |        |   |      |   |       |      |  |   |       |  
|Total operating expenses                                                     |  |                          | 4,766  |   |      |   | 488   |      |  |   | 453   |  
|                                                                             |  |                          |        |   |      |   |       |      |  |   |       |  
|INCOME (LOSS) FROM OPERATIONS                                                |  |                          | (3,896 | ) |      |   | 264   |      |  |   | 150   |  
|                                                                             |  |                          |       
|Interest income (expense), net                                               |  |                          | (740   | ) |      |   | (2    | )    |  |   | (3    | )
|                                                                             |  |                          |       
|Interest income from non-Debtors                                             |  |                          | 57     |   |      |   | 56    |      |  |   | 56    |  
|                                                                             |  |                          |        |   |      |   |       |      |  |   |       |  
|INCOME (LOSS) BEFORE INCOME TAXES                                            |  |                          | (4,579 | ) |      |   | 318   |      |  |   | 203   |  
|                                                                             |  |                          |       
|Income tax expense (benefit)                                                 |  |                          | (419   | ) |      |   | 173   |      |  |   | 135   |  
|                                                                             |  |                          |        |   |      |   |       |      |  |   |       |  
|INCOME (LOSS) BEFORE EQUITY IN NET INCOME (LOSS) OF AFFILIATES               |  |                          | (4,160 | ) |      |   | 145   |      |  |   | 68    |  
|                                                                             |  |                          |       
|Equity in net income of affiliates                                           |  |                          | 1      |   |      |   | 1     |      |  |   |      |  
|                                                                             |  |                          |        |   |      |   |       |      |  |   |       |  
|NET INCOME (LOSS)                                                            |  | $                        | (4,159 | ) |      | $ | 146   |      |  | $ | 68    |  
|                                                                             |  |                          |        |   |      |   |       |      |  |   |       |  



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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, 2005 AND 2004



|                                                           |  |                          |        |   |      |   |        |  
|---------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | -
|                                                           |  | 2005                     |        |   | 2004 |  
|                                                           |  | (In millions of dollars) |       
|ASSETS                                                     |  |                          |        |   |      |   |        |  
|                                                           |  |                         
|CURRENT                                                    |  |                          |        |   |      |   |        |  
|Cash and cash equivalents                                  |  | $                        | 1,126  |   |      | $ | 725    |  
|Receivables, net of allowance for doubtful accounts        |  |                          | 458    |   |      |   | 408    |  
|Receivables - non-Debtors                                  |  |                          | 1,165  |   |      |   | 1,085  |  
|Inventories                                                |  |                          | 320    |   |      |   | 295    |  
|Other current assets                                       |  |                          | 46     |   |      |   | 34     |  
|                                                           |  |                          |        |   |      |   |        |  
|Total current                                              |  |                          | 3,115  |   |      |   | 2,547  |  
|                                                           |  |                          |        |   |      |   |        |  
|OTHER                                                      |  |                          |        |   |      |   |        |  
|Restricted cash and other - asbestos and insurance related |  |                          | 189    |   |      |   | 188    |  
|Restricted cash, securities and other - Fibreboard         |  |                          | 1,433  |   |      |   | 1,418  |  
|Deferred income taxes                                      |  |                          | 1,326  |   |      |   | 887    |  
|Pension-related assets                                     |  |                          | 387    |   |      |   | 415    |  
|Goodwill                                                   |  |                          | 66     |   |      |   | 55     |  
|Investments in affiliates                                  |  |                          | 31     |   |      |   | 30     |  
|Investments in non-Debtor subsidiaries                     |  |                          | 762    |   |      |   | 762    |  
|Other noncurrent assets                                    |  |                          | 154    |   |      |   | 68     |  
|                                                           |  |                          |        |   |      |   |        |  
|Total other                                                |  |                          | 4,348  |   |      |   | 3,823  |  
|                                                           |  |                          |        |   |      |   |        |  
|PLANT AND EQUIPMENT, at cost                               |  |                          |        |   |      |   |        |  
|Land                                                       |  |                          | 37     |   |      |   | 39     |  
|Buildings and leasehold improvements                       |  |                          | 593    |   |      |   | 597    |  
|Machinery and equipment                                    |  |                          | 2,342  |   |      |   | 2,270  |  
|Construction in progress                                   |  |                          | 121    |   |      |   | 93     |  
|                                                           |  |                          |        |   |      |   |        |  
|                                                           |  |                          | 3,093  |   |      |   | 2,999  |  
|Accumulated depreciation                                   |  |                          | (1,723 | ) |      |   | (1,632 | )
|                                                           |  |                          |        |   |      |   |        |  
|Net plant and equipment                                    |  |                          | 1,370  |   |      |   | 1,367  |  
|                                                           |  |                          |        |   |      |   |        |  
|TOTAL ASSETS                                               |  | $                        | 8,833  |   |      | $ | 7,737  |  
|                                                           |  |                          |        |   |      |   |        |  



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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, 2005 AND 2004 (continued)



|                                                         |  |                          |        |   |      |   |        |  
|-------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | -
|                                                         |  | 2005                     |        |   | 2004 |  
|                                                         |  | (In millions of dollars) |       
|LIABILITIES AND STOCKHOLDERS DEFICIT                    |  |                          |        |   |      |   |        |  
|                                                         |  |                         
|CURRENT                                                  |  |                          |        |   |      |   |        |  
|Accounts payable and accrued liabilities                 |  | $                        | 797    |   |      | $ | 649    |  
|Accounts payable and accrued liabilities - non-Debtors   |  |                          | 19     |   |      |   | 25     |  
|Accrued post-petition interest/fees on pre-petition debt |  |                          | 735    |   |      |   |       |  
|Long-term debt - current portion                         |  |                          | 1      |   |      |   | 1      |  
|                                                         |  |                          |        |   |      |   |        |  
|Total current                                            |  |                          | 1,552  |   |      |   | 675    |  
|                                                         |  |                          |        |   |      |   |        |  
|LONG-TERM DEBT                                           |  |                          | 12     |   |      |   | 7      |  
|                                                         |  |                         
|OTHER                                                    |  |                          |        |   |      |   |        |  
|Pension plan liability                                   |  |                          | 577    |   |      |   | 617    |  
|Other employee benefits liability                        |  |                          | 393    |   |      |   | 384    |  
|Other                                                    |  |                          | 184    |   |      |   | 159    |  
|                                                         |  |                          |        |   |      |   |        |  
|Total other                                              |  |                          | 1,154  |   |      |   | 1,160  |  
|                                                         |  |                          |        |   |      |   |        |  
|LIABILITIES SUBJECT TO COMPROMISE                        |  |                          | 14,180 |   |      |   | 9,831  |  
|                                                         |  |                         
|STOCKHOLDERS DEFICIT                                    |  |                          |        |   |      |   |        |  
|Common stock                                             |  |                          | 6      |   |      |   | 6      |  
|Additional paid in capital                               |  |                          | 692    |   |      |   | 692    |  
|Accumulated deficit                                      |  |                          | (8,430 | ) |      |   | (4,271 | )
|Accumulated other comprehensive loss                     |  |                          | (328   | ) |      |   | (358   | )
|Other                                                    |  |                          | (5     | ) |      |   | (5     | )
|                                                         |  |                          |        |   |      |   |        |  
|Total stockholders deficit                              |  |                          | (8,065 | ) |      |   | (3,936 | )
|                                                         |  |                          |        |   |      |   |        |  
|TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT              |  | $                        | 8,833  |   |      | $ | 7,737  |  
|                                                         |  |                          |        |   |      |   |        |  



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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,
2005, 2004 AND 2003



|                                                                                                                           |  |                          |        |   |      |   |      |      |  |   |      |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                                                                                                           |  | 2005                     |        |   | 2004 |   |      | 2003 | 
|                                                                                                                           |  | (In millions of dollars) |       
|NET CASH FLOW FROM OPERATIONS                                                                                              |  |                          |        |   |      |   |      |      |  |   |      |  
|Net income (loss)                                                                                                          |  | $                        | (4,159 | ) |      | $ | 146  |      |  | $ | 68   |  
|Reconciliation of net cash flow from operations:                                                                           |  |                          |        |   |      |   |      |      |  |   |      |  
|Noncash items:                                                                                                             |  |                          |        |   |      |   |      |      |  |   |      |  
|Provision for asbestos litigation claims                                                                                   |  |                          | 4,277  |   |      |   |     |      |  |   |     |  
|Provision for depreciation                                                                                                 |  |                          | 163    |   |      |   | 163  |      |  |   | 147  |  
|Provision for impairment of fixed assets                                                                                   |  |                          | 8      |   |      |   | 7    |      |  |   | 28   |  
|Provision (credit) for deferred income taxes                                                                               |  |                          | (460   | ) |      |   | 112  |      |  |   | 81   |  
|Provision for pension and other employee benefits liabilities                                                              |  |                          | 101    |   |      |   | 114  |      |  |   | 112  |  
|Provision for post-petition interest/fees on pre-petition debt                                                             |  |                          | 735    |   |      |   |     |      |  |   |     |  
|Other                                                                                                                      |  |                          | 7      |   |      |   | 14   |      |  |   | 48   |  
|Increase in receivables and receivables - non-Debtors                                                                      |  |                          | (125   | ) |      |   | (127 | )    |  |   | (116 | )
|Increase in inventories                                                                                                    |  |                          | (25    | ) |      |   | (17  | )    |  |   | (10  | )
|Increase (decrease) in accounts payable and accrued liabilities and accounts payable and accrued liabilities - non-Debtors |  |                          | 140    |   |      |   | 105  |      |  |   | (33  | )
|Proceeds from insurance for asbestos litigation claims, excluding Fibreboard                                               |  |                          | 10     |   |      |   | 24   |      |  |   | 5    |  
|Pension fund contribution                                                                                                  |  |                          | (40    | ) |      |   | (223 | )    |  |   | (178 | )
|Payments for other employee benefits liabilities                                                                           |  |                          | (28    | ) |      |   | (33  | )    |  |   | (29  | )
|Increase in restricted cash - asbestos and insurance related                                                               |  |                          | (1     | ) |      |   | (22  | )    |  |   | (1   | )
|Increase in restricted cash, securities, and other - Fibreboard                                                            |  |                          | (15    | ) |      |   | (23  | )    |  |   | (30  | )
|Other                                                                                                                      |  |                          | 18     |   |      |   | 8    |      |  |   | 39   |  
|                                                                                                                           |  |                          |        |   |      |   |      |      |  |   |      |  
|Net cash flow from operations                                                                                              |  |                          | 606    |   |      |   | 248  |      |  |   | 131  |  
|                                                                                                                           |  |                          |        |   |      |   |      |      |  |   |      |  
|NET CASH FLOW FROM INVESTING                                                                                               |  |                          |        |   |      |   |      |      |  |   |      |  
|Additions to plant and equipment                                                                                           |  |                          | (196   | ) |      |   | (159 | )    |  |   | (156 | )
|Investment in subsidiaries and affiliates, net of cash acquired                                                            |  |                          | (13    | ) |      |   | (3   | )    |  |   | (5   | )
|Proceeds from the sale of assets or affiliates                                                                             |  |                          | 8      |   |      |   | 2    |      |  |   | 85   |  
|                                                                                                                           |  |                          |        |   |      |   |      |      |  |   |      |  
|Net cash flow from investing                                                                                               |  |                          | (201   | ) |      |   | (160 | )    |  |   | (76  | )
|                                                                                                                           |  |                          |        |   |      |   |      |      |  |   |      |  
|NET CASH FLOW FROM FINANCING                                                                                               |  |                          |        |   |      |   |      |      |  |   |      |  
|Other additions to long-term debt                                                                                          |  |                          |       |   |      |   |     |      |  |   | 2    |  
|Other reductions to long-term debt                                                                                         |  |                          | (1     | ) |      |   |     |      |  |   | (34  | )
|Liabilities subject to compromise                                                                                          |  |                          | (3     | ) |      |   | (5   | )    |  |   |     |  
|Other                                                                                                                      |  |                          |       |   |      |   | (3   | )    |  |   |     |  
|                                                                                                                           |  |                          |        |   |      |   |      |      |  |   |      |  
|Net cash flow from financing                                                                                               |  |                          | (4     | ) |      |   | (8   | )    |  |   | (32  | )
|                                                                                                                           |  |                          |        |   |      |   |      |      |  |   |      |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                                                                  |  |                          | 401    |   |      |   | 80   |      |  |   | 23   |  
|Cash and cash equivalents at beginning of year                                                                             |  |                          | 725    |   |      |   | 645  |      |  |   | 622  |  
|                                                                                                                           |  |                          |        |   |      |   |      |      |  |   |      |  
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                                                 |  | $                        | 1,126  |   |      | $ | 725  |      |  | $ | 645  |  
|                                                                                                                           |  |                          |        |   |      |   |      |      |  |   |      |  



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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:



|                                                       |  |                          |        |      |   |      
|------------------------------------------------------ |  | ------------------------ | ------ | ---- | - | -----
|                                                       |  | 2005                     |        | 2004
|                                                       |  | (In millions of dollars)
|Accounts payable and accrued liabilities               |  | $                        | 227    |      | $ | 209  
|Accrued interest payable                               |  |                          | 40     |      |   | 40   
|Debt                                                   |  |                          | 2,952  |      |   | 2,958
|Income taxes payable                                   |  |                          | 85     |      |   | 90   
|Reserve for asbestos litigation claims - Owens Corning |  |                          | 7,000  |      |   | 3,565
|Reserve for asbestos-related claims - Fibreboard       |  |                          | 3,216  |      |   | 2,309
|                                                       |  |                          |        |      |   |      
|Total consolidated                                     |  |                          | 13,520 |      |   | 9,171
|                                                       |  |                         
|Payables to non-Debtors                                |  |                          | 660    |      |   | 660  
|                                                       |  |                          |        |      |   |      
|Total Debtor                                           |  | $                        | 14,180 |      | $ | 9,831
|                                                       |  |                          |        |      |   |      



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:



|                             |  |                          |     |   |      |   |     |      |  |   |     |  
|---------------------------- |  | ------------------------ | --- | - | ---- | - | --- | ---- |  | - | --- | -
|                             |  | 2005                     |     |   | 2004 |   |     | 2003 | 
|                             |  | (In millions of dollars) |    
|Professional fees            |  | $                        | 64  |   |      | $ | 63  |      |  | $ | 63  |  
|Payroll and compensation     |  |                          | 20  |   |      |   | 16  |      |  |   | 12  |  
|Investment income            |  |                          | (39 | ) |      |   | (28 | )    |  |   | (35 | )
|Loss on settlement of claims |  |                          |    |   |      |   |    |      |  |   | 39  |  
|Other, net                   |  |                          |    |   |      |   | 3   |      |  |   | 6   |  
|                             |  |                          |     |   |      |   |     |      |  |   |     |  
|Total                        |  | $                        | 45  |   |      | $ | 54  |      |  | $ | 85  |  
|                             |  |                          |     |   |      |   |     |      |  |   |     |  



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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 2004 and 2003
Consolidated Financial Statements to conform with the classifications used in 2005.



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 and contractual obligation, as applicable.



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 advertisement takes place.
Marketing and advertising costs include advertising, substantiated customer incentive programs, and marketing communications. Marketing and advertising expenses for 2005, 2004 and 2003 were $122 million, $111 million, and $77 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 and services. 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



In December 2004, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS No. 123R), which eliminates the alternative to apply the intrinsic value method of accounting for stock based compensation permitted under
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123). The Company adopted the provision of SFAS No. 123R during the second quarter of 2005. None of the
Companys previously issued stock-based awards were materially impacted by the adoption of this standard and the Company does not expect to issue additional stock based compensation while it remains in Chapter 11 proceedings.



Historically, the Company applied the intrinsic value method and all stock options issued by
the Company were exercisable at a price equal to the market price at the date of grant. Accordingly, no compensation cost was 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 2005, 2004 and 2003.



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 No. 123R, there would have been no impact to the 2005 or 2004 reported amounts. However, the Companys net income (loss) and net income (loss) per share would have been reduced to the pro forma amounts indicated below for 2003:



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



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.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



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. Approximately half of the Companys inventories are 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% the Company accounts for its investments using the cost method.



Goodwill



The Company does not amortize goodwill or
indefinite-lived intangible assets. Identifiable intangible assets with a determinable useful life are amortized over that determinable life. The Company completes 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.



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, 2005, 2004, and 2003 was $231 million, $228 million, and $206 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 



Expenditures for normal maintenance
and repairs are expensed as incurred.



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 machinery 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 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.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



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.



Derivative Financial Instruments



Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133) 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 23 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 statements of income (loss) and statements 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. The Company recorded foreign currency translation gains of $3 million in 2005, losses of $3 million in 2004, and gains of $12 million in
2003.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



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; asphalt
materials; vinyl siding and accessories; windows and doors; stone veneer building products; and branded housewrap.



Composite Solutions



Manufacture, fabrication and sale of glass fiber used in a wide variety of composites material systems particularly 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 other 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 taxes below for additional information about such items.



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 to the external customer. Long-lived assets by geographic region are attributed based upon the location of the assets and
include net plant and equipment.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



3. SEGMENT DATA (continued)



|                                             |  |                          |       |      |   |       |  |   |      
|-------------------------------------------- |  | ------------------------ | ----- | ---- | - | ----- |  | - | -----
|                                             |  | 2005                     |       | 2004 |   | 2003 
|                                             |  | (In millions of dollars)
|NET SALES                                    |  |                          |       |      |   |       |  |   |      
|Reportable Segments                          |  |                          |       |      |   |       |  |   |      
|Building Materials Systems                   |  |                          |       |      |   |       |  |   |      
|United States                                |  | $                        | 4,686 |      | $ | 4,215 |  | $ | 3,751
|Europe                                       |  |                          | 3     |      |   | 8     |  |   | 4    
|Canada and other                             |  |                          | 370   |      |   | 323   |  |   | 237  
|                                             |  |                          |       |      |   |       |  |   |      
|Total Building Materials Systems             |  |                          | 5,059 |      |   | 4,546 |  |   | 3,992
|                                             |  |                          |       |      |   |       |  |   |      
|Composite Solutions                          |  |                          |       |      |   |       |  |   |      
|United States                                |  |                          | 614   |      |   | 540   |  |   | 491  
|Europe                                       |  |                          | 396   |      |   | 372   |  |   | 333  
|Canada and other                             |  |                          | 254   |      |   | 217   |  |   | 180  
|                                             |  |                          |       |      |   |       |  |   |      
|Total Composite Solutions                    |  |                          | 1,264 |      |   | 1,129 |  |   | 1,004
|                                             |  |                          |       |      |   |       |  |   |      
|Total reportable segments                    |  | $                        | 6,323 |      | $ | 5,675 |  | $ | 4,996
|                                             |  |                          |       |      |   |       |  |   |      
|External Customer Sales by Geographic Region |  |                          |       |      |   |       |  |   |      
|United States                                |  | $                        | 5,300 |      | $ | 4,755 |  | $ | 4,242
|Europe                                       |  |                          | 399   |      |   | 380   |  |   | 337  
|Canada and other                             |  |                          | 624   |      |   | 540   |  |   | 417  
|                                             |  |                          |       |      |   |       |  |   |      
|NET SALES                                    |  | $                        | 6,323 |      | $ | 5,675 |  | $ | 4,996
|                                             |  |                          |       |      |   |       |  |   |      



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



3. SEGMENT DATA (continued)



Sales by product within the Building Materials Systems segment are provided in the table below:



|                                                                 |  |                          |        |   |      |   |       |      |  |   |       |  
|---------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                                                 |  | 2005                     |        |   | 2004 |   |       | 2003 | 
|                                                                 |  | (In millions of dollars) |       
|Products within Building Materials Systems                       |  |                          |        |   |      |   |       |      |  |   |       |  
|Insulating systems                                               |  | $                        | 1,961  |   |      | $ | 1,805 |      |  | $ | 1,482 |  
|Exterior systems for the home and other                          |  |                          | 3,098  |   |      |   | 2,741 |      |  |   | 2,510 |  
|                                                                 |  |                          |        |   |      |   |       |      |  |   |       |  
|Total Building Materials Systems sales                           |  | $                        | 5,059  |   |      | $ | 4,546 |      |  | $ | 3,992 |  
|                                                                 |  |                          |        |   |      |   |       |      |  |   |       |  
|                                                                 |  |                          |       
|                                                                 |  | 2005                     |        |   | 2004 |   |       | 2003 | 
|                                                                 |  | (In millions of dollars) |       
|INCOME (LOSS) BEFORE INCOME TAXES                                |  |                          |        |   |      |   |       |      |  |   |       |  
|Reportable Segments                                              |  |                          |        |   |      |   |       |      |  |   |       |  
|Building Materials Systems                                       |  |                          | 612    |   |      |   | 509   |      |  |   | 383   |  
|Composite Solutions                                              |  |                          | 107    |   |      |   | 102   |      |  |   | 66    |  
|                                                                 |  |                          |        |   |      |   |       |      |  |   |       |  
|Total reportable segments                                        |  | $                        | 719    |   |      | $ | 611   |      |  | $ | 449   |  
|                                                                 |  |                          |        |   |      |   |       |      |  |   |       |  
|Reconciliation to Consolidated Income (Loss) Before Income Taxes |  |                          |        |   |      |   |       |      |  |   |       |  
|Restructure costs and Other credits (charges)                    |  |                          | 18     |   |      |   | 5     |      |  |   | (34   | )
|Chapter 11 related reorganization items                          |  |                          | (45    | ) |      |   | (54   | )    |  |   | (85   | )
|(Provision) credit for asbestos litigation (claims) recoveries   |  |                          | (4,267 | ) |      |   | 24    |      |  |   | 5     |  
|General corporate expense                                        |  |                          | (168   | ) |      |   | (159  | )    |  |   | (68   | )
|Interest (expense) income, net                                   |  |                          | (739   | ) |      |   | 12    |      |  |   | (8    | )
|                                                                 |  |                          |        |   |      |   |       |      |  |   |       |  
|CONSOLIDATED INCOME (LOSS) BEFORE INCOME TAX EXPENSE             |  | $                        | (4,482 | ) |      | $ | 439   |      |  | $ | 259   |  
|                                                                 |  |                          |        |   |      |   |       |      |  |   |       |  



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



3. SEGMENT DATA (continued)



|                                                   |  |                          |       |   |      |   |       |  
|-------------------------------------------------- |  | ------------------------ | ----- | - | ---- | - | ----- | -
|                                                   |  | December 31,             |      
|                                                   |  | 2005                     |       |   | 2004 |  
|                                                   |  | (In millions of dollars) |      
|TOTAL ASSETS                                       |  |                          |       |   |      |   |       |  
|Reportable Segments                                |  |                          |       |   |      |   |       |  
|Building Materials Systems                         |  |                          | 2,077 |   |      |   | 1,967 |  
|Composite Solutions                                |  |                          | 1,224 |   |      |   | 1,182 |  
|                                                   |  |                          |       |   |      |   |       |  
|Total reportable segments                          |  | $                        | 3,301 |   |      | $ | 3,149 |  
|                                                   |  |                          |       |   |      |   |       |  
|Reconciliation to Consolidated Total Assets        |  |                          |       |   |      |   |       |  
|Cash and cash equivalents                          |  |                          | 1,559 |   |      |   | 1,125 |  
|LIFO inventory valuation adjustment                |  |                          | (146  | ) |      |   | (119  | )
|Restricted cash - asbestos and insurance related   |  |                          | 189   |   |      |   | 188   |  
|Restricted cash, securities and other - Fibreboard |  |                          | 1,433 |   |      |   | 1,418 |  
|Deferred income taxes                              |  |                          | 1,432 |   |      |   | 999   |  
|Pension-related assets                             |  |                          | 471   |   |      |   | 499   |  
|Investments in affiliates                          |  |                          | 77    |   |      |   | 82    |  
|Corporate fixed assets and other assets            |  |                          | 419   |   |      |   | 298   |  
|                                                   |  |                          |       |   |      |   |       |  
|CONSOLIDATED TOTAL ASSETS                          |  | $                        | 8,735 |   |      | $ | 7,639 |  
|                                                   |  |                          |       |   |      |   |       |  
|LONG-LIVED ASSETS BY GEOGRAPHIC REGION             |  |                          |       |   |      |   |       |  
|United States                                      |  | $                        | 1,379 |   |      | $ | 1,378 |  
|Europe                                             |  |                          | 216   |   |      |   | 266   |  
|Canada and other                                   |  |                          | 417   |   |      |   | 366   |  
|                                                   |  |                          |       |   |      |   |       |  
|TOTAL LONG-LIVED ASSETS                            |  | $                        | 2,012 |   |      | $ | 2,010 |  
|                                                   |  |                          |       |   |      |   |       |  



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



3. SEGMENT DATA (continued)



|                                                                |  |                          |     |      |   |      |  |   |    
|--------------------------------------------------------------- |  | ------------------------ | --- | ---- | - | ---- |  | - | ---
|                                                                |  | 2005                     |     | 2004 |   | 2003
|                                                                |  | (In millions of dollars)
|PROVISION FOR DEPRECIATION                                      |  |                          |     |      |   |      |  |   |    
|Reportable Segments                                             |  |                          |     |      |   |      |  |   |    
|Building Materials Systems                                      |  | $                        | 129 |      | $ | 123  |  | $ | 103
|Composite Solutions                                             |  |                          | 69  |      |   | 72   |  |   | 71 
|                                                                |  |                          |     |      |   |      |  |   |    
|Total reportable segments                                       |  |                          | 198 |      |   | 195  |  |   | 174
|                                                                |  |                          |     |      |   |      |  |   |    
|Reconciliation to Consolidated Provision for Depreciation       |  |                          |     |      |   |      |  |   |    
|General Corporate Depreciation                                  |  |                          | 33  |      |   | 33   |  |   | 32 
|                                                                |  |                          |     |      |   |      |  |   |    
|CONSOLIDATED PROVISION FOR DEPRECIATION                         |  | $                        | 231 |      | $ | 228  |  | $ | 206
|                                                                |  |                          |     |      |   |      |  |   |    
|                                                                |  |                          |    
|                                                                |  | 2005                     |     | 2004 |   | 2003
|                                                                |  | (In millions of dollars)
|ADDITIONS TO PLANT AND EQUIPMENT                                |  |                          |     |      |   |      |  |   |    
|Reportable Segments                                             |  |                          |     |      |   |      |  |   |    
|Building Materials Systems                                      |  | $                        | 177 |      | $ | 157  |  | $ | 132
|Composite Solutions                                             |  |                          | 93  |      |   | 57   |  |   | 63 
|                                                                |  |                          |     |      |   |      |  |   |    
|Total Reportable Segments                                       |  | $                        | 270 |      | $ | 214  |  | $ | 195
|                                                                |  |                          |     |      |   |      |  |   |    
|Reconciliation to Consolidated Additions to Plant and Equipment |  |                          |     |      |   |      |  |   |    
|General Corporate Additions                                     |  |                          | 18  |      |   | 18   |  |   | 13 
|                                                                |  |                          |     |      |   |      |  |   |    
|CONSOLIDATED ADDITIONS TO PLANT AND EQUIPMENT                   |  | $                        | 288 |      | $ | 232  |  | $ | 208
|                                                                |  |                          |     |      |   |      |  |   |    



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)





4. ACCOUNTS RECEIVABLE



In 2004 and 2003, 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. No accounts receivable were sold at December 31, 2005.



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 and 2003, were recorded as other expenses in the
Companys Consolidated Statement of Income (Loss).



5. INVENTORIES



Inventories are summarized as follows:



|                         |  |                          |      |   |      |   |      |  
|------------------------ |  | ------------------------ | ---- | - | ---- | - | ---- | -
|                         |  | 2005                     |      |   | 2004 |  
|                         |  | (In millions of dollars) |     
|Finished goods           |  | $                        | 457  |   |      | $ | 425  |  
|Materials and supplies   |  |                          | 166  |   |      |   | 139  |  
|                         |  |                          |      |   |      |   |      |  
|FIFO inventory           |  |                          | 623  |   |      |   | 564  |  
|Excess of FIFO over LIFO |  |                          | (146 | ) |      |   | (119 | )
|                         |  |                          |      |   |      |   |      |  
|Total inventories        |  | $                        | 477  |   |      | $ | 445  |  
|                         |  |                          |      |   |      |   |      |  



Approximately $310 million and
approximately $274 million of FIFO inventories were valued using the LIFO method at December 31, 2005 and 2004, respectively.



During 2005, certain 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 2005 purchases, the effect of which decreased cost of goods sold by approximately $2 million and decreased the net loss by approximately $1 million, or $0.02 per share.



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



|                                                                                                           |  |                          |        |   |      |   |     |      |  |   |     |  
|---------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | --- | ---- |  | - | --- | -
|                                                                                                           |  | 2005                     |        |   | 2004 |   |     | 2003 | 
|                                                                                                           |  | (In millions of dollars) |       
|Income (loss) before income taxes:                                                                         |  |                          |        |   |      |   |     |      |  |   |     |  
|                                                                                                           |  |                          |       
|United States                                                                                              |  | $                        | (4,634 | ) |      | $ | 265 |      |  | $ | 145 |  
|Foreign                                                                                                    |  |                          | 152    |   |      |   | 174 |      |  |   | 114 |  
|                                                                                                           |  |                          |        |   |      |   |     |      |  |   |     |  
|Total                                                                                                      |  | $                        | (4,482 | ) |      | $ | 439 |      |  | $ | 259 |  
|                                                                                                           |  |                          |        |   |      |   |     |      |  |   |     |  
|Income tax expense (benefit):                                                                              |  |                          |        |   |      |   |     |      |  |   |     |  
|Current                                                                                                    |  |                          |        |   |      |   |     |      |  |   |     |  
|United States                                                                                              |  | $                        | 13     |   |      | $ | 43  |      |  | $ | 32  |  
|State and local                                                                                            |  |                          | 10     |   |      |   | 6   |      |  |   | 11  |  
|Foreign                                                                                                    |  |                          | 29     |   |      |   | 42  |      |  |   | 33  |  
|                                                                                                           |  |                          |        |   |      |   |     |      |  |   |     |  
|Total current                                                                                              |  |                          | 52     |   |      |   | 91  |      |  |   | 76  |  
|                                                                                                           |  |                          |        |   |      |   |     |      |  |   |     |  
|Deferred                                                                                                   |  |                          |        |   |      |   |     |      |  |   |     |  
|United States                                                                                              |  |                          | (416   | ) |      |   | 110 |      |  |   | 66  |  
|State and local                                                                                            |  |                          | (45    | ) |      |   | 22  |      |  |   | 8   |  
|Foreign                                                                                                    |  |                          | 22     |   |      |   | 4   |      |  |   | (5  | )
|                                                                                                           |  |                          |        |   |      |   |     |      |  |   |     |  
|Total deferred                                                                                             |  |                          | (439   | ) |      |   | 136 |      |  |   | 69  |  
|                                                                                                           |  |                          |        |   |      |   |     |      |  |   |     |  
|Total income tax expense (benefit)                                                                         |  | $                        | (387   | ) |      | $ | 227 |      |  | $ | 145 |  
|                                                                                                           |  |                          |        |   |      |   |     |      |  |   |     |  
|                                                                                                          
|The reconciliation between the U.S. federal statutory rate and the Companys effective income tax rate is: | 
|                                                                                                           |  |                          |       
|                                                                                                           |  | 2005                     |        |   | 2004 |   |     | 2003 | 
|United States federal statutory rate                                                                       |  |                          | 35     | % |      |   | 35  | %    |  |   | 35  | %
|State and local income taxes, net of federal tax benefit                                                   |  |                          | 5      |   |      |   | 5   |      |  |   | 5   |  
|Foreign tax rate differential                                                                              |  |                          |       |   |      |   | (3  | )    |  |   | (4  | )
|Change in valuation allowance, federal and state                                                           |  |                          | (30    | ) |      |   |    |      |  |   |    |  
|Adjustment to estimated liability for tax claims                                                           |  |                          |       |   |      |   | 9   |      |  |   | 15  |  
|Other, net                                                                                                 |  |                          | (1     | ) |      |   | 6   |      |  |   | 5   |  
|                                                                                                           |  |                          |        |   |      |   |     |      |  |   |     |  
|Effective tax rate                                                                                         |  |                          | 9      | % |      |   | 52  | %    |  |   | 56  | %
|                                                                                                           |  |                          |        |   |      |   |     |      |  |   |     |  



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



6. INCOME TAXES (continued)



As of December 31, 2005, the Company has not provided for withholding or United States federal income taxes on
approximately $597 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 $228 million of deferred income taxes would have been provided. On October 22, 2004, the President signed the American Jobs Creation Act of 2004 (the Act). The Act created 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. During 2005, under this Act we repatriated $220 million of earnings previously considered
permanently reinvested outside the United States and recognized $12 million of additional tax provision for the taxes associated with this repatriation.



At December 31, 2005, the Company had federal, state and foreign net operating loss carryforwards of $585 million, $2.211 billion and $257 million, respectively. If
not utilized, the federal and state net operating loss carryforwards will expire through 2025 while the foreign net operating loss carryforwards will begin to expire in 2006, with the majority having no expiration date.



The cumulative temporary differences giving rise to the deferred tax assets and liabilities
at December 31, 2005 and 2004 are as follows:



|                             |  |                          |        |      |                          |   |                     |  |   |                          |   |  |   |    
|---------------------------- |  | ------------------------ | ------ | ---- | ------------------------ | - | ------------------- |  | - | ------------------------ | - |  | - | ---
|                             |  | 2005                     |        | 2004
|                             |  | Deferred Tax Assets      |        |      | Deferred Tax Liabilities |   | Deferred Tax Assets |  |   | Deferred Tax Liabilities
|                             |  | (In millions of dollars)
|Asbestos litigation claims   |  | $                        | 3,383  |      |                          | $ |                    |  | $ | 1,711                    |   |  | $ |   
|Other employee benefits      |  |                          | 189    |      |                          |   |                    |  |   | 172                      |   |  |   |   
|Pension plans                |  |                          | 102    |      |                          |   | 21                  |  |   | 262                      |   |  |   | 17 
|Operating loss carryforwards |  |                          | 344    |      |                          |   |                    |  |   | 177                      |   |  |   |   
|Depreciation                 |  |                          | 3      |      |                          |   | 298                 |  |   | 6                        |   |  |   | 283
|State and local taxes        |  |                          | 14     |      |                          |   | 3                   |  |   | 88                       |   |  |   | 63 
|Other                        |  |                          | 544    |      |                          |   | 437                 |  |   | 190                      |   |  |   | 249
|                             |  |                          |        |      |                          |   |                     |  |   |                          |   |  |   |    
|Subtotal                     |  |                          | 4,579  |      |                          |   | 759                 |  |   | 2,606                    |   |  |   | 612
|Valuation allowances         |  |                          | (2,388 | )    |                          |   |                    |  |   | (995                     | ) |  |   |   
|                             |  |                          |        |      |                          |   |                     |  |   |                          |   |  |   |    
|Total deferred taxes         |  | $                        | 2,191  |      |                          | $ | 759                 |  | $ | 1,611                    |   |  | $ | 612
|                             |  |                          |        |      |                          |   |                     |  |   |                          |   |  |   |    



The Company records valuation
allowances related to the realization of certain tax assets. The balances as of December 31, 2005 and 2004 consisted of (1) $2.299 billion and $936 million, respectively, for tax assets related to charges for asbestos-related liabilities,
(2) $78 million and $54 million, respectively, for tax assets related to certain federal, state and foreign loss carryforwards, and (3) $11 million and $5 million, respectively, of other allowances. During 2005, the Company increased
its asbestos-related reserves through charges to income of $3.435 billion for Owens Corning asbestos-related liabilities and $907 million for Fibreboard asbestos-related liabilities, for an aggregate charge of $4.342 billion, generating an
additional deferred tax asset of approximately $1.672 billion (see Note 19 to the Consolidated Financial Statements). During the year, the Company evaluated the realization of its aggregate tax assets related to charges for asbestos-related
liabilities in light of the Companys financial position and Chapter 11 proceedings, including the plan of reorganization filed on December 31, 2005.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



6. INCOME TAXES (continued)



As a result of such assessments, the Company increased its valuation allowance for tax assets related to charges for
asbestos-related liabilities by $1.363 billion, resulting in a $309 million net tax benefit in 2005. The calculation of the Companys valuation allowance is dependant upon significant management estimates and assumptions related to our Chapter
11 proceedings. Such estimates and assumptions may change significantly as the Company moves toward emergence, which could result in material adjustments to our valuation allowance.



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



On June 30, 2005, new Ohio state tax legislation was signed into law, the net impact of
which is expected to be favorable to the Company in the future. However, the impact of this new legislation on net income during 2005 was a charge of $18 million. This charge was the result of an additional tax provision of approximately $31
million, primarily due to the write-off of Ohio deferred tax assets, including net operating loss carryforwards that will no longer be utilized to offset income taxes. This was partially offset by a credit of $13 million, recorded as other income,
representing the present value of a portion of the amounts written off that may be used as credits against a new gross receipts tax in the future.



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 2005, 2004 and 2003
reviews resulted in no change to the recorded goodwill.



During 2004, the
Company purchased the remaining 60% ownership interest in its 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, 2005 and 2004 were as follows:



|                             |  |                          |     |                    |   |    |       |  |   |    
|---------------------------- |  | ------------------------ | --- | ------------------ | - | -- | ----- |  | - | ---
|                             |  | BuildingMaterialsSystems |     | CompositeSolutions |   |    | Total
|                             |  | (In millions of dollars)
|Balance at December 31, 2003 |  | $                        | 118 |                    | $ | 20 |       |  | $ | 138
|Additions                    |  |                          | 36  |                    |   | 18 |       |  |   | 54 
|Foreign Exchange             |  |                          | 5   |                    |   | 1  |       |  |   | 6  
|                             |  |                          |     |                    |   |    |       |  |   |    
|Balance at December 31, 2004 |  |                          | 159 |                    |   | 39 |       |  |   | 198
|Additions                    |  |                          |    |                    |   | 11 |       |  |   | 11 
|Inter-segment Transfers      |  |                          | 3   |                    |   | (3 | )     |  |   |   
|Foreign Exchange             |  |                          | 5   |                    |   | 1  |       |  |   | 6  
|                             |  |                          |     |                    |   |    |       |  |   |    
|Balance at December 31, 2005 |  | $                        | 167 |                    | $ | 48 |       |  | $ | 215
|                             |  |                          |     |                    |   |    |       |  |   |    



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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 2005 and 2004, and $5 million in 2003. The Company estimates that amortization of other intangible assets will be approximately $2 to $3 million for each of the next five
years. As of December 31, 2005, the weighted average lives of intangibles ranged between 7 and 13 years, with a net carrying amount of approximately $11 million.



8. ACQUISITIONS AND DIVESTITURES OF BUSINESSES



Acquisition



On April 2, 2004, the Company purchased the remaining 60% ownership interest in its 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.



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. 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, 2005 and 2004, 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 |  
|                                                           |  | 2005              |   |  | 2004 |  
|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. (a)                  |  | 46                | % |  | 46   | %
|Violet Reinforcements, S. de R.L. (Mexico)                 |  | 50                | % |  | 50   | %

---

|(a) | During 2005, the Company reached an agreement to reduce its ownership in Owens Corning South Africa (Pty) Ltd. to 40% in 2006.
|--- | ------------------------------------------------------------------------------------------------------------------------------



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



9. INVESTMENTS IN AFFILIATES (continued)



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



|                                |  |                          |     |   |      |   |      |  |   |    
|------------------------------- |  | ------------------------ | --- | - | ---- | - | ---- |  | - | ---
|                                |  | 2005                     |     |   | 2004 |   | 2003
|                                |  | (In millions of dollars)
|At December 31:                 |  |                          |     |   |      |   |      |  |   |    
|Current assets                  |  | $                        | 81  |   |      | $ | 83   |  | $ | 134
|Noncurrent assets               |  |                          | 145 |   |      |   | 146  |  |   | 154
|Current liabilities             |  |                          | 43  |   |      |   | 35   |  |   | 67 
|Noncurrent liabilities          |  |                          | 7   |   |      |   | 9    |  |   | 32 
|                                |  |                          |    
|For the year ended December 31: |  |                          |     |   |      |   |      |  |   |    
|Net sales                       |  |                          | 209 |   |      |   | 162  |  |   | 177
|Gross margin                    |  |                          | 30  |   |      |   | 20   |  |   | 35 
|Net income (loss)               |  |                          | (2  | ) |      |   | 11   |  |   | 10 



The Company received dividends from
entities accounted for under the equity method of $2 million in 2005, less than $1 million in 2004, and did not receive any dividends from such entities in 2003. The Companys equity in undistributed earnings of affiliates was a $7 million loss
as of December 31, 2005.



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 $78 million in 2005, $81 million in 2004, and $100 million in 2003. At December 31, 2005, 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 Future Rental Commitments
|                |  |  |  | (In millions of dollars)         
|2006            |  |  |  | $                                 | 72 
|2007            |  |  |  |                                   | 57 
|2008            |  |  |  |                                   | 42 
|2009            |  |  |  |                                   | 26 
|2010            |  |  |  |                                   | 18 
|2011 and beyond |  |  |  |                                   | 104
|                |  |  |  |                                   |    
|                |  |  |  | $                                 | 319
|                |  |  |  |                                   |    



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 5, 2006, 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.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



10. LEASES (continued)



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, 2005 and 2004:



|                                           |  |                          |       |      |   |    
|------------------------------------------ |  | ------------------------ | ----- | ---- | - | ---
|                                           |  | 2005                     |       | 2004
|                                           |  | (In millions of dollars)
|Accounts payable                           |  | $                        | 527   |      | $ | 443
|Payroll and vacation pay                   |  |                          | 231   |      |   | 191
|Payroll, property, and miscellaneous taxes |  |                          | 64    |      |   | 73 
|Other employee benefits liability          |  |                          | 64    |      |   | 58 
|Other                                      |  |                          | 146   |      |   | 144
|                                           |  |                          |       |      |   |    
|Total                                      |  | $                        | 1,032 |      | $ | 909
|                                           |  |                          |       |      |   |    



12.RESTRUCTURING OF
OPERATIONS AND OTHER CHARGES (CREDITS)



2005 Credits



During 2005, due to new Ohio state tax legislation, the Company
recorded a pretax credit in the Consolidated Statement of Income (Loss) under the caption Other of approximately $13 million representing the present value of the net operating losses that will be allowed to be taken as credits against a
new gross receipts tax. The Company also renegotiated certain Asian debt, resulting in a gain of $5 million related to the forgiveness of such debt. This gain was also recorded in the Consolidated Statement of Income (Loss) under the caption
Other.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



12.RESTRUCTURING OF OPERATIONS AND OTHER CHARGES (CREDITS) (continued)



2004 Credits



During the first quarter of 2004, the Company recorded a pretax credit to cost of sales in the Consolidated Statement of Income (Loss) 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.



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, 2005 and 2004 is as follows:



|                                       |  |                          |     |   |      |   |     |  
|-------------------------------------- |  | ------------------------ | --- | - | ---- | - | --- | -
|                                       |  | 2005                     |     |   | 2004 |  
|                                       |  | (In millions of dollars) |    
|Beginning balance                      |  | $                        | 48  |   |      | $ | 48  |  
|Amounts accrued for current year       |  |                          | 17  |   |      |   | 14  |  
|Adjustments of prior accrual estimates |  |                          | 14  |   |      |   | 7   |  
|Settlements of warranty claims         |  |                          | (17 | ) |      |   | (21 | )
|                                       |  |                          |     |   |      |   |     |  
|Ending balance                         |  | $                        | 62  |   |      | $ | 48  |  
|                                       |  |                          |     |   |      |   |     |  



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



14. SHORT-TERM DEBT



|                                                                              |  |                          |     |   |      |   |     |  
|----------------------------------------------------------------------------- |  | ------------------------ | --- | - | ---- | - | --- | -
|Short-Term Debt:                                                              |  | 2005                     |     |   | 2004 |  
|                                                                              |  | (In millions of dollars) |    
|Balance outstanding at December 31                                            |  | $                        | 6   |   |      | $ | 11  |  
|Weighted average interest rates on short-term debt outstanding at December 31 |  |                          | 3.5 | % |      |   | 4.3 | %



The Company had no unused short-term
lines of credit at December 31, 2005 or 2004.



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 during 2004, 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 (income), 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, 2005 and 2004 is as follows:



|                                                                    |  |                          |    |      |   |   
|------------------------------------------------------------------- |  | ------------------------ | -- | ---- | - | --
|                                                                    |  | 2005                     |    | 2004
|                                                                    |  | (In millions of dollars)
|Long-Term Debt:                                                     |  |                          |    |      |   |   
|Various capital leases due through and beyond 2010                  |  | $                        | 14 |      | $ | 14
|Variable LIBOR based interest term loans due 2009                   |  |                          | 22 |      |   | 15
|Guaranteed debentures due in 2001, 10%                              |  |                          | 7  |      |   | 7 
|Asian credit facility due in 2005, LIBOR plus 2.5%                  |  |                          |   |      |   | 18
|Term loan due 2009, 11.5%                                           |  |                          |   |      |   | 12
|Other long-term debt due through 2013, at rates from 2.50% to 6.75% |  |                          | 6  |      |   | 3 
|                                                                    |  |                          |    |      |   |   
|                                                                    |  |                          | 49 |      |   | 69
|Less - current portion                                              |  |                          | 13 |      |   | 31
|                                                                    |  |                          |    |      |   |   
|Total long-term debt                                                |  | $                        | 36 |      | $ | 38
|                                                                    |  |                          |    |      |   |   



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 0.25% at December 31, 2005 and 0.375%
at December 31, 2004. 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, 2005, 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 2005 or 2004, approximately $169 million and $137 million, respectively, of this facility was utilized at such times for standby
letters of credit and similar uses. Consequently, $81 million was available under this facility at December 31, 2005. Claims under this facility have super priority in the bankruptcy proceeding.



In December of 2005, the Company renegotiated the Asian credit facility and paid off
approximately $13 million of the balance on the debt and received debt forgiveness for the remaining outstanding $5 million. Consequently, the Company recorded a gain of $5 million related to this forgiveness of debt in the Consolidated
Statement of Income (Loss) under the caption Other. The Company had previously restructured this facility in 2003 by extending the term of the facility through 2005 and reducing the debt by approximately $4 million in exchange for an
allowed guarantee claim against the Debtors of the full amount 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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OWENS CORNING AND SUBSIDIARIES

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, 2005
and thereafter are:



|           |  |  |  |                          |   
|---------- |  |  |  | ------------------------ | --
|Year       |  |  |  | (In millions of dollars)
|2006       |  |  |  | $                        | 13
|2007       |  |  |  |                          | 21
|2008       |  |  |  |                          | 7 
|2009       |  |  |  |                          | 1 
|2010       |  |  |  |                          |  
|thereafter |  |  |  |                          | 7 



As the result of the Third
Circuits reversal of the District Courts Substantive Consolidation Order and Owens Cornings evaluation of the distributable values (considered on a non-substantively consolidated basis) of Owens Corning and certain of its Debtor
and non-Debtor subsidiaries, the 2005 results include expenses of $735 million with respect to the Pre-Petition Credit Facility for the period from the Petition Date through December 31, 2005, relating to post-petition interest and certain
other fees. Of these expenses, $178 million relate to 2005, $131 million relate to 2004, and $120 million relate to 2003.



While operating in Chapter 11 proceedings (see Note 1), a debtor company is generally prohibited from paying interest on unsecured pre-petition debts. As a result of the
Filing, contractual interest expense on pre-petition debt of the Debtors other than the Pre-Petition Credit Facility has not been accrued or recorded since the Petition Date. From the Petition Date through December 31, 2005, the contractual
interest expense not accrued or recorded on such pre-petition debt (calculated using ordinary, non-default interest rates and without regard to debt maturity) totaled approximately $538 million, of which $103 million relate to 2005 and $102 million
relate to 2004 and 2003.



|                                                                     |  |                          |       |      |   |      
|-------------------------------------------------------------------- |  | ------------------------ | ----- | ---- | - | -----
|                                                                     |  | 2005                     |       | 2004
|                                                                     |  | (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                  |  |                          | 58    |      |   | 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    |      |   | 67   
|Other long-term debt due through 2012, at rates from 6.25% to 13.80% |  |                          | 86    |      |   | 90   
|                                                                     |  |                          |       |      |   |      
|Total long-term debt subject to compromise                           |  | $                        | 2,952 |      | $ | 2,958
|                                                                     |  |                          |       |      |   |      



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OWENS CORNING AND SUBSIDIARIES

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.



The following tables provide a reconciliation of the changes in the projected pension benefits obligation, the changes in the pension plan assets (each measured as of
October 31, 2005 and 2004), the calculation of the net amount recognized, and the classification of the net amount recognized as of December 31, 2005 and 2004:



|                                                |  |                               |       |   |          |   |     |       |  |   |       |   |  |          |       |   |       |   |     |   |  |   |       |  
|----------------------------------------------- |  | ----------------------------- | ----- | - | -------- | - | --- | ----- |  | - | ----- | - |  | -------- | ----- | - | ----- | - | --- | - |  | - | ----- | -
|                                                |  | Measurement date - October 31 |      
|                                                |  | 2005                          |       |   | 2004     |  
|                                                |  | U.S.                          |       |   | Non-U.S. |   |     | Total |  |   | U.S.  |   |  | Non-U.S. |       |   | Total |  
|                                                |  | (In millions of dollars)      |      
|Change in Projected Pension Benefits Obligation |  |                               |       |   |          |   |     |       |  |   |       |   |  |          |       |   |       |   |     |   |  |   |       |  
|Benefits obligation at beginning of period      |  | $                             | 1,046 |   |          | $ | 383 |       |  | $ | 1,429 |   |  | $        | 984   |   |       | $ | 331 |   |  | $ | 1,315 |  
|Service cost                                    |  |                               | 22    |   |          |   | 3   |       |  |   | 25    |   |  |          | 22    |   |       |   | 3   |   |  |   | 25    |  
|Interest cost                                   |  |                               | 58    |   |          |   | 21  |       |  |   | 79    |   |  |          | 58    |   |       |   | 19  |   |  |   | 77    |  
|Amendments                                      |  |                               |      |   |          |   |    |       |  |   |      |   |  |          | 1     |   |       |   |    |   |  |   | 1     |  
|Actuarial (gain) loss                           |  |                               | (2    | ) |          |   | 25  |       |  |   | 23    |   |  |          | 80    |   |       |   | 6   |   |  |   | 86    |  
|Currency (gain) loss                            |  |                               |      |   |          |   | (24 | )     |  |   | (24   | ) |  |          |      |   |       |   | 32  |   |  |   | 32    |  
|Acquisitions                                    |  |                               |      |   |          |   |    |       |  |   |      |   |  |          |      |   |       |   | 4   |   |  |   | 4     |  
|Benefits paid                                   |  |                               | (91   | ) |          |   | (14 | )     |  |   | (105  | ) |  |          | (99   | ) |       |   | (12 | ) |  |   | (111  | )
|Benefits paid directly by Company               |  |                               | (1    | ) |          |   |    |       |  |   | (1    | ) |  |          |      |   |       |   |    |   |  |   |      |  
|                                                |  |                               |       |   |          |   |     |       |  |   |       |   |  |          |       |   |       |   |     |   |  |   |       |  
|Benefits obligation at end of period            |  | $                             | 1,032 |   |          | $ | 394 |       |  | $ | 1,426 |   |  | $        | 1,046 |   |       | $ | 383 |   |  | $ | 1,429 |  
|                                                |  |                               |       |   |          |   |     |       |  |   |       |   |  |          |       |   |       |   |     |   |  |   |       |  



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



16. PENSION PLANS (continued)



|                                                                            |  |                          |      |   |              |   |     |       |  |   |       |   |  |              |      |   |       |   |     |   |  |   |       |  
|--------------------------------------------------------------------------- |  | ------------------------ | ---- | - | ------------ | - | --- | ----- |  | - | ----- | - |  | ------------ | ---- | - | ----- | - | --- | - |  | - | ----- | -
|                                                                            |  | U.S.                     |      |   | 2005Non-U.S. |   |     | Total |  |   | U.S.  |   |  | 2004Non-U.S. |      |   | Total |  
|                                                                            |  | (In millions of dollars) |     
|Change in Pension Plan Assets                                               |  |                          |      |   |              |   |     |       |  |   |       |   |  |              |      |   |       |   |     |   |  |   |       |  
|                                                                            |  |                          |      |   |              |  
|Fair value of plan assets at beginning of period                            |  | $                        | 813  |   |              | $ | 301 |       |  | $ | 1,114 |   |  | $            | 630  |   |       | $ | 261 |   |  | $ | 891   |  
|Actual return on plan assets                                                |  |                          | 52   |   |              |   | 35  |       |  |   | 87    |   |  |              | 59   |   |       |   | 22  |   |  |   | 81    |  
|Currency gain (loss)                                                        |  |                          |     |   |              |   | (16 | )     |  |   | (16   | ) |  |              |     |   |       |   | 25  |   |  |   | 25    |  
|Employer contributions                                                      |  |                          | 39   |   |              |   | 14  |       |  |   | 53    |   |  |              | 223  |   |       |   | 3   |   |  |   | 226   |  
|Acquisitions                                                                |  |                          |     |   |              |   |    |       |  |   |      |   |  |              |     |   |       |   | 2   |   |  |   | 2     |  
|Benefits paid                                                               |  |                          | (91  | ) |              |   | (14 | )     |  |   | (105  | ) |  |              | (99  | ) |       |   | (12 | ) |  |   | (111  | )
|                                                                            |  |                          |      |   |              |   |     |       |  |   |       |   |  |              |      |   |       |   |     |   |  |   |       |  
|Fair value of plan assets at end of period                                  |  | $                        | 813  |   |              | $ | 320 |       |  | $ | 1,133 |   |  | $            | 813  |   |       | $ | 301 |   |  | $ | 1,114 |  
|                                                                            |  |                          |      |   |              |   |     |       |  |   |       |   |  |              |      |   |       |   |     |   |  |   |       |  
|Funded status                                                               |  | $                        | (219 | ) |              | $ | (74 | )     |  | $ | (293  | ) |  | $            | (233 | ) |       | $ | (82 | ) |  | $ | (315  | )
|Unrecognized net transition asset                                           |  |                          |     |   |              |   | (2  | )     |  |   | (2    | ) |  |              |     |   |       |   | (2  | ) |  |   | (2    | )
|Unrecognized net actuarial loss                                             |  |                          | 546  |   |              |   | 151 |       |  |   | 697   |   |  |              | 582  |   |       |   | 158 |   |  |   | 740   |  
|Unrecognized prior service cost                                             |  |                          | 27   |   |              |   | 2   |       |  |   | 29    |   |  |              | 31   |   |       |   | 3   |   |  |   | 34    |  
|Employer contributions made subsequent to October 31, 2005 measurement date |  |                          |     |   |              |   | 1   |       |  |   | 1     |   |  |              |     |   |       |   | 5   |   |  |   | 5     |  
|                                                                            |  |                          |      |   |              |   |     |       |  |   |       |   |  |              |      |   |       |   |     |   |  |   |       |  
|Net amount recognized                                                       |  | $                        | 354  |   |              | $ | 78  |       |  | $ | 432   |   |  | $            | 380  |   |       | $ | 82  |   |  | $ | 462   |  
|                                                                            |  |                          |      |   |              |   |     |       |  |   |       |   |  |              |      |   |       |   |     |   |  |   |       |  
|                                                                            |  |                          |      |   |              |  
|Amounts Recognized in the Consolidated Balance Sheet                        |  |                          |      |   |              |   |     |       |  |   |       |   |  |              |      |   |       |   |     |   |  |   |       |  
|Prepaid benefits cost                                                       |  | $                        |     |   |              | $ | 36  |       |  | $ | 36    |   |  | $            |     |   |       | $ | 37  |   |  | $ | 37    |  
|Accrued benefits liability                                                  |  |                          | (218 | ) |              |   | (60 | )     |  |   | (278  | ) |  |              | (233 | ) |       |   | (69 | ) |  |   | (302  | )
|Intangible asset                                                            |  |                          | 27   |   |              |   | 1   |       |  |   | 28    |   |  |              | 31   |   |       |   | 2   |   |  |   | 33    |  
|Accumulated other comprehensive loss                                        |  |                          | 545  |   |              |   | 101 |       |  |   | 646   |   |  |              | 582  |   |       |   | 112 |   |  |   | 694   |  
|                                                                            |  |                          |      |   |              |   |     |       |  |   |       |   |  |              |      |   |       |   |     |   |  |   |       |  
|Net amount recognized (prepaid benefits cost)                               |  | $                        | 354  |   |              | $ | 78  |       |  | $ | 432   |   |  | $            | 380  |   |       | $ | 82  |   |  | $ | 462   |  
|                                                                            |  |                          |      |   |              |   |     |       |  |   |       |   |  |              |      |   |       |   |     |   |  |   |       |  



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 provided in the following table:



|                                |  |                          |       |              |   |       |  |      |       |              |   |       |  |   |     |  |   |      
|------------------------------- |  | ------------------------ | ----- | ------------ | - | ----- |  | ---- | ----- | ------------ | - | ----- |  | - | --- |  | - | -----
|                                |  | U.S.                     |       | 2005Non-U.S. |   | Total |  | U.S. |       | 2004Non-U.S. |   | Total
|                                |  | (In millions of dollars)
|Projected benefits obligation   |  | $                        | 1,032 |              | $ | 328   |  | $    | 1,360 |              | $ | 1,046 |  | $ | 328 |  | $ | 1,374
|Accumulated benefits obligation |  |                          | 1,030 |              |   | 308   |  |      | 1,338 |              |   | 1,046 |  |   | 311 |  |   | 1,357
|Fair value of assets            |  |                          | 813   |              |   | 249   |  |      | 1,062 |              |   | 813   |  |   | 238 |  |   | 1,051



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



16. PENSION PLANS (continued)



The total ABO for all of the Companys pension plans that have an ABO greater than the fair value of plan assets
was $1.396 billion and $1.406 billion at October 31, 2005 and 2004, respectively.



Certain of the Companys pension plans are not funded. The portion of the total projected benefit obligation attributable to unfunded plans is approximately $12 million and $10 million at October 31, 2005 and 2004, respectively.



|                                                                                     |  |      |   |  |      |  
|------------------------------------------------------------------------------------ |  | ---- | - |  | ---- | -
|                                                                                     |  | 2005 |   |  | 2004 |  
|Weighted-average assumptions used to determine benefits obligations as of October 31 |  |      |   |  |      |  
|                                                                                     |  |     
|U.S. Plans                                                                           |  |      |   |  |      |  
|Discount rate                                                                        |  | 5.80 | % |  | 5.85 | %
|Rate of compensation increase                                                        |  | 5.44 | % |  | 5.44 | %
|                                                                                     |  |     
|Non-U.S. Plans                                                                       |  |      |   |  |      |  
|Discount rate                                                                        |  | 5.20 | % |  | 5.60 | %
|Rate of compensation increase                                                        |  | 3.69 | % |  | 3.80 | %



The following table presents the
components of net periodic pension cost for aggregated U.S. and Non-U.S. Plans during 2005, 2004 and 2003:



|                                        |  |                          |     |   |      |   |     |      |  |   |     |  
|--------------------------------------- |  | ------------------------ | --- | - | ---- | - | --- | ---- |  | - | --- | -
|                                        |  | 2005                     |     |   | 2004 |   |     | 2003 | 
|                                        |  | (In millions of dollars) |    
|Components of Net Periodic Pension Cost |  |                          |     |   |      |   |     |      |  |   |     |  
|                                        |  |                          |    
|Service cost                            |  | $                        | 25  |   |      | $ | 25  |      |  | $ | 18  |  
|Interest cost                           |  |                          | 79  |   |      |   | 77  |      |  |   | 76  |  
|Expected return on plan assets          |  |                          | (80 | ) |      |   | (73 | )    |  |   | (64 | )
|Amortization of transition amount       |  |                          | (1  | ) |      |   | (1  | )    |  |   | (4  | )
|Amortization of loss                    |  |                          | 49  |   |      |   | 49  |      |  |   | 33  |  
|Amortization of prior service cost      |  |                          | 4   |   |      |   |    |      |  |   |    |  
|Curtailment/settlement loss             |  |                          |    |   |      |   | 1   |      |  |   | 1   |  
|                                        |  |                          |     |   |      |   |     |      |  |   |     |  
|Net periodic benefit cost               |  | $                        | 76  |   |      | $ | 78  |      |  | $ | 60  |  
|                                        |  |                          |     |   |      |   |     |      |  |   |     |  



Adjustments to the minimum liability
have resulted in other comprehensive income of $48 million in 2005, an other comprehensive loss of $38 million in 2004, and an other comprehensive loss of $80 million in 2003.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



16. PENSION PLANS (continued)



|                                                                                                        |  |      |   |  |      |   |  |      |  
|------------------------------------------------------------------------------------------------------- |  | ---- | - |  | ---- | - |  | ---- | -
|                                                                                                        |  | 2005 |   |  | 2004 |   |  | 2003 |  
|Weighted-average assumptions used to determine net periodic pensioncost for the years ended December 31 |  |      |   |  |      |   | 
|                                                                                                        |  |      |  
|U.S. Plans                                                                                              |  |      |   |  |      |   |  |      |  
|Discount rate                                                                                           |  | 5.85 | % |  | 6.25 | % |  | 6.75 | %
|Expected return on plan assets                                                                          |  | 7.50 | % |  | 8.00 | % |  | 8.00 | %
|Rate of compensation increase                                                                           |  | 5.44 | % |  | 6.00 | % |  | 6.00 | %
|                                                                                                        |  |      |  
|Non-U.S. Plans                                                                                          |  |      |   |  |      |   |  |      |  
|Discount rate                                                                                           |  | 5.59 | % |  | 5.70 | % |  | 5.75 | %
|Expected return on plan assets                                                                          |  | 6.70 | % |  | 6.70 | % |  | 6.50 | %
|Rate of compensation increase                                                                           |  | 3.72 | % |  | 3.80 | % |  | 4.00 | %



Plan Assets



The U.S. asset allocations at October 31, 2005 and
2004 by asset category are as follows:



|                                  |  |                                           |   |  |                                           |  
|--------------------------------- |  | ----------------------------------------- | - |  | ----------------------------------------- | -
|Asset category                    |  | Percentage of Plan AssetsOctober 31, 2005 |   |  | Percentage of Plan AssetsOctober 31, 2004 |  
|Equity                            |  | 38                                        | % |  | 33                                        | %
|Fixed income and cash equivalents |  | 62                                        | % |  | 67                                        | %



During 2004 and the first eleven
months of 2005, the investment policy was to have plan assets, excluding contributions made from 2003 to 2007, invested 50% in equity securities and 50% in a bond portfolio whose duration approximately matches expected benefit payments after 2007.
In December 2005, the investment policy was revised so that the target asset allocation, excluding contributions made through 2007, is made up of 45% debt securities, 40% equity securities, 10% real estate and 5% real assets. This change did not
impact the expected return on plan asset assumption selected at the October 31, 2005 measurement date. Contributions made from 2003 to 2007, which will be used to satisfy anticipated benefit payments through 2007, have been and will continue to
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)
|2006      |  | $                        | 101
|2007      |  |                          | 101
|2008      |  |                          | 106
|2009      |  |                          | 107
|2010      |  |                          | 108
|2011-2015 |  |                          | 547



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



16. PENSION PLANS (continued)



Contributions



Owens Corning expects to contribute $40 million to $60 million in cash to the U.S. pension plan during 2006.



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. The Company recognized expense of $25 million in 2005, $22 million in 2004, and $20 million in 2003 for contributions to these
plans.



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. Effective January 1, 2006, the Company discontinued subsidizing post-65 retiree health care coverage, except for certain grandfathered groups. For employees hired after December 31, 2005, the Company
does not provide subsidized retiree health care. 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.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



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



The following tables provide a reconciliation of the changes in the accumulated postretirement benefits obligation,
measured as of October 31, 2005 and 2004, and the accrued benefits cost liability at December 31, 2005 and 2004:



|                                                                                                   |  |                               |      |   |          |   |     |       |  |   |      |   |  |          |      |   |       |   |     |   |  |   |      |  
|-------------------------------------------------------------------------------------------------- |  | ----------------------------- | ---- | - | -------- | - | --- | ----- |  | - | ---- | - |  | -------- | ---- | - | ----- | - | --- | - |  | - | ---- | -
|                                                                                                   |  | Measurement date - October 31 |     
|                                                                                                   |  | 2005                          |      |   | 2004     |  
|                                                                                                   |  | U.S.                          |      |   | Non-U.S. |   |     | Total |  |   | U.S. |   |  | Non-U.S. |      |   | Total |  
|                                                                                                   |  | (In millions of dollars)      |     
|Change in Accumulated Postretirement Benefits Obligation                                           |  |                               |      |  
|Benefits obligation at beginning of period                                                         |  | $                             | 448  |   |          | $ | 21  |       |  | $ | 469  |   |  | $        | 451  |   |       | $ | 18  |   |  | $ | 469  |  
|Service cost                                                                                       |  |                               | 9    |   |          |   |    |       |  |   | 9    |   |  |          | 9    |   |       |   |    |   |  |   | 9    |  
|Interest cost                                                                                      |  |                               | 24   |   |          |   | 1   |       |  |   | 25   |   |  |          | 27   |   |       |   | 1   |   |  |   | 28   |  
|Amendments                                                                                         |  |                               | (42  | ) |          |   |    |       |  |   | (42  | ) |  |          | 6    |   |       |   |    |   |  |   | 6    |  
|Actuarial (gain) loss                                                                              |  |                               | (51  | ) |          |   | 2   |       |  |   | (49  | ) |  |          | (19  | ) |       |   |    |   |  |   | (19  | )
|Currency loss                                                                                      |  |                               |     |   |          |   | 1   |       |  |   | 1    |   |  |          |     |   |       |   | 3   |   |  |   | 3    |  
|Benefits paid                                                                                      |  |                               | (29  | ) |          |   | (1  | )     |  |   | (30  | ) |  |          | (26  | ) |       |   | (1  | ) |  |   | (27  | )
|                                                                                                   |  |                               |      |   |          |   |     |       |  |   |      |   |  |          |      |   |       |   |     |   |  |   |      |  
|Benefits obligation at end of period                                                               |  | $                             | 359  |   |          | $ | 24  |       |  | $ | 383  |   |  | $        | 448  |   |       | $ | 21  |   |  | $ | 469  |  
|                                                                                                   |  |                               |      |   |          |   |     |       |  |   |      |   |  |          |      |   |       |   |     |   |  |   |      |  
|Funded status                                                                                      |  | $                             | (359 | ) |          | $ | (24 | )     |  | $ | (383 | ) |  | $        | (448 | ) |       | $ | (21 | ) |  | $ | (469 | )
|Unrecognized net actuarial loss                                                                    |  |                               | 22   |   |          |   | 6   |       |  |   | 28   |   |  |          | 75   |   |       |   | 4   |   |  |   | 79   |  
|Unrecognized prior service costs                                                                   |  |                               | (58  | ) |          |   |    |       |  |   | (58  | ) |  |          | (21  | ) |       |   |    |   |  |   | (21  | )
|Benefit payments made subsequent to October 31, 2005 and 2004 measurement dates                    |  |                               | 3    |   |          |   |    |       |  |   | 3    |   |  |          | 7    |   |       |   |    |   |  |   | 7    |  
|                                                                                                   |  |                               |      |   |          |   |     |       |  |   |      |   |  |          |      |   |       |   |     |   |  |   |      |  
|Accrued benefit cost (includes current liabilities of $30 million in 2005 and $29 million in 2004) |  | $                             | (392 | ) |          | $ | (18 | )     |  | $ | (410 | ) |  | $        | (387 | ) |       | $ | (17 | ) |  | $ | (404 | )
|                                                                                                   |  |                               |      |   |          |   |     |       |  |   |      |   |  |          |      |   |       |   |     |   |  |   |      |  



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



|               |  |      |   |  |      |  
|-------------- |  | ---- | - |  | ---- | -
|               |  | 2005 |   |  | 2004 |  
|U.S. Plans     |  |      |   |  |      |  
|Discount rate  |  | 5.80 | % |  | 5.85 | %
|Non-U.S. Plans |  |      |   |  |      |  
|Discount rate  |  | 5.25 | % |  | 5.85 | %



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



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



The following table presents the components of net periodic benefits cost for aggregated U.S. and Non-U.S. Plans
during 2005, 2004 and 2003:



|                                         |  |      |    |   |      |   |    |      |  |   |    |  
|---------------------------------------- |  | ---- | -- | - | ---- | - | -- | ---- |  | - | -- | -
|                                         |  | 2005 |    |   | 2004 |   |    | 2003 | 
|Components of net periodic benefits cost |  |      |    |   |      |   |    |      |  |   |    |  
|Service cost                             |  | $    | 9  |   |      | $ | 9  |      |  | $ | 14 |  
|Interest cost                            |  |      | 25 |   |      |   | 28 |      |  |   | 33 |  
|Amortization of loss                     |  |      | 3  |   |      |   | 6  |      |  |   | 10 |  
|Amortization of prior service cost       |  |      | (6 | ) |      |   | (6 | )    |  |   | (1 | )
|                                         |  |      |    |   |      |   |    |      |  |   |    |  
|Net periodic benefits cost               |  | $    | 31 |   |      | $ | 37 |      |  | $ | 56 |  
|                                         |  |      |    |   |      |   |    |      |  |   |    |  





|                                                                                                          |  |      |   |  |            |   |  |            |  
|--------------------------------------------------------------------------------------------------------- |  | ---- | - |  | ---------- | - |  | ---------- | -
|                                                                                                          |  | 2005 |   |  | 2004       |   |  | 2003       |  
|Weighted-average assumptions used to determine net periodic benefits cost for the years ended December 31 |  |      |   |  |            |   |  |            |  
|U.S. Plans                                                                                                |  |      |   |  |            |   |  |            |  
|Discount rate                                                                                             |  | 5.85 | % |  | 6.25       | % |  | 6.75       | %
|Non-U.S. Plans                                                                                            |  |      |   |  |            |   |  |            |  
|Discount rate                                                                                             |  | 5.85 | % |  | 6.25       | % |  | 6.50       | %
|                                                                                                          |  |      |  
|                                                                                                          |  |      |   |  |            |   |  |            |  
|                                                                                                          |  | 2005 |   |  | 2004       |   |  | 2003       |  
|Health Care Cost Trend Rates                                                                              |  |      |   |  |            |   |  |            |  
|U.S. Plans                                                                                                |  |      |   |  |            |   |  |            |  
|Initial rate at end of year                                                                               |  | 10.0 | % |  | 8.0% - 9.5 | % |  | 9.0% -11.0 | %
|Ultimate rate                                                                                             |  | 5.0  | % |  | 5.0        | % |  | 5.0        | %
|Year in which ultimate rate is reached                                                                    |  | 2010 |   |  | 2007       |   |  | 2008       |  
|                                                                                                          |  |      |  
|Non-U.S. Plans                                                                                            |  |      |   |  |            |   |  |            |  
|Initial rate at end of year                                                                               |  | 10.0 | % |  | 10.0       | % |  | 8.9        | %
|Ultimate rate                                                                                             |  | 5.0  | % |  | 4.5        | % |  | 4.5        | %
|Year in which ultimate rate is reached                                                                    |  | 2009 |   |  | 2009       |   |  | 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, 2005 and 2004:



|                                                          |  |                    |    |          |   |     |  
|--------------------------------------------------------- |  | ------------------ | -- | -------- | - | --- | -
|                                                          |  | 2005               |   
|                                                          |  | 1-Percentage point |   
|                                                          |  | Increase           |    | Decrease |  
|Effect on total service cost and interest cost components |  | $                  | 4  |          | $ | (3  | )
|Effect on accumulated postretirement benefits obligation  |  |                    | 27 |          |   | (23 | )



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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 |     | Medicare Subsidy |   | Estimated BenefitPayments Net ofMedicare Subsidy
|          |  | (In millions of dollars)                          
|2006      |  | $                                                  | 30  |                  | $ | 3                                                |  | $ | 27 
|2007      |  |                                                    | 31  |                  |   | 3                                                |  |   | 28 
|2008      |  |                                                    | 31  |                  |   | 3                                                |  |   | 28 
|2009      |  |                                                    | 32  |                  |   | 3                                                |  |   | 29 
|2010      |  |                                                    | 32  |                  |   | 3                                                |  |   | 29 
|2011-2015 |  |                                                    | 165 |                  |   | 13                                               |  |   | 152



Plan Amendment



During the third quarter of 2005, the Company announced plans to
amend certain provisions of the U.S. postretirement health care plans, effective January 1, 2006. Depending on the category of the employee, the changes consist of discontinuing subsidized post-65 retiree health care coverage, except for
certain grandfathered groups, and providing only non-subsidized retiree health care coverage for employees hired after December 31, 2005. The changes to the plan resulted in a net decrease of the accumulated postretirement benefit obligation
(APBO) of $42 million. The gain will be amortized into net periodic benefits cost over the average remaining years of service to the full eligibility date of the affected employees.



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 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.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



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



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.



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, 2005 and 2004, as reflected in the balance sheet at December 31, 2005 and 2004, were $32 million and $31 million,
including current liabilities of $5 million in both years. The net postemployment benefits expense was approximately $6 million in 2005, $5 million in 2004, and $6 million in 2003.



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.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)





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.



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).



As more fully discussed 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 December 31, 2005 a proposed fifth amended joint plan of reorganization for the Debtors. The steering committee of holders of obligations under the Pre-Petition Credit Facility supports the Plan pursuant to the terms of the
letter, dated December 30, 2005, appended as Appendix K to the Disclosure Statement filed with respect to the Plan on December 31, 2005. Owens Corning expects that all pending and future asbestos claims against Owens Corning and Fibreboard
will be resolved pursuant to the Plan (or another plan of reorganization).



A
six-day claims estimation hearing to establish the amount of current and future asbestos liability 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. On March 31, 2005, the District Court issued a Memorandum and
Order estimating the total amount of contingent and unliquidated claims against Owens Corning for personal injury or death caused by exposure to asbestos (including pending claims, future claims and contract claims) at $7 billion. After the District
Court denied their motion for reconsideration, the holders of the debt under the Pre-Petition Credit Facility, as well as certain other parties, appealed the District Courts ruling to the Third Circuit. Certain parties have filed briefs with
respect to such appeal, but the briefing has not yet been completed and oral arguments have not yet been scheduled. The $7 billion asbestos liability estimated by the District Court for Owens Corning exceeded the high end of the range of estimates
of Owens Cornings liability for asbestos claims that had been provided by Owens Cornings asbestos valuation experts but was below the range of estimates of such liability provided by the valuation experts of the Official Committee of
Asbestos Claimants and the Legal Representative for the class of future asbestos claimants. As described more fully under the heading Reserve below, as a result of the District Courts estimation, Owens Corning increased its reserve
for potential asbestos-related liability by



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



19. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)



$3.435 billion for the period ended March 31, 2005, so that its recorded reserve equaled the level of asbestos
liability estimated by the District Court. Although the District Courts Memorandum and Order did not specifically address the potential asbestos-related liability of Fibreboard, based upon the analysis that the District Court had followed in
establishing estimated asbestos liability for Owens Corning, Owens Corning also increased Fibreboards recorded reserve for potential asbestos-related liability by $907 million for the period ended March 31, 2005.



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).



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.



The claims covered by the NSP Agreements were taken into account by the District Court in estimating the amount of Owens Cornings current and future asbestos
liability at $7 billion. Pursuant to the Plan, a trust intended to qualify under section 524(g) of the Bankruptcy Code will be created and funded by the Debtors, as described above, and will assume all asbestos-related liability of Owens Corning,
Fibreboard and the other entities set forth in the Plan. In general, under the terms of the Plan, asbestos personal injury claims against Owens Corning, including claims previously covered by the NSP Agreements, will be administered, and
distributions on account of such claims will be made from the 524(g) Trust, pursuant to the trust distribution procedures attached to the Plan.



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



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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.



In general, under the
terms of the current Plan, asbestos personal injury claims against Owens Corning, including non-NSP claims, will be administered, and distributions on account of such claims will be made from the 524(g) Trust, pursuant to the trust distribution
procedures attached to the Plan.



Asbestos-Related Payments



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



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



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



Prior to the Petition Date,
Owens Corning deposited certain amounts in escrow accounts to facilitate claims processing under the NSP (Administrative Deposits). Amounts deposited into escrow in Administrative Deposits during a reporting period are included in the
payments shown for NSP Settlements during the period. At December 31, 2005, 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).



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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 but has not been decided by the District Court. The Plan currently contemplates that any funds held in Undistributed Administrative Deposits will ultimately be
distributed in a manner consistent with the Bankruptcy Court ruling. However, Owens Corning is currently unable to predict the outcome of the hearing on the confirmation of the Plan or the final terms of the Plan (or other plan of reorganization) as
may ultimately be confirmed.



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. For the reasons stated below, as a result of the Memorandum and Order of the District Court issued on
March 31, 2005, estimating the total asbestos-related liability of Owens Corning at $7 billion, Owens Corning increased its reserve for potential asbestos-related liabilities by $3.435 billion for the first quarter of 2005, so that its recorded
reserve for Owens Cornings asbestos-related liabilities equaled the District Courts estimate. Consequently, as of December 31, 2005, a reserve of $7 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.



As Owens Corning has discussed in previous public filings, and as the District Court emphasized in its March 31, 2005 Memorandum and Order, 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. Prior to the Petition Date, such variables
included, among others, the cost of resolving pending non-NSP claims; the disease mix and severity of disease of pending NSP claims; the number, severity of disease, and jurisdiction of claims filed in the future (especially the number of
mesothelioma claims); how many future claimants were covered by an NSP Agreement; the extent, if any, to which individual claimants exercised a right to opt out of an NSP Agreement and/or engage counsel not participating in the NSP; the extent, if
any, to which counsel not bound by an NSP Agreement undertook the representation of asbestos personal injury plaintiffs against Owens Corning; the extent, if any, to which Owens Corning exercised its right to terminate one or more of the NSP
Agreements due to excessive opt-outs or for other reasons; and Owens Cornings success in controlling the costs of resolving future non-NSP claims.



The Chapter 11 Cases 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



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Corning. As described more fully below in Items A and B, however, the District Courts order on March 31,
2005, estimating Owens Cornings personal injury asbestos-related liability has served to narrow the range of possible values of asbestos-related liabilities for both Owens Corning and Fibreboard.



In connection with the process of negotiating the Plan, 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 analyses of liability for both pre-petition and
future asbestos claims. Owens Corning and Fibreboard 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 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 indicated 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 were assumed, and $8.547 billion, if 5-year historical settlement values for Owens Corning and Fibreboard, respectively, were 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.
In addition, since the reserve for Fibreboard asbestos-related liabilities exceeded 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.



As part of the
District Courts order scheduling the estimation hearing for January 13, 2005, the District Court ordered that all parties intending to present expert testimony at such hearing 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
ranged 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 varied substantially from one another, and certain of them varied
substantially from the amounts then recorded in Owens Cornings and Fibreboards respective asbestos reserves. Owens Corning further notes that 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 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



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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, and the District Court emphasized in its March 31, 2005 Memorandum and Order, 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 the Chapter 11 Cases may also take into account the implications of any such analyses
prepared for use in the Chapter 11 Cases on their position in one or more of the other asbestos-related bankruptcy cases pending in the District of Delaware or elsewhere.



On March 31, 2005, the District Court issued a Memorandum and Order estimating the total amount of contingent and unliquidated claims
against Owens Corning for personal injury or death caused by exposure to asbestos (including pending claims, future claims and contract claims) at $7 billion. In its March 31, 2005 Memorandum and Order, the District Court observed that the
range of projected liabilities that were reflected in the various expert reports submitted to it resulted from the attempt to make predictions based upon other predictions and assumptions, and that relatively minor variations in underlying
assumptions can skew the end result enormously. The District Court further noted that it was estimating not how much each potential claimant would actually be entitled to receive but rather the total amount that the claimants, as a group, could
legitimately have claimed as compensation (or, in the case of future claimants, what their claims would have been worth in the tort system) as of the Petition Date. After the District Court denied their motion for reconsideration, the holders of the
debt under the Pre-Petition Credit Facility, as well as certain other parties, appealed the District Courts ruling to the Third Circuit. Certain parties have filed briefs with respect to such appeal, but the briefing has not yet been completed
and oral arguments have not yet been scheduled.



Despite the District
Courts estimation order, Owens Corning notes that there continues to be uncertainty about the ultimate size of Owens Cornings asbestos-related liabilities, including due to the possibility of consensual agreement of the parties or
asbestos reform legislation. However, Owens Corning believes that the District Courts estimation serves to establish an amount within the range of possible values of Owens Cornings asbestos liability that is more probable than other
possible values in the context of Chapter 11 cases. Accordingly, as a result of the District Courts estimation, Owens Corning increased its reserve for potential asbestos-related liability by $3.435 billion for the period ended March 31,
2005, so that its recorded reserve equaled the level of asbestos liability estimated by the District Court. Although the District Courts Memorandum and Order did not specifically address the potential asbestos-related liability of Fibreboard,
based upon the analysis that the District Court had followed in establishing estimated asbestos liability for Owens Corning, Owens Corning also increased Fibreboards recorded reserve for potential asbestos-related liability by $907 million for
the period ended March 31, 2005 (see Item B below).



As described above,
since Owens Corning believes that the District Courts estimation serves to establish an amount within the range of possible values of Owens Cornings asbestos liability for personal injury or death that is more probable than the other
possibilities, Owens Cornings reserve for asbestos-related



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liabilities has been set equal to such estimate. 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 Cases may be either higher or lower than the Companys reserve. Owens Corning will continue to review its asbestos reserve on a periodic
basis and make such adjustments as may be appropriate in light of such information and future developments in the Chapter 11 Cases. Any such revision could be material to the Companys consolidated financial position and results of operations
in any given period.



Senators Arlen Specter (R-PA) and Patrick Leahy (D-VT)
co-sponsored an asbestos litigation reform bill (S-852) introduced in the United States Senate on April 19, 2005. The proposed legislation is entitled the Fairness in Asbestos Injury Resolution Act of 2005 (the FAIR Act).



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



The proposed legislation was voted out of the Senate Judiciary Committee on May 26, 2005. On February 15, 2006, the U.S. Senate failed to secure the votes required to waive a budget point of order that was raised against the proposed
legislation.



The legislative fate of the FAIR Act remains uncertain, and Owens
Corning is unable to predict 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 any other plan of reorganization) in the
event that the effective date of the Plan has not occurred prior to the enactment of the FAIR Act. 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 less than the amounts reserved for in Owens Cornings financial statements.



ITEM B. - FIBREBOARD (EXCLUDING OWENS CORNING)



Prior to 1972, Fibreboard manufactured asbestos containing products, including insulation products. Fibreboard has since been named as defendant in many thousands of
personal injury claims for injuries allegedly caused by asbestos exposure. Fibreboard received approximately 22,000 asbestos personal injury claims during 2000. Prior to the Petition Date, the vast majority of Fibreboard asbestos personal injury
claims were in the process of being resolved through the NSP, as described below. As a result of the Filing, all pre-petition asbestos claims and pending litigation against the Debtors were automatically stayed (see Note 1 to the Consolidated
Financial Statements).



As discussed in Item A 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 December 31, 2005 a proposed fifth amended joint plan of reorganization for the Debtors
(including Fibreboard). The steering committee of holders of obligations under the Pre-Petition Credit Facility supports the Plan pursuant to the terms of the letter dated December 30, 2005, appended as Appendix K to the Disclosure Statement
filed with respect to the Plan on December 31, 2005. Owens Corning expects that all pending and future asbestos claims against Owens Corning and Fibreboard will be resolved pursuant to the Plan (or another plan of reorganization).



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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.



Pursuant to the Plan, a trust intended to qualify under section 524(g) of the Bankruptcy Code will be created and funded by the Debtors, as described above, and will assume all asbestos-related liabilities of Owens Corning, Fibreboard, and
the other entities set forth in the Plan. In general, under the terms of the Plan, asbestos personal injury claims against Fibreboard, including claims previously covered by the NSP Agreements, will be administered, and distributions on account of
such claims will be made from the 524(g) Trust, pursuant to the trust distribution procedures attached to the Plan.



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.



In general, under the terms of the current Plan,
asbestos personal injury claims against Fibreboard, including Fibreboard non-NSP claims, will be administered, and distributions on account of such claims will be made from the 524(g) Trust, pursuant to the trust distribution procedures attached to
the Plan.



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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, 2005, the remaining Insurance Settlement funds were
held in and invested by the Fibreboard Settlement Trust. As of that date, $1.306 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, 2005, 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.



The Plan currently contemplates that the funds held in the Fibreboard Settlement Trust and certain of the funds in the Undistributed Administrative Deposits in respect of Fibreboard claims (see Item A) will be
transferred and assigned to the 524(g) Trust for subsequent distribution to holders of asbestos personal injury claims against Fibreboard pursuant to the trust distribution procedures attached to the Plan. However, Owens Corning is currently unable
to predict the outcome of the hearing on the confirmation of the Plan or the final terms of the Plan (or other plan of reorganization) as may ultimately be confirmed.



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



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



Reserve



Owens Corning estimates a
reserve for Fibreboard in accordance with generally accepted accounting principles to reflect asbestos-related liabilities. As described in Item A above, on March 31, 2005, the District Court issued a Memorandum and Order estimating the total
amount of contingent and unliquidated claims against Owens Corning for personal injury or death caused by exposure to asbestos. The amount estimated by the District Court exceeded the high end of the range of estimates of Owens Cornings
liability for asbestos claims that had been provided by Owens Cornings asbestos valuation experts but was below the range of estimates of such liability provided by the valuation experts of the Official Committee of Asbestos Claimants and the
Legal Representative for the class of future asbestos claimants. Although the District Courts Memorandum and Order did not specifically address the potential asbestos-related liability of Fibreboard, based upon the analysis that the District
Court had followed in establishing estimated asbestos liability for Owens Corning, Owens Corning increased Fibreboards recorded reserve for potential asbestos-related liability by $907 million during the quarter ended March 31, 2005, so
that it equaled the high end of the range of estimates of Fibreboards liability for asbestos claims that had been provided by Owens Cornings valuation experts for use in the estimation hearing. Consequently, as of December 31, 2005,
a reserve of approximately $3.216 billion in respect of Fibreboards asbestos-related liabilities was one of the items included in Owens Cornings Consolidated Balance Sheet under the category Liabilities Subject to Compromise.



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. Ultimately, it is
anticipated that the aggregate distributions with respect to Fibreboards current and future asbestos personal injury claims will be determined through the plan of reorganization confirmation process.



The Plan provides that a trust intended to qualify under section 524(g) of the Bankruptcy
Code will be created and funded by the Debtors, as described above, and will assume all asbestos-related liability of Owens Corning, Fibreboard and the other entities set forth in the Plan. The Plan also provides that



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distributions on account of such claims will be made from the 524(g) Trust, pursuant to the trust distribution
procedures attached to the Plan. Owens Corning is currently unable to predict the outcome of the hearing on the confirmation of the Plan or the final terms of the Plan (or other plan of reorganization) as may ultimately be confirmed.



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 Cases may be either higher or lower than Fibreboards reserve. Owens Corning will continue to review
Fibreboards asbestos reserve on a periodic basis and make such adjustments as may be appropriate in light of such information and future developments in the Chapter 11 Cases. Any such revision could be material to the Companys
consolidated financial position and results of operations in any given period.



As noted in Item A above, Senators Arlen Specter (R-PA) and Patrick Leahy (D-VT) co-sponsored an asbestos litigation reform bill (S-852) introduced in the United States Senate on April 19, 2005. The proposed legislation is entitled the
Fairness in Asbestos Injury Resolution Act of 2005 (the FAIR Act).



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



The proposed legislation was voted out of the Senate Judiciary Committee on May 26, 2005. On February 15, 2006, the U.S. Senate failed to secure the votes required to
waive a budget point of order that was raised against the proposed legislation.



The legislative fate of the FAIR Act remains uncertain, and Owens Corning is unable to predict 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 any other plan of reorganization) in the event that the effective date of the Plan has not occurred prior to the enactment of the FAIR Act. 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 less than the amounts reserved for in Owens Cornings financial statements.



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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.



Insurance



Since the Filing, Owens Corning has reached
settlements with more than ten excess level insurance carriers with respect to non-products insurance coverage applicable to asbestos personal injury claims. During the fourth quarter of 2005, Owens Corning reached such settlements providing for
approximately $80 million of deferred payments. The settlements provide that such payments, when paid, will be made into escrow accounts, to be disbursed in accord with an approved plan of reorganization. The receivables relating to such deferred
payments, along with $4 million of unconfirmed potential non-products coverage as to which Owens Corning has estimated probable recovery, are reflected on Owens Cornings Consolidated Balance Sheet under the category Other noncurrent
assets. During 2004 and 2001, Owens Corning reached such settlements providing for payments of approximately $21 million and $55 million, respectively. These settlement payments were paid into escrow accounts to be released in conjunction with
implementation of an approved plan of reorganization. Such escrowed funds, including earnings, are reflected on Owens Cornings Consolidated Balance Sheet as restricted assets, under the category Restricted cash - asbestos and insurance
related.



During 2005, Owens Corning received payments of approximately
$10 million in respect of previous settlements with insolvent insurance carriers concerning coverage for asbestos-related personal injury claims.



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19. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)



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. A status conference was held on this matter on
November 8, 2005 and a trial was scheduled for June 12, 2006, as to certain defendants. 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. The plaintiffs have appealed the dismissal to the United States Court of Appeals for the Sixth Circuit, and briefing and oral arguments are complete. Owens Corning believes that the
claim is without merit.



On or about September 2, 2003, certain of the
Companys current and former directors and officers were named as defendants in a lawsuit captioned Kensington International Limited, et al. v. Glen Hiner, et al. in the Supreme Court of the State of New York, County of New York. Owens Corning
is not named in the lawsuit. The suit, which was brought by Kensington International Limited and Springfield Associates, LLC, two assignees of lenders under the Pre-Petition Credit Facility, alleges causes of action (1) against all defendants
for breach of fiduciary duty, and (2) against certain defendants for fraud in connection with certain loans made under the Pre-Petition Credit Facility. The complaint seeks an unspecified amount of damages. On October 6, 2003, the Company
filed in the USBC a Complaint for Temporary Restraining Order, Preliminary Injunction and Enforcement of the Automatic Stay, requesting a preliminary injunction



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19. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)



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 USBC. 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. On December 21, 2005, the USBC issued an order dismissing the breach of fiduciary duty claim against the two officers. Owens Corning believes that the remaining
claim of the SL Plaintiffs (alleging fraud against one officer) is 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.



On or about January 6, 2006, the official representatives of the
bondholders and trade creditors of Owens Corning filed, without leave of Court, the Complaint of Official Representatives of the Owens Corning Bondholder and Trade Creditor Constituencies for Equitable Subordination and to Pierce the Corporate Veil
(the Bond/Trade Complaint). The Bond/Trade Complaint seeks, among other things, to (i) subordinate the claims of holders of debt under the Pre-Petition Credit Facility against Owens Corning to the claims of certain bondholders and
trade creditors of Owens Corning and to subordinate the claims of holders of debt under the Pre-Petition Credit Facility against the guarantors of the Pre-Petition Credit Facility to claims of Owens Corning, (ii) subordinate the claims of
certain Non-Debtor Subsidiaries that are guarantors of the Pre-Petition Credit Facility against Owens Corning to the claims of certain bondholders and trade creditors of Owens Corning and (iii) pierce the corporate veil of certain Non-Debtor
Subsidiaries that are guarantors of the Pre-Petition Credit Facility. Owens Corning believes that the claims set forth in the Bond/Trade Complaint are without merit and should be considered, if at all, in conjunction with the Plan confirmation
process.



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19. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)



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. As to the Pre-Petition Credit Facility, the claim
total reflects only a single claim (in the amount of approximately $1.6 billion) although the holders have asserted this claim against Owens Corning and each of six other Debtors that issued a guarantee with respect to the facility. For further
information concerning the filed claims, see Note 1 to the Consolidated Financial Statements, under the heading General Bar Date.



PBGC CLAIM



In connection with the General Bar Date described above, the Pension Benefit Guaranty Corporation (PBGC), an agency of the United States, has filed a claim, in the amount of approximately
$458 million, in connection with statutory liability for unfunded benefit liabilities of the Owens Corning Merged Retirement Plan (the Pension Plan). The claim states that it is contingent upon termination of the Pension Plan. Since
Owens Corning does not anticipate that the Plan (or any other plan of reorganization) as ultimately confirmed by the Bankruptcy Court 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 asserted claims for unpaid income taxes plus interest thereon. As the result of settlement negotiations, in the fourth quarter of 2004 the Company and the IRS reached an agreement in principle to settle such claims in return for
total settlement payments by the Company of approximately $69 million, plus interest of approximately $30 million, as calculated by the Company. The settlement was approved by the Bankruptcy Court by order dated November 15, 2004 and by
the Congressional Joint Committee on Taxation on May 17, 2005. The IRS is currently in the process of implementing the settlement, including performing its calculation of the interest component, which could vary from the amount of interest as
calculated by the Company.



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 $534 million, in connection with these tax claims. As part of the implementation of the settlement described above, the filed
proofs of claim will be amended appropriately.



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19. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)



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.



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. In addition, Owens Corning has been named a defendant in a purported class action, originally 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 the CBC, upon Owens
Cornings motion, ordered that the proceeding be transferred to the USBC. In late October, 2005, Owens Corning reached an agreement in principle to settle both purported class actions for a total of $11 million. The settlement is subject to
final documentation and to approval by the Bankruptcy Court. The settlement amount is fully reserved in the Consolidated Financial Statements as of December 31, 2005.



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 Cases. 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 Cases.



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



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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. On January 20, 2006, the official representatives of the bondholder and trade creditor constituencies of Owens Corning filed a motion for leave to file an amended complaint in intervention in
connection with the Pre-Petition Credit Facility Action and to seek authority to prosecute existing claims and commence others on behalf of the Debtors estates (the Derivative Complaint). The Plan contemplates that the claims
belonging to the Debtors under the Pre-Petition Credit Facility Action, which are the subject of the Derivative Complaint, will be released. However, Owens Corning is currently unable to predict the outcome of the hearing on the confirmation of the
Plan or the final terms of the Plan (or other plan of reorganization), including the applicable release provisions, as may ultimately be confirmed.



Separately, and at the request of the Official Committee of Unsecured Creditors 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. On or about October 3, 2005 similar lawsuits were brought
against 2 additional law firms whose tolling agreements were about to expire and who could not be contacted to extend the tolling agreements because of Hurricane Katrina. The Official Committee of Unsecured Creditors 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 Committee of Unsecured Creditors and Bankruptcy Court
approval.



By motions filed on various dates, the Debtors have requested a stay
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 and two commercial preference actions,
has been stayed.



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19. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)



OTHER BANKRUPTCY RELATED MATTERS



See Note 1 to the Consolidated Financial Statements for a discussion of other bankruptcy related matters.



TALOJA, INDIA MANUFACTURING FACILITY



During the week of July 24, 2005, the Company experienced a flood at its Taloja, India
manufacturing facility, a 60% owned joint venture. This facility is insured for property damage and business interruption losses related to such events, subject to deductibles and policy limits. The Company estimates it has incurred, or will incur,
a total of $25 million to $35 million of property damage costs and business interruption losses in 2005 and 2006 associated with the Taloja flood. The Company believes these costs/losses will be substantially covered by insurance. However, should
the expected recoveries not be received, the uncovered costs and losses could have a material adverse impact on the Composite Solutions business. Also, the timing of any recoveries may result in expenses being taken in periods before the insurance
receipts are recorded or received.



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, 2005, 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.



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, 2005, these assets
were reflected as non-current assets, under the category Restricted cash, securities and otherFibreboard. Owens Corning estimates a reserve for Fibreboard in accordance with generally accepted accounting principles to reflect
asbestos-related liabilities (see Note 19, Item B, to the Consolidated Financial Statements). As of December 31, 2005, these liabilities were one of the items included in Owens Cornings consolidated balance sheet under the category
Liabilities Subject to Compromise. At December 31, 2005, the Consolidated Financial Statements reflect Fibreboards reserve for asbestos litigation claims of $3.216 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.



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20. FIBREBOARD SETTLEMENT TRUST (continued)



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.



The residual obligation to charity is included within Fibreboards reserve for asbestos litigation claims as the asbestos-related liabilities have exceeded the Trust Assets. Consequently, 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, 2005 and 2004



During 2005 and 2004, Trust Assets generated interest/dividend earnings of approximately $60 million and $59 million, respectively, recorded in Chapter 11 related
reorganization items in the Consolidated Statement of Income (Loss).



During
2005 and 2004, the fair market value adjustment for those securities designated as trading securities resulted in an unrealized loss of approximately $30 million and $25 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 2005 or 2004. However, approximately $0.4 million was paid
during 2005 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 2005 and 2004 resulted in realized losses of approximately $15
million and $11 million, respectively. Realized gains or losses from the sale of securities are reflected on the Companys consolidated financial statements in the same manner as actual returns on Trust Assets, described above.



At December 31, 2005, the fair value of Trust Assets and Administrative Deposits was
$1.433 billion, which was comprised of Trust Assets of $1.306 billion of marketable securities and Administrative Deposits of $127 million.



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20. FIBREBOARD SETTLEMENT TRUST (continued)



The table below summarizes Trust and Administrative Deposits activity for the twelve
months ended December 31, 2005:



|                                                               |  |                  |       |   |                        |   |                 |  |   |               |   |  |           |     |   |                 |   |      |   |  |   |        |  
|-------------------------------------------------------------- |  | ---------------- | ----- | - | ---------------------- | - | --------------- |  | - | ------------- | - |  | --------- | --- | - | --------------- | - | ---- | - |  | - | ------ | -
|                                                               |  | Balance 12/31/04 |       |   | Interest and Dividends |   | Unrealized Loss |  |   | Realized Loss |   |  | Provision |     |   | Balance12/31/05 |  
|Assets                                                         |  |                  |       |   |                        |   |                 |  |   |               |   |  |           |     |   |                 |   |      |   |  |   |        |  
|Trust Assets:                                                  |  |                  |       |   |                        |   |                 |  |   |               |   |  |           |     |   |                 |   |      |   |  |   |        |  
|Marketable securities - trading                                |  | $                | 1,291 |   |                        | $ | 60              |  | $ | (30           | ) |  | $         | (15 | ) |                 | $ |     |   |  | $ | 1,306  |  
|                                                               |  |                  |       |   |                        |  
|Administrative Deposits                                        |  |                  | 127   |   |                        |   |                |  |   |              |   |  |           |    |   |                 |   |     |   |  |   | 127    |  
|                                                               |  |                  |       |   |                        |   |                 |  |   |               |   |  |           |     |   |                 |   |      |   |  |   |        |  
|Total assets                                                   |  | $                | 1,418 |   |                        | $ | 60              |  | $ | (30           | ) |  | $         | (15 | ) |                 | $ |     |   |  | $ | 1,433  |  
|                                                               |  |                  |       |   |                        |   |                 |  |   |               |   |  |           |     |   |                 |   |      |   |  |   |        |  
|Liabilities                                                    |  |                  |       |   |                        |   |                 |  |   |               |   |  |           |     |   |                 |   |      |   |  |   |        |  
|Accounts payable                                               |  | $                | 19    |   |                        | $ |                |  | $ |              |   |  | $         |    |   |                 | $ |     |   |  | $ | 19     |  
|Asbestos litigation claims                                     |  |                  | 2,309 |   |                        |   |                |  |   |              |   |  |           |    |   |                 |   | 907  |   |  |   | 3,216  |  
|                                                               |  |                  |       |   |                        |   |                 |  |   |               |   |  |           |     |   |                 |   |      |   |  |   |        |  
|Total Trust liabilities                                        |  |                  | 2,328 |   |                        |   |                |  |   |              |   |  |           |    |   |                 |   | 907  |   |  |   | 3,235  |  
|                                                               |  |                  |       |   |                        |  
|Liabilities in excess of assets                                |  |                  | (910  | ) |                        |   | 60              |  |   | (30           | ) |  |           | (15 | ) |                 |   | (907 | ) |  |   | (1,802 | )
|                                                               |  |                  |       |   |                        |   |                 |  |   |               |   |  |           |     |   |                 |   |      |   |  |   |        |  
|Total Trust liabilities net of liabilities in excess of assets |  | $                | 1,418 |   |                        | $ | 60              |  | $ | (30           | ) |  | $         | (15 | ) |                 | $ |     |   |  | $ | 1,433  |  
|                                                               |  |                  |       |   |                        |   |                 |  |   |               |   |  |           |     |   |                 |   |      |   |  |   |        |  



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



|                                                               |  |                  |       |   |                        |   |                 |  |   |               |   |  |                 |     |   |  |   |       |  
|-------------------------------------------------------------- |  | ---------------- | ----- | - | ---------------------- | - | --------------- |  | - | ------------- | - |  | --------------- | --- | - |  | - | ----- | -
|                                                               |  | Balance 12/31/03 |       |   | Interest and Dividends |   | Unrealized Loss |  |   | Realized Loss |   |  | 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 |  
|                                                               |  |                  |       |   |                        |   |                 |  |   |               |   |  |                 |     |   |  |   |       |  



21. STOCK COMPENSATION PLANS



During 2005, 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, 2005, the
maximum number of shares available under the 95 Stock Plan for stock awards was 1,216,332 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 2005, 2004, or 2003.



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, 2005, the Company had
13,329 shares of restricted stock outstanding. There were no restricted stock grants in 2005, 2004 or 2003.



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, 2005, the Company had no performance restricted stock awards outstanding and none were granted during
2005, 2004, or 2003.



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, 2005, the Company had no performance units
outstanding and none were granted during 2005, 2004, or 2003.



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 2005, 2004, or 2003.



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 399,000 shares were available under this plan at December 31, 2005. As of December 31, 2005, 24,260 deferred awards were outstanding. No options
were issued in 2005, 2004 or 2003. In 2005, 2004 and 2003, 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)



A summary of the status of the Companys plans that issue options as of December 31, 2005, 2004, and 2003
and changes during the years ended on those dates is presented below:



|                  |  |                  |   |      |                                  |       |                  |           |   |                                  |   |                  |  |            |                                  |  |   |      
|----------------- |  | ---------------- | - | ---- | -------------------------------- | ----- | ---------------- | --------- | - | -------------------------------- | - | ---------------- |  | ---------- | -------------------------------- |  | - | -----
|                  |  | 2005             |   | 2004 |                                  | 2003 
|                  |  | Number of Shares |   |      | Weighted- Average Exercise Price |       | Number of Shares |           |   | Weighted- Average Exercise Price |   | Number of Shares |  |            | Weighted- Average Exercise Price
|Beginning of year |  | 4,269,637        |   |      | $                                | 32.38 |                  | 4,897,952 |   |                                  | $ | 32.44            |  | 6,489,874  |                                  |  | $ | 33.39
|Options granted   |  |                 |   |      | $                                |      |                  |          |   |                                  | $ |                 |  |           |                                  |  | $ |     
|Options exercised |  |                 |   |      | $                                |      |                  |          |   |                                  | $ |                 |  |           |                                  |  | $ |     
|Options canceled  |  | (633,901         | ) |      | $                                | 35.56 |                  | (628,315  | ) |                                  | $ | 32.87            |  | (1,591,922 | )                                |  | $ | 36.31
|                  |  |                  |   |      |                                  |       |                  |           |   |                                  |   |                  |  |            |                                  |  |   |      
|End of year       |  | 3,635,736        |   |      | $                                | 31.82 |                  | 4,269,637 |   |                                  | $ | 32.38            |  | 4,897,952  |                                  |  | $ | 32.44
|                  |  |                  |   |      |                                  |       |                  |           |   |                                  |   |                  |  |            |                                  |  |   |      
|Exercisable       |  | 3,635,736        |   |      | $                                | 31.82 |                  | 4,269,404 |   |                                  | $ | 32.38            |  | 4,710,655  |                                  |  | $ | 32.35



There
were no options granted during 2005, 2004, or 2003.



The following table summarizes information about options outstanding at December 31, 2005:



|                                |                               |                     |                          |                     |               |   |                               |  |                                |  |   |       
|------------------------------- | ----------------------------- | ------------------- | ------------------------ | ------------------- | ------------- | - | ----------------------------- |  | ------------------------------ |  | - | ------
|Range
of        Exercise Prices |                               | Options Outstanding |                          | Options Exercisable
|                                |                               |                     | Weighted-Average         |                     |               |   |                              
|                                | Number Outstandingat 12/31/05 |                     | RemainingContractualLife |                     | ExercisePrice |   | Number Exercisableat 12/31/05 |  | Weighted-Average ExercisePrice
|$14.188 - $14.750               |                               | 2,700               |                          | 4.18                |               | $ | 14.333                        |  | 2,700                          |  | $ | 14.333
|$15.375 - $15.375               |                               | 933,891             |                          | 3.83                |               | $ | 15.375                        |  | 933,891                        |  | $ | 15.375
|$28.438 - $28.438               |                               | 404,343             |                          | 1.86                |               | $ | 28.438                        |  | 404,343                        |  | $ | 28.438
|$34.813 - $34.813               |                               | 949,861             |                          | 2.52                |               | $ | 34.813                        |  | 949,861                        |  | $ | 34.813
|$37.250 - $45.500               |                               | 1,344,941           |                          | 1.22                |               | $ | 42.190                        |  | 1,344,941                      |  | $ | 42.190



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



22. EARNINGS PER SHARE



The following table presents the net income (loss) 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.



|                                                                                                               |  |                                                         |        |   |      |   |        |  |   |       
|-------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------- | ------ | - | ---- | - | ------ |  | - | ------
|                                                                                                               |  | 2005                                                    |        |   | 2004 |   | 2003  
|                                                                                                               |  | (In millions of dollars, exceptshare data in thousands)
|Net income (loss) used for basic and diluted earnings per share                                                |  | $                                                       | (4,099 | ) |      | $ | 204    |  | $ | 115   
|                                                                                                               |  |                                                         |        |   |      |   |        |  |   |       
|Weighted-average number of shares outstanding used for basic earnings per share                                |  |                                                         | 55,324 |   |      |   | 55,307 |  |   | 55,196
|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 |  |                                                         | 55,324 |   |      |   | 59,933 |  |   | 59,874
|                                                                                                               |  |                                                         |        |   |      |   |        |  |   |       



The
Companys net income (loss) per common share for the years ended December 31, 2005, 2004, and 2003 were as follows:



|                                    |  |      |        |   |      |   |      |  |   |     
|----------------------------------- |  | ---- | ------ | - | ---- | - | ---- |  | - | ----
|                                    |  | 2005 |        |   | 2004 |   | 2003
|NET INCOME (LOSS) PER COMMON SHARE  |  |      |        |   |      |   |      |  |   |     
|Basic net income (loss) per share   |  | $    | (74.08 | ) |      | $ | 3.68 |  | $ | 2.08
|                                    |  |      |        |   |      |   |      |  |   |     
|Diluted net income (loss) per share |  | $    | (74.08 | ) |      | $ | 3.40 |  | $ | 1.92
|                                    |  |      |        |   |      |   |      |  |   |     



For the year ended 2005, the number of
shares used in the calculation of diluted earnings per share did not include 14 thousand common equivalent shares of non-vested restricted stock, 24 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.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



23. 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 counter 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. Contracts with counter parties contain right of setoff provisions. These
provisions effectively reduce the Companys exposure to credit risk in situations where the Company has gain and loss positions outstanding with a single counter party. Positions under such arrangements are reported on a net basis in the
Consolidated Balance Sheet.



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.



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 ineffective portion is recognized in other income (loss). The ineffective portion of changes in the fair value of cash flow hedges
recognized in 2005 was approximately $9 million (income) and negligible amounts in 2004 and 2003.



The Company typically enters into financial instruments that mature within thirty-six months. As of December 31, 2005, approximately $14 million of gains on financial instruments included in accumulated OCI in
the Consolidated Balance Sheet relate to contracts that will impact 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 gains as income
include actual foreign currency denominated sales or purchases and, for commodity hedges, the recognition of the hedged item through earnings.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



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



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, 2005 and 2004:



|                                                 |  |                          |     |   |      |   |    |  
|------------------------------------------------ |  | ------------------------ | --- | - | ---- | - | -- | -
|                                                 |  | 2005                     |     |   | 2004 |  
|                                                 |  | (In millions of dollars) |    
|Beginning balance  losses                       |  | $                        | (7  | ) |      | $ | (2 | )
|Increase (decrease) in fair value of derivatives |  |                          | 49  |   |      |   | (2 | )
|Reclassifications from OCI                       |  |                          | (26 | ) |      |   | (3 | )
|                                                 |  |                          |     |   |      |   |    |  
|Ending balance  gains (losses)                  |  | $                        | 16  |   |      | $ | (7 | )
|                                                 |  |                          |     |   |      |   |    |  



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, 2005 or 2004.



Other Financial Instruments with Off-Balance-Sheet Risk



As of December 31, 2005 and 2004, the Company was contingently
liable for guarantees of indebtedness owed by certain unconsolidated affiliates of approximately $11 million and $2 million, respectively. As of December 31, 2005 and 2004, approximately $1 million 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, 2005, one customer comprised more than 10% but less than 16% of our outstanding receivable balance. All receivables with this customer were current. 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.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



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



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, 2005, due to the uncertainties associated with the Filing.



The Company believes that the carrying amount reasonably approximates fair values of financial instruments. These financial instruments include long-term notes receivable
of $16 million and $12 million as of December 31, 2005 and 2004, respectively, and long-term debt of $36 million and $38 million as of December 31, 2005 and 2004, respectively.



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



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



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 carrying value for all derivative financial instruments
approximates the Companys estimates of fair value.



As of
December 31, 2005 and 2004, 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 values is not practicable.



24. QUARTERLY FINANCIAL INFORMATION
(unaudited)



|                                                               |  |                                             |        |   |        |   |       |  |   |        |   |  |   |       |  
|-------------------------------------------------------------- |  | ------------------------------------------- | ------ | - | ------ | - | ----- |  | - | ------ | - |  | - | ----- | -
|                                                               |  | Quarter                                     |       
|                                                               |  | First                                       |        |   | Second |   | Third |  |   | Fourth |  
|                                                               |  | (In millions of dollars, except share data) |       
|2005                                                           |  |                                             |        |   |        |   |       |  |   |        |   |  |   |       |  
|Net sales                                                      |  | $                                           | 1,402  |   |        | $ | 1,590 |  | $ | 1,618  |   |  | $ | 1,713 |  
|Cost of sales                                                  |  |                                             | 1,167  |   |        |   | 1,278 |  |   | 1,315  |   |  |   | 1,405 |  
|                                                               |  |                                             |        |   |        |   |       |  |   |        |   |  |   |       |  
|Gross margin                                                   |  | $                                           | 235    |   |        | $ | 312   |  | $ | 303    |   |  | $ | 308   |  
|                                                               |  |                                             |        |   |        |   |       |  |   |        |   |  |   |       |  
|Provision (credit) for asbestos litigation claims (recoveries) |  | $                                           | 4,342  |   |        | $ |      |  | $ | (1     | ) |  | $ | (74   | )
|                                                               |  |                                             |        |   |        |   |       |  |   |        |   |  |   |       |  
|Income (loss) from operations                                  |  | $                                           | (4,281 | ) |        | $ | 169   |  | $ | 139    |   |  | $ | 230   |  
|                                                               |  |                                             |        |   |        |   |       |  |   |        |   |  |   |       |  
|Interest expense, net                                          |  | $                                           | 1      |   |        | $ |      |  | $ | 539    |   |  | $ | 199   |  
|                                                               |  |                                             |        |   |        |   |       |  |   |        |   |  |   |       |  
|Income tax expense (benefit)                                   |  | $                                           | (48    | ) |        | $ | 99    |  | $ | (134   | ) |  | $ | (304  | )
|                                                               |  |                                             |        |   |        |   |       |  |   |        |   |  |   |       |  
|Net income (loss)                                              |  | $                                           | (4,237 | ) |        | $ | 67    |  | $ | (267   | ) |  | $ | 338   |  
|                                                               |  |                                             |        |   |        |   |       |  |   |        |   |  |   |       |  
|Net income (loss) per share:                                   |  |                                             |        |   |        |   |       |  |   |        |   |  |   |       |  
|Basic net income (loss) per share                              |  | $                                           | (76.59 | ) |        | $ | 1.22  |  | $ | (4.82  | ) |  | $ | 6.11  |  
|                                                               |  |                                             |        |   |        |   |       |  |   |        |   |  |   |       |  
|Diluted net income (loss) per share                            |  | $                                           | (76.59 | ) |        | $ | 1.13  |  | $ | (4.82  | ) |  | $ | 5.64  |  
|                                                               |  |                                             |        |   |        |   |       |  |   |        |   |  |   |       |  



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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)



24. QUARTERLY FINANCIAL INFORMATION (unaudited) (continued)



|                             |  |                                             |       |        |   |       |  |        |       |  |   |      
|---------------------------- |  | ------------------------------------------- | ----- | ------ | - | ----- |  | ------ | ----- |  | - | -----
|                             |  | 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                   |  | $                                           | 5     |        | $ | 33    |  | $      | 94    |  | $ | 72   
|                             |  |                                             |       |        |   |       |  |        |       |  |   |      
|Net income per share:        |  |                                             |       |        |   |       |  |        |       |  |   |      
|Basic net income per share   |  | $                                           | 0.09  |        | $ | 0.59  |  | $      | 1.70  |  | $ | 1.30 
|                             |  |                                             |       |        |   |       |  |        |       |  |   |      
|Diluted net income per share |  | $                                           | 0.09  |        | $ | 0.55  |  | $      | 1.57  |  | $ | 1.20 
|                             |  |                                             |       |        |   |       |  |        |       |  |   |      



25. ACCOUNTING PRONOUNCEMENTS



In November 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). This statement became effective for the Company as of January 1, 2006. The effect of adoption of this standard is not material.



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.
The Company adopted the provisions of this statement during 2005. The effect of adoption of this standard was not material as none of the Companys previously issued stock-based awards were materially impacted. Additionally, the Company does
not expect to issue stock-based compensation while it remains in Chapter 11 proceedings.



In March 2005, the Financial Accounting Standards Board issued Interpretation Number 47, Accounting for Conditional Asset Retirement Obligations (FIN 47). This statement clarifies the meaning
of the term conditional asset retirement as used in Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations, and clarifies when an entity has sufficient information to reasonably
estimate the fair value of an asset retirement obligation. The statement requires the accelerated recognition of certain asset retirement obligations when a fair value of such obligations can be estimated. This statement became effective for the
Company in the fourth quarter of 2005. The effect of adoption of this standard was not 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, 2005, 2004, and 2003 |  | 160 



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OWENS CORNING AND SUBSIDIARIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003



|                                                                      |  |                                |       |                               |   |       |                           |  |   |            |   |  |                          |   |     |  |   |      
|--------------------------------------------------------------------- |  | ------------------------------ | ----- | ----------------------------- | - | ----- | ------------------------- |  | - | ---------- | - |  | ------------------------ | - | --- |  | - | -----
|                                                                      |  |                                |       | Additions                     |   |       |                           |  |   |           
|Classification                                                        |  | Balance at Beginning of Period |       | Charged to Costs and Expenses |   |       | Charged to Other Accounts |  |   | Deductions |   |  | Balance at End of Period
|                                                                      |  | (In millions of dollars)      
|FOR THE YEAR ENDED DECEMBER 31, 2005:                                 |  |                                |       |                               |   |       |                           |  |   |            |   |  |                          |   |     |  |   |      
|Allowance deducted from asset to which it applies - Doubtful accounts |  | $                              | 18    |                               | $ | 3     |                           |  | $ |           |   |  | $                        | 3 | (A) |  | $ | 18   
|Tax valuation allowance                                               |  |                                | 995   |                               |   | 1,393 | (B)                       |  |   |           |   |  |                          |  |     |  | $ | 2,388
|                                                                      |  |                                |       |                               |  
|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 |                               |   | (5    | )                         |  |   |           |   |  |                          |  |     |  | $ | 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

---

Notes:



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

|(B) | This increase relates primarily to the establishment of an additional valuation allowance of $4.267 billion recorded during 2005 for deferred taxes related to additional asbestos
provisions net of asbestos-related insurance recoveries.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

.



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EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                                                                                                                                           
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Document Description                                                                                                                                                                                                                                                                                                                                      
|(2)           |  | Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession.                                                                                                                                                                                                                                                                              
|              | 
|              |  | Fifth 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
December 31, 2005 (incorporated herein by reference to Exhibit (2) to Owens Cornings current report on Form 8-K (File No. 1-3660), filed January 6, 2006). 
|              | 
|              |  | 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).                                                                                                                                                    
|              | 
|(4)           |  | Instruments Defining the Rights of Security Holders, Including Indentures.                                                                                                                                                                                                                                                                                
|              | 
|              |  | Fifth 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
December 31, 2005 (incorporated herein by reference to Exhibit (2) to Owens Cornings current report on Form 8-K (File No. 1-3660), filed January 6, 2006). 



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EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Document Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|              |  | Memorandum and Order dated March 31, 2005 (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
March 31, 2005).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|              | 
|              |  | Final 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 April 19, 2005).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|              | 
|              |  | 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).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|              | 
|              |  | 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).
|              | 
|              |  | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             



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EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Document Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|              |  | 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).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|              | 
|              |  | 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).



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EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Document Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|              |  | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|              | 
|(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                                                                                                                                                                                                                                                                                                                  



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EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                                     
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Document Description                                                                                                                                                                                                                                
|              |  | 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).                                                                                     
|              | 
|              |  | *   Amended and restated Key Management Severance Agreement with David T. Brown (Filed herewith).                                                                                                                                                   
|              | 
|              |  | *   Amended and restated Key Management Severance Agreement with Michael H. Thaman (filed herewith).                                                                                                                                                
|              | 
|              |  | *   Owens Corning Key Employee Retention Plan (2006) (filed herewith).                                                                                                                                                                              
|              | 
|              |  | *   Key Management Severance Agreement with Joseph C. High (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, 2004).                                 
|              | 
|              |  | *   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 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.                                                                                                                                                                                                            
|              | 
|              |  | 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, 2001:                                                                  
|              | 
|              |  | *        Directors Charitable Award Program, as amended.                                                                                                                                                                                          
|              | 
|              |  | *        Key Management Severance Agreement with David L. Johns.                                                                                                                                                                                   



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- 166 -



EXHIBIT INDEX



|              |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------------- | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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).                                                                                                                                                                                                                                
|              |  
|              |   |  | *   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).                                                                                                                                                                                                                                   
|              |  
|              |   |  | *   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).                                                                                                                                                                                                                                                                                                                                                                                     



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EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                                                                                                                            
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              |  |                                                                                                                                                                                                                                                                                                                                            
|ExhibitNumber |  | Document Description                                                                                                                                                                                                                                                                                                                       
|(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                                                                                                                                                                                                                                                                                                                        
|              | 
|              |  | Final 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 April 19, 2005). 
|              | 
|              |  | 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.