# SECURITIES AND
EXCHANGE COMMISSION Washington, D. C. 20549

# FORM 10-K

# Annual Report Pursuant
to Section 13 or 15(d)of the SecuritiesExchange Act of 1934

For the Fiscal Year
Ended December 31, 2002

Commission File No. 1-3660

# Owens Corning One Owens Corning
Parkway Toledo, Ohio 43659Area Code (419)248-8000

A Delaware Corporation

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

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

| | Title of Each Class           |  | Name of Each Exchange on              
| | ----------------------------- |  | --------------------------------------
| |                               |  | Which Registered                      
| |                               |  |                                       
| | Common Stock - $.10 Par Value |  | New York Stock Exchange               
| |                               |  | (Removed from Listing and Registration
| |                               |  | effective January 30, 2003)           

Securities registered
pursuant to Section 12(g) of the Act:None

Indicate by check mark
whether the Registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes / X / No /   /

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

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

On June 28, 2002, 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 $65,658,647 (assuming for purposes of this
computation only that the Registrant had no affiliates).

At February 28, 2003,
there were outstanding 55,278,821 shares of Registrants $.10 par value common
stock.

#  2 

# PART I

# ITEM 1.     BUSINESS

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

# PROCEEDINGS UNDER
CHAPTER 11 OF THE BANKRUPTCY CODE

On October 5, 2000
(the Petition Date), Owens Corning and 17 of its United States subsidiaries,
including Fibreboard Corporation (collectively, 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). 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 Chapter 11 Cases do not
include other United States subsidiaries of Owens Corning or any of its foreign
subsidiaries (collectively, the Non-Debtor Subsidiaries). The Chapter 11
Cases are discussed in greater detail in Note 1 to 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. On March 28, 2003, the same proponents filed a proposed
amended joint plan of reorganization (the Plan) in the USBC. The Plan is
subject to confirmation by the Bankruptcy Court. Owens Corning believes that it is likely
that the terms, conditions and provisions of the Plan will be the subject of continuing
negotiations or litigation to resolve differences among the creditor constituencies as to
their treatment. Accordingly, Owens Corning is unable to predict at this time what the
treatment of creditors and equity holders of the respective Debtors will ultimately be
under any plan or plans of reorganization finally confirmed. The current Plan provides
for partial payment of all unsecured creditors claims, in the form of distributions
of new common stock and notes of the reorganized company, and cash. Additional
distributions from potential insurance and other third-party claims may also be paid to
certain classes of unsecured creditors, but it is expected that all classes of unsecured
creditors will be impaired. Therefore, the Plan also provides that the existing common
stock of Owens Corning will be cancelled, and that current shareholders will receive no
distribution or other consideration in exchange for their shares. It is impossible to
predict at this time the terms and provisions of any plan or plans of reorganization that
may ultimately be confirmed or the treatment of creditors thereunder. The Plan is
discussed in greater detail in Note 1 to the Consolidated Financial Statements.

#  3 

# OVERVIEW OF OPERATIONS

Owens Corning operates
in two segments  Building Materials Systems and Composite Solutions. In 2002, the
Building Materials Systems segment accounted for approximately 73% 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 Propink®, Advantex®,
and/or the color PINK.

Approximately 65% of
Owens Cornings sales are related to home improvement, non-residential markets,
sales of composite materials, and sales outside U.S. markets. Approximately 35% of our
sales are related to new U.S. residential construction.

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

As part of our
strategy to divest non-strategic businesses, we sold the majority of our Engineered Pipe
Business during the first quarter of 2001 and sold our 40% interest in Alcopor Owens
Corning, our European building materials joint venture, during the fourth quarter of
2001.

Revenue from external
customers, income from operations and total assets attributable to each of Owens Cornings
operating segments and geographic regions, as well as information concerning the
dependence of our operating segments on foreign operations, for each of the years 2002,
2001, and 2000, are contained in Note 2 to Owens Cornings Consolidated Financial
Statements, entitled Segment Data.

# BUILDING MATERIALS
SYSTEMS

# Principal Products And
Methods Of Distribution

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

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

Outside North America,
Owens Corning has a foam technology facility in Italy and a majority-owned joint venture
foam plant in China and has licensed others for the manufacture of foam products at
locations in Europe, the Middle East and Asia. Owens Corning sells foam products through
traditional agents and distributors.

#  4 

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

# Seasonality

Sales in the Building
Materials Systems segment tend to follow seasonal home improvement, remodeling and
renovation, and new construction industry patterns. Sales levels for the segment,
therefore, are typically lower in the winter months.

# Major Customers

No customer in the
Building Materials Systems segment accounted for more than 6% of the segments sales
in 2002.

# 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)
used in various applications to replace traditional materials, such as aluminum, wood,
and steel. We are increasingly providing systems that are designed for a specific end-use
application, and entail a material, a proprietary process and a fully assembled part or
system. The global composites industry has thousands of end-use applications. Owens
Corning has selected strategic markets and end-users, where we provide integral
solutions, such as the building construction, transportation, and
telecommunications/electronics markets. A large portion of the business also serves
thousands of applications within the consumer, industrial and infrastructure markets,
which include sporting goods and marine applications. Owens Corning sells composite
materials to original equipment manufacturers (OEMs) and boat builders, both
directly and through distributors.

Within the building
construction market, glass fiber mat is used to provide fire and mildew resistance in 95%
of all asphalt roofing shingles. Owens Corning sells glass fiber and/or mat directly to a
small number of major shingle manufacturers, including our own roofing business. Tubs,
showers and other related internal building components used for both remodeling and new
construction are also 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 also 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 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 OEMs, or are purchased by OEMs from
first-tier suppliers.

#  5 

Within the
telecommunications and electronics markets, glass fiber composites are used to protect
and reinforce fiber optic and copper cables. Owens Corning also produces central strength
members for fiber optic cables. Other end-uses include connectors, circuit breaker boxes,
computer housings, electricians safety ladders, and hundreds of various
electro/mechanical components.

Owens Corning sells
asphalt products, primarily for industrial and specialty applications, under the Trumbull
brand name. There are three principal kinds of industrial asphalt: Built-Up Roofing
Asphalt (BURA), used in commercial flat roof systems to provide waterproofing and
adhesion; saturants or coating asphalt, used to manufacture roofing mats, felts and
residential shingles; and industrial specialty asphalt, used by manufacturers in a
variety of products such as waterproofing systems, adhesives, coatings, dyes, and product
extenders, as well as in various automotive applications. There are several channels of
distribution for these products. They are used internally in the manufacture of
residential roofing products and are also sold to other shingle manufacturers. In
addition, asphalt is sold to roofing contractors and distributors for BURA systems and to
manufacturers in a variety of other industries, including automotive, chemical, rubber
and construction.

# Major Customers

No customer in the
Composite Solutions segment accounted for more than 7% of the segments sales in
2002.

# 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 U.S. 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
300 trademarks registered in the United States and approximately 1,400 trademarks
registered in other countries.

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

# Working Capital

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

# Number of Employees

Owens Corning averaged
approximately 18,000 employees during 2002 and had approximately 18,000 employees at
December 31, 2002.

#  6 

# Research and Development

During 2002, 2001, and
2000, Owens Corning spent approximately $42 million, $37 million, and $52 million,
respectively, for research and development activities. 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 $8 million in 2002. We currently estimate that such capital expenditures
will be approximately $9 million in 2003 and $9 million in 2004.

We do not consider
that we have 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 $35 million
in 2002. We continue to invest in equipment and process modifications to remain in
compliance with applicable environmental laws and regulations.

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 in January 2000, for secondary aluminum smelting in
March 2000, and for wet formed glass mat and metal coil coating in June 2002. The Company
anticipates that other sources to be regulated will be asphalt processing and roofing,
open molded fiber-reinforced plastics, and 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.

# 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. A similar number 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
product performance, price, terms, service and warranty.

#  7 

# ITEM 2.    PROPERTIES

# PLANTS

Owens Cornings
principal plants as of December 31, 2002, are listed below by operating segment and
primary products, and are owned except as noted. We consider that these properties are in
good condition and well maintained, and are suitable and adequate to carry on our
business. The capacity of each plant varies depending upon product mix.

Certain of the
facilities listed below are shown as leased properties. Pursuant to the
Bankruptcy Code, Owens Corning and the other Debtors in the Chapter 11 Cases may elect to
reject or assume unexpired pre-petition leases. The Debtors are currently reviewing the
leases for which such an election exists to determine whether they should be assumed or
rejected. The Bankruptcy Court has extended the time period within which the Debtors must
make their elections through June 4, 2003, 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         |  | Mount Vernon, Ohio      
| | ------------------------ |  | ------------------------
| | Eloy, Arizona            |  | Newark, Ohio            
| | Fairburn, Georgia        |  | Phenix City, Alabama (1)
| | Federick, Colorado       |  | Salt Lake City, Utah    
| | Kansas City, Kansas      |  | Santa Clara, California 
| | Ladysmith, Wisconsin (1) |  | Waxahachie, Texas       
| |                          |  |                         
| |                          |  |                         
| | Anshan, China            |  | Guangzhou, China        
| | Candiac, Canada          |  | Scarborough, Canada     
| | Edmonton, Canada         |  | Shanghai, China         
| |                          |  |                         

(1)    
          Facility is leased.

# Foam Insulation

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

(1)    
          Facility is leased.

#  8 

# 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      |  |                       
| |                       |  |                       

# OEM Solutions Group

| | Cleveland, Tennessee (1)    |  | Los Angeles, California (1)
| | --------------------------- |  | ---------------------------
| | Columbus, Ohio (1)          |  | Louisville, Kentucky (1)   
| | Dallas, Texas (1)           |  | Montgomery, Alabama (1)    
| | Hazleton, Pennsylvania (1)  |  | Springfield, Tennessee (1) 
| | Indianapolis, Indiana (1)   |  | Novi, Michigan             
| | Johnson City, Tennessee (1) |  | Tiffin, Ohio (1)           
| |                             |  |                            
| | Brantford, Canada           |  |                            
| |                             |  |                            

(1)    
          Facility is leased.

# Manufactured
Housing/Recreational Vehicles/Specialty Parts

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

# Metal Products

| | Ashville, Ohio        |  | Bellwood, Virginia         
| | --------------------- |  | ---------------------------
| | Beloit, Wisconsin (1) |  | Roxboro, North Carolina (2)
| |                       |  |                            

(1)  
          Facility is leased. (2)   Two facilities, one of which is leased.

# Cultured Stone Products

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

(1)    
          Facility is leased.

#  9 

# Vinyl Siding

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

London, Ontario In
addition, Owens Corning has approximately 190 Specialty Distribution Centers in 35 states
in the United States.

# COMPOSITE SOLUTIONS

# Textiles and
Reinforcements

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

(1)    
          Facility is leased.

# Asphalt Processing

| | Atlanta, Georgia           |  | Jessup, Maryland                 
| | -------------------------- |  | ---------------------------------
| | Channelview, Texas         |  | Kearny, New Jersey               
| | Compton, California        |  | Medina, Ohio                     
| | Denver, Colorado           |  | Memphis, Tennessee               
| | Detroit, Michigan          |  | Minneapolis, Minnesota           
| | Ennis, Texas               |  | Mobile, Alabama (2)              
| | Ft. Lauderdale, Florida    |  | Morehead City, North Carolina (1)
| | Granite City, Illinois (1) |  | North Bend, Ohio                 
| | Houston, Texas             |  | Oklahoma City, Oklahoma          
| | Irving, Texas              |  | Portland, Oregon (3)             
| | Jacksonville, Florida      |  | Summit, Illinois                 

(1)    
          Facility is leased. (2)     Operated under management agreement. (3)     Two asphalt
          processing plants.

# Glass Mat/Wet Chop

| | Aiken, South Carolina |  | Jackson, Tennessee (1)
| | --------------------- |  | ----------------------
| | Fort Smith, Arkansas  |  |                       

(1)    
          Facility is leased.

#  10 

# 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. Owens Corning has
Application Development Centers in Novi, Michigan, Battice, Belgium, and Shanghai, China.

# ITEM 3.     LEGAL PROCEEDINGS

Note 19 to Owens
Cornings 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, 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).
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 Chapter 11 Cases do not include other United States
subsidiaries of Owens Corning or any of its foreign subsidiaries (collectively, the Non-Debtor
Subsidiaries). The subsidiary Debtors that filed Chapter 11 petitions for relief
are:

| |  |                                    
| |  | -----------------------------------
| |  | CDC Corporation                    
| |  | Engineered Yarns America, Inc.     
| |  | Falcon Foam Corporation            
| |  | Integrex                           
| |  | Fibreboard Corporation             
| |  | Exterior Systems, Inc.             
| |  | Integrex Ventures LLC              
| |  | Integrex Professional Services LLC 
| |  | Integrex Supply Chain Solutions LLC

In late 2001, the
asbestos-related Chapter 11 cases pending in the District of Delaware (the Chapter 11
Cases of Owens Corning and the cases of Armstrong World Industries, Inc., W. R. Grace
& Co., Federal-Mogul Global, Inc., and USG Corporation) were ordered transferred to
the United States District Court for the District of Delaware (the District Court)
before Judge Alfred M. Wolin to facilitate development and implementation of a
coordinated plan for management (the Administrative Consolidation). The
District Court has 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).

The Company
anticipates that substantially all liabilities of the Debtors as of the date of the
Filing will be resolved under one or more Chapter 11 plans of reorganization to be
proposed and voted on in the Chapter 11 Cases in accordance with the provisions of the
Bankruptcy Code. As a consequence of the Filing, all pending litigation against the
Debtors is 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. Please see Note 1 to the Consolidated Financial Statements.

#  11 

# ITEM 3.     LEGAL
PROCEEDINGS (continued)

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. On March 28, 2003, the same proponents filed a proposed
amended joint plan of reorganization (the Plan) in the USBC. The Plan is
subject to confirmation by the Bankruptcy Court. Owens Corning believes that it is likely
that the terms, conditions and provisions of the Plan will be the subject of continuing
negotiations or litigation to resolve differences among the creditor constituencies as to
their treatment. Accordingly, Owens Corning is unable to predict at this time what the
treatment of creditors and equity holders of the respective Debtors will ultimately be
under any plan or plans of reorganization finally confirmed. The current Plan provides
for partial payment of all unsecured creditors claims, in the form of distributions
of new common stock and notes of the reorganized company, and cash. Additional
distributions from potential insurance and other third-party claims may also be paid to
certain classes of unsecured creditors, but it is expected that all classes of unsecured
creditors will be impaired. Therefore, the Plan also provides that the existing common
stock of Owens Corning will be cancelled, and that current shareholders will receive no
distribution or other consideration in exchange for their shares. It is impossible to
predict at this time the terms and provisions of any plan or plans of reorganization that
may ultimately be confirmed or the treatment of creditors thereunder. The Plan is
discussed in greater detail in Note 1 to the Consolidated Financial Statements.

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

Owens Corning has
nothing to report under this Item.

#  12 

# Executive Officers of
Owens Corning(as of February 28,
2003)

The name, age and
business experience during the past five years of Owens Cornings executive officers
as of February 28, 2003, 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 (47) | Vice  President  and  President,  Exterior  Systems  Business  since  August  2002;
formerly  Vice  President,  Training and  Development  (2001),  Vice  President and
General Manager,  Insulating  Systems  Business (2000),  Vice President and General
Manager,  Foam Business (1999),  General Manager,  Foam Business (1998),  and Sales
Leader, Building Materials Sales and Distribution, Canada.
|                        |                                                                                                                                                                                                                                                                                                                                                                                                           
|David T. Brown (54)     | President and Chief  Executive  Officer since April 2002;  formerly  Executive Vice
President  and Chief  Operating  Officer  (2001),  Vice  President  and  President,
Insulating  Systems  Business  (1998),  and Vice President and President,  Building
Materials Sales and Distribution. Director since January 2002.                                                                                
|                        |                                                                                                                                                                                                                                                                                                                                                                                                           
|Charles E. Dana (47)    | Vice  President - Corporate  Controller  and Global  Sourcing  since  January 2002;
formerly Vice  President,  Global  Sourcing and eBusiness  (2001),  Vice President,
Owens Corning  Supply Chain  Solutions  (2000),  Vice  President,  Global  Sourcing
Management (1999), and Vice President, Planning and Analysis - Composites Systems.                                                            
|                        |                                                                                                                                                                                                                                                                                                                                                                                                           
|Daniel J. Dietzel (48)  | Vice President and President,  Siding Solutions Business since July 2002;  formerly
Vice President,  Distribution - Exterior Systems  Business  (1998),  and President,
Norandex Distribution.                                                                                                                                                                                                            
|                        |                                                                                                                                                                                                                                                                                                                                                                                                           
|David L. Johns (44)     | Senior Vice  President and Chief Supply Chain and  Information  Technology  Officer
since April 2001;  formerly  Senior Vice  President  and Chief  Technology  Officer
(1999), and Chief Information Officer.                                                                                                                                                                                            
|                        |                                                                                                                                                                                                                                                                                                                                                                                                           
|George E. Kiemle (55)   | Vice  President and  President,  Insulating  Systems  Business since February 2001;
formerly Vice President, Manufacturing, Insulating Systems Business.                                                                                                                                                                                                                                                  

#  13 

|Name and Age           | Position*                                                                                                                                                                                                                                                                                                              
|---------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                       |                                                                                                                                                                                                                                                                                                                        
|Stephen K. Krull (38)  | Senior  Vice  President,   General  Counsel  and  Secretary  since  February  2003;
formerly  Vice  President,  Corporate  Communications  (2002),  Vice  President and
General Counsel, Operations (1999), Director, Law (1998), and Senior Counsel, Law.                                                             
|                       |                                                                                                                                                                                                                                                                                                                        
|Richard D. Lantz (51)  | Vice President and  President,  Composite  Solutions  Business since November 2001;
formerly Vice President and President,  Roofing  Solutions  Business  (2000),  Vice
President and President,  Systems Thinking Sales and Distribution  Business (1998),
and Vice President - Marketing, Insulation Business (1997).
|                       |                                                                                                                                                                                                                                                                                                                        
|Edward Mirra, Jr. (63) | Senior Vice President,  Human  Resources  since July 2000;  formerly Vice President
of Roofing Operations (1998), and Vice President, Trumbull Asphalt.                                                                                                                                                                
|                       |                                                                                                                                                                                                                                                                                                                        
|Maura Abeln Smith (47) | Senior Vice President since February 2003;  formerly  Senior Vice President,  Chief
Restructuring  Officer,  General  Counsel  and  Secretary  (2000),  and Senior Vice
President, General Counsel and Secretary.  Director since January 2002.                                                                        
|                       |                                                                                                                                                                                                                                                                                                                        
|Michael H. Thaman (38) | Chairman  of the Board and Chief  Financial  Officer  since  April  2002;  formerly
Senior Vice  President  and Chief  Financial  Officer  (2000),  Vice  President and
President,  Exterior  Systems  Business  (1999),  and Vice President and President,
Engineered Pipe Systems.  Director since January 2002.     
|                       |                                                                                                                                                                                                                                                                                                                        

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

#  14 

# PART II

# ITEM 5.     MARKET FOR
OWENS CORNINGS COMMON EQUITY AND RELATEDSTOCKHOLDER                     MATTERS

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 $50,000,000 and
total stockholders equity of not less than $50,000,000 and (b) an average closing
price of the Companys common stock of not less than $1.00 over a consecutive 30
trading-day period. Pursuant to subsequent application of the NYSE, the Companys
common stock was removed from listing and registration on the NYSE effective January 30,
2003.

Effective December 19,
2002, Owens Cornings common stock has been traded on the Over The Counter Bulletin
Board (OTCBB) under the symbol OWENQ. During 2002 and 2001, the
high and low sales prices for the Companys common stock as reported by the NYSE
until December 19, 2002, and the high and low bid prices on the OTCBB beginning December
19, 2002, were as follows:

|               |  |      |  |      | 
|-------------- |  | ---- |  | ---- | 
|2002           |  | High |  | Low  | 
|               |  |     
|First Quarter  |  | 2.99 |  | 1.83 | 
|Second Quarter |  | 2.14 |  | 1.08 | 
|Third Quarter  |  | 1.50 |  | 0.85 | 
|Fourth Quarter |  | 1.13 |  | 0.37 | 
|               |  |     

The number of
stockholders of record of Owens Cornings common stock on February 28, 2003 was
6,929.

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.

#  15 

# ITEM 5.     MARKET FOR OWENS
CORNINGS COMMON EQUITY AND RELATED                  
STOCKHOLDER MATTERS
(continued)

# SECURITIES AUTHORIZED
FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

Owens Corning
maintains various equity compensation plans under which equity securities are authorized
for issuance. Information regarding these securities as of December 31, 2002, is as
follows:

|                      |  | (a)          |  | (b)        |  | (c)       
|--------------------- |  | ------------ |  | ---------- |  | ----------
|
|
|
|
|
|
|
|                      |  |              |  |            |  |           
|Equity compensation   |  |              |  |            |  |           
|plans approved by     |  | 4,337,093(1) |  | $ 34.46(1) |  | 452,157(1)
|security holders      |  |              |  |            |  |           
|                      |  |              |  |            |  |           
|Equity compensation   |  |              |  |            |  |           
|plans not approved by |  | 2,249,526(2) |  | $ 31.31(2) |  | 770,411(2)
|security holders      |  |              |  |            |  |           
|                      |  |              |  |            |  |           
|Total                 |  | 6,586,619    |  | $ 33.38    |  | 1,222,568 

(1)    
          Relates to the Companys Stock Performance Incentive Plan and 1987 Stock
          Plan for Directors.    (2)     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 17 to Owens Cornings Consolidated Financial
Statements, entitled Stock Compensation Plans. No securities were granted
under these plans in 2002, and the Company does not anticipate additional grants for the
foreseeable future.

#  16 

# ITEM 6.     SELECTED
FINANCIAL DATA

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

|                                           | 2002(a) | 2001(b)   | 2000(c) | 1999      | 1998(e)
|------------------------------------------ | ------- | --------- | ------- | --------- | -------
|
|                                           |         |           |         |           |        
|Net sales                                  |         | $   4,872 |         | $   4,762 |        
|Cost of sales                              |         | 4,130     |         | 3,938     |        
|Marketing, administrative                  |        
|and other expenses                         |         | 505       |         | 565       |        
|Science and technology expenses            |         | 42        |         | 37        |        
|Restructure costs                          |         | 61        |         | 26        |        
|Provision (credit) for asbestos litigation |        
|claims                                     |         | 2,351     |         | (7        | )      
|Chapter 11 related reorganization items    |         | 96        |         | 87        |        
|Gain on sale of assets                     |         | -         |         | -         |        
|Income (loss) from operations              |         | (2,313    | )       | 116       |        
|Cost of borrowed funds                     |         | 16        |         | 16        |        
|Other                                      |         | -         |         | (2        | )      
|Income (loss) before provision             |        
|for income taxes                           |         | (2,329    | )       | 102       |        
|Provision (benefit) for income taxes       |         | 31        |         | 57        |        
|Cumulative effect of change in             |        
|accounting principle, net of tax           |         | (441      | )       | -         |        
|Net income (loss)                          |         | (2,809    | )       | 39        |        
|Net income (loss) per share                |        
|Basic                                      |         | (51.02    | )       | 0.72      |        
|Diluted                                    |         | (51.02    | )       | 0.66      |        
|Dividends per share on common stock        |        
|Declared                                   |         | -         |         | -         |        
|Paid                                       |         | -         |         | -         |        
|Weighted-average number of                 |        
|shares outstanding (in thousands)          |        
|Basic                                      |         | 55,054    |         | 55,056    |        
|Diluted                                    |         | 55,054    |         | 59,945    |        
|Net cash flow from operations              |         | 357       |         | 478       |        
|Capital spending                           |         | 248       |         | 270       |        
|Total assets                               |         | 6,920     |         | 7,041     |        
|Long-term debt (d)                         |         | 71        |         | 5         |        
|Liabilities subject to compromise (d)      |         | 9,236     |         | 6,804     |        
|Average number of employees                |        
|(in thousands)                             |         | 18        |         | 19        |        
|                                           |         |           |         |           |        

|(a) | During 2002, the Company recorded a pretax charge of $166 million ($103 million
               after-tax) for restructuring and other charges, $96 million ($48 million
               after-tax) for Chapter 11 related reorganization expenses, a pretax charge of
               $2,351 million ($2,351 million after-tax) for asbestos litigation claims, and a
               pretax charge of $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.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

#  17 

# ITEM 6.     SELECTED
FINANCIAL DATA (continued)

|(b) | During 2001, the Company recorded a pretax charge of $140 million ($89 million
               after-tax) for restructuring and other charges, $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.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(d) | 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, 2002 and 2001 were:
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                       | 2002 |  | 2001
|------------------------------------------------------ | ---- |  | ----
|
|
|Accounts payable                                       |      |  | $   
|Accrued interest payable                               |      |  |     
|Accrued liabilities                                    |      |  |     
|Debt                                                   |      |  |     
|Income taxes payable                                   |      |  |     
|Reserve for asbestos litigation claims - Owens Corning |      |  |     
|Reserve for asbestos-related claims - Fibreboard       |      |  |     
|                                                       |      |  |     
|Total consolidated                                     |      |  |     
|
|Payables to non-Debtors                                |      |  |     
|                                                       |      |  |     
|Total Debtor                                           |      |  | $   
|                                                       |      |  |     

|(e) | During 1998, the Company recorded a pretax charge of $1,415 million ($906
               million after-tax) for asbestos litigation claims, a pretax charge of $243
               million ($171 million after-tax) for restructuring and other actions, a pretax
               net credit of $275 million ($165 million after-tax) from the sale of the
               Companys yarns and other businesses, a pretax credit of $84 million ($52
               million after tax) from the sale of its ownership interest in
               Alpha/Owens-Corning, LLC, a $39 million after-tax extraordinary loss from the
               early retirement of debt, and a $10 million charge for various tax adjustments.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

#  18 

# ITEM 7.    
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIALCONDITION                     AND RESULTS OF
OPERATIONS

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

# CAUTIONARY STATEMENT
CONCERNING FORWARD-LOOKING STATEMENTS

Managements
Discussion and Analysis of Financial Condition and Results of Operations contains
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.
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 are continued competitive
factors and 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, developments in and the
outcome of the Chapter 11 proceedings described below, and general economic and political
conditions.

# 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, 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).
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 Chapter 11 Cases do not include other United States
subsidiaries of Owens Corning or any of its foreign subsidiaries (collectively, the Non-Debtor
Subsidiaries). As described more fully below under the heading The Plan of
Reorganization, Owens Corning may cause certain of such Non-Debtor Subsidiaries
that issued guarantees with respect to Owens Cornings pre-petition bank credit
facility to file petitions for relief under Chapter 11 of the Bankruptcy Code under
certain circumstances. The subsidiary Debtors that filed Chapter 11 petitions for relief
are:

| |  |                                    
| |  | -----------------------------------
| |  | CDC Corporation                    
| |  | Engineered Yarns America, Inc.     
| |  | Falcon Foam Corporation            
| |  | Integrex                           
| |  | Fibreboard Corporation             
| |  | Exterior Systems, Inc.             
| |  | Integrex Ventures LLC              
| |  | Integrex Professional Services LLC 
| |  | Integrex Supply Chain Solutions LLC

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.

In late 2001, the
asbestos-related Chapter 11 cases pending in the District of Delaware (the Chapter 11
Cases of Owens Corning and the cases of Armstrong World Industries, Inc., W.R. Grace & Co.,
Federal-Mogul Global, Inc., and USG Corporation) were ordered transferred to the United
States District Court for the District of Delaware (the District Court)
before Judge Alfred M. Wolin to facilitate development and implementation of a
coordinated plan for management (the Administrative Consolidation). The
District Court has 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

#  19 

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

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). Owens
Corning is unable to predict what impact the Administrative Consolidation will have on
the timing, outcome or other aspects of the Chapter 11 Cases.

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. On March 28, 2003, the same proponents filed a proposed
amended joint plan of reorganization (the Plan) in the USBC. Certain terms,
conditions and provisions of the Plan are discussed below. The Plan is subject to
confirmation by the Bankruptcy Court.

# Consequence of Filing

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

Two creditors committees,
one representing asbestos claimants and the other representing unsecured creditors, have
been appointed as official committees in the Chapter 11 Cases. In addition, the
Bankruptcy Court has appointed James J. McMonagle as Legal Representative for the class
of future asbestos personal injury claimants against one or more of the Debtors. The two
committees and the Legal Representative have the right to be heard on all matters that
come before the Bankruptcy Court. Owens Corning expects that the two committees and the
Legal Representative will play important roles in the Chapter 11 Cases and the
negotiation of the terms of any plan or plans of reorganization. As noted above, the
Debtors filed their Plan together with the Official Committee of Asbestos Claimants and
the Legal Representative for the class of future asbestos claimants.

Owens Corning
anticipates that substantially all liabilities of the Debtors as of the date of the
Filing will be resolved under one or more Chapter 11 plans of reorganization to be
proposed and voted on in the Chapter 11 Cases in accordance with the provisions of the
Bankruptcy Code. Although the Debtors intend to seek confirmation of the Plan, there can
be no assurance that the Plan will not be amended prior to confirmation, nor can there be
any assurance that such Plan will be confirmed by the Bankruptcy Court and consummated.
Owens Corning is unable to predict what impact the Administrative Consolidation will have
on the timing of the confirmation of a plan or plans of reorganization or its effect, if
any, on the terms thereof.

# The Plan of
Reorganization

Owens Corning believes
that it is likely that the terms, conditions and provisions of the Plan will be the
subject of continuing negotiations or litigation to resolve differences among the
creditor constituencies as to their treatment. Accordingly, Owens Corning is unable to
predict at this time what the treatment of creditors and equity holders of the respective
Debtors will ultimately be under any plan or plans of reorganization finally confirmed.
The current Plan provides for partial payment of all unsecured creditors claims, in
the form of distributions of new common stock and notes of the reorganized company, and
cash. Additional distributions from potential insurance and other third-party claims may
also be paid to certain classes of unsecured creditors, but it is expected that all
classes of unsecured creditors will be impaired. Therefore, the Plan also provides that
the existing common stock of Owens Corning will be cancelled, and that current
shareholders will receive no distribution or other consideration in exchange for

#  20 

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

their shares. It is
impossible to predict at this time the terms and provisions of any plan or plans of
reorganization that may ultimately be confirmed, when a plan or plans of reorganization
will be confirmed, or the treatment of creditors thereunder.

The Plan is premised
upon the substantive consolidation of the Debtors (but not the Fibreboard Settlement
Trust) for the purposes of voting, determining which claims and interests will be
entitled to vote to accept or reject the Plan, confirmation of the Plan, and the
resultant discharge of and cancellation of claims and interests and distribution of
assets, interests and other property under the Plan. For these purposes, the Plan would
treat all assets and liabilities of each Debtor (excluding the Fibreboard Settlement
Trust (see Note 20 to the Consolidated Financial Statements)) as though they were merged
with the assets and liabilities of Owens Corning. Certain creditor constituencies have
asserted that substantive consolidation is not appropriate, however, and are expected to
challenge that approach in litigation.

The percentage
recovery and value of the payments made under the Plan to each class of creditors will
depend upon a number of factors. Those factors include the value of the shares of new
common stock and notes to be issued by the Company, the amount of cash available for
distribution, the resolution of certain inter-creditor issues, and the ultimate aggregate
asbestos liability.

The Plan provides two
alternative frameworks for creditor recoveries. One such alternative, which would apply
in the event that the Plan were approved by the major creditor constituencies, would
assume an aggregate liability for current and future asbestos personal injury claims
against Owens Corning and Fibreboard of $16 billion, and a preferred recovery to holders
of bank claims of $400 million, in addition to pro rata recovery on the balance of their
claims. Under the other alternative, in the context of a non-consensual framework, such
aggregate asbestos liabilities would be determined by the Bankruptcy Court as part of the
confirmation hearing on the Plan. The Court has scheduled certain hearings concerning
confirmation of the Plan to begin on April 8, 2003. Any disagreements raised by creditors
with the terms of the Plan, including with respect to the appropriateness of substantive
consolidation, will be handled through litigation as part of the confirmation process.
Owens Corning is unable to predict the outcome of such litigation.

Under either Plan
alternative, a majority of the newly issued common stock, together with notes, and cash,
as well as the assets of the existing Fibreboard Settlement Trust (see Note 20 to the
Consolidated Financial Statements), will fund a new trust created under the Plan intended
to qualify under Section 524(g) of the Bankruptcy Code. The Section 524(g) trust will
assume all obligations of Owens Corning, Fibreboard, and their respective subsidiaries
and affiliates, for current and future asbestos personal injury claims and demands, and
will, through Owens Corning and Fibreboard sub-accounts, make payments to claimants in
accordance with trust distribution procedures to be agreed upon. In addition, the Plan
provides for an injunction by the Bankruptcy Court pursuant to Section 524(g) of the
Bankruptcy Code that will enjoin actions against the reorganized Debtors for the purpose
of, directly or indirectly, collecting, recovering or receiving payment of, on, or with
respect to any claims resulting from asbestos-containing products allegedly manufactured,
sold or installed by Owens Corning or Fibreboard, which claims will be paid in whole or
in part by the Section 524(g) trust. Similar plans of reorganization have been confirmed
in the Chapter 11 cases of other companies involved in asbestos-related litigation.
Section 524(g) of the Bankruptcy Code provides that, if certain specified conditions are
satisfied, a court may issue a supplemental permanent injunction barring the assertion of
asbestos-related claims or demands against the reorganized company and channeling those
claims to an independent trust.

Among other things,
the Plan provides that (1) except as otherwise provided in the Plan, no distributions
will be made under the Plan on account of inter-company claims among any of the Debtors,
and (2) all guarantees of the Debtors of the obligations of any other Debtor will be
deemed eliminated. Since, as described above, it is likely that the Plan will be the
subject of continuing negotiations or litigation, Owens Corning is unable to predict at
this time what the treatment of such matters, and other inter-

#  21 

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

company and
intra-company arrangements, transactions and relationships that were entered into prior
to the Petition Date, will ultimately be under any plan or plans of reorganization
finally confirmed. Such matters and other arrangements, transactions and relationships
may be challenged by various parties in the Chapter 11 Cases and payments and other
obligations in respect thereof may be restricted or modified by order of, or subject to
review and approval by, the Bankruptcy Court. The outcome of such challenges and other
actions, if any, may have an impact on the treatment of various claims under the plan or
plans ultimately confirmed and on the respective assets, liabilities and results of
operations of Owens Corning and its subsidiaries. For example, Owens Corning is unable to
predict at this time what the treatment will ultimately be under any such plan or plans
with respect to (1) the guarantees issued by certain of Owens Cornings U.S.
subsidiaries, including Owens-Corning Fiberglas Technology Inc. (OCFT) and
IPM Inc., a Non-Debtor Subsidiary that holds Owens Cornings ownership interest in a
majority of Owens Cornings foreign subsidiaries (IPM), with respect to
Owens Cornings $1.8 billion pre-petition bank credit facility (the Pre-Petition
Credit Facility, which is in default) or (2) OCFTs license agreements with
Owens Corning and Exterior Systems, Inc., an indirect wholly-owned subsidiary of Owens
Corning (Exterior), pursuant to which OCFT licenses intellectual property to
Owens Corning and Exterior. In the event that (1) the major creditor constituencies do
not approve the Plan and (2) no other acceptable alternative agreement is reached to
release such entities from their guaranty obligations, Owens Corning expects to cause IPM
as well as Vytec Corporation and Owens-Corning Fiberglas Sweden Inc., two other
Non-Debtor Subsidiaries that have issued guarantees in connection with the Pre-Petition
Credit Facility, to file for relief under Chapter 11 of the Bankruptcy Code, and to join
in the proposal of the Plan, and will also seek to cause those Non-Debtor Subsidiaries to
be substantively consolidated with the current Debtors for the purposes set forth in the
Plan.

The Bankruptcy Court
may confirm a plan of reorganization only upon making certain findings required by the
Bankruptcy Code, and a plan may be confirmed over the dissent of non-accepting creditors
and equity security holders if certain requirements of the Bankruptcy Code are met. The
payment rights and other entitlements of pre-petition creditors and Owens Cornings
shareholders may be substantially altered by any plan or plans of reorganization
confirmed in the Chapter 11 Cases, and the pre-petition creditors of some Debtors may be
treated differently than those of other Debtors.

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

# Bar Dates for Filing
Claims

GENERAL BAR DATE

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

Approximately 24,000
proofs of claim (including late-filed claims), totaling approximately $16.1 billion,
alleging a right to payment from a Debtor were filed with the Bankruptcy Court in
response to the General Bar Date. Owens Corning is investigating these claims to
determine their validity. The Bankruptcy Court will ultimately determine liability
amounts that will be allowed for these claims in the Chapter 11 Cases.

#  22 

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

In its initial review
of the filed claims, Owens Corning has identified approximately 15,000 claims, totaling
approximately $8.4 billion, which it believes should be disallowed by the Bankruptcy
Court, primarily because they appear to be duplicate claims or claims that are not
related to the indicated Debtor (the Objectionable Claims). Owens Corning
likely will file objections to these Objectionable Claims. 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 these claims
will be disallowed.

In addition to the
Objectionable Claims described above, at December 31, 2002, the remaining filed proofs of
claim included approximately 9,000 claims, totaling approximately $7.7 billion, as
follows:

| | 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. Please see Note 19 to the Consolidated Financial
Statements for additional information concerning asbestos-related liabilities.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Approximately 600 claims, totaling approximately $0.7 billion, alleging asbestos-related
property damage. Most of these claims were submitted with insufficient documentation to
assess their validity. Owens Corning expects to vigorously defend any asserted
asbestos-related property damage claims in the Bankruptcy Court. Based upon its historic
experience in respect of asbestos-related property damage claims, Owens Corning does not
anticipate significant liability from any such claims.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Approximately 5,500 claims, totaling approximately $5.6 billion, alleging rights to
payment for financing, environmental, trade debt and other matters (the General
Claims). The Company has previously recorded approximately $3.7 billion in
liabilities for these claims. Based upon the claims information submitted, the General
Claims with the largest variance from the recorded amounts are: claims by the United
States Department of Treasury, totaling approximately $530 million, in connection with
taxes (see discussion 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; claims for
contract rejections, totaling approximately $310 million, of which approximately $250
million are protective claims covering contracts which have not been rejected by the
Debtors as of December 31, 2002; a $275 million class action claim involving alleged
problems with a specialty roofing product, which claim Owens Corning does not believe is
meritorious based upon its historic experience with servicing its warranty program for
such product; and environmental claims, totaling approximately $244 million.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.

#  23 

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

ASBESTOS BAR DATE

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). 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 has not been set. Despite this, approximately 2,900 proofs of claim (in
addition to claims described above under General Bar Date), totaling
approximately $2.2 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 1,100, 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. Please see Note 19 to the Consolidated Financial
Statements for additional information concerning asbestos-related liabilities.

# RESULTS OF OPERATIONS

# Business Overview

Owens Corning is
committed to investing in our businesses and to providing quality products to our
customers. The Company is also committed to engaging our employees to provide outstanding
service and support for our customers and world-class performance.

Owens Cornings
strategy also includes the divestiture of non-strategic businesses and the realignment of
existing businesses. During the third quarter of 2002, the Company increased its
investment in Owens Corning (India) Limited, a producer of composite materials, to
approximately 60%. During the fourth quarter of 2001, the Company completed the sale of
its remaining 40% interest in Alcopor Owens Corning, a producer of insulation products in
Europe and the United Kingdom. During the first quarter of 2001, the Company completed
the sale of the majority of its Engineered Pipe Business, a producer of glass-reinforced
plastic pipe.

In 2000 we implemented
the first phase of a strategic restructuring program, which continued throughout 2001 and
2002. The specific objectives of this program are discussed in Restructuring of
Operations and Other Charges below and in Note 5 to the Consolidated Financial
Statements. This program was initiated in 2000 as a result of the Company experiencing
significant increases in certain of our costs, particularly roofing and vinyl raw
material costs, due to higher crude oil prices and tight supply conditions for polyvinyl
chloride (PVC), respectively. Increased energy costs, reflecting changes in
the availability of natural gas, also contributed to cost increases during 2000. These
increases, coupled with a fall in demand for building materials associated with a
weakening economy, significantly reduced our margins and income from operations for the
second half of the year 2000 and into the first half of 2001. During 2001 and 2002, the
overall economy remained weak, particularly impacting results in Composite Solutions
markets. The Company forecasts that the ongoing implementation of the strategic
restructuring program will lead to lower manufacturing and administrative costs in 2003.

#  24 

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

Key factors affecting
the Companys Building Materials markets include interest rates and new housing
starts. Despite the weakness in the overall economy, the historically low interest rates
experienced in recent periods have contributed to relative strength in new housing starts
and demand for the Companys Building Materials products. Were interest rates to
rise, it is likely that housing starts and demand for Building Materials products would
be negatively impacted. In addition, higher energy and material costs may cause pressure
on margins. In the Composite Solutions segment, the Company forecasts that a moderate
market in North America and a slow European market will combine for minimal growth over
the next year. In addition, overcapacity in the global market will contribute to price
pressure on the Composite Solutions business, and higher energy and material costs may
cause continuing pressure on margins.

# Sales and Profitability

YEARS ENDED DECEMBER 31,
2002 AND 2001

Net sales for the year
ended December 31, 2002, were $4.872 billion, a 2% increase from the 2001 level of $4.762
billion. The higher sales in 2002 reflect the benefit of volume increases in Building
Materials both in the United States and Canada, partially offset by lower prices in
Building Materials as well as lower volume in the Composite Solutions business in both
the United States and Europe. Sales in 2002 also reflect a decrease, compared to 2001,
from the deconsolidation of Owens Corning South Africa (Pty) Ltd. as of January 1, 2002
due to a decrease in our investment from 51% to 46%. Owens Corning South Africa sales
during 2001 were approximately $18 million. In addition, the impact of currency
translation on sales denominated in foreign currencies was slightly favorable during 2002
compared to 2001, reflecting a weaker U.S. dollar during 2002.

Sales outside the
United States represented 14% of total sales for the year ended December 31, 2002,
compared to 15% during 2001. The decline in non-U.S. sales in 2002 is primarily due to
lower volume in the Composite Solutions business and the deconsolidation of Owens Corning
South Africa (Pty) Ltd.

Gross margin for 2002
was 15% of net sales, compared to 17% in 2001. The decrease was primarily attributable to
lower insulation prices, increased material and labor costs, and increased delivery costs
in both business segments, partially offset by higher manufacturing productivity in our
Building Materials business.

Marketing and
administrative expenses were $522 million during 2002 compared to $524 million during
2001. The slight decrease is primarily attributable to cost-cutting measures introduced
in the second half of 2000 which continued into 2001 and 2002.

On a comparative
basis, income from operations decreased to a loss of $2.313 billion for the year ended
December 31, 2002 from income of $116 million in 2001. This decrease was primarily due to
the provision for asbestos litigation claims of $2.356 billion taken in 2002. Other
factors contributing to the decrease included restructure and other charges, as described
below in Restructuring of Operations and Other Charges, of $166 million in
2002 as compared to $140 million in 2001, and Chapter 11 related costs increasing to $96
million during 2002 from $87 million in 2001. Further negatively impacting income from
operations were post-retirement health and pension related expenses, which were up
approximately $21 million during 2002 from 2001, due mainly to changes in plan
assumptions and declines in plan asset values. Positively affecting income from
operations was the elimination of goodwill amortization as the result of the Companys
adoption of Statement of Financial Accounting Standards No. 142, effective January 1,
2002. Please see Accounting Changes below for additional information. The
Company had approximately $14 million of goodwill amortization during each of 2001 and
2000. On a business segment basis, in addition to the impact on gross margin above,
income from operations was impacted by volume decreases in the Composite Solutions
business, partially offset by volume increases in our insulation and roofing markets.
Please see Note 2 to the Consolidated Financial Statements for further details of segment
income from operations.

#  25 

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

The Companys
effective tax rate for 2002 was 1%, compared to 55% for 2001. In 2002, the Company
increased its asbestos-related reserves through charges to income of $1.381 billion for
Owens Corning asbestos-related liabilities and $975 million for Fibreboard
asbestos-related liabilities, for an aggregate charge of $2.356 billion (See Note 19 to
the Consolidated Financial Statements). In connection with such charges, management
evaluated the amount of deferred tax assets attributable to such charges and also
assessed the likelihood of realization of such deferred tax assets in light of the Companys
financial position and the Chapter 11 proceedings. As the result of such assessment,
management determined that a valuation allowance was required for the full amount of such
attributable deferred tax assets. As a result, no tax benefit was recorded in connection
with the asbestos-related charges.

For the year ended
December 31, 2002, Owens Corning reported a net loss of $2.809 billion, or $(51.02) per
share, compared to net income of $39 million, or $.66 per share, for 2001. In addition to
the items described above for 2002, the net loss for 2002 reflects a non-cash charge of
$491 million ($441 million net of tax) as the result of the Companys adoption of
Statement of Financial Accounting Standards No. 142, effective January 1, 2002. Please
see Accounting Changes below for additional information. Cost of borrowed
funds during each of 2002 and 2001 was $16 million (from the Petition Date through
December 31, 2002, contractual interest expense not accrued or recorded on pre-petition
debt totaled $362 million, of which $140 million relates to 2002, $171 million relates to
2001, and $52 million relates to 2000 (please see Note 1 to the Consolidated Financial
Statements)).

YEARS ENDED DECEMBER 31,
2001 AND 2000

Net sales for the year
ended December 31, 2001 were $4.762 billion, a 4% decrease from the 2000 level of $4.940
billion. Sales in 2001 as compared to 2000 reflect the benefit of price increases, offset
by volume decreases, in the Composite Solutions business, particularly in the United
States, and price decreases in U.S. Building Materials sales. In addition, the impact of
currency translation on sales denominated in foreign currencies was unfavorable during
2001 compared to 2000, reflecting a stronger U.S. dollar during 2001. Please see Note 2
to the Consolidated Financial Statements.

Sales outside the
United States represented 15% of total sales for the year ended December 31, 2001
compared to 16% during 2000. The relative decline in sales outside the United States in
2001 is primarily due to the sale of the Building Materials Europe business in the second
quarter of 2000.

Gross margin for 2001
was 17% of net sales, compared to 19% in 2000. The decrease primarily reflects lower
prices in Building Materials, and increased energy and labor costs, partially offset by
price increases in Composite Solutions, lower raw material costs, primarily in Building
Materials, and reduced operating expenses as the result of productivity initiatives.

Marketing and
administrative expenses were $524 million during 2001, compared to $542 million in 2000.
The decrease from 2000 to 2001 is primarily attributable to cost-cutting measures
introduced in the second half of 2000 and continued into 2001.

On a comparative
basis, income from operations increased to $116 million for the year ended December 31,
2001 from a loss of $631 million in 2000. The increase in income from operations from
2000 was primarily due to the provision for asbestos litigation claims of $790 million
taken in the second quarter of 2000, restructure and other charges of $140 million in
2001 as compared to $229 million for 2000, and $7 million of pretax income for
asbestos-related insurance recoveries in 2001, offset somewhat by the impact of an
increase in Chapter 11 related costs to $87 million in 2001 compared to $24 million in
2000. Compared to 2000, income from operations in 2001 also reflects the items discussed
above, which impacted gross margin, and volume decreases primarily in Composite
Solutions.

#  26 

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

For the year ended
December 31, 2001, Owens Corning reported net income of $39 million, or $.66 per share,
compared to a net loss of $478 million, or $(8.71) per share for 2000, as a result of the
items described above. Cost of borrowed funds during 2001 was $16 million, $139 million
lower than 2000, reflecting the cessation of interest accruals on most debt as a result
of the Chapter 11 Filing.

# RESTRUCTURING OF
OPERATIONS AND OTHER CHARGES

# Ongoing Business Review

In connection with the
Chapter 11 proceedings and the development of a plan or plans of reorganization, the
Company initiated a comprehensive strategic review of its businesses. As a result of that
review, the Company anticipates that additional restructuring and similar charges,
including asset impairment and wind-up costs, may be identified and recorded during 2003
and periods beyond. Such charges could be material to the consolidated financial position
and results of operations of the Company in any given period. In addition, Owens Corning
notes that certain of its businesses are operated wholly or in part through subsidiary
entities. To the extent that any restructuring or similar charges impact such subsidiary
entities, the financial condition or results of operations of such subsidiary entities,
and potentially other entities holding obligations of such subsidiary entities, may be
adversely impacted, perhaps materially.

# 2002 Charges

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

The $61 million
restructure charge includes $17 million of severance costs associated with the
elimination of approximately 830 positions due to plant closures in the U.S. and U.K. and
$18 million of severance costs associated with the elimination of approximately 349 other
positions, primarily impacting administrative personnel. As of December 31, 2002,
approximately 1,142 of these positions were actually eliminated. As of December 31, 2002,
approximately $11 million has been paid and charged against the reserve. The remaining
$26 million restructure charge represents the cost of closure of non-strategic
facilities, comprised of $24 million in non-cash asset write-downs to fair value and $2
million of other exit cost liabilities.

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

#  27 

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

# 2001 Charges

The Company spent a
significant amount of time reviewing its cost structures in 2001 as a response to the
impact of the weaker economy. This review led the Company to record approximately $140
million in pretax charges during 2001, comprised of a $26 million pretax restructure
charge and $114 of pretax other charges. The $114 million of pretax other charges was
accounted for as a $79 million pretax charge to cost of sales and a $35 million pretax
charge to other operating expense. The Company recorded $46 million in the fourth
quarter, $35 million in the third quarter, $17 million in the second quarter and $42
million in the first quarter.

The $26 million
restructure charge represents $21 million of severance costs associated with the
elimination of approximately 460 positions, primarily in the U.S. and the U.K. The
primary groups impacted included manufacturing and administrative personnel. As of
December 31, 2002, approximately $20 million has been paid and charged against the
reserve. The remaining $5 million restructure charge represents a non-cash asset
write-down to fair value and exit cost liabilities.

The $114 million of
pretax other charges included: (1) $39 million of asset impairments mainly associated
with the Building Materials segment to write-down assets to net estimated fair value on a
held in use basis in certain manufacturing facilities due to changes in the Companys
manufacturing and marketing strategies; (2) $29 million in costs associated with the
Companys plan to realign its Newark, OH manufacturing facility; (3) a charge of $6
million to write-down inventory to reflect updated estimates of the net realizable value
due to changes in the Companys manufacturing and marketing strategies; (4) a $2
million pretax loss from the sale of the Companys investment in its Pipe joint
ventures and subsidiaries; (5) a charge of $4 million to write-down the Companys
investment and related assets in Alcopor Owens Corning to net realizable value; and (6)
various other charges totaling $34 million.

# 2000 Charges

During 2000, the
Company recorded pretax charges of $229 million for restructuring and other activities as
a result of its reassessment of business strategies with respect to investments in
certain ventures, facilities and overhead expenditures. The $229 million pretax charge
was comprised of a $32 million charge associated with the restructuring of the Companys
business segments and $197 million of other charges, the majority of which represented
impairments of long-lived assets. In addition, the Company recorded a $6 million pretax
credit to minority interest resulting from charges related to a majority-owned
consolidated subsidiary. The components of the $32 million restructuring charge included
$16 million for personnel reductions, $10 million for the divestiture of non-strategic
businesses and facilities, and $6 million for asset impairments associated with the
planned closing of two lines at our Newark, Ohio manufacturing facility. This represented
the first phase of the Companys plan to realign operations at the Newark facility.

The $197 million of
other charges was comprised of $95 million of asset impairments, a $6 million charge for
a settlement loss associated with one of the Companys U.S. pension plans, and $96
million of charges focused on improving business operations and was accounted for as a
$77 million charge to cost of sales, a $114 million charge to other operating expenses
and a $6 million charge to marketing and administrative expenses. The $95 million of
asset impairments included: (1) $54 million to write-down the Companys investment
and related assets in Alcopor Owens Corning, a building materials joint venture in
Europe, to estimated fair value on a held for sale basis; (2) $12 million to write-down
the Companys investment in a venture in South Africa, on a held-in-use basis based
upon managements analysis of current and expected future financial results and
constraints on the Companys ability to fund future significant capital investments
in this entity as a consequence of the bankruptcy filing. This $12 million charge was
offset by a $6 million credit to record the minority owners share, recorded in the
minority interest line on the

#  28 

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

Consolidated Statement
of Income (Loss); (3) $8 million to write-down to fair value the investments in the
Companys Pipe joint ventures and subsidiaries on a held for sale basis; (4) $10
million to write-down the equity investment in ImproveNet, due to a significant decrease
inmarket value which management believes is other than temporary; and (5) $11
million associated with asset impairments within our Cultured Stone and other businesses.

The $96 million charge
consisted of $43 million to write-down inventory made obsolete by changes in the Companys
manufacturing and marketing strategies; $19 million to write-down equipment and
receivables; $15 million to increase warranty reserves due to general changes in
estimates associated with these reserves; and various other charges totaling $19 million
recorded as other operating expenses. As of December 31, 2002, approximately $15 million
has been paid and charged against the reserve for personnel reductions and approximately
$3 million has been charged against exit cost liabilities.

Due to timing of events, we
anticipate that additional restructuring and other charges will be recorded during 2003.

# LIQUIDITY, CAPITAL
RESOURCES AND OTHER RELATED MATTERS

Cash flow from
operations was $357 million for the year ended December 31, 2002, versus $478 million for
the year ended December 31, 2001 and negative $190 million for the year ended December
31, 2000. The decrease in cash flow from operations in 2002 from 2001 is primarily
attributable to changes in accounts payable and accrued liabilities balances. Also
contributing to the decrease was lower income from operations in 2002. These decreases
were offset in part by reduced pension fund contribution in 2002, compared to 2001. The
increase in cash flow from operations from 2000 to 2001 was driven primarily by increased
earnings in 2001, reduced payments for asbestos litigation claims in 2001, a significant
decrease in interest payments on debt in 2001, and increased cash from working capital
reductions. Due to the Filing, there was no cash outflow for asbestos litigation claims
in 2001, compared to $685 million in 2000 prior to the Filing ($521 million for claims
payments and $164 million increase in restricted cash), which was partially offset by
insurance proceeds of $380 million. Please see Notes 1 and 19 to the Consolidated
Financial Statements.

Inventories at
December 31, 2002 were $446 million, an increase of $9 million from the December 31, 2001
level of $437 million. Receivables at December 31, 2002 were $430 million, a $13 million
increase over the December 31, 2001 level of $417 million. This increase was almost
entirely attributable to a reduction in the sale of accounts receivable in Europe to $10
million in 2002 from $22 million in 2001. Accounts payable and accrued liabilities
increased to $756 million at December 31, 2002, from $740 million at December 31, 2001,
primarily reflecting reserves for restructure and other related charges discussed above
in Restructuring of Operations and Other Charges, partially offset by a
decrease in payables due to lower capital spending in the fourth quarter of 2002 as
compared to the same period in 2001. At December 31, 2002, our net working capital was
$913 million and we had a current ratio of 2.06, compared to $800 million and 1.94,
respectively, at December 31, 2001. The change in working capital and current ratio is
primarily the result of the $111 million increase in cash and cash equivalents at
December 31, 2002 compared to December 31, 2001.

Investing activities
consumed $250 million of cash during the year ended December 31, 2002, compared to $249
million during 2001. Capital spending for property, plant and equipment, excluding
acquisitions, was $248 million in 2002 and $270 million in 2001. We anticipate that 2003
spending for capital and investments will be approximately $260 million, substantially
all of which is uncommitted. We expect that these expenditures will be funded from the
Companys operations and existing cash on hand.

#  29 

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

Financing activities
in the year ended December 31, 2002 resulted in a decrease in cash of $5 million. The
results for 2002 reflect an $18 million application of funds previously subject to
administrative freeze to satisfy certain pre-petition indebtedness (see discussion below)
and other debt payments, partially offset by an allowed claim of approximately $19
million in debt subject to compromise as part of our investment in Owens Corning (India)
Limited, which increased our ownership to approximately 60%. At December 31, 2002, we had
$2.854 billion of borrowings subject to compromise and $176 million of other borrowings
(of which $97 million were in default as a consequence of the Filing and therefore
classified as current on the Consolidated Balance Sheet). At December 31, 2001, we had
$2.843 billion of borrowings subject to compromise and $114 million of other borrowings
(of which $96 million were in default as a consequence of the Filing and therefore
classified as current on the Consolidated Balance Sheet).

At December 31, 2002,
the Company had $875 million of Cash and Cash Equivalents (of which approximately $4
million was subject to administrative freeze pending the resolution of certain alleged
set-off rights by certain pre-petition lenders). During the second quarter of 2002, the
Bankruptcy Court approved a settlement reached with certain pre-petition lenders covering
approximately $36 million of funds previously subject to administrative freeze (of which
approximately $32 million was previously reflected in cash and cash equivalents). Under
this settlement, the Company received approximately $18 million of the funds and the
remainder was applied by the lenders to satisfy certain pre-petition indebtedness.

The Company has
significant liabilities related to pension plans for its employees. The Company has
reviewed its assumptions related to the valuation of this liability, including the rate
of return on pension plan assets and the discount rate on the liability compared to
actual results to date. This resulted in management changing its assumptions for 2003,
which will contribute to an increase in the pension plan expense of approximately $33
million in 2003 as compared to 2002. In addition, the actual decrease in the market value
of assets during 2002 and lower interest rates will likely result in the Company making
contributions to the pension plans in the range of $300 million to $400 million over the
next two years. These contributions will be made from the Companys current cash
balance and cash generated in the future. The Companys recorded long-term pension
plan liability increased to $500 million at year-end 2002, from $291 million at year-end
2001 and $75 million at year-end 2000, primarily as the result of changes in certain
actuarial assumptions and a decline in plan asset values due to market conditions (please
see Note 9 to the Consolidated Financial Statements). These factors were also the primary
contributors to the increase in accumulated other comprehensive loss. During 2001, the
Company made pension fund contributions of $196 million, including approximately $14
million in connection with the sale of its remaining interest in Alcopor Owens Corning
(please see Note 6 to the Consolidated Financial Statements). The ultimate cash flow
impact to the Company, if any, of the pension plan liability, and the timing of any such
impact, will depend on numerous variables, including future changes in actuarial
assumptions and market conditions.

In connection with the
Filing, the Debtors obtained a $500 million debtor-in-possession credit facility from a
group of lenders led by Bank of America, N.A. (the DIP Financing), which was
originally scheduled to expire November 15, 2002. Effective October 31, 2002, the DIP
Financing was amended to, among other things, reduce the maximum available credit amount
to $250 million and extend the scheduled expiration to November 15, 2004. There were no
borrowings outstanding under the DIP financing at December 31, 2002, however,
approximately $62 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 its affiliates.

#  30 

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

The Company believes,
based on information presently available to it, that its cash and cash equivalents, cash
available from operations and the DIP Financing 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 the DIP Financing and any cash management order entered by the
Bankruptcy Court in connection with the Chapter 11 Cases, (ii) the ability of the Company
to maintain adequate cash on hand, (iii) the ability of the Company to generate cash from
operations, (iv) the ability of the Non-Debtor Subsidiaries to obtain necessary
financing, (v) confirmation of a plan or plans of reorganization under the Bankruptcy
Code, and (vi) the Companys ability to achieve profitability following such
confirmation.

# 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 outcome, and on various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates. The Company believes the
following critical accounting policies affect its more significant judgments and
estimates used in the preparation of its consolidated financial statements.

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

The Company recognizes
revenue when goods are shipped and title passes 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.

The Companys
inventories are stated at cost, which is less than market value, and include material,
labor and manufacturing overhead. The majority of the U.S. inventories are valued using
the first-in, first-out (FIFO) method and the balance of inventories are generally valued
using the last-in, first-out (LIFO) method.

#  31 

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

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

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 U.S. In addition, realization of certain deferred tax assets is
dependent upon our ability to generate future taxable income. The Company records a
valuation allowance to reduce its deferred tax assets to the amount that it believes is
more likely than not to be realized. While the Company has considered future taxable
income and ongoing tax planning strategies in assessing the need for the valuation
allowance, in the event the Company was to determine that it would not be able to realize
all or part of its net deferred tax assets in the future, an adjustment to the deferred
tax assets would be charged to income in the period such determination was made. 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.

# ACCOUNTING CHANGES

Effective January 1,
2002, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets (SFAS No. 142), which it uses to account
for goodwill and other intangible assets. SFAS No. 142 eliminates the amortization of
goodwill and indefinite-lived intangible assets; identifiable intangible assets with a
determinable useful life will continue to be amortized. SFAS No. 142 requires an annual
review for impairment using a fair value methodology.

#  32 

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

The Company applied
SFAS No. 142 beginning in the first quarter of 2002, which required the Company to cease
amortizing goodwill and indefinite-lived intangibles. The Company has no indefinite-lived
intangibles, separately identified. In addition, the Company tested goodwill for
impairment using the two- step process prescribed in SFAS No. 142. The first step is a
screen for potential impairment. The second step, which is performed on those reporting
units determined to have potential impairment based on the first step, measures the
amount of the impairment, if any. The results of the first step indicated that the
carrying values of some reporting units exceeded the corresponding fair values, which
were determined based on the discounted estimated future cash flows of the reporting
units. In the second step, the implied fair value of goodwill of these reporting units
was determined through the allocation of the fair value to the underlying assets and
liabilities. The January 1, 2002 carrying value of the goodwill in these reporting units
exceeded their implied fair value by $491 million, resulting in a non-cash charge of $491
million ($441 million net of tax). This charge was determined during the second quarter
of 2002 and, as required by SFAS No. 142, was recorded as a cumulative effect of a change
in accounting principle in the first quarter of 2002. The goodwill recorded in the
December 31, 2001 financial statements, which included the $491 million described above,
was supported by the undiscounted estimated future cash flow of the related operations in
accordance with Statement of Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
See Note 22 to Owens Cornings Consolidated Financial Statements for further
details.

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

Effective January 1,
2002, the Company adopted Statement of Financial Accounting Standards No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. This Statement addresses
financial accounting and reporting for the impairment or disposal of long-lived assets
and had no material impact on the Companys financial statements upon adoption. This
Statement supersedes FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting
and reporting provisions of APB Opinion No. 30, Reporting the Results of
Operations, Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the
disposal of a segment of a business (as previously defined in that Opinion). This
Statement also amends ARB No. 51, Consolidated Financial Statements, to
eliminate the exception to consolidation for a subsidiary for which control is likely to
be temporary.

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

#  33 

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

Effective January 1,
2003, the Company will adopt Statement of Financial Accounting Standards No. 146, Accounting
for Costs Associated with Exit or Disposal Activities. This Statement addresses
financial accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)". This Statement requires that
a liability for a cost associated with an exit or disposal activity be recognized and
measured initially at fair value only when the liability is incurred. The accounting for
similar events and circumstances will be the same, thereby improving the comparability
and representational faithfulness of reported financial information. The prospective
effects of adoption are not expected to be material to the Company.

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

In December 2002, the
Financial Accounting Standards Board issued Statement of Financial Accounting Standards
No. 148 Accounting for Stock-Based Compensation  Transition and Disclosure
 an amendment of FASB Statement No. 123". Effective December 31, 2002, the
Company adopted the amendments to Statement 123 provided in paragraphs 2(a)-2(e) of this
Statement. Effective January 1, 2003, the Company will adopt the amendment to Statement
123 provided in paragraph 2(f) of this Statement, and the amendment to Opinion 28
provided in paragraph 3. The effect of adoption will not be material to the Company.

In January 2003, the
Financial Accounting Standards Board issued Interpretation No. 46, Consolidation of
Variable Interest Entities  an interpretation of ARB No. 51". Effective July
1, 2003, the Company will adopt the provisions of this Interpretation which requires the
primary beneficiary in a variable interest entity to consolidate the entity, even if the
primary beneficiary does not have a majority voting interest, for variable interest
entities existing prior to January 31, 2003. Effective January 31, 2003, the Company will
adopt the consolidation requirements of this Interpretation for any variable interest
entity created on or after that date. Effective December 31, 2002, the Company adopted
the requirements of this Interpretation for entities to disclose information regarding
guarantees or exposures to loss relating to any variable interest entity existing prior
to January 31, 2003 in financial statements issued after January 31, 2003. The Company
has certain entities which are potentially subject to the consolidation requirements of
this Interpretation; however, the effects of consolidation, if necessary, would not be
material to the Company. The prospective effects of adoption are not expected to be
material to the Company.

#  34 

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

# ENVIRONMENTAL MATTERS

The Company has been
deemed by the 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, 2002, a total of 56 such PRP designations remained unresolved
by the Company. 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 has
established a $25 million reserve for Superfund (and similar state, local and private
action) contingent liabilities. In connection with the Filing, the Company has initiated
a program to identify and discharge contingent environmental liabilities as part of its
plan or plans of reorganization. Under the program, the Company will seek settlements,
subject to approval of the Bankruptcy Court, with various federal, state and local
authorities, as well as private claimants. The Company will continue to review its
environmental reserve in light of such program and make such adjustments as may be
appropriate.

The 1990 Clean Air Act
Amendments (Act) provide that the EPA will issue regulations on a number of air
pollutants over a period of years. The EPA issued final regulations for wool fiberglass
and mineral wool in June 1999, for amino/phenolic resin in January 2000, for secondary
aluminum smelting in March 2000, and for wet formed glass mat and metal coil coating in
June, 2002. The Company anticipates that other sources to be regulated will be asphalt
processing and roofing, open molded fiber-reinforced plastics, and large burners and
boilers. Based on information now known to the Company, including the nature and limited
number of regulated materials Owens Corning emits, we do not expect the Act to have a
materially adverse effect on our results of operations, financial condition or long-term
liquidity.

# ITEM 7A.   QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed
to the impact of changes in foreign currency exchange rates, interest rates, and natural
gas prices in the normal course of business. The Company did not experience any
significant changes in such exposures during 2002. The Company manages such exposures
through the use of certain financial and derivative financial instruments. The Companys
objective with these instruments is to reduce exposure to fluctuations in earnings and
cash flows, which has not changed from the Companys objective used during 2001 and
is not expected to change in 2003.

The Company enters
into various forward contracts and options, which change in value as foreign currency
exchange rates change, to preserve the carrying amount of foreign currency-denominated
assets, liabilities, commitments, and certain anticipated foreign currency transactions
and earnings.

The Company also
enters into certain currency and interest rate swaps to protect the carrying amount of
its investments in certain foreign subsidiaries, to hedge the principal and interest
payments of certain debt instruments, and to manage its exposure to fixed versus floating
interest rates.

The Company also
enters into cash-settled natural gas futures to protect against changes in natural gas
prices.

The Companys
policy is to use foreign currency, interest rate, and natural gas 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.

#  35 

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

The Company uses a
variance-covariance Value at Risk (VAR) computation model to estimate the
potential loss in the fair value of the referenced financial instruments. The VAR model
uses historical foreign exchange, interest, and natural gas rates as an estimate of the
volatility and correlation of these rates in future periods. It estimates a loss in fair
market value using statistical modeling techniques.

The amounts presented
below represent the average, minimum, and maximum potential one-day loss in fair value of
the reference financial instruments that the Company would expect from adverse changes in
foreign currency exchange rates, interest rates or natural gas prices assuming a 95%
confidence level:

|                 |  |        |  | December 31, |  |        |  |        |  | December 31, |  |        | 
|---------------- |  | ------ |  | ------------ |  | ------ |  | ------ |  | ------------ |  | ------ | 
|
|
|
|
|                 |  |        |  |              |  |        |  |        |  |              |  |        | 
|Foreign currency |  | $    1 |  | $    1       |  | $    1 |  | $    - |  | $    -       |  | $    - | 
|Interest rate    |  | 9      |  | 8            |  | 10     |  | 12     |  | 11           |  | 13     | 
|Natural gas      |  | -      |  | -            |  | -      |  | 1      |  | 1            |  | 1      | 
|                 |  |        |  |              |  |        |  |        |  |              |  |        | 

Virtually all of the
potential loss associated with interest rate risk is attributable to fixed-rate long-term
debt instruments. The potential loss, identified above, includes interest on debt subject
to compromise.

# ITEM 8.     FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA

Pages 53 through 133 hereof are
incorporated here by reference.

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

On March 22, 2002,
Owens Corning dismissed Arthur Andersen LLP, which served as the Companys
independent public accountants for the 2001 fiscal year, and determined to engage
PricewaterhouseCoopers LLP as the Companys independent public accountants for the
2002 fiscal year. This change in independent public accountants was previously reported
by Owens Corning in a Current Report on Form 8-K, dated March 22, 2002, filed March 27,
2002.

#  36 

# PART III

# ITEM 10.     DIRECTORS AND
EXECUTIVE OFFICERS OF OWENS CORNING

# INFORMATION CONCERNING DIRECTORS

At February 28, 2003,
Owens Cornings Board of Directors was composed of twelve 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 February 28, 2003, Owens Corning has not
scheduled an annual meeting of stockholders for 2003 or any subsequent period.

Information concerning
each director of Owens Corning as of February 28, 2003, is set forth below.

# Class Expiring At First
Succeeding Annual Meeting Of Stockholders

David T. Brown, 54.
President and Chief Executive Officer, Owens Corning.  Director since January 2002.

A graduate of Purdue
University, Mr. Brown assumed his current position in April 2002. Before that, he served
as Executive Vice President and Chief Operating Officer of Owens Corning since January
2001. Previously, he held numerous leadership positions in sales and marketing at Owens
Corning, including serving as President of the Insulating Systems Business beginning in
1998, 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 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.

Gaston Caperton, 63.
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
Benedum Foundation. He was the 1996 Chair of the Democratic Governors Association,
and served on the National Governors Association executive committee and as a
member of the Intergovernmental Policy Advisory Committee on U.S. Trade. He also was
Chairman of the Appalachian Regional Commission, Southern Regional Education Board, and
the Southern Growth Policy Board.

William W. Colville, 68.
Retired; former Senior Vice President, General Counsel and Secretary of Owens Corning.
Director since 1995.

#  37 

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

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.

Landon Hilliard, 63.
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 and Western World           Insurance Company.
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.

# Class Expiring At Second
Succeeding Annual Meeting Of Stockholders

Ann Iverson, 59.
Chairman of Brooks Sports, Inc., athletic footwear and apparel, Bothell, WA and President
and Chief Executive Officer of International Link, an international consulting firm,
Scottsdale, AZ. Director since 1996.

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

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

W. Walker
Lewis, 58. Chairman, Devon Value Advisers, financial consulting and
          investment banking firm, Greenwich, CT and New York, NY. Director since 1993.

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

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

Furman C. Moseley,
Jr., 68. Chairman of Sasquatch Books, Inc., publishing, Seattle, WA. Director since
1983.

#  38 

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

Mr. Moseley
joined Simpson Paper Company in 1960 and retired in June 1995 as           Chairman of
that company and President of Simpson Investment Company.

Mr. Moseley
is a director of Eaton Corporation.

Michael H. Thaman, 38.
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 of Owens Corning in April 2002, after becoming Senior Vice President and Chief
Financial Officer in 2000. Before that, 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 spent six years as a strategy consultant at Mercer Management
Consulting, including as a Vice President in that firms New York office.

# Class Expiring At Third
Succeeding Annual Meeting Of Stockholders

Norman P. Blake,  Jr.,
61. 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 previously has served as Chief Executive Officer of the United
States Olympic Committee; Chairman, Chief Executive Officer and President of Promus Hotel
Corporation; Chairman, Chief Executive Officer and President 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 and Purdue Universitys
          Presidents Council and Deans Advisory Council, Krannert Graduate
          School of Management. He is the recipient of the degree of Doctor of Economics
          honoris causa from Purdue University, granted jointly by the Krannert Graduate
          School of Management and School of Liberal Arts. He has also been awarded The
          Ellis Island Medal of Honor.

Leonard S. Coleman,
 Jr., 54. Senior Advisor to Major League  Baseball,  professional  sports,  New York, NY.
 Director since 1996.

A graduate of
Princeton and Harvard Universities, Mr. Coleman became President of The National League
of Professional Baseball Clubs in 1994 after serving as Executive Director, Market
Development of Major League Baseball. He assumed his current position with Major League
Baseball in 1999.

Mr. Coleman
is a director of H. J. Heinz Company, the Omnicom Group, New Jersey           Resources,
Cendant Corporation, Electronic Arts Inc., Aramark Corporation, and           Churchill
Downs Incorporated. He also serves as a director of The Metropolitan           Opera, The
Schumann Fund, The Jackie Robinson Foundation, and The           Childrens Defense
Fund.

W. Ann
Reynolds, 65. Director of the Center for Community Outreach and
          Development, and a faculty member 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 assumed her current
position in 2002. Previously, she was President of The University of Alabama at
Birmingham for five years, Chancellor of City University of New York for seven years, and
Chancellor of the California State University system for eight years.

#  39 

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

Dr. Reynolds
is a director of Humana, Inc., Abbott Laboratories and Maytag           Corporation. She
is also a member of the American Association for the           Advancement of Science,
the American Association of Anatomists, the Society for           Gynecological
Investigation, and the Perinatal Research Society.

Maura Abeln Smith, 47.
Senior Vice President, Owens Corning.  Director since January 2002.

Ms. Smith
has been named Senior Vice President and General Counsel of International           Paper
Co., a paper and forest products company located in Stamford, CT,           effective
March 31, 2003, at which time her employment with Owens Corning will           terminate.
Prior to February 2003, Ms. Smith also served as Owens Cornings           Chief
Restructuring Officer, General Counsel and Secretary. A graduate of Vassar
          College, Oxford University  where she was a Rhodes Scholar, and the
          University of Miami School of Law, Ms. Smith joined Owens Corning in 1998.
Prior           to joining Owens Corning, Ms. Smith worked at General Electric, where she
served           as Vice President and General Counsel at GE Plastics. Before her career
at           General Electric, Ms. Smith was a partner in the international law firm of
Baker           & McKenzie.

# INFORMATION CONCERNING
EXECUTIVE OFFICERS

Certain information
concerning Owens Cornings executive officers is included on pages 12 through 13
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. All of the executive
officers listed on pages 12 through 13 hereof, except Ms. Bargabos and Messrs. Dana,
Dietzel, Kiemle, and Krull, served as executive officers of Owens Corning at or within
two years before the time of such filing. In addition, all of such listed executive
officers except Ms. Bargabos and Messrs. Johns, Lantz, and Mirra 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.

# SECTION 16(a) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE

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

Based solely on its
review of copies of such reports received or written representations from such executive
officers, directors and ten percent stockholders, Owens Corning believes that all Section
16(a) filing requirements applicable to its directors, executive officers and ten percent
stockholders were complied with during fiscal year 2002.

#  40 

# ITEM 11.     EXECUTIVE
COMPENSATION

# EXECUTIVE OFFICER
COMPENSATION

The following tables
provide information on compensation and stock-based awards received by each individual
that served as Owens Cornings Chief Executive Officer during 2002 and the four
other highest paid individuals who were serving as executive officers of Owens Corning at
the end of 2002 (these six individuals collectively are referred to as the Named
Executive Officers).

Summary Compensation
TableThe 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, 2002.

|                          | Long Term Compensation
|------------------------- | ----------------------
|
|
|
|
|
|
|David T. Brown            | 2002                  
|President and Chief       | 2001                  
|Executive Officer         | 2000                  
|                          |                       
|Michael H. Thaman         | 2002                  
|Chairman of the Board and | 2001                  
|Chief Financial Officer   | 2000                  
|                          |                       
|Maura Abeln Smith         | 2002                  
|Senior Vice President     | 2001                  
|                          | 2000                  
|                          |                       
|David L. Johns            | 2002                  
|Senior Vice President and | 2001                  
|Chief Supply Chain and    | 2000                  
|Information Technology    |                       
|Officer                   |                       
|                          |                       
|Goerge E. Kiemle          | 2002                  
|Vice President and        | 2001                  
|President, Insulating     | 2000                  
|Systems Business          |                       
|                          |                       
|Glen H. Hiner             | 2002                  
|Former Chief Executive    | 2001                  
|Officer                   | 2000                  
|                         

|(1) | Prior to April 2002, Mr. Brown served as Executive Vice President and Chief
               Operating Officer; prior to January 2001, he served as Vice President and
               President, Insulating Systems Business. Prior to April 2002, Mr. Thaman served
               as Senior Vice President and Chief Financial Officer; prior to April 2000, he
               served as Vice President and President, Exterior Systems Business. Prior to
               February 2003, Ms. Smith also served as Chief Restructuring Officer, General
               Counsel and Secretary; she assumed the duties of Chief Restructuring Officer in
               November 2000. Prior to April 2001, Mr. Johns served as Senior Vice President
               and Chief Technology Officer. Prior to February 2001, Mr. Kiemle served as Vice
               President, Manufacturing, Insulating Systems Business. Mr. Hiner retired as
               Chairman of the Board and Chief Executive Officer in April 2002.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

#  41 

# ITEM 11.     EXECUTIVE
COMPENSATION (continued)

|(2) | Other Annual Compensation includes perquisites and personal
               benefits, where such perquisites and personal benefits exceed the lesser of
               $50,000 or 10% of the Named Executive Officers annual salary and bonus for
               the year, as well as certain other items of compensation. For the years shown,
               none of the Named Executive Officers received perquisites and/or personal
               benefits in excess of the applicable threshold.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Mr.
           Hiners numbers reflect contractually required tax payments on income from
          his Pension Preservation Trust account. The Pension Preservation Trust is
          described on page 43.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | There were no restricted stock awards to any of the Named Executive Officers in
          2000, 2001, or 2002.
|--- | --------------------------------------------------------------------------------------------------------------

| | At
the end of 2002, Mr. Brown held a total of 11,350 shares of restricted stock, valued at
$4,767; Mr. Thaman held a total of 10,800 shares of restricted stock, valued at $4,536;
Ms. Smith held a total of 13,566 shares of restricted stock, valued at $5,698; Mr. Johns
held a total of 4,200 shares of restricted stock, valued at $1,764; Mr. Kiemle held a
total of 5,075 shares of restricted stock, valued at $2,132; and Mr. Hiner 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, 2002 (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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | No stock options or stock appreciation rights (SARs) were awarded to any of the
               Named Executive Officers in 2000, 2001, or 2002.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Of Mr. Hiners number, $63,333 represents amounts payable during 2002
               pursuant to a post-retirement Release and Non-Competition Agreement and $3,198
               was the present value (based upon the Applicable Federal Rate from date of
               payment to earliest date of repayment to Owens Corning) of split-dollar life
               insurance premiums paid by Owens Corning which were invested on his behalf in
               2002. Upon Mr. Hiners termination of employment, Owens Corning was
               reimbursed for all such insurance premiums previously invested on his behalf.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Except
as indicated in the preceding paragraph, 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 2002.

#  42 

# ITEM 11.     EXECUTIVE
COMPENSATION (continued)

# 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 2002 by the Named Executive Officers, and the aggregate values of these officersunexercised
options at the end of 2002. None of the Named Executive Officers held stock appreciation
rights (SARs) at December 31, 2002.

Aggregated Option/SAR
Exercises in 2002, and 12/31/02 Option/SAR Values

|                  |  |     | Number of |    
|----------------- |  | --- | --------- | ---
|
|
|
|
|
|
|
|
|David T. Brown    |  | -0- |           | -0-
|Michael H. Thaman |  | -0- |           | -0-
|Maura Abeln Smith |  | -0- |           | -0-
|David L. Johns    |  | -0- |           | -0-
|George E. Kiemle  |  | -0- |           | -0-
|Glen H. Hiner     |  | -0- |           | -0-

(1)    
          No options were in-the-money at December 31, 2002.

# Long-Term Incentive Plan
Awards Table

No Long-Term Incentive
Plan awards were made to any of the Named Executive Officers during 2002.

# 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 (other
than Mr. Hiner, who retired in 2002), in lieu 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 (other than Mr. Hiner) 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. During 2002, 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; subject to, and
effective upon, Internal Revenue Service approval, the percentage will be 4% for all
subsequent covered pay. For this purpose, covered pay includes base pay, overtime pay,
other wage premium pay and 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 may receive their benefit under the Cash Balance Plan as a
lump sum or as a monthly payment when they leave Owens Corning.

#  43 

# ITEM 11.     EXECUTIVE
COMPENSATION (continued)

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 (other than Mr. Hiner) at age 65 are: Mr. Brown, $338,558; Mr. Thaman,
$348,713; Ms. Smith, $165,959; Mr. Johns, $129,253, and Mr. Kiemle, $182,809. These
estimated amounts assume continued employment and current levels of covered pay through
age 65, and are based on estimated interest rates. Upon his retirement, Mr. Hiner
received a lump sum payment of $156,262 in full satisfaction of amounts payable under
these plans.

Supplemental
Executive Retirement Plan  Owens Corning maintains a Supplemental Executive
Retirement Plan (SERP) covering certain employees, including Ms. Smith 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 to 4 (determined by the covered employees age when first
employed by Owens Corning) and is 1.7 and 1.1 in the case of Ms. Smith and Mr. Johns,
respectively. The estimated annual annuity amounts payable to Ms. Smith and Mr. Johns to
satisfy the lump sum obligation under this plan at age 65, under the assumptions
described in the preceding paragraph, are $282,130 and $142,178, respectively, less the
annualized offset due to prior employment.

Other Arrangements  Prior
to his retirement, Mr. Hiner had an Employment Agreement that called for him to receive
an annual pension equal to (a) 60% of his average annual compensationminus
(b) amounts payable under his prior employers pension plan, any qualified defined
benefit plan maintained by Owens Corning, and Social Security. Under the Agreement, average
annual compensation was one third of Mr. Hiners highest 36 months of
compensation from Owens Corning or his prior employer. In full satisfaction of the
obligation under the Agreement, Mr. Hiner received a final lump sum payment of
$2,339,129, after tax withholding of $2,129,975, via payment to the Pension Preservation
Trust described below.

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. Each year, 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 2002, no payments
were made to the Trust, other than the payment described in the preceding paragraph.

# Employment, Severance,
and Certain Other Agreements

Owens Corning has
entered into severance arrangements with each of the Named Executive Officers (other than
Mr. Hiner). These agreements provide for the payment of an amount equal to two times base
salary plus annual incentive bonuses (based on an average of the three previous years annual
incentive payments or the average of the three previous years annual incentive
targets, whichever is greater) plus continuation of insurance benefits for a period of up
to two years and, in the case of Messrs. Brown, Thaman, and Kiemle, a payment equal to
the additional lump sum pension benefit that would have accrued had such individuals been
three years older, with three additional years of service, at the time of employment
termination. The base salaries as of December 31, 2002, of these Named Executive Officers
were: Mr. Brown, $750,000; Mr. Thaman, $650,000; Ms. Smith, $550,000; Mr. Johns,
$367,000; and Mr. Kiemle, $275,000.

#  44 

# ITEM 11.     EXECUTIVE
COMPENSATION (continued)

Following his
retirement, the Company entered into a Release and Non-Competition Agreement with Mr.
Hiner that includes, among other things, provisions for mutual release, non-competition,
non-solicitation, non-disclosure and consulting arrangements. The agreement provides for
annual payments of $95,000 for the first three years and $75,000 for two additional
years.

# Directors
Compensation

Retainer and
Meeting Fees  In 2002, Owens Corning paid each director who was not an Owens
Corning employee an annual retainer of $35,000. Non-employee Committee Chairmen receive
an additional retainer of $4,000 each year. In addition, Owens Corning paid non-employee
directors a fee of $1,200 for (a) attendance at one or more meetings of the Board of
Directors on the same day, (b) attendance at one or more meetings of each Committee of
the Board of Directors on the same day, and (c) for each days attendance at other
functions in which directors were requested to participate.

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. 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.

Stock Plan for
Directors  Owens Corning maintains a 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.

No initial option
grants or annual grants were made under the Plan during 2002. 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.

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.

#  45 

# 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,
 Leonard S. Coleman,  Jr., Furman C. Moseley,  Jr., and W. Ann  Reynolds.  Norman P.
Blake,  Jr. also served on the Committee  during a portion of 2002. No other persons
served on the Compensation Committee during 2002.

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 2002, BBH was paid fees of approximately $717,000 from the
          Trust for these services. In addition, BBH serves as the custodian and
          investment advisor of an escrow account funded by one of the Companys
          excess insurance carriers during the third quarter of 2001 (see Note 19, Item
C,           to the Consolidated Financial Statements). During 2002, BBH earned fees of
          approximately $82,000 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, no person beneficially owned more than 5% of Owens
Corning common stock as of December 31, 2002.

As of February 28,
2003, Owens Corning employees, including officers, beneficially owned 1,977,050 shares
(3.6%) of Owens Corning common stock under Owens Corning sponsored savings plans in the
United States and Canada.

# STOCK OWNERSHIP OF
MANAGMENT

The following table
shows information concerning beneficial ownership of Owens Corning common stock on
February 28, 2003, by each of the directors, by each of the Named Executive Officers, and
by all directors and executive officers as a group. With the exception of the ownership
of Mr. Hiner (1.3%) and all directors and executive officers as a group (2.3%), each
ownership shown represents less than 1% of the shares of common stock outstanding.

#  46 

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

|                                                | Amount And Nature
|----------------------------------------------- | -----------------
|
|Norman P. Blake, Jr                             |                  
|David T. Brown                                  |                  
|Gaston Caperton                                 |                  
|Leonard S. Coleman, Jr                          |                  
|William W. Colville                             |                  
|Landon Hilliard                                 |                  
|Glen H. Hiner                                   |                  
|Ann Iverson                                     |                  
|David L. Johns                                  |                  
|George E. Kiemle                                |                  
|W. Walker Lewis                                 |                  
|Furman C. Moseley, Jr                           |                  
|W. Ann Reynolds                                 |                  
|Maura Abeln Smith                               |                  
|Michael H. Thaman                               |                  
|All Directors and Executive Officers (including |                  
|Named Executive Officers) (21 persons)          |                  

|(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 February 28, 2003, as follows: Mr. Brown,
               82,000; Mr. Caperton, 10,000; Mr. Coleman, 10,000; Mr. Colville, 10,000; Mr.
               Hiner, 583,000; Ms. Iverson, 10,000; Mr. Johns, 12,278; Mr. Kiemle, 51,000;
               Dr. Reynolds, 10,000; Ms. Smith, 52,000; Mr. Thaman, 43,657; All Directors
               and Executive Officers (21 persons), 939,943.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes shares over which there is sole voting power, but no investment power,
               as follows: Mr. Brown, 10,750; Mr. Johns, 4,200; Mr. Kiemle, 4,675; Ms. Smith,
               13,000; Mr. Thaman, 10,300; All Directors and Executive Officers (21 persons),
               66,091.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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. Coleman, 2,052;
               Mr. Hilliard, 2,575; Ms. Iverson, 1,532; Mr. Lewis, 3,620; Mr. Moseley, 6,232;
               Dr. Reynolds, 3,097; All Directors and Executive Officers (21 persons), 24,260.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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 (21 persons), 700.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# POTENTIAL CHANGES IN
CONTROL

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

| | Owens
Corning anticipates that substantially all liabilities of the Debtors as of the date of
the Filing will be resolved under one or more Chapter 11 plans of reorganization to be
proposed and voted on in the Chapter 11 Cases in accordance with the provisions of the
Bankruptcy Code. As described more fully in Note 1 to Owens Cornings Consolidated
Financial Statements, on March 28, 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 amended joint plan of reorganization (the Plan) in
the USBC. The Plan is subject to confirmation by the Bankruptcy Court.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

#  47 

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

Owens Corning believes
that it is likely that the terms, conditions and provisions of the Plan will be the
subject of continuing negotiations or litigation to resolve differences among the
creditor constituencies as to their treatment. Accordingly, Owens Corning is unable to
predict at this time what the treatment of creditors and equity holders of the respective
Debtors will ultimately be under any plan or plans of reorganization finally confirmed.
The current Plan provides for partial payment of all unsecured creditors claims, in
the form of distributions of new common stock and notes of the reorganized company, and
cash. Additional distributions from potential insurance and other third-party claims may
also be paid to certain classes of unsecured creditors, but it is expected that all
classes of unsecured creditors will be impaired. Therefore, the Plan also provides that
the existing common stock of Owens Corning will be cancelled, and that current
shareholders will receive no distribution or other consideration in exchange for their
shares. It is impossible to predict at this time the terms and provisions of any plan or
plans of reorganization that may ultimately be confirmed, when a plan or plans of
reorganization will be confirmed, or the treatment of creditors thereunder.

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

# ITEM 13.     CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS

Owens Corning has
nothing additional to report under this Item.

# ITEM 14.     CONTROLS AND
PROCEDURES

# CONTROLS AND PROCEDURES

The Companys
Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of
the Companys disclosure controls and procedures (as such term is defined in Rules
13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the Exchange
Act)) as of a date within 90 days prior to the filing date of this annual report
(the Evaluation Date). Based on such evaluation, such officers have concluded
that, as of the Evaluation Date, the Companys disclosure controls and procedures
are effective in alerting them on a timely basis to material information relating to the
Company (including its consolidated subsidiaries) required to be included in the Companys
periodic filings under the Exchange Act.

# CHANGES IN INTERNAL
CONTROLS

Since the Evaluation
Date, there have not been any significant changes in the Companys internal controls
or in other factors that could significantly affect such controls.

#  48 

# PART IV

# ITEM 15.     EXHIBITS,
FINANCIAL STATEMENT SCHEDULES, AND REPORTS                      ON FORM 8-K

(a)      
          DOCUMENTS FILED AS PART OF THIS REPORT

1.       
          See Index to Financial Statements on page 52 hereof.

2.       
          See Index to Financial Statement Schedules on page 134 hereof.

3.       
          See Exhibit Index beginning on page 137 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 (*).

(b)      
          REPORTS ON FORM 8-K

During
the fourth quarter of 2002, Owens Corning filed the following current report on Form 8-K:

 Dated
December 9, 2002, under Item 5, to file a December 9, 2002 Press Release.

#  49 

Signatures

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

OWENS CORNING

|By | /s/ David T. Brown          | Date    March 28, 2003
|-- | --------------------------- | ----------------------
|   |                             |                       
|   | 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.

|By | /s/ David T. Brown                   | Date    March 28, 2003
|-- | ------------------------------------ | ----------------------
|   | David T. Brown, President            |                       
|   | Chief Executive Officer and Director |                       
|   |                                      |                       

|By | /s/ Michael H. Thaman                     | Date    March 28, 2003
|-- | ----------------------------------------- | ----------------------
|   | Michael H. Thaman, Chairman of the Board, |                       
|   | Chief Financial Officer and Director      |                       
|   |                                           |                       

|By | /s/ Charles E. Dana                      | Date    March 28, 2003
|-- | ---------------------------------------- | ----------------------
|   | Charles E. Dana, Vice President -        |                       
|   | Corporate Controller and Global Sourcing |                       
|   |                                          |                       

|By | /s/ Norman P. Blake, Jr.        | Date    March 22, 2003
|-- | ------------------------------- | ----------------------
|   | Norman Pl. Blake, Jr., Director |                       
|   |                                 |                       

|By | /s/ Gaston Caperton       | Date    March 24, 2003
|-- | ------------------------- | ----------------------
|   | Gaston Caperton, Director |                       
|   |                           |                       

|By | /s/ Leonard S. Coleman, Jr.       | Date    March 26, 2003
|-- | --------------------------------- | ----------------------
|   | Leonard S. Coleman, Jr., Director |                       
|   |                                   |                       

|By | /s/ William W. Colville       | Date    March 24, 2003
|-- | ----------------------------- | ----------------------
|   | William W. Colville, Director |                       
|   |                               |                       

|By | /s/ Landon Hilliard       | Date    March 24, 2003
|-- | ------------------------- | ----------------------
|   | Landon Hilliard, Director |                       
|   |                           |                       

|By | /s/ Ann Iverson       | Date    March 24, 2003
|-- | --------------------- | ----------------------
|   | Ann Iverson, Director |                       
|   |                       |                       

|By | /s/ W. Walker Lewis       | Date    March 21, 2003
|-- | ------------------------- | ----------------------
|   | W. Walker Lewis, Director |                       
|   |                           |                       

|By | /s/ Furman C. Moseley, Jr.       | Date    March 24, 2003
|-- | -------------------------------- | ----------------------
|   | Furman C. Moseley, Jr., Director |                       
|   |                                  |                       

|By | /s/ W. Ann Reynolds       | Date    March 21, 2003
|-- | ------------------------- | ----------------------
|   | W. Ann Reynolds, Director |                       
|   |                           |                       

|By | /s/ Maura Abeln Smith       | Date    March 24, 2003
|-- | --------------------------- | ----------------------
|   | Maura Abeln Smith, Director |                       
|   |                             |                       

#  50 

# CERTIFICATION

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

|(1) | I have reviewed this annual report on Form 10-K of Owens Corning;
|--- | -----------------------------------------------------------------

|(2) | Based on my knowledge, this annual report does not contain any untrue statement
          of a material fact or omit to state a material fact necessary to make the
          statements made, in light of the circumstances under which such statements were
          made, not misleading with respect to the period covered by this annual report;
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Based on my knowledge, the financial statements, and other financial information
          included in this annual report, fairly present in all material respects the
          financial condition, results of operations and cash flows of the registrant as
          of, and for, the periods presented in this annual report;
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | The registrants other certifying officer and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(b) | evaluated the effectiveness of the registrants disclosure controls and
               procedures as of a date within 90 days prior to the filing date of this annual
               report (the Evaluation Date); and
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | presented in this annual report our conclusions about the effectiveness of the
               disclosure controls and procedures based on our evaluation as of the Evaluation
               Date;
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | The registrants other certifying officer and I have disclosed, based on
          our most recent evaluation, to the registrants auditors and the audit
          committee of registrants board of directors (or persons performing the
          equivalent functions):
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(a) | all significant deficiencies in the design or operation of internal controls
               which could adversely affect the registrants ability to record, process,
               summarize and report financial data and have identified for the
               registrants auditors any material weaknesses in internal controls; and
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | any fraud, whether or not material, that involves management or other employees
               who have a significant role in the registrants internal controls; and
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | The registrants other certifying officer and I have indicated in this
          annual report whether there were significant changes in internal controls or in
          other factors that could significantly affect internal controls subsequent to
          the date of our most recent evaluation, including any corrective actions with
          regard to significant deficiencies and material weaknesses.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

March 28, 2003

/s/ David T. Brown

David T. BrownChief Executive
Officer

#  51 

# CERTIFICATION

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

|(1) | I have reviewed this annual report on Form 10-K of Owens Corning;
|--- | -----------------------------------------------------------------

|(2) | Based on my knowledge, this annual report does not contain any untrue statement
          of a material fact or omit to state a material fact necessary to make the
          statements made, in light of the circumstances under which such statements were
          made, not misleading with respect to the period covered by this annual report;
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Based on my knowledge, the financial statements, and other financial information
          included in this annual report, fairly present in all material respects the
          financial condition, results of operations and cash flows of the registrant as
          of, and for, the periods presented in this annual report;
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | The registrants other certifying officer and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(b) | evaluated the effectiveness of the registrants disclosure controls and
               procedures as of a date within 90 days prior to the filing date of this annual
               report (the Evaluation Date); and
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | presented in this annual report our conclusions about the effectiveness of the
               disclosure controls and procedures based on our evaluation as of the Evaluation
               Date;
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | The registrants other certifying officer and I have disclosed, based on
          our most recent evaluation, to the registrants auditors and the audit
          committee of registrants board of directors (or persons performing the
          equivalent functions):
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(a) | all significant deficiencies in the design or operation of internal controls
               which could adversely affect the registrants ability to record, process,
               summarize and report financial data and have identified for the
               registrants auditors any material weaknesses in internal controls; and
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | any fraud, whether or not material, that involves management or other employees
               who have a significant role in the registrants internal controls; and
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | The registrants other certifying officer and I have indicated in this
          annual report whether there were significant changes in internal controls or in
          other factors that could significantly affect internal controls subsequent to
          the date of our most recent evaluation, including any corrective actions with
          regard to significant deficiencies and material weaknesses.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

March 28, 2003

/s/ Michael H. Thaman

Michael H. ThamanChief Financial Officer

#  52 

# INDEX TO FINANCIAL
STATEMENTS

|Item                                                    | Page    
|------------------------------------------------------- | --------
|                                                        |         
|Report of Independent Public Accountants                | 53 - 54 
|                                                        |         
|Copy of Previously Issued Arthur Andersen LLP Report    | 55 - 56 
|                                                        |         
|Summary of Significant Acconting Policies               | 57 - 59 
|                                                        |         
|Consolidated Statement of Income (Loss) - for the       |         
|years ended December 31, 2002, 2001 and 2000            | 60      
|                                                        |         
|Consolidated Balance Sheet - December 31, 2002 and 2001 | 61 - 62 
|                                                        |         
|Consolidated Statement of Stockholders' Equity -        |         
|for the years ended December 31, 2002, 2001 and 2000    | 63      
|                                                        |         
|Consolidated Statement of Cash Flows - for the years    |         
|ended December 31, 2002, 2001 and 2000                  | 64 - 65 
|                                                        |         
|Notes to Consolidated Financial Statements              |         
|Notes 1 through 24                                      | 66 - 133
|                                                        |         

#  53 

---

| | PricewaterhouseCoopers LLPSuite 1800 One SeaGate Toledo OH 43604-1574 Telephone (419) 254 2500 Facsimile (419)
254 2550
| | -----------------------------------------------------------------------------------------------------------------------



# Report of Independent
Accountants

To the Board of
Directors and Stockholders of Owens Corning:

In our opinion, the
accompanying consolidated balance sheet and the related consolidated statements of income
(loss), stockholders equity, and cash flows present fairly, in all material
respects, the financial position of Owens Corning and its subsidiaries at December 31,
2002, and the results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Companys management; our
responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit 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 audit provides a
reasonable basis for our opinion. The consolidated financial statements of Owens Corning
and its subsidiaries as of December 31, 2001, and for each of the two years in the period
ended December 31, 2001, were audited by other independent accountants who have ceased
operations. Those independent accountants expressed an unqualified opinion on those
financial statements in their report dated January 23, 2002, before the revisions
described in Notes 2 and 22.

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

As discussed above,
the consolidated financial statements of Owens Corning and its subsidiaries as of
December 31, 2001, and for each of the two years in the period ended December 31, 2001,
were audited by other independent accountants who have ceased operations. As described in
Notes 2 and 22, these financial statements have been revised to include the transitional
disclosures required by SFAS 142, which was adopted by the Company as of January 1, 2002
and to restate the disclosures required by Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information resulting
from a change in the composition of the Companys reportable segments. We audited
the transitional disclosures described in Note 22 and the restated disclosures described
in Note 2. In our opinion, the transitional disclosures in Note 22 and the restated
disclosures in Note 2 for 2001 and 2000 are appropriate. However, we were not engaged to
audit, review, or apply any procedures to the 2001 or 2000 financial statements of the
Company other than with respect to such disclosures and, accordingly, we do not express
an opinion or any other form of assurance on the 2001 or 2000 consolidated financial
statements taken as a whole.

#  54 

To the Board of
Directors and Stockholders of Owens Corning:

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

/s/
PricewaterhouseCoopers LLP

February 6, 2002

#  55 

THIS REPORT IS A COPY
OF A PREVIOUSLY ISSUED ARTHUR ANDERSEN LLP REPORT AND HAS NOT BEEN REISSUED BY ARTHUR
ANDERSEN LLP

The financial
statements to which this report relates have been modified since the date that Arthur
Andersen issued its report. The modifications relate to the transitional disclosures
required by Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, which was adopted by the Company as of January 1, 2002 and to
restate disclosures required by Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information resulting
from a change in the composition of the Companys reportable segments. The
modifications, which were audited by PricewaterhouseCoopers LLP, are not covered by the
copy of the Arthur Andersen report. The footnotes shown below were not part of the Arthur
Andersen report.

# REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS

To the Stockholders and Board of
Directors of Owens Corning:

We have audited the
accompanying consolidated balance sheet of OWENS CORNING (a Delaware corporation) and
subsidiaries (the Company) as of December 31, 2001, and 2000*, and the
related consolidated statements of income (loss), comprehensive income (loss),
stockholders equity and cash flows for each of the three years in the period ended
December 31, 2001*. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements
based on our audits.

We conducted our
audits in accordance with auditing standards generally accepted in the 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
includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the
financial statements referred to above present fairly, in all material respects, the
financial position of Owens Corning and subsidiaries as of December 31, 2001, and 2000*,
and the results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001*, in conformity with accounting principles generally
accepted in the United States.

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 plans
in regard to these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

#  56 

To the Stockholders
and Board of Directors of Owens Corning:

Our audit was made for
the purpose of forming an opinion on the basic financial statements taken as a whole. The
schedule** listed in the Index to Financial Statement Schedules is presented for the
purpose of complying with the Securities and Exchange Commissions rules and is not
part of the basic financial statements. This schedule** has been subjected to the
auditing procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.

/s/ Arthur Andersen LLP

January 23, 2002,
Toledo, Ohio.

*The Companys
consolidated balance sheet as of December 31, 2000 and the consolidated statements of
income (loss), comprehensive income (loss), stockholders equity and cash flows for
the year ended December 31, 1999 are not included in this Form 10-K. Additionally, the
information contained in the consolidated statement of comprehensive income (loss) for
the years ended December 31, 2002, 2001 and 2000 has been integrated in the consolidated
statement of stockholders equity for those years and the consolidated statement of
comprehensive income (loss) has been deleted.

**As this report is a
reproduction of the previously issued report from Arthur Andersen, the schedule to which
this paragraph refers includes information for the years ending December 31, 2001, 2000
and 1999. However, the 1999 information is not included in this Form 10-K.

#  57 

# OWENS CORNING AND
SUBSIDIARIESSUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES

Principles of
ConsolidationThe consolidated financial statements of Owens Corning and its
subsidiaries (the Company) generally include the accounts of majority owned
subsidiaries, unless ownership is considered temporary. Intercompany accounts and
transactions are eliminated.

ReclassificationsCertain
reclassifications have been made to 2001 and 2000 to conform with the classifications
used in 2002.

Use of Estimates and
AssumptionsThe 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 RecognitionThe Company recognizes
revenue when goods are shipped and title passes 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 typically based on historical
experience.

Shipping and Handling
CostsThe 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 goods sold in the Consolidated Statement of Income
(Loss). All costs billed to the customer are included as revenue in the Consolidated
Statement of Income (Loss).

Marketing and
Advertising ExpensesMarketing and
advertising costs are expensed the first time the advertising takes place. Marketing
expenses include advertising, customer incentive programs, and marketing communications.
Marketing expenses for 2002, 2001 and 2000 were $83 million, $87 million, and $92 million
respectively.

Science and Technology
ExpensesThe 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.

Reorganization Items and
Other ExpensesIn 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).

Stock Based Compensation
PlansThe Company applies
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123), and Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure An Amendment of FAS No. 123 (SFAS 148), for disclosures of
its stock based compensation plans. The Company applies Accounting Principles Board
Opinion No. 25 and related Interpretations for expense recognition as permitted by SFAS
123 and SFAS 148.

#  58 

# OWENS CORNING AND
SUBSIDIARIESSUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES

Net Income per ShareBasic 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 EquivalentsThe Company defines
cash and cash equivalents as cash and time deposits with maturities of three months or
less when purchased.

Inventory ValuationInventories are stated
at cost, which is less than market value, and include material, labor and manufacturing
overhead. The majority of the U.S. inventories are valued using the first-in, first-out
(FIFO) method and the balance of inventories are generally valued using the last-in,
first-out (LIFO) method.

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

GoodwillEffective January 1,
2002, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets (SFAS No. 142). SFAS No. 142 eliminates the
amortization of goodwill and indefinite-lived intangible assets; identifiable intangible
assets with a determinable useful life will continue to be amortized. SFAS No. 142
requires an annual review for impairment using a fair value methodology. In performing
its annual review, the Company uses an estimate of the undiscounted 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
DepreciationThe Companys
plant and equipment is depreciated principally using the straight-line method.
Depreciation expense for the years ended December 31, 2002, 2001, and 2000 was $272
million, $220 million, and $177 million, respectively. The range of useful lives for the
major components of the Companys plant and equipment is as follows:

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

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

#  59 

# OWENS CORNING AND
SUBSIDIARIESSUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES

# 

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

Income TaxesThe 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 maintains tax reserves to cover
Internal Revenue Service (IRS) claims for income taxes and interest
attributable to audits of open tax years.

Pension and Other
Postretirement BenefitsAccounting 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 ClaimsThe 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.

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

Foreign Currency
TranslationThe functional
currency of the Companys subsidiaries is generally the applicable local currency.
Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at the
period-end rate of exchange and their statement of income (loss) and statement of cash
flows are converted on an ongoing basis at the rate of exchange when transactions occur.
The resulting translation adjustment is included in Accumulated other comprehensive
loss in the Consolidated Statement of Stockholders Equity. 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.

#  60 

# OWENS CORNING AND
SUBSIDIARIESCONSOLIDATED STATEMENT
OF INCOME (LOSS)FOR THE YEARS ENDED
DECEMBER 31, 2002, 2001 AND 2000

|                                                                | 2002 |  | 2001 |         | 2000 |  
|--------------------------------------------------------------- | ---- |  | ---- | ------- | ---- | -
|
|
|NET SALES                                                       |      |  | $    | 4,872   |      | $
|COST OF SALES (Note 5)                                          |      |  |      | 4,130   |      |  
|                                                                |      |  |      |         |      |  
|Gross margin                                                    |      |  |      | 742     |      |  
|                                                                |      |  |      |         |      |  
|OPERATING EXPENSES                                              |      | 
|Marketing and administrative expenses (Note 5)                  |      |  |      | 522     |      |  
|Science and technology expenses                                 |      |  |      | 42      |      |  
|Restructure costs (Note 5)                                      |      |  |      | 61      |      |  
|Chapter 11 related reorganization items (Note 1)                |      |  |      | 96      |      |  
|Provision (credit) for asbestos litigation claims - Owens       |      | 
|Corning (Note 19)                                               |      |  |      | 1,376   |      |  
|Provision for asbestos litigation claims - Fibreboard (Notes 19 |      | 
|and 20)                                                         |      |  |      | 975     |      |  
|Other (Note 5)                                                  |      |  |      | (17     | )    |  
|                                                                |      |  |      |         |      |  
|Total operating expenses                                        |      |  |      | 3,055   |      |  
|                                                                |      |  |      |         |      |  
|INCOME (LOSS) FROM OPERATIONS                                   |      |  |      | (2,313  | )    |  
|                                                                |      |  |      |         |      |  
|OTHER                                                           |      | 
|Cost of borrowed funds (Notes 1, 3, 4 and 18)                   |      |  |      | 16      |      |  
|Other (Notes 3, 18 and 20)                                      |      |  |      | -       |      |  
|                                                                |      |  |      |         |      |  
|INCOME (LOSS) BEFORE INCOME TAX                                 |      | 
|EXPENSE (BENEFIT)                                               |      |  |      | (2,329  | )    |  
|                                                                |      |  |      |         |      |  
|Income tax expense (benefit) (Notes 10 and 19)                  |      |  |      | 31      |      |  
|                                                                |      |  |      |         |      |  
|INCOME (LOSS) BEFORE MINORITY INTEREST AND                      |      | 
|EQUITY IN NET INCOME (LOSS) OF AFFILIATES                       |      |  |      | (2,360  | )    |  
|                                                                |      |  |      |         |      |  
|Minority interest (Notes 5 and 7)                               |      |  |      | (4      | )    |  
|Equity in net income (loss) of affiliates (Note 13)             |      |  |      | (4      | )    |  
|                                                                |      |  |      |         |      |  
|NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT                      |      | 
|OF CHANGE IN ACCOUNTING PRINCIPLE                               |      |  |      | (2,368  | )    |  
|                                                                |      |  |      |         |      |  
|Cumulative effect of change in accounting principle, net of tax |      | 
|(Note 22)                                                       |      |  |      | (441    | )    |  
|                                                                |      |  |      |         |      |  
|NET INCOME (LOSS)                                               |      |  | $    | (2,809) |      | $
|                                                                |      |  |      |         |      |  
|NET INCOME (LOSS) PER COMMON SHARE (Note 17)                    |      |  |      |         |      |  
|Basic net income (loss) per share                               |      |  | $    | (51.02) |      | $
|                                                                |      |  |      |         |      |  
|Diluted net income (loss) per share                             |      |  | $    | (51.02) |      | $
|                                                                |      |  |      |         |      |  
|Weighted average number of common shares outstanding            |      |  |      |         |      |  
|and common equivalent shares during the period (in millions)    |      |  |      |         |      |  
|Basic                                                           |      |  |      | 55.1    |      |  
|Diluted                                                         |      |  |      | 55.1    |      |  

The accompanying summary of significant accounting policies and notesare an integral part of this statement

#  61 

# OWENS CORNING AND
SUBSIDIARIESCONSOLIDATED BALANCE
SHEETDECEMBER 31, 2002 AND
2001

|2002                                                                  | 2001
|--------------------------------------------------------------------- | ----
|ASSETS                                                               
|
|CURRENT                                                               |     
|Cash and cash equivalents (Note 1)                                    |     
|Receivables, less allowances of $29 million in 2002 and               |     
|2001 (Note 11)                                                        |     
|Inventories (Note 12)                                                 |     
|Deferred income taxes (Note 10)                                       |     
|Income tax receivable (Note 10)                                       |     
|Other current assets                                                  |     
|                                                                      |     
|Total current                                                         |     
|                                                                      |     
|OTHER                                                                 |     
|Insurance for asbestos litigation claims (Note 19)                    |     
|Restricted cash - asbestos and insurance related (Note 19)            |     
|Restricted cash, securities, and other - Fibreboard (Notes 19 and 20) |     
|Deferred income taxes (Note 10)                                       |     
|Goodwill, less accumulated amortization of $780 million in 2002 and   |     
|$131 million in 2001 (Notes 5, 6 and 22)                              |     
|Investments in affiliates (Notes 5 and 13)                            |     
|Other noncurrent assets (Note 9)                                      |     
|                                                                      |     
|Total other                                                           |     
|                                                                      |     
|PLANT AND EQUIPMENT, at cost                                          |     
|Land                                                                  |     
|Buildings and leasehold improvements                                  |     
|Machinery and equipment                                               |     
|Construction in progress                                              |     
|                                                                      |     
|                                                                      |     
|Less - accumulated depreciation                                       |     
|                                                                      |     
|Net plant and equipment                                               |     
|                                                                      |     
|TOTAL ASSETS                                                          |     
|                                                                      |     

The accompanying summary of significant accounting policies and notesare an integral part of this statement

#  62 

# OWENS CORNING AND
SUBSIDIARIESCONSOLIDATED BALANCE
SHEETDECEMBER 31, 2002 AND
2001 (continued)

|                                                                  | 2002 | 2001
|----------------------------------------------------------------- | ---- | ----
|LIABILITIES AND STOCKHOLDERS' EQUITY                             
|
|CURRENT                                                           |      |     
|Accounts payable and accrued liabilities (Note 14)                |      |     
|Short-term debt (Note 4)                                          |      |     
|Long-term debt - current portion (Note 3)                         |      |     
|                                                                  |      |     
|Total current                                                     |      |     
|                                                                  |      |     
|LONG-TERM DEBT (Note 3)                                           |      |     
|                                                                  |      |     
|OTHER                                                             |      |     
|Other employee benefits liability (Note 8)                        |      |     
|Pension plan liability (Note 9)                                   |      |     
|Other                                                             |      |     
|                                                                  |      |     
|Total other                                                       |      |     
|                                                                  |      |     
|LIABILITIES SUBJECT TO COMPROMISE (Notes 1, 3, 7 and 19)          |      |     
|                                                                  |      |     
|COMMITMENTS AND CONTINGENCIES (Notes 16, 18 and 19)               |      |     
|                                                                  |      |     
|COMPANY-OBLIGATED SECURITIES OF ENTITIES                          |      |     
|HOLDING SOLELY PARENT DEBENTURES - SUBJECT TO                     |      |     
|COMPROMISE (Note 7)                                               |      |     
|                                                                  |      |     
|MINORITY INTEREST                                                 |      |     
|                                                                  |      |     
|STOCKHOLDERS' EQUITY                                              |      |     
|Preferred stock, no par value; authorized 8 million shares,       |      |     
|none outstanding                                                  |      |     
|Common stock, par value $.10 per share; authorized 100            |      |     
|million shares; issued 2002 - 55.2 million shares and 2001 - 55.3 |      |     
|million shares (Notes 6 and 17)                                   |      |     
|Additional paid in capital                                        |      |     
|Deficit                                                           |      |     
|Accumulated other comprehensive loss (Note 9)                     |      |     
|Other (Note 17)                                                   |      |     
|                                                                  |      |     
|Total stockholders' equity                                        |      |     
|                                                                  |      |     
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                        |      |     
|                                                                  |      |     

The accompanying summary of significant accounting policies and notesare an integral part of this statement

#  63 

# OWENS CORNING AND
SUBSIDIARIESCONSOLIDATED STATEMENT
OF STOCKHOLDERS EQUITYFOR THE YEARS ENDED
DECEMBER 31, 2002, 2001 AND 2000

|                                                          | 2002 | 2001 | 2000
|--------------------------------------------------------- | ---- | ---- | ----
|
|
|COMMON STOCK                                              |      |      |     
|Balance beginning and end of year                         |      |      | $   
|                                                          |      |      |     
|ADDITIONAL PAID IN CAPITAL                                |      |     
|Balance beginning of year                                 |      |      | $   
|Awards (forfeitures) of stock under                       |      |     
|stock compensation plans (Note 17)                        |      |      |     
|                                                          |      |      |     
|Balance end of year                                       |      |      |     
|                                                          |      |      |     
|DEFICIT                                                   |      |     
|Balance beginning of year                                 |      |      |     
|Net income (loss)                                         |      |      |     
|Cash dividends declared                                   |      |      |     
|                                                          |      |      |     
|Balance end of year                                       |      |      |     
|                                                          |      |      |     
|ACCUMULATED OTHER COMPREHENSIVE LOSS                      |      |     
|Balance beginning of year                                 |      |     
|Currency translation adjustment                           |      |      |     
|Minimum pension liability adjustment                      |      |      |     
|Other                                                     |      |      |     
|                                                          |      |      |     
|                                                          |      |      |     
|Adjustments                                               |      |     
|Currency translation adjustment                           |      |      |     
|Minimum pension liability adjustment (net of taxes of $79 |      |      |     
|million in 2002, $153 million in 2001 and $2 million in   |      |     
|2000)                                                     |      |      |     
|Other                                                     |      |      |     
|                                                          |      |      |     
|Other comprehensive loss                                  |      |      |     
|                                                          |      |      |     
|Balance end of year                                       |      |     
|Currency translation adjustment                           |      |      |     
|Minimum pension liability adjustment                      |      |      |     
|Other                                                     |      |      |     
|                                                          |      |      |     
|Balance end of year                                       |      |      |     
|                                                          |      |      |     
|OTHER                                                     |      |     
|Balance beginning of year                                 |      |      |     
|Net increase (decrease)                                   |      |      |     
|                                                          |      |      |     
|Balance end of year                                       |      |      |     
|                                                          |      |      |     
|STOCKHOLDERS' EQUITY                                      |      |      | $   
|                                                          |      |      |     
|TOTAL COMPREHENSIVE LOSS                                  |      |     
|Net income (loss)                                         |      |      | $   
|Other comprehensive loss                                  |      |      |     
|                                                          |      |      |     
|COMPREHENSIVE LOSS                                        |      |      | $   
|                                                          |      |      |     

The accompanying summary of significant accounting policies and notesare an integral part of this statement

#  64 

# OWENS CORNING AND
SUBSIDIARIESCONSOLIDATED STATEMENT
OF CASH FLOWSFOR THE YEARS ENDED
DECEMBER 31, 2002, 2001 AND 2000

|                                                                       | 2002 | 2001 | 2000
|---------------------------------------------------------------------- | ---- | ---- | ----
|
|
|NET CASH FLOW FROM OPERATIONS                                          |      |      |     
|                                                                       |      |      |     
|Net income (loss)                                                      |      |      | $   
|                                                                       |      |      |     
|Reconciliation of net cash provided by (used in) operating activities: |      |     
|                                                                       |      |      |     
|Noncash items:                                                         |      |     
|Provision (credit) for asbestos litigation claims (Note 19)            |      |      |     
|Provision for depreciation and amortization                            |      |      |     
|Provision for impairment of fixed assets                               |      |      |     
|Provision (credit) for deferred income taxes (Note 10)                 |      |      |     
|Cumulative effect of accounting change (Note 22)                       |      |      |     
|Other (Note 5)                                                         |      |      |     
|(Increase) decrease in receivables (Note 11)                           |      |      |     
|(Increase) decrease in inventories                                     |      |      |     
|Increase (decrease) in accounts payable and accrued                    |      |     
|liabilities                                                            |      |      |     
|Increase in restricted cash - asbestos and                             |      |     
|insurance related (Note 19)                                            |      |      |     
|liabilities subject to compromise (Note 1)                             |      |      |     
|Proceeds from insurance for asbestos litigation claims,                |      |     
|excluding Fibreboard (Note 19)                                         |      |      |     
|Payments for asbestos litigation claims, excluding                     |      |     
|Fibreboard (Note 19)                                                   |      |      |     
|Pension fund contribution                                              |      |      |     
|Other                                                                  |      |      |     
|                                                                       |      |      |     
|Net cash flow from operations                                          |      |      | $   
|                                                                       |      |      |     
|NET CASH FLOW FROM INVESTING                                           |      |     
|                                                                       |      |      |     
|Additions to plant and equipment                                       |      |      | $   
|Investment in subsidiaries, net of cash acquired (Note 6)              |      |      |     
|Proceeds from the sale of affiliate or business (Note 6)               |      |      |     
|Other                                                                  |      |      |     
|                                                                       |      |      |     
|Net cash flow from investing                                           |      |      | $   
|                                                                       |      |      |     

The accompanying summary of significant accounting policies and notesare an integral part of this statement

#  65 

# OWENS CORNING AND
SUBSIDIARIESCONSOLIDATED STATEMENT
OF CASH FLOWSFOR THE YEARS ENDED
DECEMBER 31, 2002, 2001 AND 2000 (continued)

|                                               | 2002 | 2001 | 2000
|---------------------------------------------- | ---- | ---- | ----
|
|
|NET CASH FLOW FROM FINANCING (Notes 3 and 4)   |      |      |     
|
|Net additions to long-term credit facilities $ |      |      | $   
|Other additions to long-term debt              |      |      |     
|Other reductions to long-term debt             |      |      |     
|Net increase (decrease) in short-term debt     |      |      |     
|Subject to compromise (Note 1)                 |      |      |     
|Dividends paid                                 |      |      |     
|Other                                          |      |      |     
|                                               |      |      |     
|Net cash flow from financing                   |      |      | $   
|                                               |      |      |     
|Effect of exchange rate changes on cash        |      |      |     
|                                               |      |      |     
|Net increase in cash and cash equivalents      |      |      |     
|Cash and cash equivalents at beginning of year |      |      |     
|                                               |      |      |     
|Cash and cash equivalents at end of year       |      |      | $   
|                                               |      |      |     

The accompanying summary of significant accounting policies and notesare an integral part of this statement

#  66 

# OWENS CORNING AND
SUBSIDIARIESNOTES 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, 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).
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 Chapter 11 Cases do not include other United States
subsidiaries of Owens Corning or any of its foreign subsidiaries (collectively, the Non-Debtor
Subsidiaries). As described more fully below under the heading The Plan of
Reorganization, Owens Corning may cause certain of such Non-Debtor Subsidiaries
that issued guarantees with respect to Owens Cornings pre-petition bank credit
facility to file petitions for relief under Chapter 11 of the Bankruptcy Code under
certain circumstances. The subsidiary Debtors that filed Chapter 11 petitions for relief
are:

| |  |                                    
| |  | -----------------------------------
| |  | CDC Corporation                    
| |  | Engineered Yarns America, Inc.     
| |  | Falcon Foam Corporation            
| |  | Integrex                           
| |  | Fibreboard Corporation             
| |  | Exterior Systems, Inc.             
| |  | Integrex Ventures LLC              
| |  | Integrex Professional Services LLC 
| |  | Integrex Supply Chain Solutions LLC

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.

In late 2001, the
asbestos-related Chapter 11 cases pending in the District of Delaware (the Chapter 11
Cases of Owens Corning and the cases of Armstrong World Industries, Inc., W.R. Grace & Co.,
Federal-Mogul Global, Inc., and USG Corporation) were ordered transferred to the United
States District Court for the District of Delaware (the District Court)
before Judge Alfred M. Wolin to facilitate development and implementation of a
coordinated plan for management (the Administrative Consolidation). The
District Court has 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). Owens Corning is unable to predict what
impact the Administrative Consolidation will have on the timing, outcome or other aspects
of the Chapter 11 Cases.

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. On March 28, 2003, the same proponents filed a proposed
amended joint plan of reorganization (the Plan) in the USBC. Certain terms,
conditions and provisions of the Plan are discussed below. The Plan is subject to
confirmation by the Bankruptcy Court.

# Consequence of Filing

As a consequence of
the Filing, all pending litigation against the Debtors is stayed automatically by section
362 of the Bankruptcy Code and, absent further order of the Bankruptcy Court, no party
may take

#  67 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

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

any action to recover
on pre-petition claims against the Debtors. In addition, pursuant to section 365 of the
Bankruptcy Code, the Debtors may reject or assume pre-petition executory contracts and
unexpired leases, and other parties to contracts or leases that are rejected may assert
rejection damages claims as permitted by the Bankruptcy Code.

Two creditors committees,
one representing asbestos claimants and the other representing unsecured creditors, have
been appointed as official committees in the Chapter 11 Cases. In addition, the
Bankruptcy Court has appointed James J. McMonagle as Legal Representative for the class
of future asbestos personal injury claimants against one or more of the Debtors. The two
committees and the Legal Representative have the right to be heard on all matters that
come before the Bankruptcy Court. Owens Corning expects that the two committees and the
Legal Representative will play important roles in the Chapter 11 Cases and the
negotiation of the terms of any plan or plans of reorganization. As noted above, the
Debtors filed their Plan together with the Official Committee of Asbestos Claimants and
the Legal Representative for the class of future asbestos claimants.

Owens Corning
anticipates that substantially all liabilities of the Debtors as of the date of the
Filing will be resolved under one or more Chapter 11 plans of reorganization to be
proposed and voted on in the Chapter 11 Cases in accordance with the provisions of the
Bankruptcy Code. Although the Debtors intend to seek confirmation of the Plan, there can
be no assurance that the Plan will not be amended prior to confirmation, nor can there be
any assurance that such Plan will be confirmed by the Bankruptcy Court and consummated.
Owens Corning is unable to predict what impact the Administrative Consolidation will have
on the timing of the confirmation of a plan or plans of reorganization or its effect, if
any, on the terms thereof.

# The Plan of
Reorganization

Owens Corning believes
that it is likely that the terms, conditions and provisions of the Plan will be the
subject of continuing negotiations or litigation to resolve differences among the
creditor constituencies as to their treatment. Accordingly, Owens Corning is unable to
predict at this time what the treatment of creditors and equity holders of the respective
Debtors will ultimately be under any plan or plans of reorganization finally confirmed.
The current Plan provides for partial payment of all unsecured creditors claims, in
the form of distributions of new common stock and notes of the reorganized company, and
cash. Additional distributions from potential insurance and other third-party claims may
also be paid to certain classes of unsecured creditors, but it is expected that all
classes of unsecured creditors will be impaired. Therefore, the Plan also provides that
the existing common stock of Owens Corning will be cancelled, and that current
shareholders will receive no distribution or other consideration in exchange for their
shares. It is impossible to predict at this time the terms and provisions of any plan or
plans of reorganization that may ultimately be confirmed, when a plan or plans of
reorganization will be confirmed, or the treatment of creditors thereunder.

The Plan is premised
upon the substantive consolidation of the Debtors (but not the Fibreboard Settlement
Trust) for the purposes of voting, determining which claims and interests will be
entitled to vote to accept or reject the Plan, confirmation of the Plan, and the
resultant discharge of and cancellation of claims and interests and distribution of
assets, interests and other property under the Plan. For these purposes, the Plan would
treat all assets and liabilities of each Debtor (excluding the Fibreboard Settlement
Trust) as though they were merged with the assets and liabilities of Owens Corning.
Certain creditor constituencies have asserted that substantive consolidation is not
appropriate, however, and are expected to challenge that approach in litigation.

#  68 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

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

The percentage
recovery and value of the payments made under the Plan to each class of creditors will
depend upon a number of factors. Those factors include the value of the shares of new
common stock and notes to be issued by the Company, the amount of cash available for
distribution, the resolution of certain inter-creditor issues, and the ultimate aggregate
asbestos liability.

The Plan provides two
alternative frameworks for creditor recoveries. One such alternative, which would apply
in the event that the Plan were approved by the major creditor constituencies, would
assume an aggregate liability for current and future asbestos personal injury claims
against Owens Corning and Fibreboard of $16 billion, and a preferred recovery to holders
of bank claims of $400 million, in addition to pro rata recovery on the balance of their
claims. Under the other alternative, in the context of a non-consensual framework, such
aggregate asbestos liabilities would be determined by the Bankruptcy Court as part of the
confirmation hearing on the Plan. The Court has scheduled certain hearings concerning
confirmation of the Plan to begin on April 8, 2003. Any disagreements raised by creditors
with the terms of the Plan, including with respect to the appropriateness of substantive
consolidation, will be handled through litigation as part of the confirmation process.
Owens Corning is unable to predict the outcome of such litigation.

Under either Plan
alternative, a majority of the newly issued common stock, together with notes, and cash,
as well as the assets of the existing Fibreboard Settlement Trust (see Note 20 to the
Consolidated Financial Statements), will fund a new trust created under the Plan intended
to qualify under Section 524(g) of the Bankruptcy Code. The Section 524(g) trust will
assume all obligations of Owens Corning, Fibreboard, and their respective subsidiaries
and affiliates, for current and future asbestos personal injury claims and demands, and
will, through Owens Corning and Fibreboard sub-accounts, make payments to claimants in
accordance with trust distribution procedures to be agreed upon. In addition, the Plan
provides for an injunction by the Bankruptcy Court pursuant to Section 524(g) of the
Bankruptcy Code that will enjoin actions against the reorganized Debtors for the purpose
of, directly or indirectly, collecting, recovering or receiving payment of, on, or with
respect to any claims resulting from asbestos-containing products allegedly manufactured,
sold or installed by Owens Corning or Fibreboard, which claims will be paid in whole or
in part by the Section 524(g) trust. Similar plans of reorganization have been confirmed
in the Chapter 11 cases of other companies involved in asbestos-related litigation.
Section 524(g) of the Bankruptcy Code provides that, if certain specified conditions are
satisfied, a court may issue a supplemental permanent injunction barring the assertion of
asbestos-related claims or demands against the reorganized company and channeling those
claims to an independent trust.

Among other things,
the Plan provides that (1) except as otherwise provided in the Plan, no distributions
will be made under the Plan on account of inter-company claims among any of the Debtors,
and (2) all guarantees of the Debtors of the obligations of any other Debtor will be
deemed eliminated. Since, as described above, it is likely that the Plan will be the
subject of continuing negotiations or litigation, Owens Corning is unable to predict at
this time what the treatment of such matters, and other inter-company and intra-company
arrangements, transactions and relationships that were entered into prior to the Petition
Date, will ultimately be under any plan or plans of reorganization finally confirmed.
Such matters and other arrangements, transactions and relationships may be challenged by
various parties in the Chapter 11 Cases and payments and other obligations in respect
thereof may be restricted or modified by order of, or subject to review and approval by,
the Bankruptcy Court. The outcome of such challenges and other actions, if any, may have
an impact on the treatment of various claims under the plan or plans ultimately confirmed
and on the respective assets, liabilities and results of operations of Owens Corning and
its subsidiaries. For example, Owens Corning is unable to predict at this time what the
treatment will ultimately be under any such plan or plans with respect to (1) the
guarantees issued by certain of Owens Cornings U.S. subsidiaries, including
Owens-Corning Fiberglas Technology Inc. (OCFT) and IPM Inc., a Non-Debtor
Subsidiary that holds Owens Cornings ownership interest in a majority of Owens
Cornings

#  69 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

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

foreign subsidiaries (IPM),
with respect to Owens Cornings $1.8 billion pre-petition bank credit facility (the
Pre-Petition Credit Facility, which is in default) or (2) OCFTs license
agreements with Owens Corning and Exterior Systems, Inc., an indirect wholly-owned
subsidiary of Owens Corning (Exterior), pursuant to which OCFT licenses
intellectual property to Owens Corning and Exterior. In the event that (1) the major
creditor constituencies do not approve the Plan and (2) no other acceptable alternative
agreement is reached to release such entities from their guaranty obligations, Owens
Corning expects to cause IPM as well as Vytec Corporation and Owens-Corning Fiberglas
Sweden Inc., two other Non-Debtor Subsidiaries that have issued guarantees in connection
with the Pre-Petition Credit Facility, to file for relief under Chapter 11 of the
Bankruptcy Code, and to join in the proposal of the Plan, and will also seek to cause
those Non-Debtor Subsidiaries to be substantively consolidated with the current Debtors
for the purposes set forth in the Plan.

The Bankruptcy Court
may confirm a plan of reorganization only upon making certain findings required by the
Bankruptcy Code, and a plan may be confirmed over the dissent of non-accepting creditors
and equity security holders if certain requirements of the Bankruptcy Code are met. The
payment rights and other entitlements of pre-petition creditors and Owens Cornings
shareholders may be substantially altered by any plan or plans of reorganization
confirmed in the Chapter 11 Cases, and the pre-petition creditors of some Debtors may be
treated differently than those of other Debtors.

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

# Bar Dates for Filing
Claims

GENERAL BAR DATE

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

Approximately 24,000
proofs of claim (including late-filed claims), totaling approximately $16.1 billion,
alleging a right to payment from a Debtor were filed with the Bankruptcy Court in
response to the General Bar Date. Owens Corning is investigating these claims to
determine their validity. The Bankruptcy Court will ultimately determine liability
amounts that will be allowed for these claims in the Chapter 11 Cases.

In its initial review
of the filed claims, Owens Corning has identified approximately 15,000 claims, totaling
approximately $8.4 billion, which it believes should be disallowed by the Bankruptcy
Court, primarily because they appear to be duplicate claims or claims that are not
related to the indicated Debtor (the Objectionable Claims). Owens Corning
likely will file objections to these Objectionable Claims. 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 these claims
will be disallowed.

#  70 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

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

In addition to the
Objectionable Claims described above, at December 31, 2002, the remaining filed proofs of
claim included approximately 9,000 claims, totaling approximately $7.7 billion, as
follows:

| | 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. Please see Note 19 to the Consolidated Financial
Statements for additional information concerning asbestos-related liabilities.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Approximately 600 claims, totaling approximately $0.7 billion, alleging asbestos-related
property damage. Most of these claims were submitted with insufficient documentation to
assess their validity. Owens Corning expects to vigorously defend any asserted
asbestos-related property damage claims in the Bankruptcy Court. Based upon its historic
experience in respect of asbestos-related property damage claims, Owens Corning does not
anticipate significant liability from any such claims.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Approximately 5,500 claims, totaling approximately $5.6 billion, alleging rights to
payment for financing, environmental, trade debt and other matters (the General
Claims). The Company has previously recorded approximately $3.7 billion in
liabilities for these claims. Based upon the claims information submitted, the General
Claims with the largest variance from the recorded amounts are: claims by the United
States Department of Treasury, totaling approximately $530 million, in connection with
taxes (see discussion 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; claims for
contract rejections, totaling approximately $310 million, of which approximately $250
million are protective claims covering contracts which have not been rejected by the
Debtors as of December 31, 2002; a $275 million class action claim involving alleged
problems with a specialty roofing product, which claim Owens Corning does not believe is
meritorious based upon its historic experience with servicing its warranty program for
such product; and environmental claims, totaling approximately $244 million.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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). 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 has not been set. Despite this, approximately 2,900 proofs of claim (in
addition to claims described above under General Bar Date), totaling
approximately $2.2 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

#  71 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

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

Corning has identified
approximately 1,100, 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.
Please see Note 19 to the Consolidated Financial Statements for additional information
concerning asbestos-related liabilities.

# Avoidance Actions

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

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

The Debtors have
executed tolling agreements with all 12 present and former officers, the director and the
affiliate of the Company, as well as with certain other parties identified as having
received potentially avoidable transfers.

The additional 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; (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.

Separately, and at the
request of the Debtors Official Creditors Committee and the direction of the
Bankruptcy Court, the Debtors either obtained tolling agreements from, or filed actions
against, approximately 115 law firms that entered into NSP or non-NSP agreements (see
Note 19) with the Debtors on behalf of claimants asserting asbestos-related personal
injury or wrongful death claims. Lawsuits were brought 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. The Official Creditors Committee
was named as a defendant in such lawsuits, solely with respect to the declaratory relief
sought.

#  72 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

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

By motion filed on or
about October 16, 2002, the Debtors sought an order of the Bankruptcy Court staying all
of the foregoing litigation pending its disposition in a plan of reorganization. Pursuant
to order of the Bankruptcy Court dated January 17, 2003, all of the foregoing litigation,
other than the action relating to the avoidance of certain guarantees and certain
preferential payments made in connection with Owens Cornings Pre-Petition Credit
Facility, has been stayed until April 28, 2003, at which time the court will consider
whether such stay should be further extended. The Debtors action relating to the
avoidance of certain guarantees and certain preferential payments made in connection with
Owens Cornings Pre-Petition Credit Facility is scheduled for trial before the
District Court commencing in April 2003.

# Certain Post-petition
Matters

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

As a result of the
Filing, contractual interest expense has not been accrued or recorded on pre-petition
debt of the Debtors since the Petition Date. From the Petition Date through December 31,
2002, contractual interest expense not accrued or recorded on pre-petition debt totaled
$362 million, of which $140 million relates to 2002, $171 million relates to 2001, and
$51 million relates to 2000.

At December 31, 2002,
the Company had $875 million of cash and cash equivalents (of which approximately $4
million was subject to administrative freeze pending the resolution of certain alleged
set-off rights by certain pre-petition lenders). During the second quarter of 2002, the
Bankruptcy Court approved a settlement reached with certain pre-petition lenders covering
approximately $36 million of funds previously subject to administrative freeze (of which
approximately $32 million was previously reflected in cash and cash equivalents). Under
this settlement, the Company received approximately $18 million of the funds and the
remainder was applied by the lenders to satisfy certain pre-petition indebtedness.

In connection with the
Filing, the Debtors obtained a $500 million debtor-in-possession credit facility from a
group of lenders led by Bank of America, N.A. (the DIP Financing), which was
originally scheduled to expire November 15, 2002. Effective October 31, 2002, the DIP
Financing was amended to, among other things, reduce the maximum available credit amount
to $250 million and extend the scheduled expiration to November 15, 2004. There were no
borrowings outstanding under the DIP Financing at December 31, 2002; however,
approximately $62 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, cash
available from operations, and the DIP Financing 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

#  73 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

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

the terms of the DIP
Financing and any cash management order entered by the Bankruptcy Court from time to time
in connection with the Chapter 11 Cases, (ii) the ability of the Company to maintain
adequate cash on hand, (iii) the ability of the Company to generate cash from operations,
(iv) the ability of the Non-Debtor Subsidiaries to obtain necessary financing, (v)
confirmation of a plan or plans of reorganization under the Bankruptcy Code, and (vi) the
Companys ability to maintain profitability following such confirmation.

# Financial Statement
Presentation

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

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

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

In this respect, the
Companys Consolidated Financial Statements, and the condensed financial statements
presented below, reflect charges to income of $1.381 billion for Owens Corning and $975
million for Fibreboard during the quarterly period ended September 30, 2002, in
connection with asbestos-related liabilities. Please see Note 19 to the Consolidated
Financial Statements.

# Debtor-In-Possession
Financial Statements

The condensed
financial statements of the Debtors are presented below. These statements reflect the
financial position and results of operations of the combined Debtor entities, including
certain amounts and activities between Debtors and non-debtor entities of Owens Corning
that are eliminated in the Consolidated Financial Statements. Certain reclassifications
to 2001 have been made between Debtor and non-debtor entities to conform with the
classifications used in 2002.

#  74 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

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

# OWENS CORNING AND
SUBSIDIARIESDEBTOR-IN-POSSESSION
STATEMENT OF INCOME (LOSS)FOR THE YEARS ENDED
DECEMBER 31, 2002, 2001 AND 2000

|                                                                | 2002 | 2001 | 2000
|--------------------------------------------------------------- | ---- | ---- | ----
|
|
|NET SALES                                                       |      |      | $   
|COST OF SALES                                                   |      |      |     
|                                                                |      |      |     
|Gross margin                                                    |      |      |     
|                                                                |      |      |     
|OPERATING EXPENSES                                              |      |     
|Marketing and administrative expenses                           |      |      |     
|Science and technology expenses                                 |      |      |     
|Restructure costs                                               |      |      |     
|Chapter 11 related reorganization items                         |      |      |     
|Provision (credit) for asbestos litigation claims - Owens       |      |     
|Corning (Note 19)                                               |      |      |     
|Provision for asbestos litigation claims - Fibreboard (Note 19) |      |      |     
|Other (Including interest income from non-debtors of $56        |      |     
|million in 2002 and 2001 and $82 million in 2000)               |      |      |     
|                                                                |      |      |     
|Total operating expenses                                        |      |      |     
|                                                                |      |      |     
|INCOME (LOSS) FROM OPERATIONS                                   |      |      |     
|OTHER                                                           |      |     
|Cost of borrowed funds                                          |      |      |     
|Other                                                           |      |      |     
|                                                                |      |      |     
|INCOME (LOSS) BEFORE INCOME TAX EXPENSE                         |      |     
|(BENEFIT)                                                       |      |      |     
|Income tax expense (benefit)                                    |      |      |     
|                                                                |      |      |     
|INCOME (LOSS) BEFORE EQUITY IN NET INCOME                       |      |     
|(LOSS) OF AFFILIATES                                            |      |      |     
|Equity in net income (loss) of affiliates                       |      |      |     
|                                                                |      |      |     
|NET INCOME (LOSS) BEFORE CUMULATIVE                             |      |     
|EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                        |      |      |     
|                                                                |      |      |     
|Cumulative effect of change in accounting principle             |      |      |     
|                                                                |      |      |     
|NET INCOME (LOSS)                                               |      |      | $   
|                                                                |      |      |     

#  75 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# OWENS CORNING AND
SUBSIDIARIESDEBTOR-IN-POSSESSION
BALANCE SHEETDECEMBER 31, 2002,
2001 AND 2000

|                                                           | 2002 | 2001
|---------------------------------------------------------- | ---- | ----
|
|
|
|CURRENT                                                    |      |     
|Cash and cash equivalents                                  |      |     
|Receivables                                                |      |     
|Receivables - non-debtors                                  |      |     
|Inventories                                                |      |     
|Deferred income taxes                                      |      |     
|Income tax receivable                                      |      |     
|Other current assets                                       |      |     
|                                                           |      |     
|Total current                                              |      |     
|                                                           |      |     
|OTHER                                                      |      |     
|Insurance for asbestos litigation claims                   |      |     
|Restricted cash and other - asbestos and insurance related |      |     
|Restricted cash, securities and other - Fibreboard         |      |     
|Deferred income taxes                                      |      |     
|Goodwill, net                                              |      |     
|Investments in affiliates                                  |      |     
|Investments in non-debtor subsidiaries                     |      |     
|Other noncurrent assets                                    |      |     
|                                                           |      |     
|Total other                                                |      |     
|                                                           |      |     
|PLANT AND EQUIPMENT, at cost                               |      |     
|Land                                                       |      |     
|Buildings and leasehold improvements                       |      |     
|Machinery and equipment                                    |      |     
|Construction in progress                                   |      |     
|                                                           |      |     
|                                                           |      |     
|Less - accumulated depreciation                            |      |     
|                                                           |      |     
|Net plant and equipment                                    |      |     
|                                                           |      |     
|TOTAL ASSETS                                               |      |     
|                                                           |      |     

#  76 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

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

# OWENS CORNING AND
SUBSIDIARIESDEBTOR-IN-POSSESSION
BALANCE SHEETDECEMBER 31, 2002,
2001 AND 2000 (continued)

|                                                       | 2002 | 2001
|------------------------------------------------------ | ---- | ----
|
|
|CURRENT                                                |      |     
|Accounts payable and accrued liabilities               |      |     
|Accounts payable and accrued liabilities - non-debtors |      |     
|Long-term debt - current portion                       |      |     
|                                                       |      |     
|Total current                                          |      |     
|                                                       |      |     
|OTHER                                                  |      |     
|Other employee benefits liability                      |      |     
|Pension plan liability                                 |      |     
|Other                                                  |      |     
|                                                       |      |     
|Total other                                            |      |     
|                                                       |      |     
|LIABILITIES SUBJECT TO COMPROMISE                      |      |     
|STOCKHOLDERS' EQUITY                                   |      |     
|Common stock                                           |      |     
|Additional paid in capital                             |      |     
|Deficit                                                |      |     
|Accumulated other comprehensive loss                   |      |     
|Other                                                  |      |     
|                                                       |      |     
|Total stockholders' equity                             |      |     
|                                                       |      |     
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY             |      |     
|                                                       |      |     

#  77 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

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

# OWENS CORNING AND
SUBSIDIARIESDEBTOR-IN-POSSESSION
STATEMENT OF CASH FLOWSFOR THE YEARS ENDED
DECEMBER 31, 2002, 2001 AND 2000

|                                                                        | 2002 | 2001 | 2000
|----------------------------------------------------------------------- | ---- | ---- | ----
|
|NET CASH FLOW FROM OPERATIONS                                          
|
|Net income (loss)                                                       |      |      | $   
|Reconciliation of net cash provided by (used in) operating activities   |      |     
|Noncash items:                                                          |      |     
|Provision (credit) for asbestos litigation claims                       |      |      |     
|Provision for depreciation and amortization                             |      |      |     
|Provision for impairment of fixed assets                                |      |      |     
|Provision (credit) for deferred income taxes                            |      |      |     
|Cumulative effect of accounting change                                  |      |      |     
|Other                                                                   |      |      |     
|Increase in receivables                                                 |      |      |     
|(Increase) decrease in inventories                                      |      |      |     
|Increase (decrease) in accounts payable and accrued liabilities         |      |      |     
|(Increase) decrease in restricted cash - asbestos and insurance related |      |      |     
|Change in liabilities subject to compromise                             |      |      |     
|Proceeds from insurance for asbestos litigation claims, excluding       |      |     
|Fibreboard                                                              |      |      |     
|Payments for asbestos litigation claims, excluding Fibreboard           |      |      |     
|Pension fund contribution                                               |      |      |     
|Other                                                                   |      |      |     
|                                                                        |      |      |     
|Net cash flow from operations                                           |      |      | $   
|                                                                        |      |      |     
|NET CASH FLOW FROM INVESTING                                            |      |     
|Additions to plant and equipment                                        |      |      |     
|Investment in non-debtor subsidiaries, net of cash acquired             |      |      |     
|Proceeds from liquidation of non-debtor subsidiaries                    |      |      |     
|Investment in non-debtor subsidiaries                                   |      |      |     
|Proceeds from the sale of subsidiary                                    |      |      |     
|Other                                                                   |      |      |     
|                                                                        |      |      |     
|Net cash flow from investing                                            |      |      | $   
|                                                                        |      |      |     

#  78 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

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

# OWENS CORNING AND
SUBSIDIARIESDEBTOR-IN-POSSESSION
STATEMENT OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 2002, 2001 AND 2000 (continued)

|                                               | 2002 | 2001 | 2000
|---------------------------------------------- | ---- | ---- | ----
|
|
|NET CASH FLOW FROM FINANCING                   |      |      |     
|Net additions to long-term credit facilities   |      |      | $   
|Other additions to long-term debt              |      |      |     
|Other reductions to long-term debt             |      |      |     
|Subject to compromise                          |      |      |     
|Dividends paid                                 |      |      |     
|Other                                          |      |      |     
|                                               |      |      |     
|Net cash flow from financing                   |      |      | $   
|                                               |      |      |     
|Net increase in cash and cash equivalents      |      |      |     
|Cash and cash equivalents at beginning of year |      |      |     
|                                               |      |      |     
|Cash and cash equivalents at end of year       |      |      | $   
|                                               |      |      |     

The amounts subject to compromise in the Consolidated and
Debtor-in-Possession Balance Sheets consist of the following items at December 31:

|                                                       | 2002 | 2001
|------------------------------------------------------ | ---- | ----
|
|
|Accounts payable                                       |      |     
|Accrued interest payable                               |      |     
|Accrued liabilities                                    |      |     
|Debt                                                   |      |     
|Income taxes payable                                   |      |     
|Reserve for asbestos litigation claims - Owens Corning |      |     
|Reserve for asbestos-related claims - Fibreboard       |      |     
|                                                       |      |     
|Total consolidated                                     |      |     
|Payables to non-Debtors                                |      |     
|                                                       |      |     
|Total Debtor                                           |      |     
|                                                       |      |     

#  79 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

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

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:

|                                                | 2002 | 2001 | 2000
|----------------------------------------------- | ---- | ---- | ----
|
|
|Accelerated amortization of debt issuance costs |      |      |     
|Professional fees                               |      |      |     
|Payroll and compensation                        |      |      |     
|Interest income                                 |      |      |     
|(Gain)/loss on settlement of claims             |      |      |     
|Other, net                                      |      |      |     
|                                                |      |      |     
|Total                                           |      |      | $   
|                                                |      |      |     

# 2.     SEGMENT DATA

During 2002, the
Company realigned its internal operating segments. Following this realignment, the
Company reviewed its segments in accordance with SFAS No. 131 and concluded that the
aggregation of its operating segments into two reportable segments is still appropriate;
however, certain components within the segments have changed. Net sales and income from
operations have been restated for all periods presented to reflect this change.
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:

|
|
|
|
|

|
|
|
|
|

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

#  80 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 2.    SEGMENT DATA
(continued)

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

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

|2002                                         | 2001 | 2000
|-------------------------------------------- | ---- | ----
|
|Reportable Segments                          |      |     
|                                             |      |     
|Building Materials Systems                   |      |     
|United States                                |      |     
|Europe                                       |      |     
|Canada and other                             |      |     
|                                             |      |     
|Total Building Materials Systems             |      |     
|                                             |      |     
|Composite Solutions                          |      |     
|United States                                |      |     
|Europe                                       |      |     
|Canada and other                             |      |     
|                                             |      |     
|Total Composite Solutions                    |      |     
|                                             |      |     
|Total reportable segments                    |      |     
|                                             |      |     
|External Customer Sales by Geographic Region |      |     
|                                             |      |     
|United States                                |      |     
|Europe                                       |      |     
|Canada and other                             |      |     
|                                             |      |     
|Net sales                                    |      |     
|                                             |      |     

#  81 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 2.    SEGMENT DATA
(continued)

|2002                                                 | 2001 | 2000
|---------------------------------------------------- | ---- | ----
|
|Reportable Segments                                  |      |     
|                                                     |      |     
|Building Materials Systems                           |      |     
|United States                                        |      |     
|Europe                                               |      |     
|Canada and other                                     |      |     
|                                                     |      |     
|Total Building Materials Systems                     |      |     
|                                                     |      |     
|Composite Solutions                                  |      |     
|United States                                        |      |     
|Europe                                               |      |     
|Canada and other                                     |      |     
|                                                     |      |     
|Total Composite Solutions                            |      |     
|                                                     |      |     
|Total reportable segments                            |      |     
|                                                     |      |     
|Geographic Regions                                   |      |     
|                                                     |      |     
|United States                                        |      |     
|Europe                                               |      |     
|Canada and other                                     |      |     
|                                                     |      |     
|Total reportable segments                            |      |     
|                                                     |      |     
|Reconciliation to Consolidated Income (Loss) Before  |      |     
|Income Tax Expense (Benefit)                         |      |     
|                                                     |      |     
|Restructuring and other charges (Note 5)             |      |     
|Chapter 11 related reorganization items (Note 1)     |      |     
|Provision for asbestos litigation claims (Note 19)   |      |     
|General corporate expense                            |      |     
|Cost of borrowed funds                               |      |     
|Other                                                |      |     
|                                                     |      |     
|Consolidated Income (Loss) Before Income Tax Expense |      |     
|(Benefit)                                            |      |     
|                                                     |      |     

#  82 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 2.     SEGMENT DATA
(continued)

|                                                   | December 31,
|-------------------------------------------------- | ------------
|TOTAL ASSETS                                      
|
|Reportable Segments                                |             
|                                                   |             
|Building Materials Systems                         |             
|United States                                      |             
|Europe                                             |             
|Canada and other                                   |             
|                                                   |             
|Total Building Materials Systems                   |             
|                                                   |             
|Composite Solutions                                |             
|United States                                      |             
|Europe                                             |             
|Canada and other                                   |             
|                                                   |             
|Total Composite Solutions                          |             
|                                                   |             
|Total Reportable Segments                          |             
|                                                   |             
|Reconciliation to Consolidated Total Assets        |             
|                                                   |             
|Restricted cash - asbestos and insurance related   |             
|Insurance for asbestos litigation claims           |             
|Deferred income taxes                              |             
|Income tax receivable                              |             
|Cash and cash equivalents                          |             
|Restricted cash, securities and other - Fibreboard |             
|Investments in affiliates                          |             
|LIFO inventory valuation adjustment                |             
|Corporate fixed assets and other assets            |             
|                                                   |             
|Consolidated Total Assets                          |             
|                                                   |             
|LONG-LIVED ASSETS BY GEOGRAPHIC REGION             |             
|                                                   |             
|United States                                      |             
|Europe                                             |             
|Canada and other                                   |             
|                                                   |             
|Total Long-Lived Assets                            |             
|                                                   |             

#  83 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 2.     SEGMENT DATA
(continued)

|                                                |  | 
|----------------------------------------------- |  | 
|AMORTIZATION                                   
|
|Reportable Segments                             |  | 
|                                                |  | 
|Building Materials Systems                      |  | 
|United States                                   |  | 
|Europe                                          |  | 
|Canada and other                                |  | 
|                                                |  | 
|Total Building Materials Systems                |  | 
|                                                |  | 
|Composite Solutions                             |  | 
|United States                                   |  | 
|Europe                                          |  | 
|Canada and other                                |  | 
|                                                |  | 
|Total Composite Solutions                       |  | 
|                                                |  | 
|Total reportable segments                       |  | 
|                                                |  | 
|Geographic Regions                              |  | 
|                                                |  | 
|United States                                   |  | 
|Europe                                          |  | 
|Canada and other                                |  | 
|                                                |  | 
|Total reportable segments                       |  | 
|                                                |  | 
|Reconciliation to Consolidated Provision for    |  | 
|Depreciation and Amortization                   |  | 
|                                                |  | 
|General Corporate Depreciation and Amortization |  | 
|                                                |  | 
|Consolidated Provision for Depreciation and     |  | 
|Amortization                                    |  | 
|                                                |  | 

#  84 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 2.     SEGMENT DATA
(continued)

|2002                                                  | 2001 | 2000
|----------------------------------------------------- | ---- | ----
|
|Reportable Segments                                   |      |     
|                                                      |      |     
|Building Materials Systems                            |      |     
|United States                                         |      |     
|Europe                                                |      |     
|Canada and other                                      |      |     
|                                                      |      |     
|Total Building Materials Systems                      |      |     
|                                                      |      |     
|Composite Solutions                                   |      |     
|United States                                         |      |     
|Europe                                                |      |     
|Canada and other                                      |      |     
|                                                      |      |     
|Total Composite Solutions                             |      |     
|                                                      |      |     
|Total Reportable Segments                             |      |     
|                                                      |      |     
|Geographic Regions                                    |      |     
|                                                      |      |     
|United States                                         |      |     
|Europe                                                |      |     
|Canada and other                                      |      |     
|                                                      |      |     
|Total Reportable Segments                             |      |     
|                                                      |      |     
|Reconciliation to Consolidated Additions to Plant and |      |     
|Equipment                                             |      |     
|                                                      |      |     
|General Corporate Additions                           |      |     
|                                                      |      |     
|Consolidated Additions to Plant and Equipment         |      |     
|                                                      |      |     

#  85 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 3.     LONG-TERM DEBT

|                                                                       | 2002 | 2001
|---------------------------------------------------------------------- | ---- | ----
|
|Long-Term Debt:                                                        |      |     
|Guaranteed debentures due in 2001, 10%                                 |      |     
|Term loan due 2009, 3 month LIBOR plus 1.5% (Note 6)                   |      |     
|Term loan due 2009, 10% (Note 6)                                       |      |     
|Asian credit facility due in 2003, variable interest rate ranging from |      |     
|LIBOR plus 0.6% to LIBOR plus 2.5%                                     |      |     
|Redeemable convertible debentures due 2010, 12.25% (Note 6)            |      |     
|Other long-term debt due through 2008, at rates from 7.24% to 11.45%   |      |     
|                                                                       |      |     
|                                                                       |      |     
|Less - current portion                                                 |      |     
|                                                                       |      |     
|Total long-term debt                                                   |      |     
|                                                                       |      |     
|Long-Term Debt Subject to Compromise:                                  |      |     
|U.S. credit facility due in 2002, variable                             |      |     
|Debentures due in 2018, 7.5%                                           |      |     
|Debentures due in 2005, 7.5%                                           |      |     
|Debentures due in 2009, 7.0%                                           |      |     
|Debentures due in 2008, 7.7%                                           |      |     
|Bonds due in 2000, 7.25%, payable in Deutsche marks (Note 18)          |      |     
|Debentures due in 2002, 8.875%                                         |      |     
|Debentures due in 2012, 9.375%                                         |      |     
|Other long-term debt due through 2012, at rates from 6.25% to 13.80%   |      |     
|                                                                       |      |     
|Total long-term debt subject to compromise                             |      |     
|                                                                       |      |     

Due to the Filing (see
Note 1), pre-petition long-term debt of the Debtors has been reclassified to the caption
Subject to Compromise in the above table and on the Consolidated Balance Sheet. From the
Petition Date through December 31, 2002, contractual interest expense not accrued or
recorded on pre-petition debt totaled $362 million, of which $140 million, $171 million
and $51 million relates to 2002, 2001 and 2000, respectively. At December 31, 2002 and
2001, the amounts shown under the caption Long-Term Debt in the table above
represent long-term debt of non-Debtor subsidiaries.

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. The interest rate applicable
is a floating rate varying from 0.75% to 2.00%, based upon the average daily outstanding
balance, plus LIBOR. The facility had a commitment fee on unused portions of 0.375% at
December 31, 2002 and 2001. The amount available under the facility depends on a
borrowing base of qualifying receivables and inventory of the Debtors, which did not
reduce the amount available at December 31, 2002. While the Company had no outstanding
borrowings from the facility at year-end 2002 or 2001, approximately $62 million and $40
million, respectively, of this facility was utilized at such times for standby letters of
credit and similar uses. Consequently, $188 million was available under this facility at
December 31, 2002. This facility has super priority in the bankruptcy proceeding.

The Asian credit
facility is payable in U.S. dollars and had a rate of interest at December 31, 2002 and
2001, of 1.98% and 2.53%, respectively. As a result of the Filing, the Company violated a
non-financial covenant of this facility and it is considered callable at the discretion
of the financial institution.

#  86 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 3.     LONG-TERM DEBT
(continued)

Consequently, the
liability has been reflected as current at December 31, 2002 and 2001. Subsequent to
December 31, 2002, the Company reached an agreement with the financial institution to
restructure this facility. In exchange for an allowed guarantee claim against the Debtors
of the full amount of the facility, the financial institution agreed to reduce the debt
of the responsible subsidiary by approximately $4 million, and extend the term of the
facility.

After the Filing, the
Company discontinued debt payments to its non-Debtor subsidiary responsible for the $42
million in guaranteed debentures due 2001. As this subsidiary has no assets other than
this intercompany receivable, it was unable to make required payments and is in default.
At December 31, 2002 and 2001, this instrument was classified as a current liability.

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.

The aggregate
maturities for all long-term debt issues for each of the five years following December
31, 2002 and thereafter are:

| | Year | (In millions of dollars)
| | ---- | ------------------------
|
| |      |                         
| |      |                         
| |      |                         
| |      |                         
| |      |                         
| |      |                         

# 4.     SHORT-TERM DEBT

|                                                   | 2002 | 2001
|-------------------------------------------------- | ---- | ----
|
|
|Balance outstanding at December 31                 |      |     
|Weighted average interest rates on short-term debt |      |     
|outstanding at December 31                         |      |     
|
|
|
|
|Balance outstanding at December 31                 |      |     

The Company had no
unused short-term lines of credit at December 31, 2002 and $6 million at December 31,
2001.

After the Filing, the
Company discontinued debt payments to its non-Debtor European subsidiary responsible for
$32 million in short-term debt. As this subsidiary has no assets other than this
intercompany receivable, it was unable to make required payments and is in default.

#  87 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

5.    
          RESTRUCTURING OF OPERATIONS AND OTHER CHARGES

# 2002 Charges

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

The $61 million
restructure charge includes $17 million of severance costs associated with the
elimination of approximately 830 positions due to plant closures in the U.S. and U.K. and
$18 million of severance costs associated with the elimination of approximately 349 other
positions, primarily impacting administrative personnel. As of December 31, 2002,
approximately 1,142 of these positions were actually eliminated. As of December 31, 2002,
approximately $11 million has been paid and charged against the reserve. The remaining
$26 million restructure charge represents the cost of closure of non-strategic
facilities, comprised of $24 million in non-cash asset write-downs to fair value and $2
million of other exit cost liabilities.

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

# 2001 Charges

The Company spent a
significant amount of time reviewing its cost structures in 2001 as a response to the
impact of the weaker economy. This review led the Company to record approximately $140
million in pretax charges during 2001, comprised of a $26 million pretax restructure
charge and $114 of pretax other charges. The $114 million of pretax other charges was
accounted for as a $79 million pretax charge to cost of sales and a $35 million pretax
charge to other operating expense. The Company recorded $46 million in the fourth
quarter, $35 million in the third quarter, $17 million in the second quarter and $42
million in the first quarter.

The $26 million
restructure charge represents $21 million of severance costs associated with the
elimination of approximately 460 positions, primarily in the United States and the United
Kingdom The primary groups impacted included manufacturing and administrative personnel.
As of December 31, 2002, approximately $20 million has been paid and charged against the
reserve. The remaining $5 million restructure charge represents a non-cash asset
write-down to fair value and exit cost liabilities.

#  88 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

5.    
          RESTRUCTURING OF OPERATIONS AND OTHER CHARGES

The $114 million of
pretax other charges included: (1) $39 million of asset impairments mainly associated
with the Building Materials segment to write-down assets to net estimated fair value on a
held in use basis in certain manufacturing facilities due to changes in the Companys
manufacturing and marketing strategies; (2) $29 million in costs associated with the
Companys plan to realign its Newark, OH manufacturing facility; (3) a charge of $6
million to write-down inventory to reflect updated estimates of the net realizable value
due to changes in the Companys manufacturing and marketing strategies; (4) a $2
million pretax loss from the sale of the Companys investment in its Pipe joint
ventures and subsidiaries; (5) a charge of $4 million to write-down the Companys
investment and related assets in Alcopor Owens Corning to net realizable value; and (6)
various other charges totaling $34 million.

# 2000 Charges

During 2000, the
Company recorded pretax charges of $229 million for restructuring and other activities as
a result of its reassessment of business strategies with respect to investments in
certain ventures, facilities and overhead expenditures. The $229 million pretax charge
was comprised of a $32 million charge associated with the restructuring of the Companys
business segments and $197 million of other charges, the majority of which represented
impairments of long-lived assets. In addition, the Company recorded a $6 million pretax
credit to minority interest resulting from charges related to a majority-owned
consolidated subsidiary. The components of the $32 million restructuring charge included
$16 million for personnel reductions, $10 million for the divestiture of non-strategic
businesses and facilities, and $6 million for asset impairments associated with the
planned closing of two lines at our Newark, Ohio manufacturing facility. This represented
the first phase of the Companys plan to realign operations at the Newark facility.

The $197 million of
other charges was comprised of $95 million of asset impairments, a $6 million charge for
a settlement loss associated with one of the Companys U.S. pension plans, and $96
million of charges focused on improving business operations and was accounted for as a
$77 million charge to cost of sales, a $114 million charge to other operating expenses
and a $6 million charge to marketing and administrative expenses. The $95 million of
asset impairments included: (1) $54 million to write-down the Companys investment
and related assets in Alcopor Owens Corning, a building materials joint venture in
Europe, to estimated fair value on a held for sale basis; (2) $12 million to write-down
the Companys investment in a venture in South Africa, on a held-in-use basis based
upon managements analysis of current and expected future financial results and
constraints on the Companys ability to fund future significant capital investments
in this entity as a consequence of the bankruptcy filing. This $12 million charge was
offset by a $6 million credit to record the minority owners share, recorded in the
minority interest line on the Consolidated Statement of Income (Loss); (3) $8 million to
write-down to fair value the investments in the Companys Pipe joint ventures and
subsidiaries on a held for sale basis; (4) $10 million to write-down the equity
investment in ImproveNet, due to a significant decrease inmarket value which
management believes is other than temporary; and (5) $11 million associated with asset
impairments within our Cultured Stone and other businesses.

The $96 million charge
consisted of $43 million to write-down inventory made obsolete by changes in the Companys
manufacturing and marketing strategies; $19 million to write-down equipment and
receivables; $15 million to increase warranty reserves due to general changes in
estimates associated with these reserves; and various other charges totaling $19 million
recorded as other operating expenses. As of December 31, 2002, approximately $15 million
has been paid and charged against the reserve for personnel reductions and approximately
$3 million has been charged against exit cost liabilities.

#  89 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

5.    
          RESTRUCTURING OF OPERATIONS AND OTHER CHARGES (continued)

The following table
summarizes the status of the liabilities from the 2002, 2001 and 2000 restructure
programs described above, including cumulative spending and adjustments and the remaining
balance as of December 31, 2002:

|                             |  | Facility and |  
|---------------------------- |  | ------------ | -
|
|
|Charges to expense           |  |              | $
|Payments                     |  |              |  
|                             |  |              |  
|Balance at December 31, 2000 |  |              |  
|Charges to expense           |  |              |  
|Payments                     |  |              |  
|                             |  |              |  
|Balance at December 31, 2001 |  |              |  
|Charges to expense           |  |              |  
|Payments                     |  |              |  
|                             |  |              |  
|Balance at December 31, 2002 |  |              | $
|                             |  |              |  

During 1997 and 1998,
the Company implemented a restructuring program related to closing manufacturing
locations and reducing overhead. As of December 31, 2002, approximately $15 million in
reserves remain and are primarily related to ongoing personnel severance costs.

The Company
continually evaluates whether events and circumstances have occurred that indicate that
the carrying amount of certain long-lived assets is recoverable. When factors indicate
that a long-lived asset should be evaluated for possible impairment, the Company uses an
estimate of the expected undiscounted cash flows to be generated by the asset to
determine whether the carrying amount is recoverable or if impairment exists. When it is
determined that an impairment exists, the Company uses the fair market value of the
asset, usually measured by the discounted cash flows to be generated by the asset, to
determine the amount of the impairment to be recorded in the financial statements.

# 6.     ACQUISITIONS AND
DIVESTITURES OF BUSINESSES

# Acquisition

In June 2002, the
Company received Bankruptcy Court approval to consummate the restructuring of the Companys
Indian joint venture, Owens-Corning (India) Limited (OCIL), a producer of
composite material. As part of the restructuring, the Company, through its wholly-owned
subsidiary, IPM Inc., contributed approximately $3 million of cash into OCIL and the
Company agreed to allow a guarantee claim in the amount of approximately $19 million in
its Chapter 11 proceedings in respect of OCILs junior debt. In addition, OCILs
senior debt maturities were extended, and its junior debt was converted to approximately
$7 million of redeemable convertible debentures. Through these restructuring efforts the
Companys ownership interest in OCIL increased from approximately 50% to
approximately 60%. The Company consolidated OCIL on July 1, 2002 when the restructuring
was consummated by all of the parties to the restructuring and approved by the Indian
Government, at which time the allowed claim of approximately $19 million was added to
Liabilities Subject to Compromise. The Company accounted for this transaction under the
purchase method of accounting, whereby the assets acquired and liabilities assumed,
including approximately $57 million of senior debt (consisting of approximately $33
million of debentures due in 2009 at a variable interest rate and approximately $24
million of debentures due in 2009

#  90 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

6.    
          ACQUISITIONS AND DIVESTITURES OF BUSINESSES (continued)

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

# Divestitures

In the fourth quarter
of 2001, the Company sold its remaining 40% interest in Alcopor Owens Corning, an
unconsolidated joint venture. The Company reduced its investment in the joint venture to
net realizable value during the third quarter of 2001. See Note 5 to the Consolidated
Financial Statements. Net proceeds on the divestiture were approximately $23 million, of
which approximately $9 million remained in escrow at December 31, 2001 and was received
in January 2002. As part of the divestiture, the Company was obligated to fund certain
U.K pension obligations in the amount of approximately $14 million.

During the first
quarter of 2001, the Company completed the sale of the majority of its Engineered Pipe
Business, a producer of glass-reinforced plastic pipe with operations mostly in Europe.
Net proceeds from the sale were $22 million.

During the second
quarter of 2000, the Company completed the sale of its European Building Materials
business to Alcopor Owens Corning, in which the Company had a 40% interest. Proceeds from
the sale, net of the Companys $34 million cash infusion into the joint venture,
were $177 million. In connection with this transaction, the joint venture assumed $62
million of debt from Owens Corning and the Company incurred fees of approximately $6
million, resulting in net cash proceeds of approximately $109 million. A pretax gain of
approximately $5 million, including a $54 million write-off of goodwill, was realized
from the sale. During the fourth quarter of 2000, the Company reduced its investment in
Alcopor Owens Corning to estimated net realizable value. See Note 5 to the Consolidated
Financial Statements.

The results of
operations of the European Building Materials business are reflected in the Companys
Consolidated Statement of Income (Loss) through the period ending May 31, 2000. For the
five months ended May 31, 2000, the European Building Materials business generated sales
of approximately $79 million, and income from operations of approximately $3 million.
Effective May 31, 2000, the Company accounted for its ownership interest in Alcopor Owens
Corning under the equity method.

During the first
quarter of 2000, the Company completed the sale of the assets of Falcon Foam, a producer
of foam insulation in Michigan and California. Net proceeds from the sale were $50
million and resulted in a pretax loss of approximately $5 million, including a $32
million write-off of goodwill.

# 7.     CONVERTIBLE MONTHLY
INCOME PREFERRED SECURITITIES

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.

#  91 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

7.    
          CONVERTIBLE MONTHLY INCOME PREFERRED SECURITITIES (continued)

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.

Distributions of $10
million ($6 million after-tax) for 2000 have been recorded net of tax as minority
interest on the Companys Consolidated Statement of Income (Loss).

# 8.     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 nonfunded 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 health care plans upon retirement under the Companys
pension plans if they have accumulated 10 years of service after age 45. Some of the
plans are contributory, with some retiree contributions adjusted annually. The Company
has reserved the right to change or eliminate these benefit plans subject to the terms of
collective bargaining agreements.

In accordance with
Statement of Financial Accounting Standards No. 132, Employers Disclosures
about Pensions and Other Postretirement Benefits, the following tables provide a
reconciliation of the changes in the accumulated postretirement benefits obligation and
the accrued benefits cost liability at December 31, 2002 and 2001:

|                                                                      | 2002 | 2001
|--------------------------------------------------------------------- | ---- | ----
|
|
|Change in Accumulated Postretirement Benefit Obligation               |      |     
|                                                                      |      |     
|Benefits obligation at beginning of period                            |      |     
|Service cost                                                          |      |     
|Interest cost                                                         |      |     
|Amendments                                                            |      |     
|Actuarial loss                                                        |      |     
|Currency (gain) loss                                                  |      |     
|Benefits paid                                                         |      |     
|                                                                      |      |     
|Benefits obligation at end of period                                  |      |     
|                                                                      |      |     
|Funded status                                                         |      |     
|Unrecognized net actuarial loss                                       |      |     
|Benefit payments net of additional accruals subsequent to             |      |     
|October 31, 2002 and 2001 valuation dates                             |      |     
|                                                                      |      |     
|Accrued benefit cost (includes current liabilities of $26 million and |      |     
|$25 million in 2002 and 2001, respectively)                           |      |     
|                                                                      |      |     
|Weighted-average assumptions as of December 31                        |      |     
|Discount rate                                                         |      |     

#  92 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 8.     POSTEMPLOYMENT AND
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (continued)

The following table
presents the components of net periodic benefits cost during 2002, 2001 and 2000:

|Components of net periodic benefit cost | 2002 | 2001 | 2000
|--------------------------------------- | ---- | ---- | ----
|
|
|Service cost                            |      |      | $   
|Interest cost                           |      |      |     
|Amortization of prior service cost      |      |      |     
|                                        |      |      |     
|Net periodic benefit cost               |      |      | $   
|                                        |      |      |     

For measurement
purposes, a 7  13% annual rate of increase in the per capita cost of covered health
care claims was assumed for 2003, varying by plan. The assumed rate decreases to 5  6%
by 2006. 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, 2002 and 2001:

|                                  | 2002 | 2001
|--------------------------------- | ---- | ----
|
|
|
|Effect on total of service and    |      |     
|interest cost components          |      |     
|Effect on accumulated             |      |     
|postretirement benefit obligation |      |     

The Company may also
provide benefits to former or inactive employees after employment but before retirement
under certain conditions. These benefits include, but are not limited to, salary
continuation, supplemental unemployment benefits, severance benefits, disability-related
benefits (including workers compensation), job training and counseling, and
continuation of benefits such as health care and life insurance coverage. The accrued
postemployment benefits cost liabilities at October 31, 2002 and 2001, as reflected on
the balance sheet at December 31, 2002 and 2001, were $35 million and $33 million,
respectively, including current liabilities of $4 million in both years. The net
postemployment benefits expense was approximately $8 million in 2002 and $4 million in
both 2001 and 2000.

# 9.     PENSION PLANS

The Company has
several defined benefit pension plans covering most employees. Under the plans, pension
benefits are generally based on an employees pay and number of years of service.
Company contributions to these pension plans are determined by an independent actuary to
meet or exceed minimum funding requirements. Plan assets consist primarily of equity
securities with the balance in fixed income investments. 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.

#  93 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 9.     PENSION PLANS
(continued)

In accordance with
Statement of Financial Accounting Standards No. 132, Employers Disclosures
about Pensions and Other Postretirement Benefits, the following tables provide a
reconciliation of the changes in the projected pension benefits obligation, the changes
in the pension plan assets, and the net pension liability at October 31, 2002 and 2001,
as reflected on the consolidated balance sheet at December 31, 2002 and 2001:

|Change in Projected Pension Benefit Obligation | 2002 | 2001
|---------------------------------------------- | ---- | ----
|
|
|Benefits obligation at beginning of period     |      |     
|Service cost                                   |      |     
|Interest cost                                  |      |     
|Amendments                                     |      |     
|Impact of curtailment                          |      |     
|Impact of foreign currency translation         |      |     
|Actuarial loss                                 |      |     
|Acquisitions                                   |      |     
|Employee contributions                         |      |     
|Benefits paid                                  |      |     
|                                               |      |     
|Benefits obligation at end of period           |      |     
|                                               |      |     

Benefits paid during
2002 and 2001 include payments resulting from the Companys restructuring program
and the sale of certain businesses (see Notes 5 and 6).

|Change in Pension Plan Assets                    | 2002 | 2001
|------------------------------------------------ | ---- | ----
|
|
|Fair value of plan assets at beginning of period |      |     
|Actual return on plan assets                     |      |     
|Impact of foreign currency translation           |      |     
|Employer contributions                           |      |     
|Acquisitions                                     |      |     
|Benefits paid                                    |      |     
|                                                 |      |     
|Fair value of plan assets at end of period       |      |     
|                                                 |      |     
|
|Funded status                                    |      |     
|Contributions subsequent to valuation date       |      |     
|Unrecognized net transition asset                |      |     
|Unrecognized net actuarial loss                  |      |     
|Unrecognized prior service cost                  |      |     
|                                                 |      |     
|Prepaid benefit cost                             |      |     
|                                                 |      |     

#  94 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 9.     PENSION PLANS
(continued)

|Amounts Recognized in the Consolidated Balance Sheet                   | 2002 | 2001
|---------------------------------------------------------------------- | ---- | ----
|
|
|Prepaid benefit cost                                                   |      |     
|Accrued  benefit  liability  (includes no current  liabilities in 2002 |      |     
|and $3 million in 2001)                                                |      |     
|Intangible asset                                                       |      |     
|Accumulated other comprehensive loss                                   |      |     
|Deferred tax asset                                                     |      |     
|                                                                       |      |     
|Net amount recognized                                                  |      |     
|                                                                       |      |     

The combination of a
decline in asset value, noted above, and decreases in the discount rate and expected
return on plan assets, noted below, caused a significant other comprehensive loss in
2002. The combination of a decline in asset value, and a decrease in the discount rate,
caused a significant other comprehensive loss in 2001.

|Weighted-average assumptions as of December 31 | 2002 | 2001
|---------------------------------------------- | ---- | ----
|
|
|Discount rate                                  |      |     
|Expected return on plan assets                 |      |     
|Rate of compensation increase                  |      |     

The following table
presents the components of net periodic pension cost during 2002, 2001 and 2000:

|Components of Net Periodic Pension Cost | 2002 | 2001 | 2000
|--------------------------------------- | ---- | ---- | ----
|
|
|Service cost                            |      |      | $   
|Interest cost                           |      |      |     
|Expected return on plan assets          |      |      |     
|Amortization of transition amount       |      |      |     
|Amortization of prior service cost      |      |      |     
|Amortization of net actuarial loss      |      |      |     
|Curtailment/settlement (gain) loss      |      |      |     
|                                        |      |      |     
|Net periodic benefit cost               |      |      | $   
|                                        |      |      |     

Certain of the Companys
pension plans have an accumulated benefit obligation (ABO) in excess of the
fair value of plan assets. The ABO and fair value of plan assets for such plans are
$1,115 million and $624 million, respectively, at October 31, 2002, and $1,046 million
and $761 million, respectively, at October 31, 2001.

Certain of the Companys
pension plans are not funded. The portion of the total projected benefit obligation
attributable to unfunded plans is approximately $7 million and $12 million at October 31,
2002 and 2001, respectively.

The Company also
sponsors defined contribution plans available to substantially all U.S. employees.
Company contributions reflect a matching of a percentage of employee savings up to a
maximum savings level and certain profit-sharing awards. The Company recognized expense
of $34 million in 2002, $31 million in 2001, and $26 million in 2000 for contributions to
these plans.

#  95 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 10.     INCOME TAXES

|                                                   | 2002 | 2001 | 2000
|-------------------------------------------------- | ---- | ---- | ----
|
|
|Income (loss) before income tax expense (benefit): |      |      |     
|
|U.S.                                               |      |      | $   
|Foreign                                            |      |      |     
|                                                   |      |      |     
|Total                                              |      |      | $   
|                                                   |      |      |     
|Income tax expense (benefit):                      |      |     
|Current                                            |      |     
|U.S.                                               |      |      | $   
|State and local                                    |      |      |     
|Foreign                                            |      |      |     
|                                                   |      |      |     
|Total current                                      |      |      |     
|
|Deferred                                           |      |     
|U.S.                                               |      |      |     
|State and local                                    |      |      |     
|Foreign                                            |      |      |     
|                                                   |      |      |     
|Total deferred                                     |      |      |     
|                                                   |      |      |     
|Total income tax expense (benefit)                 |      |      | $   
|                                                   |      |      |     

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

|                                                 | 2002 | 2001 | 2000
|------------------------------------------------ | ---- | ---- | ----
|
|
|U.S. federal statutory rate                      |      |      |     
|State and local income taxes, net of federal tax |      |     
|benefit                                          |      |      |     
|Foreign tax rate differential                    |      |      |     
|Change in valuation allowance                    |      |      |     
|Adjustment to estimated liability for tax claims |      |      |     
|Other, net                                       |      |      |     
|                                                 |      |      |     
|Effective tax rate                               |      |      |     
|                                                 |      |      |     

As of December 31,
2002, the Company has not provided for withholding or U.S. federal income taxes on
approximately $407 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
$124 million of deferred income taxes would have been provided.

#  96 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 10.     INCOME TAXES
(continued)

At December 31, 2002,
the Company had net operating loss carryforwards for certain of its foreign subsidiaries
and certain of its state tax jurisdictions, the tax benefit of which is approximately
$384 million. The following table details the expiration periods of the $384 million net
operating loss carryforwards:

|Period               | Carryforwards
|-------------------- | -------------
|
|
|2003-2007            |              
|2008-2012            |              
|2013-2017            |              
|2018-2022            |              
|Indefinite           |              
|                     |              
|Total deferred taxes |              
|                     |              

The cumulative
temporary differences giving rise to the deferred tax assets and liabilities at December
31, 2002 and 2001 are as follows:

|                             | 2002 | 2001
|---------------------------- | ---- | ----
|
|
|
|
|
|Asbestos litigation claims   |      |     
|Other employee benefits      |      |     
|Pension plans                |      |     
|Depreciation                 |      |     
|Operating loss carryforwards |      |     
|State and local taxes        |      |     
|Other                        |      |     
|                             |      |     
|Subtotal                     |      |     
|Valuation allowances         |      |     
|                             |      |     
|Total deferred taxes         |      |     
|                             |      |     

In 2002, the Company
increased its asbestos-related reserves through charges to income of $1.381 billion for
Owens Corning asbestos-related liabilities and $975 million for Fibreboard
asbestos-related liabilities, for an aggregate charge of $2.356 billion (see Note 19 to
the Consolidated Financial Statements). In connection with such charges, management
evaluated the amount of deferred tax assets attributable to such charges and also
assessed the likelihood of realization of such deferred tax assets in light of the Companys
financial position and the Chapter 11 proceedings. As the result of such assessment,
management determined that a valuation allowance was required for the full amount of such
attributable deferred tax assets. As a result, no tax benefit was recorded in connection
with the asbestos-related charges .

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

#  97 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 11.     ACCOUNTS RECEIVABLE
SECURITIZATION

In 2002, 2001 and
2000, the Company sold certain accounts receivable of certain European operations. At
December 31, 2002 and 2001, $10 million and $22 million, respectively, had been sold and
reflected as a reduction of accounts receivable in the Companys Consolidated
Balance Sheet.

The Company maintains
an allowance for doubtful accounts based upon the expected collectibility of all
consolidated trade accounts receivable, including receivables sold. Discounts on
receivables sold of $1 million for both of the years ended December 31, 2002 and 2001,
and $8 million for the year ended December 31, 2000, were recorded as other expenses on
the Companys Consolidated Statement of Income (Loss).

# 12.     INVENTORIES

Inventories are
summarized as follows:

|                         | 2002 | 2001
|------------------------ | ---- | ----
|
|
|Finished goods           |      |     
|Materials and supplies   |      |     
|                         |      |     
|FIFO inventory           |      |     
|Excess of FIFO over LIFO |      |     
|                         |      |     
|Total inventories        |      |     
|                         |      |     

Approximately $150
million and approximately $120 million of total inventories were valued using the LIFO
method at December 31, 2002 and 2001, respectively.

#  98 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 13.     INVESTMENTS IN
AFFILIATES

At December 31, 2002
and 2001, 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, include:

|    |  | Percent Ownership
|--- |  | -----------------
|
|
|    |  |                  
|    |  |                  
|    |  |                  
|    |  |                  
|    |  |                  
|(a) |  |                  
|(b) |  |                  
|    |  |                  
|    |  |                  
|    |  |                  
|(c) |  |                  
|

|(a) |  | During
2002,  the Company  increased its  ownership  interest in Owens Corning  (India)  Limited
 (India) to 60% and          began consolidating this subsidiary (see Note 6).
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) |  | As
of January 1, 2002,  the  Company's  ownership  interest in Owens Corning South Africa
(Pty) Ltd. was diluted due          to an additional investment by other investors and
the affiliate was deconsolidated from the financial statements.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) |  | Although
the Company's  ownership  interest in Vitro-Fibras,  S.A is 40% as of December 31, 2002,
this investment is          accounted for using the cost method because the Company
 determined that it does not have  significant  influence in          this affiliate.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|                                | 2002 | 2001 | 2000
|------------------------------- | ---- | ---- | ----
|
|At December 31:                 |      |      |     
|Current assets                  |      |      | $   
|Noncurrent assets               |      |      |     
|Current liabilities             |      |      |     
|Noncurrent liabilities          |      |      |     
|For the year ended December 31: |      |     
|Net sales                       |      |      |     
|Gross margin                    |      |      |     
|Net income (loss)               |      |      |     

The Companys
equity in undistributed earnings of affiliates was $3 million at December 31, 2002.

During 2002, the
Companys joint venture affiliate, Advanced Glassfiber Yarns, LLC filed a voluntary
petition for relief under Chapter 11 of the United States Bankruptcy Code. Owens Cornings
investment in this affiliate was written off during 2002, the effect of which was
approximately a $1 million loss recorded in the Consolidated Statement of Income (Loss).
The net loss generated during 2002 by this affiliate was responsible for a majority of
the net loss reflected above.

#  99 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 14.     ACCOUNTS PAYABLE AND
ACCRUED LIABILITIES

|                                           | 2002 | 2001
|------------------------------------------ | ---- | ----
|
|
|Accounts payable                           |      |     
|Payroll and vacation pay                   |      |     
|Payroll, property, and miscellaneous taxes |      |     
|Other employee benefits liability (Note 8) |      |     
|Restructure costs (Note 5)                 |      |     
|Other                                      |      |     
|                                           |      |     
|Total                                      |      |     
|                                           |      |     

# 15.     CONSOLIDATED
STATEMENT OF CASH FLOWS

Cash payments
(refunds) for income taxes and cost of borrowed funds are summarized as follows:

|                                | 2002 | 2001 | 2000
|------------------------------- | ---- | ---- | ----
|
|
|Income taxes                    |      |      | $   
|Cost of borrowed funds (Note 3) |      |      |     

The Company considers
all highly liquid debt instruments purchased with maturities of three months or less to
be cash equivalents.

As a result of the
Filing (see Note 1), contractual interest expense has not been paid on pre-petition debt
of the Debtors since the Petition Date.

During the year ended
December 31, 2000, gross payments for asbestos litigation claims filed against Fibreboard
were approximately $820 million, all of which were paid/reimbursed by Fibreboards
insurers or the Fibreboard Settlement Trust.

# 16.     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 $104 million in 2002, $124 million in 2001, and $185 million in
2000. At December 31, 2002, the minimum future rental commitments under noncancellable
leases with initial maturities greater than one year payable over the remaining lives of
the leases are:

| | Minimum Future
| | --------------
|
|
|
| |               
| |               
| |               
| |               
| |               
| |               
| |               
| |               
| |               

#  100 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

16.    
          LEASES (continued)

Pursuant to the
Bankruptcy Code, Owens Corning and the other Debtors in the Chapter 11 Cases may elect to
reject or assume unexpired pre-petition leases. The Debtors are currently reviewing the
leases for which such an election exists to determine whether they should be accepted or
rejected. The Bankruptcy Court has extended the time period within which the Debtors must
make their elections through June 4, 2003, 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.

# 17.     STOCK COMPENSATION
PLANS

During 2002, 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, 2002, the maximum number of shares available under the 95 Stock Plan for
stock awards was 770,411 shares. The following are descriptions of the awards granted
under the Employee Plans:

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 2002 or 2001. During 2000, stock options covering 1,531,244 shares
were awarded under the Employee Plans.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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, 2002, the Company had 96,088 shares of restricted stock outstanding. There
were no restricted stock grants in 2002 or 2001. During 2000, 11,000 shares of restricted
stock were granted. The weighted-average grant-date fair value for shares granted was
$15.37 for 2000.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

#  101 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 17.     STOCK COMPENSATION
PLANS (continued)

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,
2002, the Company had no performance restricted stock awards outstanding and none were
granted during 2002, 2001 or 2000.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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, 2002, the Company had
no performance units outstanding and none were granted during 2002, 2001 or 2000.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 2002 or 2001. In
2000, 638,541 shares were issued to employees.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 452,157 shares
were available under this plan at December 31, 2002. As of December 31, 2002, 24,259
deferred awards were outstanding. No options were issued in 2002, 2001 or 2000. In 2002,
no stock awards were granted; in 2001, 4,500 stock awards were granted and issued; in
2000, 5,000 stock awards were granted, 1,000 of which were issued. The weighted-average
grant-date fair value for shares granted in 2001 and 2000 was $2.24 and $17.97,
respectively.

The Company applies
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123), and Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure An Amendment of FAS No. 123 (SFAS 148), for disclosures of
its stock based compensation plans. The Company applies Accounting Principles Board
Opinion No. 25 and related Interpretations for expense recognition as permitted by SFAS
123 and SFAS 148. All stock options issued by the Company are exercisable at a price
equal to the market price at the date of grant. Accordingly, no compensation cost has
been recognized for any of the options granted under the Employee Plans. The compensation
cost that has been recorded for awards other than options was $2 million in 2002, less
than $1 million in 2001, and $1 million in 2000.

#  102 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 17.     STOCK COMPENSATION
PLANS (continued)

A summary of the
status of the Companys plans that issue options as of December 31, 2002, 2001, and
2000 and changes during the years ended on those dates is presented below:

|                      | 2002 |  | 2001 |           | 2000 |   |  |  |      
|--------------------- | ---- |  | ---- | --------- | ---- | - |  |  | -----
|
|
|
|
|
|Beginning of year     |      |  |      | 7,206,400 |      | $ |  |  | 33.27
|Options granted       |      |  |      | -         |      | $ |  |  | -    
|Options exercised     |      |  |      | -         |      | $ |  |  | -    
|Options canceled      |      |  |      | (716,526  | )    | $ |  |  | 32.20
|                      |      |  |      |           |      |   |  |  |      
|End of year           |      |  |      | 6,489,874 |      | $ |  |  | 33.39
|                      |      |  |      |           |      |   |  |  |      
|Exercisable           |      |  |      | 5,419,864 |      | $ |  |  | 35.79
|
|Weighted-average      |      | 
|fair-value of options |      | 
|granted during the    |      | 
|year                  |      |  |      |           |      | $ |  |  | -    

The following table
summarizes information about options outstanding at December 31, 2002:

|          | Options Outstanding | Options Exercisable
|--------- | ------------------- | -------------------
|
|
|
|
|$  14.187 | -                   | $  28.437          
|$  31.562 | -                   | $  34.812          
|$  34.875 | -                   | $  40.500          
|$  40.687 | -                   | $  44.750          
|$  44.875 | -                   | $  45.500          

The fair value of each
option granted in 2000 was estimated on the date of grant using the Black-Scholes
option-pricing model and the weighted-average assumptions shown below. No options were
granted in 2002 and 2001.

|Assumptions              | 2000  
|------------------------ | ------
|
|
|Risk-free interest rate  | 6.50% 
|Expected life (in years) | 5     
|Expected volatility      | 40.72%
|Expected dividends       | 0.00% 

#  103 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 17.     STOCK COMPENSATION
PLANS (continued)

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

|                                        | 2002 |  | 2001 |        | 2000
|--------------------------------------- | ---- |  | ---- | ------ | ----
|
|
|Net income (loss), as reported          |      |  | $    | (2,809 | )   
|Less - total stock-based employee       |      | 
|compensation expense determined under   |      | 
|fair value based method for all awards, |      | 
|net of related tax effects              |      |  |      | (4     | )   
|                                        |      |  |      |        |     
|Pro forma net income                    |      |  | $    | (2,813 | )   
|                                        |      |  |      |        |     
|                                        |      |  |      |        |     
|Basic net income (loss) per share       |      |  |      |        |     
|As reported                             |      |  | $    | (51.02 | )   
|Pro Forma                               |      |  | $    | (51.09 | )   
|                                        |      |  |      |        |     
|Diluted net income (loss) per share     |      |  |      |        |     
|As reported                             |      |  | $    | (51.02 | )   
|Pro Forma                               |      |  | $    | (51.09 | )   

The following table
reconciles the net income (loss) and weighted average number of shares used in the basic
earnings per share calculation to the net income (loss) and weighted average number of
shares used to compute diluted earnings per share.

|                                                   | 2002 |           | 2001 |               | 2000
|-------------------------------------------------- | ---- | --------- | ---- | ------------- | ----
|
|
|Net income (loss) used for basic and diluted       |      |           |      |               |     
|earnings per share                                 |      | $  (2,809 | )    | $          39 |     
|                                                   |      |           |      |               |     
|Weighted-average number of shares outstanding      |     
|used for basic earnings per share (thousands)      |      | 55,054    |      | 55,056        |     
|
|Non-vested restricted shares (thousands)           |      | -         |      | 299           |     
|
|Deferred awards (thousands)                        |      | -         |      | 24            |     
|
|Shares from assumed conversion of                  |     
|preferred securities (thousands) (see Note 7)      |      | -         |      | 4,566         |     
|                                                   |      |           |      |               |     
|Weighted-average number of shares outstanding and  |     
|common equivalent shares used for diluted earnings |     
|per share (thousands)                              |      | 55,054    |      | 59,945        |     
|                                                   |      |           |      |               |     

#  104 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 17.     STOCK COMPENSATION
PLANS (continued)

For the year ended
2002, the number of shares used in the calculation of diluted earnings per share did not
include 164 thousand common equivalent shares of non-vested restricted stock, 25 thousand
common equivalent shares of deferred awards and 4,566 thousand common equivalent shares
from assumed conversion of preferred securities due to their anti-dilutive effect. For
the year ended 2000, the number of shares used in the calculation of diluted earnings per
share did not include 468 thousand common equivalent shares of non-vested restricted
stock, 52 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.

# 18.     DERIVATIVE FINANCIAL
INSTRUMENTS AND FAIR VALUE OF FINANCIAL           INSTRUMENTS

# 

The Company is a party
to financial instruments in the normal course of business to reduce exposure to
fluctuating foreign currency exchange rates, interest rates, and commodity prices. The
Company is exposed to credit loss in the event of nonperformance by the other parties to
the financial instruments described below. However, the Company does not anticipate
nonperformance by the other parties. The Company does not engage in trading activities
with these financial instruments and does not generally require collateral or other
security to support these financial instruments. The amounts of derivatives summarized in
the foreign currency exchange risk and interest rate risk management section below do not
generally represent the amounts exchanged by the parties and, thus, are not a measure of
the exposure of the Company through its use of derivatives. The amounts exchanged were
calculated on the basis of the notional amounts and the other terms of the derivatives,
which relate to interest rates, exchange rates, securities prices, financial, or other
indices.

The Company performs
an ineffectiveness analysis of its financial instruments for each period based on 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 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.

The Company typically
enters into financial instruments with terms of less than one year. As of December 31,
2002, less than $1 million of gains on financial instruments included in accumulated
other comprehensive income in the Consolidated Balance Sheet will be reclassified as
earnings during the next twelve months. Transactions and events that are expected to
occur over the next twelve months and will necessitate reclassifying the derivative gains
as earnings include actual direct-foreign-export sales or import purchases and actual
purchases of natural gas.

#  105 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 18.     DERIVATIVE FINANCIAL
INSTRUMENTS AND FAIR VALUE OF FINANCIAL          INSTRUMENTS (continued)

The Company enters
into various types of derivative financial instruments to manage its foreign currency
exchange risk and interest rate risk, as indicated in the following table:

|                                    | Notional Amount                             | Notional Amount                           
|----------------------------------- | ------------------------------------------- | ------------------------------------------
|
|
|
|Forward currency exchange contracts | $  59                                       | $  30                                     
|Interest rate swaps                 | 41                                          | 19                                        
|Commodity future contracts          | 350,000   MMBTU  per  month for two months, | 540,000  MMBTU  per  month for nine months
|                                    | 250,000 MMBTU for one month                 |                                           

# Foreign Currency
Exchange Risk and Interest Rate Risk Management

The Company enters
into forward currency exchange contracts to manage its exposure against foreign currency
fluctuations on certain assets and liabilities denominated in foreign currencies. In the
fourth quarter of 2002, the Company entered into 5 contracts that exchanged approximately
8 million British pounds sterling to euros, approximately 50 million Norwegian krone to
U.S. dollars and approximately 1 million U.S. dollars to euros. As of December 31, 2002,
all of these contracts were outstanding. As of December 31, 2001, the Company had 2
forward currency exchange contracts outstanding that exchanged approximately 75 million
Norwegian krone and approximately 14 million euros. These contracts are considered highly
effective hedges, as the gains or losses on the contracts substantially offset the gain
or loss from currency value fluctuations. The Company accounts for the contracts as fair
value hedges and changes in the fair value are recorded as other income in the
Consolidated Statement of Income (Loss), the effect of which was not material during any
period. The fair value of these derivatives, which is recorded as an other current asset
in the Consolidated Balance Sheet was not material in any period.

The Company also
enters into forward currency exchange contracts to manage its exposure against foreign
currency fluctuations on certain future sales and purchases. In the fourth quarter, the
Company entered into a series of 12 monthly contracts that exchange approximately 12
million U.S. dollars to Canadian dollars, an additional 12 monthly contracts that
exchange approximately 12 million euros into U.S. dollars, and a contract that exchanged
approximately 4 million U.S. dollars to British pounds sterling. As of December 31, 2002,
all of these contracts were outstanding. These contracts are considered highly effective
hedges, as the gains or losses on the contracts substantially offset the gain or loss
from currency value fluctuations. The Company accounts for the contracts as cash flow
hedges and changes in the fair market value are recorded in other comprehensive income
(loss), except to the extent of ineffectiveness, which is recorded as other income in the
Consolidated Statement of Income (Loss). As of December 31, 2002, accumulated other
comprehensive income (loss) related to these contracts was a loss of less than $1
million, and the ineffectiveness recorded as other income (loss) was not material. The
fair value of these derivatives, which is recorded as an other current asset in the
Consolidated Balance Sheet, was not material in any period.

#  106 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 18.     DERIVATIVE FINANCIAL
INSTRUMENTS AND FAIR VALUE OF FINANCIAL           INSTRUMENTS (continued)

During 2001, the
Company also entered into a foreign currency exchange contract to reduce its exposure to
certain U.S. dollar denominated debt instruments in China. The 2001 contract, which
matured in the first quarter of 2002, exchanged approximately 83 million Chinese renminbi
against approximately 10 million U.S. dollars. During the first quarter of 2002, the
Company entered into a new contract that exchanged 83 million Chinese renminbi against
approximately 10 million U.S. dollars. During the third quarter, the Company entered into
a new contract that exchanged approximately 83 million Chinese renminbi against 10
million U.S. Dollars, which remained outstanding at December 31, 2002. These contracts
effectively extended the hedge of U.S. dollar denominated debt entered into in 2001.
These contracts are considered highly effective hedges, as the gains or losses on the
contracts substantially offset the gain or loss from currency value fluctuations. The
Company accounts for the contracts as fair value hedges and changes in the fair value are
recorded as other income in the Consolidated Statement of Income (Loss), the effect of
which was not material during any period. The fair value of these derivatives, which is
recorded as an other current asset in the Consolidated Balance Sheet, was not material in
any period.

During 2002 and 2001,
the Company invested excess cash in South America in Brazilian certificates of deposit,
treasury bonds and debentures. At the same time these investments were made, an
equivalent amount of Brazilian real was swapped into U.S. dollars at a U.S. dollar
interest rate with matching investment amounts and maturity dates. The purpose of these
swap contracts is to reduce the impact of changes in the Brazilian real and U.S. dollar
exchange rates. At December 31, 2002, there were 49 such cross-currency interest rate
swap contracts outstanding at a notional amount of $41 million U.S. dollars. At December
31, 2001, there were 18 such cross-currency interest rate swap contracts outstanding at a
notional amount of $19 million U.S. dollars. These contracts are considered highly
effective hedges, as the gains or losses on the contracts substantially offset the gain
or loss from currency value fluctuations. The Company accounts for the contracts as fair
value hedges and changes in the fair market value are recorded in other comprehensive
income (loss), except to the extent of ineffectiveness, which is recorded as other income
in the Consolidated Statement of Income (Loss), the effect of which was not material
during any period. The fair value of these derivatives, which is recorded as an other
current asset in the Consolidated Balance Sheet, was not material in any period.

# Commodity Risk Management

During the fourth
quarter of 2002, the Company entered into 3 swap agreements for 950,000 MMBTUs of
natural gas to hedge its exposure to fluctuating natural gas prices. These contracts
expire during the first quarter of 2003. These contracts are accounted for as cash flow
hedges and changes in the fair market value are recorded in other comprehensive income
(loss), except to the extent of ineffectiveness, which is recorded as other income in the
Consolidated Statement of Income (Loss). At December 31, 2002, the accumulated other
comprehensive income related to the contracts was approximately $1 million and the
ineffectiveness recorded as other income in the Consolidated Statement of Income (Loss)
was not material. The fair value of these derivatives, which is recorded as an other
current asset in the Consolidated Balance Sheet, was approximately $1 million.

During 2001, the
Company entered into a swap contract for 4,860,000 MMBTUs of natural gas to hedge
its exposure to fluctuating commodity prices. The contract expired during the third
quarter of 2002. At December 31, 2001, accumulated other comprehensive income (loss)
related to the contract was a loss of approximately $2 million and the ineffectiveness
recorded as other income (loss) in the Consolidated Statement of Income (Loss) was not
material. The fair value of these derivatives, which is recorded as an other current
liability in the Consolidated Balance Sheet, was a loss of approximately $2 million.

#  107 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 18.     DERIVATIVE FINANCIAL
INSTRUMENTS AND FAIR VALUE OF FINANCIAL          INSTRUMENTS (continued)

# 

# Other Financial
Instruments with Off-Balance-Sheet Risk

As of December 31,
2002 and December 31, 2001, the Company was contingently liable for guarantees of
indebtedness owed by certain unconsolidated affiliates of approximately $6 million and
$38 million, respectively. As of December 31, 2002, and December 31, 2001, approximately
$4 million and $34 million, respectively, of such indebtedness was alleged to be in
default as a result of the Filing. Included in such indebtedness as of December 31, 2001
was approximately $19 million owed by Owens-Corning (India) Limited, which was
consolidated during the third quarter of 2002 (see Note 6). 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.

There is no market for
the guarantees of indebtedness discussed above, and they were issued without explicit
cost. Therefore, it is not practicable to establish their fair value.

# Concentrations of Credit
Risk

As of December 31,
2002 and 2001, the Company has no significant group concentrations of credit risk.

# Fair Value of Financial
Instruments

The following methods
and assumptions were used to estimate 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
estimated 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
estimated by traded market values or by obtaining quotations from brokers.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Long-term
notes receivable

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

#  108 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 18.     DERIVATIVE FINANCIAL
INSTRUMENTS AND FAIR VALUE OF FINANCIAL          INSTRUMENTS (continued)

Long-term
debt

| | The
fair value of the Companys long-term debt, which is not subject to compromise, has
been estimated 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 which is
subject to compromise at December 31, 2002, due to the uncertainties associated with the
Filing.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

The estimated fair
values of the Companys financial instruments as of December 31, 2002 and 2001,
which have fair values different than their carrying amounts, are as follows:

|                           | 2002   | 2001   |       |      
|-------------------------- | ------ | ------ | ----- | -----
|
|
|
|
|Assets                     |        |        |       |      
|Long-term notes receivable | $    7 | $    7 | $  26 | $  26
|
|Liabilities               
|Long-term debt             | 71     | 71     | 5     | 5    

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

As of December 31,
2002 and 2001, 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, it is not practicable to establish their fair
value.

#  109 

# OWENS CORNING AND
SUBSIDIARIESNOTES 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). Owens Corning expects that all pending and future
asbestos claims against Owens Corning and Fibreboard will be resolved pursuant to a plan
or plans of reorganization. Owens Corning is unable to determine at this time whether
asbestos-related claims asserted against Fibreboard will be treated in the same manner as
those asserted against Owens Corning in any such plan or plans ultimately confirmed.

As more fully
discussed in Note 1 and under the heading Reserve below, the Debtors,
together with the Official Committee of Asbestos Claimants and the Legal Representative
for the class of future asbestos claimants, filed on March 28, 2003 a proposed amended
joint plan of reorganization for the Debtors, that provides for two alternative
frameworks for creditor recoveries. Ultimately, as described more fully under the heading
Reservebelow, it is anticipated that Owens Cornings total liability for
asbestos claims will be determined after a lengthy period of negotiations and, if
necessary, by the Bankruptcy Court, taking into account numerous factors not present in
the Companys pre-petition environment. Such factors include the claims of competing
creditor groups as to the appropriate treatment of their allowed claims in the plan or
plans of reorganization, the size of the total asbestos liability, the total number of
present asbestos claims allowed, the total amount of future asbestos claims allowed, and
the impact of the Administrative Consolidation.

# 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.

#  110 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 19.     CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

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

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

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

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

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

# Non-NSP Claims

As of the Petition
Date, approximately 29,000 asbestos personal injury claims were pending against Owens
Corning outside the NSP. This compares to approximately 25,000 such claims pending on
December 31, 1999. The information needed for a critical evaluation of pending claims,
including the nature and severity of disease and definitive identifying information
concerning claimants, typically becomes available only through the discovery process or
as a result of settlement negotiations, which often occur years after particular claims
are filed. As a result, Owens Corning has limited information about many of such claims.

#  111 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 19.     CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

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

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

# Asbestos-Related Payments

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

|                                                       |  | 2000 (through
|------------------------------------------------------ |  | -------------
|
|
|
|
|
|Pre-NSP Settlements                                    |  |              
|NSP Settlements                                        |  |              
|Non-NSP Settlements                                    |  |              
|Defense, Claims Processing and Administrative Expenses |  |              
|                                                       |  |              
|                                                       |  |              
|                                                       |  |              

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, 2002, 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).

#  112 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 19.     CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

At this time, Owens
Corning is unable to predict what the treatment of funds held in Undistributed
Administrative Deposits will ultimately be under the terms of any plan or plans of
reorganization. However, in 2001, the holder of approximately $49 million of
Undistributed Administrative Deposits for Owens Corning (and approximately $28 million of
similar Undistributed Administrative Deposits for Fibreboard) filed a motion with the
Bankruptcy Court requesting an order authorizing distribution of the deposits it holds (Subject
Deposits) to the escrow beneficiaries. As the result of hearings held on June 20
and July 22, 2002, the Bankruptcy Court has ruled that escrow beneficiaries that had
received both written notice of approval for payment and an initial payment from the
Subject Deposits prior to the Petition Date would be entitled to receive their remaining
payments (plus post-judgment interest after June 20, 2002) from the principal of the
Subject Deposits, with the balance of the Subject Deposits, if any, plus any other
investment proceeds to be returned to Owens Corning (or Fibreboard, as appropriate) as
contributor of the deposits. The creditors committee representing unsecured
creditors and the Legal Representative for the class of future asbestos claimants have
each filed a notice of appeal from the order.

# Reserve

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

As of December 31,
2002, a reserve of approximately $3.6 billion in respect of Owens Cornings
asbestos-related liabilities was one of the items included in Owens Cornings
consolidated balance sheet under the category Liabilities Subject to Compromise.
For periods prior to the Petition Date, these liabilities were reflected as current or
other liabilities (depending on the period in which payment was expected) under the
category Reserve for asbestos litigation claims.

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

As one example of the
difficulties inherent in estimating future asbestos claims, Owens Corning notes that the
Manville Personal Injury Settlement Trust, a trust established to settle asbestos claims
against Johns Manville Corporation, announced in June 2001 that it was reducing its
initial settlement distributions by fifty percent on the basis of the continued record
pace of asbestos claim filings and the prediction of its consultants that the trust might
receive 1.5 to 2.5 million additional claims.

#  113 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 19.     CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

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

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

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

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

| |  | The impact, if any, the Administrative Consolidation will have on the timing, outcome or
other aspects of the Chapter 11 Cases.
|- |  | -------------------------------------------------------------------------------------------------------------------------------

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

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

#  114 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 19.     CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

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

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

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

None of the creditor
constituencies has yet made available to Owens Corning any such analysis of liability for
pre-petition or future asbestos claims. However, based upon its recent discussions and
negotiations with representatives of the creditor constituencies, Owens Corning believes
that some of these creditor analyses associated with the resolution of Owens Cornings
and Fibreboards asbestos-related liabilities in the context of the Chapter 11
proceedings will be well in excess of Owens Cornings and Fibreboards current
asbestos-related reserves. For example, the Official Committee of Asbestos Claimants and
the Legal Representative for the class of future asbestos claimants have taken the
position that the aggregate amount of pre-petition and future asbestos claims for Owens
Corning and Fibreboard, on a combined net present value basis, is in excess of $16
billion. In addition, in October 2002, Owens Corning and Fibreboard completed their own
analyses of liability for purposes of facilitating plan discussions, which, as to future
asbestos claims, were prepared by an outside consultant experienced in estimating
asbestos-related claims in asbestos-related bankruptcies. These analyses indicate net
present values for pre-petition and future asbestos claims of Owens Corning and
Fibreboard combined of approximately

#  115 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 19.     CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

$5.874 billion, if NSP
settlement values are assumed, and $8.547 billion, if 5-year historical settlement values
for Owens Corning and Fibreboard, respectively, are used. Based upon these analyses and
the information derived from Owens Cornings discussions and negotiations with the
various creditor constituencies concerning their relative positions on the terms of an
acceptable plan of reorganization, Owens Corning decided, in connection with its
financial statements for the third quarter of 2002, to increase its and Fibreboards
aggregate asbestos-related reserve to the lower of the two net present value numbers
indicated by Owens Cornings and Fibreboards analyses. Consequently, Owens
Corning increased its reserves for the period ended September 30, 2002, through charges
to income of $1.381 billion for Owens Corning asbestos-related liabilities and $975
million for Fibreboard asbestos-related liabilities, for an aggregate charge of $2.356
billion. In addition, since the reserve for Fibreboard asbestos-related liabilities
exceeds the funds held in the Fibreboard Settlement Trust, the residual amount payable to
charity under the terms of the Trust (see Note 20) was reduced to zero as of September
30, 2002.

As noted above and in
Note 1, the Debtors, together with the Official Committee of Asbestos Claimants and the
Legal Representative for the class of future asbestos claimants, filed on March 28, 2003
a proposed amended joint plan of reorganization for the Debtors, that provides two
alternative frameworks for creditor recoveries. One such alternative, that would apply in
the event that the Plan were approved by the major creditor constituencies, would assume
an aggregate liability for current and future asbestos personal injury claims against
Owens Corning and Fibreboard of $16 billion (on a net present value basis), composed of
$10.7 billion for Owens Corning and $5.3 billion for Fibreboard. Under the other
alternative, such liabilities would be determined by the Bankruptcy Court as part of the
confirmation hearing on the Plan. Although Owens Corning believes that estimates in the
amounts reflected in the first alternative are supportable, it is currently anticipated
that the number and estimated aggregate value of current and future claims will
ultimately be determined as a result of negotiations involving the Official Committee of
Asbestos Claimants, the Legal Representative of the class of future asbestos claimants
and other interested constituencies or, if necessary, by the Bankruptcy Court. It is not
possible to predict the outcome of such negotiations at this time. In recent discussions,
for example, the bank and bond creditor groups have continued to assert that such
aggregate liability approximates the amount of Owens Cornings existing reserves.
Ultimately, Owens Cornings (and Fibreboards) total liability for asbestos
claims will be finally determined after a lengthy period of negotiations and, if
necessary, by the Bankruptcy Court, taking into account numerous factors not present in
the Companys pre-petition environment. Such factors include the claims of competing
creditor groups as to the appropriate treatment of their allowed claims in the plan or
plans of reorganization, the size of the total asbestos liability, the total number of
present asbestos claims allowed, the total amount of future asbestos claims allowed, and
the impact of the Administrative Consolidation.

At December 31, 2002,
the approximate balances of the components of Owens Cornings asbestos-related
reserve were:

|                                         | Balance   
|---------------------------------------- | ----------
|
|
|
|
|Unpaid Final Settlements (NSP and other) | $     0.60
|Other Pending and Future Claims          | 3.00      

#  116 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 19.     CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

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

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

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

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

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). Owens Corning expects that all pending and future asbestos claims against Owens
Corning and Fibreboard will be resolved pursuant to a plan or plans of reorganization.
Owens Corning is unable to determine at this time whether asbestos-related claims
asserted against Fibreboard will be treated in the same manner as those asserted against
Owens Corning in any such plan or plans ultimately confirmed.

As discussed in Item A
above, 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 March 28, 2003 a proposed amended joint plan of reorganization for
the Debtors (including Fibreboard) that provides two alternative frameworks for creditor
recoveries. One such alternative, that would apply in the event that the Plan were
approved by the major creditor constituencies, would assume an aggregate liability for
current and future asbestos personal injury claims against Owens Corning and Fibreboard
of $16 billion (on a net present value basis), composed of $10.7 billion for Owens
Corning and $5.3 billion for Fibreboard. Under the other alternative, such liabilities
would be determined by the Bankruptcy Court as part of the confirmation hearing on the
Plan. Although Owens Corning believes that estimates in the

#  117 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 19.     CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

amounts reflected in
the first alternative are supportable, it is currently anticipated that the number and
estimated aggregate value of current and future claims will ultimately be determined as a
result of negotiations involving the Official Committee of Asbestos Claimants, the Legal
Representative of the class of future asbestos claimants and other interested
constituencies or, if necessary, by the Bankruptcy Court. It is not possible to predict
the outcome of such negotiations at this time. In recent discussions, for example, the
bank and bond creditor groups have continued to assert that such aggregate liability
approximates the amount of Owens Cornings existing reserves. Ultimately, Owens
Cornings (and Fibreboards) total liability for asbestos claims will be
finally determined after a lengthy period of negotiations and, if necessary, by the
Bankruptcy Court, taking into account numerous factors not present in the Companys
pre-petition environment. Such factors include the claims of competing creditor groups as
to the appropriate treatment of their allowed claims in the plan or plans of
reorganization, the size of the total asbestos liability, the total number of present
asbestos claims allowed, the total amount of future asbestos claims allowed, and the
impact of the Administrative Consolidation.

# National Settlement
Program Claims

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

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

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

# Non-NSP Claims

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

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

#  118 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 19.     CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

# 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, is final and is
not subject to appeal.

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,
2002, the Insurance Settlement funds were held in and invested by the Fibreboard
Settlement Trust. As of that date, $1.238 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) 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, 2002, these assets were reflected as non-current assets, under the category
Restricted cash, securities and other  Fibreboard. See Note 20 for
additional information concerning the Fibreboard Settlement Trust.

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

# 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)
|------------------------------------------------------ | ------------------------------
|
|
|
|
|Pre-NSP Settlements                                    |                               
|NSP Settlements                                        |                               
|Non-NSP Settlements                                    |                               
|Defense, Claims Processing and Administrative Expenses |                               
|                                                       |                               
|                                                       |                               
|                                                       |                               

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

#  119 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 19.     CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

# Reserve

Owens Corning
estimates a reserve for Fibreboard in accordance with generally accepted accounting
principles to reflect asbestos-related liabilities. As described in Item A above, this
reserve was increased in the third quarter of 2002 through a charge to income of $975
million. As of December 31, 2002, a reserve of approximately $2.3 billion in respect of
these asbestos-related liabilities was one of the items included in Owens Cornings
consolidated balance sheet under the category Liabilities Subject to Compromise.
For periods prior to the Petition Date, they were reflected as current or other
liabilities (depending on the period in which payment was expected) under the category
Asbestos-related liabilities  Fibreboard.

As noted in Item A
above as to Owens Corning, the estimate of Fibreboards liabilities for pending and
expected future asbestos claims is subject to considerable uncertainty because such
liabilities are influenced by numerous variables that are inherently difficult to
predict, and such uncertainties significantly increased as a result of the Filing,
including those set forth in Item A above. In addition, as noted above, the Debtors filed
on March 28, 2003 a proposed amended joint plan of reorganization for the Debtors
(including Fibreboard) that provided for two alternative frameworks for creditor
recoveries. One such alternative, in the context of a consensual framework, specified an
aggregate liability for current and future asbestos personal injury claims against Owens
Corning and Fibreboard of $16 billion (on a net present value basis) composed of $10.7
billion for Owens Corning and $5.3 billion for Fibreboard. Under the other alternative,
such liabilities would be determined by the Bankruptcy Court as part of the confirmation
hearing on the proposed plan. Although Owens Corning believes that estimates in the
amounts reflected in the first alternative are supportable, it is currently anticipated
that the number and estimated aggregate value of current and future claims will
ultimately be determined as a result of negotiations involving the Official Committee of
Asbestos Claimants, the Legal Representative of the class of future asbestos claimants
and other interested constituencies or, if necessary, by the Bankruptcy Court. It is not
possible to predict the outcome of such negotiations at this time. In recent discussions,
for example, the bank and bond creditor groups have continued to assert that such
aggregate liability approximates the amount of Owens Cornings existing reserves.
Ultimately, Fibreboards (and Owens Cornings) total liability for asbestos
claims will be finally determined after a lengthy period of negotiations and, if
necessary, by the Bankruptcy Court, taking into account numerous factors not present in
the Companys pre-petition environment. In light of the above, at this time Owens
Corning is unable to predict what the treatment of funds held in the Fibreboard
Settlement Trust and in Undistributed Administrative Deposits in respect of Fibreboard
claims will be under the terms of any plan or plans of reorganization ultimately
confirmed.

At December 31, 2002,
the approximate balances of the components of the Fibreboard asbestos-related reserve
were:

|                    | Balance
|------------------- | -------
|
|
|
|
|Pre-NSP Settlements |        
|NSP Settlements     |        

#  120 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 19.     CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

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

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

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

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

ITEM C.  OTHER
ASBESTOS-RELATED MATTERS

# Tax Legislation

As previously
reported, on April 4, 2001, the United States House of Representatives introduced
proposed legislation (HR 1412, also known as the Asbestos Tax Fairness Act) to exempt
income earned by qualifying asbestos-related settlement funds, including qualifying
trusts established under Section 524(g) of the Bankruptcy Code, from federal income tax.
The exemption from income tax would have benefited the Fibreboard Settlement Trust
(described in Note 20) by having the effect of enlarging the corpus of the trust through
tax-free income accumulation. In addition, the legislation would have allowed asbestos
defendants to carry-back net operating losses (NOLs) created by asbestos
payments to the years in which the products containing asbestos were produced or
distributed (and to each subsequent year) in order to obtain a refund of federal income
taxes paid in those periods. In the case of Owens Corning, this would have entitled the
Company to carry-back its NOLs to the early 1950s. On June 14, 2001, a companion bill
identical to HR 1412 was introduced in the United States Senate (S 1048).

Despite strong
bipartisan support for both bills, Congress did not act on them before it adjourned in
late 2002, at which time both bills lapsed. Consequently, similar legislation will be
considered in the current Congress only if newly introduced.

#  121 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 19.     CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

# 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. Owens
Corning and Fibreboard are pursuing litigation against tobacco companies (discussed
below) 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. There can be no assurance that any such litigation will go to trial or be
successful.

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 Company has appealed such
dismissal to the Supreme Court of Mississippi.

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.

# Insurance

As of December 31,
2002, Owens Cornings financial statements reflect $4 million in unexhausted
insurance coverage (net of deductibles and self-insured retentions) under its liability
insurance policies applicable to asbestos personal injury claims. This amount represented
unconfirmed potential non-products coverage with excess level insurance carriers, as to
which Owens Corning had estimated its probable recoveries.

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

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

#  122 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 19.     CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

# Other Matters

SECURITIES 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. The Company believes that the claim is without merit. The named
defendants in this proceeding have each filed contingent indemnification claims with
respect to this litigation against Owens Corning pursuant to the General Bar Date process
described below.

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.
Owens Corning is not named in the lawsuit. The suit purports to be a class action for
securities fraud under sections 10(b) and 20(a) of the Securities Exchange Act of 1934,
on behalf of a class comprised of persons who purchased stock of Owens Corning during the
period from September 20, 1999, through October 5, 2000. The complaint seeks an
unspecified amount of damages and/or, where appropriate, rescission. 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. The Company believes that these claims are without
merit. The named defendants in these proceedings have each filed contingent
indemnification claims with respect to this litigation against Owens Corning pursuant to
the General Bar Date process described below.

GENERAL BAR DATE CLAIMS

In connection with the
Chapter 11 Cases, the Bankruptcy Court set April 15, 2002 as the last date by which
holders of certain pre-petition claims against the Debtors must file their claims (the
General Bar Date). The General Bar Date does not apply to asbestos-related
personal injury claims and asbestos-related wrongful death claims (other than claims for
contribution, indemnity, reimbursement, or subrogation). Approximately 24,000 proofs of
claim (including the claims described below under the headings PBGC Claim and
Tax Claim), totaling approximately $16.1 billion, alleging a right to payment
from a Debtor were filed with the Bankruptcy Court in response to the General Bar Date.
For further information concerning these claims, please see Note 1, under the heading
General Bar Date.

#  123 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 19.     CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

PBGC CLAIM

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

TAX CLAIM

Owens Cornings
federal income tax returns typically are audited by the Internal Revenue Service (IRS)
in multi-year audit cycles. The audit for the years 1992-1995 was completed in late 2000.
Due to the Filing, the IRS also accelerated and completed the audit for the years ended
1996-1999 by March of 2001. As the result of these audits and unresolved issues from
prior audit cycles, the IRS is asserting claims for approximately $390 million in income
taxes plus interest of approximately $175 million.

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

As described in Note
1, under the heading General Bar Date, the United States Department of
Treasury has filed proofs of claim, totaling approximately $530 million, in connection
with these tax claims.

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

AVOIDANCE ACTIONS

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

#  124 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 19.     CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

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

The Debtors have
executed tolling agreements with all 12 present and former officers, the director and the
affiliate of the Company, as well as with certain other parties identified as having
received potentially avoidable transfers.

The additional 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; (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.

Separately, and at the
request of the Debtors Official Creditors Committee and the direction of the
Bankruptcy Court, the Debtors either obtained tolling agreements from, or filed actions
against, approximately 115 law firms that entered into NSP or non-NSP agreements with the
Debtors on behalf of claimants asserting asbestos-related personal injury or wrongful
death claims. Lawsuits were brought 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. The Official Creditors Committee was named as a
defendant in such lawsuits, solely with respect to the declaratory relief sought.

By motion filed on or
about October 16, 2002, the Debtors sought an order of the Bankruptcy Court staying all
of the foregoing litigation pending its disposition in a plan of reorganization. Pursuant
to order of the Bankruptcy Court dated January 17, 2003, all of the foregoing litigation,
other than the action relating to the avoidance of certain guarantees and certain
preferential payments made in connection with Owens Cornings Pre-Petition Credit
Facility, has been stayed until April 28, 2003, at which time the court will consider
whether such stay should be further extended. The Debtors action relating to the
avoidance of certain guarantees and certain preferential payments made in connection with
Owens Cornings Pre-Petition Credit Facility is scheduled for trial before the
District Court commencing in April 2003.

#  125 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 20.     FIBREBOARD
SETTLEMENT TRUST

Under the Insurance
Settlement described in Note 19, 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, 2002, the Insurance
Settlement funds were held in and invested by the Fibreboard Settlement Trust (the Trust).
On an ongoing basis, the funds held in the Trust will be subject to investment
earnings/losses and will be reduced if and as applied to satisfy Fibreboard
asbestos-related liabilities. Under the terms of the Trust, any Trust assets that
ultimately are not used to fund Fibreboards asbestos-related liabilities must be
distributed to charity. Based on currently available information, Owens Corning does not
believe that any such assets will remain for distribution at the conclusion of the
Chapter 11 cases.

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

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

# General Accounting
Treatment

The assets of the
Trust are comprised of cash and marketable securities (collectively, the Trust
Assets) and, with Fibreboards Undistributed Administrative Deposits, are
reflected on Owens Cornings consolidated balance sheet as restricted assets. At
December 31, 2002, 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, Part B). As of December
31, 2002, these liabilities were one of the items included in Owens Cornings
consolidated balance sheet under the category Liabilities Subject to Compromise.
For periods prior to the Petition Date, they were reflected as current or other
liabilities (depending on the period in which payment was expected) under the category
Asbestos-related liabilities  Fibreboard. At December 31, 2002, the
Consolidated Financial Statements reflect Fibreboards reserve for asbestos
litigation claims at $2.310 billion.

For accounting
purposes, the Trust Assets are classified from time to time as trading securities,
available for sale, or held to maturity 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 and available for
sale are recorded at fair market value and marketable securities designated as held to
maturity are recorded at amortized cost. At December 31, 2002 and 2001, substantially all
marketable securities were classified as trading securities.

Through the third
quarter of 2002, any unrealized increase/decrease in fair market value was reflected as a
change in the carrying amount of the asset on the Consolidated Balance Sheet as well as
other income/expense on the Consolidated Statement of Income (Loss). Subsequent to the
third quarter of 2002, any unrealized increase/decrease in fair market value is reflected
as an increase/decrease in the carrying amount of such assets on the Consolidated Balance
Sheet as well as a decrease/increase in Chapter 11 related reorganization items on the
Consolidated Statement of Income (Loss).

#  126 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 20.     FIBREBOARD
SETTLEMENT TRUST (continued)

Through the third
quarter of 2002, any earnings and realized gains/losses on the Trust Assets were
reflected as an increase/decrease in the carrying amount of such assets on the
Consolidated Balance Sheet as well as other income/expense on the Consolidated Statement
of Income (Loss). Subsequent to the third quarter of 2002, any earnings and realized
gains/losses are reflected as an increase/decrease in the carrying amount of such assets
on the Consolidated Balance Sheet as well as a decrease/increase in Chapter 11 related
reorganization items on the Consolidated Statement of Income (Loss). Cost for purposes of
computing realized gains/losses is determined using the specific identification method.

Through the third
quarter of 2002, the residual obligation to charity, included in liabilities subject to
compromise on the Consolidated Balance Sheet, increased/decreased, with the related
decrease/increase to other expense/income on the Consolidated Statement of Income (Loss).
As of September 30, 2002, the residual obligation to charity was reclassified to
Fibreboards reserve for asbestos litigation claims as the liability exceeded the
Trust Assets, thus no amounts were recorded to the residual obligation to charity
subsequent to that date.

# Results for the Periods
Ending December 31, 2002 and 2001

During 2002 and 2001,
Trust Assets generated interest/dividend earnings of approximately $54 million and
approximately $55 million, respectively, which have been recorded as an increase in the
carrying amount of the assets on the Consolidated Balance Sheet. The $55 million
generated during 2001 was reflected as other income on the Consolidated Statement of
Income (Loss). Of the $54 million generated during 2002, $40 million was generated during
the first three quarters of 2002, which was reflected as other income on the Consolidated
Statement of Income (Loss) and $14 million was generated during the fourth quarter of
2002, which was recorded as Chapter 11 related reorganization items on the Consolidated
Statement of Income (Loss). Through the third quarter of 2002 and the year ended 2001,
this income was offset by an equal charge to other expense, which represented an increase
in the residual obligation to charity.

At December 31, 2002
and 2001, the fair market value adjustment for those securities designated as trading
securities resulted in an unrealized gain of approximately $20 million and approximately
$1 million, respectively, which have been recorded as an increase in the carrying amount
of the assets on the Consolidated Balance Sheet. The $1 million generated during 2001 was
reflected as other income on the Statement of Income (Loss). Of the $20 million generated
during 2002, $21 million was generated during the first three quarters of 2002, which was
reflected as other income on the Consolidated Statement of Income (Loss) and a loss of $1
million was generated during the fourth quarter of 2002, which was recorded as Chapter 11
related reorganization items on the Consolidated Statement of Income (Loss). Through the
third quarter of 2002 and the year ended 2001, the income was offset by an equal charge
to other expense, which represented an increase in the residual obligation to charity.

As a result of the
Filing, no payments for asbestos litigation claims from the Trust have been made
subsequent to that date. However, approximately $2 million and $12 million was paid
during 2002 and 2001 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 2002 and 2001 resulted in a realized loss of $4 million and a realized gain
of $4 million, respectively. Realized gains or losses from the sale of securities are
reflected on the Companys financial statements in the same manner as actual returns
on Trust Assets, described above.

At December 31, 2002,
the fair value of Trust Assets and Administrative Deposits was $1,365 million, which was
comprised of Trust Assets of $1,238 million of marketable securities and Administrative
Deposits of $127 million.

#  127 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 20.     FIBREBOARD
SETTLEMENT TRUST (continued)

The table below
summarizes Trust and Administrative Deposits activity for the year ended December 31,
2002:

|                                              |  | Interest | Unrealized | Realized |   |   |    | 
|--------------------------------------------- |  | -------- | ---------- | -------- | - | - | -- | 
|
|
|
|
|Assets                                        |  |          |            |          |   |   |    | 
|Cash                                          |  |          | $          | (18      | ) | $ | -  | 
|Marketable securities:                        |  |         
|Trading Securities                            |  |          |            | 1,169    |   |   | 54 | 
|                                              |  |          |            |          |   |   |    | 
|Total Trust assets                            |  |          |            | 1,151    |   |   | 54 | 
|                                              |  |          |            |          |   |   |    | 
|Administrative Deposits                       |  |          |            | 133      |   |   | -  | 
|                                              |  |          |            |          |   |   |    | 
|Total assets                                  |  |          | $          | 1,284    |   | $ | 54 | 
|                                              |  |          |            |          |   |   |    | 
|Liabilities                                   |  |         
|Accounts payable                              |  |          | $          | -        |   | $ | -  | 
|Asbestos litigation claims                    |  |          |            | 1,213    |   |   | -  | 
|Residual obligation to charity                |  |          |            | 71       |   |   | 40 | 
|                                              |  |          |            |          |   |   |    | 
|Total Trust liabilities                       |  |          |            | 1,284    |   |   | 40 | 
|
|Liabilities in excess of Trust Assets         |  |          |            | -        |   |   | 14 | 
|                                              |  |          |            |          |   |   |    | 
|Total liabilities less excess of Trust Assets |  |          | $          | 1,284    |   | $ | 54 | 
|                                              |  |          |            |          |   |   |    | 

#  128 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 20.     FIBREBOARD
SETTLEMENT TRUST (continued)

The table below
summarizes Trust and Administrative Deposits activity for the year ended December 31,
2001:

|                               |  |  | Net |       |  |   |   
|------------------------------ |  |  | --- | ----- |  | - | --
|
|
|
|
|
|Assets                         |  |  |     |       |  |   |   
|Cash                           |  |  | $   | 12    |  | $ | - 
|Marketable Securities:         |  | 
|Trading Securities             |  |  |     | 1,092 |  |   | 55
|                               |  |  |     |       |  |   |   
|Total Trust Assets             |  |  |     | 1,104 |  |   | 55
|                               |  |  |     |       |  |   |   
|Administrative Deposits        |  |  |     | 170   |  |   | - 
|                               |  |  |     |       |  |   |   
|Total assets                   |  |  | $   | 1,274 |  | $ | 55
|                               |  |  |     |       |  |   |   
|Liabilities                    |  | 
|Asbestos Litigation Claims     |  |  | $   | 1,250 |  | $ | - 
|Residual obligation to charity |  |  |     | 24    |  |   | 55
|                               |  |  |     |       |  |   |   
|Total liabilities              |  |  | $   | 1,274 |  | $ | 55
|                               |  |  |     |       |  |   |   

#  129 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 21.     QUARTERLY FINANCIAL
INFORMATION (unaudited)

|                                                   | Quarter |  |   |      
|-------------------------------------------------- | ------- |  | - | -----
|
|
|
|
|
|2002                                               |         |  |   |      
|Net sales                                          |         |  | $ | 1,107
|Cost of sales                                      |         |  |   | 935  
|                                                   |         |  |   |      
|Gross margin                                       |         |  | $ | 172  
|                                                   |         |  |   |      
|Provision for asbestos litigation claims (Note 19) |         |  | $ | -    
|                                                   |         |  |   |      
|Income (loss) from operations                      |         |  | $ | 3    
|                                                   |         |  |   |      
|Tax Provision (credit)                             |         |  | $ | -    
|                                                   |         |  |   |      
|Net income (loss) before cumulative effect         |         | 
|of change in accounting principle                  |         |  | $ | (6   
|                                                   |         | 
|Cumulative effect of change in                     |         | 
|accounting principle, net of tax (Note 22)         |         |  |   | (441 
|                                                   |         |  |   |      
|Net income (loss)                                  |         |  | $ | (447 
|                                                   |         |  |   |      
|Net income (loss) per share:                       |         | 
|Basic net income (loss) per share                  |         |  | $ | (8.11
|                                                   |         |  |   |      
|Diluted net income (loss) per share                |         |  | $ | (8.11
|                                                   |         |  |   |      

|(a) | The Companys Form 10-Q for the first quarter of 2002 reported results
               without the cumulative effect of change in accounting principle. This charge was
               determined in the second quarter of 2002 and recorded in the first quarter as
               required by Statement of Financial Accounting Standards No. 142, Goodwill
               and Other Intangible Assets (see Note 22).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    | Quarter |  |   |      
|----------------------------------- | ------- |  | - | -----
|
|
|
|
|2001                                |         |  |   |      
|Net sales                           |         |  | $ | 1,067
|Cost of sales                       |         |  |   | 896  
|                                    |         |  |   |      
|Gross margin                        |         |  | $ | 171  
|                                    |         |  |   |      
|Income (loss) from operations       |         |  | $ | (17  
|                                    |         |  |   |      
|Tax Provision (credit)              |         |  | $ | (5   
|                                    |         |  |   |      
|Net income (loss)                   |         |  | $ | (10  
|                                    |         |  |   |      
|Net income (loss) per share:        |         | 
|Basic net income (loss) per share   |         |  | $ | (0.19
|                                    |         |  |   |      
|Diluted net income (loss) per share |         |  | $ | (0.19
|                                    |         |  |   |      

#  130 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 22.     GOODWILL AND OTHER
INTANGIBLES

Effective January 1,
2002, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets (SFAS No. 142), which it uses to account
for goodwill and other intangible assets. SFAS No. 142 eliminates the amortization of
goodwill and indefinite-lived intangible assets; identifiable intangible assets with a
determinable useful life will continue to be amortized. SFAS No. 142 requires an annual
review for impairment using a fair value methodology.

The Company applied
SFAS No. 142 beginning in the first quarter of 2002, which required the Company to cease
amortizing goodwill and indefinite-lived intangibles. The Company has no indefinite-lived
intangibles, separately identified. In addition, the Company tested goodwill for
impairment using the two-step process prescribed in SFAS No. 142. The first step is a
screen for potential impairment. The second step, which is performed on those reporting
units determined to have potential impairment based on the first step, measures the
amount of the impairment, if any. The results of the first step indicated that the
carrying values of some reporting units exceeded the corresponding fair values, which
were determined based on the discounted estimated future cash flows of the reporting
units. In the second step, the implied fair value of goodwill of these reporting units
was determined through the allocation of the fair value to the underlying assets and
liabilities. The January 1, 2002 carrying value of the goodwill in these reporting units
exceeded their implied fair value by $491 million, resulting in a non-cash charge of $491
million ($441 million net of tax). This charge was determined during the second quarter
of 2002 and, as required by SFAS No. 142, was recorded as a cumulative effect of a change
in accounting principle in the first quarter of 2002. The goodwill recorded in the
December 31, 2001 financial statements, which included the $491 million described above,
was supported by the undiscounted estimated future cash flow of the related operations in
accordance with Statement of Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.

The Company completed
the required annual review for impairment, utilizing a discounted cash flow method, in
the fourth quarter of 2002. The test indicated that no additional impairment of goodwill
and other indefinite-lived intangible assets occurred in 2002.

To maintain a
consistent basis for measurement of performance, the Company reclassified previously
reported segment information related to goodwill and total assets to correspond to the
earnings measurements by which the businesses are evaluated. Accordingly, approximately
$15 million of goodwill as of January 1, 2002, was reclassified to the Building Materials
Systems segment from the Composite Solutions segment. Previously reported segment
information has been revised to reflect this change (see Note 2).

The changes in
goodwill by segment during the year ended December 31, 2002, were as follows:

|                    |  |  | Effect of |     |  |   |      |   |  
|------------------- |  |  | --------- | --- |  | - | ---- | - | -
|
|
|
|
|
|
|
|Composite Solutions |  |  | $         |     |  | $ | -    |   | $
|Building Materials  |  |  |           | 577 |  |   | (491 | ) |  
|                    |  |  |           |     |  |   |      |   |  
|Total               |  |  | $         | 610 |  | $ | (491 | ) | $
|                    |  |  |           |     |  |   |      |   |  

#  131 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 22.     GOODWILL AND OTHER
INTANGIBLES (continued)

SFAS No. 142 does not
provide for restatement of our results of operations for periods ending prior to January
1, 2002. A reconciliation of the previously reported net income and earnings per share as
if SFAS No. 142 had been adopted prior to January 1, 2000 is presented as follows:

|                                            | Year Ended December 31, |  |  
|------------------------------------------- | ----------------------- |  | -
|
|
|
|
|Net income (loss):                          |                         |  |  
|Reported net income (loss)                  |                         |  | $
|Add back cumulative effect of change in     |                         | 
|accounting principle, net of tax            |                         |  |  
|Add back goodwill amortization, net of tax  |                         |  |  
|                                            |                         |  |  
|Adjusted net income (loss)                  |                         |  | $
|                                            |                         |  |  
|Basic earnings (loss) per share:            |                         |  |  
|As reported                                 |                         |  | $
|Add back cumulative effect of change in     |                         | 
|accounting principle, net of tax            |                         |  |  
|Add back goodwill amortization, net of tax  |                         |  |  
|                                            |                         |  |  
|Adjusted basic earnings (loss) per share:   |                         |  | $
|                                            |                         |  |  
|Diluted earnings (loss) per share:          |                         |  |  
|As reported                                 |                         |  | $
|Add back cumulative effect of change in     |                         | 
|accounting principle, net of tax            |                         |  |  
|Add back goodwill amortization, net of tax  |                         |  |  
|                                            |                         |  |  
|Adjusted Diluted earnings (loss) per share: |                         |  | $
|                                            |                         |  |  

Substantially all of
the Companys acquired other intangible assets are subject to amortization. Other
intangible asset amortization expense was approximately $4 million in 2002 and $5 million
in 2001. The Company estimates that amortization of other intangible assets will be
approximately $4 million for each of the next five years. The components of other
intangible assets are as follows:

|                  | December 31, 2002 |  | 
|----------------- | ----------------- |  | 
|
|
|
|
|Contract-based    |                   |  | 
|Technology-based  |                   |  | 
|Marketing-related |                   |  | 
|                  |                   |  | 
|                  |                   |  | 
|                  |                   |  | 

#  132 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 23.     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 year ended December 31, 2002 is as follows:

|                                       | (In millions of dollars,
|-------------------------------------- | ------------------------
|
|
|
|
|Balance at December 31, 2001           |                         
|Amounts accrued for current year       |                         
|Adjustments of prior accrual estimates |                         
|Settlements of warranty claims         |                         
|                                       |                         
|Balance at December 31, 2002           |                         
|                                       |                         

# 24.     ACCOUNTING
PRONOUNCEMENTS

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

Effective January 1,
2002, the Company adopted Statement of Financial Accounting Standards No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. This Statement addresses
financial accounting and reporting for the impairment or disposal of long-lived assets
and had no material impact on the Companys financial statements upon adoption. This
Statement supersedes FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting
and reporting provisions of APB Opinion No. 30, Reporting the Results of
Operations, Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the
disposal of a segment of a business (as previously defined in that Opinion). This
Statement also amends ARB No. 51, Consolidated Financial Statements, to
eliminate the exception to consolidation for a subsidiary for which control is likely to
be temporary.

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

#  133 

# OWENS CORNING AND
SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)

# 24.     ACCOUNTING
PRONOUNCEMENTS (continued)

Effective January 1,
2003, the Company will adopt Statement of Financial Accounting Standards No. 146, Accounting
for Costs Associated with Exit or Disposal Activities. This Statement addresses
financial accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)". This Statement requires that
a liability for a cost associated with an exit or disposal activity be recognized and
measured initially at fair value only when the liability is incurred. The accounting for
similar events and circumstances will be the same, thereby improving the comparability
and representational faithfulness of reported financial information. The prospective
effects of adoption are not expected to be material to the Company.

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

In December 2002, the
Financial Accounting Standards Board issued Statement of Financial Accounting Standards
No. 148 Accounting for Stock-Based Compensation  Transition and Disclosure
 an amendment of FASB Statement No. 123". Effective December 31, 2002, the
Company adopted the amendments to Statement 123 provided in paragraphs 2(a)-2(e) of this
Statement. Effective January 1, 2003, the Company will adopt the amendment to Statement
123 provided in paragraph 2(f) of this Statement, and the amendment to Opinion 28
provided in paragraph 3. The effect of adoption will not be material to the Company.

In January 2003, the
Financial Accounting Standards Board issued Interpretation No. 46, Consolidation of
Variable Interest Entities  an interpretation of ARB No. 51". Effective July
1, 2003, the Company will adopt the provisions of this Interpretation which requires the
primary beneficiary in a variable interest entity to consolidate the entity, even if the
primary beneficiary does not have a majority voting interest, for variable interest
entities existing prior to January 31, 2003. Effective January 31, 2003, the Company will
adopt the consolidation requirements of this Interpretation for any variable interest
entity created on or after that date. Effective December 31, 2002, the Company adopted
the requirements of this Interpretation for entities to disclose information regarding
guarantees or exposures to loss relating to any variable interest entity existing prior
to January 31, 2003 in financial statements issued after January 31, 2003. The Company
has certain entities which are potentially subject to the consolidation requirements of
this Interpretation; however, the effects of consolidation, if necessary, would not be
material to the Company. The prospective effects of adoption are not expected to be
material to the Company.

#  134 

# INDEX TO FINANCIAL
STATEMENT SCHEDULES

|Number | Description                                                       | Page
|------ | ----------------------------------------------------------------- | ----
|       |                                                                   |     
|       | Report of Independent Accountants on Financial Statement Schedule | 135 
|       |                                                                   |     
|II     | Valuation and Qualifying Accounts and Reserves                   |     
|       | for the years ended December 31, 2002, 2001, and 2000             | 136 
|       |                                                                   |     

#  135 

# Report of Independent
Accountants on Financial Statement Schedule

To the Board of
Directors and Stockholders of Owens Corning:

Our audit of the
December 31, 2002 consolidated financial statements referred to in our report dated
February 6, 2003 appearing in this Annual Report on Form 10-K of Owens Corning also
included an audit of the December 31, 2002 financial statement schedule information
listed in Item 15(a)(2) of this Form 10-K. In our opinion, this 2002 financial statement
schedule information presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial statements. The
2001 and 2000 financial statement schedule information of Owens Corning was audited by
other independent accountants who have ceased operations. Those independent accountants
expressed an unqualified opinion on that financial statement schedule information in
their report dated January 23, 2002.

/s/
PricewaterhouseCoopers LLP

Toledo, OhioFebruary 6,
2003

#  136 

# OWENS CORNING AND
SUBSIDIARIESSCHEDULE II 
VALUATION AND QUALIFYING ACCOUNTS AND RESERVESFOR THE YEARS ENDED
DECEMBER 31, 2002, 2001 AND 2000

|                              |  | Additions |   |    |  |  
|----------------------------- |  | --------- | - | -- |  | -
|
|
|
|
|
|FOR THE YEAR ENDED            |  |           |   |    |  |  
|DECEMBER 31, 2002:            |  |          
|Allowance deducted from       |  |          
|asset to which it applies -   |  |          
|Doubtful accounts             |  |           | $ | 29 |  | $
|Tax valuation allowance       |  |           |   | 81 |  |  
|Reserve to which it applies - |  |          
|Restructure costs             |  |           |   | 25 |  |  
|
|FOR THE YEAR ENDED            |  |           |   |    |  |  
|DECEMBER 31, 2001:            |  |          
|Allowance deducted from       |  |          
|asset to which it applies -   |  |          
|Doubtful accounts             |  |           | $ | 29 |  | $
|Reserve to which it applies - |  |          
|Restructure costs             |  |           |   | 25 |  |  
|
|FOR THE YEAR ENDED            |  |           |   |    |  |  
|DECEMBER 31, 2000:            |  |          
|Allowance deducted from       |  |          
|asset to which it applies -   |  |          
|Doubtful accounts             |  |           | $ | 26 |  | $
|Reserve to which it applies - |  |          
|Restructure costs             |  |           |   | 21 |  |  

Notes:

(A)    Uncollectible
accounts written off, net of recoveries.(B)    Cash payments.(C)    Includes
non-current liabilities of $11 million.(D)    Includes non-current
          liabilities of $15 million.(E)    Includes non-current
liabilities of $7 million.

#  137 

# EXHIBIT INDEX

|Exhibit |                     
|------- | --------------------
|Number  | Document Description

(2)       
          Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession.

| | Amended
Joint Plan of Reorganization of Owens Corning and Its Affiliated Debtors and
Debtors-In-Possession, filed in the United States Bankruptcy Court for the District of
Delaware on March 28, 2003 (incorporated herein by reference to Exhibit (2) to Owens
Cornings current report on Form 8-K (File No. 1-3660), filed March 28, 2003).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Joint
Plan of Reorganization of Owens Corning and Its Affiliated Debtors and
Debtors-In-Possession, filed in the United States Bankruptcy Court for the District of
Delaware on January 17, 2003 (incorporated herein by reference to Exhibit (2) to Owens
Cornings current report on Form 8-K (File No. 1-3660), filed January 17, 2003).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(3)       
          Articles of Incorporation and By-Laws.

| | (i) | Certificate of Incorporation of Owens Corning, as amended (incorporated herein
          by reference to Exhibit (3) to Owens Cornings quarterly report on Form
          10-Q (File No. 1-3660) for the quarter ended March 31, 1997).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) | By-Laws
of Owens Corning, as amended (incorporated herein by reference to Exhibit (3) to Owens
Cornings annual report on Form 10-K (File No. 1-3660) for the year 1999).
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(4)       
          Instruments Defining the Rights of Security Holders, Including Indentures.

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

| | 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 (filed herewith).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 (filed herewith).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

#  138 

# EXHIBIT INDEX

|Exhibit |                     
|------- | --------------------
|Number  | Document Description

| | Final
Order Under 11 U.S.C. §§ 105, 345(b) and 363 (I) Authorizing (A) Maintenance of
Certain Existing Bank Accounts, (B) Continued Use of Existing Business Forms, (C) Use of
Modified Cash Management System, and (D) Transfers of Funds to Debtor and Non-Debtor
Affiliates; and (II) Waiving Investment and Deposit Requirements of 11 U.S.C. §
345(b) (incorporated herein by reference to Exhibit (4) to Owens Cornings annual
report on Form 10-K (File No. 1-3660) for the year ended December 31, 2001).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following documents are incorporated herein by reference to Exhibit (4) to Owens
Cornings annual report on Form 10-K (File No. 1-3660) for the year ended December
31, 2000:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | License Agreement, made as of October 1, 1991, between Owens Corning and Owens-Corning
Fiberglas Technology Inc., and Amendment thereto, dated as of December 8, 1993.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Standstill Agreement, dated as of January 30, 2001, between Owens Corning and
Owens-Corning Fiberglas Technology Inc.
| | - | ---------------------------------------------------------------------------------------------------------------------

| |  | License  Agreement,  made as of April 27, 1999,  between  Owens-Corning  Fiberglas  Technology  Inc.  and  AmeriMark
                               Building Products, Inc. (now Exterior Systems, Inc.).
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Standstill  Agreement,  dated as of January 30, 2001,  between Exterior Systems,  Inc. and  Owens-Corning  Fiberglas
                               Technology Inc.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Indenture,
dated as of May 5, 1997, between Owens Corning and The Bank of New York, as Trustee
(incorporated herein by reference to Exhibit 4.5.1 to Owens Cornings current report
on Form 8-K (File No. 1-3660), filed May 14, 1997).
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Credit
Agreement, dated as of June 26, 1997, among Owens Corning, other Borrowers and Guarantors,
the Banks listed on Annex A thereto, and Credit Suisse First Boston, as Agent
(incorporated herein by reference to Exhibit (4) to Owens Cornings quarterly report
on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 1997), as amended by
Amendment No. 1 thereto (incorporated herein by reference to Exhibit (4) to Owens
Cornings annual report on Form 10-K (File No. 1-3660) for the year ended December
31, 1997) and Amendment No. 2 thereto (incorporated herein by reference to Exhibit (4) to
Owens Cornings annual report on Form 10-K (File No. 1-3660) for the year ended
December 31, 1998).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Owens
Corning agrees to furnish to the Securities and Exchange Commission, upon request, copies
of all instruments defining the rights of holders of long-term debt of Owens Corning where
the total amount of securities authorized under each issue does not exceed ten percent of
Owens Cornings total assets.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(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 (filed as Exhibit (4) to this annual report on Form 10-K and incorporated
herein by reference).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

#  139 

# EXHIBIT INDEX

|Exhibit |                     
|------- | --------------------
|Number  | Document Description

| | Standstill
and Waiver Agreement among Owens Corning, certain affiliates of Owens Corning, Credit
Suisse First Boston, and certain bank lenders (incorporated herein by reference to Exhibit
(99) to Owens Cornings quarterly report on Form 10-Q (File No. 1-3660) for the
quarter ended June 30, 2001), as amended by Amendment No. 1 thereto, dated as of November
25, 2002 (filed as Exhibit (4) to this annual report on Form 10-K and incorporated herein
by reference).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following documents are incorporated herein by reference to Exhibit (4) to Owens
Cornings annual report on Form 10-K (File No. 1-3660) for the year ended December
31, 2000:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | License Agreement, made as of October 1, 1991, between Owens Corning and Owens-Corning
Fiberglas Technology Inc., and Amendment thereto, dated as of December 8, 1993.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Standstill Agreement, dated as of January 30, 2001, between Owens Corning and
Owens-Corning Fiberglas Technology Inc.
| | - | ---------------------------------------------------------------------------------------------------------------------

| |  | License  Agreement,  made as of April 27, 1999,  between  Owens-Corning  Fiberglas  Technology  Inc.  and  AmeriMark
                               Building Products, Inc. (now Exterior Systems, Inc.).
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Standstill  Agreement,  dated as of January 30, 2001,  between Exterior Systems,  Inc. and  Owens-Corning  Fiberglas
                               Technology Inc.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Credit
Agreement, dated as of June 26, 1997, among Owens Corning, other Borrowers and Guarantors,
the Banks listed on Annex A thereto, and Credit Suisse First Boston, as Agent
(incorporated herein by reference to Exhibit (4) to Owens Cornings quarterly report
on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 1997), as amended by
Amendment No. 1 thereto (incorporated herein by reference to Exhibit (4) to Owens
Cornings annual report on Form 10-K (File No. 1-3660) for the year ended December
31, 1997) and Amendment No. 2 thereto (incorporated herein by reference to Exhibit (4) to
Owens Cornings annual report on Form 10-K (File No. 1-3660) for the year ended
December 31, 1998).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|* | Key Management Severance Agreement with George E. Kiemle (filed herewith).
|- | --------------------------------------------------------------------------

|* | Key Employee Emergence Incentive Plan (filed herewith).
|- | -------------------------------------------------------

|* | Release and Non-Competition Agreement, dated as of June 19, 2002, between Owens Corning
and Glen H. Hiner (filed herewith).
|- | ---------------------------------------------------------------------------------------------------------------------------

| | 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:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|* | Directors Charitable Award Program, as amended.
|- | -------------------------------------------------

|* | Key Management Severance Agreement with David L. Johns.
|- | --------------------------------------------------------

#  140 

# EXHIBIT INDEX

|Exhibit |                     
|------- | --------------------
|Number  | Document Description

|* | Owens Corning Senior Leader Emergence 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 March 31, 2001).
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|* | Key Management Severance Agreement with Michael H. Thaman (incorporated herein by
reference to Exhibit (10) to Owens Cornings annual report on Form 10-K (File No.
1-3660) for the year ended December 31, 2000).
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|* | Key Management Severance Agreement with David T. Brown (incorporated herein by reference
to Exhibit (10) to Owens Cornings annual report on Form 10-K (File No. 1-3660) for
the year ended December 31, 1999).
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|* | Corporate Incentive Plan Terms Applicable to Key Employees Other Than Certain Executive
Officers (incorporated herein by reference to Exhibit (10) to Owens Cornings
quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 1999).
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following documents are incorporated herein by reference to Exhibit (10) to Owens
Cornings quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended March
31, 1999:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|* |   Owens Corning Deferred Compensation Plan.
|- | --------------------------------------------

|* |   Corporate Incentive Plan Terms Applicable to Certain Executive Officers.
|- | ---------------------------------------------------------------------------

| | 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, 1998:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|* |   Stock Performance Incentive Plan, as amended.
|- | ------------------------------------------------

|* |   Key Management Severance Agreement with Maura Abeln Smith.
|- | -------------------------------------------------------------

|* |   Letter to Maura Abeln Smith.
|- | -------------------------------

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

|* | Renewal Agreement, effective as of July 31, 1999, with Glen H. Hiner (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, 1997).
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|* | 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, 1993).
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

#  141 

# EXHIBIT INDEX

|Exhibit |                     
|------- | --------------------
|Number  | Document Description

|* | Employment Agreement, dated as of December 15, 1991, with Glen H. Hiner (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, 1991), as amended by First Amending
Agreement made as of April 1, 1992 (incorporated herein by reference to Exhibit (19) to
Owens Cornings quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended
June 30, 1992).
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|* | Owens Corning 1995 Stock Plan (filed herewith).
|- | -----------------------------------------------

(21)     
          Subsidiaries of Owens Corning (filed herewith).

(23)     
          Consent of PricewaterhouseCoopers LLP (filed herewith).

(99)     
          Additional Exhibits

| | Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (Chief Executive Officer) (filed herewith).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (Chief Financial Officer) (filed herewith).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|* | Denotes management contract or compensatory plan or arrangement required to be filed as an
exhibit pursuant to Form 10-K.
|- | -------------------------------------------------------------------------------------------------------------------------