SECURITIES AND EXCHANGE COMMISSION

                             Washington, D. C. 20549


                                    FORM 10-Q

                Quarterly Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                       For the Quarter Ended June 30, 2002

                           Commission File No. 1-3660

                                  Owens Corning

                            One Owens Corning Parkway

                               Toledo, Ohio 43659

                            Area Code (419) 248-8000

                             A Delaware Corporation

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


Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                Yes / X / No / /

 Shares of common stock, par value $.10 per share, outstanding at June 30, 2002

                                   55,178,803
<PAGE>
                                      - 2 -

                          PART I. FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS

                         OWENS CORNING AND SUBSIDIARIES
                     CONSOLIDATED STATEMENT OF INCOME (LOSS)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                            Quarter Ended        Six Months Ended
                                                                              June 30,               June 30,
                                                                              --------               --------
                                                                          2002        2001       2002       2001
                                                                          ----        ----       ----       ----
                                                                           (In millions of dollars, except share data)

<S>                                                                     <C>        <C>           <C>           <C>
NET SALES                                                               $  1,285   $  1,239    $  2,392    $  2,306
COST OF SALES                                                              1,043      1,014       1,978       1,910
                                                                        --------   --------    --------    --------
     Gross margin                                                            242        225         414         396
                                                                        --------   --------    --------    --------
OPERATING EXPENSES
Marketing and administrative expenses                                        144        128         271         255
Science and technology expenses                                               10         10          20          20
Restructure costs (Note 4)                                                    (1)         7           7          16
Chapter 11 related reorganization items (Note 1)                              25         17          50          38
Other                                                                         (6)         6          (7)         27
                                                                        ---------  --------    ---------   --------
     Total operating expenses                                                172        168         341         356
                                                                        --------   --------    --------    --------
INCOME FROM OPERATIONS                                                        70         57          73          40
OTHER
Cost of borrowed funds                                                         4          4           8           8
Other                                                                          -         (2)          -          (6)
                                                                        --------   ---------   --------    ---------
INCOME BEFORE PROVISION FOR INCOME TAXES                                      66         55          65          38
Provision for income taxes                                                    30         25          30          19
                                                                        --------   --------    --------    --------
INCOME BEFORE MINORITY INTEREST AND EQUITY
  IN NET INCOME (LOSS) OF AFFILIATES                                          36         30          35          19
Minority interest                                                             (1)        (1)         (1)         (2)
Equity in net income (loss) of affiliates                                      1          -          (4)          2
                                                                        --------   --------    ---------   --------
NET INCOME BEFORE CUMULATIVE EFFECT OF
  CHANGE IN ACCOUNTING PRINCIPLE                                              36         29          30          19
Cumulative effect of change in accounting principle (Note 12)                  -          -         441           -
                                                                        --------   --------    --------    --------
NET INCOME (LOSS)                                                       $     36   $     29    $   (411)   $     19
                                                                        ========   ========    =========   ========
NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per share                                       $    .65   $    .53    $  (7.47)   $    .34
                                                                        --------   --------    ---------   --------
Diluted net income (loss) per share                                     $    .60   $    .49    $  (7.47)   $    .32
                                                                        --------   --------    ---------   --------
</TABLE>

<TABLE>
<S>                                                                             <C>          <C>            <C>           <C>
Weighted average number of common shares outstanding and common equivalent
  shares during the period (in millions)
Basic                                                                           55.0         55.1           55.1          55.1
Diluted                                                                         59.8         59.9           55.1          60.0
</TABLE>

          The accompanying notes are an integralpart of this statement.

<PAGE>
                                      - 3 -

                         OWENS CORNING AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                   (unaudited)


                                              June 30,  December 31, June 30,
                                                 2002       2001       2001
                                                 ----       ----       ----
                                                    (In millions of dollars)
ASSETS


CURRENT
Cash and cash equivalents                      $   553    $   764    $   520
Receivables                                        585        417        618
Inventories (Note 6)                               450        437        485
Deferred income taxes                                1          1          5
Income tax receivable                                5          5          5
Other current assets                                25         25         26
                                               -------    -------    -------

     Total current                               1,619      1,649      1,659
                                               -------    -------    -------

OTHER
Insurance for asbestos litigation claims
  (Note 10)                                          4          4         59
Restricted cash - asbestos-related (Note 10)       164        169        115
Restricted cash, securities and other -
  Fibreboard (Notes 10 and 11)                   1,312      1,284      1,271
Deferred income taxes                            1,219      1,187      1,047
Goodwill (Note 12)                                 124        610        627
Investments in affiliates                           63         48         56
Other noncurrent assets                            246        247        259
                                               -------    -------    -------

     Total other                                 3,132      3,549      3,434
                                               -------    -------    -------

PLANT AND EQUIPMENT, at cost
Land                                                68         67         66
Buildings and leasehold improvements               653        669        663
Machinery and equipment                          3,031      2,854      2,810
Construction in progress                           168        256        226
                                               -------    -------    -------
                                                 3,920      3,846      3,765

  Less - accumulated depreciation               (2,053)    (2,003)    (1,983)
                                               -------    -------    -------

     Net plant and equipment                     1,867      1,843      1,782
                                               -------    -------    -------

TOTAL ASSETS                                   $ 6,618    $ 7,041    $ 6,875
                                               =======    =======    =======

         The accompanying notes are an integral part of this statement.

<PAGE>
                                      - 4 -

                         OWENS CORNING AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEET (continued)
                                   (unaudited)

                                              June 30, December 31, June 30,
                                                2002      2001       2001
                                                ----      ----       ----
LIABILITIES AND STOCKHOLDERS' EQUITY             (In millions of dollars)
------------------------------------

CURRENT
Accounts payable and accrued liabilities     $   639    $   740    $   599
Short-term debt                                   45         43         45
Long-term debt - current portion                  65         66         67
                                             -------    -------    -------

     Total current                               749        849        711
                                             -------    -------    -------

LONG-TERM DEBT                                     4          5          7
                                             -------    -------    -------

OTHER
Other employee benefits liability                351        331        327
Pension plan liability                           301        291         57
Other                                            148        141        135
                                             -------    -------    -------

     Total other                                 800        763        519
                                             -------    -------    -------

LIABILITIES SUBJECT TO COMPROMISE (Note 1)     6,800      6,804      6,805
                                             -------    -------    -------

COMMITMENTS AND CONTINGENCIES
  (Notes 1, 9 and 10)

COMPANY OBLIGATED SECURITIES OF ENTITIES
  HOLDING SOLELY PARENT DEBENTURES -
  SUBJECT TO COMPROMISE                          200        200        200
                                             -------    -------    -------

MINORITY INTEREST                                 35         37         39
                                             -------    -------    -------

STOCKHOLDERS' EQUITY
Common stock                                     696        697        697
Deficit                                       (2,368)    (1,957)    (1,977)
Accumulated other comprehensive loss            (298)      (355)      (122)
Other                                              -         (2)        (4)
                                             -------    -------    -------

     Total stockholders' equity               (1,970)    (1,617)    (1,406)
                                             -------    -------    -------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 6,618    $ 7,041    $ 6,875
                                             =======    =======    =======

         The accompanying notes are an integral part of this statement.

<PAGE>
                                      - 5 -

                         OWENS CORNING AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (unaudited)

                                                           Six Months Ended
                                                               June 30,
                                                            2002     2001
                                                            ----     ----
                                                       (In millions of dollars)
NET CASH FLOW FROM OPERATIONS
Net income (loss)                                          $(411)   $  19
Reconciliation of net cash provided by (used in)
  operating activities
     Noncash items:
       Provision for depreciation and amortization            95      110
       Provision for deferred income taxes                    20       28
       Cumulative effect of accounting change                441        -
       Other                                                  23       30
Increase in receivables                                     (174)    (152)
Increase in inventories                                       (6)     (28)
Increase (decrease) in accounts payable and
  accrued liabilities                                       (119)      78
Decrease in restricted cash and other -
  asbestos-related (Note 10)                                   6       49
Change in liabilities subject to compromise (Note 1)          (2)     (96)
Proceeds from insurance for asbestos litigation
claims, excluding Fibreboard                                   5        -
Other                                                         17       (8)
                                                           -----    -----
     Net cash flow from operations                         $(105)   $  30
                                                           -----    -----

NET CASH FLOW FROM INVESTING
Additions to plant and equipment                           $(104)   $ (83)
Investment in subsidiaries, net of cash acquired              (4)       -
Proceeds from the sale of affiliate or business (Note 5)      10       20
Other                                                         (1)       1
                                                           -----    -----
     Net cash flow from investing                          $ (99)   $ (62)
                                                           -----    -----

         The accompanying notes are an integral part of this statement.

<PAGE>

                                      - 6 -

                         OWENS CORNING AND SUBSIDIARIES
                CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
                                   (unaudited)

                                                      Six Months Ended
                                                           June 30,
                                                       2002      2001
                                                       ----      ----
                                                   (In millions of dollars)
NET CASH FLOW FROM FINANCING
Net additions to long-term credit facilities           $   -    $  17
Other reductions to long-term debt                        (2)      (2)
Net increase (decrease) in short-term debt                 2       (4)
Subject to compromise (Note 1)                           (18)      (4)
Other                                                      1       (1)
                                                       -----    -----
      Net cash flow from financing                     $ (17)   $   6
                                                       -----    -----

Effect of exchange rate changes on cash                   10       (4)
                                                       -----    -----
Net increase (decrease) in cash and cash equivalents    (211)     (30)
Cash and cash equivalents at beginning of period         764      550
                                                       -----    -----
Cash and cash equivalents at end of period             $ 553    $ 520
                                                       =====    =====

         The accompanying notes are an integral part of this statement.

<PAGE>

                                      - 7 -

                         OWENS CORNING AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

1.    VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11

On October 5, 2000 (the "Petition Date"), Owens Corning and the 17 United States
subsidiaries  listed  below   (collectively,   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                      Integrex Testing Systems LLC
    Engineered Yarns America, Inc.       HOMExperts LLC
    Falcon Foam Corporation              Jefferson Holdings, Inc.
    Integrex                             Owens-Corning Fiberglas Technology Inc.
    Fibreboard Corporation               Owens Corning HT, Inc.
    Exterior Systems, Inc.               Owens-Corning Overseas Holdings, Inc.
    Integrex Ventures LLC                Owens Corning Remodeling Systems, LLC
    Integrex Professional Services LLC   Soltech, Inc.
    Integrex Supply Chain Solutions LLC

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

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.

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.

<PAGE>

                                      - 8 -

                         OWENS CORNING AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

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

Two creditors'  committees,  one representing  asbestos  claimants and the other
representing unsecured creditors,  have been appointed as official committees in
the Chapter 11 Cases. In addition,  the Bankruptcy  Court has appointed James J.
McMonagle as legal  representative  for the class of future  asbestos  claimants
against  one or  more  of the  Debtors.  The  two  committees  and  the  futures
representative  will have the right to be heard on all matters  that come before
the  Bankruptcy  Court.  Owens  Corning  expects that these  committees  and the
futures representative will play important roles in the Chapter 11 Cases and the
negotiation of the terms of any plan or plans of reorganization.

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 file
and seek  confirmation of such a plan or plans,  there can be no assurance as to
when the Debtors will file such a plan or plans, or that such plan or plans 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 Debtors' filing or confirmation of such plan or plans or its effect, if any,
on the terms thereof.

As provided by the  Bankruptcy  Code,  the Debtors  initially  had the exclusive
right to propose a plan of  reorganization  for 120 days  following the Petition
Date,  until February 2, 2001. By subsequent  action,  the Bankruptcy  Court has
extended such exclusivity  period until August 30, 2002, and similarly  extended
the Debtors'  exclusive rights to solicit  acceptances of a reorganization  plan
from April 3, 2001 to October 31,  2002.  If the Debtors  fail to file a plan of
reorganization prior to the ultimate expiration of the exclusivity period, or if
such plan is not  accepted  by the  requisite  numbers of  creditors  and equity
holders  entitled to vote on the plan,  other parties in interest in the Chapter
11 Cases may be permitted to propose their own plan(s) of reorganization for the
Debtors.

Owens  Corning is unable to predict at this time what the treatment of creditors
and equity holders of the respective  Debtors will be under any proposed plan or
plans of  reorganization.  Such plan or plans may provide,  among other  things,
that all present and future  asbestos-related  liabilities  of Owens Corning and
Fibreboard  will  be  discharged  and  assumed  and  resolved  by  one  or  more
independently  administered trusts established in compliance with Section 524(g)
of the Bankruptcy  Code. Such plan or plans may also provide for the issuance of
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 one or more Section
524(g)  trusts.  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.

Owens Corning is unable to predict at this time what  treatment will be accorded
under  any such  reorganization  plan or plans  to  inter-company  indebtedness,
licenses,   transfers  of  goods  and  services  and  other   inter-company  and
intra-company  arrangements,  transactions and  relationships  that were entered
into  prior  to  the  Petition  Date.  These   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

<PAGE>

                                      - 9 -

                         OWENS CORNING AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

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

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 such plan or plans 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 be under any such plan or plans with respect to (1)
the guaranties 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 now in default) or (2) OCFT's license agreements with Owens Corning and
Exterior Systems, Inc., a wholly-owned subsidiary of Owens Corning ("Exterior"),
pursuant  to which OCFT  licenses  intellectual  property  to Owens  Corning and
Exterior.

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. There is no assurance that there will be sufficient assets
to satisfy the Debtors'  pre-petition  liabilities  in whole or in part, and the
pre-petition  creditors of some Debtors may be treated differently than those of
other  Debtors.  Pre-petition  creditors  may receive under a plan or plans less
than  100% of the  face  value  of  their  claims,  and the  interests  of Owens
Corning's equity security  holders may be substantially  diluted or cancelled in
whole or in part. As noted above, it is not possible at this time to predict the
outcome of the Chapter 11 Cases, the effect of the Administrative Consolidation,
the terms and provisions of any plan or plans of  reorganization,  or the effect
of the Chapter 11  reorganization  process on the claims of the creditors of the
Debtors or the interests of Owens Corning's equity security holders.

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  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  $15.8  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.

<PAGE>

                                     - 10 -

                         OWENS CORNING AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

1.    VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 (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 will file a motion to dismiss
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 June 30, 2002, the
remaining filed proofs of claim included  approximately  9,000 claims,  totaling
approximately $7.4 billion, as follows:

-    Approximately 2,900 claims, totaling approximately $1.2 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 10 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 $5.5 billion,  alleging
     rights  to  payment  for  financing,  environmental,  trade  debt and other
     matters  (the  "General  Claims").  The  Company  has  previously  recorded
     approximately $3.6 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  10  to  the
     Consolidated  Financial  Statements);  a contingent claim for approximately
     $458 million by the Pension Benefit Guaranty Corporation, as described more
     fully  under  the  heading  "PBGC  Claim"  in Note  10 to the  Consolidated
     Financial  Statements;  a $275 million class action claim involving alleged
     problems  with a specialty  roofing  product,  which Owens Corning does not
     believe is meritorious  based upon its historic  experience  with servicing
     its warranty  program for such  product;  claims for  contract  rejections,
     totaling  approximately $260 million,  of which  approximately $200 million
     are protective  claims  covering  contracts which have not been rejected by
     the  Debtors  as of June  30,  2002;  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.

<PAGE>

                                     - 11 -

                         OWENS CORNING AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

1.    VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 (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  2,700 proofs of claim (in addition to claims
described above under "General Bar Date"),  totaling approximately $2.1 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  900,  totaling  approximately  $0.4
billion, as Objectionable Claims, for which it will file a motion to dismiss. Of
the  remaining  claims,  Owens  Corning  believes  that a  substantial  majority
represented  claimants  that had  previously  asserted  asbestos-related  claims
against the Company.  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 10 to the  Consolidated  Financial  Statements  for  additional
information concerning asbestos-related liabilities.

Certain Post-petition Matters

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

As a result of the Filing,  contractual interest expense has not been accrued or
recorded on  pre-petition  debt of the Debtors since the Petition Date. From the
Petition Date through June 30, 2002, contractual interest expense not accrued or
recorded on pre-petition debt totaled $294 million, of which $35 million relates
to the second  quarter of 2002,  $71 million  relates to the first six months of
2002,  and $44 million  and $93  million,  respectively,  relate to the same two
periods of 2001.

At June 30, 2002, the Company had $553 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 currently expires November 15, 2002.
There were no  borrowings  outstanding  under the DIP facility at June 30, 2002,
however,  approximately  $54  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.


<PAGE>

                                     - 12 -

                         OWENS CORNING AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

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

The Company believes,  based on information  presently available to it, that its
cash and cash equivalents, 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 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.

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  which are  eliminated in the
Consolidated Financial Statements.

<PAGE>

                                     - 13 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

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


                         OWENS CORNING AND SUBSIDIARIES
                 DEBTOR-IN-POSSESSION STATEMENT OF INCOME (LOSS)

<TABLE>
<CAPTION>
                                                                       Quarter Ended         Six Months Ended
                                                                         June 30,                June 30,
                                                                         --------                --------
                                                                    2002         2001        2002        2001
                                                                    ----         ----        ----        ----
                                                                                (In millions of dollars)
<S>                                                                <C>         <C>         <C>         <C>
NET SALES                                                          $  1,137    $   1,080   $  2,110    $   1,996
COST OF SALES                                                           946          916      1,795        1,710
                                                                   --------    ---------   --------    ---------
     Gross margin                                                       191          164        315          286
                                                                   --------    ---------   --------    ---------

OPERATING EXPENSES
Marketing and administrative expenses                                   132          116        248          227
Science and technology expenses                                           8            9         17           18
Restructure costs                                                        (1)           6          5            9
Chapter 11 related reorganization items                                  25           17         50           38
Other (Including interest income from non-debtors of $14
  million in the second quarter and $28 million for the six
  months ended 2002 and 2001)                                           (27)         (54)       (54)         (41)
                                                                   ---------   ----------  ---------   ----------

     Total operating expenses                                           137           94        266          251
                                                                   --------    ---------   --------    ---------

INCOME FROM OPERATIONS                                                   54           70         49           35

OTHER
Cost of borrowed funds                                                    1           (8)         3           (2)
Other                                                                     -           (2)         -           (6)
                                                                   --------    ----------  --------    ----------

INCOME BEFORE PROVISION FOR INCOME TAXES                                 53           80         46           43

Provision for income taxes                                               25           32         23           20
                                                                   --------    ---------   --------    ---------

INCOME BEFORE EQUITY IN NET INCOME (LOSS)
  OF AFFILIATES                                                          28           48         23           23

Equity in net income (loss) of affiliates                                 -           (1)        (5)           1
                                                                   --------    ----------  ---------   ---------

NET INCOME BEFORE CUMULATIVE EFFECT OF
  CHANGE IN ACCOUNTING PRINCIPLE                                         28           47         18           24
                                                                   --------    ---------   --------    ---------

Cumulative effect of change in accounting principle                      -            -         409           -
                                                                   -------     --------    --------    --------
NET INCOME (LOSS)                                                  $    28     $     47    $   (391)   $     24
                                                                   =======     ========    =========   ========
</TABLE>

<PAGE>

                                     - 14 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

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

                         OWENS CORNING AND SUBSIDIARIES
                       DEBTOR-IN-POSSESSION BALANCE SHEET

                                              June 30,  December 31,  June 30,
                                                2002        2001       2001
                                                ----        ----       ----
                                                   (In millions of dollars)
ASSETS

CURRENT
Cash and cash equivalents                      $   373    $   605    $   422
Receivables                                        572        315        468
Receivables - non-debtors                          757        849        739
Inventories                                        336        311        355
Deferred income taxes                                4          4          4
Income tax receivable                                4          4          4
Other current assets                                24         25         25
                                               -------    -------    -------

     Total current                               2,070      2,113      2,017
                                               -------    -------    -------

OTHER
Insurance for asbestos litigation claims             4          4         59
Restricted cash and other - asbestos-related       164        169        115
Restricted cash, securities and other -
  Fibreboard                                     1,312      1,284      1,271
Deferred income taxes                            1,170      1,143      1,022
Goodwill, net                                       54        513        524
Investments in affiliates                           16         29         27
Investments in non-debtor subsidiaries             757        758        736
Other noncurrent assets                            138        138        215
                                               -------    -------    -------

     Total other                                 3,615      4,038      3,969
                                               -------    -------    -------

PLANT AND EQUIPMENT, at cost
Land                                                40         41         40
Buildings and leasehold improvements               512        533        524
Machinery and equipment                          2,349      2,194      2,140
Construction in progress                           118        217        214
                                               -------    -------    -------
                                                 3,019      2,985      2,918

  Less - accumulated depreciation               (1,581)    (1,548)    (1,534)
                                               -------    -------    -------

     Net plant and equipment                     1,438      1,437      1,384
                                               -------    -------    -------

TOTAL ASSETS                                   $ 7,123    $ 7,588    $ 7,370
                                               =======    =======    =======

<PAGE>

                                     - 15 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

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

                         OWENS CORNING AND SUBSIDIARIES
                 DEBTOR-IN-POSSESSION BALANCE SHEET (continued)

                                            June 30,  December 31, June 30,
                                              2002        2001       2001
                                              ----        ----       ----
LIABILITIES AND STOCKHOLDERS' EQUITY             (In millions of dollars)
------------------------------------

CURRENT
Accounts payable and accrued liabilities     $   519    $   589    $   460
Accounts payable and accrued liabilities -
  non-debtors                                     12         12          7
Long-term debt - current portion                   -          1          -
                                             -------    -------    -------

     Total current                               531        602        467
                                             -------    -------    -------

OTHER
Other employee benefits liability                338        318        313
Pension plan liability                           273        264         51
Other                                            114        110        110
                                             -------    -------    -------

     Total other                                 725        692        474
                                             -------    -------    -------

LIABILITIES SUBJECT TO COMPROMISE              7,526      7,565      7,522

STOCKHOLDERS' EQUITY
Common stock                                     697        697        699
Deficit                                       (2,138)    (1,747)    (1,777)
Accumulated other comprehensive loss            (217)      (219)       (11)
Other                                             (1)        (2)        (4)
                                             -------    -------    -------

     Total stockholders' equity               (1,659)    (1,271)    (1,093)
                                             -------    -------    -------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 7,123    $ 7,588    $ 7,370
                                             =======    =======    =======

<PAGE>

                                     - 16 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

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

                         OWENS CORNING AND SUBSIDIARIES
                  DEBTOR-IN-POSSESSION STATEMENT OF CASH FLOWS

                                                          Six Months Ended
                                                              June 30,
                                                          2002       2001
                                                          ----       ----
                                                      (In millions of dollars)
NET CASH FLOW FROM OPERATIONS

Net income (loss)                                          $(391)   $  24
Reconciliation of net cash provided by (used in)
  operating activities
     Noncash items:
       Provision for depreciation and amortization            71       78
       Provision for deferred income taxes                    23       40
       Cumulative effect of accounting change                409        -
       Other                                                  18       44
Increase in receivables                                     (174)    (202)
Increase in inventories                                      (27)     (11)
Increase (decrease) in accounts payable and
accrued liabilities                                         (126)      62
Decrease in restricted cash and other - asbestos-related       6       49
Change in liabilities subject to compromise                   (2)     (96)
Proceeds from insurance for asbestos litigation claims,
  excluding Fibreboard                                         5        -
Other                                                         43       35
                                                           -----    -----

     Net cash flow from operations                         $(145)   $  23
                                                           -----    -----

NET CASH FLOW FROM INVESTING

Additions to plant and equipment                           $ (78)   $ (75)
Investment in subsidiaries, net of cash acquired              (1)       -
Proceeds from sale of business                                10        -
Other                                                          -        1
                                                           -----    -----

     Net cash flow from investing                          $ (69)   $ (74)
                                                           -----    -----

<PAGE>

                                     - 17 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

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

                         OWENS CORNING AND SUBSIDIARIES
            DEBTOR-IN-POSSESSION STATEMENT OF CASH FLOWS (continued)

                                                   Six Months Ended
                                                       June 30,
                                                   2002     2001
                                                   ----     ----
                                              (In millions of dollars)
NET CASH FLOW FROM FINANCING

Net additions to long-term credit facilities           -       17
Subject to compromise                                (18)      (4)
Other reductions to long-term debt                    (1)       -
Other                                              $   1    $  (1)
                                                   -----    -----

     Net cash flow from financing                  $ (18)   $  12
                                                   -----    -----

Net decrease in cash and cash equivalents          $(232)   $ (39)
                                                   -----    -----

Cash and cash equivalents at beginning of period     605      461
                                                   -----    -----

Cash and cash equivalents at end of period         $ 373    $ 422
                                                   =====    =====

<PAGE>

                                     - 18 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

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


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

<TABLE>
<CAPTION>
                                                                  June 30,      December 31,    June 30,
                                                                    2002           2001           2001
                                                                    ----           ----           ----
                                                                             (In millions of dollars)

<S>                                                              <C>            <C>            <C>
  Accounts payable                                               $      197     $     195      $      197
  Accrued interest payable                                               40            40              40
  Accrued liabilities                                                    38            36              50
  Debt                                                                2,831         2,843           2,838
  Income taxes payable                                                  199           209             209
  Reserve for asbestos litigation claims - Owens Corning              2,183         2,197           2,200
  Reserve for asbestos-related claims - Fibreboard                    1,312         1,284           1,271
                                                                 ----------     ---------      ----------

       Total consolidated                                             6,800         6,804           6,805

       Payables to non-debtors                                          726           761             717
                                                                 ----------     ---------      ----------

       Total debtor                                              $    7,526     $   7,565      $    7,522
                                                                 ==========     =========      ==========
</TABLE>

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

                          Quarter Ended  Six Months Ended
                             June 30,        June 30,
                           2002    2001    2002    2001
                           ----    ----    ----    ----
                             (In millions of dollars)

Professional fees          $ 17    $ 16    $ 35    $ 34
Payroll and compensation      6       5      12      12
Interest income              (2)     (4)     (4)     (9)
Other, net                    4       -       7       1
                           ----    ----    ----    ----

     Total                 $ 25    $ 17    $ 50    $ 38
                           ====    ====    ====    ====

<PAGE>

                                     - 19 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

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 was 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.

The  Company  has  reported  financial  information  about  each  of  these  two
reportable  segments  below on a basis that is used  internally  for  evaluating
segment performance and deciding how to allocate resources to those segments.

<TABLE>
<CAPTION>
                                                            Quarter Ended         Six Months Ended
                                                               June 30                 June 30
                                                               -------                 -------
NET SALES                                                2002         2001         2002         2001
                                                         ----         ----         ----         ----
                                                                    (In millions of dollars)
<S>                                                    <C>          <C>          <C>           <C>
Reportable Segments

Building Materials Systems
     United States                                     $     887    $     838    $   1,651     $  1,531
     Europe                                                    1            1            2            3
     Canada and other                                         49           46           83           82
                                                       ---------    ---------    ---------     --------

        Total Building Materials Systems                     937          885        1,736        1,616
                                                       ---------    ---------    ---------     --------

Composite Solutions
     United States                                           226          218          417          411
     Europe                                                   79           90          159          190
     Canada and other                                         43           46           80           89
                                                       ---------    ---------    ---------     --------

        Total Composite Solutions                            348          354          656          690
                                                       ---------    ---------    ---------     --------

        Total reportable segments                      $   1,285    $   1,239    $   2,392     $  2,306
                                                       =========    =========    =========     ========

External Customer Sales by Geographic Region

United States                                          $   1,113    $   1,056    $   2,068     $  1,942
Europe                                                        80           91          161          193
Canada and other                                              92           92          163          171
                                                       ---------    ---------    ---------     --------

     Net sales                                         $   1,285    $   1,239    $   2,392     $  2,306
                                                       =========    =========    =========     ========
</TABLE>

<PAGE>

                                     - 20 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

2.    SEGMENT DATA (continued)

<TABLE>
<CAPTION>
                                                             Quarter Ended           Six Months Ended
                                                                June 30,                 June 30,
INCOME FROM OPERATIONS                                    2002         2001          2002        2001
                                                          ----         ----          ----        ----
                                                                     (In millions of dollars)
<S>                                                     <C>          <C>          <C>          <C>
Reportable Segments

Building Materials Systems
     United States                                      $    80      $     52     $    113     $     72
     Europe                                                   -             -            -            -
     Canada and other                                         7             3            9            4
                                                        -------      --------     --------     --------

        Total Building Materials Systems                     87            55          122           76
                                                        -------      --------     --------     --------

Composite Solutions
     United States                                           14            39           14           58
     Europe                                                   4            11           16           24
     Canada and other                                         8             7           11           12
                                                        -------      --------     --------     --------

        Total Composite Solutions                            26            57           41           94
                                                        -------      --------     --------     --------

        Total reportable segments                       $   113      $    112     $    163     $    170
                                                        =======      ========     ========     ========

Geographic Regions

United States                                           $    94      $     91     $    127     $    130
Europe                                                        4            11           16           24
Canada and other                                             15            10           20           16
                                                        -------      --------     --------     --------

     Total reportable segments                          $   113      $    112     $    163     $    170
                                                        =======      ========     ========     ========

Reconciliation to Consolidated Income Before
  Provision for Income Taxes

Restructuring and other charges                               3           (17)          (9)         (59)
Chapter 11 related reorganization items                     (25)          (17)         (50)         (38)
General corporate expense                                   (21)          (21)         (31)         (33)
Cost of borrowed funds                                       (4)           (4)          (8)          (8)
Other                                                         -             2            -            6
                                                        -------      --------     --------     --------

Consolidated income before provision for
  income taxes                                          $    66      $     55     $     65     $     38
                                                        =======      ========     ========     ========
</TABLE>

<PAGE>

                                     - 21 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)
3.    GENERAL

The financial  statements  included in this Report are condensed and  unaudited,
pursuant  to  certain  Rules and  Regulations  of the  Securities  and  Exchange
Commission,  but include, in the opinion of the Company,  adjustments  necessary
for a fair statement of the results for the periods indicated,  which,  however,
are not  necessarily  indicative  of results  which may be expected for the full
year.

In connection with the condensed financial statements and notes included in this
Report,  reference  is  made  to the  financial  statements  and  notes  thereto
contained in the  Company's  2001 Annual  Report on Form 10-K, as filed with the
Securities and Exchange Commission.

4.       RESTRUCTURING OF OPERATIONS AND OTHER CHARGES

Second Quarter 2002

During the second quarter of 2002, certain restructuring programs put into place
during 2000 and 2001  continued  due to the timing of events in these  programs.
The  combination of these  continued  restructuring  programs led to the Company
recording  approximately  $3 million in a pretax credit in the second quarter of
2002.  This pretax credit was  comprised of a $5 million  pretax credit to other
operating  expense, a $1 million pretax credit to restructure charge (classified
as a separate component of operating  expenses in the Consolidated  Statement of
Income (Loss)),  and a $3 million pretax charge to cost of sales.  The credit to
other  operating  expense  included a credit for the settlement of certain funds
subject  to an  administrative  freeze  that were  previously  determined  to be
unrealizable (See Note 1). The rights to these funds were originally transferred
to the  Company as part of the sale of the  Company's  40%  interest  in Alcopor
Owens  Corning  (See  Note 5).  The  charge  to cost of sales  included  charges
associated with the Company's  previously  announced plan to realign its Newark,
Ohio  manufacturing  facility  and a write down to  inventory  mainly to reflect
updated estimates of the net realizable value.

First Quarter 2002

In response to the slowed economy and to the declining margins in the composites
business,  the  Company  has  continued  to assess  cost  structures  of certain
businesses  and  facilities  as well as  overhead  expenditures  for the  entire
company. In addition,  certain restructuring programs put into place during 2000
and 2001  continued in the first  quarter of 2002 due to the timing of events in
these programs.  The combination of these continued  restructuring  programs and
the  continued  assessment  of  the  businesses  led to  the  Company  recording
approximately  $12 million in pretax charges in the first quarter of 2002. These
pretax charges were comprised of an $8 million pretax  restructure charge and $4
million of pretax other charges.  The restructure  charge  represents  severance
costs associated with the elimination of approximately 230 positions,  primarily
in the U.S. The primary groups impacted include manufacturing and administrative
personnel.  As of June 30,  2002,  approximately  $4  million  has been paid and
charged  against the reserve.  The  restructure  charge has been classified as a
separate component of operating expenses on the Company's Consolidated Statement
of Income (Loss).

The $4 million in pretax other charges included $2 million in charges associated
with the Company's  realignment at its Newark,  Ohio manufacturing  facility and
various other charges  totaling $2 million.  The realignment plan for the Newark
facility was  announced in the third  quarter of 2000 and is  anticipated  to be
complete in the fourth  quarter of 2002.  As work  progresses  on the  facility,
costs are  recorded  as they are  incurred.  The $4  million  pretax  charge was
accounted for as a $5 million charge to cost of sales and a $1 million credit to
other operating expenses.

<PAGE>

                                     - 22 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

4.    RESTRUCTURING OF OPERATIONS AND OTHER CHARGES (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 to the
Company  recording  approximately  $140 million in pretax  charges  during 2001,
comprised of a $26 million pretax  restructure charge and $114 million 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  charge for  restructuring  represents $21 million for severance
costs associated with the elimination of approximately 460 positions,  primarily
impacting manufacturing and administrative personnel in the U.S., Canada and the
U.K.  The  remaining  $5 million  represented  a charge for the  divestiture  of
non-strategic  businesses and  facilities,  which  consisted  mainly of non-cash
asset write-downs to fair value and exit cost liabilities.  As of June 30, 2002,
approximately $19 million has been paid and charged against this reserve.

The $114 million of other  charges  included $29 million in costs related to the
realignment  of  the  Newark  manufacturing   facility;  $39  million  of  asset
impairments mainly associated with the building materials business,  principally
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;  $6 million to write down inventory mainly to reflect
updated  estimates of the net  realizable  value;  $4 million to write-down  the
Company's  investment and related assets in Alcopor Owens Corning, a producer of
insulation  products in Europe and the United Kingdom,  to net realizable  value
(the sale of the Company's investment in this joint venture was completed in the
fourth  quarter of 2001);  a $2 million  pretax  loss from  assets held for sale
which represented the results of operations for the Company's investments in its
Pipe joint  ventures and  subsidiaries  on a  held-for-sale  basis (the sale was
completed in February 2001); and various other charges totaling $34 million.

The following table summarizes the status of the liabilities from the 2000, 2001
and 2002 restructure programs described above, including cumulative spending and
adjustments and the remaining balance as of June 30, 2002:

                                                       Liability at
                                 Original      Total     June 30,
(In millions of dollars)        Liability   Payments      2002
                                ---------   --------      ----

Personnel Costs                    $ 45       $(37)       $  8
Facility and Business Exit Costs      4         (3)          1
                                   ----       -----       ----

Total                              $ 49       $(40)       $  9
                                   ----       -----       ----

<PAGE>

                                     - 23 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

4.    RESTRUCTURING OF OPERATIONS AND OTHER CHARGES (continued)

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.

5.    ACQUISITION AND DIVESTITURES OF BUSINESSES

Acquisitions

On June 25, 2002, the Company  received  Bankruptcy Court approval to consummate
the restructuring of the Company's Indian joint venture,  Owens-Corning  (India)
Limited  ("OCIL").  As part  of the  restructuring,  the  Company,  through  its
wholly-owned subsidiary, IPM Inc., infused approximately $3 million of new value
into OCIL and Owens Corning  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
certain  of its junior  debt (to be  determined  as part of a  formula)  will be
converted to redeemable  convertible  debentures.  Through  these  restructuring
efforts the Company's  ownership interest in OCIL increased from 50% to 60%. The
Company  will  consolidate  OCIL  during  the  third  quarter  of 2002  once the
restructuring  has been  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 will be added to amounts Subject to Compromise.  Owens
Corning  will  account  for  this  transaction  under  the  purchase  method  of
accounting,  whereby the assets  acquired  and  liabilities  assumed,  including
approximately  $57  million  of senior  debt and the  amount  of the  redeemable
convertible debentures, will be recorded at their fair values and the results of
operations  will be  consolidated  from that date.  Prior to July 1,  2002,  the
Company accounted for this joint venture under the equity method.  The pro forma
effect of this  acquisition  on  revenues  and  earnings  is not  expected to be
material.

Divestitures

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,
of  which  $20  million  was  received  in the  first  quarter  of  2001,  which
approximated book value.

During the fourth  quarter of 2001,  the Company sold its remaining 40% interest
in Alcopor Owens Corning, an unconsolidated joint venture. Net proceeds from the
divestiture were  approximately $23 million,  of which  approximately $9 million
remained in escrow at December  31, 2001 and was  received in January  2002.  In
addition,  during the second  quarter of 2002,  the Company  recognized a pretax
gain of  approximately  $4 million  related to the  settlement  of certain funds
subject  to an  administrative  freeze  that were  previously  determined  to be
unrealizable.  The rights to these  funds  were  originally  transferred  to the
Company as part of the sale (see Note 4).

<PAGE>

                                     - 24 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)
6.    INVENTORIES

Inventories are summarized as follows:

                               June 30,     December 31,
                                 2002          2001
                                 ----          ----
                              (In millions of dollars)
Finished goods                   $ 374        $ 378
Materials and supplies             170          150
                                 -----        -----
FIFO inventory                     544          528
Less:  reduction to LIFO basis     (94)         (91)
                                 -----        -----
  Total inventory                $ 450        $ 437
                                 =====        =====

Approximately  $133  million and $120 million of total  inventories  were valued
using the LIFO method at June 30, 2002 and December 31, 2001, respectively.

7.    COMPREHENSIVE INCOME

The Company's comprehensive income for the quarters ended June 30, 2002 and 2001
was $83 million and $31 million, respectively. The Company's other comprehensive
income includes net income,  currency translation  adjustments,  minimum pension
liability  adjustments,  and  deferred  gains  and  losses  on  certain  hedging
transactions to record at fair value.

8.    EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
                                           Quarter Ended June 30,   Six Months Ended June 30,
                                              2002       2001          2002        2001
                                              ----       ----          ----        ----
                                            (In millions of dollars, except share data)

<S>                                         <C>        <C>           <C>         <C>
Net income (loss) used for basic and diluted
  earnings per share                        $     36   $     29      $   (411)   $     19
                                            ========   ========      ========    ========

Weighted average number of shares
  outstanding used for basic earnings per
  share (thousands)                           55,038     55,076        55,056      55,058
                                            --------   --------      --------    --------

Deferred awards (thousands)                      190        303             -         337
                                            --------   --------      --------    --------

Shares from assumed conversion of
  preferred securities (thousands)             4,566      4,566             -       4,566
                                            --------   --------      --------    --------

Weighted average number of shares
  outstanding and common equivalent
  shares used for diluted earnings per
  share (thousands)                           59,794     59,945        55,056      59,961
                                            ========   ========      ========    ========
</TABLE>

<PAGE>

                                     - 25 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

8.    EARNINGS PER SHARE (continued)

For the six  months  ended  June 30,  2002,  the  number of  shares  used in the
calculation  of diluted  earnings per share did not include 224 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.

9.    DERIVATIVE 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 or financial indices.

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

<TABLE>
<CAPTION>
                                                           Notional Amount             Notional Amount
                                                            June 30, 2002             December 31, 2001
                                                            -------------             -----------------
                                                                    (In millions of dollars)
<S>                                                             <C>                         <C>
Forward currency exchange contracts                             $   83                      $   30
Interest rate swaps                                                 22                          19
Commodity future contracts                             540,000 MMBTU per month     540,000 MMBTU per month
                                                          for three months             for nine months
                                                       350,000 MMBTU per month                -
                                                          for five months
</TABLE>

Foreign Currency Exchange Risk and Interest Rate Risk Management

In the  second  quarter of 2002,  the  Company  entered  into  forward  exchange
contracts  to manage its  exposure  against  foreign  currency  fluctuations  on
certain  purchases of inventories in foreign  currencies.  The contracts entered
into  consisted  of  35  forward  currency  exchange  contracts  that  exchanged
approximately  17  million  U.S.  dollars  to euros,  6 million  British  pounds
sterling to euros,  35 million  Swedish  krone to euros,  126 million  Norwegian
krone to euros, and 14 million U.S. dollars to Canadian dollars.  As of June 30,
2002 the Company  had 30 forward  currency  exchange  contracts  that  exchanged
approximately  14  million  U.S.  dollars  to euros,  5 million  British  pounds
sterling to euros,  30 million  Swedish  krone to euros,  108 million  Norwegian
krone to euros, and 10 million U.S. dollars to Canadian 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 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 statement of
income.  As of June 30, 2002,  accumulated  other  comprehensive  income  (loss)
related to these  contracts  was a loss of  approximately  $1  million,  and the
ineffectiveness recorded as other income (loss) was not material.

<PAGE>

                                     - 26 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

9.    DERIVATIVE FINANCIAL INSTRUMENTS (continued)

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 second quarter of 2002, the Company
entered into 5 contracts that exchanged  approximately  8 million British pounds
sterling  to euros,  50 million  Norwegian  krone to euros,  and 3 million  U.S.
dollars  to  euros.  As of June 30,  2002 the  Company  had 5  forward  currency
exchange  contracts  that  exchanged  approximately  8  million  British  pounds
sterling  to euros,  50 million  Norwegian  krone to euros,  and 3 million  U.S.
dollars to euros.  As of December 31, 2001,  the Company had 2 forward  currency
exchange  contracts  that  exchanged  75  million  Norwegian  krone to euros and
approximately  4 million U.S.  dollars to 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 in the Consolidated Statement of Income (Loss), the effect of which was
not material during any period.

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, which remained outstanding at June 30, 2002. This contract
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  in the  Consolidated  Statement  of
Income (Loss), the effect of which was not material during any period.

During 2001 and the first two quarters of 2002, 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 June 30,  2002,  there were 31 such  cross-currency
interest rate swap  contracts  outstanding  at a notional  amount of $22 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 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  statement  of income.  As of June 30, 2002 and December 31, 2001,
accumulated other  comprehensive  income (loss) related to these contracts was a
loss of  approximately  $3 million  and  income of  approximately  $10  million,
respectively,  and the  ineffectiveness  recorded as other income (loss) was not
material in either period.

Commodity Risk Management

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
is a cash flow hedge 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  statement  of income.  At June 30,  2002,  the
accumulated  other  comprehensive  income (loss) related to the contract was not
material and the ineffectiveness recorded as

<PAGE>

                                     - 27 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

9.    DERIVATIVE FINANCIAL INSTRUMENTS (continued)

other income  (loss) was also not  material.  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)
was not material.  During the second quarter of 2002 the Company entered into an
additional swap agreement for 2,100,000 MMBTU's of natural gas. This contract is
accounted for in the same manner as the previous  natural gas hedge. At June 30,
2002, the accumulated other comprehensive  income (loss) related to the contract
was not material  and the  ineffectiveness  recorded as other income  (loss) was
also not material.

Other Financial Instruments with Off-Balance-Sheet Risk

As of June 30, 2002 and December 31, 2001,  the Company is  contingently  liable
for  guarantees of  indebtedness  owed by certain  unconsolidated  affiliates of
approximately  $25 million and $38 million,  respectively.  As of June 30, 2002,
and December 31, 2001, approximately $23 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 June 30, 2002 and  December  31, 2001 was
approximately $19 million owed by Owens-Corning  (India) Limited,  which will be
consolidated  during  the third  quarter  of 2002 (see Note 5).  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.

10.   CONTINGENT LIABILITIES

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.

During the second  quarter of 2002,  Owens  Corning  completed  a  comprehensive
reconciliation  of personal injury  asbestos claims against it (and  Fibreboard,
see Item B below) in light of currently available  information.  As a result, it
has been able to update certain information below concerning settled and pending
claims. Owens Corning cautions,  however,  that it has limited information about
many of such claims, and the actual numbers remain subject to adjustment.

<PAGE>

                                     - 28 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

10.   CONTINGENT LIABILITIES (continued)

Prior to October 5, 2000,  when the Debtors,  including  Fibreboard  (see Item B
below),  filed  voluntary  petitions  for relief under  Chapter 11 of the United
States  Bankruptcy Code, the vast majority of asserted  asbestos personal injury
claims were in the process of being  resolved  through the  National  Settlement
Program  described below. As a result of the Filing,  all pre-petition  asbestos
claims and pending litigation against the Debtors,  including without limitation
claims arising under the National Settlement Program,  were automatically stayed
(see Note 1). 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.

As discussed  more fully below under the heading  "Reserve",  ultimately,  Owens
Corning's  (and  Fibreboard'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 Owens
Corning'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.

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.

<PAGE>


                                     - 29 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

10.   CONTINGENT LIABILITIES (continued)

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

As of the Petition Date, the NSP covered  approximately  239,000 Initial Claims,
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 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.

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. As
a rule,  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 be treated under the terms of any plan or plans of reorganization.

<PAGE>

                                     - 30 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

10.   CONTINGENT LIABILITIES (continued)

Asbestos-Related Payments

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

                                                                  2000 (through
                                                         1999   October 4, 2000)
                                                         ----   ----------------
                                                      (In millions of dollars)

Pre-NSP Settlements                                      $170         $ 51
NSP Settlements                                           570          538
Non-NSP Settlements                                        30           42
Defense, Claims Processing and Administrative Expenses     90           54
                                                         ----         ----
                                                         $860         $685
                                                         ====         ====

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

Prior to the Petition Date,  Owens Corning  deposited  certain amounts in escrow
accounts  to  facilitate  claims  processing  under  the  NSP   ("Administrative
Deposits").  Amounts deposited into escrow in  Administrative  Deposits during a
reporting  period are included in the payments shown for NSP Settlements  during
the period.  At June 30,  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).

At this time,  Owens  Corning is unable to predict  what the  treatment of funds
held in  Undistributed  Administrative  Deposits  will 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 representative for the class
of future asbestos claimants have each filed a notice of appeal from the order.

<PAGE>

                                     - 31 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

10.   CONTINGENT LIABILITIES (continued)

Tax Legislation

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 benefit the Fibreboard
Settlement Trust (described  below) by having the effect of enlarging the corpus
of the trust through tax-free income accumulation.  In addition, the legislation
would allow  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  entitle the Company to  carry-back  its NOLs to the
early 1950s. The bill has strong  bipartisan  support in the form of 72 original
cosponsors,  including  a  majority  of the  members of the House Ways and Means
Committee.

On June 14, 2001, a companion  bill  identical to HR 1412 was  introduced in the
United States Senate (S 1048). This bill also has strong bipartisan support.

Despite the strong bipartisan  support for both bills,  there has been no action
on  these  bills  during  2002  and  there  can be no  assurance  that  any such
legislation  ultimately  will be enacted.  Moreover,  as a result of the Filing,
there is uncertainty regarding the impact of the proposed tax legislation on the
Debtors' respective estates even if such legislation were enacted.

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.

<PAGE>

                                     - 32 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

10.   CONTINGENT LIABILITIES (continued)

Insurance

During the second  quarter of 2002,  Owens  Corning  received an  additional  $5
million payment in respect of a previous  settlement  with a bankrupt  insurance
carrier concerning  coverage for  asbestos-related  personal injury claims. This
amount was recorded as pre-tax income in the second quarter.

As of June 30, 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."

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, and $1.0 billion in 2000.

As of June 30, 2002, a reserve of approximately $2.2 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."



<PAGE>


                                     - 33 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

10.   CONTINGENT LIABILITIES (continued)

The approximate balances of the components of the reserve at September 30, 2000
(the ending date of the last reporting period preceding the Petition Date) were:

                                                          September 30, 2000
                                                          ------------------
                                                       (In billions of dollars)

NSP backlog                                                  $   1.10
Non-NSP backlog                                                  0.30
Future claims                                                    0.70
Defense, Claims Processing and Administrative Expenses           0.10

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

-    The "NSP backlog"  component  represented  the remaining  estimated cost of
     resolving Initial Claims under the NSP.

-    The "Non-NSP backlog" component represented the estimated cost of resolving
     asbestos  personal  injury claims pending against Owens Corning outside the
     NSP.

-    The "Future claims"  component  represented the estimated cost of resolving
     (i) Future Claims under the NSP and (ii) non-NSP claims subsequently made.

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.

<PAGE>

                                     - 34 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

10.   CONTINGENT LIABILITIES (continued)

The  Chapter 11 Cases  significantly  increase  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 may have
the effect of  increasing  the number and ultimate  cost of  resolution  of such
claims, perhaps substantially.  In particular,  the status of the NSP Agreements
and the  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 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  arms-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.

-    As a result of the  Filing,  all of the  holders of  pre-petition  asbestos
     claims against Owens Corning or Fibreboard  will be required to file proofs
     of claim in the form and manner  prescribed by the  Bankruptcy  Court.  The
     filing of a proof of claim will be a precondition to any pre-petition claim
     being  considered  for payment as an allowed claim.  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.  Among other
     things, it is not possible to predict at this time how many proofs of claim
     will be timely  filed,  how many  proofs of claim  will  represent  allowed
     claims, or the aggregate value of such allowed claims.

-    Owens Corning  anticipates that the number and estimated aggregate value of
     allowed  future  claims  will be  determined  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 at this time.

<PAGE>

                                     - 35 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

10.   CONTINGENT LIABILITIES (continued)

In connection with the negotiation of a plan or plans of  reorganization,  it is
anticipated   that  a  number  of  interested   constituencies,   including  the
representatives  of the  pre-petition  and future  asbestos  claimants and other
pre-petition creditors, will develop analyses of liability for both pre-petition
and future  asbestos  claims.  Owens  Corning and  Fibreboard  will also prepare
analyses for use in the negotiation process. Such analyses 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.  Such  analyses
could vary  substantially  from the amounts of Owens Corning's and  Fibreboard's
respective  existing asbestos  reserves,  and also could 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  will  be  prepared  solely  for  use  in the
negotiation  of a plan  of  reorganization,  they  will  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.

In light of the factors  described above,  among others (including its review of
developments   in  other   asbestos-related   bankruptcies,   both  pending  and
concluded),  Owens  Corning  believes  that some,  if not all, of such  analyses
prepared in connection  with the negotiation of its plan of  reorganization  may
involve  estimates  of Owens  Corning's  and  Fibreboard's  respective  asbestos
liabilities that are many billions of dollars in excess of current reserves.

<PAGE>

                                     - 36 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

10.   CONTINGENT LIABILITIES (continued)

Ultimately,  Owens  Corning's (and  Fibreboard'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 Owens Corning'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 June 30, 2002,  as a result of the Filing and the  uncertainties  referred to
above,   the   approximate   balances  of  the  components  of  Owens  Corning's
asbestos-related reserve were:

                                                Balance
                                          (In billions of dollars)

Unpaid Final Settlements (NSP and other)       $   0.60
Other Pending and Future Claims                    1.60

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 (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  estimates  of the  ultimate  costs to resolve
asbestos-related claims against it through the Chapter 11 process. 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  revision  to the  reserve  is
appropriate  until  significant  developments  occur  during  the  course of the
Chapter 11 Cases, including resolution of the uncertainties described above. 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 insulation products containing asbestos.
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-

<PAGE>

                                     - 37 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

10.   CONTINGENT LIABILITIES (continued)

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.

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 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 be  treated  under  the  terms  of any  plan or  plans  of
reorganization.

<PAGE>

                                     - 38 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

10.   CONTINGENT LIABILITIES (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  million during the fourth quarter of
1999 to fund costs of resolving pending and future  Fibreboard  asbestos-related
liabilities, whether under the NSP, in the tort system, or otherwise.

As of June 30, 2002, the Insurance Settlement funds were held in and invested by
the  Fibreboard  Settlement  Trust.  As of that  date,  $1,185  million  (net of
outstanding  payables)  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.  It will not be known  whether  any such  assets  will  remain  for
distribution until the conclusion of the Chapter 11 Cases.

Funds held in the Fibreboard  Settlement  Trust and  Fibreboard's  Undistributed
Administrative  Deposits are reflected on Owens Corning's  consolidated  balance
sheet as restricted  assets.  At June 30, 2002,  these assets were  reflected as
non-current assets, under the category "Restricted cash,  securities and other -
Fibreboard."  See Note 11 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 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)
                                                      (In millions of dollars)

Pre-NSP Settlements                                           $ 29
NSP Settlements                                                705
Non-NSP Settlements                                             41
Defense, Claims Processing and  Administrative Expenses         45
                                                              ----
                                                              $820

<PAGE>

                                     - 39 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

10.   CONTINGENT LIABILITIES (continued)

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

Reserve

Owens Corning  estimates a reserve for  Fibreboard in accordance  with generally
accepted accounting principles to reflect  asbestos-related  liabilities.  As of
June 30,  2002,  a reserve  of  approximately  $1.3  billion in respect of these
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."   These  liabilities
(including any reserve for the  charitable  remainder) are always at least equal
to  the  funds  held  in  the  Fibreboard   Settlement  Trust  and  Fibreboard's
Undistributed  Administrative  Deposits since, under the terms of the Trust, the
funds held in the Trust must be expended either in connection with  Fibreboard's
asbestos-related  liabilities,  or to satisfy the obligation  under the Trust to
distribute  to  charity  the  assets,  if  any,  remaining  in the  Trust  after
satisfaction of all such liabilities (see Note 11).

The  approximate  balances of the components of the Fibreboard  asbestos-related
reserve at  September  30, 2000 (the ending  date of the last  reporting  period
preceding the Petition Date) were:

                                                           September 30, 2000
                                                        (In billions of dollars)

NSP backlog                                                  $   0.80
Non-NSP backlog                                                  0.10
Future claims                                                    0.30
Defense, Claims Processing and Administrative Expenses           0.05

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

-    The "NSP backlog"  component  represented  the remaining  estimated cost of
     resolving Initial Claims against Fibreboard under the NSP.

-    The "Non-NSP backlog" component represented the estimated cost of resolving
     asbestos personal injury claims pending against Fibreboard outside the NSP.

-    The "Future claims"  component  represented the estimated cost of resolving
     (i) Future Claims against  Fibreboard under the NSP and (ii) non-NSP claims
     subsequently made against 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, 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.

<PAGE>

                                     - 40 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

10.   CONTINGENT LIABILITIES (continued)

At June 30, 2002,  as a result of the Filing and the  uncertainties  referred to
above,   the   approximate   balances  of  the   components  of  the  Fibreboard
asbestos-related reserve were:

                                                  Balance
                                          (In billions of dollars)

Unpaid Final Settlements (NSP and other)       $   0.40
Other Pending and Future Claims                    0.90

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  (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. This component also included the residual obligation to charity under
     the Fibreboard Settlement Trust (see Note 11).

Owens Corning believes that Fibreboard's  reserve for asbestos claims represents
at least a minimum in a range of possible  estimates  of the  ultimate  costs to
resolve  asbestos-related  claims  against  Fibreboard  through  the  Chapter 11
process.  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
revision to the reserve is  appropriate  until  significant  developments  occur
during  the  course  of  the  Chapter  11  Cases,  including  resolution  of the
uncertainties  described above. Any such revision could, however, be material to
the Company's  consolidated  financial position and results of operations in any
given period.

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

<PAGE>

                                     - 41 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

10.   CONTINGENT LIABILITIES (continued)

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 has taken the matter under advisement. The Company believes that the claim
is without merit.

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 $15.8 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".

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.

<PAGE>

                                     - 42 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

11.   FIBREBOARD SETTLEMENT TRUST

Under  the  Insurance  Settlement  described  in Note  10,  two of  Fibreboard's
insurers  provided  $1.873 billion during the fourth quarter of 1999 to fund the
costs of resolving pending and future Fibreboard  asbestos-related  liabilities.
As of June 30, 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.

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.  While there can be no assurance that the
proposed  Asbestos  Tax  Fairness  Bill  discussed  in Note 10,  Item A, will be
enacted  by  Congress,  such  legislation  would  benefit  the Trust  during the
pendency of the Chapter 11 proceedings by eliminating the tax on income, thereby
enlarging the corpus of the Trust through tax-free income accumulation.

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

General Accounting Treatment

The  assets  of the  Trust  are  comprised  of cash  and  marketable  securities
(collectively,   the  "Trust  Assets")  and,  with  Fibreboard's   Undistributed
Administrative  Deposits,  are reflected on Owens Corning's consolidated balance
sheet as restricted  assets.  At June 30, 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 10, Part B). As of June 30, 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."  These  liabilities  (including  any  reserve  for  the  charitable
remainder)  are  always  at  least  equal to the  funds  held in the  Trust  and
Fibreboard's Undistributed Administrative Deposits since, under the terms of the
Trust,  the funds held in the Trust must be expended  either in connection  with
Fibreboard's  asbestos-related  liabilities,  or to satisfy the obligation under
the Trust to  distribute to charity the assets,  if any,  remaining in the Trust
after  satisfaction  of all such  liabilities.  It will not be known whether any
such assets will remain for distribution  until the conclusion of the Chapter 11
Cases.  At  June  30,  2002,  the  Consolidated   Financial  Statements  reflect
Fibreboard's  reserve for asbestos  litigation claims at $1.208 billion,  with a
residual obligation to charity of $104 million.

For accounting  purposes,  the Trust Assets are classified  from time to time as
"available for sale" or "held to maturity" and are reported in the  Consolidated
Financial  Statements in accordance  with SFAS No. 115,  "Accounting for Certain
Investments in Debt and Equity Securities."  Accordingly,  marketable securities
classified  as  available  for  sale  are  recorded  at fair  market  value  and
marketable  securities  designated as held to maturity are recorded at amortized
cost.  At June 30, 2002 and  December  31, 2001,  substantially  all  marketable
securities were classified as "available for sale".

<PAGE>

                                     - 43 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

11.   FIBREBOARD SETTLEMENT TRUST (continued)

Any unrealized  increase/decrease  in fair market value is reflected as a change
in the carrying amount of the asset on the consolidated balance sheet as well as
an increase/decrease to other comprehensive income within stockholders'  equity,
net of tax.  The  residual  liability  that  may be paid to  charity  will  also
increase/decrease,  with a  related  decrease/increase  to  other  comprehensive
income within stockholders' equity, net of tax.

Any earnings and realized  gains/losses  on the Trust Assets are 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.

The residual liability that may be paid to charity will also  increase/decrease,
with related other expense/income on the consolidated  statement of income. Cost
for purposes of computing realized gains/losses is determined using the specific
identification method.

Results for the Period Ending June 30, 2002

During  the  second   quarter  of  2002  and  2001,   Trust   Assets   generated
interest/dividend  earnings  of  approximately  $13  million  in both years ($26
million and $29  million,  respectively,  for the first six months of the year),
which have been recorded as an increase in the carrying  amount of the assets on
Owens  Corning's   consolidated  balance  sheet  and  as  other  income  on  the
consolidated  statement  of income.  During  each  period,  this income has been
offset by an equal charge to other expense,  which represents an increase in the
residual liability to charity.

As a result of the Filing, there were no payments for asbestos litigation claims
from the Trust during the second quarter of 2002 or 2001. However, approximately
$1 million  was paid  during the second  quarter of 2002 and $2 million was paid
during the six months  ended June 30, 2002 for taxes  related to earnings of the
Trust.  This payment was funded by existing  cash in the Trust or proceeds  from
the sale of securities. The sale of securities during the second quarter of 2002
resulted in a realized  loss of $1 million,  while there was a realized  gain of
less  than $1  million  in  2001.  Realized  gains  or  losses  from the sale of
securities  are  reflected on the  Company's  financial  statements  in the same
manner as actual returns on Trust Assets, described above.

At June 30, 2002 and 2001, the fair market value adjustment for those securities
designated as available for sale resulted in an unrealized gain of approximately
$10 million and an unrealized loss of  approximately  $1 million,  respectively.
These amounts have been reflected in the Company's consolidated balance sheet as
a change to the carrying amount of the asset and to other comprehensive  income.
These amounts have also been  reflected as a change to the liability to charity,
with a corresponding effect to other comprehensive income.

At June 30, 2002, the fair value of Trust Assets and Administrative Deposits was
$1.312  billion,  which was  comprised  of Trust  Assets of  $1.203  billion  of
marketable securities and $18 million of outstanding payables and Administrative
Deposits of $127 million.

<PAGE>

                                     - 44 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

11.   FIBREBOARD SETTLEMENT TRUST (continued)

The amortized cost, gross unrealized  holding gains and losses and fair value of
the investment  securities  available for sale at June 30, 2002 and December 31,
2001 are as follows:

                                                 June 30, 2002
                                 Gross Unrealized           Gross Unrealized
                                  Cost        Gain          Loss      Fair Value
                                            (In millions of dollars)

Municipal Bonds                  $1,151        $10         $     -        $1,161
Corporate Bonds                       9          -                             9
Mutual Funds                         33          -               -            33
                                 ------        ---        --------        ------

Total                            $1,193        $10         $     -        $1,203
                                 ======        ===        ========        ======


                                                December 31, 2001
                                 Gross Unrealized             Gross Unrealized
                               Cost           Gain           Loss     Fair Value
                                              (In millions of dollars)

Municipal Bonds               $1,150         $     -         $   -        $1,150
Mutual Funds                      19               -             -            19
                              ------        --------        ------        ------

Total                         $1,169         $     -         $   -        $1,169
                              ======        ========        ======        ======

Maturities of investment securities classified as available for sale at June 30,
2002 and December  31, 2001 by  contractual  maturity are shown below.  Expected
maturities will differ from contractual  maturities  because  borrowers may have
the right to recall or prepay  obligations  with or without  call or  prepayment
penalties.

<TABLE>
<CAPTION>
                                                 June 30, 2002          December 31, 2001
                                               Cost     Fair Value      Cost     Fair Value
                                                        (In millions of dollars)

<S>                                          <C>          <C>          <C>          <C>
Due within one year                          $  117       $  117       $   91       $   91
Due after one year through five years           738          747          679          679
Due after five years through ten years          152          153          171          171
Due after ten years                             186          186          228          228
                                             ------       ------       ------       ------
Total                                        $1,193       $1,203       $1,169       $1,169
                                             ======       ======       ======       ======
</TABLE>

<PAGE>

                                     - 45 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

11.   FIBREBOARD SETTLEMENT TRUST (continued)

The table below summarizes Trust and Administrative Deposits activity for the
six months ended June 30, 2002:
<TABLE>
<CAPTION>

                                                     Interest Unrealized Net Sales   Realized
                                            Balance    and       Gain/     of         Gain/                       Balance
                                           12/31/01 Dividends   (Loss)  Securities   (Loss)   Other    Payments     6/30/02
                                           -------- ---------   ------  ----------   ------   -----    --------     -------
                                                                     (In millions of dollars)
<S>                                        <C>         <C>        <C>    <C>          <C>       <C>     <C>         <C>
Assets
Cash (payable for purchase of securities)  $   (18)    $ -        $ -    $    -       $ -       $ -     $     -     $   (18)
Marketable securities:
  Available for sale                         1,169      26         10         -        (1)        1          (2)      1,203
                                           -------     ---        ---    ------       ---       ---     -------     -------

     Total Trust assets                      1,151      26         10         -        (1)        1          (2)      1,185
                                           -------     ---        ---    ------       ---       ---     -------     -------

Administrative Deposits                        133       -          -         -         -        (6)          -         127
                                           -------     ---        ---    ------       ---       ---     -------     -------

Total assets                               $ 1,284     $26        $10    $    -       $(1)      $(5)    $    (2)    $ 1,312
                                           =======     ===        ===    ======       ===       ===     =======     =======

Liabilities
Asbestos litigation claims                 $ 1,213     $ -        $ -    $    -     $   -       $(5)    $     -     $ 1,208
Charity                                         71      26         10         -        (1)        -          (2)        104
                                           -------     ---        ---    ------       ---       ---     -------     -------

Total liabilities                          $ 1,284     $26        $10    $    -       $(1)      $(5)    $    (2)    $ 1,312
                                           =======     ===        ===    ======       ===       ===     =======     =======
</TABLE>

<PAGE>

                                     - 46 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

12.   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 will use to account for goodwill and other  intangibles  in the future.  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".

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 quarter and six months ended June
30, 2002, were as follows:

                                          Quarter Ended June 30, 2002
                                          ---------------------------
                                                            Foreign   Balance at
                                 Balance at                 Exchange   June 30,
                               March 31, 2002 Reallocation and Other     2002
                               -------------- ------------ ---------     ----
                                              (In millions of dollars)
Composite Solutions                $ 31           $(15)        $2        $ 18
Building Materials Systems           90             15          1         106
                                   ----           ----         --        ----

Total                              $121           $  -         $3        $124
                                   ====           ====         ==        ====

<PAGE>

                                     - 47 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

12.   GOODWILL AND OTHER INTANGIBLES (continued)

                                     Six Months Ended June 30, 2002
                                     ------------------------------
                                     Effect of                Foreign
                      Balance at     Adopting                Exchange    Balance
                      December 31,     SFAS                     and      at June
                         2001         No. 142   Reallocation   Other    30, 2002
                         ----         -------   ------------   -----    --------
                                          (In millions of dollars)
Composite Solutions       $ 33        $   -         $(15)      $   -      $ 18
Building Materials         577         (491)          15           5       106
                          ----        -----         ----          --      ----

Total                     $610        $(491)        $  -          $5      $124
                          ====        =====         ====          ==      ====

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, 2001 is presented as follows:

                                                         Quarter Ended
                                              June 30, 2002        June 30, 2001
                                              -------------        -------------
                                 (In millions of dollars, except per share data)

Net income:
  Reported net income                              $   36             $   29
  Add back goodwill amortization, net of tax            -                  4
                                                   ------             ------
Adjusted net income                                $   36             $   33
                                                   ======             ======

Basic earnings per share:
  As reported                                      $  .65             $  .53
  Add back goodwill amortization, net of tax            -                .07
                                                   ------             ------
Adjusted basic earnings per share                  $  .65             $  .60
                                                   ======             ======

Diluted earnings per share:
  As reported                                      $  .60             $  .49
  Add back goodwill amortization, net of tax            -                .07
                                                   ------             ------
Adjusted diluted earnings per share                $  .60             $  .56
                                                   ======             ======

<PAGE>

                                     - 48 -

                         OWENS CORNING AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (unaudited)

12.   GOODWILL AND OTHER INTANGIBLES (continued)

                                                       Six Months Ended
                                           June 30, 2002          June 30, 2001
                                           -------------          -------------
                                 (In millions of dollars, except per share data)

Net income (loss):
  Reported net income (loss)                   $  (411)               $   19
  Add back cumulative effect of change in
     accounting principle, net of tax              441                     -
  Add back goodwill amortization, net of tax         -                     7
                                               -------                ------
Adjusted net income                            $    30                $   26
                                               =======                ======

Basic earnings (loss) per share:
  As reported                                  $ (7.47)               $  .34
  Add back cumulative effect of change in
     accounting principle, net of tax             8.01                     -
  Add back goodwill amortization, net of tax         -                   .13
                                               -------                ------
Adjusted basic earnings per share              $   .54                $  .47
                                               =======                ======

Diluted earnings (loss) per share:
  As reported                                  $ (7.47)               $  .32
  Add back cumulative effect of change in
     accounting principle, net of tax             8.01                     -
  Add back goodwill amortization, net of tax         -                   .12
  Add back net impact of anti-dilutive shares
     outstanding (Note 8)                         (.04)                    -
                                               -------                ------
Adjusted diluted earnings per share            $   .50                $  .44
                                               =======                ======

All  of  the  Company's   acquired  other  intangible   assets  are  subject  to
amortization.  Other intangible asset amortization  expense was approximately $1
million  in the second  quarter of 2002 and 2001.  The  Company  estimates  that
amortization  of intangibles  will be  approximately  $3 million for each of the
next five years. The components of other intangible assets are as follows:

                                                   June 30, 2002
                                                   -------------
                                 Weighted Average  Gross Carrying    Accumulated
                                        Lives          Amount       Amortization
                                        -----          ------       ------------
                                               (In millions of dollars)
Contract-based                             6             $ 3            $ (1)
Technology-based                          22              17              (7)
Marketing-related                          6              13              (8)
                                                         ---            ----
                                                         $33            $(16)
                                                         ===            ====

<PAGE>

                                     - 49 -

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

(All per share information in Item 2 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,   material  and  energy  costs,  residential  construction  activity,
mortgage  interest rate  movements,  achievement  of expected  cost  reductions,
developments in and the outcome of the Chapter 11 proceedings  described  below,
and general economic conditions.

GENERAL

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").  The  subsidiary  Debtors that filed  Chapter 11  petitions  for
relief are:

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

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

<PAGE>

                                     - 50 -

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

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.

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  claimants
against  one or  more  of the  Debtors.  The  two  committees  and  the  futures
representative  will have the right to be heard on all matters  that come before
the  Bankruptcy  Court.  Owens  Corning  expects that these  committees  and the
futures representative will play important roles in the Chapter 11 Cases and the
negotiation of the terms of any plan or plans of reorganization.

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 file
and seek  confirmation of such a plan or plans,  there can be no assurance as to
when the Debtors will file such a plan or plans, or that such plan or plans 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 Debtors' filing or confirmation of such plan or plans or its effect, if any,
on the terms thereof.

As provided by the  Bankruptcy  Code,  the Debtors  initially  had the exclusive
right to propose a plan of  reorganization  for 120 days  following the Petition
Date,  until February 2, 2001. By subsequent  action,  the Bankruptcy  Court has
extended such exclusivity  period until August 30, 2002, and similarly  extended
the Debtors'  exclusive rights to solicit  acceptances of a reorganization  plan
from April 3, 2001 to October 31,  2002.  If the Debtors  fail to file a plan of
reorganization prior to the ultimate expiration of the exclusivity period, or if
such plan is not  accepted  by the  requisite  numbers of  creditors  and equity
holders  entitled to vote on the plan,  other parties in interest in the Chapter
11 Cases may be permitted to propose their own plan(s) of reorganization for the
Debtors.

Owens  Corning is unable to predict at this time what the treatment of creditors
and equity holders of the respective  Debtors will be under any proposed plan or
plans of  reorganization.  Such plan or plans may provide,  among other  things,
that all present and future  asbestos-related  liabilities  of Owens Corning and
Fibreboard  will  be  discharged  and  assumed  and  resolved  by  one  or  more
independently administered trusts

<PAGE>

                                     - 51 -

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

established in compliance with Section 524(g) of the Bankruptcy  Code. Such plan
or plans may also provide for the issuance of 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 one or more Section 524(g) trusts. 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.

Owens Corning is unable to predict at this time what  treatment will be accorded
under  any such  reorganization  plan or plans  to  inter-company  indebtedness,
licenses,   transfers  of  goods  and  services  and  other   inter-company  and
intra-company  arrangements,  transactions and  relationships  that were entered
into  prior  to  the  Petition  Date.  These   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  such plan or plans 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 be under any such  plan or plans  with  respect  to (1) the
guaranties  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 now in default) or (2) OCFT's license agreements with Owens Corning and
Exterior Systems, Inc., a wholly-owned subsidiary of Owens Corning ("Exterior"),
pursuant  to which OCFT  licenses  intellectual  property  to Owens  Corning and
Exterior.

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. There is no assurance that there will be sufficient assets
to satisfy the Debtors'  pre-petition  liabilities  in whole or in part, and the
pre-petition  creditors of some Debtors may be treated differently than those of
other  Debtors.  Pre-petition  creditors  may receive under a plan or plans less
than  100% of the  face  value  of  their  claims,  and the  interests  of Owens
Corning's equity security  holders may be substantially  diluted or cancelled in
whole or in part. As noted above, it is not possible at this time to predict the
outcome of the Chapter 11 Cases, the effect of the Administrative Consolidation,
the terms and provisions of any plan or plans of  reorganization,  or the effect
of the Chapter 11  reorganization  process on the claims of the creditors of the
Debtors or the interests of Owens Corning's equity security holders.

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.

<PAGE>

                                     - 52 -

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

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  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  $15.8  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 will file a motion to dismiss
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 June 30, 2002, the
remaining filed proofs of claim included  approximately  9,000 claims,  totaling
approximately $7.4 billion, as follows:

-    Approximately 2,900 claims, totaling approximately $1.2 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 10 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.

<PAGE>

                                     - 53 -

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

-    Approximately 5,500 claims,  totaling approximately $5.5 billion,  alleging
     rights  to  payment  for  financing,  environmental,  trade  debt and other
     matters  (the  "General  Claims").  The  Company  has  previously  recorded
     approximately $3.6 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  10  to  the
     Consolidated  Financial  Statements);  a contingent claim for approximately
     $458 million by the Pension Benefit Guaranty Corporation, as described more
     fully  under  the  heading  "PBGC  Claim"  in Note  10 to the  Consolidated
     Financial  Statements;  a $275 million class action claim involving alleged
     problems  with a specialty  roofing  product,  which Owens Corning does not
     believe is meritorious  based upon its historic  experience  with servicing
     its warranty  program for such  product;  claims for  contract  rejections,
     totaling  approximately $260 million,  of which  approximately $200 million
     are protective  claims  covering  contracts which have not been rejected by
     the  Debtors  as of June  30,  2002;  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.

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  2,700 proofs of claim (in addition to claims
described above under "General Bar Date"),  totaling approximately $2.1 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  900,  totaling  approximately  $0.4
billion, as Objectionable Claims, for which it will file a motion to dismiss. Of
the  remaining  claims,  Owens  Corning  believes  that a  substantial  majority
represented  claimants  that had  previously  asserted  asbestos-related  claims
against the Company.  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 10 to the  Consolidated  Financial  Statements  for  additional
information concerning asbestos-related liabilities.

<PAGE>

                                     - 54 -

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

RESULTS OF OPERATIONS

Business Overview

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

Owens  Corning's   strategy  also  includes  the  divestiture  of  non-strategic
businesses and the realignment of existing businesses.  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. 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.

Quarter and Six Months Ended June 30, 2002

SALES AND PROFITABILITY FOR THE QUARTER ENDED JUNE 30, 2002

Net sales for the quarter  ended June 30, 2002 were $1.285  billion,  up 4% from
the second quarter of 2001 level of $1.239  billion,  principally  due to higher
volumes in U.S. Building Materials partially offset by lower sales volume in the
European composite market.  Sales in the Building Materials segment increased 6%
to $937 million in the second  quarter of 2002,  compared to $885 million in the
second  quarter  of  2001,  due to  volume  increases  in the  U.S.  residential
insulation  and  roofing  markets,  partially  offset  by lower  prices  in U.S.
residential insulation markets. In the Composite Solutions business,  sales were
$348  million  during the second  quarter of 2002,  down 2% from $354 million in
2001 primarily due to lower sales volume in Europe,  partially  offset by higher
sales volume in the U.S. and Asia Pacific. Please see Note 2 to the Consolidated
Financial  Statements for further  details of segment  sales.  On a consolidated
basis, there was a favorable currency translation impact on sales denominated in
foreign  currencies  during the second  quarter of 2002  compared  to the second
quarter of 2001.

Sales outside the U.S.  represented 13% of total sales during the second quarter
of 2002,  compared  to 15% during  the first  quarter  of 2001.  The  decline in
non-U.S.  sales is  primarily  due to  decreases  in sales  volume in  composite
materials in Europe.

Gross  margin for the  quarters  ended June 30, 2002 and 2001 was 19% and 18% of
net sales, respectively. Marketing and administrative expenses increased to $144
million in the second  quarter of 2002,  compared to $128  million in the second
quarter of 2001,  primarily  as the  result of  programs  supporting  our growth
initiatives,  employee  training,  and  selling  costs  associated  with  higher
Building Material sales volume.

<PAGE>

                                     - 55 -

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

On a comparative basis, income from operations  increased to $70 million for the
quarter ended June 30, 2002 from $57 million in 2001, primarily reflecting lower
Chapter 11  related  costs,  asbestos  insurance  proceeds,  and a credit in the
second quarter of 2002 for restructure and other charges compared to a charge in
2001.  Please  see the table  below for  further  details of these  items.  Also
negatively impacting income from operations were increased costs associated with
post-retirement health and pension related expenses, which were up approximately
$8  million  from the  second  quarter  2001,  due  mainly  to  changes  in plan
assumptions  and prior declines in plan asset values.  Primary drivers of income
from  operations  in our business  segments  were sales volume  increases in our
Building Materials market and productivity  improvements across most businesses,
partially offset by price and volume decreases in our Composites business. Other
contributing  factors to income from  operations  for the second quarter 2002 in
the Building Materials segment were lower energy costs,  higher asphalt costs in
residential  roofing,  increased  operating  expenses as a result of spending in
support of our growth initiatives,  as well as higher selling costs attributable
to a  higher  sales  volume.  Please  see Note 2 to the  Consolidated  Financial
Statements for further details of segment income from operations.

Income from ongoing  operations  is a  measurement  utilized by  management  for
evaluating  the results of the Company.  It is provided to give an indication of
the  performance  of the Company after taking into account the items detailed in
the table below. Income from ongoing operations is not a recognized  measurement
of results under accounting  principles generally accepted in the United States,
and may not be consistent with similarly titled amounts of other companies.  The
reconciliation  from income from operations to income from ongoing operations is
as follows:

                                                                 Quarter Ended
                                                                    June 30,
                                                        (In millions of dollars)
                                                                 2002       2001
                                                                 ----       ----
Reported income from operations                                  $ 70        $57
Restructure (credit)/charges (See below)                           (1)         7
Other (credits)/charges in cost of sales and operating
  expenses (See below)                                             (2)        10
Chapter 11 related reorganization items (See Note 1)               25         17
Proceeds from insurance for asbestos litigation claims,
  excluding Fibreboard (See Note 10)                               (5)         -
                                                                 ----        ---
Income from ongoing operations                                   $ 87        $91
                                                                 ====        ===

For the quarter ended June 30, 2002,  Owens  Corning  reported net income of $36
million,  or $.60 per share on a diluted  basis,  compared  to net income of $29
million,  or $.49 per share on a diluted  basis,  for the quarter ended June 31,
2001. Cost of borrowed funds was $4 million for each of the referenced  quarters
(from the Petition Date through June 30, 2002,  contractual interest expense not
accrued or recorded on  pre-petition  debt  totaled $294  million,  of which $35
million  relates to the second  quarter of 2002 and $44  million  relates to the
second  quarter  of  2001  (please  see  Note  1 to the  Consolidated  Financial
Statements)).

SALES AND PROFITABILITY FOR THE SIX MONTHS ENDED JUNE 30, 2002

Net sales for the six months  ended June 30, 2002 were $2.392  billion,  up from
the $2.306 billion reported for the first six months of 2001, principally due to
higher volumes in U.S. Building Materials partially offset by volume declines in
the European composite market.



<PAGE>


                                     - 56 -

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

On a comparative basis, income from operations for the six months ended June 30,
2002 was $73  million  compared  to $40  million  for 2001.  This  increase  was
primarily  attributable  to lower  restructure  and other  charges and  asbestos
insurance proceeds, partially offset by an increase in Chapter 11 related costs.
Please  see the  table  below  for  further  details  of  these  items.  Further
negatively  impacting income from operations was increased costs associated with
post-retirement health and pension related expenses, which were up approximately
$18  million  from the six  months  ended  2001,  due  mainly to changes in plan
assumptions and prior declines in plan asset values.  Factors  affecting  income
from  operations  in our business  segments  include  sales volume  increases in
Building  Materials and decreased  material and energy costs for both  segments,
partially  offset by lower price and higher  operating  expenses in our Building
Materials businesses. Please see Note 2 to the Consolidated Financial Statements
for further details of segment income from operations.

The reconciliation from income from operations to income from ongoing operations
(see description above) is as follows:

                                                                Six Months Ended
                                                                    June 30,
                                                        (In millions of dollars)
                                                                2002        2001
                                                                ----        ----
Reported income from operations                                $  73        $ 40
Restructure charges (See below)                                    7          16
Other charges in cost of sales and operating expenses
  (See below)                                                      2          43
Chapter 11 related reorganization items (See Note 1)              50          38
Proceeds from insurance for asbestos litigation claims,
  excluding Fibreboard (See Note 10)                              (5)          -
                                                               -----        ----
Income from ongoing operations                                 $ 127        $137
                                                               =====        ====

The net loss for the six months ended June 30, 2002 was $411 million, or $(7.47)
per share  compared  to net income of $19 million or $.32 per share for the same
period  in 2001.  Results  for the six  months  ended  June 30,  2002  reflect a
non-cash  charge of $491 million  ($441 million net of tax) as the result of the
implementation   of  SFAS  No.  142  (see  discussion  below  under  "Accounting
Changes").  Cost of  borrowed  funds was $8 million  for each of the  referenced
periods  (contractual  interest  expense not accrued or recorded on pre-petition
debt  totaled $71 million for the six months ended June 30, 2002 and $93 million
for the six months  ended June 30, 2001  (please see Note 1 to the  Consolidated
Financial Statements)).

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 has initiated a  comprehensive  strategic
review  of its  businesses.  During  the  course  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 the second
half of  2002  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.


<PAGE>


                                     - 57 -

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

SECOND QUARTER 2002

During the second quarter of 2002, certain restructuring programs put into place
during 2000 and 2001  continued  due to the timing of events in these  programs.
The  combination of these  continued  restructuring  programs led to the Company
recording  approximately  $3 million in a pretax credit in the second quarter of
2002.  This pretax credit was  comprised of a $5 million  pretax credit to other
operating  expense, a $1 million pretax credit to restructure charge (classified
as a separate component of operating  expenses in the Consolidated  Statement of
Income (Loss)),  and a $3 million pretax charge to cost of sales.  The credit to
other  operating  expense  included a credit for the settlement of certain funds
subject  to an  administrative  freeze  that were  previously  determined  to be
unrealizable (See Note 1). The rights to these funds were originally transferred
to the  Company as part of the sale of the  Company's  40%  interest  in Alcopor
Owens  Corning  (See  Note 5).  The  charge  to cost of sales  included  charges
associated with the Company's  previously  announced plan to realign its Newark,
Ohio  manufacturing  facility  and a write down to  inventory  mainly to reflect
updated estimates of the net realizable value.

FIRST QUARTER 2002

In response to the slowed economy and to the declining margins in the composites
business,  the  Company  has  continued  to assess  cost  structures  of certain
businesses  and  facilities  as well as  overhead  expenditures  for the  entire
company. In addition,  certain restructuring programs put into place during 2000
and 2001  continued in the first  quarter of 2002 due to the timing of events in
these programs.  The combination of these continued  restructuring  programs and
the  continued  assessment  of  the  businesses  led to  the  Company  recording
approximately  $12 million in pretax charges in the first quarter of 2002. These
pretax charges were comprised of an $8 million pretax  restructure charge and $4
million of pretax other charges.  The restructure  charge  represents  severance
costs associated with the elimination of approximately 230 positions,  primarily
in the U.S. The primary groups impacted include manufacturing and administrative
personnel.  As of June 30,  2002,  approximately  $4  million  has been paid and
charged  against the reserve.  The  restructure  charge has been classified as a
separate component of operating expenses on the Company's Consolidated Statement
of Income (Loss).

The $4 million in pretax other charges included $2 million in charges associated
with the Company's  realignment at its Newark,  Ohio manufacturing  facility and
various other charges  totaling $2 million.  The realignment plan for the Newark
facility was  announced in the third  quarter of 2000 and is  anticipated  to be
complete in the fourth  quarter of 2002.  As work  progresses  on the  facility,
costs are  recorded  as they are  incurred.  The $4  million  pretax  charge was
accounted for as a $5 million charge to cost of sales and a $1 million credit to
other operating expenses.

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 to the
Company  recording  approximately  $140 million in pretax  charges  during 2001,
comprised of a $26 million pretax  restructure charge and $114 million 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  charge for  restructuring  represents $21 million for severance
costs associated with the elimination of approximately 460 positions,  primarily
impacting manufacturing and administrative personnel in the U.S., Canada and the
U.K. The remaining $5 million represented a charge for the

<PAGE>

                                     - 58 -

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

divestiture of non-strategic  businesses and facilities,  which consisted mainly
of non-cash  asset  write-downs to fair value and exit cost  liabilities.  As of
June 30, 2002,  approximately $19 million has been paid and charged against this
reserve.

The $114 million of other  charges  included $29 million in costs related to the
realignment  of  the  Newark  manufacturing   facility;  $39  million  of  asset
impairments mainly associated with the building materials business,  principally
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;  $6 million to write down inventory mainly to reflect
updated  estimates of the net  realizable  value;  $4 million to write-down  the
Company's  investment and related assets in Alcopor Owens Corning, a producer of
insulation  products in Europe and the United Kingdom,  to net realizable  value
(the sale of the Company's investment in this joint venture was completed in the
fourth  quarter of 2001);  a $2 million  pretax  loss from  assets held for sale
which represented the results of operations for the Company's investments in its
Pipe joint  ventures and  subsidiaries  on a  held-for-sale  basis (the sale was
completed in February 2001); and various other charges totaling $34 million.

Income Taxes

The Company  currently  projects  that its  effective tax rate for the full year
2002 will be 46%, compared to 55% for the full year 2001.

LIQUIDITY, CAPITAL RESOURCES AND OTHER RELATED MATTERS

Cash flow from  operations  used $105  million in the six months  ended June 30,
2002,  compared to positive  $30 million for the six months ended June 30, 2001.
The decrease in cash flow from  operations in 2002 is primarily  attributable to
the cash flow effect of a decrease in  accounts  payable of $119  million in the
six months  ended June 30,  2002  compared  to an increase of $78 million in the
same period of 2001.

Inventories at June 30, 2002 increased by $13 million from the December 31, 2001
level due largely to the seasonal build of inventories.  Receivables at June 30,
2002 were $585  million,  a $168  million  increase  over the  December 31, 2001
level,  attributable to the seasonal  increase in sales. At June 30, 2002, Owens
Corning's  net working  capital was $870 million and our current ratio was 2.16,
compared to $800 million and 1.94,  respectively,  at December 31, 2001 and $948
million and 2.33, respectively, at June 30, 2001.

Investing  activities  used $99 million of cash during the six months ended June
30, 2002,  compared to $62 million in the same period of 2001.  Capital spending
for property,  plant and equipment,  excluding acquisitions,  for the six months
was $104  million  in 2002 and $83  million  in 2001.  We  anticipate  that 2002
spending for capital and  investments  will be  approximately  $280  million,  a
portion of which is uncommitted.  We expect that funding for these  expenditures
will be from the Company's operations and existing cash on hand.

Financing  activities  in the six months  ended June 30, 2002  resulted in a $17
million  decrease in cash compared to an increase of $6 million  during the same
period in 2001. The results for 2002 reflect an $18 million application of funds
previously  subject to  administrative  freeze (see discussion below) to satisfy
certain  pre-petition  indebtedness.  At June 30, 2002, we had $2.831 billion of
borrowings  subject to compromise and $114 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 June 30, 2001, we
had $2.838 billion of borrowings subject to compromise and $119 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).

<PAGE>

                                     - 59 -

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

At June 30, 2002, the Company had $553 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 currently expires November 15, 2002.
There were no  borrowings  outstanding  under the DIP facility at June 30, 2002,
however,  approximately  $54  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
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.

Accounting Changes

Effective  January 1, 2001,  the  Company  implemented  Statement  of  Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities"  (SFAS 133), see Note 9 to the  Consolidated  Financial  Statements.
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. The impact of adoption
at January 1, 2001 did not have a material effect in the Consolidated  Statement
of Income (Loss) and resulted in other comprehensive  income of approximately $1
million.

Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 142,  "Goodwill and Other Intangible Assets" (SFAS No. 142), which
it will use to account for goodwill and other  intangibles  in the future.  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.

<PAGE>

                                     - 60 -

ITEM 2.       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".

Determining the fair value of goodwill  through the allocation of the fair value
to the underlying assets and liabilities requires management to make significant
assumptions,  including but not limited to,  projections of cash flow,  discount
rate,  and  general  market  conditions.  Management's  judgments  are  based on
historical  experience,  market trends,  economic trends, and other information.
While  management  believes their estimates  based on the  assumptions  used are
reasonable, actual results could differ from these estimates.

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 to the  Consolidated  Financial
Statements).

The changes in goodwill by segment  during the quarter and six months ended June
30, 2002, were as follows:

                                          Quarter Ended June 30, 2002
                                          ---------------------------
                                                            Foreign   Balance at
                                 Balance at                 Exchange   June 30,
                               March 31, 2002 Reallocation and Other     2002
                               -------------- ------------ ---------     ----
                                              (In millions of dollars)
Composite Solutions                $ 31           $(15)        $2        $ 18
Building Materials Systems           90             15          1         106
                                   ----           ----         --        ----

Total                              $121           $  -         $3        $124
                                   ====           ====         ==        ====

<PAGE>

                                     - 61 -

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

                                     Six Months Ended June 30, 2002
                                     ------------------------------
                                     Effect of                Foreign
                      Balance at     Adopting                Exchange    Balance
                      December 31,     SFAS                     and      at June
                         2001         No. 142   Reallocation   Other    30, 2002
                         ----         -------   ------------   -----    --------
                                          (In millions of dollars)
Composite Solutions       $ 33        $   -         $(15)      $   -      $ 18
Building Materials         577         (491)          15           5       106
                          ----        -----         ----          --      ----

Total                     $610        $(491)        $  -          $5      $124
                          ====        =====         ====          ==      ====

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, 2001 is presented as follows:

                                                         Quarter Ended
                                              June 30, 2002        June 30, 2001
                                              -------------        -------------
                                 (In millions of dollars, except per share data)

Net income:
  Reported net income                              $   36             $   29
  Add back goodwill amortization, net of tax            -                  4
                                                   ------             ------
Adjusted net income                                $   36             $   33
                                                   ======             ======

Basic earnings per share:
  As reported                                      $  .65             $  .53
  Add back goodwill amortization, net of tax            -                .07
                                                   ------             ------
Adjusted basic earnings per share                  $  .65             $  .60
                                                   ======             ======

Diluted earnings per share:
  As reported                                      $  .60             $  .49
  Add back goodwill amortization, net of tax            -                .07
                                                   ------             ------
Adjusted diluted earnings per share                $  .60             $  .56
                                                   ======             ======

<PAGE>

                                     - 62 -

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

                                                       Six Months Ended
                                           June 30, 2002          June 30, 2001
                                           -------------          -------------
                                 (In millions of dollars, except per share data)

Net income (loss):
  Reported net income (loss)                   $  (411)               $   19
  Add back cumulative effect of change in
     accounting principle, net of tax              441                     -
  Add back goodwill amortization, net of tax         -                     7
                                               -------                ------
Adjusted net income                            $    30                $   26
                                               =======                ======

Basic earnings (loss) per share:
  As reported                                  $ (7.47)               $  .34
  Add back cumulative effect of change in
     accounting principle, net of tax             8.01                     -
  Add back goodwill amortization, net of tax         -                   .13
                                               -------                ------
Adjusted basic earnings per share              $   .54                $  .47
                                               =======                ======

Diluted earnings (loss) per share:
  As reported                                  $ (7.47)               $  .32
  Add back cumulative effect of change in
     accounting principle, net of tax             8.01                     -
  Add back goodwill amortization, net of tax         -                   .12
  Add back net impact of anti-dilutive shares
     outstanding (Note 8)                         (.04)                    -
                                               -------                ------
Adjusted diluted earnings per share            $   .50                $  .44
                                               =======                ======

All  of  the  Company's   acquired  other  intangible   assets  are  subject  to
amortization.  Other intangible asset amortization  expense was approximately $1
million  in the second  quarter of 2002 and 2001.  The  Company  estimates  that
amortization  of intangibles  will be  approximately  $3 million for each of the
next five years. The components of other intangible assets are as follows:

                                                   June 30, 2002
                                                   -------------
                                 Weighted Average  Gross Carrying    Accumulated
                                        Lives          Amount       Amortization
                                        -----          ------       ------------
                                               (In millions of dollars)
Contract-based                             6             $ 3            $ (1)
Technology-based                          22              17              (7)
Marketing-related                          6              13              (8)
                                                         ---            ----
                                                         $33            $(16)
                                                         ===            ====

<PAGE>

                                     - 63 -

ITEM 2.       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. 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  rescinds FASB  Statement No. 4, Reporting  Gains and Losses from
Extinguishment  of Debt, and an amendment of that Statement,  FASB Statement No.
64,  Extinguishments  of Debt Made to Satisfy  Sinking-Fund  Requirements.  This
Statement also rescinds FASB Statement No. 44,  Accounting for Intangible Assets
of Motor Carriers.  This Statement 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.   This  Statement   also  amends  other   existing   authoritative
pronouncements  to make various  technical  corrections,  clarify  meanings,  or
describe their applicability  under changed  conditions.  The impact of adoption
has not yet been determined.

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  impact  of  adoption  has not  yet  been
determined.

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 June 30, 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 $26 million reserve for our 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.

<PAGE>

                                     - 64 -

ITEM 3.       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  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.

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 speculative purposes.

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 maximum potential one-day loss in fair
value that the Company  would  expect from adverse  changes in foreign  currency
exchange  rates,  interest rates or natural gas prices assuming a 95% confidence
level:

                                  June 30,       December 31,
              Risk Category         2002             2001
              -------------         ----             ----
                                   (In millions of dollars)
              Foreign currency     $    -            $   -
              Interest rate        $    8            $  13
              Natural gas          $    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.

<PAGE>

                                     - 65 -

                           PART II. OTHER INFORMATION

ITEM 1.       LEGAL PROCEEDINGS

See Note 10, Contingent  Liabilities,  to Owens Corning's Consolidated Financial
Statements above, which 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
subsidiary Debtors that filed Chapter 11 petitions for relief are:

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

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 action to recover on pre-petition claims against the Debtors.  See Note
1,  Voluntary   Petition  for  Relief  Under  Chapter  11,  to  Owens  Corning's
Consolidated Financial Statements above.

ITEM 2.    CHANGES IN SECURITIES AND USE OF PROCEEDS

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. See Note 1, Voluntary Petition for
Relief Under Chapter 11, to Owens Corning's  Consolidated  Financial  Statements
above.


<PAGE>


                                     - 66 -

                     PART II. OTHER INFORMATION (continued)

ITEM 3.       DEFAULTS UPON SENIOR SECURITIES

Substantially  all of the Company's  pre-petition  debt is now in default due to
the Filing. See Note 1, Voluntary Petition for Relief Under Chapter 11, to Owens
Corning's  Consolidated  Financial Statements above. As described in Note 1, the
Consolidated  Financial Statements present the Debtors'  pre-petition debt under
the caption  "Liabilities  Subject to Compromise."  This includes debt under the
Pre-Petition Credit Facility and approximately $1.4 billion of other outstanding
debt.  As required by SOP 90-7,  at the Petition  Date the Company  recorded the
Debtors'  pre-petition debt instruments at the allowed amount, as defined by SOP
90-7.  The  Consolidated  Financial  Statements  present  pre-petition  debt  of
Non-Debtor  Subsidiaries  that is in default due to the Filing, in the amount of
approximately  $97 million as of June 30, 2002,  as current on the  Consolidated
Balance Sheet.

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

No matter was submitted to a vote of security holders during the quarter ended
June 30, 2002.

ITEM 5.       OTHER INFORMATION

The Company does not elect to report any information under this Item.

ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits.

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

(b)      Reports on Form 8-K.

o The Company did not file any reports on Form 8-K during the quarter ended June
30, 2002.



<PAGE>


                                     - 67 -

                                   SIGNATURES

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


                                                                  OWENS CORNING

                                                                  Registrant


Date: August 12, 2002                 By:  /s/ Michael H. Thaman
     ----------------                      ---------------------
                                           Michael H. Thaman
                                           Chairman of the Board and
                                           Chief Financial Officer
                                           (as duly authorized officer)



Date: August 12 , 2002                By:  /s/ Charles E. Dana
     -----------------                     -------------------
                                           Charles E. Dana
                                           Vice President - Corporate
                                           Controller and Global Sourcing

<PAGE>

                                     - 68 -

                                  EXHIBIT INDEX

Exhibit
Number                     Document Description

 (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).

(10)          Material Contracts

              Description of amendment of 1987 Stock Plan for Directors (filed
                    herewith).

(99)          Additional Exhibits

              Subsidiaries of Owens Corning, as amended (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 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).