# SECURITIES AND
EXCHANGE COMMISSIONWashington, 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, 2003

Commission File No.
1-3660

# Owens Corning

# One Owens Corning
Parkway

# Toledo, Ohio 43659

# Area Code (419)
248-8000

A Delaware Corporation

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

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

Yes / X /     No /     /

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

Yes /     /     No / X /

Shares
of common stock, par value $0.10 per share, outstanding at June 30, 2003

55,274,337

#  2 

# PART IITEM 1.     FINANCIAL STATEMENTS

# OWENS CORNING AND SUBSIDIARIESCONSOLIDATED STATEMENT
OF INCOME (LOSS)(unaudited)

|                                                               | Quarter Ended | Six Months Ended |   |      
|-------------------------------------------------------------- | ------------- | ---------------- | - | -----
|
|
|
|
|NET SALES                                                      |               |                  | $ | 1,239
|COST OF SALES                                                  |               |                  |   | 1,024
|                                                               |               |                  |   |      
|Gross margin                                                   |               |                  |   | 215  
|                                                               |               |                  |   |      
|OPERATING EXPENSES                                             |               |                 
|Marketing and administrative expenses                          |               |                  |   | 116  
|Science and technology expenses                                |               |                  |   | 10   
|Restructure costs (Note 4)                                     |               |                  |   | -    
|Chapter 11 related reorganization items (Notes 1  and 13)      |               |                  |   | 38   
|Credit for asbestos litigation claims - Owens Corning (Note 9) |               |                  |   | (4   
|Other (Note 4)                                                 |               |                  |   | 12   
|                                                               |               |                  |   |      
|Total operating expenses                                       |               |                  |   | 172  
|                                                               |               |                  |   |      
|INCOME FROM OPERATIONS                                         |               |                  |   | 43   
|                                                               |               |                 
|Interest expense, net                                          |               |                  |   | -    
|                                                               |               |                  |   |      
|INCOME BEFORE INCOME TAX EXPENSE                               |               |                  |   | 43   
|                                                               |               |                 
|Income tax expense                                             |               |                  |   | 24   
|                                                               |               |                  |   |      
|INCOME BEFORE MINORITY INTEREST AND EQUITY IN NET              |               |                 
|INCOME (LOSS) OF AFFILIATES                                    |               |                  |   | 19   
|                                                               |               |                 
|Minority interest                                              |               |                  |   | (1   
|Equity in net income (loss) of affiliates                      |               |                  |   | -    
|                                                               |               |                  |   |      
|NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN               |               |                 
|ACCOUNTING PRINCIPLE                                           |               |                  |   | 18   
|                                                               |               |                 
|Cumulative effect of change in accounting principle, net of    |               |                 
|tax (Note 11)                                                  |               |                  |   | -    
|                                                               |               |                  |   |      
|NET INCOME (LOSS)                                              |               |                  | $ | 18   
|                                                               |               |                  |   |      
|NET INCOME (LOSS) PER COMMON SHARE                             |               |                  |   |      
|Basic net income (loss) per share (Note 8)                     |               |                  | $ | 0.33 
|                                                               |               |                  |   |      
|Diluted net income (loss) per share (Note 8)                   |               |                  | $ | 0.30 
|                                                               |               |                  |   |      
|WEIGHTED AVERAGE NUMBER OF COMMON                              |               |                  |   |      
|SHARES OUTSTANDING AND COMMON                                  |               |                  |   |      
|EQUIVALENT SHARES DURING THE PERIOD                            |               |                  |   |      
|                                                               |               |                  |   |      
|Basic                                                          |               |                  |   | 55.2 
|Diluted                                                        |               |                  |   | 59.9 

The
accompanying notes are an integral part of this statement.

#  3 

# OWENS CORNING AND
SUBSIDIARIES CONSOLIDATED BALANCE SHEET(unaudited)

|                                                          | June 30, | December 31,
|--------------------------------------------------------- | -------- | ------------
|
|
|
|CURRENT                                                   |          |             
|Cash and cash equivalents (Note 1)                        |          |             
|Receivables                                               |          |             
|Inventories (Note 6)                                      |          |             
|Other current assets (Note 13)                            |          |             
|                                                          |          |             
|Total current                                             |          |             
|                                                          |          |             
|OTHER                                                     |          |             
|Restricted cash - asbestos and insurance related (Note 9) |          |             
|Restricted cash, securities, and other - Fibreboard       |          |             
|(Notes 9 and 10)                                          |          |             
|Deferred income taxes                                     |          |             
|Goodwill (Note 11)                                        |          |             
|Investment in affiliates                                  |          |             
|Other noncurrent assets (Note 13)                         |          |             
|                                                          |          |             
|Total other                                               |          |             
|                                                          |          |             
|PLANT AND EQUIPMENT, at cost                              |          |             
|Land                                                      |          |             
|Buildings and leasehold improvements                      |          |             
|Machinery and equipment                                   |          |             
|Construction in progress                                  |          |             
|                                                          |          |             
|                                                          |          |             
|Less - accumulated depreciation                           |          |             
|                                                          |          |             
|Net plant and equipment                                   |          |             
|                                                          |          |             
|                                                          |          |             
|TOTAL ASSETS                                              |          |             
|                                                          |          |             

The
accompanying notes are an integral part of this statement.

#  4 

# OWENS CORNING AND
SUBSIDIARIESCONSOLIDATED BALANCE
SHEET (continued)(unaudited)

|                                           | June 30, | December 31,
|------------------------------------------ | -------- | ------------
|
|
|
|CURRENT                                    |          |             
|Accounts payable and accrued liabilities   |          |             
|Short-term debt                            |          |             
|Long-term debt - current portion (Note 13) |          |             
|                                           |          |             
|Total current                              |          |             
|                                           |          |             
|                                           |          |             
|LONG-TERM DEBT (Note 13)                   |          |             
|                                           |          |             
|                                           |          |             
|OTHER                                      |          |             
|Other employee benefits liability          |          |             
|Pension plan liability                     |          |             
|Other                                      |          |             
|                                           |          |             
|Total other                                |          |             
|                                           |          |             
|                                           |          |             
|LIABILITIES SUBJECT TO COMPROMISE          |          |             
|(Notes 1, 9, and 13)                       |          |             
|                                           |          |             
|COMMITMENTS AND CONTINGENCIES              |          |             
|(Notes 1, 9, and 10)                       |          |             
|                                           |          |             
|COMPANY OBLIGATED SECURITIES OF ENTITIES   |          |             
|HOLDING SOLELY PARENT DEBENTURES -         |          |             
|SUBJECT TO COMPROMISE                      |          |             
|                                           |          |             
|                                           |          |             
|MINORITY INTEREST                          |          |             
|                                           |          |             
|                                           |          |             
|STOCKHOLDERS EQUITY                       |          |             
|Common stock                               |          |             
|Additional paid in capital                 |          |             
|Accumulated deficit                        |          |             
|Accumulated other comprehensive loss       |          |             
|Other                                      |          |             
|                                           |          |             
|Total stockholders equity                 |          |             
|                                           |          |             
|                                           |          |             
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |          |             
|                                           |          |             

The
accompanying notes are an integral part of this statement.

#  5 

# OWENS CORNING AND
SUBSIDIARIESCONSOLIDATED STATEMENT
OF CASH FLOWS(unaudited)

|                                                                         | Six Months Ended | 
|------------------------------------------------------------------------ | ---------------- | 
|
|
|
|
|NET CASH FLOW FROM OPERATIONS                                            |                  | 
|Net income (loss)                                                        |                  | 
|Reconciliation of net cash used in operating activities                  |                  | 
|Noncash items:                                                           |                  | 
|Provision for depreciation and amortization                              |                  | 
|Provision for impairment of fixed assets (Note 4)                        |                  | 
|Provision for deferred income taxes                                      |                  | 
|Cumulative effect of accounting change (Note 11)                         |                  | 
|Other (Note 1 and 13)                                                    |                  | 
|Increase in receivables                                                  |                  | 
|Increase in inventories                                                  |                  | 
|Decrease in accounts payable and accrued liabilities                     |                  | 
|(Increase) decrease in restricted cash - asbestos and insurance          |                  | 
|related (Note 9)                                                         |                  | 
|Increase in restricted cash, securities, and other - Fibreboard (Notes 9 |                  | 
|and 10)                                                                  |                  | 
|Change in liabilities subject to compromise (Note 1)                     |                  | 
|Proceeds from insurance for asbestos litigation claims, excluding        |                  | 
|Fibreboard                                                               |                  | 
|Other                                                                    |                  | 
|                                                                         |                  | 
|Net cash flow from operations                                            |                  | 
|                                                                         |                  | 
|NET CASH FLOW FROM INVESTING                                             |                  | 
|Additions to plant and equipment                                         |                  | 
|Investment in subsidiaries, net of cash acquired                         |                  | 
|Proceeds from the sale of affiliate or business (Note 5)                 |                  | 
|Other                                                                    |                  | 
|                                                                         |                  | 
|Net cash flow from investing                                             |                  | 
|                                                                         |                  | 
|NET CASH FLOW FROM FINANCING                                             |                  | 
|Other additions to long-term debt                                        |                  | 
|Other reductions to long-term debt (Note 13)                             |                  | 
|Net increase in short-term debt                                          |                  | 
|Subject to compromise (Note 1)                                           |                  | 
|Other                                                                    |                  | 
|                                                                         |                  | 
|Net cash flow from financing                                             |                  | 
|                                                                         |                  | 
|Effect of exchange rate changes on cash                                  |                  | 
|                                                                         |                  | 
|Net decrease in cash and cash equivalents                                |                  | 
|                                                                         |                  | 
|Cash and cash equivalents at beginning of period                         |                  | 
|                                                                         |                  | 
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                               |                  | 
|                                                                         |                  | 

The
accompanying notes are an integral part of this statement.

#  6 

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

# 1.       VOLUNTARY PETITION
FOR RELIEF UNDER CHAPTER 11

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

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

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

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

The Debtors filed
for relief under Chapter 11 to address the growing demands on Owens Cornings cash
flow resulting from its multi-billion dollar asbestos liability. This liability is
discussed in greater detail in Note 9 to the Consolidated Financial Statements.

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

On January 17, 2003,
the Debtors, together with the Official Committee of Asbestos Claimants and the Legal
Representative for the class of future asbestos claimants, filed a proposed joint plan of
reorganization in the USBC. The same proponents filed a proposed amended joint plan of
reorganization in the USBC on March 28, 2003, a proposed second amended joint plan of
reorganization in the USBC on May 23, 2003, and a proposed third amended joint plan of
reorganization (as so amended through such third amendment, the Plan) in the
USBC on August 8, 2003. Certain terms, conditions and provisions of the Plan are
discussed below. The Plan is subject to confirmation by the Bankruptcy Court.

#  7 

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

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

# Consequence of Filing

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

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

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

On May 22, 2003, the
United States Senate introduced proposed legislation (S 1125, also known as the Fairness
in Asbestos Injury Resolution Act of 2003 (the FAIR Act)) that, if enacted
into law, would establish an administrative claims resolution structure through which all
asbestos personal injury claims would be channeled and reviewed. The FAIR Act would also
establish a national trust fund, funded through mandated contributions from defendant
companies, insurance companies and existing trusts, that would be the source of
compensation of all approved claims. Under the present terms of the FAIR Act, companies
like Owens Corning and Fibreboard, that have filed for bankruptcy but have not yet
emerged through a confirmed plan of reorganization, would be included as participants in
the resolution structure.

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

#  8 

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

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

# The Plan of
Reorganization

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

The Plan is premised
upon the substantive consolidation of the Debtors (but not the Fibreboard Settlement
Trust (see Note 10 to the Consolidated Financial Statements)) for the purposes of voting,
determining which claims and interests will be entitled to vote to accept or reject the
Plan, confirmation of the Plan, and the resultant discharge of and cancellation of claims
and interests and distribution of assets, interests and other property under the Plan.
For these purposes, the Plan would treat all assets and liabilities of each Debtor
(excluding the Fibreboard Settlement Trust) as though they were merged into one
consolidated estate with the assets and liabilities of the other Debtors. Substantive
consolidation under the Plan will not result in the merger of or the transfer or
commingling of any assets of any of the Debtors or Non-Debtor Subsidiaries. Certain
creditor constituencies have asserted that substantive consolidation is not appropriate
and are challenging that approach in the Plan confirmation hearings described below.

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

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

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

#  9 

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

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

Under the Plan, a
majority of the newly issued common stock, together with notes, and cash, as well as the
assets of the existing Fibreboard Settlement Trust (see Note 10 to the Consolidated
Financial Statements), will fund a new trust created under the Plan intended to qualify
under Section 524(g) of the Bankruptcy Code. The Section 524(g) trust will assume all
obligations of Owens Corning, Fibreboard, and their respective subsidiaries and
affiliates, for current and future asbestos personal injury claims and demands, and will,
through Owens Corning and Fibreboard sub-accounts, make payments to claimants in
accordance with trust distribution procedures to be agreed upon. In addition, the Plan
provides for an injunction by the Bankruptcy Court pursuant to Section 524(g) of the
Bankruptcy Code that will enjoin actions against the reorganized Debtors for the purpose
of, directly or indirectly, collecting, recovering or receiving payment of, on, or with
respect to any claims resulting from asbestos-containing products allegedly manufactured,
sold or installed by Owens Corning or Fibreboard, which claims will be paid in whole or
in part by the Section 524(g) trust. Similar plans of reorganization have been confirmed
in the Chapter 11 cases of other companies involved in asbestos-related litigation.
Section 524(g) of the Bankruptcy Code provides that, if certain specified conditions are
satisfied, a court may issue a supplemental permanent injunction barring the assertion of
asbestos-related claims or demands against the reorganized company and channeling those
claims to an independent trust.

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

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

#  10 

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

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

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

# Bar Dates for Filing
Claims

GENERAL BAR DATE

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

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

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

In addition to the
Objectionable Claims described above, at June 30, 2003, the remaining filed proofs of
claim included approximately 9,000 claims, totaling approximately $7.7 billion, as
follows:

| | Approximately 2,900 claims, totaling approximately $1.4 billion, associated with
asbestos-related contribution, indemnity, reimbursement, or subrogation claims. Owens
Corning will address all asbestos-related personal injury and wrongful death claims in the
future as part of the Chapter 11 Cases. Please see Note 9 to the Consolidated Financial
Statements for additional information concerning asbestos-related liabilities.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

#  11 

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

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

| | Approximately 5,500 claims, totaling approximately $5.6 billion, alleging rights to
payment for financing, environmental, trade debt and other matters (the General
Claims). The Company has previously recorded approximately $3.7 billion in
liabilities for these claims. Based upon the claims information submitted, the General
Claims with the largest variance from the recorded amounts are: claims by the United
States Department of Treasury, totaling approximately $530 million, in connection with
taxes (see discussion under the heading Tax Claim in Note 9 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 9 to the Consolidated Financial Statements; claims for
contract rejections, totaling approximately $313 million, of which approximately $257
million are protective claims covering contracts which have not been rejected by the
Debtors as of June 30, 2003; a $275 million class action claim involving alleged problems
with a specialty roofing product, which claim Owens Corning does not believe is
meritorious based upon its historic experience with servicing its warranty program for
such product; and environmental claims, totaling approximately $244 million.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Owens Corning has
recorded liability amounts for those claims that can be reasonably estimated and which it
believes are probable of being allowed by the Bankruptcy Court. At this time, it is
impossible to reasonably estimate the value of all the claims that will ultimately be
allowed by the Bankruptcy Court, due to the uncertainties of the Chapter 11 process, the
in-progress state of Owens Cornings investigation of submitted claims, and the lack
of documentation submitted in support of many claims. Owens Corning continues to evaluate
claims filed in the Chapter 11 Cases and will make such adjustments as may be
appropriate. Any such adjustments could be material to the Companys consolidated
financial position and results of operations in any given period. For a discussion of
liability amounts in respect of asbestos personal injury claims, see Note 9 to the
Consolidated Financial Statements.

ASBESTOS BAR DATE

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

As indicated above,
the General Bar Date does not apply to asbestos-related personal injury claims and
asbestos-related wrongful death claims (other than claims for contribution, indemnity,
reimbursement, or subrogation). Despite this, approximately 3,000 proofs of claim (in
addition to claims described above under General Bar Date), totaling
approximately $2.2 billion, with respect to asbestos-related personal injury or wrongful
death were filed with the Bankruptcy Court in response to the General Bar Date. Of these
claims, Owens Corning has identified approximately 1,100, totaling approximately $0.5
billion, as Objectionable Claims. Of the remaining claims, Owens Corning believes that a
substantial majority represent claimants that had previously asserted asbestos-related
claims against the Company.

As noted above,
under the Plan all asbestos-related personal injury and wrongful death claims will be
channeled to the Section 524(g) trust, subject to approval by the Bankruptcy Court.
Please see Note 9 to the Consolidated Financial Statements for additional information
concerning asbestos-related liabilities.

#  12 

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

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

# Avoidance Actions

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

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

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

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

Separately, and at
the request of the Debtors Official Creditors Committee and the direction of
the Bankruptcy Court, the Debtors either obtained tolling agreements from, or filed
actions against, approximately 115 law firms that entered into NSP or non-NSP agreements
(see Note 9 to the Consolidated Financial Statements) with the Debtors on behalf of
claimants asserting asbestos-related personal injury or wrongful death claims. Lawsuits
were brought against the 11 law firms that did not sign tolling agreements, seeking two
forms of relief: (a) first, a declaratory judgment as to whether payments made, or
obligations incurred, under NSP and non-NSP agreements were in exchange for reasonably
equivalent value; and (b) second, in the event reasonably equivalent value was not
received, the recovery or avoidance of payments made and obligations incurred under the
relevant NSP and non-NSP agreements pursuant to applicable state and federal fraudulent
conveyance law. The Official Creditors Committee was named as a defendant in such
lawsuits, solely with respect to the declaratory relief sought.

#  13 

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

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

By motion filed on
or about October 16, 2002, the Debtors sought an order of the Bankruptcy Court staying
all of the foregoing litigation pending its disposition in a plan of reorganization.
Pursuant to orders of the Bankruptcy Court, all of the foregoing litigation, other than
the action relating to the avoidance of certain guarantees and certain preferential
payments made in connection with Owens Cornings Pre-Petition Credit Facility, has
been stayed until February 2, 2004, subject to the right of any defendant to move to
modify/terminate the stay. The Debtors action relating to the avoidance of certain
guarantees and certain preferential payments made in connection with Owens Cornings
Pre-Petition Credit Facility, previously scheduled for trial before the District Court
commencing in June 2003, has been continued indefinitely by the Court.

# Certain Post-petition
Matters

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

As a result of the
Filing, contractual interest expense has not been accrued or recorded on pre-petition
debt of the Debtors since the Petition Date. From the Petition Date through June 30,
2003, contractual interest expense not accrued or recorded on pre-petition debt totaled
$426 million, of which $32 million relates to the second quarter of 2003, $64 million
relates to the first six months of 2003, and $35 million and $71 million, respectively,
relate to the corresponding periods of 2002.

At June 30, 2003,
the Company had $807 million of cash and cash equivalents.

In connection with
the Filing, the Debtors obtained a $500 million debtor-in-possession credit facility from
a group of lenders led by Bank of America, N.A. (the DIP Financing), which
was originally scheduled to expire November 15, 2002. Effective October 31, 2002, the DIP
Financing was amended to, among other things, reduce the maximum available credit amount
to $250 million and extend the scheduled expiration to November 15, 2004. There were no
borrowings outstanding under the DIP Financing at June 30, 2003; however, approximately
$83 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 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.

#  14 

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

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

# Financial Statement
Presentation

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

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

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

In this respect, the
Companys Consolidated Financial Statements, and the Debtor-In-Possession financial
statements presented below, reflect charges to income of $1.381 billion for Owens Corning
and $975 million for Fibreboard during the quarterly period ended September 30, 2002, in
connection with asbestos-related liabilities. Please see Note 9 to the Consolidated
Financial Statements.

# Debtor-In-Possession
Financial Statements

The condensed
financial statements of the Debtors are presented below. These statements reflect the
financial position and results of operations of the combined Debtor entities, including
certain amounts and activities between Debtors and non-debtor entities of Owens Corning
that are eliminated in the Consolidated Financial Statements.

#  15 

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

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

# OWENS CORNING AND
SUBSIDIARIESDEBTOR-IN-POSSESSION
STATEMENT OF INCOME (LOSS)

|                                                         | Quarter Ended | Six Months Ended |   |      
|-------------------------------------------------------- | ------------- | ---------------- | - | -----
|
|
|
|
|NET SALES                                                |               |                  | $ | 1,074
|COST OF SALES                                            |               |                  |   | 915  
|                                                         |               |                  |   |      
|Gross margin                                             |               |                  |   | 159  
|                                                         |               |                  |   |      
|OPERATING EXPENSES                                       |               |                 
|Marketing and administrative expenses                    |               |                  |   | 102  
|Science and technology expenses                          |               |                  |   | 10   
|Restructure costs                                        |               |                  |   | -    
|Chapter 11 related reorganization items                  |               |                  |   | 38   
|Credit for asbestos litigation claims - Owens Corning    |               |                  |   | (4   
|Other (including interest income from non-Debtors of     |               |                 
|$14 million and $28 million for the three month and      |               |                 
|six month periods ended June 30, 2003 and 2002)          |               |                  |   | (18  
|                                                         |               |                  |   |      
|Total operating expenses                                 |               |                  |   | 128  
|                                                         |               |                  |   |      
|                                                         |               |                 
|INCOME FROM OPERATIONS                                   |               |                  |   | 31   
|                                                         |               |                 
|Interest expense, net                                    |               |                  |   | 1    
|                                                         |               |                  |   |      
|                                                         |               |                 
|INCOME BEFORE INCOME TAX EXPENSE                         |               |                  |   | 30   
|                                                         |               |                 
|Income tax expense                                       |               |                  |   | 21   
|                                                         |               |                  |   |      
|INCOME BEFORE EQUITY IN NET LOSS OF AFFILIATES           |               |                  |   | 9    
|                                                         |               |                 
|Equity in net loss of affiliates                         |               |                  |   | (1   
|                                                         |               |                  |   |      
|NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN         |               |                 
|ACCOUNTING PRINCIPLE                                     |               |                  |   | 8    
|                                                         |               |                 
|Cumulative effect of change in accounting principle, net |               |                 
|of tax                                                   |               |                  |   | -    
|                                                         |               |                  |   |      
|NET INCOME (LOSS)                                        |               |                  | $ | 8    
|                                                         |               |                  |   |      

#  16 

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

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

# OWENS CORNING AND
SUBSIDIARIESDEBTOR-IN-POSSESSION
BALANCE SHEET

|                                                    | June 30, | December 31,
|--------------------------------------------------- | -------- | ------------
|
|
|
|CURRENT                                             |          |             
|Cash and cash equivalents                           |          |             
|Receivables                                         |          |             
|Receivables - non-Debtors                           |          |             
|Inventories                                         |          |             
|Other current assets                                |          |             
|                                                    |          |             
|Total current                                       |          |             
|                                                    |          |             
|                                                    |          |             
|OTHER                                               |          |             
|Restricted cash - asbestos and insurance related    |          |             
|Restricted cash, securities, and other - Fibreboard |          |             
|Deferred income taxes                               |          |             
|Goodwill                                            |          |             
|Investment in affiliates                            |          |             
|Investment in non-Debtor subsidiaries               |          |             
|Other noncurrent assets                             |          |             
|                                                    |          |             
|Total other                                         |          |             
|                                                    |          |             
|                                                    |          |             
|PLANT AND EQUIPMENT, at cost                        |          |             
|Land                                                |          |             
|Buildings and leasehold improvements                |          |             
|Machinery and equipment                             |          |             
|Construction in progress                            |          |             
|                                                    |          |             
|                                                    |          |             
|Less - accumulated depreciation                     |          |             
|                                                    |          |             
|Net plant and equipment                             |          |             
|                                                    |          |             
|                                                    |          |             
|TOTAL ASSETS                                        |          |             
|                                                    |          |             

#  17 

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

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

# OWENS CORNING AND
SUBSIDIARIESDEBTOR-IN-POSSESSION
BALANCE SHEET (continued)

|                                                       | June 30, | December 31,
|------------------------------------------------------ | -------- | ------------
|
|
|
|CURRENT                                                |          |             
|Accounts payable and accrued liabilities               |          |             
|Accounts payable and accrued liabilities - non-Debtors |          |             
|Long-term debt - current portion                       |          |             
|                                                       |          |             
|Total current                                          |          |             
|                                                       |          |             
|                                                       |          |             
|LONG-TERM DEBT                                         |          |             
|                                                       |          |             
|OTHER                                                  |          |             
|Other employee benefits liability                      |          |             
|Pension plan liability                                 |          |             
|Other                                                  |          |             
|                                                       |          |             
|Total other                                            |          |             
|                                                       |          |             
|                                                       |          |             
|LIABILITIES SUBJECT TO COMPROMISE                      |          |             
|                                                       |          |             
|STOCKHOLDERS EQUITY                                   |          |             
|Common stock                                           |          |             
|Additional paid in capital                             |          |             
|Accumulated Deficit                                    |          |             
|Accumulated other comprehensive loss                   |          |             
|Other                                                  |          |             
|                                                       |          |             
|Total stockholders equity                             |          |             
|                                                       |          |             
|                                                       |          |             
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY             |          |             
|                                                       |          |             

#  18 

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

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

# OWENS CORNING AND
SUBSIDIARIESDEBTOR-IN-POSSESSION
STATEMENT OF CASH FLOWS

|                                                                        | Six Months Ended | 
|----------------------------------------------------------------------- | ---------------- | 
|
|
|
|
|NET CASH FLOW FROM OPERATIONS                                           |                  | 
|Net income (loss)                                                       |                  | 
|Reconciliation of net cash used in operating activities                 |                  | 
|Noncash items:                                                          |                  | 
|Provision for depreciation and amortization                             |                  | 
|Provision for impairment of fixed assets                                |                  | 
|Provision for deferred income taxes                                     |                  | 
|Cumulative effect of accounting change                                  |                  | 
|Other                                                                   |                  | 
|Increase in receivables and receivables - non-Debtors                   |                  | 
|Increase in inventories                                                 |                  | 
|Increase (decrease) in accounts payable and accrued liabilities and     |                  | 
|accounts payable and accrued liabilities - non-Debtors                  |                  | 
|(Increase) decrease in restricted cash - asbestos and insurance related |                  | 
|Increase in restricted cash, securities, and other - Fibreboard         |                  | 
|Change in liabilities subject to compromise                             |                  | 
|Proceeds from insurance for asbestos litigation claims, excluding       |                  | 
|Fibreboard                                                              |                  | 
|Other                                                                   |                  | 
|                                                                        |                  | 
|Net cash flow from operations                                           |                  | 
|                                                                        |                  | 
|NET CASH FLOW FROM INVESTING                                            |                  | 
|Additions to plant and equipment                                        |                  | 
|Investment in subsidiaries, net of cash acquired                        |                  | 
|Proceeds from the sale of affiliate or business                         |                  | 
|Other                                                                   |                  | 
|                                                                        |                  | 
|Net cash flow from investing                                            |                  | 
|                                                                        |                  | 
|NET CASH FLOW FROM FINANCING                                            |                  | 
|Other additions to long-term debt                                       |                  | 
|Other reductions to long-term debt                                      |                  | 
|Subject to compromise                                                   |                  | 
|Other                                                                   |                  | 
|                                                                        |                  | 
|Net cash flow from financing                                            |                  | 
|                                                                        |                  | 
|                                                                        |                  | 
|Net decrease in cash and cash equivalents                               |                  | 
|                                                                        |                  | 
|Cash and cash equivalents at beginning of period                        |                  | 
|                                                                        |                  | 
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                              |                  | 
|                                                                        |                  | 

#  19 

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

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

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

|                                                       | June 30, | December 31,
|------------------------------------------------------ | -------- | ------------
|
|
|
|Accounts payable                                       |          |             
|Accrued interest payable                               |          |             
|Accrued liabilities                                    |          |             
|Debt                                                   |          |             
|Income taxes payable                                   |          |             
|Reserve for asbestos litigation claims - Owens Corning |          |             
|Reserve for asbestos-related claims - Fibreboard       |          |             
|                                                       |          |             
|Total consolidated                                     |          |             
|                                                       |          |             
|Payables to non-Debtors                                |          |             
|                                                       |          |             
|Total Debtor                                           |          |             
|                                                       |          |             

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 |   |    
|----------------------------------------- | ------------- | ---------------- | - | ---
|
|
|
|
|Professional fees                         |               |                  | $ | 22 
|Payroll and compensation                  |               |                  |   | 5  
|Settlement of Asian credit facility       |               |                  |   | -  
|Renegotiation of World Headquarters lease |               |                  |   | 21 
|Interest income                           |               |                  |   | (13
|Other, net                                |               |                  |   | 3  
|                                          |               |                  |   |    
|Total                                     |               |                  |   | 38 
|                                          |               |                  |   |    

#  20 

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

# 2.       SEGMENT DATA

During 2003, the
Company realigned its internal operating segments. Following this realignment, the
Company reviewed its segments in accordance with SFAS No. 131 and concluded that the
aggregation of its operating segments into two reportable segments is still appropriate;
however, certain components within the segments have changed. Net sales and income from
operations have been reclassified for all periods presented to reflect this change.

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

|                                             | Quarter Ended | Six Months Ended |   |      
|-------------------------------------------- | ------------- | ---------------- | - | -----
|
|
|
|
|Reportable Segments                          |               |                  |   |      
|                                             |               |                 
|Building Materials Systems                   |               |                 
|United States                                |               |                  | $ | 936  
|Europe                                       |               |                  |   | -    
|Canada and other                             |               |                  |   | 58   
|                                             |               |                  |   |      
|Total Building Materials Systems             |               |                  |   | 994  
|                                             |               |                  |   |      
|Composite Solutions                          |               |                 
|United States                                |               |                  |   | 122  
|Europe                                       |               |                  |   | 84   
|Canada and other                             |               |                  |   | 39   
|                                             |               |                  |   |      
|Total Composite Solutions                    |               |                  |   | 245  
|                                             |               |                  |   |      
|Total reportable segments                    |               |                  | $ | 1,239
|                                             |               |                  |   |      
|External Customer Sales by Geographic Region |               |                 
|                                             |               |                 
|United States                                |               |                  | $ | 1,058
|Europe                                       |               |                  |   | 84   
|Canada and other                             |               |                  |   | 97   
|                                             |               |                  |   |      
|NET SALES                                    |               |                  | $ | 1,239
|                                             |               |                  |   |      

#  21 

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

# 2.       SEGMENT DATA (continued)

|                                                        | Quarter Ended | Six Months Ended |   |    
|------------------------------------------------------- | ------------- | ---------------- | - | ---
|
|
|
|
|Reportable Segments                                     |               |                  |   |    
|                                                        |               |                 
|Building Materials Systems                              |               |                 
|United States                                           |               |                  | $ | 79 
|Europe                                                  |               |                  |   | -  
|Canada and other                                        |               |                  |   | 10 
|                                                        |               |                  |   |    
|Total Building Materials Systems                        |               |                  |   | 89 
|                                                        |               |                  |   |    
|Composite Solutions                                     |               |                 
|United States                                           |               |                  |   | 9  
|Europe                                                  |               |                  |   | 6  
|Canada and other                                        |               |                  |   | -  
|                                                        |               |                  |   |    
|Total Composite Solutions                               |               |                  |   | 15 
|                                                        |               |                  |   |    
|Total reportable segments                               |               |                  | $ | 104
|                                                        |               |                  |   |    
|Geographic Regions                                      |               |                 
|                                                        |               |                 
|United States                                           |               |                  | $ | 88 
|Europe                                                  |               |                  |   | 6  
|Canada and other                                        |               |                  |   | 10 
|                                                        |               |                  |   |    
|Total reportable segments                               |               |                  | $ | 104
|                                                        |               |                  |   |    
|Reconciliation to Consolidated Income Before Income Tax |               |                 
|Expense                                                 |               |                 
|                                                        |               |                 
|Restructuring and other charges (Note 4)                |               |                  |   | (13
|Chapter 11 related reorganization items (Note 1)        |               |                  |   | (38
|Credit for asbestos litigation claims                   |               |                  |   | 4  
|General corporate expense                               |               |                  |   | (14
|Interest expense, net                                   |               |                  |   | -  
|                                                        |               |                  |   |    
|CONSOLIDATED INCOME BEFORE INCOME TAX EXPENSE           |               |                  | $ | 43 
|                                                        |               |                  |   |    

#  22 

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

# 3.       GENERAL

The consolidated
financial statements included in this Report are unaudited, pursuant to certain rules and
regulations of the Securities and Exchange Commission, and 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 consolidated financial statements and notes included in this Report, reference is
made to the consolidated financial statements and notes thereto contained in the Companys
2002 annual report on Form 10-K, as filed with the Securities and Exchange Commission.

# 4.       RESTRUCTURING OF
OPERATIONS AND OTHER CHARGES

# Second Quarter 2003

In the second quarter of 2003, the Company recorded a pretax charge of approximately  $13 million,  consisting of a
$14 million loss on the sale of the Companys metal systems  business,  offset by a $1 million credit  representing
the gain on the sale of assets of the Companys  mineral wool business.  Such $13 million charge,  along with a net
$1 million credit for various other items, was reflected in the  Consolidated  Statement of Income (Loss) under the
caption,  Other.  See Note 5 to the  Consolidated  Financial  Statements  for additional  information  concerning
these sales.

# First Quarter 2003

In the first quarter
of 2003, the Company recorded approximately $30 million in pretax charges, comprised
of a $2 million pretax charge to restructure costs (classified as a separate component of
operating expenses in the Consolidated Statement of Income (Loss)) and a $28 million charge
to cost of sales. The $2 million restructure charge represents additional non-cash asset
write-downs of previously closed non-strategic facilities to their fair value.

The $28 million
charge to cost of sales represents the additional write-down of two groups of assets in
the Building Materials segment to net realizable value based on valuations of the future
cash flows of the assets using assumptions consistent with current market conditions.

# 2002

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

The $61 million
restructure charge includes $17 million of severance costs associated with the
elimination of 830 positions due to plant closures in the U.S. and U.K. and $18 million
of severance costs associated with the elimination of 349 other positions, primarily
impacting administrative personnel. As of June 30, 2003, all of these positions were
actually eliminated. As of June 30, 2003, approximately $30 million has been paid and
charged against the reserve. The remaining $26 million restructure charge represents the
cost of closure of non-strategic facilities, comprised of $24 million in non-cash asset
write-downs to fair value and $2 million of other exit cost liabilities. As of June 30,
2003, approximately $2 million has been paid and charged against the reserve for exit
cost liabilities.

#  23 

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

# 4. RESTRUCTURING OF OPERATIONS AND OTHER CHARGES (continued)

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

# Status of Liability for
Restructuring Programs

The following table
summarizes the status of the unpaid liabilities from the Companys
restructuring actions since 2000, when the Company implemented the first phase of a
strategic restructuring program, including cumulative spending and adjustments and
the remaining balance as of June 30, 2003:

|                             |  | Facility and |  
|---------------------------- |  | ------------ | -
|
|
|
|
|Charges to expense           |  |              | $
|Payments                     |  |              |  
|                             |  |              |  
|Balance at December 31, 2000 |  |              |  
|                             |  |              |  
|Charges to expense           |  |              |  
|Payments                     |  |              |  
|                             |  |              |  
|Balance at December 31, 2001 |  |              |  
|                             |  |              |  
|Charges to expense           |  |              |  
|Payments                     |  |              |  
|                             |  |              |  
|Balance at December 31, 2002 |  |              |  
|                             |  |              |  
|Payments                     |  |              |  
|                             |  |              |  
|Balance at June 30, 2003     |  |              | $
|                             |  |              |  

In addition, as
of June 30, 2003, a liability of approximately $16 million remains from a
restructuring program implemented during 1997 and 1998 related to closing
manufacturing locations and reducing overhead. This liability is primarily related
to extended personnel severance costs.

# Long-Lived Asset
Accounting

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.

#  24 

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

# 5.       ACQUISITIONS AND
DIVESTITURES OF BUSINESSES

Acquisitions

During June 2002,
the Company received Bankruptcy Court approval to consummate the restructuring of the
Companys Indian joint venture, Owens-Corning (India) Limited (OCIL), a
producer of composite material. As part of the restructuring, the Company, through its
wholly-owned subsidiary, IPM Inc., contributed approximately $3 million of cash into OCIL
and the Company agreed to allow a guarantee claim in the amount of approximately $19
million in its Chapter 11 proceedings in respect of OCILs junior debt. In addition,
OCILs senior debt maturities were extended, and its junior debt was converted to
approximately $7 million of redeemable convertible debentures. Through these
restructuring efforts the Companys ownership interest in OCIL increased from
approximately 50% to approximately 60%. The Company consolidated OCIL on July 1, 2002,
when the restructuring was consummated by all of the parties to the restructuring and
approved by the Indian Government, at which time the allowed claim of approximately $19
million was added to Liabilities Subject to Compromise. The Company accounted for this
transaction under the purchase method of accounting, whereby the assets acquired and
liabilities assumed, including approximately $57 million of senior debt (consisting of
approximately $33 million of debentures due in 2009 at a variable interest rate and
approximately $24 million of debentures due in 2009 at a fixed rate of 10%),
approximately $7 million of redeemable convertible debentures due in 2010, and
approximately $4 million of other debt, were recorded at their fair values and the
Company began consolidating this subsidiary. The $19 million allowed claim was recorded
at its estimated fair value of approximately $6 million as an additional investment in
OCIL and the difference of approximately $13 million was recorded as reorganization
expense in the Companys consolidated statement of income (loss). Prior to July 1,
2002, the Company accounted for this joint venture under the equity method. The proforma
effect of this acquisition on revenues and earnings was not material.

Divestitures

On May 22, 2003, the
Company received Bankruptcy Court approval to sell the assets of its metal systems
business. Net proceeds from the sale were $50 million, of which $40 million was received
in the second quarter of 2003. A pretax loss of approximately $14 million was realized
from the sale. The metal systems business had net sales of approximately $223 million and
$214 million during 2002 and 2001, respectively, including intercompany sales to other
Owens Corning businesses. The Company expects to make continued purchases from the
divested business of approximately $65 million per year.

Also during May
2003, the Company received Bankruptcy Court approval to sell the assets of its mineral
wool business. Net proceeds from the sale of $8 million were received in the second
quarter of 2003. A pretax gain of approximately $1 million was realized from the sale.

# 6.       INVENTORIES

Inventories are
summarized as follows:

|                         | June 30, | December 31,
|------------------------ | -------- | ------------
|
|
|
|Finished goods           |          |             
|Materials and supplies   |          |             
|                         |          |             
|FIFO inventory           |          |             
|Excess of FIFO over LIFO |          |             
|                         |          |             
|Total inventories        |          |             
|                         |          |             

#  25 

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

# 6.       INVENTORIES (continued)

Approximately $129
million and $150 million of total inventories were valued using the LIFO method at June
30, 2003 and December 31, 2002, respectively.

# 7.       COMPREHENSIVE INCOME

The Companys
comprehensive income for the quarters ended June 30, 2003 and 2002 was income of $53 million
and a loss of $13 million, respectively. The Companys comprehensive income
includes: (1) net income; (2) currency translation adjustments; (3) minimum pension
liability adjustments; and (4) deferred gains and losses on certain hedging transactions
to record at fair value.

# 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.

|                                                       | Quarter Ended June 30, | Six Months Ended June 30, |   |       
|------------------------------------------------------ | ---------------------- | ------------------------- | - | ------
|
|
|Net income (loss) used for basic and diluted earnings  |                        |                           |   |       
|per share (millions)                                   |                        |                           | $ | 18    
|                                                       |                        |                           |   |       
|Weighted-average number of shares outstanding used for |                        |                          
|basic earnings per share (thousands)                   |                        |                           |   | 55,169
|                                                       |                        |                           |   |       
|Non-vested restricted shares (thousands)               |                        |                           |   | 106   
|                                                       |                        |                           |   |       
|Deferred awards (thousands)                            |                        |                           |   | 24    
|Shares from assumed conversion of preferred            |                        |                          
|securities (thousands)                                 |                        |                           |   | 4,566 
|                                                       |                        |                           |   |       
|Weighted-average number of shares outstanding and      |                        |                          
|common equivalent shares used for diluted earnings     |                        |                          
|per share (thousands)                                  |                        |                           |   | 59,865
|                                                       |                        |                           |   |       

For the six months
ended June 30, 2002, the number of shares used in the calculation of diluted earnings per
share did not include approximately 198 thousand common equivalent shares of non-vested
restricted stock, 26 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.

#  26 

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

# 9.       CONTINGENT
LIABILITIES AND OTHER MATTERS

# Asbestos Liabilities

ITEM A.  OWENS
CORNING (EXCLUDING FIBREBOARD)

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

Prior to October 5,
2000, when the Debtors, including Fibreboard (see Item B below), filed voluntary
petitions for relief under Chapter 11 of the United States Bankruptcy Code, the vast
majority of asserted asbestos personal injury claims were in the process of being
resolved through the National Settlement Program described below. As a result of the
Filing, all pre-petition asbestos claims and pending litigation against the Debtors,
including without limitation claims arising under the National Settlement Program, were
automatically stayed (see Note 1 to the Consolidated Financial Statements). Owens Corning
expects that all pending and future asbestos claims against Owens Corning and Fibreboard
will be resolved pursuant to a plan or plans of reorganization. Owens Corning is unable
to determine at this time whether asbestos-related claims asserted against Fibreboard
will be treated in the same manner as those asserted against Owens Corning in any such
plan or plans ultimately confirmed.

As more fully
discussed in Note 1 to the Consolidated Financial Statements and under the heading Reserve below,
the Debtors, together with the Official Committee of Asbestos Claimants and the Legal
Representative for the class of future asbestos claimants, filed on August 8, 2003 a
proposed third amended joint plan of reorganization for the Debtors. Ultimately, as
described more fully under the heading Reserve below, it is anticipated that
Owens Cornings total liability for asbestos claims will be determined after a
lengthy period of negotiations and, if necessary, by the Bankruptcy Court, taking into
account numerous factors not present in the Companys pre-petition environment. Such
factors include the claims of competing creditor groups as to the appropriate treatment
of their allowed claims in the plan or plans of reorganization, the size of the total
asbestos liability, the total number of present asbestos claims allowed, 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.

#  27 

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

# 9.       CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

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

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

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

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

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

# Non-NSP Claims

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

#  28 

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

# 9.       CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

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

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

# Asbestos-Related Payments

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

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

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

Prior to the
Petition Date, Owens Corning deposited certain amounts in escrow accounts to facilitate
claims processing under the NSP (Administrative Deposits). Amounts deposited
into escrow in Administrative Deposits during a reporting period are included in the
payments shown for NSP Settlements during the period. At June 30, 2003, 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).

#  29 

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

# 9.       CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

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

# Reserve

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

As of June 30, 2003,
a reserve of approximately $3.6 billion in respect of Owens Cornings
asbestos-related liabilities was one of the items included in Owens Cornings
consolidated balance sheet under the category Liabilities Subject to Compromise.
For periods prior to the Petition Date, these liabilities were reflected as current or
other liabilities (depending on the period in which payment was expected) under the
category Reserve for asbestos litigation claims.

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

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

#  30 

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

# 9.       CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

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

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

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

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

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

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

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

#  31 

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

# 9.       CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

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

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

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

None of the creditor
constituencies has yet made available to Owens Corning a report of any such analysis of
liability for pre-petition or future asbestos claims. However, based upon its discussions
and negotiations with representatives of the creditor constituencies, Owens Corning
believes that some of these creditor analyses associated with the resolution of Owens
Cornings and Fibreboards asbestos-related liabilities in the context of the
Chapter 11 proceedings will be well in excess of Owens Cornings and Fibreboards
current asbestos-related reserves. For example, the Official Committee of Asbestos
Claimants and the Legal Representative for the class of future asbestos claimants have
taken the position that the aggregate amount of pre-petition and future asbestos claims
for Owens Corning and Fibreboard, on a combined net present value basis, is in excess of
$16 billion. In addition, in October 2002, Owens Corning and Fibreboard completed their
own analyses of liability for purposes of facilitating plan discussions, which, as to
future asbestos claims, were prepared by an outside consultant experienced in estimating
asbestos-related claims in asbestos-related bankruptcies. These analyses indicate net
present values for pre-petition and future asbestos claims of Owens Corning and
Fibreboard combined of approximately $5.874 billion, if NSP settlement values are
assumed, and $8.547 billion, if 5-year

#  32 

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

# 9.       CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

historical
settlement values for Owens Corning and Fibreboard, respectively, are used. Based upon
these analyses and the information derived from Owens Cornings discussions and
negotiations with the various creditor constituencies concerning their relative positions
on the terms of an acceptable plan of reorganization, Owens Corning decided, in
connection with its financial statements for the third quarter of 2002, to increase its
and Fibreboards aggregate asbestos-related reserve to the lower of the two net
present value numbers indicated by Owens Cornings and Fibreboards analyses.
Consequently, Owens Corning increased its reserves for the period ended September 30,
2002, through charges to income of $1.381 billion for Owens Corning asbestos-related
liabilities and $975 million for Fibreboard asbestos-related liabilities, for an
aggregate charge of $2.356 billion. In addition, since the reserve for Fibreboard
asbestos-related liabilities exceeds the funds held in the Fibreboard Settlement Trust,
the residual amount payable to charity under the terms of the Trust (see Note 10 to the
Consolidated Financial Statements) was reduced to zero as of September 30, 2002.

As noted above and in Note 1 to the  Consolidated  Financial  Statements,  the Debtors,  together with the Official
Committee of Asbestos Claimants and the Legal  Representative for the class of future asbestos claimants,  filed on
August 8, 2003 a proposed  third  amended  joint plan of  reorganization  for the Debtors.  The Plan  provides that
liability for current and future  asbestos  personal  injury claims against Owens Corning and  Fibreboard  would be
determined by the  Bankruptcy  Court as part of the  confirmation  hearing on the Plan.  The Official  Committee of
Asbestos  Claimants  and the Legal  Representative  for the class of future  asbestos  claimants  have reserved the
right to  withdraw  support  of the Plan if such  liability  is  determined  to be less  than  $16  billion  in the
aggregate.  In this regard,  the Companys  bank and bond creditor  groups,  for example,  have continued to assert
that such  aggregate  liability  approximates  the amount of Owens  Corning's  existing  reserves.  It is therefore
anticipated  that the number and estimated  aggregate value of current and future  asbestos  personal injury claims
will ultimately be determined as a result of negotiations  involving the Official Committee of Asbestos  Claimants,
the Legal  Representative  of the class of future asbestos  claimants and other  interested  constituencies  or, if
necessary,  by the  Bankruptcy  Court.  It is not  possible to predict the  outcome of such  negotiations  or court
determination  at this time.  The  ultimate  determination  of such  liabilities  will take into  account  numerous
factors not  present in the  Company's  pre-petition  environment.  Such  factors  include the claims of  competing
creditor  groups as to the  appropriate  treatment of their allowed claims in the plan or plans of  reorganization,
the size of the total asbestos  liability,  the total number of present  asbestos claims allowed,  the total amount
of future asbestos claims allowed, and the impact of the Administrative Consolidation.

At June 30, 2003,
the approximate balances of the components of Owens Cornings asbestos-related
reserve were:

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

#  33 

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

# 9.       CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

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

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

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

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

On May 22, 2003, the
United States Senate introduced proposed legislation (S 1125, also known as the Fairness
in Asbestos Injury Resolution Act of 2003 (the FAIR Act)) that, if enacted
into law, would establish an administrative claims resolution structure through which all
asbestos personal injury claims would be channeled and reviewed. The FAIR Act would also
establish a national trust fund, funded through mandated contributions from defendant
companies, insurance companies and existing trusts, that would be the source of
compensation of all approved claims. Under the present terms of the proposed FAIR Act,
companies like Owens Corning and Fibreboard, that have filed for bankruptcy but have not
yet emerged through a confirmed plan of reorganization, would be included as participants
in the resolution structure.

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

#  34 

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

# 9.       CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

ITEM B.  FIBREBOARD
(EXCLUDING OWENS CORNING)

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

As discussed in Item
A above and under the heading Reserve below, the Debtors (including
Fibreboard), together with the Official Committee of Asbestos Claimants and the Legal
Representative for the class of future asbestos claimants, filed on August 8, 2003 a
proposed third amended joint plan of reorganization for the Debtors (including
Fibreboard). Ultimately, as described more fully under the heading Reserve below,
it is anticipated that Fibreboards (and Owens Cornings) total liability for
asbestos claims will be finally determined after a lengthy period of negotiations and, if
necessary, by the Bankruptcy Court, taking into account numerous factors not present in
the Companys pre-petition environment. Such factors include the claims of competing
creditor groups as to the appropriate treatment of their allowed claims in the plan or
plans of reorganization, the size of the total asbestos liability, the total number of
present asbestos claims allowed, the total amount of future asbestos claims allowed, and
the impact of the Administrative Consolidation.

# National Settlement
Program Claims

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

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

#  35 

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

# 9.       CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

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

# Non-NSP Claims

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

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

# Insurance Settlement

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

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

As of June 30, 2003,
the remaining Insurance Settlement funds were held in and invested by the
Fibreboard Settlement Trust. As of that date, $1.258 billion was held in the Fibreboard
Settlement Trust and $127 million was held in Undistributed Administrative Deposits in
respect of Fibreboard claims. On an ongoing basis, the funds held in the Fibreboard
Settlement Trust will be subject to investment earnings/losses and will be reduced if and
as applied to satisfy asbestos-related liabilities. Under the terms of the Fibreboard
Settlement Trust, any of such assets that ultimately are not used to fund Fibreboards
asbestos-related liabilities must be distributed to charity. However, since the reserve
for Fibreboard asbestos-related liabilities exceeds the funds held in the Fibreboard
Settlement Trust, the residual amount payable to charity under the terms of the Trust
(see Note 10 to the Consolidated Financial Statements) was reduced to zero as of
September 30, 2002.

#  36 

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

# 9.       CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

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, 2003, these assets were reflected as non-current assets, under the category
Restricted cash, securities and other  Fibreboard. See Note 10 to the
Consolidated Financial Statements for additional information concerning the Fibreboard
Settlement Trust.

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

# Asbestos-Related Payments

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

|                                                       | 2000 (through October 4, 2000)
|------------------------------------------------------ | ------------------------------
|
|
|Pre-NSP Settlements                                    |                               
|NSP Settlements                                        |                               
|Non-NSP Settlements                                    |                               
|Defense, Claims Processing and Administrative Expenses |                               
|                                                       |                               
|                                                       |                               
|                                                       |                               

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

# Reserve

Owens Corning
estimates a reserve for Fibreboard in accordance with generally accepted accounting
principles to reflect asbestos-related liabilities. As described in Item A above, this
reserve was increased in the third quarter of 2002 through a charge to income of $975
million. As of June 30, 2003, a reserve of approximately $2.3 billion in respect of these
asbestos-related liabilities was one of the items included in Owens Cornings
consolidated balance sheet under the category Liabilities Subject to Compromise.
For periods prior to the Petition Date, they were reflected as current or other
liabilities (depending on the period in which payment was expected) under the category
Asbestos-related liabilities  Fibreboard.

As noted in Item A above as to Owens Corning,  the estimate of  Fibreboard's  liabilities  for pending and expected
future asbestos claims is subject to considerable  uncertainty  because such liabilities are influenced by numerous
variables that are inherently difficult to predict, and such uncertainties  significantly  increased as a result of
the Filing,  including  those set forth in Item A above. In addition,  as noted above,  the Debtors filed on August
8, 2003 a proposed third amended joint plan of  reorganization  for the Debtors  (including  Fibreboard).  The Plan
provides  that  liability  for current  and future  asbestos  personal  injury  claims  against  Owens  Corning and
Fibreboard  would be  determined  by the  Bankruptcy  Court as part of the  confirmation  hearing on the Plan.  The
Official  Committee of Asbestos  Claimants and the Legal  Representative for the class of future asbestos claimants
have  reserved  the right to  withdraw  support of the Plan if such  liability  is  determined  to be less than $16
billion in the aggregate.  In this

#  37 

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

# 9.       CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

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

At June 30, 2003,
the approximate balances of the components of the Fibreboard asbestos-related reserve
were:

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

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

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

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

#  38 

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

# 9.       CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

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

As noted in Item A
above, on May 22, 2003, the United States Senate introduced proposed legislation (S 1125,
also known as the Fairness in Asbestos Injury Resolution Act of 2003 (the FAIR Act))
that, if enacted into law, would establish an administrative claims resolution structure
through which all asbestos personal injury claims would be channeled and reviewed. The
FAIR Act would also establish a national trust fund, funded through mandated
contributions from defendant companies, insurance companies and existing trusts, that
would be the source of compensation of all approved claims. Under the present terms of
the FAIR Act, companies like Owens Corning and Fibreboard, that have filed for bankruptcy
but have not yet emerged through a confirmed plan of reorganization, would be included as
participants in the resolution structure.

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

ITEM C.  OTHER
ASBESTOS-RELATED MATTERS

# Other Asbestos-Related
Litigation

As previously
reported, the Company believes that it has spent significant amounts to resolve claims of
asbestos claimants whose injuries were caused or exacerbated by cigarette smoking. 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.

#  39 

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

# 9.       CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

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

In addition to the
Mississippi lawsuit, a lawsuit brought in December 1997 by Owens Corning and Fibreboard
is pending in the Superior Court for Alameda County, California against the same tobacco
companies. In August 2001, the defendants filed motions to dismiss Owens Cornings
and Fibreboards claims on the basis of the decision in the Mississippi lawsuit as
well as California law. As the result of a hearing on these motions on November 20, 2001,
the California court denied the motion to dismiss Fibreboards claims on the basis
of the decision in the Mississippi lawsuit and otherwise stayed the proceeding pending
the outcome of the Mississippi suit.

# Insurance

During the second
quarter of 2003, Owens Corning received an additional $4 million payment in respect of a
previous settlement with a bankrupt insurance carrier concerning coverage for
asbestos-related personal injury claims. Owens Corning received an additional $5 million
payment in respect of the same settlement during the second quarter of 2002. These
amounts were recorded as pre-tax income in the respective period of receipt.

As of June 30, 2003,
Owens Cornings consolidated financial statements reflect $4 million in unexhausted
insurance coverage (net of deductibles and self-insured retentions) under its liability
insurance policies applicable to asbestos personal injury claims. This amount represented
unconfirmed potential non-products coverage with excess level insurance carriers, as to
which Owens Corning had estimated its probable recoveries.

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

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

#  40 

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

# 9.       CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

# Other Matters

SECURITIES LITIGATION

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

On or about January
27, 2003, certain of the Companys current and former directors and officers were
named as defendants in a lawsuit captioned Robert Greenburg, et al. v. Glen Hiner, et al.
in the United States District Court for the Northern District of Ohio, Western Division.
Owens Corning is not named in the lawsuit. The suit purports to be a class action for
securities fraud under sections 10(b) and 20(a) of the Securities Exchange Act of 1934,
on behalf of a class comprised of persons who purchased stock of Owens Corning during the
period from September 20, 1999, through October 5, 2000. The complaint seeks an
unspecified amount of damages and/or, where appropriate, rescission. Subsequent to
January 27, 2003, three substantially similar actions, with named plaintiffs Nicholas
Radosevich, Howard E. Leppla, and William Benanchietti, respectively, were filed against
the same defendants in the same court. The Company believes that these claims are without
merit. The named defendants in these proceedings have each filed contingent
indemnification claims with respect to this litigation against Owens Corning pursuant to
the General Bar Date process described below.

GENERAL BAR DATE CLAIMS

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

#  41 

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

# 9.       CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

PBGC CLAIM

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

TAX CLAIM

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

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

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

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

AVOIDANCE ACTIONS

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

#  42 

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

# 9.       CONTINGENT
LIABILITIES AND OTHER MATTERS (continued)

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

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

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

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

By motion filed on
or about October 16, 2002, the Debtors sought an order of the Bankruptcy Court staying
all of the foregoing litigation pending its disposition in a plan of reorganization.
Pursuant to orders of the Bankruptcy Court, all of the foregoing litigation, other than
the action relating to the avoidance of certain guarantees and certain preferential
payments made in connection with Owens Cornings Pre-Petition Credit Facility, has
been stayed until February 2, 2004, subject to the right of any defendant to move to
modify/terminate the stay. The Debtors action relating to the avoidance of certain
guarantees and certain preferential payments made in connection with Owens Cornings
Pre-Petition Credit Facility, previously scheduled for trial before the District Court
commencing in June 2003, has been continued indefinitely by the Court.

#  43 

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

# 10.       FIBREBOARD
SETTLEMENT TRUST

Under the Insurance
Settlement described in Note 9 to the Consolidated Financial Statements, two of Fibreboards
insurers provided $1.873 billion during the fourth quarter of 1999 to fund the costs of
resolving pending and future Fibreboard asbestos-related liabilities. As of June 30,
2003, the remaining Insurance Settlement funds were held in and invested by the
Fibreboard Settlement Trust (the Trust). On an ongoing basis, the funds held
in the Trust will be subject to investment earnings/losses and will be reduced if and as
applied to satisfy Fibreboard asbestos-related liabilities. Under the terms of the Trust,
any Trust assets that ultimately are not used to fund Fibreboards asbestos-related
liabilities must be distributed to charity. Based on currently available information,
Owens Corning does not believe that any such assets will remain for distribution at the
conclusion of the Chapter 11 cases.

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

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

# General Accounting
Treatment

The assets of the
Trust are comprised of cash and marketable securities (collectively, the Trust
Assets) and, with Fibreboards Undistributed Administrative Deposits, are
reflected on Owens Cornings consolidated balance sheet as restricted assets. At
June 30, 2003, 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 9, Part B, to the
Consolidated Financial Statements). As of June 30, 2003, these liabilities were one of
the items included in Owens Cornings consolidated balance sheet under the category
Liabilities Subject to Compromise. For periods prior to the Petition Date,
they were reflected as current or other liabilities (depending on the period in which
payment was expected) under the category Asbestos-related liabilities  Fibreboard.
At June 30, 2003, the Consolidated Financial Statements reflect Fibreboards reserve
for asbestos litigation claims at $2.309 billion.

For accounting
purposes, the Trust Assets are classified as trading securities and are
reported in the Consolidated Financial Statements in accordance with Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt
and Equity Securities. Accordingly, marketable securities classified as trading
securities are recorded at fair market value.

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

#  44 

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

# 10.       FIBREBOARD
SETTLEMENT TRUST (continued)

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

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

# Results for the Periods
Ended June 30, 2003 and 2002

During the second
quarter of 2003 and 2002, Trust Assets generated interest/dividend earnings of
approximately $15 million and $13 million, respectively ($29 million and $26 million,
respectively, for the first six months of the year). The $15 million generated in the
second quarter of 2003 and the $29 million generated during the six months ended June 30,
2003 were recorded in Chapter 11 related reorganization items in the Consolidated
Statement of Income (Loss). The $13 million generated during the second quarter of 2002
and the $26 million generated during the six months ended June 30, 2002 were 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 (Loss). The
income generated in the quarter and six months ended June 30, 2002 was offset by equal
charges to other expense in the relevant period, which represented an increase in the
residual liability to charity.

During the second
quarter of 2003 and 2002, the fair market value adjustment for those securities
designated as trading securities resulted in an unrealized loss of approximately $1
million and an unrealized gain of $19 million, respectively (a loss of $6 million and a
gain of $10 million, respectively, for the first six months of the year), recorded as a
change in the carrying amount of the assets on the Consolidated Balance Sheet. The $1
million loss generated during the second quarter of 2003 and the $6 million loss
generated during the six months ended June 30, 2003 were recorded as Chapter 11 related
reorganization items on the Consolidated Statement of Income (Loss). The $19 million gain
generated during the second quarter of 2002 and the $10 million gain generated during the
six months ended June 20, 2002 were reflected as other income on the Consolidated
Statement of Income (Loss). The gains generated in the quarter and six months ended June
30, 2002 were offset by equal charges to other expense in the relevant period,
which represented an increase in the residual obligation to charity.

As a result of the
Filing, there were no payments for asbestos litigation claims from the Trust during the
quarter or six months ended June 30, 2003 or 2002. However, approximately $1 million was
paid during the quarter and six months ended June 30, 2002 for taxes related to earnings
of the Trust. No payments were made for taxes during the quarter or six months ended June
30, 2003. The payment made during the second quarter of 2002 was funded by existing cash
in the Trust or proceeds from the sale of securities. The sale of securities resulted in
a realized loss of approximately $1 million during each of the second quarters of 2003
and 2002 (a loss of $2 million and $1 million, respectively, during the first six months
of such years). Realized gains or losses from the sale of securities are reflected on the
Companys financial statements in the same manner as actual returns on Trust Assets,
described above.

At June 30, 2003,
the fair value of Trust Assets and Administrative Deposits was $1.385 billion, which was
comprised of Trust Assets of $1.258 billion of marketable securities and Administrative
Deposits of $127 million.

#  45 

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

# 10.       FIBREBOARD
SETTLEMENT TRUST (continued)

The table below
summarizes Trust and Administrative Deposits activity for the six months ended June 30,
2003:

|                                |  | Interest |   |       |   |  
|------------------------------- |  | -------- | - | ----- | - | -
|
|
|
|
|Assets                          |  |          |   |       |   |  
|Trust Assets:                   |  |         
|                                |  |         
|Marketable securities - trading |  |          | $ | 1,238 |   | $
|                                |  |         
|Administrative Deposits         |  |          |   | 127   |   |  
|                                |  |          |   |       |   |  
|Total assets                    |  |          | $ | 1,365 |   | $
|                                |  |          |   |       |   |  
|Liabilities                     |  |         
|Accounts payable                |  |          | $ | 18    |   | $
|                                |  |         
|Asbestos litigation claims      |  |          |   | 2,310 |   |  
|                                |  |          |   |       |   |  
|Total Trust liabilities         |  |          |   | 2,328 |   |  
|                                |  |         
|Liabilities in excess of assets |  |          |   | (963  | ) |  
|                                |  |          |   |       |   |  
|Total Trust liabilities net of  |  |         
|liabilities in excess of assets |  |          | $ | 1,365 |   | $
|                                |  |          |   |       |   |  

# 11.       GOODWILL AND OTHER
INTANGIBLES

Effective January 1,
2002, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets (SFAS No. 142), to account for goodwill and other
intangibles. SFAS No. 142 requires an annual review for impairment using a fair value
methodology. The Company completed its annual review for impairment as of April 1, 2003,
which resulted in no change to the recorded goodwill.

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 recorded
indefinite-lived intangibles, separately identified. In addition, the Company tested
goodwill for impairment using the two-step process prescribed in SFAS No. 142. Based on
this analysis, 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.

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.

#  46 

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

# 11.       GOODWILL AND OTHER INTANGIBLES (continued)

The changes in
goodwill by segment during each of the quarters and six months ended June 30, 2003 and
2002, were as follows:

|                           | Quarter Ended June 30, 2003 |  |  
|-------------------------- | --------------------------- |  | -
|
|
|
|
|
|Composite Solutions        |                             |  | $
|Building Materials Systems |                             |  |  
|                           |                             |  |  
|Total                      |                             |  | $
|                           |                             |  |  
|                           |                             |  |  

|                           | Quarter Ended June 30, 2002 |  |   |    
|-------------------------- | --------------------------- |  | - | ---
|
|
|
|
|
|Composite Solutions        |                             |  | $ | 31 
|Building Materials Systems |                             |  |   | 90 
|                           |                             |  |   |    
|Total                      |                             |  | $ | 121
|                           |                             |  |   |    
|                           |                             |  |   |    

|                           | Six Months Ended June 30, 2003 |  |  
|-------------------------- | ------------------------------ |  | -
|
|
|
|
|
|Composite Solutions        |                                |  | $
|Building Materials Systems |                                |  |  
|                           |                                |  |  
|Total                      |                                |  | $
|                           |                                |  |  
|                           |                                |  |  

|                           | Six Months Ended June 30, 2002 |  |   |     | 
|-------------------------- | ------------------------------ |  | - | --- | 
|
|
|
|
|
|Composite Solutions        |                                |  | $ | 33  | 
|Building Materials Systems |                                |  |   | 577 | 
|                           |                                |  |   |     | 
|Total                      |                                |  | $ | 610 | 
|                           |                                |  |   |     | 

#  47 

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

# 11.       GOODWILL AND OTHER INTANGIBLES (continued)

Substantially all of
the Companys acquired other intangible assets are subject to amortization. Other
intangible asset amortization expense was approximately $2 million in the first six
months of 2003 and 2002. 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, 2003 | 
|----------------- |  | ------------- | 
|
|
|
|
|Contract-based    |  |               | 
|Technology-based  |  |               | 
|Marketing-related |  |               | 
|                  |  |               | 
|                  |  |               | 
|                  |  |               | 

# 12.       STOCK COMPENSATION

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

The Company applies
SFAS No. 123 and SFAS No. 148 for disclosures of its stock based compensation plans. The
Company applies Accounting Principles Board Opinion No. 25 and related Interpretations
for expense recognition as permitted by SFAS No. 123 and SFAS No. 148. The expense
recorded in the first half of 2003 and 2002 was not material.

#  48 

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

# 12.       STOCK COMPENSATION
(continued)

Had compensation
cost for the Companys stock-based compensation plans been determined based on the
fair value at the grant dates for awards under those plans consistent with the method
described in SFAS No. 123, the Companys net income (loss) and net income (loss) per share would have
been adjusted to the pro forma amounts indicated below:

|                                          | Quarter Ended June 30, | Six Months Ended June 30, |   |     
|----------------------------------------- | ---------------------- | ------------------------- | - | ----
|
|
|
|Net income (loss), as reported            |                        |                           | $ | 18  
|                                          |                        |                          
|Total stock-based employee compensation   |                        |                          
|expense determined under fair value based |                        |                          
|method for all awards, net of related tax |                        |                          
|effects                                   |                        |                           |   | (1  
|                                          |                        |                           |   |     
|Pro forma net income (loss)               |                        |                           | $ | 17  
|                                          |                        |                           |   |     
|                                          |                        |                           |   |     
|Basic net income (loss) per share         |                        |                           |   |     
|As reported                               |                        |                           | $ | 0.33
|Pro forma                                 |                        |                           |   | 0.31
|                                          |                        |                           |   |     
|Diluted net income (loss) per share       |                        |                           |   |     
|As reported                               |                        |                           | $ | 0.30
|Pro forma                                 |                        |                           |   | 0.29

# 13.       LEASES

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

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

#  49 

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

# 14.       ACCOUNTING
PRONOUNCEMENTS

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

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

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

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

#  50 

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

# 14.       ACCOUNTING
PRONOUNCEMENTS (continued)

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

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

#  51 

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

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

# CAUTIONARY STATEMENT
CONCERNING FORWARD-LOOKING STATEMENTS

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

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# VOLUNTARY PETITION FOR
RELIEF UNDER CHAPTER 11

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

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

The Debtors 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).

#  52 

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

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

The Debtors filed
for relief under Chapter 11 to address the growing demands on Owens Cornings cash
flow resulting from its multi-billion dollar asbestos liability. This liability is
discussed in greater detail in Note 9 to the Consolidated Financial Statements.

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

On January 17, 2003,
the Debtors, together with the Official Committee of Asbestos Claimants and the Legal
Representative for the class of future asbestos claimants, filed a proposed joint plan of
reorganization in the USBC. The same proponents filed a proposed amended joint plan of
reorganization in the USBC on March 28, 2003, a proposed second amended joint plan of
reorganization in the USBC on May 23, 2003, and a proposed third amended joint plan of
reorganization (as so amended through such third amendment, the Plan) in the
USBC on August 8, 2003. Certain terms, conditions and provisions of the Plan are
discussed below. The Plan is subject to confirmation by the Bankruptcy Court.

# Consequence of Filing

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

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

#  53 

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

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

On May 22, 2003, the
United States Senate introduced proposed legislation (S 1125, also known as the Fairness
in Asbestos Injury Resolution Act of 2003 (the FAIR Act)) that, if enacted
into law, would establish an administrative claims resolution structure through which all
asbestos personal injury claims would be channeled and reviewed. The FAIR Act would also
establish a national trust fund, funded through mandated contributions from defendant
companies, insurance companies and existing trusts, that would be the source of
compensation of all approved claims. Under the present terms of the FAIR Act, companies
like Owens Corning and Fibreboard, that have filed for bankruptcy but have not yet
emerged through a confirmed plan of reorganization, would be included as participants in
the resolution structure.

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

# The Plan of
Reorganization

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

The Plan is premised
upon the substantive consolidation of the Debtors (but not the Fibreboard Settlement
Trust (see Note 10 to the Consolidated Financial Statements)) for the purposes of voting,
determining which claims and interests will be entitled to vote to accept or reject the
Plan, confirmation of the Plan, and the resultant discharge of and cancellation of claims
and interests and distribution of assets, interests and other property under the Plan.
For these purposes, the Plan would treat all assets and liabilities of each Debtor
(excluding the Fibreboard Settlement Trust) as though they were merged into one
consolidated estate with the assets and liabilities of the other Debtors. Substantive
consolidation under the Plan will not result in the merger of or the transfer or
commingling of any assets of any of the Debtors or Non-Debtor Subsidiaries. Certain
creditor constituencies have asserted that substantive consolidation is not appropriate
and are challenging that approach in the Plan confirmation hearings described below.

#  54 

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

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

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

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

Under the Plan, a
majority of the newly issued common stock, together with notes, and cash, as well as the
assets of the existing Fibreboard Settlement Trust (see Note 10 to the Consolidated
Financial Statements), will fund a new trust created under the Plan intended to qualify
under Section 524(g) of the Bankruptcy Code. The Section 524(g) trust will assume all
obligations of Owens Corning, Fibreboard, and their respective subsidiaries and
affiliates, for current and future asbestos personal injury claims and demands, and will,
through Owens Corning and Fibreboard sub-accounts, make payments to claimants in
accordance with trust distribution procedures to be agreed upon. In addition, the Plan
provides for an injunction by the Bankruptcy Court pursuant to Section 524(g) of the
Bankruptcy Code that will enjoin actions against the reorganized Debtors for the purpose
of, directly or indirectly, collecting, recovering or receiving payment of, on, or with
respect to any claims resulting from asbestos-containing products allegedly manufactured,
sold or installed by Owens Corning or Fibreboard, which claims will be paid in whole or
in part by the Section 524(g) trust. Similar plans of reorganization have been confirmed
in the Chapter 11 cases of other companies involved in asbestos-related litigation.
Section 524(g) of the Bankruptcy Code provides that, if certain specified conditions are
satisfied, a court may issue a supplemental permanent injunction barring the assertion of
asbestos-related claims or demands against the reorganized company and channeling those
claims to an independent trust.

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

#  55 

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

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

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

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

# Bar Dates for Filing
Claims

GENERAL BAR DATE

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

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

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
has filed omnibus objections to certain of these Objectionable Claims and likely will
file additional objections. 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 Objectionable Claims will be
disallowed.

#  56 

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

In addition to the
Objectionable Claims described above, at June 30, 2003, the remaining filed proofs of
claim included approximately 9,000 claims, totaling approximately $7.7 billion, as
follows:

| | Approximately 2,900 claims, totaling approximately $1.4 billion, associated with
asbestos-related contribution, indemnity, reimbursement, or subrogation claims. Owens
Corning will address all asbestos-related personal injury and wrongful death claims in the
future as part of the Chapter 11 Cases. Please see Note 9 to the Consolidated Financial
Statements for additional information concerning asbestos-related liabilities.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Approximately 5,500 claims, totaling approximately $5.6 billion, alleging rights to
payment for financing, environmental, trade debt and other matters (the General
Claims). The Company has previously recorded approximately $3.7 billion in
liabilities for these claims. Based upon the claims information submitted, the General
Claims with the largest variance from the recorded amounts are: claims by the United
States Department of Treasury, totaling approximately $530 million, in connection with
taxes (see discussion under the heading Tax Claim in Note 9 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 9 to the Consolidated Financial Statements; claims for
contract rejections, totaling approximately $313 million, of which approximately $257
million are protective claims covering contracts which have not been rejected by the
Debtors as of June 30, 2003; a $275 million class action claim involving alleged problems
with a specialty roofing product, which claim Owens Corning does not believe is
meritorious based upon its historic experience with servicing its warranty program for
such product; and environmental claims, totaling approximately $244 million.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Owens Corning has
recorded liability amounts for those claims that can be reasonably estimated and which it
believes are probable of being allowed by the Bankruptcy Court. At this time, it is
impossible to reasonably estimate the value of all the claims that will ultimately be
allowed by the Bankruptcy Court, due to the uncertainties of the Chapter 11 process, the
in-progress state of Owens Cornings investigation of submitted claims, and the lack
of documentation submitted in support of many claims. Owens Corning continues to evaluate
claims filed in the Chapter 11 Cases and will make such adjustments as may be
appropriate. Any such adjustments could be material to the Companys consolidated
financial position and results of operations in any given period. For a discussion of
liability amounts in respect of asbestos personal injury claims, see Note 9 to the
Consolidated Financial Statements.

ASBESTOS BAR DATE

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

#  57 

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

As indicated above,
the General Bar Date does not apply to asbestos-related personal injury claims and
asbestos-related wrongful death claims (other than claims for contribution, indemnity,
reimbursement, or subrogation). Despite this, approximately 3,000 proofs of claim (in
addition to claims described above under General Bar Date), totaling
approximately $2.2 billion, with respect to asbestos-related personal injury or wrongful
death were filed with the Bankruptcy Court in response to the General Bar Date. Of these
claims, Owens Corning has identified approximately 1,100, totaling approximately $0.5
billion, as Objectionable Claims. Of the remaining claims, Owens Corning believes that a
substantial majority represent claimants that had previously asserted asbestos-related
claims against the Company.

As noted above,
under the Plan all asbestos-related personal injury and wrongful death claims will be
channeled to the Section 524(g) trust, subject to approval by the Bankruptcy Court.
Please see Note 9 to the Consolidated Financial Statements for additional information
concerning asbestos-related liabilities.

# RESULTS OF OPERATIONS

# Business Overview

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

Owens Cornings
strategy also includes the divestiture of non-strategic businesses and the realignment of
existing businesses. During the second quarter of 2003, the Company completed the sales
of its metal systems and mineral wool businesses. See Note 5 to the Consolidated
Financial Statements for additional information concerning these sales. These businesses
were identified for sale as part of the Companys strategic restructuring program
discussed below in Restructuring of Operations and Other Charges and in Note
4 to the Consolidated Financial Statements. As discussed above under The Plan of
Reorganization, the Company intends to effect an internal restructuring in order to
adopt a holding company structure. This internal restructuring is expected to be refined
further as steps are taken to implement it.

Key factors
affecting the Companys Building Materials markets include interest rates, new
housing starts, and remodeling activity. Despite the weakness in the overall economy, the
historically low interest rates experienced in recent periods have contributed to
relative strength in new housing starts and demand for the Companys Building
Materials products. If interest rates rise, it is likely that housing starts and demand
for Building Materials products would be negatively impacted. In addition, higher energy
and material costs will cause pressure on margins.

Key factors
affecting the Companys Composite Solutions markets include the condition of
automotive markets and foreign exchange rates. In this segment, the Company forecasts that
s low markets in North America and Europe will combine for minimal growth in
2003 compared to 2002. In addition, overcapacity in the global market will contribute to
price pressure on the Composite Solutions business, while higher energy and material
costs will cause continuing pressure on margins.

Late in the
second quarter of 2003, the Company experienced a labor stoppage at its Korean composites
facility as the result of a general action taken by a national union to impact
labor activity throughout Korea. While this work stoppage had minimal effect on results
for the second quarter, if it were to continue it may have a material impact on Composite
Solutions results in future periods.

#  58 

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

# Sales and Profitability
for the Quarter Ended June 30, 2003 and 2002

NET SALES

Net sales for the
quarter ended June 30, 2003 were $1.239 billion, a 4% decrease from the second quarter of
2002 level of $1.285 billion. The lower sales in the second quarter of 2003 compared to
2002 reflect lower volumes in both Building Materials and Composite Solutions, primarily
in the United States. In Building Materials, volume was down primarily in our
residential roofing business, partially offset by higher pricing, which was
implemented in response to higher material costs, primarily asphalt. In addition, sales
were negatively impacted by the sale of our metal systems business in May of 2003,
discussed below under Restructuring of Operations and Other Charges. In
Composite Solutions, volume and price were down in nearly all geographic regions, the
result of the weaker global economy. In addition, Composite Solutions sales reflect a
decrease due to the exiting of some non-strategic product lines. Changes in foreign
currency exchange rates increased net sales in the second quarter of 2003 by 1%. This
phenomenon primarily reflects the weakening of the U.S. dollar relative to the Euro,
which benefited the net sales of Composite Solutions.

Sales outside the
United States represented 15% of total sales for the quarter ended June 30, 2003,
compared to 13% during the second quarter of 2002. The increase was primarily
attributable to lower sales in the United States and the favorable changes in foreign
currency exchange rate described above.

GROSS MARGIN

Gross margin for the
second quarter of 2003 was 17% of net sales, compared to 19% in 2002. The decrease as a
percentage of sales was primarily the result of higher energy and material costs
negatively impacting all major businesses and lower prices in Composite Solutions,
partially offset by the higher pricing in our residential roofing business. The
higher raw material and energy costs were mainly attributable to increased costs of
asphalt, PVC, and natural gas. Gross margin during the second quarter of 2003 benefited
from a gain of approximately $6 million resulting from the settlement of certain vendor
payables at a discount.

MARKETING AND
ADMINISTRATIVE EXPENSES

Marketing and
administrative expenses were $116 million and 9% of net sales during the second quarter
of 2003, compared to $144 million and 11% of net sales during the second quarter of 2002.
The decrease is primarily attributable to cost-cutting measures entered into during 2002
and the beginning of 2003. Please see Restructuring of Operations and Other Charges below
for further information on the cost-cutting measures taken.

INCOME FROM OPERATIONS

On a comparative
basis, income from operations decreased to $43 million for the second quarter of 2003, from
$70 million in 2002. The decrease was primarily the result of the lower gross margin,
offset in part by reduced marketing and administrative expenses. Other factors
contributing to the decrease were higher Chapter 11 related reorganization expenses and
a loss on the sale of the Companys metal systems business.

#  59 

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

INCOME TAXES

The Company
currently projects that its effective tax rate for the full year 2003 will be 49%,
compared to 1% for the full year 2002. In the third quarter of 2002, the Company
increased its asbestos-related reserves through charges to income of $1.381 billion for
Owens Corning asbestos-related liabilities and $975 million for Fibreboard
asbestos-related liabilities, for an aggregate charge of $2.356 billion (See Note 9 to
the Consolidated Financial Statements). In connection with such charges, management
evaluated the amount of deferred tax assets attributable to such charges and also
assessed the likelihood of realization of such deferred tax assets in light of the Companys
financial position and the Chapter 11 proceedings. As the result of such assessment,
management determined that, as of September 30, 2002, a valuation allowance was required
for the full amount of such attributable deferred tax assets. As a result, no tax benefit
was recorded in connection with the third quarter 2002 asbestos-related charges discussed
above.

NET INCOME

For the second
quarter of 2003 and 2002, Owens Corning reported net income of $18 million, or $0.30 per
share, and $36 million, or $0.65 per share, respectively. The decrease in 2003 was
primarily due to the factors described above. The Company had no net interest
expense in the second quarter of 2003 (from the Petition Date through June 30,
2003, contractual interest expense not accrued or recorded on pre-petition debt totaled
$426 million, of which $32 million relates to the second quarter of 2003 and $35 million
relates to the second quarter of 2002 (please see Note 1 to the Consolidated Financial
Statements)).

# Sales and Profitability
for the Six Months Ended June 30, 2003 and 2002

NET SALES

Net sales for the
six months ended June 30, 2003 were $2.372 billion, a 1% decrease from the 2002 level of
$2.392 billion. Net sales were lower in both Building Materials Systems and Composite
Solutions. In Building Materials, volume was lower in roofing, asphalt and vinyl
siding, reflecting weaker economic conditions, primarily in the United States. In
addition, comparative sales for Building Materials were negatively impacted by the sale
of our metals systems business in May of 2003. Most of the negative volume impact was
offset by higher pricing in our residential roofing and asphalt product lines, all in
response to higher material costs. In Composite Solutions, sales were negatively impacted
by both lower volume and prices in the U.S., Europe, and Canada. In addition, net sales
also reflect a decrease due to the exiting of some product lines in the Composite
Solutions business. Changes in foreign currency increased net sales in the first six
months of 2003 by 1%. This revenue growth primarily reflects the benefit of the U.S.
dollar weakening relative to the Euro, which mainly benefited our Composite Solutions net
sales results.

Sales outside the
United States represented 15% of total sales for the six months ended June 30, 2003,
compared to 14% during the first six months of 2002. The increase was primarily
attributable to the factors discussed above lowering sales in the United States
and the favorable foreign currency effects.

#  60 

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

GROSS MARGIN

Gross margin for the
six months ended June 30, 2003 was 16% of net sales, compared to 17% in 2002. The
decrease was primarily the result of higher energy and material costs negatively
impacting all major businesses and lower prices in Composite Solutions, partially offset
by manufacturing productivity improvements in our insulation business and higher
pricing in our residential roofing business. The higher raw material and energy costs
were mainly attributable to increased costs of asphalt, PVC, and natural gas. Also
contributing to the decrease was a $28 million charge representing an additional
write-down of two groups of assets in the Building Materials segment to net realizable
value in the first quarter of 2003, discussed below under Restructuring of
Operations and Other Charges. Gross margin during the period benefited from the
gain of approximately $6 million resulting from the settlement of certain vendor payables
at a discount.

MARKETING AND
ADMINISTRATIVE EXPENSES

Marketing and
administrative expenses were $230 million and 10% of net sales during the six months
ended June 30, 2003, compared to $271 million and 11% of net sales during the six months
ended June 30, 2002. The decrease is primarily attributable to cost-cutting measures
entered into during 2002 and the beginning of 2003. Please see Restructuring of
Operations and Other Charges below for further information on the cost-cutting measures
taken.

INCOME FROM OPERATIONS

On a comparative
basis, income from operations decreased to $51 million for the six months ended June 30,
2003 from $73 million in 2002. The decrease was primarily the result of the lower gross
margin, offset in part by reduced marketing and administrative expenses. Other factors
contributing to the decrease were higher Chapter 11 related reorganization expenses and
a loss on the sale of the Companys metal systems business.

NET INCOME

For the six months
ended June 30, 2003 and 2002, Owens Corning reported net income of $17 million, or $0.30
per share, and a net loss of $411 million, or $7.47 per share, respectively. In addition
to the items discussed above, the increase reflected a non-cash charge of $491
million ($441 million net of tax) recorded in the first quarter of 2002 as the result of
the Companys adoption of Statement of Financial Accounting Standards No. 142,
effective January 1, 2002. Please see Accounting Changes below for additional
information. Net interest expense was $4 million during the six months
ended June 30, 2003 (from the Petition Date through June 30, 2003, contractual
interest expense not accrued or recorded on pre-petition debt totaled $426 million, of
which $64 million relates to the six months ended June 30, 2003 and $71 million relates
to the six months ended June 30, 2002 (please see Note 1 to the Consolidated Financial
Statements)).

#  61 

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

# RESTRUCTURING OF
OPERATIONS AND OTHER CHARGES

# Ongoing Business Review

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

# Second Quarter 2003

In the second quarter of 2003, the Company recorded a pretax charge of approximately  $13 million,  consisting of a
$14 million loss on the sale of the Companys metal systems  business,  offset by a $1 million credit  representing
the gain on the sale of assets of the Companys  mineral wool business.  Such $13 million charge,  along with a net
$1 million credit for various other items, was reflected in the  Consolidated  Statement of Income (Loss) under the
caption,  Other.  See Note 5 to the  Consolidated  Financial  Statements  for additional  information  concerning
these sales.

# First Quarter 2003

In the first quarter
of 2003, the Company recorded approximately $30 million in pretax charges, comprised
of a $2 million pretax charge to restructure costs (classified as a separate component of
operating expenses in the Consolidated Statement of Income (Loss)) and a $28 million charge
to cost of sales. The $2 million restructure charge represents additional non-cash asset
write-downs of previously closed non-strategic facilities to their fair value.

The $28 million
charge to cost of sales represents the additional write-down of two groups of assets in
the Building Materials segment to net realizable value based on valuations of the future
cash flows of the assets using assumptions consistent with current market conditions.

# 2002

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

The $61 million
restructure charge includes $17 million of severance costs associated with the
elimination of 830 positions due to plant closures in the U.S. and U.K. and $18 million
of severance costs associated with the elimination of 349 other positions, primarily
impacting administrative personnel. As of June 30, 2003, all of these positions were
actually eliminated. As of June 30, 2003, approximately $30 million has been paid and
charged against the reserve. The remaining $26 million restructure charge represents the
cost of closure of non-strategic facilities, comprised of $24 million in non-cash asset
write-downs to fair value and $2 million of other exit cost liabilities. As of June 30,
2003, approximately $2 million has been paid and charged against the reserve for exit
cost liabilities.

#  62 

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

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

# LEASES

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

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

# LIQUIDITY, CAPITAL
RESOURCES AND OTHER RELATED MATTERS

Cash flow from
operations was negative $22 million for the six months ended June 30, 2003, versus
negative $105 million for the six months ended June 30, 2002. The change in cash flow
from operations was primarily driven by working capital items. Cash flow from operations
in the six months ended June 30, 2003 also reflects a restructuring agreement with the
financial institution responsible for an Asian credit facility to certain subsidiaries of
the Company, guaranteed by Owens Corning. As a result of this agreement, the Company
recorded (1) an increase of approximately $22 million in debt subject to compromise for
an allowed guarantee claim and (2) a reduction of debt of approximately $4 million.

#  63 

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

At June 30, 2003, our net working
capital was $1,027 million and we had a current ratio of 2.23, compared to $913 million
and 2.06, respectively, at December 31, 2002. The increase in working capital from
December 31, 2002 to June 30, 2003 primarily reflects:

| | cash from current operations  an increase in inventory due to normal seasonal trends  an increase in receivables due to normal seasonal trends
  proceeds of approximately $61 million from the sales of businesses discussed above in Restructuring of Operations and Other Charges
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

partially
offset by:

| | a payment of approximately $32 million to purchase bonds underlying the Companys
World Headquarters facility,   which was accounted for as a reduction of debt, discussed
above under Leases
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Investing activities
consumed $23 million of cash during the six months ended June 30, 2003, compared to $99
million during the six months ended June 30, 2002. The change in net cash flow from
investing activities was primarily attributable to:

| | a decrease in spending for additions to plant and equipment  proceeds of approximately $61 million from the sales of businesses discussed above in
  Restructuring of Operations and Other Charges
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We anticipate that
2003 spending for capital and investments will be approximately $256 million, a portion
of which is uncommitted. We expect that these expenditures will be funded from the Companys
operations and existing cash on hand.

Financing activities
during the six months ended June 30, 2003 resulted in a use of cash of $39 million
compared to a use of cash of $17 million during the six months ended June 30, 2002. The
change in net cash flow from financing activities was primarily attributable to:

| | reductions of long term debt during 2003, primarily reflecting a payment of approximately
$32 million to purchase bonds   underlying the Companys World
Headquarters facility, which was accounted for as a reduction of debt discussed  
above under Leases, and the payment of approximately $16 million to
reduce debt outstanding in India.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

partially
offset by:

| | reduction of subject to compromise financing activities in the first six months of 2002,
reflecting an $18 million application of funds previously subject to administrative freeze
to satisfy certain pre-petition indebtedness.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

#  64 

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

At June 30, 2003,
the Company had $807 million of Cash and Cash Equivalents as compared to $875 million at
December 31, 2002. The decline reflects normal seasonal changes in working capital.

At June 30, 2003, we
had $2.875 billion of borrowings subject to compromise and $174 million of other
borrowings (of which $75 million were in default as a consequence of the Filing and
therefore classified as current on the Consolidated Balance Sheet). 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).

The Company has
significant liabilities related to pension plans for its employees. The Company has
reviewed its assumptions related to the valuation of this liability, including the rate
of return on pension plan assets and the discount rate on the liability compared to
actual results to date. This resulted in management changing its assumptions for 2003,
which will contribute to an increase in the pension plan expense of approximately $29
million in 2003 as compared to 2002. In addition, the actual decrease in the market value
of assets during 2002 and lower interest rates will likely result in the Company making
contributions to the pension plans of approximately $250 million during 2003. The Company
also currently projects additional contributions in the range of $150 million to $200
million during 2004. The Companys recorded long-term pension plan liability
increased to $525 million at June 30, 2003, from $500 million at December 31, 2002,
primarily as the result of additional service cost, interest cost accrued and
amortization of prior actuarial losses, partially offset by return on plan assets during
2003. The ultimate cash flow impact to the Company, if any, of the pension plan
liability, and the timing of any such impact, will depend on numerous variables,
including future changes in actuarial assumptions and market conditions.

In connection with
the Filing, the Debtors obtained a $500 million debtor-in-possession credit facility from
a group of lenders led by Bank of America, N.A. (the DIP Financing), which
was originally scheduled to expire November 15, 2002. Effective October 31, 2002, the DIP
Financing was amended to, among other things, reduce the maximum available credit amount
to $250 million and extend the scheduled expiration to November 15, 2004. There were no
borrowings outstanding under the DIP financing at June 30, 2003, however, approximately
$83 million of the availability under this credit facility was utilized as a result of
the issuance of standby letters of credit and similar uses.

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

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.

#  65 

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

# ACCOUNTING CHANGES

Effective January 1,
2002, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets (SFAS No. 142), which it uses to account
for goodwill and other intangible assets. SFAS No. 142 eliminates the amortization of
goodwill and indefinite-lived intangible assets; identifiable intangible assets with a
determinable useful life will continue to be amortized. SFAS No. 142 requires an annual
review for impairment using a fair value methodology. The Company completed its annual
review for impairment as of April 1, 2003, which resulted in no change to the recorded
goodwill. The impact of adoption resulted in a non-cash charge of $491 million ($441
million net of tax). This charge was determined during the second quarter of 2002 and, as
required by SFAS No. 142, was recorded as a cumulative effect of a change in accounting
principle in the first quarter of 2002. The goodwill recorded in the December 31, 2001
financial statements, which included the $491 million described above, was supported by
the undiscounted estimated future cash flow of the related operations in accordance with
Statement of Financial Accounting Standards No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. See Note 11 to
Owens Cornings Consolidated Financial Statements for further details.

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

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

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

#  66 

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

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

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

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

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

# 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, 2003, a total of 57 such PRP designations
remained unresolved by the Company. In most cases, the Company is only one of many PRPs
with potential liability for investigation and remediation at the applicable site. The
Company is also involved with environmental investigation or remediation at a number of
other sites at which it has not been designated a PRP.

#  67 

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

The Company
estimates a reserve in accordance with generally accepted accounting principles to
reflect environmental liabilities that have been asserted or are probable of assertion,
in which liabilities are probable and reasonably estimable. At June 30, 2003, the Companys
reserve for such liabilities was $24 million. In connection with the Filing, the Company
initiated a program to identify and discharge contingent environmental liabilities as
part of its plan or plans of reorganization. Under the program, the Company is seeking
settlements, subject to approval of the Bankruptcy Court, with various federal, state and
local authorities, as well as private claimants. On July 23, 2003, the Bankruptcy Court
approved one such settlement agreement with the United States resolving certain environmental
liabilities with respect to the EPA. The Company continues 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 and
for wet formed glass mat in June 2002. The Company anticipates that other sources to be
regulated will be asphalt processing and roofing, open molded fiber-reinforced plastics,
and large burners and boilers. Based on information now known to the Company, including
the nature and limited number of regulated materials Owens Corning emits, we do not
expect the Act to have a materially adverse effect on our results of operations,
financial condition or long-term liquidity.

# ITEM 3.       QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Please refer to the
Companys 2002 annual report on Form 10-K for the Companys quantitative and
qualitative disclosure about market risk.

# ITEM 4.       CONTROLS AND
PROCEDURES

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

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

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

#  68 

# PART II

# ITEM 1.       LEGAL PROCEEDINGS

Note 9 to Owens
Cornings Consolidated Financial Statements, entitled Contingent Liabilities
and Other Matters, is incorporated here by reference.

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

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

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

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

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

The Company
anticipates that substantially all liabilities of the Debtors as of the date of the
Filing will be resolved under one or more Chapter 11 plans of reorganization to be
proposed and voted on in the Chapter 11 Cases in accordance with the provisions of the
Bankruptcy Code. As a consequence of the Filing, all pending litigation against the
Debtors is stayed automatically by section 362 of the Bankruptcy Code and, absent further
order of the Bankruptcy Court, no party may take any action to recover on pre-petition
claims against the Debtors. Please see Note 1 to the Consolidated Financial Statements.

On January 17, 2003,
the Debtors, together with the Official Committee of Asbestos Claimants and the Legal
Representative for the class of future asbestos claimants, filed a proposed joint plan of
reorganization in the USBC. The same proponents filed a proposed amended joint plan of
reorganization in the USBC on March 28, 2003, a proposed second amended joint plan of
reorganization in the USBC on May 23, 2003, and a proposed third amended joint plan of
reorganization (as so amended through such third amendment, the Plan) in the
USBC on August 8, 2003. The Plan is subject to confirmation by the Bankruptcy Court.
Owens Corning believes that it is likely that the terms, conditions and provisions of the
Plan will be the subject of continuing negotiations or litigation to resolve differences
among the creditor constituencies as to their treatment. Accordingly, Owens Corning is
unable to predict at this time

#  69 

# ITEM 1.       LEGAL
PROCEEDINGS (continued)

what the treatment
of creditors and equity holders of the respective Debtors will ultimately be under any
plan or plans of reorganization finally confirmed. The current Plan provides for partial
payment of all unsecured creditors claims, in the form of distributions of new
common stock and notes of the reorganized company, and cash. Additional distributions
from potential insurance and other third-party claims may also be paid to certain classes
of unsecured creditors, but it is expected that all classes of pre-petition unsecured
creditors will be impaired. Therefore, the Plan also provides that the existing common
stock of Owens Corning will be cancelled, and that current shareholders will receive no
distribution or other consideration in exchange for their shares. It is impossible to
predict at this time the terms and provisions of any plan or plans of reorganization that
may ultimately be confirmed, when a plan or plans of reorganization will be confirmed, or
the treatment of creditors thereunder. The Plan is discussed in greater detail in Note 1,
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 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. Also see Part II, Item 1, above.

# ITEM 3.       DEFAULTS UPON
SENIOR SECURITIES

Substantially all of
the Companys pre-petition debt is now in default due to the Filing. See Note 1,
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 $75 million as of June 30, 2003, 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, 2003.

# 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.
|--- | --------------------

| | During
the quarter ended June 30, 2003, Owens Corning filed the following current reports on Form
8-K:
| | ------------------------------------------------------------------------------------------------------

| |      Dated April 25, 2003, under Item 9, in connection with a press release of
Owens Corning dated April 25, 2003.
| | -------------------------------------------------------------------------------------------------------------------

| |     Dated May 23, 2003, under Item 5, in connection with the filing of a Second Amended Joint
Plan of Reorganization of               Owens Corning and Its Affiliated Debtors and
Debtors-in-Possession and a related Disclosure Statement.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

#  70 

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 8, 2003 |  | By:/s/ Michael H. Thaman                                                                                       
|                    |  | Michael H. Thaman      Chairman of the Board and      Chief Financial Officer      (as duly authorized officer)
|                    |  |                                                                                                                
|                    |  |                                                                                                                
|Date:August 8, 2003 |  | By:/s/ Charles E. Dana                                                                                         
|                    |  | Charles E. Dana      Vice President - Corporate      Controller and Global Sourcing                            

#  71 

EXHIBIT INDEX

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

#  72 

EXHIBIT INDEX

|              |                                                                                                                                                                                                                                                                                                                                            
|------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber | Document Description                                                                                                                                                                                                                                                                                                                       
|              |                                                                                                                                                                                                                                                                                                                                            
|              | Joint
Plan of Reorganization of Owens Corning and Its Affiliated Debtors and
Debtors-In-Possession, filed in the United States Bankruptcy Court for the District of
Delaware on January 17, 2003 (incorporated herein by reference to Exhibit (2) to Owens
Cornings current report on Form 8-K (File No. 1-3660), filed January 17, 2003).
|              |                                                                                                                                                                                                                                                                                                                                            
|              |                                                                                                                                                                                                                                                                                                                                            
|(10)          | Material Contracts.                                                                                                                                                                                                                                                                                                                        
|              |                                                                                                                                                                                                                                                                                                                                            
|              | Owens Corning Long Term Incentive Plan (filed herewith).                                                                                                                                                                                                                                                                                   
|              |                                                                                                                                                                                                                                                                                                                                            
|(31)          | Rule
13a-14(a)/15d-14(a) Certifications                                                                                                                                                                                                                                                                                                    
|              |                                                                                                                                                                                                                                                                                                                                            
|              | Certification
of Chief Executive Officer (principal executive officer) (filed herewith).                                                                                                                                                                                                                                                   
|              |                                                                                                                                                                                                                                                                                                                                            
|              | Certification
of Chief Financial Officer (principal financial officer) (filed herewith).                                                                                                                                                                                                                                                   
|              |                                                                                                                                                                                                                                                                                                                                            
|(32)          | Section 1350 Certifications                                                                                                                                                                                                                                                                                                                
|              |                                                                                                                                                                                                                                                                                                                                            
|              | Certification
of Chief Executive Officer (principal executive officer) (filed herewith).                                                                                                                                                                                                                                                   
|              |                                                                                                                                                                                                                                                                                                                                            
|              | Certification
of Chief Financial Officer (principal financial officer) (filed herewith).