Owens Corning Sales 10K 2003 Annual report

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the Fiscal Year Ended December 31, 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

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


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

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

Common Stock - $.10 Par Value

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

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

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

On June 30, 2003, the last business day of Registrant’s most recently completed second fiscal quarter, the aggregate market value of Registrant’s $.10 par value common stock (Registrant’s voting stock) held by non-affiliates was $46,706,815 (assuming for purposes of this computation only that the Registrant had no affiliates).

At January 31, 2004, there were outstanding 55,343,264 shares of Registrant’s $.10 par value common stock.

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INDEX


		Page

Cover Page		1

PART I

Item 1.	Business	2
	Building Materials Systems	3 - 4
	Composite Solutions	4 - 5
	General
	Raw Materials and Patents	5
	Working Capital	6
	Number of Employees	6
	Research and Development	6
	Environmental Control	6
	Competition	6

Item 2.	Properties
	Plants	7
	Building Materials Systems Segment	7 - 9
	Composite Solutions Segment	9
	Other Properties	9

Item 3.	Legal Proceedings	10 - 12

Item 4.	Submission of Matters to a Vote of Security Holders	12

	Executive Officers of Owens Corning	13 - 14

PART II

Item 5.	Market for Owens Corning’s Common Equity and Related Stockholder Matters	14 - 15

Item 6.	Selected Financial Data	16 - 17

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18 - 41

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	41 - 43

Item 8.	Financial Statements and Supplementary Data	43

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	43

Item 9A.	Controls and Procedures	43

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		Page

PART III

Item 10.	Directors and Executive Officers of Owens Corning	44 - 47

Item 11.	Executive Compensation	48 - 53

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	53 - 55

Item 13.	Certain Relationships and Related Transactions	55

PART IV

Item 14.	Principal Accountant Fees and Services	56

Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	56

	Signatures	57

	Index to Consolidated Financial Statements	58

	Report of Independent Auditors	59 - 60

	Copy of Previously Issued Arthur Andersen LLP Report	61 - 62

	Financial Statements	63 - 146

	Index to Financial Statement Schedule	147

	Report of Independent Auditors on Financial Statement Schedule	148

	Schedule II	149

	Exhibit Index	150 - 155

	Key Management Severance Agreement with Charles E. Dana, Exhibit (10)

	Agreement with Charles E. Dana, Exhibit (10)

	Ethics Policy For Chief Executive and Senior Financial Officers, Exhibit (14)

	Subsidiaries of Owens Corning, Exhibit (21)

	Consent of Independent Accountants, Exhibit (23)

	Certification (Chief Executive Officer), Exhibit (31)

	Certification (Chief Financial Officer), Exhibit (31)

	Section 1350 Certification (Chief Executive Officer), Exhibit (32)

	Section 1350 Certification (Chief Financial Officer), Exhibit (32)

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PART I

ITEM 1. BUSINESS

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

PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE

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


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

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

The referenced Chapter 11 cases do not include any other United States or foreign subsidiaries of Owens Corning (collectively, the “Non-Debtor Subsidiaries”). The Chapter 11 Cases are discussed in greater detail in Note 1 to the Consolidated Financial Statements included in this Annual Report on Form 10-K (the “Consolidated Financial Statements”).

The Debtors filed for relief under Chapter 11 to address the growing demands on Owens Corning’s cash flow resulting from its multi-billion dollar asbestos liability. This liability is discussed in greater detail in Note 19 to the Consolidated Financial Statements.

On January 17, 2003, the Debtors, together with the Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants, filed a proposed joint plan of reorganization in the USBC. The same proponents filed a proposed amended joint plan of reorganization in the USBC on March 28, 2003, a proposed second amended joint plan of reorganization in the USBC on May 23, 2003, a proposed third amended joint plan of reorganization in the USBC on August 8, 2003, and a proposed fourth amended joint plan of reorganization (as so amended through such fourth amendment, the “Plan”) in the USBC on October 24, 2003. The Plan is subject to confirmation by the Bankruptcy Court. 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

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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 to the Consolidated Financial Statements.

OVERVIEW OF OPERATIONS

Owens Corning operates in two segments – Building Materials Systems and Composite Solutions. In 2003, the Building Materials Systems segment accounted for approximately 80% of our total sales while Composite Solutions accounted for the remainder. The products and systems provided by our Building Materials Systems segment are used in residential remodeling and repair, commercial improvement, new residential and commercial construction, and other related markets. The products and systems offered by our Composite Solutions segment are used in end-use markets such as building construction, automotive, telecommunications, marine, aerospace, energy, appliance, packaging and electronics. Many of Owens Corning’s products are marketed under registered trademarks, including Propink^®, Advantex^®, and/or the color PINK.

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

As part of our strategy to divest non-strategic businesses, we sold the assets of our metal systems business and our mineral wool business during the second quarter of 2003. We also sold the majority of our Engineered Pipe Business during the first quarter of 2001 and sold our 40% interest in Alcopor Owens Corning, a European building materials joint venture, during the fourth quarter of 2001.

Revenue from external customers, income from operations and total assets attributable to each of Owens Corning’s operating segments and geographic regions, as well as information concerning the dependence of our operating segments on foreign operations, for each of the years 2003, 2002, and 2001, are contained in Note 3 to the Consolidated Financial Statements, entitled “Segment Data”.

BUILDING MATERIALS SYSTEMS

Principal Products And Methods Of Distribution

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

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

Owens Corning sells asphalt products, primarily for industrial and specialty applications, under the Trumbull brand name. There are three principal kinds of industrial asphalt: Built-Up Roofing Asphalt (BURA), used in commercial flat roof systems to provide waterproofing and adhesion; saturants or coating asphalt, used to manufacture roofing mats, felts and residential shingles; and industrial specialty asphalt, used by manufacturers in a variety of products such as waterproofing systems, adhesives, coatings, dyes, and product extenders, as well as in various automotive applications. There are several channels of distribution for these products. They are used internally in the manufacture of residential roofing products and are also sold to other shingle manufacturers. In addition, asphalt is sold to roofing contractors and distributors for BURA systems and to manufacturers in a variety of other industries, including automotive, chemical, rubber and construction. Within the building construction market, glass fiber mat is used to provide fire and mildew resistance in 95% of all asphalt roofing shingles. Owens Corning sells glass fiber and/or mat directly to a small number of major shingle manufacturers, including our own roofing business.

In Latin America, Owens Corning produces and sells building and mechanical insulation primarily through an affiliate joint venture in Mexico (Vitro-Fibras, S.A.), as well as exports from U.S. plants. In January 2004, we entered into an agreement to acquire the remaining 60% ownership interest in Vitro-Fibras, S.A. for approximately $72 million. The acquisition is subject to obtaining required Bankruptcy Court and regulatory approvals. In Asia Pacific, we sell primarily mechanical insulation through joint venture businesses, including two majority owned insulation plants and an insulation fabrication center in China, a minority owned joint venture in Saudi Arabia, and licensees.

Seasonality

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

Major Customers

No customer in the Building Materials Systems segment accounted for more than 6% of the segment’s sales in 2003.

COMPOSITE SOLUTIONS

Principal Products and Methods of Distribution

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

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Owens Corning is a leading producer of glass fiber materials used in composites. Composites are made up of two or more components (e.g., plastic resin and a fiber, traditionally a glass fiber) used in various applications to replace traditional materials, such as aluminum, wood, and steel. We are increasingly providing systems that are designed for a specific end-use application, and entail a material, a proprietary process and a fully assembled part or system. The global composites industry has thousands of end-use applications. Owens Corning has selected strategic markets and end-users, where we provide integral solutions, such as the building construction and transportation markets. A large portion of the business also serves thousands of applications within the consumer, industrial and infrastructure markets, which include sporting goods and marine applications. Owens Corning sells composite materials to original equipment manufacturers (“OEMs”) and boat builders, both directly and through distributors.

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

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

Major Customers

No customer in the Composite Solutions segment accounted for more than 6% of the segment’s sales in 2003.

GENERAL

Raw Materials and Patents

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

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

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

Including registered trademarks for the Owens Corning logo and the color PINK, Owens Corning has approximately 300 trademarks registered in the United States and approximately 1,400 trademarks registered in other countries.

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

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Working Capital

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

Number of Employees

Owens Corning averaged approximately 18,000 employees during 2003 and had approximately 18,000 employees at December 31, 2003.

Research and Development

During 2003, 2002, and 2001, Owens Corning spent approximately $43 million, $42 million, and $37 million, respectively, for science and technology activities related to research and development. Customer-sponsored research and development was not material in any of the last three years.

Environmental Control

Owens Corning’s capital expenditures relating to compliance with environmental control requirements were approximately $7 million in 2003. We currently estimate that such capital expenditures will be approximately $8 million in 2004 and $3 million in 2005.

We do not consider that we have experienced a material adverse effect upon our capital expenditures or competitive position as a result of environmental control legislation and regulations. Operating costs associated with environmental compliance were approximately $41 million in 2003. We continue to invest in equipment and process modifications to remain in compliance with applicable environmental laws and regulations worldwide.

The 1990 Clean Air Act Amendments (“Act”) provide that the United States Environmental Protection Agency (“EPA”) will issue regulations on a number of air pollutants over a period of years. The EPA issued final regulations for wool fiberglass and mineral wool in June 1999, for amino/phenolic resin manufacturing in January 2000, for wet formed fiberglass mat production in April 2002, and for reinforced plastic composites production and asphalt roofing and processing in April 2003. The Company anticipates that other relevant sources to be regulated in the near future include large burners and boilers. Based on information now known to the Company, including the nature and limited number of regulated materials Owens Corning emits, we do not expect the Act to have a materially adverse effect on our results of operations, financial condition or long-term liquidity.

Competition

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

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

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

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

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ITEM 2. PROPERTIES

PLANTS

Owens Corning’s principal plants as of December 31, 2003, are listed below by operating segment and primary products, and are owned except as noted. We consider that these properties are in good condition and well maintained, and are suitable and adequate to carry on our business. The capacity of each plant varies depending upon product mix.

Certain of the facilities listed below are shown as “leased” properties. Pursuant to the Bankruptcy Code, Owens Corning and the other Debtors in the Chapter 11 Cases may elect to reject or assume unexpired pre-petition leases. The Debtors are currently reviewing the leases for which such an election exists to determine whether they should be assumed or rejected. The Bankruptcy Court has extended the time period within which the Debtors must make their elections through June 4, 2004, and may grant further extensions. In the process of their review, the Debtors may conclude that certain of the arrangements constitute secured financings rather than leases, in which event the Debtors may take action to obtain a court determination that the applicable facility is owned rather than leased.

BUILDING MATERIALS SYSTEMS

Thermal and Acoustical Insulation


Delmar, New York		Ladysmith, Wisconsin⁽¹⁾
Eloy, Arizona		Newark, Ohio
Fairburn, Georgia		Salt Lake City, Utah
Frederick, Colorado		Santa Clara, California
Kansas City, Kansas		Waxahachie, Texas

Anshan, China		Guangzhou, China
Candiac, Canada		Scarborough, Canada
Edmonton, Canada		Shanghai, China

⁽¹⁾	Facility is leased.

Foam Insulation


Rockford, Illinois		Tallmadge, Ohio

Nanjing, China		Volpiano, Italy⁽¹⁾
Valleyfield, Canada

⁽¹⁾	Facility is leased.

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OEM Solutions Group


Cleveland, Tennessee⁽¹⁾		Johnson City, Tennessee⁽¹⁾
Columbus, Ohio⁽¹⁾		Los Angeles, California⁽¹⁾
Dallas, Texas⁽¹⁾		Louisville, Kentucky⁽¹⁾
Hazleton, Pennsylvania⁽¹⁾		Springfield, Tennessee⁽¹⁾
Indianapolis, Indiana⁽¹⁾		Tiffin, Ohio⁽¹⁾

Brantford, Canada

⁽¹⁾	Facility is leased.

Roofing


Atlanta, Georgia		Kearny, New Jersey

Brookville, Indiana		Medina, Ohio

Compton, California		Memphis, Tennessee

Denver, Colorado		Minneapolis, Minnesota

Houston, Texas		Portland, Oregon

Irving, Texas		Savannah, Georgia

Jacksonville, Florida		Summit, Illinois

Jessup, Maryland

Asphalt Processing



Atlanta, Georgia		Jessup, Maryland

Channelview, Texas		Kearny, New Jersey

Compton, California		Medina, Ohio

Denver, Colorado		Memphis, Tennessee

Detroit, Michigan		Minneapolis, Minnesota

Ennis, Texas		Mobile, Alabama⁽²⁾
Ft. Lauderdale, Florida		Morehead City, North Carolina⁽¹⁾
Granite City, Illinois⁽¹⁾		North Bend, Ohio

Houston, Texas		Oklahoma City, Oklahoma

Irving, Texas		Portland, Oregon

Jacksonville, Florida		Summit, Illinois

⁽¹⁾	Facility is leased.

⁽²⁾	Operated under management agreement.

Glass Mat/Wet Chop


Aiken, South Carolina		Jackson, Tennessee⁽¹⁾

Fort Smith, Arkansas

⁽¹⁾	Facility is leased.

Cultured Stone Products


Chester, South Carolina⁽¹⁾		Navarre, Ohio

Napa, California

⁽¹⁾	Facility is leased.

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Vinyl Siding


Claremont, North Carolina		Olive Branch, Mississippi

Joplin, Missouri

London, Ontario

In addition, Owens Corning has approximately 170 distribution centers in 35 states in the United States, substantially all of which are leased.

COMPOSITE SOLUTIONS

Textiles and Reinforcements


Amarillo, Texas		Huntingdon, Pennsylvania⁽¹⁾
Anderson, South Carolina		New Braunfels, Texas⁽¹⁾

Apeldoorn, The Netherlands		Liversedge, United Kingdom

Battice, Belgium		Rio Claro, Brazil

Birkeland, Norway		San Vincente deCastellet/

Guelph, Canada		Barcelona, Spain

Kimchon, Korea		Taloja, India

L’Ardoise, France

⁽¹⁾	Facility is leased.

Manufactured Housing/Recreational Vehicles/Specialty Parts


Goshen, Indiana		Nappanee, Indiana

OTHER PROPERTIES

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

Owens Corning’s research and development activities are primarily conducted at our Science and Technology Center, located on approximately 500 acres of land outside Granville, Ohio. It consists of more than 20 structures totaling more than 600,000 square feet. Owens Corning has Application Development Centers in Novi, Michigan, Battice, Belgium, and Shanghai, China.

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ITEM 3. LEGAL PROCEEDINGS

Note 19 to the Consolidated Financial Statements, entitled “Contingent Liabilities and Other Matters”, is incorporated here by reference.


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

The 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”). 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.

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.

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ITEM 3. LEGAL PROCEEDINGS (continued)

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

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 discussed in greater detail in Note 1, Voluntary Petition for Relief Under Chapter 11, to the Consolidated Financial Statements.

On or about October 10, 2003, Kensington International Limited and Springfield Associates, LLC (collectively, “K&S”), two assignees of lenders under Owens Corning’s $1.8 billion pre-petition bank credit facility (the “Pre-Petition Credit Facility”, which is in default), filed a motion in the USBC to recuse District Court Judge Alfred M. Wolin from further participation in the Chapter 11 Cases. On October 15, 2003, the District Court entered an order withdrawing the reference of this matter from the USBC. On October 23, 2003, the District Court entered an order staying all discovery and other proceedings related to the motion until further order of the Court. On October 27, 2003, K&S filed an Emergency Petition for a Writ of Mandamus (the “Mandamus Petition”) with respect to the recusal motion in the United States Court of Appeals for the Third Circuit (the “Third Circuit”), seeking an order directing Judge Wolin either to recuse himself from the Chapter 11 Cases or to withdraw his order of October 23, 2003, and permit expedited discovery and an expedited briefing and hearing schedule with respect to the recusal motion. On October 28, 2003, the District Court issued an order setting forth certain procedures with respect to the recusal motion, including the provision by certain parties of affidavits and a briefing schedule with respect to the recusal motion. By orders dated October 30, 2003, and November 3, 2003, the Third Circuit stayed those proceedings in the Chapter 11 Cases for which the reference had been withdrawn from the USBC and which are pending solely before Judge Wolin; such orders do not affect other proceedings in the Chapter 11 Cases. The Third Circuit held a hearing on the Mandamus Petition on December 12, 2003. On December 18, 2003, the Third Circuit issued an order directing the District Court to vacate its October 23, 2003 stay of discovery, proceed with expedited discovery on the recusal motion,

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ITEM 3. LEGAL PROCEEDINGS (continued)

and issue a ruling on the recusal motion. On February 2, 2004, the District Court denied the recusal motion. The Third Circuit has scheduled a hearing for April 19, 2004 to review the District Court’s ruling.

On or about October 15, 2003, Credit Suisse First Boston (“CSFB”), the bank agent and a lender under the Pre-Petition Credit Facility, filed a complaint in the USBC against Owens Corning and twenty unnamed law firms who are alleged to have received payments under Owens Corning’s National Settlement Program (the “NSP”, which is discussed more fully in Note 19 to the Consolidated Financial Statements under the heading “Asbestos Liabilities”). This complaint, which is captioned Credit Suisse First Boston v. Owens Corning, et al., seeks to impose a constructive trust on all funds held by Owens Corning drawn under the Pre-Petition Credit Facility between March 1, 2000 and October 5, 2000, and to impose a constructive trust against the unnamed law firms. The complaint alleges that the NSP caused financial difficulties for Owens Corning that culminated in loan covenant breaches under the Pre-Petition Credit Facility that were not disclosed to CSFB, resulting in loans under the Pre-Petition Credit Facility that the lenders would not have been required to make. Owens Corning has filed a motion to dismiss this action. Following a hearing in February 2004, the USBC scheduled an additional hearing for March 22, 2004.

On or about October 17, 2003, the Official Committee of Unsecured Creditors filed a motion in the USBC requesting appointment of a Chapter 11 trustee to assume control of the Chapter 11 Cases due to alleged breach of the Debtors’ fiduciary duty of undivided loyalty to act in the best interest of all creditors. After such motion was dismissed by the USBC for failure to comply with local court rules, the Official Committee of Unsecured Creditors re-filed such motion on October 30, 2003. The USBC held status conferences on this matter in December 2003 and February 2004 and has scheduled an additional status conference for March 22, 2004.

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

Owens Corning has nothing to report under this Item.

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Executive Officers of Owens Corning

(as of February 2004)

The name, age and business experience during the past five years of Owens Corning’s executive officers as of February 2004 are set forth below. Each executive officer holds office until his or her successor is elected and qualified or until his or her earlier resignation, retirement or removal. All those listed have been employees of Owens Corning during the past five years except as indicated.


Name and Age		Position*

Sheree L. Bargabos (48)		Vice President and President, Exterior Systems Business since August 2002; formerly Vice President, Training and Development (2001), Vice President and General Manager, Foam, Insulating Systems Business (2000), Vice President and General Manager, Foam Business (1999), and General Manager, Foam Business.

David T. Brown (55)		President and Chief Executive Officer since April 2002; formerly Executive Vice President and Chief Operating Officer (2001), and Vice President and President, Insulating Systems Business. Director since January 2002.

Charles E. Dana (48)		Vice President and President, Composite Solutions Business, and Vice President – Corporate Controller** since February 2004; formerly Vice President – Corporate Controller and Global Sourcing (2002), Vice President, Global Sourcing and eBusiness (2001), Vice President, Owens Corning Supply Chain Solutions (2000), Vice President, Global Sourcing Management (1999), and Vice President, Planning and Analysis – Composites Systems.

Daniel J. Dietzel (49)		Vice President and President, Siding Solutions Business since July 2002; formerly Vice President, Distribution – Exterior Systems Business.

Joseph C. High (49)		Senior Vice President, Human Resources since January 2004; formerly Vice President, Human Resources for ConocoPhillips (2001), and Vice President, Human Resources for Rockwell Automation.

David L. Johns (45)		Senior Vice President and Chief Supply Chain and Information Technology Officer since April 2001; formerly Vice President and Chief Technology Officer (1999), and Chief Information Officer.

George E. Kiemle (56)		Vice President and President, Insulating Systems Business since February 2001; formerly Vice President, Manufacturing, Insulating Systems Business.

- 14 -


Name and Age		Position*

Stephen K. Krull (39)		Senior Vice President, General Counsel and Secretary since February 2003; formerly Vice President, Corporate Communications (2002), Vice President and General Counsel, Operations (1999), and Director, Law.

Michael H. Thaman (39)		Chairman of the Board and Chief Financial Officer since April 2002; formerly Senior Vice President and Chief Financial Officer (2000), Vice President and President, Exterior Systems Business (1999), and Vice President and President, Engineered Pipe Systems. Director since January 2002.

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

**	Mr. Dana will relinquish the position of Vice President - Corporate Controller upon the later of February 29, 2004 or the date this Form 10-K is accepted for filing by the Securities and Exchange Commission.

PART II

ITEM 5. MARKET FOR OWENS CORNING’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

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

Effective December 19, 2002, Owens Corning’s common stock has been traded on the Over The Counter Bulletin Board (“OTCBB”) under the symbol “OWENQ”. During 2003 and 2002, the high and low sales prices for the Company’s common stock as reported by the NYSE until December 19, 2002, and the high and low bid prices on the OTCBB beginning December 19, 2002, were as follows:


2003	High	Low	2002	High	Low

First Quarter	0.74	0.05	First Quarter	2.99	1.83

Second Quarter	1.25	0.05	Second Quarter	2.14	1.08

Third Quarter	1.20	0.50	Third Quarter	1.50	0.85

Fourth Quarter	0.91	0.30	Fourth Quarter	1.13	0.37

The number of stockholders of record of Owens Corning’s common stock on January 31, 2004 was 6,995.

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

- 15 -

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

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

Owens Corning maintains various equity compensation plans under which equity securities are authorized for issuance. Information regarding these securities as of December 31, 2003, is as follows:


	(a)		(b)			(c)

Plan Category	Number of Securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights			Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))

Equity compensation plans approved by security holders	3,016,130	⁽¹⁾	$	33.34	⁽¹⁾	390,157	⁽²⁾

Equity compensation plans not approved by security holders	1,933,853	⁽³⁾	$	31.05	⁽³⁾	1,086,084	⁽³⁾

Total	4,949,983		$	32.45		1,476,241

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

⁽²⁾	Relates to the Company’s 1987 Stock Plan for Directors.

⁽³⁾	Relates to the Company’s 1995 Stock Plan.

For additional information concerning these plans, including the number of securities available for future issuance, please see Note 21 to the Consolidated Financial Statements, entitled “Stock Compensation Plans”. No securities were granted under these plans in 2003, and the Company does not anticipate additional grants for the foreseeable future.

- 16 -

ITEM 6. SELECTED FINANCIAL DATA

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


	2003^(a)			2002^(b)			2001^(c)			2000^(d)			1999
	(In millions of dollars, except per share data and where noted)
Net sales	$	4,996		$	4,872		$	4,762		$	4,940		$	5,048
Cost of sales		4,170			4,130			3,938			4,014			3,815
Marketing, administrative and other expenses		438			505			565			659			594
Science and technology expenses		43			42			37			52			61
Restructure costs		(2	)		61			26			32			—
Provision (credit) for asbestos litigation claims		(5	)		2,351			(7	)		790			—
Chapter 11 related reorganization items		85			96			87			24			—
Income (loss) from operations		267			(2,313	)		116			(631	)		578
Interest expense, net		8			16			16			155			152
Other		—			—			(2	)		5			—
Income (loss) before income tax expense (benefit)		259			(2,329	)		102			(791	)		426
Income tax expense (benefit)		145			31			57			(312	)		149
Cumulative effect of change in accounting principle, net of tax		—			(441	)		—			—			—
Net income (loss)		115			(2,809	)		39			(478	)		270
Net income (loss) before cumulative effect of change in accounting principle per share
Basic		2.08			(43.01	)		0.72			(8.71	)		4.98
Diluted		1.92			(43.01	)		0.66			(8.71	)		4.67
Net income (loss) per share
Basic		2.08			(51.02	)		0.72			(8.71	)		4.98
Diluted		1.92			(51.02	)		0.66			(8.71	)		4.67
Dividends per share on common stock
Declared		—			—			—			0.2250			0.3000
Paid		—			—			—			0.2250			0.3000
Weighted-average number of shares outstanding (in thousands)
Basic		55,196			55,054			55,056			54,816			54,083
Diluted		59,874			55,054			59,945			54,816			59,452
Net cash flow from operations		326			364			483			(190	)		(28	)
Additions to plant and equipment		208			248			270			476			244
Total assets		7,358			7,016			7,162			6,912			6,494
Long-term debt^(e)		73			71			5			7			1,764
Liabilities subject to compromise^(e)		9,258			9,236			6,804			6,935			—
Average number of employees (in thousands)		18			18			19			20			21

^(a)

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

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ITEM 6. SELECTED FINANCIAL DATA (continued)

^(b)

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

^(c)

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

^(d)

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

^(e)

On October 5, 2000, Owens Corning and 17 of its United States subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code. In accordance with AICPA Statement of Position 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code”, beginning in October 2000, the Company classified substantially all pre-petition liabilities of the Debtors (see Note 1 to the Consolidated Financial Statements) as “Liabilities Subject to Compromise” on the Consolidated Balance Sheet. Included in this item at December 31, 2003 and 2002 were:


	2003		2002
	(in millions of dollars)
Accounts payable and accrued liabilities	$	213	$	233
Accrued interest payable		42		40
Debt		2,896		2,854
Income taxes payable		233		235
Reserve for asbestos litigation claims - Owens Corning		3,565		3,564
Reserve for asbestos-related claims - Fibreboard		2,309		2,310

Total consolidated		9,258		9,236
Payables to non-Debtors		727		727

Total Debtor	$	9,985	$	9,963

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

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

•

competitive factors

•

pricing pressures

•

availability and cost of energy and materials

•

construction activity

•

interest rate movements

•

issues involving implementation of new business systems

•

achievement of expected cost reductions and/or productivity improvements

•

developments in and the outcome of the Chapter 11 proceedings described below

•

general economic and political conditions, including new legislation

•

foreign exchange fluctuations

•

the success of research and development activities

•

difficulties or delays in manufacturing

•

labor disputes

OVERVIEW

Chapter 11 Proceedings

October 5, 2003 marked the third anniversary of the Company’s filing for relief under Chapter 11 of the United States Bankruptcy Code. Since the date of our filing, the Company has worked diligently to separate the management of its business operations from the management of the Chapter 11 process. We have been successful in that regard.

Our strategy for managing the Chapter 11 process has been to steadily advance our case while attempting to facilitate a consensual Plan of Reorganization that all creditors would support (“Consensual Plan”). We believe that a Consensual Plan would allow us to emerge from Chapter 11 earlier than our current track while still maximizing the value of our estate for all creditors.

Unfortunately, we have been unable to reach a Consensual Plan to date. Absent a Consensual Plan, we continue to move forward with a Plan of Reorganization that is co-sponsored by the Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants in our case. Our current Plan of Reorganization is described in more detail below.

- 19 -

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

There are a number of factors that have thus far prevented us from reaching a Consensual Plan with our Creditors. In 2003, there were three primary factors:

(1)

First, the holders of our bank debt believe that our Plan of Reorganization should not be conditioned upon substantive consolidation. They believe that certain guarantees provided to them by subsidiaries of the Company (including several that currently are not Debtors) should allow them to receive a higher recovery than other creditors. Many of the Company’s other creditors believe that substantive consolidation is appropriate. Judge Wolin held a lengthy hearing on the substantive consolidation issue in 2003, but he has not yet issued his decision.

(2)

The second factor relates to proposed asbestos reform legislation (the “FAIR Act”). The Company’s non-asbestos creditors believe that this legislation would reduce the asbestos liability owed by the Company, and would therefore potentially increase the recoveries of all other creditors. 2003 ended without Congressional action on the FAIR Act, and as long as it remains possible that the FAIR Act could be enacted into law, it will likely remain a factor in the negotiations among our various creditor groups.

(3)

The third factor is the significant disagreement as to the value of the Company’s current and future asbestos liability. Our Plan of Reorganization provides that the 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. Our non-asbestos creditors have indicated that they believe that the amount of such liability is significantly lower than $16 billion. The determination of the value of the aggregate asbestos liability could significantly impact the relative recoveries of the parties.

We believe that the uncertainty surrounding these three factors, among others, made it difficult for all of our creditors to reach a Consensual Plan in 2003. Without a Consensual Plan, our only alternative is to proceed with a Plan of Reorganization that is supported by some, but not all, of our creditors. As a consequence, in our view, certain of our creditors have filed various challenges, each of which is described in more detail below.

We believe that these various challenges from our creditors have no substantive merit, but they did slow our progress through Chapter 11 in 2003. As those challenges are resolved, we will be positioned to make significant progress towards our emergence from Chapter 11. Also, if we are able to eliminate the uncertainty associated with the three factors described above, we believe that we will be more likely to reach a Consensual Plan. Without a Consensual Plan, we believe that an emergence from Chapter 11 during 2004 would be extremely difficult.

We will continue to work hard to manage the business operations of the Company without distraction from the Chapter 11 process.

- 20 -

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

Results of Operations

In 2003, the Company achieved significant improvements in its financial performance. In addition, management believes that actions taken in 2003 will lead to continued improvement in the performance of the operations and growth of the business in the coming years.

The Company launched a major, company-wide safety initiative. In the second quarter of 2003, the leadership of the Company asked all employees to make an unconditional commitment to working safely. This commitment to safety arose from the fact that in late 2002 and early 2003, several employees suffered severe injuries at work, and we perceived that our safety improvement had begun to plateau. As a result of this major initiative, we are pleased to report that in the second half of 2003, we more than doubled the number of days where all of the Company’s employees on a global basis were able to work injury free. Notably, in the fourth quarter of 2003, we experienced thirty days in the quarter where none of our employees on a global basis were injured. This result is a three-fold improvement to the average over prior quarters of approximately ten days per quarter.

We are pleased to report that our financial performance in 2003 improved significantly. The Company grew revenue to $4.996 billion, a 3% improvement from 2002, where revenue was $4.872 billion. As noted in Results of Operations below, income from operations for 2003 was $267 million compared to a loss of $2.313 billion for 2002. However, because of the nature of certain of the costs and expenses that impact reported income from operations, management does not find it to be the most useful financial measure of the Company’s on-going operational performance. Rather, when management reviews the Company’s year-to-year operational performance, we typically look at income from operations excluding Chapter 11 related reorganization items, restructuring and other charges, and provision (credit) for asbestos litigation claims (recoveries). To help understand that measure of on-going operational performance, you can refer to the segmental data appearing in Note 3 to the Consolidated Financial Statements. Using that data, we would typically compare year-to-year operations on the basis of income before income tax expense on a total reportable segment basis reduced only by general corporate expense. On that basis, the Company’s 2003 performance improved approximately 27% versus 2002. Cash flow was also strong during 2003, reported at $326 million despite pension contributions of $185 million. As a result of this strong income and operating cash flow performance, management’s key measurement for return on investment capital improved by more than 350 basis points and the Company finished the year with cash balances in excess of $1 billion.

Achievements in 2003 that contributed to the improved performance, or better positioned us for future performance, included:

•

The divestiture of significant non-core assets identified through a strategic review conducted in the second half of 2002. The most significant among these divestitures were the metal systems assets and our mineral wool assets.

•

A dramatic reduction in marketing and administrative expenses as a percentage of sales, from 11% in 2002 to 9% in 2003. This reduction was achieved through aggressive program management, continuing productivity, and headcount reductions associated with our divestitures.

•

A strong turnaround in the operating performance of the Company’s Cultured Stone business. Cultured Stone experienced strong improvements in revenue as well as operating margins due to improved operating performance and productivity in its manufacturing facilities, most notably, the recently built Chester, South Carolina facility.

- 21 -

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

•

The continued investment in capacity to support our North American insulation business segment. Specifically, the Company announced capacity expansions in response to the needs of the Commercial and Industrial Insulation market resulting from a production disruption at one of our competitor’s plants.

•

Continued investment in the expansion and commercialization of the Company’s residential roofing product lines in North America, in particular, expansion of our capacity for servicing the market for laminated shingles.

•

The announcement of an investment in a joint-venture manufacturing facility in Mexico with St. Gobain Corporation for the production of fiberglass reinforcements. It is our belief that this facility will achieve a global, low cost position for servicing the North American market with these products.

•

In January 2004, the Company entered into an agreement to acquire the outstanding shares of our Mexican joint venture, Vitro-Fibras, S.A., for approximately $72 million, which will allow us to have a strong operating position in Mexico, as well as supply low-cost manufacturing to service the North American market for both fiberglass insulation and reinforcements.

In 2003, Building Materials markets were strong as the result of a continued attractive interest rate environment for mortgages and refinancing, which drove strong new residential construction and remodeling markets. This strength in the residential markets in North America was offset by some continued weakness in the commercial and industrial markets, where capital investment spending was weaker than had been experienced in the late 1990s. Our outlook for the North American Building Materials markets is that they will continue strong, at least through the first half of 2004. We finished the year with strong housing and economic data that gave us good momentum entering into the first half of 2004. Despite strong demand, pricing for building materials in North America continued to be under pressure. At the same time, we experienced a significant amount of energy and raw material-related inflation in these businesses. In particular, we saw significant cost inflation associated with natural gas, polystyrene, PVC resin, and asphalt inputs for our residential roofing products. We expect elevated prices for these raw materials to continue into 2004. For asphalt, we experienced significant volatility in pricing in the first half of 2003 related to the war in Iraq and production issues in Venezuela. We do not expect this level of volatility in asphalt prices to continue in 2004, although we do expect these input materials to be at elevated levels. As a result of the material and energy inflation we experienced in 2003, our businesses generally experienced gross margin pressure that we were not able to recover in the market place.

In Composite Solutions, the overall market experienced a second year of below historical average growth rates. In 2003, we believe that we strengthened our position in the market. However, weak global growth for composites over the prior two years created an over-capacity condition in the industry, which resulted in continued pricing pressure. On the cost side, we experienced similar energy cost inflation, which put additional pressure on Composites’ margins. In addition, our Composites business experienced some operational issues related to the commercialization of new technology, the blackout in the northeastern United States and Canada, a labor stoppage at our Kimchon, Korea facility, and a major flood of our L’Ardoise, France manufacturing facility in the fourth quarter of 2003. While we were not satisfied with the overall profitability of our Composites business, we do believe that we made good progress in the market place in positioning our business for future growth. Our challenges in this business continue to be both market related and operational. We believe that 2004 represents an important year for continued progress in the performance of our Composites business.

- 22 -

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

Regarding the flood of our L’Ardoise, France manufacturing facility, this facility is insured for property damage and business interruption losses relating to such events, subject to a $5 million deductible, which was paid and expensed in 2003. The Company estimates it will incur $70 to $90 million in 2004 related to property damage and business interruption losses associated with the L’Ardoise flood, which the Company believes will be substantially covered by insurance. However, should the expected recoveries not be received they could have a material adverse impact on the Composite Solutions business. Also, the timing of any recoveries may result in expenses being taken in periods before the insurance receipts are recorded or received.

Looking ahead, we are somewhat optimistic about the U.S. economy for 2004. Our businesses are sensitive to interest rates in North America as they have a significant impact on new residential construction, residential remodeling markets, and automotive markets, which are major end-use markets for many of our products. While the current tame interest rate environment is advantageous to the performance of our businesses, a concern we would have regarding these businesses as we look ahead would be an environment of rising interest rates.

Our goals for 2004 call for major progress in our unconditional commitment to working safely. We also intend to continue efforts initiated in 2003 for focusing all the employees of the Company on serving our customers and meeting the needs of our markets. Our Building Materials business will be focused on improved gross margin performance related to a better pricing environment, strong productivity, and less-pronounced raw material and energy inflation. Our Composite Solutions business anticipates a continued difficult pricing environment and it is our intent that strong productivity and somewhat less pronounced energy and raw material inflation will allow us to show continued progress on operating margins.

VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11


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

The referenced Chapter 11 cases do not include any other United States or foreign subsidiaries of Owens Corning (collectively, the “Non-Debtor Subsidiaries”). As described more fully below under the heading “The Plan of Reorganization”, Owens Corning may cause certain of such Non-Debtor Subsidiaries that issued guarantees with respect to Owens Corning’s $1.8 billion pre-petition bank credit facility (the “Pre-Petition Credit Facility”, which is in default) to file petitions for relief under Chapter 11 of the Bankruptcy Code under certain circumstances.

- 23 -

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

On January 17, 2003, the Debtors, together with the Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants, filed a proposed joint plan of reorganization in the USBC. The same proponents filed a proposed amended joint plan of reorganization in the USBC on March 28, 2003, a proposed second amended joint plan of reorganization in the USBC on May 23, 2003, a proposed third amended joint plan of reorganization in the USBC on August 8, 2003, and a proposed fourth amended joint plan of reorganization (as so amended through such fourth amendment, the “Plan”) in the USBC on October 24, 2003. 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 was stayed automatically by section 362 of the Bankruptcy Code and, absent further order of the Bankruptcy Court, no party may take any action to recover on pre-petition claims against the Debtors. In addition, pursuant to section 365 of the Bankruptcy Code, the Debtors may reject or assume pre-petition executory contracts and unexpired leases, and other parties to contracts or leases that are rejected may assert rejection damages claims as permitted by the Bankruptcy Code.

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.

- 24 -

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

Related Developments

PROPOSED ASBESTOS LEGISLATION

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 enacted, what its final form would be or what the effect, if any, would be on Owens Corning and Fibreboard or their plan or plans of reorganization. The provisions of any legislation ultimately enacted may have a material effect on the amount of liability that Owens Corning and Fibreboard ultimately have for asbestos-related claims, which could be more or less than the amounts reserved for in Owens Corning’s financial statements.

OTHER MATTERS FILED IN THE USBC

On or about October 10, 2003, Kensington International Limited and Springfield Associates, LLC (collectively, “K&S”), two assignees of lenders under Owens Corning’s Pre-Petition Credit Facility, filed a motion in the USBC to recuse District Court Judge Alfred M. Wolin from further participation in the Chapter 11 Cases. On October 15, 2003, the District Court entered an order withdrawing the reference of this matter from the USBC. On October 23, 2003, the District Court entered an order staying all discovery and other proceedings related to the motion until further order of the Court. On October 27, 2003, K&S filed an Emergency Petition for a Writ of Mandamus (the “Mandamus Petition”) with respect to the recusal motion in the United States Court of Appeals for the Third Circuit (the “Third Circuit”), seeking an order directing Judge Wolin either to recuse himself from the Chapter 11 Cases or to withdraw his order of October 23, 2003, and permit expedited discovery and an expedited briefing and hearing schedule with respect to the recusal motion. On October 28, 2003, the District Court issued an order setting forth certain procedures with respect to the recusal motion, including the provision by certain parties of affidavits and a briefing schedule with respect to the recusal motion. By orders dated October 30, 2003, and November 3, 2003, the Third Circuit stayed those proceedings in the Chapter 11 Cases for which the reference had been withdrawn from the USBC and which are pending solely before Judge Wolin; such orders do not affect other proceedings in the Chapter 11 Cases. The Third Circuit held a hearing on the Mandamus Petition on December 12, 2003. On December 18, 2003, the Third Circuit issued an order directing the District Court to vacate its October 23, 2003 stay of discovery, proceed with expedited discovery on the recusal motion, and issue a ruling on the recusal motion. On February 2, 2004, the District Court denied the recusal motion. The Third Circuit has scheduled a hearing for April 19, 2004 to review the District Court’s ruling.

- 25 -

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

The Debtors believe that the above three matters are without merit and intend to vigorously oppose them in appropriate proceedings.

The Plan of Reorganization

The Plan is premised upon the substantive consolidation of the Debtors (but not the Fibreboard Settlement Trust (see Note 20 to the Consolidated Financial Statements)) for the purposes of voting, determining which claims and interests will be entitled to vote to accept or reject the Plan, confirmation of the Plan, and the resultant discharge of and cancellation of claims and interests and distribution of assets, interests and other property under the Plan. For these purposes, the Plan would treat all assets and liabilities of each 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.

- 26 -

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

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

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

Corning’s foreign subsidiaries (“IPM”), with respect to Owens Corning’s Pre-Petition Credit Facility or (2) OCFT’s license agreements with Owens Corning and Exterior Systems, Inc., an indirect wholly-owned subsidiary of Owens Corning (“Exterior”), pursuant to which OCFT licenses intellectual property to Owens Corning and Exterior. In the event that (1) the major creditor constituencies do not approve the Plan and (2) no other acceptable alternative 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 25,000 proofs of claim (including late-filed claims), totaling approximately $16.3 billion, alleging a right to payment from a Debtor were filed with the Bankruptcy Court in response to the General Bar Date. Owens Corning continues to investigate these claims to determine their validity. The Bankruptcy Court will ultimately determine liability amounts that will be allowed for claims in the Chapter 11 Cases.

In its review of the filed claims, Owens Corning identified approximately 16,000 claims, totaling approximately $8.5 billion, which it believed should be disallowed by the Bankruptcy Court, primarily because they appeared to be duplicate claims or claims that were not related to the indicated Debtor (the “Objectionable Claims”). Owens Corning filed omnibus objections to certain of these Objectionable Claims and likely will file additional objections. As of December 31, 2003, approximately 5,000 of the Objectionable Claims, totaling approximately $2.3 billion, had either been withdrawn by the claimants or disallowed by the Bankruptcy Court. While the Bankruptcy Court will ultimately determine liability amounts, if any, that will be allowed as part of the Chapter 11 Cases, Owens Corning believes that all or substantially all of the remaining Objectionable Claims will be disallowed.

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

In addition to the Objectionable Claims described above, the remaining filed proofs of claim included approximately 9,000 claims, totaling approximately $7.8 billion. As of December 31, 2003, approximately 900 of these claims, totaling approximately $0.1 billion, had either been withdrawn by the claimants, disallowed by the Bankruptcy Court, or otherwise resolved. The remaining claims consist of:

•

Approximately 2,900 claims, totaling approximately $1.5 billion, associated with asbestos-related contribution, indemnity, reimbursement, or subrogation claims. Owens Corning will address all asbestos-related personal injury and wrongful death claims in the future as part of the Chapter 11 Cases. Please see Note 19 to the Consolidated Financial Statements for additional information concerning asbestos-related liabilities.

•

Approximately 100 claims, totaling approximately $0.7 billion, alleging asbestos-related property damage. Most of these claims were submitted with insufficient documentation to assess their validity. Owens Corning expects to vigorously defend any asserted asbestos-related property damage claims in the Bankruptcy Court. Based upon its historic experience in respect of asbestos-related property damage claims, Owens Corning does not anticipate significant liability from any such claims.

•

Approximately 5,100 claims, totaling approximately $5.5 billion, alleging rights to payment for financing, environmental, trade debt and other matters (the “General Claims”). The Company has recorded approximately $3.7 billion in liabilities for these claims. Based upon the claims information submitted, the General Claims with the largest variance from the recorded amounts are: claims by the United States Department of Treasury, totaling approximately $530 million, in connection with taxes (see discussion under the heading “Tax Claim” in Note 19 to the Consolidated Financial Statements); a contingent claim for approximately $458 million by the Pension Benefit Guaranty Corporation, as described more fully under the heading “PBGC Claim” in Note 19 to the Consolidated Financial Statements; 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; environmental claims totaling approximately $193 million; and claims for contract rejections, totaling approximately $173 million, of which approximately $113 million are protective claims covering contracts which have not been rejected by the Debtors as of December 31, 2003.

Owens Corning has recorded liability amounts for those claims that can be reasonably estimated and which it believes are probable of being allowed by the Bankruptcy Court. At this time, it is impossible to reasonably estimate the value of all the claims that will ultimately be allowed by the Bankruptcy Court, due to the uncertainties of the Chapter 11 process, the in-progress state of Owens Corning’s investigation of submitted claims, and the lack of documentation submitted in support of many claims. Owens Corning continues to evaluate claims filed in the Chapter 11 Cases and will make such adjustments as may be appropriate. Any such adjustments could be material to the Company’s consolidated financial position and results of operations in any given period. For a discussion of liability amounts in respect of asbestos personal injury claims, see Note 19 to the Consolidated Financial Statements.

ASBESTOS BAR DATE

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

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

As indicated above, the General Bar Date does not apply to asbestos-related personal injury claims and asbestos-related wrongful death claims (other than claims for contribution, indemnity, reimbursement, or subrogation). Despite this, approximately 3,100 proofs of claim (in addition to claims described above under “General Bar Date”), totaling approximately $2.3 billion, with respect to asbestos-related personal injury or wrongful death were filed with the Bankruptcy Court in response to the General Bar Date. Of these claims, Owens Corning has identified approximately 1,200, totaling approximately $0.5 billion, as Objectionable Claims. Of the remaining claims, Owens Corning believes that a substantial majority represent claimants that had previously asserted asbestos-related claims against the Company.

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

RESULTS OF OPERATIONS

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

NET SALES

Net sales for the year ended December 31, 2003 were $4.996 billion, a 3% increase from the 2002 level of $4.872 billion. In Building Materials, sales were up 3%, with volume increasing in our insulation and Cultured Stone businesses, reflecting growth in the housing and remodeling markets. In addition, sales in our residential roofing business improved as the result of a continuation of product mix shifts to higher-end and premium roofing shingles. Prices in Building Materials compared to a year ago reflected increases in residential roofing and asphalt product lines, largely driven by higher material costs. These increases were partially offset by lower insulation prices. In Composite Solutions, sales were up 2% from last year, reflecting increased volume in our core business, partially offset by the effects of exiting certain non-strategic product lines. Composite material pricing was lower than 2002, generally as a result of lower industry capacity utilization and competitive pressures. However, this pricing decrease was more than offset by changes in foreign currency exchange rates, which increased net sales in 2003 by 6%, primarily reflecting the benefit of the weaker U.S. dollar relative to the euro.

Sales outside the United States represented 15% of total sales for the year ended December 31, 2003, compared to 14% during 2002. The increase was primarily attributable to the impact of favorable changes in foreign currency exchange rates, which positively impacted sales outside the United States, and the sale of our metal systems assets, and the exiting of other product lines, which negatively impacted sales in the United States.

GROSS MARGIN

Gross margin for the year ended December 31, 2003 was 17% of net sales, compared to 15% in 2002. The results for the year ended December 31, 2003 reflect charges of $28 million to cost of sales, representing additional write-downs of two groups of assets in the Building Materials segment to net realizable value prior to their eventual sale during the year. The results for the year ended December 31, 2002 reflect charges of $110 million to cost of sales, primarily representing the write down of assets to net realizable value, a charge for obsolete inventory, and charges associated with the realignment of the Company’s Newark, Ohio manufacturing facility. Please see Restructuring of Operations and Other Charges below for further information on these charges.

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

In addition, gross margin during 2003 (1) benefited from the effects of previous restructuring actions and a gain of approximately $6 million resulting from the settlement of certain vendor payables at a discount, (2) was not significantly impacted by pricing, as the effects of price increases in our residential roofing business were offset almost entirely by decreases in our insulation business and Composite Solutions, and (3) was negatively impacted by higher raw material costs, mainly attributable to asphalt, PVC, and polystyrene, and higher energy costs, principally attributable to natural gas.

MARKETING AND ADMINISTRATIVE EXPENSES

Marketing and administrative expenses were $459 million and 9% of net sales during the year ended December 31, 2003, compared to $522 million and 11% of net sales during the year ended December 31, 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

Income from operations increased to $267 million for the year ended December 31, 2003, from a loss from operations of $2.313 billion in 2002. The increase was primarily attributable to the $2.356 billion provision for asbestos litigation claims taken in the third quarter of 2002. Other factors contributing to the increase were higher gross margin, reduced marketing and administrative expenses, lower restructuring costs, lower Chapter 11 related reorganization expenses, the beneficial effect of foreign exchange rates, and a gain of $10 million in our Composite Solutions business from the sale of fixed assets (recorded as Other in the Consolidated Statement of Income (Loss)). Income from operations for 2003 was negatively impacted by approximately $5 million in expense for an insurance deductible associated with the flood of our L’Ardoise, France manufacturing facility.

INCOME TAXES

The Company’s effective tax rate for 2003 was approximately 56%, compared to 1% for 2002. The 2003 rate reflects valuation reserves in connection with the deductibility of certain Chapter 11 related reorganization expenses. The 2002 rate reflects valuation reserves in connection with the Company’s increase, in the third quarter of 2002, of its asbestos-related reserves through charges to income of $1.381 billion for Owens Corning asbestos-related liabilities and $975 million for Fibreboard asbestos-related liabilities, for an aggregate charge of $2.356 billion (See Note 19 to the Consolidated Financial Statements). In connection with such charges, management evaluated the likelihood of allowable tax deductions in light of the Company’s financial position and the Chapter 11 proceedings. As the result of such assessment, management determined that, as of September 30, 2002, a valuation allowance was required for the full amount of the increase in asbestos reserves. As a result, no tax benefit was recorded in connection with the third quarter 2002 asbestos-related charges discussed above.

NET INCOME

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

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

As a result of the Filing, contractual interest expense has not been accrued or recorded on pre-petition debt of the Debtors since the Petition Date. From the Petition Date through December 31, 2003, contractual interest expense not accrued or recorded on pre-petition debt (calculated using ordinary, non-default interest rates and without regard to debt maturity) totaled approximately $516 million, of which $138 million relates to 2003, $148 million relates to 2002, and $178 million relates to 2001 (please see Note 1 to the Consolidated Financial Statements).

Sales and Profitability for the Years Ended 2002 and 2001

NET SALES

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

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

GROSS MARGIN

Gross margin for 2002 was 15% of net sales, compared to 17% in 2001.

The results for the year ended December 31, 2002 reflect charges of $110 million to cost of sales, primarily representing the write down of assets to net realizable value, a charge for obsolete inventory, and charges associated with the realignment of the Company’s Newark, Ohio manufacturing facility. The results for the year ended December 31, 2001 reflect charges of $79 million to cost of sales, primarily representing the write-down of assets in the Building Materials segment to net estimated fair value. Please see Restructuring of Operations and Other Charges below for further information on these charges.

Also contributing to the decrease in gross margin for 2002 were lower insulation prices, increased material and labor costs, and increased delivery costs in both business segments, partially offset by higher manufacturing productivity in our Building Materials business.

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

INCOME FROM OPERATIONS

On a comparative basis, income from operations decreased to a loss of $2.313 billion for the year ended December 31, 2002 from income of $116 million in 2001. This decrease was primarily due to the provision for asbestos litigation claims of $2.356 billion taken in 2002. Other factors contributing to the decrease included restructure and other charges, as described below in “Restructuring of Operations and Other Charges”, of $166 million in 2002 as compared to $140 million in 2001, and Chapter 11 related costs increasing to $96 million during 2002 from $87 million in 2001. Further negatively impacting income from operations were post-retirement health and pension related expenses, which were up approximately $21 million during 2002 from 2001, due mainly to changes in plan assumptions and declines in plan asset values. Positively affecting income from operations was the elimination of goodwill amortization as the result of the Company’s adoption of Statement of Financial Accounting Standards No. 142, effective January 1, 2002. Please see “Accounting Changes” below for additional information. The Company had approximately $14 million of goodwill amortization during each of 2001 and 2000. On a business segment basis, in addition to the impact on gross margin above, income from operations was impacted by volume decreases in the Composite Solutions business, partially offset by volume increases in our insulation and roofing markets. Please see Note 3 to the Consolidated Financial Statements for further details of segment income from operations.

NET INCOME

For the year ended December 31, 2002, Owens Corning reported a net loss of $2.809 billion, or $(51.02) per share, compared to net income of $39 million, or $.66 per share, for 2001. In addition to the items described above for 2002, the net loss for 2002 reflects a non-cash charge of $491 million ($441 million net of tax) as the result of the Company’s adoption of Statement of Financial Accounting Standards No. 142, effective January 1, 2002. Please see “Accounting Changes” below for additional information.

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, which is ongoing, the Company anticipates that additional restructuring and similar charges, including asset impairment and wind-up costs, may be identified and recorded in future periods. Such charges could be material to the consolidated financial position and results of operations of the Company in any given period. In addition, Owens Corning notes that certain of 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.

2003 Charges

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

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

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

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

2002 Charges

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

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

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

2001

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

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

The $26 million restructure charge represents $21 million of severance costs associated with the elimination of approximately 460 positions, primarily in the United States and United Kingdom. The primary groups impacted included manufacturing and administrative personnel. As of December 31, 2003, all of this reserve has been reduced by payments and charges. The remaining $5 million restructure charge represents a non-cash asset write-down to fair value and exit cost liabilities.

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

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 facility, including (1) renegotiation of the lease structure of the facility, including extension of the lease term, reduction of the payments and modification of the end-of-term purchase option, resulting in a classification change from an operating lease to a capital lease, (2) purchase of certain bonds issued by the lessor (the “Bonds”) in connection with the initial financing of the facility, and (3) obtaining a legal right of offset, which allows the Company to apply interest and principal receipts due under the Bonds toward its lease liability. Classifying the lease as a capital lease resulted in (1) the recording of a lease liability of approximately $39 million, (2) the reduction of the previously recorded prepaid rent attributable to the original operating lease by approximately $45 million, and (3) the recording of building and equipment at a total value of approximately $84 million.

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

LIQUIDITY, CAPITAL RESOURCES AND OTHER RELATED MATTERS

Cash flow from operations was $326 million for the year ended December 31, 2003, versus $364 million for the year ended December 31, 2002. The decrease in cash flow from operations was primarily driven by the $185 million in contributions to the Company’s pension plans during 2003, partially offset by improved cash generated from operations.

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

At December 31, 2003, our net working capital was $1.024 billion and we had a current ratio of 2.19, compared to $913 million and 2.06, respectively, at December 31, 2002. The increase in working capital primarily reflects:

•

cash from current operations

•

proceeds of approximately $88 million from the sale of assets in 2003

partially offset by:

•

cash paid for additions to plant and equipment of $208 million

•

a decrease in cash due to pension contributions of $185 million

•

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 $176 million of cash during the year ended December 31, 2003, compared to $257 million during the year ended December 31, 2002. The change in net cash flow from investing activities was primarily attributable to:

•

decreased spending for additions to plant and equipment

•

an increase in proceeds from sale of assets

partially offset by:

•

an increase in restricted cash, securities, and other - Fibreboard

•

an increase in investment in subsidiaries and affiliates

Spending for capital and investments was $208 million in 2003 and $248 million in 2002. We anticipate that 2004 spending for capital and investments will be approximately $265 million, substantially all of which is uncommitted. In addition, in January 2004, we entered into an agreement to acquire the remaining 60% ownership interest in our Mexican affiliate, Vitro-Fibras, S.A., for approximately $72 million, which will likely be complete in the second quarter of 2004. The acquisition is subject to obtaining required Bankruptcy Court and regulatory approvals. We expect that these expenditures will be funded from the Company’s operations and existing cash on hand. The Company also expects to make certain expenditures in connection with the flood of its L’Ardoise, France manufacturing facility that will be reimbursed substantially by insurance.

Financing activities during the year ended December 31, 2003 resulted in a use of cash of $43 million compared to a use of cash of $5 million during 2002. The change in net cash flow from financing activities was primarily attributable to the following reductions of long-term debt during 2003:

•

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”

•

payment of approximately $20 million to reduce debt outstanding in India

At December 31, 2003, the Company had $1.005 billion of Cash and Cash Equivalents as compared to $875 million at December 31, 2002. The increase primarily reflects cash flow from operations, lower spending for additions to plant and equipment, and proceeds from the sale of assets, partially offset by pension contributions of $185 million and debt reductions.

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

At December 31, 2003, we had $2.896 billion of debt subject to compromise and $170 million of other debt (of which $75 million was in default as a consequence of the Filing and therefore classified as current on the Consolidated Balance Sheet). At December 31, 2002, we had $2.854 billion of debt subject to compromise and $176 million of other debt (of which $97 million was in default as a consequence of the Filing and therefore classified as current on the Consolidated Balance Sheet).

The Company has significant liabilities related to pension plans for its employees. During 2002, the Company 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 contributed 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 pension-related assets during 2002 combined with lower interest rates resulted in a decision by the Company to make contributions to the pension plans of $185 million during 2003. The Company also currently projects additional contributions, in the range of $200 million to $300 million, during 2004. The Company’s pension-related assets increased to $338 million at December 31, 2003, from $179 million at December 31, 2002, primarily due to the contributions to the pension plans and return on plan assets, partially offset by additional service cost, interest cost accrued, and amortization of prior actuarial losses. As a result of the increase, the Company reclassified such assets out of certain other components of the Consolidated Balance Sheet into “Pension-related assets”. All periods presented have been reclassified to conform with the current period. The Company’s recorded long-term pension plan liability was $697 million and $596 million at December 31, 2003 and December 31, 2002, respectively. The ultimate cash flow impact to the Company, if any, of the pension plan liability, and the timing of any such impact, will depend on numerous variables, including future changes in actuarial assumptions and market conditions.

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

The Company believes, based on information currently available to it, that its cash and cash equivalents, and cash available from operations, will provide sufficient liquidity to allow it to continue as a going concern for the foreseeable future. However, the ability of the Company to continue as a going concern (including its ability to meet post-petition obligations of the Debtors and to meet obligations of the Non-Debtor Subsidiaries) and the appropriateness of using the going concern basis for its financial statements are dependent upon, among other things, (i) the Company’s ability to comply with the terms of any cash management order entered by the Bankruptcy Court in connection with the Chapter 11 Cases, (ii) the ability of the Company to maintain adequate cash on hand, (iii) the ability of the Company to generate cash from operations, (iv) the ability of the Non-Debtor Subsidiaries to obtain necessary financing, (v) confirmation of a plan or plans of reorganization under the Bankruptcy Code, and (vi) the Company’s ability to achieve profitability following such confirmation.

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

OFF BALANCE SHEET ARRANGEMENTS

The Company enters into certain off balance sheet arrangements in the ordinary course of business. These arrangements include securitization of accounts receivable, operating leases, and guarantees with respect to unconsolidated affiliates and other entities (see Notes 4, 10, and 22 to the Consolidated Financial Statements, respectively, for further information regarding these arrangements). Other than those effects inherent to the types of arrangements described, the Company does not believe these arrangements will have a material effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

CONTRACTUAL OBLIGATIONS

In the course of business, the Company enters into contractual obligations to make payments to third parties. The Company’s known contractual obligations as of December 31, 2003 are as follows:


	Payments due by period
	2004		2005		2006		2007		2008		2009 and Beyond		Total
Long-Term debt obligations	$	51	$	23	$	5	$	10	$	8	$	14	$	111
Capital lease obligations		2		2		2		1		1		7		15
Operating lease obligations		69		50		35		25		18		55		252
Purchase obligations*		364		45		11		1		1		—		422
Other long-term liabilities reflected in the Company’s Consolidated Balance Sheet		—		—		—		—		—		—		—

Total	$	486	$	120	$	53	$	37	$	28	$	76	$	800

*	Purchase obligations generally include contractual obligations for the purchase of materials, energy, and fixed assets.

The contractual obligations above exclude obligations subject to compromise and obligations to fund our employee benefit plans.

CRITICAL ACCOUNTING POLICIES

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

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

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

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

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

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

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

The Company estimates a reserve for asbestos-related liabilities that have been asserted or are probable of assertion. The estimate of liabilities for pending and expected future asbestos claims is subject to considerable uncertainty because such liabilities are influenced by numerous variables that are inherently difficult to predict, and such uncertainties significantly increased as a result of the Chapter 11 Cases. The Company will continue to review its asbestos reserve on a periodic basis and make such adjustments as may be appropriate. Any such adjustment could be material to the Company’s consolidated financial statements in any given period. Please see Note 19 to the Consolidated Financial Statements for further discussion.

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

The determination of the Company’s tax provision is complex due to operations in several tax jurisdictions outside the U.S. In addition, realization of certain deferred tax assets is dependent upon our ability to generate future taxable income. The Company records a valuation allowance to reduce its deferred tax assets to the amount that it believes is more likely than not to be realized. While the Company has considered future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance, in the event the Company was to determine that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made. In addition, the Company maintains tax reserves to cover Internal Revenue Service (“IRS”) claims for income taxes and interest attributable to audits of open tax years. While the Company believes that the existing reserves are appropriate in light of the audit issues involved, its defenses, its prior experience in resolving audit issues, and its ability to realize certain challenged deductions in subsequent tax returns if the IRS were successful, there can be no assurance that such reserves will be sufficient. The Company will continue to review its tax reserves on a periodic basis and make such adjustments as may be appropriate. Any such revision could be material to the Company’s consolidated financial position and results of operations in any given period.

ADOPTION OF NEW ACCOUNTING STANDARDS

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 of SFAS No. 142 resulted in a non-cash charge of $491 million ($441 million net of tax). This charge was determined during the second quarter of 2002 and, as required by SFAS No. 142, was recorded as a cumulative effect of a change in accounting principle in the first quarter of 2002. The 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 7 to the 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.

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

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.

In December 2003, the Financial Accounting Standards Board issued a revised Interpretation No. 46, “Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51”, (“FIN 46R”). FIN 46R requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Currently entities are generally consolidated by an enterprise when it has a controlling financial interest through ownership of a majority voting interest in the entity. The provisions of FIN 46R are generally effective for existing (prior to February 1, 2003) variable interest relationships of a public entity no later than the end of the first reporting period that ends after March 15, 2004. However, prior to the required application of this interpretation a public entity that is not a small business issuer shall apply FIN 46R to those entities that are considered to be special-purpose entities no later than the end of the first reporting period that ends after December 15, 2003. The Company applied the portion of FIN 46R that is applicable to special purpose entities effective December 31, 2003, with no material effect, and will apply the remainder of FIN 46R to its first quarter 2004 financial statements.

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 21 to the Consolidated Financial Statements for additional information concerning Stock Compensation.

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

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 Company adopted these provisions as of June 30, 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.

ENVIRONMENTAL MATTERS

The Company has been deemed by the United States Environmental Protection Agency (“EPA”) to be a Potentially Responsible Party (“PRP”) with respect to certain sites under the Comprehensive Environmental Response, Compensation and Liability Act (Superfund). The Company has also been deemed a PRP under similar state or local laws. In other instances, other PRPs have brought suits against the Company as a PRP for contribution under such federal, state or local laws. At December 31, 2003, a total of 54 such PRP designations remained unresolved by the Company. In most cases the Company is only one of many PRPs with potential liability for investigation and remediation at the applicable site. The Company is also involved with environmental investigation or remediation at a number of other sites at which it has not been designated a PRP.

The Company estimates a reserve in accordance with generally accepted accounting principles to reflect environmental liabilities that have been asserted or are probable of assertion, in which liabilities are probable and reasonably estimable. At December 31, 2003, the Company’s reserve for such liabilities was $17 million. In connection with the Filing, the Company initiated a program to identify and discharge contingent environmental liabilities as part of its plan or plans of reorganization. Under the program, the Company is seeking settlements, subject to approval of the Bankruptcy Court, with various federal, state and local authorities, as well as private claimants. On July 23, 2003, the Bankruptcy Court approved one such settlement agreement with the United States resolving certain environmental liabilities with respect to the EPA. The Company will continue to review its environmental reserve in light of such program and make such adjustments as may be appropriate.

The 1990 Clean Air Act Amendments (“Act”) provide that the EPA will issue regulations on a number of air pollutants over a period of years. The EPA issued final regulations for wool fiberglass and mineral wool in June 1999, for amino/phenolic resin manufacturing in January 2000, for wet formed fiberglass mat production in April 2002, and for reinforced plastic composites production and asphalt roofing and processing in April 2003. The Company anticipates that other relevant sources to be regulated in the near future include large burners and boilers. Based on information now known to the Company, including the nature and limited number of regulated materials Owens Corning emits, we do not expect the Act to have a materially adverse effect on our results of operations, financial condition or long-term liquidity.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to the impact of changes in foreign currency exchange rates, interest rates, and natural gas prices in the normal course of business. The Company did not experience any significant changes in such exposures during 2003. The Company manages such exposures through the use of certain financial and derivative financial instruments. The Company’s objective with these instruments is to reduce exposure to fluctuations in earnings and cash flows, which has not changed from the Company’s objective during 2003 and is not expected to change in 2004.

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

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

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

Prior to 2003, the Company used a variance-covariance Value at Risk (“VAR”) computation model to estimate the potential loss in the fair value of the referenced financial instruments. The VAR model used historical foreign exchange, interest, and natural gas rates as an estimate of the volatility and correlation of these rates in future periods. The VAR model estimated a loss in fair market value using statistical modeling techniques. Beginning January 1, 2003, the Company uses sensitivity analysis disclosures that express the potential loss in fair values of market risk sensitive instruments resulting from a 10% change in interest rates, foreign currency exchange rates, and commodity prices that assume instantaneous, parallel shifts in exchange rates, interest rate yield curves, and commodity prices. The Company determined the change was necessary to more accurately represent the market risk of its financial instruments in the disclosure.

The following analysis provides such quantitative information regarding market risk. For options and instruments with nonlinear returns, models appropriate to the instrument are utilized to determine the impact of market shifts. There are certain shortcomings inherent in the sensitivity analyses presented, primarily due to the assumption that exchange rates change in parallel fashion and that interest rates change instantaneously. In addition, the analyses are unable to reflect the complex market reactions that normally would arise from the market shifts modeled.

Foreign Exchange Rate Risk

The Company has foreign currency exposures related to buying, selling, and financing in currencies other than the local currencies in which it operates. More specifically, the Company enters into various forward contracts and options, which change in value as foreign currency exchange rates change, to preserve the carrying amount of foreign currency-denominated assets, liabilities, commitments, and certain anticipated foreign currency transactions and earnings. The net fair value liability of financial instruments with exposure to foreign currency risk was approximately $1 million at December 31, 2003 and December 31, 2002. The potential loss in fair value for such financial instruments from a 10% adverse change in quoted foreign currency exchange rates would be approximately $6 million and $5 million for 2003 and 2002, respectively.

Interest Rate Risk

The Company is subject to market risk from exposure to changes in interest rates due to its financing, investing, and cash management activities. During 2003 and 2002, the Company’s exposure to interest rate sensitive securities primarily related to the investments held by the Fibreboard Settlement Trust. At December 31, 2003 and 2002, the net fair value of these investments was approximately $1.455 billion and $1.424 billion, respectively. The potential loss in fair value resulting from a 10% adverse shift in quoted interest rates would be approximately $6 million for both 2003 and 2002.

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

Commodity Price Risk

The Company is exposed to changes in prices of commodities used in its operations, primarily associated with energy costs such as natural gas and raw material costs such as asphalt, PVC and polystyrene. The Company enters into cash-settled natural gas futures contracts to protect against changes in natural gas prices; however, no financial instruments are currently used to protect against changes in raw material costs. At December 31, 2003, the net fair value of such contracts was a liability of approximately $2 million, compared to an asset of less than $1 million at December 31, 2002. The potential loss in fair value resulting from a 10% adverse change in the underlying commodity prices would be approximately $4 million and less than $1 million for 2003 and 2002, respectively. This amount excludes the offsetting impact of the price risk inherent in the physical purchase of the underlying commodities.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Pages 59 through 146 hereof are incorporated here by reference.

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

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

ITEM 9A. CONTROLS AND PROCEDURES

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

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

There have not been any changes in the Company’s internal control over financial reporting during the last quarter of 2003 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF OWENS CORNING

INFORMATION CONCERNING DIRECTORS

At January 31, 2004, Owens Corning’s Board of Directors was composed of ten directors, divided into three classes. Each class of directors serves for a term expiring at the third succeeding annual meeting of stockholders after the year of election of such class, and until their successors are elected and qualified. As of January 31, 2004, Owens Corning has not scheduled an annual meeting of stockholders for 2004 or any subsequent period.

Information concerning each director of Owens Corning as of January 31, 2004, is set forth below.

Class Expiring At First Succeeding Annual Meeting Of Stockholders

David T. Brown,55. President and Chief Executive Officer, Owens Corning. Director since January 2002.

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

Mr. Brown is a past board member of the Asphalt Roofing Manufacturers Association Executive Committee, National Roofing Contractors Association Advisory Board, Thermal Insulation Manufacturers Association, and Executive Committee of the North American Insulation Manufacturers Association.

Gaston Caperton, 63. President and Chief Executive Officer of The College Board, not-for-profit educational association, New York, NY and Chairman of The Caperton Group, a business investment and development company, Shepherdstown, WV; former Governor of the State of West Virginia. Director since 1997.

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

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

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

William W. Colville, 69. Retired; former Senior Vice President, General Counsel and Secretary of Owens Corning. Director since 1995.

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

Mr. Colville is a director of Nordson Corporation.

Landon Hilliard, 64. Partner, Brown Brothers Harriman & Co., private bankers, New York, NY. Director since 1989.

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

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

Class Expiring At Second Succeeding Annual Meeting Of Stockholders

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

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

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

W. Walker Lewis, 59. Chairman, Devon Value Advisers, financial consulting and investment banking firm, Greenwich, CT and New York, NY. Director since 1993.

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

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

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

Furman C. Moseley, Jr., 69. Chairman of Sasquatch Books, Inc., publishing, Seattle, WA. Director since 1983.

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

Michael H. Thaman, 39. Chairman of the Board and Chief Financial Officer, Owens Corning. Director since January 2002.

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

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

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

Class Expiring At Third Succeeding Annual Meeting Of Stockholders

Norman P. Blake, Jr., 62. Former Chairman, President and Chief Executive Officer of Comdisco, Inc., global technology services, Rosemont, IL. Director since 1992.

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

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

W. Ann Reynolds, 66. Former President and Professor of Biology of The University of Alabama at Birmingham, Birmingham, AL, 1997-2003. Director since 1993.

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

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

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

INFORMATION CONCERNING EXECUTIVE OFFICERS

Certain information concerning Owens Corning’s executive officers is included on pages 13-14 hereof.

INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

As indicated in Item 1 above, Owens Corning and 17 of its domestic subsidiaries filed for protection under Chapter 11 of the United States Bankruptcy Code on October 5, 2000. Of the executive officers listed on pages 13-14 hereof, Messrs. Brown, Johns and Thaman served as executive officers of Owens Corning at or within two years before the time of such filing. In addition, Messrs. Brown, Dietzel, Krull and Thaman also served as executive officers of one or more of such domestic subsidiaries at or within two years before the time of such filing. Director Norman P. Blake, Jr., served as an executive officer of Comdisco, Inc. in July 2001, when such firm filed for protection under Chapter 11 of the United States Bankruptcy Code.

IDENTIFICATION OF AUDIT COMMITTEE

Owens Corning has a separately-designated standing Audit Committee presently consisting of Norman P. Blake, Jr. (Chairman), Ann Iverson, W. Walker Lewis and W. Ann Reynolds. No other persons served on the Audit Committee during 2003.

AUDIT COMMITTEE FINANCIAL EXPERT

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

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

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

Based solely on its review of copies of such reports received or written representations from such executive officers, directors and ten percent stockholders, Owens Corning believes that all Section 16(a) filing requirements applicable to its directors, executive officers and ten percent stockholders were complied with during fiscal year 2003.

CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS

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

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ITEM 11. EXECUTIVE COMPENSATION

EXECUTIVE OFFICER COMPENSATION

The following tables provide information on compensation and stock-based awards received by Owens Corning’s Chief Executive Officer serving during 2003 and the four other highest paid individuals who were serving as executive officers of Owens Corning at the end of 2003 (these five individuals collectively are referred to as the “Named Executive Officers”).

Summary Compensation Table

The following table contains information about compensation paid, and certain awards made, by Owens Corning to the Named Executive Officers for the three-year period ended December 31, 2003.


						Long Term Compensation
Annual Compensation						Awards		Payouts
Name and Principal Position⁽¹⁾	Year	Salary ($)	Bonus $		Other Annual Compensation ($)⁽²⁾	Restricted Stock Award(s) ($)⁽³⁾	Securities Underlying Options/ SARs(#)⁽⁴⁾	LTIP Payouts ($)		All Other Compensation ($)
David T. Brown President and Chief Executive Officer	2003 2002 2001	750,000 647,916 400,000	1,470,000 1,713,199 1,200,000	⁽⁵⁾				2,625,000	⁽⁵⁾	10,000 15,300 483,550	⁽⁶⁾
Michael H. Thaman Chairman of the Board and Chief Financial Officer	2003 2002 2001	650,000 584,375 425,000	828,000 1,380,000 1,175,000	⁽⁵⁾				2,145,000	⁽⁵⁾	10,000 15,300 517,800	⁽⁶⁾
David L. Johns Senior Vice President and Chief Supply Chain and Information Technology Officer	2003 2002 2001	367,500 363,125 350,000	264,000 677,000 750,000	⁽⁵⁾				771,750	⁽⁵⁾	10,000 10,705 335,100	⁽⁶⁾
George E. Kiemle Vice President and President, Insulating Systems Business	2003 2002 2001	275,000 266,667 245,000	270,000 528,800 405,000	⁽⁵⁾				577,500	⁽⁵⁾	10,000 15,300 216,300	⁽⁶⁾
Charles E. Dana Vice President and President, Composite Solutions Business, and Vice President – Corporate Controller	2003 2002 2001	250,000 250,000 230,083	275,000 495,000 472,000	⁽⁵⁾				525,000	⁽⁵⁾	10,000 15,300 164,135	⁽⁶⁾

⁽¹⁾

Prior to April 2002, Mr. Brown served as Executive Vice President and Chief Operating Officer. Prior to April 2002, Mr. Thaman served as Senior Vice President and Chief Financial Officer. Prior to April 2001, Mr. Johns served as Vice President and Chief Technology Officer. Prior to February 2001, Mr. Kiemle served as Vice President, Manufacturing, Insulating Systems Business. Mr. Dana will relinquish the position of Vice President—Corporate Controller upon the later of February 29, 2004 or the date this Form 10-K is accepted for filing by the Securities and Exchange Commission. Prior to February 2004, Mr. Dana served as Vice President—Corporate Controller and Global Sourcing; prior to January 2002, Mr. Dana served as Vice President, Global Sourcing and eBusiness; prior to March 2001, he served as Vice President, Owens Corning Supply Chain Solutions.

⁽²⁾

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

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ITEM 11. EXECUTIVE COMPENSATION (continued)

⁽³⁾	There were no restricted stock awards to any of the Named Executive Officers in 2001, 2002, or 2003.

At the end of 2003, Mr. Brown held a total of 10,375 shares of restricted stock, valued at $4,358; Mr. Thaman held a total of 10,150 shares of restricted stock, valued at $4,263; Mr. Johns held a total of 4,000 shares of restricted stock, valued at $1,680; Mr. Kiemle held a total of 4,300 shares of restricted stock, valued at $1,806; and Mr. Dana held a total of 4,000 shares of restricted stock, valued at $1,680. The value of these aggregate restricted stock holdings was calculated by multiplying the number of shares held by the closing price of Owens Corning common stock on December 31, 2003 (as reported on the Over The Counter Bulletin Board). Dividends are paid by Owens Corning on restricted stock held by the Named Executive Officers if paid on stock generally.

⁽⁴⁾	No stock options or stock appreciation rights (SARs) were awarded to any of the Named Executive Officers in 2001, 2002, or 2003.

⁽⁵⁾	The amounts reflected in the LTIP Payouts column represent amounts payable pursuant to Owens Corning’s Long Term Incentive Plan with respect to a one-year transition performance period cycle adopted in connection with phase-in of the new plan, which became effective January 1, 2003.

⁽⁶⁾	The amount shown for each of the Named Executive Officers represents contributions made by Owens Corning to such officer’s account in the Owens Corning Savings Plan during the year.

Option Grant Table

No stock options or stock appreciation rights (SARs) were granted to any of the Named Executive Officers during 2003.

Option/SAR Exercises and Year-End Value Table

The following table contains information about the options for Owens Corning common stock that were exercised in 2003 by the Named Executive Officers, and the aggregate values of these officers’ unexercised options at the end of 2003. None of the Named Executive Officers held stock appreciation rights (SARs) at December 31, 2003.

Aggregated Option/SAR Exercises in 2003, and 12/31/03 Option/SAR Values


Name	Shares Acquired on Exercise (#)	Value Realized ($)	Number of Securities Underlying Unexercised Options/SARs at 12/31/03 (#)	Value of Unexercised In- the-Money Options/SARs at 12/31/03 ($)⁽¹⁾
			Exercisable/ Unexercisable	Exercisable/ Unexercisable
David T. Brown	—0—	—0—	77,000/36,000	0/0
Michael H. Thaman	—0—	—0—	40,657/36,000	0/0
David L. Johns	—0—	—0—	12,278/16,000	0/0
George E. Kiemle	—0—	—0—	44,000/16,000	0/0
Charles E. Dana	—0—	—0—	24,500/16,000	0/0

⁽¹⁾	No options were in-the-money at December 31, 2003.

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ITEM 11. EXECUTIVE COMPENSATION (continued)

Long-Term Incentive Plan Awards Table

Effective January 1, 2003, Owens Corning adopted a Long Term Incentive Plan applicable to certain key employees selected by the Compensation Committee in an effort to more effectively drive long-term business results. The plan is intended to create a strong link between compensation and predetermined business goals designed to increase the value of the Company over a longer horizon and better align executive interests with those of the Company’s stakeholders. The plan envisions three-year performance cycles with payouts under the plan dependent upon corporate performance against long term performance goals set by the Committee for each cycle. The first three-year cycle commenced January 1, 2003 and will conclude on December 31, 2005, with payouts, if any, in the year 2006. Information concerning the awards for this cycle to the Named Executive Officers is set forth in the table below.

Long Term Incentive Plan - Three-Year Cycle Awards in 2003


			Estimated Future Payouts under Non-Stock Price-Based Plans⁽¹⁾
Name	Number of Shares, Units or Other Rights (#)	Performance or Other Period Until Maturation or Payout	Threshold ($)	Target ($)	Maximum ($)
David T. Brown	0	1/1/03-12/31/05	937,500	1,875,000	3,750,000
Michael H. Thaman	0	1/1/03-12/31/05	796,250	1,592,500	3,185,000
David L. Johns	0	1/1/03-12/31/05	248,063	496,125	992,250
George E. Kiemle	0	1/1/03-12/31/05	185,625	371,250	742,000
Charles E. Dana	0	1/1/03-12/31/05	168,750	337,500	675,000

⁽¹⁾

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

In addition to the three-year performance cycle award, the Committee also established a one-year transition performance period cycle for 2003 in connection with phase-in of the new plan. Payouts due to this performance cycle are reflected in the Summary Compensation Table above.

Retirement Benefits

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

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ITEM 11. EXECUTIVE COMPENSATION (continued)

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

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

The estimated annual annuity amounts payable under the Cash Balance Plan (including the ESBP) to the Named Executive Officers at age 65 are: Mr. Brown, $338,061; Mr. Thaman, $316,273; Mr. Johns, $119,604, Mr. Kiemle, $175,245; and Mr. Dana, $68,819. These estimated amounts assume continued employment and current levels of base salary, plus target annual incentive, through age 65, and are based on estimated interest rates.

Supplemental Executive Retirement Plan –Owens Corning maintains a Supplemental Executive Retirement Plan (“SERP”) covering certain employees, including Mr. Johns, who join Owens Corning in mid-career. The SERP provides for a lump sum payment following termination of employment equal to a multiple of the covered employee’s Cash Balance Plan balance minus an offset equal to the present value of retirement benefits attributable to prior employment. The applicable multiplier for each covered employee ranges from 0.5 to 4.0 (determined by the covered employee’s age when first employed by Owens Corning) and is 1.1 in the case of Mr. Johns. The estimated annual annuity amount payable to Mr. Johns to satisfy the lump sum obligation under this plan at age 65, under the assumptions described in the preceding paragraph, is $131,564, less the annualized offset due to prior employment.

Other Arrangements – Owens Corning has agreed to provide Mr. Dana a supplemental pension benefit, under Owens Corning’s pension plan formula in existence on his employment date, determined as if he had earned 1 ½ years of service for each year worked, provided that he remains an Owens Corning employee for no less than ten years following his November 15, 1995 employment date. The estimated supplemental annual annuity amount payable to Mr. Dana at age 65 to satisfy this benefit, assuming continued employment and current levels of covered pay, is $177,494.

In 1992, Owens Corning established a Pension Preservation Trust for amounts payable under the ESBP as well as under the individual pension arrangements described above. Each year, the Compensation Committee determines the participants in and any amounts to be paid with respect to the Pension Preservation Trust, which may include a portion of benefits earned under the ESBP and the pension agreements described above. Amounts paid into the Trust and income from the Trust reduce the pension otherwise payable at retirement. During 2003, no payments were made to the Trust.

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ITEM 11. EXECUTIVE COMPENSATION (continued)

Employment, Severance, and Certain Other Agreements

Owens Corning has entered into severance arrangements with each of the Named Executive Officers. These agreements generally provide for the payment of an amount equal to two times base salary plus annual incentive bonuses (based on an average of the three previous years’ annual incentive payments or the average of the three previous years’ annual incentive targets, whichever is greater) plus continuation of insurance benefits for a period of up to two years and, in the case of Messrs. Brown, Thaman, and Kiemle, a payment equal to the additional lump sum pension benefit that would have accrued had such individuals been three years older, with three additional years of service, at the time of employment termination and, in the case of Mr. Dana, a payment equal to the greater of (1) the additional lump sum pension benefit so calculated and (2) Mr. Dana’s supplemental pension arrangement described above. The base salaries as of December 31, 2003, of these Named Executive Officers were: Mr. Brown, $750,000; Mr. Thaman, $650,000; Mr. Johns, $367,500; Mr. Kiemle, $275,000, and Mr. Dana, $250,000.

Directors’ Compensation

Retainer and Meeting Fees – In 2003, Owens Corning paid each director who was not an Owens Corning employee an annual retainer of $35,000. Non-employee Committee Chairmen receive an additional retainer of $4,000 each year. In addition, Owens Corning paid non-employee directors a fee of $1,200 for (a) attendance at one or more meetings of the Board of Directors on the same day, (b) attendance at one or more meetings of each Committee of the Board of Directors on the same day, and (c) for each day’s attendance at other functions in which directors were requested to participate.

Prior to December 2000, a director could elect to defer all or a portion of his or her annual retainer and meeting fees under the Directors’ Deferred Compensation Plan, in which case his or her account was credited with the number of shares of common stock that such deferred compensation could have purchased on the date of payment. The account was also credited with the number of shares that dividends on previously credited shares could have purchased on dividend payment dates. Account balances are payable in cash based on the value of the account, which is determined by the then fair market value of Owens Corning common stock, at the time the participant ceases to be a director.

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

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

Pursuant to action of the Board of Directors, additional option grants and annual grants under the Plan were suspended effective April 1, 2002, pending further action by the Board. No initial option grants or annual grants were made under the Plan during 2003.

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ITEM 11. EXECUTIVE COMPENSATION (continued)

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

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

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

Compensation Committee Interlocks and Insider Participation

The Compensation Committee presently consists of Landon Hilliard (Chairman), Gaston Caperton, Furman C. Moseley, Jr., and W. Ann Reynolds. No other persons served on the Compensation Committee during 2003 except Leonard S. Coleman, Jr., a former director.

Mr. Hilliard is a partner of Brown Brothers Harriman & Co. (“BBH”), a private banking firm. BBH acts as one of the investment managers for the Fibreboard Settlement Trust, which holds certain assets that are available to fund asbestos-related liabilities of Fibreboard Corporation, a subsidiary of Owens Corning. During 2003, BBH was paid fees of approximately $744,000 from the Trust for these services. In addition, BBH serves as the custodian and investment advisor of an escrow account funded by one of the Company’s excess insurance carriers during the third quarter of 2001 (see Note 19, Item C, to the Consolidated Financial Statements). During 2003, BBH earned fees of approximately $85,000 for these services.

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

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

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

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

MAJOR STOCKHOLDERS

Based on statements filed with the Securities and Exchange Commission pursuant to section 13(d) or 13(g) of the Securities Exchange Act of 1934, no person beneficially owned more than 5% of Owens Corning common stock as of December 31, 2003.

As of January 31, 2004, Owens Corning employees, including officers, beneficially owned 1,591,992 shares (2.9%) of Owens Corning common stock under Owens Corning sponsored savings plans in the United States.

STOCK OWNERSHIP OF MANAGEMENT

The following table shows information concerning beneficial ownership of Owens Corning common stock on January 31, 2004, by each of the directors, by each of the Named Executive Officers, and by all directors and executive officers as a group. Each ownership shown represents less than 1% of the shares of common stock outstanding.


Name	Amount And Nature Of Beneficial Ownership
Norman P. Blake, Jr.	4,620	⁽³⁾
David T. Brown	126,149	⁽¹⁾⁽²⁾
Gaston Caperton	12,032	⁽¹⁾⁽³⁾
William W. Colville	10,000	⁽¹⁾
Charles E. Dana	44,890	⁽¹⁾⁽²⁾
Landon Hilliard	7,075	⁽³⁾
Ann Iverson.	12,532	⁽¹⁾⁽³⁾
David L. Johns	33,010	⁽¹⁾⁽²⁾
George E. Kiemle	64,809	⁽¹⁾⁽²⁾
W. Walker Lewis	4,120	⁽³⁾
Furman C. Moseley, Jr.	46,082	⁽³⁾
W. Ann Reynolds	6,327	⁽³⁾⁽⁴⁾
Michael H. Thaman	90,919	⁽¹⁾⁽²⁾
All Directors and Executive Officers (including Named Executive Officers) (17 persons)	516,388	^(1)(2)(3)(4)

⁽¹⁾

Includes shares which are not owned but are unissued shares subject to exercise of options, or which will be subject to exercise of options under Owens Corning benefit plans within 60 days after January 31, 2004, as follows: Mr. Brown, 113,000; Mr. Caperton, 10,000; Mr. Colville, 10,000; Mr. Dana, 40,500; Ms. Iverson, 10,000; Mr. Johns, 28,278; Mr. Kiemle, 60,000; Mr. Thaman, 76,657; All Directors and Executive Officers (17 persons), 394,777.

⁽²⁾	Includes shares over which there is sole voting power, but no investment power, as follows: Mr. Brown, 10,375; Mr. Dana, 4,000; Mr. Johns, 4,000; Mr. Kiemle, 4,300; Mr. Thaman, 10,150; All Directors and Executive Officers (17 persons), 37,491.

⁽³⁾	Includes deferred shares over which there is currently no voting or investment power, as follows: Mr. Blake, 3,620; Mr. Caperton, 1,532; Mr. Hilliard, 2,575; Ms. Iverson, 1,532; Mr. Lewis, 3,620; Mr. Moseley, 6,232; Dr. Reynolds, 3,097; All Directors and Executive Officers (17 persons), 22,208.

⁽⁴⁾	Does not include shares of common stock held by family members as to which beneficial interest is disclaimed, as follows: Dr. Reynolds, 700; All Directors and Executive Officers (17 persons), 700.

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

POTENTIAL CHANGES IN CONTROL

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

Owens Corning anticipates that substantially all liabilities of the Debtors as of the date of the Filing will be resolved under one or more Chapter 11 plans of reorganization to be proposed and voted on in the Chapter 11 Cases in accordance with the provisions of the Bankruptcy Code. As described more fully in Note 1 to the Consolidated Financial Statements, on October 24, 2003, the Debtors, together with the Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants, filed a proposed fourth amended joint plan of reorganization (the “Plan”) in the USBC. The Plan is subject to confirmation by the Bankruptcy Court.

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

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Owens Corning has nothing additional to report under this Item.

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PART IV

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The aggregate accounting fees billed and services provided by the Company’s principal accountants for the years ended December 31, 2003 and 2002 are as follows:


	2003		2002
	(in thousands of dollars)
Audit Fees⁽¹⁾	$	2,193	$	2,053
Audit-Related Fees⁽²⁾⁽³⁾		236		211
Tax Fees⁽²⁾⁽⁴⁾		5		216
All Other Fees⁽²⁾		—		—

Total fees	$	2,434	$	2,480

⁽¹⁾	Amounts shown reflect fees for the years ended December 31, 2003 and 2002, respectively.

⁽²⁾	Amounts shown reflect fees billed in the years ended December 31, 2003 and 2002, respectively.

⁽³⁾	Includes fees for assistance with the implementation of Sarbanes-Oxley Section 404, due diligence for acquisitions and divestitures, and review of accounting for certain business transactions.

⁽⁴⁾	Includes fees for services related to preparation of corporate tax returns, assistance with tax audits and tax consulting.

The above amounts do not include $65 thousand and $50 thousand of fees billed in 2003 and 2002 for audits of Company sponsored employee benefit plans. These fees were billed directly to the respective benefit plans.

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

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

(a)	DOCUMENTS FILED AS PART OF THIS REPORT

1.	See Index to Financial Statements on page 58 hereof.

2.	See Index to Financial Statement Schedule on page 147 hereof.

3.	See Exhibit Index beginning on page 150 hereof.

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

(b)	REPORTS ON FORM 8-K

During the fourth quarter of 2003, Owens Corning filed the following current reports on Form 8-K:

•

Form 8-K, dated October 24, 2003, under Items 5 and 7, in connection with the filing of a Fourth Amended Joint Plan of Reorganization of Owens Corning and Its Affiliated Debtors and Debtors-in-Possession and a related Disclosure Statement.

•

Form 8-K/A, dated October 24, 2003, as amended on November 21, 2003 under Items 5 and 7, in connection with the filing of a Fourth Amended Joint Plan of Reorganization of Owens Corning and Its Affiliated Debtors and Debtors-in-Possession and a related Disclosure Statement as revised and refiled with the Bankruptcy Court on November 21, 2003.

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Signatures

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


OWENS CORNING

By	/s/ David T. Brown	Date February 20, 2004

	David T. Brown,
	President and Chief Executive Officer

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


		/s/ David T. Brown						Date February 20, 2004

		David T. Brown,
		President, Chief Executive Officer and Director


		/s/ Michael H. Thaman						Date February 20, 2004

		Michael H. Thaman,
		Chairman of the Board, Chief Financial Officer and Director


		/s/ Charles E. Dana						Date February 20, 2004

		Charles E. Dana,
		Vice President - Corporate Controller


		/s/ Norman P. Blake, Jr.						Date February 19, 2004

		Norman P. Blake, Jr.,
		Director


		/s/ Gaston Caperton						Date February 19, 2004

		Gaston Caperton,
		Director


		/s/ William W. Colville						Date February 19, 2004

		William W. Colville,
		Director


		/s/ Landon Hilliard						Date February 19, 2004

		Landon Hilliard,
		Director


		/s/ Ann Iverson						Date February 19, 2004

		Ann Iverson,
		Director


		/s/ W. Walker Lewis						Date February 20, 2004

		W. Walker Lewis,
		Director


		/s/ Furman C. Moseley, Jr.						Date February 19, 2004

		Furman C. Moseley, Jr.,
		Director


		/s/ W. Ann Reynolds						Date February 21, 2004

		W. Ann Reynolds,
		Director

- 58 -

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Item		Page

Report of Independent Auditors		59 - 60

Copy of Previously Issued Arthur Andersen LLP Report		61 - 62

Consolidated Statement of Income (Loss) – for the years ended December 31, 2003, 2002 and 2001		63

Consolidated Balance Sheet – December 31, 2003 and 2002		64 - 65

Consolidated Statement of Stockholders’ Deficit – for the years ended December 31, 2003, 2002 and 2001		66

Consolidated Statement of Cash Flows – for the years ended December 31, 2003, 2002 and 2001		67

Notes to Consolidated Financial Statements Notes 1 through 25		68 - 146

- 59 -


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

Report of Independent Auditors

To the Board of Directors and Stockholders of Owens Corning:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income (loss), stockholders’ deficit, and cash flows present fairly, in all material respects, the financial position of Owens Corning and its subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for the two years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The consolidated financial statements of Owens Corning and its subsidiaries for the year ended December 31, 2001, were audited by other independent accountants who have ceased operations. Those independent accountants expressed an unqualified opinion (which contains an explanatory paragraph relating to Owens Corning’s ability to continue as a going concern) on those financial statements in their report dated January 23, 2002, before the revisions described in Notes 3 and 7.

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

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

- 60 -

As discussed above, the consolidated financial statements of Owens Corning and its subsidiaries for the year ended December 31, 2001, were audited by other independent accountants who have ceased operations. As described in Notes 3 and 7, these financial statements have been revised to include the transitional disclosures required by SFAS 142, which was adopted by the Company as of January 1, 2002 and to restate the disclosures required by Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information” resulting from a change in the composition of the Company’s reportable segments. We audited the transitional disclosures described in Note 7 and the restated disclosures described in Note 3. In our opinion, the transitional disclosures in Note 7 and the restated disclosures in Note 3 for 2001 are appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2001 financial statements of the Company other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 consolidated financial statements taken as a whole.

/s/ PricewaterhouseCoopers LLP

February 4, 2004

- 61 -

THIS REPORT IS A COPY OF A PREVIOUSLY ISSUED ARTHUR ANDERSEN LLP REPORT AND

HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP

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

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors of Owens Corning:

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

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

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

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

- 62 -

To the Stockholders and Board of Directors of Owens Corning:

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

/s/ Arthur Andersen LLP

January 23, 2002,

Toledo, Ohio.

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

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

- 63 -

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME (LOSS)

FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


	2003			2002			2001
	(In millions of dollars, except per share data)
NET SALES	$	4,996		$	4,872		$	4,762
COST OF SALES (Note 12)		4,170			4,130			3,938

Gross margin		826			742			824

OPERATING EXPENSES
Marketing and administrative expenses		459			522			524
Science and technology expenses		43			42			37
Restructure costs (Note 12)		(2	)		61			26
Chapter 11 related reorganization items (Notes 1 and 19)		85			96			87
Provision (credit) for asbestos litigation claims (recoveries) – Owens Corning (Note 19)		(5	)		1,376			(7	)
Provision for asbestos litigation claims – Fibreboard (Notes 19 and 20)		—			975			—
Other (Note 12)		(21	)		(17	)		41

Total operating expenses		559			3,055			708

INCOME (LOSS) FROM OPERATIONS		267			(2,313	)		116

Interest expense, net (Notes 1, 14, 15 and 22)		8			16			16
Other		—			—			(2	)

INCOME (LOSS) BEFORE INCOME TAX EXPENSE		259			(2,329	)		102

Income tax expense (Notes 6 and 19)		145			31			57

INCOME (LOSS) BEFORE MINORITY INTEREST AND EQUITY IN NET INCOME (LOSS) OF AFFILIATES		114			(2,360	)		45

Minority interest (Note 18)		(5	)		(4	)		(4	)
Equity in net income (loss) of affiliates (Note 9)		6			(4	)		(2	)

NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		115			(2,368	)		39

Cumulative effect of change in accounting principle, net of tax (Note 7)		—			(441	)		—

NET INCOME (LOSS)	$	115		$	(2,809	)	$	39

NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per share (Notes 7 and 21)	$	2.08		$	(51.02	)	$	0.72

Diluted net income (loss) per share (Notes 7 and 21)	$	1.92		$	(51.02	)	$	0.66

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING AND COMMON EQUIVALENT SHARES DURING THE PERIOD
Basic		55.2			55.1			55.1
Diluted		59.9			55.1			59.9

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

- 64 -

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

DECEMBER 31, 2003 AND 2002


	2003			2002
	(In millions of dollars)
ASSETS
CURRENT
Cash and cash equivalents (Note 1)	$	1,005		$	875
Receivables, less allowances of $19 million in 2003 and $29 million in 2002 (Note 4)		464			430
Inventories (Note 5)		390			446
Other current assets		29			23

Total current		1,888			1,774

OTHER
Restricted cash – asbestos and insurance related (Note 19)		166			165
Restricted cash, securities, and other – Fibreboard (Notes 19 and 20)		1,395			1,365
Deferred income taxes (Note 6)		1,310			1,354
Pension-related assets (Note 16)		338			179
Goodwill (Note 7)		138			122
Investments in affiliates (Note 9)		81			51
Other noncurrent assets		92			119

Total other		3,520			3,355

PLANT AND EQUIPMENT, at cost
Land		70			69
Buildings and leasehold improvements		789			692
Machinery and equipment		3,232			3,201
Construction in progress		96			164

		4,187			4,126
Accumulated depreciation		(2,237	)		(2,239	)

Net plant and equipment		1,950			1,887

TOTAL ASSETS	$	7,358		$	7,016

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

- 65 -

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

DECEMBER 31, 2003 AND 2002 (continued)


	2003			2002
	(In millions of dollars)
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT
Accounts payable and accrued liabilities (Note 11)	$	767		$	756
Short-term debt (Note 14)		44			40
Long-term debt - current portion (Note 15)		53			65

Total current		864			861

LONG-TERM DEBT (Note 15)		73			71

OTHER
Pension plan liability (Note 16)		697			596
Other employee benefits liability (Note 17)		400			368
Other		143			103

Total other		1,240			1,067

LIABILITIES SUBJECT TO COMPROMISE (Notes 1, 15 and 19)		9,258			9,236

COMPANY-OBLIGATED SECURITIES OF ENTITIES HOLDING SOLELY PARENT DEBENTURES - SUBJECT TO COMPROMISE (Note 18)		200			200

COMMITMENTS AND CONTINGENCIES (Notes 10, 19 and 22)
MINORITY INTEREST		51			49

STOCKHOLDERS’ DEFICIT
Preferred stock, no par value; authorized 8 million shares, none outstanding		—			—
Common stock, par value $.10 per share; authorized 100 million shares; issued 2003 - 55.3 million shares and 2002 - 55.2 million shares (Note 21)		6			6
Additional paid in capital		690			690
Accumulated deficit		(4,651	)		(4,766	)
Accumulated other comprehensive loss (Notes 16 and 22)		(371	)		(395	)
Other		(2	)		(3	)

Total stockholders’ deficit		(4,328	)		(4,468	)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	7,358		$	7,016

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

- 66 -

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


	2003			2002			2001
	(In millions of dollars)
COMMON STOCK
Balance beginning and end of year	$	6		$	6		$	6

ADDITIONAL PAID IN CAPITAL
Balance beginning of year		690			691			694
Forfeitures of stock under stock compensation plans		—			(1	)		(3	)

Balance end of year		690			690			691

DEFICIT
Balance beginning of year		(4,766	)		(1,957	)		(1,996	)
Net income (loss)		115			(2,809	)		39

Balance end of year		(4,651	)		(4,766	)		(1,957	)
ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance beginning of year
Currency translation adjustment		(59	)		(133	)		(103	)
Minimum pension liability adjustment		(337	)		(230	)		(3	)
Other		1			8			9

		(395	)		(355	)		(97	)
Adjustments
Currency translation adjustment		92			74			(30	)
Minimum pension liability adjustment (net of taxes of $14 million in 2003, $88 million in 2002, and $153 million in 2001)		(66	)		(107	)		(227	)
Other		(2	)		(7	)		(1	)

Other comprehensive income (loss)		24			(40	)		(258	)
Balance end of year
Currency translation adjustment		33			(59	)		(133	)
Minimum pension liability adjustment		(403	)		(337	)		(230	)
Other		(1	)		1			8

Balance end of year		(371	)		(395	)		(355	)

OTHER
Balance beginning of year		(3	)		(2	)		(5	)
Net increase (decrease)		1			(1	)		3

Balance end of year		(2	)		(3	)		(2	)

STOCKHOLDERS’ DEFICIT	$	(4,328	)	$	(4,468	)	$	(1,617	)

TOTAL COMPREHENSIVE INCOME (LOSS)
Net income (loss)	$	115		$	(2,809	)	$	39
Other comprehensive income (loss)		24			(40	)		(258	)

COMPREHENSIVE INCOME (LOSS)	$	139		$	(2,849	)	$	(219	)

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

- 67 -

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


	2003			2002			2001
	(In millions of dollars)
NET CASH FLOW FROM OPERATIONS
Net income (loss)	$	115		$	(2,809	)	$	39
Reconciliation of net cash flow from operations:
Noncash items:
Provision (credit) for asbestos litigation claims (Note 19)		—			2,356			(7	)
Provision for depreciation		206			205			197
Provision for impairment of fixed assets		28			67			40
Provision (credit) for deferred income taxes (Note 6)		51			(21	)		47
Provision for pension and other employee benefits liabilities		126			96			55
Cumulative effect of accounting change (Note 7)		—			441			—
Other		62			132			87
(Increase) decrease in receivables (Note 4)		(27	)		6			41
(Increase) decrease in inventories		11			(4	)		19
Increase (decrease) in accounts payable and accrued liabilities		(67	)		(88	)		188
Change in liabilities subject to compromise (Note 1)		—			(1	)		(75	)
Proceeds from insurance for asbestos litigation claims, excluding Fibreboard (Note 19)		5			5			62
Pension fund contribution		(185	)		(3	)		(196	)
Payments for other employee benefits liabilities		(30	)		(35	)		(30	)
Other		31			17			16

Net cash flow from operations		326			364			483

NET CASH FLOW FROM INVESTING
Additions to plant and equipment		(208	)		(248	)		(270	)
Increase in restricted cash - asbestos and insurance related (Note 19)		(1	)		(7	)		(5	)
Increase in restricted cash, securities, and other - Fibreboard (Notes 19 and 20)		(30	)		—			—
Investment in subsidiaries and affiliates, net of cash acquired (Note 8)		(25	)		(15	)		(18	)
Proceeds from the sale of assets or affiliates (Note 8)		88			13			39

Net cash flow from investing	$	(176	)	$	(257	)	$	(254	)

NET CASH FLOW FROM FINANCING
Other additions to long-term debt (Note 15)	$	10		$	—		$	—
Other reductions to long-term debt (Notes 10 and 15)		(56	)		(3	)		(4	)
Net increase (decrease) in short-term debt (Note 14)		3			(4	)		(6	)
Subject to compromise (Note 1)		—			1			(4	)
Other		—			1			—

Net cash flow from financing		(43	)		(5	)		(14	)

Effect of exchange rate changes on cash		23			9			(1	)

NET INCREASE IN CASH AND CASH EQUIVALENTS		130			111			214
Cash and cash equivalents at beginning of year		875			764			550

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,005		$	875		$	764

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

- 68 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11


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

- 69 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

On January 17, 2003, the Debtors, together with the Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants, filed a proposed joint plan of reorganization in the USBC. The same proponents filed a proposed amended joint plan of reorganization in the USBC on March 28, 2003, a proposed second amended joint plan of reorganization in the USBC on May 23, 2003, a proposed third amended joint plan of reorganization in the USBC on August 8, 2003, and a proposed fourth amended joint plan of reorganization (as so amended through such fourth amendment, the “Plan”) in the USBC on October 24, 2003. Certain terms, conditions and provisions of the Plan are discussed below. The Plan is subject to confirmation by the Bankruptcy Court.

Consequence of Filing

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.

Related Developments

PROPOSED ASBESTOS LEGISLATION

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

- 70 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

OTHER MATTERS FILED IN THE USBC

The Debtors believe that the above three matters are without merit and intend to vigorously oppose them in appropriate proceedings.

- 71 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

The Plan of Reorganization

- 72 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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 Pre-Petition Credit Facility or (2) OCFT’s license agreements with Owens Corning and Exterior Systems, Inc., an indirect wholly-owned subsidiary of Owens Corning (“Exterior”), pursuant to which OCFT licenses intellectual property to Owens Corning and Exterior. In the event that (1) the major creditor constituencies do not approve the Plan and (2) no other acceptable alternative 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.

- 73 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Bar Dates for Filing Claims

GENERAL BAR DATE

•

- 74 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

•

ASBESTOS BAR DATE

- 75 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 (the “Pre-Petition Credit Facility Action”); (b) the return of up to approximately $515 million paid by the Company to shareholders of Fibreboard in connection with the Company’s purchase of Fibreboard in 1997 (the “FBD Shareholder Action”); (c) the return of up to approximately $61.8 million paid by the Company to shareholders in dividends in the period 1996 through 2000 (the “Dividend Action”); and (d) the return of approximately $133 million paid by the Company to Bank of America Corp. in connection with Owens Corning’s purchase of Fibreboard in 1997. Both the FBD Shareholder Action and the Dividend Action are defendant class actions. Certain present or former officers or directors of the Company may be members of either or both defendant classes. Certain holders of Owens Corning debt securities have filed a Complaint in Intervention in connection with the Pre-Petition Credit Facility Action, seeking to assert securities fraud related claims against five subsidiaries of Owens Corning that issued guarantees in connection with the Pre-Petition Credit Facility. The Company has opposed such intervention. It is expected that such matter will be determined by the Bankruptcy Court in conjunction with the Pre-Petition Credit Facility Action.

- 76 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Separately, and at the request of the Debtors’ Official Creditors’ Committee and the direction of the Bankruptcy Court, the Debtors either obtained tolling agreements from, or filed actions against, approximately 115 law firms that entered into NSP or non-NSP agreements (see Note 19 to the Consolidated Financial Statements) with the Debtors on behalf of claimants asserting asbestos-related personal injury or wrongful death claims. Lawsuits were brought initially against the 11 law firms that did not sign tolling agreements, seeking two forms of relief: (a) first, a declaratory judgment as to whether payments made, or obligations incurred, under NSP and non-NSP agreements were in exchange for reasonably equivalent value; and (b) second, in the event reasonably equivalent value was not received, the recovery or avoidance of payments made and obligations incurred under the relevant NSP and non-NSP agreements pursuant to applicable state and federal fraudulent conveyance law. On or before September 29, 2003, similar lawsuits were brought against 5 additional law firms whose tolling agreements were about to expire. The Official Creditors’ Committee was named as a defendant in all such lawsuits, solely with respect to the declaratory relief sought.

By motions filed on or about October 16, 2002, and December 17, 2003, the Debtors sought an order of the Bankruptcy Court staying all of the foregoing litigation pending its disposition in a plan of reorganization. Pursuant to orders of the Bankruptcy Court and local court rules, all of the foregoing litigation, other than the Pre-Petition Credit Facility Action, has been stayed until the Bankruptcy Court holds a hearing on the December 17, 2003 motion, subject to the right of any defendant to move to modify/terminate the stay. The Pre-Petition Credit Facility Action, previously scheduled for trial before the District Court commencing in June 2003, has been continued indefinitely by the Court.

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.

At December 31, 2003, the Company had $1.005 billion of cash and cash equivalents.

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

- 77 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

The Company believes, based on information presently available to it, that its cash and cash equivalents, and cash available from operations, will provide sufficient liquidity to allow it to continue as a going concern for the foreseeable future. However, the ability of the Company to continue as a going concern (including its ability to meet post-petition obligations of the Debtors and to meet obligations of the Non-Debtor Subsidiaries) and the appropriateness of using the going concern basis for its financial statements are dependent upon, among other things, (i) the Company’s ability to comply with the terms of any cash management order entered by the Bankruptcy Court from time to time in connection with the Chapter 11 Cases, (ii) the ability of the Company to maintain adequate cash on hand, (iii) the ability of the Company to generate cash from operations, (iv) the ability of the Non-Debtor Subsidiaries to obtain necessary financing, (v) confirmation of a plan or plans of reorganization under the Bankruptcy Code, and (vi) the Company’s ability to maintain profitability following such confirmation.

Financial Statement Presentation

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 19 to the Consolidated Financial Statements.

- 78-

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

OWENS CORNING AND SUBSIDIARIES

DEBTOR-IN-POSSESSION STATEMENT OF INCOME (LOSS)

FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


	2003			2002			2001
	(In millions of dollars)
NET SALES	$	4,338		$	4,302		$	4,161
COST OF SALES		3,735			3,715			3,542

Gross margin		603			587			619

OPERATING EXPENSES
Marketing and administrative expenses		405			473			474
Science and technology expenses		37			37			32
Restructure costs		(1	)		44			16
Chapter 11 related reorganization items		85			96			87
Owens Corning provision (credit) for asbestos litigation claims (recoveries)		(5	)		1,376			(7	)
Fibreboard provision for asbestos litigation claims		—			975			—
Other (including interest income from non-Debtors of $56 million in 2003, 2002 and 2001)		(124	)		(122	)		(90	)

Total operating expenses		397			2,879			512

INCOME (LOSS) FROM OPERATIONS		206			(2,292	)		107

Interest expense, net		3			5			1
Other		—			—			(2	)

INCOME (LOSS) BEFORE INCOME TAX EXPENSE		203			(2,297	)		108

Income tax expense		135			34			52

INCOME (LOSS) BEFORE EQUITY IN NET INCOME (LOSS) OF AFFILIATES		68			(2,331	)		56

Equity in net income (loss) of affiliates		—			(3	)		(3	)

NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		68			(2,334	)		53

Cumulative effect of change in accounting principle, net of tax		—			(409	)		—

NET INCOME (LOSS)	$	68		$	(2,743	)	$	53

- 79-

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

OWENS CORNING AND SUBSIDIARIES

DEBTOR-IN-POSSESSION BALANCE SHEET

DECEMBER 31, 2003 AND 2002


	2003			2002
	(In millions of dollars)
ASSETS
CURRENT
Cash and cash equivalents	$	645		$	622
Receivables, net of allowance for doubtful accounts		334			336
Receivables - non-Debtors		1,032			933
Inventories		278			328
Other current assets		31			23

Total current		2,320			2,242

OTHER
Restricted cash and other - asbestos and insurance related		166			165
Restricted cash, securities and other - Fibreboard		1,395			1,365
Deferred income taxes		1,170			1,248
Pension-related assets		257			124
Goodwill		54			54
Investments in affiliates		25			15
Investments in non-Debtor subsidiaries		757			757
Other noncurrent assets		47			89

Total other		3,871			3,817

PLANT AND EQUIPMENT, at cost
Land		39			42
Buildings and leasehold improvements		589			527
Machinery and equipment		2,253			2,391
Construction in progress		79			96

		2,960			3,056
Accumulated depreciation		(1,566	)		(1,688	)

Net plant and equipment		1,394			1,368

TOTAL ASSETS	$	7,585		$	7,427

- 80 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

OWENS CORNING AND SUBSIDIARIES

DEBTOR-IN-POSSESSION BALANCE SHEET

DECEMBER 31, 2003 AND 2002 (continued)


	2003			2002
	(In millions of dollars)
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT
Accounts payable and accrued liabilities	$	549		$	533
Accounts payable and accrued liabilities - non-Debtors		15			49
Long-term debt - current portion		1			—

Total current		565			582

LONG-TERM DEBT		6			—

OTHER
Pension plan liability		581			525
Other employee benefits liability		384			355
Other		123			81

Total other		1,088			961

LIABILITIES SUBJECT TO COMPROMISE		9,985			9,963

STOCKHOLDERS’ DEFICIT
Common stock		6			6
Additional paid in capital		690			690
Accumulated deficit		(4,417	)		(4,485	)
Accumulated other comprehensive loss		(336	)		(290	)
Other		(2	)		—

Total stockholders’ deficit		(4,059	)		(4,079	)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	7,585		$	7,427

- 81 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

OWENS CORNING AND SUBSIDIARIES

DEBTOR-IN-POSSESSION STATEMENT OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


	2003			2002			2001
	(In millions of dollars)
NET CASH FLOW FROM OPERATIONS
Net income (loss)	$	68		$	(2,743	)	$	53
Reconciliation of net cash flow from operations:
Noncash items:
Provision (credit) for asbestos litigation claims		—			2,356			(7	)
Provision for depreciation		147			149			145
Provision for impairment of fixed assets		28			44			31
Provision for deferred income taxes		81			14			79
Provision for pension and other employee benefits liabilities		112			93			58
Cumulative effect of accounting change		—			409			—
Other		48			89			91
Increase in receivables and receivables—non-Debtors		(116	)		(111	)		(168	)
(Increase) decrease in inventories		(10	)		(25	)		34
Increase (decrease) in accounts payable and accrued liabilities and accounts payable and accrued liabilities—non-Debtors		(33	)		(102	)		175
Change in liabilities subject to compromise		—			(1	)		(75	)
Proceeds from insurance for asbestos litigation claims, excluding Fibreboard		5			5			62
Pension fund contribution		(178	)		—			(176	)
Payments for other employee benefits liabilities		(29	)		(34	)		(29	)
Other		39			35			110

Net cash flow from operations		162			178			383

NET CASH FLOW FROM INVESTING
Additions to plant and equipment		(156	)		(162	)		(220	)
Increase in restricted cash—asbestos and insurance related		(1	)		(7	)		(5	)
Increase in restricted cash, securities, and other—Fibreboard		(30	)		—			—
Investment in subsidiaries and affiliates, net of cash acquired		(5	)		(6	)		(15	)
Proceeds from the sale of assets or affiliates		85			12			5

Net cash flow from investing		(107	)		(163	)		(235	)

NET CASH FLOW FROM FINANCING
Other additions to long-term debt		2			—			—
Other reductions to long-term debt		(34	)		—			—
Subject to compromise		—			1			(4	)
Other		—			1			—

Net cash flow from financing		(32	)		2			(4	)

NET INCREASE IN CASH AND CASH EQUIVALENTS		23			17			144

Cash and cash equivalents at beginning of year		622			605			461

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	645		$	622		$	605

- 82 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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


	2003		2002
	(in millions of dollars)
Accounts payable	$	213	$	233
Accrued interest payable		42		40
Debt		2,896		2,854
Income taxes payable		233		235
Reserve for asbestos litigation claims – Owens Corning		3,565		3,564
Reserve for asbestos-related claims – Fibreboard		2,309		2,310

Total consolidated		9,258		9,236
Payables to non-Debtors		727		727

Total Debtor	$	9,985	$	9,963

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


	2003			2002			2001
	(In millions of dollars)
Professional fees	$	63		$	70		$	60
Payroll and compensation		12			24			29
Settlement of Asian credit facility		18			—			—
Renegotiation of World Headquarters lease		21			—			—
Interest income		(35	)		(22	)		(17	)
Loss on settlement of claims		—			13			1
Other, net		6			11			14

Total	$	85		$	96		$	87

Substantially all of the amounts for professional fees, payroll and compensation, interest income, and other, net, were paid or received in cash during 2003. The remaining items are primarily non-cash charges relating to the settlement of claims.

- 83 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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

Reclassifications

Certain reclassifications have been made to the 2002 and 2001 Consolidated Financial Statements to conform with the classifications used in 2003.

Use of Estimates and Assumptions

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

Revenue Recognition

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

Shipping and Handling Costs

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

Marketing and Advertising Costs

Marketing and advertising costs are expensed the first time the advertising takes place. Marketing and advertising costs include advertising, substantiated customer incentive programs, and marketing communications. Marketing and advertising expenses for 2003, 2002 and 2001 were $77 million, $83 million, and $87 million, respectively.

Science and Technology Expenses

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

Reorganization Items and Other Expenses

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

- 84 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Stock Based Compensation Plans

Net Income per Share

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

Cash and Cash Equivalents

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

Inventory Valuation

Investments in Affiliates

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

Goodwill

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

Properties and Depreciation

The Company’s plant and equipment is depreciated principally using the straight-line method. Depreciation expense for the years ended December 31, 2003, 2002, and 2001 was $206 million, $205 million, and $197 million, respectively. The range of useful lives for the major components of the Company’s plant and equipment is as follows:


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

- 85 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Capitalization of Software Developed for Internal Use

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

Property Impairments

Income Taxes

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

Pension and Other Postretirement Benefits

Reserve for Asbestos Litigation Claims

The Company estimates reserves for asbestos-related liabilities that have been asserted or are probable of assertion. The estimate of liabilities for pending and expected future asbestos claims is subject to considerable uncertainty because such liabilities are influenced by numerous variables that are inherently difficult to predict, and such uncertainties significantly increased as a result of the Chapter 11 Cases. The Company will continue to review its asbestos reserves on a periodic basis and make such adjustments as may be appropriate. Any such adjustment could be material to the Company’s consolidated financial statements in any given period. See Note 19 to the Consolidated Financial Statements for further discussion.

Derivative Financial Instruments

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

- 86 -

OWENS CORNING AND SUBSIDIARIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Foreign Currency Translation

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

3. SEGMENT DATA

During 2003, the Company realigned its internal operating segments. Following this realignment, the Company reviewed its segments in accordance with Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information”, and concluded that the aggregation of its operating segments into two reportable segments is still appropriate; however, certain components within the segments have changed. Net sales and income from operations have been restated for all periods presented to reflect this change. Accounting policies for the segments are the same as those for the Company.

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

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

Building Materials Systems

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

Composite Solutions

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

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

- 87 -

OWENS CORNING AND SUBSIDIARIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

3. SEGMENT DATA (continued)

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

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


NET SALES	2003		2002		2001
	(In millions of dollars)
Reportable Segments
Building Materials Systems
United States	$	3,751	$	3,688	$	3,529
Europe		4		2		6
Canada and other		237		196		183

Total Building Materials Systems		3,992		3,886		3,718

Composite Solutions
United States		491		523		534
Europe		333		294		327
Canada and other		180		169		183

Total Composite Solutions		1,004		986		1,044

Total reportable segments	$	4,996	$	4,872	$	4,762

External Customer Sales by Geographic Region
United States	$	4,242	$	4,211	$	4,063
Europe		337		296		333
Canada and other		417		365		366

NET SALES	$	4,996	$	4,872	$	4,762

- 88 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

3. SEGMENT DATA (continued)


INCOME (LOSS) BEFORE INCOME TAX EXPENSE	2003			2002			2001
	(In millions of dollars)
Reportable Segments
Building Materials Systems
United States	$	338		$	274		$	228
Europe		(1	)		(1	)		—
Canada and other		46			27			14

Total Building Materials Systems		383			300			242

Composite Solutions
United States		20			(16	)		75
Europe		16			22			46
Canada and other		30			27			22

Total Composite Solutions		66			33			143

Total reportable segments	$	449		$	333		$	385

Geographic Regions
United States	$	358		$	258		$	303
Europe		15			21			46
Canada and other		76			54			36

Total reportable segments	$	449		$	333		$	385

Reconciliation to Consolidated Income (Loss) Before Income Tax Expense (Benefit)
Restructuring (Note 12)	$	2		$	(61	)	$	(26	)
Other charges (Note 12)		(36	)		(105	)		(114	)
Chapter 11 related reorganization items (Note 1)		(85	)		(96	)		(87	)
Provision for asbestos litigation claims (Note 19)		5			(2,351	)		7
General corporate expense		(68	)		(33	)		(49	)
Interest expense, net		(8	)		(16	)		(16	)
Other		—			—			2

CONSOLIDATED INCOME (LOSS) BEFORE INCOME TAX EXPENSE	$	259		$	(2,329	)	$	102

- 89 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

3. SEGMENT DATA (continued)


	December 31,
TOTAL ASSETS	2003			2002
	(In millions of dollars)
Reportable Segments
Building Materials Systems
United States	$	1,526		$	1,496
Europe		9			7
Canada and other		186			164

Total Building Materials Systems		1,721			1,667

Composite Solutions
United States		456			561
Europe		375			309
Canada and other		301			304

Total Composite Solutions		1,132			1,174

Total reportable segments	$	2,853		$	2,841

Reconciliation to Consolidated Total Assets
Cash and cash equivalents		1,005			875
LIFO inventory valuation adjustment		(95	)		(88	)
Restricted cash – asbestos and insurance related		166			165
Restricted cash, securities and other – Fibreboard		1,395			1,365
Deferred income taxes		1,310			1,356
Pension-related assets		338			179
Investments in affiliates		81			51
Corporate fixed assets and other assets		305			272

CONSOLIDATED TOTAL ASSETS	$	7,358		$	7,016

LONG-LIVED ASSETS BY GEOGRAPHIC REGION
United States	$	1,406		$	1,382
Europe		248			209
Canada and other		296			296

TOTAL LONG-LIVED ASSETS	$	1,950		$	1,887

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

3. SEGMENT DATA (continued)


PROVISION FOR DEPRECIATION	2003		2002		2001
	(In millions of dollars)
Reportable Segments
Building Materials Systems
United States	$	93	$	96	$	96
Europe		—		—		—
Canada and other		10		9		10

Total Building Materials Systems		103		105		106

Composite Solutions
United States		23		22		22
Europe		24		18		20
Canada and other		24		23		19

Total Composite Solutions		71		63		61

Total reportable segments		174		168		167

Geographic Regions
United States	$	116	$	118	$	118
Europe		24		18		20
Canada and other		34		32		29

Total reportable segments	$	174	$	168	$	167

Reconciliation to Consolidated Provision for Depreciation
General Corporate Depreciation		32		37		30

CONSOLIDATED PROVISION FOR DEPRECIATION	$	206	$	205	$	197

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

3. SEGMENT DATA (continued)


ADDITIONS TO PLANT AND EQUIPMENT	2003		2002		2001
	(In millions of dollars)
Reportable Segments
Building Materials Systems
United States	$	122	$	117	$	142
Europe		—		—		—
Canada and other		10		15		7

Total Building Materials Systems		132		132		149

Composite Solutions
United States		26		14		52
Europe		30		69		26
Canada and other		7		4		12

Total Composite Solutions		63		87		90

Total Reportable Segments	$	195	$	219	$	239

Geographic Regions
United States	$	148	$	131	$	194
Europe		30		69		26
Canada and other		17		19		19

Total Reportable Segments	$	195	$	219	$	239

Reconciliation to Consolidated Additions to Plant and Equipment
General Corporate Additions		13		29		31

CONSOLIDATED ADDITIONS TO PLANT AND EQUIPMENT	$	208	$	248	$	270

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. ACCOUNTS RECEIVABLE

In 2003, 2002 and 2001, the Company sold certain accounts receivable of certain European operations. At December 31, 2003 and 2002, $16 million and $10 million, respectively, had been sold and reflected as a reduction of accounts receivable in the Company’s Consolidated Balance Sheet.

The Company maintains an allowance for doubtful accounts based upon the expected collectibility of all consolidated trade accounts receivable, including receivables sold. Discounts on receivables sold of $1 million for each of the years ended December 31, 2003, 2002 and 2001, were recorded as other expenses on the Company’s Consolidated Statement of Income (Loss).

5. INVENTORIES

Inventories are summarized as follows:


	2003			2002
	(In millions of dollars)
Finished goods	$	362		$	385
Materials and supplies		123			149

FIFO inventory		485			534
Excess of FIFO over LIFO		(95	)		(88	)

Total inventories	$	390		$	446

Approximately $144 million and approximately $150 million of total inventories were valued using the LIFO method at December 31, 2003 and 2002, respectively.

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

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

6. INCOME TAXES


	2003			2002			2001
	(In millions of dollars)
Income (loss) before income tax expense (benefit):
U.S.	$	145		$	(2,422	)	$	24
Foreign		114			93			78

Total	$	259		$	(2,329	)	$	102

Income tax expense (benefit):
Current
U.S.	$	126		$	(143	)	$	25
State and local		41			(22	)		(32	)
Foreign		25			28			17

Total current		192			(137	)		10

Deferred
U.S.		(30	)		138			(3	)
State and local		(21	)		21			36
Foreign		4			9			14

Total deferred		(47	)		168			47

TOTAL INCOME TAX EXPENSE	$	145		$	31		$	57

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


	2003		2002		2001
U.S. federal statutory rate	35	%	(35	)%	35	%
State and local income taxes, net of federal tax benefit	5		(4	)	4
Foreign tax rate differential	(4	)	—		—
Change in valuation allowance	—		39		—
Adjustment to estimated liability for tax claims	15		1		9
Other, net	5		—		7

Effective tax rate	56	%	1	%	55	%

As of December 31, 2003, the Company has not provided for withholding or U.S. federal income taxes on approximately $547 million of accumulated undistributed earnings of its foreign subsidiaries as they are considered by management to be permanently reinvested. If these undistributed earnings were not considered to be permanently reinvested, approximately $210 million of deferred income taxes would have been provided.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

6. INCOME TAXES (continued)

At December 31, 2003, the Company had net operating loss carryforwards for the United States, certain of its foreign subsidiaries, and certain of its state tax jurisdictions, the tax benefit of which is approximately $475 million. The following table details the expiration periods of the $475 million net operating loss carryforwards:


Period	Carryforwards
	(in millions of dollars)
2004-2008	$	68
2009-2013		53
2014-2018		10
2019-2023		319
Indefinite		25

Total deferred taxes	$	475

The cumulative temporary differences giving rise to the deferred tax assets and liabilities at December 31, 2003 and 2002 are as follows:


	2003					2002
	Deferred Tax Assets			Deferred Tax Liabilities		Deferred Tax Assets			Deferred Tax Liabilities
	(In millions of dollars)
Asbestos litigation claims	$	1,820		$	—	$	1,843		$	—
Other employee benefits		168			—		167			—
Pension plans		257			17		243			51
Operating loss carryforwards		475			—		384			—
Depreciation		6			243		1			361
State and local taxes		83			63		—			57
Other		387			563		552			367

Subtotal		3,196			886		3,190			836
Valuation allowances		(1,000	)		—		(998	)		—

Total deferred taxes	$	2,196		$	886	$	2,192		$	836

The Company records valuation allowances related to the realization of certain tax assets. The balances as of December 31, 2003 and 2002 consisted of (1) $936 million in both years for tax assets related to charges for asbestos-related liabilities, (2) $57 million and $56 million, respectively, for tax assets related to certain state and foreign net operating loss carryforwards, and (3) $7 million and $6 million, respectively, of other allowances. In 2002, the Company increased its asbestos-related reserves through charges to income of $1.381 billion for Owens Corning asbestos-related liabilities and $975 million for Fibreboard asbestos-related liabilities, for an aggregate charge of $2.356 billion (see Note 19 to the Consolidated Financial Statements). In connection with such charges, management evaluated the amount of deferred tax assets attributable to such charges and also assessed the likelihood of realization of such deferred tax assets in light of the Company’s financial position and the Chapter 11 proceedings. As the result of such assessment, management determined that a valuation allowance was required for the full amount of such attributable deferred tax assets. As a result, no tax benefit was recorded in connection with the asbestos-related charges.

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

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

7. 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 at least 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. Upon adoption in 2002, 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.

At the time of adoption, 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.

The changes in goodwill by segment during the years ended December 31, 2003 and 2002, were as follows:


	Balance at December 31, 2002		Additions/ Dispositions			Reallocation			Foreign Exchange and Other		Balance at December 31, 2003
	(In millions of dollars)
Composite Solutions	$	18	$	3		$	(3	)	$	2	$	20
Building Materials Systems		104		—			3			11		118

Total	$	122		3		$	—		$	13	$	138


	Balance at December 31, 2001		Effect of Adopting SFAS No. 142			Reallocation			Foreign Exchange and Other		Balance at December 31, 2002
	(In millions of dollars)
Composite Solutions	$	33	$	—		$	(15	)	$	—	$	18
Building Materials Systems		577		(491	)		15			3		104

Total	$	610	$	(491	)	$	—		$	3	$	122

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

7. GOODWILL AND OTHER INTANGIBLES (continued)

SFAS No. 142 does not provide for restatement of our results of operations for periods ended prior to January 1, 2002. A reconciliation of the previously reported net income and earnings per share as if SFAS No. 142 had been adopted prior to January 1, 2001 is presented as follows:


	Year Ended December 31,
	2002			2001
	(In millions of dollars, except per share data)
Net income (loss):
Reported net income (loss)	$	(2,809	)	$	39
Add back cumulative effect of change in accounting principle, net of tax		441			—
Add back goodwill amortization, net of tax		—			14

Adjusted net income (loss)	$	(2,368	)	$	53

Basic earnings (loss) per share:
As reported	$	(51.02	)	$	.72
Add back cumulative effect of change in accounting principle, net of tax		8.01			—
Add back goodwill amortization, net of tax		—			.25

Adjusted basic earnings (loss) per share	$	(43.01	)	$	.97

Diluted earnings (loss) per share:
As reported	$	(51.02	)	$	.66
Add back cumulative effect of change in accounting principle, net of tax		8.01			—
Add back goodwill amortization, net of tax		—			.23

Adjusted diluted earnings (loss) per share	$	(43.01	)	$	.89

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

7. GOODWILL AND OTHER INTANGIBLES (continued)

Substantially all of the Company’s acquired other intangible assets are subject to amortization. Other intangible asset amortization expense was approximately $5 million in 2003, $4 million in 2002, and $5 million in 2001. The Company estimates that amortization of other intangible assets will be approximately $3 million for each of the next five years. The components of other intangible assets are as follows:


	December 31, 2003
	Weighted Average Lives	Gross Carrying Amount		Accumulated Amortization
		(In millions of dollars)
Contract-based	6	$	6	$	2
Technology-based	21		15		9
Marketing-related	6		14		11

		$	35	$	22

8. ACQUISITIONS AND DIVESTITURES OF BUSINESSES

Acquisition

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

8. ACQUISITIONS AND DIVESTITURES OF BUSINESSES (continued)

Divestitures

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

In the fourth quarter of 2001, the Company sold its remaining 40% interest in Alcopor Owens Corning, an unconsolidated European building materials joint venture. The Company reduced its investment in the joint venture to net realizable value during the third quarter of 2001. See Note 12 to the Consolidated Financial Statements. Net proceeds on the divestiture were approximately $23 million, of which approximately $9 million remained in escrow at December 31, 2001 and were received in January 2002. As part of the divestiture, the Company was obligated to fund certain U.K pension obligations in the amount of approximately $14 million, during the fourth quarter of 2001.

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

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

9. INVESTMENTS IN AFFILIATES

At December 31, 2003 and 2002, the Company’s affiliates, which generally are engaged in the manufacture of fibrous glass and related products for the insulation, construction, reinforcements, and textile markets, include:


	Percent Ownership
	2003		2002
(a) Advanced Glassfiber Yarns, LLC (U. S.)	49	%	49	%
Arabian Fiberglass Insulation Company, Ltd. (Saudi Arabia)	49	%	49	%
Automotive Composite Solutions (International)	26	%	26	%
Fiberteq LLC (U. S.)	50	%	50	%
(b) Neptco LLC (U.S.)	50	%	—
(c) Owens Corning Energy LLC (U. S.)	—		50	%
Owens Corning South Africa (Pty) Ltd.	46	%	46	%
(d) Stamax B.V. (Netherlands)	—		50	%
(d) Stamax NA LLC (U. S.)	—		50	%
(e) Violet Reinforcement, S. de R.L. (Mexico)	50	%	—
(f) Vitro-Fibras, S.A. (Mexico)	40	%	40	%

(a)

During 2002, the Company’s joint venture affiliate, Advanced Glassfiber Yarns, LLC filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. Owens Corning’s investment in this affiliate was written off during 2002, the effect of which was approximately a $1 million loss recorded in the Consolidated Statement of Income (Loss). The net loss generated during 2002 by this affiliate was responsible for a majority of the 2002 net loss reflected below. In 2003, Advanced Glassfiber Yarns filed their plan of reorganization which shows that upon Advanced Glassfiber Yarns’ emergence from bankruptcy the Company will no longer have an equity investment in Advanced Glassfiber Yarns.

(b)

In 2003, the Company entered into a joint venture business known as Neptco LLC, by contributing approximately $8 million of assets of its glass-based telecommunications business. This venture is engaged in the development, manufacturing, marketing and sale of glass-based flexible reinforcement products and glass-based rigid strength element products for the telecommunications and data transmission industries.

(c)	In 2003, the Company relinquished its ownership in Owens Corning Energy LLC.

(d)	In 2003, the Company sold its equity interest in Stamax B.V. and closed its Stamax NA LLC joint venture affiliate.

(e)	In 2003, the Company entered into a joint venture business known as Violet Reinforcement, S. de R.L., for the manufacture of fiberglass reinforcement products.

(f)

In January 2004, the Company entered into an agreement to acquire the remaining 60% ownership in Vitro-Fibras, S.A. for approximately $72 million. The acquisition is subject to obtaining required Bankruptcy Court and regulatory approvals. In 2003, the Company developed significant influence in Vitro-Fibras, S.A., therefore at December 31, 2003, this investment is accounted for using the equity method. Prior to the fourth quarter of 2003, this investment was accounted for using the cost method because the Company determined that it did not have significant influence in this affiliate.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

9. INVESTMENTS IN AFFILIATES (continued)

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


	2003		2002			2001
	(In millions of dollars)
At December 31:
Current assets	$	134	$	111		$	114
Noncurrent assets		154		309			528
Current liabilities		67		445			98
Noncurrent liabilities		32		65			457
For the year ended December 31:
Net sales		177		297			369
Gross margin		35		60			116
Net income (loss)		10		(213	)		18

The Company’s equity in undistributed earnings of affiliates was $16 million at December 31, 2003.

10. LEASES

The Company leases certain equipment and facilities under operating leases, some of which include cost-escalation clauses, expiring on various dates through 2020. Total rental expense charged to operations was $100 million in 2003, $104 million in 2002, and $124 million in 2001. At December 31, 2003, the minimum future rental commitments under noncancellable leases with initial maturities greater than one year payable over the remaining lives of the leases are:


Period	Minimum Future Rental Commitments
	(In millions of dollars)
2004	$	69
2005		50
2006		35
2007		25
2008		18
2009 through 2020		55

	$	252

Pursuant to the Bankruptcy Code, Owens Corning and the other Debtors in the Chapter 11 Cases may elect to reject or assume unexpired pre-petition leases. The Debtors are currently reviewing the leases for which such an election exists to determine whether they should be accepted or rejected. The Bankruptcy Court has extended the time period within which the Debtors must make their elections through June 4, 2004, and may grant further extensions. In the process of their review, the Debtors may conclude that certain of the arrangements constitute secured financings rather than leases, in which event the Debtors may take action to obtain a court determination that the applicable facility is owned rather than leased.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

10. LEASES (continued)

11. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of the following as of December 31, 2003 and 2002:


	2003		2002
	(In millions of dollars)
Accounts payable	$	336	$	309
Payroll and vacation pay		141		120
Payroll, property, and miscellaneous taxes		65		37
Other employee benefits liability (Note 17)		30		30
Restructure costs (Note 12)		—		33
Other		195		227

Total	$	767	$	756

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

12. RESTRUCTURING OF OPERATIONS AND OTHER CHARGES

2003 Charges

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

2002 Charges

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

12. RESTRUCTURING OF OPERATIONS AND OTHER CHARGES (continued)

2001 Charges

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

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

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

12. RESTRUCTURING OF OPERATIONS AND OTHER CHARGES (continued)

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 December 31, 2003:


	Personnel Costs			Facility and Business Exit Costs			Total
	(In millions of dollars)
Charges to expense	$	16		$	4		$	20
Payments		(4	)		(1	)		(5	)

Balance at December 31, 2000		12			3			15

Charges to expense		21			—			21
Payments		(24	)		(3	)		(27	)

Balance at December 31, 2001		9			—			9

Charges to expense		35			2			37
Payments		(16	)		(1	)		(17	)

Balance at December 31, 2002		28			1			29

Revision of prior estimates, net		(4	)		—			(4	)
Payments		(24	)		(1	)		(25	)

Balance at December 31, 2003	$	—		$	—		$	—

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

13. WARRANTIES

The Company records a liability for warranty obligations at the date the related products are sold. Adjustments are made as new information becomes available. A reconciliation of the warranty liabilities for the years ended December 31, 2003 and 2002 is as follows:


	2003			2002
	(In millions of dollars)
Beginning balance	$	57		$	57
Amounts accrued for current year		13			14
Adjustments of prior accrual estimates		(3	)		2
Transfer of metals systems warranties		(4	)		—
Settlements of warranty claims		(15	)		(16	)

Ending balance	$	48		$	57

14. SHORT-TERM DEBT


	2003			2002
	(In millions of dollars)
Short-Term Debt:
Balance outstanding at December 31	$	44		$	40
Weighted average interest rates on short-term debt outstanding at December 31		6.5	%		7.3	%

The Company had no unused short-term lines of credit at December 31, 2003 and 2002.

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

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

15. LONG-TERM DEBT


	2003			2002
	(In millions of dollars)
Long-Term Debt:
Guaranteed debentures due in 2001, 10%	$	42		$	42
Term loan due 2009, 3 month LIBOR plus 1.5%		21			33
Term loan due 2009, 10%		16			24
Asian credit facility due in 2005, LIBOR plus 2.5%		18			22
Redeemable convertible debentures due 2010, 12.25%		7			7
Various capital leases due through and beyond 2008		15			—
Other long-term debt due through 2009, at rates from 7.24% to 11.45%		7			8

		126			136
Less - current portion		(53	)		(65	)

Total long-term debt	$	73		$	71

In connection with the Filing, the Debtors obtained a $500 million debtor-in-possession credit facility from a group of lenders led by Bank of America, N.A. (the “DIP Financing”), which was originally scheduled to expire November 15, 2002. In October 2002, the Debtors reached agreement with the lenders to renew the DIP Financing for an additional term of two years, with a reduced maximum availability of $250 million. The interest rate applicable is a floating rate varying from 0.75% to 2.00%, based upon the average daily outstanding balance, plus LIBOR. The facility had a commitment fee on unused portions of 0.375% at December 31, 2003 and 2002. The amount available under the facility depends on a borrowing base of qualifying receivables and inventory of the Debtors, which did not reduce the amount available at December 31, 2003. While the Company had no outstanding borrowings from the facility at year-end 2003 or 2002, approximately $83 million and $62 million, respectively, of this facility was utilized at such times for standby letters of credit and similar uses. Consequently, $167 million was available under this facility at December 31, 2003. This facility has super priority in the bankruptcy proceeding. The Company intends to renew the DIP Financing when due, upon terms to be determined, subject to the Chapter 11 proceedings.

The Asian credit facility is payable in U.S. dollars and had a rate of interest at December 31, 2003 and 2002 of 4.0% and 2.58%, respectively. In 2003, the Company reached an agreement with the financial institution to restructure this facility. In exchange for an allowed guarantee claim against the Debtors of the full amount of the facility, the financial institution agreed to reduce the debt of the responsible subsidiary by approximately $4 million, and extend the term of the facility.

After the Filing, Owens Corning discontinued debt payments to its non-Debtor subsidiary responsible for the $42 million in guaranteed debentures due 2001. As this subsidiary has no assets other than this intercompany receivable, it was unable to make required payments and is in default. At December 31, 2003 and 2002, this instrument was classified as a current portion of long-term debt.

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

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

15. LONG-TERM DEBT (continued)

The aggregate maturities for all long-term debt issues for each of the five years following December 31, 2003 and thereafter are:


Year	(In millions of dollars)
2004	$	53	^(a)
2005		25
2006		7
2007		11
2008		9
thereafter		21

^(a)	Includes $42 million of debt in default.

Due to the Filing (see Note 1), pre-petition long-term debt of the Debtors has been reclassified to the caption Subject to Compromise on the Consolidated Balance Sheet. From the Petition Date through December 31, 2003, contractual interest expense not accrued or recorded on pre-petition debt (calculated using ordinary, non-default interest rates and without regard to debt maturity) totaled approximately $516 million, of which $138 million relates to 2003, $148 million relates to 2002, and $178 million relates to 2001. The components of debt Subject to Compromise as of December 31, 2003 and 2002 are as follows:


	2003		2002
	(In millions of dollars)
Debt Subject to Compromise:
U.S. credit facility due in 2002, variable	$	1,451	$	1,451
Debentures due in 2018, 7.5%		400		400
Debentures due in 2005, 7.5%		300		300
Debentures due in 2009, 7.0%		250		250
Debentures due in 2008, 7.7%		250		250
Bonds due in 2000, 7.25%, payable in Deutsche marks		60		60
Debentures due in 2002, 8.875%		40		40
Claim from settlement of Asian credit facility		22		—
Claim from renegotiation of World Headquarters lease		21		—
Debentures due in 2012, 9.375%		7		7
Other long-term debt due through 2012, at rates from 6.25% to 13.80%		95		96

Total long-term debt subject to compromise	$	2,896	$	2,854

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

16. PENSION PLANS

The Company has several defined benefit pension plans covering most employees. Under the plans, pension benefits are based on an employee’s years of service and, for certain categories of employees, qualifying compensation. Company contributions to these pension plans are determined by an independent actuary to meet or exceed minimum funding requirements. The unrecognized cost of retroactive amendments and actuarial gains and losses are amortized over the average future service period of plan participants expected to receive benefits.

In accordance with Statement of Financial Accounting Standards No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits”, the following tables provide a reconciliation of the changes in the projected pension benefits obligation, the changes in the pension plan assets (both measured as of October 31, 2003 and 2002), the net pension liability, and the accrued benefits cost liability as of December 31, 2003 and 2002:


	Measurement date – October 31
Change in Projected Pension Benefits Obligation	2003									2002
	U.S.			Non-U.S.			Total			U.S.			Non-U.S.			Total
	(In millions of dollars)
Benefits obligation at beginning of period	$	922		$	284		$	1,206		$	911		$	246		$	1,157
Service cost		16			2			18			13			1			14
Interest cost		59			17			76			61			14			75
Amendments		2			—			2			—			—			—
Actuarial (gain) loss		103			6			109			54			12			66
Currency (gain) loss		—			35			35			—			21			21
Acquisitions		—			—			—			—			1			1
Benefits paid		(118	)		(13	)		(131	)		(117	)		(11	)		(128	)

Benefits obligation at end of period	$	984		$	331		$	1,315		$	922		$	284		$	1,206

Benefits paid during 2003 and 2002 include payments resulting from the Company’s restructuring program and the sale of certain businesses (see Notes 8 and 12).

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

16. PENSION PLANS (continued)


Change in Pension Plan Assets	2003									2002
	U.S.			Non-U.S.			Total			U.S.			Non-U.S.			Total
	(In millions of dollars)
Fair value of plan assets at beginning of period	$	491		$	220		$	711		$	649		$	209		$	858
Actual return on plan assets		79			19			98			(43	)		(10	)		(53	)
Currency gain		—			30			30			—			15			15
Employer contributions		178			7			185			—			17			17
Acquisitions		—			—			—			—			1			1
Defined contribution adjustment		—			(2	)		(2	)		—			(1	)		(1	)
Benefits paid		(118	)		(13	)		(131	)		(115	)		(11	)		(126	)

Fair value of plan assets at end of period	$	630		$	261		$	891		$	491		$	220		$	711

Funded status	$	(354	)	$	(70	)	$	(424	)	$	(431	)	$	(64	)	$	(495	)
Unrecognized net transition asset		—			(4	)		(4	)		(3	)		(4	)		(7	)
Unrecognized net actuarial loss		547			149			696			498			138			636
Unrecognized prior service cost		30			3			33			28			2			30

Net amount recognized	$	223		$	78		$	301		$	92		$	72		$	164


Amounts Recognized in the Consolidated Balance Sheet

Prepaid benefits cost (see below)	$	—		$	35		$	35		$	—		$	56		$	56
Accrued benefits liability		(354	)		(70	)		(424	)		(429	)		(71	)		(500	)
Intangible asset		30			—			30			28			—			28
Accumulated other comprehensive loss		330			73			403			283			54			337
Deferred tax asset		217			40			257			210			33			243

Net amount recognized (prepaid benefits cost)	$	223		$	78		$	301		$	92		$	72		$	164

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


	2003						2002
	U.S.		Non-U.S.		Total		U.S.		Non-U.S.		Total
	(In millions of dollars)
Projected benefits obligation	$	983	$	278	$	1,261	$	922	$	242	$	1,164
Accumulated benefits obligation		983		267		1,250		920		195		1,115
Fair value of assets		630		197		827		491		133		624

The decrease in the discount rate, offset in part by investment gains, caused a significant other comprehensive loss in 2003. The combination of declining asset values and decrease in discount rate caused a significant other comprehensive loss in 2002.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

16. PENSION PLANS (continued)

Certain of the Company’s pension plans have an accumulated benefit obligation (“ABO”) in excess of the fair value of plan assets. The ABO and fair value of plan assets for such plans are $1.250 billion and $827 million, respectively, at October 31, 2003, and $1.115 billion and $624 million, respectively, at October 31, 2002. The ABO for all of the Company’s pension plans was $1.302 billion and $1.173 billion, respectively, at October 31, 2003 and 2002.

Certain of the Company’s pension plans are not funded. The portion of the total projected benefit obligation attributable to unfunded plans is approximately $8 million and $7 million at October 31, 2003 and 2002, respectively.


Weighted-average assumptions used to determine benefits obligations as of October 31	2003				2002
	U.S.		Non-U.S.		U.S.		Non-U.S.
Discount rate	6.25	%	5.75	%	6.75	%	5.75	%
Rate of compensation increase	6.00	%	4.00	%	6.00	%	4.00	%

The following table presents the components of net periodic pension cost for aggregated U.S. and Non-U.S. Plans during 2003, 2002 and 2001:


Components of Net Periodic Pension Cost	2003			2002			2001
	(In millions of dollars)
Service cost	$	17		$	14		$	15
Interest cost		76			75			70
Expected return on plan assets		(64	)		(80	)		(73	)
Amortization of transition amount		(4	)		(4	)		(5	)
Amortization of loss		33			23			1
Curtailment/settlement loss		1			2			7

Net periodic benefit cost	$	59		$	30		$	15


Weighted-average assumptions used to determine net periodic pension cost for the years ended December 31	2003				2002
	U.S.		Non-U.S.		U.S.		Non-U.S.
Discount rate	6.75	%	5.75	%	7.00	%	6.00	%
Expected return on plan assets	8.00	%	6.50	%	9.00	%	8.50	%
Rate of compensation increase	6.00	%	4.00	%	5.50	%	4.00	%

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

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

16. PENSION PLANS (continued)

Plan Assets

The U.S. asset allocations at October 31, 2003 and 2002 by asset category are as follows:


Asset category	Percentage of Plan Assets October 31, 2003		Percentage of Plan Assets October 31, 2002
Equity	61	%	69	%
Fixed income and cash equivalents	39	%	31	%
Total	100	%	100	%

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

Contributions

Owens Corning expects to contribute $200 to $300 million in cash to the U.S. pension plan during 2004 (subject to possible legislative changes and approval of the Bankruptcy Court).

Defined Contribution Plans

The Company also sponsors defined contribution plans available to substantially all U.S. employees. Company contributions reflect a matching of a percentage of employee savings up to a maximum savings level and certain profit-sharing awards. The Company recognized expense of $20 million in 2003, $34 million in 2002, and $31 million in 2001 for contributions to these plans.

17. POSTEMPLOYMENT AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

The Company and its subsidiaries maintain health care and life insurance benefit plans for certain retired employees and their dependents. The health care plans in the U.S. are nonfunded and pay either (1) stated percentages of covered medically necessary expenses, after subtracting payments by Medicare or other providers and after stated deductibles have been met, or (2) fixed amounts of medical expense reimbursement.

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

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

In accordance with Statement of Financial Accounting Standards No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits”, the following tables provide a reconciliation of the changes in the accumulated postretirement benefits obligation, measured as of October 31, 2003 and 2002, and the accrued benefits cost liability at December 31, 2003 and 2002:


	Measurement date - October 31
Change in Accumulated Postretirement Benefits Obligation	2003									2002
	U.S.			Non-U.S.			Total			U.S.				Non-U.S.			Total
	(In millions of dollars)
Benefits obligation at beginning of period	$	488		$	15		$	503		$	463			$	14		$	477
Service cost		14			—			14			14				—			14
Interest cost		32			1			33			32				1			33
Amendments		(34	)		—			(34	)		—				—			—
Actuarial (gain) loss		(23	)		—			(23	)		5				—			5
Currency (gain) loss		—			3			3			—				1			1
Employee contributions		5			—			5			5				—			5
Benefits paid		(31	)		(1	)		(32	)		(31	)			(1	)		(32	)

Benefits obligation at end of period	$	451		$	18		$	469		$	488			$	15		$	503

Funded status	$	(451	)	$	(18	)	$	(469	)	$	(488	)		$	(15	)	$	(503	)
Unrecognized net actuarial loss		100			3			103			133				2			135
Unrecognized prior service costs		(33	)		—			(33	)		—				—			—
Benefit payments net of additional accruals subsequent to October 31, 2003 and 2002 measurement dates		4			—			4			5				—			5

Accrued benefit cost (includes current liabilities of $26 million in both 2003 and 2002)	$	(380	)	$	(15	)	$	(395	)	$	(350	)		$	(13	)	$	(363	)
													��


	2003				2002
Weighted-average assumptions used to determine benefits obligations as of October 31	U.S.		Non-U.S.		U.S.		Non-U.S.
Discount rate	6.25	%	6.25	%	6.75	%	6.50	%

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

The following table presents the components of net periodic benefits cost for aggregated U.S. and Non-U.S. Plans during 2003, 2002 and 2001:

Components of net periodic benefits cost


	2003			2002		2001
Service cost	$	14		$	14	$	8
Interest cost		33			33		28
Amortization of loss		10			11		—
Amortization of prior service cost		(1	)		—		—

Net periodic benefits cost	$	56		$	58	$	36

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


	2003				2002
	U.S.		Non-U.S.		U.S.		Non-U.S.
Discount rate	6.75	%	6.50	%	7.00	%	7.00	%

Health Care Cost Trend Rates


	2003		2002
	U.S.	Non-U.S.	U.S.	Non-U.S.
Initial rate at end of year	9% - 11%	8.9%	7% -13%	10%
Ultimate rate	5.0%	4.5%	5% - 6%	4.5%
Year in which ultimate rate is reached	2008	2008	2006	2007

The health care cost trend rate assumption has a significant effect on the amounts reported. To illustrate, a one-percentage point change in the assumed health care cost trend rate would have the following effects as of October 31, 2003 and 2002:


	2003					2002
	1-Percentage point					1-Percentage point
	Increase		Decrease			Increase		Decrease
Effect on total service cost and interest cost components	$	6	$	(5	)	$	6	$	(6	)

Effect on accumulated postretirement benefits obligation		46		(38	)		50		(43	)

Contributions

Owens Corning expects to contribute $32 million to fund benefits payments for our U.S. postretirement benefit plan in 2004.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

On December 8, 2003, President Bush signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “MPD Act”). The MPD Act expanded Medicare to include, for the first time, coverage for prescription drugs. Owens Corning sponsors retiree medical programs and the Company expects that this legislation will eventually reduce the Company’s costs for some of these programs. At this point, the Company’s investigation into its response to the legislation is preliminary, as we await guidance from various governmental and regulatory agencies concerning the requirements that must be met to obtain these cost reductions as well as the manner in which such savings should be measured.

Because of various uncertainties related to the Company’s response to this legislation and the appropriate accounting methodology for this event, the Company has elected to defer financial recognition of this legislation until the Financial Accounting Standards Board issues final accounting guidance. As such, measures of the accumulated postretirement benefits obligation and net periodic postretirement benefits cost included in these financial statements do not reflect the effects of the MPD Act. When issued, that final guidance could require the Company to change previously reported information. This deferral election is permitted under FASB Staff Position FAS 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003”.

Postemployment Benefits

The Company may also provide benefits to former or inactive employees after employment but before retirement under certain conditions. These benefits include continuation of benefits such as health care and life insurance coverage. The accrued postemployment benefits liabilities at October 31, 2003 and 2002, as reflected on the balance sheet at December 31, 2003 and 2002, were $35 million in both years, including current liabilities of $4 million in both years. The net postemployment benefits expense was approximately $6 million in 2003, $8 million in 2002, and $4 million in 2001.

18. CONVERTIBLE MONTHLY INCOME PREFERRED SECURITIES

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

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

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

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

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

19. CONTINGENT LIABILITIES AND OTHER MATTERS

Asbestos Liabilities

ITEM A. - OWENS CORNING (EXCLUDING FIBREBOARD)

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

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

As more fully discussed in Note 1 to the Consolidated Financial Statements and under the heading “Reserve” below, the Debtors, together with the Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants, filed on October 24, 2003 a proposed fourth amended joint plan of reorganization for the Debtors. Ultimately, as described more fully under the heading “Reserve” below, it is anticipated that Owens Corning’s total liability for asbestos claims will be determined after a lengthy period of negotiations and, if necessary, by the Bankruptcy Court, taking into account numerous factors not present in the Company’s pre-petition environment. Such factors include the claims of competing creditor groups as to the appropriate treatment of their allowed claims in the plan or plans of reorganization, the size of the total asbestos liability, the total number of present asbestos claims allowed, 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.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

19. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

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

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

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

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

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

Non-NSP Claims

As of the Petition Date, approximately 29,000 asbestos personal injury claims were pending against Owens Corning outside the NSP. This compares to approximately 25,000 such claims pending on December 31, 1999. The information needed for a critical evaluation of pending claims, including the nature and severity of disease and definitive identifying information concerning claimants, typically becomes available only through the discovery process or as a result of settlement negotiations, neither of which have occurred since the Filing. As a result, Owens Corning has limited information about many of such claims.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

19. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

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

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

Asbestos-Related Payments

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


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

	$	860	$	685

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

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

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19. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

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

Reserve

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

As of December 31, 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.

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19. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

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

•

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

•

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

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

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

•

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

•

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

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19. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

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

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

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

None of the creditor constituencies has yet made available to Owens Corning 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

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19. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

values for pre-petition and future asbestos claims of Owens Corning and Fibreboard combined of approximately $5.874 billion, if NSP settlement values are assumed, and $8.547 billion, if 5-year historical settlement values for Owens Corning and Fibreboard, respectively, are used. Based upon these analyses and the information derived from Owens Corning’s discussions and negotiations with the various creditor constituencies concerning their relative positions on the terms of an acceptable plan of reorganization, Owens Corning decided, in connection with its financial statements for the third quarter of 2002, to increase its and Fibreboard’s aggregate asbestos-related reserve to the lower of the two net present value numbers indicated by Owens Corning’s and Fibreboard’s analyses. Consequently, Owens Corning increased its reserves for the period ended September 30, 2002, through charges to income of $1.381 billion for Owens Corning asbestos-related liabilities and $975 million for Fibreboard asbestos-related liabilities, for an aggregate charge of $2.356 billion. In addition, since the reserve for Fibreboard asbestos-related liabilities exceeds the funds held in the Fibreboard Settlement Trust, the residual amount payable to charity under the terms of the Trust (see Note 20 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 October 24, 2003 a proposed fourth amended joint plan of reorganization for the Debtors. The Plan provides that liability for current and future asbestos personal injury claims against Owens Corning and Fibreboard would be determined by the Bankruptcy Court as part of the confirmation hearing on the Plan. The Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants have reserved the right to withdraw support of the Plan if such liability is determined to be less than $16 billion in the aggregate. In this regard, the Company’s bank and bond creditor groups, for example, have continued to assert that such aggregate liability does not exceed 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 December 31, 2003, the approximate balances of the components of Owens Corning’s asbestos-related reserve were:


	Balance
	(In billions of dollars)
Unpaid Final Settlements (NSP and other)	$	0.6
Other Pending and Future Claims		3.0

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19. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

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

•

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

•

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

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

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.

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ITEM B. - FIBREBOARD (EXCLUDING OWENS CORNING)

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

As discussed in Item A above and under the heading “Reserve” below, the Debtors (including Fibreboard), together with the Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants, filed on October 24, 2003 a proposed fourth amended joint plan of reorganization for the Debtors (including Fibreboard). Ultimately, as described more fully under the heading “Reserve” below, it is anticipated that Fibreboard’s (and Owens Corning’s) total liability for asbestos claims will be finally determined after a lengthy period of negotiations and, if necessary, by the Bankruptcy Court, taking into account numerous factors not present in the Company’s pre-petition environment. Such factors include the claims of competing creditor groups as to the appropriate treatment of their allowed claims in the plan or plans of reorganization, the size of the total asbestos liability, the total number of present asbestos claims allowed, the total amount of future asbestos claims allowed, and the impact of the Administrative Consolidation.

National Settlement Program Claims

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

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

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

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19. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

Non-NSP Claims

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

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

Insurance Settlement

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

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

As of December 31, 2003, the remaining Insurance Settlement funds were held in and invested by the Fibreboard Settlement Trust. As of that date, $1.268 billion was held in the Fibreboard Settlement Trust and $127 million was held in Undistributed Administrative Deposits in respect of Fibreboard claims. On an ongoing basis, the funds held in the Fibreboard Settlement Trust will be subject to investment earnings/losses and will be reduced if and as applied to satisfy asbestos-related liabilities. Under the terms of the Fibreboard Settlement Trust, any of such assets that ultimately are not used to fund Fibreboard’s asbestos-related liabilities must be distributed to charity. However, since the reserve for Fibreboard asbestos-related liabilities exceeds the funds held in the Fibreboard Settlement Trust, the residual amount payable to charity under the terms of the Trust (see Note 20 to the Consolidated Financial Statements) was reduced to zero as of September 30, 2002.

Funds held in the Fibreboard Settlement Trust and Fibreboard’s Undistributed Administrative Deposits are reflected on Owens Corning’s consolidated balance sheet as restricted assets. At December 31, 2003, these assets were reflected as non-current assets, under the category “Restricted cash, securities and other - Fibreboard”. See Note 20 to the Consolidated Financial Statements for additional information concerning the Fibreboard Settlement Trust.

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

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19. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

Asbestos-Related Payments

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


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

	$	820

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

Reserve

Owens Corning estimates a reserve for Fibreboard in accordance with generally accepted accounting principles to reflect asbestos-related liabilities. As described in Item A above, this reserve was increased in the third quarter of 2002 through a charge to income of $975 million. As of December 31, 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 (including Fibreboard), together with the Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants, filed on October 24, 2003 a proposed fourth amended joint plan of reorganization for the Debtors (including Fibreboard). The Plan provides that liability for current and future asbestos personal injury claims against Owens Corning and Fibreboard would be determined by the Bankruptcy Court as part of the confirmation hearing on the Plan. The Official Committee of Asbestos Claimants and the Legal Representative for the class of future asbestos claimants have reserved the right to withdraw support of the Plan if such liability is determined to be less than $16 billion in the aggregate. In this regard, the Company’s bank and bond creditor groups, for example, have continued to assert that such aggregate liability does not exceed 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

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19. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

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 December 31, 2003, the approximate balances of the components of the Fibreboard asbestos-related reserve were:


	Balance
	(In billions of dollars)
Unpaid Final Settlements (NSP and other)	$	0.4
Other Pending and Future Claims		1.9

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

•

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

•

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

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

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19. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

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.

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.

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. The Supreme Court heard oral arguments on this matter on October 1, 2003. It is unknown when the court will issue its decision.

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.

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Insurance

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

As of December 31, 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”.

Other Matters

SECURITIES AND CERTAIN OTHER LITIGATION

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

19. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

On or about January 27, 2003, certain of the Company’s current and former directors and officers were named as defendants in a lawsuit captioned Robert Greenburg, et al. v. Glen Hiner, et al. in the United States District Court for the Northern District of Ohio, Western Division. Subsequent to January 27, 2003, three substantially similar actions, with named plaintiffs Nicholas Radosevich, Howard E. Leppla, and William Benanchietti, respectively, were filed against the same defendants in the same court. On July 30, 2003, the court consolidated the four cases under the caption Robert Greenburg, et al. v. Glen Hiner, et al., and appointed lead plaintiffs JKF Investment Co., Icarus Trading, Inc. and HGK Asset Management. An amended complaint was filed by the plaintiffs on or about September 8, 2003. Owens Corning 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 4, 2000. The complaint seeks an unspecified amount of damages and/or, where appropriate, rescission. Owens Corning believes that the claim is without merit.

On or about September 2, 2003, certain of the Company’s current and former directors and officers were named as defendants in a lawsuit captioned Kensington International Limited, et al. v. Glen Hiner, et al. in the Supreme Court of the State of New York, County of New York. Owens Corning is not named in the lawsuit. The suit, which was brought by Kensington International Limited and Springfield Associates, LLC, two assignees of lenders under the Pre-Petition Credit Facility, alleges causes of action (1) against all defendants for breach of fiduciary duty, and (2) against certain defendants for fraud in connection with certain loans made under the Pre-Petition Credit Facility. The complaint seeks an unspecified amount of damages. On October 6, 2003, the Company filed in the USBC a Complaint for Temporary Restraining Order, Preliminary Injunction and Enforcement of the Automatic Stay, requesting a preliminary injunction against further prosecution of the suit until after confirmation of a plan of reorganization for the Company. On January 23, 2004, the USBC issued an order staying the New York action until June 21, 2004. Owens Corning believes that the claim is without merit.

Owens Corning holds an indirect ownership interest in ServiceLane.com, Inc. (“ServiceLane”), which is in Chapter 7 bankruptcy proceedings in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division, Case No. 01-36044-HCA-7 (Abrahamson, B.J.). Two former employees of ServiceLane (the “SL Plaintiffs”) have filed proofs of claim (Claims No. 8651 and 8622) against Owens Corning in the Chapter 11 Cases, alleging fraud and misrepresentation. Additionally, on July 24, 2003, the SL Plaintiffs, along with ServiceLane’s Chapter 7 trustee, brought suit against two Owens Corning officers, who also were directors of ServiceLane, in the United States District Court for the Northern District of Ohio, Western Division, under the caption ServiceLane.com, Inc., et al. v. Stein, et al. In the complaint, ServiceLane alleges a breach of fiduciary duty against both officers and the SL Plaintiffs allege fraud against one officer. Owens Corning is not named in the lawsuit. On September 10, 2003, Owens Corning filed in the USBC an objection to the proofs of claim filed by the SL Plaintiffs as well as a counterclaim seeking declaratory relief in the form of a declaration that neither Owens Corning nor the two officers harmed the SL Plaintiffs. On October 1, 2003, the two officers filed a similar adversary proceeding in the USBC. In October 2003, the SL Plaintiffs filed a motion to dismiss Owens Corning’s counterclaim and, in November 2003, the SL Plaintiffs filed a motion to dismiss the adversary proceeding by the two officers. Hearings on both motions to dismiss were held on January 23, 2003. The USBC denied the motion to dismiss Owens Corning’s counterclaim and deferred action on the other motion to dismiss. Subsequently, the SL Plaintiffs and the two officers agreed to a dismissal of the Ohio action and a refiling in the USBC. Owens Corning believes that the claims of the SL Plaintiffs and the claims of ServiceLane’s Chapter 7 trustee are without merit.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

19. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

The named officer and director defendants in each of the above proceedings have each filed contingent indemnification claims with respect to such litigation against Owens Corning pursuant to the General Bar Date process described below.

GENERAL BAR DATE CLAIMS

In connection with the Chapter 11 Cases, the Bankruptcy Court set April 15, 2002 as the last date by which holders of certain pre-petition claims against the Debtors must file their claims (the “General Bar Date”). The General Bar Date does not apply to asbestos-related personal injury claims and asbestos-related wrongful death claims (other than claims for contribution, indemnity, reimbursement, or subrogation). Approximately 25,000 proofs of claim (including the claims described below under the headings “PBGC Claim” and “Tax Claim”), totaling approximately $16.3 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”.

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

19. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

AVOIDANCE ACTIONS

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

19. CONTINGENT LIABILITIES AND OTHER MATTERS (continued)

conveyance law. On or before September 29, 2003, similar lawsuits were brought against 5 additional law firms whose tolling agreements were about to expire. The Official Creditors’ Committee was named as a defendant in such lawsuits, solely with respect to the declaratory relief sought.

L’ARDOISE, FRANCE MANUFACTURING FACILITY

In the fourth quarter of 2003, the Company experienced a flood at its L’Ardoise, France manufacturing facility. This facility is insured for property damage and business interruption losses relating to such events, subject to a $5 million deductible, which was paid and expensed in 2003. The Company estimates it will incur $70 to $90 million in 2004 related to property damage and business interruption losses associated with the L’Ardoise flood, which the Company believes will be substantially covered by insurance. However, should the expected recoveries not be received they could have a material adverse impact on the Composite Solutions business. Also, the timing of any recoveries may result in expenses being taken in periods before the insurance receipts are recorded or received.

20. FIBREBOARD SETTLEMENT TRUST

Under the Insurance Settlement described in Note 19 to the Consolidated Financial Statements, two of Fibreboard’s insurers provided $1.873 billion during the fourth quarter of 1999 to fund the costs of resolving pending and future Fibreboard asbestos-related liabilities. As of December 31, 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 December 31, 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

20. FIBREBOARD SETTLEMENT TRUST (continued)

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

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 asbestos-related liabilities exceeded the Trust Assets. Consequently, for periods subsequent to the third quarter of 2002, no amounts have been recorded to the residual obligation to charity, and earnings/losses on Trust Assets have been recorded as Chapter 11 related reorganization items.

Results for the Years Ended December 31, 2003 and 2002

During 2003 and 2002, Trust Assets generated interest/dividend earnings of approximately $58 million and $54 million, respectively. The $58 million generated in 2003 was recorded in Chapter 11 related reorganization items in the Consolidated Statement of Income (Loss). Of the $54 million generated in 2002, $40 million was generated in the nine months ended September 30, 2002 and was recorded as an increase in the carrying amount of the assets on Owens Corning’s Consolidated Balance Sheet and in other income on the Consolidated Statement of Income (Loss), and the remaining $14 million was generated in the fourth quarter of 2002 and was recorded in Chapter 11 related reorganization items in the Consolidated Statement of Income (Loss). The income generated in the nine months ended September 30, 2002 was offset by equal charges to other expense in the relevant period, which represented an increase in the residual liability to charity.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

20. FIBREBOARD SETTLEMENT TRUST (continued)

During 2003 and 2002, the fair market value adjustment for those securities designated as trading securities resulted in an unrealized loss of approximately $19 million and an unrealized gain of $20 million, respectively, recorded as a change in the carrying amount of the assets on the Consolidated Balance Sheet. The $19 million loss generated during 2003 was recorded as Chapter 11 related reorganization items on the Consolidated Statement of Income (Loss). Of the $20 million generated during 2002, a gain of $21 million was generated during the nine months ended September 30, 2002 and was reflected in the Consolidated Balance Sheet as a change to the carrying amount of the asset and to other comprehensive income, and a loss of $1 million was generated during the fourth quarter of 2002 and was recorded as Chapter 11 related reorganization items on the Consolidated Statement of Income (Loss). The gain generated in the nine months ended September 30, 2002 was also reflected as a change to the liability to charity, with a corresponding effect to other comprehensive income.

As a result of the Filing, there were no payments for asbestos litigation claims from the Trust during 2003 or 2002. However, approximately $0.2 million and $2 million, respectively, was paid during 2003 and 2002 for taxes related to earnings of the Trust. These payments were funded by existing cash in the Trust or proceeds from the sale of securities. The sale of securities in 2003 and 2002 resulted in realized losses of approximately $7 million and $4 million, respectively. Realized gains or losses from the sale of securities are reflected on the Company’s financial statements in the same manner as actual returns on Trust Assets, described above.

At December 31, 2003, the fair value of Trust Assets and Administrative Deposits was $1.395 billion, which was comprised of Trust Assets of $1.268 billion of marketable securities and Administrative Deposits of $127 million.

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


	Balance 12/31/02			Interest and Dividends		Unrealized Loss			Realized Loss			Other			Balance 12/31/03
	(In millions of dollars)
Assets
Trust Assets:
Marketable securities – trading	$	1,238		$	58	$	(19	)	$	(7	)	$	(2	)	$	1,268
Administrative Deposits		127			—		—			—			—			127

Total assets	$	1,365		$	58	$	(19	)	$	(7	)	$	(2	)	$	1,395

Liabilities
Accounts payable	$	18		$	—	$	—		$	—		$	1		$	19
Asbestos litigation claims		2,310			—		—			—			(1	)		2,309

Total Trust liabilities		2,328			—		—			—			—			2,328
Liabilities in excess of assets		(963	)		58		(19	)		(7	)		(2	)		(933	)

Total Trust liabilities net of liabilities in excess of assets	$	1,365		$	58	$	(19	)	$	(7	)	$	(2	)	$	1,395

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

20. FIBREBOARD SETTLEMENT TRUST (continued)

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


	Balance 12/31/01			Interest and Dividends		Unrealized Gain/(Loss)			Realized Loss			Provision			Other			Payments			Balance 12/31/02
	(In millions of dollars)
Assets
Trust Assets:
Cash	$	(18	)	$	—	$	—		$	—		$	—		$	18		$	—		$	—
Marketable securities - trading		1,169			54		20			(4	)		—			1			(2	)		1,238

Total Trust assets		1,151			54		20			(4	)		—			19			(2	)		1,238

Administrative Deposits		133			—		—			—			—			(6	)		—			127

Total assets	$	1,284		$	54	$	20		$	(4	)	$	—		$	13		$	(2	)	$	1,365

Liabilities
Accounts payable	$	—		$	—	$	—		$	—		$	—		$	18		$	—		$	18
Asbestos litigation claims		1,213			—		—			—			1,103			(6	)		—			2,310
Residual Obligation to charity		71			40		21			(2	)		(128	)		—			(2	)		—

Total Trust liabilities		1,284			40		21			(2	)		975			12			(2	)		2,328
Liabilities in excess of assets		—			14		(1	)		(2	)		(975	)		1			—			(963	)

Total Trust liabilities net of liabilities in excess of assets	$	1,284		$	54	$	20		$	(4	)	$	—		$	13		$	(2	)	$	1,365

21. STOCK COMPENSATION PLANS

During 2003, the Company had two stock-based compensation plans applicable to employees. The Company’s stockholder approved Stock Performance Incentive Plan (“SPIP”) authorized grants of stock options, restricted stock, performance restricted stock and phantom performance units. Effective May 2002, the SPIP expired as to new grants, but outstanding awards continue according to their terms. The Owens Corning 1995 Stock Plan (“95 Stock Plan”) authorizes grants of options, restricted stock and performance stock awards (collectively, the 95 Stock Plan and the SPIP are referred to as the “Employee Plans”). The 95 Stock Plan permits up to 1% of common shares outstanding at the beginning of each calendar year to be awarded as stock options and restricted stock (with 25% of this amount as the maximum permitted number of restricted stock awards). The Company may carry forward, for the 95 Stock Plan, unused shares from prior years and may increase the shares available for awards in any calendar year through an advance of up to 25% of the subsequent year’s allocation (determined by using 25% of the current year’s allocation). These shares are also subject to the 25% limit for restricted stock awards. At December 31, 2003, the maximum number of shares available under the 95 Stock Plan for stock awards was 1,086,084 shares. The following are descriptions of the awards granted under the Employee Plans:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

21. STOCK COMPENSATION PLANS (continued)

Stock Options

The exercise price of each option awarded under the Employee Plans equals the market price of the Company’s common stock on the date of grant and an option’s maximum term is 10 years. Shares issued from the exercise of options are recorded in the common stock accounts at the option price. The awards and vesting periods of such awards are determined at the discretion of the Compensation Committee of the Board of Directors. No stock options were awarded in 2003, 2002 or 2001.

Restricted Stock Awards

Compensation expense for restricted stock awards is measured based on the market price of the stock at date of grant and is recognized on a straight-line basis over the vesting period. Stock restrictions lapse, subject to alternate vesting plans for death, disability, approved early retirement and involuntary termination, over various periods ending in 2006. At December 31, 2003, the Company had 51,970 shares of restricted stock outstanding. There were no restricted stock grants in 2003, 2002 or 2001.

Performance Restricted Stock Awards

Performance restricted stock awards represent the opportunity to earn up to a specified number of shares of the Company’s common stock, if the Company achieves specified performance goals during the designated performance period. Any portion of the award not earned during the performance period is forfeited by the holder at the end of such period. Compensation expense is measured based on market price of the Company’s common stock and is recognized over the performance period, which is generally three years. At December 31, 2003, the Company had no performance restricted stock awards outstanding and none were granted during 2003, 2002 or 2001.

Phantom Performance Units

Phantom performance units provide the holder the opportunity to earn a cash award equal to the fair market value of the Company’s common stock upon the attainment of certain performance goals. Any portion of the award not earned during the performance period is forfeited by the holder at the end of such period. Compensation expense is measured based on the market price of the Company’s common stock and is recognized over the performance period, which is generally three years. At December 31, 2003, the Company had no performance units outstanding and none were granted during 2003, 2002 or 2001.

Performance Stock Awards

Performance stock awards provide the holder the opportunity to earn unrestricted stock based upon achievement of specified goals within a designated performance period. Compensation cost for these awards is accrued over the performance period based upon a base compensation level and the performance level achieved. Stock awards are issued in the year subsequent to the performance period. No performance stock awards were issued in 2003, 2002 or 2001.

The Company also has a plan to award stock and stock options to non-employee directors. The receipt of the stock awards may be deferred at the discretion of the directors. Approximately 390,157 shares were available under this plan at December 31, 2003. As of December 31, 2003, 24,260 deferred awards were outstanding. No options were issued in 2003, 2002 or 2001. In 2003 and 2002, no stock awards were granted, in 2001, 4,500 stock awards were granted and issued. The weighted-average grant-date fair value for shares granted in 2001 was $2.24. By action of the Board of Directors, additional option grants and annual stock grants were suspended effective April 1, 2002, pending further action by the Board.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

21. STOCK COMPENSATION PLANS (continued)

The Company applies Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), and Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure, An Amendment of FAS No. 123” (“SFAS 148”), for disclosures of its stock based compensation plans. The Company applies Accounting Principles Board Opinion No. 25 and related Interpretations for expense recognition as permitted by SFAS 123 and SFAS 148. All stock options issued by the Company are exercisable at a price equal to the market price at the date of grant. Accordingly, no compensation cost has been recognized for any of the options granted under the Employee Plans or the plan for non-employee directors. The compensation cost that has been recorded for awards other than options was less than $1 million in 2003, $2 million in 2002, and $1 million in 2001.

A summary of the status of the Company’s plans that issue options as of December 31, 2003, 2002, and 2001 and changes during the years ended on those dates is presented below:


	2003				2002				2001
	Number of Shares		Weighted- Average Exercise Price		Number of Shares		Weighted- Average Exercise Price		Number of Shares		Weighted- Average Exercise Price
Beginning of year	6,489,874		$	33.39	7,206,400		$	33.27	8,130,529		$	32.98
Options granted	—		$	—	—		$	—	—		$	—
Options exercised	—		$	—	—		$	—	—		$	—
Options canceled	(1,591,922	)	$	36.31	(716,526	)	$	32.20	(924,129	)	$	30.92

End of year	4,897,952		$	32.44	6,489,874		$	33.39	7,206,400		$	33.27

Exercisable	4,710,655		$	32.35	5,419,864		$	35.79	5,145,431		$	36.46
Weighted-average fair-value of options granted during the year			$	—			$	—			$	—

The following table summarizes information about options outstanding at December 31, 2003:


	Options Outstanding				Options Exercisable
	Number Outstanding at 12/31/03	Weighted-Average			Number Exercisable at 12/31/03	Weighted- Average Exercise Price
Range of Exercise Prices	Number Outstanding at 12/31/03	Remaining Contractual Life	Exercise Price		Number Exercisable at 12/31/03	Weighted- Average Exercise Price
$ 14.188 - $ 14.750	2,700	6.18	$	14.333	2,700	$	14.333
$ 15.375 - $ 15.375	1,046,457	5.74	$	15.375	1,045,991	$	15.375
$ 28.438 - $ 32.125	803,395	2.26	$	29.876	803,395	$	29.876
$ 34.813 - $ 34.813	1,057,522	4.46	$	34.813	870,691	$	34.813
$ 34.875 - $ 45.500	1,987,878	2.68	$	41.225	1,987,878	$	41.225

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

21. STOCK COMPENSATION PLANS (continued)

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


	2003			2002			2001
	(In millions of dollars, except share data)
Net income (loss), as reported	$	115		$	(2,809	)	$	39
Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(2	)		(4	)		(6	)

Pro forma net income	$	113		$	(2,813	)	$	33

Basic net income (loss) per share
As reported	$	2.08		$	(51.02	)	$	0.72
Pro forma		2.05			(51.09	)		0.60
Diluted net income (loss) per share
As reported	$	1.92		$	(51.02	)	$	0.66
Pro forma		1.89			(51.09	)		0.55

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


	2003		2002			2001
	(In millions of dollars, except share data in thousands)
Net income (loss) before cumulative effect of change in accounting principle used for basic and diluted earnings per share	$	115	$	(2,368	)	$	39

Net income (loss) used for basic and diluted earnings per share	$	115	$	(2,809	)	$	39

Weighted-average number of shares outstanding used for basic earnings per share		55,196		55,054			55,056
Non-vested restricted shares		88		—			299
Deferred awards		24		—			24
Shares from assumed conversion of preferred securities (see Note 18)		4,566		—			4,566

Weighted-average number of shares outstanding and common equivalent shares used for diluted earnings per share		59,874		55,054			59,945

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

21. STOCK COMPENSATION PLANS (continued)

The Company’s net income (loss) before and after cumulative effect of change in accounting principle per common share for the years ended December 31, 2003, 2002, and 2001 were as follows:


	2003		2002			2001
NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE PER COMMON SHARE
Basic net income (loss) per share	$	2.08	$	(43.01	)	$	0.72

Diluted net income (loss) per share	$	1.92	$	(43.01	)	$	0.66

NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per share	$	2.08	$	(51.02	)	$	0.72

Diluted net income (loss) per share	$	1.92	$	(51.02	)	$	0.66

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

22. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

The Company typically enters into financial instruments with terms of less than one year. As of December 31, 2003, $2 million of losses on financial instruments included in accumulated other comprehensive loss in the Consolidated Balance Sheet will be recognized as charges against earnings during the next twelve months. Transactions and events that are expected to occur over the next twelve months and will necessitate recognizing the derivative losses as charges against earnings include actual foreign currency denominated sales or purchases and actual purchases of natural gas.

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


	Notional Amount December 31, 2003	Notional Amount December 31, 2002
	(In millions of dollars)
Forward currency exchange contracts	$58	$59
Interest rate swaps	6	41
Commodity future contracts	800,000 MMBTU per month for ten months	350,000 MMBTU per month for two months, 250,000 MMBTU for one month

Foreign Currency Exchange Risk and Interest Rate Risk Management

The Company enters into forward currency exchange contracts to manage its exposure against foreign currency fluctuations on certain assets and liabilities denominated in foreign currencies. At December 31, 2003, the Company had entered into 4 contracts that exchanged approximately 24 million U.S. dollars to euros, approximately 7 million U.S. dollars to Norwegian krone, and approximately 1 million British pounds sterling to euros. As of December 31, 2002, the Company had 5 contracts outstanding that exchanged approximately 8 million British pounds sterling to euros, approximately 50 million Norwegian krone to U.S. dollars and approximately 1 million U.S. dollars to euros. These contracts are considered highly effective hedges, as the gains or losses on the contracts substantially offset the gains or losses from currency value fluctuations. The Company accounts for the contracts as fair value hedges and changes in the fair value are recorded as other income (loss) in the Consolidated Statement of Income (Loss), the effect of which was not material during any period. The fair value of these derivatives, which is recorded as an other current asset in the Consolidated Balance Sheet was not material in any period presented.

The Company also enters into forward currency exchange contracts to manage its exposure against foreign currency fluctuations on certain future sales and purchases. As of December 31, 2003, the Company had entered into a series of monthly contracts, for the period of January through October, that exchange approximately 15 million U.S. dollars into Indian rupees. As of December 31, 2002, the Company had outstanding a series of 12 monthly contracts that exchanged approximately 12 million U.S. dollars to Canadian dollars, an additional 12 monthly contracts that exchanged approximately 12 million euros into U.S. dollars, and a contract that exchanged approximately 4 million U.S. dollars to British pounds sterling. These contracts are considered highly effective hedges, as the gains or losses on the contracts substantially offset the gains or losses from currency value fluctuations. The Company accounts for the contracts as cash flow hedges and changes in the fair market value are recorded in other comprehensive income (loss), except to the extent of ineffectiveness, which is recorded as other income (loss) in the Consolidated Statement of Income (Loss). As of December 31, 2003 and 2002, accumulated

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

other comprehensive income (loss) related to these contracts was a gain of less than $1 million and a loss of less than $1 million, respectively, and the ineffectiveness recorded as other income (loss) was not material. The fair value of these derivatives, which is recorded in other current asset in the Consolidated Balance Sheet, was not material in any period presented.

Beginning in 2001, the Company entered into a series of contracts exchanging approximately 83 million Chinese renminbi against approximately 10 million U.S. dollars, to reduce its exposure to certain U.S. dollar denominated debt instruments in China. Such contracts remained in effect at December 31, 2003. These contracts effectively extended the hedge of U.S. dollar denominated debt entered into in 2001. These contracts are considered highly effective hedges, as the gains or losses on the contracts substantially offset the gains or losses from currency value fluctuations. The Company accounts for the contracts as fair value hedges and changes in the fair value are recorded as other income in the Consolidated Statement of Income (Loss), the effect of which was not material during any period. The fair value of these derivatives, which is recorded as an other current asset in the Consolidated Balance Sheet, was not material in any period.

During 2003, 2002 and 2001, the Company invested excess cash in South America in Brazilian certificates of deposit, treasury bonds and debentures. At the same time these investments were made, an equivalent amount of Brazilian real was swapped into U.S. dollars at a U.S. dollar interest rate with matching investment amounts and maturity dates. The purpose of these swap contracts is to reduce the impact of changes in the Brazilian real and U.S. dollar exchange rates. As of December 31, 2003, the Company had 6 cross-currency interest rate swap contracts outstanding with a notional amount of approximately 6 million U.S. dollars. At December 31, 2002, there were 49 such cross-currency interest rate swap contracts outstanding at a notional amount of approximately 41 million U.S. dollars. These contracts are considered highly effective hedges, as the gains or losses on the contracts substantially offset the gain or loss from currency value fluctuations. The Company accounts for the contracts and the underlying investments as held to maturity marketable securities. Changes in the fair market value that might occur during the term of the investment are not recognized because neither the contract nor the underlying investment are traded by the Company.

Commodity Risk Management

During 2003 and 2002, the Company entered into monthly swap agreements for natural gas to hedge its exposure to fluctuating natural gas prices. As of December 31, 2003, the Company had 10 monthly swap contracts outstanding, each for 800,000 MMBTU’s of natural gas, the last of which matures in October 2004. These contracts are accounted for as cash flow hedges and changes in the fair market value are recorded in other comprehensive income (loss), except to the extent of ineffectiveness, which is recorded as other income (loss) in the Consolidated Statement of Income (Loss). At December 31, 2003, the accumulated other comprehensive income (loss) related to the contracts was a loss of approximately $2 million. The ineffectiveness recorded as other income (loss) in the Consolidated Statement of Income (Loss) was not material. The fair value of these derivatives, which is recorded as an other current liability in the Consolidated Balance Sheet, was a liability of approximately $2 million.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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

Other Financial Instruments with Off-Balance-Sheet Risk

As of December 31, 2003 and 2002, the Company was contingently liable for guarantees of indebtedness owed by certain unconsolidated affiliates of approximately $6 million. As of December 31, 2003 and 2002, approximately $4 million of such indebtedness was alleged to be in default as a result of the Filing. Subject to the foregoing, the Company is of the opinion that its unconsolidated affiliates will be able to perform under their respective payment obligations in connection with such guaranteed indebtedness and that no payments will be required and no losses will be incurred by the Company under such guarantees.

Concentrations of Credit Risk

As of December 31, 2003 and 2002, the Company has no significant group concentrations of credit risk.

Fair Value of Financial Instruments

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

Cash and short-term financial instruments

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

Restricted cash - asbestos and insurance related

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

Restricted cash, securities and other - Fibreboard

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

Long-term notes receivable

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

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Long-term debt

The fair value of the Company’s long-term debt, which is not subject to compromise, has been estimated based on quoted market prices for the same or similar issues, or on the current rates offered to the Company for debt of the same remaining maturities. The Company is unable to estimate the fair value of long-term debt of the Debtors which is subject to compromise at December 31, 2003, due to the uncertainties associated with the Filing.

Foreign currency swaps and interest rate swaps

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

Forward currency exchange contracts, option contracts, and financial guarantees

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

The Company believes that the fair values of financial instruments that have different carrying amounts, reasonably approximate the carrying amounts. These financial instruments include long-term notes receivable of $9 million and $7 million as of December 31, 2003 and 2002, respectively, and long-term debt of $73 million and $71 million as of December 31, 2003 and 2002, respectively.

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

As of December 31, 2003 and 2002, the Company is contingently liable for guarantees of indebtedness owed by certain unconsolidated affiliates. There is no market for these guarantees and they were issued without explicit cost. Therefore, it is not practicable to establish their fair value.

23. CONSOLIDATED STATEMENT OF CASH FLOWS

Cash payments (refunds) for income taxes and interest expense are summarized as follows:


	2003		2002		2001
	(In millions of dollars)
Income taxes	$	27	$	27	$	(22	)
Interest expense		5		7		8

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

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

24. QUARTERLY FINANCIAL INFORMATION (unaudited)


	Quarter
	First			Second			Third			Fourth
	(In millions of dollars, except share data)
2003
Net sales	$	1,133		$	1,239		$	1,349		$	1,275
Cost of sales		974			1,024			1,127			1,045

Gross margin	$	159		$	215		$	222		$	230

Income from operations	$	8		$	43		$	104		$	112

Income tax expense	$	2		$	24		$	47		$	72

Net income (loss)	$	(1	)	$	18		$	55		$	43

Net income (loss) per share:
Basic net income (loss) per share	$	(0.02	)	$	0.33		$	0.99		$	0.78

Diluted net income (loss) per share	$	(0.02	)	$	0.30		$	0.92		$	0.72


	Quarter
	First			Second			Third			Fourth
	(In millions of dollars, except share data)
2002
Net sales	$	1,107		$	1,285		$	1,306		$	1,174
Cost of sales		935			1,043			1,097			1,055

Gross margin	$	172		$	242		$	209		$	119

Provision for asbestos litigation claims (Note 19)	$	—		$	(5	)	$	2,356		$	—

Income (loss) from operations	$	3		$	70		$	(2,342	)	$	(44	)

Income tax expense (benefit)	$	—		$	30		$	10		$	(9	)

Net income (loss) before cumulative effect of change in accounting principle	$	(6	)	$	36		$	(2,359	)	$	(39	)
Cumulative effect of change in accounting principle, net of tax (Note 22)		(441	)		—			—			—

Net income (loss)	$	(447	)^(a)	$	36		$	(2,359	)	$	(39	)

Net income (loss) before cumulative effect of change in accounting principle per share:
Basic net income (loss) per share	$	(0.10	)	$	65		$	(42.84	)	$	(.72	)

Diluted net income (loss) per share	$	(0.10	)	$	60		$	(42.84	)	$	(.72	)

Net income (loss) per share:
Basic net income (loss) per share	$	(8.11	)	$	.65		$	(42.84	)	$	(.72	)

Diluted net income (loss) per share	$	(8.11	)	$	.60		$	(42.84	)	$	(.72	)

^(a)

The Company’s Form 10-Q for the first quarter of 2002 reported results without the cumulative effect of change in accounting principle. This charge was determined in the second quarter of 2002 and recorded in the first quarter as required by Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (see Note 7).

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

25. ACCOUNTING PRONOUNCEMENTS

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.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

25. ACCOUNTING PRONOUNCEMENTS (continued)

In December 2003, the Financial Accounting Standards Board issued a revised Interpretation No. 46, “Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51”, (“FIN 46R”). FIN 46R requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Currently entities are generally consolidated by an enterprise when it has a controlling financial interest through ownership of a majority voting interest in the entity. The provisions of FIN 46R are generally effective for existing (prior to February 1, 2003) variable interest relationships of a public entity no later than the end of the first reporting period that ends after March 15, 2004. However, prior to the required application of this interpretation a public entity that is not a small business issuer shall apply FIN 46R to those entities that are considered to be special-purpose entities no later than the end of the first reporting period that ends after December 15, 2003. The Company applied the portion of FIN 46R that is applicable to special purpose entities effective December 31, 2003, with no material effects, and will apply the remainder of FIN 46R to its first quarter 2004 financial statements.

- 147 -

INDEX TO FINANCIAL STATEMENT SCHEDULE


Number	Description	Page

	Report of Independent Auditors on Financial Statement Schedule	148

II	Valuation and Qualifying Accounts and Reserves - for the years ended December 31, 2003, 2002, and 2001	149

- 148 -

Report of Independent Auditors on Financial Statement Schedule

To the Board of Directors of Owens Corning:

Our audits of the consolidated financial statements referred to in our report dated February 4, 2004 appearing in this Annual Report on Form 10-K of Owens Corning also included an audit of the December 31, 2003 and 2002 financial statement schedule information listed in Item 15(a)(2) of this Form 10-K. In our opinion, this 2003 and 2002 financial statement schedule information presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. The 2001 financial statement schedule information of Owens Corning was audited by other independent accountants who have ceased operations. Those independent accountants expressed an unqualified opinion on that financial statement schedule information in their report dated January 23, 2002.

/s/ PricewaterhouseCoopers LLP

Toledo, Ohio

February 4, 2004

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OWENS CORNING AND SUBSIDIARIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001


			Additions
Classification	Balance at Beginning of Period		Charged to Costs and Expenses			Charged to Other Accounts			Deductions			Balance at End of Period
	(In millions of dollars)
FOR THE YEAR ENDED DECEMBER 31, 2003:
Allowance deducted from asset to which it applies -
Doubtful accounts	$	29	$	(4	)	$	(2	)	$	4	^(A)	$	19
Tax valuation allowance		998		2			—			—			1,000
FOR THE YEAR ENDED DECEMBER 31, 2002:
Allowance deducted from asset to which it applies -
Doubtful accounts	$	29	$	3		$	—		$	3	^(A)	$	29
Tax valuation allowance		81		917			—			—			998
FOR THE YEAR ENDED DECEMBER 31, 2001:
Allowance deducted from asset to which it applies -
Doubtful accounts	$	29	$	11		$	—		$	11	^(A)	$	29

Notes:

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

- 150 -

EXHIBIT INDEX


Exhibit Number		Document Description

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

		Fourth Amended Joint Plan of Reorganization of Owens Corning and Its Affiliated Debtors and Debtors-In-Possession, filed in the United States Bankruptcy Court for the District of Delaware on October 24, 2003 (incorporated herein by reference to Exhibit (2) to Owens Corning’s current report on Form 8-K (File No. 1-3660), filed October 27, 2003).

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

		Second Amended Joint Plan of Reorganization of Owens Corning and Its Affiliated Debtors and Debtors-In-Possession, filed in the United States Bankruptcy Court for the District of Delaware on May 23, 2003 (incorporated herein by reference to Exhibit (2) to Owens Corning’s current report on Form 8-K (File No. 1-3660), filed May 27, 2003).

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

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

(3)		Articles of Incorporation and By-Laws.

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

		(ii) By-Laws of Owens Corning, as amended (incorporated herein by reference to Exhibit (3) to Owens Corning’s annual report on Form 10-K (File No. 1-3660) for the year ended December 31,1999).

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

		Fourth Amended Joint Plan of Reorganization of Owens Corning and Its Affiliated Debtors and Debtors-In-Possession, filed in the United States Bankruptcy Court for the District of Delaware on October 24, 2003 (incorporated herein by reference to Exhibit (2) to Owens Corning’s current report on Form 8-K (File No. 1-3660), filed October 27, 2003).

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

- 151 -

EXHIBIT INDEX


Exhibit Number		Document Description

		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).

		Post-Petition Credit Agreement, dated as of December 8, 2000, among Owens Corning and the subsidiaries of Owens Corning named therein, the financial institutions named therein, and Bank of America, N.A., as Agent (incorporated herein by reference to Exhibit (4) to Owens Corning’s annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 2000), as amended by First Amendment to Post-Petition Credit Agreement, dated as of October 31, 2002 (incorporated herein by reference to Exhibit (4) to Owens Corning’s annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 2002).

		Standstill and Waiver Agreement among Owens Corning, certain affiliates of Owens Corning, Credit Suisse First Boston, and certain bank lenders (incorporated herein by reference to Exhibit (99) to Owens Corning’s quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 2001), as amended by Amendment No. 1 thereto, dated as of November 25, 2002 (incorporated herein by reference to Exhibit (4) to Owens Corning’s annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 2002).

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

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

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

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

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

- 152-

EXHIBIT INDEX


Exhibit Number		Document Description

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

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

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

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

(10)		Material Contracts.

		Post-Petition Credit Agreement, dated as of December 8, 2000, among Owens Corning and the subsidiaries of Owens Corning named therein, the financial institutions named therein, and Bank of America, N.A., as Agent (incorporated herein by reference to Exhibit (4) to Owens Corning’s annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 2000), as amended by First Amendment to Post-Petition Credit Agreement, dated as of October 31, 2002 (incorporated herein by reference to Exhibit (4) to Owens Corning’s annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 2002).

		Standstill and Waiver Agreement among Owens Corning, certain affiliates of Owens Corning, Credit Suisse First Boston, and certain bank lenders (incorporated herein by reference to Exhibit (99) to Owens Corning’s quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 2001), as amended by Amendment No. 1 thereto, dated as of November 25, 2002 (incorporated herein by reference to Exhibit (4) to Owens Corning’s annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 2002).

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

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

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

- 153 -

EXHIBIT INDEX


Exhibit Number		Document Description

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

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

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

		* Key Management Severance Agreement with Charles E. Dana (filed herewith).

		* Agreement with Charles E. Dana (filed herewith).

		* Owens Corning Long Term Incentive Plan (incorporated herein by reference to Exhibit (10) to Owens Corning’s quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 2003).

		* Executive Supplemental Benefit Plan, as amended (incorporated herein by reference to Exhibit (10) to Owens Corning’s quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended March 31, 2003).

		The following documents are incorporated herein by reference to Exhibit (10) to Owens Corning’s annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 2002:

		* - Key Management Severance Agreement with George E. Kiemle.

		* - Key Employee Emergence Incentive Plan.

		* - Owens Corning 1995 Stock Plan.

		The following documents are incorporated herein by reference to Exhibit (10) to Owens Corning’s annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 2001:

		* - Director’s Charitable Award Program, as amended.

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

		* Owens Corning Senior Leader Emergence Incentive Plan (incorporated herein by reference to Exhibit (10) to Owens Corning’s quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended March 31, 2001).

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EXHIBIT INDEX


Exhibit Number		Document Description

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

		* Key Management Severance Agreement with David T. Brown (incorporated herein by reference to Exhibit (10) to Owens Corning’s annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1999).

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

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

		* - Owens Corning Deferred Compensation Plan.

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

		* Stock Performance Incentive Plan, as amended (incorporated herein by reference to Exhibit (10) to Owens Corning’s annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1998).

		* Owens Corning Supplemental Executive Retirement Plan, effective as of January 1, 1998, (incorporated herein by reference to Exhibit (10) to Owens Corning’s quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 1998).

		* 1987 Stock Plan for Directors, as amended (incorporated herein by reference to Exhibit (10) to Owens Corning’s quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 1997), as amended per Description of Amendment of 1987 Stock Plan For Directors (incorporated herein by reference to Exhibit (10) to Owens Corning’s quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 2002).

		* Form of Directors’ Indemnification Agreement (incorporated herein by reference to Exhibit (10) to Owens Corning’s annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1989).

		* Deferred Compensation Plan for Directors, as amended (incorporated herein by reference to Exhibit (10) to Owens Corning’s annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1987).

(14)		Code of Ethics.

		Ethics Policy for Chief Executive and Senior Financial Officers (filed herewith).

(21)		Subsidiaries of Owens Corning (filed herewith).

(23)		Consent of PricewaterhouseCoopers LLP (filed herewith).

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EXHIBIT INDEX


Exhibit Number		Document Description

(31)		Rule 13a-14(a)/15d-14(a) Certifications.

		Certification of Chief Executive Officer (principal executive officer) (filed herewith).

		Certification of Chief Financial Officer (principal financial officer) (filed herewith).

(32)		Section 1350 Certifications.

		Certification of Chief Executive Officer (principal executive officer) (filed herewith).

		Certification of Chief Financial Officer (principal financial officer) (filed herewith).

		* Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Form 10-K.

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Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. freshman Avg

Owens Corning Sales (OWENQ) Inactive 10-K2003 FY Annual report

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