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                      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, 1999


                         Commission File No. 333-72305



                         ADVANCED GLASSFIBER YARNS LLC
            (Exact name of registrant as specified in its charter)

<TABLE>
<S>                        <C>                              <C>
        DELAWARE                       3229                      58-2407014
  (State of formation)     (Primary Standard Industrial       (I.R.S. Employer
                            Classification Code Number)     Identification No.)
</TABLE>

                       Commission File No. 333-72305-01



                               AGY CAPITAL CORP.
            (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                  <C>                              <C>
             DELAWARE                            3229                      57-1072917
  (State of incorporation)           (Primary Standard Industrial       (I.R.S. Employer
                                      Classification Code Number)     Identification No.)
</TABLE>


<TABLE>
<S>                                                        <C>
        2558 WAGENER ROAD, AIKEN, SOUTH CAROLINA              29801
  (Address of registrants' principal executive office)     (Zip Code)
</TABLE>

                                (803) 643-1501
             (Registrants' telephone number, including area code)


                               ----------------
  Securities registered pursuant to Sections 12(b) or 12(g) of the Act: NONE

     Indicate by check mark whether the registrants (1) have 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
registrants were required to file such reports) and (2) have 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 the registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K. Yes [X] No
[ ]

     There is no established trading market for the membership interests of
Advanced Glassfiber Yarns LLC. As of March 30, 2000, Porcher Industries, S.A.
owned a 51% membership interest and Owens Corning owned a 49% membership
interest. As of March 30, 2000, all 1,000 shares of common stock of AGY Capital
Corp. were owned by Advanced Glassfiber Yarns LLC. Accordingly, AGY Capital
Corp. meets the conditions set forth in General Instruction I(1)(a) and (b) of
Form 10-K and is therefore filing this form with the abbreviated narrative
disclosure format.
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<PAGE>

                               TABLE OF CONTENTS



<TABLE>
<CAPTION>
                                                                                               PAGE
                                                                                              -----
<S>          <C>                                                                              <C>
PART I
  Item 1.    Business .....................................................................     3
  Item 2.    Properties ...................................................................     9
  Item 3.    Legal Proceedings ............................................................    10
  Item 4.    Submission of Matters to a Vote of Security Holders ..........................    10
PART II
  Item 5.    Market For Registrants' Common Equity and Related Stockholder Matters ........    11
  Item 6.    Selected Financial Data ......................................................    11
  Item 7.    Management's Discussion and Analysis of Financial Condition and Results of
             Operations ...................................................................    13
  Item 7A.   Quantitative and Qualitative Disclosures About Market Risk ...................    17
  Item 8.    Financial Statements and Supplementary Data ..................................    18
  Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial
             Disclosure ...................................................................    18
PART III
  Item 10.   Directors and Executive Officers of the Registrants ..........................    19
  Item 11.   Executive Compensation .......................................................    20
  Item 12.   Security Ownership of Certain Beneficial Owners and Management ...............    20
  Item 13.   Certain Relationships and Related Transactions ...............................    20
PART IV
  Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K .............    26
SIGNATURES ..............................................................................      28
</TABLE>



                                       2
<PAGE>

                                    PART I

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     Some of the information in this Annual Report may contain forward-looking
statements. These statements include, in particular, statements about our
plans, strategies and prospects within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
You can identify forward-looking statements by our use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate,"
"continue" or other similar words. Although we believe that our plans,
intentions and expectations reflected in or suggested by such forward-looking
statements are reasonable, we cannot assure you that our plans, intentions or
expectations will be achieved. Such statements are based on our current plans
and expectations and are subject to risks and uncertainties that exist in our
operations and our business environment that could render actual outcomes and
results materially different from those predicted. When considering such
forward-looking statements, you should keep in mind the following important
factors that could cause our actual results to differ materially from those
contained in any forward-looking statements:

  o our significant level of indebtedness and limitations on our ability to
    incur additional debt;
  o our dependence upon Owens Corning to provide us with many materials and
    services;
  o our ability to establish effective and cost-efficient independent
    operational management and information systems controls as a result of
    our separation from Owens Corning;
  o the risk of conflicts of interest with our equity holders;
  o a downturn in the electronics industry and the movement of electronics
    industry production outside of North America;
  o our concentrated customer base and the nature of our markets;
  o a disruption of production at one of our facilities;
  o foreign currency fluctuations;
  o an easing of import restrictions and duties with respect to glass fabrics;
  o a failure by us or our suppliers or customers to address successfully year
    2000 issues;
  o labor strikes or stoppages;
  o our ability to comply with environmental and safety and health laws and
    requirements; and
  o changes in economic conditions generally.

     This list of risks and uncertainties, however, is not intended to be
exhaustive. You should also review the other cautionary statements we make in
this Annual Report and in our Registration Statement on Form S-4 (SEC File No.
333-72305) with respect to our 9 7/8% Senior Subordinated Notes due 2009,
especially the "Risk Factors" section of the Registration Statement. All
forward-looking statements attributable to us or persons acting for us are
expressly qualified in their entirety by our cautionary statements.

     We do not have, and expressly disclaim, any obligation to release publicly
any updates or changes in our expectations or any changes in events, conditions
or circumstances on which any forward looking statement is based.


ITEM 1. BUSINESS

BACKGROUND

     Advanced Glassfiber Yarns LLC is a Delaware limited liability company
initially formed by Owens Corning to own and operate Owens Corning's glass
yarns and specialty materials business. On July 1, 1998, Owens Corning
contributed substantially all of the assets and liabilities of its glass yarns
and specialty materials business to us. Thereafter, on September 30, 1998,
Owens Corning sold a 51% interest in us to a wholly owned subsidiary of Porcher
Industries. Owens Corning retained the remaining 49% interest. AGY Capital
Corp. is a wholly owned subsidiary of Advanced Glassfiber Yarns LLC, formed
solely to facilitate our offering of 9 7/8% Senior Subordinated Notes due 2009.


     Advanced Glassfiber Yarns LLC is a Delaware limited liability company with
headquarters located at 2558 Wagener Road, Aiken South Carolina 29801. Our
telephone number is (803) 643-1501.


                                       3
<PAGE>

GENERAL

     We are one of the largest global suppliers of glass yarns. We are one of
only two major glass yarns producers with manufacturing facilities in North
America and one of only five major glass yarns producers that supply glass
yarns globally. Our glass yarns are produced by converting molten glass into
thin glass filaments which are then twisted into yarn. Our products fall into
two categories based on filament diameter:

     o heavy yarns, which accounted for 73% of our 1999 net sales; and

     o fine yarns, which accounted for 27% of our 1999 net sales.

     Glass yarns, because of their unique physical properties, are a critical
material used in a variety of electronic, industrial, construction and
specialty applications. Heavy yarns are used in a wide range of applications,
such as printed circuit boards, roofing materials, filtration equipment,
building reinforcements, window screening, aerospace materials and reinforced
tapes. Fine yarns are used primarily to construct laminates for multi-layer
printed circuit boards, which are integral to virtually all advanced electronic
products, including computers, telecommunications equipment, television
equipment, automotive equipment and home appliances. We also produce a
subcategory of heavy yarns known as specialty materials, such as S-2 Glass(R),
a proprietary high-strength glass yarn. Specialty materials, which accounted
for 11% of our 1999 net sales, are used for aircraft laminates, oxygen tanks,
sporting goods and vehicle armor. Fine yarns and specialty materials generally
command higher prices and profit margins than non-specialty heavy yarns,
primarily due to their value-added characteristics.

     ATTRACTIVE INDUSTRY FUNDAMENTALS -- The glass yarns industry has
historically been characterized by a limited number of suppliers, high barriers
to entry, a limited number of cost-effective substitutes and high capacity
utilization. There are only five major glass yarns producers that supply glass
yarns globally. Historically, new entry into the market has been limited due to
high barriers of entry, which include technological know-how and significant
capital expenditure requirements. In addition, we believe that the industry's
capacity utilization generally has been high, which has allowed manufacturers
to more efficiently operate their facilities. Our capacity utilization, as
measured by use of installed bushings, averaged approximately 89% between 1997
and 1999.

     STABLE CUSTOMER BASE -- We sell our products to over 300 customers
worldwide, including every major North American and European weaver and a
diverse group of other domestic and international commercial and industrial
users of yarns. We maintain long-standing relationships with our major
customers by collaborating with them to meet their specific manufacturing
requirements and by providing high quality products and strong customer
service. In addition, our customer relationships generally are stable due to
the limited number of global suppliers of glass yarns and the costs to
customers associated with "qualifying" new suppliers. In order to qualify a new
supplier, a customer may need to modify its own loom set-ups and fabric
specifications and also qualify the new glass yarn supplier with downstream
manufacturers and weavers. Furthermore, although glass yarns generally
represent a small fraction of an end product's overall manufacturing cost,
product defects can be costly for customers. Consequently, customers demand
high-quality, reliable yarns from their suppliers and we have established a
reputation with our customers for meeting these demands. As a result of these
factors, we have maintained strong relationships with each of our top five
customers for over 25 years.

     UNIQUE PROPERTIES OF GLASS YARNS -- The characteristics of glass yarns
include:

     o high strength-to-weight ratio;

     o dimensional stability;

     o heat resistance;

     o moisture resistance;

     o chemical resistance;

     o electrical resistance; and

     o thermal insulation.

                                       4
<PAGE>

     Although carbon and aramid fibers are stronger than glass yarns, they are
significantly more expensive. Other materials, such as steel and wood, are less
expensive but lack the physical characteristics of glass yarns. Given the
unique combination of physical attributes and relative low cost of glass yarns,
we believe few cost-effective substitute products exist.

     DIVERSIFIED END-USE MARKETS -- The characteristics of glass yarn make it
the material of choice for a variety of products manufactured in the
electronics, industrial, construction and specialty markets. Furthermore,
within each of these markets, our products have a variety of applications,
including: printed circuit boards, transformers, switch-gear, filtration bags,
heat shields, welding curtains, filament tape, insect screening, optical fiber
cable, aircraft laminates, wire coatings, gaskets, ignition cables, reinforced
concrete, roofing materials, wallcoverings, filtration equipment, sporting
goods and armor. We believe that this diversity in end-use applications reduces
volatility in overall demand for our products.

     SUPERIOR PRODUCTION TECHNOLOGY AND PRODUCT INNOVATION -- We believe that
we are the technological leader in the production of glass yarns due to our
strong process engineering and product development capabilities. We pioneered
the glass yarns industry with the introduction of "glass cotton" in the 1930s
and the introduction of fine yarns in the 1940s, and have continued our
innovation with the development of S-2 Glass(R), Zentron(R) and zero twist
yarn. We employ 44 technical professionals dedicated to the development of new
products, process improvements and product innovations.


BUSINESS STRATEGY

     Our business strategy includes the following key elements:

     EMPHASIZE FINE YARNS AND SPECIALTY MATERIALS -- We will continue our focus
on increasing the proportion of our net sales attributable to fine yarns and
specialty materials. Sales of fine yarns and specialty materials increased as a
proportion of net sales from 26% in 1994 to 38% in 1999. We believe our global
leadership in producing fine yarns and specialty materials is a competitive
advantage when targeting manufacturers of sophisticated electronics and
specialty composites.

     DEVELOP NEW PRODUCTS AND PRODUCT INNOVATIONS -- To maintain our
technological leadership position in the glass yarns industry, we conduct an
active internal research and development program aimed at developing new and
improved products. In addition, we have formed several joint product
development programs with our customers such as BGF Industries, a wholly-owned
subsidiary of Porcher Industries, and downstream manufacturers. We also have a
continuing relationship with Owens Corning pursuant to which we and Owens
Corning conduct joint development programs and share in Owens Corning's
technology and research and development. We will continue our focus on research
and development and our commitment to collaborate with our customers to improve
and develop products.

     FOCUS ON OPERATING EFFICIENCY -- We continually seek to improve the
quality of our production facilities and our operating systems by utilizing
modern production technology. These new technologies have enabled us to
increase throughout, product quality and operational flexibility.

     SELECTIVE GEOGRAPHIC EXPANSION -- We believe that we have opportunities to
expand our business outside of North America. Approximately 30% of our 1999 net
sales were outside of North America, with approximately 25% in Europe, 4% in
Asia and less than 1% in other regions. We believe that Asia represents an
attractive long-term opportunity for sales of our fine yarns. Some of our
customers are expanding their production capabilities in Asia to meet the
region's demand for glass fabrics used to manufacture electronic laminates. We
anticipate that glass yarns needed for such increased production will be
sourced locally. Our strategy is to continue to expand outside North America by
co-locating or sharing production facilities with our customers. This would
reduce the risks and capital expenditures associated with geographic expansion
while strengthening our relationships with these customers.


PRODUCTS

     Our products are produced based on weight and strength specifications
developed in close cooperation with customers. Our products fall into two
categories based on filament diameter:


                                       5
<PAGE>

   o heavy yarns, with a filament diameter between 7 and 14 microns, which
     accounted for 73% of our 1999 sales; and

   o fine yarns, with a filament diameter generally up to 7 microns, which
     accounted for 27% of our 1999 sales.

     HEAVY YARNS -- Heavy yarns are used for a wide range of applications, such
as printed circuit boards, roofing materials, filtration equipment, building
reinforcements, window screening, aerospace materials and reinforced tapes.
Currently, prices for heavy yarns, excluding specialty materials, generally
range from approximately $2.00 to $4.00 per kilogram. We also produce a
subcategory of heavy yarns known as specialty materials, such as S-2 Glass(R),
a proprietary high strength glass yarn. Specialty materials, which accounted
for 11% of our 1999 sales, are used for aircraft laminates, oxygen tanks,
sporting goods and vehicle armor. Currently, prices for specialty materials
range from approximately $12.00 to $29.00 per kilogram.

     FINE YARNS -- Fine yarns, which require a significant level of technical
engineering expertise, generally command higher prices than non-specialty heavy
yarns, and are primarily used to construct laminates in multi-layer printed
circuit boards. Printed circuit board customers require a material that yields
a highly uniform, flat surface. We believe that we are the world's largest
producer of fine yarns and that our technological leadership differentiates us
from our competitors. Currently, prices for fine yarns range from approximately
$4.00 to $13.00 per kilogram.

     The following table sets forth the percentage of net sales attributable to
our two major product categories from 1997 to 1999:



<TABLE>
<CAPTION>
                                      YEAR ENDED DECEMBER 31,
                                ------------------------------------
                                   1997         1998         1999
                                ----------   ----------   ----------
<S>                             <C>          <C>          <C>
  Heavy yarns ...............       76.0%        74.0%        73.0%
  Fine yarns ................       24.0%        26.0%        27.0%
                                   -----        -----        -----
  Total .....................      100.0%       100.0%       100.0%
                                   =====        =====        =====
</TABLE>

MARKETING AND SALES

     We primarily sell to glass yarn weavers who weave glass yarn into fabric
ultimately used in a wide variety of end-use applications. Our customers
include, among others, every major glass weaver in North America and Europe. We
have a customer base of over 300 customers. Our top five and top ten customers
accounted for 53% and 65% of our 1998 sales, respectively, and 55% and 66% of
our 1999 sales, respectively. Our top five customers in 1999 were Porcher
Industries (including its affiliates such as BGF Industries), Hexcel-Schwebel,
Inc., CS Interglass, JPS Glass Inc. and Mitex/Tasso. Among the different
markets in the glass yarns industry, the electronic market is characterized by
a few major customers, each with a strong relationship with us but that
generally qualify more than one supplier. The industrial and construction
markets are characterized by many customers that generally qualify only one
supplier. The specialty market is characterized by customers that require
highly specialized yarns produced in a cooperative effort with the supplier
and, consequently, generally qualify only one supplier.

     We market our products primarily through a direct sales force with offices
located in the United States, Europe and Asia. Our North American customers are
serviced by five sales personnel and one sales manager, European customers are
serviced by three sales personnel and Asian customers are serviced by one sales
representative. The marketing and business planning organization consists of
one individual who has product line management, pricing, market analysis,
competitive intelligence and business responsibility for North and South
America, Europe and Asia.


                                       6
<PAGE>

     The following table sets forth the percentage of our net sales by
geographic region from 1997 to 1999:



<TABLE>
<CAPTION>
                                        YEAR ENDED DECEMBER 31,
                                  ------------------------------------
                                     1997         1998         1999
                                  ----------   ----------   ----------
<S>                               <C>          <C>          <C>
  North America ...............       71.8%        74.8%        70.5%
  Europe ......................       24.7%        21.2%        25.1%
  Asia ........................        3.5%         3.8%         3.9%
  Others ......................                     0.2%         0.5%
                                                  -----        -----
  Total .......................      100.0%       100.0%       100.0%
                                     =====        =====        =====
</TABLE>

MANUFACTURING FACILITIES

     We operate three manufacturing facilities in the United States. The
following table sets forth a description of our manufacturing facilities:



<TABLE>
<CAPTION>
                                                                           1999             OWNED
                                                     APPROXIMATE        PRODUCTION            OR
FACILITY                           PRODUCTS          SQUARE FEET     (IN METRIC TONS)       LEASED
--------------------------   --------------------   -------------   ------------------   -----------
<S>                          <C>                    <C>             <C>                  <C>
Aiken, South Carolina        Heavy and Fine           1,540,000           48,096            Owned
Huntingdon, Pennsylvania     Fine and Specialty         405,000            7,128            Owned
South Hill, Virginia (1)     Heavy and Fine              27,200              120         Leased (2)
</TABLE>

--------
(1) The South Hill facility is a co-location facility shared with BGF
    Industries, at which we and BGF Industries work together closely to
    coordinate the production of glass yarns for use solely by BGF Industries'
    operations at that facility. We opened the facility in June 1998 and it
    became fully operational in 1999. See "Certain Relationships and Related
    Transactions."
(2) We own all of the equipment located in the South Hill facility, but lease
    the building from BGF Industries.

     In addition to the facilities that we own or lease, subsidiaries of Owens
Corning with facilities in Battice, Belgium, Rio Claro, Brazil, L'Ardoise,
France and Guelph, Ontario have historically provided us with specific
products, primarily heavy yarns, to serve segments of the European and North
American markets. Although these facilities have been retained by Owens
Corning, we entered into contracts to purchase specific glass yarns
manufactured at these facilities. See "Certain Relationships and Related
Transactions."

     We believe our facilities and equipment are suitable and adequate for our
business as presently conducted. Substantially all of our properties and assets
and the properties and assets of our respective domestic subsidiaries serve as
security for our senior credit facility. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation -- Liquidity and
Capital Resources."


MANUFACTURING PROCESS

     Glass yarns are manufactured by mixing raw material at high temperatures
to create molten glass that flows through a bushing to create continuous glass
strands. These strands are spooled, and then twisted to create glass fiber
yarns. We employ two types of manufacturing processes for glass yarns, "direct
melt" and "indirect melt."

     The "direct melt" glass fiber manufacturing process, which is employed at
the Aiken facility, begins when finely ground raw materials, including sand,
limestone, clay, borates and specialty chemicals, are blended together in a
bulk quantity called the "batch." The batch is then fed into a furnace where it
is melted at 2,600 degrees Fahrenheit in refractory-lined furnaces. The molten
glass flows to numerous, heat-resistant alloy trays called bushings. These
bushings have thousands of small, precisely drilled tubular openings through
which glass flows and becomes filaments. The hair-like filaments are coated
with an aqueous chemical mixture called "sizing," which protects the filaments
during processing and handling, including weaving or braiding, and ensures good
adhesion of the glass fiber to the resin when manufacturing polymer
reinforcements.

     After sizing is applied, filaments are gathered together into strands that
go through further processing steps depending on the market into which the
fiber will be sold. The filaments are wound onto intermediate packages


                                       7
<PAGE>

by high speed winders. In most cases, the strands are unwound from the
intermediate packages and are twisted together to form glass fiber yarns that
are rewound onto bobbins for sale to customers.

     The Huntingdon facility and the South Hill facility employ a melt process,
known as "indirect melt," to manufacture fine glass fiber yarns using glass
marbles as the principal raw material. The glass marbles are melted in
individual furnaces and pulled through bushings to form filaments. The
filaments are sized, wound onto intermediate packages, and twisted in the same
manner as in the direct melt process. The advantage of the indirect method is
that each bushing has its own melting device. This process, which we pioneered,
allows us to add incremental production capacity with more reasonable capital
expense and construction time and results in a more consistent product.


RAW MATERIALS AND OTHER SUPPLIES AND SOURCES

     The major raw materials used by us in the production of glass yarns are
glass marbles at the Huntingdon and South Hill facilities, and silica and
borates at the Aiken facility. We purchase glass marbles from Owens Corning
pursuant to an exclusive seven year supply agreement. Silica is readily
available and is currently provided to us by a number of local suppliers. We
primarily use borates in our production processes at our Aiken facility, which
are sourced from a supplier in Turkey that is owned by the Turkish government.
Our supply of borates from Turkey is sourced through Owens Corning under a
supply agreement which provides that, if there is a limited or reduced supply
of borates, Owens Corning will allocate a portion of such supply to us.

     In addition to the raw materials involved in the production of glass
yarns, we use specialized capital equipment, such as bushings. Bushings are
heat-resistant alloy trays through which molten glass is filtered to produce
glass filaments. Our bushings are currently manufactured and periodically
reconditioned by Owens Corning. As a part of the formation transactions, Owens
Corning agreed to continue providing bushings to us and reconditioning service
for the bushings for a period of seven years. See "Certain Relationships and
Related Transactions."


COMPETITION

     We believe that the principal competitive factors affecting the glass
yarns industry include the quality, performance, product pricing and
consistency of products, response to customer requirements and stability of
business relationships with customers.

     We are one of only five major producers of glass yarns that supply their
products globally. The other global suppliers are PPG, Vetrotex, Nittobo and
N.E.G. In addition to the five global suppliers of glass yarns, there are two
significant regional manufacturers, Taiwan Glass, a licensee of our technology,
and Nan Ya Plastics Corp., a licensee of PPG's technology, each of which
operates and has significant sales in Asia. Currently, we and PPG are the only
major producers of glass yarns with production facilities in North America.
However, Vetrotex has recently built a plant for the production of glass yarns,
primarily for the heavy electronics market, in Mexico. We believe that this
plant may become operational in mid-2000.


RESEARCH AND DEVELOPMENT

     To maintain our leadership position in the glass yarns industry, we
conduct an active research and development program aimed at improving our
manufacturing processes and developing new and improved products. Our Science
and Technology Group manages the research and development program. We spent
$5.9 million, $5.9 million and $7.5 million to fund the Science and Technology
Group in 1997, 1998 and 1999, respectively. A portion of the Science and
Technology Group dedicates their efforts to the Technical Services Organization
("TSO"). The Aiken and Huntingdon facilities each have a TSO that is organized
into technical teams around each major customer category. We also have TSO
resources located at the South Hill facility and in Europe. The TSO carries out
ongoing process and product improvements, troubleshooting of manufacturing
problems, and transfer of newly developed processes and products to
manufacturing. The Science and Technology Group also has a project engineering
group which is responsible for capital projects. The remaining persons in our
Science and Technology group are focused on research and development and are
experts in chemistry, product development, process technology, and customer
applications. The research and development work is conducted at our Aiken
Central Technology Laboratory in Aiken.


                                       8
<PAGE>

     We have numerous United States patents, patent applications and
trademarks. While we consider our patents to be valuable assets, we do not
believe that our competitive position is dependent on patent protection or that
our operations are dependent on any individual patent or group of related
patents. However, in some instances, patents and patent protection may deter
entry by new competitors with respect to some of our product lines. Our policy
is to obtain patents on our new products and enforce our patent rights. In
connection with the formation transactions, Owens Corning assigned and licensed
to us patents, know-how, marks and business information relating to or used in
our business. In addition, we entered into a support services agreement with
Owens Corning pursuant to which they will cooperate with respect to research
and development. See "Certain Relationships and Related Transactions."


EMPLOYEES

     As of December 31, 1999, we had approximately 1,593 full-time employees.
As of that date, approximately 1,512 of the employees were engaged in
manufacturing and related services. Production, maintenance, warehouse and
shipping employees at our Aiken facility are represented by Teamsters Local
Union Number 86, an affiliate of the International Brotherhood of Teamsters.
The collective bargaining agreement with this union covering our employees at
Aiken expires on May 3, 2002. The Union of Needletrades, Industrial and Textile
Employees and its local 1034T represent our production, maintenance, warehouse
and shipping employees at our Huntingdon facility. The collective bargaining
agreement with this union covering our employees at Huntingdon expires on
October 31, 2002. Management considers our labor relations to be generally good
and anticipates no interruption in operations due to labor-related matters.


ENVIRONMENTAL MATTERS

     Our past and present operations, including our ownership and operation of
real properties, are subject to extensive and changing federal, state, local
and foreign environmental laws and requirements, that including, among others,
those governing discharges to air and water, the handling and disposal of soils
and hazardous substances and wastes, and the remediation of contamination
associated with releases of hazardous substances at our facilities and off-site
disposal locations. Our operations are also governed by laws and requirements
relating to workplace safety and health. Management believes that we are
generally in material compliance with these laws and requirements.

     We, like all manufacturers of glass yarns, are subject, in various
jurisdictions, to laws and regulations designed to reduce solid wastes by
requiring, among other things, use of materials producing waste to be
degradable in landfills, minimum levels of recycled content, various recycling
requirements, disposal fees and limits on the use of harmful products. In
addition, various consumer and special interest groups have lobbied from time
to time for the implementation of additional environmental protection measures.
We do not believe that either the legislation promulgated to date or currently
pending initiatives will have a material adverse effect on our business. There
can be no assurance that any future legislation or regulatory efforts will not
have a material adverse effect on our business, financial condition or results
of operations.

     In connection with the formation transactions, Owens Corning retained all
liabilities resulting from the presence of hazardous substances at or migrating
from the sites contributed by Owens Corning to us, as well as all liabilities
resulting from the transportation or arrangements made by Owens Corning for the
treatment, storage or disposal of hazardous substances to any off-site location
prior to September 30, 1998. We have not assumed any of these liabilities. In
addition, Owens Corning has agreed to indemnify us against any losses and
damages arising out of the environmental liabilities retained by Owens Corning.
However, with respect to environmental remedial action, Owens Corning's
indemnification obligations are limited to compliance with the standards set
under applicable environmental laws and these obligations will be satisfied
upon and to the extent of final approval of the remedial action by the
governing environmental authority.


ITEM 2. PROPERTIES

     See "Business -- Manufacturing Facilities."

                                       9
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

     We have not been involved in any significant litigation or proceedings.
From time to time, we may become involved in litigation or proceedings in the
ordinary course of our business. We believe that such ordinary course of
business matters will not have a material adverse effect on our financial
condition, liquidity or results of operations.


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

     Not applicable.

                                       10
<PAGE>

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     There is no established trading market for the membership interests of
Advanced Glassfiber Yarns LLC or the common stock of AGY Capital Corp. As of
March 30, 2000, Porcher Industries, S.A. owned a 51% membership interest and
Owens Corning owned a 51% membership interest. As of March 30, 2000, all 1,000
shares of common stock of AGY Capital Corp. were owned by Advanced Glassfiber
Yarns LLC.


ITEM 6. SELECTED FINANCIAL DATA

     We present below our selected historical financial information. Selected
historical financial information related to Owens Corning's glass yarns and
specialty materials business is presented for each of the years ended December
31, 1995, 1996 and 1997 and the nine months ended September 30, 1998. Selected
historical financial information subsequent to consummation of the formation
transactions on September 30, 1998 is presented for the three months ended
December 31, 1998 and the year ended December 31, 1999.

     We derived the historical information for the year ended December 31,
1997, the nine months ended September 30, 1998, the three months ended December
31, 1998, and the year ended December 31, 1999 from our audited financial
statements which appear elsewhere in this report. We derived the historical
information for the years ended December 31, 1995 and 1996 from our audited
financial statements that are not included in this report.

     The historical financial statements of the predecessor business were
derived from the historical financial statements of Owens Corning. We have not
adjusted our historical statements of operations to reflect the effect of
supply agreements that we entered into with Owens Corning in connection with
the formation transactions.

     We have presented adjusted EBITDA in our selected financial data because
it is a widely accepted financial indicator of a company's ability to service
indebtedness. You should not consider adjusted EBITDA as an alternative to net
income or loss, as a measure of operating results, or to cash flows as a
measure of liquidity in accordance with generally accepted accounting
principles. Adjusted EBITDA presented below may not necessarily be comparable
to similarly titled measures reported by other companies as they are not
calculated identically by all companies. We define adjusted EBITDA as income or
loss before income taxes and extraordinary item, interest expense, depreciation
and amortization expense, non-recurring charges of $2.3 million for the three
months ended December 31, 1998 and $3.0 million in 1999, and restructuring
charges of $2.0 million for the nine months ended September 30, 1998 and $0.3
million in 1999.

     We have also presented the ratio of earnings to fixed charges. In
calculating the ratio of earnings to fixed charges, earnings consist of income
or loss before income taxes plus fixed charges. Fixed charges consist of
interest expense, whether expensed or capitalized, and the portion of rental
expense estimated to attributable to interest.

     You should read the historical data set forth below in conjunction with
our consolidated financial statements together with the notes thereto, included
elsewhere herein and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."


                                       11
<PAGE>


<TABLE>
<CAPTION>
                                                              THE PREDECESSOR BUSINESS                    CONSOLIDATED COMPANY
                                                ----------------------------------------------------- ----------------------------
                                                                                        NINE MONTHS    THREE MONTHS   FISCAL YEAR
                                                                                           ENDED           ENDED         ENDED
                                                   FISCAL YEAR ENDED DECEMBER 31,      SEPTEMBER 30,   DECEMBER 31,   DECEMBER 31,
                                                ------------------------------------- --------------- -------------- -------------
                                                    1995        1996         1997           1998           1998           1999
                                                ----------- ----------- ------------- --------------- -------------- -------------
                                                                              (DOLLARS IN THOUSANDS)
<S>                                             <C>         <C>         <C>           <C>             <C>            <C>
STATEMENT OF OPERATIONS DATA:
  Net sales ...................................  $ 272,395   $ 274,979    $ 277,357      $ 205,248       $ 63,403        252,236
  Cost of goods sold ..........................    187,153     180,343      182,366        134,820         43,494        183,138
                                                 ---------   ---------    ---------      ---------       --------        -------
  Gross profit ................................     85,242      94,636       94,991         70,428         19,909         69,098
  Selling, general and administrative
   expenses ...................................     13,748      14,345       14,813         11,487          4,123         16,812
  Amortization ................................         --          --           --             --          2,848         11,611
  Restructuring costs (1) .....................         --          --           --          2,034             --            290
                                                 ---------   ---------    ---------      ---------       --------        -------
  Operating Income ............................     71,494      80,291       80,178         56,907         12,938         40,385
  Interest expense ............................         --          --           --             --          9,113         36,824
  Other income, net ...........................     (3,041)     (3,003)      (2,688)        (2,328)          (450)        (2,235)
                                                 ---------   ---------    ---------      ---------       --------        -------
  Income before taxes .........................     74,535      83,294       82,866         59,235          4,275          5,796
  Provision for income taxes ..................     29,594      33,051       32,540         16,226             --            190
                                                 ---------   ---------    ---------      ---------       --------        -------
  Income before extraordinary loss ............     44,941      50,243       50,326         43,009          4,275          5,606
  Extraordinary item, loss on early
   extinguishment of debt (3) .................         --          --           --             --             --         (3,616)
                                                 ---------   ---------    ---------      ---------       --------        -------
  Net income ..................................  $  44,941   $  50,243    $  50,326      $  43,009       $  4,275          1,990
                                                 =========   =========    =========      =========       ========        =======
OTHER DATA:
  Depreciation and amortization ...............  $   8,604   $   8,233    $   8,305      $   6,394       $  5,975     $   25,963
  Capital expenditures ........................      8,458      15,314        8,324         13,509          6,943         18,368
  Adjusted EBITDA .............................     83,139      91,527       91,171         67,663         21,334         69,889
  Cash flow from operating activities .........     54,313      62,113       65,274         28,438         18,819         59,187
  Cash flow from investing activities .........     (8,458)    (15,314)      (8,324)       (13,509)        (3,327)       (15,603)
  Cash flow from financing activities .........    (45,855)    (46,783)     (56,922)       (14,940)        (2,712)       (50,155)
  Ratio of earnings to fixed charges ..........        164%        136%          78%            67%           1.5%           1.2%
BALANCE SHEET DATA (2) (AT PERIOD
  END):
  Working capital (deficit) ...................  $  (1,493)  $  (4,944)   $ (11,872)        N/A          $ 32,061         (1,964)
  Total assets ................................    159,414     163,839      153,961         N/A           465,469        453,642
  Total debt ..................................         --          --           --         N/A           402,198        359,855
  Net assets/Members' Interest ................     31,889      36,850       30,940         N/A            21,285         20,231
</TABLE>

--------
(1) During the first quarter of 1998, we recorded a $2.0 million restructuring
    charge related to personnel reductions at the Aiken and Huntington
    facilities. We recorded a $0.3 million restructuring charge in 1999.
(2) The historical balance sheet data for the periods 1995 through December 31,
    1997 have not been adjusted to reflect the fact that Owens Corning did not
    contribute deferred tax assets to Advanced Glassfiber Yarns and that Owens
    Corning retained the following liabilities: income taxes payable, trade
    accounts payable and certain post-retirement health care benefits for
    those of our employees that were previously employees of Owens Corning.
    The December 31, 1998 balance sheet data reflects the following: the
    elimination of assets not contributed by Owens Corning and liabilities not
    assumed by Advanced Glassfiber Yarns, the accounting for the purchase by
    Porcher Industries of the 51% interest in Advanced Glassfiber Yarns and
    the various financing transactions related to our formation on September
    30, 1998.
(3) During the first quarter of 1999, we recorded a $3.6 million charge related
    to the write-off of debt issuance costs.


                                       12
<PAGE>

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

     This Annual Report contains certain forward-looking statements with
respect to our operations, industry, financial condition and liquidity. These
statements reflect our assessment of a number of risks and uncertainties. Our
actual results could differ materially from the results anticipated in these
forward-looking statements as a result of certain factors set forth in this
Annual Report. An additional statement made pursuant to the Private Securities
Litigation Reform Act of 1995 and summarizing certain of the principal risks
and uncertainties inherent in our business is included in Part I of this Annual
Report under the caption "Cautionary Statement Regarding Forward Looking
Statements." You are encouraged to read this section carefully.

     You should read the following discussion together with our consolidated
financial statements and related notes contained in this Annual Report.


OVERVIEW

     Advanced Glassfiber Yarns is a Delaware limited liability company formed
by Owens Corning to own and operate its glass yarns and specialty materials
business. On July 1, 1998, Owens Corning contributed substantially all of the
assets and liabilities of this business to us. On September 30, 1998, Owens
Corning sold a 51% interest in Advanced Glassfiber Yarns to a wholly owned
subsidiary of Porcher Industries. Owens Corning retained the remaining 49%
interest.

     Before September 30, 1998, we were the glass yarns and specialty materials
business of Owens Corning. Accordingly, the historical financial information
for the year ended December 31, 1998 is based upon the historical financial
information of the business as it was operated by Owens Corning from January 1,
1998 through September 30, 1998 and the historical financial information of
Advanced Glassfiber Yarns from October 1, 1998 through December 31, 1998. The
historical financial statements contained in this report for all periods ending
on or before September 30, 1998 have not been adjusted to reflect that Owens
Corning did not contribute all of the assets and liabilities of the business to
us. In addition, these historical financial statements have not been adjusted
to reflect the effect of the supply agreements entered into with Owens Corning
in connection with the formation transactions. See "Certain Relationships and
Related Transactions." The supply agreements generally require Owens Corning to
provide raw materials, capital equipment and services to us at Owens Corning's
cost plus pre-determined margins.

     NET SALES -- We recognize sales upon the shipment of products. Net sales
consist of sales to customers, including discounts and negotiated rebates.
Prices for our products depend upon the terms of our customer agreements and
the category of product being sold. During 1999, prices for heavy yarns,
excluding specialty materials, ranged from approximately $2.00 to $4.00 per
kilogram, prices for fine yarns ranged from $4.00 to $13.00 per kilogram and
prices for specialty materials ranged from $12.00 to $29.00 per kilogram. From
1997 to 1998, our net sales decreased by approximately 3.2% from $277.4 million
in 1997 to $268.6 million in 1998. This trend continued in 1999 as our net
sales for 1999 decreased approximately 6.1% to $252.2 million as compared to
our net sales for 1998. These decreases in net sales were primarily due to
general selling price reductions, a decreased demand for heavy yarns used in
rigid printed circuit boards which first began in the fourth quarter of 1997,
reduced sales to the construction industry and the effects of a strong U.S.
dollar on sales in Europe in 1999.

     GROSS PROFIT -- Cost of sales consists of raw materials, energy, labor and
manufacturing overhead. These components of cost of sales as a percentage of
total cost of sales averaged 35% for raw materials, 9% for energy, 22% for
direct labor, 17% for period labor and 17% for manufacturing overhead, from
1997 to 1999. Gross profit as a percentage of net sales decreased by 6.8% from
1997 to 1999 primarily resulting from a reduction in selling prices and an
increase in raw materials, pension and depreciation expenses, related to the
formation transactions.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses consist of the cost of our employees, including
technology personnel, and the estimated costs of corporate services provided by
Owens Corning.

     OTHER INCOME, NET -- Other income consists of royalties and technical
service fees earned from a non-exclusive license granted by us to Taiwan Glass
Industrial Corporation. The historical financial statements only include the
portion of the royalties and fees attributable to the manufacture and sale of
glass yarn products by Taiwan Glass. Other income also includes interest
income, as well as alloy lease income or expenses.


                                       13
<PAGE>

     ADJUSTED EBITDA -- Adjusted EBITDA is defined as net income or loss before
income taxes and extraordinary item, interest expense, depreciation and
amortization expense, non-recurring charges of $2.3 million for the three
months ended December 31, 1998 and $3.0 million for 1999 and restructuring
charges of $2.0 million for the nine months ended September 30, 1998, and $0.3
million for the year ended December 31, 1999. Adjusted EBITDA is presented
because it is a widely accepted financial indicator of a company's ability to
service indebtedness; however, adjusted EBITDA should not be considered as an
alternative to net income or loss, as a measure of operating results or to cash
flows as a measure of liquidity in accordance with generally accepted
accounting principles. Adjusted EBITDA as presented in this Annual Report may
not be comparable to similarly titled measures reported by other companies as
they are not calculated identically by all companies.


RESULTS OF OPERATIONS

     The following table summarizes our historical results of operations and
historical results of operations as a percentage of net sales.



<TABLE>
<CAPTION>
                                          YEAR ENDED           NINE MONTHS ENDED      THREE MONTHS ENDED         YEAR ENDED
                                       DECEMBER 31, 1997      SEPTEMBER 30, 1998      DECEMBER 31, 1998       DECEMBER 31, 1999
                                    ----------------------- ----------------------- ---------------------- -----------------------
                                                                        (DOLLARS IN MILLIONS)
<S>                                 <C>         <C>         <C>         <C>         <C>        <C>         <C>         <C>
Net sales .........................  $  277.4       100.0%   $  205.2       100.0%   $  63.4       100.0%   $  252.2       100.0%
Cost of sales .....................     182.4        65.8       134.8        65.7       43.5        68.6       183.1        72.6
                                     --------       -----    --------       -----    -------       -----    --------       -----
Gross profit ......................      95.0        34.2        70.4        34.3       19.9        31.4        69.1        27.4
Selling, general and administrative
 expenses .........................      14.8         5.3        11.5         5.6        4.1         6.5        16.8         6.7
Amortization ......................        --          --          --          --        2.8         4.4        11.6         4.6
Restructuring costs ...............        --          --         2.0         1.0         --          --         0.3         0.1
                                     --------       -----    --------       -----    -------       -----    --------       -----
Income from operations ............  $   80.2        28.9%   $   56.9        27.7%   $  13.0        20.5%   $   40.4        16.0%
                                     ========       =====    ========       =====    =======       =====    ========       =====
</TABLE>

FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998

     NET SALES -- Net sales decreased $16.4 million, or 6.1%, to $252.2 million
in 1999 from $268.6 million in 1998. This decrease was due primarily to selling
price reductions, a lower demand for heavy yarns used in rigid printed circuit
boards as well as reduced sales to the construction industry. The decrease was
partially offset by increased industrial and specialty application sales, which
improved by 11% and 7%, respectively, compared to 1998.

     GROSS PROFIT -- Gross profit margins decreased by $21.2 million, or 23.5%,
from $90.3 million for 1998 to $69.1 million for 1999. This decrease is
attributable to selling price reductions mainly in the electronic segment and
to the weakening of European currencies against the U.S. Dollar. Also, higher
depreciation costs resulted from the allocation of the purchase price following
the acquisition of 51% of the company's shares by Porcher Industries, SA on
September 30, 1998. In addition, the terms of the Owens Corning supply
agreements resulted in an increase in the manufacturing costs. This was
partially offset by a more favorable product mix as well as an increase in the
selling price of fine yarns effective in the third quarter of 1999.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased to 6.7% from 5.8% of net sales for 1999 and
1998, respectively. This was primarily due to the establishment of independent
operational, management and information system controls in connection with the
formation transactions and a decrease in sales. Non-recurring costs associated
with our separation from Owens Corning and establishment of such independent
systems represented 1.2% of net sales for 1999.

     INCOME FROM OPERATIONS -- Income from operations decreased by $29.5
million, or 42.2%, from $69.9 million for 1998 to $40.4 million for 1999.
Excluding the impact of the restructuring costs, non-recurring charges
described above and amortization of intangibles, income from operations
decreased by $21.7 million or 28.2% from $77.0 million for 1998 to $55.3
million for 1999. This decrease was primarily related to the factors discussed
above.


                                       14
<PAGE>

FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997

     NET SALES -- Net sales decreased by $8.8 million, or 3.2%, from $277.4
million for 1997 to $268.6 million for 1998. This decrease was due primarily to
decreased demand for heavy yarns used in rigid printed circuit boards which
began in the fourth quarter of 1997 and the effects of a stronger U.S. dollar
on sales in Europe. This decrease was partially offset by slight increases in
overall pricing and increased sales for construction and specialty
applications.

     GROSS PROFIT -- Gross profit decreased by $4.7 million, or 4.9%, from
$95.0 million for 1997 to $90.3 million for 1998. Gross profit decreased as a
percentage of net sales from 34.2% for 1997 to 33.6% for 1998. Excluding the
non-recurring and non-cash charges of $2.0 million, gross profit increased from
34.2% for 1997 to 34.3% for 1998. This increase was primarily due to a more
favorable, higher margin product mix and decreased labor costs resulting from
personnel reductions at our Huntingdon and Aiken facilities, which were part of
a restructuring plan that was implemented in the first quarter of 1998. This
increase was partially offset by a decrease in sales combined with price
pressure on heavy yarns used in electronic rigid printed circuit boards, as
well as an increase in prices paid to Owens Corning for raw materials after
consummation of the formation transactions.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased by $0.8 million, or 5.4%, from $14.8 million
for 1997 to $15.6 million for 1998. Selling, general and administrative
expenses increased as a percentage of net sales from 5.3% for 1997 to 5.8% for
1998. The increase was due to the establishment of independent operational,
management and information system costs, and relocation costs in connection
with the formation transactions.

     RESTRUCTURING COSTS -- In the first quarter of 1998, we decided to reduce
personnel at our Aiken and Huntingdon facilities by approximately 100 employees
during 1998. In connection with the planned personnel reduction, we recorded a
$2.0 million charge representing severance costs associated with the positions
to be eliminated. We realized cost savings as a result of our restructuring
plan during 1998 and expect to realize further cost savings for the foreseeable
future.

     INCOME FROM OPERATIONS -- Income from operations decreased by $10.3
million, or 12.8%, from $80.2 million for 1997 to $69.9 million for 1998.
Excluding the impact of the restructuring costs, non-recurring charge and
amortization of intangibles described above, income from operations decreased
by $3.2 million, or 4.0%, from $80.2 million for 1997 to $77.0 million for 1998.
This decrease was primarily related to the factors discussed above.


LIQUIDITY AND CAPITAL RESOURCES

     Historically, our primary sources of liquidity were cash flows from
operations. Since the consummation of the formation transactions, our primary
sources of liquidity have been cash flows from operations, borrowings under the
senior credit facility and the issuance of our 9 7/8% senior subordinated notes
due 2009. Our principal uses of liquidity are to fund operations, principal
payments on the senior credit facility, interest payments, and finance our
planned capital expenditures. We have no mandatory payment of principal on our
subordinated notes prior to their maturity.

     NET CASH PROVIDED BY OPERATING ACTIVITIES -- Net cash provided by
operating activities increased $11.9 million from $47.3 million for 1998 to
$59.2 million for 1999. The increase was primarily attributable to an increase
in accounts payable and accrued liabilities of $14.5 million resulting from
improved working capital management and the interest accrual on the senior
subordinated notes in 1999 offset by a reduction of net income before
extraordinary item and depreciation and amortization of $28.1 million.
Additionally, receivables, inventory and income taxes increased $27.5 million
in 1998 from 1997 as compared to an increase of only $2.1 million in 1999 from
1998.

     NET CASH USED IN INVESTING ACTIVITIES -- Net cash used in investing
activities decreased $1.2 million from $16.8 million for 1998 to $15.6 million
for 1999. A significant portion of these capital expenditures in 1999 was for
rebuilds of glass melting furnaces and other equipment upgrades used in our
operations. During 1999, we also spent $3.1 million for our new year 2000
compliant management information systems.


                                       15
<PAGE>

     NET CASH USED IN FINANCING ACTIVITIES -- Net cash used in financing
activities was $50.2 million for 1999 and primarily consists of the retirement
of all debt outstanding under our $150 million senior subordinated credit
facility, net payments under the revolving credit facility of $5.3 million and
net payment on term loans of $34.1 million, offset by the proceeds from the
sale of the senior subordinated notes of $142.9 million,

     In connection with the formation transactions, we entered into a senior
credit facility, which provided for:

   o a six-year revolver in an aggregate principal amount of up to $75.0
     million, which includes a $10.0 million swing line sub-facility and a
     $30.0 million letter of credit sub-facility;

   o a seven-year term loan in an aggregate principal amount of $125.0
     million; and

   o a six-year term loan in an aggregate principal amount of $115.0 million.


     On December 16, 1999, we and our lenders amended our senior credit
facility to: (1) reduce the overall borrowing commitment under the six-year
revolver from $75.0 million to $65.0 million; (2) re-amortize the remaining
principal balance due under our seven-year term loan as a result of our
repayment of $15.0 million of principal amounts due under such loan; and (3)
ease the restrictions imposed by certain financial covenants.

     First Union National Bank serves as agent under the senior credit
facility. The senior credit facility is collateralized by a first priority lien
on substantially all of our properties and assets and by a pledge of Porcher
Industries' interest in Advanced Glassfiber Yarns. As of December 31, 1999,
$213.8 million was outstanding under the senior credit facility and we had
availability thereunder equal to approximately $53.9 million.

     Our amended senior credit facility requires us to comply with financial
ratios. If we breach any of the covenants in the senior credit facility, or we
are unable to comply with the required financial ratios, we may be in default
under the senior credit facility and the indenture governing our 9 7/8% Senior
Subordinated Notes due 2009. If we default under the senior credit facility,
the lenders can declare all borrowings outstanding, including accrued interest
and other fees, due and payable. If we use all of our available cash to repay
borrowings under the senior credit facility, we may not be able to make
payments on our notes. While we currently comply with these financial ratios,
and believe that we will continue to do so, we cannot assure you that our
business will generate sufficient cash flows from operations to enable us to
continue to comply with such ratios in the future.

     On January 21, 1999, we privately issued $150.0 million of 9 7/8% Senior
Subordinated Notes due 2009. Our net proceeds from the sale of these notes were
approximately $142.9 million, after deducting the initial purchasers' discount.
We used the net proceeds from the offering, together with additional borrowings
under our senior credit facility, to repay all debt outstanding under a $150.0
million senior subordinated credit facility, which was incurred on September
30, 1998 in connection with the formation transactions. On July 23, 1999, we
exchanged the notes for substantially identical new notes that have been
registered under the Securities Act of 1933. We expect to fund the interest
payments on the notes with operating cash flows.

     Our ability to make scheduled payments of principal of, or to pay the
interest or liquidated damages, if any, on, or to refinance, our indebtedness,
or to fund planned capital expenditures will depend on our future performance,
which is generally subject to economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control. Based upon the
current level of operations, we believe that cash flows from operations and
available cash, together with availability under the senior credit facility,
will be adequate to meet our future liquidity needs for at least the next two
years. However, we cannot assure you that our business will generate sufficient
cash flows from operations or that future borrowings will be available under
the senior credit facility in an amount sufficient to enable us to service our
indebtedness, or to fund our other liquidity needs, including the possible
construction of a new melter at our Aiken facility and the payment of tax
distributions.


INTRODUCTION OF THE SINGLE EUROPEAN CURRENCY

     On January 1, 1999, eleven member states of the European Union-Austria,
Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The Netherlands,
Portugal and Spain introduced the Euro as a common legal currency among those
states for "paperless" transactions, pending the substitution of Euro banknotes
and coins for the national currencies of the participating member states. As of
that date, fixed exchange rates were introduced. It


                                       16
<PAGE>

is anticipated that by July 1, 2002, the Euro will be the official legal tender
for the participating member states and that the national currencies of those
member states will be withdrawn from circulation.

     The introduction of the Euro has necessitated only minor changes in our
information technology and other systems in order to accommodate the use of the
Euro in corporate transactions and in financial reporting. Costs incurred in
connection with the conversion have been immaterial.

     Our management is informally reviewing the various ways in which the
introduction of the Euro will affect our business and competitive position. We
expect that the introduction of the Euro will result in greater market
efficiency and will foster a more competitive economic environment within and
among the participating member states. This is largely a function of the fact
that the pricing of products and services will be more transparent through the
use of a single common currency within the participating member states. While
we do not believe the Euro conversion will materially affect our operations,
particularly with respect to our sales in the participating member states,
there can be no assurance whether and to what extent the introduction of the
Euro will affect our business, financial condition and results of operations,
or whether we will be able to realize any strategic or operational benefits
from the introduction of the Euro.

     We intend to continue exploring various strategic and operational measures
with respect to the introduction of the Euro with a view to enhancing our
overall financial position, operating results and market position. These
strategic and operational options will be shaped to some extent by both
European and national rules and regulations regarding the particular measures
required to complete the transition to the Euro as the legal currency of the
participating member states.


RECENTLY ISSUED ACCOUNTING STANDARD

     On June 9, 1999, the Financial Accounting Standards Board issued SFAS No.
137, "Deferral of the Effective Date of FAS 133," which changes the effective
date of FAS 133 to all fiscal quarters of all fiscal years beginning after June
15, 2000. SFAS 133 requires that all derivative instruments be recorded on the
balance sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. We anticipate that, due to our
limited use of derivative instruments, the adoption of SFAS 133 will not have a
significant effect on our results of operations or financial position.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The effects of potential changes in interest rates are discussed below.
Our market risk discussion includes "forward-looking statements" and represents
an estimate of possible changes in fair value that would occur assuming
hypothetical future movements in interest rates. These disclosures are not
precise indicators of expected future losses, but only indicators of reasonably
possible losses. As a result, actual future results may differ materially from
those presented. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Disclosure Regarding Forward-Looking
Statements."

     Our senior credit facility is subject to market risks, including interest
rate risk. Our financial instruments are not currently subject to commodity
price risk. We hold no financial instruments for trading or speculative
purposes.

     We are exposed to market risk related to changes in interest rates on
borrowings under our senior credit facility. The senior credit facility bears
interest based on LIBOR. Our interest rate risk management objective is to
limit the impact of interest rate changes on earnings and cash flows and to
lower our overall borrowing costs. To achieve these objectives, from time to
time we enter into interest rate swap agreements in order to mitigate our
interest rate risk with respect to indebtedness outstanding under the senior
credit facility.

     We entered into an interest rate swap agreement to manage our exposure to
interest rate changes under the senior credit facility. The swap involves the
exchange of fixed and variable interest rate payments based on a contractual
principal amount and time period. Payments or receipts on the agreement are
recorded as adjustments to interest expense. Under this agreement, we have
secured a fixed LIBOR rate of interest of 4.92% on Term Loan A and 5.04% on the
Term Loan B with an aggregate on the notional amount which is reduced in a
manner consistent


                                       17
<PAGE>

with the amortization of the principal on our term loans. As of December 31,
1999, we had two interest rate swap agreements effective through September 30,
2004 and 2005 on a notional amount of $202.7 million, equal to the borrowings
outstanding under Term Loans A and B under our senior credit facility. During
1999, we terminated portions of the interest rate swap related to the early
payment of Term Loan B in the amount of $5 million and $15 million in the
second and fourth quarter of 1999, respectively. As the result of this partial
unwind of our swap agreement, we have recognized a total gain of $1.5 million
included in other income in our 1999 financial statements. The fair value of
the interest rate swap agreements, representing the estimated receipts that
would be made to terminate the agreement, was approximately $12.9 million and
$3.1 million respectively as of December 31, 1999 and as of December 31, 1998.
A 100 basis point decrease in LIBOR would decrease the amount received by
approximately $6.3 million. The fair value is based on dealer quotes,
considering current interest rates.

     In addition, we are exposed to losses in the event of nonperformance by
the counterparties under the interest rate swap agreements. We expect the
counterparties, which are major financial institutions, to perform fully under
these contracts. However, if the counterparts were to default on their
obligations under the interest rate swap agreements, we could be required to
pay the full rate on our senior credit facility, even if the rate was in excess
of the rates in the interest rate swap agreements.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See page F-1 of the financial reports included herein.


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

     None.

                                       18
<PAGE>

                                   PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS

     The following table sets forth information with respect to our directors,
executive officers and other key employees:



<TABLE>
<CAPTION>
NAME                               AGE     POSITION
--------------------------------   -----   --------------------------------------------------
<S>                                <C>     <C>
Robert Porcher .................    71     Chief Executive Officer and Chairman of the Board
                                           and Directors
Robert Pistole .................    63     President
Catherine Cuisson ..............    34     Vice President and Chief Financial Officer
Scott R. Northrup ..............    39     Technical Vice President
Heinz J. Otto ..................    50     Director
Serge Piolat ...................    48     Director
Philippe Porcher ...............    45     Director
J. Thurston Roach ..............    58     Director
Jerry G. Hawkins ...............    55     Vice President of Manufacturing -- Aiken
Joseph A. Masciangelo ..........    53     Vice President of Manufacturing -- Huntingdon
</TABLE>

     Robert Porcher is our Chief Executive Officer, Chairman of the Board and a
Director. Mr. Robert Porcher has been Chairman of the Board of Directors and
Chief Executive Officer of Porcher Industries since 1952. Porcher Industries
owns 51% of Advanced Glassfiber Yarns. Mr. Robert Porcher beneficially owns 54%
of the outstanding capital stock of Porcher Industries. Since December 9, 1998,
Mr. Porcher has served as the Chairman of the Supervisory Board of Porcher
Industries.

     Robert Pistole has been our President since the departure of Robert Fisher
in January 2000. Prior to joining us, Mr. Pistole was a retiree from Owens
Corning where he held a number of different positions since 1963. These
positions included Vice President of Operations for Composites from 1994 to
1997, Vice President of Operations for the Industrial Material Group from 1989
to 1994 and Vice President of Engineering from 1986 to 1989.

     Catherine Cuisson is our Vice President and Chief Financial Officer. Prior
to the formation transactions, Ms. Cuisson served as Controller of Porcher
Industries since November, 1994. Prior to joining Porcher Industries, Ms.
Cuisson had served as an accountant with Coopers & Lybrand L.L.P. since 1987.
Ms. Cuisson obtained the equivalent of a certified public accountancy degree
upon graduating from the Institut Commercial de Nancy in Nancy, France.

     Scott R. Northrup is our Technical Vice President. Prior to the formation
transactions, Mr. Northrup served as Technical Services Organization Manager of
our facility in Huntingdon since May 1995. Mr. Northrup joined Owens Corning in
September 1984 as research and development engineer at the Granville Science &
Technology Center.

     Heinz J. Otto is a Director. Mr. Otto has been President of Owens
Corning's Composites Division since 1996. Mr. Otto previously managed the
European operations of Landis & Gyr Corp., a Swiss corporation, and served on
its Executive Board since 1992. Prior to joining Landis & Gyr, Mr. Otto held
various management positions with General Electric Company.

     Serge Piolat is a Director. Mr. Piolat has served as a Director of Porcher
Industries' textile division since 1989. Mr. Piolat previously served as
General Manager of Chavanoz Industries, a wholly owned subsidiary of Porcher
Industries. Since December 9, 1998, Mr. Piolat has served as a member of the
Executive Board and Vice President of Porcher Industries.

     Philippe Porcher is a Director. Mr. Philippe Porcher has been Vice
President of Porcher Industries since March 1993. Before becoming Vice
President, Mr. Philippe Porcher served as Director of Porcher Industries'
industrial division. Mr. Philippe Porcher is the son of Robert Porcher, our
Chairman of the Board and a Director. Since December 9, 1998, Mr. Porcher has
served as Chairman of the Executive Board of Porcher Industries.


                                       19
<PAGE>

     J. Thurston Roach is a Director. Mr. Roach has been Senior Vice President
and Chief Financial Officer of Owens Corning since January 1, 1999. Mr. Roach
had previously served as President of Owens Corning's North American Building
Materials Systems Business since February 1998. Before joining Owens Corning,
Mr. Roach had been Vice Chairman of Simpson Investment Company since July 1997.
Before July 1997, Mr. Roach had served in various capacities with Simpson
Timber Company since 1984. Mr. Roach has been a director of The Liberty
Corporation since 1994.

     Jerry G. Hawkins is our Vice President of Manufacturing -- Aiken. Mr.
Hawkins has been serving as Plant Manager of our Aiken facility since 1994. Mr.
Hawkins previously served in various management positions with Owens Corning
since 1969.

     Joseph A. Masciangelo is our Vice President of Manufacturing --
Huntingdon. Mr. Masciangelo has been serving as Plant Manager of our Huntingdon
facility since 1987. Mr. Masciangelo previously served in various management
positions with Owens Corning since 1969.


ITEM 11. EXECUTIVE COMPENSATION

     The following table sets forth information concerning the compensation of
our Chief Executive Officer and our two other most highly compensated
executives during 1999:



<TABLE>
<CAPTION>
                                                                     RELOCATION        ALL OTHER
   NAME/PRINCIPAL POSITION       YEAR       SALARY      BONUS(1)        COSTS       COMPENSATION (2)
-----------------------------   ------   -----------   ----------   ------------   -----------------
<S>                             <C>      <C>           <C>          <C>            <C>
   Robert Porcher               1999            --           --             --               --
   Chief Executive Officer      1998            --           --             --               --
   Robert B. Fisher             1999      $185,000           --       $115,000           $6,745
   President                    1998        42,500      $15,750          7,214
   Catherine Cuisson            1999       111,250       13,750             --               --
   Vice President and Chief     1998        27,500        8,500          8,500               --
    Financial Officer
</TABLE>

--------
(1) Includes amounts earned in the indicated period that were paid in the
following period.
(2) Includes contributed by us under our profit sharing and 401(k) plans.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth information regarding each person or entity
that beneficially owns more than a 5% ownership interest in Advanced Glassfiber
Yarns. Each indicated entity has sole voting and investment power with respect
to its respective ownership interest.



<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER                         OWNERSHIP INTEREST
---------------------------------------------   -------------------
<S>                                             <C>
      AGY Holdings, Inc. (1) ................           51%
      Jefferson Holdings, Inc. (2) ..........           49%
</TABLE>

--------
(1) Address is c/o BGF Industries, Inc., 3802 Robert Porcher Way, Greensboro,
    North Carolina 27510. Porcher Industries owns 100% of the outstanding
    capital stock of Glass Holdings Corp., which owns 100% of the outstanding
    capital stock of AGY Holdings, Inc., which is the record holder of a 51%
    ownership interest in Advanced Glassfiber Yarns. Mr. Robert Porcher owns
    54% of the outstanding capital stock of Porcher Industries.
(2) Address is One Owens Corning Parkway, Toledo, Ohio 43659-0001. Owens Corning
    owns 100% of the outstanding capital stock of Jefferson Holdings, Inc.,
    which is the record holder of a 49% ownership interest in Advanced
    Glassfiber Yarns.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Prior to the formation of Advanced Glassfiber Yarns, many of the
components of the glass yarns and specialty materials business were owned,
leased or otherwise controlled by Owens Corning. These components include,


                                       20
<PAGE>

among others, manufacturing facilities and equipment, employees trained in the
use and repair of the equipment, access to raw materials, intellectual property
rights and know-how and agreements with sales representatives worldwide.

     In connection with the formation transactions, we entered into agreements
with Owens Corning and Porcher Industries and their respective affiliates to
facilitate our continuing operation. These agreements are intended to benefit
us and the other parties. However, they may result in conflicts of interest
between us and these related parties.

     The following are summaries of these agreements and, as such, are
qualified in their entirety by reference to the full text of the related
agreements. Unless otherwise indicated, all agreements referred to in this
section were dated September 30, 1998.


LLC PURCHASE AGREEMENT

     Pursuant to an LLC purchase agreement, Porcher Industries purchased a 51%
interest in Advanced Glassfiber Yarns. The LLC purchase agreement required us
to enter into the supply agreements described below relating to the conduct of
our business with Owens Corning, Porcher Industries and their respective
affiliates. The LLC purchase agreement also requires each of Owens Corning and
Porcher Industries to indemnify the other from any and all losses which arise
out of the breach by the other party of any of its representations and
warranties or any of its covenants contained in the LLC purchase agreement.


NON-COMPETITION

     Pursuant to a non-compete agreement, Owens Corning and Porcher Industries
and their respective affiliates agreed not to compete with us in the
manufacture and sale of particular glass yarns and specialty materials that we
currently produce. Owens Corning and Porcher Industries and their respective
affiliates generally may not manufacture or sell, among other things, such
business products, for the later of a five-year period beginning on September
30, 1998 or any date on which either Owens Corning or Porcher Industries owns
less than a 5% ownership interest in us. Owens Corning and its affiliates have
retained the right to manufacture limited types of glass yarns.


EMPLOYEE BENEFITS

     During 1999, Owens Corning permitted our employees, including our
employees who were employed by Owens Corning before September 30, 1998
("Transferred Employees"), to become or remain as participants in, be covered
by, or accrue benefits under certain Owens Corning employee benefit plans. We
reimbursed Owens Corning specified amounts or, in some instances, Owens
Corning's costs for this coverage. These arrangements with Owens Corning
terminated as of December 31, 1999. We also became a participating employer in
the 2 Owens Corning 401(k) Plans. We did not sponsor our own defined benefit
pension plan in 1999. However, we paid Owens Corning specified amounts per
employee who accrued benefits under the Owens Corning Merged Retirement Plan
(the"OC Plan"). We also agreed to pay amounts associated with early retirement
benefits under the OC Plan. Specifically, Transferred Employees who, as of
September 30, 1998, did not qualify for the early retirement benefit under the
OC Plan would continue to receive credit toward eligibility for the early
retirement benefit for service with us. If a Transferred Employee remained
employed by us until he qualifies for early retirement, the OC Plan treated the
Transferred Employee as having elected early retirement upon retirement from
us. We are obligated to pay Owens Corning the difference between the lump sum
benefit payable to the Transferred Employee as an early retiree and the lump
sum benefit payable to the Transferred Employee as a deferred vested benefit on
the date of retirement from us under the applicable provisions of the OC Plan.
These liabilities were estimated to be $5.1 million on the date of the
formation transactions.

     We established our own 401(k) Plan effective January 1, 2000 covering all
eligible employees. There is a defined contribution retirement account within
this plan, which will include self-directed investments into various investment
vehicles. Effective January 1, 2000, we adopted health care and life insurance
benefit plans for certain retired employees and their dependents. The terms of
this plan are substantially the same as the Owens Corning Plan.


                                       21
<PAGE>

     In connection with the formation transactions, we assumed, and currently
remain responsible for, the liabilities for post-retirement medical and life
insurance benefits with respect to Transferred Employees. These liabilities
were estimated to be $12.0 million on the date of the formation transactions.


FACILITIES ARRANGEMENTS AT AIKEN

     Prior to the formation transactions, Owens Corning's glass yarn and glass
mat factories, located in adjacent plants in Aiken, South Carolina, shared a
number of facilities and services. As part of the formation transactions, Owens
Corning transferred to us its glass yarn plant in Aiken, while retaining
ownership of the glass mat plant. In order to preserve the efficiencies and
cost savings created by the sharing arrangements in existence before the
formation transactions, we and Owens Corning have entered into the agreements
described below.

     AIKEN SEWER AGREEMENT -- We entered into a sanitary sewer agreement
pursuant to which we permit Owens Corning to use our sanitary system in Aiken
for sanitary wastewater discharges in exchange for the payment by Owens Corning
of 50% of the actual costs of maintaining our sanitary system. The sanitary
sewer agreement will terminate after a period of ten years, unless extended or
otherwise terminated as set forth therein.

     AIKEN WASTEWATER TREATMENT AGREEMENT -- We entered into a wastewater
treatment agreement pursuant to which we treat at our wastewater treatment
facility in Aiken aqueous industrial and laboratory waste discharged by Owens
Corning. In exchange for such services, Owens Corning pays 22% of our actual
costs of operating the wastewater treatment facility. The wastewater treatment
agreement will terminate after a period of ten years, unless extended or
otherwise terminated as set forth therein.

     AIKEN STORMWATER AGREEMENTS -- We entered into various stormwater
agreements pursuant to which:

     o we permit Owens Corning to discharge stormwater into our two stormwater
       ponds; and

     o Owens Corning permits us to discharge stormwater into Owens Corning's
       landfill sedimentation basin in Aiken.

Each party is individually responsible for any sampling and for complying with
their respective stormwater permits. The stormwater agreements will terminate
after a period of ten years, unless extended or otherwise terminated as set
forth therein.

     AIKEN LANDFILL AGREEMENT -- We entered into a landfill agreement pursuant
to which Owens Corning permits us to use Owens Corning's landfill in Aiken for
the disposal of waste in exchange for our payment of 50% of the actual costs of
operating the landfill. The landfill agreement is effective for the operating
life of the landfill, unless earlier terminated as set forth therein.


FACILITIES ARRANGEMENTS AT HUNTINGDON

     HUNTINGDON LEASE -- Owens Corning leases from us approximately 68,811
square feet of our facility in Huntingdon, Pennsylvania for use as a glass mat
manufacturing and distribution facility. The lease will expire on September 30,
2003, unless extended or terminated as provided in the lease agreement. Owens
Corning pays a nominal fixed fee for the term of the lease plus its allocated
share of all building operating expenses, as calculated in the lease agreement.


     HUNTINGDON AIR MODELING AGREEMENT -- Prior to the formation transactions,
Owens Corning treated its glass yarn and glass mat manufacturing operations in
Huntingdon as a single facility for environmental compliance purposes. As part
of the formation transactions, Owens Corning transferred to us the entire
facility in Huntingdon, a portion of which it leases back from us. In order to
maintain continuity in complying with air emission modeling requirements under
applicable environmental laws, we entered into an air modeling agreement
pursuant to which the parties will treat their respective facilities in
Huntingdon, including the portion leased to Owens Corning, as a single facility
for modeling current and/or projected air emissions. Although we have agreed to
share the costs of the modeling, each party remains solely responsible for its
own environmental liabilities, if any. The air modeling agreement will
terminate after a period of five years, unless extended or otherwise terminated
as set forth therein.


                                       22
<PAGE>

SUBLEASES RELATING TO EQUIPMENT AT AIKEN AND HUNTINGDON

     Prior to the formation transactions, Owens Corning leased equipment used
in the manufacturing of glass yarns at its Aiken and Huntingdon facilities.
Owens Corning agreed to sublease this equipment to us on substantially the same
economic terms as provided to Owens Corning in the original leases.

     At our Aiken facility, we sublease from Owens Corning, pursuant to Owens
Corning's master leases, some manufacturing equipment owned by Carly 1995
Leasing Trust and a vacuum treatment oven owned by Pitney Bowes Credit
Corporation. We sublease other manufacturing equipment from Owens Corning at
its Aiken and Huntingdon facilities pursuant to Owens Corning's master lease
with John Hancock Mutual Life Insurance Company. Specific terms of these
subleases are described below. If any of the master leases are terminated, all
of our rights under the related subleases will also terminate.

     Our sublease with Owens Corning relating to the Carly lease expires on
December 28, 2000. The sublease generally provides that we may purchase the
equipment at the termination of the sublease. We paid Owens Corning
approximately $474,465 pursuant to this sublease during 1999.

     The initial term of our sublease with Owens Corning relating to the Pitney
Bowes/John Hancock lease ends on March 31, 2001, but may be extended for up to
two additional years unless Owens Corning exercises its right to terminate the
sublease. The sublease generally provides that we may purchase the vacuum
treatment oven at the termination of the sublease. We incurred $1,768,121 of
expense pursuant to this sublease during 1999.


SERVICES AGREEMENTS

     We have entered into several agreements pursuant to which Owens Corning
performs services for us that are important to the success of our operations.
Some of these services agreements will only continue for a short time until we
hire and train our own personnel, while others are intended to continue for a
longer duration. These service agreements, which are described more fully
below, provide for the fabrication and repair of equipment, engineering and
technical services, sales agency agreements in Europe and administrative and
information systems services. In addition to the services provided by Owens
Corning, we perform manufacturing and distribution services for Owens Corning
at the Huntingdon facility, where Owens Corning continues to have operations.

     ALLOY SERVICES AGREEMENT -- We entered into an alloy services agreement
pursuant to which Owens Corning provides, at prices to be determined annually,
services relating to the alloying, fabrication and repair of bushings,
thermocouples and glass melter parts constructed from metal alloys. We have
generally agreed to use Owens Corning exclusively for these services. Owens
Corning has also agreed to manage our inventory of industrial precious metals
and metal alloys and to lease to us metal alloys for use in bushings,
thermocouples and glass melter parts at prices determined according to the
formula set forth in the alloy services agreement. This agreement will
terminate on December 31, 2005, unless extended or otherwise terminated. We
paid Owens Corning $3,885,000 for the refurbishing of bushings during 1999.

     SUPPORT SERVICES AGREEMENT -- We entered into a support services agreement
pursuant to which Owens Corning provides engineering, design and technical
services to us at previously agreed upon prices for a five-year period. The
support services agreement will be automatically extended each year for an
additional one-year term until terminated.

     TRANSITIONAL SERVICES AGREEMENT -- We entered into a transitional services
agreement pursuant to which Owens Corning provides corporate, administrative
and information systems services to us at mutually agreed upon prices. The
provision of payroll and selected administration functions will continue until
December 31, 2000. The provision of all other services provided for in the
transitional services agreement expired on December 31, 1999 or earlier.

     MANUFACTURING SERVICES AGREEMENT -- We entered into a manufacturing
services agreement pursuant to which we provide manufacturing services to Owens
Corning to support their glass mat manufacturing and distribution business in
Huntingdon. Owens Corning pays an annual fee (to be mutually agreed upon and
periodically reviewed) for our provision of manufacturing, management and
ancillary services and pays additional fees in exchange for our provision of
other services that may be requested by Owens Corning. The manufacturing
services agreement


                                       23
<PAGE>

will expire whenever Owens Corning or any of its affiliates no longer owns a
49% ownership interest in us, unless earlier terminated.


SUPPLY AGREEMENTS

     Prior to the formation transactions, Owens Corning obtained raw materials
from its affiliates or through third party suppliers. We have entered into
supply agreements, more fully described below, which provide us with access to
the necessary raw materials through Owens Corning's affiliated and non-
affiliated suppliers. In addition, pursuant to the agreements described below,
we purchased assets of the glass yarns business of several of Owens Corning's
non-U.S. affiliates. We also agreed to sell byproducts of one of its
manufacturing processes to Owens Corning.

     BYPRODUCTS SUPPLY AGREEMENT -- We entered into a supply agreement pursuant
to which Owens Corning will purchase the first 10 million pounds of byproducts
of our manufacturing processes called dry chopped yarn and slit hanks, also
known as "sliver," that we produce each year. Each year, Owens Corning will pay
a fixed price per pound for the first 10 million pounds of byproducts and a
higher fixed price for any additional amounts shipped by us. We are under no
obligation to manufacture any specified quantity of the byproducts to supply to
Owens Corning. The byproducts supply agreement will expire on December 31,
2003, after which it may be renewed for additional five-year terms, unless
canceled by either party.

     BORATES SUPPLY AGREEMENT -- Prior to the formation transactions, Owens
Corning entered into an agreement with Etibank, a supplier of borates in Turkey
that is owned by the Turkish government, pursuant to which Etibank mines,
processes, sells and delivers borates to Owens Corning for use in manufacturing
glass yarns. We entered into a borates supply agreement pursuant to which we
purchase borates from Owens Corning at a price equal to Owens Corning's cost to
purchase, transport and process borates plus a $150,000 annual administrative
charge. The borates supply agreement will terminate on December 31, 2005, after
which it will automatically renew for a period equal to any renewal period in
Owens Corning's supply agreement with Etibank, unless canceled by either party
upon 90 days' advance notice.

     OC BELGIUM AGREEMENTS -- We and N.V. Owens Corning S.A., a wholly owned
subsidiary of Owens Corning ("OC Belgium"), entered into a supply agreement
pursuant to which we purchase at previously determined prices fiberglass yarns
to be manufactured by OC Belgium at its facility in Battice, Belgium. We also
have the option to acquire the Battice plant's fiberglass yarns manufacturing
equipment upon the termination of the agreement or at the time Owens Corning no
longer uses this equipment to produce fiberglass yarns. The supply agreement
with OC Belgium will terminate on December 31, 2003, after which it may be
renewed for additional one-year terms, unless canceled by either party. In
addition, we have an exclusive right to terminate this agreement effective
December 31, 2001 upon one year's prior notice.

     We and OC Belgium also entered into a purchase agreement pursuant to which
we purchased OC Belgium's list of customers that purchase heavy glass yarns
from OC Belgium, transferable contracts between OC Belgium and its customers,
the finished products inventory of heavy glass yarns owned by OC Belgium that
were located in its public warehouse in Antwerp, Belgium, and all of OC
Belgium's accounts receivable arising exclusively out of the sale of heavy
glass yarns by OC Belgium.

     OC CANADA AGREEMENTS -- Our Canadian subsidiary and Owens-Corning Canada,
Inc., a wholly owned subsidiary of Owens Corning ("OC Canada"), entered into a
supply agreement pursuant to which we purchase at previously determined prices
minimum and maximum quantities of fiberglass yarns to be manufactured by OC
Canada at its facility in Guelph, Canada.

     Our Canadian subsidiary and OC Canada also entered into a purchase
agreement pursuant to which we purchased OC Canada's list of customers which
purchase heavy glass yarns from OC Canada, transferable contracts between OC
Canada and its customers, and all of OC Canada's accounts receivable arising
exclusively out of the sale of heavy glass yarns by OC Canada.

     OC JAPAN AGREEMENT -- We and Owens Corning (Japan) Ltd., a wholly owned
subsidiary of Owens Corning ("OC Japan"), entered into a purchase agreement
pursuant to which we purchased OC Japan's list of customers which purchase
glass yarns from OC Japan, various transferable contracts between OC Japan, its
customers, all


                                       24
<PAGE>

of OC Japan's accounts receivable arising exclusively out of the sale of glass
yarns by OC Japan, and the finished products inventory of glass yarns owned by
OC Japan that were located in its warehouses in Tokyo and Osaka, Japan. This
agreement expired on December 31, 1999 and was not renewed.

     RIO CLARO LOW TEX TYPE 30 AGREEMENTS -- We and Owens Corning do Brazil
Ltda ("OC Brazil"), and Owens Corning France ("OC France"), wholly owned
subsidiaries of Owens Corning, intend to enter into supply agreements pursuant
to which we will purchase for distribution minimum and maximum quantities of
fiberglass yarns with a bare glass linear density of 300 at agreed upon prices.
These yarns are to be manufactured by OC Brazil at its plant in Rio Claro,
Brazil and by OC France at its plant in L'Ardoise, France.

     GLASS MARBLES SUPPLY AGREEMENT -- We entered into a glass marbles supply
agreement pursuant to which we purchase exclusively from Owens Corning at
mutually determined prices all of our requirements for glass marbles for use in
our glass yarns business. Owens Corning has agreed not to supply glass marbles
to any third party for use in the manufacturing of glass yarns. We have the
option to acquire Owens Corning's glass marbles manufacturing equipment upon
the termination of the agreement or at the time Owens Corning no longer uses
this equipment to produce glass marbles. The glass marbles supply agreement
will expire on December 31, 2005, after which it may be renewed for additional
five-year terms by either party, unless terminated by us upon two years' prior
notice. We purchased $4,988,000 of glass marbles during 1999 from Owens
Corning.


CO-LOCATION ARRANGEMENT WITH BGF INDUSTRIES IN SOUTH HILL, VIRGINIA

     Prior to the formation transactions, Owens Corning entered into a
co-location arrangement with BGF Industries in South Hill, Virginia. As a
result of the formation transactions, we have succeeded to Owens Corning's
rights and obligations under the co-location arrangement. As part of the
arrangement, we lease approximately 27,200 square feet of segregated space
within BGF Industries' recently built multi-layer plant for the purpose of
manufacturing fiberglass yarn for sale to BGF Industries pursuant to a 10-year
renewable supply contract. We paid BGF Industries approximately $655,169
pursuant to this co-location arrangement during 1999. Also as part of the
co-location arrangement, we lease from BGF Industries manpower at an hourly job
rate per employee and BGF Industries provides technical, quality control and
improvement and other non-managerial services at previously determined rates.
The employee leasing and services contracts end upon the termination of either
the premises lease or the supply contract. The parties also have agreed to
confidentiality and disclosure obligations in connection with the co-location
arrangement.


INTELLECTUAL PROPERTY

     In connection with the formation transactions, Owens-Corning Fiberglas
Technology, Inc., a wholly owned subsidiary of Owens Corning, assigned to us
patents, know-how, trademarks and business information, relating to or used in
our business. Owens Corning has also licensed to us additional intellectual
property assets and rights, mainly patents and know-how, pursuant to a patent
and know-how license agreement and related agreements (collectively, the
"Master License"). The Master License grants to us a worldwide, paid-up and
royalty-free license to make, have made, use, sell, import and offer to sell
glass fiber yarns and specialty products. The license is exclusive for the
duration of the non-compete agreement between Owens Corning and us with respect
to various products and non-exclusive with respect to others, and we have
limited sublicensing rights. The patent license included in the Master License
is for the life of the patent, while the know-how license is perpetual. The
patent and know-how licenses are terminable only upon the occurrence of
specified events. The Master License also includes a grant-back license
pursuant to which Owens Corning may manufacture, import and sell a very limited
class of yarn products under our patents and know how. This grant-back license
does not include those products which Owens Corning is prohibited from selling
for the duration of the non-compete agreement. The Master License further
provides that Owens Corning has agreed to render to us, upon request and on
terms to be agreed upon, a very limited class of services relating to our
manufacture of glass yarn products.


                                       25
<PAGE>

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K


<TABLE>
<S>         <C>
 (a)        DOCUMENTS INCORPORATED BY REFERENCE OR FILED WITH THIS REPORT:
 1.         FINANCIAL STATEMENTS
            See Index on page F-1.
 2.         FINANCIAL STATEMENT SCHEDULES
            See Index on page F-1.
 3.         EXHIBITS
</TABLE>


<TABLE>
<CAPTION>
    EX.       DESCRIPTION
-----------   --------------------------------------------------------------------------------------------------
<S>           <C>
  2.1*        Amended and Restated Asset Contribution Agreement dated as of July 31, 1998 between Owens
              Corning and Lincoln Yarns LLC
  2.2*        LLC Interest Sale and Purchase Agreement dated as of July 31, 1998 among Owens Corning,
              Lincoln Yarns LLC and Glass Holdings Corp.
  2.3*        Amendment No. 1 to LLC Interest Sale and Purchase Agreement dated as of September 30, 1998
              among Owens Corning, Advanced Glassfiber Yarns LLC and AGY Holdings, Inc.
  3.1*        Certificate of Formation of Advanced Glassfiber Yarns LLC
  3.2*        Advanced Glassfiber Yarns LLC Amended and Restated Limited Liability Company Operating
              Agreement between Jefferson Holdings, Inc. and AGY Holdings, Inc. dated as of September 30,
                1998
  3.3*        Certificate of Incorporation of AGY Capital Corp.
  3.4*        Bylaws of AGY Capital Corp.
  4.1*        Indenture, dated as of January 21, 1999, among Advanced Glassfiber Yarns LLC, AGY Capital
              Corp., the Guarantors and Bank of New York, as trustee, relating to $150 million principal amount
              of 9 7/8% Senior Subordinated Notes due 2009.
  4.2*        Form of 9 7/8% Series A and Series B Senior Subordinated Notes due 2009 (included in
              Exhibit 4.1)
  4.3*        Registration Rights Agreement dated as of January 21, 1999 among Advanced Glassfiber Yarns
              LLC, AGY Capital Corp. and the Initial Purchasers
 10.1*        Patent and Know How License Agreement dated as of September 30, 1998 among Owens Corning
              Fiberglas Technology, Inc., Owens Corning and Advanced Glassfiber Yarns LLC
 10.2*        Glass Marbles Supply Agreement dated as of September 30, 1998 between Owens Corning and
              Advanced Glassfiber Yarns LLC
 10.3*        Alloy Services Agreement dated as of September 30, 1998 between Advanced Glassfiber Yarns
              LLC and Owens Corning
 10.4*        Non-Compete Agreement dated as of September 30, 1998 among Owens Corning, AGY Holdings
              Corp., Porcher Industries, S.A. and Advanced Glassfiber Yarns LLC
 10.5*        Manufacturing Services Agreement dated as of September 30, 1998 between Owens Corning and
              Advanced Glassfiber Yarns LLC
 10.6*        Trademark Assignment Agreement dated as of September 30, 1998 by Owens Corning Fiberglas
              Technology, Inc. and Owens Corning in favor of Advanced Glassfiber Yarns LLC
 10.7*        Master Patent and Know How Assignment Agreement dated as of September 30, 1998 by Owens
              Corning Fiberglas Technology, Inc., Owens Corning and Advanced Glassfiber Yarns LLC
 10.8*        Borates Supply Agreement dated as of September 30, 1998 between Owens Corning and Advanced
              Glassfiber Yarns LLC
</TABLE>

                                       26
<PAGE>


<TABLE>
<CAPTION>
    EX.      DESCRIPTION
----------   --------------------------------------------------------------------------------------------------
<S>          <C>
10.9*        Transitional Services Agreement dated as of September 30, 1998 by and among Owens Corning
             and Advanced Glassfiber Yarns LLC
 10.10*      Support Services Agreement dated as of September 30, 1998 between Advanced Glassfiber Yarns
             LLC and Owens Corning
 10.11*      Software License Agreement dated as of September 30, 1998 between Owens Corning and
             Advanced Glassfiber Yarns LLC
 10.12*      Keep-Well Agreement dated as of September 30, 1998 between Owens Corning and Advanced
             Glassfiber Yarns LLC
 10.13*      Senior Credit Agreement dated as of September 30, 1998 among Advanced Glassfiber Yarns LLC,
             the Guarantors, First Union National Bank, as agent and lender, and certain other lenders
 10.14*      Senior Subordinated Credit Agreement dated as of September 30, 1998 among Advanced
             Glassfiber Yarns LLC, the Guarantors, First Union Investors, Inc., as co-agent and lender, and
             Warburg Dillon Read LLC, as co-agent and lender
 10.15*      Note Purchase Agreement dated January 21, 1999 among Advanced Glassfiber Yarns LLC, AGY
             Capital Corp. and the Initial Purchasers
 10.16       Syndication Amendment and Assignment dated as of November 30. 1998 among Advanced
             Glassfiber Yarns LLC, the Guarantors, First Union National Bank, as agent and lender, and certain
             other lenders.
 10.17       Second Amendment to Credit Agreement dated as of December 16, 1999 among Advanced
             Glassfiber Yarns LLC, the Guarantors, First Union National Bank, as agent and lender, and certain
             other lenders.
   12        Statement re Computation of Ratios
   21*       Subsidiaries of the Registrant
   27        Financial Data Schedule
</TABLE>

--------
* Filed as part of our Registration Statement (333-72305) filed with the SEC
and incorporated herein by reference.


(b)  REPORTS ON FORM 8-K

     No reports on Form 8-K were filed by the Registrant during the fourth
quarter of the fiscal year ending December 31, 1999.


                                       27
<PAGE>

                                  SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this annual report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Aiken, State of South Carolina, on March 30, 2000.

                                            ADVANCED GLASSFIBER YARNS LLC


                                            By    /s/ CATHERINE CUISSON
                                                -------------------------------
                                                    CATHERINE CUISSON
                                                  CHIEF FINANCIAL OFFICER

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this annual report on Form 10-K has been signed by the
following persons in the capacities and on the dates indicated:



<TABLE>
<CAPTION>
               SIGNATURE                             TITLE                     DATE
--------------------------------------   -----------------------------   ---------------
<S>                                      <C>                             <C>
         /s/ ROBERT PORCHER              Chief Executive Officer and     March 30, 2000
-------------------------------------    Chairman of the Board
             ROBERT PORCHER              of Directors

                                         Director
-------------------------------------
              HEINZ J. OTTO

          /s/ SERGE PIOLAT               Director                        March 30, 2000
-------------------------------------
              SERGE PIOLAT

        /s/ PHILIPPE PORCHER             Director                        March 30, 2000
-------------------------------------
            PHILIPPE PORCHER

        /s/ J. THURSTON ROACH            Director                        March 30, 2000
-------------------------------------
            J. THURSTON ROACH

        /s/ ROBERT G. PISTOLE            President                       March 30, 2000
-------------------------------------
            ROBERT G. PISTOLE

        /s/ CATHERINE CUISSON            Vice President and              March 30, 2000
-------------------------------------    Chief Financial Officer
            CATHERINE CUISSON            (Principal Financial and
                                         Accounting Officer)

</TABLE>



                                       28
<PAGE>

                                  SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this annual report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Aiken, State of South Carolina, on March 30, 2000.

                                            AGY CAPITAL CORP.



                                            By    /s/ CATHERINE CUISSON
                                                -------------------------------
                                                    CATHERINE CUISSON
                                                  CHIEF FINANCIAL OFFICER

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this annual report on Form 10-K has been signed by the
following persons in the capacities and on the dates indicated:



<TABLE>
<CAPTION>
               SIGNATURE                             TITLE                     DATE
--------------------------------------   -----------------------------   ---------------
<S>                                      <C>                             <C>
         /s/ ROBERT PORCHER              Chief Executive Officer and     March 30, 2000
-------------------------------------    Chairman of the Board
             ROBERT PORCHER              of Directors

                                         Director
-------------------------------------
              HEINZ J. OTTO

          /s/ SERGE PIOLAT               Director                        March 30, 2000
-------------------------------------
              SERGE PIOLAT

        /s/ PHILIPPE PORCHER             Director                        March 30, 2000
-------------------------------------
            PHILIPPE PORCHER

        /s/ J. THURSTON ROACH            Director                        March 30, 2000
-------------------------------------
            J. THURSTON ROACH

        /s/ ROBERT G. PISTOLE            President                       March 30, 2000
-------------------------------------
            ROBERT G. PISTOLE

        /s/ CATHERINE CUISSON            Vice President and              March 30, 2000
-------------------------------------    Chief Financial Officer
            CATHERINE CUISSON            (Principal Financial and
                                         Accounting Officer)

</TABLE>

                                       29
<PAGE>

                         ADVANCED GLASSFIBER YARNS LLC

                         INDEX TO FINANCIAL STATEMENTS



<TABLE>
<CAPTION>
                                                                                              PAGES
                                                                                             ------
<S>                                                                                          <C>
Report of Independent Accountants ........................................................    F-2
Report of Independent Accountants ........................................................    F-3
Balance Sheets as of December 31, 1999 and 1998 ..........................................    F-4
Statements of Operations for the year ended December 31, 1999, and the periods October 1,
  1998 to December 31, 1998 and January 1, 1998 to September 30, 1998 and year ended
  December 31, 1997 ......................................................................    F-5
Statements of Comprehensive Income for the year ended December 31, 1999, and the periods
  October 1, 1998 to December 31, 1998 and January 1, 1998 to September 30, 1998 and the
  year ended December 31, 1997 ...........................................................    F-6
Statements of Cash Flows for year ended December 31, 1999 and the periods, October 1,
  1998 to December 31, 1998 and January 1, 1998 to September 30, 1998 and the year ended
  December 31, 1997 ......................................................................    F-7
Notes to Financial Statements ............................................................    F-8
</TABLE>


                                      F-1
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

TO THE BOARD OF DIRECTORS
ADVANCED GLASSFIBER YARNS LLC

     We have audited the accompanying consolidated balance sheets of Advanced
Glassfiber Yarns LLC and subsidiaries ("AGY" or "the Consolidated Company") as
of December 31, 1999 and December 31, 1998 and the related statements of
operations, of comprehensive income and of cash flows for the year ending
December 31, 1999 and for the period from October 1, 1998 to December 31, 1998.
We have also audited the statements of operations, of comprehensive income and
of cash flows of the Predecessor Business (as described in Note 1) for the
period from January 1, 1998 to September 30, 1998. These financial statements
are the responsibility of the Company's and the Predecessor Business'
management, respectively. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements of the
Company as of December 31, 1997 and for the year then ended were audited by
other auditors, whose report dated August 14, 1998 expressed an unqualified
opinion on these statements.

     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.

     The financial statements for the periods ended prior to October 1, 1998 do
not reflect the new basis of accounting established by the acquisition of the
51% interest in the Predecessor Business as described in Note 1, and are
presented on the historical cost basis existing prior to the acquisition
period.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AGY as of December 31, 1999
and December 31, 1998 and the results of their operations and of their cash
flows for the year ended December 31, 1999, and for the period from October 1,
1998 to December 31, 1998 and the results of operations and cash flows of the
Predecessor Business for the period from January 1, 1998 to September 30, 1998,
in conformity with accounting principles generally accepted in the United
States.




PRICEWATERHOUSECOOPERS LLP
February 29, 2000


                                      F-2
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO THE BOARD OF DIRECTORS OF
OWENS CORNING

     We have audited the accompanying statements of operations, comprehensive
income and cash flows of the GLASS YARNS AND SPECIALTY MATERIALS BUSINESS, a
business unit of OWENS CORNING, a Delaware corporation as described in Note 1,
for the year ended December 31, 1997. These financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements based on our audit.

     We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provide a reasonable basis
for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of the GLASS
YARNS AND SPECIALTY MATERIALS BUSINESS for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.



                                            ARTHUR ANDERSEN LLP

Toledo, Ohio
August 14, 1998

                                      F-3
<PAGE>

                         ADVANCED GLASSFIBER YARNS LLC
            (FORMERLY GLASS YARNS AND SPECIALTY MATERIALS BUSINESS)


                                 BALANCE SHEETS


                                 (IN THOUSANDS)



<TABLE>
<CAPTION>
                                                                       CONSOLIDATED COMPANY
                                                                  ------------------------------
                                                                   DECEMBER 31,     DECEMBER 31,
                                                                       1999             1998
                                                                  --------------   -------------
<S>                                                               <C>              <C>
ASSETS
Current assets:
  Cash and cash equivalents ...................................      $  6,223         $ 12,779
  Trade receivables, less allowance of $3,200 in 1999 and $2,823
  in 1998 .....................................................        32,686           32,657
  Inventories (Note 3) ........................................        26,813           24,691
  Other current assets ........................................           645              217
                                                                     --------         --------
   Total current assets .......................................        66,367           70,344
Property, plant and equipment, net (Note 4) ...................       151,605          152,364
Intangible assets, net (Note 5) ...............................       235,670          242,148
Other assets ..................................................            --              613
                                                                     --------         --------
   Total assets ...............................................      $453,642         $465,469
                                                                     ========         ========
LIABILITIES AND MEMBERS' INTEREST
Current liabilities:
  Current portion of long-term debt (Note 7) ..................      $ 18,390         $ 14,297
  Accounts payable ............................................        24,989            9,716
  Accrued liabilities (Note 6) ................................        16,659           11,783
  Due to Owens Corning ........................................         8,293            2,487
                                                                     --------         --------
   Total current liabilities ..................................        68,331           38,283
Pension and other employee benefit plans (Note 10) ............        21,796           18,000
Long-term debt, less current portion (Note 7) .................       341,465          387,901
Deferred distribution .........................................         1,819               --
                                                                     --------         --------
   Total liabilities ..........................................       433,411          444,184
Commitments and contigencies (Note 9 and 18) ..................
Members' interest (Notes 8 and 16) ............................        20,231           21,285
                                                                     --------         --------
   Total liabilities and members' interest ....................      $453,642         $465,469
                                                                     ========         ========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      F-4
<PAGE>

                         ADVANCED GLASSFIBER YARNS LLC
            (FORMERLY GLASS YARNS AND SPECIALTY MATERIALS BUSINESS)


                            STATEMENTS OF OPERATIONS


                                 (IN THOUSANDS)



<TABLE>
<CAPTION>
                                                         CONSOLIDATED COMPANY                   PREDECESSOR BUSINESS
                                                 ------------------------------------   ------------------------------------
                                                      YEAR            PERIOD FROM            PERIOD FROM            YEAR
                                                      ENDED         OCTOBER 1, 1998        JANUARY 1, 1998         ENDED
                                                  DECEMBER 31,             TO                    TO             DECEMBER 31,
                                                      1999         DECEMBER 31, 1998     SEPTEMBER 30, 1998         1997
                                                 --------------   -------------------   --------------------   -------------
<S>                                              <C>              <C>                   <C>                    <C>
Net sales (Note 14) ..........................      $252,236            $63,403               $205,248           $277,357
Cost of sales ................................       183,138             43,494                134,820            182,366
                                                    --------            -------               --------           --------
  Gross margin ...............................        69,098             19,909                 70,428             94,991
Selling, general and administrative
  expenses ...................................        16,812              4,123                 11,487             14,813
Amortization .................................        11,611              2,848                     --                 --
Restructuring costs ..........................           290                 --                  2,034                 --
                                                    --------            -------               --------           --------
  Income from operations .....................        40,385             12,938                 56,907             80,178
Interest expense (Note 12) ...................        36,824              9,113                     --                 --
Other income .................................        (2,235)              (450)                (2,328)            (2,688)
                                                    --------            -------               --------           --------
  Income before provision for income
   taxes and extraordinatory item ............         5,796              4,275                 59,235             82,866
Provision for income taxes (Note 13) .........           190                 --                 16,226             32,540
                                                    --------            -------               --------           --------
Income before extraordinary item .............         5,606              4,275                 43,009             50,326
Extraordinary item, loss on early
  extinguishment of debt (Note 7) ............         3,616                 --                     --                 --
                                                    --------            -------               --------           --------
Net income ...................................      $  1,990            $ 4,275               $ 43,009           $ 50,326
                                                    ========            =======               ========           ========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      F-5
<PAGE>

                         ADVANCED GLASSFIBER YARNS LLC
            (FORMERLY GLASS YARNS AND SPECIALTY MATERIALS BUSINESS)


                       STATEMENTS OF COMPREHENSIVE INCOME


                                (IN THOUSANDS)



<TABLE>
<CAPTION>
                                                   CONSOLIDATED COMPANY                   PREDECESSOR BUSINESS
                                           ------------------------------------   ------------------------------------
                                                YEAR            PERIOD FROM            PERIOD FROM            YEAR
                                                ENDED         OCTOBER 1, 1998        JANUARY 1, 1998         ENDED
                                            DECEMBER 31,             TO                    TO             DECEMBER 31,
                                                1999         DECEMBER 31, 1998     SEPTEMBER 30, 1998         1997
                                           --------------   -------------------   --------------------   -------------
<S>                                        <C>              <C>                   <C>                    <C>
Net income .............................       $1,990             $4,275                 $43,009            $50,326
Other comprehensive income (loss):
  Foreign currency translation .........          199                  (1)                   539               (935)
                                               ------             --------               -------            -------
Comprehensive income ...................       $2,189             $4,274                 $43,548            $49,391
                                               ======             =======                =======            =======
</TABLE>

       The accompanying notes are an integral part of these statements.

                                      F-6
<PAGE>

                         ADVANCED GLASSFIBER YARNS LLC
            (FORMERLY GLASS YARNS AND SPECIALTY MATERIALS BUSINESS)


                            STATEMENTS OF CASH FLOWS


                                 (IN THOUSANDS)



<TABLE>
<CAPTION>
                                                             CONSOLIDATED COMPANY               PREDECESSOR BUSINESS
                                                      ---------------------------------- -----------------------------------
                                                           YEAR          PERIOD FROM          PERIOD FROM           YEAR
                                                           ENDED       OCTOBER 1, 1998      JANUARY 1, 1998        ENDED
                                                       DECEMBER 31,           TO                   TO           DECEMBER 31,
                                                           1999       DECEMBER 31, 1998   SEPTEMBER 30, 1998*       1997
                                                      -------------- ------------------- --------------------- -------------
<S>                                                   <C>            <C>                 <C>                   <C>
Cash flows from operating activities:
 Net income .........................................   $    1,990        $ 4,275             $   43,009         $  50,326
 Adjustments to reconcile net income to net cash
  provided by operating activities:
  Depreciation ......................................       12,376          2,753                  6,394             8,305
  Amortization of debt issuance costs ...............        1,795            374                     --                --
  Amortization of goodwill and other intangibles.....       11,611          2,848                     --                --
  Amortization of bond discount .....................          181             --                     --                --
  Pension and postretirement ........................        3,796            900                  1,912               956
  Inventory noncash change (Note 11) ................           --          1,321                     --                --
  Deferred income tax (credit) provision ............           --             --                   (841)            2,303
  Loss on disposal of property, plant and
    equipment .......................................           --             --                     --               192
  Loss on early extinguishment if debt ..............        3,616             --                     --                --
  Alloy depletion ...................................        2,254            613                  2,499             3,200
  Changes in assets and liabilities:
    Trade receivables, net ..........................           35           (478)               (13,788)            3,463
    Inventories .....................................       (2,108)        (2,489)                (3,591)            1,744
    Other assets ....................................          184            (34)                  (278)             (291)
    Trade accounts payable ..........................       16,257          6,486                   (468)            3,374
    Accrued liabilities and other ...................        7,200          2,250                    702            (6,760)
    Income taxes payable ............................           --             --                 (7,112)           (1,538)
                                                        ----------        -------             ----------         ---------
     Net cash provided by operating activities ......       59,187         18,819                 28,438            65,274
                                                        ----------        -------             ----------         ---------
Cash flows from investing activities:
 Additions to property, plant and equipment .........      (15,277)        (3,327)               (13,509)           (8,324)
 Other ..............................................         (326)            --                     --                --
                                                        ----------        -------             ----------         ---------
     Net cash used in investing activities ..........      (15,603)        (3,327)               (13,509)           (8,324)
                                                        ----------        -------             ----------         ---------
Cash flows from financing activities:
 Proceeds from (payments on) revolving loan .........       (5,000)         1,000                 14,000                --
 Payments on swingline ..............................         (300)            --                     --                --
 Proceeds from (payments on) bridge facility ........     (150,000)            --                150,000                --
 Proceeds from (payments on) term loans .............      (34,125)        (3,187)               240,000                --
 Payments on capital lease ..........................         (100)            --                     --                --
 Proceeds from senior notes .........................      147,000             --                     --                --
 Repayments to members ..............................           --           (525)                    --                --
 Distribution to Porcher Industries .................           --             --               (203,624)               --
 Distribution to Owens Corning ......................       (1,587)            --               (195,638)               --
 Contribution from Owens Corning ....................           --             --                  2,250                --
 Net transfers to Owens Corning .....................           --             --                (14,940)          (56,922)
 Payment of financing costs .........................       (6,043)            --                 (6,988)               --
                                                        ----------        -------             ----------         ---------
Net cash used in financing activities ...............      (50,155)        (2,712)               (14,940)          (56,922)
                                                        ----------        -------             ----------         ---------
 Effect of exchange rate on cash ....................           15               (1)                  11               (28)
                                                        ----------        ----------          ----------         ---------
Net increase (decrease) in cash .....................       (6,556)        12,779                     --                --
Cash, beginning of period ...........................       12,779             --                     --                --
                                                        ----------        ---------           ----------         ---------
Cash, end of period .................................   $    6,223        $12,779             $       --         $      --
                                                        ----------        ---------           ----------         ---------
Interest paid .......................................   $   27,697        $ 8,929             $       --         $      --
                                                        ----------        ---------           ----------         ---------
Non-cash financing/investing activities:
 Capital lease ......................................   $       --        $   386             $       --         $      --
                                                        ----------        ---------           ----------         ---------
 Non-cash contributions to capital (Note 8) .........   $       --        $    --             $   87,134         $      --
                                                        ----------        ---------           ----------         ---------
 Deferred distribution to Porcher Industries ........   $    1,656        $    --             $       --         $      --
                                                        ----------        ---------           ----------         ---------
 Step-up of assets from sale of 51% interest ........   $       --        $    --             $  267,341         $      --
                                                        ----------        ---------           ----------         ---------
 Additions to property, plant and equipment
  included in accounts payable ......................   $    2,765        $ 3,230             $       --         $      --
                                                        ----------        ---------           ----------         ---------
 Final fixed asset appraisal reclassification
  (Note 1) ..........................................   $    4,171        $    --             $       --         $      --
                                                        ----------        ---------           ----------         ---------
</TABLE>

*Includes the financing and distribution transactions (See Note 1).


        The accompanying notes are an integral part of these statements.

                                      F-7
<PAGE>

                         ADVANCED GLASSFIBER YARNS LLC
            (FORMERLY GLASS YARNS AND SPECIALTY MATERIALS BUSINESS)


                         NOTES TO FINANCIAL STATEMENTS


1. BASIS OF PRESENTATION

     Advanced Glassfiber Yarns LLC ("AGY" or the "Company") was formed by Owens
Corning to own and operate Owens Corning's glass yarns and specialty materials
business (the "Predecessor Business" or the "Company"), which was contributed
to AGY, then a wholly-owned subsidiary of Owens Corning, on July 1, 1998 (the
"Contribution"). On September 30, 1998, Owens Corning sold a 51% interest in
AGY to a wholly owned subsidiary of Porcher Industries, S.A. ("Porcher
Industries") for aggregate consideration of $338.9 million (the "Majority
Purchase"). In addition, Porcher Industries paid fees and expenses of
approximately $3.2 million in connection with the Majority Purchase. Therefore,
the total aggregate consideration paid by Porcher Industries for its 51%
interest in AGY was $342.1 million. Owens Corning retained a 49% interest in
AGY.

     Prior to October 1, 1998, the Predecessor Business was managed as an
operating unit of the Composites Systems Business of Owens Corning which
provided certain administrative and operational support. The accompanying
financial statements prior to the Majority Purchase include the cost of the
Predecessor Business' employees and allocations of certain corporate services
provided by Owens Corning. Management, using its experience with the
Predecessor Business and its judgment, allocated approximately $6.2 million and
$7.8 million of such corporate services and other support to the Predecessor
Business for the nine months ended September 30, 1998 and the year ended
December 31, 1997, respectively. The allocations were made primarily by
estimating the proportional historical cost of various corporate departments
and other functions providing services to the Predecessor Business. The
proportions were based primarily upon estimates of the number of full time
equivalent employees rendering service to the Predecessor Business. Management
believes that its methodology is reasonable and that the costs of the
operational and administrative support included in the accompanying financial
statements prior to the Majority Purchase are comparable to those that the
Predecessor Business would have incurred had it operated as a separate entity.
The financial information presented herein may not necessarily reflect the
financial position and results of operations of the Predecessor Business in the
future.

     Concurrently with the Majority Purchase, AGY was recapitalized. AGY
borrowed an aggregate of $404.0 million through a combination of $254.0 million
under a Senior Credit Facility (as defined herein) and $150.0 million under a
Senior Subordinated Credit Facility (the "Subordinated Facility"). AGY used the
proceeds from the initial borrowing under the Senior Credit Facility and
Subordinated Facility plus a $2.2 million contribution from Owens Corning to
pay (i) an aggregate cash distribution of $399.2 million (the "Distribution")
to Owens Corning and Porcher Industries in the amounts of $195.6 million and
$203.6 million, respectively, and (ii) approximately $7.0 million in fees and
expenses. The initial borrowings under the Senior Credit Facility and the
Subordinated Facility, and the application of the net proceeds therefrom are
collectively referred to as the "Financings". The Financings, together with the
Contribution and Majority Purchase are collectively referred to as the
"Formation Transactions".

     In connection with the Formation Transactions, the net cash outlay by
Porcher Industries was $138.5 million, represented by the $338.9 million paid
for the Majority Purchase plus fees and expenses of $3.2 million less the
$203.6 million cash distribution Porcher Industries received from AGY. The
total cash consideration received by Owens Corning was $532.3 million,
comprised of the $338.9 million paid by Porcher Industries and the $195.6
million cash distribution received from AGY less a $2.2 million contribution.

     The acquisition of the 51% interest in AGY by a wholly owned subsidiary of
Porcher Industries was accounted for as a partial purchase business combination
in accordance with the provisions of APB No. 16 "Business Combinations" and
EITF Issue No. 88-16, "Basis in Leveraged Buyout Transactions."


                                      F-8
<PAGE>

                         ADVANCED GLASSFIBER YARNS LLC
            (FORMERLY GLASS YARNS AND SPECIALTY MATERIALS BUSINESS)
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

1. BASIS OF PRESENTATION -- (Continued)

     The allocation of the purchase price, as adjusted in 1999 based on final
appraisals, was as follows (in thousands):


<TABLE>
<S>                                               <C>
        Accounts receivable ...................    $  16,411
        Inventories ...........................       12,645
        Property, plant and equipment .........       88,212
        Other assets ..........................          407
        Identifiable intangibles ..............       22,000
        Goodwill ..............................      216,611
        Accrued liabilities ...................      (14,137)
                                                   ---------
                                                   $ 342,149
                                                   =========
</TABLE>

     In 1999, the Company received final appraisals on the assets acquired and
as a result a reclassification of $4.2 million was made between property, plant
and equipment and goodwill.


2. ACCOUNTING POLICIES


     PRINCIPLES OF CONSOLIDATION

     The business is conducted through the Company and three wholly-owned
subsidiaries, AGY Yarns Canada, AGY Capital Corp. and AGY Europe SARL.
Significant intercompany accounts and transactions have been eliminated.
Separate financial statements or condensed consolidating financial data of the
wholly-owned subsidiaries are not presented as management has determined that
they would not be material to the holders of the Company's Senior Subordinated
Notes.


     CASH AND CASH EQUIVALENTS

     The Company considers cash on hand, cash deposited in financial
institutions and money market accounts with maturities of less than ninety days
at date of purchase to be cash equivalents. These are stated at cost which
approximates market value.


     INVENTORIES

     Inventories are stated at the lower of cost or market value and include
material, labor and manufacturing overhead. Cost is determined using the
first-in, first-out (FIFO) method.


     REBUILD OF GLASS MELTING FURNACES

     Glass melting furnaces periodically require substantial rebuilding. The
time period between rebuilds varies depending upon the utilization of the
furnace. The Company applies the capital method of accounting for the cost to
rebuild glass melting furnaces. Under this method, costs are capitalized when
incurred and depreciated over the estimated useful lives of the rebuilt
furnaces, which is approximately 14 years.


     PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment are stated at cost, less accumulated
depreciation. Depreciation of property, plant and equipment is calculated
principally on the straight-line method over the estimated useful lives of the
assets. Repairs and maintenance costs are expensed as incurred; major
replacements and improvements are capitalized. When assets are retired or sold,
the cost and related accumulated depreciation are removed from the accounts
with any resulting gain or loss reflected in operations.


                                      F-9
<PAGE>

                         ADVANCED GLASSFIBER YARNS LLC
            (FORMERLY GLASS YARNS AND SPECIALTY MATERIALS BUSINESS)
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. ACCOUNTING POLICIES -- (Continued)


<TABLE>
<S>                                                        <C>
The estimated useful lives of the assets are as follows:
  Buildings and leasehold improvements .................   15-40 Years
  Machinery and equipment ..............................    5-25 Years
</TABLE>

     Alloy metals are an integral part of the Company's installed glass melting
furnaces and therefore are classified as property, plant and equipment in the
accompanying financial statements.

     Alloy metals are the primary component of the heat resistant glass forming
bushings in the Company's glass melting furnaces. Molten glass is passed
through the bushings to form glass filaments. During the manufacturing process
a small portion of the alloy metals is physically consumed. The portion of the
alloy metal physically consumed is measured at the time a bushing is
reconditioned and is charged to income. The amount of metal loss and the
service life of the bushings are dependent upon a number of factors including
the type of furnace and the product being produced. Based upon historical metal
loss, the Company's alloy metals have a useful life of up to 50 years.


     REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISK

     Revenues are recognized when title to products passes to the customer,
which is typically at shipment. Two customers accounted for approximately 47%
and 36% of the Company's gross accounts receivable at December 31, 1999 and
1998, respectively.

     The following table represents a summary of sales to significant customers
as a percentage of the Company's net sales:



<TABLE>
<CAPTION>
                         YEAR ENDED            PERIOD                 PERIOD            YEAR ENDED
                        DECEMBER 31,     OCTOBER 1, 1998 TO     JANUARY 1, 1998 TO     DECEMBER 31,
                            1999          DECEMBER 31, 1998     SEPTEMBER 30, 1998         1997
                       --------------   --------------------   --------------------   -------------
<S>                    <C>              <C>                    <C>                    <C>
Customer A .........        25%                 22%                    19%                 21%
Customer B .........        16%                 16%                    17%                 11%
                            --                  --                     --                  --
                            41%                 38%                    36%                 32%
                            ==                  ==                     ==                  ==
</TABLE>

SELF INSURANCE

     The Company is self-insured for certain elements of their employee
benefits, including workers compensation, but limits its liability through
stop-loss insurance and annual plan maximum insurance limits. Self-insurance
liabilities are based on claims filed and estimates of claims incurred but not
reported.



     FOREIGN CURRENCY TRANSLATION

     The assets and liabilities of the Company's Canadian operations are
translated from its functional currency to U.S. dollars at the year-end
exchange rates and income and expenses are translated at the average exchange
rates prevailing during the period.

     As of the date of the Formation Transactions, the European operations of
AGY consisted principally of a distributorship. As of the date of the Formation
Transactions, the European operations became a direct and integral component of
the U.S. operations and are not a distinct and separate operation.

     On June 8, 1999 the Company formed AGY Europe, SARL, a wholly owned
subsidiary located in Lyon, France. This subsidiary provides administrative and
managerial support for the Company's European operations. The assets and
liabilities of the Company's AGY Europe, SARL operations are translated from
its functional currency to U.S. dollars at the year-end exchange rates and
income and expenses are translated at the average exchange rates prevailing
during the period.

     Prior to the Formation Transactions, the functional currency of Owens
Corning's European operations was the local currency. Accordingly, assets and
liabilities of the European group were translated at the year-end exchange
rates and income and expenses were translated at the average exchange rates
prevailing during the period.


                                      F-10
<PAGE>

                         ADVANCED GLASSFIBER YARNS LLC
            (FORMERLY GLASS YARNS AND SPECIALTY MATERIALS BUSINESS)
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. ACCOUNTING POLICIES -- (Continued)

     Adjustments resulting from the translations were recorded as a separate
component of Net Assets/Members' Interest.


     USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles 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.


     INTANGIBLE ASSETS

     Included in intangible assets are goodwill (i.e., excess of acquisition
costs over identifiable assets), patents and trademarks, debt issuance costs
and covenant not to compete. Goodwill represents the excess of cost over the
fair value of tangible and intangible assets acquired. Debt issuance costs are
being amortized over the terms of the respective debt agreements using the
interest method (See Note 5).

     The Company's policy is to evaluate goodwill and other intangible assets
for possible impairment whenever events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable. This evaluation
is based on undiscounted operating cashflows that will result from the use of
such assets. When projected future cashflows on an undiscounted basis are less
than the carrying value of the assets, the impaired assets are written down to
net realizable value. The Company believes there is no impairment at December
31, 1999.


     OTHER INCOME

     Other income includes royalty and technical service fees.


     RESEARCH AND DEVELOPMENT

     The Company expenses research and development costs as incurred. These
costs were approximately $3,967,000, $384,000 and $500,000 for the year ended
December 31, 1999, and the periods ended December 31, 1998, and September 30,
1998, respectively. Such costs were immaterial in amount for the year ended
December 31, 1997.


     IMPAIRMENT OF LONG-LIVED ASSETS

     The Company assesses whether its long lived assets are impaired as
required by SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of," based on an evaluation of
undiscounted projected cash flows through the remaining amortization period. If
an impairment exists, the amount of such impairment is calculated based on the
estimated fair value of the asset. The Company believes there is no impairment
at December 31, 1999.


     FAIR VALUE OF FINANCIAL INSTRUMENTS

     The fair value of financial instruments in the accompanying financial
statements approximates the carrying value, unless otherwise disclosed.


     RECENTLY ISSUED ACCOUNTING STANDARDS

     On June 8, 1999, the Financial Accounting Standards Board issued SFAS No.
137, which changes the effective date of SFAS 133 to all fiscal quarters of all
fiscal years beginning after June 15, 2000. SFAS 133 requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designed as part of a hedge transaction and, if it is, the type of hedge
transaction. The Company anticipates


                                      F-11
<PAGE>

                         ADVANCED GLASSFIBER YARNS LLC
            (FORMERLY GLASS YARNS AND SPECIALTY MATERIALS BUSINESS)
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. ACCOUNTING POLICIES -- (Continued)

that due to the Company's limited use of derivative instruments, the adoption
of SFAS 133 will not have a significant effect on the Company's results of
operations or its financial position.


     RECLASSIFICATION

     Certain 1998 and 1997 amounts have been reclassified to conform with the
1999 presentation.


3. INVENTORIES

     Inventories consist of the following (in thousands):



<TABLE>
<CAPTION>
                                     DECEMBER 31, 1999     DECEMBER 31, 1998
                                    -------------------   ------------------
<S>                                 <C>                   <C>
Finished goods ..................         $21,022               $19,491
Materials and supplies ..........           5,791                 5,200
                                          -------               -------
 Total inventories ..............         $26,813               $24,691
                                          =======               =======
</TABLE>

4. NET PROPERTY, PLANT AND EQUIPMENT

     Net property, plant and equipment consist of the following (in thousands):




<TABLE>
<CAPTION>
                                                   DECEMBER 31, 1999     DECEMBER 31, 1998
                                                  -------------------   ------------------
<S>                                               <C>                   <C>
Land ..........................................        $     827             $  1,498
Building and leasehold improvements ...........           24,840               18,790
Machinery and equipment .......................           95,846               96,134
Construction in progress ......................           12,578                3,823
                                                       ---------             --------
 Gross property, plant and equipment ..........          134,091              120,245
 Less: accumulated depreciation ...............          (15,104)              (2,753)
Alloy metals ..................................           32,618               34,872
                                                       ---------             --------
Net property, plant and equipment .............        $ 151,605             $152,364
                                                       =========             ========
</TABLE>

     The Company leases computer equipment under a capital lease agreement. The
carrying value of equipment under capital leases was approximately $289,000 and
$385,000 at December 31, 1999, and December 31, 1998, respectively.


                                      F-12
<PAGE>

                         ADVANCED GLASSFIBER YARNS LLC
            (FORMERLY GLASS YARNS AND SPECIALTY MATERIALS BUSINESS)
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

5. INTANGIBLE ASSETS
     Goodwill and all other intangible assets are amortized on the
straight-line method over the estimated useful lives of the assets, which are
as follows at December 31, 1999 (in thousands):



<TABLE>
<CAPTION>
                                                                                  AMORTIZATION
                                      DECEMBER 31, 1999     DECEMBER 31, 1998        PERIOD
                                     -------------------   -------------------   -------------
<S>                                  <C>                   <C>                   <C>
Goodwill .........................        $ 216,611             $212,245             25 Years
Patents and trademarks ...........           20,140               20,000              8 Years
Debt issuance costs ..............           13,224               11,125           6-10 Years
Covenant not to compete ..........            2,000                2,000              5 Years
                                          ---------             --------
                                            251,975              245,370
Accumulated amortization .........          (16,305)              (3,222)
                                          ---------             --------
                                          $ 235,670             $242,148
                                          =========             ========
</TABLE>

6. ACCRUED LIABILITIES

     Accrued liabilities consist of the following (in thousands):



<TABLE>
<CAPTION>
                                                        DECEMBER 31, 1999     DECEMBER 31, 1998
                                                       -------------------   ------------------
<S>                                                    <C>                   <C>
Vacation ...........................................         $ 3,061               $ 3,180
Accrued interest ...................................           6,989                    --
Real and personal property taxes ...................           1,487                 3,030
Incentive compensation and profit sharing ..........             717                 2,535
Other ..............................................           4,405                 3,038
                                                             -------               -------
                                                             $16,659               $11,783
                                                             =======               =======
</TABLE>

     Under the transitional services agreement with Owens Corning (Note 9), the
administration of the Company's health benefit plan was performed by Owens
Corning. As such, the accrued costs associated with these benefits were
included in the payable to Owens Corning.


7. LONG-TERM DEBT

     Long-term debt consists of the following (in thousands):



<TABLE>
<CAPTION>
                                                  DECEMBER 31, 1999     DECEMBER 31, 1998
                                                 -------------------   ------------------
<S>                                              <C>                   <C>
Senior Credit Facility
 Five year revolving credit facility .........        $   9,700            $  15,000
 Term Loan A .................................           99,188              112,125
 Term Loan B .................................          103,501              124,688
Senior Subordinated Credit Facility ..........               --              150,000
Senior Subordinated Notes, 9 7/8%,
 net of discount of $2,819....................          147,181                   --
Capital lease obligation .....................              285                  385
                                                      ---------            ---------
                                                        359,855              402,198
Less current portion .........................          (18,390)             (14,297)
                                                      ---------            ---------
Long-term debt ...............................        $ 341,465            $ 387,901
                                                      =========            =========
</TABLE>

                                      F-13
<PAGE>

                         ADVANCED GLASSFIBER YARNS LLC
            (FORMERLY GLASS YARNS AND SPECIALTY MATERIALS BUSINESS)
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7. LONG-TERM DEBT -- (Continued)

     The following is a schedule of future maturities of term debt, including
minimum lease payments (in thousands):



<TABLE>
<CAPTION>
       TWELVE MONTHS ENDING
           DECEMBER 31,
---------------------------------
<S>                                 <C>
  2000 ..........................    $ 18,390
  2001 ..........................      19,835
  2002 ..........................      24,142
  2003 ..........................      24,048
  2004 ..........................      52,367
  2005 and thereafter ...........     221,073
</TABLE>

     SENIOR CREDIT FACILITY

     In connection with the Formation Transactions, AGY entered into a senior
secured credit agreement, pursuant to which the lenders committed to lend to
AGY up to $315.0 million (the "Senior Credit Facility"), including: (i) a
six-year revolving credit facility in an aggregate principal amount of up to
$75.0 million (the "Revolver") which includes a $30.0 million letter of credit
subfacility; (ii) a six-year term loan in an aggregate principal amount of
$115.0 million ("Term Loan A"); (iii) a seven-year term loan in an aggregate
principal amount of $125.0 million ("Term Loan B" and together with Term Loan
A, the "Term Loans").

     On December 16, 1999, the Company and its lenders amended the Senior
Credit Facility, reducing the available amount of the Revolver from $75 million
to $65 million. As a result of the reduction, the deferred financing fees of
approximately $195,000 were written off and are included in interest expense in
the fourth quarter of 1999. In addition, the Company prepaid $15 million
towards the principal balance of Term Loan B. The available balance under the
revolver was $53.9 million and $59.5 million at December 31, 1999 and 1998,
respectively.

     The amendment to the Senior Credit Facility also modified certain
financial covenants, including the interest coverage ratio and the leverage
ratio. The changes to the Senior Credit Facility as outlined in the amendment
are reflected in the financial statements and in the corresponding notes as of
December 31, 1999.

     The Senior Credit Facility is collateralized by a first priority lien on
substantially all of the properties and assets of AGY and its respective
domestic subsidiaries, now owned or acquired thereafter and a pledge of Porcher
Industries' membership interest in AGY. The Senior Credit Facility will be
guaranteed by all of AGY's future domestic subsidiaries.

     At AGY's option, the interest rates per annum applicable to the Revolver
and the Term Loan A is a fluctuating rate of interest measured by reference
either to: (i) LIBOR plus a borrowing margin or (ii) the bank's base rate,
which is the greater of the published prime rate or the overnight federal funds
rate plus 0.5% (the "ABR") plus a borrowing margin. The applicable borrowing
margin for the Revolver and Term Loan A ranges from 1.75% to 3.0% for LIBOR
based borrowings and .5% to 1.75% for ABR based borrowings. The applicable
borrowing margin for the Term Loan B ranges from 3.50% to 3.75% for LIBOR based
borrowings and 2.25% to 2.5% for ABR based borrowings. In October 1998, the
Company entered into interest rate swap agreements which convert the LIBOR
rates of interest on Term Loan A and Term Loan B to 4.92% and 5.04% per annum,
respectively, plus the applicable borrowing margin, in order to limit its
exposure to interest rate fluctuations under the Term Loan portion of the
Senior Credit Facility. These swap agreements remain in effect through the
six-year and seven-year terms of Term Loan A and Term Loan B, respectively. The
notional amount of these swaps was approximately $99,000,000 and $103,500,000
for Term Loan A and Term Loan B at December 31, 1999. The


                                      F-14
<PAGE>

                         ADVANCED GLASSFIBER YARNS LLC
            (FORMERLY GLASS YARNS AND SPECIALTY MATERIALS BUSINESS)
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7. LONG-TERM DEBT -- (Continued)

Company is exposed to losses in the event of nonperformance by the
counterparties under the interest rate swap agreements. As of December 31,
1999, the Company expects the counterparties to fully perform under these
contracts.

     During 1999, the Company terminated portions of the interest rate swap
related to early payment of Term Loan B in the amount of $5 million and $15
million in the second and fourth quarters of 1999, respectively. The company
recognized a gain of $.3 million and $1.2 million related to the early payments
which have been included as other income in the accompanying financial
statements.

     The interest rate on borrowings outstanding under the Revolver, Term Loan
A and Term Loan B as of December 31, 1999 was 10.25%, 7.92% and 8.79%,
respectively. The interest rate on borrowings outstanding under the Revolver,
Term Loan A, and Term Loan B as of December 31, 1998 was 7.79%, 7.67%, and
8.54%, respectively. The fair value of the interest rate swap agreements,
representing the estimated amount that the Company would receive to terminate
the swap agreements, was approximately $4,439,000 and $8,493,000, respectively,
at December 31, 1999, however, the Company has no intention of terminating the
swap agreements.

     The Senior Credit Facility contains covenants restricting AGY and its
subsidiaries with respect to the incurrence of debt (including guarantees); the
creation of liens; substantially changing the nature of AGY's or its
subsidiaries' businesses; the consummation of certain transactions such as
dispositions of substantial assets, mergers, acquisitions, reorganizations and
recapitalizations; the making of certain investments and loans, non-ordinary
course asset sales and capital expenditures; the making of dividends and other
distributions; transactions with affiliates (outside of trade sales and
purchases) and AGY's ability to prepay certain debt. AGY also is required to
comply with certain financial tests and maintain certain financial ratios.
Certain of these financial tests and ratios include: (i) maintaining a maximum
Leverage Ratio; (ii) maintaining a minimum Consolidated Net Worth (as defined
in the Senior Credit Facility); (iii) maintaining a minimum Interest Coverage
Ratio (as defined in the Senior Credit Facility); and (iv) maintaining a
minimum Fixed Charge Coverage Ratio (as defined in the Senior Credit Facility).
At December 31, 1999, the Company was in compliance with the aforementioned
covenants.

     The Senior Credit Facility also contains customary Events of Default. An
Event of Default under the Senior Credit Facility will allow the lenders
thereunder to accelerate or, in certain cases, will automatically cause the
acceleration of the maturity of the debt under the Senior Credit Facility.
Further, in the event of default, the interest rate would be increased.


     SENIOR SUBORDINATED CREDIT FACILITY

     In connection with the Formation Transactions, AGY entered into an
unsecured senior subordinated credit facility (the "Facility"). This Facility,
which had a maturity of September 30, 2008, provided for aggregate borrowings
in an amount of $150 million and was fully drawn by AGY as of December 31,
1998.

     Amounts outstanding under this Facility accrued interest at a rate equal
to the sum (a) of the greater of (i) the three month LIBOR rate or (ii) a
Treasury based rate (based on Treasury securities of the same principal amount
as the Facility), plus (b) a margin of 4.25%. The 4.25% margin increased by
 .25% per annum at the end of each three-month period during the term of the
Facility. The maximum annual rate on the Facility was 18%. The rate of interest
on the amounts outstanding was 9.51% at December 31, 1998.


     SENIOR SUBORDINATED NOTES

     On January 21, 1999, the Company issued $150 million of 9 7/8% Senior
Subordinated Notes ($147 million net of discount) due 2009. Interest is payable
semiannually beginning in July, 1999. Net proceeds of approximately $142.9
million plus additional borrowings under the revolving credit facility were
used to repay outstanding indebtedness of $150 million under the Senior
Subordinated Credit Facility. In addition, debt issuance costs of


                                      F-15
<PAGE>

                         ADVANCED GLASSFIBER YARNS LLC
            (FORMERLY GLASS YARNS AND SPECIALTY MATERIALS BUSINESS)
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7. LONG-TERM DEBT -- (Continued)

$3.6 million associated with the termination of the Senior Subordinated Credit
Facility were written off in the first quarter of 1999.


     OTHER

     The Company has outstanding standby letters of credit at December 31, 1999
and December 31, 1998 of approximately $1,392,000 and $512,000 respectively, to
secure workers compensation obligations. Such letters of credit expire in
September 2000.


     KEEPWELL AGREEMENT

     In connection with the Formation Transactions, Owens Corning entered into
a Keepwell Agreement to support the liquidity of AGY. In the event that AGY
does not have the liquidity to pay the interest on the Senior Credit Facility
when due, Owens Corning will loan AGY an amount equal to the aggregate
deficiency. Owens Corning's obligations to make such loans is limited to a
maximum aggregate amount of $65 million, and a maximum annual amount of $20
million. The Owens Corning maximum aggregate obligation is reduced by $10
million semi-annually beginning in 1999. This Agreement terminates in January
2002.


                                      F-16
<PAGE>

                         ADVANCED GLASSFIBER YARNS LLC
            (FORMERLY GLASS YARNS AND SPECIALTY MATERIALS BUSINESS)
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

8. MEMBERSHIP INTEREST
     The following table sets forth the statement of changes in members'
interest (net assets prior to the majority purchase) in AGY (in thousands):



<TABLE>
<CAPTION>
                                                                                          MEMBERSHIP INTEREST
                                                                 ACCUMULATED  --------------------------------------------
                                                                    OTHER
                                                                COMPREHENSIVE      OWENS
                                                   NET ASSETS      INCOME         CORNING       PORCHER         TOTAL
                                                  ------------ -------------- -------------- ------------- ---------------
<S>                                               <C>          <C>            <C>            <C>           <C>
Balance at December 31, 1996 ....................  $  37,483      $  (633)      $       --    $       --     $  36,850
 Net income .....................................     50,326                                                    50,326
 Net transfers to Owens Corning .................    (56,922)          --               --            --       (56,922)
 Translation loss ...............................         --         (935)              --            --          (935)
 Other, net .....................................      1,621           --               --            --         1,621
                                                   ---------      -------       ----------    ----------     ---------
Balance at December 31, 1997 ....................     32,508       (1,568)              --            --        30,940
 Net income from January 1, 1998 to
   June 30, 1998 ................................     24,698           --               --            --        24,698
Translation gain ................................         --          539               --            --           539
                                                   ---------      -------       ----------    ----------     ---------
Balance at June 30, 1998 ........................     57,206       (1,029)              --            --        56,177
 Change from Business Unit to LLP ...............    (57,206)       1,029           56,177            --            --
 Deferred tax adjustment due to change
   from Business Unit to LLP ....................         --           --          (10,513)           --       (10,513)
 Net income from July 1, 1998 to
   September 30, 1998 ...........................         --           --           18,311            --        18,311
 Net transfers to Owens Corning .................         --           --          (14,940)           --       (14,940)
 Net liabilities assumed by Owens Corning
   and treated as capital contribution ..........         --           --           97,647            --        97,647
 Contribution from Owens Corning ................         --           --            2,250            --         2,250
 Sale of 51% interest to Porcher ................         --           --          (74,808)      342,149       267,341
 Distributions ..................................         --           --         (195,638)     (203,624)     (399,262)
                                                   ---------      -------       ----------    ----------     ---------
Balance at September 30, 1998 ...................         --           --         (121,514)      138,525        17,011
Net income from October 1, 1998 to
 December 31, 1998 ..............................         --           --            2,095         2,180         4,275
Foreign currency translation adjustment .........         --             (1)            --            --              (1)
                                                   ---------      ----------    ----------    ----------     ------------
Balance at December 31, 1998 ....................         --             (1)      (119,419)      140,705        21,285
Net income ......................................                                      975         1,015         1,990
Foreign currency translation adjustment .........         --          199               --            --           199
Distribution to members .........................         --           --           (1,587)       (1,656)       (3,243)
                                                   ---------      ---------     ----------    ----------     -----------
Balance at December 31, 1999 ....................  $      --      $   198       $ (120,031)   $  140,064     $  20,231
                                                   =========      =========     ==========    ==========     ===========
</TABLE>

     PUT RIGHT

     Commencing September 30, 2003, each of the members have the right to sell
not less than all of their ownership interest in AGY (a "Put Right") in the
event certain conditions described below are satisfied. If either of the
members exercises its Put Right, the value of the ownership interest will be
determined by a third party according to the procedures set forth in the
operating agreement. AGY's obligation to purchase a member's ownership interest
is conditioned upon AGY financing the purchase with a third party lender while
maintaining or obtaining not less than a B rating on its then outstanding
unsecured debt after giving effect to the purchase. In addition, AGY's ability
to fund the Put Right will be conditioned upon maintaining compliance with the
covenants under the Senior Credit Facility.


                                      F-17
<PAGE>

                         ADVANCED GLASSFIBER YARNS LLC
            (FORMERLY GLASS YARNS AND SPECIALTY MATERIALS BUSINESS)
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

8. MEMBERSHIP INTEREST -- (Continued)

     As of December 31, 1999, AGY could not finance the purchase of all or any
portion of either member's ownership interest and maintain a credit rating of
at least B on its existing unsecured debt. If AGY meets this requirement in the
future, the Company will commence accretion to this estimated redemption value
of each member's ownership interest. Such accreted redemption amount will be
presented outside of the members' interest section of the balance sheet after
total liabilities. Management's estimate of the aggregate value of the members'
ownership interest using the measurement procedures specified in the Operating
Agreement is approximately $250 million.


9. TRANSACTIONS WITH RELATED PARTIES

     The Company engages in several transactions with related parties. The
following is a description of these transactions.


     SALES

     Porcher Industries and affiliates represented approximately $63,000,000,
$14,000,000 and $39,000,000 of AGY's net sales for the year ended December 31,
1999, and the period ended December 31, 1998, and September 30, 1998,
respectively. Trade receivables from Porcher and affiliates were approximately
$6,900,000 and $3,800,000 at December 31, 1999 and 1998, respectively.


     PURCHASES OF MATERIALS

     The Company purchases glass marbles, which are used as an input material
to the production of certain glass yarns from Owens Corning. Glass marble
purchases were $4,988,000, $1,667,000, $2,157,000 and $3,047,000 for the year
ended December 31, 1999, the periods ended December 31, 1998, and September 30,
1998, and the year ended December 31, 1997, respectively.


     GLASS FORMING BUSHING FABRICATION SERVICES AND ALLOY METAL LOSS

     The glass forming bushings used in the Company's glass melting furnaces
require periodic refurbishing. Refurbishing and fabrication services are
provided to the Company by Owens Corning's central alloy operations. Such
services and alloy metals physically consumed in the manufacturing process are
charged to the Company and were $3,885,000, $721,000, $2,499,000 and $3,200,000
for the year ended December 31, 1999, the periods ended December 31, 1998, and
September 30, 1998, and the year ended December 31, 1997, respectively.


     BORATES SUPPLY AGREEMENT

     The Company purchases borates, which are used as an input material to the
production of certain glass yarns from Owens Corning. Borates purchases were
$3,280,000, $879,000, $2,550,000 and $3,682,000 for the year ended December 31,
1999, the periods ended December 31, 1998, and September 30, 1998, and the year
ended December 31, 1997, respectively. Additionally, Owens Corning began
charging the Company an administrative fee for these services beginning October
1, 1998. Such administrative charges were $150,000 and $25,000 for the year
ended December 31, 1999 and the period ended December 31, 1998, respectively.


     BATTICE SUPPLY AGREEMENTS

     The Company purchases certain glass yarn products from Owens Corning's
Battice manufacturing facility for resale. Such purchases were $18,830,000 and
$5,017,000 for the year ended December 31, 1999 and period ended December 31,
1998. Prior to the Majority Purchase, Owens Corning's Battice manufacturing
facility sold such products directly to the customer.


                                      F-18
<PAGE>

                         ADVANCED GLASSFIBER YARNS LLC
            (FORMERLY GLASS YARNS AND SPECIALTY MATERIALS BUSINESS)
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

9. TRANSACTIONS WITH RELATED PARTIES -- (Continued)

     BYPRODUCTS SUPPLY AGREEMENT

     Owens Corning purchases byproducts of the Company's manufacturing
processes called dry chopped yarn and slit hanks from the Company. The
Company's sales of these byproducts to Owens Corning were $2,902,000, $244,000,
$818,000, and $723,000 for the year ended December 31, 1999, the periods ended
December 31, 1998 and September 30, 1998 and for the year ended December 31,
1997, respectively and are included in other income.

     Owens Corning produces Low Tex Type 30 for the Company's customers.
Beginning October 1, 1998 the Company receives a fee from Owen Corning equal to
10% of sales of those products to the Company's customers. These fees were
approximately $292,000 and $203,000 for the year ended December 31, 1999 and
the period ended December 31, 1998, respectively.


     TRANSITIONAL SERVICES

     The Company entered into a transitional services agreement with Owens
Corning at the time of the Majority Purchase for processing the Company's
payroll, health care and benefit costs, accounts payable and for providing
certain accounting and information services. Such charges were $3,910,000 and
$1,681,000, and were included in the selling, general, and administrative
expenses for the year ended December 31, 1999 and the period ended December 31,
1998, respectively. In addition, the Company reimburses Owens Corning for
paying certain health care costs. Such health care charges were $7,683,000 and
$2,097,000, and were included in selling, general and administrative expenses
for the year ended December 31, 1999 and the period ended December 31, 1998.


     LEASE TRANSACTIONS

     The Company has entered into operating sub-lease agreements with Owens
Corning for certain manufacturing equipment. The rental expense included in the
Company's statements of operations associated with these leases was $2,243,000,
$557,000, $1,677,000, and $1,928,000 for the year ended December 31, 1999, the
periods ended December 31, 1998 and September 30, 1998, and the year ended
December 31, 1997, respectively.

     The future minimum rental commitments associated with these leases are as
follows (in thousands):


<TABLE>
<S>                      <C>
  2000 ...............    $2,263
  2001 ...............     1,776
  2002 ...............       522
</TABLE>

     The Company leases a manufacturing facility from a wholly-owned subsidiary
of Porcher Industries. Rental expenses associated with this facility was
approximately $655,000, $165,000, and $110,000 for the year ended December 31,
1999, and the periods ended December 31, 1998, and September 30, 1998,
respectively.


10. EMPLOYEE BENEFITS


     PENSION PLAN

     Prior to the Majority Purchase, the hourly and salaried employees of the
Predecessor Business participated in Company wide defined benefit plans
maintained by Owens Corning. Under the plans, pension benefits were generally
based on an employee's pay and number of years of service. Contributions to
these pension plans were based on the calculations of independent actuaries
using the projected unit credit method. Plan assets consisted primarily of
equity securities with the balance in fixed income investments. The
unrecognized cost of retroactive amendments and actuarial gains and losses were
amortized over the average future service period of plan participants expected
for receive benefits.


                                      F-19
<PAGE>

                         ADVANCED GLASSFIBER YARNS LLC
            (FORMERLY GLASS YARNS AND SPECIALTY MATERIALS BUSINESS)
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

10. EMPLOYEE BENEFITS -- (Continued)

     Pension expense attributed to the Predecessor Business defined benefit
pension plans includes the following (in thousands):



<TABLE>
<CAPTION>
                                                                 PERIOD
                                                             JANUARY 1, 1998
                                                                   TO
                                                           SEPTEMBER 30, 1998        1997
                                                          --------------------   -----------
<S>                                                       <C>                    <C>
Service cost ..........................................         $  1,673          $  2,000
Interest cost on projected benefit obligation .........            5,892             7,777
Actual return on plan assets ..........................           (6,746)           (8,649)
Amortization of transition amount .....................             (420)             (613)
Amortization of actuarial loss ........................            1,260               654
Amortization of prior service cost ....................             (765)           (1,113)
                                                                --------          --------
Net pension expense ...................................         $    894          $     56
                                                                ========          ========
</TABLE>

     Assumptions used:



<TABLE>
<CAPTION>
                                                        1998         1997
                                                     ----------   ----------
<S>                                                  <C>          <C>
          Discount rates .........................       6.50%        7.25%
          Return on asset ........................       9.00%        9.00%
          Rate of compensation increase ..........       5.50%        5.00%
</TABLE>

                                      F-20
<PAGE>

                         ADVANCED GLASSFIBER YARNS LLC
            (FORMERLY GLASS YARNS AND SPECIALTY MATERIALS BUSINESS)
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

10. EMPLOYEE BENEFITS -- (Continued)

     The change in projected benefit obligation, the change in fair value of
plan assets and the funded status of the Company's pension plans at December
31, 1998 is summarized below (in thousands):



<TABLE>
<CAPTION>
                                                                    PERIOD
                                                              JANUARY 1, 1998 TO
                                                              SEPTEMBER 30, 1998
                                                             -------------------
<S>                                                          <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of period ................        $ 112,580
Service cost .............................................            1,673
Interest cost ............................................            5,892
Actuarial loss ...........................................           11,832
Benefit payments .........................................          (19,223)
                                                                  ---------
Benefit obligation at end of period ......................        $ 112,754
                                                                  =========
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of period .........        $ 110,924
Actual return on plan assets .............................           12,436
Benefit payments .........................................          (19,223)
                                                                  ---------
Fair value of plan assets at end of period ...............        $ 104,137
                                                                  =========
FUNDED STATUS
Funded status at end of period ...........................        $  (8,617)
Unrecognized net transition asset ........................           (3,069)
Unrecognized net actuarial loss ..........................            9,654
Unrecognized prior service costs .........................           (7,181)
Adjustment for Majority Purchase .........................            4,113
                                                                  ---------
Net amount recognized ....................................        $  (5,100)
                                                                  =========
AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION
Accrued benefit liability ................................        $  (5,100)
                                                                  ---------
Net amount recognized ....................................        $  (5,100)
                                                                  =========
</TABLE>

     Under the Majority Purchase, Owens Corning continued to remain responsible
for pension benefits earned through September 30, 1998. However, AGY agreed to
pay for subsidized benefits offered under the plan to participants who retire
before normal retirement age. This subsidized benefit is the result of the plan
paying early retirement benefits which are actuarially larger than benefits
provided at normal retirement age. For those participants under age 55 on
September 30, 1998, the subsidy on the entire retirement benefit (including the
portion of the benefit earned while the participant was an employee of the
Predecessor Business) has been borne by AGY. This liability to AGY at September
30, 1998 was actuarially calculated to be $5.1 million. For those employees
eligible to retire, AGY is responsible for only the subsidy on the portion of
the benefit earned subsequent to September 30, 1998.

     Additionally, AGY has agreed to be responsible for the service costs under
the plan through December 31, 1999. The amount reimbursable to Owens Corning
attributed to AGY's unfunded contracted responsibility under this agreement
charged to expense for the year ended December 31, 1999 and the period October
1, 1998 to December 31, 1998 was $2,696,000 and $500,000 respectively.

     Effective January 1, 2000, AGY adopted a deferred contribution plan which
allows qualifying employees to contribute up to 15% of their pre-tax
compensation on an annual basis. The Company matches 35% of each


                                      F-21
<PAGE>

                         ADVANCED GLASSFIBER YARNS LLC
            (FORMERLY GLASS YARNS AND SPECIALTY MATERIALS BUSINESS)
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

10. EMPLOYEE BENEFITS -- (Continued)

employee's contribution up to a certain percentage. Accordingly, AGY employees
no longer participate in the Owens Corning plan.


     POSTRETIREMENT

     The employees of the Predecessor Business participated in health care and
life insurance benefit plans for certain retired employees and their
dependents. The heath care plans in the U.S. were unfunded and pay either: 1)
stated percentages of covered medically necessary expenses, after subtracting
payments by Medicare or other providers and after stated deductibles have been
met, or, 2) fixed amounts of medical expense retirement.

     Employees became eligible to participate in the health care plans upon
retirement under the Predecessor Business' pension plans if they have
accumulated 10 years of service after age 45. Some of the plans were
contributory, with some retiree contributions adjusted annually. The
Predecessor Business reserved the right to change or eliminate these benefit
plans subject to the terms of collective bargaining agreements.

     Under the Majority Purchase, AGY assumed the liability for these health
care and life insurance benefits for active employees on September 30, 1998.

     The amount of net postretirement benefits cost attributed to AGY and the
Predecessor Business included the following components (in thousands):



<TABLE>
<CAPTION>
                                                                    PERIOD               PERIOD
                                                              OCTOBER 1, 1998 TO   JANUARY 1, 1998 TO
                                                      1999     DECEMBER 31, 1998   SEPTEMBER 30, 1998      1997
                                                   --------- -------------------- -------------------- -----------
<S>                                                <C>       <C>                  <C>                  <C>
Service cost .....................................  $  900           $225               $    753        $    900
Interest cost on projected benefit obligation ....     700            175                  2,864           3,780
Amortization of prior services cost ..............      --             --                 (2,599)         (3,780)
                                                    ------           ----               --------        --------
Net pension expense ..............................  $1,600           $400               $  1,018        $    900
                                                    ======           ====               ========        ========
</TABLE>

     Assumptions used:



<TABLE>
<CAPTION>
                                                            1999         1998         1997
                                                         ----------   ----------   ----------
<S>                                                      <C>          <C>          <C>
       Discount rates ................................       8.00%        6.50%        7.25%
       Initial health care cost trend rate ...........      10.00%       4-9.5%        4-10%
       Ultimate health care cost trend rate ..........       4.00%         4-7%         4-7%
</TABLE>

                                      F-22
<PAGE>

                         ADVANCED GLASSFIBER YARNS LLC
            (FORMERLY GLASS YARNS AND SPECIALTY MATERIALS BUSINESS)
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

10. EMPLOYEE BENEFITS -- (Continued)

     The change in benefit obligation, the change in fair value of plan assets
and the funded status of the postretirement benefit plans at December 31, is
summarized below (in thousands):



<TABLE>
<CAPTION>
                                                                                    PERIOD                 PERIOD
                                                                              OCTOBER 1, 1998 TO     JANUARY 1, 1998 TO
                                                                  1999         DECEMBER 31, 1998     SEPTEMBER 30, 1998
                                                             -------------   --------------------   -------------------
<S>                                                          <C>             <C>                    <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of period ................     $  12,400          $  12,000              $  56,700
Service cost .............................................           900                225                    753
Interest cost ............................................           700                175                  2,864
Actuarial loss ...........................................         1,217                 --                  6,432
Expected benefit payments ................................            --                 --                 (3,444)
Adjustment for Majority Purchase .........................            --                 --                (51,305)
                                                               ---------          ---------              ---------
Benefit obligation at end of period ......................     $  15,217          $  12,400              $  12,000
                                                               =========          =========              =========
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of period .........     $      --          $      --              $      --
Benefit payments .........................................            --                 --                     --
                                                               ---------          ---------              ---------
Fair value of plan assets at end of period ...............     $      --          $      --              $      --
                                                               =========          =========              =========
FUNDED STATUS
Funded status at end of period ...........................     $ (15,217)         $ (12,400)             $ (12,000)
Unrecognized net actuarial loss ..........................         1,217                 --                     --
                                                               ---------          ---------              ---------
Net amount recognized ....................................     $ (14,000)         $ (12,400)             $ (12,000)
                                                               =========          =========              =========
</TABLE>

     Assumed health care trend rates have significant effect on the amounts
reported for the health care plans. A one-percentage point change in assumed
health care cost trend rates would have the following effects:



<TABLE>
<CAPTION>
                                                                                1-PERCENTAGE POINT
                                                                             -------------------------
                                                                              INCREASE      DECREASE
                                                                             ----------   ------------
<S>                                                                          <C>          <C>
Effect on total of service and interest cost components for 1997 .........     $  867       $   (824)
Effect on postretirement benefit obligation at October 31, 1997 ..........     $7,779       $ (7,390)
Effect on total of service and interest cost components for 1998 .........     $1,000       $   (950)
Effect on postretirement benefit obligation at September 30, 1998 ........     $9,595       $ (9,115)
Effect on total of service and interest cost components for 1999 .........     $  171       $   (135)
Effect on postretirement benefit obligation at December 31, 1999 .........     $1,042       $   (826)
</TABLE>

     Effective January 1, 2000, AGY adopted a health care and life insurance
benefit plan for certain retired employees and their dependents. The terms of
this plan are substantially the same as the terms of the Owens Corning plan.


11. RESTRUCTURING AND NONRECURRING COSTS

     During the first quarter of 1998, the Predecessor Business recorded a $2
million restructuring charge relating to personnel reductions at the Aiken and
Huntingdon plant locations. The charge represents severance costs associated
with the elimination of approximately 100 positions.

     During the period October 1, 1998 to December 31, 1998, the Company
incurred nonrecurring charges of $626,000 related to labor agreement
settlements included in the cost of sales and $268,000 related to relocation
costs included in selling, general and administration expense. An additional
$130,000 of costs associated with


                                      F-23
<PAGE>

                         ADVANCED GLASSFIBER YARNS LLC
            (FORMERLY GLASS YARNS AND SPECIALTY MATERIALS BUSINESS)
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

11. RESTRUCTURING AND NONRECURRING COSTS -- (Continued)

software training was incurred and is included in selling, general and
administrative expenses. The operating profit for the period October 1, 1998 to
December 31, 1998 was adversely impacted by $1.3 million attributable to
charges resulting from the purchase accounting adjustment to reflect the fair
value of the inventory as of the date of the Majority Purchase.

     During the year ended December 31, 1999, the Company incurred nonrecurring
charges of $262,000 related to labor agreement settlements included in the cost
of sales, $1,182,000 related to relocation costs included in selling, general
and administrative expenses and $252,000 related to professional fees included
in selling, general and administrative expenses. An additional $1,584,000 of
consulting costs associated with software training and system implementation
was incurred and is included in selling, general and administrative expenses.
In addition, during the fourth quarter of 1999, severance costs of $290,000
were accrued and are included as restructuring charges.


12. INTEREST EXPENSE

     Interest expense includes the following for the year ended December 31,
1999 and the period ended December 31, 1998 (in thousands):



<TABLE>
<CAPTION>
                                                    1999         1998
                                                 ----------   ---------
<S>                                              <C>          <C>
Interest expense on long-term debt ...........    $34,848      $8,739
Amortization of debt issuance costs ..........      1,976         374
                                                  -------      ------
                                                  $36,824      $9,113
                                                  =======      ======
</TABLE>

13. INCOME TAXES

     The provision for income taxes, income taxes payable and deferred income
taxes included in the accompanying financial statements have been calculated as
if the Predecessor Business, prior to July 1, 1998 operated as a stand alone
entity. Effective July 1, 1998, the Company was established as a limited
liability company, and is not subject to income tax; therefore, the statement
of operations included herein does not reflect income tax expense for any
period subsequent to July 1, 1998. Income tax expense reflected in the
statement of operations for the nine months ended September 30, 1998 represents
the estimated income tax expense attributable to the results of operations of
the Predecessor Business through June 30, 1998. Income tax for the periods
subsequent to the Contributions is the responsibility of the members based on
their respective interest in AGY.

     Income before provision for income taxes (in thousands):



<TABLE>
<CAPTION>
                             PERIOD                YEAR
                        JANUARY 1, 1998           ENDED
                               TO              DECEMBER 31,
                     TO SEPTEMBER 30, 1998         1997
                    -----------------------   -------------
<S>                 <C>                       <C>
U.S. ............           $57,139              $81,129
Foreign .........             2,096                1,737
                            -------              -------
Total ...........           $59,235              $82,866
                            =======              =======
</TABLE>

                                      F-24
<PAGE>

                         ADVANCED GLASSFIBER YARNS LLC
            (FORMERLY GLASS YARNS AND SPECIALTY MATERIALS BUSINESS)
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

13. INCOME TAXES -- (Continued)

     The provision for income taxes consists of the following (in thousands):



<TABLE>
<CAPTION>
                                                      PERIOD               YEAR
                                                  JANUARY 1, 1998         ENDED
                                                        TO             DECEMBER 31,
                                                SEPTEMBER 30, 1998         1997
                                               --------------------   -------------
<S>                                            <C>                    <C>
Currently payable:
  U.S. state and federal ...................         $16,229             $29,539
  Foreign ..................................             838                 698
Deferred:
  U.S. state and federal ...................            (841)              2,303
                                                     -------             -------
  Total provision for income taxes .........         $16,226             $32,540
                                                     =======             =======
</TABLE>

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



<TABLE>
<CAPTION>
                                             PERIOD JANUARY 1, 1998
                                                       TO
                                               SEPTEMBER 30, 1998       1997
                                            -----------------------   -------
<S>                                         <C>                       <C>
U.S. Federal statutory rate .............              35%               35%
  State and local income taxes ..........               4%                4%
  LLC income not subject to tax .........             (12%)              --
                                                      ---                --
                                                       27%               39%
                                                      ===                ==
</TABLE>

     Deferred income taxes were determined based on the estimated future tax
effects of temporary differences between the financial reporting and tax bases
of assets and liabilities, given the provisions of the enacted tax laws. As a
result of the conversion to a limited liability company, the deferred tax asset
at July 1, 1998 of $10,513 was treated as a deemed distribution and reflected
as a reduction of net assets.

     Income tax expense of $190,000 was recorded in 1999 related to foreign
taxes on AGY Yarns Canada and AGY Europe SARL. Deferred taxes were immaterial
as of and for the year ended December 31, 1999.


14. SEGMENT INFORMATION

     The Company operates in one business segment that manufactures glass fiber
yarns and specialty materials that are used in a variety of industrial and
commercial applications. The following geographic information represents the
Company's net sales based on product shipment location and total assets based
on physical locations for the region and period indicated (in thousands):



<TABLE>
<CAPTION>
                                    CONSOLIDATED COMPANY                   PREDECESSOR BUSINESS
                            ------------------------------------   ------------------------------------
                                 YEAR            PERIOD FROM            PERIOD FROM            YEAR
                                 ENDED         OCTOBER 1, 1998        JANUARY 1, 1998         ENDED
                             DECEMBER 31,             TO                    TO             DECEMBER 31,
                                 1999         DECEMBER 31, 1998     SEPTEMBER 30, 1998         1997
                            --------------   -------------------   --------------------   -------------
<S>                         <C>              <C>                   <C>                    <C>
Net sales ...............
  North America .........      $177,776            $51,164               $149,686            $199,169
  Europe ................        63,500             10,861                 46,276              68,429
  Asia ..................         9,690              1,244                  8,929               9,759
  Others ................         1,270                134                    357                  --
                               --------            -------               --------            --------
                               $252,236            $63,403               $205,248            $277,357
                               ========            =======               ========            ========
</TABLE>

                                      F-25
<PAGE>

                         ADVANCED GLASSFIBER YARNS LLC
            (FORMERLY GLASS YARNS AND SPECIALTY MATERIALS BUSINESS)
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

14. SEGMENT INFORMATION -- (Continued)

     Assets by region:



<TABLE>
<CAPTION>
                           DECEMBER 31,     DECEMBER 31,
                               1999             1998
                          --------------   -------------
<S>                       <C>              <C>
North America .........      $416,250         $442,027
Europe ................        33,558           20,021
Asia ..................         3,834            3,421
                             --------         --------
                             $453,642         $465,469
                             ========         ========
</TABLE>

15. PRO FORMA SUPPLEMENTARY DATA

     The following pro forma supplementary data (in thousands) for the period
from January 1, 1998 to September 30, 1998 and for the year ended December 31,
1997 give effect to the formation transactions as if they had occurred on
January 1, 1997. The pro forma supplementary data is provided for informational
purposes only and should not be construed to be indicative of the Company's
results of operations had the transactions been consummated on the dates
assumed and do not project the Company's results of operations for any future
date (See Notes 1 and 2).



<TABLE>
<CAPTION>
                                  PERIOD FROM            YEAR
                                JANUARY 1, 1998         ENDED
                                      TO             DECEMBER 31,
                              SEPTEMBER 30, 1998         1997
                             --------------------   -------------
<S>                          <C>                    <C>
Net sales ................         $205,248            $277,357
Gross profit .............           63,281              86,082
Operating profit .........           41,216              59,877
Net income ...............           14,718              21,039
</TABLE>

16. DISTRIBUTIONS

     Pursuant to the terms of the Operating Agreement, the Company makes an
annual distribution (the "Tax Distribution") from its net cash flows and
permitted borrowings under the Senior Credit Facility to each of Owens Corning
and Porcher Industries in order to fund the taxes payable by each owner on
their proportionate share of the Company's net ordinary income and net capital
gain. In connection with the Majority Purchase, the Company has made a
partnership election to step up the basis of certain of the Company's tangible
and intangible assets. The resulting increase in depreciation and amortization
expense is allocated wholly to Porcher Industries. As a result, the Tax
Distributions are not made on a pro rata basis and Porcher Industries has an
unrecovered distribution amount (the "Deferred Distribution"). The Deferred
Distribution earns interest at the highest rate of interest on the Senior
Credit Facility. Earned interest on the distribution was $163,000 for the year
ended December 31, 1999. The Tax Distribution was $3.2 million based on the
three months ended December 31, 1998, of which $1.6 million was paid to Owens
Corning and $1.6 million was treated as a Deferred Distribution to Porcher
Industries. Based on the members' estimated taxable income for the year ended
December 31, 1999 the Tax Distribution will approximate $8.2 million of which
$4.0 million will be paid in cash to Owens Corning and $4.2 million will be
treated as a Deferred Distribution payable to Porcher Industries. These
distributions will be recorded in the first quarter of 2000.


                                      F-26
<PAGE>

                         ADVANCED GLASSFIBER YARNS LLC
            (FORMERLY GLASS YARNS AND SPECIALTY MATERIALS BUSINESS)
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

17. FOURTH QUARTER ADJUSTMENTS
     In the fourth quarter of 1999, the Company recorded net adjustments which
decreased net income by $.4 million related to a liability to a related party
for purchase discounts ($1.2 million) offset by the reversal of an overaccrual
to another related party ($.8 million). The effect of these adjustments on
prior quarters was not material.


18. COMMITMENTS AND CONTINGENCIES

     The Company is not a party to any significant litigation or claims, other
than routine matters incidental to the operation of the Company. The Company
does not expect that the outcome of any pending claims will have a material
adverse effect on the Company's results of operations or financial position.


                                      F-27