Agy Capital Corp., et al. – ‘10-K405’ for 12/31/01

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Annual Report — Reg. S-K – Item 405   —   Form 10-K

Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K405     Form 10-K                                             52    253K 
 2: EX-10.19    Amendment to Credit Agreement                         14     42K 
 4: EX-99       Reconciliation of Net Income to Ebitda                 1      7K 
 3: EX-12       Statement of Computation of Ratios                     1      8K 

‘10-K405’   —   Form 10-K

Document Table of Contents

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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, 2001

 Commission File No. 333-72305

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

Delaware                     3229                            58-2407014   
(State of formation)     (Primary Standard Industrial         (I.R.S. Employer  
                        Classification Code Number)        Identification No.)

Commission File No. 333-72305-01

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

Delaware                        3229                      57-1072917
(State of incorporation)   (Primary Standard Industrial      (I.R.S. Employer   
                          Classification Code Number)      Identification No.)

2558 Wagener Road, Aiken, South Carolina                29801       
(Address of registrants' principal executive office)       (Zip Code)         

(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 April 5, 2002, Porcher Industries, S.A. owned a     
51.0% membership interest and Owens Corning owned a 49.0% membership interest.  
All 1,000 shares of common stock of AGY Capital Corp. are 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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 ADVANCED GLASSFIBER YARNS LLC

ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2001
 TABLE OF CONTENTS

                                                        [Enlarge/Download Table]

                                                                                                      Page No.
                                                                                                      ------- 
PART I                                                                                                        

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS                                                     
                                                                                                              
    Item 1.    Business                                                                                  2    
    Item 2.    Properties                                                                                7    
    Item 3.    Legal Proceedings                                                                         8    
    Item 4.    Submission of Matters to a Vote of Security Holders                                       8    

PART II                                                                                                       

    Item 5.    Market For Registrants' Common Equity and Related Stockholder Matters                     9    
    Item 6.    Selected Financial Data                                                                   9    
    Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations    11    

    Item 7A.   Quantitative and Qualitative Disclosures About Market Risk                               18    
    Item 8.    Financial Statements and Supplementary Data                                              19    
    Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure     19    

PART III                                                                                                      

    Item 10.   Directors and Executive Officers of the Registrants                                      20    
    Item 11.   Executive Compensation                                                                   21    
    Item 12.   Security Ownership of Certain Beneficial Owners and Management                           21    
    Item 13.   Certain Relationships and Related Transactions                                           22    
    Item 14.   Quarterly Financial Information (unaudited)                                              26    

PART IV                                                                                                       

    Item 15.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K                         27    

SIGNATURES                                                                                              29    

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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:                                                                     

     .  our significant level of indebtedness and limitations on our ability
to incur additional debt;                                   

     .  the risk that obtaining raw materials and capital equipment services
         from sources other than Owens Corning would be more costly or require
us to change substantively our manufacturing processes;     

.  the risk of conflicts of interest with our equity holders;     

       .  a downturn in the electronics industry and the movement of electronics
industry production outside of North America;               

.  our concentrated customer base and the nature of our markets;  

.  a disruption of production at one of our facilities;           

.  foreign currency fluctuations;                                 

  .  an easing of import restrictions and duties with respect to glass
fabrics;                                                    

.  labor strikes or stoppages;                                    

       .  whether or not we are able to comply with environmental and safety and
health laws and requirements                                

.  whether or not we are able to satisfy the covenants and other  
provisions under our various financial instruments; and     

.  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 other reports and registration statements we file with the    
Securities and Exchange Commission. 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                                                              

General                                                                         

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 51.0% interest in us to a wholly owned subsidiary of Porcher Industries. Owens
Corning retained the remaining 49.0% interest. AGY Capital Corp. is a wholly    
owned subsidiary of Advanced Glassfiber Yarns LLC, formed solely to facilitate  
our offering of 97/8% Senior Subordinated Notes due 2009. In the course of our  
normal operations, we are engaged in various related party transactions. See    
Item 13 "Certain Relationships and Related Transactions".                       

Advanced Glassfiber Yarns LLC headquarters are located at 2558 Wagener Road,    
Aiken South Carolina 29801. Our telephone number is (803) 643-1501.             

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We are one of the largest global suppliers of glass yarns. We are one of only   
three 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.                               

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 13% of our 2001   
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.     
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 81% between 1999 and 2001. Because of
the downturn experienced this year by our industry particularly in the          
electronics market, our average capacity utilization was 70% in 2001.           

Stable Customer Base. We sell our products to over 300 customers worldwide,     
including most 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. See Item 1 "Products and Markets".    

Unique Properties of Glass Yarns.   The characteristics of glass yarns include: 

.  high strength-to-weight ratio;                                     

.  dimensional stability;                                             

.  heat resistance;                                                   

.  moisture resistance;                                               

.  chemical resistance;                                               

.  electrical resistance; and                                         

.  thermal insulation.                                                

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.                                                

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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) and Zentron(R). We employ 38 technical          
professionals dedicated to the development of new products, process improvements
and product innovations.                                                        

Business Strategy                                                               

Our business strategy includes the following long-term key elements:            

Emphasize Fine Yarns and Specialty Materials. Sales of fine yarns and specialty 
materials increased as a proportion of net sales from 37.6 % in 1999 to 38.7% in
2000. The decrease to 35% in 2001 is attributable to the severe downturn in the 
electronics industry, which adversely affected our sales of both fine and heavy 
yarns. However our long term focus remains on increasing the proportion of our  
net sales attributable to fine yarns and specialty materials 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. In 2001, we continued development of both software and mechanical   
equipment technology. Our work with computer software concentrates on tracking  
production volume, and the mechanical technology reduces human intervention in  
the production process. These new technologies have enabled us to increase      
through-put, product quality and operational flexibility.                       

Selective Geographic Expansion. We believe that we have opportunities to expand 
our business outside of North America. Approximately 31.1% of our 2001 net sales
were outside of North America, with approximately 24.1% in Europe, 5.0% in Asia 
and 2.0% 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         
long-term strategy is to continue to expand, as our financial condition will    
allow, outside North America by establishing in-region manufacturing capability.

Products and Markets                                                            

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:                                                           

.  heavy yarns, with a filament diameter between 7 and 14 microns, and

.  fine yarns, with a filament diameter generally up to 7 microns.    

The following table sets forth the percentage of net sales attributable to our  
two major product categories from 1999 to 2001:                                 

    Years Ended December 31,
    ------------------------
2001       2000       1999
-------    --------   --------

Heavy yarns            77.9%      71.9%      73.0%                      
Fine yarns             22.1       28.1       27.0                       
------     ------     ------  
Total                 100.0%     100.0%     100.0%                      
======     ======     ======  

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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 $5.00 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  
13% of our 2001 sales, are used for aircraft laminates, oxygen tanks, sporting  
goods and vehicle armor. Currently, prices for specialty materials range from   
approximately $10.00 to $31.00 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 $19.00 per kilogram.                                                   

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 57% and 70% of our 2000 sales, respectively, and 54% and 65% of   
our 2001 sales, respectively. Our top five customers in 2001 were Porcher       
Industries (including its affiliates such as BGF Industries), Hexcel-Schwebel,  
Inc., Bay Mills, JPS Glass Inc., and Lamtec Corp. 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 two sales personnel and one sales manager and Asian customers are   
serviced by one sales manager. The marketing and business planning organization 
consists of four individuals who have product line management, pricing, market  
analysis, competitive intelligence, and market development responsibility for   
North and South America, Europe and Asia.                                       

The following table sets forth the percentage of our net sales by geographic    
region from 1999 to 2001:                                                       

Years Ended December 31,  
-----------------------   

2001          2000          1999    
-------       ------        ------      

North America         68.9%         70.8%         70.5%                         
Europe                24.1          22.1          25.1                          
Asia                   5.0           6.3           3.9                          
Latin America          2.0           0.8           0.5                          
------        ------        ------      
Total                100.0%        100.0%        100.0%                         
======        ======        ======      

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 $7.5 million, $6.8 
million and $6.2 million to fund the Science and Technology Group in 1999, 2000 
and 2001, 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.                                                                          

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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,      
trademarks 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."                           

Manufacturing Process                                                           

Glass yarns are manufactured by mixing naturally occurring materials melting 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. 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 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 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.  
See "Certain Relationships and Related Transactions."                           

Employees                                                                       

As of December 31, 2001, we had approximately 1,492 full-time employees. As of  
that date, approximately 1,389 of the employees were engaged in manufacturing   
and related services. Additionally, 67 of these employees were leased to Owens  
Corning as a part of the Manufacturing Services Agreement dated September 30,   
1998 between Owens Corning and Advanced Glassfiber Yarns LLC. Included in these 
numbers are 695 employees that were furloughed over the course of 2001. Included
in                                                                              

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this number are 196 employees that were a part of a temporary three-week        
production curtailment in December 2001. 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 5, 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 and Health 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 include, 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                                                            

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

                                                        [Enlarge/Download Table]

                                                                                       Owned    
                                                                    Approximate         or      
           Facility                         Products                Square Feet       Leased    
-------------------------------  -------------------------------  ----------------  ------------
                                                                                                
Aiken, South Carolina            Heavy, Fine, and Specialty             1,540,000     Owned     
Huntingdon, Pennsylvania         Fine and Specialty                       405,000     Owned     
South Hill, Virginia (1)         Fine                                      27,200     Leased    

___________                                                                     
(1)  The South Hill facility is a co-location facility shared with BGF          
    Industries; we 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." We own all of the
   equipment located in the South Hill facility, but lease the building from
BGF Industries.                                                       

We believe our facilities and equipment are suitable and adequate for our       
business; however, given depressed conditions in most of our markets and a      
corresponding inventory correction through the electronics supply chain, we     
decided in mid 2001 to temporarily curtail our capacity utilization to match the
reduced demand for our products. 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."                                                                     

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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. We are subject to various        
environmental standards for items such as air and water. Currently, we are not  
aware of any violations to these standards as it relates to laws currently in   
existence. See Item 13, "Certain Relationships and Related Retransactions."     

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

Not applicable.                                                                 

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 PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters   

There is no established trading market for the membership interest of Advanced  
Glassfiber Yarns LLC or the common stock of AGY Capital Corp. Porcher           
Industries, S.A. owns a 51.0% membership interest and Owens Corning owns a 49.0%
membership interest. All 1,000 shares of common stock of AGY Capital Corp. are  
owned by Advanced Glassfiber Yarns LLC.                                         

Pursuant to the terms of our Operating Agreement, we make annual distributions  
to each of Owens Corning and Porcher Industries, S. A. in order to fund the     
taxes payable by each owner on their proportionate share of our net ordinary    
income and net capital gain. In connection with the Porcher Industries'         
acquisition of a 51% interest in us, we made a partnership election to step up  
the basis of certain of our tangible and intangible assets. The resulting       
increase in depreciation and amortization expense is allocated wholly to Porcher
Industries, S.A. As a result, the tax distributions are not made on a pro rata  
basis and Porcher Industries, S.A. has an unrecovered distribution amount (the  
"deferred distribution").                                                       

Distributions to members of $8.5 million were declared in 2000 based on the year
ended December 31, 1999, of which $4.2 million was paid to Owens Corning and    
$4.4 million was treated as a deferred distribution to Porcher Industries, S.A. 
A distribution of $7.8 million was declared in 2001 based on the year ended     
December 31, 2000, of which $3.8 million was paid to Owens Corning and $4.0     
million was treated as a deferred distribution to Porcher Industries, S.A.      

Based on the members' estimated taxable income for the year ended December 31,  
2001, a distribution of approximately $1.8 million will be declared in 2002 of  
which $0.9 million will be treated as a deferred distribution payable to Porcher
Industries, S.A. and $0.9 million will be paid in cash to Owens Corning, when   
allowed under the terms of the Senior Credit Facility. The terms of the Senior  
Credit Facility do not allow for cash distributions to our members until such   
time that we comply with the original covenants. See "Management's Discussion   
and Analysis of Financial Condition and Results of Operations - Liquidity and   
Capital Resources." As such, the distribution scheduled to be made to Owens     
Corning in 2002 for the results of 2001 will be deferred until such time that we
are in compliance with our original covenants. These distributions will be      
recorded in the second quarter of 2002.                                         

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 the year ended December 31, 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 years ended December 31, 1999, 2000 and 2001.                               

We derived the historical information for the three years ended December 31,    
1999 through 2001 from our audited financial statements, which appear elsewhere 
in this report. We derived the historical information for the three months ended
December 31, 1998 from our audited financial statements not included in this    
report. We derived the historical information for the year ended December 31,   
1997 and the nine months ended September 30, 1998 from the Predecessor Business 
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.                                                                   

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The selected financial data set forth below should be read in conjunction with  
"Management's Discussion and Analysis of Financial Condition and Results of     
Operations" and our audited financial statements and related notes included     
elsewhere in this report.                                                       

                                                        [Enlarge/Download Table]

                                                                      Consolidated Company             |    Predecessor Business    
                                              -------------------------------------------------------- | -------------------------- 
                                                                 Years                 Three Months    | Nine Months       Year     
                                                                 Ended                    Ended        |    Ended          Ended    
                                                              December 31,             December 31,    | September 30,  December 31,
                                              ----------------------------------       --------------- | ------------   ----------- 
                                                  2001          2000        1999           1998        |    1998           1997     
                                                  ----          ----        ----           ----        |    ----           ----     
                                                                            (dollars in thousands)     |                            
                                                                                                                                    
Statement of Operations Data:                                                                          |                            
  Net sales                                   $  206,302     $  278,288   $ 252,236    $  63,403       | $ 205,248    $  277,357    
  Cost of goods sold                             153,339        206,403     183,186       43,494       |   134,820       182,366    
                                              ----------     ----------   ---------    ---------       | ---------    ----------    
                                                                                                       |                            
  Gross profit                                    52,963         71,885      69,050       19,909       |    70,428        94,991    
  Selling, general and administrative                                                                  |                            
     expenses                                     14,290         16,407      16,812        4,123       |    11,487        14,813    
  Amortization                                    11,606         11,420      11,611        2,848       |         -             -    
  Restructuring charge                             2,449              -         290            -       |     2,034             -    
                                              ----------     ----------   ---------    ---------       | ---------    ----------    
                                                                                                       |                            
  Operating income                                24,618         44,058      40,337       12,938       |    56,907        80,178    
  Interest expense                                33,243         35,449      36,824        9,113       |         -             -    
  Other income, net                                 (931)        (3,577)     (2,283)        (450)      |    (2,328)       (2,688)   
                                              ----------     ----------   ---------    ---------       | ---------    ----------    
                                                                                                       |                            
  Income (loss) before taxes                      (7,694)        12,186       5,796        4,275       |    59,235        82,866    
  Income taxes expense                                55             93         190            -       |    16,226        32,540    
                                              ----------     ----------   ---------    ---------       | ---------    ----------    
                                                                                                       |                            
  Income  (loss) before extraordinary loss        (7,749)        12,093       5,606        4,275       |    43,009        50,326    
  Extraordinary item, (loss) on early                                                                  |                            
   extinguishment of debt (1)                          -              -      (3,616)           -       |         -             -    
                                              ----------     ----------   ---------    ---------       | ---------    ----------    
  Net income (loss)                           $   (7,749)    $   12,093   $   1,990    $   4,275       | $  43,009    $   50,326    
                                              ==========     ==========   =========    =========       | =========    ==========    
                                                                                                       |                            
                                                                                                       |                            
Other Data:                                                                                            |                            
  Depreciation and amortization               $   28,471     $   27,944   $  25,963    $   5,975       | $   6,394    $    8,305    
  Capital expenditures                            10,880         12,716      18,368        6,943       |    13,509         8,324    
  Adjusted EBITDA (2)                             53,910         73,628      69,889       21,334       |    67,663        91,171    
  Cash flow provided by operating activities      12,494         48,243      59,187       18,819       |    28,438        65,274    
  Cash flow used in investing activities         (13,576)       (15,928)    (15,603)      (3,327)      |   (13,509)       (8,324)   
  Cash flow used in financing activities          (2,798)       (34,450)    (50,155)      (2,712)      |   (14,940)      (56,922)   
  Ratio of earnings to fixed charges (3)             0.8 x          1.3 x       1.2 x        1.5 x     |      67.0 x        78.0 x  
Balance Sheet Data (4):                                                                                |                            
  Working capital (deficit) (5)               $ (310,320)    $   (2,721)  $  (1,964)   $  32,061       | $       -    $  (11,872)   
  Total assets                                   412,485        436,009     454,416      465,469       |         -       153,961    
  Total debt                                     330,441        329,586     359,855      402,198       |         -             -    
  Membership interest/Net assets                   4,037         23,751      20,231       21,285       |         -        30,940    

(1) During the first quarter of 1999, we recorded a $3.6 million charge related 
      to the write-off of debt issuance costs, which resulted from the the
        issuance on the subordinated bonds in replacement for the bridge loan.

(2) 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 indebtness. 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 may not necessarily be
        comparable to similarly titled measures reported by other companies as
  they are not calculated identically by all companies. We defined
    adjusted EBITDA as income or loss before, interest expense, income
       taxes, depreciation, amortization, non-recurring and non-cash charges
as defined per the Senior Credit Facility. See Exhibit 99 -   
"Reconciliation of Net Income (Loss) to EBITDA".              

(3) We have also presented the ratio of earning to fixed charges. In            
         calculating the ratio of earnings to fixed charges, earnings consist of
       interest expense, whether expensed or capitalized, and the portion of
         rental expense estimated to be attributable to interest. See Exhibit 12
- "Computation of Ratio of Earnings to Fixed Charges".        

(4) The historical balance sheet data for 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 51.0% interest in Advanced
        Glassfiber Yarns and the various financing transactions related to our
formation on September 30, 1998.                              

(5) Absent the covenant modification dated December 14, 2001, the Company       
        would have been in violation of certain covenants of its senior credit
         facility. See Notes 1 and 7 to the financial statements "Long-term Debt
     and Going Concern". Because this modification is valid only through
        March 31, 2002, there is substantial doubt about the Company's ability
      to meet its covenant requirements in the subsequent quarters. Due to
the uncertainity of the Company's ability to meet its covenant
    requirements in 2002 and pay interest due on the Senior Notes, all
        long-term debt has been presented as a current liability. Accordingly,
       substantial doubt exists about the Company's ability to continue as a
         going concern. The Company is currently in negotiations with its senior
         lenders and is reviewing alternative financing and strategic options to
reduce the Company's overall leverage.                        

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Item 7.   Management's Discussion and Analysis of Financial Condition and       
Results of Operations                                       

You should read the following discussion together with our consolidated         
financial statements and related notes contained in this Annual Report. The     
forward-looking statements under this section are subject to risks and          
uncertainties that exist in our operations and business environment. See Item 1,
"Disclosure Regarding Forward-Looking Statements."                              

Overview                                                                        

Advanced Glassfiber Yarns is a Delaware limited liability company initially     
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 Advanced Glassfiber Yarns. On 
September 30, 1998, Owens Corning sold a 51.0% interest in Advanced Glassfiber  
Yarns to a wholly owned subsidiary of Porcher Industries. Owens Corning retained
the remaining 49.0% interest.                                                   

Net Sales. 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. Effective December  
31, 2000, we adopted the Securities and Exchange Commission's Staff Accounting  
Bulletin ("SAB") No. 101, Revenue Recognition, as amended. SAB No. 101 provides 
guidance on the recognition, presentation and disclosure of revenue, including  
specifying basic criteria which must be met before revenue can be recognized.   
The impact of adopting SAB No. 101 was immaterial.                              

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 were 35.5% for raw materials including resale goods, 8.4%   
for energy, 37.8% for labor and 18.3% for other costs for 2001.                 

Selling, General and Administrative Expenses. Selling, general and              
administrative expenses consist of the cost of our non-manufacturing employees, 
including research and development and engineering personnel, and prior to 2000 
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 limited license granted by us to Taiwan Glass       
Industrial Corporation up to February 27, 2002. 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.                

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 $2.0 million for the nine months ended        
September 30, 1998, $2.3 million for the three months ended December 31, 1998,  
$3.0 million for the year ended December 31, 1999 and restructuring charges of  
$0.3 and $2.0 for the years ended December 31, 1999 and 2001, respectively.     
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.        

Critical Accounting Policies                                                    

The SEC recently issued two releases, FR 60 and 61, relating to critical        
accounting policies and financial statement disclosure. We have selected        
accounting policies that we believe are appropriate to accurately and fairly    
report our operating results and financial position, and we apply those         
accounting policies in a consistent manner. The significant accounting policies 
are summarized in Note 2 to the consolidated financial statements.              

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires that we make        
estimates and assumptions that affect the reported amounts of assets,           
liabilities, revenues and expenses. These estimates and assumptions are based on
historical and other factors believed to be reasonable under the circumstances. 
We evaluate these estimates and assumptions on an ongoing basis and may retain  
outside consultants, engineers, lawyers and actuaries to assist in our          
evaluation. We believe the following accounting policies are the most critical  
because they involve the most significant judgments and estimates used in       
preparation of our consolidated financial statements:                           

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.  Receivables allowance for doubtful accounts - We maintain a    
     receivables allowance for estimated losses resulting from amounts
   related to trade discounts, rebates, returns and damaged goods.
   Although our write-offs have historically been minimal, we also
    maintain an allowance for bad debts. We provide an allowance for
       specific customer accounts and also provide a general allowance for
 other accounts based upon historical collection and write-off
   experience. If the financial condition of our customers were to
    deteriorate, resulting in an impairment of their ability to make
payments, additional allowance may be required.             

 .  Inventories - Our inventories are valued at the lower of cost or
  market value. This requires us to write down our inventory for
        estimated obsolescence, impairment for damaged goods or unmarketable
        inventory equal to the difference between the cost and the estimated
    market value of the inventory items reflecting assumptions about
        future demand and market conditions. If future market demand is less
       favorable than anticipated, additional inventory write-downs may be
required.                                                   

       .  Long-lived assets - We periodically review our property and intangible
   assets for possible impairment whenever events or circumstances
         indicate that the carrying amount of an asset may not be recoverable.
         Assumptions and estimates used in evaluation of impairment may affect
  the carrying value of long-lived assets, which could result in
       impairment charges in future periods. In addition, our depreciation
       and amortization policies reflect judgments on the estimated useful
      lives of assets. SFAS No. 141 and No. 142 are effective January 1,
       2002 and require that an intangible asset that is acquired shall be
    initially recognized and measured based on its fair value. These
      statements also provide that goodwill should not be amortized, but
  shall be tested for impairment annually, or more frequently if
        circumstances indicate potential impairment, through a comparison of
      fair value to its carrying amount. Existing goodwill was amortized
       through 2001. Effective January 1, 2002 amortization will cease. We
       believe that no impairment of goodwill or other assets exists as of
 December 31, 2001, under FAS 121; however, we believe that an
        impairment of goodwill under FAS 142 may exist as of January 1, 2002
    in light of the changes in market conditions and the significant
    downturn in the electronics market. In 2002 we will complete our
          review of the fair value of goodwill using discounted cashflow models,
     market valuations and third party appraisal when appropriate. The
impairment charge that could result from this review may be 
significant.                                                

      .  Restructuring charges - We provided for restructuring charges related
       to the reduction in workforce during 2001. These charges were based
         upon severance and benefits continuance costs incurred for furloughed
production employees and severed salaried employees.        

     .  Periodic accruals - It is necessary for us to estimate certain costs
       included in our operating results. These costs include, but are not
   limited to, items such as utilities, services provided by Owens
      Corning and healthcare costs, which have been incurred but not yet
billed. We base these estimates on historical experience.   

.  Pension and post-retirement benefits - In accordance with the  
      formation transaction, we agreed to pay the subsidized benefits to
   employees of the Predecessor's Business who participated in the
     defined benefit plans maintained by Owens Corning. We maintain an
        actuarially calculated liability that is subject to fluctuation upon
      assumptions and estimates such as the rate at which employees take
       early retirement, trends in healthcare costs and the discount rate.

   .  We designate certain derivative financial instruments as hedges of
   future sales transactions. Unrealized gains and losses on these
     foreign exchange contracts are not recognized in our consolidated
     statement of operations until the underlying sale occurs based on
        management's determination that the forecasted sales are probable of
       occurring and that the hedges have been effective in mitigating the
          foreign exchange risks associated with these future sales. The hedging
         contracts generally cover only a portion of the forecasted sales, and
      therefore, management considers the likelihood of not reaching the
   designated level of forecasted sales to be low. However, if the
 designated levels of forecasted sales are not achieved in the
      timeframe that management anticipates, we would need to report the
         unrealized gains or losses on these derivative instruments in income.

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Results of Operations                                                           

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

                                                        [Enlarge/Download Table]

                                                             Years Ended December 31,      
                                                   --------------------------------------- 
                                                       2001            2000           1999 
                                                       ----            ----           ---- 
                                                                                           
Net sales                                             100.0%          100.0%         100.0%
Cost of sales                                          74.3            74.2           72.6 
                                                   --------         -------        ------- 
Gross profit                                           25.7            25.8           27.4 
Selling, general and administrative                                                        
  expenses                                              6.9             5.9            6.7 
Amortization                                            5.7             4.1            4.6 
Restructuring charge                                    1.2               -            0.1 
                                                   --------         -------        ------- 
Operating income                                       11.9            15.8           16.0 
Interest expense                                       16.1            12.7           14.6 
Other income, net                                      (0.4)           (1.3)          (0.9)
                                                   --------         -------        ------- 
Income (loss) before taxes and extraordinary item      (3.8)            4.4            2.3 
Income tax expense                                        -               -            0.1 
                                                   --------         -------        ------- 
Income (loss) before extraordinary item                (3.8)            4.4            2.2 
Extraordinary item, (loss) on early                                                        
  extinguishment of debt                                  -               -           (1.4)
                                                   --------         -------        ------- 
Net income (loss)                                      (3.8)%           4.4%           0.8%
                                                   ========         =======        ======= 

Fiscal Year 2001 Compared to Fiscal Year 2000                                   

Net Sales. Net sales decreased $ 72.0 million, or 25.9%, to $206.3 million as   
compared to $278.3 million in the year ended December 31, 2000. Had the Euro    
exchange rate versus the US dollar not declined by 3.0% year to year, 2001 net  
sales would have been $1.8 million higher. The benefit of price increases       
implemented in the first quarter of 2001 have been more than offset by a 29%    
decline in volumes sold in 2001 compared to 2000. This decrease in demand       
reflects a global economic downturn and inventory correction particularly severe
in the electronics and industrial market, with year to year sales to these      
markets down $49.4 million, or 50.0%, and $16.2 million, or 22.7%, respectively.
While the future trends cannot be guaranteed given the length and complexity of 
the supply chain and the significant downturn of this sector, the electronics   
market is expected to improve in 2002, primarily driven by the                  
telecommunications and personal computer segments. Further, we have experienced 
a modest up-turn in sales in the first quarter of 2002. There can be no         
assurance that this trend will continue.                                        

In response to these market conditions, we reduced production schedules and     
focused on operating cost reductions and working capital management. Since May  
2001, we furloughed additional production employees, therefore, reducing our    
production workforce by 36% as compared to January 2001. In December 2001, we   
temporarily shutdown our Huntingdon and South Hill facilities to mirror the     
production curtailment by our key weaving customers. In addition to the furlough
of production employees, in the fourth quarter we reduced the number of salaried
positions in order to cut costs in future periods.                              

Gross Profit. Gross profit decreased by $18.9 million, or 26.3%, from $71.9     
million for 2000 to $53.0 million for 2001. As a percentage of net sales, gross 
profit decreased to 25.7% as compared to 25.8% for the year ended December 31,  
2000. Excluding the impact of a weakening European currency, gross profit in the
year 2001 would have been 25.9% of net sales. The underabsorption of fixed costs
led by an increasing under-utilization of capacity during the year was partially
offset by continued improved manufacturing performance and cost reduction       
efforts, as well as the previously mentioned price increases.                   

Selling, General and Administrative Expenses. Selling, general and              
administrative expenses decreased $2.1 million, to $14.3 million, or 6.9% of net
sales, for the year ended December 31, 2001 from $16.4 million, or 5.9% of net  
sales, for the year ended December 31, 2000. The decrease in absolute value is  
attributable to the implementation of cost containment measures such as the     
elimination of the profit sharing and incentive compensations as well as the    
reduction in the salaried workforce.                                            

Operating Income. As a result of the aforementioned factors and a restructuring 
charge of $2.4 million associated with the production and salaried workforce    
reduction, operating income decreased $19.5 million to $24.6 million, or 11.9%  
of net sales, for the year ended December 31, 2001 from $44.1 million, or 15.8% 
of net sales, for the year ended December 31, 2000.                             

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Interest Expense. Interest expense decreased $2.2 million to $33.2 million, or  
16.1% of net sales, for the year ended December 31, 2001 from $35.4 million, or 
12.7% of net sales, for the year ended December 31, 2000. The decrease is mainly
attributable to lower average outstanding debt in 2001 as compared to 2000.     
During 2001, we did not benefit from lower overall interest rates due to the    
interest rate hedging instruments, which were previously favorable during 2000  
when overall interest rates where relatively higher.                            

Other Income, net. Other income/expense, net decreased $2.7 million to $0.9     
million, or 0.4% of net sales, for the year ended December 31, 2001 from $3.6   
million, or 1.3% of net sales, for the year ended December 31, 2000. This       
decrease was primarily due to a $1.2 million decrease in royalty income related 
to a $1.0 million non-recurring royalty settlement in 2000 as well as a         
reduction in royalties due to a decrease in sales by our licensee and an $0.8   
million decrease in foreign currency gains.                                     

Net Income (Loss). Also as a result of the aforementioned factors, net income   
decreased $19.8 million to a loss of $7.7 million in the year ended December 31,
2001, from income of $12.1 million in the year ended December 31, 2000.         

Fiscal Year 2000 Compared to Fiscal Year 1999                                   

Net Sales. Net sales increased $26.1 million, or 10.3%, to $278.3 million as    
compared to $252.2 million in the year ended December 31, 1999. This increase   
was primarily due to higher demand in all markets, except in industrial         
products. The largest increases were in the electrical and the construction     
markets, with 22.8% and 14.5%, respectively. This was partially offset by the   
impact of a 13.0% decline in the exchange rate of the European currency versus  
the U.S. dollar in 2000 as compared to 1999. Price increases implemented in the 
last two quarters of 2000 continue to move towards the historical pricing level 
of late 1998 and early 1999.                                                    

Gross Profit. Gross profit increased by $2.8 million, or 4.1%, from $69.1       
million for 1999 to $71.9 million for 2000. As a percentage of net sales, gross 
profit decreased to 25.8% as compared to 27.4% for the year ended December 31,  
1999. The positive impact of higher volumes sold was partially offset by the    
residual effect of the 1999 selling price reductions, additional startup        
manufacturing costs related to increases in capacity in early 2000, as well as  
increases in energy costs since the second quarter of 2000. Excluding the impact
of a weakening European currency, gross profit in the year 2000 would have been 
26.7%.                                                                          

Selling, General and Administrative Expenses. Selling, general and              
administrative expenses decreased to 5.9% of net sales for the year ended       
December 31, 2000 as compared to 6.7% of net sales for the year ended December  
31, 1999. This decrease, which was primarily attributable to an increase in     
sales, without a corresponding increase in cost during the year of 2000, as well
as 1999 non-recurring costs related to the establishment of independent         
operational, management and information system controls, was partially offset by
an increase in depreciation of the aforesaid systems established in 1999.       

Operating Income. Operating income increased $3.8 million to $44.1 million, or  
15.8% of net sales, for the year ended December 31, 2000 from $40.3 million, or 
16.0% of net sales, for the year ended December 31, 1999. This increase was     
primarily related to the factors discussed above.                               

Interest Expense. Interest expense decreased $1.4 million to $35.4 million, or  
12.7% of net sales, for the year ended December 31, 2000 from $36.8 million, or 
14.6% of net sales, for the year ended December 31, 1999.                       

Other Income, net. Other income/expense, net increased $1.3 million to $3.6     
million, or 1.3% of net sales, for the year ended December 31, 2000 from $2.3   
million, or 0.9% of net sales, for the year ended December 31, 1999.            

Net Income. Also as a result of the aforementioned factors and the $3.6 million 
loss on early extinguishment of debt, which occurred in 1999, net income        
increased $10.1 million to $12.1 million in the year ended December 31, 2000,   
from $2.0 million in the year ended December 31, 1999.                          

Liquidity and Capital Resources                                                 

As of December 31, 2001, we had cash and cash equivalents of $0.1 million and   
available undrawn commitments under our Senior Credit Facility of $23.0 million,
after giving effect to the $50.0 million revolver borrowing cap under the terms 
of the December 14, 2001 amendment discussed below. As of December 31, 2001, our
total debt net of cash was $330.3 million, an increase of $4.8 million from     
$325.5 million as of December 31, 2000. The increase in net debt primarily      
reflects (a) a decline in our operating cashflow reflecting lower sales due to  
the depressed business conditions and the under-absorption of fixed costs; (b)  
the funding of capital expenditures; (c) a tax distribution to one of our       
members; and (d) restructuring payments to appropriately size our operations for

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the industry downturn, offset by the positive result of aggressive cost cutting 
programs implemented in 2001 to control inventory levels, reduce future and     
current operating expenses and maximize cash flow.                              

Our primary sources of liquidity are cash flows from operations and borrowings  
under our credit facilities. Our future need for liquidity will arise primarily 
from interest payments on 9 7/8% Senior Subordinated Notes due 2009, principal  
and interest payments on the Senior Credit Facility, and the funding of capital 
expenditures and working capital requirements. There are no mandatory payments  
of principal on the senior subordinated notes scheduled prior to their maturity.
At March 27, 2002, we had outstanding debt of $187.5 million under the Senior   
Credit Facility, with additional available borrowings of up to $18.2 million.   

On December 14, 2001, our senior lenders waived our requirement to maintain and 
meet our Fixed Charge Coverage Ratio and modified our Leverage Ratio and        
Interest Coverage Ratio to be less restrictive for the quarters ending December 
31, 2001 and March 30, 2002. Absent the covenant modification dated December 14,
2001, we would have been in violation of certain covenants of our Senior Credit 
Facility as of December 31, 2001. The amendment also provides for 1) a 100 basis
point increase in the interest spread payable over LIBOR for advances under the 
facility; 2) a cap of $50.0 million for amounts borrowed under the revolving    
credit facility; 3) a $1.75 million and $1.5 million limit on capital spending  
for the quarters ending December 31, 2001, and March 31, 2002, respectively;    
and 4) a prohibition on making any cash distributions to our Members until we   
are in compliance with the original covenants under the credit agreement.       

Based on our current level of performance, we do not expect to comply with      
certain financial covenants under the Senior Credit Facility for the quarter    
ended June 30, 2002. Additionally, if we default under our Senior Credit        
Facility, our senior lenders may be able to prohibit us from making the interest
payments of approximately $7.4 million due under the Senior Subordinated Notes  
on July 15, 2002, which would result in default under our indenture. If we      
default under our senior credit facility or our indenture, the lenders or note  
holders may immediately accelerate repayment of all amounts outstanding under   
the respective agreements. As a result of these uncertainties, amounts due under
the Senior Credit Facility and Senior Subordinated Notes have been reflected as 
current liabilities as of December 31, 2001 in accordance with Generally        
Accepted Accounting Principles, which results in a significant working capital  
deficit as of December 31, 2001. We have retained Credit Suisse First Boston as 
our financial advisor to explore strategic alternatives, including, but not     
limited to, restructuring our debt and negotiating with our lenders favorable   
amendments to the Senior Credit Facility. Even though discussions are ongoing,  
there can be no assurance that we will obtain any necessary amendments and      
waivers or that we will otherwise be able to refinance our debt on favorable    
terms, if at all.                                                               

Based upon current and anticipated levels of operations and provided that there 
is no intervening acceleration of our indebtedness or a blockage of the $7.4    
million interest payment due July 15, 2002 under the Senior Subordinated Notes, 
we believe we have sufficient liquidity from our cashflow from operations,      
combined with our availability under the senior credit facility, to meet our    
projected cash needs through December 2002. Our future operating performance and
ability to service or refinance the Notes and to extend or refinance our other  
indebtedness will be subject to future economic conditions and to financial,    
business and other factors beyond our control.                                  

Our near and long-term operating strategies focus on exploiting existing and    
potential competitive advantages while eliminating or mitigating competitive    
disadvantages. In response to current market conditions and as a part of our    
ongoing corporate strategy, we are pursuing several initiatives intended to     
increase liquidity and better position us to compete under current market       
conditions. Several completed and ongoing initiatives are as follows:           

Since second quarter of 2001, we have reduced our production and salaried       
workforce by approximately 36%. This headcount reduction is expected to         
significantly reduce overall operating expense on an annualized basis. As a part
of this reduction, we placed 591 employees on furloughed status prior to        
December. Additionally, 216 employees were furloughed for a three-week period   
beginning in mid-December as part of a temporary curtailment in production.     

We have and are continuing to pursue aggressive cost cutting programs. As       
compared to the first half of 2001, our quarterly spending for administrative   
costs declined for the second half of the year, by $1.5 million, or 19%.        
Similarly, our monthly spending on products and services for operations has     
declined significantly. This reduction is, in part, due to lower production     
levels.                                                                         

Net Cash Provided by Operating Activities. Net cash provided by operating       
activities was $12.5 million for 2001, compared with $48.2 million in 2000 and  
was primarily the result of a net loss of $(7.7) million, adjusted for non-cash 
charges/(credits) to net income for depreciation of $14.8 million, amortization 
of $13.7 million, alloy usage of $1.7 million, an increase in inventory of      
$(18.8) million, a decrease in accounts payable and accrued expenses of $(13.7) 
million, an increase in pension and post-retirement of $2.8 million, a decrease 
in other assets of $3.2 million, and a decrease in trade accounts receivable of 
$16.5 million. A general economic decline, combined with a downturn in the      
electronics market, where sales declined 50.0% from the prior year, has         
contributed to decreased sales and production volume, resulting in lower margin 
and under absorption of fixed costs. Declines                                   

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in receivables and payables and increases in inventories resulted from a slow   
down of the business. We expect operating cash flows to improve throughout      
fiscal 2002 as a result of working capital management, particularly through     
inventory reduction.                                                            

Net Cash Used in Investing Activities. Net cash used in investing activities    
decreased $2.3 million from $15.9 million for 2000 to $13.6 million for 2001. A 
significant portion of the capital expenditures in 2001 was for process         
automation and furnace rebuilds.                                                

Capital Expenditures. We have historically financed our capital expenditures    
through cash flow from operations and borrowings under our Senior Credit        
Facility. For the year ended December 31, 2001, capital expenditures were $15.0 
million, excluding assets associated with a sale and leaseback transaction      
during the third quarter of 2001 pursuant to which we sold manufacturing        
equipment for net proceeds of approximately $1.5 million. We expect that capital
spending during 2002 will be between $5.0 to $7.0 million.                      

Net Cash Used in Financing Activities. Net cash used in financing activities was
$2.8 million for 2001 and primarily consists of a $4.0 million tax distribution 
to one of our members, net revolver borrowings of $15.3 million, $1.1 million   
proceeds from a partial unwind of our interest rate swaps and net payment on    
term loans of $14.6 million.                                                    

Sources of Liquidity. In connection with the formation transactions, we entered 
into a Senior Credit Facility, which provided for:                              

    .  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;                

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

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

On January 21, 1999, we privately issued $150.0 million of 97/8% 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 generally fund the interest     
payments on the notes with operating cash flows.                                

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.                                                 

On December 14, 2001, we and our lenders amended our Senior Credit Facility as  
previously disclosed above.                                                     

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.                              

Proposed Transaction between Our Two Members. We previously reported that       
Porcher Industries Group and Owens Corning executed a memorandum of             
understanding setting forth the general parameters pursuant to which Porcher    
Industries Group intended to purchase Owens Corning's 49.0% economic interest in
Advanced Glassfiber Yarns. Due to Owens Corning's bankruptcy filing, we cannot  
assure you that this transaction will ever be consummated or that it will be    
consummated on the terms previously disclosed. In addition, consummation of such
a transaction would be subject to factors outside our control, including, among 
other things, the execution of definitive agreements, our ability to obtain any 
required lender consents and other approvals, and Porcher Industries Group's    
ability to obtain satisfactory financing. If Porcher Industries Group acquires  
Owens Corning's 49.0% economic interest, we may be required to step up the value
of certain assets from Owens Corning's historical book value to fair market     
value as of the date of the transaction. This could result in the recording of  
additional depreciation and the payment of additional property taxes, which     
would reduce our future net income.                                             

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Following is a summary of our fixed obligations at the end of 2001 and will     
require the use of funds (in thousands):                                        

                                                        [Enlarge/Download Table]

                         2002            2003           2004          2005        Thereafter  
                         ----            ----           ----          ----        ----------  

                                                                                              
Long-term debt (1)  $     330,441   $          -   $          -  $          -   $           - 
Operating lease             2,496          1,690          1,630         1,551             865 
                      ------------    -----------    -----------   -----------    ------------

Total               $     332,937   $      1,690   $      1,630  $      1,551   $         865 
                      ============    ===========    ===========   ===========    ============

(1) Includes amounts outstanding under our Senior Credit Facility and 97/8%     
Senior Subordinated Notes due 2009, which have both been reclassified as current
liabilities as discussed above.                                                 

Restructuring Charge                                                            

In 2001, management approved a restructuring plan which resulted in the         
reduction of AGY's salary and wage workforce by approximately 36%. As a result  
of the restructuring, we incurred charges of $2.4 million. The charges incurred 
were costs for salaried employee severance and benefit continuation cost for    
hourly employees. These cost are expected to be paid out by the end of 2002.    

Outlook for 2002                                                                

The following section contains forward-looking statements about our plans,      
strategies and prospects during 2002. 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 important factors that  
could cause our actual results to differ materially from those contained in any 
forward-looking statements set forth under Part I, "Cautionary Statement        
Regarding Forward-Looking Statements."                                          

Looking ahead to 2002:                                                          

    .    Despite a slight price decrease year to date, sales trends during the
     first quarter of 2002 increased slightly from the average monthly
          sales for the last quarter of 2001. As a result of increasing customer
demand, good manufacturing performances, and a progressively
increasing utilization of manufacturing facilities, our     
     profitability should improve over the fourth quarter of 2001. The
        improvements through 2002 remain contingent upon the recovery of the
electronics market.                                         

     .    We plan to significantly reduce our inventory levels during 2002. This
reduction would improve our cash flows from operations.     

.    One of our subleases with Owens Corning relating to the Pitney   
         Bowes/John Hancock Mutual Life Insurance Company lease will terminate
         on March 31, 2002. Owens Corning has agreed to purchase the equipment
          at March 31, 2002 from its lessor at the stated residual value of $3.7
million and sell it to us in April for the same amount.     

     .    As a result of headcount reductions and other cost saving initiatives,
     we expect to reduce selling, general, and administrative costs by
approximately $1.3 million.                                 

Related Party Transactions                                                      

See Item 13, "Certain Relationships and Related Transactions" for a discussion  
of related party transactions.                                                  

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Impact of Inflation                                                             

We generally attempt to pass cost increases on to our customers. Costs are      
affected by, among other things, inflation, and we may experience the effects of
inflation in future periods. We believe, however, that inflation has not had a  
material impact on us during the past 3 years.                                  

Recently Issued Accounting Standards                                            

The SEC recently issued two releases, FR 60 and 61, relating to critical        
accounting policies and financial statement disclosure. See Item 7. "Critical   
Accounting Policies."                                                           

In June 2001, the Financial Accounting Standards Board (FASB or the "Board")    
issued Statement of Financial Accounting Standards No. 141 (SFAS 141), Business 
Combinations, and No. 142 (SFAS 142), Goodwill and Other Intangible Assets,     
collectively referred to as the "Standards". SFAS 141 supersedes Accounting     
Principles Board Opinion (APB) No. 16, Business Combination. The provisions of  
SFAS 141 (1) require that the purchase method of accounting be used for all     
business combinations initiated after June 30, 2001, (2) provide specific       
criteria for the initial recognition and measurement of intangible assets apart 
from goodwill, and (3) require that unamortized negative goodwill be written off
immediately as an extraordinary gain instead of being deferred and amortized.   
SFAS 141 also requires that upon adoption of SFAS 142 we reclassify the carrying
amounts of certain intangible assets into or out of goodwill, based on certain  
criteria. SFAS 142 supersedes APB 17,                                           

Intangible Assets, and is effective for fiscal years beginning after December   
15, 2001. SFAS 142 primarily addresses the accounting for goodwill and          
intangible assets subsequent to their initial recognition. The provisions of    
SFAS 142 (1) prohibit the amortization of goodwill and indefinite-lived         
intangible assets, (2) require that goodwill and indefinite-lived intangibles   
assets be tested annually for impairment (and in interim periods if certain     
events occur indicating that the carrying value of goodwill and/or              
indefinite-lived intangible assets may be impaired), (3) require that reporting 
units be identified for the purpose of assessing potential future impairments of
goodwill, and (4) remove the forty-year limitation on the amortization period of
intangible assets that have infinite lives.                                     

We will adopt the provisions of SFAS 142 in the first half of 2002. We are in   
the process of preparing for our adoption of SFAS 142 and is making the         
determinations as to what our reporting units are and what amounts of goodwill, 
intangible assets, other assets, and liabilities should be allocated to those   
reporting units. We recorded $11.6 million of amortization relating to our      
existing goodwill. We are also currently evaluating the useful lives assigned to
our intangible assets. SFAS 142 requires that goodwill be tested annually for   
impairment using a two-step process. The first step is to identify a potential  
impairment and, in transition, this step must be measured as of the beginning of
the fiscal year. However, a company has six months from the date of adoption to 
complete the first step. We expect to complete that first step of the goodwill  
impairment test, by the end of June 2002. The second step of the goodwill       
impairment test measures the amount of the impairment loss (measured as of the  
beginning of the year of adoption), if any, and must be completed by the end of 
our fiscal year. Intangible assets deemed to have an indefinite life will be    
tested for impairment using a one-step process which compares the fair value to 
the carrying amount of the asset as of the beginning of the fiscal year, and    
pursuant to the requirements of SFAS 142 will be completed during the first half
of 2002. Any impairment loss resulting from the transitional impairment tests   
will be reflected as the cumulative effect of a change in accounting principle. 
We believe that no impairment of goodwill or other assets exists as of December 
31, 2001, under FAS 121; however, we believe that an impairment of goodwill     
under FAS 142 may exist as of January 1, 2002 in light of the changes in market 
conditions and the unprecedented downturn in the electronics market. By June of 
2002 we will complete our review of the fair value of goodwill using discounted 
cashflow models, market valuations and third party appraisal when appropriate.  
The impairment charge that could result from this review may be significant.    

We adopted SFAS 133 on January 1, 2001 and initially recorded a $4.1 million    
unrealized gain in Other Comprehensive Income as the cumulative effect of this  
change in accounting related to interest rate swaps. For foreign currency       
derivatives, the adoption of SFAS 133 did not have a material impact on our     
financial position or results of operations.                                    

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 - Cautionary Statement Regarding  
Forward- Looking Statements."                                                   

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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 do not enter into derivatives 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, we entered into interest  
rate swap agreements to manage our exposure to interest rate changes under the  
Senior Credit Facility. The swaps involve 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 notional    
amount which is reduced in a manner consistent with the amortization of the     
principal on our term loans. As of December 31, 2001, we had two interest rate  
swap agreements effective through September 30, 2003 on a notional amount of    
$157.9 million, equal to the borrowings outstanding under Term Loans A and B    
under our Senior Credit Facility. During the quarter ended March 31, 2001, we   
shortened the duration of our interest rate swaps to September 2003. As a result
of this transaction, we received proceeds of $1.1 million, which will be        
reclassified from accumulated other comprehensive income to earnings over the   
remaining life of the related debt. The fair value of the interest rate swap    
agreements represents the estimated receipts or payments that would be made to  
terminate the agreements. At December 31, 2001, we would have paid approximately
$4.4 million to terminate the agreements. A 100 basis point increase in LIBOR   
would decrease the amount paid by approximately $1.9 million. In contrast, a 100
basis point decrease in LIBOR would increase the amount paid by approximately   
$2.3 million. The fair value is based on dealer quotes, considering current     
interest rates.                                                                 

The Senior Credit Facility is a variable-rate debt obligation. Accordingly, the 
estimated fair value of this debt obligation approximates its book value. As of 
December 31, 2001 and 2000, the fair value of the Company's Senior Subordinated 
Notes was $78.0 million and $120.0 million, respectively. The fair value of the 
Notes is estimated on the basis of quoted market prices; however, trading in    
these securities is limited and may not reflect fair value. The fair value is   
subject to fluctuations based on the Company's performance, its credit rating,  
and changes in interest rates for debt securities with similar terms. As        
discussed above, the Company's financial performance has deteriorated due to the
global economic downturn that began late in the first quarter of 2001 and was   
particularly severe in the electronics and industrial market. As a result, the  
credit ratings on the Company's debt were downgraded in 2001 and may be subject 
to further downgrade.                                                           

We are exposed to foreign currency exchange rate risk mainly as a result of our 
export sales denominated in the Euro. Our risk management strategy is to use    
derivative financial instruments, including forwards, swaps, collars and        
purchased options, to hedge some portion or all of these exposures, in          
accordance with our financial risk management policy. Our objective is to limit 
the impact of foreign currency changes on earnings and cash flows. As of        
December 31, 2001, the notional value of our foreign currency hedging           
instruments was immaterial.                                                     

During the quarter ended June 30, 2001, we entered into two natural gas         
commodity swaps whereby we agreed to pay a fixed price to hedge 579,000 MMBtu's 
of the commodity. We entered into these swaps to reduce the variability of the  
cash flows associated with our forecasted purchases of natural gas. One of these
contracts matured in December 2001. The remaining contract terminates in        
December 2002 and provide for a fixed price of $4.14/MMBtu on 365,000 MMBtu's.  
As of December 31, 2001, the total notional value of the remaining commodity    
hedging instrument was $1.5 million, and the approximate fair value was negative
$0.5 million. The potential loss in fair value of such financial instruments    
from a hypothetical 10% increase in the underlying commodity price would be     
approximately $0.1 million as of December 31, 2001. The potential gain in the   
fair value of such financial instruments from a hypothetical 10% decrease in the
underlying commodity price relative to the US dollar would be approximately $0.1
million as of December 31, 2001. The fair value is based on dealer quotes,      
considering current commodity prices                                            

In addition, we are exposed to losses in the event of nonperformance by the     
counterparties under the derivative agreements. We expect the counterparties,   
which are major financial institutions, to perform fully under these contracts. 
However, if the counterparties 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.                                                                           

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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 as of January 2002:                  

Name                                Age    Position                             
----                                ---    --------                             
Robert Porcher                      73     Chief Executive Officer and Chairman 
                               of the Board of Directors
Robert Pistole                      64     President                            
Catherine Cuisson                   36     Vice President and Chief Financial   
             Officer
Richard D. Lantz                    50     Director                             
Serge Piolat                        51     Director                             
Philippe Porcher                    48     Director                             
Michael H. Thaman                   38     Director                             

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 from 1952 to 1998. Porcher        
Industries owns 51.0% 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 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 a financial auditor with Coopers & Lybrand Audit since 1987. Ms.  
Cuisson obtained the equivalent of a certified public accountancy degree upon   
graduating from the Institut Commercial de Nancy in Nancy, France.              

Richard D. Lantz is a Director. Mr. Lantz has been President of Owens Corning's 
Composites Division since November 2001. Since 1974. Mr. Lantz has served in    
various leadership positions for Owens Corning including President of the       
Roofing Solutions and Systems Thinking businesses. Mr. Lantz was appointed to   
our Board of Directors in January 2002.                                         

Serge Piolat is a Director. Since December 9, 1998, Mr. Piolat has served as    
Vice Chairman of the Executive Board and Chief Operating Officer of Porcher     
Industries. Mr Piolat previously managed different divisions of the Porcher     
Group since 1989.                                                               

Philippe Porcher is a Director. Since December 9, 1998, Mr. Philippe Porcher has
been the Chairman of the Executive Board and Chief Executive Officer of Porcher 
Industries. Previously, Mr. Philippe Porcher had been the Vice-Chairman of      
Porcher Industries since March 1993 and also served as the Manager of the       
technical textile division of the Porcher Group. Mr. Philippe Porcher is the son
of Mr. Robert Porcher, our Chairman of the Board and a Director.                

Michael H. Thaman is a Director. Since April 2000, Mr. Thaman has been Senior   
Vice President and Chief Financial Officer of Owens Corning. Mr. Thaman had     
previously served in various other management positions with Owens Corning since
1992. Mr. Thaman has been elected Chairman of the Board of Owens Corning        
effective April 18, 2002. Prior to joining Owens Corning, Mr. Thaman spent six  
years as a strategy consultant at Mercer Management Consulting, where he was a  
vice president in their New York office.                                        

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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:   

                                                                [Download Table]

                                                                   Other    
Name and Principal Position          Salary (1)     Bonus       Compensation
---------------------------          ----------     -----       ------------
                                                                            
Robert Porcher                                                              
Chief Executive Officer                                                     

                             2001 $            - $         - $            - 
                             2000 $            - $         - $            - 
                             1999 $            - $         - $            - 

Robert Pistole (2)                                                          
President                                                                   

                             2001 $      315,400 $         - $       12,060 
                             2000 $      200,000 $    50,000 $       17,500 
                             1999 $            - $         - $            - 

Catherine Cuisson                                                           
Vice President and                                                          
Chief Financial Officer                                                     

                             2001 $      121,500 $         - $            - 
                             2000 $      115,000 $    33,250 $            - 
                             1999 $      111,250 $    13,750 $            - 

______________                                                                  
(1)  Includes amounts earned in the indicated period that were paid in the      
following period.                                                     

(2)  Amounts shown in the table consist of compensation earned by Mr. Pistole   
from May 2000, the date on which Mr. Pistole became our full-time     
     President, until December 31, 2000. From January 10, 2000 until May 2000 we
     paid Mr. Pistole $161,449 in consulting fees to perform the role of interim
President.                                                            

Mr. Pistole entered into an employment contract with us in May 2000, pursuant to
which Mr. Pistole agreed to serve as our President until at least December 31,  
2002. This contract provides for a minimum annual base salary at the rate of    
$300,000 for Mr. Pistole. The minimum annual base salary may be increased by the
Board of Directors. Mr. Pistole's employment contract includes provisions       
restricting him from competing with us during employment and, except in certain 
circumstances, for a limited period of time after termination of employment. In 
addition, Mr. Pistole's employment contract provides for severance payments in  
the event of termination by us without cause equal to the officer's base salary 
at the rate then in effect for one year from the date of termination.           

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 us. Each indicated entity
has sole voting and investment power with respect to our respective ownership   
interest.                                                                       

       Name of Beneficial Owner                       Ownership Interest
       ------------------------                       ------------------
   AGY Holdings, Inc. (1)                                  51.0%
   Jefferson Holdings, Inc. (2)                            49.0%
______________                                                                  
(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 51.0%
  ownership interest in Advanced Glassfiber Yarns. Mr. Robert Porcher owns
54.0% 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 49.0% ownership interest in Advanced
Glassfiber Yarns.                                                     

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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, 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.                                  

On October 5, 2000, Owens Corning and certain of its United States subsidiaries 
(collectively, the "Debtors") filed voluntary petitions with the United States  
Bankruptcy Court for the District of Delaware seeking relief under Chapter 11 of
the United States Bankruptcy Code. According to filings made by Owens Corning   
with the SEC, the Debtors will continue to manage their properties and operate  
their businesses as "debtors-in-possession" in accordance with the applicable   
provisions of the United States Bankruptcy Code. To date, we have not           
experienced interruptions in operations or supply of material. Additionally, in 
2001 the Bankruptcy court approved the netting of Owens Corning's liability to  
us against their receivable from us. No write-offs or losses were incurred as a 
result of this transaction.                                                     

Owens Corning anticipates filing one or more Chapter 11 plans of reorganization 
to be proposed and voted on in the Chapter 11 Cases in accordance with the      
provisions of the Bankruptcy Code. Although no assurances can be provided, we do
not believe that Owens Corning's bankruptcy will have a material adverse effect 
on our business, financial condition or results of operations. However, this    
forward-looking statement is subject to risks and uncertainties that exist in   
our operations and our business environment. See "Cautionary Statement Regarding
Forward-Looking Statements."                                                    

BGF, an affiliate of Porcher Industries S.A., has a cross-default provision     
with an existing credit agreement, as it relates to our Senior Credit Facility. 
This cross-default provision has been waived through April 1, 2003.             

LLC Purchase Agreement                                                          

Pursuant to an LLC purchase agreement, Porcher Industries purchased a 51.0%     
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 two 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 BGF, an affiliate of      
Porcher Industries S.A., has a cross-default provision within an existing credit
agreement, as it relates to our Senior Credit Facility. This cross-default      
provision has been waived through April 2003.                                   

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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 includes 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.                 

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 an allocated portion 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:                                                              

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

   . 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 an allocated portion 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 89,818 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                                                                

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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.       

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.             

As a result, we sublease manufacturing equipment from Owens Corning at our Aiken
and Huntingdon facilities pursuant to Owens Corning's master lease with Pitney  
Bowes/John Hancock Mutual Life Insurance Company. If Owens Corning should       
terminate its rights under the master lease, all of our rights under the related
subleases will also terminate.                                                  

The initial term of our sublease with Owens Corning relating to the Pitney      
Bowes/John Hancock Mutual Life Insurance Company lease ended on March 31, 2001. 
We entered into a new lease agreement with TransAmerica Equipment Financial     
Services for this equipment upon termination of the original sublease. The      
second sublease with Owens Corning is due to terminate on March 31, 2002. Owens 
Corning has agreed to purchase the equipment at March 31, 2002 from its lessor  
at the stated residual value of $3.7 million and sell it to us in April for the 
same amount. The final term of our sublease covers the Aiken facility's vacuum  
oven and will expire on March 31, 2003. This agreement generally allows for the 
purchase of the equipment at the end of the lease term for a stated residual    
value of $0.2 million.                                                          

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 continued for a short time until we hired and trained 
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 $2.9 million for the    
refurbishing of bushings during 2001.                                           

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.                                      

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 a monthly fee 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 will expire whenever Owens Corning or any of   
its affiliates no longer owns a 49.0% ownership interest in us, unless          
earlier terminated.                                                             

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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. Sales to Owens Corning in 
the year ended December 31, 2001 were $0.8 million. 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 $0.2 million annual administrative charge. 
Purchases from Owens Corning in the year ended December 31, 2001 were $2.6      
million, in addition to the administrative charge mentioned previously. 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 in 1998        
pursuant to which we purchase at previously determined prices fiberglass yarns  
to be manufactured by OC Belgium at its facility in Battice, Belgium. In the    
year ended December 31, 2001, we purchased $9.4 million of product from Owens   
Corning. 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 in 1998 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. This agreement was terminated by mutual         
agreement in 1999.                                                              

Our Canadian subsidiary and OC Canada also entered into a purchase agreement in 
1998 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 in 1998        
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 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.                                                                    

Low Tex Type 30 Agreement. We and Owens Corning entered into a supply agreement 
on May 17, 2000 pursuant to which we will purchase for distribution of Type 30  
fiberglass roving products having a bare glass linear density of 200 to 480     
grams per 1000 meters. These rovings 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.  
We purchased $5.1 million of product for distribution in the year ended December
31, 2001.                                                                       

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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 $4.5 million of glass marbles during 2001 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 $0.7 million pursuant to  
this co-location arrangement during 2001. 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.      

Item 14.   Quarterly Financial Information (Unaudited)                          

See page F-21 of the financial report included herein.                          

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.   

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 PART IV

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

(a) Documents Incorporated by Reference or Filed with this Report:    

1.        FINANCIAL STATEMENTS                                                  
See Index on page F-1.                                      

2.        FINANCIAL STATEMENT SCHEDULES                                         
          All schedules for which provision is made in the applicable accounting
     regulations of the Securities and Exchange Commission are omitted
          because they are not required, are inapplicable, or the information is
  included in the Consolidated Financial Statements or the Notes
thereto.                                                    

3.        EXHIBITS                                                              

Ex.       Description                                                           
---       -----------                                                           
2.1(1)    Amended and Restated Asset Contribution Agreement dated as of July 31,
1998 between Owens Corning and Lincoln Yarns LLC            

2.2(1)    LLC Interest Sale and Purchase Agreement dated as of July 31, 1998    
   among Owens Corning, Lincoln Yarns LLC and Glass Holdings Corp.

2.3(1)    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(1)    Certificate of Formation of Advanced Glassfiber Yarns LLC             

3.2(1)    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(1)    Certificate of Incorporation of AGY Capital Corp.                     

3.4(1)    Bylaws of AGY Capital Corp.                                           

4.1(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(1)    Form of 9 7/8% Series A and Series B Senior Subordinated Notes due    
2009 (included in Exhibit 4.1)                              

4.3(1)    Registration Rights Agreement dated as of January 21, 1999 among      
    Advanced Glassfiber Yarns LLC, AGY Capital Corp. and the Initial
Purchasers                                                  

10.1(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(1)   Glass Marbles Supply Agreement dated as of September 30, 1998 between 
Owens Corning and Advanced Glassfiber Yarns LLC             

10.3(1)   Alloy Services Agreement dated as of September 30, 1998 between       
Advanced Glassfiber Yarns LLC and Owens Corning             

10.4(1)   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(1)   Manufacturing Services Agreement dated as of September 30, 1998       
between Owens Corning and Advanced Glassfiber Yarns LLC     

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10.6(1)   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(1)   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(1)   Borates Supply Agreement dated as of September 30, 1998 between Owens 
Corning and Advanced Glassfiber Yarns LLC                   

10.9(1)   Transitional Services Agreement dated as of September 30, 1998 by and 
among Owens Corning and Advanced Glassfiber Yarns LLC       

10.10(1)  Support Services Agreement dated as of September 30, 1998 between     
Advanced Glassfiber Yarns LLC and Owens Corning             

10.11(1)  Software License Agreement dated as of September 30, 1998 between     
Owens Corning and Advanced Glassfiber Yarns LLC             

10.12(1)  Keep-Well Agreement dated as of September 30, 1998 between Owens      
Corning and Advanced Glassfiber Yarns LLC                   

10.13(1)  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(1)  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(1)  Note Purchase Agreement dated January 21, 1999 among Advanced         
      Glassfiber Yarns LLC, AGY Capital Corp. and the Initial Purchasers

10.16(2)  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(2)  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.

10.18(3)  Employment Agreement dated as of June 12, 2000 between Advanced       
Glassfiber Yarns LLC and Robert G. Pistole.                 

10.19     Third Amendment to Credit Agreement dated as of December 14, 2001     
    among Advanced Glassfiber Yarns LLC, the Guarantors, First Union
  National Bank, as agent and lender, and certain other lenders.

12        Statement of Computation of Ratios                                    

21(1)     Subsidiaries of the Registrant                                        

99        Reconciliation of Net Income to EBITDA                                

__________                                                                      

(1)  Filed as part of our Registration Statement (333-72305) filed with the SEC 
and incorporated herein by reference.                                 
(2)  Filed as part of our Annual Report on Form 10-K for the year ended December
31, 1999 and incorporated herein by reference.                        
(3)  Filed as part of our Annual Report on Form 10-K for the year ended December
31, 2000 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, 2001.                                       

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange  
Act of 1934, the registrant has duly caused this 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 April 5, 2002.                       

                                             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:                           

                                                        [Enlarge/Download Table]

      Signature                           Title                             Date     
      ---------                           -----                             -----    
                                                                                     
/s/ Robert Porcher        Chief Executive Officer and Chairman of the   April 5, 2002
------------------------  Board of Directors                                         
Robert Porcher                                                                       

/s/ Richard Lantz         Director                                      April 5, 2002
------------------------                                                             
Richard Lantz                                                                        

/s/ Serge Piolat          Director                                      April 5, 2002
------------------------                                                             
Serge Piolat                                                                         

/s/ Philippe Porcher      Director                                      April 5, 2002
------------------------                                                             
Philippe Porcher                                                                     

/s/ Michael H. Thaman     Director                                      April 5, 2002
------------------------                                                             
Michael H. Thaman                                                                    

/s/ Robert G. Pistole     President                                     April 5, 2002
------------------------                                                             
Robert G. Pistole                                                                    

/s/ Catherine Cuisson     Vice President and Chief Financial Officer    April 5, 2002
------------------------  (Principal Financial and Accounting Officer)               
Catherine Cuisson                                                                    

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange  
Act of 1934, the registrant has duly caused this 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 April 5, 2002.                       

                                 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:                           

                                                        [Enlarge/Download Table]

      Signature                           Title                             Date     
      ---------                           -----                             -----    
                                                                                     
/s/ Robert Porcher        Chief Executive Officer and Chairman of the   April 5, 2002
------------------------  Board of Directors                                         
Robert Porcher                                                                       

/s/ Richard Lantz         Director                                      April 5, 2002
------------------------                                                             
Richard Lantz                                                                        

/s/ Serge Piolat          Director                                      April 5, 2002
------------------------                                                             
Serge Piolat                                                                         

/s/ Philippe Porcher      Director                                      April 5, 2002
------------------------                                                             
Philippe Porcher                                                                     

/s/ Michael H. Thaman     Director                                      April 5, 2002
------------------------                                                             
Michael H. Thaman                                                                    

/s/ Robert G. Pistole     President                                     April 5, 2002
------------------------                                                             
Robert G. Pistole                                                                    

/s/ Catherine Cuisson     Vice President and Chief Financial Officer    April 5, 2002
------------------------  (Principal Financial and Accounting Officer)               
Catherine Cuisson                                                                    

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 INDEX TO FINANCIAL STATEMENTS

                                                        [Enlarge/Download Table]

                                                                                  Page No.

                                                                                          
Report of Independent Accountants                                                   F-2   
Consolidated Balance Sheets as of December 31, 2001 and 2000                        F-3   
Consolidated Statements of Operations for the years ended December 31, 2001,              
2000 and 1999                                                                       F-4   

Consolidated Statements of Comprehensive Income for the years ended December 31,          
2001, 2000 and 1999                                                                 F-5   

Consolidated Statements of Cash Flows for years ended December 31, 2001, 2000             
and 1999                                                                            F-6   

Notes to Consolidated Financial Statements                                          F-7   

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 REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of                                                    
Advanced Glassfiber Yarns LLC:                                                  

In our opinion, the accompanying consolidated balance sheets and the related    
consolidated statements of operations, of comprehensive income and of cash flows
present fairly, in all material respects, the financial position of Advanced    
Glassfiber Yarns LLC and subsidiaries ("AGY" or "the Consolidated Company") at  
December 31, 2001 and December 31, 2000, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,   
2001 in conformity with accounting principles generally accepted in the United  
States of America. These financial statements are the responsibility of the     
Company's management; our responsibility is to express an opinion on these      
financial statements based on our audits. We conducted our audits of these      
statements in accordance with auditing standards generally accepted in the      
United States of America, which require that we plan and perform the audit to   
obtain reasonable assurance about whether the financial statements are free of  
material misstatement. An audit includes examining, on a test basis, evidence   
supporting the amounts and disclosures in the financial statements, assessing   
the accounting principles used and significant estimates made by management, and
evaluating the overall consolidated financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.                     

The accompanying consolidated financial statements have been prepared assuming  
that the Company will continue as a going concern. As discussed in Notes 1 and 7
to the financial statements, the Company's anticipated violation of certain     
provisions of its debt agreements and resulting net working capital deficiency  
raises substantial doubt about its ability to continue as a going concern.      
Management's plans in regard to these matters are also described in Notes 1 and 
7. The financial statements do not include any adjustments that might result    
from the outcome of this uncertainty.                                           

As discussed in Note 2 to the financial statements, the Company adopted         
Statement of Financial Accounting Standards No. 133 "Accounting for Derivative  
Instruments and Hedging Activities" on January 1, 2001.                         

PRICEWATERHOUSECOOPERS LLP                                                      
February 8, 2002                                                                

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 CONSOLIDATED BALANCE SHEETS
(dollars in thousands)

                                                        [Enlarge/Download Table]

                                                                                     December 31,      December 31,  
                                                                                         2001              2000      
                                                                                     -------------    ---------------

                                     ASSETS                                                                          
                                                                                                                     
Current assets:                                                                                                      
    Cash and cash equivalents                                                      $          100   $          4,054 
    Trade accounts receivable less allowance of $1,102 and $1,770, respectively            13,392             29,981 
    Inventories (Note 3)                                                                   43,847             25,011 
    Other current assets                                                                    3,188              5,947 
                                                                                     -------------    ---------------
      Total current assets                                                                 60,527             64,993 
                                                                                     -------------    ---------------
Net property, plant and equipment (Note 4)                                                142,191            148,438 
Intangible assets, net (Note 5)                                                           209,622            222,578 
Other non-current assets                                                                      145                  - 
                                                                                     -------------    ---------------
        Total assets                                                               $      412,485   $        436,009 
                                                                                     =============    ===============

                       LIABILITIES AND MEMBERSHIP INTEREST                                                           

Current liabilities:                                                                                                 
    Accounts payable                                                               $       16,205   $         29,181 
    Accrued liabilities (Note 6)                                                           24,201             23,863 
    Current portion of long-term debt, net of discount of $2,392 and $ - (Note 7)         330,441             14,670 
                                                                                     -------------    ---------------
      Total current liabilities                                                           370,847             67,714 
                                                                                     -------------    ---------------
Long-term debt, net of discount of  $- and $2,616 respectively (Note 7)                         -            314,916 
Deferred distribution (Note 16)                                                            11,435              6,681 
Pension and other employee benefit plans (Note 10)                                         25,753             22,947 
Other non-current liabilities                                                                 413                  - 
                                                                                     -------------    ---------------
        Total liabilities                                                                 408,448            412,258 
                                                                                     -------------    ---------------

Commitments and contingencies (Note 18)                                                         -                  - 

Membership interest (Note 8 and 16)                                                         4,037             23,751 
                                                                                     -------------    ---------------
        Total liabilities and membership interest                                  $      412,485   $        436,009 
                                                                                     =============    ===============

The acompanying notes are an integral part of the consolidated finacial 
 statement

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 CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)

                                                        [Enlarge/Download Table]

                                                        For the Years Ended December 31,      
                                                        --------------------------------      
                                                     2001              2000           1999    
                                                     ----              ----           ----    
                                                                                              
Net sales                                      $     206,302      $    278,288   $    252,236 
Cost of goods sold                                   153,339           206,403        183,186 
                                                  -----------       -----------    -----------

    Gross profit                                      52,963            71,885         69,050 
Selling, general and administrative                                                           
    expenses                                          14,290            16,407         16,812 
Amortization                                          11,606            11,420         11,611 
Restructuring charge                                   2,449                 -            290 
                                                  -----------       -----------    -----------

    Operating income                                  24,618            44,058         40,337 
Interest expense (Note 12)                            33,243            35,449         36,824 
Other income                                            (931)           (3,577)        (2,283)
                                                  -----------       -----------    -----------

    Income (loss) before provision for income                                                 
      taxes and extraordinatory item                  (7,694)           12,186          5,796 
Income tax expense (Note 13)                              55                93            190 
                                                  -----------       -----------    -----------

Income (loss) before extraordinary item               (7,749)           12,093          5,606 
Extraordinary item, (loss) on early                                                           
    extinguishment of debt (Note 7)                        -                 -         (3,616)
                                                  -----------       -----------    -----------

Net income (loss)                              $      (7,749)     $     12,093   $      1,990 
                                                  ===========       ===========    ===========

The accompanying otes are an integral part of the cnsolidated financial 
statements. 

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 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)

For the Years Ended December 31,
--------------------------------

                                                                [Download Table]

                                              2001       2000       1999 
                                              ----       ----       ---- 
                                                                         
Net income (loss)                          $ (7,749)  $ 12,093   $  1,990
Other comprehensive income (loss):                                       
  Commodity swaps                              (518)         -          -
  Interest rate swaps                        (3,506)         -          -
  Foreign currency translation adjustment      (138)       (31)       199
                                           --------   --------   --------
Comprehensive income (loss)                $(11,911)  $ 12,062   $  2,189
                                           ========   ========   ========

The accompanying notes are an integral part of the consolidated financial 
statements. 

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 CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)

                                                        [Enlarge/Download Table]

                                                                               For the Years Ended December 31,   
                                                                        ----------------------------------------- 
                                                                            2001            2000            1999  
                                                                            ----            ----            ----  
                                                                                                                  
Cash flows from operating activities:                                                                             
    Net income (loss)                                                   $  (7,749)      $  12,093       $   1,990 
    Adjustments to reconcile net income (loss) to net cash provided by                                            
      operating activities:                                                                                       
        Depreciation                                                       14,754          14,573          12,376 
        Amortization of debt issuance costs                                 1,888           1,747           1,795 
        Amortization of goodwill and other intangibles                     11,604          11,420          11,611 
        Amortization of discount on notes                                     225             204             181 
        Extraordinary loss                                                      -               -           3,616 
        Alloy depletion                                                     1,728           1,224           2,254 
    Changes in assets and liabilities:                                                                            
        Trade accounts receivable, net                                     16,510           3,450            (739)
        Inventories                                                       (18,836)          1,802          (2,108)
        Other assets                                                        3,220          (5,306)            186 
        Accounts payable                                                  (10,275)          5,385          17,679 
        Accrued liabilities                                                (3,381)            500           6,550 
        Pension and post-retirement                                         2,806           1,151           3,796 
                                                                        ---------       ---------       --------- 
             Net cash provided by operating activities                     12,494          48,243          59,187 
                                                                        ---------       ---------       --------- 
Cash flows from investing activities:                                                                             
    Purchase of property, plant and equipment                             (15,042)        (19,760)        (15,277)
    Proceeds from sale of fixed assets                                      1,513           3,915               - 
    Other                                                                     (47)            (83)           (326)
                                                                        ---------       ---------       --------- 
             Net cash used in investing activities                        (13,576)        (15,928)        (15,603)
                                                                        ---------       ---------       --------- 
Cash flows from financing activities:                                                                             
    Proceeds from (payments on) revolving credit facility, net             15,300            (200)         (5,300)
    Payments on bridge facility                                                 -               -        (150,000)
    Payments on capital lease                                                (102)            (92)           (100)
    Proceeds from senior subordinated notes                                     -               -         147,000 
    Payments on term loans                                                (14,568)        (30,179)        (34,125)
    Distribution to Owens Corning                                          (4,033)         (3,979)         (1,587)
    Proceeds from interest rate swap                                        1,118               -               - 
    Debt issuance costs                                                      (513)              -          (6,043)
                                                                        ---------       ---------       --------- 
               Net cash used in financing activities                       (2,798)        (34,450)        (50,155)
                                                                        ---------       ---------       --------- 
    Effect of exchange rate on cash                                           (74)            (34)             15 
                                                                        ---------       ---------       --------- 
Net decrease in cash and cash equivalents                                  (3,954)         (2,169)         (6,556)
                                                                        ---------       ---------       --------- 
Cash and cash equivalents, beginning of period                              4,054           6,223          12,779 
                                                                        ---------       ---------       --------- 
Cash and cash equivalents, end of period                                $     100       $   4,054       $   6,223 
                                                                        =========       =========       ========= 
Supplemental disclosure of cash flow information:                                                                 
    Cash paid for interest                                              $  30,431       $  32,982       $  27,697 
                                                                        =========       =========       ========= 
Supplemental disclosure of non-cash financing/investing activities:                                               
    Decrease in fair value of derivatives                               $     518       $       -       $       - 
                                                                        =========       =========       ========= 
    Non-cash disposal of fixed assets                                   $       -       $     630       $       - 
                                                                        =========       =========       ========= 
    Final fixed assets appraisal reclassification                       $       -       $       -       $   4,171 
                                                                        =========       =========       ========= 
    Decrease in fair value of interest rate swap                        $   4,404       $       -       $       - 
                                                                        =========       =========       ========= 
    Increase (decrease) in property and equipment financed in accrueds  $  (2,696)      $  (2,582)      $   2,765 
                                                                        =========       =========       ========= 
    Deferred Distribution                                               $   3,979       $   4,357       $   1,656 
                                                                        =========       =========       ========= 

The accompanying notes are an integral part of the consolidated financial 
statements. 

F-6 

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ADVANCED GLASSFIBER YARNS LLC 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business and Basis of Presentation                            

Description of Business. 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 51.0% 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 51.0%      
interest in AGY was $342.1 million. Owens Corning retained a 49.0% interest in  
AGY. These events collectively are the "Formation Transactions".                

The acquisition of the 51.0% 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."                      

The Company manufactures and sells glass yarn used in a variety of electronic,  
industrial, construction and specialty applications.                            

Basis of Presentation. As discussed in Note 7, all long-term debt has been      
classified as current in anticipation of covenant violations under the Senior   
Credit Facility and Senior Subordinated Notes. This matter raises substantial   
doubt about the Company's ability to continue as a going concern. The company is
currently in negotiations with its senior lenders and is reviewing alternative  
financing and strategic options. The consolidated financial statements do not   
include any adjustments that might result from the outcome of this uncertainty. 

2. Summary of Significant 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.               

The estimated useful lives of the assets are as follows:                        

     Buildings and leasehold improvements                15-40 Years
    Machinery and equipment                             5-25 Years

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Summary of Significant Accounting Policies - (Continued)                     

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 29 years.                              

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.                                              

Revenue Recognition and Concentration of Credit Risk. Revenues are recognized   
when both risk of loss and title to products passes to the customer, which is   
typically at shipment. Two customers, one of which is an affiliate of Porcher   
Industries, accounted for 19% and 46% of the Company's gross accounts receivable
at December 31, 2001 and 2000, respectively. The following table represents a   
summary of sales to significant customers as a percentage of the Company's net  
sales:                                                                          

                              Years Ended December 31,
                              ------------------------

                               2001               2000            1999
                               ----               ----            ----

Customer A                             24.0%              25.0%           25.0% 
Customer B                             12.0               17.0            16.0  
                               ----------         ----------      ----------
                                      36.0%              42.0%           41.0%
                               ==========         ==========      ==========

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.                            

The Company's wholly-owned subsidiary AGY Europe SARL is located in Lyon, France
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.                                    

Adjustments resulting from the translations are recorded as a separate component
of Membership Interest.                                                         

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

Intangible Assets. Included in intangible assets are goodwill, 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.                           

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,   
2001. See "Recently Issued Accounting Standards".                               

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Summary of Significant Accounting Policies - (Continued)                     

Other Income. Other income includes royalty and interest income, technical      
service fees, and foreign currency gains and losses.                            

Research and Development. The Company expenses research and development costs as
incurred. These costs were approximately $6.2 million, $6.8 million, and $7.5   
million, for the years ended December 31, 2001, 2000 and 1999, respectively.    

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, 2001.                                    

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. In June 2001, the Financial Accounting    
Standards Board (FASB or the "Board") issued Statement of Financial Accounting  
Standards No. 141 (SFAS 141), Business Combinations, and No. 142 (SFAS 142),    
Goodwill and Other Intangible Assets, collectively referred to as the           
"Standards". SFAS 141 supersedes Accounting Principles Board Opinion (APB) No.  
16, Business Combination. The provisions of SFAS 141 (1) require that the       
purchase method of accounting be used for all business combinations initiated   
after June 30, 2001, (2) provide specific criteria for the initial recognition  
and measurement of intangible assets apart from goodwill, and (3) require that  
unamortized negative goodwill be written off immediately as an extraordinary    
gain instead of being deferred and amortized. SFAS 141 also requires that upon  
adoption of SFAS 142 the Company reclassify the carrying amounts of certain     
intangible assets into or out of goodwill, based on certain criteria. SFAS 142  
supersedes APB 17, Intangible Assets, and is effective for fiscal years         
beginning after December 15, 2001. SFAS 142 primarily addresses the accounting  
for goodwill and intangible assets subsequent to their initial recognition. The 
provisions of SFAS 142 (1) prohibit the amortization of goodwill and            
indefinite-lived intangible assets, (2) require that goodwill and               
indefinite-lived intangibles assets be tested annually for impairment (and in   
interim periods if certain events occur indicating that the carrying value of   
goodwill and/or indefinite-lived intangible assets may be impaired), (3) require
that reporting units be identified for the purpose of assessing potential future
impairments of goodwill, and (4) remove the forty-year limitation on the        
amortization period of intangible assets that have finite lives.                

The Company will adopt the provisions of SFAS 142 in the first half of 2002. The
Company is in the process of preparing for its adoption of SFAS 142 and is      
making the determinations as to what its reporting units are and what amounts of
goodwill, intangible assets, other assets, and liabilities should be allocated  
to those reporting units. The Company recorded $11.6 million of amortization in 
2001 relating to its existing goodwill. The Company is also currently evaluating
the useful lives assigned to its intangible assets.                             

SFAS 142 requires that goodwill be tested annually for impairment using a       
two-step process. The first step is to identify a potential impairment and, in  
transition, this step must be measured as of the beginning of the fiscal year.  
However, a company has six months from the date of adoption to complete the     
first step. The Company expects to complete that first step of the goodwill     
impairment test, by the end of June 2002. The second step of the goodwill       
impairment test measures the amount of the impairment loss (measured as of the  
beginning of the year of adoption), if any, and must be completed by the end of 
the Company's fiscal year. Intangible assets deemed to have an indefinite life  
will be tested for impairment using a one-step process which compares the fair  
value to the carrying amount of the asset as of the beginning of the fiscal     
year, and pursuant to the requirements of SFAS 142 will be completed during the 
first half of 2002. Any impairment loss resulting from the transitional         
impairment tests will be reflected as the cumulative effect of a change in      
accounting principle. The Company believes that no impairment of goodwill or    
other assets exists as of December 31, 2001, under FAS 121; however, the Company
feels that an impairment of goodwill under FAS 142 may exist as of January 1,   
2002 in light of the changes in market conditions and the unprecedented downturn
in the electronics market. The Company will complete by June 2002 its review of 
the fair value of goodwill using discounted cashflow models, market valuations  
and third party appraisal when appropriate. The impairment charge that could    
result from this review may be significant.                                     

The Company adopted SFAS 133 on January 1, 2001 and initially recorded a $4.2   
million unrealized gain in Other Comprehensive Income as the cumulative effect  
of this change in accounting related to interest rate swaps. For foreign        
currency derivatives, the adoption of SFAS 133 did not have a material impact on
the Company's financial position or results of operations.                      

Reclassification. Certain previously reported amounts have been reclassified to 
conform with the current presentation.                                          

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.        Inventories                                                           

Inventories consist of the following (dollars in thousands):                    

                                                 December 31,       December 31,
                                               2001               2000
                                                -----------        -----------

Finished goods                                   $   37,973         $   20,051  
Materials and supplies                                5,874              4,960  
                                                -----------        -----------
 Total Inventories                             $   43,847         $   25,011
                                                ===========        ===========

4.       Net Property, Plant and Equipment                                      

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

                                              December 31,    December 31,
                                            2001            2000
                                              ------------    ------------

Land                                             $        827    $        827   
Building and leasehold improvements                    27,028          26,659   
Machinery and equipment                               123,375         111,852   
Construction in progress                                5,725           7,383   
                                              ------------    ------------
 Gross property, plant and equipment               156,955         146,721
                                              ------------    ------------
  Less: accumulated depreciation                    (44,430)        (29,677)
Alloy metals                                           29,666          31,394   
                                              ------------    ------------
    Total Net property, plant and equipment   $    142,191    $    148,438
                                              ============    ============

The Company leases computer equipment under a capital lease agreement. The      
carrying value of equipment under capital leases was approximately $92,000 and  
$193,000 at December 31, 2001, and 2000, respectively.                          

5.       Intangible Assets, net                                                 

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      
(dollars in thousands):                                                         

                              December 31,  December 31,  Amortization
                              2001          2000          Period
                              ------------  ------------  ------------

Goodwill                           $    216,611  $    216,611       25 Years    
Patents and trademarks                   20,238        20,205       8  Years    
Debt issuance costs                      13,596        13,224       6 - 10 Years
Covenant not to compete                   2,000         2,000       5 Years     
                ------------  ------------
                     252,445       252,040
Less: accumulated amortization          (42,823)      (29,462)                  
                ------------  ------------
Total Intangible assets, net    $    209,622  $    222,578                
                ============  ============

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.  Accrued Liabilities                                                         

Accrued liabilities consist of the following (dollars in thousands):            

                                                        [Enlarge/Download Table]

                                                                 December 31,  December 31,
                                                                    2001          2000     
                                                                 -----------   ----------- 
                                                                                           
Vacation                                                           $ 2,743       $ 3,003   
Interest                                                             6,923         7,001   
Real and personal property taxes                                     1,501         2,531   
Incentive compensation and profit sharing                              194         2,555   
Payroll and Benefits                                                 2,528         2,634   
Due to OC and other related parties                                    518         2,292   
Current portion of interest swap and natural gas commodity swap      4,509             -   
Restructuring (Note 11)                                              1,160             -   
Other                                                                4,125         3,847   
                                                                   -------       -------   
   Total Accrued liabilities                                       $24,201       $23,863   
                                                                   =======       =======   

The current portion of the interest rate and gas commodity swap is shown above  
in accordance with the application of SFAS 133, effective January 1, 2001.      

7.  Long-Term Debt and Going Concern                                            

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

                                                 December 31,       December 31,
                                                 2001               2000
                                                ------------      ------------
Senior Credit Facility:                                                         
  Revolving Credit Facility                     $  24,800          $   9,500
  Term Loan A                                      62,531             76,840
  Term Loan B                                      95,410             95,669
9 7/8% Senior Subordinated Notes, net                                           
  of amortized discount                           147,608            147,384
Capital lease obligation                                 92                193  
                                                ---------          ---------
                                                  330,441            329,586
Less current portion                               (330,441)           (14,670) 
                                                ---------          ---------
    Total Long-term debt                        $       -          $ 314,916
                                                =========          =========

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 $75.0 million to $65.0 million.                                   

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.     Long-Term Debt and Going Concern- (Continued)                            

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 as    
defined in the Senior Credit Facility. Certain of these financial tests and     
ratios include: (i) maintaining a maximum Leverage Ratio; (ii) maintaining a    
minimum Consolidated Net Worth; (iii) maintaining a minimum Interest Coverage   
Ratio; and (iv) maintaining a minimum Fixed Charge Coverage Ratio.              

As of December 31, 2001, the Company had cash and cash equivalents of $0.1      
million and available undrawn commitments under its Senior Credit Facility of   
$23.0 million, after giving effect to the $50.0 million revolver borrowing cap  
under the terms of the December 14, 2001 amendment discussed below. As of       
December 31, 2001, the Company's total debt net of cash was $330.3 million, an  
increase of $4.8 million from $325.5 million as of December 31, 2000. The       
increase in net debt primarily reflects (a) a decline in the Company's operating
cashflow reflecting lower sales due to the depressed business conditions and the
under-absorption of fixed costs; (b) the funding of capital expenditures; (c) a 
tax distribution to one of the Company's members; and (d) restructuring payments
to appropriately size the Company's operations for the industry downturn, offset
by the positive result of aggressive cost cutting programs put in place in 2001 
to control inventory levels, reduce future and current operating expenses and   
maximize cash flow.                                                             

The Company's primary sources of liquidity are cash flows from operations and   
borrowings under its credit facilities. The Company's future need for liquidity 
will arise primarily from interest payments on 97/8% Senior Subordinated Notes  
due 2009, principal and interest payments on the Senior Credit Facility, and the
funding of capital expenditures and working capital requirements. There are no  
mandatory payments of principal on the senior subordinated notes scheduled prior
to their maturity.                                                              

On December 14, 2001, the Company's senior lenders waived its requirement to    
maintain and meet its Fixed Charge Coverage Ratio and modified its Leverage     
Ratio and Interest Coverage Ratio to be less restrictive for the quarters ending
December 31, 2001 and March 30, 2002. Absent the covenant modification dated    
December 14, 2001, the Company would have been in violation of certain covenants
of its Senior Credit Facility as of December 31, 2001. The amendment also       
provides for 1) a 100 basis point increase in the interest spread payable over  
LIBOR for advances under the facility; 2) a cap of $50.0 million for amounts    
borrowed under the revolving credit facility; 3) a $1.75 million and $1.5       
million limit on capital spending for the quarters ending December 31, 2001,    
and March 31, 2002, respectively; and 4) a prohibition on making any cash       
distributions to its members until the Company is in compliance with the        
original covenants under the credit agreement.                                  

Based on the Company's current level of performance, the Company does not expect
to comply with certain financial covenants under the Senior Credit Facility for 
the quarter ended June 30, 2002. Additionally, if the Company defaults under its
Senior Credit Facility, the Company's senior lenders may be able to prohibit the
Company from making the interest payments of approximately $7.4 million due     
under the Senior Subordinated Notes on July 15, 2002, which would result in a   
default under the indenture. If the Company defaults under its Senior Credit    
Facility or its indenture, the lenders or note holders may immediately          
accelerate repayment of all amounts outstanding under the respective agreements.
As a result of these uncertainties, amounts due under the Senior Credit Facility
and Senior Subordinated Notes have been reflected as current liabilities as of  
December 31, 2001 in accordance with Generally Accepted Accounting Principles,  
which results in a significant working capital deficit as of December 31, 2001. 
The Company has retained Credit Suisse First Boston as its financial advisor to 
explore strategic alternatives, including, but not limited to, restructuring its
debt and negotiating with its lenders favorable amendments to the Senior Credit 
Facility. Even though discussions are ongoing, there can be no assurance that   
the Company will obtain any necessary amendments and waivers or that we will    
otherwise be able to refinance our debt on favorable terms, if at all.          

Based upon current and anticipated levels of operations and provided that there 
is no intervening acceleration of the Company's indebtedness or a blockage of   
the $7.4 million interest payment due July 15, 2002, under the Senior           
Subordinated Notes, the Company believes it has sufficient liquidity from its   
cashflow from operations, combined with its availability under the Senior Credit
Facility, to meet its projected cash needs through December 2002. The Company's 
future operating performance and                                                

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.     Long-Term Debt and Going Concern- (Continued)                            

ability to service or refinance the Notes and to extend or refinance its other  
indebtedness will be subject to future economic conditions and to financial,    
business and other factors beyond its control.                                  

The Company's near and long-term operating strategies focus on exploiting       
existing and potential competitive advantages while eliminating or mitigating   
competitive disadvantages. In response to current market conditions and as a    
part of its ongoing corporate strategy, the Company is pursuing several         
initiatives intended to increase liquidity and better position the Company to   
compete under current market conditions. Several completed and ongoing          
initiatives are as follows:                                                     

Since second quarter of 2001, the Company has reduced its production and        
salaried workforce by approximately 36%. This headcount reduction is expected to
significantly reduce overall operating expense on an annualized basis. As a part
of this reduction, the Company placed 591 employees on furloughed status prior  
to December. Additionally, 216 employees were furloughed for a three-week period
beginning in mid-December as apart of a temporary curtailment in production.    

The Company has and is continuing to pursue aggressive cost cutting programs. As
compared to the first half of 2001, the Company's quarterly spending for        
administrative costs declined for the second half of the year, by $1.5 million, 
or 19%. Similarly, its monthly spending on products and services for operations 
has declined significantly. This reduction is, in part, due to lower production 
levels.                                                                         

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 are fluctuating rates 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. During the term of the December 14, 
2001; amendment to the Senior Credit Facility, the applicable borrowing margin  
for the Revolver and Term Loan A is 3.75% for LIBOR based borrowings and 2.5%   
for ABR based borrowings. The applicable borrowing margin for the Term Loan B is
4.50% for LIBOR based borrowings and 3.25% 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 $62.5 million and $95.4 million for Term
Loan A and Term Loan B, respectively, at December 31, 2001. The Company is      
exposed to losses, in the event of nonperformance by the counterparties under   
the interest rate swap agreements. As of December 31, 2001, the Company expects 
the counterparties to fully perform under these contracts.                      

During the quarter ended March 31, 2001, AGY shortened the duration of the      
interest rate swaps to September 2003. As a result of this transaction, AGY     
received proceeds of $1.1 million, which will be reclassified from accumulated  
other comprehensive income to earnings over the remaining life of the related   
debt. Amounts reclassified to earnings were $0.2 million for the year ended     
December 31, 2001 and are included in other income. During 2000, AGY terminated 
portions of the interest rate swaps related to the early payment of Term Loans A
and B. As the result of this partial unwind of swap agreements, AGY recognized a
gain in other income of $0.2 million for the year ended December 31, 2000.      

The interest rate on borrowings outstanding under the Revolver, Term Loan A and 
Term Loan B as of December 31, 2001 was 5.9%, 8.7% and 9.5%, respectively,      
including the effect of the interest rate swap.                                 

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7.  Long-Term Debt and Going Concern- (Continued)                               

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 $150.0 million   
under the Senior Subordinated Credit Facility. In addition, debt issuance costs 
of $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,    
2001 and 2000 of approximately $2,226,000, to secure workers compensation       
obligations. Such letters of credit expire in September 2002 but are            
automatically renewable for one year if not terminated before expiration.       

The estimated fair value of the Company's Senior Subordinated Notes as of       
December 31, 2001 and 2000 was $78.0 million and $120.0 million, respectively.  
The fair value of the Senior Notes is based upon quoted market price. The fair  
value of the Company's Senior Credit Facility borrowings approximates the       
carrying value as it bears interest at variable rates. The fair value of the    
interest rate swap agreements, representing the estimated amount that the       
Company would pay to terminate the swap agreements, was approximately $1.5      
million and $2.9 million, respectively, at December 31, 2001.                   

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 $65.0 million, and a maximum annual amount of $20.0 
million. The Owens Corning maximum aggregate obligation is reduced by $10.0     
million semi-annually beginning in 1999. This Agreement terminated in January   
2002.                                                                           

8.  Membership Interest                                                         

The following table sets forth the statement of changes in membership interest  
in AGY (dollars in thousands):                                                  

                                                        [Enlarge/Download Table]

                                          Accumulated                                               
                                            Other                    Membership Interest            
                                                        ------------------------------------------- 
                                         Comprehensive     Owens                                    
                                            Income        Corning           Porcher         Total   
                                         -------------  ------------       ---------      --------- 
                                                                                                    
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 
Net income                                        -            5,926           6,167         12,093 
Foreign currency translation adjustment         (31)               -               -            (31)
Distribution to members                           -           (4,185)         (4,357)        (8,542)
                                          ---------        ---------       ---------      --------- 
Balance at December 31, 2000                    167         (118,290)        141,874         23,751 
Net loss                                          -           (3,797)         (3,952)        (7,749)
Foreign currency translation adjustment        (138)               -               -           (138)
Distribution to members                           -           (3,824)         (3,979)        (7,803)
Other comprehensive income                   (4,024)               -               -         (4,024)
                                          ---------        ---------       ---------      --------- 
Balance at December 31, 2001              $  (3,995)       $(125,911)      $ 133,943      $   4,037 
                                          =========        =========       =========      ========= 

Put Right. Commencing September 30, 2003, each of the members have the right to 
sell not less than all 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 is conditioned upon maintaining compliance with the       
covenants under the Senior Credit Facility. See Note 7 concerning anticipated   
future covenant violations.                                                     

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8.  Membership Interest  (Continued)                                            

As of December 31, 2001, 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.                                                              

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 $49.0        
million, $69.0 million, and $63.0 million of AGY's net sales for the years ended
December 31, 2001, 2000 and 1999, respectively. Trade receivables from Porcher  
and affiliates were approximately $0.03 million and $5.5 million at December 31,
2001 and 2000, 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 $4.5 million, $5.2 million, and $5.0 million, for   
the years ended December 31, 2001, 2000 and 1999, 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 $2.9 million, $4.0 million, and $3.9 million, for the years ended December 
31, 2001, 2000 and 1999, 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 $2.6 million, $3.2 million, and $3.3 million, for the    
years ended December 31, 2001, 2000 and 1999, respectively. Additionally, Owens 
Corning began charging the Company an administrative fee for these services     
beginning October 1, 1998. Such administrative charges were $0.2 million        
annually for the years ended December 31, 2001, 2000 and 1999.                  

Battice Supply Agreement. The Company purchases certain glass yarn products from
Owens Corning's Battice manufacturing facility for resale. Such purchases were  
$14.9 million, $19.0 million, and $18.8 million, for the years ended December   
31, 2001, 2000 and 1999, respectively. Prior to the Majority Purchase, Owens    
Corning's Battice manufacturing facility sold such products directly to the     
customer.                                                                       

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 $0.8 million, $1.2
million, and $2.9 million, for the years ended December 31, 2001, 2000 and 1999,
respectively, and are included in net sales.                                    

Owens Corning produces Low Tex Type 30 for the Company's customers. Beginning   
October 1, 1998 the Company receives a fee from Owens Corning equal to 10% of   
sales of those products to the Company's customers. Effective July 1, 2000, AGY 
began purchasing this product from OC at fixed prices. Total purchases of Low   
Tex Type 30 were $5.1 million and $6.4, respectively, for the years ended       
December 31, 2001 and 2000.                                                     

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. The transition of these  
functions to AGY was completed in 2000. Charges for such services were $0.5     
million and $3.9 and are included in the selling, general, and administrative   
expenses for the years ended December 31, 2000 and 1999, respectively. In       
addition, the Company reimbursed Owens Corning for paying certain health care   
costs during 1999. Such health care charges were $7.7 million and were included 
in selling, general and administrative expenses for the year ended December 31, 
1999.                                                                           

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9.   Transactions with Related Parties-(Continued)                              

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 $1.8 million, $2.2 and $2.2, for the years ended December 31, 2001, 2000 and
1999, respectively.                                                             

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

2002         $  522                                             
2003         $   26                                             

The Company leases a manufacturing facility from a wholly-owned subsidiary of   
Porcher Industries. Rental expenses associated with this facility was           
approximately $0.7 million each of the three years ended December 31, 2001,     
2000, and 1999.                                                                 

Amounts due to related parties as of December 31, 2001, 2000 and 1999 under     
these various arrangements totaled $1.7 million, $5.6 million and $9.1 million, 
respectively, and are included in both accounts payable and accrued liabilities.

In October 2000, Owens Corning and certain of its United States subsidiaries    
(collectively, the "Debtors") filed voluntary petitions with the United States  
Bankruptcy Court for the District of Delaware seeking relief under Chapter 11 of
the United States Bankruptcy Code. According to filings made by Owens Corning   
with the SEC, the Debtors will continue to manage their properties and operate  
their businesses as "debtors-in-possession" in accordance with the applicable   
provisions of the United States Bankruptcy Code. To date, the Company has not   
experienced an interruption in operations or supply of material. The Company    
does not believe that Owens Corning's bankruptcy will have a material adverse   
effect on its business, financial condition or results of operations.           

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 to receive 
benefits.                                                                       

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.                                      

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 was 
$8,328,000 and $8,485,000 as of December 31, 2001 and 2000, respectively. At    
December 31, 2001 and 2000, the current portion of this liability of $0 and     
$858,000 has been included in accounts payable, respectively.                   

Defined Contribution Plan. Effective January 1, 2000, AGY adopted a defined     
contribution 401(k) plan which allows qualifying employees to contribute up to  
15% of their pre-tax compensation on an annual basis. Accordingly, AGY employees
no longer participate in the Owens Corning pension plan. The Company matches 35%
of each employee's contribution up to a certain percentage and makes additional 
retirement contribution on behalf of eligible participants as provided for in   
the plan. For the year ended December 31, 2001 and 2000, AGY contributed        
$861,000 and $926,000, respectively under this plan.                            

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.  Employee Benefits-(Continued)                                              

Post-retirement. The employees of the Predecessor Business participated in      
health care and life insurance benefit plans for certain retired employees and  
their dependents. The health 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 had 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 post-retirement benefits cost attributed to AGY included the  
following components (dollars in thousands):                                    

                                                    Years Ended December 31,
                                                  --------------------------
                                                 2001        2000       1999
                                                 ----        ----       ----

Service cost                                   $   956    $   910      $   900  
Interest cost on projected benefit obligation    1,335      1,199          700  
Amortization of prior services cost               (143)      (143)           -  
Amortization of unrecognized loss                    -         69            -  
                                             --------   --------     -------
Net pension expense                            $ 2,148    $ 2,035      $ 1,600  
                                             ========   ========     =======

Assumptions used:                                                               

Discount rates                                    7.00%      8.00%        8.00% 
Initial health care cost trend rate              10.00%     15.00%       10.00% 
Ultimate health care cost trend rate              5.00%      5.00%        4.00% 

The change in benefit obligation and the funded status of the post-retirement   
benefit plans at December 31, is summarized below (dollars in thousands):       

                                              Years Ended December 31,
                                              ------------------------
                                           2001             2000
                                           ----             ----
CHANGE IN BENEFIT OBLIGATION                                                    
Benefit obligation at beginning of period     $      16,035    $     14,000     
Service cost                                            956             910     
Interest cost                                         1,335           1,199     
Actuarial loss                                        3,766           2,151     
Amortization of prior service costs                    (143)           (143)    
Amortization of unrecognized losses                       -              69     
                                            ------------     -----------
Benefit obligation at end of period           $      21,949    $     18,186     
                                            ============     ===========

FUNDED STATUS                                                                   

Funded status at end of period                $     (21,949)   $    (18,186)    
Unrecognized net actuarial loss                       4,525           2,151     
                                            ------------     -----------
Net amount recognized                         $     (17,424)   $    (16,035)    
                                            ============     ===========

At December 31, 2001 and 2002, the current portion of this liability of $- and  
$715,000 has been included in accounts payable, respectively.                   

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.  Employee Benefits - (Continued)                                            

Assumed health care trend rates have significant effect on the amounts reported 
for the health care plans. Because of the historical trend in healthcare costs  
and anticipated future trends, a decrease in the healthcare trend rate is       
improbable. A one-percentage point increase in assumed health care cost trend   
rates would have the following effects (dollars in thousands):                  

                                                                [Download Table]


                                                                  1-Percentage Point
                                                                  ------------------

                                                                                    
Effect on total of service and interest cost components for 2001      $      230    
Effect on postretirement benefit obligation at December 31, 2001      $    1,600    

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 Charges                                 

During the fourth quarter of 2001, the Company recorded a $2.4 million          
restructuring charge relating to personnel reductions at the Aiken and          
Huntingdon plant locations as well as the elimination of positions. As a result 
of this, $1.2 million has been included in accrued liabilities for the year     
ended December 31, 2001.                                                        

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   
paid and are included as restructuring charges.                                 

A summary of restructuring and non-recurring charge activity is as follows:     

                              December 31,            December 31,
                              2001                    2000
                               -----------------        ----------------

Balance at beginning of the year   $               -        $              -    
Additions                                      2,449                       -    
Charges/Payments                              (1,289)                      -    
                               -----------------        ----------------
Balance at end of the year      $           1,160        $              - 
                               =================        ================

12.      Interest Expense                                                       

Interest expense includes the following (dollars in thousands):                 

                                                        [Enlarge/Download Table]

                                               Years Ended December 31,              
                                               ------------------------              
                                       2001               2000               1999    
                                    ------------       -----------        -----------
                                                                                     
Interest expense                    $    31,130        $   33,080       $     34,848 
Amortization of debt issuance cost        2,113             2,369              1,976 
                                    ------------       -----------        -----------
   Total interest expense           $    33,243        $   35,449       $     36,824 
                                    ============       ===========        ===========

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.      Income Taxes                                                           

The Company is a limited liability company, and is not subject to income tax;   
therefore, the statement of operations included herein does not reflect income  
tax expense. Income tax for the periods subsequent to the Contributions is the  
responsibility of the members based on their respective interest in AGY.        

Income tax expense of $ 55,000, $93,000 and $190,000 was recorded in 2001, 2000 
and 1999, respectively, related to foreign taxes on AGY Yarns Canada and AGY    
Europe SARL. Deferred taxes were immaterial as of and for the years ended       
December 31, 2001 and 2000.                                                     

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 (dollars in thousands):           

                        Years Ended December 31,
                        ------------------------
                         2001               2000                1999
                         ----               ----                ----

Net Sales                                                                       
  North America           $   142,057        $   197,133         $   177,776
  Europe                       49,724             61,525              63,500
  Asia                         10,326             17,522               9,690
  Latin America                 4,195              2,108               1,270
                           ------------       ------------        ------------
     Total                $   206,302        $   278,288         $   252,236
                           ============       ============        ============

Assets by region (dollars in thousands):                                        

                                          December 31,        December 31,
                                        2001                2000
                                          ------------        ------------

North America                                $    369,306        $    394,604   
Europe                                             41,790              37,027   
Asia                                                1,389               4,378   
                                          ------------        ------------
Total Assets                              $    412,485        $    436,009
                                          ============        ============

15.      Accounting for Derivatives                                             

The Company is exposed to market risk, such as fluctuations in foreign currency 
exchange rates, commodity prices and interest rates. To manage the volatility   
relating to these exposures that are not offset within its operations, the      
Company enters into various derivative transactions pursuant to its risk        
management policies. Designation is performed on a transaction basis to support 
hedge accounting. The changes in fair value of these hedging instruments are    
offset in part or in whole by corresponding changes in the fair value or cash   
flows of the underlying exposures being hedged. The Company assesses the initial
and ongoing effectiveness of its hedging relationships in accordance with its   
documented policy. The Company does not hold or issue derivative financial      
instruments for trading or speculative purposes.                                

The Company has foreign currency exchange exposure from selling in currencies   
other than the U.S. dollar. The primary purpose of the Company's foreign        
currency hedging activities is to manage the volatility associated with         
forecasted foreign currency sales. Principal currencies hedged include the Euro 
and the Japanese Yen. The Company primarily utilizes forwards, purchased options
and collars with maturities of less than 12 months, which qualify as cash flow  
hedges.                                                                         

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15. Accounting for Derivatives - (Continued)                                    

In order to manage the interest rate risk associated with its Senior Credit     
Facility, the Company enters into derivative transactions, primarily swaps, to  
manage exposure to changes in interest rates. The Company's interest rate       
derivatives mature within the next three years and qualify as cash flow hedges. 

Due to the nature of its business, the Company is also exposed to risks due to  
changes in natural gas commodity prices. The Company has entered into swaps in  
order to reduce the variability of the cash flows associated with its forecasted
purchases of natural gas. These swaps mature within the next two years and      
qualify as cash flow hedges.                                                    

The Company adopted SFAS 133 on January 1, 2001 and initially recorded a $4.1   
million unrealized gain in Other Comprehensive Income (OCI) as the cumulative   
effect of this change in accounting related to interest rate swaps and a $0.1   
million unrealized loss for foreign currency derivatives.                       

Gains and losses on derivatives qualifying as cash flow hedges are recorded in  
OCI to the extent that the hedges are effective until the underlying            
transactions are recognized in earnings. As of December 31, 2001, the net       
derivative loss in OCI was $4.0 million. During 2001, $1.3 million of net losses
were reclassified from OCI to earnings of which $0.9 million was recorded in    
interest expense and $0.4 million was recorded in cost of sales. The ineffective
portion of changes in fair values of hedge positions recorded in 2001 earnings  
was immaterial. As of December 31, 2001, the Company expects to reclassify $4.3 
million of net losses on derivative instruments from OCI to earnings during the 
next 12 months due to actual export sales, the payment of variable interest     
associated with the floating rate debt and purchases of natural gas.            

A summary of the amounts included in the accumulated other comprehensive        
(income) loss is shown below (dollars in thousands):                            

                                                        [Enlarge/Download Table]

                                                                     Commodity   Interest-Rate   Accumulated 
                                            Options       Forwards     Swaps         Swaps           OCI     
                                        --------------   ---------   ---------   -------------   ----------- 
                                                                                                             
Balance at December 31, 2000            $            -   $       -   $       -   $           -   $         - 
January 1, 2001, transition adjustment               -         136           -          (4,200)       (4,064)
Current period changes in value                    (64)         83         958           8,418         9,395 
Reclassification to earnings                        64        (219)       (440)           (712)       (1,307)
                                        --------------   ---------   ---------   -------------   ----------- 
Balance at December 31, 2001            $            -   $       -   $     518   $       3,506   $     4,024 
                                        ==============   =========   =========   =============   =========== 

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 Tax Distribution was $8.5 million based on the year ended December 31, 1999 
of which $4.2 million was paid to Owens Corning and $4.4 million was treated as 
a Deferred Distribution to Porcher Industries. The Tax Distribution was $7.8    
million based on the year ended December 31, 2000, of which $3.8 million was    
paid to Owens Corning and $4.0 million was treated as a Deferred Distribution to
Porcher Industries. The Deferred Distribution earns interest at the highest rate
of interest on the Senior Credit Facility or 10%, whichever is lower. Earned    
interest on the distribution was $775,000 and $508,000, for the years ended     
December 31, 2001 and 2000, respectively. The Deferred Distribution to Porcher  
Industries totaled $11,435,000 and $6,681,000 at December 31, 2001 and 2000,    
respectively.                                                                   

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.   Distributions - (Continued)                                               

Based on the members' estimated taxable income for the year ended December 31,  
2001, the tax distribution will approximate $1.8 million of which $0.9 million  
will be treated as a Deferred Distribution payable to Porcher Industries and    
$0.9 million will be paid in cash to Owens Corning, when allowed under the terms
of the Senior Credit Facility. The terms of the credit facility do not allow for
cash distributions to its members until such time that the Company complies with
its original covenants. As such, the distribution schedule to be made to Owens  
Corning in 2002 for the results of 2001 will be deferred until such time that   
the Company is in compliance with its original covenants. These distributions   
will be recorded in the second quarter of 2002.                                 

17. Quarterly Financial Information (Unaudited)                                 

The following table sets forth summary quarterly financial information for the  
years ended December 31, 2001 and 2000 (dollars in thousands):                  

                                                        [Enlarge/Download Table]

             2001 by Quarter   Fourth       Third        Second   First       Total   
             ---------------   ------       -----        ------   -----       -----   
                                                                                      
Net sales                     $  33,444   $  48,893   $  55,119  $  68,846  $ 206,302 
Gross profit                  $   3,614   $  12,677   $  15,093  $  21,579  $  52,963 
Operating income              $  (4,704)  $   6,524   $   8,913  $  13,885  $  24,618 
Net income                    $ (12,927)  $  (1,513)  $     671  $   6,020  $  (7,749)


             2000 by Quarter   Fourth       Third        Second    First      Total   
             ---------------   ------       -----        ------    -----      -----   
                                                                                      
Net sales                     $  70,273   $  68,834   $  68,704  $  70,477  $ 278,288 
Gross profit                  $  18,145   $  17,156   $  18,808  $  17,776  $  71,885 
Operating income              $  11,194   $  10,346   $  11,567  $  10,951  $  44,058 
Net income                    $   4,291   $   1,953   $   3,539  $   2,310  $  12,093 

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.            

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.    

The Company leases equipment under operating leases. Total rent expense in 2001,
2000 and 1999 was $3.6 million, 3.5 million and 2.6 million, respectively.      

The minimum future rental commitments under operating leases having             
non-cancelable lease terms in excess of one year are as follows (dollars in     
thousands):                                                                     

2002                   $  2,497                                                 
2003                   $  1,690                                                 
2004                   $  1,630                                                 
2005                   $  1,551                                                 
Thereafter             $    865                                                 

F-21

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-K405’ Filing		Date		First		Last			Other Filings
		12/31/05		25		27
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		12/31/02		22		48
		10/31/02		8
		7/15/02		16		43
		6/30/02		16		43			10-Q,  10-Q/A,  NT 10-Q
		5/5/02		8
		4/18/02		21
Filed on:		4/5/02		1		31
		3/31/02		11		43			10-Q
		3/30/02		16		43
		3/27/02		16
		2/27/02		12
		2/8/02		33
		1/1/02		13		40
For Period end:		12/31/01		1		52			NT 10-K
		12/15/01		19		40
		12/14/01		11		44
		6/30/01		19		40			10-Q
		3/31/01		20		44			10-Q
		1/1/01		19		51
		12/31/00		10		52			10-K405
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		7/1/00		46
		6/12/00		29
		5/17/00		26
		1/10/00		22
		1/1/00		24		49
		12/31/99		10		51			10-K405
		12/16/99		17		42
		7/23/99		17
		1/21/99		17		45
		12/31/98		10		45
		12/9/98		21
		11/30/98		29
		10/1/98		46
		9/30/98		3		48
		7/31/98		28
		7/1/98		3		38
		12/31/97		10		11
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