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

(All per share information in Item 2 is on a diluted basis.)

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the statements. Some of the important factors that may influence possible differences are continued competitive factors and pricing pressures, construction activity, interest rate movements, issues involving implementation of new business systems, Year 2000 readiness, achievement of expected cost reductions, asbestos litigation, and general economic conditions.

RESULTS OF OPERATIONS

The Company's growth agenda has focused on increasing sales and earnings by (i) acquiring businesses with products that can be sold through existing or complementary distribution channels,
(ii) achieving productivity improvements and cost reductions in existing and acquired businesses and (iii) entering new growth markets. The Company is implementing two major initiatives, the System Thinking (TM) strategy and Advantage 2000, to enhance sales growth and achieve productivity improvements across all businesses. System Thinking for the Home (TM) leverages the Company's broad product offering and strong brand recognition to increase its share of the building materials and home improvement markets. This systems approach represents a shift from product- oriented selling to providing systems-driven solutions that combine the Company's insulation, roofing, exterior and acoustic systems, to provide a high performance, cost-effective building "envelope" for the home. In the Composite Materials business, the Company has partnered with the plastics industry and, with the Company's System Thinking philosophy, is taking a solution- oriented, customer-focused approach toward the continuous development of substitution opportunities for composite materials. In addition, the Company is implementing Advantage 2000, a fully integrated business technology system designed to reduce costs and improve business processes.

The Company has grown its sales from nearly $3.4 billion in 1994 to $5.0 billion in 1998. Acquisitions have been a significant component of that growth. Between 1994 and 1997, the Company completed 17 acquisitions for an aggregate purchase price of over $1.2 billion. The Company's acquisitions have broadened its lines of business to include siding, accessories and other home exteriors and have diversified its materials portfolio beyond fiber glass to include polymers such as vinyl and styrene, and metal and stone. In 1997, the Company completed the two largest of these acquisitions by acquiring Fibreboard Corporation ("Fibreboard") and AmeriMark Building Products, Inc. ("AmeriMark"), making Owens Corning the leader in the U.S. vinyl siding, siding accessories and manufactured stone markets, as well as a large specialty distributor in North America through 180 Company-owned distribution centers.

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

Despite the benefits of its growth agenda, the Company experienced a highly competitive pricing environment during 1997 and into 1998. In order to improve its strategic position and operational efficiency, the Company implemented several profitability and productivity initiatives, including the strategic restructuring program, discussed below, which was begun in late 1997. This program, along with the realignment of the Company's Exterior Systems business, enabled the Company to benefit from cost reductions of approximately $142 million during 1998. The specific objectives of this strategic program are discussed in "Restructuring of Operations and Other Actions" below and in Note 3 to the Consolidated Financial Statements.

During 1998, the pricing environment applicable to several of the Company's major products, particularly residential insulation, began to improve. By the end of 1998, the Company's average price levels of insulation products surpassed the year-end 1997 levels. Despite the successful implementation of price increases during 1998, including the restoration of residential insulation prices to their late 1996 levels, income from operations during 1998 was adversely impacted by approximately $44 million, compared to 1997, due largely to the relatively low insulation pricing base in effect at the beginning of 1998, the lag in fully realizing the 1998 price increases as the Company honored the remainder of pre-existing pricing contracts, and price declines attributable to vinyl siding products. The cost reductions, productivity improvements across the Building Materials business, and significant pricing improvements achieved during 1998 have continued into the first half of 1999. During the second quarter of 1999, the Company announced price increases applicable to certain of its vinyl siding, residential insulation, and composites products, all of which became effective July, 1999.

Net sales for the quarter ended June 30, 1999 were $1.310 billion, up slightly from the second quarter 1998 level of $1.286 billion. The sales increase reflects strength in the North American Building Materials business, offset partially by weakness in the Composite Materials business and the transfer of the Company's yarns business to an unconsolidated joint venture during the third quarter of 1998. On a comparative basis, excluding the yarns and other divested businesses in 1998, sales during the second quarter of 1999 were up 9% from the second quarter of 1998. In the Building Materials business, sales during the second quarter of 1999 reflect the continued strength in the U.S. roofing and insulation markets. Volume increases in the vinyl siding market also contributed to the Building Materials strength during the second quarter of 1999. In the Composites business, sales reflect a reduction attributable to the transfer of the Company's yarns business indicated above, offset partially by volume increases in the U.S. and Europe. On a consolidated basis, the impact of currency translation on sales in foreign currencies was slightly unfavorable during the second quarter of 1999 compared to the second quarter of 1998. Please see Note 1 to the Consolidated Financial Statements.

Sales outside the U.S. represented 19% of total sales during the second quarter of 1999, compared to 20% during the second quarter of 1998. The relative decline in non-U.S. sales is due to the 1999 sales increases attributable to U.S. roofing and insulation products. Gross margin for the quarter ended June 30, 1999 was 25% of net sales, compared to 23% in the second quarter of 1998. The increase in gross margin reflects the benefits of the cost reductions resulting from the Company's strategic restructuring program and price increases applicable to many of the Company's products.

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

For the quarter ended June 30, 1999, the Company reported net income of $76 million, or $1.31 per share, compared to net income of $59 million, or $1.02 per share, for the quarter ended June 30, 1998. Net income in the second quarter of 1999 reflects the benefits of the cost-saving programs implemented throughout 1998 as well as the benefits of pricing improvements, particularly in U.S. residential insulation markets. Cost of borrowed funds during the second quarter of 1999 was $39 million, $3 million higher than the second quarter 1998 level, due to higher levels of average debt, offset partially by a reduction in average interest rates. The reduction in minority interest expense reflects the Company's third quarter 1998 repurchase of its Trust Preferred Hybrid Securities. Please see also Liquidity, Capital Resources and Other Related Matters below.

Net sales for the six months ended June 30, 1999 were $2.440 billion, up slightly from the $2.423 billion reported for the first six months of 1998. On a comparative basis, excluding the yarns and other divested businesses in 1998, sales for the first six months of 1999 were up 8% from the prior year period, largely reflecting the strength in North American Building Materials discussed above.

Net income for the six months ended June 30, 1999 was $120 million, or $2.08 per share, up from $67 million, or $1.20 per share, for the first six months of 1998. The increase reflects the benefits of the cost reduction programs as well as volume and price increases. Included in net income for the six months ended June 30, 1998 are a $95 million pretax charge ($63 million after- tax) for the Company's restructuring program and an $84 million pretax gain ($52 million after-tax) from the sale of the Company's 50% ownership interest in Alpha/Owens-Corning. Please see Notes 3 and 4 to the Consolidated Financial Statements.

Please see also Note 3 to the Consolidated Financial Statements.

During the first and third quarters of 1998, the Company recorded a total pretax charge of $243 million for restructuring and other actions as part of the Company's strategic restructuring program to reduce overhead, enhance manufacturing productivity, and close manufacturing facilities, which was announced in early 1998. This charge included $117 million for restructuring and $126 million for other actions in 1998, the majority of which represented asset impairments. On a cumulative basis since the fourth quarter of 1997, the Company has recorded a total pretax charge of $386 million for this program, of which $185 million represented restructure costs and $201 million represented other actions.

The $117 million restructuring charge in 1998 included approximately $90 million for costs associated with the elimination of approximately 1,900 positions worldwide and $27 million for the divestiture of non-strategic businesses and facilities. The $27 million cost is composed of $12 million for the closure of certain U.S. manufacturing facilities, $6 million for the closure of a pipe manufacturing facility in China, and $9 million for other actions, and reflects a total of $3 million of exit cost liabilities, comprised primarily of lease commitments.

The primary components of the $126 million charge for other actions in 1998 and their classification on the Company's consolidated statement of income included: $30 million to write down to fair value certain manufacturing assets held for use in China, due primarily to poor current and projected financial results, recorded as cost of sales; $15 million to write down to net realizable value equipment and inventory

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

made obsolete by changes in the Company's manufacturing and marketing strategies, recorded as cost of sales; $17 million for the write-down of an investment in and the write-off of a receivable from a joint venture in Korea to reflect the business outlook at that time and the fair market value of the assets, recorded as other operating expenses; $12 million for the write- down of goodwill associated with the 1995 acquisition of Fiber- lite, determined to be unrecoverable due to a change in market conditions and customer demand, recorded as other operating expenses; and $9 million for the write-down of certain assets in the U.S. to fair market value, recorded as cost of sales. The Company plans to hold and use the investments but disposed of most of the equipment in 1998. Also included in the $126 million charge for other actions were $13 million for the write-off of certain receivables in the U.S. and Asia determined to be uncollectable, recorded as cost of sales and other operating expenses; and $30 million for other actions recorded as cost of sales, marketing and administrative expenses, and other operating expenses.

As indicated above, certain of the charges recorded during 1998 represent valuation adjustments associated with asset impairments. The Company continually evaluates whether events and circumstances have occurred that indicate that the carrying amount of certain long-lived assets is recoverable. When factors indicate that a long-lived asset should be evaluated for possible impairment, the Company uses an estimate of the expected undiscounted cash flows to be generated by the asset to determine whether the carrying amount is recoverable or if an impairment exists. When it is determined that an impairment exists, the Company uses the fair market value of the asset, usually measured by the discounted cash flows to be generated by the asset, to determine the amount of the impairment to be recorded in the financial statements.

As a result of the strategic restructuring program, the Company realized a decrease in manufacturing and operating expenses of approximately $110 million during 1998. Based upon expected economic conditions over the next few years, including effects on matters such as labor, material and other costs, the Company is on track to achieve total annual pretax savings of approximately $175 million in 1999 and each year thereafter from this program. The expected $175 million in cost reductions, the majority of which will be cash savings, is comprised of $150 million in reduced personnel costs, $14 million in reduced facility costs, and $11 million of reductions in related program spending. The Company also expects additional cost savings during 1999 resulting from improved logistics and materials sourcing.

The Company also implemented programs to gain synergies in its Exterior Systems Business during 1998. As a result of these programs, which included closing redundant facilities, integrating business systems, and improving purchasing leverage, the Company reduced costs by approximately $32 million during 1998 and is on track to save an additional $20 million per year in 1999 and beyond, the majority of which will be cash savings.

In the Building Materials segment, sales increased 7% in the second quarter of 1999 compared to the second quarter of 1998, reflecting increased volume and significant price improvements attributable to U.S. residential insulation products. Building Materials second quarter 1999 sales also reflect volume increases in U.S. roofing and asphalt products, continued price improvements in roofing products, and volume increases in North American vinyl siding markets and European insulation markets. The impact of sales denominated in foreign currencies was slightly unfavorable during the second quarter of 1999 compared to the second quarter of 1998.

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

Income from operations was $130 million during the second quarter of 1999 compared to $69 million during the comparable 1998 period. Income from operations in 1999 reflects productivity improvements and cost reductions resulting from the strategic restructuring program, as well as volume and price increases in the U.S. roofing and residential insulation markets. Please see Note 1 to the Consolidated Financial Statements.

In the Composite Materials segment, sales were down 14% during the second quarter of 1999, compared to the second quarter of 1998, due largely to the disposition (discussed below) of 51% of the Company's yarns and specialty materials business (the "yarns business") late in the third quarter of 1998. Adjusted for the impact of this disposition, sales were up 7% during the second quarter of 1999 compared to 1998, due to volume increases in U.S. and European markets, particularly in thermoplastics. The translation impact of sales denominated in foreign currencies was slightly unfavorable during the second quarter of 1999. Income from operations was $33 million in the second quarter of 1999, compared to $62 million in the prior-year period, $22 million of which was attributable to the yarns business. The remaining decline is due largely to poor productivity resulting from the acceleration of furnace rebuilds and higher than planned distribution costs for servicing global customers; a difficult international business environment in engineered pipe and electrical yarns; and start-up issues at the Company's joint venture plant in India. Please see Note 1 to the Consolidated Financial Statements.

During the third quarter of 1998, the Company formed a joint venture for its yarns business to which it contributed two manufacturing plants and certain proprietary technology. On September 30, 1998, the Company completed the sale of 51% of the joint venture to a U.S. subsidiary of Groupe Porcher Industries of Badinieres, France for $340 million. The Company continues to have a 49% ownership interest in the joint venture. Upon closing, the Company also received a distribution of approximately $193 million from the joint venture. By retaining a 49% ownership interest in the joint venture, the Company will continue to safeguard its proprietary technology and participate in the yarns market. Please see Note 4 to the Consolidated Financial Statements.

The consolidated balance sheet of the Company as of June 30, 1999 and December 31, 1998 reflects the third quarter 1998 disposition of the Company's yarns business. The results of operations of the yarns business were reflected in the Company's consolidated statement of income through the period ending September 30, 1998. For the six months ended June 30, 1998, the yarns business recorded sales of approximately $141 million and income from operations of approximately $45 million. Effective September 30, 1998, the Company accounts for its ownership interest in the yarns joint venture under the equity method.

In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). This statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS 133 is effective for fiscal years beginning after June 15, 2000, but earlier adoption is allowed.

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

The Company has begun to assess the impact of SFAS 133 on its financial statements and plans to adopt this accounting change effective January 1, 2001. The Company has not yet fully quantified the impact of SFAS 133 but is aware that the adoption of SFAS 133 could increase volatility in earnings and other comprehensive income.

LIQUIDITY, CAPITAL RESOURCES AND OTHER RELATED MATTERS

Cash flow from operations was negative $99 million for the quarter ended June 30, 1999, compared to positive $55 million for the quarter ended June 30, 1998. The decline in cash flow from operations in 1999 is largely attributable to an increase in payments for asbestos litigation claims, net of insurance, reflecting the Company's implementation of the National Settlement Program (NSP) in the fourth quarter of 1998. Payments for asbestos litigation claims were $175 million during the second quarter of 1999 and proceeds from insurance were $13 million, compared to $95 million and $5 million, respectively, during the second quarter of 1998. Also contributing to the decline in cash flow from operations during the second quarter of 1999 compared to the second quarter of 1998 was the second quarter 1998 collection of an $85 million federal income tax refund. The Company received a federal income tax refund of the same amount during the first quarter of 1999. Please see Notes 8 and 11 to the Consolidated Financial Statements. Inventories at June 30, 1999 were $502 million, an increase of $65 million from the December 31, 1998 level, due largely to the seasonal build of inventories and other working capital. Receivables at June 30, 1999 were $611 million, a $160 million increase over the December 31, 1998 level, attributable to the seasonal increase in sales. The decrease in accounts payable and accrued liabilities from $942 million at December 31, 1998 to $708 million at June 30, 1999 reflects typical payment patterns during the first half of the year.

At June 30, 1999, the Company's net working capital was negative $224 million and its current ratio was .88, compared to negative $354 million and .81, respectively, at December 31, 1998 and $162 million and 1.12, respectively, at June 30, 1998. A $700 million increase in the current portion of the reserve for asbestos litigation claims, net of insurance, due to the implementation of the Company's National Settlement Program, partially offset by the related income tax benefit, contributed to the decrease in net working capital at June 30, 1999 compared to June 30, 1998.

The Company's total borrowings at June 30, 1999 were $2.216 billion, $590 million higher than at year-end 1998. The Company typically uses cash during the first half of the year as it builds inventory and other working capital.

As of June 30, 1999, the Company had unused lines of credit of $1.130 billion available under long-term bank credit facilities and an additional $110 million under short-term facilities, compared to $1.307 billion and $124 million, respectively, at year-end 1998. The decrease in unused available lines of credit reflects the Company's increased borrowings at June 30, 1999 compared to December 31, 1998. During the first quarter of 1999, the Company issued $250 million of debt securities, the proceeds of which were used to reduce borrowings under the long-term bank credit facility. Letters of credit issued under the facility, most of which support appeals from asbestos trials, also reduce the available credit. The impact of such reduction is reflected in the unused lines of credit discussed above. Please see Note 5 to the Consolidated Financial Statements.

During 1998, the Company implemented a debt realignment program intended to reduce financing costs. This program, which extended the average length of term debt from four years to ten years, included the issuance of a total of $950 million in new debt securities, the repurchase of the Company's $309 million of Trust Preferred Hybrid Securities and the retirement of $361 million of higher-rate debt securities.

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

Capital spending for property, plant and equipment, excluding acquisitions, was $59 million in the second quarter of 1999. The Company anticipates that 1999 capital spending, exclusive of acquisitions and investments in affiliates, will be approximately $200 million, most of which has been expended or is committed. The Company expects that funding for these expenditures will be from the Company's operations and external sources as required.

In December 1998, Owens Corning announced the NSP, which settled a substantial majority of the asbestos claims then pending against the Company and also established procedures and fixed payments for resolving future claims brought by participating plaintiffs' law firms without litigation through at least 2008. As of June 30, 1999, approximately 225,000 asbestos personal injury claims against Owens Corning have been settled under the NSP. Payments under the NSP for these claims will generally be made through 2002, with the majority of payments expected to occur in 1999 and 2000. It is anticipated that payments for a limited number of future "exigent claims" will generally begin in 2001, while payments for other qualifying future claims will begin in 2003. Payments for claims in 2003 and later years under the NSP will be subject to certain conditions designed to increase the predictability of annual cash outflows for asbestos payments. As a result of such payments, the Company's gross payments for asbestos litigation claims will increase in 1999 and 2000 over the levels experienced in recent years. However, such payments are expected to be substantially lower than historical levels in 2001 and subsequent years. The expected schedule for NSP payments may be affected by how quickly NSP claims are submitted and processed. Please see Note 11 to the Consolidated Financial Statements.

Gross payments for asbestos litigation claims during the second quarter of 1999 by Owens Corning (excluding Fibreboard), including payments for claims settled in prior years, were $175 million. Proceeds from insurance were $13 million, resulting in a net pretax cash outflow of $162 million ($105 million after- tax). Over the next twelve months, the total payments for asbestos litigation claims by Owens Corning (excluding Fibreboard) are expected to be approximately $1,050 million. Proceeds from insurance of $150 million are expected to be available to cover these costs, resulting in a net pretax cash outflow of $900 million ($585 million after tax).

Gross payments for asbestos litigation claims against Fibreboard during the first six months of 1999 were approximately $57 million, all of which were paid directly by Fibreboard's insurers or from an escrow account funded by its insurers to claimants on Fibreboard's behalf. Fibreboard is a party to the NSP Agreements and anticipates that a substantial majority of its asbestos claims will be resolved under the NSP. In June 1999, the United States Supreme Court overturned a limited-fund class action settlement of Fibreboard's asbestos claims. As a result, Fibreboard is expected to become entitled to an Insurance Settlement of approximately $1.9 billion, which will be available to pay all of Fibreboard's pending and future asbestos claims, including claims under the NSP. Please see Notes 8 and 11 to the Consolidated Financial Statements.

The Company expects funds generated from operations, together with funds available under long and short term bank credit facilities, to be sufficient to satisfy its debt service obligations under its existing and anticipated indebtedness, its contingent liabilities for uninsured asbestos personal injury claims, as well as its capital expenditure programs and growth agenda.

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

The Company has been deemed by the Environmental Protection Agency (EPA) to be a Potentially Responsible Party (PRP) with respect to certain sites under the Comprehensive Environmental Response, Compensation and Liability Act (Superfund). The Company has also been deemed a PRP under similar state or local laws. In other instances, other PRPs have brought suits or claims against the Company as a PRP for contribution under such federal, state or local laws. During the second quarter of 1999, the Company was designated as a PRP in such federal, state, local or private proceedings for 2 additional sites. At June 30, 1999, a total of 41 such PRP designations remained unresolved by the Company, some of which designations the Company believes to be erroneous. The Company is also involved with environmental investigation or remediation at a number of other sites at which it has not been designated a PRP.

The Company has established a $30 million reserve for its Superfund (and similar state, local and private action) contingent liabilities. Based upon information presently available to the Company, and without regard to the application of insurance, the Company believes that, considered in the aggregate, the additional costs associated with such contingent liabilities, including any related litigation costs, will not have a materially adverse effect on the Company's results of operations, financial condition or long-term liquidity.

The 1990 Clean Air Act Amendments (Act) provide that the EPA will issue regulations on a number of air pollutants over a period of years. In June 1999, the EPA issued regulations for wool fiber glass and mineral wool. The Company anticipates that its other sources to be regulated will be wet formed fiber glass mat, amino/phenolic resin, secondary aluminum smelting, asphalt processing and roofing, metal coil coating, and open molded fiber- reinforced plastics. The EPA's currently announced schedule is to issue regulations covering wet formed fiber glass mat, amino/phenolic resin and secondary aluminum smelting in 1999; and asphalt processing and roofing, metal coil coating and fiber- reinforced plastics in 2000, with implementation as to existing sources up to three years thereafter. Based on information now known to the Company, including the nature and limited number of regulated materials it emits, the Company does not expect the Act to have a materially adverse effect on the Company's results of operations, financial condition or long-term liquidity.

This information should be considered a Year 2000 Readiness Disclosure.

Some of the Company's existing information technology ("IT") systems and control systems containing embedded technology such as processors, controllers and microchips ("Non-IT") were originally programmed using two digits rather than four digits to define the applicable year. As a result, such systems, if not remediated, may experience miscalculations or disruptions when processing information containing dates that fall after December 31, 1999 or other dates that could cause computer malfunctions (the "Year 2000 Issue").

In recognition of the significance of the Year 2000 Issue, the Company formed a senior management team representing business units and business process functions including information technology, sourcing, customer relations, logistics, facilities, and legal.

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

This team oversees the Company's efforts to assess and resolve the Year 2000 Issue. In addition, the Company's individual organizational units have developed, and are implementing, Year 2000 plans. These plans include assessments of all of the Company's IT and Non-IT systems, and an evaluation of the external environment to identify significant exposure areas and to develop appropriate remediation or other risk management approaches. The Company is also developing business continuity plans to assure that all of its operations are prepared in the case of an unexpected system, supplier or customer failure.

The Company has been actively implementing new systems and technology on a worldwide basis since 1995 as part of its Advantage 2000 program to improve productivity and operational efficiency. One objective of this initiative is to ensure all business transactions are supporting requirements to process data accurately in the year 2000 and beyond. The scope of this program has been continuously expanded to include each of the seventeen acquisitions made by the Company during the past five years.

To date 100% of the Company's IT systems have been remediated, tested and made operational. This has been accomplished in part through the comprehensive implementation of enterprise resource planning software across most of the Company's business units. Deployments of these systems, which began in May, have been completed at 70% of the Company's operations. The remaining deployments are on schedule and will be completed by September 30, 1999. Development of continuity plans is on schedule and will be completed by September 30, 1999.

The Company completed an inventory and assessment of non-IT systems in its operating facilities during the first quarter, 1999. Those non-IT systems that may fail as a result of the Year 2000 Issue have been identified and corrective actions such as replacement, update, or installation of vendor supplied upgrades are currently being performed. Concurrent with this renovation process, the Company is continuing the testing of Year 2000 corrections to ensure that Non-IT systems will function properly on key dates. This is in accordance with testing methodologies that management believes are reasonable and reflective of practices employed by comparable companies. Remediation, replacement, and updating of Non-IT systems has been managed within each business unit.

In accordance with the process outlined above, over fourteen hundred systems for the Building Materials business and over nineteen hundred systems for the Composite Materials business have been identified, remediated, and tested. Of these, 98% are now Year 2000 ready and have been deployed. The majority of the remaining items, located at only 17 sites, are on schedule to be completed by September 30, 1999, with completion at the final four sites by November 30, 1999. Management continues to monitor the progress of deployment to ensure the timely completion of each project. Continuity plans addressing critical business processes are being developed, and will be completed by September 30, 1999.

The Company is working with its suppliers and customers to assess their level of Year 2000 readiness. This process includes both the receipt of confirmation documents as well as selective on- site visits. The critical suppliers have been identified, confirmations have been received, and planned on-site visits were complete in the second quarter of 1999. At the end of the second quarter of 1999, substantially all of the critical suppliers have been assessed as Year 2000 ready. The remaining suppliers are not single source suppliers nor deemed critical for production.

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

During the process, where deemed necessary, alternative suppliers were identified and confirmed as year 2000 ready. The Company does not plan to build additional inventories at this time and has confirmed with suppliers their commitment to servicing existing supply agreements. Procedures are in place to monitor supplier progress through the end of the year.

As a result of the confirmations and on site visits, continuity plans are being developed for both customers and suppliers to address the Company's ability to continue to function during the time period when an external Year 2000 risk exists.

Despite its significant efforts, the Company understands that disruptions may occur due to circumstances beyond its control. As a result, the Company has identified its critical business processes and has assessed the likelihood of various Year 2000 failure scenarios. In order to minimize the effect of an external disruption on business operations, business continuity plans are being developed. In many instances, existing business continuity plans are being modified and enhanced to reflect unique aspects of the Year 2000 issue. All continuity plans will be completed by September 30, 1999.

The cumulative cost of systems replacement, remediation and update from 1995 through the second quarter of 1999 has been approximately $160 million, including technology, design and development, and related training and deployment in business locations. The Company currently estimates that its remaining costs to assess and resolve the Year 2000 Issue, including the replacement and remediation at all remaining locations, are in the range of $5 million to $10 million. These cost estimates are based on currently available information, and may be subject to change.

If needed modifications and upgrades of systems are not made on a timely basis by the Company or its materially significant suppliers, the Company could experience significant disruptions to one or more of its operations, financial loss, legal liability and similar risks, any of which could have a material adverse effect on the Company's results of operations or financial position. The Company believes that the most reasonably likely worst case scenario would be a short-term slowdown or cessation of manufacturing operations at one or more of the Company's facilities and a short-term inability on the part of the Company to process orders and billings in a timely manner, and to deliver product to customers. In view of the Company's Year 2000 readiness program, including continuity plans, the Company believes that significant disruptions are unlikely and that any disruptions would be both short-term and manageable.