SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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
(Address of registrants' principal executive office)
29801
(Zip Code)
Registrants' telephone number, including area code:
(803) 643-1501
---------------------------
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
---- ----
As of November 14, 2000, all 1,000 shares of common stock of AGY
Capital Corp. were owned by Advanced Glassfiber Yarns LLC. Accordingly, AGY
Capital Corp. meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this form with the reduced disclosure
format.
ADVANCED GLASSFIBER YARNS LLC
QUARTERLY REPORT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
Page No.
--------
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements 1
Consolidated Balance Sheets as of September 30, 2000 (unaudited)
and December 31, 1999 1
Consolidated Statements of Operations 2
For the three months ended September 30, 2000 and 1999 (unaudited) 2
For the nine months ended September 30, 2000 and 1999 (unaudited) 2
Consolidated Statements of Comprehensive Income 3
For the three months ended September 30, 2000 and 1999 (unaudited) 3
For the nine months ended September 30, 2000 and 1999 (unaudited) 3
Consolidated Statements of Cash Flows 4
For the three months ended September 30, 2000 and 1999 (unaudited) 4
For the nine months ended September 30, 2000 and 1999 (unaudited) 4
Notes to the Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 8
Overview 8
Results of Operations 9
Liquidity and Capital Resources 12
Recent Developments 13
Recently Issued Accounting Standard 14
Disclosure Regarding Forward-Looking Statements 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Part II. OTHER INFORMATION 17
Item 6. Exhibits and Reports on Form 8-K 17
Part I - Financial Information
Item 1. Consolidated Financial Statements
ADVANCED GLASSFIBER YARNS LLC
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
September 30, December 31,
2000 1999
------------- -------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 4,644 $ 6,223
Trade accounts receivable, net 29,778 32,686
Inventories 23,364 26,813
Due from Glass Holdings 23 -
Other current assets 1,218 645
------------- -------------
Total current assets 59,027 66,367
------------- -------------
Net property, plant and equipment 144,983 151,605
Intangible assets, net 225,844 235,670
Other non-current assets 2,329 -
------------- -------------
Total assets $ 432,183 $ 453,642
============= =============
LIABILITIES AND MEMBERS' INTEREST
Current liabilities:
Accounts payable $ 17,243 $ 24,989
Accrued liabilities 16,502 16,659
Current portion of long-term debt 19,829 18,390
Due to Owens Corning 3,464 8,293
------------- -------------
Total current liabilities 57,038 68,331
------------- -------------
Long-term debt, net of discount of $2,668 and $2,819, respectively 325,285 341,465
Deferred distribution 6,275 1,819
Pension and other employee benefit plans 23,740 21,796
------------- -------------
Total liabilities 412,338 433,411
------------- -------------
Commitments and contingencies - -
Members' interest 19,845 20,231
------------- -------------
Total liabilities and members' interest $ 432,183 $ 453,642
============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
1
ADVANCED GLASSFIBER YARNS LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------------- --------------------------------
2000 1999 2000 1999
------------------------------- -------------------------------
(unaudited) (unaudited)
Net sales $ 68,834 $ 63,620 $ 208,015 $ 187,207
Cost of goods sold 50,804 47,020 152,707 134,573
------------ ------------ ------------ ------------
Gross profit 18,030 16,600 55,308 52,634
Selling, general and administrative expenses 3,954 3,911 12,310 12,530
Amortization 2,856 2,858 8,565 8,548
------------ ------------ ------------ ------------
Operating income 11,220 9,831 34,433 31,556
Interest expense 8,803 9,155 26,970 27,303
Other (income) expense, net 438 (628) (496) (1,128)
------------ ------------ ------------ ------------
Income before taxes and extraordinary item 1,979 1,304 7,959 5,381
Income tax expense 26 - 158 -
------------ ------------ ------------ ------------
Income before extraordinary item 1,953 1,304 7,801 5,381
Extraordinary item, loss on early extinguishment of debt - - - 3,616
------------ ------------ ------------ ------------
Net income $ 1,953 $ 1,304 $ 7,801 $ 1,765
============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
2
ADVANCED GLASSFIBER YARNS LLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------------- -----------------------------
2000 1999 2000 1999
-------------------------- -----------------------------
(unaudited) (unaudited)
Net income $ 1,953 $ 1,304 $ 7,801 $ 1,765
Other comprehensive income:
Foreign currency translation (74) (4) (72) 117
--------- --------- ----------- -----------
Comprehensive income $ 1,879 $ 1,300 $ 7,729 $ 1,882
========= ========= =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
3
ADVANCED GLASSFIBER YARNS LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
For the Nine Months
Ended September 30,
--------------------------------------
2000 1999
--------------------------------------
(unaudited)
Cash flows from operating activities:
Net income $ 7,801 $ 1,765
Depreciation 10,662 9,279
Amortization of debt issuance costs 1,310 1,262
Amortization of goodwill and other intangibles 8,565 8,548
Amortization of discount on notes 151 134
Extraordinary loss - 3,616
Alloy usage 1,369 1,707
Changes in assets and liabilities:
Trade accounts receivable, net 2,873 (6,577)
Due from Glass Holdings (23) -
Inventories 3,449 (4,353)
Other assets (2,909) (318)
Accounts payable (3,660) 10,884
Accrued liabilities 185 1,160
Pension and post-retirement 1,944 2,847
Due to Owens Corning (4,829) 19,137
--------------- ---------------
Net cash provided by operating activities 26,888 49,091
--------------- ---------------
Cash flows from investing activities:
Purchase of property, plant and equipment (13,365) (9,436)
Proceeds from sale of fixed assets 3,915 -
Other (58) -
--------------- ---------------
Net cash used in investing activities (9,508) (9,436)
--------------- ---------------
Cash flows from financing activities:
Proceeds from (payments on) revolving credit facility 3,900 (15,000)
Payments on bridge facility - (150,000)
Payments on capital lease (68) (72)
Proceeds from senior subordinated notes - 147,000
Payments on term loans (18,724) (14,550)
Distribution to Owens Corning (3,979) (1,587)
Debt issuance costs - (5,937)
--------------- ---------------
Net cash used in financing activities (18,871) (40,146)
--------------- ---------------
Effect of exchange rate on cash (88) 97
--------------- ---------------
Net decrease in cash and cash equivalents (1,579) (394)
--------------- ---------------
Cash and cash equivalents, beginning of period 6,223 12,779
--------------- ---------------
Cash and cash equivalents, end of period $ 4,644 $ 12,385
=============== ===============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 28,987 $ 22,797
=============== ===============
Supplemental disclosure of non-cash financing/investing activities:
Property and equipment financed in accrueds increase (decrease) $ (4,039) $ 3,244
=============== ===============
Deferred distribution to Porcher $ 4,456 $ 1,611
=============== ===============
The accompanying notes are an integral part of the consolidated
financial statements.
4
ADVANCED GLASSFIBER YARNS LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except as otherwise indicated)
1. Basis of Presentation
We have prepared the accompanying unaudited interim consolidated
financial statements of Advanced Glassfiber Yarns LLC in accordance with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and accordingly,
they do not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements. In the opinion of management, all adjustments (consisting of items
of a normal recurring nature) considered necessary for a fair presentation have
been included. Operating results for the nine months ended September 30, 2000
are not necessarily indicative of the results to be expected for the full year.
We believe that the disclosures are adequate to make the information presented
not misleading.
AGY Capital Corp. is a wholly owned subsidiary of Advanced Glassfiber
Yarns LLC, formed solely to facilitate our offering of 9 7/8% Senior
Subordinated Notes due 2009. Separate financial statements or consolidating
financial data of AGY Capital Corp. are not presented because management has
determined that they are not material. AGY Capital Corp. has no assets or
operations.
These financial statements should be read in conjunction with the
audited consolidated financial statements of Advanced Glassfiber Yarns LLC as of
and for the year ended December 31, 1999 in our 1999 Annual Report on Form 10-K.
2. Inventories
Inventories consist of the following:
September 30, December 31,
2000 1999
---------------- -----------------
(unaudited)
Finished goods $ 18,292 $ 21,022
Materials and supplies 5,072 5,791
---------------- -----------------
$ 23,364 $ 26,813
================ =================
5
3. Accrued Liabilities
Accrued liabilities consist of the following:
September 30, December 31,
2000 1999
---------------- -----------------
(unaudited)
Vacation $ 3,107 $ 3,061
Interest 3,250 6,989
Real and personal property taxes 2,210 1,487
Incentive compensation and profit sharing 1,726 717
Benefits 2,547 60
Other 3,662 4,345
---------------- -----------------
$ 16,502 $ 16,659
================ =================
Effective January 1, 2000, we are administering our own health-care and
other benefit plans. We previously participated in Owens Corning's plans.
4. Debt
Debt consists of the following:
September 30, December 31,
2000 1999
---------------- -----------------
(unaudited)
Senior Credit Facility
Revolving Credit Facility $ 13,600 $ 9,700
Term Loan A 82,036 99,188
Term Loan B 101,928 103,501
9 7/8% Senior Subordinated Notes, net
of amortized discount 147,332 147,181
Capital lease obligation 218 285
---------------- -----------------
345,114 359,855
Less current portion (19,829) (18,390)
---------------- -----------------
Long-term debt $ 325,285 $ 341,465
================ =================
6
5. Segment Information
We operate in one business segment that manufactures glass fiber yarns
and specialty yarns that are used in a variety of industrial and commercial
applications. Our principal market is the United States. We do not have any
significant long-lived assets outside of the United States. Information by
geographic area is presented below, with net sales based on product shipment
location (in millions):
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------- --------------------------
2000 1999 2000 1999
------------------------- --------------------------
(unaudited) (unaudited)
Net Sales
North America $ 49.6 $ 44.2 $ 147.1 $ 133.4
Europe 13.7 15.4 46.0 45.1
Asia 4.9 3.4 13.1 7.7
Latin America 0.6 0.6 1.8 1.0
--------- --------- --------- ---------
Total $ 68.8 $ 63.6 $ 208.0 $ 187.2
========= ========= ========= =========
Sales by product category are as follows (in millions):
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------- --------------------------
2000 1999 2000 1999
------------------------- --------------------------
(unaudited) (unaudited)
Net Sales
Heavy yarns $ 49.6 $ 46.7 $ 151.9 $ 136.5
Fine yarns 19.2 16.9 56.1 50.7
--------- --------- --------- ---------
Total $ 68.8 $ 63.6 $ 208.0 $ 187.2
========= ========= ========= =========
6. Subsequent Events
On October 5, 2000, Owens Corning, which owns a 49% economic interest
in Advanced Glassfiber Yarns, and certain of Owens Corning's 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. As a result of our
ongoing supply agreements with Owens Corning, we have certain receivables due
from Owens Corning as of September 30, 2000. Additionally, as a part of the
supply agreements with Owens Corning, we have certain trade payables due to
Owens Corning as of the same date. 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 "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Disclosure Regarding
Forward-Looking Statements."
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Quarterly Report contains certain forward-looking statements with
respect to our operations, industry, financial condition and liquidity. These
statements reflect our assessment of a number of risks and uncertainties. Our
actual results could differ materially from the results anticipated in these
forward-looking statements as a result of certain factors set forth in this
Quarterly Report. An additional statement made pursuant to the Private
Securities Litigation Reform Act of 1995 and summarizing certain of the
principal risks and uncertainties inherent in our business is included herein
under the caption "Cautionary Statement Regarding Forward-Looking Statements."
You are encouraged to read this section carefully.
You should read the following discussion and analysis in conjunction
with the accompanying consolidated financial statements and related notes, and
with our audited consolidated financial statements as of the year ended December
31, 1999 and related notes set forth in our 1999 Annual Report on Form 10-K.
Overview
Our business focuses on the production of glass yarn by converting
molten glass into thin filaments, which are then twisted into yarn. Our products
fall into two categories based on filament diameter:
o heavy yarns, which accounted for 72.9% of our net sales during the
nine months ended September 30, 1999 and 73.0% of our net sales
during the nine months ended September 30, 2000; and
o fine yarns, which accounted for 27.1% of our net sales during the
nine months ended September 30, 1999 and 27.0% of our net sales
during the nine months ended September 30, 2000.
Glass yarns are a critical material used in a variety of electronic,
industrial, construction and specialty applications such as printed circuit
boards, roofing materials, filtration equipment, building reinforcement, window
screening, aerospace materials, sporting goods and vehicle armor.
8
Results of Operations
The following table summarizes our historical results of operations as
a percentage of net sales (in millions):
:
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------------ -----------------------------
2000 1999 2000 1999
------------------------------ -----------------------------
(unaudited) (unaudited)
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 73.8 % 73.9 % 73.4 % 71.9 %
------------ ----------- ----------- -----------
Gross profit 26.2 % 26.1 % 26.6 % 28.1 %
Selling, general and
administrative expenses 5.8 % 6.1 % 5.9 % 6.7 %
Amortization 4.1 % 4.6 % 4.2 % 4.5 %
------------ ----------- ----------- -----------
Operating income 16.3 % 15.4 % 16.5 % 16.9 %
Interest expense 12.8 % 14.5 % 13.0 % 14.6 %
Other income, net 0.6 % (1.1)% (0.4)% (0.6)%
------------ ----------- ----------- -----------
Income before taxes and extraordinary item 2.9 % 2.0 % 3.9 % 2.9 %
Income tax expense - % - % 0.1 % - %
------------ ----------- ----------- -----------
Income before extraordinary item 2.9 % 2.0 % 3.8 % 2.9 %
Extraordinary item, loss on early
extinguishment of debt - % - % - % 1.9 %
------------ ----------- ----------- -----------
Net income 2.9 % 2.0 % 3.8 % 1.0 %
============ =========== =========== ===========
Adjusted EBITDA, as presented below, is defined as net income before
interest expense, income taxes, depreciation, amortization expense and
non-recurring non-cash charges. Adjusted EBITDA is calculated as follows (in
thousands):
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
---------------------------- -----------------------------
2000 1999 2000 1999
---------------------------- -----------------------------
(unaudited) (unaudited)
Net income $ 1,953 $ 1,304 $ 7,801 $ 1,765
Depreciation and amortization 6,417 5,920 19,227 17,830
Non-recurring start-up cost - 539 - 2,099
Interest 8,803 9,155 26,970 27,303
Taxes 26 - 158 -
Extraordinary loss - - - 3,616
---------- ---------- ---------- -----------
Adjusted EBITDA $ 17,199 $ 16,918 $ 54,156 $ 52,613
========== ========== ========== ===========
Adjusted EBITDA for the quarter ended September 30, 2000 increased $0.3 million,
or 1.8%, to $17.2 million from $16.9 million for the quarter ended September 30,
1999 and for the nine months ended September 30, 2000 increased $1.6 million, or
3.0%, to $54.2 million from $52.6 million for the same period in 1999.
9
We believe that adjusted EBITDA is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness. Adjusted
EBITDA does not represent and should not be considered as an alternative to net
income or cash flow from operations as determined by generally accepted
accounting principles, and adjusted EBITDA does not necessarily indicate whether
cash flow will be sufficient for cash requirements. Not every company calculates
adjusted EBITDA in exactly the same fashion. As a result, adjusted EBITDA as
presented above may not necessarily be comparable to similarly titled measures
of other companies.
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999
Net Sales. Net sales increased $5.2 million, or 8.2%, to $68.8 million
in the three months ended September 30, 2000 from $63.6 million in the three
months ended September 30, 1999. Excluding the impact of changes in the exchange
rate of European currencies, third quarter 2000 net sales would have been $7.0
million higher than in the third quarter of 1999. This sales growth reflected a
higher demand primarily in the construction and electrical markets, for which
sales increased by 31.1% and 9.1%, respectively.
Gross Profit. Gross profit is relatively stable at 26.2% of net sales
for the three months ended September 30, 2000 compared to the same period in
1999. Excluding the impact of changes in the exchange rate of European
currencies, gross profit in the third quarter of 2000 would have been 26.7%.
This improvement was primarily due to higher volumes sold resulting in more
absorption of fixed costs but was partially offset by a recent rise in energy
costs.
Selling, General and Administrative Expenses. The expense associated
with selling, general and administrative costs remained flat for the three
months ended September 30, 2000 as compared to the same period for 1999. When
expressed as a percentage of net sales, this expense decreased to 5.8% for the
quarter ended September 30, 2000 as compared to 6.1% for the same period in
1999. This decrease was due to increased sales during the third quarter of 2000.
Operating Income. As a result of the aforementioned factors, operating
income increased $1.4 million to $11.2 million, or 16.3% of net sales, for the
three months ended September 30, 2000 from $9.8 million, or 15.4% of net sales,
for the three months ended September 30, 1999.
Interest Expense. Interest expense decreased $0.4 million to $8.8
million in the three months ended September 30, 2000 from $9.2 million in the
three months ended September 30, 1999. The decrease was a result of reductions
in the principal amount outstanding under our senior credit facility, partially
offset by an increase in accrued interest on a deferred distribution to a
member, as well as the cost of foreign currency hedging programs.
Other Income/Expense, net. The quarter-to-quarter $1.0 million decrease
in other income/expense is primarily attributable to an increase of $0.9 million
in alloy metal leasing
10
expense, as well as a decrease of $0.3 million in interest income, which was
partially offset by a $0.2 million increase in royalty income as compared to the
same quarter of 1999.
Net Income. As a result of the aforementioned factors, net income
increased $0.7 million to $2.0 million in the three months ended September 30,
2000, from $1.3 million in the three months ended September 30, 1999.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999
Net Sales. Net sales increased $20.8 million, or 11.1%, to $208.0
million in the nine months ended September 30, 2000 from $187.2 million in the
nine months ended September 30, 1999. The net increase in sales resulted from a
higher demand primarily in the electrical and construction markets, for which
sales increased by 24.6% and 15.3%, respectively. This was partially offset by
a 12.5% decline of European currencies in the first nine months of 2000 as
compared to the same period in 1999, as well as selling price erosions that
occurred throughout 1999. Recent price increase continue to move towards the
historical pricing level of early 1999.
Gross Profit. Gross profit decreased from 28.1% of net sales for the
nine months ended September 30, 1999 to 26.6% of net sales for the nine months
ended September 30, 2000. Excluding the impact of changes in the exchange rate
of European currencies, gross profit in the first nine months of 2000 would have
been 27.3%. The positive impact of higher volumes sold for all categories of
yarns, was partially offset by the residual effect of the 1999 selling price
erosions, additional startup manufacturing costs related to increases in
capacity in the first quarter of 2000, as well as recent increases in energy
costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to 5.9% of net sales for the nine months ended
September 30, 2000 as compared to 6.7% of net sales for the nine months ended
September 30, 1999. This decrease, which was primarily attributable to an
increase in sales during the first nine months of 2000, was partially offset by
an increase in depreciation of the information systems established in 1999.
Operating Income. As a result of the aforementioned factors, operating
income increased $2.8 million to $34.4 million, or 16.5% of net sales, for the
nine months ended September 30, 2000 from $31.6 million, or 16.9% of net sales,
for the nine months ended September 30, 1999.
Interest Expense. Interest expense decreased $0.3 million to $27.0
million in the nine months ended September 30, 2000 from $27.3 million in the
nine months ended September 30, 1999. The decrease was a result of reductions in
the principal amount outstanding under our senior credit facility term loans,
partially offset by higher revolver borrowings in the nine months ended
September 30, 2000 as compared to the same period in 1999. The decrease was
partially offset by an increase in accrued interest on a deferred distribution
to a member as well as the cost of foreign currency hedging programs.
11
Other Income/Expense, net. The period-to-period $0.6 million decrease
in other income/expense primarily reflects $1.3 million of additional royalty
income partially resulting from the recent settlement of $0.8 million for
disputed royalties with our licensee, as well as $0.3 million reduced foreign
currency losses due to hedging, partially offset by an increase of $1.9 million
in alloy metal leasing expense and a decrease in interest income of $0.5 million
as compared to the same period in 1999.
Net Income. 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 $6.0 million to $7.8 million in the nine months ended September 30,
2000, from $1.8 million in the nine months ended September 30, 1999.
Liquidity and Capital Resources
Our primary sources of liquidity are cash flows from operations,
borrowings under the senior credit facility and the issuance of our 9 7/8%
senior subordinated notes due 2009. Our future liquidity requirements will
generally include funding principal payments on our senior credit facility,
interest payments, capital expenditures and working capital requirements. We
have no mandatory payments of principal on our senior subordinated notes prior
to their maturity.
At September 30, 2000, we had outstanding $345.1 million of long-term
debt at a weighted average interest rate of 8.9%, consisting of $197.6 million
under our senior credit facility, $147.3 million under our 9 7/8% senior
subordinated notes (net of discount of $2.7 million) and $0.2 million of capital
leases, less a current portion of $19.8 million. The amounts outstanding under
our senior credit facility included $13.6 million outstanding under a revolver.
As of September 30, 2000, we had approximately $50.0 million of availability
under the revolver.
Net Cash Provided by Operating Activities. Net cash provided by
operating activities was $26.9 million for the nine months ended September 30,
2000 and was primarily the result of net income of $7.8 million, non-cash
adjustments of $22.1 million, a decrease in accounts receivable, inventory,
accounts payable and the liability due to Owens Corning of $2.9 million, $3.4
million, $3.7 million and $4.8 million, respectively, as well as an increase in
accrued liabilities of $0.2 million.
Net Cash Used in Investing Activities. Net cash used in investing
activities was $9.5 million for the nine months ended September 30, 2000 and was
mainly the result of purchases of property, plant and equipment, net of the
proceeds from the sale of fixed assets.
We have historically financed our capital expenditures through cash
flow from operations and borrowings under our senior credit facility. For the
nine months ended September 30, 2000, capital expenditures were $13.4 million,
excluding assets associated with a sale and leaseback transaction during the
second quarter of 2000 pursuant to which we sold manufacturing
12
equipment for net proceeds of approximately $3.9 million. We are anticipating
total capital expenditures in 2000 to be approximately $20.0 million, including
assets associated with the sale and leaseback transaction.
Net Cash Used in Financing Activities. Net cash used in financing
activities was $18.9 million for the nine months ended September 30, 2000 and
was primarily the result of the repayment of principal amounts outstanding under
our senior credit facility and distribution of a dividend payable to a member.
Our ability to make scheduled payments of principal of, or to pay the
interest or liquidated damages, if any, on, or to refinance, our indebtedness,
or to fund planned capital expenditures will depend on our future performance,
which is generally subject to economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control. Based upon the current
level of operations, we believe that cash flows from operations and available
cash, together with availability under the senior credit facility, will be
adequate to meet our future liquidity needs for at least the next two years.
However, we cannot assure you that our business will generate sufficient cash
flows from operations or that future borrowings will be available under the
senior credit facility in an amount sufficient to enable us to service our
indebtedness, or to fund our other liquidity needs and the payment of tax
distributions.
We derived 21.0% of our net sales in the third quarter of 2000 from
products sold in currencies other than the US dollar. The US dollar value of our
export sales sometimes varies with currency exchange rate fluctuations. We may
therefore be exposed to exchange losses as a result of such fluctuations that
could reduce our net income. We have adopted a risk management strategy to use
derivative financial instruments including forwards and options to hedge foreign
currency exposures. See "Quantitative and Qualitative Disclosures About Market
Risk." However, we cannot assure you that any such hedging agreements will be
sufficient to eliminate risks relating to currency fluctuations.
Recent Developments
Impact of Owens Corning's Bankruptcy. On October 5, 2000, Owens
Corning, which owns a 49% economic interest in Advanced Glassfiber Yarns, and
certain of Owens Corning's 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. 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 " - Disclosure Regarding
Forward-Looking Statements."
13
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% economic interest in
Advanced Glassfiber Yarns. Due to Owens Corning's recent 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% 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 amortization expense and the payment of
additional property taxes, which would reduce our future net income.
Recently Issued Accounting Standard
On September 8, 1999, the Financial Accounting Standards Board issued SFAS
No. 138, "Deferral of the Effective Date of FAS 133," which changes the
effective date of FAS 133 to all fiscal quarters of all fiscal years beginning
after September 15, 2000. SFAS 133, as amended by SFAS 138, requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. We use derivative instruments from time to time to reduce our
exposure to fluctuations in interest rates and foreign currency exchange rates.
We are currently evaluating this Statement and its prospective impact on our
consolidated financial statements. We are in the process of evaluating the
affect it will have on our financial statements. We will be required to
implement Statement 133 in the first quarter of 2001.
Disclosure Regarding Forward-Looking Statements
Some of the information in this Quarterly 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:
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o our significant level of indebtedness and limitations on our
ability to incur additional debt;
o the impact of Owens Corning`s unpredictable bankruptcy
proceeding on our financial condition and ongoing operations;
o 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;
o the risk of conflicts of interest with our equity holders;
o a downturn in the electronics industry and the movement of
electronics industry production outside of North America;
o our concentrated customer base and the nature of our markets;
o a disruption of production at one of our facilities;
o foreign currency fluctuations;
o an easing of import restrictions and duties with respect to
glass fabrics;
o labor strikes or stoppages;
o our ability to comply with environmental and safety and health
laws and requirements; and
o changes in economic conditions generally.
This list of risks and uncertainties, however, is not intended to be
exhaustive. You should also review the other cautionary statements we make in
this Quarterly Report and in our 1999 Annual Report on Form 10-K. 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.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
The effects of potential changes in currency exchange rates and
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 and currency exchange rates. These disclosures are not precise indicators
of expected future losses, but only indicators of reasonably possible losses. As
a result, actual future results may differ materially from those presented. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Disclosure Regarding Forward-Looking Statements."
Our senior credit facility is subject to market risks, including
interest rate risk. Our financial instruments are not currently subject to
commodity price risk. We are exposed to foreign currency exchange rate risk
mainly as a result of our export sales. Our risk management strategy is to use
derivative financial instruments, including forwards, swaps and purchased
options, to hedge foreign currency and interest rate exposures. Our objective is
to limit the impact of currency and interest rate changes on earnings and cash
flows. We do not enter into derivatives for trading or speculative purposes.
As of September 30, 2000, the notional value of our interest rate swaps
was $189.0 million, equal to the outstanding borrowings under Term Loans A and B
of our senior credit facility and $5.0 million under the revolver portion of our
senior credit facility. The fair value of the interest rate swap agreement
represents the estimated receipts or payments that would be made to terminate
the agreements. At September 30, 2000, we would have received approximately $9.1
million to terminate the agreements. A 100 basis point decrease in LIBOR would
decrease the amount received by approximately $3.9 million. The fair value is
based on dealer quotes, considering current interest rates.
As of September 30, 2000, the notional value of our foreign currency
hedging instruments was $7.3 million, and the approximate fair value was $0.5
million. The potential loss in fair value of such financial instruments from a
hypothetical 10% decrease in the underlying exchange rates relative to the US
dollar would be approximately $0.4 million as of September 30, 2000. The
potential gain in the fair value of such financial instruments from a
hypothetical 10% increase in the underlying exchange rates relative to the US
dollar would be approximately $0.6 million as of September 30, 2000. The fair
value is based on dealer quotes, considering current exchange rates.
Actual gains and losses in the future may differ materially from that
analysis, however, based on changes in the timing and amount of interest rate
and foreign currency exchange rate movements and our actual exposures and
hedges. In addition, we are exposed to losses in the event of nonperformance by
the counterparties under the interest rate swap agreements or foreign currency
hedging instruments. 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 agreements, we
could lose any benefits contractually accruing in our favor as a result of
market changes in interest or foreign currency exchange rates.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVANCED GLASSFIBER YARNS LLC
/s/ Catherine Cuisson
------------------------------------------
Catherine Cuisson
Vice President and Chief Financial Officer
(Principal Accounting Officer)
Dated: November 14, 2000
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AGY CAPITAL CORP.
/s/ Catherine Cuisson
------------------------------------------
Catherine Cuisson
Vice President and Chief Financial Officer
(Principal Accounting Officer)
Dated: November 14, 2000
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