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 March 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
(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 May 15, 2001, 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 THREE MONTHS ENDED MARCH 31, 2001
TABLE OF CONTENTS
Page No.
----------
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 2001 (unaudited)
and December 31, 2000 1
Consolidated Statements of Operations
For the three months ended March 31, 2001 and 2000 (unaudited) 2
Consolidated Statements of Comprehensive Income
For the three months ended March 31, 2001 and 2000 (unaudited) 3
Consolidated Statements of Cash Flows
For the three months ended March 31, 2001 and 2000 (unaudited) 4
Notes to the Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 9
Overview 9
Results of Operations 10
Liquidity and Capital Resources 12
Disclosure Regarding Forward-Looking Statements 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
ADVANCED GLASSFIBER YARNS LLC
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
March 31, December 31,
2001 2000
------------- --------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 5,528 $ 4,054
Trade accounts receivable less allowance of $1,431 and
$1,770 respectively 27,249 29,981
Inventories 30,657 25,011
Other current assets 1,944 5,947
---------------- ---------------
Total current assets 65,378 64,993
---------------- ---------------
Net property, plant and equipment 148,070 148,438
Intangible assets, net 219,079 222,578
---------------- ---------------
Total assets $ 432,527 $ 436,009
================ ===============
LIABILITIES AND MEMBERS' INTEREST
Current liabilities:
Accounts payable $ 20,168 $ 29,181
Accrued liabilities 17,835 23,863
Current portion of long-term debt 16,094 14,670
---------------- ---------------
Total current liabilities 54,097 67,714
---------------- ---------------
Long-term debt, net of discount of $2,561 and $2,616, respectively 320,799 314,916
Deferred distribution 10,819 6,681
Pension and other employee benefit plans 23,642 22,947
Other non-current liabilities 588 -
---------------- ---------------
Total liabilities 409,945 412,258
---------------- ---------------
Commitments and contingencies - -
Members' interest 22,582 23,751
---------------- ---------------
Total liabilities and members' interest $ 432,527 $ 436,009
================ ===============
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
Ended March 31,
-------------------------------------------
2001 2000
-------------------------------------------
(unaudited)
Net sales $ 68,846 $ 70,477
Cost of goods sold 47,268 52,702
---------------- ----------------
Gross profit 21,578 17,775
Selling, general and administrative expenses 4,636 3,972
Amortization 3,059 2,853
---------------- ----------------
Operating income 13,883 10,950
Interest expense 8,247 9,047
Other income, net (395) (406)
---------------- ----------------
Income before taxes 6,031 2,309
Income tax expense 12 -
---------------- ----------------
Net income $ 6,019 $ 2,309
================ ================
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
Ended March 31,
---------------------------------------
2001 2000
---------------------------------------
(unaudited)
Net income $ 6,019 $ 2,309
Other comprehensive income (loss):
Currency hedges-options 168 -
Currency hedges-forwards 107 -
Interest rate swaps 461 -
Foreign currency translation (123) (25)
-------------- --------------
Comprehensive income $ 6,632 $ 2,284
============== ==============
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 Three Months
Ended March 31,
---------------------------------------
2001 2000
---------------------------------------
(unaudited)
Cash flows from operating activities:
Net income $ 6,019 $ 2,309
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation 3,490 3,599
Amortization of debt issuance costs 437 437
Amortization of goodwill and other intangibles 3,059 2,853
Amortization of discount on notes 55 49
Recognition of gain on interest rate swap (70) -
Alloy usage 577 439
Changes in assets and liabilities:
Trade accounts receivable, net 2,665 (2,556)
Inventories (5,643) 3,634
Other assets 3,994 (1,359)
Accounts payable (7,810) (5,037)
Accrued liabilities (5,365) (5,242)
Pension and post-retirement 695 715
------------ ------------
Net cash provided by (used in) operating activities 2,103 (159)
------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment (4,895) (6,501)
Other - (15)
------------ ------------
Net cash used in investing activities (4,895) (6,516)
------------ ------------
Cash flows from financing activities:
Proceeds from revolving credit facility 11,800 10,100
Payments on capital lease (25) (22)
Payments on term loans (4,523) (4,575)
Proceeds from interest rate swap 1,118 -
Distribution to Owens Corning (4,033) -
------------ ------------
Net cash provided by financing activities 4,337 5,503
------------ ------------
Effect of exchange rate on cash (71) (7)
------------ ------------
Net increase (decrease) in cash and cash equivalents 1,474 (1,179)
------------ ------------
Cash and cash equivalents, beginning of period 4,054 6,223
------------ ------------
Cash and cash equivalents, end of period $ 5,528 $ 5,044
============ ============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 11,324 $ 12,619
============ ============
Supplemental disclosure of non-cash financing/investing activities:
Property and equipment financed in accrueds decrease $ (1,196) $ (3,611)
============ ============
Decrease in fair value of interest rate swaps $ 588 $ -
============ ============
Deferred distribution $ 3,979 $ 8,115
============ ============
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
The accompanying unaudited interim consolidated financial statements
of Advanced Glassfiber Yarns LLC have been prepared 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 generally
accepted accounting principles 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 three months ended March 31, 2001 are not necessarily
indicative of the results to be expected for the full year. The Company believes
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, 2000 on file with the Securities and
Exchange Commission in the 2000 Annual Report on Form 10-K.
Certain amounts from the prior consolidated financial statements
have been reclassified to conform to the current presentation.
2. Inventories
Inventories consist of the following:
March 31, December 31,
2001 2000
----------- ------------
(unaudited)
Finished goods $ 24,629 $ 20,051
Materials and supplies 6,028 4,960
----------- -----------
$ 30,657 $ 25,011
=========== ===========
5
3. Accrued Liabilities
Accrued liabilities consist of the following:
March 31, December 31,
2001 2000
------------ -------------
(unaudited)
Vacation $ 3,159 $ 3,003
Interest 3,273 7,001
Real and personal property taxes 2,213 2,531
Incentive compensation and profit sharing 1,188 2,555
Benefits 2,603 2,622
Due to Owens Corning 1,478 1,804
Other 3,921 4,347
--------- ----------
$ 17,835 $ 23,863
========= ==========
4. Long-term Debt
Long-term debt consists of the following:
March 31, December 31,
2001 2000
----------- -------------
(unaudited)
Senior Credit Facility
Revolving Credit Facility $ 21,300 $ 9,500
Term Loan A 72,576 76,840
Term Loan B 95,410 95,669
9 7/8% Senior Subordinated Notes, net
of amortized discount 147,439 147,384
Capital lease obligation 168 193
---------- -----------
336,893 329,586
Less current portion (16,094) (14,670)
---------- -----------
Long-term debt $ 320,799 $ 314,916
========== ===========
5. Segment Information
The Company operates in one business segment that manufactures glass
fiber yarns and specialty yarns that are used in a variety of industrial and
commercial applications. The Company's principal market is the United States.
The Company does not have any significant
6
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
Ended March 31,
-----------------------------
2001 2000
-----------------------------
(unaudited)
Net Sales
North America $ 45.9 $ 49.3
Europe 18.0 17.1
Asia 4.3 3.6
Latin America 0.6 0.5
-------- ---------
Total $ 68.8 $ 70.5
======== =========
Sales by product category are as follows (in millions):
For the Three Months
Ended March 31,
-------------------------
2001 2000
-------------------------
(unaudited)
Net Sales
Heavy yarns $ 46.6 $ 51.5
Fine yarns 22.2 19.0
--------- ---------
Total $ 68.8 $ 70.5
========= =========
6. Adoption of Statement of Financial Accounting Standards (SFAS) No. 133
The Company is exposed to market risk, such as fluctuations in
foreign currency exchange rates and changes in 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.
7
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.
Effective January 1, 2001, the Company adopted SFAS 133, "Accounting
for Derivative Instruments and Hedging Activities," and related amendments. SFAS
133 requires that all derivative instruments be recorded on the balance sheet at
their fair value. For derivatives designated as fair value hedges, the changes
in the fair values of both the derivative instrument and the hedged item are
recognized in earnings in the current period. For derivatives designated as cash
flow hedges, the effective portion of changes in the fair value of the
derivative is recorded to accumulated other comprehensive income ("OCI") and is
reclassified to earnings when the underlying transaction impacts earnings.
As of January 1, 2001, the Company recorded a cumulative effect type
adjustment to OCI of $4.1 million relating to the fair value of its interest
rate swaps and currency hedges, which have been designated as cash flow hedges.
The effect of the adoption of SFAS 133 as of January 1, 2001 on net income was
not significant, primarily because the hedges in place as of January 1, 2001
qualified for hedge accounting treatment and were highly effective.
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 March 31, 2001, the net
derivative gain in OCI was $0.7 million. During the first quarter of 2001, $0.6
million of accumulated gains were reclassified from OCI to earnings. The
ineffective portion of changes in fair values of hedge positions reported in
first quarter earnings was immaterial. As of March 31, 2001, the Company expects
to reclassify $0.4 million during the next twelve months from OCI into earnings.
A summary of the amounts included in the accumulated other
comprehensive income is shown below (in thousands):
Interest-Rate Accumulated
Options Forwards Swaps OCI
------- -------- ------------- -----------
Balance at December 31, 2000 $ - $ - $ - $ -
January 1, 2001, transition adjustment - 136 (4,200) (4,064)
Current period changes in value (168) (125) 3,036 2,743
Reclassification to earnings - (118) 703 585
------- ------- ------- -------
Balance at March 31, 2001 $ (168) $ (107) $ (461) $ (736)
======= ======= ======= =======
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Quarterly Report contains 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 and related notes as of and
for the year ended December 31, 2000 set forth in our 2000 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 73.0% of our net sales during the three
months ended March 31, 2000 and 67.7% of our net sales during the three
months ended March 31, 2001; and
o fine yarns, which accounted for 27.0.% of our net sales during the three
months ended March 30, 2000 and 32.3% of our net sales during the three
months ended March 31, 2001.
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.
9
Results of Operations
The following table summarizes our historical results of operations
as a percentage of net sales:
For the Three Months
Ended March 31,
------------------------------
2001 2000
------------------------------
(unaudited)
Net sales 100.0% 100.0%
Cost of goods sold 68.6% 74.8%
-------- --------
Gross profit 31.4% 25.2%
Selling, general and
administrative expenses 6.7% 5.7%
Amortization 4.5% 4.0%
-------- --------
Operating income 20.2% 15.5%
Interest expense 11.9% 12.8%
Other income, net (0.4)% (0.6)%
-------- --------
Net income 8.7% 3.3%
======== ========
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
Ended March 31,
---------------------------
2001 2000
---------------------------
(unaudited)
Net income $ 6,019 $ 2,309
Depreciation and amortization 6,549 6,452
Interest 8,247 9,047
Taxes 12 -
---------- ----------
Adjusted EBITDA $ 20,827 $ 17,808
========== ==========
Adjusted EBITDA for the quarter ended March 31, 2001 increased $3.0 million, or
16.9%, to $20.8 million from $17.8 million for the quarter ended March 31, 2000.
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.
10
Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000
Net Sales. Net sales decreased $1.7 million, or 2.4%, to $68.8
million in the three months ended March 31, 2001 from $70.5 million in the three
months ended March 31, 2000. Excluding the impact of changes in the exchange
rate of European currencies, first quarter 2001 net sales would have been
comparable to net sales in the first quarter of 2000. Additionally, this
decrease resulted from lower sales volumes in the industrial and specialty
markets primarily in North America, partially offset by the price increases
implemented in the first quarter of 2001. Our sales of product in the
electronics market remained relatively flat in the three months ended March 31,
2001 compared to the three months ended March 31, 2000. However, due to current
inventory adjustments in the electronics industry, we expect sales of product in
the electronics market to decrease in the second quarter of 2001.
Gross Profit. Gross profit increased to 31.4% of net sales for the
three months ended March 31, 2001 compared to 25.2% for the same period in 2000.
Excluding the impact of changes in the exchange rate of European currencies,
gross profit in the first quarter of 2001 would have been 31.8%. This
improvement was primarily attributable to the previously mentioned price
increases as well as better manufacturing performances and higher absorption of
fixed costs as compared to the same period last year when we were increasing our
production capacity.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $4.6 million for the three months ended March 31,
2001 as compared to $4.0 million for the same period of 2000. Such expenses as a
percentage of net sales increased to 6.7% for the quarter ended March 31, 2001
as compared to 5.7% for the same period in 2000. This increase was primarily
attributable to increased accruals for profit sharing resulting from improved
company performance as well as an increase in salaries.
Operating Income. As a result of the aforementioned factors,
operating income increased $2.9 million to $13.9 million, or 20.2% of net sales,
for the three months ended March 31, 2001 from $11.0 million, or 15.5% of net
sales, for the three months ended March 31, 2000.
Interest Expense. Interest expense decreased $0.8 million to $8.2
million in the three months ended March 31, 2001 from $9.0 million in the three
months ended March 31, 2000. The decrease was a result of net reductions in the
principal amount outstanding under our senior credit facility.
Other Income, net. Other Income was $0.4 million for the quarter
ended March 31, 2001, unchanged from the quarter ended March 31, 2000.
Net Income. As a result of the aforementioned factors, net income
increased $3.7 million to $6.0 million in the three months ended March 31, 2001,
from $2.3 million in the three months ended March 31, 2000.
11
Liquidity and Capital Resources
Our primary sources of liquidity are cash flows from operations and
borrowings under the senior credit facility. Our future liquidity requirements
will generally include funding principal payments on our senior credit facility,
interest payments on our 9 7/8% senior subordinated notes due 2009 and our
senior credit facility, capital expenditures and working capital requirements.
We have no mandatory payments of principal on our senior subordinated notes
prior to their maturity.
At March 31, 2001, we had outstanding $336.9 million of long-term
debt at a weighted average interest rate of 8.9%, consisting of $189.3 million
under our senior credit facility, $147.4 million under our 9 7/8% senior
subordinated notes (net of discount of $2.6 million) and $0.2 million of capital
leases, less a current portion of $16.1 million. The amounts outstanding under
our senior credit facility included $21.3 million outstanding under the
revolver. As of March 31, 2001, we had approximately $41.5 million of
availability under the revolver.
Net Cash Provided by Operating Activities. Net cash provided by
operating activities was $2.1 million for the three months ended March 31, 2001,
and was primarily the result of net income of $6.0 million, non-cash adjustments
of $7.5 million, a $2.7 million decrease in accounts receivable due to a
reduction in sales and improved collections, and a $4.0 million decrease in
other assets mainly related to a payment set-off with Owens Corning. These
increases in operating cash were offset by a $5.6 million increase in inventory
due to softened demand, a $7.8 million decrease in accounts payable and a $5.4
million decrease in accrued liabilities, mainly related to the payment set-off
with Owens Corning and the timing of payments.
Net Cash Used in Investing Activities. Net cash used in investing
activities was $4.9 million for the three months ended March 31, 2001 and was
the result of the payment for property, plant and equipment.
We have historically financed our capital expenditures through cash
flow from operations and borrowings under our senior credit facility. For the
three months ended March 31, 2001, capital expenditures were $3.7 million. We
will continue to monitor and will adjust our capital expenditures spending
level, if warranted by market developments or our operating performance.
Net Cash Provided by Financing Activities. Net cash provided by
financing activities was $4.3 million for the three months ended March 31, 2001
and was primarily the result of net borrowings under our senior credit facility
to fund working capital requirements and proceeds of $1.1 million from a partial
unwind of our interest rate swaps offset by payments on term loans and
distributions to Owens Corning related to tax obligations.
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.
12
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. In addition, we may need to refinance all or a
portion of the principal on the notes on or prior to maturity. We cannot assure
you that we will be able to effect any refinancing on commercially reasonable
terms or at all.
We derived 23.9% of our net sales in the first quarter of 2001 from
products sold in currencies other than the U. S. dollar. The U. S. 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 activities
will be sufficient to eliminate risks relating to currency fluctuations.
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:
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;
13
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 2000 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.
14
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
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 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 risk management strategy is to use
derivative financial instruments, such as swaps, to hedge interest rate
exposures. In addition, we are exposed to foreign currency exchange risk mainly
as a result of our export sales. Our risk management strategy is to use
derivative financial instruments to hedge these foreign currency exposures. Our
overall objective is to limit the impact of foreign currency and interest rate
changes on earnings and cash flows. We do not enter into derivatives for trading
or speculative purposes.
At March 31, 2001, we had interest rate swap agreements on a
notional amount of $168 million, equal to the outstanding borrowings under Term
Loans A and B of our senior credit facility. Under these agreements, we have
secured a weighted average fixed LIBOR rate of interest of 5.0% on the notional
amount that is reduced in a manner consistent with the amortization of the
principal on our term loans. These swaps effectively change our payment of
interest on $168 million of variable rate debt to a fixed rate for the contract
period.
The fair value of the interest rate swap agreements represents the
estimated receipts or payments that would be made to terminate the agreements.
At March 31, 2001, we would have paid approximately $0.6 million to terminate
the agreements. A 100 basis point decrease in LIBOR would increase the amount
paid by approximately $3.1 million. The fair value is based on dealer quotes,
considering current interest rates. During the quarter ended March 31, 2001, we
shortened the duration of our interest rate swaps to September 2003. As a result
of this partial unwind, we received proceeds of $1.1 million, which will remain
in accumulated other comprehensive income and will be reclassified to earnings
over the remaining life of the related contracts.
As of March 31, 2001, the notional value of our foreign currency
hedging instruments was $11.4 million, and the approximate fair value was $0.4
million. The potential gain in fair value of such financial instruments
resulting from a hypothetical 10% decrease in the underlying exchange rates
relative to the U.S. dollar would be approximately $0.8 million as of March 31,
2001. The potential loss in fair value of such financial instruments resulting
from a hypothetical 10% increase in the underlying exchange rates relative to
the U.S. dollar would be approximately $0.3 million as of March 31, 2001. The
fair value is based on dealer quotes, considering current exchange rates.
15
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.
16
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: May 15, 2001
17
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: May 15, 2001
18