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, 2002
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 (Primary Standard Industrial (I.R.S. Employer
incorporation) 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 19, 2002, 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 SEPTEMBER 30, 2002
TABLE OF CONTENTS
Page No.
--------
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements 1
Consolidated Balance Sheets as of September 30, 2002 (unaudited)
and December 31, 2001 1
Consolidated Statements of Operations 2
For the three months ended September 30, 2002 and 2001 (unaudited) 2
For the nine months ended September 30, 2002 and 2001 (unaudited) 2
Consolidated Statements of Comprehensive Income 3
For the three months ended September 30, 2002 and 2001 (unaudited) 3
For the nine months ended September 30, 2002 and 2001 (unaudited) 3
Consolidated Statements of Cash Flows 4
For the nine months ended September 30, 2002 and 2001 (unaudited) 4
Notes to the Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 16
Overview 16
Results of Operations 17
Liquidity and Capital Resources 21
Cautionary Statements Regarding Forward-Looking Statements 25
Certification Under the Sarbanes-Oxley Act 26
Item 3. Quantitative and Qualitative Disclosures About Market Risk 27
Item 4. Controls and Procedures 29
Part II. OTHER INFORMATION 30
Item 5. Defaults Upon Senior Securities 30
Item 6. Exhibits and Reports on Form 8-K 30
Signatures 32
Statement of Officers 34
Certifications 38
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
ADVANCED GLASSFIBER YARNS LLC
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
September 30, December 31,
2002 2001
------------- ---------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 4,314 $ 100
Trade accounts receivable less allowance of $1,118 and $1,102, respectively 10,623 13,392
Inventories, net (Note 3) 25,956 43,847
Other current assets 3,565 3,188
------------ ---------------
Total current assets 44,458 60,527
------------ ---------------
Net property, plant and equipment (Note 4) 134,075 142,191
Intangible assets, net (Note 5) 17,825 209,622
Other non-current assets - 145
------------ ---------------
Total assets $ 196,358 $ 412,485
============ ===============
LIABILITIES AND MEMBERS' INTEREST (DEFICIT)
Current liabilities:
Accounts payable $ 11,106 $ 16,205
Accrued liabilities (Note 6) 28,817 24,201
Current portion of long-term debt, net of discount of $2,218 and
$2,392, respectively (Note 7) 323,946 330,441
------------ ---------------
Total current liabilities 363,869 370,847
------------ ---------------
Deferred distribution 13,018 11,435
Pension and other employee benefit plans 27,906 25,753
Other non-current liabilities - 413
------------ ---------------
Total liabilities 404,793 408,448
------------ ---------------
Commitments and contingencies - -
Members' interest (deficit) (208,435) 4,037
------------ ---------------
Total liabilities and members' interest (deficit) $ 196,358 $ 412,485
============ ===============
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,
------------------------- ---------------------------
2002 2001 2002 2001
------------------------- ---------------------------
(unaudited) (unaudited)
Net sales $ 40,337 $ 48,894 $ 132,966 $ 172,859
Cost of goods sold 34,934 36,216 114,810 123,509
----------- ----------- ------------ -----------
Gross profit 5,403 12,678 18,156 49,350
Selling, general and administrative expenses 5,090 3,252 11,910 11,165
Restructuring 117 - 340 -
Amortization 733 2,901 2,198 8,861
----------- ----------- ------------ -----------
Operating income (loss) (537) 6,525 3,708 29,324
Interest expense 9,075 8,285 26,314 24,887
Other income (loss), net 178 (254) (181) (840)
----------- ----------- ------------ -----------
Income (loss) before income taxes and adoption of an
accounting principle (9,790) (1,506) (22,425) 5,277
Income tax expense 2 8 24 100
----------- ----------- ------------ -----------
Income (loss) before adoption of an accounting principle (9,792) (1,514) (22,449) 5,177
Cumulative effect of adoption of an accounting
principle (Note 5) - - 188,418 -
----------- ----------- ------------ -----------
Net income (loss) $ (9,792) $ (1,514) $ (210,867) $ 5,177
=========== =========== ============ ===========
The accompanying notes are an integral part of the consolidated financial
statements.
2
ADVANCED GLASSFIBER YARNS LLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------ ---------------------------
2002 2001 2002 2001
------------------------ ---------------------------
(unaudited) (unaudited)
Net income (loss) $ (9,792) $ (1,514) $ (210,867) $ 5,177
Other comprehensive income (loss):
Currency hedges-options (8) (171) - 24
Currency hedges-forwards 175 (36) (125) -
Commodity swaps 124 (250) 508 (718)
Interest rate swaps (193) (4,983) (228) (4,558)
Foreign currency translation (52) (19) 27 (70)
--------- --------- ----------- ---------
Comprehensive income (loss) $ (9,746) $ (6,973) $ (210,685) $ (145)
========= ========= =========== =========
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,
---------------------------
2002 2001
---------------------------
(unaudited)
Cash flows from operating activities:
Net income (loss) $ (210,867) $ 5,177
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Cumulative effect of adoption of an accounting principle 188,418 -
Depreciation 12,029 10,993
Amortization of debt issuance costs 1,725 1,310
Amortization of goodwill and other intangibles 2,198 8,861
Amortization of discount on notes 175 167
Alloy usage 558 1,474
Changes in assets and liabilities:
Trade accounts receivable, net 2,778 11,638
Inventories 17,892 (15,258)
Other assets (368) 4,636
Accounts payable (4,433) (8,432)
Accrued liabilities 4,146 (4,411)
Pension and post-retirement 2,153 2,143
---------- ---------
Net cash provided by operating activities 16,404 18,298
---------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment (5,006) (13,235)
Proceeds from sale of fixed assets - 1,513
Other (23) (43)
---------- ---------
Net cash used in investing activities (5,029) (11,765)
---------- ---------
Cash flows from financing activities:
Proceeds from revolving credit facility 59,600 65,100
Payments on revolving credit facility (54,300) (58,800)
Payments on capital lease (82) (76)
Payments on term loans (11,888) (13,050)
Proceeds from interest rate swap - 1,118
Distribution to Owens Corning - (4,033)
Deferred financing costs (521) -
---------- ---------
Net cash used in financing activities (7,191) (9,741)
---------- ---------
Effect of exchange rate on cash 30 (9)
---------- ---------
Net decrease in cash and cash equivalents 4,214 (3,217)
---------- ---------
Cash and cash equivalents, beginning of period 100 4,054
---------- ---------
Cash and cash equivalents, end of period $ 4,314 $ 837
========== =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 20,363 $ 26,552
========== =========
Supplemental disclosure of non-cash financing/investing activities:
Decrease in property and equipment financed in accrueds $ (676) $ (2,489)
========== =========
Increase/(decrease) in fair value of interest rate swaps and derivatives $ 155 $ (6,210)
========== =========
Deferred distribution - Porcher $ 911 $ 3,979
========== =========
Current distribution - Owens Corning $ 876 $ -
========== =========
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 (the "Company") 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 and nine months ended September 30, 2002,
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. 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, 2001, in our 2001 Annual Report on
Form 10-K.
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
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 (the "Subordinated Notes"). 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.
As discussed in Note 5, amortization expense was understated by $0.7 million
during the first quarter of 2002. As such, the first quarter 2002 results have
been restated to reflect the correction of this error.
As discussed in Note 5, the Company adopted the provisions of SFAS No. 142
during 2002.
Certain amounts contained in the Company's consolidated financial statements for
prior periods have been reclassified to conform to the current presentation.
2. Liquidity and Financial Condition
The Company has experienced declines in sales to the electronics industry (a
significant market segment of the Company's business) since the economic
downturn that began during the second quarter of 2001. As a result, during the
second half of 2001, the Company significantly lowered
5
2. Liquidity and Financial Condition (continued)
production levels and implemented workforce reductions and other cost saving
initiatives. During the first three months of 2002, the Company believed that
the economic recovery in the electronics industry had begun, based on the fact
that sales to the electronics industry increased by 102.2% in the first quarter
of 2002 compared to the last quarter of 2001. However, sales to the electronics
industry in the third quarter of 2002 decreased compared to the first and second
quarters of 2002, indicating that there is still no substantial recovery in this
industry.
The Company continues to have little visibility as to when and to what extent
demand may recover. The Company has continued to reduce its production schedules
and subsequent to the end of the third quarter, the Company furloughed
additional production employees thereby bringing the total number of employees
furloughed since January 1, 2002 to 80 employees. This measure was taken in
order to further decrease inventory levels, improve cash flows and maintain
other cost saving initiatives. Additionally, the Company hired Carl Marks
Consulting Group LLC, a restructuring firm, and is considering other cost
savings alternatives, including the reorganization of its operations.
As discussed in Note 7, the Company has entered into several Amendments and
Forbearance Agreements with its senior lenders and is in default under the
Indenture governing the Subordinated Notes. These conditions, together with the
Company's net loss in 2001 and the first nine months of 2002 and its deficit in
members' interest, raise substantial doubt about the Company's ability to
continue as a going concern. The accompanying condensed consolidated financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or liabilities that may
result from the outcome of this uncertainty.
Although some of our customers have suffered from the recent economic downturn,
we have not experienced a negative impact on collections. One of our major
customers and an affiliate of ours, BGF Industries, announced in the second
quarter of 2002 that it entered into a forbearance agreement, until March 31,
2003, with its senior lenders with respect to breaches of certain financial
covenants under BGF's senior credit facility. Sales to BGF were $3.5 million and
$12.1 million for the three months and nine months ended September 30, 2002,
respectively. Additionally, one of the Company's major customers is completing
its transition of sourcing a significant portion of its construction products to
its parent company. Sales to this customer amounted to $2.9 million and $10.2
million for the three months and nine months ended September 30, 2002,
respectively.
6
3. Inventories, net
Inventories consist of the following:
September 30, December 31,
2002 2001
--------------- ----------------
(unaudited)
Finished goods $ 21,182 $ 37,973
Materials and supplies 4,774 5,874
--------------- ----------------
Total inventories, net $ 25,956 $ 43,847
=============== ================
4. Net Property, Plant and Equipment
Net property, plant and equipment consist of the following:
September 30, December 31,
2002 2001
--------------- ----------------
(unaudited)
Land $ 827 $ 827
Building and leasehold improvements 27,492 27,028
Machinery and equipment 130,753 123,375
Construction in progress 2,354 5,725
--------------- ----------------
Gross property, plant and equipment 161,426 156,955
--------------- ----------------
Less: accumulated depreciation (56,459) (44,430)
Alloy metals 29,108 29,666
--------------- ----------------
Total net property, plant and equipment $ 134,075 $ 142,191
=============== ================
During the second quarter of 2002, we revised our estimates of the depreciable
lives of certain fixed assets. For the nine months ended September 30, 2002,
this resulted in additional depreciation expense of $1.3 million, which is
included in cost of goods sold, and a decrease of depreciation expense of $0.2
million, which is included in selling, general and administrative expenses.
7
5. Intangible Assets, net
As of September 30, 2002, and December 31, 2001, the Company's intangible assets
and related accumulated amortization consisted of the following:
September 30, 2002 December 31, 2001
------------------------------------------ ------------------------------------------
(unaudited)
Useful
Life Accumulated Accumulated
(Years) Gross Amortization Net Gross Amortization Net
--------- ----------- -------------- ----------- ----------- -------------- -----------
Intangible assets
subject to amortization:
Customer list 25 Years $ 230 $ 37 $ 193 $ 230 $ 37 $ 193
Patents and trademarks 8 Years 20,249 10,075 10,174 20,227 8,178 12,049
Debt issuance costs 6-10 Years 13,348 6,290 7,058 13,596 5,334 8,262
Covenant not to compete 5 Years 2,000 1,600 400 2,000 1,300 700
----------- -------------- ----------- ----------- -------------- -----------
Total intangible assets
subject to amortization 35,827 18,002 17,825 36,053 14,849 21,204
Intangible assets not
subject to amortization:
Goodwill - - - 216,392 27,974 188,418
----------- -------------- ----------- ----------- -------------- -----------
Total intangible assets not
subject to amortization - - - 216,392 27,974 188,418
----------- -------------- ----------- ----------- -------------- -----------
Total intangible assets $ 35,827 $ 18,002 $ 17,825 $ 252,445 $ 42,823 $ 209,622
=========== ============== =========== =========== ============== ===========
The Company adopted the provisions of SFAS No. 142 effective January 1, 2002. In
accordance with SFAS No. 142, the Company ceased amortizing goodwill on that
date. SFAS No. 142 requires that an intangible asset that is acquired should be
initially recognized and measured based on its fair value. SFAS No. 142 also
provides that goodwill should not be amortized, but should be tested for
impairment annually, or more frequently if circumstances indicate potential
impairment, through a comparison of fair value to carrying amount. The Company
completed its transitional goodwill impairment test in the second quarter of
2002. In performing this test, the Company estimated the fair value of its
intangible assets, considering market valuations and the recent adverse changes
in business conditions. Based on this analysis, the Company determined that
recorded goodwill exceeded its implied fair value. Accordingly, the Company
recorded a non-cash impairment charge of $188.4 million, which is recognized as
the cumulative effect of adoption of an accounting principle in the Consolidated
Statement of Operations in 2002. Net income for the three and nine months ended
September 30, 2001, exclusive of amortization of goodwill, was $1.6 million and
$11.8 million, respectively.
The provisions of SFAS No. 142 allowed the Company to finalize its transitional
impairment testing during 2002 subsequent to the date of adoption of SFAS No.
142. As a result of the impairment charge recognized under the transitional
impairment test, the Company restated its first quarter results to reflect the
charge as of January 1, 2002, the date of adoption of SFAS No. 142.
8
5. Intangible Assets, net (continued)
Additionally, the first quarter 2002 results have been restated to reflect the
correction of an error that understated amortization expense by approximately
$0.7 million as well as the implementation of SFAS No. 142, which resulted in an
impairment charge of $188.4 million. As a result, the restated first quarter
2002 net loss was $193.5 million, as compared to the loss of $4.4 million
previously reported.
The Company recorded amortization expense, including the write-off of debt
issuance costs, on the above intangibles of $1.6 million during the third
quarter of 2002. If the Company had adopted SFAS No. 142 in 2001, the Company
would have recorded amortization expense of $1.2 million during the third
quarter of 2001. Based on the current amount of intangible assets subject to
amortization and assuming there is no further impairment, the estimated
amortization expense for each of the succeeding five years would be as follows:
2002: $5.2 million; 2003: $4.9 million; 2004: $4.8 million; 2005: $4.0 million;
and 2006: $2.9 million.
As a result of the decrease in the revolver borrowing cap implemented in
conjunction with the Amendments and Forbearance Agreements described in Note 7,
the Company wrote off debt issuance cost of $0.3 million during the third
quarter of 2002.
6. Accrued Liabilities
Accrued liabilities consist of the following:
September 30, December 31,
2002 2001
--------------- --------------
(unaudited)
Vacation $ 2,691 $ 2,743
Interest 10,646 6,923
Real and personal property taxes 2,522 1,501
Incentive compensation and profit sharing 231 194
Payroll and benefits 2,706 2,528
Due to Owens Corning and other related parties 2,283 518
Deferred hedging 4,587 4,509
Restructuring 354 1,160
Other 2,797 4,125
--------------- --------------
Total accrued liabilities $ 28,817 $ 24,201
=============== ==============
In accordance with the Amendments described in Note 7, the amount owed to Owens
Corning has increased as a result of a blockage prohibiting distributions to the
Company's members.
9
6. Accrued Liabilities (continued)
The restructuring reserve was increased in the third quarter of 2002 to
recognize the liability associated with the elimination of certain production
employees. Activity in the restructuring liability consists of the following
(unaudited):
December 31, 2001 balance $ 1,160
Payments (722)
Accruals -
------------
March 31, 2002 balance 438
------------
Payments (271)
Accruals 223
------------
June 30, 2002 balance 390
------------
Payments (154)
Accruals 118
------------
September 30, 2002 balance $ 354
============
7. Long-term Debt
Long-term debt consists of the following:
September 30, December 31,
2002 2001
--------------- --------------
(unaudited)
Senior Credit Facility
Revolving credit facility $ 30,100 $ 24,800
Term loan A 51,162 62,531
Term loan B 94,891 95,410
9 7/8% Senior Subordinated Notes, net
of discount 147,782 147,608
Capital lease obligation 11 92
--------------- --------------
323,946 330,441
Less current portion (323,946) (330,441)
--------------- --------------
Total long-term debt $ - $ -
=============== ==============
On December 14, 2001, our senior lenders waived the requirement in the Senior
Credit Facility to maintain and meet our Fixed Charge Coverage Ratio and
modified our Leverage Ratio and Interest Coverage Ratio to be less restrictive
for the quarters ending December 31, 2001, and March 31, 2002 (the "Third
Amendment"). Absent the Third Amendment, we would have been in violation of
certain covenants of our Senior Credit Facility as of December 31, 2001 and
March 31, 2002. The amendment also provided for: (a) a 100 basis point increase
in the interest spread payable over LIBOR for advances under the facility; (b) a
borrowing cap of $50.0 million for amounts borrowed under the Revolving Credit
Facility; (c) a $1.75 million and $1.5 million
10
7. Long-term Debt (continued)
limit on capital spending for the quarters ending December 31, 2001 and March
31, 2002, respectively; and (d) the prohibition of any cash distributions by the
Company to our Members until we are in compliance with the original covenants
under the Senior Credit Facility.
For the quarter ended June 30, 2002, we did not comply with certain financial
covenants under the Senior Credit Facility. Therefore, and prior to being in
default, on June 28, 2002, we and our senior lenders entered into a Fourth
Amendment to the Senior Credit Facility and Forbearance Agreement (the "Fourth
Amendment"), under which the Company's senior lenders agreed not to exercise
their remedies under the Senior Credit Facility during the term of the
agreement, which expired August 13, 2002 (the "Forbearance Period"). The Fourth
Amendment required, among other things: (a) that the Company refrain from paying
its July 15, 2002, interest payment on its Subordinated Notes or any other
payment on the Subordinated Notes; (b) that the borrowing cap on the Revolving
Credit Facility be reduced to $45.0 million from its previous cap of $50.0
million; (c) that the Company deliver certain periodic financial reports to its
senior lenders and their financial advisors; (d) a limitation on capital
spending during the term of the Forbearance Agreement; and (e) monthly interest
payments on all senior loans. In addition, the Fourth Amendment required that
the Company agree to restrictive covenants with respect to cash balances,
investments, and incurrence of additional indebtedness. The Fourth Amendment
also required the Company to pay forbearance fees of approximately $250,000 to
the senior lenders and to continue the 100 basis point increase in applicable
margin that was effective with the Third Amendment.
On August 13, 2002, we and our senior lenders entered into a Fifth Amendment to
the Senior Credit Facility and Forbearance Agreement (the "Fifth Amendment"),
under which our senior lenders agreed not to exercise their remedies under the
Senior Credit Facility during the Forbearance Period. The Fifth Amendment
continued the provisions of the Fourth Amendment and further required: (a) a
reduction in the commitment on the Revolving Credit Facility from $65.0 million
to $57.0 million; (b) an additional 100 basis point increase in the interest
spread payable over LIBOR for advances under the facility; and (c) an additional
fee of approximately $250,000 be paid to the senior lenders.
The Company was not in compliance with Section 5.9(b) of the Senior Credit
Facility and subpart 2.8 of the Third Amendment (relating to our minimum
consolidated net worth requirements) as of August 31, 2002; however, on
September 18, 2002, the senior lenders, acting through their Agent, executed a
waiver that provided that a Net Worth Default shall not be deemed to constitute
a forbearance default under the Fifth Amendment.
A Sixth Amendment to the Senior Credit Facility and Forbearance Agreement (the
"Sixth Amendment") was entered into on September 27, 2002 by our senior lenders
and us. In the Sixth Amendment our senior lenders agreed, among other things, to
extend the Forbearance Period until October 31, 2002 while the parties continued
restructuring discussions. In connection with this agreement, the Company, among
other things, will not be making a scheduled principal repayment of
approximately $5.9 million that was due on September 30, 2002 under its Senior
11
7. Long-term Debt (continued)
Credit Facility, will be subject to a reduction in the commitment and borrowing
cap to $35.0 million under its Revolving Credit Facility, and was required to
retain a restructuring management team.
On October 28, 2002, the Company entered into a Seventh Amendment to the Senior
Credit Facility and Forbearance Agreement (the "Seventh Agreement"), under which
our senior lenders agreed, among other things, to extend the Forbearance Period
until December 6, 2002, while the parties continue restructuring discussions.
Because of the aforementioned amendments to the Senior Credit Facility, the
Company did not pay its $7.4 million interest payment due on the Subordinated
Notes upon the expiration of a 30-day grace period on August 14, 2002. We are
now in default under the Indenture governing the Subordinated Notes and the
noteholders have the right to accelerate the $150.0 million principal amount of
the Subordinated Notes.
We initiated negotiations with the ad hoc steering committee of the holders of
the Subordinated Notes and intend to continue our efforts to achieve a
consensual restructuring of such indebtedness. However, there can be no
assurance that the terms of the Subordinated Notes will be amended or
restructured or that the holders of the Subordinated Notes will not accelerate
the total amounts due under the Indenture.
Although the Company, with its financial advisor Credit Suisse First Boston,
continues to negotiate the restructuring of its debt, both with the Company's
lenders and the ad hoc steering committee of the noteholders, the occurence of
an event of default (other than certain specified existing events of default)
under the Senior Credit Facility would terminate the Forbearance Period and
permit the senior lenders to declare all amounts outstanding thereunder to be
immediately due and payable, together with accrued and unpaid interest. If the
senior lenders or noteholders were to accelerate the maturity of amounts due
under the Senior Credit Facility or the Indenture, respectively, the Company
would not have sufficient funds to repay its outstanding debt, and it is
unlikely that the Company could obtain sufficient alternative financing. Even
though discussions are ongoing, there can be no assurance, however, that the
Company will be able to obtain any necessary waivers or amendments in the future
from its senior lenders, that the holders of the Company's Subordinated Notes
will not accelerate the principal amount thereof or that the Company will be
able to restructure or refinance its debt on favorable terms, or at all. If the
Company is unable to obtain such waivers or amendments or the holders of the
Subordinated Notes accelerate the principal amount of the Subordinated Notes and
the Company is unable to restructure or refinance its debt, it is likely that
the Company will file a petition for protection for relief from its creditors
under Chapter 11 of the United States Bankruptcy Code. In addition, even if the
Company is able to reach an agreement with the holders of the Company's senior
debt and Subordinated Notes concerning any restructuring of the Company's
indebtedness, it is likely that such agreement would be reached in connection
with a Chapter 11 filing.
12
7. Long-term Debt (continued)
As a result of these uncertainties, as of September 30, 2002, amounts due under
the Senior Credit Facility and the Subordinated Notes have been reflected as
current liabilities, which result in a significant working capital deficit as of
September 30, 2002. These conditions, together with the Company's net loss in
2001 and the first nine months of 2002 and its deficit in members' interest,
raise substantial doubt about the Company's ability to continue as a going
concern.
8. 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. Our principal market is the United States. The Company does 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,
--------------------- ---------------------
2002 2001 2002 2001
--------------------- ---------------------
(unaudited) (unaudited)
Net Sales
North America $ 26.5 $ 36.2 $ 90.5 $ 119.5
Europe 10.9 9.8 35.0 41.8
Asia 1.5 1.3 4.4 8.7
Latin America 1.4 1.6 3.1 2.9
------- -------- -------- --------
Total $ 40.3 $ 48.9 $ 133.0 $ 172.9
======= ======== ======== ========
Sales by product category are as follows (in millions):
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------- --------------------
2002 2001 2002 2001
--------------------- --------------------
(unaudited) (unaudited)
Net Sales
Heavy Yarns $ 32.1 $ 41.4 $ 108.2 $ 132.0
Fine Yarns 8.2 7.5 24.8 40.9
------- -------- -------- --------
Total $ 40.3 $ 48.9 $ 133.0 $ 172.9
======= ======== ======== ========
13
9. Accounting for Derivatives
Gains and losses on derivatives qualifying as cash flow hedges are recorded in
Other Comprehensive Income (OCI) to the extent that the hedges are effective or
until the underlying transactions are recognized in earnings. As of September
30, 2002, the net derivative loss in OCI was $3.9 million. During the third
quarter of 2002, $1.5 million of accumulated losses were reclassified from OCI
to earnings, of which a $1.1 million loss was recorded in interest expense, a
$0.1 million loss was recorded in cost of sales and a $0.3 million loss was
recorded in other income. The ineffective portion of changes in fair values of
hedge positions reported in third quarter 2002 earnings was immaterial. As of
September 30, 2002, the Company expects to reclassify $4.3 million of net losses
on derivative instruments during the next twelve months from OCI to earnings due
to payments on its interest rate swaps, actual export sales, and purchases of
natural gas.
A summary of the amounts included in the accumulated other comprehensive income
is shown below (unaudited):
Commodity Interest-Rate Accumulated
Options Forwards Swaps Swaps OCI
------- -------- --------- ------------ -----------
Balance at December 31, 2000 $ - $ - $ - $ - $ -
January 1, 2001, transition adjustment - 136 - (4,200) (4,064)
Current period changes in value 174 83 521 7,650 8,428
Reclassification to earnings (198) (219) 197 1,108 888
------- -------- --------- ------------ ----------
Balance at September 30, 2001 $ (24) $ - $ 718 $ 4,558 $ 5,252
======= ======== ========= ============ ==========
Balance at December 31, 2001 $ - $ - $ 518 $ 3,506 $ 4,024
Current period changes in value (14) (41) (158) (198) (411)
Reclassification to earnings (8) 21 (165) (1,131) (1,283)
------- -------- --------- ------------ ----------
Balance at March 31, 2002 (22) (20) 195 2,177 2,330
------- -------- --------- ------------ ----------
Current period changes in value 64 464 11 2,440 2,979
Reclassification to earnings (50) (144) (72) (1,076) (1,342)
------- -------- --------- ------------ ----------
Balance at June 30, 2002 (8) 300 134 3,541 3,967
------- -------- --------- ------------ ----------
Current period changes in value 59 56 (30) 1,332 1,417
Reclassification to earnings (51) (231) (94) (1,139) (1,515)
------- -------- --------- ------------ ----------
Balance at September 30, 2002 $ - $ 125 $ 10 $ 3,734 $ 3,869
======= ======== ========= ============ ==========
10. Recent Accounting Pronouncements
In April 2002 the FASB issued Statement No. 145. This Statement modifies or
amends several other authoritative pronouncements, including those covering
gains and losses from extinguishment of debt. Management is continuing to
evaluate the effects of this statement on the Company.
14
10. Recent Accounting Pronouncements (continued)
On June 28, 2002, the FASB issued Statement No. 146, Accounting for Exit and
Disposal Activities, which is required to be adopted for disposal activities
initiated after December 31, 2002. Management is continuing to evaluate the
effects of this statement on the Company.
11. Subsequent Events
In response to the continuing downturn in the electronics industry and its
negative effect on sales to that industry, subsequent to September 30, 2002, we
further reduced production schedules and are focusing on further operating cost
reductions. Subsequent to the end of the third quarter, we furloughed additional
production employees thereby reducing our production workforce by approximately
10% since January 1, 2002.
In accordance with the terms of the Sixth Amendment, discussed previously in
Note 7, the Company retained the services of a restructuring firm, Carl Marks
Consulting Group LLC. As a result of this action, Marc L. Pfefferle and Gary
Bernhardy (both of the Carl Marks Consulting Group LLC) were engaged as Chief
Restructuring Officer and Chief Operating Officer, respectively. Robert Pistole,
who had planned to retire from the Company and had served as the Company's
President since 2000, remained with the Company on a full time basis through the
end of October to aid in effectuating this transition. Thereafter, Mr. Pistole
will remain in an advisory role through the end of December 2002. The Company
also announced that Philippe Porcher had resigned as its Chief Executive Officer
but will continue in his role as Chairman of the Board of Directors.
As discussed in Note 7, on October 28, 2002, the Company entered into a Seventh
Amendment to the Senior Credit Agreement and Forbearance Agreement under which
our senior lenders agreed, among other things, to extend the Forbearance Period
until December 6, 2002, while the parties continue restructuring discussions.
The Huntingdon, Pennsylvania operation is currently engaged in labor
negotiations with the UNITE labor union, representing 420 workers. The terms of
the current labor contract have been extended to facilitate the completion of
negotiations for a new contract term. Negotiations have progressed reasonably,
considering the current market conditions and financial restructuring facing the
company.
15
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 the Company's assessment of a number of risks and uncertainties. The
Company's 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 the
Company's audited consolidated financial statements as of the year ended
December 31, 2001, and related notes set forth in our 2001 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:
. heavy yarns, which accounted for 81.4% of our net sales during the
nine months ended September 30, 2002, and 76.3% of our net sales
during the nine months ended September 30, 2001; and
. fine yarns, which accounted for 18.6% of our net sales during the nine
months ended September 30, 2002, and 23.7% of our net sales during the
nine months ended September 30, 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.
Our business continued to experience a significant sales decline in the third
quarter of 2002 due to the ongoing impact of a severe downturn in the global
electronics industry that began during the second quarter of 2001. As a result,
we have defaulted on covenants in our Senior Credit Facility and our Senior
Subordinated Notes. We are operating under a Forbearance Agreement with our
senior lenders and have initiated negotiations with certain holders of the
Subordinated Notes in an effort to achieve a consensual restructuring of such
indebtedness.
Additionally, effective in the first quarter of 2002, the Company adopted the
provisions of SFAS No. 142 and recorded a non-cash impairment charge on goodwill
totaling $188.4 million.
16
Results of Operations
The following table summarizes our historical results of operations as a
percentage of net sales:
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------ -------------------------
2002 2001 2002 2001
------------------------ -------------------------
(unaudited) (unaudited)
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 86.6% 74.0% 86.3% 71.4%
------- -------- -------- --------
Gross profit 13.4% 26.0% 13.7% 28.6%
Selling, general and administrative expenses 12.7% 6.7% 8.9% 6.5%
Restructing 0.2% -% 0.2% -%
Amortization 1.6% 6.0% 1.7% 5.1%
------- -------- -------- --------
Operating income (loss) (0.9)% 13.3% 3.1% 17.0%
Interest expense 22.6% 17.0% 19.8% 14.4%
Other income (loss), net 0.5% (0.6)% (0.1)% (0.5)%
------- -------- -------- --------
Income (loss) before taxes (24.0)% (3.1)% (16.6)% 3.1%
Income tax expense -% -% -% 0.1%
------- -------- -------- --------
Income (loss) before adoption of an accounting principle (24.0)% (3.1)% (16.6)% 3.0%
Cumulative effect of adoption of an accounting principle -% -% 141.7% -%
------- -------- -------- --------
Net income (loss) (24.0)% (3.1)% (158.3)% 3.0%
======= ======== ======== ========
Adjusted EBITDA, as presented below, is defined as net income before interest
expense, income taxes, depreciation, amortization, restructuring 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,
------------------------- -------------------------
2002 2001 2002 2001
------------------------- -------------------------
(unaudited) (unaudited)
Net income (loss) $ (9,792) $ (1,514) $ (210,867) $ 5,177
Depreciation and amortization 4,374 6,728 14,226 19,854
Cumulative effect of adoption of an accounting principle - - 188,418 -
Interest 9,075 8,285 26,314 24,887
Refinancing cost 2,143 - 2,954 -
Taxes 2 8 24 100
---------- -------- ---------- --------
Adjusted EBITDA $ 5,802 $ 13,507 $ 21,069 $ 50,018
========== ======== ========== ========
17
Adjusted EBITDA for the quarter ended September 30, 2002, decreased $7.7
million, or 57.0%, to $5.8 million from $13.5 million for the quarter ended
September 30, 2001, and for the nine months ended September 30, 2002, decreased
$28.9 million, or 57.8%, to $21.1 million from $50.0 million for the same period
in 2001.
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, 2002 Compared to Three Months Ended September
30, 2001
Net Sales. Net sales decreased $8.6 million, or 17.6%, to $40.3 million for the
three months ended September 30, 2002, from $48.9 million for the three months
ended September 30, 2001. This decrease primarily reflects a sharp reduction in
the volume of products sold to the industrial, construction and specialty
markets. The third quarter 2002 price erosion of 4.6% was offset by a more
favorable change in product mix. Sales to the industrial market declined by $3.3
million, as production of commercial aircraft declined and the Company's
industrial customers continued to face increased competition from Asia. Sales to
the construction market declined by $3.6 million due in part to one of the
Company's major customers completing its transition of sourcing a significant
portion of its construction products to its parent company. Sales to this
customer for the three months ended September 30, 2002 were $2.9 million, or a
$1.5 million reduction compared to the same period last year. The end-use demand
in the electronics market continues to be depressed, pricing remains under
pressure and near term visibility in this market remains poor.
Gross Profit. Gross profit decreased $7.3 million to $5.4 million, or 13.4% of
net sales, for the three months ended September 30, 2002, versus $12.7 million,
or 26.0% of net sales, for the three months ended September 30, 2001. This
decline primarily reflects a sharp reduction in revenues and lower capacity
utilization due to sales volumes and inventory management. The resulting
under-absorption of fixed costs is offset, in part, by the favorable impact of
continued manufacturing improvements associated with operating cost reduction
programs implemented as a response to the adverse market conditions during the
previous twelve-month period. Since December 31, 2001, the Company made
significant efforts to deplete its inventory and improve its cash position.
Reduced production schedules and an increase in inventory reserves resulted in a
$3.8 million decrease in inventory at the end of this quarter as compared to the
quarter ended June 30, 2002.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $5.1 million for the three months ended September
30, 2002, as compared to $3.3 million for the three months ended September 30,
2001. Had we not incurred a charge of $2.1 million associated with the financial
restructuring of the Company during the current three month period selling,
general and administrative expenses would have been $0.3 million lower than last
year,
18
reflecting the reduction in workforce and other cost savings initiatives
implemented since June 30, 2001.
Restructuring. A restructuring charge of $0.1 million was incurred in the three
months ended September 30, 2002, associated with the elimination of certain
production positions during the same period.
Amortization. As mentioned previously, we adopted SFAS No. 142 effective January
1, 2002, and amortization of goodwill ceased on the effective date. As a result,
amortization expense decreased $2.2 million to $0.7 million in the three months
ended September 30, 2002, from $2.9 million for the same period ended September
30, 2001.
Operating Income (Loss). As a result of the aforementioned factors, operating
income (loss) decreased $7.0 million to $(0.5) million, or (0.9)% of net sales,
for the three months ended September 30, 2002, from $6.5 million, or 13.3% of
net sales, for the three months ended September 30, 2001. In the third quarter
of 2001, operating income included $2.2 million of goodwill amortization
expense.
Interest Expense. Interest expense increased $0.8 million to $9.1 million in the
three months ended September 30, 2002, from $8.3 million in the three months
ended September 30, 2001, despite a decrease in average loans outstanding during
the period. Of the increase, $0.3 million was a result of a write-off of
deferred financing fees, and $0.5 million was due to an increase in interest
rates on our amended Senior Credit Facility.
Other Income (Loss), net. Other income (loss), net decreased $0.5 million to
$0.2 million loss in the three months ended September 30, 2002, from $(0.3)
million income in the three months ended September 30, 2001.
Net Income (Loss). As a result of the aforementioned factors, net income
decreased $8.3 million to a loss of $9.8 million in the three months ended
September 30, 2002, from $1.5 million loss for the three months ended September
30, 2001.
Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30,
2001
Net Sales. Net sales decreased $39.9 million, or 23.1%, to $133.0 million in the
nine months ended September 30, 2002, from $172.9 million in the nine months
ended September 30, 2001. This decrease primarily reflects a 19.9% decline in
volumes sold and a 4.0% price erosion. This reduction in demand reflects the
ongoing impact of a severe downturn in the global electronics industry that
began during the third quarter of 2001. Our sales to the electronics market
declined by $21.5 million in the nine months ended September 30, 2002, compared
to the same period last year. As the results of the third quarter of 2002
indicate, there is still no evidence of a recovery in this industry. Given the
length and complexity of the supply chain in this industry, we have little
visibility as to when and to what extent demand may recover. Sales to the
industrial market declined by $5.9 million, as production of commercial aircraft
declined and the Company's industrial customers continued to face increased
competition from Asia. Sales to the construction market declined by $8.2 million
due in part to one of the Company's major customers completing its transition of
sourcing a significant portion of its construction products to its parent
company. Sales to this customer for the nine months ended September 30, 2002
were $10.2 million, or a $2.0 million reduction compared to the same period last
year.
19
Gross Profit. Gross profit decreased from 28.6% of net sales for the nine months
ended September 30, 2001, to 13.7% of net sales for the nine months ended
September 30, 2002. This decline reflects primarily the sharp reduction in
revenue and a lower capacity utilization due to sales volumes and inventory
management. The resulting under-absorption of fixed costs is offset, in part, by
the favorable impact of continued manufacturing performances associated with the
operating costs reduction programs implemented during the last twelve months in
response to the adverse market conditions. Since December 31, 2001, we made
significant efforts to deplete our inventory and improve our cash position.
Reduced production schedules resulted in a $17.8 million decrease in inventory
as of September 30, 2002, as compared to December 31, 2001, but negatively
impacted gross profit. Further, gross profit has been negatively impacted by a
$1.3 million increase in depreciation, which is a result of a non-recurring
revision to depreciable lives.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $11.9 million for the nine months ended September
30, 2002, as compared to $11.2 million of net sales for the nine months ended
September 30, 2001. Had we not incurred a charge of $3.0 million in 2002
associated with the financial restructuring of the Company, such expenses would
have been $2.3 million lower than last year, reflecting the reduction in
workforce and other cost savings initiatives implemented since June 30, 2001.
Restructuring. An additional operational restructuring charge of $0.3 million
was incurred in the nine months ended September 30, 2002, associated with the
elimination of certain salaried positions during the same period.
Amortization. As mentioned previously, we adopted SFAS No. 142 effective January
1, 2002, and amortization of goodwill ceased on the effective date. As a result,
amortization expense decreased $6.7 million to $2.2 million in the nine months
ended September 30, 2002, from $8.9 million for the same period ended September
30, 2001.
Operating Income. As a result of the aforementioned factors, operating income
decreased $25.6 million to $3.7 million, or 3.1% of net sales, for the nine
months ended September 30, 2002, from $29.3 million, or 17.0% of net sales, for
the nine months ended September 30, 2001. Effective January 1, 2002, the
amortization of goodwill was suspended in accordance with the adoption of SFAS
No. 142. Last year operating income included $6.7 million goodwill amortization
expense.
Interest Expense. Interest expense increased $1.4 million to $26.3 million in
the nine months ended September 30, 2002, from $24.9 million in the nine months
ended September 30, 2001. The increase was a result of an increase in interest
rates on our amended Senior Credit Facility as well as a $0.3 million write-off
of deferred financing fees.
20
Other Income, net. Other income, net was $0.2 million for the nine months ended
September 30, 2002, as compared to $0.8 million for the nine months ended
September 30, 2001. The decrease reflects a $0.7 million decrease in royalty
income related to the termination of a licensing arrangement in the first
quarter of 2002.
Cumulative Effect of Adoption of an Accounting Principle. As previously
discussed, we adopted SFAS No. 142 effective January 1, 2002, and completed our
transitional goodwill impairment test in the second quarter of 2002. We
determined that recorded goodwill exceeded its implied fair value. Accordingly,
we restated our first quarter results to reflect a non-cash impairment charge of
$188.4 million, which is recognized as the cumulative effect of an adoption of
an accounting principle as of January 1, 2002.
Net Income (Loss). As a result of the aforementioned factors, net income
decreased $216.1 million to a loss of $210.9 million in the nine months ended
September 30, 2002, from income of $5.2 million in the nine months ended
September 30, 2001.
Liquidity and Capital Resources
On December 14, 2001, our senior lenders waived the requirement in our Senior
Credit Facility to maintain and meet our Fixed Charge Coverage Ratio and
modified our Leverage Ratio and Interest Coverage Ratio to be less restrictive
for the quarters ending December 31, 2001, and March 31, 2002 (the "Third
Amendment"). Absent the Third Amendment, we would have been in violation of
certain covenants of our Senior Credit Facility as of December 31, 2001 and
March 31, 2002. The amendment also provided for: (a) a 100 basis point increase
in the interest spread payable over LIBOR for advances under the facility; (b) a
borrowing cap of $50.0 million for amounts borrowed under the Revolving Credit
Facility; (c) a $1.75 million and $1.5 million limit on capital spending for the
quarters ending December 31, 2001 and March 31, 2002, respectively; and (d) the
prohibition of any cash distributions by the Company to our Members until we are
in compliance with the original covenants under the Senior Credit Facility.
For the quarter ended June 30, 2002, we did not comply with certain financial
covenants under the Senior Credit Facility. Therefore, and prior to being in
default, on June 28, 2002, we and our senior lenders entered into a Fourth
Amendment to the Senior Credit Facility and Forbearance Agreement (the "Fourth
Amendment"), under which the Company's senior lenders agreed not to exercise
their remedies under the Senior Credit Facility during the term of the
agreement, which expired August 13, 2002 (the "Forbearance Period"). The Fourth
Amendment required, among other things:(a) that the Company refrain from paying
its July 15, 2002, interest payment on its 9 7/8% Senior Subordinated Notes due
2009 (the "Subordinated Notes") or any other payment on the Subordinated Notes;
(b) that the borrowing cap on the Revolving Credit Facility be reduced to $45.0
million from its previous cap of $50.0 million; (c) that the Company deliver
certain periodic financial reports to its senior lenders and their financial
advisors; (d) a limitation on capital spending during the term of the
Forbearance Agreement; and (e) monthly interest payments on all senior loans. In
addition, the Fourth Amendment required that the Company agree to restrictive
covenants with respect to cash balances, investments, and incurrence of
additional indebtedness. The Fourth Amendment also required the Company to pay
forbearance
21
fees of approximately $250,000 to the senior lenders and to continue the 100
basis point increase in applicable margin that was effective with the Third
Amendment.
On August 13, 2002, we and our senior lenders entered into a Fifth Amendment to
the Senior Credit Facility and Forbearance Agreement (the "Fifth Amendment"),
under which our senior lenders agreed not to exercise their remedies under the
Senior Credit Facility during the Forbearance Period. The Fifth Amendment
continued the provisions of the Fourth Amendment and further required: (a) a
reduction in the commitment on the Revolving Credit Facility from $65.0 million
to $57.0 million; (b) an additional 100 basis point increase in the interest
spread payable over LIBOR for advances under the facility; and (c) an additional
fee of approximately $250,000 be paid to the senior lenders.
The Company was not in compliance with Section 5.9(b) of the Senior Credit
Facility and subpart 2.8 of the Third Amendment (relating to our minimum
consolidated net worth requirements) as of August 31, 2002; however, on
September 18, 2002 the senior lenders, acting through their Agent, executed a
waiver that provided that a Net Worth Default shall not be deemed to constitute
a forbearance default under the Fifth Amendment.
A Sixth Amendment to the Senior Credit Facility and Forbearance Agreement (the
"Sixth Amendment") was entered into on September 27, 2002 by our senior lenders
and us. In the Sixth Amendment our senior lenders agreed, among other things, to
extend the Forbearance Period until October 31, 2002 while the parties continued
restructuring discussions. In connection with this agreement, the Company, among
other things, will not be making a scheduled principal repayment of
approximately $5.9 million that was due on September 30, 2002 under its Senior
Credit Facility, will be subject to a reduction in the commitment and borrowing
cap to $35.0 million under its Revolving Credit Facility, and was required to
retain a restructuring management team.
On October 28, 2002, the Company entered into a Seventh Amendment to the Senior
Credit Facility and Forbearance Agreement (the "Seventh Agreement"), under which
our senior lenders agreed, among other things, to extend the Forbearance Period
until December 6, 2002, while the parties continue restructuring discussions.
Because of the aforementioned amendments to the Senior Credit Facility, the
Company did not pay its $7.4 million interest payment due on the Subordinated
Notes upon the expiration of a 30-day grace period on August 14, 2002. We are
now in default under the Indenture governing the Subordinated Notes and the
noteholders have the right to accelerate the $150.0 million principal amount of
the Subordinated Notes. We initiated negotiations with the ad hoc steering
committee of the holders of the Subordinated Notes and intend to continue our
efforts to achieve a consensual restructuring of such indebtedness. However,
there can be no assurance that the terms of the Subordinated Notes will be
amended or restructured or that the holders of the Subordinated Notes will not
accelerate the total amounts due under the Indenture.
Although the Company, with its financial advisor Credit Suisse First Boston,
continues to negotiate the restructuring of its debt, both with the Company's
lenders and the ad hoc steering committee of the noteholders, the occurrence of
an event of default (other than certain specified
22
existing events of default) under the Senior Credit Facility would terminate the
Forbearance Period and permit the senior lenders to declare all amounts
outstanding thereunder to be immediately due and payable, together with accrued
and unpaid interest. If the senior lenders or noteholders were to accelerate the
maturity of amounts due under the Senior Credit Facility or the Indenture,
respectively, the Company would not have sufficient funds to repay its
outstanding debt, and it is unlikely that the Company could obtain sufficient
alternative financing. Even though discussions are ongoing, there can be no
assurance, however, that the Company will be able to obtain any necessary
waivers or amendments in the future from its senior lenders, that the holders of
the Company's Subordinated Notes will not accelerate the principal amount
thereof or that the Company will be able to restructure or refinance its debt on
favorable terms, or at all. If the Company is unable to obtain such waivers or
amendments or the holders of the Subordinated Notes accelerate the principal
amount of the Subordinated Notes and the Company is unable to restructure or
refinance its debt, it is likely that the Company will file a petition for
protection for relief from its creditors under Chapter 11 of the United States
Bankruptcy Code. In addition, even if the Company is able to reach an agreement
with the holders of the Company's senior debt and Subordinated Notes concerning
any restructuring of the Company's indebtedness, it is likely that such
agreement would be reached in connection with a Chapter 11 filing.
As a result of these uncertainties, as of September 30, 2002, amounts due under
the Senior Credit Facility and the Subordinated Notes have been reflected as
current liabilities, which result in a significant working capital deficit as of
September 30, 2002. These conditions, together with the Company's net loss in
2001 and the first nine months of 2002 and its deficit in members' interest,
raise substantial doubt about the Company's ability to continue as a going
concern.
As of September 30, 2002, we had cash and cash equivalents of $4.3 million and
available undrawn commitments under our Senior Credit Facility of $2.7 million,
after giving effect to the $35.0 million revolver-borrowing cap under the terms
of the Sixth Amendment. As of September 30, 2002, our net debt was $319.6
million, a decrease of $6.3 million from June 30, 2002. The decrease was
primarily the result of cash generation from decreases in inventory and accounts
receivable. We continue to focus on working capital management and cost control.
At September 30, 2002, we had $324.0 million of debt outstanding at a weighted
average interest rate of 10.7%, consisting of $176.2 million under our Senior
Credit Facility and $147.8 million under our Subordinated Notes (net of discount
of $2.2 million). The amounts outstanding under our Senior Credit Facility
included $30.1 million outstanding under the revolver.
Based upon current and anticipated levels of operations, assuming no payment of
interest on the Subordinated Notes and provided that there is no intervening
acceleration of our indebtedness either under the Indenture or the Senior Credit
Facility, we believe we have sufficient liquidity from our cash flow from
operations, combined with our availability under the Senior Credit Facility, to
meet our projected cash needs through December 31, 2002, although there can be
no assurance with respect thereto. Our future operating performance and ability
to extend, restructure or refinance our indebtedness will be subject to future
economic conditions and to financial, business and other factors beyond our
control.
23
Net Cash Used in Operating Activities. Net cash provided by operating activities
was $16.4 million for the nine months ended September 30, 2002, and was
primarily the result of a net loss of $210.9 million, offset by non-cash charges
totaling $205.1 million including a $188.4 million cumulative effect of adopting
a new accounting principle, a $2.8 million decrease in accounts receivable
attributed mainly to lower sales levels, $17.9 million decrease in inventory, a
$4.1 million increase in accrued liabilities due mainly to non-payment of the
July 14 interest payment on our Senior Subordinated Notes, and a $2.2 million
increase in pension and post retirement, reduced by a $4.4 million decline in
accounts payable. The declines in accounts payable and inventory resulted from
an initiative to reduce inventory. We expect operating cash flows to remain
positive throughout fiscal 2002 as a result of working capital management,
particularly through inventory reduction.
Net Cash Used in Investing Activities. Net cash used in investing activities was
$5.0 million for the nine months ended September 30, 2002, and was the result of
the payment for capital expenditures incurred during the three months ended
September 30, 2002. A significant portion of the capital expenditures was for
the buyout of critical manufacturing equipment previously financed under an
operating lease. The company anticipates that capital expenditures will be $0.2
million for the three months ended December 31, 2002.
Net Cash Provided by Financing Activities. Net cash used by financing activities
was $7.1 million for the nine months ended September 30, 2002, and was primarily
the result of net borrowings under our Revolving Credit Facility of $5.3 million
offset by payments on term loans of $11.9 million.
We derived 21.8% of our net sales in the third quarter of 2002 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. However, we cannot assure you that any such hedging
activities will be sufficient to eliminate risks relating to currency
fluctuations.
Although some of our customers have suffered from the recent economic downturn,
we have not experienced a negative impact on collections. One of our customers,
BGF Industries, recently announced it entered into a forbearance agreement until
March 31, 2003, with its senior lenders with respect to breaches of certain
financial covenants under BGF's senior credit facility. Sales to BGF were $3.5
million and $12.1 million for the three months and nine months ended September
30, 2002, respectively. Additionally, one of the Company's major customers is
completing its transition of sourcing a significant portion of its construction
products to its parent company. Purchases from this customer amounted to $2.9
million and $10.2 million for the three months and nine months ended September
30, 2002, respectively. See "Quantitative and Qualitative Disclosures About
Market Risk" for additional information regarding risks and uncertainties.
24
Cautionary Statement 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:
. our significant level of indebtedness and limitations on our ability
to incur additional debt;
. our ability to restructure our debt or to obtain additional favorable
amendments and waivers to our Senior Credit Facility or that we will
otherwise be able to refinance our debt on favorable terms or at all;
. we are in default under the terms of the Indenture governing our
Subordinated Notes and the holders currently have the right to
accelerate the principal amount of the Subordinated Notes;
. if we are unable to restructure our indebtedness, it is unlikely that
we will be able to obtain sufficient alternative funding from other
sources, with the result that we will be required to consider judicial
reorganization under bankruptcy;
. the current financial position of BGF Industries, one or our major
customers and affiliates, could result in additional credit risk and
lower sales to BGF Industries;
. the risk that obtaining raw materials and capital equipment services
from sources other than Owens Corning would be more costly or require
us to change substantively our manufacturing processes;
. the risk of conflicts of interest with our equity holders;
. downturns in the electronics industry and the movement of electronics
industry production outside of North America;
. our concentrated customer base and the nature of our markets;
. a disruption of production at one of our facilities;
. foreign currency fluctuations;
. an easing of import restrictions and duties with respect to glass
fabrics;
. labor strikes or stoppages;
. our ability to comply with environmental and safety and health laws
and requirements; and
. changes in economic conditions generally.
This list of risks and uncertainties, however, is not intended to be exhaustive.
You should also review the other cautionary statements we make in this Quarterly
Report and in our 2001 Annual
25
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 statements are based.
Certification Under the Sarbanes-Oxley Act
The certification by the Company's chief restructuring officer and chief
financial officer of this report on Form 10-Q, as required by Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), accompanies this report to
the Securities and Exchange Commission as additional correspondence.
26
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The effects of potential changes in currency exchange rates, commodity prices
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, commodity prices 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."
We are exposed to market risk related to changes in interest rates on borrowings
under our Senior Credit Facility. Our interest rate risk management objective is
to limit the impact of interest rate changes on earnings and cash flows and to
lower our overall borrowing costs. To achieve these objectives, we entered into
interest rate swap agreements to manage our exposure to interest rate changes
under the Senior Credit Facility. The swaps involve the exchange of fixed and
variable interest rate payments based on a contractual principal amount and time
period. Payments or receipts on the agreement are recorded as adjustments to
interest expense. Under these agreements, we have secured a fixed LIBOR rate of
interest of 4.92% on Term Loan A and 5.04% on the Term Loan B. As of September
30, 2002, we had two interest rate swap agreements effective through September
30, 2003, on a notional amount of $140.1 million. During the quarter ended March
31, 2001, we shortened the duration of our interest rate swaps to September
2003. As a result of this transaction, we received proceeds of $1.1 million,
which will be reclassified from accumulated other comprehensive income to
earnings over the remaining life of the related debt. The fair value of the
interest rate swap agreements represents the estimated receipts or payments that
would be made to terminate the agreements. At September 30, 2002, we would have
paid approximately $4.5 million to terminate the agreements. A 100 basis point
increase in LIBOR would decrease the amount paid by approximately $1.0 million.
In contrast, a 100 basis point decrease in LIBOR would increase the amount paid
by approximately $1.0 million. The fair value is based on dealer quotes,
considering current interest rates.
Estimated fair value of notes payable. The Senior Credit Facility is a
variable-rate debt obligation. Accordingly, the estimated fair value of this
debt obligation approximates its book value. As of September 30, 2002, the fair
value of the Company's Senior Subordinated Notes was $22.5 million versus a
recorded book value of $147.8 million. The fair value of the Subordinated Notes
is estimated on the basis of quoted market prices; however, trading in these
securities is limited and may not reflect fair value. The fair value is subject
to fluctuations based on the Company's performance, its credit rating, and
changes in interest rates for debt securities with similar terms. As previously
discussed, the Company's financial performance has deteriorated. As a result,
the credit ratings on the Company's debt were downgraded in 2001 and 2002 and
may be subject to further downgrade.
We are exposed to foreign currency exchange rate risk mainly as a result of our
export sales denominated in the Euro. Our risk management strategy is to use
derivative financial instruments, including forwards, swaps, collars and
purchased options, to hedge some portion or
27
all of these exposures, in accordance with our financial risk management policy.
Our objective is to limit the impact of foreign currency changes on earnings and
cash flows. As of September 30, 2002, the notional value of our foreign currency
hedging instruments was $3.6 million, and the fair value of these instruments
was negative $0.2 million. The potential loss in fair value of such financial
instruments from a hypothetical 10% increase in the underlying exchange rate
relative to the US dollar would be approximately $0.2 million as of September
30, 2002. The potential gain in the fair value of such financial instruments
from a hypothetical 10% decrease in the underlying exchange rate relative to the
US dollar would be approximately $0.2 million as of September 30, 2002. The fair
value is based on dealer quotes, considering current exchange rates.
During the quarter ended June 30, 2001, we entered into two natural gas
commodity swaps whereby we agreed to pay a fixed price to hedge 579,000 MMBtu's
of the commodity. We entered into these swaps to reduce the variability of the
cash flows associated with our forecasted purchases of natural gas. One of these
contracts matured in December 2001. The remaining contract terminates in
December 2002 and provides for a fixed price of $4.14/MMBtu on 184,000 MMBtu's.
As of September 30, 2002, the total notional value of the remaining commodity
hedging instrument was $0.4 million, and the approximate fair value was
immaterial. The potential gain or loss in fair value of such financial
instruments from a hypothetical 10% increase or decrease in the underlying
commodity price would be immaterial as of September 30, 2002. The fair value is
based on dealer quotes, considering current commodity prices.
In addition, the counterparties expose us to losses in the event of
nonperformance under the derivative agreements. We expect the counterparties,
which are major financial institutions, to perform fully under these contracts.
However, if the counterparties were to default on their obligations under the
interest rate swap agreements, we could be required to pay the full rate on our
Senior Credit Facility, even if the rate was in excess of the rates in the
interest rate swap agreements.
28
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures designed to ensure that
information required to be disclosed in Company reports filed or recorded with
the SEC is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms. Within the 90-day period prior to the
filing of this quarterly report on Form 10-Q, the Company carried out an
evaluation, under the supervision of and with the participation of the Company's
management, including the Company's Chief Restructuring Officer, who performs a
similar function to a Chief Executive Officer, and Chief Financial Officer, of
the effectiveness of the design and operation of the Company's disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14(c) under the
Securities Exchange Act of 1934.
Based upon that evaluation, the Chief Restructuring Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures are
effective. There were no significant changes made in the Company's internal
controls or in other factors that could significantly affect these controls
subsequent to the date the Company completed its evaluation.
29
PART II - OTHER INFORMATION
Item 5. Defaults Upon Senior Securities
The Company is in default under the Indenture governing its $150.0 million
principal amount of the Subordinated Notes, since it did not make, and, as of
the date hereof has not made, the $7.4 million interest payment due on July 14,
2002. In addition, the Company and its senior lenders have entered into a number
of amendments to the Company's Senior Credit Facility and a related Forbearance
Agreement. These matters are described in Note 7 to the Company's consolidated
financial statements filed herewith and in "Item 2, Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" (which are incorporated herein by reference).
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Ex. Description
10.20 (1) Sixth Amendment to Credit Agreement dated as of September 27,
2002, among Advanced Glassfiber Yarns LLC, the Guarantors,
Wachovia Bank, National Association (f/k/a/ First Union National
Bank), as agent and lender, and certain other lenders.
10.21 Fourth Amendment to Credit Agreement dated as of June 28, 2002,
among Advanced Glassfiber Yarns LLC, the Guarantors, Wachovia
Bank, National Association (f/k/a/ First Union National Bank), as
agent and lender, and certain other lenders.
10.22 Fifth Amendment to Credit Agreement dated as of August 13, 2002,
among Advanced Glassfiber Yarns LLC, the Guarantors, Wachovia
Bank, National Association (f/k/a/ First Union National Bank), as
agent and lender, and certain other lenders.
10.23 Seventh Amendment to Credit Agreement dated as of October 28,
2002, among Advanced Glassfiber Yarns LLC, the Guarantors,
Wachovia Bank, National Association (f/k/a/ First Union National
Bank), as agent and lender, and certain other lenders.
10.24 Consulting Agreement, dated as of October 3, 2002, by and between
Advanced Glassfiber Yarns, LLC and Carl Marks Consulting Group
LLC.
10.25 Amendment to Forbearance Agreement dated as of October 18, 2002,
among Advance Glassfiber Yarns LLC, (the "borrower"), the
subsidiaries of the borrower signatory hereto as guarantors, the
required lenders signatory hereto,
30
and Wachovia Bank, National Association (f/k/a/ First Union
National Bank) as administrative agent for the lenders.
99.1(1) Press Release dated October 1, 2002, announcing an amendment to
its senior secured credit facility and including an update on the
Company's restructuring discussions.
99.2(1) Press Release dated October 10, 2002, announcing the Company's
new management.
(b) Report of Form 8-K
On October 10, 2002, the Company filed a Current Report on Form
8-K reporting (i) that the Company had entered into an amendment
and forbearance agreement with its senior secured lenders, (ii)
that the Company had retained the services of a restructuring
management team, Carl Marks Consulting Group LLC, and (iii) that
Philippe Porcher resigned his position as Chief Executive
Officer, while maintaining his position as Chairman of the Board
of Directors.
____________
(1) Incorporated by reference to Exhibits 10.20, 99.1 and 99.2 to the
Company's Form 8-K filed on October 10, 2002.
31
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 19, 2002
32
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 19, 2002
33
STATEMENT OF CHIEF RESTRUCTURING OFFICER OF
ADVANCED GLASSFIBER YARNS LLC
In connection with the Quarterly Report of Advanced Glassfiber Yarns
LLC (the "Company") on Form 10-Q for the period ended September 30, 2002, as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Marc L. Pfefferle, Chief Restructuring Officer (Chief Executive
Officer) of the Company, certify, pursuant to 18 U.S.C. (S) 1350, as adopted
pursuant to (S) 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my
knowledge:
1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
The foregoing certification is provided solely for purposes of complying with
the provisions of Section 906 of the Sarbanes-Oxley Act of 2002.
/s/ Marc L. Pfefferle
- ---------------------
Marc L. Pfefferle
Chief Restructuring Officer
(Chief Executive Officer)
November 19, 2002
34
STATEMENT OF CHIEF FINANCIAL OFFICER OF
ADVANCED GLASSFIBER YARNS LLC
In connection with the Quarterly Report of Advanced Glassfiber Yarns
LLC (the "Company") on Form 10-Q for the period ended September 30, 2002, as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Catherine Cuisson, Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to (S) 906 of the
Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
The foregoing certification provided solely for purposes of complying with the
provisions of Section 906 of the Sarbanes-Oxley Act of 2002.
/s/ Catherine Cuisson
- -----------------------
Catherine Cuisson
Chief Financial Officer
November 19, 2002
35
STATEMENT OF CHIEF RESTRUCTURING OFFICER OF
AGY CAPITAL CORP.
In connection with the Quarterly Report of AGY Capital Corp. (the
"Company") on Form 10-Q for the period ended September 30, 2002, as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Marc L. Pfefferle, Chief Restructuring Officer (Chief Executive Officer),
certify, pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to (S) 906 of the
Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
The foregoing certification is provided solely for purposes of complying with
the provisions of Section 906 of the Sarbanes-Oxley Act of 2002.
/s/ Marc L. Pfefferle
- ---------------------
Marc L. Pfefferle
Chief Restructuring Officer
(Chief Executive Officer)
November 19, 2002
36
STATEMENT OF CHIEF FINANCIAL OFFICER OF
AGY CAPITAL CORP.
In connection with the Quarterly Report of AGY Capital Corp. (the
"Company") on Form 10-Q for the period ended September 30, 2002, as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Catherine Cuisson, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. (S) 1350, as adopted pursuant to (S) 906 of the Sarbanes-Oxley Act of
2002, that, to the best of my knowledge:
1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
The foregoing certification is provided solely for purposes of complying with
the provisions of Section 906 of the Sarbanes-Oxley Act of 2002.
/s/ Catherine Cuisson
- ---------------------
Catherine Cuisson
Chief Financial Officer
November 19, 2002
37
CERTIFICATIONS
I, Marc L. Pfefferle, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Advanced Glassfiber
Yarns LLC;
2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared; and
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date");
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls;
38
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Marc L. Pfefferle
---------------------
Marc L. Pfefferle
Chief Restructuring Officer
(Chief Executive Officer)
November 19, 2002
39
CERTIFICATIONS
I, Catherine Cuisson, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Advanced Glassfiber
Yarns LLC;
2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls;
40
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Catherine Cuisson
---------------------
Catherine Cuisson
Chief Financial Officer
November 19, 2002
41
CERTIFICATIONS
I, Marc L. Pfefferle, certify that:
1) I have reviewed this quarterly report on Form 10-Q of AGY Capital Corp.;
2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls;
42
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Marc L. Pfefferle
---------------------
Marc L. Pfefferle
Chief Restructuring Officer
(Chief Executive Officer)
November 19, 2002
43
CERTIFICATIONS
I, Catherine Cuisson, certify that:
1) I have reviewed this quarterly report on Form 10-Q of AGY Capital Corp.;
2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls;
44
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Catherine Cuisson
---------------------
Catherine Cuisson
Chief Financial Officer
November 19, 2002
45