SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
Commission File No. 333-72305
ADVANCED GLASSFIBER YARNS LLC
(Exact name of registrant as specified in its charter)
DELAWARE 3229 58-2407014
(State of formation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
Commission File No. 333-72305-01
AGY CAPITAL CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 3229 57-1072917
(State of incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
2558 WAGENER ROAD, AIKEN, SOUTH CAROLINA
(Address of registrants' principal executive office)
29801
(Zip Code)
Registrants' telephone number, including area code:
(803) 643-1501
---------------------------
Indicate by check mark whether the registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports) and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
As of May 15, 2000, all 1,000 shares of common stock of AGY Capital
Corp. were owned by Advanced Glassfiber Yarns LLC. Accordingly, AGY Capital
Corp. meets the conditions set forth in General Instruction H(1)(a) and (b) of
Form 10-Q and is therefore filing this form with the reduced disclosure format.
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
QUARTERLY REPORT FOR THE THREE MONTHS ENDED MARCH 31, 2000
TABLE OF CONTENTS
<TABLE>
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PAGE NO.
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PART I. FINANCIAL INFORMATION........................................................................... 3
Item 1. Consolidated Condensed Financial Statements (unaudited)......................................... 3
Consolidated Condensed Balance Sheets as of March 31,2000 (unaudited)
and December 31, 1999........................................................................... 3
Consolidated Condensed Statements of Operations for the three months
ended March 31, 2000 and 1999 (unaudited)....................................................... 4
Consolidated Condensed Statements of Comprehensive Income for the
three months ended March 31, 2000 and 1999 (unaudited)......................................... 5
Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and 1999 (unaudited)....................................................... 6
Notes to Consolidated Condensed Financial Statements............................................ 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations................................................................................... 10
Overview........................................................................... 10
Results of Operations ............................................................. 11
Liquidity and Capital Resources.................................................... 12
Recently Issued Accounting Standard................................................ 13
Disclosure Regarding Forward-Looking Statements.................................... 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk...................................... 15
PART II. OTHER INFORMATION............................................................................... 16
Item 6. Exhibits and Reports on Form 8-K................................................................ 16
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
ADVANCED GLASSFIBER YARNS LLC
CONSOLIDATED CONDENSED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
-------------------- --------------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,044 $ 6,223
Trade accounts receivable, net 35,239 32,686
Inventories 23,178 26,813
Other current assets 927 645
-------------------- --------------------
Total current assets 64,388 66,367
-------------------- --------------------
Property, plant and equipment, net 150,456 151,605
Intangible assets, net 232,393 235,670
-------------------- --------------------
Total assets $ 447,237 $ 453,642
==================== ====================
LIABILITIES AND MEMBERS' INTEREST
Current liabilities:
Accounts payable $ 16,348 $ 24,989
Accrued liabilities 13,879 16,659
Current portion of long-term debt 18,392 18,390
Due to Owens Corning 8,733 8,293
-------------------- --------------------
Total current liabilities 57,352 68,331
-------------------- --------------------
Long-term debt, less current portion 347,016 341,465
Deferred distribution 5,958 1,819
Pension and other employee benefit plans 22,511 21,796
-------------------- --------------------
Total liabilities 432,837 433,411
-------------------- --------------------
Commitments & contingencies
Members' interest 14,400 20,231
-------------------- --------------------
Total liabilities and members' interest $ 447,237 $ 453,642
==================== ====================
</TABLE>
The accompanying Notes are an integral part of the Consolidated Condensed
Financial Statements.
3
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ADVANCED GLASSFIBER YARNS LLC
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
2000 1999
-------------------- --------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales $ 70,477 $ 61,970
Cost of goods sold 52,495 42,536
-------------------- --------------------
Gross profit 17,982 19,434
Selling, general and administrative expenses 3,972 4,482
Amortization 2,853 2,844
-------------------- --------------------
Operating income 11,157 12,108
Interest expense 9,047 9,380
Other income, net (199) (110)
-------------------- --------------------
Income before extraordinary item 2,309 2,838
Extraordinary item, loss on early extinguishment of debt - 3,616
-------------------- --------------------
Net income (loss) $ 2,309 $ (778)
==================== ====================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS.
4
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
2000 1999
-------------------- --------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net income (loss) $ 2,309 $ (778)
Other comprehensive income (loss):
Foreign currency translation (25) (29)
-------------------- --------------------
Comprehensive income (loss) $ 2,284 $ (807)
==================== ====================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS.
5
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
2000 1999
--------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,309 $ (778)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 3,599 3,095
Amortization of debt issuance costs 437 428
Amortization of goodwill and other intangibles 2,853 2,844
Amortization of discount on notes 49 43
Extraordinary loss - 3,616
Alloy usage 439 500
Changes in assets and liabilities:
Trade accounts receivable, net (2,556) (4,814)
Inventories 3,634 (1,944)
Other assets (284) (566)
Accounts payable (5,037) 3,546
Accrued liabilities (2,780) 7,027
Pension and post-retirement 715 949
Due to Owens Corning (3,537) 14,799
--------------- --------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (159) 28,745
--------------- --------------
Cash flows from investing activities:
Additions to property, plant and equipment (6,501) (3,246)
Other (15) -
--------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (6,516) (3,246)
--------------- --------------
Cash flows from financing activities:
Proceeds from (payments on) credit facility 10,100 (7,000)
Payments on bridge facility - (150,000)
Payments on capital lease (22) (30)
Proceeds from senior subordinated notes - 147,000
Payments on term loans (4,575) (3,188)
Debt issuance costs - (4,610)
--------------- --------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 5,503 (17,828)
--------------- --------------
Effect of exchange rate on cash (7) (7)
--------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,179) 7,664
--------------- --------------
Cash and cash equivalents, beginning of period 6,223 12,779
--------------- --------------
Cash and cash equivalents, end of period $ 5,044 $ 20,443
=============== ==============
Supplemental disclosure of cashflow information:
Cash paid for interest $ 12,619 $ -
--------------- --------------
Supplemental disclosure of non-cash financing/investing activities:
Increase (decrease) in additions to property, plant and equipment
included in accounts payable $ (3,611) $ 932
--------------- --------------
Accrual of distribution and dividend payable $ 8,115 $ 3,156
--------------- --------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS.
6
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT AS OTHERWISE INDICATED)
MARCH 31, 2000
(UNAUDITED)
1. BASIS OF PRESENTATION
We have prepared the accompanying unaudited interim consolidated
condensed financial statements of Advanced Glassfiber Yarns LLC in accordance
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and
accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of items of a normal
recurring nature) considered necessary for a fair presentation have been
included. Operating results for the three months ended March 31, 2000 are not
necessarily indicative of the results to be expected for the full year. We
believe that the disclosures are adequate to make the information presented not
misleading.
AGY Capital Corp. is a wholly owned subsidiary of Advanced Glassfiber
Yarns, formed solely to facilitate our offering of 9 7/8% Senior Subordinated
Notes due 2009. Separate financial statements or condensed consolidating
financial data of AGY Capital Corp. are not presented because management has
determined that they are not material. AGY Capital Corp. has no assets or
operations.
These financial statements should be read in conjunction with the
audited consolidated financial statements of Advanced Glassfiber Yarns LLC as of
and for the year ended December 31, 1999 in our Annual Report on Form 10-K for
the year ended December 31, 1999.
2. INVENTORIES
Inventories consist of the following:
MARCH 31, DECEMBER 31,
2000 1999
-------- --------
(UNAUDITED)
Finished goods $ 17,064 $ 21,022
Materials and supplies 6,114 5,791
-------- --------
$ 23,178 $ 26,813
======== ========
7
<PAGE>
3. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
Vacation $ 3,207 $ 3,061
Interest 3,223 6,989
Real and personal property taxes 687 1,487
Incentive compensation and profit sharing 832 717
Other 5,930 4,405
-------- --------
$ 13,879 $ 16,659
======== ========
</TABLE>
4. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------- --------
(UNAUDITED)
<S> <C> <C>
Senior Credit Facility:
Revolving credit facility $ 19,800 $ 9,700
Term Loan A 94,875 99,188
Term Loan B 103,239 103,501
9 7/8% Senior Subordinated Notes, net
of amortized discount 147,230 147,181
Capital lease obligation 264 285
------------- --------
365,408 359,855
Less current portion (18,392) (18,390)
------------- --------
Long-term debt $ 347,016 $ 341,465
============= =========
</TABLE>
8
<PAGE>
5. SEGMENT INFORMATION
We operate in one business segment that manufactures glass fiber yarns and
specialty yarns that are used in a variety of industrial and commercial
applications. Our principal market is the United States. We do not have any
significant long-lived assets outside of the United States. Information by
geographic area is presented below, with net sales based on product shipment
location (in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
------ ------
(unaudited)
<S> <C> <C>
Net sales:
North America $ 49.3 $ 45.4
Europe 17.1 15.3
Asia 3.6 1.2
Latin America 0.5 0.1
------ ------
Total $ 70.5 $ 62.0
====== =======
</TABLE>
Sales by product category are as follows (in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
---- ----
(unaudited)
<S> <C> <C>
Net sales:
Heavy Yarns $ 51.5 $ 45.9
Fine Yarns 19.0 16.1
------ ------
Total $ 70.5 $ 62.0
====== ======
</TABLE>
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report contains certain forward-looking statements with
respect to our operations, industry, financial condition and liquidity. These
statements reflect our assessment of a number of risks and uncertainties. Our
actual results could differ materially from the results anticipated in these
forward-looking statements as a result of certain factors set forth in this
Quarterly Report. An additional statement made pursuant to the Private
Securities Litigation Reform Act of 1995 and summarizing certain of the
principal risks and uncertainties inherent in our business is included herein
under the caption "Cautionary Statement Regarding Forward Looking Statements."
You are encouraged to read this section carefully.
You should read the following discussion and analysis in conjunction
with the accompanying consolidated condensed financial statements and related
notes, and with our audited consolidated financial statements as of the year
ended December 31, 1999 and related notes set forth in our Annual Report on Form
10-K for the year ended December 31, 1999.
OVERVIEW
Our business focuses on the production of glass yarn by converting
molten glass into thin filaments, which are then twisted into yarn. Our products
fall into two categories based on filament diameter:
o heavy yarns, which accounted for 74% our net sales during the three
months ended March 31, 1999 and 73% of our net sales during the three
months ended March 31, 2000; and
o fine yarns, which accounted for 26% of our net sales during the three
months ended March 31, 1999 and 27% of our net sales during the three
months ended March 31, 2000;
Glass yarns are a critical material used in a variety of electronic,
industrial, construction and specialty applications such as printed circuit
boards, roofing materials, filtration equipment, building reinforcement, window
screening, aerospace materials, sporting goods and vehicle armor.
10
<PAGE>
RESULTS OF OPERATIONS
The following table summarizes our historical results of operations and
historical results of operations as a percentage of sales:
THREE MONTHS ENDED
MARCH 31,
2000 1999
------------- ------------
(UNAUDITED)
Net sales 100.0 % 100.0 %
Cost of goods sold 74.5 % 68.6 %
------------- ------------
Gross profit 25.5 % 31.4 %
Selling, general and
administrative expenses 5.6 % 7.2 %
Amortization 4.1 % 4.7 %
------------- ------------
Operating income 15.8 % 19.5 %
============= ============
Adjusted EBITDA, as presented below, is defined as net income before
interest expense, income taxes, depreciation, amortization expense and
non-recurring non-cash charges. Adjusted EBITDA is calculated as follows:
THREE MONTHS ENDED
MARCH 31,
2000 1999
------------- ------------
(UNAUDITED)
Net income (loss) $ 2,309 $ (778)
Depreciation and amortization 6,452 5,939
Non-recurring start-up cost - 298
Interest 9,047 9,380
Taxes - -
Extraordinary loss - 3,616
------------- ------------
Adjusted EBITDA $ 17,808 $ 18,455
============= ============
Adjusted EBITDA for the three months ended March 31, 2000 decreased $0.7
million, or 3.8%, to $17.8 million from $18.5 million for the same period in
1999 as a result of additional start-up costs.
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.
11
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THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
NET SALES. Net sales increased $8.5 million, or 13.7%, to $70.5 million
in the three months ended March 31, 2000 from $62.0 million in the three months
ended March 31, 1999. The net increase in sales resulted from a higher demand
primarily in the electrical and specialty markets, for which sales increased by
47% and 14%, respectively. This was partially offset by selling price
reductions, accentuated by a significant decline of European currencies in 2000
as compared to the same period in 1999.
GROSS PROFIT. Gross profit decreased from 31.4% for the three months
ended March 31, 1999 to 25.5% for the three months ended March 31, 2000. This
decrease is attributable to lower selling prices in the first quarter of 2000 as
compared to the first quarter of 1999. These selling price erosions occurred
mainly in the previous quarters of 1999. In addition, this decrease in gross
profit was due to the weakening of European currencies against the US dollar and
additional start-up manufacturing costs primarily related to increases in
capacity. This decrease was partially offset by an increase in volume sold for
all categories of yarn.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased to 5.6% of net sales for the quarter ended
March 31, 2000 as compared to 7.2% of net sales for the three months ended March
31, 1999. This was primarily due to non-recurring costs incurred in 1999
relating to the establishment of independent operational, management and
information systems in connection with the acquisition of 51% of the Company's
membership interest by Porcher Industries, SA from Owens Corning on September
30, 1998. Also, sales increased significantly during the first quarter of 2000
compared to the same period of 1999.
OPERATING INCOME. As a result of the aforementioned factors and
amortization of goodwill and other intangibles of $2.9 million, operating income
decreased $0.9 million to $11.2 million, or 15.8% of net sales, for the three
months ended March 31, 2000 from $12.1 million, or 19.5% of net sales, for the
three months ended March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Historically, our primary sources of liquidity were cash flows from
operations. Since the consummation of the formation transactions, our primary
sources of liquidity have been cash flows from operations, borrowings under the
senior credit facility and the issuance of our 9 7/8% senior subordinated notes
due 2009. Our principal uses of liquidity are to fund operations, principal
payments on our senior credit facility, interest payments and our planned
capital expenditures. We have no mandatory payment of principal on our senior
subordinated notes prior to their maturity.
Net cash provided by operating activities decreased $28.9 million from
$28.7 million for the three months ended March 31, 1999 as compared to $0.2
million net cash used in operating activities for the three months ended March
31, 2000. This change was primarily attributable to a decrease in accounts
payable and accrued liabilities of $18.4 million, which resulted from large
12
<PAGE>
payments for previously accrued capital expenditures and a related party
discount. Additionally, the liability due to Owens Corning decreased $18.3
million compared to the first quarter of 1999, when procedures for settlement
were not standardized. These changes were partially offset by a decrease in
inventory of $5.6 million and a decrease in the growth of accounts receivable of
$2.3 million.
Our total indebtedness at March 31, 2000 totaled approximately $365.4
million with a weighted average interest rate of 9.06%. This amount included
approximately $19.8 million outstanding under the revolving credit facility. As
of March 31, 2000, we had approximately $43.8 million of availability under the
revolving credit facility.
We derived approximately 20% of our net sales in the first quarter of
2000 from products sold in currencies other than the US dollar. The US dollar
value of our export sales sometimes varies with currency exchange rate
fluctuations. We may therefore be exposed to exchange losses as a result of such
fluctuations that could reduce our net income. Our gross profit during the first
quarter of 2000 decreased compared to the first quarter of 1999, in part because
of the weakening of European currencies against the US dollar. We have recently
adopted a risk management strategy to use derivative financial instruments
including forwards and options to hedge foreign currency exposures. See
"Quantitative and Qualitative Disclosure About Market Risk." However, we cannot
assure you that any such hedging agreements will be sufficient to eliminate
risks relating to currency fluctuations.
Our ability to make scheduled payments of principal of, or to pay the
interest or liquidated damages, if any, on, or to refinance, our indebtedness,
or to fund planned capital expenditures will depend on our future performance,
which is generally subject to economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control. Based upon the current
level of operations, we believe that cash flows from operations and available
cash, together with availability under the senior credit facility, will be
adequate to meet our future liquidity needs for at least the next two years.
However, we cannot assure you that our business will generate sufficient cash
flows from operations or that future borrowings will be available under the
senior credit facility in an amount sufficient to enable us to service our
indebtedness, or to fund our other liquidity needs and the payment of tax
distributions.
RECENTLY ISSUED ACCOUNTING STANDARD
On June 8, 1999, the Financial Accounting Standards Board issued SFAS No.
137, "Deferral of the Effective Date of FAS 133," which changes the effective
date of FAS 133 to all fiscal quarters of all fiscal years beginning after June
15, 2000. SFAS 133 requires that all derivative instruments be recorded on the
balance sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. We use derivative instruments from
time to time to reduce our exposure to fluctuations in interest rates and
foreign currency exchange rates. We are currently evaluating this Statement and
its prospective impact on our consolidated financial statements.
13
<PAGE>
We will be required to implement Statement 133 in the first fiscal quarter of
our fiscal year ending December 31, 2001.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Some of the information in this Quarterly Report may contain
forward-looking statements. These statements include, in particular, statements
about our plans, strategies and prospects within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. You can identify forward-looking statements by our use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate,"
"continue" or other similar words. Although we believe that our plans,
intentions and expectations reflected in or suggested by such forward-looking
statements are reasonable, we cannot assure you that our plans, intentions or
expectations will be achieved. Such statements are based on our current plans
and expectations and are subject to risks and uncertainties that exist in our
operations and our business environment that could render actual outcomes and
results materially different from those predicted. When considering such
forward-looking statements, you should keep in mind the following important
factors that could cause our actual results to differ materially from those
contained in any forward-looking statements:
o our significant level of indebtedness and limitations on our
ability to incur additional debt;
o our dependence upon Owens Corning to provide us with materials
and services;
o our ability to establish effective and cost-efficient
independent operational management and information systems
controls as a result of our separation from Owens Corning;
o the risk of conflicts of interest with our equity holders;
o a downturn in the electronics industry and the movement of
electronics industry production outside of North America;
o our concentrated customer base and the nature of our markets;
o a disruption of production at one of our facilities;
o foreign currency fluctuations;
o an easing of import restrictions and duties with respect to
glass fabrics;
o labor strikes or stoppages;
o our ability to comply with environmental and safety and health
laws and requirements; and
o changes in economic conditions generally.
This list of risks and uncertainties, however, is not intended to be
exhaustive. You should also review the other cautionary statements we make in
this Quarterly Report and in our Annual Report on Form 10-K for the year ended
December 31, 1999. All forward-looking statements attributable to us or persons
acting for us are expressly qualified in their entirety by our cautionary
statements.
We do not have, and expressly disclaim, any obligation to release
publicly any updates or changes in our expectations or any changes in events,
conditions or circumstances on which any forward looking statement is based.
14
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The effects of potential changes and currency exchange rates in
interest rates are discussed below. Our market risk discussion includes
"forward-looking statements" and represents an estimate of possible changes in
fair value that would occur assuming hypothetical future movements in interest
rates and currency exchange rates. These disclosures are not precise indicators
of expected future losses, but only indicators of reasonably possible losses. As
a result, actual future results may differ materially from those presented. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Disclosure Regarding Forward-Looking Statements."
Our senior credit facility is subject to market risks, including
interest rate risk. Our financial instruments are not currently subject to
commodity price risk. We hold no financial instruments for trading or
speculative purposes.
We are also exposed to foreign currency exchange rate risk mainly as a
result of our export sales. Our risk management strategy is to use derivative
financial instruments, including forwards, swaps and purchased options, to hedge
foreign currency and interest rate exposures. Our objective is to limit the
impact of currency and interest rate changes on earnings and cash flows. We do
not enter into derivatives for trading purposes.
As of March 31, 2000, the notional value of our interest rate swaps was
$198 million, equal to the outstanding borrowings under Term Loans A and B of
our Senior Credit Facility. The fair value of the interest rate swap agreement
represents the estimated receipts or payments that would be made to terminate
the agreements. At March 31, 2000, we would have received approximately $13.3
million to terminate the agreements. A 100 basis point decrease in LIBOR would
decrease the amount received by approximately $8.3 million. The fair value is
based on dealer quotes, considering current interest rates.
As of March 31, 2000, the notional value of our foreign currency
options was $18.5 million, and the approximate fair value was $0.4 million. The
potential loss in fair value of such financial instruments from a hypothetical
10% increase in the underlying exchange rates relative to the US dollar would be
approximately $0.4 million as of March 31, 2000. The potential gain in the fair
value of such financial instruments from a hypothetical 10% decrease in the
underlying exchange rates relative to the US dollar would be approximately $1.0
million as of March 31, 2000.
Actual gains and losses in the future may differ materially from that
analysis, however, based on changes in the timing and amount of interest rate
and foreign currency exchange rate movements and our actual exposures and
hedges. In addition, we are exposed to losses in the event of nonperformance by
the counterparties under the interest
15
<PAGE>
rate swap agreements. We expect the counterparties, which are major financial
institutions, to perform fully under these contracts. However, if the
counterparts 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.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
On January 5, 2000, we filed a Current Report on Form 8-K
reporting under Item 5 the appointment of Robert Pistole as Interim
President.
16
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVANCED GLASSFIBER YARNS LLC
/s/ Catherine Cuisson
-----------------------------------------
Catherine Cuisson
Vice President and Chief Financial Officer
(Principal Accounting Officer)
Dated: May 15, 2000
17
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AGY CAPITAL CORP.
/s/ Catherine Cuisson
-------------------------------------------
Catherine Cuisson
Vice President and Chief Financial Officer
(Principal Accounting Officer)
Dated: May 15, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001078420
<NAME> ADVANCED GLASSFIBER YARNS LLC
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<S> <C> <C>
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<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
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<PERIOD-END> MAR-31-2000 MAR-31-1999
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0 0
0 0
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