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 June 30, 2000
Commission File No. 333-72305
Advanced Glassfiber Yarns LLC
(Exact name of registrant as specified in its charter)
Delaware 3229 58-2407014
(State of formation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
Commission File No. 333-72305-01
AGY Capital Corp.
(Exact name of registrant as specified in its charter)
Delaware 3229 57-1072917
(State of incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
2558 Wagener Road, Aiken, South Carolina
(Address of registrants' principal executive office)
29801
(Zip Code)
Registrants' telephone number, including area code:
(803) 643-1501
---------------------------
Indicate by check mark whether the registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports) and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
---- ----
As of August 10, 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 SIX MONTHS ENDED JUNE 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements 1
Consolidated Balance Sheets as of June 30, 2000 (unaudited)
and December 31, 1999 1
Consolidated Statements of Operations 2
For the three months ended June 30, 2000 and 1999 (unaudited) 2
For the six months ended June 30, 2000 and 1999 (unaudited) 2
Consolidated Statements of Comprehensive Income 3
For the three months ended June 30, 2000 and 1999 (unaudited) 3
For the six months ended June 30, 2000 and 1999 (unaudited) 3
Consolidated Statements of Cash Flows 4
For the three months ended June 30, 2000 and 1999 (unaudited) 4
For the six months ended June 30, 2000 and 1999 (unaudited) 4
Notes to the Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 8
Overview 8
Results of Operations 9
Liquidity and Capital Resources 12
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 Financial Statements
ADVANCED GLASSFIBER YARNS LLC
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------- ---------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,891 $ 6,223
Trade accounts receivable, net 32,380 32,686
Inventories 24,403 26,813
Other current assets 1,307 645
--------- ---------
Total current assets 61,981 66,367
--------- ---------
Net property, plant and equipment 145,605 151,605
Intangible assets, net 229,133 235,670
Other non-current assets 2,400 -
--------- ---------
Total assets $ 439,119 $ 453,642
========= =========
LIABILITIES AND MEMBERS' INTEREST
Current liabilities:
Accounts payable $ 18,712 $ 24,989
Accrued liabilities 19,512 16,659
Current portion of long-term debt 18,132 18,390
Due to Owens Corning 4,609 8,293
--------- ---------
Total current liabilities 60,965 68,331
--------- ---------
Long-term debt, net of discount of $2,720 and $2,819, respectively 330,928 341,465
Deferred distribution 6,125 1,819
Pension and other employee benefit plans 23,136 21,796
--------- ---------
Total liabilities 421,154 433,411
--------- ---------
Commitments and contingencies - -
Members' interest 17,965 20,231
--------- ---------
Total liabilities and members' interest $ 439,119 $ 453,642
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
1
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
--------------------- -----------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $ 68,704 $ 61,617 $ 139,181 $ 123,587
Cost of goods sold 49,409 45,018 101,903 87,553
---------- ---------- ---------- ------------
Gross profit 19,295 16,599 37,278 36,034
Selling, general and administrative expenses 4,386 4,136 8,357 8,620
Amortization 2,855 2,845 5,710 5,690
---------- ---------- ---------- ------------
Operating income 12,054 9,618 23,211 21,724
Interest expense 9,119 8,768 18,166 18,148
Other income, net (736) (390) (934) (500)
---------- ---------- ---------- ------------
Income before taxes and extraordinary item 3,671 1,240 5,979 4,076
Income tax expense 132 - 132 -
---------- ---------- ---------- ------------
Income before extraordinary item 3,539 1,240 5,847 4,076
Extraordinary item, loss on early extinguishment of debt - - - 3,616
---------- ---------- ---------- ------------
Net income $ 3,539 $ 1,240 $ 5,847 $ 460
========== ========== ========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------- -----------------------
2000 1999 2000 1999
--------------------- -----------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net income $ 3,539 $ 1,240 $ 5,847 $ 460
Other comprehensive income:
Foreign currency translation 27 151 2 122
---------- --------- --------- -------
Comprehensive income $ 3,566 $ 1,391 $ 5,849 $ 582
========== ========= ========= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
----------------------------------------
2000 1999
----------------------------------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,847 $ 460
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 7,100 6,220
Amortization of debt issuance costs 874 760
Amortization of goodwill and other intangibles 5,709 5,690
Amortization of discount on notes 99 87
Extraordinary loss - 3,616
Alloy usage 1,059 1,142
Changes in assets and liabilities:
Trade accounts receivable, net 289 (6,138)
Inventories 2,410 (3,394)
Other assets (3,064) (585)
Accounts payable (2,497) (1,465)
Accrued liabilities 3,025 4,651
Pension and post-retirement 1,339 1,898
Due to Owens Corning (3,684) 38,044
----------- ---------
Net cash provided by operating activities 18,506 50,986
----------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment (9,841) (3,241)
Proceeds from sale of fixed assets 3,915 -
Other (51) -
----------- ---------
Net cash used in investing activities (5,977) (3,241)
----------- ---------
Cash flows from financing activities:
Proceeds from (payments on) revolving credit facility 3,300 (15,000)
Payments on bridge facility - (150,000)
Payments on capital lease (45) (50)
Proceeds from senior subordinated notes - 147,000
Payments on term loans (14,149) (11,375)
Distribution to Owens Corning (3,977) (1,587)
Debt issuance costs - (5,442
----------- ---------
Net cash used in financing activities (14,871) (36,454)
----------- ---------
Effect of exchange rate on cash 10 3
----------- ---------
Net increase (decrease) in cash and cash equivalents (2,332) 11,294
----------- ---------
Cash and cash equivalents, beginning of period 6,223 12,779
----------- ---------
Cash and cash equivalents, end of period $ 3,891 $ 24,073
=========== =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 17,257 $ 4,683
=========== =========
Supplemental disclosure of non-cash financing/investing activities:
Property and equipment financed in accrueds $ 3,765 $ 932
=========== =========
Deferred distribution to Porcher $ 4,306 $ 1,611
=========== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
ADVANCED GLASSFIBER YARNS LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except as otherwise indicated)
1. Basis of Presentation
We have prepared the accompanying unaudited interim consolidated
financial statements of Advanced Glassfiber Yarns LLC in accordance with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and accordingly,
they do not include all of the information and footnotes required by 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 six months ended June 30, 2000 are not necessarily
indicative of the results to be expected for the full year. We believe that the
disclosures are adequate to make the information presented not misleading.
AGY Capital Corp. is a wholly owned subsidiary of Advanced Glassfiber
Yarns LLC, formed solely to facilitate our offering of 9 7/8% Senior
Subordinated Notes due 2009. Separate financial statements or consolidating
financial data of AGY Capital Corp. are not presented because management has
determined that they are not material. AGY Capital Corp. has no assets or
operations.
These financial statements should be read in conjunction with the
audited consolidated financial statements of Advanced Glassfiber Yarns LLC as of
and for the year ended December 31, 1999 in our 1999 Annual Report on Form 10-K.
2. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------------- ---------------
(unaudited)
<S> <C> <C>
Finished goods $ 18,794 $ 21,022
Materials and supplies 5,609 5,791
----------- ------------
$ 24,403 $ 26,813
=========== ============
</TABLE>
5
<PAGE>
3. Accrued Liabilities
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------------- -------------------
(unaudited)
<S> <C> <C>
Vacation $ 3,209 $ 3,061
Interest 6,914 6,989
Real and personal property taxes 1,263 1,487
Incentive compensation and profit sharing 930 717
Benefits 2,633 60
Other 4,563 4,345
------------ -------------
$ 19,512 $ 16,659
============ =============
</TABLE>
Effective January 1, 2000, we are administering our own health-care and
other benefit plans. We previously participated in Owens Corning's plans.
4. Debt
Debt consists of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------------- ---------------
(unaudited)
<S> <C> <C>
Senior Credit Facility
Revolving Credit Facility $ 13,000 $ 9,700
Term Loan A 86,349 99,188
Term Loan B 102,190 103,501
9 7/8% Senior Subordinated Notes, net
of amoritized discount 147,280 147,181
Capital lease obligation 241 285
------------ ---------------
349,060 359,855
Less current portion (18,132) (18,390)
------------- ---------------
Long-term debt $ 330,928 $ 341,465
============= ===============
</TABLE>
6
<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>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------- ---------------------
2000 1999 2000 1999
--------------------- ---------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net Sales
North America $ 48.2 $ 44.3 $ 97.4 $ 89.2
Europe 15.1 13.9 32.3 29.8
Asia 4.7 3.0 8.2 4.2
Latin America 0.7 0.4 1.3 0.4
------------ ---------- ---------- -----------
Total $ 68.7 $ 61.6 $ 139.2 $ 123.6
============ ========== ========== ===========
</TABLE>
Sales by product category are as follows (in millions):
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------- ---------------------
2000 1999 2000 1999
--------------------- ---------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net Sales
Heavy yarns $ 50.8 $ 44.3 $ 102.3 $ 89.8
Fine yarns 17.9 17.3 36.9 33.8
--------- -------- --------- ---------
Total $ 68.7 $ 61.6 $ 139.2 $ 123.6
========= ======== ========= =========
</TABLE>
7
<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 financial statements and related notes, and
with our audited consolidated financial statements as of the year ended December
31, 1999 and related notes set forth in our 1999 Annual Report on Form 10-K.
Overview
Our business focuses on the production of glass yarn by converting
molten glass into thin filaments, which are then twisted into yarn. Our products
fall into two categories based on filament diameter:
o heavy yarns, which accounted for 72.7% of our net sales during the
six months ended June 30, 1999 and 73.5% of our net sales during the
six months ended June 30, 2000; and
o fine yarns, which accounted for 27.3% of our net sales during the
six months ended June 30, 1999 and 26.5% of our net sales during the
six months ended June 30, 2000.
Glass yarns are a critical material used in a variety of electronic,
industrial, construction and specialty applications such as printed circuit
boards, roofing materials, filtration equipment, building reinforcement, window
screening, aerospace materials, sporting goods and vehicle armor.
8
<PAGE>
Results of Operations
The following table summarizes our historical results of operations as
a percentage of net sales:
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------- --------------------------
2000 1999 2000 1999
------------------------- --------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 71.9 % 73.1 % 73.2 % 70.8 %
------- ------- ------- -------
Gross profit 28.1 % 26.9 % 26.8 % 29.2 %
Selling, general and
administrative expenses 6.4 % 6.7 % 6.0 % 7.0 %
Amortization 4.2 % 4.6 % 4.1 % 4.7 %
------- ------- ------- -------
Operating income 17.5 % 15.6 % 16.7 % 17.5 %
Interest expense 13.3 % 14.2 % 13.1 % 14.6 %
Other income, net (1.1) % (0.6)% (0.7)% (0.4)%
------- ------- ------- -------
Income before taxes and extraordinary item 5.3 % 2.0 % 4.3 % 3.3 %
Income tax expense 0.1 % - % 0.1 % - %
------- ------- ------- -------
Income before extraordinary item 5.2 % 2.0 % 4.2 % 3.3 %
Extraordinary item, loss on early
extinguishment of debt - % - % - % 2.9 %
------- ------- ------- -------
Net income 5.2 % 2.0 % 4.2 % 0.4 %
======= ======= ======= =======
</TABLE>
Adjusted EBITDA, as presented below, is defined as net income before
interest expense, income taxes, depreciation, amortization expense and
non-recurring non-cash charges. Adjusted EBITDA is calculated as follows (in
thousands):
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------- --------------------------
2000 1999 2000 1999
------------------------- --------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net income $ 3,539 $ 1,240 $ 5,847 $ 460
Depreciation and amortization 6,356 5,972 12,809 11,910
Non-recurring start-up cost - 1,261 - 1,561
Interest 9,119 8,768 18,166 18,148
Taxes 132 - 132 -
Extraordinary loss - - - 3,616
--------- ----------- --------- ---------
Adjusted EBITDA $ 19,146 $ 17,241 $ 36,954 $ 35,695
========= =========== ========= =========
</TABLE>
Adjusted EBITDA for the quarter ended June 30, 2000 increased $1.9 million, or
11.0%, to $19.1 million from $17.2 million for the quarter ended June 30, 1999
and for the six months ended June 30, 2000 increased $1.3 million, or 3.6%, to
$37.0 million from $35.7 million for the same period in 1999.
9
<PAGE>
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 June 30, 2000 Compared to Three Months Ended June 30, 1999
Net Sales. Net sales increased $7.1 million, or 11.5%, to $68.7 million
in the three months ended June 30, 2000 from $61.6 million in the three months
ended June 30, 1999. The net increase in sales resulted from a higher demand
primarily in the electrical and construction markets, for which sales increased
by 22.4% and 16.5%, respectively. This was partially offset by selling price
reductions, accentuated by a 12.0% decline of European currencies in the second
quarter of 2000 as compared to the same period in 1999.
Gross Profit. Gross profit increased from 26.9% of net sales for the
three months ended June 30, 1999 to 28.1% of net sales for the three months
ended June 30, 2000. Excluding the impact of changes in the exchange rate of
European currencies, gross profit in the second quarter of 2000 would have been
28.6%. This improvement was primarily due to higher volumes sold resulting in
more absorption of fixed costs. This increase was partially offset by selling
price erosions that occurred throughout 1999 as well as by a recent rise in
energy costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to 6.4% of net sales for the quarter ended
June 30, 2000 as compared to 6.7% of net sales for the three months ended June
30, 1999. This decrease, which was primarily attributable to an increase in
sales during the second quarter of 2000, was partially offset by an increase in
depreciation of the information systems established in 1999.
Operating Income. As a result of the aforementioned factors, operating
income increased $2.5 million to $12.1 million, or 17.5% of net sales, for the
three months ended June 30, 2000 from $9.6 million, or 15.6% of net sales, for
the three months ended June 30, 1999.
Interest Expense. Interest expense increased $0.3 million to $9.1
million in the three months ended June 30, 2000 from $8.8 million in the three
months ended June 30, 1999. Despite a significant reduction in the principal
amount outstanding under our senior credit facility, we did not recognize a
reduction in interest expense because of a $36.0 million reduction in the amount
owed to Owens Corning as of June 30, 2000 as compared to the same period of
1999. Other factors affecting the change in interest expense include accrued
interest on deferred distribution to a member as well as the cost of foreign
currency hedging programs.
Other Income, net. The quarter-to-quarter $0.3 million increase in
other income primarily reflects $0.8 million of additional royalty income
resulting from the recent settlement
10
<PAGE>
of disputed royalties over the past several years with our licensee as well as
reduced foreign currency losses due to hedging, partially offset by an increase
of $0.7 million in alloy metal leasing expense compared to the same quarter in
1999.
Net Income. As a result of the aforementioned factors, net income
increased $2.3 million to $3.5 million in the three months ended June 30, 2000,
from $1.2 million in the three months ended June 30, 1999.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Net Sales. Net sales increased $15.6 million, or 12.6%, to $139.2
million in the six months ended June 30, 2000 from $123.6 million in the six
months ended June 30, 1999. The net increase in sales resulted from a higher
demand primarily in the electrical and specialty markets, for which sales
increased by 34.2% and 14.5%, respectively. This was partially offset by selling
price reductions, accentuated by a 12.0% decline of European currencies in the
first half of 2000 as compared to the same period in 1999.
Gross Profit. Gross profit decreased from 29.2% of net sales for the
six months ended June 30, 1999 to 26.8% of net sales for the six months ended
June 30, 2000. Excluding the impact of changes in the exchange rate of European
currencies, gross profit in the first half of 2000 would have been 27.6%. The
remaining decline in gross profit is mainly attributable to selling price
erosions that occurred throughout 1999, to additional startup manufacturing
costs related to increases in capacity in the first quarter of 2000 as well as a
recent increase in energy costs. Higher volumes sold for all categories of yarns
resulting in more absorption of fixed costs have partially offset this decrease
in gross profit.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to 6.0% of net sales for the six months ended
June 30, 2000 as compared to 7.0% of net sales for the six months ended June 30,
1999. This decrease, which was primarily attributable to an increase in sales
during the first half of 2000, was partially offset by an increase in
depreciation of the information systems established in 1999.
Operating Income. As a result of the aforementioned factors, operating
income increased $1.5 million to $23.2 million, or 16.7% of net sales, for the
six months ended June 30, 2000 from $21.7 million, or 17.5% of net sales, for
the six months ended June 30, 1999.
Interest Expense. Interest expense remained constant in the six months
ended June 30, 2000 compared to the same period in 1999. Despite a significant
reduction in the principal amount outstanding under our senior credit facility,
we did not recognize a reduction in interest expense because of a $36.0 million
reduction in the amount owed to Owens Corning as of June 30, 2000 as compared to
the same period of 1999. Other factors affecting the change in interest expense
include accrued interest on deferred distribution to a member as well as the
cost of foreign currency hedging programs.
11
<PAGE>
Other Income, net. The period-to-period $0.3 million increase in "Other
income" primarily reflects $0.8 million of additional royalty income resulting
from the recent settlement of disputed royalties over the past several years
with our licensee as well as reduced foreign currency losses due to hedging,
partially offset by an increase of $1.1 million in alloy metal leasing expense
compared to the same period in 1999.
Net Income. As a result of the aforementioned factors and the $3.6
million loss on early extinguishment of debt which occurred in 1999, net income
increased $5.3 million to $5.8 million in the six months ended June 30, 2000,
from $0.5 million in the six months ended June 30, 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 payments of principal on our senior
subordinated notes prior to their maturity.
Net Cash Provided by Operating Activities. Net cash provided by
operating activities was $18.5 million for the six months ended June 30, 2000
and was primarily the result of net income of $5.8 million, a non-cash
adjustment to net income for depreciation of $7.1 million, amortization of $6.7
million and alloy usage of $1.1 million, a decrease in inventory of $2.4
million, a decrease in the liability due to Owens Corning of $3.7 million, a
decrease in accounts payable of $2.5 million and an increase in accrued expenses
of $3.0 million.
Net Cash Used in Investing Activities. Net cash used in investing
activities was $6.0 million for the six months ended June 30, 2000 and was
mainly the result of purchases of property, plant and equipment, net of the
proceeds from the sale of fixed assets. In the second quarter of 2000, we
entered into a sale and leaseback transaction pursuant to which we sold
manufacturing equipment for net proceeds of approximately $3.9 million. We
concurrently agreed to lease such equipment back under an operating lease
agreement. We used the net proceeds from this transaction, together with other
available funds, to prepay $5.0 million of the outstanding principal under our
senior credit facility.
Net Cash Used in Financing Activities. Net cash used in financing
activities was $14.9 million for the six months ended June 30, 2000 and was
primarily the result of the repayment of principal amounts outstanding under our
senior credit facility and distribution of a dividend payable to a member.
Indebtedness and Other Matters. At June 30, 2000, we had outstanding
$330.9 million of long-term debt, consisting of $201.5 million under our senior
credit facility, $147.3 million under our 9 7/8% senior subordinated notes (net
of discount of $2.7 million) and $0.2 million of
12
<PAGE>
capital leases, less a current portion of $18.1 million. As mentioned
previously, we prepaid $5.0 million of the outstanding principal balance under
our senior credit facility.
Capital Expenditures. We have historically financed our capital
expenditures through cash flow from operations and borrowings under our senior
credit facility. For the six months ended June 30, 2000, capital expenditures
were $5.9 million, excluding assets associated with the sale and leaseback
transaction. We are anticipating total capital expenditures in 2000 to be
approximately $20.0 million, including assets associated with the sale and
leaseback transaction.
We derived 22.7% of our net sales in the second quarter of 2000 from
products sold in currencies other than the US dollar. The US dollar value of our
export sales sometimes varies with currency exchange rate fluctuations. We may
therefore be exposed to exchange losses as a result of such fluctuations that
could reduce our net income. We have adopted a risk management strategy to use
derivative financial instruments including forwards and options to hedge foreign
currency exposures. See "Quantitative and Qualitative Disclosures About Market
Risk." However, we cannot assure you that any such hedging agreements will be
sufficient to eliminate risks relating to currency fluctuations.
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.
Recent Developments
Porcher Industries Group and Owens Corning have executed a memorandum
of understanding setting forth the general parameters pursuant to which Porcher
Industries Group intends to purchase Owens Corning's 49% economic interest in
Advanced Glassfiber Yarns. Owens Corning would retain at least 10% of the voting
rights with respect to Advanced Glassfiber Yarns. As part of the proposed
transaction, Porcher Industries Group and Owens Corning expect to amend and
extend the terms of many of our supply agreements with Owens Corning and resolve
various other matters related to our initial formation, including issues
regarding use of intellectual property and others.
Consummation of such a transaction is subject to factors outside our
control, including the execution of definitive agreements, the approval of Owens
Corning's board of directors, our ability to obtain any required lender consents
and other approvals, and Porcher Industries Group's ability to obtain
satisfactory financing. While Porcher Industries Group and Owens Corning expect
to close this transaction by December 31, 2000, no assurances can be given that
this transaction will be consummated, or that it will be consummated within the
terms described above.
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If Porcher Industries Group acquires Owens Corning's 49% economic interest, we
may be required to step up the value of certain assets from Owens Corning's
historical book value to fair market value as of the date of the transaction.
This could result in the recording of additional depreciation and amortization
expense and the payment of additional property taxes, which would reduce our
future net income.
Recently Issued Accounting Standard
On 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, as amended by SFAS 138, requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. We use derivative instruments from time to time to reduce our
exposure to fluctuations in interest rates and foreign currency exchange rates.
We are currently evaluating this Statement and its prospective impact on our
consolidated financial statements. We have not yet determined if it will have a
material effect on our financial statements. We will be required to implement
Statement 133 in the first quarter of 2001.
Disclosure Regarding Forward-Looking Statements
Some of the information in this Quarterly Report may contain
forward-looking statements. These statements include, in particular, statements
about our plans, strategies and prospects within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. You can identify forward-looking statements by our use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate,"
"continue" or other similar words. Although we believe that our plans,
intentions and expectations reflected in or suggested by such forward-looking
statements are reasonable, we cannot assure you that our plans, intentions or
expectations will be achieved. Such statements are based on our current plans
and expectations and are subject to risks and uncertainties that exist in our
operations and our business environment that could render actual outcomes and
results materially different from those predicted. When considering such
forward-looking statements, you should keep in mind the following important
factors that could cause our actual results to differ materially from those
contained in any forward-looking statements:
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 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;
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o foreign currency fluctuations;
o an easing of import restrictions and duties with respect to glass
fabrics;
o labor strikes or stoppages;
o our ability to comply with environmental and safety and health
laws and requirements; and
o changes in economic conditions generally.
This list of risks and uncertainties, however, is not intended to be
exhaustive. You should also review the other cautionary statements we make in
this Quarterly Report and in our 1999 Annual Report on Form 10-K. All
forward-looking statements attributable to us or persons acting for us are
expressly qualified in their entirety by our cautionary statements.
We do not have, and expressly disclaim, any obligation to release
publicly any updates or changes in our expectations or any changes in events,
conditions or circumstances on which any forward-looking statement is based.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
The effects of potential changes in currency exchange rates and
interest rates are discussed below. Our market risk discussion includes
"forward-looking statements" and represents an estimate of possible changes in
fair value that would occur assuming hypothetical future movements in interest
rates and currency exchange rates. These disclosures are not precise indicators
of expected future losses, but only indicators of reasonably possible losses. As
a result, actual future results may differ materially from those presented. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Disclosure Regarding Forward-Looking Statements."
Our senior credit facility is subject to market risks, including
interest rate risk. Our financial instruments are not currently subject to
commodity price risk. We are exposed to foreign currency exchange rate risk
mainly as a result of our export sales. Our risk management strategy is to use
derivative financial instruments, including forwards, swaps and purchased
options, to hedge foreign currency and interest rate exposures. Our objective is
to limit the impact of currency and interest rate changes on earnings and cash
flows. We do not enter into derivatives for trading or speculative purposes.
As of June 30, 2000, the notional value of our interest rate swaps was
$193.5 million, equal to the outstanding borrowings under Term Loans A and B of
our senior credit facility and $5.0 million under the revolver portion of our
senior credit facility. The fair value of the interest rate swap agreement
represents the estimated receipts or payments that would be made to terminate
the agreements. At June 30, 2000, we would have received approximately $12.4
million to terminate the agreements. A 100 basis point decrease in LIBOR would
decrease the amount received by approximately $5.4 million. The fair value is
based on dealer quotes, considering current interest rates.
As of June 30, 2000, the notional value of our foreign currency hedging
instruments was $13.5 million, and the approximate fair value was $0.2 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 June 30, 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 June 30, 2000. The fair value is based on
dealer quotes, considering current exchange rates.
Actual gains and losses in the future may differ materially from that
analysis, however, based on changes in the timing and amount of interest rate
and foreign currency exchange rate movements and our actual exposures and
hedges. In addition, we are exposed to losses in the event of nonperformance by
the counterparties under the interest rate swap agreements. We expect the
counterparties, which are major financial institutions, to perform fully under
these contracts. However, if the counterparties were to default on their
obligations under the agreements, we could lose any benefits contractually
accruing in our favor as a result of market changes in interest of foreign
currency exchange rates.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVANCED GLASSFIBER YARNS LLC
/s/Catherine Cuisson
-------------------------------------------
Catherine Cuisson
Vice President and Chief Financial Officer
(Principal Accounting Officer)
Dated: August 9, 2000
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AGY CAPITAL CORP.
/s/ Catherine Cuisson
-----------------------------------------
Catherine Cuisson
Vice President and Chief Financial Officer
(Principal Accounting Officer)
Dated: August 9, 2000
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