Advanced Glassfiber Yarns LLC Announces Second Quarter 2002 Results

Business Wire, August 15, 2002

Business Editors

AIKEN, S.C.--(BUSINESS WIRE)--Aug. 15, 2002

Advanced Glassfiber Yarns LLC announced today that net sales decreased $7.2 million, or 13.1%, to $47.9 million in the three months ended June 30, 2002 from $55.1 million in the three months ended June 30, 2001. This decline reflects primarily the on-going impact of a severe downturn in the global electronics industry that began during the second quarter of 2001. The Company's sales to the electronics market declined by 33.0% in the three months ended June 30, 2002 compared to the three months ended June 30, 2001. The slight recovery in volumes compared to the first quarter of 2002 was offset by additional price erosion and an adverse change in the mix of the products sold to the electronics market. Given the length and complexity of the supply chain in the electronics industry, the Company has little visibility as to when and to what extent demand may recover. However, sales to the non-electronics markets continued to trend upwards slightly as compared to the first quarter of this year.

Gross profit decreased $9.5 million to $5.6 million, or 11.7% of net sales, for the three months ended June 30, 2002 versus $15.1 million, or 27.4% of net sales, for the three months ended June 30, 2001. This decline primarily reflects a sharp reduction in revenues and a lower capacity utilization, 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 inventory and improve its cash position. Reduced production schedules resulted in an $8.8 million decrease in inventory this quarter, and $14.1 million for the first six months, but negatively impacted gross profit as a result of the under-absorption of fixed costs.

Selling, general and administrative expenses were $3.8 million for the three months ended June 30, 2002 as compared to $3.3 million for the three months ended June 30, 2001. If the Company had not incurred a charge of $0.7 million associated with the refinancing of the Company during the most recent quarter and excluding the reversal of the accruals for profit sharing and bonuses of $0.5 million for the period ended June 30, 2001, selling, general and administrative expenses would have been $0.7 million lower than last year, reflecting the reduction in workforce and other cost savings initiatives implemented since the June 30, 2001.

The Company 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 June 30, 2002, from $2.9 million for the same period ended June 30, 2001.

As a result of the aforementioned factors, operating income decreased $8.0 million to $0.9 million, or 1.9% of net sales, for the three months ended June 30, 2002 from $8.9 million, or 16.2% of net sales, for the three months ended June 30, 2001.

Interest expense increased $0.2 million to $8.6 million in the three months ended June 30, 2002 from $8.4 million in the three months ended June 30, 2001. The increase was a result of a 100 basis point increase in interest rates on the Company's amended senior credit facility that was effective in December 2001, partially offset by lower interest rates on its revolving credit facility as a result of market conditions.

As a result of the aforementioned factors, net results decreased $8.2 million to a loss of $7.6 million in the three months ended June 30, 2002, from $0.7 million in income for the three months ended June 30, 2001.

Adjusted EBITDA for the quarter ended June 30, 2002 decreased $8.4 million, or 53.5%, to $7.3 million from $15.7 million for the quarter ended June 30, 2001.

As previously discussed, the Company adopted SFAS No. 142 effective January 1, 2002 and completed its transitional goodwill impairment test in the second quarter of 2002. The Company determined that recorded goodwill exceeded its implied fair value. Accordingly, the Company restated its first quarter results to reflect a non-cash impairment charge of $188.4 million, which is recognized as the cumulative effect of a change in accounting principle charge as of January 1, 2002. Further, the first quarter results were restated to reflect the correction of understatement of amortization expense in the amount of $0.7 million.

Advanced Glassfiber Yarns, headquartered in Aiken, SC, is one of the largest global suppliers of glass yarns, which are a critical material used in a variety of electronic, industrial, construction and specialty applications. Prior to and including September 30, 1998, the Company was the glass yarns and specialty materials business of Owens Corning. Since September 30, 1998, Advanced Glassfiber Yarns has been a joint venture between Porcher Industries, S.A. and Owens Corning.