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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark one)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended September 30, 2000
or
( ) Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Libbey Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-12084 34-1559357
- -------- ------- ----------
(State or other (Commission (IRS Employer
jurisdiction of File No.) Identification No.)
incorporation or
organization)
300 Madison Avenue, Toledo, Ohio 43604
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(Address of principal executive offices) (Zip Code)
419-325-2100
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has 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 registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Common Stock, $.01 par value - 15,253,402 shares at October 31, 2000
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The Condensed Consolidated Financial Statements presented herein are unaudited
but, in the opinion of management, reflect all adjustments necessary to present
fairly such information for the periods and at the dates indicated. Since the
following condensed unaudited financial statements have been prepared in
accordance with Article 10 of Regulation S-X, they do not contain all
information and footnotes normally contained in annual consolidated financial
statements; accordingly, they should be read in conjunction with the
Consolidated Financial Statements and notes thereto appearing in the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1999.
The interim results of operations are not necessarily indicative of results for
the entire year.
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LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per-share amounts)
(unaudited)
Three months ended September 30,
2000 1999
--------- ---------
Revenues:
Net sales $ 108,089 $ 112,017
Prepaid freight billed to customers 583 600
Royalties and net technical
assistance income 1,068 2,701
--------- ---------
Total revenues 109,740 115,318
Costs and expenses:
Cost of sales 71,824 75,408
Selling, general and administrative
expenses 14,192 15,410
--------- ---------
86,016 90,818
--------- ---------
Income from operations 23,724 24,500
Other income:
Equity earnings 1,464 656
Other - net 27 (173)
--------- ---------
1,491 483
--------- ---------
Earnings before interest and income taxes 25,215 24,983
Interest expense - net (3,045) (3,162)
--------- ---------
Income before income taxes 22,170 21,821
Provision for income taxes 7,873 7,933
--------- ---------
Net income $ 14,297 $ 13,888
========= =========
Net income per share
Basic $ 0.94 $ 0.85
========= =========
Diluted $ 0.92 $ 0.84
========= =========
Dividends per share $ 0.075 $ 0.075
========= =========
See accompanying notes.
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LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per-share amounts)
(unaudited)
Nine months ended September 30,
2000 1999
--------- ---------
Revenues:
Net sales $ 318,143 $ 320,220
Prepaid freight billed to customers 1,570 1,560
Royalties and net technical
assistance income 3,643 4,044
--------- ---------
Total revenues 323,356 325,824
Costs and expenses:
Cost of sales 217,280 220,406
Selling, general and administrative
expenses 45,166 45,793
Capacity realignment charge -- 2,227
--------- ---------
262,446 268,426
--------- ---------
Income from operations 60,910 57,398
Other income:
Equity earnings 3,334 1,808
Other - net (47) 198
--------- ---------
3,287 2,006
--------- ---------
Earnings before interest and income taxes 64,197 59,404
Interest expense - net (9,235) (9,387)
--------- ---------
Income before income taxes 54,962 50,017
Provision for income taxes 19,924 18,507
--------- ---------
Net income $ 35,038 $ 31,510
========= =========
Net income per share
Basic $ 2.30 $ 1.93
========= =========
Diluted $ 2.25 $ 1.89
========= =========
Dividends per share $ 0.225 $ 0.225
========= =========
See accompanying notes.
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LIBBEY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
September 30, December 31,
2000 1999
---- ----
(unaudited) (Note)
ASSETS
Current assets:
Cash $ 1,786 $ 3,918
Accounts receivable:
Trade, less allowances of $5,542
and $3,869 49,765 59,492
Other 3,676 2,837
-------- --------
53,441 62,329
Inventories:
Finished goods 102,798 80,547
Work in process 5,966 5,829
Raw materials 3,130 2,844
Operating supplies 629 669
-------- --------
112,523 89,889
Prepaid expenses and deferred taxes 8,575 8,028
-------- --------
Total current assets 176,325 164,164
Other assets:
Repair parts inventories 6,360 5,684
Intangibles, net of accumulated
amortization of $2,875 and $2,647 9,330 9,558
Pension assets 19,888 14,625
Deferred software, net of accumulated
amortization of $7,980 and $6,181 4,662 5,728
Other assets 436 379
Equity investments 83,292 82,835
Goodwill, net of accumulated
amortization of $15,793 and $14,651 45,186 46,328
-------- --------
169,154 165,137
Property, plant and equipment, at cost 223,087 217,584
Less accumulated depreciation 118,353 112,490
-------- --------
Net property, plant and equipment 104,734 105,094
-------- --------
Total assets $450,213 $434,395
======== ========
Note: The condensed consolidated balance sheet at December 31, 1999 has been
derived from the audited consolidated financial statements at that date but does
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See accompanying notes.
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LIBBEY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
September 30, December 31,
2000 1999
--------- ---------
(unaudited) (Note)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 8,385 $ 8,655
Accounts payable 25,357 29,126
Salaries and wages 14,005 22,804
Capacity realignment reserve 2,102 3,692
Accrued liabilities 21,799 24,777
Income taxes 2,456 5,971
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Total current liabilities 74,104 95,025
Long-term debt 170,000 170,000
Deferred taxes 19,236 18,392
Other long-term liabilities 13,507 6,594
Nonpension retirement benefits 50,184 52,541
Shareholders' equity:
Common stock, par value $.01
per share, 50,000,000 shares
authorized, 17,829,202 shares
issued and outstanding, less
2,575,800 treasury shares
(17,747,753 shares issued
and outstanding, less 2,498,000 treasury
shares in 1999) 153 152
Capital in excess of par value 284,389 282,734
Treasury stock (72,137) (70,061)
Deficit (88,385) (119,995)
Accumulated other comprehensive
loss (838) (987)
--------- ---------
Total shareholders' equity 123,182 91,843
--------- ---------
Total liabilities and shareholders'
equity $ 450,213 $ 434,395
========= =========
Note: The condensed consolidated balance sheet at December 31, 1999 has been
derived from the audited consolidated financial statements at that date but does
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See accompanying notes.
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LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Nine months ended September 30,
2000 1999
-------- --------
Operating activities
Net income $ 35,038 $ 31,510
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation 11,077 11,516
Amortization 3,169 2,885
Other non-cash charges 6,342 967
Equity earnings (3,334) (1,808)
Capacity realignment charge -- 2,227
Net change in components of working
capital and other assets (41,494) (27,207)
-------- --------
Net cash provided by operating activities 10,798 20,090
Investing activities
Additions to property, plant and
equipment (11,641) (6,848)
Other (63) --
Dividends received from equity
investment 2,940 517
-------- --------
Net cash used in investing activities (8,764) (6,331)
Financing activities
Net bank credit facility activity -- 15,860
Other net borrowings (270) (8,382)
Stock options exercised 1,656 779
Treasury shares purchased (2,076) (19,171)
Dividends (3,427) (3,660)
-------- --------
Net cash used in financing activities (4,117) (14,574)
-------- --------
Effect of exchange rate fluctuations
on cash (49) 44
-------- --------
Decrease in cash (2,132) (771)
Cash at beginning of year 3,918 3,312
-------- --------
Cash at end of period $ 1,786 $ 2,541
======== ========
See accompanying notes.
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LIBBEY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dollars in thousands, except per share data
(unaudited)
1. LONG-TERM DEBT
The Company and its Canadian subsidiary have an unsecured agreement ("Bank
Credit Agreement" or "Agreement") with a group of banks which provides for a
Revolving Credit and Swing Line Facility ("Facility") permitting borrowings up
to an aggregate total of $380 million, maturing May 1, 2002. Swing Line
borrowings are limited to $25 million with interest calculated at the prime rate
minus the Commitment Fee Percentage. Revolving Credit borrowings bear interest
at the Company's option at either the prime rate minus the Commitment Fee
Percentage, or a Eurodollar rate plus the Applicable Eurodollar Margin. The
Commitment Fee Percentage and Applicable Eurodollar Margin will vary depending
on the Company's performance against certain financial ratios. The Commitment
Fee Percentage and the Applicable Eurodollar Margin were 0.125% and 0.225%,
respectively, at September 30, 2000. The Company may also elect to borrow under
a Negotiated Rate Loan alternative of the Revolving Credit and Swing Line
Facility at floating rates of interest, up to a maximum of $190 million. The
Revolving Credit and Swing Line Facility also provides for the issuance of $35
million of letters of credit, with such usage applied against the $380 million
limit. At September 30, 2000 the Company had $5.4 million in letters of credit
outstanding under the Facility.
The Company has entered into interest rate protection agreements ("Rate
Agreements") with respect to $75 million of debt under its Bank Credit Agreement
as a means to manage its exposure to fluctuating interest rates. The Rate
Agreements effectively converts this portion of the Company's Bank Credit
Agreement borrowings from variable rate debt to a fixed rate basis, thus
reducing the impact of interest rate changes on future income. The average
interest rate for the Company's borrowings related to the Rate Agreements at
September 30, 2000 was 6.67% for an average remaining period of 3.3 years. The
remaining debt not covered by the Rate Agreements has fluctuating interest rates
with a weighted average rate of 7.03% at September 30, 2000.
The interest rate differential to be received or paid under the Rate Agreements
is being recognized over the life of the Rate Agreements as an adjustment to
interest expense. If the counterparts to these Rate Agreements fail to perform,
the Company would no longer be protected from interest rate fluctuations by
these Rate Agreements. However, the Company does not anticipate nonperformance
by the counterparts.
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The Company must pay a commitment fee ("Commitment Fee Percentage") on the total
credit provided under the Bank Credit Agreement. No compensating balances are
required by the Agreement. The Agreement requires the maintenance of certain
financial ratios, restricts the incurrence of indebtedness and other contingent
financial obligations, and restricts certain types of business activities and
investments.
The Company guarantees $20.0 million of Vitrocrisa Holdings' debt as of
September 30, 2000.
2. SIGNIFICANT SUBSIDIARY
Summarized combined financial information for equity investments, which includes
the 49% ownership in Vitrocrisa, which manufactures, markets and sells glass
tableware (e.g. beverageware, plates, bowls, serveware and accessories) and
industrial glassware (e.g. coffee pots, blender jars, meter covers, glass covers
for cooking ware and lighting fixtures sold to original equipment manufacturers)
and the 49% ownership in Crisa Industrial, L.L.C., which distributes industrial
glassware in the U.S. and Canada for Vitrocrisa, for 2000 and 1999 is as
follows:
September 30, December 31,
2000 1999
---- ----
Current assets $ 87,539 $ 77,462
Non-current assets 143,073 129,915
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Total assets 230,612 207,377
Current liabilities 99,084 93,431
Other liabilities and deferred items 111,313 96,389
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Total liabilities and deferred items 210,397 189,820
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Net assets $ 20,215 $ 17,557
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For three months ended
September 30,
------------------------------------------------
2000 1999
---- ----
Net sales $ 54,840 $ 48,497
Cost of sales 37,003 32,962
-----------------------------------------------
Gross profit 17,837 15,535
Operating expenses 5,637 5,404
-----------------------------------------------
Income from operations 12,200 10,131
Other expense (108) (651)
-----------------------------------------------
Earnings before finance costs and taxes 12,092 9,480
Interest expense 2,710 2,406
Translation loss (435) (298)
-----------------------------------------------
Earnings before income taxes and profit
sharing 8,947 6,776
- ---------------------------------------------------------------------------------------------------------------
Income taxes and profit sharing 5,095 4,570
- ---------------------------------------------------------------------------------------------------------------
Net income $ 3,852 $ 2,206
===============================================================================================================
For nine months ended
September 30,
-----------------------------------------------
2000 1999
---- ----
Net sales $ 156,020 $ 132,998
Cost of sales 108,853 91,274
-----------------------------------------------
Gross profit 47,167 41,724
Operating expenses 16,857 15,330
-----------------------------------------------
Income from operations 30,310 26,394
Other income (loss) 783 (1,422)
-----------------------------------------------
Earnings before finance costs and taxes 31,093 24,972
Interest expense 7,796 8,281
Translation gain (loss) 43 (1,001)
-----------------------------------------------
Earnings before income taxes and profit
sharing 23,340 15,690
- ----------------------------------------------------------------------------------------------------------------
Income taxes and profit sharing 13,939 9,402
- ----------------------------------------------------------------------------------------------------------------
Net income $ 9,401 $ 6,288
================================================================================================================
3. CASH FLOW INFORMATION
Interest paid in cash aggregated $8,995 and $8,788 for the first nine months of
2000 and 1999, respectively. Income taxes paid in cash aggregated $22,362 and
$7,540 for the first nine months of 2000 and 1999, respectively.
4. NET INCOME PER SHARE OF COMMON STOCK
Basic net income per share of common stock is computed using the weighted
average number of shares of common stock outstanding. Diluted net income per
share of common stock is computed using the
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weighted average number of shares of common stock outstanding and includes
common share equivalents.
The following table sets forth the computation of basic and diluted earnings per
share (dollars in thousands, except share and per-share amounts):
[CAPTION]
Quarter ended September 30, 2000 1999
- --------------------------- ---- ----
Numerator for basic and diluted
earnings per share--net income
which is available to common
shareholders $ 14,297 $ 13,888
Denominator for basic earnings per
share--weighted-average shares
outstanding 15,244,918 16,261,960
Effect of dilutive securities--
employee stock options 329,105 340,715
----------- -----------
Denominator for diluted earnings
per share--adjusted weighted-
average shares and assumed
conversions 15,574,023 16,602,675
Basic earnings per share $ 0.94 $ 0.85
Diluted earnings per share $ 0.92 $ 0.84
Nine months ended September 30, 2000 1999
- ------------------------------- ---- ----
Numerator for basic and diluted
earnings per share--net income
which is available to common
shareholders $ 35,038 $ 31,510
Denominator for basic earnings per
share--weighted-average shares
outstanding
15,252,304 16,304,059
Effect of dilutive securities--
employee stock options
304,150 331,933
----------- --------------
Denominator for diluted earnings
per share--adjusted weighted-
average shares and assumed
conversions
15,556,454 16,635,992
Basic earnings per share $ 2.30 $ 1.93
Diluted earnings per share $ 2.25 $ 1.89
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5. COMPREHENSIVE INCOME
The Company's components of comprehensive income are net income and foreign
currency translation adjustments. During the third quarter of 2000 and 1999,
total comprehensive income amounted to $14,241 and $13,904 respectively. For the
first nine months of 2000 and 1999 comprehensive income amounted to $35,187 and
$31,738 respectively.
6. NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (Statement 133)
which establishes new procedures for accounting for derivatives and hedging
activities and supersedes and amends a number of existing standards. Statement
133 is effective for fiscal years beginning after June 15, 2000, and the Company
does not expect the adoption of Statement 133 will have a material effect.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101) which
summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. SAB 101 is
effective for the fourth quarter of fiscal years beginning after December 15,
1999. The Company does not expect the adoption of SAB 101 to have a material
effect on 2000 revenue.
In May 2000, the Emerging Issues Task Force reached a consensus on Issue 00-10,
"Accounting for Shipping and Handling Fees and Costs." The Task Force concluded
that all amounts billed to a customer in a sale transaction represent the fees
earned for the goods provided and, accordingly, amounts billed related to
shipping and handling should be classified as revenue. Costs incurred by the
seller for shipping and handling should be classified as a cost of goods sold.
It has no impact on net income. The consensus is to be followed in the next set
of financial statements issued by an entity, with prior periods reclassified to
conform to the consensus unless it is impractical to do so, in which case that
fact should be disclosed. The Company has adopted the consensus and has restated
the prior period presented.
7. CAPACITY REALIGNMENT CHARGE
On December 31, 1998 the Company with the approval of the Board of Directors
adopted a formal, written and specific plan to realign the production capacity
of the Company. The primary thrust of the plan was the closing of the
Wallaceburg, Ontario, manufacturing and distribution facility, the realignment
of its production and distribution activities to other facilities and the
Company's Mexican joint venture partner and the exiting of the glass bottle
business serviced out of Wallaceburg. The Company recorded a capacity
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realignment charge of approximately $20.0 million in the fourth quarter of 1998,
and a net adjustment in 1999 of approximately $1.0 million. The Wallaceburg
facility ceased production in May 1999, and the limited remaining warehouse
operations will terminate in 2000. The Wallaceburg property is presently held
for sale; however, if a buyer is not located, it will be abandoned. During the
first nine months of 2000, cash was used primarily in connection with preparing
the facility for sale or abandonment.
The following table sets forth the details and activity of the various
components of the capacity realignment reserve for the first nine months of
2000.
Balance as of Write-off of Effect of Balance as of
December 31, Assets to Cash Translation September 30,
Activity 1999 Reserve Payments Adjustments 2000
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Severance and related
employee cost $ 275 -- $ 41 $ 9 $ 225
Asset write-downs:
Fixed assets 2,992 418 673 81 1,820
Inventories and
other 425 192 167 9 57
- -----------------------------------------------------------------------------------------------------
Total $3,692 $ 610 $ 881 $ 99 $2,102
=====================================================================================================
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ITEM2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THIRD QUARTER 2000 COMPARED WITH THIRD QUARTER 1999
Three months ended
September 30,
----------------------
(dollars in thousands)
2000 1999
-------- ----------
Net sales $108,089 $ 112,017
Gross profit 36,848 37,209
As a percentage of sales 34.1% 33.2%
Income from operations $ 23,724 $ 24,500
As a percentage of sales 21.9% 21.9%
Earnings before interest and
income taxes $25,215 $ 24,983
As a percentage of sales 23.3% 22.3%
Net income $ 14,297 $ 13,888
As a percentage of sales 13.2% 12.4%
For the quarter ended September 30, 2000, sales were $108.1 million compared to
$112.0 million in the year-ago quarter. Increased sales of core foodservice and
industrial glassware were more than offset by the lack of millennium-related
sales in the current quarter and the Company's decision last year to exit low
margin bottleware and certain low margin retail business which together totaled
approximately $7.0 million in sales during last year's third quarter. Export
sales, including sales to Libbey's customers in Canada, were down 4.4%,
decreasing to $13.5 million from $14.2 million in the year-ago period reflecting
the lower bottleware sales to Canadian customers.
Gross profit (defined as net sales including prepaid freight billed to customers
less cost of sales) was $36.8 million in the third quarter of 2000 compared to
$37.2 million in the third quarter of 1999, and increased as a percentage of
sales to 34.1% from 33.2%. Sale of higher margin product and expense reductions
in other areas helped to offset the increases of 55% in the cost for natural gas
and smaller increases in corrugated packaging.
Income from operations was $23.7 million compared to $24.5 million in the third
quarter last year. Lower selling, general and administrative expenses only
partially offset the impact of lower sales. During the prior year third quarter,
the Company also recorded non-recurring items that had a net favorable impact on
income from operations of $1.3 million last year.
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Earnings before interest and income taxes (EBIT) were $25.2 million compared
with $25.0 million in the third quarter last year. Equity earnings increased to
$1.5 million from $0.7 million primarily as a result of the Company's joint
venture in Mexico experiencing higher operating earnings.
Net income was $14.3 million, or 92 cents per share on a diluted basis, compared
with $13.9 million or 84 cents per share on a diluted basis in the year-ago
period. A reduction in the Company's effective tax rate to 35.5 percent (36.25
percent on a year-to-date basis) from 36.4 percent in the year-ago quarter. The
reduction in the Company's effective tax rate is primarily attributable to
increased tax credits. In addition, diluted shares outstanding declined to
15.6 million from 16.6 million in the year-ago period due to the Company's
share repurchase programs.
RESULTS OF OPERATIONS - NINE MONTHS 2000 COMPARED WITH NINE MONTHS 1999
Nine months ended
September 30,
-----------------------
(dollars in thousands)
2000 1999
-------- --------
Net sales $318,143 $320,220
Gross profit 102,433 101,374
As a percentage of sales 32.2% 31.7%
Income from operations - excluding
capacity realignment charge $ 60,910 $ 59,625
As a percentage of sales 19.1% 18.6%
Income from operations $ 60,910 $ 57,398
As a percentage of sales 19.1% 17.9%
Earnings before interest and
income taxes $ 64,197 $ 59,404
As a percentage of sales 20.2% 18.6%
Net income $ 35,038 $ 31,510
As a percentage of sales 11.0% 9.8%
For the nine months ended September 30, 2000, sales were $318.1 million compared
with $320.2 million in the year-ago period. Export sales, including sales to
Libbey's customers in Canada, were down 7.0%, decreasing to $38.6 million from
$41.5 million in the year-ago period primarily reflecting lower bottleware sales
to Canadian customers.
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Gross profit (defined as net sales including prepaid freight billed to customers
less cost of sales) increased 1.0% to $102.4 million in the first nine months of
2000 compared to $101.4 million in the first nine months of 1999, and increased
as a percentage of sales to 32.2% from 31.7% due to improved sales mix, the
continued benefits of lower operating costs associated with capacity realignment
efforts and cost reductions. Partially offsetting these gains were increases in
natural gas and corrugated packaging costs.
Income from operations increased 6.1% to $60.9 million from $57.4 million in the
year-ago period. The reasons for the increase were improved sales mix, lower
administrative expenses, the continued benefits of lower operating costs
associated with capacity realignment efforts and a charge in last year's first
quarter of $2.2 million related to the Company's realignment of its glass
tableware production. Partially offsetting these gains were increases in natural
gas and corrugated packaging costs.
Earnings before interest and income taxes (EBIT) increased 8.1% to $64.2 million
from $59.4 million due to increased operating income and higher equity earnings,
resulting primarily from higher operating profits at the Company's joint venture
in Mexico.
Net income increased 11.2% to $35.0 million, or $2.25 per diluted share,
compared to $31.5 million, or $1.89 per diluted share, in the year-ago period. A
reduction in the Company's effective tax rate to 36.25 percent from 37.0 percent
in 1999 contributed to the higher net income. The reduction in the Company's
effective tax rate is primarily attributable to increased tax credits. In
addition, diluted shares outstanding declined to 15.6 million from 16.6 million
shares in the year-ago period primarily due to the Company's share repurchase
program.
CAPITAL RESOURCES AND LIQUIDITY
The Company had total debt of $178.4 million at September 30, 2000, compared to
$178.7 million at December 31, 1999. Seasonal increases in inventory through
September 30, 2000, were mostly offset by lower accounts receivable and higher
accounts payable. During the first quarter, the Company purchased 77,800 shares
pursuant to its share repurchase plan for $2.1 million. No additional shares
were repurchased during the second or third quarter. Since mid 1998, the Company
has repurchased 2,575,800 shares for $72.1 million. Board authorization remains
for the purchase of an additional 1,049,200 shares. In addition, Libbey received
a dividend from its investment in Crisa Industrial, part of the Company's
investment in Vitrocrisa and related companies, of $2.9 million in the second
quarter 2000 compared to a dividend of $0.5 million in the first quarter 1999.
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The Company had additional debt capacity at September 30, 2000 under the Bank
Credit Agreement of $204.6 million. Of Libbey's outstanding indebtedness, $103.4
million is subject to fluctuating interest rates at September 30, 2000. A change
of one percentage point in such rates would result in a change in interest
expense of approximately $1.0 million on an annual basis as of September 30,
2000.
The Company is not aware of any trends, demands, commitments or uncertainties
which will result or which are reasonably likely to result in a material change
in Libbey's liquidity. The Company believes that its cash from operations and
available borrowings under the Bank Credit Agreement will be sufficient to fund
its operating requirements, capital expenditures and all other obligations
(including debt service and dividends) throughout the remaining term of the Bank
Credit Agreement.
In addition, the Company anticipates refinancing the Bank Credit Agreement at or
prior to the maturity date of May 1, 2002 to meet the Company's longer term
funding requirements.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks due to changes in currency values,
although the majority of the Company's revenues and expenses are denominated in
the U.S. dollar. The currency market risks include devaluations and other major
currency fluctuations relative to the U.S. dollar that could reduce the cost
competitiveness of the Company's products compared to foreign competition; the
effect of high inflation in Mexico and exchange rate changes to the value of the
Mexican peso and the earnings and cash flow impact of those changes on the
earnings and cash flow of the Company's joint venture in Mexico, Vitrocrisa,
expressed under U.S. GAAP.
The Company is exposed to market risk associated with changes in interest rates
in the U.S. However, the Company has entered into Interest Rate Protection
Agreements ("Rate Agreements") with respect to $75.0 million of debt as a means
to manage its exposure to fluctuating interest rates. The Rate Agreements
effectively convert this portion of the Company's borrowings from variable rate
debt to a fixed-rate basis, thus reducing the impact of interest rate changes on
future income. The average interest rate for the Company's borrowings related to
the Rate Agreements at September 30, 2000, was 6.67% for an average remaining
period of 3.3 years. Total remaining debt not covered by the Rate Agreements has
fluctuating interest rates with a weighted average rate of 7.04% at September
30, 2000. The Company had $103.4 million of debt subject to fluctuating interest
rates at September 30, 2000. A change of one percentage point in such rates
would result in a change in interest expense of approximately $1.0 million on an
annual basis.
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The interest rate differential to be received or paid under the Rate Agreements
is being recognized over the life of the Rate Agreements as an adjustment to
interest expense. If the counterparts to these Rate Agreements fail to perform,
the Company would no longer be protected from interest rate fluctuations by
these Rate Agreements. However, the Company does not anticipate nonperformance
by the counterparts. At December 31, 1999, the carrying value of the long-term
debt approximates its fair value based on the Company's current incremental
borrowing rates. The fair market value for the Company's Interest Rate
Protection Agreements at December 31, 1999, was $0.9 million. The fair value of
long-term debt is estimated based on borrowing rates currently available to the
Company for loans with similar terms and maturities. The fair value of the
Company's Rate Agreements is based on quotes from brokers for comparable
contracts. The Company does not expect to cancel these agreements and expects
them to expire as originally contracted.
OTHER INFORMATION
This document and supporting schedules contain forward-looking statements as
defined in the Private Securities Litigation Reform Act of 1995. Such statements
only reflect the Company's best assessment at this time, and are indicated by
words or phrases such as goal, expects, believes, will, estimates, anticipates
or similar phrases.
Investors are cautioned that forward-looking statements involve risks and
uncertainty, that actual results may differ materially from such statements, and
that investors should not place undue reliance on such statements.
Important factors potentially affecting performance include devaluations and
other major currency fluctuations relative to the U.S. dollar that could reduce
the cost-competitiveness of the Company's products compared to foreign
competition; the effect of high inflation in Mexico and exchange rate changes to
the value of the Mexican peso and the earnings and cash flow of the Company's
joint venture in Mexico, Vitrocrisa, expressed under U.S. GAAP; the inability to
achieve savings and profit improvements at targeted levels in the Company's
glassware sales from its capacity realignment efforts and re-engineering
programs, or within the intended time periods; inability to achieve targeted
manufacturing efficiencies at Syracuse China and cost synergies between World
Tableware and the Company's other operations; significant increases in interest
rates that increase the Company's borrowing costs and per unit increases in the
costs for natural gas, corrugated packaging and other purchased materials;
protracted work stoppages related to collective bargaining agreements; increased
competition from foreign suppliers endeavoring to sell glass tableware in the
United States; major slowdowns in the
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retail, travel or entertainment industries in the United States or Canada;
whether the Company completes any significant acquisitions, and whether such
acquisitions can operate profitably.
PART II - OTHER INFORMATION
(a.) Exhibits
Exhibit
Number Description
- ------ -----------
27 Other Financial Information
(b.) No form 8-K's were filed during the quarter.
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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.
LIBBEY INC.
Date November 14, 2000 By /s/ Kenneth G. Wilkes
------------------------------- ----------------------------------
Kenneth G. Wilkes,
Vice President, Chief Financial Officer
(Principal Accounting Officer)
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EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
--- -----------
27 Other Financial Information
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