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 June 30, 2002
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
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
419-325-2100
- --------------------------------------------------------------------------------
(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
----- -----
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 - 15,510,877 shares at July 31, 2002
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulations S-X. Accordingly, they do not include
all of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three-month period and six-month period ended June 30, 2002, are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2002.
The balance sheet at December 31, 2001, has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States for complete financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2001.
1
LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per-share amounts)
(unaudited)
Three months ended June 30,
2002 2001
--------- ---------
Revenues:
Net sales $ 114,086 $ 108,100
Freight billed to customers 434 553
Royalties and net technical
assistance income 738 1,419
--------- ---------
Total revenues 115,258 110,072
Costs and expenses:
Cost of sales 83,491 73,864
Selling, general and administrative
expenses 13,363 13,307
--------- ---------
96,854 87,171
--------- ---------
Income from operations 18,404 22,901
Other income (loss):
Pretax equity earnings 4,546 1,541
Expenses related to abandoned
acquisition (13,626) --
Other - net 22 459
--------- ---------
(9,058) 2,000
--------- ---------
Earnings before interest and income taxes 9,346 24,901
Interest expense - net (2,081) (2,433)
--------- ---------
Income before income taxes 7,265 22,468
Provision for income taxes 2,365 8,325
--------- ---------
Net income $ 4,900 $ 14,143
========= =========
Net income per share
Basic $ 0.32 $ 0.92
========= =========
Diluted $ 0.31 $ 0.91
========= =========
Dividends per share $ 0.075 $ 0.075
========= =========
See accompanying notes.
2
LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per-share amounts)
(unaudited)
Six months ended June 30,
2002 2001
--------- ---------
Revenues:
Net sales $ 212,755 $ 200,615
Freight billed to customers 852 999
Royalties and net technical
assistance income 1,537 1,892
--------- ---------
Total revenues 215,144 203,506
Costs and expenses:
Cost of sales 160,507 144,153
Selling, general and administrative
expenses 27,617 27,511
--------- ---------
188,124 171,664
--------- ---------
Income from operations 27,020 31,842
Other income (loss):
Pretax equity earnings 4,170 2,841
Expenses related to abandoned
acquisition (13,626) --
Other - net (160) 123
--------- ---------
(9,616) 2,964
--------- ---------
Earnings before interest and income taxes 17,404 34,806
Interest expense - net (3,964) (4,960)
--------- ---------
Income before income taxes 13,440 29,846
Provision for income taxes 4,588 11,496
--------- ---------
Net income $ 8,852 $ 18,350
========= =========
Net income per share
Basic $ 0.58 $ 1.20
========= =========
Diluted $ 0.57 $ 1.18
========= =========
Dividends per share $ 0.15 $ 0.15
========= =========
See accompanying notes.
3
LIBBEY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
June 30, December 31,
2002 2001
-------- --------
(unaudited)
ASSETS
Current assets:
Cash $ 2,340 $ 3,860
Accounts receivable:
Trade, less allowances of $5,749
and $5,962 47,666 38,516
Other 4,288 5,550
-------- --------
51,954 44,066
Inventories:
Finished goods 85,324 88,686
Work in process 4,181 5,095
Raw materials 2,716 2,627
Operating supplies 528 528
-------- --------
92,749 96,936
Prepaid expenses and deferred taxes 11,839 9,068
-------- --------
Total current assets 158,882 153,930
Other assets:
Repair parts inventories 5,124 5,248
Intangibles, net of accumulated
amortization of $3,079 and $3,255 8,879 9,232
Pension assets 31,288 29,506
Deferred software, net of accumulated
amortization of $11,147 and $10,510 2,750 3,639
Other assets 2,996 11,090
Investments 82,377 84,357
Goodwill 43,282 43,282
-------- --------
176,696 186,354
Property, plant and equipment, at cost 261,778 254,479
Less accumulated depreciation 134,739 126,681
-------- --------
Net property, plant and equipment 127,039 127,798
-------- --------
Total assets $462,617 $468,082
======== ========
See accompanying notes.
4
LIBBEY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
June 30, December 31,
2002 2001
--------- ---------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 1,580 $ 2,400
Accounts payable 23,848 33,125
Salaries and wages 11,617 11,671
Accrued liabilities 30,859 23,809
Income taxes -- 1,904
Long-term debt due within one year 115 143,115
--------- ---------
Total current liabilities 68,019 216,024
Long-term debt 134,461 2,517
Deferred taxes 23,512 23,512
Other long-term liabilities 12,028 12,533
Nonpension postretirement benefits 48,084 48,131
Shareholders' equity:
Common stock, par value $.01
per share, 50,000,000 shares
authorized, 18,189,877 shares
issued (18,025,843 shares issued and
outstanding in 2001) 183 180
Capital in excess of par value 292,113 288,418
Treasury stock (2,689,400 shares) (75,369) (75,369)
Deficit (36,350) (42,894)
Accumulated other comprehensive
loss (4,064) (4,970)
--------- ---------
Total shareholders' equity 176,513 165,365
--------- ---------
Total liabilities and shareholders'
equity $ 462,617 $ 468,082
========= =========
See accompanying notes.
5
LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Six months ended June 30,
2002 2001
-------- --------
Operating activities
Net income $ 8,852 $ 18,350
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation 8,858 8,609
Amortization 990 1,938
Other non-cash charges (619) (871)
Net equity earnings (2,679) (1,225)
Net change in components of working
capital and other assets (1,605) (14,415)
-------- --------
Net cash provided by operating activities 13,797 12,386
Investing activities
Additions to property, plant and
equipment (8,151) (21,597)
Dividends received from equity
Investments 4,659 4,918
Other -- (63)
-------- --------
Net cash used in investing activities (3,492) (16,742)
Financing activities
Net bank credit facility activity (11,000) 11,096
Other net borrowings (876) (4,907)
Stock options exercised 2,358 1,323
Treasury shares purchased -- (113)
Dividends (2,307) (2,291)
-------- --------
Net cash provided by (used in) financing
activities (11,825) 5,108
-------- --------
Increase (decrease) in cash (1,520) 752
Cash at beginning of year 3,860 1,282
-------- --------
Cash at end of period $ 2,340 $ 2,034
======== ========
See accompanying notes.
6
LIBBEY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dollars in thousands, except per share data
(unaudited)
1. LONG-TERM DEBT
The Company has an unsecured agreement ("Revolving 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 $250 million, maturing April 23, 2005, with an option to extend for two
additional one-year periods. Swing Line borrowings are limited to $25 million
with interest calculated at the prime rate minus the Facility Fee Percentage
("Facility Fee Percentage"). Interest rates on Revolving Credit are at the
Company's option at either the prime rate minus the Facility Fee Percentage or a
Eurodollar rate plus the Applicable Eurodollar Margin. The Facility Fee
Percentage and Applicable Eurodollar Margin vary depending on the Company's
performance against certain financial ratios. The Facility Fee Percentage and
the Applicable Eurodollar Margin were 0.25% and 0.75%, respectively, at June 30,
2002. 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 $125 million. The Revolving Credit and Swing Line
Facility also provides for the issuance of $30 million of letters of credit,
with such usage applied against the $250 million limit. At June 30, 2002, the
Company had $4.7 million in letters of credit outstanding under the Facility.
The Company paid a 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 has entered into interest rate protection agreements ("Rate
Agreements") with respect to $100 million of debt under its Revolving Credit
Agreement as a means to manage its exposure to fluctuating interest rates. The
Rate Agreements effectively convert this portion of the Company's Revolving
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
June 30, 2002, was 6.84% for an average remaining period of 2.8 years. The
remaining debt not covered by the Rate Agreements has fluctuating interest rates
with a weighted average rate of 2.84% at June 30, 2002.
7
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.
2. SIGNIFICANT SUBSIDIARY
The Company is a 49% equity owner in Vitrocrisa, S. de R.L. de C.V. and related
Mexican companies ("Vitrocrisa") which manufacture, market, and sell glass
tableware (beverageware, plates, bowls, serveware, and accessories) and
industrial glassware (coffee pots, blender jars, meter covers, glass covers for
cooking ware, and lighting fixtures sold to original equipment manufacturers)
and a 49% equity owner in Crisa Industrial, L.L.C., a distributor of industrial
glassware for Vitrocrisa in the U.S. and Canada.
Summarized combined financial information for the Company's investments for 2002
and 2001, accounted for by the equity method, is as follows:
June 30, December 31,
2002 2001
-------- ------------
Current assets $ 97,684 $102,599
Non-current assets 124,894 130,295
-------- --------
Total assets 222,578 232,894
Current liabilities 76,581 74,924
Other liabilities and deferred items 127,560 135,396
-------- --------
Total liabilities and deferred items 204,141 210,320
-------- --------
Net assets $ 18,437 $ 22,574
======== ========
8
Three months ended
June 30,
------------------------
2002 2001
-------- --------
Net sales $ 53,132 $ 51,826
Cost of sales 39,781 39,605
-------- --------
Gross profit 13,351 12,221
Operating expenses 5,682 5,330
-------- --------
Income from operations 7,669 6,891
Other income 505 332
-------- --------
Earnings before finance costs and taxes 8,174 7,223
Interest expense 1,312 2,117
Translation gain (loss) 2,271 (1,446)
-------- --------
Earnings before income taxes 9,133 3,660
Income taxes 3,387 1,550
-------- --------
Net income $ 5,746 $ 2,110
======== ========
Six months ended
June 30,
------------------------
2002 2001
-------- --------
Net sales $ 96,306 $ 96,098
Cost of sales 76,697 72,559
-------- --------
Gross profit 19,609 23,539
Operating expenses 10,930 10,508
-------- --------
Income from operations 8,679 13,031
Other income 1,005 765
-------- --------
Earnings before finance costs and taxes 9,684 13,796
Interest expense 2,958 4,333
Translation gain (loss) 1,784 (1,934)
-------- --------
Earnings before income taxes 8,510 7,529
Income taxes 3,043 3,298
-------- --------
Net income $ 5,467 $ 4,231
======== ========
3. CASH FLOW INFORMATION
Interest paid in cash aggregated $4,145 and $5,720 for the first six months of
2002 and 2001, respectively. Interest expense capitalized was $103 and $466 for
the first six months of 2002 and 2001, respectively. Income taxes paid in cash
aggregated $8,071 and $4,266 for the first six months of 2002 and 2001,
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
9
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:
Quarter ended June 30, 2002 2001
- ------------------------------------ ----------- -----------
Numerator for basic and diluted
earnings per share--net income
which is available to common
shareholders $ 4,900 $ 14,143
Denominator for basic earnings per
share--weighted-average shares
outstanding 15,417,381 15,291,191
Effect of dilutive securities--
employee stock options 276,952 306,231
----------- -----------
Denominator for diluted earnings
per share--adjusted weighted-
average shares and assumed
conversions 15,694,333 15,597,422
Basic earnings per share $ 0.32 $ 0.92
Diluted earnings per share $ 0.31 $ 0.91
Six Months ended June 30, 2002 2001
- ------------------------------------ ----------- -----------
Numerator for basic and diluted
earnings per share--net income
which is available to common
shareholders $ 8,852 $ 18,350
Denominator for basic earnings per
share--weighted-average shares
outstanding 15,380,651 15,268,653
Effect of dilutive securities--
employee stock options 265,781 294,357
----------- -----------
Denominator for diluted earnings
per share--adjusted weighted-
average shares and assumed
conversions 15,646,432 15,563,010
Basic earnings per share $ 0.58 $ 1.20
Diluted earnings per share $ 0.57 $ 1.18
5. COMPREHENSIVE INCOME
The Company's components of comprehensive income are net income and adjustments
for the change in fair value of derivative instruments.
10
Total comprehensive income is as follows:
Three months ended
June 30,
-------------------------
2002 2001
-------- --------
Net income $ 4,900 $ 14,143
Change in fair value of derivative
instruments (1,382) (929)
-------- --------
Comprehensive income $ 3,518 $ 13,214
======== ========
Six months ended
June 30,
-------------------------
2002 2001
-------- --------
Net income $ 8,852 $ 18,350
Change in fair value of derivative
Instruments 906 (2,029)
Cumulative effect of change in method
of accounting -- (673)
-------- --------
Comprehensive income $ 9,758 $ 15,648
======== ========
6. ACCOUNTING CHANGES
Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 141, "Business Combinations" ("SFAS No. 141"), which
eliminates the pooling-of-interests method and requires all business
combinations to be accounted for using the purchase method. SFAS No. 141 also
requires intangible assets that arise from contractual or other legal rights, or
that are capable of being separated or divided from the acquired entity be
recognized separately from goodwill. Existing intangible assets and goodwill
that were acquired in a prior purchase business combination must be evaluated,
and any necessary reclassifications must be made effective January 1, 2002, in
order to conform to the new criteria for recognition apart from goodwill. The
adoption of SFAS No. 141 had no material effect on the Company's consolidated
results of operations or financial position.
Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets ("SFAS No. 142")," which requires goodwill and
indefinite-lived intangible assets to no longer be amortized but reviewed
annually for impairment, or more frequently if impairment indicators arise.
Intangible assets with lives restricted by contractual, legal or other means
will continue to be amortized over their useful lives. The Company determined
that certain trademarks had an indefinite life and ceased amortization of these
intangibles on January 1, 2002, and evaluated these indefinite-lived intangible
assets as not being impaired. The Company also
11
determined that certain technical assistance agreements should have their useful
lives reduced to five years.
At June 30, 2002, the carrying value and accumulated amortization of amortized
assets totaled $3,121 and $2,647, respectively, and the carrying value of
unamortized intangible assets totaled $5,436.
SFAS No. 142 requires goodwill to be evaluated for impairment within six months
of the date of adoption. The Company completed its test of goodwill impairment
during the second quarter of 2002, and no impairment was indicated.
The following table reflects the consolidated results adjusted as though the
adoption of SFAS No. 142 occurred as of January 1, 2001.
Three months ended Six Months ended
June 30, June 30,
2002 2001 2002 2001
---------- ---------- ---------- ----------
Net Income:
Reported net income $ 4,900 $ 14,143 $ 8,852 $ 18,350
Goodwill amortization related to
equity investments -- 424 -- 848
Goodwill and trademark amortization -- 421 -- 842
Change in amortization of technical
assistance agreements -- (141) -- (282)
Tax effect -- (9) -- (18)
---------- ---------- ---------- ----------
Adjusted net income $ 4,900 $ 14,838 $ 8,852 $ 19,740
========== ========== ========== ==========
Basic earnings-per-share:
Reported net income $ 0.32 $ 0.92 $ 0.58 $ 0.92
Goodwill amortization related to
equity investments -- .03 -- .06
Goodwill and trademark amortization -- .02 -- .04
Change in amortization of technical
assistance agreements -- (.01) -- (.02)
Tax effect -- -- -- --
---------- ---------- ---------- ----------
Adjusted basic earnings-per-share $ 0.32 $ 0.94 $ 0.58 $ 1.00
========== ========== ========== ==========
Diluted earnings-per-share:
Reported net income $ 0.31 $ 0.91 $ 0.57 $ 0.91
Goodwill amortization related to
equity investments -- .03 -- .06
Goodwill and trademark amortization -- .02 -- .04
Change in amortization of technical
assistance agreements -- (.01) -- (.02)
Tax effect -- -- -- --
---------- ---------- ---------- ----------
Adjusted diluted earnings-per-share $ 0.31 $ 0.95 $ 0.57 $ 0.99
========== ========== ========== ==========
12
Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets ("SFAS No. 144")," which supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," and provides a single accounting model for
long-lived assets which are to be disposed. The adoption of SFAS No. 144 had no
material effect on the Company's consolidated results of operations or financial
position.
7. DERIVATIVES
During the second quarter 2002, the Company decreased other comprehensive income
(loss) by $2,215 for net changes in the fair value of derivatives less tax of
$833, or $1,382, which results in accumulated other comprehensive income (loss)
related to derivatives at June 30, 2002, of $(5,582) less tax benefit of $1,746,
or $(3,836). During the second quarter 2001, an unrealized net loss related to
derivatives of $(1,440) less tax benefit of $511, or $(929) was included in
other comprehensive income, resulting in accumulated other comprehensive income
(loss) related to derivatives at June 30, 2001, of $(4,188) less tax benefit of
$1,486, or $(2,702), including a cumulative transition adjustment as of January
1, 2001 of $(1,044) less tax benefit of $371, or $(673).
As of June 30, 2002, the Company has Interest Rate Protection Agreements for
$100.0 million of its variable rate debt and commodity contracts for 1.9 million
British Thermal Units (BTUs) of natural gas accounted for under hedge
accounting. The fair value of these derivatives are included in accrued
liabilities and other assets on the balance sheet for the Rate Agreements and
commodity contracts, respectively. At June 30, 2001, the Company had Rate
Agreements for $125.0 million of its variable rate debt, commodity contracts for
2.5 million BTUs of natural gas, and foreign currency forward contracts for 1.4
million Deutsche marks.
The Company does not believe it is exposed to more than a nominal amount of
credit risk in its interest rate, natural gas, and foreign currency hedges as
the counterparts are established financial institutions.
All of the Company's derivatives qualify and are designated as cash flow hedges
at June 30, 2002. Hedge accounting is only applied when the derivative is deemed
to be highly effective at offsetting changes in fair values or anticipated cash
flows of the hedged item or transaction. The ineffective portion of the change
in the fair value of a derivative designated as a cash flow hedge is recognized
in current earnings. Ineffectiveness recognized in earnings during the second
quarter of 2002 and 2001 was not material.
13
8. NEW ACCOUNTING STANDARDS
In April 2002, the FASB issued Statement of Financial Accounting Standards No.
145, "Rescission of FASB Statements No. 4, 44, and 62, Amendment of FASB
Statement No. 13, and Technical Corrections" ("SFAS No. 145"). For most
companies, SFAS No. 145 will require gains and losses on extinguishments of debt
to be classified as income or loss from continuing operations rather than as
extraordinary items as previously required under Statement 4. Extraordinary
treatment will be required for certain extinguishments as provided in APB
Opinion No. 30. SFAS No. 145 also amends Statement 13 to require certain
modifications to capital leases be treated as a sale-leaseback and modifies the
accounting for sub-leases when the original lessee remains a secondary obligor
(or guarantor). In addition, the FASB rescinded Statement 44 that addressed the
accounting for intangible assets of motor carriers and made numerous technical
corrections. Generally, the provisions of the new statement are effective for
transactions occurring after May 15, 2002 or for fiscal years beginning after
May 15, 2002. SFAS No. 145 is not expected to have a material impact on the
Company.
In July 2002 the FASB issued Statement of Financial Accounting Standards No.146,
"Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS No.
146"). SFAS NO. 146 addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies EITF Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The
principal difference between SFAS No.146 and Issue 94-3 relates to Statement
146's requirements for recognition of a liability for a cost associated with an
exit or disposal activity. Statement 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. Under Issue 94-3, a liability for an exit cost as generally defined in
Issue 94-3 was recognized at the date of an entity's commitment to an exit plan.
A fundamental conclusion reached by the FASB in this Statement is that an
entity's commitment to a plan, by itself, does not create an obligation that
meets the definition of a liability. Therefore, this Statement eliminates the
definition and requirements for recognition of exit costs in Issue 94-3. This
Statement also establishes that fair value is the objective for initial
measurement of the liability.
The provisions of this Statement are effective for exit or disposal activities
that are initiated after December 31, 2002, with early application encouraged.
The new statement is not expected to have a material impact on the Company.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - SECOND QUARTER 2002 COMPARED WITH SECOND QUARTER 2001
Three months ended
June 30,
(dollars in thousands)
2002 2001
---------- ----------
Net sales $ 114,086 $ 108,100
Gross profit 31,029 34,789
As a percent of sales 27.2% 32.2%
Income from operations $ 18,404 $ 22,901
As a percent of sales 16.1% 21.2%
Earnings before interest and
income taxes $ 9,346 $ 24,901
As a percent of sales 8.2% 23.0%
Net income $ 4,900 $ 14,143
As a percent of sales 4.3% 13.15%
For the quarter ended June 30, 2002, sales increased 5.5% to $114.1 million
compared to $108.1 million in the year-ago quarter. Strong growth in glassware
sales to retail customers coupled with increases in dinnerware sales to
foodservice customers contributed to the increase in sales. Export sales
decreased 6.2% to $10.6 million from $12.4 million in the year-ago period.
Gross profit (defined as net sales plus freight billed to customers less cost of
sales) was $31.0 million in the second quarter of 2002 compared to $34.8 million
in the second quarter of 2001 and as a percent of sales was 27.2% in the second
quarter of 2002 compared to 32.2% in the year-ago quarter. This was primarily a
result of higher manufacturing labor and repair expense, a less profitable sales
mix, lower pension income and higher nonpension postretirement expense compared
to the prior year period. The lower pension income and higher nonpension
postretirement expense totaled $1.1 million, and was due partly to additional
benefits granted to certain of the company's unionized workforce in labor
negotiations completed during 2001. These changes were partially offset by the
favorable impact of reduced natural gas cost totaling $1.0 million compared to
the prior year period.
Income from operations was $18.4 million compared to $22.9 million in the second
quarter last year and as a percent of sales was 16.1% in the second quarter of
2002 compared to 21.2% in the year-ago quarter.
15
The impact in the second quarter of 2001 of excluding goodwill and trademark
amortization and including additional amortization for the change in useful
lives of technical assistance agreements would have been to increase income from
operations by $0.3 million. The reduction in pension income and increase in
nonpension postretirement expense negatively impacted selling, general, and
administrative expense by $0.1 million.
Earnings before interest and income taxes (EBIT) were $9.3 million compared with
$24.9 million in the second quarter last year. In June 2002, after an
unfavorable ruling by the United States District Court, the company announced
that it had terminated its agreement to acquire the Anchor Hocking glassware
operations of Newell Rubbermaid Inc. The company charged to expense in the
second quarter acquisition costs totaling $13.6 million. These costs relate
primarily to legal, bank, accounting and consulting fees incurred in connection
with the proposed acquisition. Excluding the acquisition related expenses, the
company's earnings before interest and taxes would have been $23.0 million
compared with the $24.9 million in the second quarter in 2001. The company had
earnings from equity affiliates, which is primarily the company's investment in
a joint venture in Mexico, Vitrocrisa, of $4.5 million on a pretax basis
compared to $1.5 million pretax in the second quarter of 2001. Excluding
goodwill amortization in the second quarter of 2001, pretax equity earnings
would have been $1.9 million. Higher export sales, increased factory utilization
at Vitrocrisa, lower interest expense and a translation gain related to a
decline in the value of the Mexican Peso relative to the US dollar contributed
to the increase in earnings from equity affiliates.
Net income was $4.9 million, or 31 cents per share on a diluted basis, compared
with $14.1 million or 91 cents per share on a diluted basis in the year-ago
period. Excluding the expenses related to the abandoned acquisition, net income
and diluted earnings per share for the quarter would have been $13.6 million and
87 cents per share on a diluted basis. A reduction in interest expense as a
result of lower debt contributed to net income. In addition, a lower effective
tax rate of 33.6% compared to 37.1% in the year-ago period as a result of the
elimination of non-deductible goodwill amortization and lower Mexican tax also
positively impacted net income. The reduction of Mexican tax is primarily
attributable to reduced statutory tax rates in Mexico. Excluding goodwill
amortization in the second quarter of 2001, net income would have been $14.8
million, or 95 cents per share on a diluted basis.
16
RESULTS OF OPERATIONS - SIX MONTHS 2002 COMPARED WITH SIX MONTHS 2001
Six months ended
June 30,
-------------------------
(dollars in thousands)
2002 2001
-------- --------
Net sales $ 212,755 $ 200,615
Gross profit 53,100 57,461
As a percent of sales 25.0% 28.6%
Income from operations $ 27,020 $ 31,842
As a percent of sales 12.7% 15.9%
Earnings before interest and
income taxes $ 17,404 $ 34,806
As a percent of sales 8.2% 17.3%
Net income $ 8,852 $ 18,350
As a percent of sales 4.2% 9.1%
For the six months ended June 30, 2002, sales increased 6.1% to $212.8 million
compared to $200.6 million in the year-ago period. Strong growth in glassware
sales to retail customers coupled with increases in dinnerware sales to
foodservice customers contributed to the increase in sales. Export sales
decreased 1.1% to $22.2 million from $22.5 million in the year-ago period.
Gross profit (defined as net sales plus freight billed to customers less cost of
sales) was $53.1 million for the first six months of 2002 compared to $57.5
million in the year ago period and as a percent of sales was 25.0% compared to
28.6% in the year-ago quarter. This was primarily a result of higher
manufacturing labor and repair expense, a less profitable sales mix, lower
pension income and higher nonpension postretirement expense as compared to the
prior year period. The lower pension income and higher nonpension postretirement
expense totaled $2.2 million, and was due partly to additional benefits granted
to certain of the company's unionized workforce in labor negotiations completed
during 2001. These changes were partially offset by the favorable impact of
reduced natural gas cost totaling $3.6 million compared to the prior year
period.
Income from operations was $27.0 million compared to $31.8 million in the first
six months last year and as a percent of sales was 12.7% compared to 15.9% in
the year-ago period. The impact in the first six months of 2001 of excluding
goodwill and trademark amortization and including additional amortization for
the change in useful lives of technical assistance agreements would have been to
increase income from operations by $0.6 million. The reduction in pension income
and
17
increase in nonpension postretirement expense negatively impacted selling,
general, and administrative expense by $0.2 million.
Earnings before interest and income taxes (EBIT) were $17.4 million compared
with $34.8 million in the first six months last year. In June 2002, after an
unfavorable ruling by the United States District Court, the company announced
that it had terminated its agreement to acquire the Anchor Hocking glassware
operations of Newell Rubbermaid Inc. The company charged to expense in the
second quarter acquisition costs totaling $13.6 million. These costs relate
primarily to legal, bank, accounting and consulting fees incurred in connection
with the proposed acquisition. Excluding the acquisition related expenses, the
company's earnings before interest and taxes would have been $31.0 million
compared with the $34.8 million in the year ago period. The company had earnings
from equity affiliates, which is primarily the company's investment in a joint
venture in Mexico, Vitrocrisa, of $4.1 million on a pretax basis compared to
$2.8 million pretax in the year ago period. Excluding goodwill amortization in
the first six months of 2001, pretax equity earnings would have been $3.2
million. Lower financing expenses and a translation gain related to a decline in
the value of the Mexican Peso relative to the US dollar contributed to the
increase in earnings from equity affiliates.
Net income was $8.9 million, or 57 cents per share on a diluted basis, compared
with $18.3 million or $1.18 per share on a diluted basis in the year-ago period.
Excluding the expenses related to the abandoned acquisition, net income and
diluted earnings per share for the first six months would have been $17.6
million and $1.12 cents per share on a diluted basis. A reduction in interest
expense as a result of lower debt contributed to net income. In addition, a
lower effective tax rate of 34% compared to 38% in the year-ago period as a
result of the elimination of non-deductible goodwill amortization and lower
Mexican tax also positively impacted net income. The reduction of Mexican tax is
primarily attributable to reduced statutory tax rates in Mexico. Excluding
goodwill amortization in the in the first six months of 2001, net income would
have been $19.7 million, or 99 cents per share on a diluted basis.
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
The company had total debt of $136.2 million at June 30, 2002, compared to
$148.0 million at December 31, 2001 or a reduction of $11.8 million. In the year
ago period, debt increased $6.2 million during the first six months. This
favorable comparison is due primarily to improved inventory management and lower
capital expenditures. Inventories decreased $4.2 million during the first six
months from $96.9 million at December 31, 2001, to $92.7 million, compared to an
increase of $6.8 million during the first six months
18
of 2001. As compared to the year-ago period, inventories are down substantially,
a reduction of $18.6 million from June 30, 2001. As previously announced, the
company took steps to curtail production and reduce inventories. While impacting
the company's profitability in the short term, these steps have improved working
capital management and cash flow and will allow the company to operate at higher
levels of manufacturing capacity as sales trends improve.
In addition, capital expenditures totaled $8.2 million during the first six
months of 2002, primarily related to furnace rebuild activity and investments in
higher productivity machinery and equipment. This compares to $21.6 million
during the first six months of 2001. The decrease in inventories and lower
capital expenditures through June 30, 2002, were partially offset by lower
accounts payable.
During the six months of 2002, the company did not purchase any shares pursuant
to its share repurchase plan. Since mid-1998, the company has repurchased
2,689,400 shares for $75.4 million. Board authorization remains for the purchase
of an additional 935,600 shares at June 30, 2002.
The company had additional debt capacity at June 30, 2002, under the Bank Credit
Agreement of $113.3 million. Of Libbey's outstanding indebtedness, $33.6 million
was subject to fluctuating interest rates at June 30, 2002. A change of one
percent in such rates would have resulted in a change in interest expense of
approximately $0.3 million on an annual basis as of June 30, 2002.
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 facility is for a term of three years with an option
to extend for two additional one-year periods. The company believes that its
cash from operations and available borrowings under the new Revolving 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 new Revolving Credit Agreement.
19
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 impact of those changes on the earnings and cash flow
of the company's joint venture in Mexico, Vitrocrisa, expressed under accounting
principles generally accepted in the United States.
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 $100.0 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 June 30, 2002, was 6.8% for an average remaining period
of 2.8 years. Total remaining debt not covered by the Rate Agreements has
fluctuating interest rates with a weighted average rate of 2.8% at June 30,
2002. The company had $33.6 million of debt subject to fluctuating interest
rates at June 30, 2002. A change of one percent in such rates would result in a
change in interest expense of approximately $0.3 million on an annual basis.
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.
The fair value of the company's Rate Agreements is determined using the market
standard methodology of netting the discounted expected future variable cash
receipts and the discounted future fixed cash payments. The variable cash
receipts are based on an expectation of future interest rates derived from
observed market interest rate forward curves. The company does not expect to
cancel these agreements and expects them to expire as originally contracted.
In addition to the Rate Agreements, the company has also entered into commodity
contracts to hedge the price of anticipated required
20
purchases of natural gas. The company has designated these derivative
instruments as cash flow hedges. As such, the changes in fair value of these
derivative instruments are recorded in accumulated other comprehensive income
(loss) and reclassified into earnings as the underlying hedged transaction or
items affects earnings. At June 30, 2002, approximately $(3.8) million of
unrealized net losses were recorded in accumulated other comprehensive income
(loss).
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 major slowdowns in
the retail, travel, restaurant and bar or entertainment industries in the United
States, Canada or Mexico, including the impact of the terrorist attacks in the
United States of September 11, 2001, on the retail, travel, restaurant and bar
or entertainment industries; 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; 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 expressed under accounting
principles generally accepted in the United States and cash flow of the
company's joint venture in Mexico, Vitrocrisa; the inability to achieve savings
and profit improvements at targeted levels at the company and Vitrocrisa from
capacity realignment, re-engineering and operational restructuring programs or
within the intended time periods; protracted work stoppages related to
collective bargaining agreements; increased competition from foreign suppliers
endeavoring to sell glass tableware in the United States; whether the company
completes any significant acquisitions and whether such acquisitions can operate
profitably.
21
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 22, 2002 the United States District Court for the
District of Columbia granted an injunction in favor of the Federal
Trade Commission enjoining Libbey, Inc. from consummating its proposed
acquisition of a portion of the Anchor Hocking business of Newell
Rubbermaid Inc. pending a review of the proposed transaction by the
Federal Trade Commission in an administrative proceeding. The Federal
Trade Commission commenced an administrative proceeding challenging the
proposed transaction on May 9, 2002. Although the proposed transaction
has been abandoned and terminated by the parties, the administrative
proceeding remains pending. The parties to the proceeding have agreed
upon a consent decree which is anticipated to become final upon
completion of a formal approval process by the Federal Trade
Commission. The consent decree would require Libbey to provide advance
notice to the Federal Trade Commission of any acquisition of the assets
or securities of Anchor Hocking or the assets of the Anchor Hocking
Food Service Business.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 2, 2002, at the annual meeting of stockholders, Messrs.
William A. Foley and Terence P. Stewart were elected as members of
Class III of the board of directors for three-year terms expiring on
the date of the 2005 annual meeting. The results of the voting were:
Name For Withheld
---- --- --------
Mr. Foley 10,584,055 245,428
Mr. Stewart 10,320,081 509,402
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibits
Exhibit
Number Description
------ -----------
2.1 Termination agreement canceling the Amended and
Restated Stock Purchase Agreement dated as of January
21, 2002 by and among Newell Rubbermaid Inc., Anchor
Hocking Corporation, Menagerie Corporation, Newell
Operating Company and Libbey Inc. and Amended and
Restated Canadian Purchase Agreement dated as of
January 21, 2002 by and among Newell Rubbermaid Inc.,
Newell Industries Canada Inc, Libbey Inc. and Libbey
Canada Inc (filed herewith).
3.1 Restated Certificate of Incorporation of Libbey Inc.
(filed as Exhibit 3.1 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1993 and incorporated herein by reference).
3.2 Amended and Restated By-Laws of Libbey Inc. (filed as
Exhibit 3.2 to Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993 and
incorporated herein by reference).
22
4.1 Restated Certificate of Incorporation of Libbey Inc.
(incorporated by reference herein as Exhibit 3.1).
4.2 Amended and Restated By-Laws of Libbey Inc.
(incorporated by reference herein as Exhibit 3.2).
4.3 Rights Agreement, dated January 5, 1995, between
Libbey Inc. and The Bank of New York, which includes
the form of Certificate of Designations of the Series
A Junior Participating Preferred Stock of Libbey Inc.
as Exhibit A, the form of Right Certificate as
Exhibit B and the Summary of Rights to Purchase
Preferred Shares as Exhibit C, (filed as Exhibit 1 to
Registrant's Registration Statement on Form 8-A dated
January 20, 1995 and incorporated herein by
reference).
4.4 First Amendment to Rights Agreement, dated February
3, 1999, between Libbey Inc. and The Bank of New York
(filed as Exhibit 4.4 to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1998 and
incorporated herein by reference).
10.67 $250 Million Revolving Credit Agreement dated as of
April 23, 2002 among Libbey Glass Inc., as the
Borrower, Bank of America, N.A., as the
Administrative Agent, Swing Line Lender, and as an
L/C Issuer, Bank One, NA and Fleet National Bank, as
Syndication Agents, and The Other Lenders Party
Hereto Banc of America Securities LLC and Banc One
Capital Markets, Inc., as Joint Lead Arrangers and
Joint Book Managers (filed as Exhibit 10.67 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002 and incorporated herein
by reference).
(b.) Several forms 8-K were filed in the second quarter as follows:
A form 8-K was filed dated April 24, 2002, with respect to the
announcement that on April 22, 2002 the United States Federal
District Court upheld the challenge of the Federal Trade
Commission, and issued a preliminary
23
injunction enjoining completion of Libbey's proposed acquisition,
of the Anchor Hocking business of Newell Rubbermaid Inc. pending
a completion of an administrative hearing of the Federal Trade
Commission.
A form 8-K was filed dated May 28, 2002, with respect to the
announcement that certain members of its executive management team
have decided to enter into trading plans under Rule 10b5-1 of the
Securities and Exchange Act of 1934.
The Libbey Inc. executives entering into Rule 10b5-1 trading plans
were John F. Meier, Chairman and Chief Executive Officer, Richard
I. Reynolds, Executive Vice President and Chief Operating Officer,
Arthur H. Smith, Vice President and General Counsel and Kenneth G.
Wilkes, Vice President and Chief Financial Officer. The plans call
for selling up to an aggregate of 434,920 shares of common stock
over a predetermined period of time without subsequent control
over the timing of specific transactions by the plan participants.
The plans expire in January and February of 2003.
As of May 23, 2002, the above mentioned executives had beneficial
ownership in excess of an aggregate of 824,000 shares. The plans
for these executives relate primarily to stock issuable pursuant
to the exercise of stock options that were granted at or around
the time Libbey Inc. went public in June 1993. These options
expire without value during 2003 and it is anticipated that the
trading plans will provide for the sale of these shares in a
methodical manner over time.
A form 8-K was filed dated May 28, 2002, with respect to the
announcement that the company was advised on Monday, May 20, 2002,
that Judge Reginald Walton of the U.S. District Court for the
District of Columbia denied the joint motion of Libbey Inc. and
Newell Rubbermaid Inc. to vacate the preliminary injunction
granted on April 22, 2002, to the Federal Trade Commission (FTC)
enjoining the Anchor Hocking acquisition pending an administrative
proceedings before the FTC.
A form 8-K was filed dated June 12, 2002, with respect to the
announcement the company has abandoned its proposed acquisition of
the Anchor Hocking businesses of Newell Rubbermaid Inc. In light
of the challenge to the acquisition by the U.S. Federal Trade
Commission (FTC)
24
and after careful consideration of various alternatives, the
company concluded that this decision was in the best interest of
the parties. Consistent with acquisition-related costs identified
in Libbey's Form 10-Q filed on May 15, 2002 for the first quarter
of 2002, these costs total approximately $8 to $9 million
after-tax, or $0.51 to $0.58 per diluted share, and will be
written-off in the second quarter of 2002. The vast majority of
related cash payments were made prior to March 31, 2002.
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 August 14, 2002 By /s/ Kenneth G. Wilkes
-------------------------------- -----------------------------------
Kenneth G. Wilkes,
Vice President, Chief Financial
Officer
(Principal Accounting Officer)
25
EXHIBIT INDEX
Exhibit No. Description Page No.
----------- ----------- --------
2.1 Termination agreement canceling the Amended and Restated Stock E-1
Purchase Agreement dated as of January 21, 2002 by and among
Newell Rubbermaid Inc., Anchor Hocking Corporation, Menagerie
Corporation, Newell Operating Company and Libbey Inc. and Amended
and Restated Canadian Purchase Agreement dated as of January 21,
2002 by and among Newell Rubbermaid Inc., Newell Industries Canada
Inc, Libbey Inc. and Libbey Canada Inc (filed herewith).