<PAGE> 1
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, 1996
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)
420 Madison Avenue, Toledo, Ohio 43604
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
419-727-2100
----------------------------------------------------
(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 - 15,044,431 shares at October 31, 1996.
<PAGE> 2
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, 1995. The interim results of
operations are not necessarily indicative of results for the entire year.
2
<PAGE> 3
LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per-share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three months ended September 30,
1996 1995
-------- --------
<S> <C> <C>
Revenues:
Net sales $ 94,888 $ 89,138
Royalties and net technical
assistance income 695 770
-------- --------
Total revenues 95,583 89,908
Costs and expenses:
Cost of sales 66,376 62,141
Selling, general and administrative
expenses 9,817 8,260
-------- --------
76,193 70,401
-------- --------
Income from operations 19,390 19,507
Other income (expense):
Interest expense - net (3,513) (3,417)
Other - net 489 441
-------- --------
(3,024) (2,976)
-------- --------
Income before income taxes 16,366 16,531
Provision for income taxes 6,391 6,624
-------- --------
Net income $ 9,975 $ 9,907
======== ========
Net income per share $ 0.65 $ 0.64
======== ========
Dividends per share $ 0.075 $ 0.075
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per-share amounts)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
1996 1995
-------- --------
<S> <C> <C>
Revenues:
Net sales $282,693 $244,160
Royalties and net technical
assistance income 1,927 1,898
-------- --------
Total revenues 284,620 246,058
Costs and expenses:
Cost of sales 204,240 173,462
Selling, general and administrative
expenses 32,919 27,742
-------- --------
237,159 201,204
-------- --------
Income from operations 47,461 44,854
Other income (expense):
Interest expense - net (11,445) (10,093)
Other - net 1,248 527
-------- --------
(10,197) (9,566)
-------- --------
Income before income taxes 37,264 35,288
Provision for income taxes 14,646 14,221
-------- --------
Net income $ 22,618 $ 21,067
======== ========
Net income per share $ 1.47 $ 1.38
======== ========
Dividends per share $ 0.225 $ 0.225
======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
LIBBEY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 4,617 $ 2,095
Trade receivables, less allowances
of $3,525 and $3,289 40,626 38,775
Other receivables 1,814 1,582
-------- --------
Total receivables 42,440 40,357
Finished goods 77,968 69,987
Work in process 5,993 5,245
Raw materials 3,263 3,246
Operating supplies 720 714
-------- --------
Total inventories 87,944 79,192
Prepaid expenses 7,304 9,199
-------- --------
Total current assets 142,305 130,843
Other assets:
Repair parts inventories 6,196 5,528
Goodwill, net of accumulated
amortization of $10,033 and $9,118 38,576 39,755
Other assets 24,445 21,711
-------- --------
Total other assets 69,217 66,994
Property, plant and equipment,
at cost 230,028 220,675
Less accumulated depreciation 109,796 96,697
-------- --------
Net property, plant and
equipment 120,232 123,978
-------- --------
Total assets $331,754 $321,815
======== ========
</TABLE>
Note: The condensed consolidated balance sheet at December 31, 1995 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.
5
<PAGE> 6
LIBBEY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(unaudited) (Note)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable $ 9,187 --
Accounts payable 15,331 $ 20,088
Accrued liabilities 19,908 22,792
Other current liabilities 16,534 13,168
--------- ---------
Total current liabilities 60,960 56,048
Long-term debt 233,342 248,721
Nonpension retirement benefits 51,915 48,945
Deferred taxes and other liabilities 13,032 15,217
Commitments
Shareholders' equity:
Common stock, par value $.01
per share, 50,000,000 shares
authorized, 15,044,431 shares
issued and outstanding
(15,023,500 in 1995) 150 150
Capital in excess of par value 191,602 191,226
Deficit (219,171) (238,407)
Cumulative foreign currency
translation adjustment (76) (85)
--------- ---------
Total shareholders' equity (27,495) (47,116)
--------- ---------
Total liabilities and
shareholders' equity $ 331,754 $ 321,815
========= =========
</TABLE>
Note: The condensed consolidated balance sheet at December 31, 1995 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.
6
<PAGE> 7
LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
1996 1995
-------- --------
<S> <C> <C>
Operating activities
Net income $ 22,618 $ 21,067
Adjustments to reconcile net income to
cash provided by (used in) operating
activities:
Depreciation and amortization 16,334 13,292
Other non-cash charges 940 1,676
Net change in components of working
capital and other assets (17,037) (42,382)
-------- --------
Net cash provided by (used in)
operating activities 22,855 (6,347)
Investing activities--additions
to property, plant and equipment (11,121) (17,402)
Financing activities
Net borrowings (repayments) under Bank
Credit Agreement (15,394) 25,776
Other net borrowings 9,187
Stock options exercised 376 --
Dividends (3,382) (3,375)
-------- --------
Net cash provided by (used in)
financing activities (9,213) 22,401
Effect of exchange rate fluctuations
on cash 1 --
-------- --------
Increase (decrease) in cash 2,522 (1,348)
Cash at beginning of year 2,095 3,700
-------- --------
Cash at end of period $ 4,617 $ 2,352
======== ========
</TABLE>
See accompanying notes.
7
<PAGE> 8
LIBBEY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts 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 $300 million, maturing October 1999. Swing Line
borrowings are limited to $15 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 1/4% and 3/8%,
respectively, at September 30, 1996. 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 $150 million. The
Revolving Credit and Swing Line Facility also provides for the issuance of $22
million of letters of credit, with such usage applied against the $300 million
limit. At September 30, 1996, the Company had $5.1 million in letters of credit
outstanding.
The Company has entered into interest rate protection agreements ("Rate
Agreements") with respect to $175 million of debt under its Bank Credit
Agreement as a means to manage its exposure to fluctuating interest rates. The
Rate Agreements effectively convert 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, 1996 was 5.75% for an average remaining period of 2.0 years. The
remaining debt not covered by the Rate Agreements has fluctuating interest rates
with a weighted average rate of 5.8% at September 30, 1996.
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. Should 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.
8
<PAGE> 9
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.
2. CASH FLOW INFORMATION
Interest paid in cash aggregated $11,077 and $10,291 for the first nine months
of 1996 and 1995, respectively. Income taxes paid in cash aggregated $12,099 and
$17,296 for the first nine months of 1996 and 1995, respectively.
3. NET INCOME PER SHARE OF COMMON STOCK
Net income per share of common stock is computed using the weighted average
number of shares of common stock outstanding, including common stock
equivalents. Weighted average shares, including common stock equivalents, were
15,439,632 and 15,381,872 for the three and nine month periods ending September
30, 1996, respectively; and 15,361,224 and 15,285,859 for the three and nine
month periods ending September 30, 1995.
The following table shows the 1995 and 1996 earnings per share results using the
average shares outstanding including and excluding common stock equivalents.
<TABLE>
<CAPTION>
Including Equivalents Excluding Equivalents
----------------------- -----------------------
Quarter Ending Quarter Year-to-date Quarter Year-to-date
-------------- ------- ------------ ------- ------------
<S> <C> <C> <C> <C>
March 31, 1995 $0.23 $0.23 $0.23 $0.23
June 30, 1995 $0.51 $0.74 $0.51 $0.74
September 30, 1995 $0.64 $1.38 $0.66 $1.40
December 31, 1995 $0.59 $1.97 $0.60 $2.00
March 31, 1996 $0.26 $0.26 $0.26 $0.26
June 30, 1996 $0.56 $0.82 $0.58 $0.84
September 30, 1996 $0.65 $1.47 $0.66 $1.50
</TABLE>
9
<PAGE> 10
4. ACQUISITION
On October 10, 1995, the Company completed the acquisition of certain assets and
liabilities of the business operated as Syracuse China from the Pfaltzgraff Co.,
The Pfaltzgraff Outlet Co., and Syracuse China Company of Canada Ltd. The
purchase price approximated $40.0 million and the acquisition has been recorded
using the purchase method of accounting. The excess of the aggregate purchase
price over the fair market value of net assets acquired of approximately $7.2
million was recognized as goodwill. The operating results of Syracuse China have
been included in the consolidated financial statements since the date of
acquisition.
The following unaudited pro forma results of operations assume the acquisition
occurred as of January 1, 1994 (in thousands except per-share amounts):
<TABLE>
<CAPTION>
Quarter ended September 30, 1996 1995
-------- --------
<S> <C> <C>
Net sales $ 94,888 $ 96,757
Net income 9,975 9,997
Net income per share (including
common stock equivalents) $ 0.65 $ 0.65
<CAPTION>
Nine Months ended September 30, 1996 1995
-------- --------
<S> <C> <C>
Net sales $282,693 $267,568
Net income 22,618 21,806
Net income per share (including
common stock equivalents) $ 1.47 $ 1.43
</TABLE>
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the Syracuse China acquisition
been consummated as of January 1, 1994, nor are they necessarily indicative of
future operating results.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - THIRD QUARTER 1996 COMPARED WITH THIRD QUARTER 1995
<TABLE>
<CAPTION>
Three months ended
September 30,
----------------------
(dollars in thousands)
1996 1995
------- -------
<S> <C> <C>
Net sales $94,888 $89,138
Gross profit 28,512 26,997
As a percentage of sales 30.0% 30.3%
Income from operations $19,390 $19,507
As a percentage of sales 20.4% 21.9%
Net income $ 9,975 $ 9,907
</TABLE>
Net sales for the third quarter of 1996 of $94.9 million increased 6.5% from the
net sales of $89.1 million reported in the comparable period in 1995. The
increase in sales is due primarily to higher sales to the Company's industrial
market in the U.S. and the acquisition of Syracuse China in the fourth quarter
of 1995. Glassware sales units in total decreased slightly in the third quarter.
Export sales were up 4.6%, increasing to $6.0 million from $5.7 million in the
year-ago period.
Gross profit increased 5.6% to $28.5 million in the third quarter of 1996 from
$27.0 million in the third quarter of 1995, but decreased as a percentage of
sales to 30.0% from 30.3%. A decline in the profitability at Libbey Canada and
operating margins below the company's average experienced at Syracuse China were
factors in the company's margin decline. A work stoppage at Libbey Canada of
approximately three weeks contributed to the decline.
Income from operations decreased 0.6% to $19.4 million from $19.5 million in the
year-ago period. Operating income as a percentage of sales fell to 20.4% from
21.9% in the comparable year-ago period, as a result of the lower gross profit
percentage and duplicative costs in labor and information systems expenses
associated with the implementation of portions of the company's re-engineering
program.
11
<PAGE> 12
RESULTS OF OPERATIONS - THIRD QUARTER 1996 COMPARED WITH THIRD QUARTER 1995
(CONT.)
Net income increased by $0.7 million due to higher revenues and a reduction in
the Company's effective tax rate from 40.1% to 39.0%, principally due to lower
state income taxes, offset by lower operating profits and increased interest
expense due to additional debt associated with the Syracuse China acquisition.
RESULTS OF OPERATIONS - NINE MONTHS 1996 COMPARED WITH NINE MONTHS 1995
<TABLE>
<CAPTION>
Nine months ended
September 30,
----------------------
(dollars in thousands)
1996 1995
-------- --------
<S> <C> <C>
Net sales $282,693 $244,160
Gross profit 78,453 70,698
As a percentage of sales 27.8% 29.0%
Income from operations $ 47,461 $ 44,854
As a percentage of sales 16.8% 18.4%
Net income $ 22,618 $ 21,067
</TABLE>
Net sales for the first nine months of 1996 of $282.7 million increased 15.8%
from the sales of $244.2 million reported in the comparable period in 1995. The
increase in sales is due primarily to higher sales to the Company's foodservice
and industrial markets in the U.S. and the acquisition of Syracuse China in the
fourth quarter of 1995. Sales benefited from increased unit volume, particularly
with industrial customers. Export sales were up 18.1%, increasing to $20.3
million from $17.2 million in the year-ago period.
Gross profit increased 11.0% to $78.5 million in the first nine months of 1996
from $70.7 million in the comparable period in 1995, but decreased as a
percentage of sales to 27.8% from 29.0%. Gross margins primarily were affected
by product mix, with greater sales of lower margin items in the industrial and
export markets and the inclusion of Syracuse China. In addition, higher energy
and compensation costs were factors.
12
<PAGE> 13
RESULTS OF OPERATIONS - NINE MONTHS 1996 COMPARED WITH NINE MONTHS 1995 (CONT.)
Income from operations increased 5.8% to $47.5 million from $44.9 million in the
year-ago period. Operating income as a percentage of sales fell to 16.8% from
18.4% in the comparable year-ago period, as a result of the lower gross profit
percentage and the effects of Syracuse China.
Net income increased by $1.6 million due to higher revenues, increased machinery
sales, and a reduction in the Company's effective tax rate from 40.3% to 39.3%,
principally due to lower state income taxes, offset by lower operating profits
and increased interest expense due to additional debt associated with the
Syracuse China acquisition.
CAPITAL RESOURCES AND LIQUIDITY
The Company had total debt of $242.5 million at September 30, 1996, compared to
$248.7 million at December 31, 1995. The decrease in debt from December 31, 1995
is due to operating cash flows supplemented by aggressive working capital
management and timing of capital expenditures. Inventories at September 30,
1996, were $8.8 million higher than at December 31, 1995, principally due to the
seasonal nature of the Company's business, however, because of improved
inventory management, this increase is not as large as in previous years. The
Company had additional capacity at September 30, 1996 under the Bank Credit
Agreement of $61.6 million. Of Libbey's outstanding indebtedness, $58.3 million
is subject to fluctuating interest rates at September 30, 1996. A change of one
percentage point in such rates would result in a change in interest expense of
approximately $.6 million on an annual basis.
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. The Company continues to be engaged in various efforts to
expand through acquisitions as well as through internal growth and may seek
further amendments to its Bank Credit Agreement if such indebtedness is
required. In addition, the Company anticipates refinancing the Bank Credit
Agreement at or prior to the maturity date of October 1999 to meet the Company's
longer term funding requirements.
13
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibit
27 Financial Data Schedule
(b.) A form 8-K dated August 8,1996, was filed during the third quarter to
obtain the benefits of the provisions of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 by outlining important factors
that potentially affect performance.
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 13, 1996 By /s/ Kenneth G. Wilkes
----------------- --------------------------------------
Kenneth G. Wilkes,
Vice President, Chief Financial
Officer and Treasurer
(Principal Accounting Officer)
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,617
<SECURITIES> 0
<RECEIVABLES> 40,626
<ALLOWANCES> 0
<INVENTORY> 87,944
<CURRENT-ASSETS> 142,305
<PP&E> 230,028
<DEPRECIATION> 109,796
<TOTAL-ASSETS> 331,754
<CURRENT-LIABILITIES> 60,960
<BONDS> 0
<COMMON> 150
0
0
<OTHER-SE> (27,645)
<TOTAL-LIABILITY-AND-EQUITY> 331,754
<SALES> 282,693
<TOTAL-REVENUES> 284,620
<CGS> 204,240
<TOTAL-COSTS> 237,159
<OTHER-EXPENSES> (1,248)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,445
<INCOME-PRETAX> 37,264
<INCOME-TAX> 14,646
<INCOME-CONTINUING> 22,168
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,618
<EPS-PRIMARY> 1.47
<EPS-DILUTED> 1.47
</TABLE>
