<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, 1997
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 - 15,239,041 shares at October 31, 1997.
1-7
<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, 1996.
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,
Revenues: 1997 1996
---- ----
<S> <C> <C>
Net sales $ 104,824 $ 94,888
Royalties and net technical assistance 551 695
--------- ---------
Total revenues 105,375 95,583
Costs and expenses:
Cost of sales 71,959 66,376
Selling, general and administrative
expenses 11,659 9,817
--------- ---------
83,618 76,193
--------- ---------
Income from operations 21,757 19,390
Other income:
Equity earnings 830 -
Other income - net 258 489
--------- ---------
1,088 489
--------- ---------
Earnings before interest and income taxes 22,845 19,879
Interest expense - net (3,854) (3,513)
--------- ---------
Income before income taxes 18,991 16,366
Provision for income taxes 7,436 6,391
--------- ---------
Net income $ 11,555 $ 9,975
========= =========
Net income per share $ 0.74 $ 0.65
========= =========
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,
Revenues: 1997 1996
---- ----
<S> <C> <C>
Net sales $ 287,257 $ 282,693
Royalties and net technical assistance 2,171 1,927
--------- ---------
Total revenues 289,428 284,620
Costs and expenses:
Cost of sales 200,628 204,240
Selling, general and administrative
expenses 36,116 32,919
--------- ---------
236,744 237,159
--------- ---------
Income from operations 52,684 47,461
Other income:
Equity earnings 830 -
Other income - net 302 1,248
--------- ---------
1,132 1,248
--------- ---------
Earnings before interest and income taxes 53,816 48,709
Interest expense - net (10,598) (11,445)
--------- ---------
Income before income taxes 43,218 37,264
Provision for income taxes 16,885 14,646
--------- ---------
Net income $ 26,333 $ 22,618
========= =========
Net income per share $ 1.69 $ 1.47
========= =========
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,
1997 1996
---- ----
(unaudited) (Note)
ASSETS
Current assets:
<S> <C> <C>
Cash $ 2,205 $ 1,990
Accounts receivable:
Trade, less allowances of $3,120
and $2,279 57,026 40,503
Other 4,023 1,551
-------- --------
61,049 42,054
Inventories:
Finished goods 107,876 67,503
In transit finished goods 1,038
Work in process 5,300 5,017
Raw materials 3,679 3,054
Operating supplies 913 807
-------- --------
118,806 76,381
Prepaid expenses 6,895 6,719
-------- --------
Total current assets 188,955 127,144
Other assets:
Repair parts inventories 6,526 6,090
Goodwill, net of accumulated
amortization of $11,260 and $10,339 45,455 37,731
Investments 81,305 -
Other 27,709 25,398
-------- --------
160,995 69,219
Property, plant and equipment, at cost 235,799 225,518
Less accumulated depreciation 118,973 106,148
-------- --------
Net property, plant and equipment 116,826 119,370
-------- --------
Total assets $466,776 $315,733
======== ========
</TABLE>
Note: The condensed consolidated balance sheet at December 31, 1996 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,
1997 1996
---- ----
(unaudited) (Note)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
<S> <C> <C>
Notes payable $ 10,000 $ 4,525
Accounts payable 27,036 22,506
Accrued liabilities 27,843 23,102
Other 18,552 15,713
--------- ---------
Total current liabilities 83,431 65,846
Long-term debt 310,034 202,851
Nonpension retirement benefits 52,301 51,165
Deferred taxes and other liabilities 12,942 14,318
Shareholders' equity:
Common stock, par value $.01
per share, 50,000,000 shares
authorized, 15,232,391 shares
issued and outstanding
(15,061,231 in 1996) 152 151
Capital in excess of par value 195,550 191,909
Deficit (187,440) (210,368)
Cumulative foreign currency
translation adjustment (194) (139)
--------- ---------
Total shareholders' equity 8,068 (18,447)
--------- ---------
Total liabilities and shareholders' equity $ 466,776 $ 315,733
========= =========
</TABLE>
Note: The condensed consolidated balance sheet at December 31, 1996 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,
1997 1996
---- ----
Operating activities
<S> <C> <C>
Net income $ 26,333 $ 22,618
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 15,863 16,334
Other non-cash charges (36) 940
Equity earnings (830)
Net change in components of working
capital and other assets (38,645) (17,037)
--------- ---------
Net cash provided by
operating activities 2,685 22,855
Investing activities
Additions to property, plant and equipment (10,975) (11,121)
Vitro investments (104,487)
--------- ---------
Net cash used in investing
activities (115,462) (11,121)
Financing activities
Net borrowings (repayments) under Bank
Credit Agreement 107,283 (15,394)
Other net borrowings 5,475 9,187
Stock options exercised 3,642 376
Dividends (3,405) (3,382)
--------- ---------
Net cash provided by (used in) financing
activities 112,995 (9,213)
Effect of exchange rate fluctuations
on cash (3) 1
--------- ---------
Increase in cash 215 2,522
Cash at beginning of year 1,990 2,095
--------- ---------
Cash at end of period $ 2,205 $ 4,617
========= =========
</TABLE>
See accompanying notes.
7
<PAGE> 8
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 0.15% and 0.275%,
respectively, at September 30, 1997. 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, 1997 the Company had $5.1 million in letters of credit
outstanding under the Facility.
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, 1997 was 5.83% for an average remaining period of 2.1 years. The
remaining debt not covered by the Rate Agreements has fluctuating interest rates
with a weighted average rate of 6.0% at September 30, 1997.
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.
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<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. ACQUISITION
On August 29, 1997, the Company completed a series of transactions with Vitro
S.A. (collectively the "Vitro Transactions") for a cash purchase price of
approximately $100 million and the assumption of certain liabilities, financed
through borrowings under the Bank Credit Agreement. The primary components of
the Vitro Transactions included the Company becoming: (i) a 49% equity owner in
Vitrocrisa; (ii) the exclusive distributor of Vitrocrisa's glass tableware
products in the U.S. and Canada and Vitrocrisa becoming the exclusive
distributor of Libbey glass tableware products in Latin America; (iii) the owner
of substantially all of the assets and certain liabilities of the business
formerly known as WorldCrisa, renamed World Tableware; and (iv) the owner of a
49% interest in the business of Crisa Industrial, L.L.C., which distributes
industrial glassware in the U.S. and Canada for Vitrocrisa. As a result of the
Vitro Transactions, the Company consolidates the financial results of World
Tableware and includes in its financial results sales of Vitrocrisa's glass
tableware in the U.S. and Canada pursuant to the distribution agreement
described above.
The investment and acquisition was accounted for under the purchase method of
accounting for financial reporting purposes and an initial allocation of the
purchase price to the underlying net assets acquired has been made.
The following unaudited pro forma results of operations assume the acquisition
occurred as of January 1, 1996 (in thousands except per share amounts):
<TABLE>
<CAPTION>
Quarter ended September 30,
1997 1996
---- ----
<S> <C> <C>
Net revenues $115,467 $111,415
Net income $ 11,696 9,989
Net income per share (including
common share equivalents) $ 0.75 $ 0.64
</TABLE>
9
<PAGE> 10
2. ACQUISITION (CONT.)
<TABLE>
<CAPTION>
Nine months ended September 30,
1997 1996
---- ----
<S> <C> <C>
Net revenues $329,828 $328,602
Net income $ 27,108 $ 22,839
Net income per share (including
common share equivalents) $ 1.74 $ 1.48
</TABLE>
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the Vitro Transactions been
consummated as of January 1, 1996 nor are they necessarily indicative of future
operating results.
3. CASH FLOW INFORMATION
Interest paid in cash aggregated $9,915 and $11,077 for the first nine months of
1997 and 1996, respectively. Income taxes paid in cash aggregated $11,714 and
$12,099 for the first nine months of 1997 and 1996, respectively.
4. 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 share
equivalents. Weighted average shares were 15,665,529 and 15,569,132 for the
three and nine month periods ending September 30, 1997, respectively; and
15,439,632 and 15,381,872 for the three and nine month periods ending September
30, 1996.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings per Share" (FAS 128) which is
required to be adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute EPS and restate all
prior periods. The impact of adopting FAS 128 is not expected to be material.
5. SUBSEQUENT EVENT
On November 12, 1997 the Company closed on a public offering of 2.3 million
shares of common stock, including all 300,000 shares of common stock sold
pursuant to the options granted to the underwriters to cover over allotment, at
a price to the public of $37.875 per share, pursuant to the Company's $100
million shelf registration statement of June 19, 1997.
10
<PAGE> 11
The Company used the net proceeds of approximately $83 million from the common
stock offering to repay certain indebtedness outstanding under its Bank Credit
Agreement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THIRD QUARTER 1997 COMPARED WITH THIRD QUARTER 1996
<TABLE>
<CAPTION>
Three months ended
September 30,
----------------------
(dollars in thousands)
1997 1996
-------- ------
<S> <C> <C>
Net sales $104,824 $ 94,888
Gross profit 32,865 28,512
As a percentage of sales 31.4% 30.0%
Income from operations $ 21,757 $ 19,390
As a percentage of sales 20.8% 20.4%
Earnings before interest and
income taxes $ 22,845 $ 19,879
Net income $ 11,555 $ 9,975
</TABLE>
Net sales for the third quarter of 1997 of $104.8 million increased 10.5% from
net sales of $94.9 million reported in the comparable period in 1996. A primary
factor for the increase was solid growth in glassware sales led by increases in
retail, premium and export. Foodservice sales improved with modest growth
compared with the year-ago period. The improvement also reflects the effects of
the August 29, 1997 acquisition of World Tableware and the distribution
agreement with Vitrocrisa S.A. de C.V. Export sales were up 16.9%, increasing to
$7.0 million from $6.0 million in the year-ago period.
Gross profit increased 15.3% to $32.9 million in the third quarter of 1997 from
$28.5 million in the third quarter of 1996, and increased as a percentage of
sales to 31.4% from 30.0%. Profit margins improved as a result of greater sales
of higher-margin products and were only partially diminished by higher
distribution costs.
Income from operations increased 12.2% to $21.8 million from $19.4 million in
the year-ago period. Operating income as a percentage of sales increased to
20.8% from 20.4% in the comparable year-ago period,
11
<PAGE> 12
as a result higher gross profit margin offset by increases in selling expenses.
Net income increased by $1.6 million due to items discussed above, plus equity
earnings associated with the Company's 49 % joint venture investment in Mexico.
The investment occurred on August 29, 1997. Partially offsetting this increase
was an increase in the Company's effective tax rate from 39.0% to 39.2% and
increased interest expense resulting from higher debt levels as a result of the
acquisition.
RESULTS OF OPERATIONS - FIRST NINE MONTHS 1997 COMPARED WITH FIRST NINE
MONTHS 1996
<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------------
(dollars in thousands)
1997 1996
-------- --------
<S> <C> <C>
Net sales $287,257 $282,693
Gross profit 86,629 78,453
As a percentage of sales 30.2% 27.8%
Income from operations $ 52,684 $ 47,461
As a percentage of sales 18.3% 16.8%
Earnings before interest and
income taxes $ 53,816 $ 48,709
Net income $ 26,333 $ 22,618
</TABLE>
Net sales for the first nine months of 1997 of $287.3 million increased 1.6%
from net sales of $282.7 million reported in the comparable period in 1996. A
decrease in sales to the Company's industrial and retail markets in the U.S.,
resulting to eliminate certain sales which typically had experienced low or
negative operating profit margins was more than offset by higher premium and
ceramic dinnerware sales. The improvement also reflects the effects of the
August 29, 1997 acquisition of World Tableware and the distribution agreement
with Vitrocrisa S.A. de C.V. Export sales were up 1.6%, increasing to $20.6
million from $20.3 million in the year-ago period.
Gross profit increased 10.4% to $86.6 million in the first nine months of 1997
from $78.5 million in the first nine months of 1996, and increased as a
percentage of sales to 30.2% from 27.8%. Profit margins improved as a result of
an improved mix of sales of more profitable products related to the termination
of certain sales with low profit
12
<PAGE> 13
margins. In addition, lower manufacturing costs offset higher distribution
expenses.
Income from operations increased 11.0% to $52.7 million from $47.5 million in
the year-ago period. Operating income as a percentage of sales increased to
18.3% from 16.8% in the comparable year-ago period. A higher gross profit
percentage more than offset higher sales support costs.
Net income increased by $3.7 million due to items discussed above, plus a
reduction in the Company's effective tax rate from 39.3% to 39.1%, decreased
interest expense due to reduced debt and lower borrowing costs on average plus
equity earnings associated with the Company's 49% joint venture investment in
Mexico. The investment occurred on August 29, 1997.
CAPITAL RESOURCES AND LIQUIDITY
The Company had total debt of $320.0 million at September 30, 1997, compared to
$207.4 million at December 31, 1997. The increase in debt from December 31, 1996
is due to increased working capital requirements historically experienced during
this period in addition to amounts required in connection with the Vitro
transactions. Inventories at September 30, 1997 were $42.4 million higher than
at December 31, 1996 principally due to the inventories associated with the
Vitro acquisitions in additional to the seasonal nature of the Company's
business. The Company had additional capacity at September 30, 1997 under the
Bank Credit Agreement of $65.1 million. Of Libbey's outstanding indebtedness,
$144.8 million is subject to fluctuating interest rates at September 30, 1997. A
change of one percentage point in such rates would result in a change in
interest expense of approximately $1.4 million on an annual basis.
On August 29, 1997, the Company completed a series of transactions with Vitro
S.A. (collectively the "Vitro Transactions") for a cash purchase price of
approximately $100 million and the assumption of certain liabilities, financed
through borrowings under the Bank Credit Agreement. The primary components of
the Vitro Transactions included the Company becoming: (i) a 49% equity owner in
Vitrocrisa; (ii) the exclusive distributor of Vitrocrisa's glass tableware
products in the U.S. and Canada and Vitrocrisa becoming the exclusive
distributor of Libbey glass tableware products in Latin America; (iii) the owner
of substantially all of the assets and certain liabilities of the business
formerly known as WorldCrisa, renamed World Tableware; and (iv) the owner of a
49% interest in the business of Crisa Industrial, L.L.C., which distributes
industrial glassware in the U.S. and Canada for Vitrocrisa. As a result of the
Vitro Transactions, the Company
13
<PAGE> 14
consolidates the financial results of World Tableware and includes in its
financial results sales of Vitrocrisa's glass tableware in the U.S. and Canada
pursuant to the distribution agreement described above.
On November 12, 1997 the Company closed on a public offering of 2.3 million
shares of common stock, including all 300,000 shares of common stock sold
pursuant to the options granted to the underwriters to cover over allotment, at
a price to the public of $37.875 per share, pursuant to the Company's $100
million shelf registration statement of June 19, 1997. The Company used the net
proceeds of approximately $83 million from the common stock offering to repay
certain indebtedness outstanding under its Bank Credit Agreement.
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.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibits
Exhibit
Number Description
- ------ -----------
27 Other Financial Information
(b.) A form 8-K was filed during the third quarter, dated August
18, 1997 with respect to the signing of the master
investment agreement in connection with the Vitro
Transactions.
A form 8-K was filed during the third quarter, dated August
29, 1997 with respect to the closing of the Vitro
Transactions.
14
<PAGE> 15
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, 1997 By /s/ Kenneth G. Wilkes
- ------------------------------- ------------------------------------
Kenneth G. Wilkes,
Vice President, Chief Financial
Officer and Treasurer
(Principal Accounting Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,205
<SECURITIES> 0
<RECEIVABLES> 57,026
<ALLOWANCES> 0
<INVENTORY> 118,806
<CURRENT-ASSETS> 188,955
<PP&E> 235,799
<DEPRECIATION> 118,973
<TOTAL-ASSETS> 466,776
<CURRENT-LIABILITIES> 83,431
<BONDS> 0
0
0
<COMMON> 152
<OTHER-SE> 7,916
<TOTAL-LIABILITY-AND-EQUITY> 466,776
<SALES> 287,257
<TOTAL-REVENUES> 289,428
<CGS> 200,628
<TOTAL-COSTS> 236,744
<OTHER-EXPENSES> (302)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,598
<INCOME-PRETAX> 43,218
<INCOME-TAX> 16,885
<INCOME-CONTINUING> 26,333
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,333
<EPS-PRIMARY> 1.69
<EPS-DILUTED> 1.69
</TABLE>
