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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 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 jurisdiction of (Commission (IRS Employer
incorporation or organization) file number) Identification No.)
300 Madison Avenue, Toledo, Ohio 43604
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (419) 325-2100
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ----------------
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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
----- -----
(Cover page 1 of 2 pages)
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value (based on the consolidated tape closing price on
March 16, 1998) of the voting stock beneficially held by non-affiliates of the
registrant was approximately $668,263,597. For the sole purpose of making this
calculation, the term "non-affiliate" has been interpreted to exclude directors
and executive officers of the registrant. Such interpretation is not intended to
be, and should not be construed to be, an admission by the registrant or such
directors or executive officers that any such persons are "affiliates" of the
registrant, as that term is defined under the Securities Act of 1934.
The number of shares of common stock, $.01 par value, of the registrant
outstanding as of March 16, 1998 was 17,598,931.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required by Items 10, 11, 12 and 13 of Form 10-K is
incorporated by reference into Part III hereof from the registrant's Proxy
Statement for The Annual Meeting of Shareholders to be held Thursday, April 30,
1998 ("Proxy Statement").
(Cover page 2 of 2 pages)
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TABLE OF CONTENTS
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PART I ......................................................................................................... 1
ITEM 1. BUSINESS...................................................................................... 1
ITEM 2. PROPERTIES.................................................................................... 10
ITEM 3. LEGAL PROCEEDINGS............................................................................. 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................... 11
EXECUTIVE OFFICERS OF THE REGISTRANT.................................................................... 11
PART II......................................................................................................... 12
ITEM 5. MARKET FOR COMMON STOCK....................................................................... 12
ITEM 6. SELECTED FINANCIAL DATA....................................................................... 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..................................................................... 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................................... 18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE........................................................... 40
PART III........................................................................................................ 40
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............................................. 40
ITEMS 11. and 13. EXECUTIVE COMPENSATION AND CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS...................................................................... 40
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................................................... 40
PART IV......................................................................................................... 41
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS
ON FORM 8-K................................................................................ 41
SIGNATURES .............................................................................................. 42
INDEX TO FINANCIAL STATEMENT SCHEDULE.................................................................... 44
EXHIBIT INDEX........................................................................................... E-1
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PART I
ITEM 1. BUSINESS
GENERAL
Libbey is the leading producer of glass tableware in the U.S. and Canada. The
Company is also a major supplier of other tabletop products to the foodservice
industry in the U.S. The Company's products are sold to a broad range of
foodservice, retail, industrial and premium customers and are exported to more
than 100 countries. The Company designs, manufactures and markets, under the
LIBBEY(R) brand name, an extensive line of high-quality, machine-made glass
beverageware and other glass tableware, including plates, bowls, serveware and
accessories. The Company maintains over 2,000 glass tableware stock keeping
units ("SKUs") representing over 900 basic product items, sizes and shapes.
Libbey is also a leading producer of ceramic dinnerware for the U.S. foodservice
industry as a result of the Company's October 1995 acquisition of Syracuse
China.
In late August, the Company completed a series of transactions that included the
Company:
- - investing as a joint venture partner in Vitrocrisa, the largest glass
tableware manufacturer in Mexico;
- - establishing reciprocal distribution agreements giving Libbey exclusive
distribution rights for Vitrocrisa's glass tableware products in the U.S.
and Canada, and Vitrocrisa the exclusive distribution rights for Libbey's
glass tableware products in Latin America; and
- - acquiring World Tableware, a major importer of metal flatware and holloware
and ceramic dinnerware to the U.S. foodservice industry.
PRODUCTS
Libbey's products consist of glass tableware, including glass beverageware,
specialized glass bottles, ceramic dinnerware and metal flatware and holloware.
The Company's glass beverageware includes tumblers, stemware and, to a lesser
extent, mugs. The Company's other glass tableware products include plates,
bowls, ashtrays, bud vases, salt and pepper shakers, canisters, candle holders
and various other items.
The Company has over 2,000 glass tableware SKUs available for sale,
representing over 900 basic product sizes or shapes, which are produced in
different colors and packaged individually or in various multipack combinations
and sets. Each year, the Company develops and introduces many new glass shapes
and sizes, including over 50 per year since 1993, which the Company believes
makes it one of the most innovative suppliers in the glass tableware industry.
In addition, the Company's product portfolio each year includes hundreds of
newly decorated designs made for specific customer needs and specifications.
The Company defines the U.S. glass tableware market to include glass
beverageware, ovenware, cookware, dinnerware,
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serveware, floral items, items used for specialized packaging, specialized
bottles, handmade glassware and lead crystal valued at less than $5 per piece.
Vitrocrisa's product assortment includes, in addition to the product types
produced by Libbey, glass bakeware and hand-made glass tableware, which are new
product categories the Company will offer primarily to retail customers. In
addition, Vitrocrisa products include glass coffee pots, blender jars, meter
covers and other industrial glassware sold principally to original equipment
manufacturers.
Through its Syracuse China and World Tableware subsidiaries, the Company sells a
wide-range of ceramic dinnerware products. These include plates, bowls,
platters, cups, saucers and other tabletop accessories.
Through its World Tableware subsidiary, the Company sells an extensive selection
of metal flatware. These include knives, forks, spoons and serving utensils. In
addition, World Tableware sells metal holloware, which includes serving trays,
chafing dishes, pitchers and other metal tabletop accessories.
FOODSERVICE
Libbey has, according to management estimates, approximately a 64% share of
glass tableware sales to the U.S. foodservice industry which includes
restaurant, bar and institutional customers. The Company's share of glass
tableware foodservice in Canada is estimated by management at 70%. Sales to
foodservice customers represent approximately one-half of Libbey's sales.
Approximately 90% of the Company's glass tableware sales to the foodservice
end-users are made through a network of approximately 500 independent
foodservice distributors. The distributors, in turn, sell to a wide variety of
foodservice establishments, including national and regional hotel chains,
national restaurant chains, individually owned bars and restaurants and
casinos. Some of the Company's foodservice sales are made directly to end-user
segments, including airlines and breweries.
Syracuse China and World Tableware are recognized as long established suppliers
of high quality ceramic dinnerware and flatware, respectively. They are both
among the leading suppliers of their respective product categories to the
foodservice industry.
Libbey's sales force and distributor network sell the Company's products to
foodservice establishments utilizing the Company's comprehensive product
catalogues. The Company annually prints and distributes approximately 400,000
copies of its catalogues. Libbey's sales force throughout the U.S. and Canada
works closely with the distributors to promote the Company's products and to
provide direct assistance to foodservice establishments in determining their
glass tableware and ceramic dinnerware needs. In addition, the Company
advertises its products extensively in trade publications.
Foodservice customers require timely delivery of a broad range of items, and the
Company believes that its leading position in the foodservice industry is the
result, in part, of the breadth of its product offerings, its four strategically
located
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(geographically) glass tableware manufacturing facilities and related
distribution centers and its extensive sales and service network. In addition,
the Company consistently adds to its product offerings to meet changing consumer
preferences and help end-user foodservice establishments grow sales.
The Company has the largest manufacturing, distribution and service network
among U.S. and Canadian glass tableware manufacturers. The Company's installed
base of products at foodservice establishments provides the Company with a
source of recurring sales. Once a restaurant, bar or other foodservice customer
has invested in a selected glass tableware or ceramic dinnerware pattern, it is
likely to continue to purchase that pattern in order to maintain style
consistency and also to avoid the cost associated with changing patterns.
Moreover, as glass tableware or ceramic dinnerware chips or breaks, the
establishment typically orders replacement pieces of the same style, due to the
relatively small expense of maintaining style integrity. An example of the
Company's presence in this market is the continued use of its Embassy(R) line of
glassware, which was originally introduced in 1967 and which continues to be
purchased by most of the Company's approximately 500 independent foodservice
distributors.
Each of the Company's five largest foodservice distributor accounts in the U.S.
has been a Libbey account for at least five years.
The Company's position in the foodservice industry has been enhanced through
the acquisition of World Tableware. The World Tableware acquisition provides the
Company with: (i) an increasing number of foodservice supply-related products
that complement its existing product line; (ii) a position as a major supplier
of metal flatware and holloware to foodservice customers; (iii) a broad
selection of ceramic dinnerware at various selling prices to complement the
Company's Syracuse China products; (iv) an expanded customer base; and (v) the
opportunity to sell flatware, holloware and an expanded dinnerware offering to
the Company's retail, industrial, premium and export customers. The Company
expects to increase sales by leveraging its sales force to market Libbey,
Syracuse China and World Tableware products to existing and new customers and
improve the profitability of World Tableware by realizing certain operating
synergies, including the elimination of redundant operating expenses.
RETAIL
Libbey is the leading supplier of glass beverageware sold to retailers in the
U.S. Using the broader category of glass tableware, Libbey ranks third. The
Company began producing and selling a limited assortment of glass serveware in
1994. As of December 31, 1996, Libbey did not offer bakeware or hand-made glass
tableware products to the retail industry; however, Vitrocrisa does offer these
products to the retail industry.
While in the past the Company has sold its beverageware and other glass tabletop
accessories principally to mass merchants and discount stores, in recent years
the Company has been able to increase its total sales by increasing its sales to
traditional department stores and specialty houseware stores. With this expanded
retail
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representation, the Company is better positioned to successfully introduce
profitable new products.
Retail store buyers tend to make large purchase decisions with longer lead time
than do the Company's foodservice customers. Such decisions are made on the
basis of a variety of product characteristics, including product quality and
design features and price. Thus, in initially competing for a new retail
program, the Company generally competes against a larger group of competitors,
including foreign manufacturers, than it competes with for foodservice sales.
The Company believes that its competitive position for retail sales is
enhanced by its ability to respond quickly to new orders and its ability to
assist retail customers during the life of the program through inventory
management and control and on-line ordering to satisfy their delivery
requirements. In this regard, the Company has effectively utilized the retail
industry's equivalent of just-in-time product delivery, through an interactive
electronic data interchange ("EDI") program it has implemented with many retail
customers. EDI, by using universal product codes ("UPC") and computers, allows
the Company to track and respond to certain customers' inventory needs on a
continuous basis.
The Company believes that its success in retail sales is also the result of
the perceived value of its products, LIBBEY(R) brand name recognition, as well
as a wide selection of colored glassware, innovative product design,
availability of open stock items, made-to-order design capabilities and custom
packaging. The Company believes that, with fourteen colors, it offers the widest
selection of colored glass tableware in the world. This assortment of colored
glass tableware has been a contributing factor to the growth in sales with
department stores and specialty housewares retailers. The Company's sales to
retail customers, including department stores and specialty housewares stores,
has also improved recently due to the introduction of new Syracuse China ceramic
dinnerware products.
Libbey's extensive product line also enables it to target the needs of different
retail stores based on price, product design and packaging, focusing on
individual customer characteristics. For example, products bearing the LIBBEY(R)
brand name are sold throughout the retail industry, while the Company's
"FunDamentals" collection is targeted toward traditional department stores and
specialty housewares stores that utilize "private label" packaging. Similarly,
some of the Company's retail products are packaged in four-piece cartons and are
aimed at meeting a limited replacement or purchase need, while others are
packaged in multi-piece sets which appeal to first-time purchasers, gift
shoppers and customers updating their entire collection of glass tableware.
Libbey decided in late 4th quarter, 1997 to discontinue its factory outlet mall
store business; 17 stores were closed in 1997 and the remaining 15 mall stores
will be closed during 1998.
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INDUSTRIAL
Libbey is one of the leading suppliers of glassware to industrial customers in
the U.S., according to management estimates. Industrial customers use glassware
for candle and gift packaging, floral purposes and lighting applications. The
craft industries and gourmet food packing companies are also industrial
consumers of glassware. The Company believes that its success with industrial
customers is based upon its extensive manufacturing and distribution network,
which enables it to provide superior service, and it broad product offering,
which allows Libbey to meet its customers' desire for differentiated glassware
products. The production capabilities and broad product portfolio of Vitrocrisa
will enable the Company to expand its product offering for its industrial
customers.
PREMIUM
Libbey is one of the leading suppliers of premium glassware in the U.S.,
according to management estimates. Premium users include major gasoline
retailers and fast-food restaurant chains which use glassware as incentives or
premiums. The Company believes that its success with premium customers is
dependent upon custom design, varied production capabilities, and the ability to
produce large quantities of product in a short period of time. Because of its
manufacturing and distribution strengths in these areas, Libbey is able to
create and produce specific design patterns in large quantities to meet the
customer's unique needs. In recent years, many of the large purchases of the
Company's products have been for incentive programs run by companies such as
Coca-Cola, Arby's, Long John Silver's Seafood Shoppes and Shell Oil.
The Company's premium customers also includes the sale of glass tableware to
supermarket chains for continuity programs. In 1997, the Company sold glass
tableware through continuity programs to over 5,700 supermarkets in the U.S.
Since the majority of premium sales are tied to promotions and therefore have a
limited life, the demand for these products varies from year to year, and the
customer base is dynamic and somewhat unpredictable. Demand historically has
tended to be countercyclical. The Company attempts to use the long production
runs usually associated with such orders to balance seasonal swings and
available capacity with Libbey's core foodservice, retail and industrial
requirements.
INTERNATIONAL EXPANSION AND EXPORT SALES
In June 1993, the Company acquired the operating assets of Libbey-St. Clair, the
only manufacturer of glass tableware in Canada. Libbey-St. Clair, now Libbey
Canada, supplies foodservice, retail, industrial and premium users in Canada. In
addition, Libbey Canada manufactures specialized glass bottles and containers
for food and beverage packaging and as decorative bottles for retail sale, and
fuse plugs. The Company is considering further international expansion through
the establishment of additional foreign-based operations.
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Libbey exports its products through independent agents and distributors to over
100 countries throughout the world, competing in the glass tableware markets of
Latin America, Asia and Europe. Through its export operation, the Company sells
Libbey glassware to foodservice, retail and premium customers internationally.
Export sales represent approximately 6.6% of 1997 sales, a relatively small part
of the Company's business. Since 1988, however, export sales have increased at a
14.3% compound average annual growth rate. The Company believes that export
sales represent a significant growth opportunity for the future.
The Company currently has technical assistance agreements with companies
covering operations in numerous countries. In 1997, the Company performed
services for licensees in eleven countries. These agreements, which cover areas
ranging from manufacturing and engineering assistance to support in functions
such as marketing, sales and administration, allow the Company to participate in
the worldwide growth of the glass tableware industry and to keep abreast of
potential sales and marketing opportunities in those countries. During 1997, the
Company's technical assistance agreements produced royalties of $3.1 million.
The Company also sells machinery, primarily glass-forming machinery, to certain
parties with which it has technical assistance agreements.
MANUFACTURING
Libbey owns and operates three glass tableware manufacturing plants in the
United States located in Toledo, Ohio; Shreveport, Louisiana; and City of
Industry, California; The Company also operates a glass tableware manufacturing
plant in Wallaceburg, Ontario, Canada. The Company owns and operates a ceramic
dinnerware plant in Syracuse, New York. The Company operates distribution
centers located at or near each of its manufacturing facilities. See
"Properties." In addition, the Company operates distribution centers for its
Vitrocrisa-supplied products in Laredo, Texas and World Tableware products near
Chicago, Illinois.
The glass tableware manufacturing and distribution centers are strategically
located (geographically) to enable the Company to supply significant quantities
of its product to virtually all of its customers in a short period of time.
Libbey is the only glass tableware producer operating more than two
manufacturing facilities in the U.S. and Canada. The Company maintains a broad
range of glass tableware inventory at all four glass tableware distribution
centers.
The manufacture of the Company's glass tableware products involves the use of
automated processes and technologies. Much of the Company's glass tableware
production machinery was designed by the Company and has evolved and been
continuously refined to incorporate technology advancements. Beginning in 1989,
the Company began converting its glass-forming machines to an internally
designed and proprietary computer-controlled manufacturing technology which
improves the efficiency of the manufacturing process and permits faster
manufacturing line changes. This conversion process will continue based on cost
effectiveness and capacity utilization requirements. In addition, the Company
has installed robotics technology in certain of its labor-intensive
manufacturing processes. During the eight year period
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1990 through 1997, the Company has spent in excess of $24 million on these and
other cost reducing technologies, and the Company's manufacturing performance
has improved significantly. The Company believes that its production machinery
and equipment are adequate for its needs in the foreseeable future.
The Company's glass tableware products are generally produced using one of two
manufacturing methods or, in the case of certain stemware, a combination of such
methods. Most of the Company's tumblers and stemware and certain other glass
tableware products are produced by forming molten glass in molds with the use of
compressed air and are known as "blown" glass products. The Company's other
glass tableware products and the stems of certain of its stemware are
"pressware" products which are produced by pressing molten glass into the
desired product shape.
The Company employs a team of engineers whose responsibilities include
continuing efforts to improve and upgrade the Company's manufacturing
facilities, equipment and processes. In addition, they provide engineering
required to manufacture new products and to implement the large number of
innovative changes continuously being made to the Company's product designs,
sizes and shapes.
All of the raw materials used by the Company, principally sand, lime, soda ash
and clay, have historically been available in adequate supply from multiple
sources. However, for certain raw materials, there may be temporary shortages
due to weather or other factors, including disruptions in supply caused by raw
material transportation or production delays. Such shortages have not previously
had and are not expected to have a material adverse effect on the Company's
operations in the future.
SALES AND MARKETING
The Company has its own sales representatives located strategically throughout
the U.S. and Canada who call on customers and distributors. Approximately 90% of
the Company's glass tableware sales to foodservice end-users are made through
approximately 500 independent distributors, who serve a vital function in the
distribution of the Company's products and with whom the Company works closely
in connection with marketing and selling efforts. Most of the Company's retail,
industrial and premium market sales are made directly by the Company's sales
force.
Libbey also has a marketing staff located at its corporate headquarters in
Toledo, Ohio engaged in developing strategies relating to product development,
pricing, distribution, advertising and sales promotion.
CUSTOMERS
The customers for the Company's products include approximately 500 foodservice
distributors and direct purchasers in the restaurant, bar and institutional
foodservice market. In addition, the Company sells to mass merchants, department
stores, national retail chains and specialty housewares stores, supermarkets
and industrial companies and others who use the Company's products for
promotional and other private uses.
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No single customer or group of customers accounts for 10% or more of the
Company's sales, although the loss of any of the Company's major customers could
have a material adverse effect on the Company. The Company's premium customers
tend to be more unpredictable from year to year and the Company is less
dependent on such business than it is on the foodservice, retail and industrial
sales. But in some years premium customers have been among the Company's largest
ten customers.
COMPETITORS
The Company's business is highly competitive, with the principal competitive
factors being price, brand name, product quality, delivery time and customer
service. Principal competitors in the domestic glass tableware market are Anchor
Hocking (a unit of Newell Co.), a supplier of glass beverageware and one of the
leading suppliers of glass bakeware to retail markets in the U.S.; Durand
International, a private French company, which the Company believes is the
second leading supplier of glass beverageware in the U.S.; and Indiana Glass
Company (a unit of Lancaster Colony Corporation), which participates in various
aspects of the U.S. market. The principal competitors in the U.S. ceramic
dinnerware market are Homer Laughlin (a private U. S. company) and Buffalo China
(a unit of Oneida, Ltd.). Syracuse China competes almost exclusively in the
foodservice market but has recently increased its focus on the retail market.
Some of the Company's competitors have substantially greater financial and other
resources than the Company.
In recent years, Libbey has experienced increasing competition from foreign
manufacturers, including Durand International (France) and Kedaung (Indonesia),
principally in the retail industry. The Company's joint-venture investment in,
and distribution agreement with, Vitrocrisa are expected to enhance the
Company's ability to compete against foreign competitors.
PATENTS, TRADEMARKS AND LICENSES
Based upon market research and market surveys, the Company believes its Libbey
trade name enjoys a high degree of consumer recognition and is a valuable asset.
The Company believes that the Libbey, Syracuse China and World Tableware trade
names are material to its business.
The Company has rights under a number of patents which relate to a variety of
products and processes. The Company does not consider that any patent or group
of patents relating to a particular product or process is of material importance
to its business as a whole.
SEASONALITY
Due primarily to the impact of consumer buying patterns, particularly during the
year-end holiday season, the Company's sales tend to be strongest in the fourth
quarter and weakest in the first quarter of each year. As a consequence,
approximately 40% to
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45% of the Company's sales occur in the first half of each year and
approximately 55% to 60% occur in the second half of the year.
ENVIRONMENTAL MATTERS
The Company's operations, in common with those of industry generally, are
subject to numerous existing and proposed laws and governmental regulations
designed to protect the environment, particularly regarding plant wastes and
emissions and solid waste disposal, and the Company has shipped, and continues
to ship, waste materials for off-site disposal. Although the Company is not
named as a potentially responsible party in any superfund matters pending prior
to June 24, 1993, the date of the Company's initial public offering and
separation from Owens-Illinois, Owens-Illinois has been named as a potentially
responsible party or other participant in connection with certain waste disposal
sites to which the Company may also have shipped wastes and bear some
responsibility, and Owens-Illinois has agreed to defend the Company in
connection with any such matters identified and pending as of June 24, 1993 and
to indemnify it against any resulting costs and liabilities from such matters in
excess of $3 million. The Company believes that if it is necessary to draw upon
this indemnification, collection is probable. Since the date of the Company's
initial public offering, the Company has been named a potentially responsible
party at two sites in Toledo, Ohio, along with 46 other potentially responsible
parties, including Owens-Illinois and one additional site in Michigan, all of
which the Company has agreed to settle for immaterial amounts. In addition, as
further described below, the Company's Syracuse China subsidiary has been named
a potentially responsible party with respect to certain property adjoining its
plant.
Through its Syracuse China subsidiary, the Company acquired on October 10, 1995
from The Pfaltzgraff Co. and certain of its subsidiaries the assets operated as
Syracuse China. The Pfaltzgraff Co. entered into an order of consent effective
November 1, 1994 with the New York State Department of Environmental
Conservation (NYSDEC) which requires Pfaltzgraff to prepare a Remedial
Investigation and Feasibility Study (RI/FS) to develop a remedial action plan
for a site in Syracuse, New York (which includes among other items a landfill
and wastewater and sludge ponds and adjacent wetlands located on the property
purchased by Syracuse China Company) and to remediate the site. As part of the
Asset Purchase Agreement the Syracuse China Company agreed to share a part of
the remediation and related expense up to a maximum of fifty percent of such
costs with a maximum limit for Syracuse China Company of $1,350,000.
Notwithstanding the foregoing, Syracuse China Company is not a party to the
decree. The RI/FS is complete and a contract has been awarded for the design of
the remediation projects. In addition, Syracuse China Company has been named as
a potentially responsible party with respect to certain property adjoining its
plant which has been designated a sub-site of a superfund site. The Company
believes that any contamination of such site was caused by and will be
remediated by other parties at no cost to Syracuse China. In any event, any
expense with respect to such site for which Syracuse China may be deemed
responsible would likely be shared with Pfaltzgraff pursuant to the Asset
Purchase Agreement.
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The Company regularly reviews the facts and circumstances of the various
environmental matters affecting the Company, including those which are covered
by indemnification. Although not free of uncertainties, the Company believes
that its share of the remediation costs at the various sites, based upon the
number of parties involved at the sites and the estimated cost of undisputed
work necessary for remediation based upon known technology and the experience of
others, will not be material to the Company. There can be no assurance, however,
that the Company's future expenditures in such regard will not have a material
adverse effect on the Company's financial position or results of operations.
In addition, occasionally the federal government and various state authorities
have investigated possible health issues that may arise from the use of lead or
other ingredients in enamels such as those used by the Company on the exterior
surface of its decorated products. Capital expenditures for property, plant and
equipment for environmental control activities were not material during 1997.
The Company believes that it is in material compliance with all federal, state
and local environmental laws, and the Company is not aware of any regulatory
initiatives that would be expected to have a material effect on the Company's
products or operations.
NUMBER OF EMPLOYEES
The Company employed approximately 4,120 persons at December 31, 1997. A
majority of the glass tableware employees are U.S.-based hourly workers covered
by six collective bargaining agreements which were entered into in 1995 and
expire at various times during the fourth quarter of 1998. Canada-based workers
are covered by two collective bargaining agreements which expire July 1999. The
ceramic dinnerware hourly employees are covered by a collective bargaining
agreement which expires in March 1999. The Company considers its employee
relations to be good
ITEM 2. PROPERTIES
The following table sets forth the location of the Company's principal
manufacturing and distribution facilities at December 31, 1997. The Company also
operates distribution facilities at or near each of its manufacturing facilities
as well as at the distribution centers set forth below.
Glass Tableware Ceramic Dinnerware
--------------- ------------------
Toledo, Ohio Syracuse, New York
Shreveport, Louisiana
City of Industry, California
Wallaceburg, Ontario, Canada
Distribution Centers
--------------------
Vitrocrisa - Laredo, Texas
World Tableware - West Chicago, Illinois
The Company's headquarters, the World Tableware offices, some warehouses, sales
offices and outlet stores are located in leased space.
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All of the Company's operating properties are currently being utilized for their
intended purpose and are owned in fee. The Company believes that its facilities
are well maintained and adequate for its planned production requirements at
those facilities over the next three to five years.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various routine legal proceedings arising in the
ordinary course of its business. The Company is not engaged in any legal
proceeding which would be deemed to be material to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names and the ages, positions and offices held (as of
the date hereof), and a brief account of the business experience of each
executive officer of the Company.
<TABLE>
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NAME AGE POSITION
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John F. Meier 50 Chairman of the Board and Chief Executive Officer since June
Chairman and Chief 1993; Executive Vice President and General Manager from December
Executive Officer 1990 to June 1993
Richard I. Reynolds 51 Executive Vice President and Chief Operating Officer since
Executive Vice President and Chief November 1995; Vice President and Chief Financial Officer from
Operating Officer June 1993 to November 1995; Vice President and Director of
Finance and Administration from January 1989 to June 1993.
L. Frederick Ashton 57 Vice President, General Sales Manager since November 1990
Vice President, General Sales Manager
Arthur H. Smith 62 Vice President, General Counsel and Secretary since June 1993;
Vice President, General Secretary of the Company since 1987 and Senior Counsel and
Counsel and Secretary Assistant Secretary of Owens-Illinois, Inc. from 1987 to June
1993.
</TABLE>
11
<PAGE> 15
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Kenneth G. Wilkes 40 Vice President, Chief Financial Officer and Treasurer since
Vice President, Chief Financial November 1995; Vice President and Treasurer since August 1993.
Officer and Treasurer Previously employed as Senior Corporate Banker, Vice President -
Corporate Banking with The First National Bank of Chicago from
1988.
John A. Zarb 46 Vice President , Chief Information Officer since April 1996.
Vice President, Chief Previously from 1991 to April 1996 employed by Allied Signal,
Information Officer Inc. in Information Technology management positions.
Daniel P. Ibele 37 Vice President, Corporate Marketing and Specialty Operations
since September 1997; Vice President and Director of Marketing
at Libbey since 1995. Previously from 1983 to 1995 various
marketing and sales positions.
Timothy T. Paige 40 Vice President, Director of Human Resources since January 1997;
Vice President, Director of Director of Human Resources from May 1995 to January 1997.
Human Resources From 1991 to May 1995 employed by Frito-Lay, Inc. in Human
Resources management positions.
</TABLE>
PART II
ITEM 5. MARKET FOR COMMON STOCK
Libbey Inc. common stock is listed for trading on the New York Stock Exchange
under the symbol LBY. The price range for the Company's common stock on the New
York Stock Exchange as reported by the New York Stock Exchange was as follows:
<TABLE>
<CAPTION>
- ------------------------- ----------------------------------------------------------------------------------
1997 1996
High Low High Low
- ------------------------- ------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
First Quarter 33 1/2 26 3/4 23 3/4 19 3/4
Second Quarter 35 1/2 28 28 21 1/8
Third Quarter 39 3/8 32 1/2 28 3/8 25 3/8
Fourth Quarter 42 1/4 35 3/8 28 1/8 23 3/8
- ------------------------- ------------------- -------------------- -------------------- --------------------
</TABLE>
On March 4, 1998, there were 854 registered common shareholders of record. The
Company has paid a regular quarterly cash dividend of $.075 per share beginning
with the fourth quarter of 1993. The declaration of future dividends is within
the discretion
12
<PAGE> 16
of the Board of Directors of the Company and will depend upon, among other
things, business conditions, earnings and the financial condition of the
Company.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollars in thousands, except per-share amounts)
1997(1) 1996 1995 1994 1993
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales $ 411,966 $ 397,656 $ 357,546 $ 333,988 $ 302,923
Total revenues 415,053 400,354 360,082 335,880 304,692
Cost of sales 295,009 288,538 257,945 238,885 217,531
Selling, general and admin. expenses 49,585 44,620 38,953 37,772 33,456
Income from operations 70,459 67,196 63,184 59,223 53,705
Equity earnings 3,570 -- -- -- --
Other income, (expenses) -- net (732) 1,302 499 (230) 16
Earnings before interest and income taxes 73,297 68,498 63,683 58,993 53,721
Interest expense -- net 14,840 14,962 13,974 13,797 23,064
Income before income taxes 58,457 53,536 49,709 45,196 30,657
Provision for income taxes 22,331 20,986 19,685 18,509 12,974
Net income 36,126 32,550 30,024 26,687 17,683
PER-SHARE DATA:
Basic net income $ 2.33 $ 2.16 $ 2.00 $ 1.78 $ 1.18
Diluted net income 2.27 2.12 1.97 1.76 1.18
Dividends paid 0.30 0.30 0.30 0.30 0.075
OTHER INFORMATION
Depreciation and amortization $ 19,896 $ 21,485 $ 18,158 $ 16,276 $ 14,678
Capital expenditures 18,408 15,386 20,198 17,361 12,485
Employees (average) 4,136 4,110 3,870 3,463 3,058
BALANCE SHEET
Total assets $ 449,600 $ 315,733 $ 321,815 $ 255,981 $ 249,014
Working capital(2) 89,942 65,823 74,795 41,263 38,645
Long-term debt 200,350 202,851 248,721 213,999 236,625
Shareholders' equity 99,989 (18,447) (47,116) (73,073) (95,154)
</TABLE>
1 Consolidates the results of the Vitro Transactions beginning in September.
2 Excludes short-term debt.
13
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
AND RESULTS OF OPERATIONS
HISTORICAL FINANCIAL DATA
- -------------------------
The following table presents certain results of operations data for Libbey for
the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(Dollars in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales $411,966 $397,656 $357,546
Gross profit 116,957 109,118 99,601
As a percentage of sales 28.4% 27.4% 27.9%
Income from operations $70,459 $67,196 $63,184
As a percentage of sales 17.1% 16.9% 17.7%
Earnings before interest
and income taxes $73,297 $68,498 $63,683
As a percentage of sales 17.8% 17.2% 17.8%
Net income $36,126 $32,550 $30,024
As a percentage of sales 8.8% 8.2% 8.4%
</TABLE>
Management is not aware of any events or uncertainties that are likely to have a
material impact on prospective results of operations or financial condition. The
modest rate of inflation experienced over the last three years has not had a
significant effect on the Company's financial results. Significant increases in
inflation in the future could have a material impact on the Company's financial
results if it is not able to raise prices to its customers.
RESULTS OF OPERATIONS
COMPARISON OF 1997 WITH 1996
- ----------------------------
Net sales for 1997 of $412.0 million were 3.6% higher than the net sales of
$397.7 million reported in 1996. The primary contributing factor to the increase
was the inclusion of sales of World Tableware and sales associated with the
Company's distribution agreement with Vitrocrisa since August 29, 1997. Sales
increased at Syracuse China in 1997. Sales of the Company's glassware products
were down slightly because of lower unit shipments. Sales at Syracuse China were
higher due to higher unit shipments. Libbey's export sales increased slightly to
$27.0 million in 1997 from $26.9 million in 1996.
Gross profit increased 7.2% to $117.0 million in 1997 from $109.1 million in
1996 and increased as a percentage of sales to 28.4% from 27.4% over this same
period. Gross margins improved primarily because the mix of glassware products
sold had a higher profitability, which offset increased warehouse and shipping
expenses and the inclusion of the acquired businesses, which had a lower profit
margin than the Company's average. Increases in warehouse and shipping expenses
are primarily attributable to increased warehouse space requirements due
14
<PAGE> 18
to higher inventory levels and the relocation of certain warehouse operations to
improve efficiencies.
Income from operations increased 4.9% to $70.5 million from $67.2 million in
1996 and increased as a percentage of net sales to 17.1% from 16.9% in the
year-ago period. The increase in the income from operations margin in 1997 was
primarily attributable to increases in the profitability of the Company's
glassware sales, principally due to improved sales mix only partially offset by
the inclusion of the acquired businesses, which operated at a lower profit
margin than the Company's average. The Company announced plans in January 1998
to increase its profitability through personnel reductions and elimination of
redundant warehouse space through improved inventory management. In addition, it
announced plans to close its remaining factory outlet mall stores, which
operated at a loss in 1997 and numbered 15 at December 31, 1997.
Earnings before interest and income taxes increased 7.0% to $73.3 million from
$68.5 million in 1996 and improved as a percentage of net sales to 17.8% from
17.2% in the year-ago period. The increase is the result of higher income from
operations and the inclusion of equity earnings from the Company's joint venture
investment in Mexico since August 29, 1997, only partially offset by a reserve
established in the fourth quarter of $865,000 to cover future expenses
associated with the closure of the Company's factory outlet mall store business.
Net income increased 11.0% to $36.1 million from $32.5 million in 1996 and
increased as a percentage of net sales to 8.8% from 8.2% in the year-ago period.
The increase is principally attributable to higher revenues and earnings before
interest and income taxes and a reduction in the Company's effective tax rate to
38.2% from 39.2% in the year-ago period. The reduction in the Company's
effective tax rate is primarily attributable to lower state income taxes.
COMPARISON OF 1996 WITH 1995
- ----------------------------
Net sales for 1996 of $397.7 million were 11.2% higher than the net sales of
$357.5 million reported in 1995. Contributing to the increase were greater sales
at the Company's Canadian operations; higher sales to foodservice markets in the
U.S.; significant increases in unit shipments to industrial customers and the
inclusion of sales of Syracuse China for twelve months in 1996 compared with
less than three months in 1995. Over one-half of the Company's sales increase is
attributable to the inclusion of sales of Syracuse China for a full year in
1996. The remainder of the increase is due to higher unit volume offsetting
lower average unit selling prices. Libbey's export sales increased slightly to
$26.9 million in 1996 from $26.0 million in 1995.
Gross profit increased 9.6% to $109.1 million in 1996 from $99.6 million in 1995
and declined as a percentage of sales to 27.4% from 27.9% over this same period.
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 costs of approximately 30%,
15
<PAGE> 19
principally due to increased prices and increased compensation costs, including
the effects of the Company's new Goalsharing program, were factors.
Income from operations increased 6.3% to $67.2 million in 1996 from $63.2
million in 1995 and decreased as a percentage of net sales to 16.9% from 17.7%.
The income from operations margin in 1996 was adversely affected by a lower
gross profit margin and the inclusion of Syracuse China. Consultant fees
associated with the Company's re-engineering initiative totaled $1.0 million.
Net income increased 8.4% to $32.5 million in 1996 from $30.0 million in 1995.
The increase is principally attributable to higher revenues and operating
profits and a reduction in the Company's effective tax rate from 39.6% to 39.2%,
principally due to lower state income taxes, offset by increased interest
expense due to additional debt associated with the Syracuse China acquisition in
October 1995.
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
Libbey's financial condition at year-end 1997 reflects the effects of the
Company's acquisitions, refinancing and increased working capital. Net cash
provided by operating activities decreased to $38.6 million from $60.2 million
in 1996. Higher net income was more than offset by lower depreciation expenses,
the addition of non-cash equity earnings and increases in working capital.
Increases in inventory and receivables are primarily attributable to the assets
acquired at World Tableware and those related to the distribution agreement with
the Company's joint venture in Mexico. Net cash provided by operating activities
in 1995 was $29.1 million. The increase in 1996 was due to higher net income and
improved working capital management.
Capital expenditures were $18.4 million in 1997 compared with $15.4 million in
1996 and included scheduled maintenance and investment in higher productivity
machinery and equipment, including glass-processing equipment and new equipment
to improve production efficiency at Syracuse China. In addition, the Company
incurred capitalized software expenditures of $1.2 million associated with the
installation of new information systems company-wide. Capital expenditures for
1998 are expected to be in the range of $23 to $25 million.
Libbey had total debt of $210.7 million at December 31, 1997, compared with
$207.4 million at December 31, 1996. The $3.3 million increase is primarily
attributable to the net cash provided from operations and the net proceeds of
$82.6 million associated with the issuance of 2.3 million shares of common stock
in a public offering in November 1997, only partially offsetting $106.7 million
of borrowings associated with acquisitions. Libbey had additional debt capacity
of $174.5 million at December 31, 1997, under the Bank Credit Agreement. Libbey
has entered into interest rate protection agreements with respect to $175.0
million of its debt. The average interest rate for the Company's borrowings
related to the interest rate protection agreements is 6.02% with an average
maturity of 2.4 years at December 31, 1997.
Of Libbey's outstanding indebtedness, $35.7 million is subject to fluctuating
interest rates at December 31, 1997. A change of one percentage point in such
rates would result in a change in interest expense of approximately $0.4 million
on an annual basis.
16
<PAGE> 20
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's 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.
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 option granted to the underwriters to cover over allotments, at
a price to the public of $37.875 per share, pursuant to the Company's $100
million shelf registration statement dated June 19, 1997. The Company used the
net proceeds from the common stock offering of $82.6 million 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.
OTHER INFORMATION
- -----------------
The Company has developed and initiated its plans to address the possible
exposures related to the impact of the Year 2000 on its computer systems and
equipment. Key financial information and operational systems have been assessed
and detailed plans have been implemented to address modifications required prior
to December 31, 1999. Plans to upgrade the Company's computer systems in the
normal course of business in 1998 include the upgrade of its principal computer
software to a version that is Year 2000 compliant. The Company expects these
modifications to be completed and tested by December 31, 1999. The financial
impact of making the required changes will be comprised primarily of internal
costs, excluding the costs required to upgrade and replace systems and equipment
in the normal course of business, and is not expected to be material to the
Company's consolidated financial position or results of operation.
17
<PAGE> 21
The Company has also initiated communications with its significant suppliers and
customers to ascertain whether they have appropriate plans to resolve Year 2000
issues where failure of their systems could adversely affect the Company's
operations.
This document and supporting schedules contain "forward-looking" statements as
defined in the Private Securities Litigation Reform Act of 1995, and as such,
only reflects the Company's best assessment at this time. Investors are
cautioned that forward-looking statements involve risks and uncertainties, that
actual results may differ materially from such statements, and that investors
should not place undue reliance on such statements. For a discussion of factors
that may affect actual results, investors should refer to the Company's
Securities and Exchange Commission reports, including but not limited to,
Exhibit 99 included in this report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
Report of Independent Auditors 19
Consolidated Balance Sheets at December 31, 1997 and 1996 20
For the years ended December 31, 1997, 1996 and 1995:
Consolidated Statements of Income 22
Consolidated Statements of Shareholders' Equity 23
Consolidated Statements of Cash Flows 24
Notes to Consolidated Financial Statements 25
Selected Quarterly Financial Data 39
18
<PAGE> 22
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Libbey Inc.
We have audited the accompanying consolidated balance sheets of Libbey Inc. as
of December 31, 1997 and 1996, and the related consolidated statements of
income, shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 1997. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Libbey Inc. at
December 31, 1997 and 1996, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as whole, presents fairly in all
material respects the information set forth therein.
Ernst & Young LLP
Toledo, Ohio
January 30, 1998
19
<PAGE> 23
LIBBEY INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
(Dollars in thousands) 1997 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,634 $ 1,990
Accounts receivable:
Trade, less allowances of $3,103 and $2,279 49,982 40,503
Other 1,975 1,551
- --------------------------------------------------------------------------------------------------------------
51,957 42,054
Inventories:
Finished goods 91,897 67,503
Work in process 5,056 5,017
Raw materials 3,545 3,054
Operating supplies 800 807
- --------------------------------------------------------------------------------------------------------------
101,298 76,381
Prepaid expenses 5,575 6,719
- --------------------------------------------------------------------------------------------------------------
Total current assets 161,464 127,144
Other assets:
Repair parts inventories 7,148 6,090
Other assets 26,170 25,398
Equity investments 85,789 --
Goodwill, net of accumulated amortization
of $11,635 and $10,339 48,828 37,731
- --------------------------------------------------------------------------------------------------------------
167,935 69,219
Property, plant and equipment at cost 236,427 225,518
Less accumulated depreciation 116,226 106,148
- --------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 120,201 119,370
- --------------------------------------------------------------------------------------------------------------
Total assets $449,600 $315,733
==============================================================================================================
</TABLE>
See accompanying notes.
20
<PAGE> 24
LIBBEY INC.
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
(Dollars in thousands) 1997 1996
---- ----
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 10,385 $ 4,525
Accounts payable 29,472 22,506
Salaries and wages 10,808 13,856
Accrued liabilities 28,031 23,102
Income taxes 3,211 1,857
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 81,907 65,846
Long-term debt 200,350 202,851
Deferred taxes and other liabilities 14,880 14,318
Nonpension retirement benefits 52,474 51,165
Shareholders' equity:
Common stock, par value $.01 per share, 50,000,000 shares authorized,
17,580,931 shares issued and outstanding
(15,061,231 in 1996) 175 151
Capital in excess of par value 279,208 191,909
Deficit (178,792) (210,368)
Cumulative foreign currency translation adjustment (602) (139)
- ---------------------------------------------------------------------------------------------------------------
Total shareholders' equity 99,989 (18,447)
- ---------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $449,600 $ 315,733
===============================================================================================================
</TABLE>
See accompanying notes.
21
<PAGE> 25
LIBBEY INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(Dollars in thousands, except per-share amounts) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues:
Net sales $411,966 $397,656 $357,546
Royalties and net technical assistance income 3,087 2,698 2,536
- -----------------------------------------------------------------------------------------------------------------------
Total revenues 415,053 400,354 360,082
Costs and expenses:
Cost of sales 295,009 288,538 257,945
Selling, general and administrative expenses 49,585 44,620 38,953
- -----------------------------------------------------------------------------------------------------------------------
344,594 333,158 296,898
- -----------------------------------------------------------------------------------------------------------------------
Income from operations 70,459 67,196 63,184
Other income (expense):
Equity earnings 3,570 -- --
Other--net (732) 1,302 499
- -----------------------------------------------------------------------------------------------------------------------
2,838 1,302 499
- ------------------------------------------------------------------------------------------------------------------------
Earnings before interest and income taxes 73,297 68,498 63,683
Interest expense--net (14,840) (14,962) (13,974)
- ------------------------------------------------------------------------------------------------------------------------
Income before income taxes 58,457 53,536 49,709
Provision for income taxes 22,331 20,986 19,685
- ------------------------------------------------------------------------------------------------------------------------
Net income $ 36,126 $ 32,550 $ 30,024
========================================================================================================================
Net income per share
Basic $ 2.33 $ 2.16 $ 2.00
Diluted $ 2.27 $ 2.12 $ 1.97
========================================================================================================================
</TABLE>
See accompanying notes.
22
<PAGE> 26
LIBBEY INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except per-share amounts)
<TABLE>
<CAPTION>
Cumulative
Foreign
Capital in Currency
Common Stock Excess of Translation
Shares Amount Par Value Deficit Adjustment Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1995 15,000,000 $ 150 $ 190,845 $(263,930) $ (138) $ (73,073)
Net Income 30,024 30,024
Stock options exercised 23,500 381 381
Dividend--$.30 per share (4,501) (4,501)
Effect of exchange rate fluctuation 53 53
- -----------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1995 15,023,500 150 191,226 (238,407) (85) (47,116)
Net income 32,550 32,550
Stock options exercised 37,731 1 683 684
Dividend -- $0.30 per share (4,511) (4,511)
Effect of exchange rate fluctuation (54) (54)
- -----------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1996 15,061,231 151 191,909 (210,368) (139) (18,447)
NET INCOME 36,126 36,126
STOCK OPTIONS EXERCISED 219,700 1 4,704 4,705
STOCK OFFERING NET OF $573
OF EXPENSES 2,300,000 23 82,595 82,618
DIVIDEND -- $0.30 PER SHARE (4,550) (4,550)
EFFECT OF EXCHANGE RATE FLUCTUATION (463) (463)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1997 17,580,981 $ 175 $ 279,208 $(178,792) $ (602) $ 99,989
=============================================================================================================================
</TABLE>
See accompanying notes.
23
<PAGE> 27
LIBBEY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 36,126 $ 32,550 $ 30,024
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 19,896 21,485 18,158
Equity earnings (3,570) -- --
Nonpension retirement benefit cost in excess of payments 1,309 2,220 2,107
Deferred income taxes 2,028 (201) (2,690)
Other 316 (177) 3,952
Changes in operating assets and liabilities:
Accounts receivable (5,226) (1,786) (5,813)
Inventories (9,558) 2,731 (2,884)
Prepaid expenses (506) (573) (2,203)
Other assets (3,534) (4,800) (1,986)
Accounts payable 647 2,463 (869)
Accrued liabilities and other liabilities 688 6,301 (8,742)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 38,616 60,213 29,054
INVESTING ACTIVITIES
Additions to property, plant and equipment (18,408) (15,386) (20,198)
Vitro acquisition and equity investments (106,750) -- --
Acquisition of Syracuse China assets -- -- (40,819)
Other 654 170 --
- -----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (124,504) (15,216) (61,017)
FINANCING ACTIVITIES
Net bank credit facility activity (2,097) (45,801) 34,478
Other net borrowings 5,860 4,525 --
- -----------------------------------------------------------------------------------------------------------------
Stock offering 82,618 -- --
Stock options exercised 4,705 684 381
Dividends (4,550) (4,511) (4,501)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 86,536 (45,103) 30,358
Effect of exchange rate fluctuations on cash (4) 1 ---
- -----------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 644 (105) (1,605)
Cash at beginning of year 1,990 2,095 3,700
- -----------------------------------------------------------------------------------------------------------------
Cash at end of year $ 2,634 $ 1,990 $ 2,095
=================================================================================================================
</TABLE>
See accompanying notes.
24
<PAGE> 28
LIBBEY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Libbey Inc. and
all wholly-owned subsidiaries ("the Company") after the elimination of all
significant intercompany accounts and transactions. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
2. SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
- --------
The Company designs, manufactures and markets an extensive line of high quality,
machine-made glass beverageware, other glass tableware and ceramic dinnerware to
a broad group of customers in the foodservice, retail, industrial and premium
areas. Most of the Company's sales are to customers in North America, although
international sales have grown significantly since 1988. Through a 1997
acquisition and equity investments the Company also imports and distributes
ceramic dinnerware and flatware and has a 49% interest in a glass tableware
manufacturer in Mexico.
INVENTORY VALUATION
- -------------------
The Company uses the last-in, first-out (LIFO) cost method of inventory
valuation for over 70% of its inventories. If inventories valued on the LIFO
method had been valued at standard or average costs, which approximate current
costs, inventories would be higher than reported by $11,720, $10,978 and $9,211
at December 31, 1997, 1996 and 1995, respectively. The remaining inventories are
valued at either standard or average cost.
GOODWILL
- --------
Goodwill, which resulted from the excess of purchase cost over net assets
acquired, is being amortized over 40 years. The Company periodically reviews
goodwill to assess recoverability, generally based upon expectations of
nondiscounted cash flows and operating income.
PROPERTY, PLANT AND EQUIPMENT
- -----------------------------
25
<PAGE> 29
Depreciation is provided on the straight-line method over the estimated useful
lives of the assets, generally 3 to 10 years for equipment and furnishings and
20 to 40 years for buildings and improvements.
STOCK OPTIONS
- -------------
The Company accounts for employee stock options in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
INCOME TAXES
- ------------
Deferred income taxes are determined based on temporary differences between
financial reporting and tax basis of assets and liabilities and are measured
using the tax rates and laws that will be in effect when the differences are
expected to reverse.
ROYALTIES AND NET TECHNICAL ASSISTANCE
- --------------------------------------
Royalties and net technical assistance income are accrued based on the terms of
the respective agreements, which typically specify that a percentage of the
licensee's sales be paid to the Company monthly, quarterly or semi-annually in
exchange for the Company's assistance with manufacturing and engineering and
support in functions such as marketing, sales and administration.
FOREIGN CURRENCY TRANSLATION
- ----------------------------
The assets and liabilities of the foreign subsidiary are translated at current
exchange rates and revenue and expense amounts are translated at average
exchange rates. Any related translation adjustments are recorded directly in
shareholders' equity.
INCOME PER SHARE OF COMMON STOCK
- --------------------------------
In 1997, the Financial Accounting Standards Board issued statement No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented, and
where appropriate, restated to conform to the Statement 128 requirements. The
following table sets forth the computation of basic and diluted earnings per
share:
26
<PAGE> 30
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator for earnings per share -- net income which is
available to common stockholders $ 36,126 $32,550 $ 30,024
=========================================================
Denominator for basic earnings per share -- weighted-average
shares outstanding 15,479,704 15,037,453 15,003,614
Effect of dilutive securities -- employee stock options 457,353 324,030 249,722
---------------------------------------------------------
Denominator for diluted earnings per share -- adjusted
weighted-average shares and assumed conversions 15,937,057 15,361,483 15,253,336
=========================================================
Basic earnings per share $ 2.33 $ 2.16 $ 2.00
=========================================================
Diluted earnings per share $ 2.27 $ 2.12 $ 1.97
=========================================================
</TABLE>
NEW ACCOUNTING STANDARDS
- ------------------------
In 1997, the Financial Accounting Standards Board issued Statement No. 130
"Reporting Comprehensive Income" (FAS 130) and No. 131 "Disclosure about
Segments of an Enterprise and Related Information" (FAS 131) which are effective
for periods beginning after December 31, 1997. FAS 130 will not have a material
effect on the consolidated financial statements, and the Company has not
determined the impact of FAS 131.
3. 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's 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% equity 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.
27
<PAGE> 31
The equity interests in Vitrocrisa and Crisa Industrial, L.L.C. were recorded as
equity investments of $82.2 million, which exceeded the underlying equity in net
assets by approximately $66.0 million. This amount is being amortized over 40
years as a charge to equity earnings. The acquisition of World Tableware was
accounted for under the purchase method of accounting for financial reporting
purposes, and a preliminary allocation of the purchase price to the underlying
net assets acquired has been made. The excess of the aggregate purchase price
over the fair value of assets acquired of approximately $12.4 million was
recorded as goodwill. The operating results of World Tableware and the equity
earnings of Vitrocrisa and Crisa Industrial, L.L.C. have been included in the
consolidated financial statements since the date of acquisition.
The following unaudited pro forma results of operations assume the acquisition
and equity investments occurred as of January 1, 1996 (in thousands, except
per-share amounts):
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996
-----------------------------------------------------------------
<S> <C> <C>
Net revenues $455,453 $460,419
Net income $ 36,901 $ 32,528
Net income per share:
Basic $2.38 $2.16
Diluted $2.32 $2.12
</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.
28
<PAGE> 32
Summarized combined financial information since the acquisition for equity
investments is as follows:
<TABLE>
<CAPTION>
December 31, 1997
----------------------------------------------------------------
<S> <C>
Current assets $ 65,540
Non-current assets 129,960
----------------------------------------------------------------
Total assets 195,500
Current liabilities 78,849
Other liabilities and deferred items 79,703
----------------------------------------------------------------
Total liabilities and deferred items 158,552
----------------------------------------------------------------
Net assets $ 36,948
================================================================
For the period ended December 31, 1997
----------------------------------------------------------------
Net sales $ 71,413
Gross profit $ 27,241
Net income $ 8,440
================================================================
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
Land $ 15,364 $ 15,466
Buildings 33,097 33,121
Machinery and equipment 167,574 165,334
Furniture and fixtures 11,449 10,215
Construction in progress 8,943 1,382
- ----------------------------------------------------------------------------
236,427 225,518
Less accumulated depreciation 116,226 106,148
- ----------------------------------------------------------------------------
Net property, plant and equipment $120,201 $119,370
============================================================================
</TABLE>
29
<PAGE> 33
5. ACCRUED LIABILITIES
Accrued liabilities include accruals for insurance of $5,733, $7,887 and $8,953
and various incentive programs of $9,537, $8,953 and $8,257 at December 31,
1997, 1996 and 1995, respectively.
6. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $15,906 $ 16,567 $ 17,598
Foreign 2,345 1,878 1,486
State and local 2,052 2,742 3,291
- ---------------------------------------------------------------------------------------------------------
20,303 21,187 22,375
Deferred:
Federal 1,500 (644) (2,317)
Foreign 368 385 203
State and local 160 58 (576)
- -----------------------------------------------------------------------------------------------------------
2,028 (201) (2,690)
- -----------------------------------------------------------------------------------------------------------
Total:
Federal 17,406 15,923 15,281
Foreign 2,713 2,263 1,689
State and local 2,212 2,800 2,715
- ----------------------------------------------------------------------------------------------------------
$22,331 $ 20,986 $ 19,685
==========================================================================================================
</TABLE>
The provision for income taxes was calculated based on the following components
of earnings before income taxes:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $50,734 $46,101 $44,455
Foreign 7,723 7,435 5,254
- -------------------------------------------------------------------------------------------------------
$58,457 $53,536 $49,709
=======================================================================================================
</TABLE>
30
<PAGE> 34
A reconciliation from the statutory U. S. federal tax rate of 35% to the
consolidated effective tax rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory U.S. Federal tax rate 35.0% 35.0% 35.0%
Increase in rate due to:
State and local income taxes
net of related federal taxes 2.5 3.4 3.5
Amortization of goodwill 0.9 0.7 0.7
Other (0.2) 0.1 0.4
- -------------------------------------------------------------------------------------------------
Consolidated effective tax rate 38.2% 39.2% 39.6%
=================================================================================================
</TABLE>
Income taxes paid in cash amounted to $16,570, $18,727 and $26,250 for the years
ended December 31, 1997, 1996 and 1995, respectively.
Significant components of the Company's deferred tax liabilities and assets are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment $20,042 $19,773
Inventories 2,784 2,131
Pension 2,988 2,187
Other assets 7,448 4,690
- --------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 33,262 28,781
Deferred tax assets:
Accrued nonpension retirement benefits 19,986 17,974
Other accrued liabilities 6,452 6,031
Receivables -- 733
Other 328 649
- --------------------------------------------------------------------------------------------------------
Total deferred tax assets 26,766 25,387
- --------------------------------------------------------------------------------------------------------
Net deferred tax liabilities $ 6,496 $ 3,394
========================================================================================================
</TABLE>
Net deferred tax liabilities are included in the consolidated balance sheets as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred taxes and other liabilities $ 9,659 $ 8,197
Prepaid expenses (3,163) (4,803)
- --------------------------------------------------------------------------------------------------------
Net deferred tax liabilities $ 6,496 $ 3,394
========================================================================================================
</TABLE>
31
<PAGE> 35
7. PENSION PLANS
The Company has pension plans covering substantially all employees. Benefits
generally are based on compensation for salaried employees and length of service
for hourly employees. The Company's policy is to fund pension plans such that
sufficient assets will be available to meet future benefit requirements.
The funded status of the plans at December 31, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
Actuarial present value of benefit obligations: 1997 1996
---- ----
<S> <C> <C>
Vested $133,685 $114,680
Nonvested 21,355 15,737
- --------------------------------------------------------------------------------------------------------
Accumulated benefit obligations 155,040 130,417
Effect of assumed benefit increases 7,486 13,265
- --------------------------------------------------------------------------------------------------------
Projected benefit obligation 162,526 143,682
Plan assets at fair value 201,424 180,039
- --------------------------------------------------------------------------------------------------------
Plan assets in excess of projected
benefit obligation 38,898 36,357
Unrecognized prior service cost (1,067) (15)
Unrecognized net gain (29,013) (29,035)
- --------------------------------------------------------------------------------------------------------
Prepaid pension cost $ 8,818 $ 7,307
========================================================================================================
</TABLE>
The actuarial present value of benefit obligations is based on a discount rate
of 7.25% in 1997 and 8.0% in 1996. The expected long-term rate of return on
assets is 10% in 1997 and 1996. A salary growth rate of 4.5% was used in 1997
and 5.5% in 1996. Future benefits are assumed to increase in a manner consistent
with past experience. Plan assets include marketable equity securities,
government and corporate debt securities and commingled funds.
The components of the net pension expense are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 3,373 $ 3,812 $ 2,967
Interest cost on projected benefit obligation 11,479 11,177 9,107
Return on plan assets (33,303) (27,890) (27,754)
Net amortization and deferral 16,940 12,645 15,341
-------------------------------------------------------------------------------------------------------------------------
Net pension cost (credit) $ (1,511) $ (256) $ (339)
=========================================================================================================================
</TABLE>
32
<PAGE> 36
The Company also sponsors certain other employee retirement benefit plans which
in the aggregate resulted in an expense of $1,975, $1,768 and $1,142 in 1997,
1996 and 1995, respectively.
8. NONPENSION RETIREMENT BENEFITS
The Company provides certain retiree health care and life insurance benefits
covering substantially all salaried and hourly employees. Employees are
generally eligible for benefits upon retirement and completion of a specified
number of years of creditable service. Benefits for most hourly retirees are
determined by collective bargaining. Under a cross-indemnity agreement,
Owens-Illinois assumed liability for the nonpension retirement benefits of
Company retirees who had retired as of the Initial Public Offering (IPO).
The components of the accumulated nonpension retirement benefit obligation and
amounts accrued were as follows:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
<S> <C> <C>
Retirees and dependents $ 6,791 $ 6,163
Active employees eligible for benefits 5,761 6,679
Active employees not eligible for benefits 18,147 19,750
- --------------------------------------------------------------------------------------------------------------
30,699 32,592
Unamortized prior service cost 7,487 7,200
Unrecognized net gain 14,288 11,373
- --------------------------------------------------------------------------------------------------------------
Accrued nonpension retirement benefits $ 52,474 $ 51,165
==============================================================================================================
</TABLE>
The provision for nonpension retirement benefit costs consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 1,236 $ 1,463 $ 1,443
Amortization (1,639) (1,276) (1,133)
Interest cost on nonpension retirement benefit obligation
2,408 2,484 2,663
- --------------------------------------------------------------------------------------------------------------------
Net nonpension retirement benefit cost $ 2,005 $ 2,671 $ 2,973
====================================================================================================================
</TABLE>
Assumed health care cost inflation is based on an ultimate rate of 5%. A one
percentage point increase in these rates would have increased the accumulated
nonpension retirement benefit obligation at December 31, 1997, by $269 and
increased the net nonpension retirement benefit cost by $349. A salary growth
rate of 4.5% was used in
33
<PAGE> 37
1997 and 5.5% in 1996. The assumed discount rate used in determining the
accumulated nonpension retirement benefit obligation was 7.25% for 1997 and 8.0%
for 1996. The Company continues to fund these nonpension retirement benefit
obligations as claims are incurred.
The Company provides retiree health care benefits to certain union hourly
employees through participation in a multiemployer retiree health care benefit
plan. Approximately $388, $357 and $79 was charged to expense for the years
ended December 31, 1997, 1996 and 1995, respectively.
9. 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 .15% and .275%,
respectively, at December 31, 1997. The Company may also elect to borrow up to a
maximum of $190 million under a Bid Rate loan alternative of the Facility at
floating rates of interest. The Company had $200.4 and $202.9 million
outstanding under the Facility at December 31, 1997 and 1996, respectively. The
Facility also provides for the issuance of $38 million of letters of credit,
with such usage applied against the $380 million limit. At December 31, 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 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 December 31, 1997, was 6.02% for an average remaining period of
2.4 years. Total remaining debt not covered by the Rate Agreements has
fluctuating interest rates with a weighted average rate of 6.22% at December 31,
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
34
<PAGE> 38
longer be protected from interest rate fluctuations by these Rate Agreements.
However, the Company does not anticipate nonperformance by the counterparts.
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.
Annual maturities for all the Company's long-term debt through 2002 are as
follows: 1998 through 2001 - none; 2002 - $200.4 million.
At December 31, 1997, the carrying value of the long-term debt approximates its
fair value based on the Company's current incremental borrowing rates. There was
no material fair market value for the Company's Interest Rate Protection
Agreements at December 31, 1997. The fair value of long-term debt is estimated
based on borrowing rates currently available to the Company for loans with
similar terms and maturities. The fair value of the Company's Rate Agreements is
based on quotes from brokers for comparable contracts. The Company does not
expect to cancel these agreements, and expects them to expire as originally
contracted.
Interest expense - net includes interest income of $2, $1 and $227, for the
years ended December 31, 1997, 1996 and 1995, respectively. Interest paid in
cash amounted to $14,337, $14,362 and $14,713 for the years ended December 31,
1997, 1996 and 1995, respectively.
10. STOCK OPTIONS
The Company sponsors a stock option plan for key employees. The plan provides
for the granting of Incentive Stock Options and Nonqualified Options to purchase
1,800,000 shares of the Company's common stock to key employees at a price not
less than the fair market value on the date the option is granted.
Options become exercisable as determined at the date of grant by a committee of
the Board of Directors. Unless an earlier expiration date is set at the time of
the grant or results from termination of an optionee's employment or a merger,
consolidation, acquisition, liquidation or dissolution of the Company, Incentive
Stock Options expire ten years after the date of grant and Nonqualified Options
expire ten years and a day after date of grant.
The Company has elected to follow APB No. 25, "Accounting for Stock Issued to
Employees," in accounting for employee stock options. The alternative fair value
35
<PAGE> 39
accounting provided for under FASB No. 123, "Accounting for Stock-Based
Compensation," requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB No. 25 no compensation
expense is recognized because the exercise price of the Company's employee stock
options equals the market price of the underlying stock at the date of grant.
In the opinion of management, the existing fair value models do not provide a
reliable measure of the value of employee stock options. The Black-Scholes
option valuation model was developed for use in estimating the fair value of
traded options which have no vesting restrictions and are fully transferable.
The Company's employee stock options have characteristics significantly
different from those of traded options. In addition, option valuation models
require highly subjective assumptions including the expected stock price
volatility. Changes in these assumptions can materially affect the fair value
estimate. Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1997, 1996 and 1995: risk-free interest rates of 5.9%; a
dividend yield of 1.2%; volatility factors of the expected market price of the
Company's common stock of .26 for 1997 and .27 for 1996 and 1995 plus a
weighted-average expected life of the options of 7 years. The weighted average
fair value of options granted in 1997, 1996 and 1995 was $13.59, $9.90 and
$8.13, respectively.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands, except earnings per-share information):
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income:
Reported $ 36,126 $ 32,550 $ 30,024
Pro forma 35,466 32,080 29,992
Earnings per share:
Basic
Reported $ 2.33 $ 2.16 $ 2.00
Pro forma 2.29 2.13 2.00
Diluted
Reported $ 2.27 $ 2.12 $ 1.97
Pro forma 2.23 2.09 1.96
=======================================================================================================================
</TABLE>
36
<PAGE> 40
Pro forma effect on net income for 1997, 1996 and 1995 is not representative of
the pro forma effect on net income in future years because it does not take into
consideration pro forma compensation expense related to grants made prior to
1995.
Stock option activity is as follows:
<TABLE>
<CAPTION>
Weighted Average
Number of Shares Exercise Price Price Range Per Share
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
January 1, 1996
Outstanding 1,428,970 $14.13 $13.00-$23.00
Exercisable 753,627 13.15
Granted 141,050 26.51
Canceled 2,350 22.15
Exercised 37,731 13.00
-------------------------
December 31, 1996
Outstanding 1,529,939 15.29 $13.00--$26.875
Exercisable 1,025,683 13.62
Granted 63,216 35.99
Canceled 22,170 24.29
Exercised 219,700 13.18
-------------------------
DECEMBER 31, 1997
OUTSTANDING 1,351,285 16.45 $13.00--$36.625
EXERCISABLE 1,151,809 14.45
==================================================================================================================================
</TABLE>
The following information is as of December 31, 1997:
<TABLE>
<CAPTION>
Options with an
Options with an exercise price of
exercise price of greater than
$13.00 per share $13.00 per share
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding 915,424 435,861
Weighted average exercise price $13.00 $23.70
Remaining contractual life 5.4 7.9
Options exercisable 915,424 236,385
Weighted average exercise price $13.00 $17.75
=========================================================================================================================
</TABLE>
37
<PAGE> 41
11. SHAREHOLDERS' RIGHTS PLAN
In January 1995, the Company adopted a Shareholders' Rights Plan designed to
ensure that all of the Company's shareholders receive fair and equal treatment
in the event of any proposal to acquire control of the Company. Under the Plan,
the Company's Board of Directors declared a distribution of one right for each
outstanding common share of the Company. Each right will entitle shareholders to
buy 1/100th of a share of newly created Series A Junior Participating Preferred
Stock at an exercise price of $55 per right. The rights will not be exercisable
until a person acquires beneficial ownership of 20% of the Company's common
shares or makes a tender offer for at least 20% of its common shares. After the
time that a person acquires beneficial ownership of 20% of the Company's common
shares, the holders of the rights may be permitted to exercise such rights to
receive the Company's common shares having market value of twice the exercise
price. The rights are redeemable at $0.001 per right at any time before the
tenth day after a person has acquired 20% or more of the outstanding common
shares. The redemption period may be extended under certain circumstances. If at
any time after the rights become exercisable and not redeemed, the Company is
acquired in a merger or other business combination transaction in which the
Company is not the surviving party, the rights will entitle a holder to buy a
number of shares of common stock of the acquiring company having a market value
of twice the exercise price of each right.
12. OPERATING LEASES
Rental expense for all operating leases was $5,983, $4,670 and $4,462 for the
years ended December 31, 1997, 1996 and 1995, respectively. Contingent rental
expense was not significant in any period presented. Future minimum rentals
under operating leases are as follows: 1998--$5,293; 1999--$4,470; 2000--$2,951;
2001--$2,213; 2002--$1,674 and 2003 and thereafter--$6,340.
38
<PAGE> 42
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables present selected quarterly financial data for the years
ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 First Second Third Fourth
Quarter Quarter Quarter Quarter
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dollars in thousands, except
per-share data
Net sales $78,479 $103,954 $104,824 $124,709
Cost of sales 56,775 71,894 71,959 94,381
Gross profit 21,704 32,060 32,865 30,328
Earnings before interest and
income taxes 10,942 20,029 22,845 19,481
Net income 4,646 10,132 11,555 9,793
------------------------------------------------------------------------------------------------------------------------
Net income per share
Basic $0.31 $0.67 $0.76 $0.59
Diluted $0.30 $0.65 $0.74 $0.58
------------------------------------------------------------------------------------------------------------------------
1996 First Second Third Fourth
Quarter Quarter Quarter Quarter
------------------------------------------------------------------------------------------------------------------------
Dollars in thousands, except
per-share data
Net sales $84,001 $103,804 $94,888 $114,963
Cost of sales 64,026 73,838 66,376 84,298
Gross profit 19,975 29,966 28,512 30,665
Earnings before interest and
income taxes 10,634 18,196 19,879 19,789
Net income 3,941 8,702 9,975 9,932
------------------------------------------------------------------------------------------------------------------------
Net income per share
Basic
$0.26 $0.58 $0.66 $0.66
Diluted
$0.26 $0.56 $0.65 $0.65
========================================================================================================================
</TABLE>
39
<PAGE> 43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to executive officers is set forth herein immediately
following Item 4 of Part I. Information with respect to non-officer directors is
included in the Proxy Statement in the section entitled "Election of Directors"
and such information is incorporated herein by this reference. The section in
the Proxy Statement entitled "General Information - Compliance with Section
16(a) of the Exchange Act" is also incorporated herein by this reference.
ITEMS 11. AND 13. EXECUTIVE COMPENSATION AND CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS
The sections entitled "Election of Directors" exclusive of the subsection
entitled "Board Meetings and Committees of the Board" and "Executive
Compensation" exclusive of the subsections entitled "Compensation Committee
Report" and "Performance Graph," which are included in the Proxy Statement, are
incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The section entitled "Security Ownership of Certain Beneficial Owners and
Management" which is included in the Proxy Statement is incorporated herein by
this reference.
40
<PAGE> 44
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
a) Index of Financial Statements and Financial Statement Schedule Covered by
Report of Independent Auditors.
Page
----
Report of Independent Auditors 19
Consolidated Balance Sheets at December 31, 1997 and 1996 20
For the years ended December 31, 1997, 1996 and 1995:
Consolidated Statements of Income 22
Consolidated Statements of Shareholders' Equity 23
Consolidated Statements of Cash Flows 24
Notes to Consolidated Financial Statements 25
Selected Quarterly Financial Data 39
Financial statement schedule for the years ended December 31, 1997, 1996 and
1995:
II - Valuation and Qualifying Accounts (Consolidated) S-1
All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule or because the information required is included in the consolidated
financial statements or the accompanying notes.
The accompanying Exhibit Index is hereby incorporated herein by this reference.
The exhibits listed in the accompanying Exhibit Index are filed or incorporated
by reference as part of this report.
41
<PAGE> 45
b) A form 8-K was filed during the fourth quarter, dated October 20, 1997 with
respect to the press release announcing third quarter financial results and
announced plans to issued additional common stock.
A form 8-K was filed during the fourth quarter, dated November 5, 1997 with
respect to issuance of a prospectus supplement dated November 5, 1997 for a
public offering of 2 million shares of common stock at a price of $37.875
per share under the Company's $100 million effective shelf registration of
June 19, 1997 and with respect to the Underwriter's Agreement in
connection with the Offering.
A first and second amendment to the form 8-K, dated August 29, 1997 were
filed during the fourth quarter with respect to the closing of the Vitro
Transactions which included the filing of material contracts and financial
statements with respect to the Vitro Transactions.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
by: /s/ Kenneth G. Wilkes
----------------------------
Kenneth G. Wilkes
Vice President, Chief Financial
Officer and Treasurer
Date: March 30, 1998
42
<PAGE> 46
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Libbey Inc. and in
the capacities and on the dates indicated.
SIGNATURE TITLE
- --------- -----
William A. Foley Director
Terry L. Wilkison Director
Peter C. McC. Howell Director
G. L. Moreau Director
Terence P. Stewart Director
Carol B. Morerdyk Director
R. I. Reynolds Director, Executive Vice President,
Chief Operating Officer
John F. Meier Chairman of the Board of Directors,
Chief Executive Officer
By: /s/ Kenneth G. Wilkes
----------------------------------
Kenneth G. Wilkes
Attorney-In-Fact
/s/ Kenneth G. Wilkes
- --------------------------------------
Kenneth G. Wilkes
Vice President, Chief Financial Officer
and Treasurer, (Principal Accounting
Officer)
Date: March 30, 1998
43
<PAGE> 47
INDEX TO FINANCIAL STATEMENT SCHEDULE
-------------------------------------
Financial Statement Schedule of Libbey Inc. for the years ended December 31,
1997 1996, and 1995:
Page
----
II Valuation and Qualifying Accounts (Consolidated) S-1
44
<PAGE> 48
LIBBEY INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (Consolidated)
Years ended December 31, 1997, 1996 and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Additions
Charged
Balance at (Credited) to
Beginning Costs and Other Deductions Balance at
Of Year Expenses (Note 1) (Note 2) End of Year
------- -------- -------- -------- -----------
Allowances for Losses and
Discounts on Receivables:
<S> <C> <C> <C> <C> <C>
1997 $ 2,279 $ 439 $ 551 $ 166 $ 3,103
======== ========= ====== ====== ========
1996 $ 3,289 $ (206) $ 35 $ 839 $ 2,279
======== ========= ====== ====== ========
1995 $ 2,211 $ 1,203 $ 406 $ 531 $ 3,289
======== ========= ====== ====== ========
</TABLE>
(1) The amounts in "Other" represent recoveries of accounts previously
charged off as uncollectible; in 1995, amounts established through
purchase price accounting for the acquisition of Syracuse China and in
1997 amounts established through purchase price accounting for
acquisition of World Tableware.
(2) Deductions from allowances for losses and discounts on receivables
represent uncollectible notes and accounts written off.
S-1
<PAGE> 49
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
S-K ITEM
601 NO. DOCUMENT
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
2.0 -- Asset Purchase Agreement dated as of September 22, 1995 by and among The Pfaltzgraff Co.,
The Pfaltzgraff Outlet Co., Syracuse China Company of Canada Ltd., LG Acquisition Corp. and
Libbey Canada Inc., Acquisition of Syracuse China Company (filed Exhibit 2.0 with the
Registrant's Current Report on Form 8-K dated September 22, 1995 and incorporated herein
by reference).
2.1 -- Master Investment Agreement, dated to be effective as of August 15, 1997, entered into by
and between Libbey Inc., Libbey Glass Inc., LGA2 Corp., LGA3 Corp., LGA4 Corp., Vitro,
S.A., Vitrocrisa Holding, S.A. de C.V., Vitro Corporativo, S.A., Vitrocrisa S.A. de C.V.
Crisa Corporation, and WorldCrisa Corporation (filed Exhibit 2.1 with the Registrant's
Current Report on Form 8-K dated August 29, 1997 and incorporated herein by reference).
.
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).
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).
</TABLE>
E-1
<PAGE> 50
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
S-K ITEM
601 NO. DOCUMENT
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
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).
10.1 -- Credit Agreement dated as of June 24, 1993 among Libbey Glass Inc. and Libbey Canada Inc., the
Lenders listed on the signature pages thereof, the Lenders named as managers for the Lenders,
The First National Bank of Chicago as Co-Agent and Bankers Trust Company as Agent (filed as
Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993
and incorporated herein by reference).
10.2 -- Management Services Agreement dated as of June 24, 1993 between Owens-Illinois General Inc.
and Libbey Glass Inc. (filed as Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993 and incorporated herein by reference).
10.3 -- Tax Allocation and Indemnification Agreement dated as of May 18, 1993 by and among
Owens-Illinois, Inc., Owens-Illinois Group, Inc. and Libbey Inc. (filed as Exhibit 10.3 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 and
incorporated herein by reference).
*10.4 -- Pension and Savings Plan Agreement dated as of June 17, 1993 between Owens-Illinois, Inc.
and Libbey Inc. (filed as Exhibit 10.4 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993 and incorporated herein by reference).
</TABLE>
E-2
<PAGE> 51
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
S-K ITEM
601 NO. DOCUMENT
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
10.5 -- Cross-Indemnity Agreement dated as of June 24, 1993 between Owens-Illinois, Inc. and Libbey Inc.
(filed as Exhibit 10.5 to Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993 and incorporated herein by reference).
*10.6 -- Employment Agreements dated as of June 24, 1993 between Libbey Inc. and its then Executive
Officers (filed as Exhibit 10.6 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993 and incorporated herein by reference).
*10.6 (a) -- Employment Agreement dated as of August 1, 1993 between Libbey Inc. and Kenneth G. Wilkes
(filed as an Exhibit 10.6(a) to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993 and incorporated herein by reference).
*10.7 -- Libbey Inc. Stock Option Plan for Key Employees (filed as Exhibit 10.7 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 and incorporated herein
by reference).
*10.8 -- Form of Non-Qualified Stock Option Agreement between Libbey Inc. and certain key employees
participating in the Libbey Inc. Stock Option Plan for Key Employees (filed as an Exhibit
10.8 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 and
incorporated herein by reference).
*10.9 -- Description of Libbey Inc. Senior Executive Life Insurance Plan (filed as an Exhibit 10.9
to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 and
incorporated herein by reference).
*10.10 -- Libbey Inc. Senior Management Incentive Plan (filed as an Exhibit 10.10 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by
reference).
</TABLE>
E-3
<PAGE> 52
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
S-K ITEM
601 NO. DOCUMENT
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
*10.11 -- Libbey Inc. Deferred Compensation Plan for Outside Directors (filed as an Exhibit 10.11 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 and
incorporated herein by reference).
10.12 -- Amended and Restated Credit Agreement dated as of August 27, 1994 among Libbey Glass Inc.
and Libbey Canada Inc. as Borrowers, the lenders listed therein, The Bank of Nova Scotia,
as Canadian lender, The Bank of New York, The Long-Term Credit Bank of Japan, Ltd., Chicago
Branch and Society National Bank as Lead Managers, The Bank of Nova Scotia, National
Westminster Bank USA, NationsBank of North Carolina, N.A. and The First National Bank of
Chicago, as Co-Agents and Bankers Trust Company, as Agent (filed as an Exhibit 10.12 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference).
*10.13 -- Libbey Inc. Executive Savings Plan (filed as an Exhibit 10.13 to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference).
*10.14 -- The Amended and Restated Libbey Inc. Stock Option Plan for Key Employees (filed as an
Exhibit 10.14 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
1995 and incorporated herein by reference).
*10.15 -- Employment Agreement dated as of September 5, 1995 (effective October 10, 1995) between
Libbey Inc. and Charles S. Goodman (filed Exhibit 10.15 with the Company's Current Report
on form 8-K dated October 10, 1995 and incorporated herein by reference).
</TABLE>
E-4
<PAGE> 53
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
S-K ITEM
601 NO. DOCUMENT
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
*10.16 -- Form of Non-qualified Stock Option Agreement between Libbey Inc. and Charles S. Goodman
under Amended and Restated Libbey Inc. Stock Option Plan for Key Employees (filed Exhibit
10.16 with the Company's current Report on Form 8-K dated October 10, 1995 and incorporated
herein by reference).
10.17 -- Libbey Inc. Guarantee dated as of October 10, 1995 in favor of The Pfaltzgraff Co., The
Pfaltzgraff Outlet Co. and Syracuse China Company of Canada Ltd. guaranteeing certain
obligations of LG Acquisition Corp. and Libbey Canada Inc. under the Asset Purchase
Agreement for the Acquisition of Syracuse China (Exhibit 2.0) in the event certain
contingencies occur (filed Exhibit 10.17 with the Company's Current Report on Form 8-K
dated October 10, 1995 and incorporated herein by reference).
10.18 -- Susquehanna Pfaltzgraff Co. Guarantee dated as of October 10, 1995 in favor of LG
Acquisition Corp. and Libbey Canada Inc. guaranteeing certain obligations of The
Pfaltzgraff Co., The Pfaltzgraff Outlet Co. and Syracuse China Company of Canada, Ltd.
under the Asset Purchase Agreement for the Acquisition of Syracuse China (Exhibit 2.0) in
the event certain contingencies occur (filed Exhibit 10.18 with the Company's Current
Report on Form 8-K dated October 10, 1995 and incorporated herein by reference).
10.19 -- Letter Agreement dated as of October 10, 1995 by and between The Pfaltzgraff Co., The
Pfaltzgraff Outlet Co., Syracuse China Company of Canada Ltd., LG Acquisition Corp. and
Libbey Canada Inc. amending the Letter Agreement dated September 22, 1995 filed as part of
the Asset Purchase Agreement for the Acquisition of Syracuse China (Exhibit 2.0) (filed
Exhibit 10.19 with the Company's Current Report on Form 8-K dated October 10, 1995 and
incorporated herein by reference).
</TABLE>
E-5
<PAGE> 54
EXHIBIT INDEX
<TABLE>
<CAPTION>
S-K ITEM
601 NO. DOCUMENT
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
10.20 -- The First Amendment dated as of July 17, 1995 (filed Exhibit 10.20 with the Company's
Current Report on Form 8-K dated October 10, 1995, File No. 1-12084 and incorporated herein
by reference) to the Amended and Restated Credit Agreement dated as of August 27, 1994
among Libbey Glass Inc. and Libbey Canada Inc. as Borrowers, the lenders listed therein,
The Bank of Nova Scotia, as Canadian lender, The Bank of New York, The Long-Term Credit
Bank of Japan, Ltd., Chicago Branch and Society National Bank as Lead Managers, The Bank of
Nova Scotia, National Westminster Bank USA, NationsBank of North Carolina, N.A. and the
First National Bank of Chicago, as Co-Agents and Bankers Trust Company, as Agent (filed as
Exhibit 10.12 to the Company Annual Report on Form 10-K for the year ended December 31,
1994 and incorporated herein by reference).
*10.21 -- Employment Agreement dated as of April 1, 1996 between Libbey Inc. and John A. Zarb (filed
as Exhibit 10.21 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 1996 and incorporated herein by reference).
*10.22 -- The Amended and Restated Libbey Inc. Senior Management Incentive Plan (filed as an Exhibit
10.22 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 and
incorporated herein by reference).
*10.23 -- First Amended and Restated Libbey Inc. Executive Savings Plan (filed as an Exhibit 10.23 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference).
</TABLE>
E-6
<PAGE> 55
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
S-K ITEM
601 NO. DOCUMENT
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
*10.24 -- Employment Agreement dated as of January 1, 1997 between Libbey Inc. and Timothy T. Paige
(filed as an Exhibit 10.24 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference).
10.25 -- The Second Amended and Restated Credit Agreement dated as of April 23, 1997 to the First
Amended and Restated Credit Agreement dated as of July 17, 1995 among Libbey Glass Inc. and
Libbey Canada Inc. as Borrowers, the lenders listed therein, The Bank of Nova Scotia, as
Canadian Agent, The First National Bank of Chicago, as Syndication Agents, NationsBank,
N.A., as Documentation Agent, The Bank of New York, The Bank of Nova Scotia, Caisse
National De Credit Agricole, Fleet Bank, N.A. and Keybank National Association, as
Co-Agents and Bankers Trust Company, as Administrative Agent (filed as Exhibit 10.25 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 and
incorporated herein by reference).
.
10.26 -- Amended and Restated Distribution Agreement dated to be effective as of August 29, 1997, by
and among Vitro, S.A., Vitrocrisa, S.A. de C.V., Libbey Inc. and Libbey Glass Inc. whereby
Libbey Glass Inc. will distribute certain products (filed as Exhibit 10.26 to Registrant's
Current Report on Form 8-K/A dated August 29, 1997 Amendment No. 1 and incorporated herein
by reference).
10.27 -- Amended and Restated Distribution Agreement dated to be effective as of August 29, 1997, by
and among Vitro, S.A., Vitrocrisa, S.A. de C.V., Libbey Inc. and Libbey Glass Inc. whereby
Vitrocrisa, S.A. de C.V. will distribute certain products (filed as Exhibit 10.27 to
Registrant's Current Report on Form 8-K /A dated August 29, 1997 Amendment No. 1 and
incorporated herein by reference).
</TABLE>
E-7
<PAGE> 56
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
S-K ITEM
601 NO. DOCUMENT
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
10.28 -- Vitrocrisa, S.A. de C.V. Shareholders Agreement dated to be effective as of August 29,1997
by and among Libbey Inc., LGA3 Corp., Vitro, S.A., Vitrocrisa Holding, S.A. de C.V. and
Vitrocrisa, S.A. de C.V. (filed as Exhibit 10.28 to Registrant's Current Report on Form 8-K
/A dated August 29, 1997 Amendment No. 1 and incorporated herein by reference).
10.29 -- Vitrocrisa Holding, S.A. de C.V. Shareholders Agreement dated to be effective as of August
29,1997 by and among Libbey Inc., LGA3 Corp., Vitro, S.A. and Vitrocrisa Holding, S.A. de
C.V. (filed as Exhibit 10.29 to Registrant's Current Report on Form 8-K /A dated August 29,
1997 Amendment No. 1 and incorporated herein by reference).
10.30 -- Amended and Restated Covenant Not to Compete dated to be effective as of August 29, 1997 by
and between Libbey Inc. and Vitro, S.A. (filed as Exhibit 10.30 to Registrant's Current
Report on Form 8-K /A dated August 29, 1997 Amendment No. 1 and incorporated herein by reference).
10.31 -- Crisa Libbey, S.A. de C.V. Shareholders Agreement dated to be effective as of August
29,1997 by and among Libbey Inc., LGA3 Corp., Vitro, S.A. and Crisa Libbey, S.A. de C.V.
(filed as Exhibit 10.31 to Registrant's Current Report on Form 8-K /A dated August 29,
1997 Amendment No. 1 and incorporated herein by reference).
10.32 -- Limited Liability Company Agreement of Crisa Industrial, L.L.C. dated to be effective as of
August 29, 1997 by and among Crisa Corporation, LGA4 Corp., Vitro, S.A. and Libbey Inc.
(filed as Exhibit 10.32 to Registrant's Current Report on Form 8-K /A dated August 29,
1997 Amendment No. 1 and incorporated herein by reference).
10.33 -- Management Services Agreement dated to be effective August 29, 1997 by and between Libbey
Inc. and Vitrocrisa, S. A. de C.V. for services to be provided by one or more subsidiary
corporations of Libbey Inc. (filed as Exhibit 10.33 to Registrant's Current Report on Form
8-K /A dated August 29, 1997 Amendment No. 1 and incorporated herein by reference).
</TABLE>
E-8
<PAGE> 57
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
S-K ITEM
601 NO. DOCUMENT
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
*10.34 -- Employment Agreement dated as of September 1, 1997 between Libbey Inc. and Daniel P. Ibele
(filed as Exhibit 10.34 to Registrant's Current Report on Form 8-K /A dated August 29, 1997
Amendment No. 1 and incorporated herein by reference).
13 -- 1997 Annual Report to Shareholders for the year ended December 31, 1997. Except for the
information that is expressly incorporated herein by reference, this exhibit is furnished
for the information of the Securities and Exchange Commission and is not deemed to be filed
as part of this report.
22 -- Subsidiaries of the Registrant (filed herewith).
23 -- Consent of Independent Auditors (filed herewith).
25 -- Power of Attorney (filed herewith).
27.1 -- Financial Data Schedule, year 1997 (filed herewith)
27.2 -- Financial Data Schedule, three quarters 1997 restated (filed herewith)
27.3 -- Financial Data Schedule, four quarters 1996 restated (filed herewith)
99 -- Safe harbor provisions of the Private Securities Litigation Reform Act of 1935 (filed
herewith).
</TABLE>
* Management Contract or Compensation Plan or Arrangement.
E-9
<PAGE> 1
EXHIBIT 22
SUBSIDIARIES OF REGISTRANT
Syracuse China Company - Incorporated in Delaware
World Tableware Inc. - Incorporated in Delaware
LGA4 Corp. - Incorporated in Delaware
LGA3 Corp. - Incorporated in Delaware
The Drummond Glass Company - Incorporated in Delaware
Libbey Canada Inc. - Incorporated in Ontario, Canada
Libbey Foreign Sales Corporation - Incorporated in Barbados
Libbey Glass Inc. - Incorporated in Delaware
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 333-28735) of Libbey Inc. and the related Prospectus, in the
Registration Statement (Form S-8 No. 33-64726) of Libbey Inc. pertaining to the
Libbey Inc. Stock Purchase and Savings Program and the Libbey Inc. Supplemental
Retirement Plan, in the Registration Statement (Form S-8 No. 33-80448)
pertaining to the Libbey Inc. Stock Option Plan for Key Employees, in the
Registration Statement (Form S-8 No. 33-98234) pertaining to the Libbey Inc.
Amended and Restated Stock Option Plan for Key Employees and in the
Registration Statement (Form S-8 No. 333-19459) pertaining to the Libbey Inc.
Long-Term Savings Plan & Trust of our report dated January 30, 1998, with
respect to the consolidated financial statements and schedule of Libbey Inc.,
included in the Annual Report (Form 10-K) for the year ended December 31, 1997.
Ernst & Young LLP
Toledo, Ohio
March 27, 1998
<PAGE> 1
Exhibit 25
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a
director or officer, or both, of LIBBEY INC., a Delaware corporation (the
Company"), hereby does constitute and appoint JOHN F. MEIER, RICHARD I.
REYNOLDS, ARTHUR H. SMITH and KENNETH G. WILKES, with full power to each of
them to act alone, as the true and lawful attorneys and agents of the
undersigned, with full power of substitution and resubstitution to each of said
attorney, to executed, file or deliver any and all instruments and to do any and
all acts and things which said attorneys and agents, or any of them, deem
advisable to enable the Company to comply with the Securities Exchange Act of
1934, as amended, and any requirements of the Securities and Exchange
Commission in respect thereto, relating to annual reports on Form 10-K,
including specifically, but without limitation of the general authority hereby
granted, the power and authority to sign his or her name in the name and on
behalf of the Company or as a director of officer, or both, of the Company, as
indicated below opposite his or her signature to annual reports on Form 10-K
for the year ending December 31, 1997 or nay amendment or papers supplemental
thereto; and each of the undersigned hereby does fully ratify and confirm all
that said attorneys and agents, or any of them, or the substitute of any of
them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has subscribed these presents
as of this 3rd day of February, 1998.
/s/ John F. Meirer Director, Chairman of the Board and
- -------------------------- Chief Executive Officer
/s/ Richard I. Reynolds Director, Executive Vice President and Chief
- -------------------------- Operating Officer
Richard I. Reynolds
/s/ Kenneth G. Wilkes Director
- --------------------------
Kenneth G. Wilkes
/s/ William A. Foley Director
- --------------------------
William A. Foley
/s/ Peter C. McC. Howell Director
- --------------------------
Peter C. McC. Howell
/s/ Carol B. Moerdyk Director
- --------------------------
Carol B. Moerdyk
/s/ Gary L. Moreau Director
- --------------------------
Gary L. Moreau
/s/ Terence P. Stewart Director
- --------------------------
Terence P. Stewart
/s/ Terry L. Wilkison Director
- --------------------------
Terry L. Wilkison
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,634
<SECURITIES> 0
<RECEIVABLES> 51,957
<ALLOWANCES> 0
<INVENTORY> 101,298
<CURRENT-ASSETS> 161,298
<PP&E> 236,427
<DEPRECIATION> 116,226
<TOTAL-ASSETS> 449,600
<CURRENT-LIABILITIES> 81,907
<BONDS> 0
0
0
<COMMON> 175
<OTHER-SE> 99,814
<TOTAL-LIABILITY-AND-EQUITY> 449,600
<SALES> 411,966
<TOTAL-REVENUES> 415,053
<CGS> 295,009
<TOTAL-COSTS> 344,594
<OTHER-EXPENSES> (732)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,840
<INCOME-PRETAX> 58,457
<INCOME-TAX> 22,331
<INCOME-CONTINUING> 36,126
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,126
<EPS-PRIMARY> 2.33
<EPS-DILUTED> 2.27
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 5,014 3,750 2,205
<SECURITIES> 0 0 0
<RECEIVABLES> 39,823 48,723 57,026
<ALLOWANCES> 0 0 0
<INVENTORY> 91,133 94,435 118,806
<CURRENT-ASSETS> 143,917 153,505 188,955
<PP&E> 227,763 230,958 235,799
<DEPRECIATION> 111,228 114,764 118,973
<TOTAL-ASSETS> 329,355 339,281 466,776
<CURRENT-LIABILITIES> 74,728 75,991 83,431
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 151 152 152
<OTHER-SE> (14,230) (3,763) 7,916
<TOTAL-LIABILITY-AND-EQUITY> 329,355 339,281 466,776
<SALES> 78,479 182,433 287,257
<TOTAL-REVENUES> 79,403 184,053 289,428
<CGS> 56,775 128,669 200,628
<TOTAL-COSTS> 68,525 153,126 236,744
<OTHER-EXPENSES> (64) (44) (302)
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 3,301 6,744 10,598
<INCOME-PRETAX> 7,641 24,227 43,218
<INCOME-TAX> 2,995 9,449 16,885
<INCOME-CONTINUING> 4,646 14,778 26,333
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 4,646 14,778 26,333
<EPS-PRIMARY> 0.31 0.98 1.74
<EPS-DILUTED> 0.30 0.95 1.69
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996
<CASH> 4,544 1,770 4,617 1,990
<SECURITIES> 0 0 0 0
<RECEIVABLES> 37,783 42,561 42,440 40,503
<ALLOWANCES> 0 0 0 0
<INVENTORY> 87,078 86,229 87,944 76,381
<CURRENT-ASSETS> 139,161 138,229 142,305 127,144
<PP&E> 222,130 225,392 230,028 225,518
<DEPRECIATION> 101,214 105,282 109,796 106,148
<TOTAL-ASSETS> 327,777 326,370 331,754 315,733
<CURRENT-LIABILITIES> 59,219 61,938 60,960 65,846
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 150 150 150 151
<OTHER-SE> (44,302) (36,731) (27,645) (18,598)
<TOTAL-LIABILITY-AND-EQUITY> 327,777 326,370 331,754 315,733
<SALES> 84,001 187,805 282,693 397,656
<TOTAL-REVENUES> 84,477 189,037 284,620 400,354
<CGS> 64,026 137,864 204,240 288,538
<TOTAL-COSTS> 74,567 160,966 237,159 333,158
<OTHER-EXPENSES> (724) (759) (1,248) (1,302)
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 4,120 7,932 11,445 14,962
<INCOME-PRETAX> 6,514 20,898 37,264 53,536
<INCOME-TAX> 2,573 8,255 14,646 20,986
<INCOME-CONTINUING> 3,941 12,643 22,618 32,550
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 3,941 12,643 22,618 32,550
<EPS-PRIMARY> 0.26 .84 1.50 2.16
<EPS-DILUTED> 0.26 .82 1.47 2.12
</TABLE>
<PAGE> 1
EXHIBIT 99
SAFE HARBOR PROVISION OF THE PRIVATE SECURITIES LITIGATION
----------------------------------------------------------
REFORM ACT OF 1935
------------------
Libbey desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 and has filed form 8-K
under date of August 6, 1996 in order to do so.
Libbey wishes to caution readers that the following important factors,
among others, could affect Libbey's actual results and could cause
Libbey's actual consolidated results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of,
Libbey.
Important factors potentially affecting performance include
devaluations and other major currency fluctuations relative to the U.S.
dollar that could reduce the cost-competitiveness of the Company's
products compared to foreign competition and the effect of potentially
high inflation in Mexico and exchange rate changes to the value of the
Mexican Peso on the earnings and cash flow of the Company's joint
venture in Mexico, Vitrocrisa, as expressed under U.S. GAAP, the
inability to achieve re-engineering-related savings and profit
improvements at targeted levels in the Company's Glassware business, or
within the intended time periods; inability to achieve target
manufacturing efficiencies at Syracuse China and cost synergies between
World Tableware and the Company's other operations; significant
increases in interest rates that increase the Company's borrowing and
the per unit costs of natural gas, corrugated packaging, and other
purchased materials; protracted work stoppages related to collective
bargaining agreement; major slowdowns in the retail, travel or
entertainment industries in the United States or Canada; whether the
Company completes any significant acquisition, and whether such
acquisitions can operate profitably.
