<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended September 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Libbey Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-12084 34-1559357
-------- ------- ----------
(State or other (Commission (IRS Employer
jurisdiction of File No.) Identification No.)
incorporation or
organization)
300 Madison Avenue, Toledo, Ohio 43604
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
419-325-2100
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Common Stock, $.01 par value - 17,279,381 shares at November 2, 1998.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The Condensed Consolidated Financial Statements presented herein are unaudited
but, in the opinion of management, reflect all adjustments necessary to present
fairly such information for the periods and at the dates indicated. Since the
following condensed unaudited financial statements have been prepared in
accordance with Article 10 of Regulation S-X, they do not contain all
information and footnotes normally contained in annual consolidated financial
statements; accordingly, they should be read in conjunction with the
Consolidated Financial Statements and notes thereto appearing in the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1997.
The interim results of operations are not necessarily indicative of results for
the entire year.
2
<PAGE> 3
LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per-share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three months ended September 30,
Revenues: 1998 1997
--------- ---------
<S> <C> <C>
Net sales $ 109,604 $ 104,824
Royalties and net technical
assistance income 751 551
--------- ---------
Total revenues 110,355 105,375
Costs and expenses:
Cost of sales 76,801 71,959
Selling, general and administrative
expenses 12,986 11,659
--------- ---------
89,787 83,618
--------- ---------
Income from operations 20,568 21,757
Other income:
Equity earnings 4,733 830
Other income - net 946 258
--------- ---------
5,679 1,088
--------- ---------
Earnings before interest and income taxes 26,247 22,845
Interest expense - net (3,070) (3,854)
--------- ---------
Income before income taxes 23,177 18,991
Provision for income taxes 8,923 7,436
--------- ---------
Net income $ 14,254 $ 11,555
========= =========
Net income per share
Basic $ 0.81 $ 0.76
========= =========
Diluted $ 0.79 $ 0.74
========= =========
Dividends per share $ 0.075 $ 0.075
========= =========
</TABLE>
See accompanying notes.
3
<PAGE> 4
LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per-share amounts)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
Revenues: 1998 1997
--------- ---------
<S> <C> <C>
Net sales $ 313,365 $ 287,257
Royalties and net technical
assistance income 2,271 2,171
--------- ---------
Total revenues 315,636 289,428
Costs and expenses:
Cost of sales 223,730 200,628
Selling, general and administrative
expenses 38,490 36,116
--------- ---------
262,220 236,744
--------- ---------
Income from operations 53,416 52,684
Other income:
Equity earnings 10,768 830
Other income - net 1,026 302
--------- ---------
11,794 1,132
--------- ---------
Earnings before interest and income taxes 65,210 53,816
Interest expense - net (9,753) (10,598)
--------- ---------
Income before income taxes 55,457 43,218
Provision for income taxes 21,351 16,885
--------- ---------
Net income $ 34,106 $ 26,333
========= =========
Net income per share
Basic $ 1.94 $ 1.74
========= =========
Diluted $ 1.89 $ 1.69
========= =========
Dividends per share $ 0.225 $ 0.225
========= =========
</TABLE>
See accompanying notes.
4
<PAGE> 5
LIBBEY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---- ----
(unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,774 $ 2,634
Accounts receivable:
Trade, less allowances of $2,970
and $3,103 53,121 49,982
Other 2,653 1,975
-------- --------
55,774 51,957
Inventories:
Finished goods 99,384 91,897
Work in process 5,486 5,056
Raw materials 3,424 3,545
Operating supplies 832 800
-------- --------
109,126 101,298
Prepaid expenses 6,310 5,575
-------- --------
Total current assets 173,984 161,464
Other assets:
Repair parts inventories 9,381 7,148
Other 26,252 26,170
Investments 82,325 85,789
Goodwill, net of accumulated
amortization of $12,750 and $11,635 47,145 48,828
-------- --------
165,103 167,935
Property, plant and equipment, at cost 243,995 236,427
Less accumulated depreciation 123,107 116,226
-------- --------
Net property, plant and equipment 120,888 120,201
-------- --------
Total assets $459,975 $449,600
======== ========
</TABLE>
Note: The condensed consolidated balance sheet at December 31, 1997 has been
derived from the audited consolidated financial statements at that date but does
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See accompanying notes.
5
<PAGE> 6
LIBBEY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---- ----
(unaudited) (Note)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 15,100 $ 10,385
Accounts payable 21,866 29,472
Accrued liabilities 20,470 28,031
Other 25,630 14,019
--------- ---------
Total current liabilities 83,066 81,907
Long-term debt 180,575 200,350
Deferred taxes and other liabilities 13,731 14,880
Nonpension retirement benefits 51,595 52,474
Shareholders' equity:
Common stock, par value $.01
per share, 50,000,000 shares
authorized, 17,665,981 shares
issued and outstanding
(17,580,931 in 1997) 177 175
Capital in excess of par value 281,078 279,208
Deficit (148,651) (178,792)
Accumulated other comprehensive
income (1,596) (602)
--------- ---------
Total shareholders' equity 131,008 99,989
--------- ---------
Total liabilities and shareholders'
equity $ 459,975 $ 449,600
========= =========
</TABLE>
Note: The condensed consolidated balance sheet at December 31, 1997 has been
derived from the audited consolidated financial statements at that date but does
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See accompanying notes.
6
<PAGE> 7
LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1998 1997
---- ----
<S> <C> <C>
Operating activities
Net income $ 34,106 $ 26,333
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 15,357 15,863
Other non-cash charges (900) (36)
Equity earnings (10,768) (830)
Net change in components of working
capital and other assets (19,821) (38,645)
--------- ---------
Net cash provided by operating activities 17,974 2,685
Investing activities
Additions to property, plant and
equipment (15,186) (10,975)
Vitro Investments -- (104,487)
Dividends from Vitro Investments 14,232 --
--------- ---------
Net cash used in investing activities (954) (115,462)
Financing activities
Net borrowings (repayments) under Bank
Credit Agreement (19,482) 107,283
Other net borrowings 4,715 5,475
Stock options exercised 1,872 3,642
Dividends (3,965) (3,405)
--------- ---------
Net cash provided by (used in) financing
activities (16,860) 112,995
--------- ---------
Effect of exchange rate fluctuations
on cash (20) (3)
--------- ---------
Increase in cash 140 215
Cash at beginning of year 2,634 1,990
--------- ---------
Cash at end of period $ 2,774 $ 2,205
========= =========
</TABLE>
See accompanying notes.
7
<PAGE> 8
LIBBEY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dollars in thousands, except per share data
(unaudited)
1. LONG-TERM DEBT
The Company and its Canadian subsidiary have an unsecured agreement ("Bank
Credit Agreement" or "Agreement") with a group of banks which provides for a
Revolving Credit and Swing Line Facility ("Facility") permitting borrowings up
to an aggregate total of $380 million, maturing May 1, 2002. Swing Line
borrowings are limited to $25 million with interest calculated at the prime rate
minus the Commitment Fee Percentage. Revolving Credit borrowings bear interest
at the Company's option at either the prime rate minus the Commitment Fee
Percentage, or a Eurodollar rate plus the Applicable Eurodollar Margin. The
Commitment Fee Percentage and Applicable Eurodollar Margin will vary depending
on the Company's performance against certain financial ratios. The Commitment
Fee Percentage and the Applicable Eurodollar Margin were 0.125% and 0.225%,
respectively, at September 30, 1998. The Company may also elect to borrow under
a Negotiated Rate Loan alternative of the Revolving Credit and Swing Line
Facility at floating rates of interest, up to a maximum of $190 million. The
Revolving Credit and Swing Line Facility also provides for the issuance of $35
million of letters of credit, with such usage applied against the $380 million
limit. At September 30, 1998 the Company had $5.5 million in letters of credit
outstanding under the Facility.
The Company has entered into interest rate protection agreements ("Rate
Agreements") with respect to $175 million of debt under its Bank Credit
Agreement as a means to manage its exposure to fluctuating interest rates. The
Rate Agreements effectively convert this portion of the Company's Bank Credit
Agreement borrowings from variable rate debt to a fixed rate basis, thus
reducing the impact of interest rate changes on future income. The average
interest rate for the Company's borrowings related to the Rate Agreements at
September 30, 1998 was 5.94% for an average remaining period of 1.7 years. The
remaining debt not covered by the Rate Agreements has fluctuating interest rates
with a weighted average rate of 6.5% at September 30, 1998. On October 5, 1998
an additional $75 million became subject to fluctuating interest rates as swap
agreements expired.
The interest rate differential to be received or paid under the Rate Agreements
is being recognized over the life of the Rate Agreements as an adjustment to
interest expense. If the counterparts to these Rate Agreements fail to perform,
the Company would no longer be
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<PAGE> 9
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.
2. ACQUISITION
On August 29, 1997, the Company completed a series of transactions with Vitro
S.A. (collectively the "Vitro Transactions") for a cash purchase price of
approximately $100 million and the assumption of certain liabilities, financed
through borrowings under the Bank Credit Agreement. The primary components of
the Vitro Transactions included the Company becoming: (i) a 49% equity owner in
Vitrocrisa; (ii) the exclusive distributor of Vitrocrisa's glass tableware
products in the U.S. and Canada and Vitrocrisa becoming the exclusive
distributor of Libbey'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
described.
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 an 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 $11.8 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.
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<PAGE> 10
The following unaudited pro forma results of operations assume the acquisition
occurred as of January 1, 1996 (in thousands, except per-share amounts):
Quarter ended September 30,
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net revenues $110,355 $115,467
Net income $ 14,254 $ 11,696
Net income per share
Basic $ 0.81 $ 0.77
Diluted $ 0.79 $ 0.75
Nine Months ended September 30,
1998 1997
---- ----
Net revenues $315,636 $329,828
Net income $ 34,106 $ 27,108
Net income per share
Basic $ 1.94 $ 1.79
Diluted $ 1.89 $ 1.74
</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.
Summarized combined financial information for equity investments for 1998 and
1997 is as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---- ----
<S> <C> <C>
Current assets $ 56,571 $ 65,540
Non-current assets 134,448 129,960
- -------------------------------------------------------------------------------
Total assets 191,019 195,500
Current liabilities 63,994 78,849
Other liabilities and deferred items 98,883 79,703
- -------------------------------------------------------------------------------
Total liabilities and deferred items 162,877 158,552
- -------------------------------------------------------------------------------
Net assets $ 28,142 $ 36,948
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
For three months ending
September 30,
1998 1997
---- ----
<S> <C> <C>
Net sales $ 43,098 $ 15,628
Gross profit 16,495 6,452
Net income 10,640 1,003
- -------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
For nine months ending
September 30,
1998 1997
---- ----
<S> <C> <C>
Net sales $136,933 $ 15,628
Gross profit 54,333 6,452
Net income 24,307 1,003
===============================================================================
</TABLE>
3. CASH FLOW INFORMATION
Interest paid in cash aggregated $9,248 and $9,915 for the first nine months of
1998 and 1997, respectively. Income taxes paid in cash aggregated $10,307 and
$11,714 for the first nine months of 1998 and 1997, respectively.
4. NET INCOME PER SHARE OF COMMON STOCK
Basic net income per share of common stock is computed using the weighted
average number of shares of common stock outstanding. Diluted net income per
share of common stock is computed using the weighted average number of shares of
common stock outstanding and includes common share equivalents.
The following table sets forth the computation of basic and diluted earnings per
share (dollars in thousands, except per-share amounts):
<TABLE>
<CAPTION>
Quarter ended September 30, 1998 1997
- --------------------------- ---- ----
<S> <C> <C>
Numerator for basic and diluted
earnings per--net income
which is available to common
shareholders $ 14,254 $ 11,555
Denominator for basic earnings per
share--weighted-average shares
outstanding 17,649,966 15,207,831
Effect of dilutive securities--
employee stock options 390,851 457,698
----------- ------------
Denominator for diluted earnings
per share--adjusted weighted-
average shares and assumed
conversions 18,040,817 15,665,529
Net income per share:
Basic $ 0.81 $ 0.76
Diluted $ 0.79 $ 0.74
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
Nine Months ended September 30, 1998 1997
- ------------------------------- ---- ----
<S> <C> <C>
Numerator for basic and diluted
earnings per share--net income
which is available to common
shareholders $ 34,106 $ 26,333
Denominator for basic earnings per
share--weighted-average shares
outstanding 17,614,598 15,142,975
Effect of dilutive securities--
employee stock options 419,757 426,157
----------- -----------
Denominator for diluted earnings
per share--adjusted weighted-
average shares and assumed
conversions 18,034,355 15,569,132
Net income per share:
Basic $ 1.94 $ 1.74
Diluted $ 1.89 $ 1.69
</TABLE>
5. NEW ACCOUNTING STANDARDS
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("Statement 130"). Statement
130 establishes new rules for the reporting and display of comprehensive income
and its components. The Company's components of comprehensive income are net
income and foreign currency translation adjustments. During the third quarter of
1998 and 1997, total comprehensive income amounted to $13,628 and $11,558
respectively. For the first nine months of 1998 and 1997, comprehensive income
amounted to $33,112 and $26,278 respectively.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 "Disclosure about Segments of an
Enterprise and Related Information" ("Statement 131"), which is effective for
periods beginning after December 31, 1997. Statement 131 need not, however, be
applied to interim financial statements in the initial year of its application.
The impact of FAS 131 on the Company's financial statements will not be
material.
In February 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132 "Employers' Disclosures about Pensions
and Other Postretirement Benefits" ("Statement 132"), which is effective for
financial statements for fiscal years beginning after December 15, 1997.
Statement 132
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<PAGE> 13
establishes revised standards for disclosures about pensions and other
postretirement benefits. The impact of Statement 132 on the Company's financial
statements will not be material.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THIRD QUARTER 1998 COMPARED WITH THIRD QUARTER 1997
<TABLE>
<CAPTION>
Three months ended
September 30,
---------------------------
(dollars in thousands)
1998 1997
-------- --------
<S> <C> <C>
Net sales $109,604 $104,824
Gross profit 32,803 32,865
As a percentage of sales 29.9% 31.4%
Income from operations $ 20,568 $ 21,757
As a percentage of sales 18.8% 20.8%
Earnings before interest and
income taxes $ 26,247 $ 22,845
As a percentage of sales 23.9% 21.8%
Net income $ 14,254 $ 11,555
As a percentage of sales 13.0% 11.0%
</TABLE>
Net sales for the third quarter of 1998 of $109.6 million increased 4.6% from
net sales of $104.8 million reported in the comparable period in 1997.
Incremental sales from the Company's August 1997 acquisition of World Tableware
were a contributing factor. In addition, Syracuse China experienced higher sales
and the introduction of Libbey-branded dinnerware and flatware to retail
customers made a contribution. The Company's glassware sales were down slightly,
as lower sales to export and foodservice customers and lower sales throughout
the Company's discontinued outlet mall stores more than offset increases in
sales to retail customers, including sales of Crisa glassware products. Export
sales were down 29%, decreasing to $5.0 million from $7.0 million in the
year-ago period reflecting, in part, the economic conditions in key export
markets including the Far East and Latin America. In addition, the Company is
aware of the potential of increased competition from foreign suppliers
endeavoring to sell glass tableware into the United States market, including the
foodservice channel of distribution. The Company is in the process of assessing
the effect, if any, of such increased competition on the Company.
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<PAGE> 14
Gross profit remained essentially the same at $32.8 million in the third quarter
of 1998 compared to $32.9 million in the third quarter of 1997, and decreased as
a percentage of sales to 29.9% from 31.4%. Profit margins decreased as a result
of lower margin sales from the businesses acquired.
Income from operations decreased 5.5% to $20.6 million from $21.8 million in the
year-ago period. Operating income as a percentage of sales decreased to 18.8%
from 20.8% in the comparable year-ago period. Selling, general and
administrative expenses were greater than 1997 primarily due to expenses related
to the Vitro transactions.
Earnings before interest and income taxes (EBIT) increased 14.9% to $26.2
million from $22.8 million in the third quarter last year. Equity earnings of
$4.7 million from the Company's new joint venture in Mexico compared to $0.8 in
the year-ago period was the principal contributor.
Net income increased by $2.7 million due to items discussed above and a decrease
in the Company's effective tax rate from 39.2% to 38.5% reflecting lower state
income taxes and lower interest expense from lower debt levels.
RESULTS OF OPERATIONS - NINE MONTHS 1998 COMPARED WITH NINE MONTHS 1997
<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------------
(dollars in thousands)
1998 1997
-------- --------
<S> <C> <C>
Net sales $313,365 $287,257
Gross profit 89,635 86,629
As a percentage of sales 28.6% 30.2%
Income from operations $ 53,416 $ 52,684
As a percentage of sales 17.0% 18.3%
Earnings before interest and
income taxes $ 65,210 $ 53,816
As a percentage of sales 20.8% 18.7%
Net income $ 34,106 $ 26,333
As a percentage of sales 10.9% 9.2%
</TABLE>
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<PAGE> 15
Net sales for the first nine months of 1998 of $313.4 million increased 9.1%
from net sales of $287.3 million reported in the comparable period in 1997.
Incremental sales from the Company's August 1997 acquisition of World Tableware
and distribution agreement with Vitrocrisa, the Company's new joint venture in
Mexico, were the factors in increasing sales. The Company's glassware area
experienced a sales increase compared to last year as a result of the inclusion
of Crisa glass. Export sales were down 28.1%, decreasing to $14.8 million from
$20.6 million in the year-ago period reflecting the economic conditions in key
export markets including the Far East and Latin America.
Gross profit increased 3.5% to $89.6 million in the first nine months of 1998
from $86.6 million in the first nine months of 1997, and decreased as a
percentage of sales to 28.6% from 30.2%. Profit margins decreased as a result of
greater sales of lower-margin sales from the businesses acquired.
Income from operations increased 1.4% to $53.4 million from $52.7 million in the
year-ago period. Operating income as a percentage of sales decreased to 17.0%
from 18.3% in the comparable year-ago period, as a result of higher distribution
expenses and increases in selling, general and administrative expenses related
to recent acquisitions.
Earnings before interest and income taxes (EBIT) increased 21.2% to $65.2
million from $53.8 million in the first nine months last year. The additional
equity earnings of $9.9 million from the Company's new joint venture in Mexico
was the principal contributor.
Net income increased by $7.8 million due to items discussed above and a decrease
in the Company's effective tax rate from 39.1% to 38.5% reflecting lower state
income taxes and lower interest expense from lower debt levels.
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
The Company had total debt of $195.7 million at September 30, 1998, compared to
$210.7 million at December 31, 1997. Seasonal increases in accounts receivable
and inventory in 1998 were less than 1997 reducing the borrowings necessary to
fund working capital. In addition, Libbey received a dividend from its
investment in Vitrocrisa of $14.2 million late in the first quarter. The Company
had additional debt capacity at September 30, 1998 under the Bank Credit
Agreement of $193.9 million. Of Libbey's outstanding indebtedness, $20.7 million
is subject to fluctuating interest rates at September 30, 1998. On October 5,
1998 an additional $75 million became subject to fluctuating interest rates as
swap agreements
15
<PAGE> 16
expired. A change of one percentage point in such rates would result in a change
in interest expense of approximately $0.2 million on an annual basis as of
September 30, 1998 and a change in interest expense of approximately $1.0
million after October 5,1998 on an annual basis.
The Company is not aware of any trends, demands, commitments, or uncertainties
which will result or which are reasonably likely to result in a material change
in Libbey's liquidity. The Company believes that its cash from operations and
available borrowings under the Bank Credit Agreement will be sufficient to fund
its operating requirements, capital expenditures and all other obligations
(including debt service and dividends) throughout the remaining term of the Bank
Credit Agreement.
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.
YEAR 2000
- ---------
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,
equipment, business and operations. The Company has recognized that the Year
2000 problem may cause many of its systems to fail or perform incorrectly
because they will not properly recognize a year beginning with "20" instead of
the familiar "19". If a computer system, software application, or other
operational or manufacturing system used by the Company or by a third party
dealing with the Company fails because of the inability of the system to
properly read the year "2000", this failure could have a material adverse effect
on the Company.
Since August 1997, a corporate committee comprised of key information systems,
financial and operations managers meet bi-monthly to review the state of
readiness of the Company's systems for the year 2000. Key financial and
operational systems have been assessed and detailed plans have been implemented
to address modifications required prior to December 31, 1999. In addition, the
Company has engaged an independent consultant to assist in assessing Year 2000
readiness and remediation plans at its manufacturing facilities, and each
manufacturing facility has established Year 2000 compliance steering committees
to address the issue.
The Company is monitoring the Year 2000 issue in four phases, including
assessment, remediation, testing and implementation. The state of readiness in
each of these areas as well as the definition of each phase are presented below:
16
<PAGE> 17
<TABLE>
<CAPTION>
Project
Segment Assessment Remediation Testing Implementation
------- ---------- ----------- ------- --------------
<S> <S> <C> <C> <C>
IT areas:
Mainframe 95% complete 95% complete 50% complete 90% complete
Other 95% complete 70% complete 50% complete 70% complete
Non IT areas 90% complete 70% complete 50% complete 70% complete
Suppliers 90% complete 60% complete -- --
</TABLE>
Assessment = an inventory of IT, non-IT and third party reliance affected by the
Year 2000 issue.
Remediation = the changes to the code, obtaining compliant vendor software or
obtaining reliance from third parties that the Year 2000 issue has been
addressed.
Testing = the test of the changes to internally developed and vendor upgraded
software.
Implementation = the rollout of tested software or vendor certified Year 2000
compliant software into production. Further testing is anticipated with respect
to implemented software which has been certified by the vendor to be Year 2000
compliant but has not been independently tested.
The estimated percentage of completion is based upon the level of effort spent
to date on the task compared to the anticipated level of effort to complete the
task except with respect to suppliers. The anticipated level of effort to
complete the task may change as the Year 2000 compliance program proceeds. The
level of effort with respect to suppliers is based upon their replies to the
Company's inquiries.
Major portions of the Company's information technology are currently on Year
2000 compliant software. The remaining portions are planned to be migrated or
converted by mid year 1999. The financial impact of making the required changes,
excluding the cost of internal Company employee time and the costs required to
upgrade and replace systems and equipment in the normal course of business, is
expected to be less than $500,000 and has been and will be charged to expense as
incurred.
The Company has communicated with its significant suppliers and 35% respond they
are currently Year 2000 compliant, 55% expected compliance by December 31, 1999
and 10% have not yet replied.
Management of the Company believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. Contingency plans are being
developed to cover any major failures of suppliers, customers and/or systems.
However, certain risk factors may effect the Company's ability to be fully Year
2000 compliant by December 31, 1999 and its information systems to operate
properly into the next century. These risk factors include, but are not limited
to, the availability of necessary resources, both internal and external, to
install new purchased software or reprogram existing systems and complete the
necessary testing. In addition, the Company cannot
17
<PAGE> 18
predict the ability of its suppliers and customers to achieve Year 2000
compliance by the end of 1999 nor the impact of either on the future operating
results of the Company.
18
<PAGE> 19
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibits
Exhibit
Number Description
- ------ -----------
27 Other Financial Information
(b.) No reports on Form 8-K were filed during the quarter ending
September 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LIBBEY INC.
Date November 16, 1998 By /s/ Kenneth G. Wilkes
------------------------- -----------------------------
Kenneth G. Wilkes,
Vice President, Chief Financial
Officer and Treasurer
(Principal Accounting Officer)
19
<PAGE> 20
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
--- -----------
27 Other Financial Information
20
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,774
<SECURITIES> 0
<RECEIVABLES> 55,774
<ALLOWANCES> 0
<INVENTORY> 109,126
<CURRENT-ASSETS> 173,984
<PP&E> 243,995
<DEPRECIATION> 123,107
<TOTAL-ASSETS> 459,975
<CURRENT-LIABILITIES> 83,066
<BONDS> 0
0
0
<COMMON> 176
<OTHER-SE> 130,831
<TOTAL-LIABILITY-AND-EQUITY> 459,975
<SALES> 313,365
<TOTAL-REVENUES> 315,636
<CGS> 223,730
<TOTAL-COSTS> 262,220
<OTHER-EXPENSES> (1,026)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,753
<INCOME-PRETAX> 55,457
<INCOME-TAX> 21,351
<INCOME-CONTINUING> 34,106
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,106
<EPS-PRIMARY> 1.94
<EPS-DILUTED> 1.89
</TABLE>
