<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 March 31, 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
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(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 - 17,603,581 shares at April 30, 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
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<TABLE>
LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per-share amounts)
(unaudited)
Three months ended March 31,
<S> <C> <C>
Revenues: 1998 1997
-------- --------
Net sales $ 90,088 $ 78,479
Royalties and net technical
assistance income 769 924
-------- --------
Total revenues 90,857 79,403
Costs and expenses:
Cost of sales 67,360 56,775
Selling, general and administrative
expenses 12,709 11,750
-------- --------
80,069 68,525
-------- --------
Income from operations 10,788 10,878
Other income:
Equity earnings 2,308 -
Other income - net 255 64
-------- --------
2,563 64
-------- --------
Earnings before interest and income taxes 13,351 10,942
Interest expense - net (3,423) (3,301)
-------- --------
Income before income taxes 9,928 7,641
Provision for income taxes 3,823 2,995
-------- --------
Net income $ 6,105 $ 4,646
======== ========
Net income per share
Basic $ 0.35 $ 0.31
======== ========
Diluted $ 0.34 $ 0.30
======== ========
Dividends per share $ 0.075 $ 0.075
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
<TABLE>
LIBBEY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
March 31, December 31,
1998 1997
-------- --------
(unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,612 $ 2,634
Accounts receivable:
Trade, less allowances of $3,438
and $3,103 45,412 49,982
Other 1,141 1,975
-------- --------
46,553 51,957
Inventories:
Finished goods 100,905 91,897
Work in process 5,156 5,056
Raw materials 3,209 3,545
Operating supplies 878 800
-------- --------
110,148 101,298
Prepaid expenses 5,671 5,575
-------- --------
Total current assets 163,984 161,464
Other assets:
Repair parts inventories 10,355 7,148
Other 26,123 26,170
Investments 73,865 85,789
Goodwill, net of accumulated
amortization of $12,019 and $11,635 49,049 48,828
-------- --------
159,392 167,935
Property, plant and equipment, at cost 240,475 236,427
Less accumulated depreciation 120,640 116,226
-------- --------
Net property, plant and equipment 119,835 120,201
-------- --------
Total assets $443,211 $449,600
======== ========
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.
</TABLE>
See accompanying notes.
4
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<TABLE>
LIBBEY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
March 31, December 31,
1998 1997
--------- ---------
(unaudited) (Note)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 10,411 $ 10,385
Accounts payable 22,769 29,472
Accrued liabilities 28,402 28,031
Other 12,254 14,019
--------- ---------
Total current liabilities 73,836 81,907
Long-term debt 196,684 200,350
Deferred taxes and other liabilities 14,567 14,880
Nonpension retirement benefits 52,846 52,474
Shareholders' equity:
Common stock, par value $.01
per share, 50,000,000 shares
authorized, 17,598,931 shares
issued and outstanding
(17,580,931 in 1997) 176 175
Capital in excess of par value 279,609 279,208
Deficit (174,005) (178,792)
Accumulated other comprehensive
income (502) (602)
--------- ---------
Total shareholders' equity 105,278 99,989
--------- ---------
Total liabilities and shareholders' equity $ 443,211 $ 449,600
========= =========
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.
</TABLE>
See accompanying notes.
5
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<TABLE>
LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Three months ended March 31,
1998 1997
---- ----
<S> <C> <C>
Operating activities
Net income $ 6,105 $ 4,646
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 5,374 5,867
Other non-cash charges 164 410
Equity earnings (2,308) -
Net change in components of working
capital and other assets (15,833) (26,721)
-------- --------
Net cash used in operating activities (6,498) (15,798)
Investing activities
Additions to property, plant and equipment (4,178) (2,432)
Dividends from Vitro Investments 14,232 -
-------- --------
Net cash provided by (used in)
investing activities 10,054 (2,432)
Financing activities
Net borrowings (repayments) under Bank
Credit Agreement (3,702) 14,463
Other net borrowings 26 6,979
Stock options exercised 402 942
Dividends (1,319) (1,131)
-------- --------
Net cash provided by (used in) financing
activities (4,593) 21,253
-------- --------
Effect of exchange rate fluctuations
on cash 15 1
-------- --------
Increase (decrease) in cash (1,022) 3,024
Cash at beginning of year 2,634 1,990
-------- --------
Cash at end of period $ 1,612 $ 5,014
======== ========
</TABLE>
See accompanying notes.
6
<PAGE> 7
LIBBEY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dollars in thousands, except per share data
(unaudited)
1. LONG-TERM DEBT
The Company and its Canadian subsidiary have an unsecured agreement ("Bank
Credit Agreement" or "Agreement") with a group of banks which provides for a
Revolving Credit and Swing Line Facility ("Facility") permitting borrowings up
to an aggregate total of $380 million, maturing May 1, 2002. Swing Line
borrowings are limited to $25 million with interest calculated at the prime rate
minus the Commitment Fee Percentage. Revolving Credit borrowings bear interest
at the Company's option at either the prime rate minus the Commitment Fee
Percentage, or a Eurodollar rate plus the Applicable Eurodollar Margin. The
Commitment Fee Percentage and Applicable Eurodollar Margin will vary depending
on the Company's performance against certain financial ratios. The Commitment
Fee Percentage and the Applicable Eurodollar Margin were 0.15% and 0.275%,
respectively, at March 31, 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
March 31, 1998 the Company had $5.3 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
March 31, 1998 was 6.02% for an average remaining period of 2.2 years. The
remaining debt not covered by the Rate Agreements has fluctuating interest rates
with a weighted average rate of 6.2% at March 31, 1998.
The interest rate differential to be received or paid under the Rate Agreements
is being recognized over the life of the Rate Agreements as an adjustment to
interest expense. Should the counterparts to these Rate Agreements fail to
perform, the Company would no longer be protected from interest rate
fluctuations by these Rate Agreements. However, the Company does not anticipate
nonperformance by the counterparts.
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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 above.
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.
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The following unaudited pro forma results of operations assume the acquisition
occurred as of January 1, 1996 (in thousands, except per-share amounts):
<TABLE>
Quarter ended March 31,
1998 1997
---- ----
<S> <C> <C>
Net revenues $ 90,857 $ 94,109
Net income $ 6,105 $ 4,561
Net income per share
Basic $ 0.35 $ 0.30
Diluted $ 0.34 $ 0.29
</TABLE>
3. CASH FLOW INFORMATION
Interest paid in cash aggregated $3,203 and $3,324 for the first three months of
1998 and 1997, respectively. Income taxes paid in cash aggregated $1,713 and
$1,668 for the first three 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:
<TABLE>
Quarter ended March 31, 1998 1997
- ----------------------- ---- ----
<S> <C> <C>
Numerator for diluted earnings per
share--net income which is
available to common shareholders $ 6,105 $ 4,646
Denominator for basic earnings per
share--weighted-average shares
outstanding 17,585,664 15,026,575
Effect of dilutive securities--
employee stock options 449,889 485,010
----------- --------------
Denominator for diluted earnings per
share--adjusted weighted-average
shares and assumed conversions 18,035,553 15,511,585
Net income per share:
Basic $ 0.35 $ 0.31
Diluted $ 0.34 $ 0.30
</TABLE>
9
<PAGE> 10
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 first quarter of
1998 and 1997, total comprehensive income amounted to $6,208 and $4,557
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 Company has not determined the impact of FAS 131.
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 establishes revised standards for disclosures about pensions and
other postretirement benefits. The Company has not determined the impact of
Statement 132.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
RESULTS OF OPERATIONS - FIRST QUARTER 1998 COMPARED WITH FIRST QUARTER 1997
Three months ended
March 31,
(dollars in thousands)
--------------------------
1998 1997
-------- ------
<S> <C> <C>
Net sales $90,088 $78,479
Gross profit 22,728 21,704
As a percentage of sales 25.2% 27.7%
Income from operations $10,788 $ 10,878
As a percentage of sales 12.0% 13.9%
Earnings before interest and
income taxes $13,351 $10,942
Net income $ 6,105 $ 4,646
</TABLE>
Net sales for the first quarter of 1998 of $90.1 million increased 14.8% from
net sales of $78.5 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 core glassware area
experienced sales approximately equal to last year. Export sales were down
2.5%, decreasing to $5.0 million from $5.1 million in the year-ago period.
Gross profit increased 4.7% to $22.7 million in the first quarter of 1998 from
$21.7 million in the first quarter of 1997, and decreased as a percentage of
sales to 25.2% from 27.7%. Profit margins decreased as a result of greater sales
of lower-margin products and higher distribution costs.
Income from operations decreased 0.8% to $10.8 million from $10.9 million in the
year-ago period. Operating income as a percentage of sales decreased to 12.0%
from 13.9% in the comparable year-ago period, as a result of lower gross profit
margin and increases in selling, general and administrative expenses related to
recent acquisitions.
Earnings before interest and income taxes (EBIT) increased 22% to $13.4 million
from $10.9 million in the first quarter last year. The addition of equity
earnings of $2.3 million from the Company's new joint venture in Mexico was the
principal contributor.
11
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CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
Net income increased by $1.5 million due to items discussed above and a
decrease in the Company's effective tax rate from 39.2% to 38.5%. Partially
offsetting this increase was increased interest expense resulting from higher
debt levels as a result of the acquisition.
The Company had total debt of $207.1 million at March 31, 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 dividends from its
investment in Vitrocrisa of $14.2 million late in the quarter. The Company had
additional debt capacity at March 31, 1998 under the Bank Credit Agreement of
$178.0 million. Of Libbey's outstanding indebtedness, $32.1 million is subject
to fluctuating interest rates at March 31, 1998. A change of one percentage
point in such rates would result in a change in interest expense of
approximately $0.3 million on an annual basis.
The Company is not aware of any trends, demands, commitments, or uncertainties
which will result or which are reasonably likely to result in a material change
in Libbey's liquidity. The Company believes that its cash from operations and
available borrowings under the Bank Credit Agreement will be sufficient to fund
its operating requirements, capital expenditures and all other obligations
(including debt service and dividends) throughout the remaining term of the Bank
Credit Agreement. In addition, the Company anticipates refinancing the Bank
Credit Agreement at or prior to the maturity date of May 1, 2002 to meet the
Company's longer term funding requirements.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibits
Exhibit
Number Description
- ------ -----------
27 Other Financial Information
12
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(b.) A form 8-K was filed during the first quarter, dated January
9, 1998 with respect to an announcement of fourth quarter
financial results.
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 May 15, 1998 By /s/ Kenneth G. Wilkes
----------------- -----------------------
Kenneth G. Wilkes,
Vice President, Chief Financial
Officer and Treasurer
(Principal Accounting Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,612
<SECURITIES> 0
<RECEIVABLES> 46,553
<ALLOWANCES> 0
<INVENTORY> 110,148
<CURRENT-ASSETS> 163,984
<PP&E> 240,475
<DEPRECIATION> 120,640
<TOTAL-ASSETS> 443,211
<CURRENT-LIABILITIES> 73,836
<BONDS> 0
0
0
<COMMON> 176
<OTHER-SE> 105,102
<TOTAL-LIABILITY-AND-EQUITY> 443,211
<SALES> 90,088
<TOTAL-REVENUES> 90,857
<CGS> 67,360
<TOTAL-COSTS> 80,069
<OTHER-EXPENSES> (255)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,423
<INCOME-PRETAX> 9,928
<INCOME-TAX> 3,823
<INCOME-CONTINUING> 6,105
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,105
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.34
</TABLE>
