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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, 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 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 15, 1999) of the voting stock beneficially held by non-affiliates of the
registrant was approximately $517,897,004. 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 15, 1999 was 16,245,770.
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, May 6,
1999 ("Proxy Statement").
(Cover page 2 of 2 pages)
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TABLE OF CONTENTS
=================
PART I
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
ITEM 5. MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER
MATTERS....................................................... 13
ITEM 6. SELECTED FINANCIAL DATA....................................... 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................... 15
ITEM 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT
MARKET RISK................................................... 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................... 25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE........................... 48
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............ 48
ITEMS 11. and 13. EXECUTIVE COMPENSATION AND CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS........................ 48
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT................................................ 48
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS
ON FORM 8-K................................................... 49
SIGNATURES.............................................................. 50
INDEX TO FINANCIAL STATEMENT SCHEDULE................................... 52
EXHIBIT INDEX.......................................................... E-1
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PART I
ITEM 1. BUSINESS
GENERAL
Libbey is a leading supplier of tabletop products in the U.S. and Canada. The
products are also exported to more than 100 countries. Libbey designs, and
markets, under the LIBBEY(R) brand name, an extensive line of high-quality,
glass tableware, ceramic dinnerware and metal flatware. Libbey also
manufactures and markets ceramic dinnerware under the Syracuse China(R) brand
name through its subsidiary Syracuse China. Through its World Tableware
subsidiary, Libbey also imports and sells flatware, holloware and ceramic
dinnerware.
In late August 1997 Libbey completed a series of transactions that included:
- - 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.
On December 31, 1998, Libbey's Board of Directors approved a capacity
realignment plan, that includes reallocating a portion of the current production
of Libbey's Wallaceburg, Ontario facility to its glassware facilities in the
United States to improve its cost structure and more fully utilize available
capacity. A portion of Wallaceburg's production will also be absorbed by
Vitrocrisa. Libbey will service its Canadian glass tableware customers from its
remaining manufacturing and distribution network, which includes locations in
Toledo, Ohio; Shreveport, Louisiana and City of Industry, California. Libbey
also announced that it will exit the production of bottleware, a niche,
low-margin business. The Wallaceburg facility is expected to cease production on
or about May 31, 1999, and the warehouse operations will terminate later in
1999.
PRODUCTS
Libbey's tabletop products consist of glass tableware, ceramic dinnerware, metal
flatware and metal holloware. Libbey's glass tableware includes tumblers,
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stemware, mugs, plates, bowls, ashtrays, bud vases, salt and pepper shakers,
canisters, candle holders and various other items. Vitrocrisa's product
assortment includes, in addition to the product types produced by Libbey, glass
bakeware and hand-made glass tableware, which are additional product categories
which Libbey now offers. 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, Libbey sells a
wide-range of ceramic dinnerware products. These include plates, bowls,
platters, cups, saucers and other tabletop accessories.
Through its World Tableware subsidiary, Libbey 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.
DOMESTIC SALES
Approximately 88% of Libbey's sales are to domestic customers, and are sold
domestically for a broad range of uses. Libbey sells both directly to end-users
of the product and through networks of distributors. Libbey utilizes both a
direct sales force and manufacturers' representatives to sell its product.
Libbey has the largest manufacturing, distribution and service network among
North American glass tableware manufacturers.
Libbey defines the U.S. glass tableware market to include glass beverageware,
ovenware, cookware, dinnerware, serveware, floral items, items used for
specialized packaging, specialized bottles, handmade glassware and lead crystal
valued at less than $5 per piece. Libbey has, according to management
estimates, the leading market share in glass tableware sales in U.S. food-
service applications and glass beverageware sales in retail. The majority of
Libbey's tabletop sales to 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,
restaurants and casinos.
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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
foodservice end-users.
Libbey's retail customers were principally mass merchants and discount stores.
In recent years Libbey has been able to increase its total sales by increasing
its sales to traditional department stores and specialty housewares stores.
With this expanded retail representation, Libbey is better positioned to
successfully introduce profitable new products. During 1998, Libbey began
selling imported dinnerware and metal flatware to retailers in the United
States and Canada under the LIBBEY(R) brand name. Libbey sources this ceramic
dinnerware and metal flatware by leveraging the relationships it has with its
existing suppliers for the World Tableware foodservice products.
Libbey announced in early 1998 a plan to exit the business of operating stores
in factory outlet malls and closed its remaining 15 mall stores in 1998. Libbey
continues to operate four factory outlet stores located at or near each of its
United States manufacturing locations.
Libbey is one of the leading suppliers of glassware for industrial applications
in the U.S., according to management estimates. Industrial uses include candle
and gift packaging, floral purposes and lighting. The craft industries and
gourmet food packing companies are also industrial consumers of glassware.
Libbey has expanded its sales to industrial users by offering ceramic items.
Libbey believes that its success with industrial applications is based on its
extensive manufacturing and distribution network, which enables it to provide
superior service, and its broad product offering, which allows Libbey to meet
its customers' desire for differentiated glassware products. The production
capabilities and broad product portfolio of Vitrocrisa enabled Libbey to expand
its product offering for its industrial customers.
Another application of Libbey's products is for use as a premium. Major gasoline
retailers and fast-food restaurant chains use glassware as incentives or
premiums. Libbey 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.
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Libbey also sells its tabletop products to supermarket chains for continuity
programs. In 1998, Libbey sold tabletop products through continuity programs to
over 4,800 supermarkets in the U.S. and Canada.
INTERNATIONAL EXPANSION AND EXPORT SALES
Libbey exports its products through independent agents and distributors to over
100 countries throughout the world, competing in the tabletop markets of Latin
America, Asia and Europe. Through its export operation, Libbey sells its
tabletop product to foodservice, retail and premium customers internationally.
Libbey's share of glass tableware foodservice in Canada is estimated by
management at 70%.
Libbey's export sales, which include sales to Libbey's customers in Canada,
represent approximately 11.9% of total sales in 1998. Libbey believes that
export sales represent a growth opportunity for the future.
Libbey currently has technical assistance agreements with companies covering
operations in numerous countries. In 1998, Libbey performed services for
licensees in ten countries. These agreements, which cover areas ranging from
manufacturing and engineering assistance to support in functions such as
marketing, sales and administration, allow Libbey 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 1998,
Libbey's technical assistance agreements produced royalties of $3.0 million.
Libbey 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. Libbey also operates a glass tableware manufacturing plant
in Wallaceburg, Ontario, Canada, which, as stated above, will be closed on or
around May 31, 1999. Libbey owns and operates a ceramic dinnerware plant in
Syracuse, New York. Libbey operates distribution centers located at or near each
of its manufacturing facilities. See "Properties." In addition, Libbey 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 Libbey to supply significant quantities of
its product to virtually all of its customers in a short period of time. Libbey
is the only
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glass tableware producer operating more than two manufacturing facilities in the
United States.
The manufacture of Libbey's glass tableware products involves the use of
automated processes and technologies. Much of Libbey's glass tableware
production machinery was designed by Libbey and has evolved and been
continuously refined to incorporate technology advancements. In addition, Libbey
has installed robotics technology in certain of its labor-intensive
manufacturing processes. Libbey believes that its production machinery and
equipment continue to be adequate for its needs in the foreseeable future.
Libbey'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 Libbey'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. Libbey'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.
Ceramic dinnerware is also produced through the forming of raw materials into
the desired product shape and is either manufactured at Libbey's Syracuse, New
York production facility or imported by World Tableware from primarily Thailand,
China and Indonesia. All metal flatware and metal holloware are sourced by
Libbey's World Tableware subsidiary primarily from Japan, Korea and China.
Libbey employs a team of engineers whose responsibilities include continuing
efforts to improve and upgrade Libbey's manufacturing facilities, equipment and
processes. In addition, they provide engineering required to manufacture new
products and implement the large number of innovative changes continuously being
made to Libbey's product designs, sizes and shapes.
All of the raw materials used by Libbey, 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 Libbey's operations in the
future.
SALES AND MARKETING
Libbey has its own sales representatives located strategically throughout the
U.S. and Canada who call on customers and distributors. The majority of
Libbey's tabletop sales to foodservice end-users are made through
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approximately 500 independent distributors, who serve a vital function in the
distribution of Libbey's products and with whom Libbey works closely in
connection with marketing and selling efforts. Most of Libbey's retail,
industrial and premium market sales are made directly by Libbey'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 Libbey's tabletop products include approximately 500
foodservice distributors. In addition, Libbey sells to mass merchants,
department stores, national retail chains and specialty housewares stores,
supermarkets and industrial companies and others who use Libbey's products for
promotional and other private uses. No single customer or group of customers
accounts for 10% or more of Libbey's sales, although the loss of any of
Libbey's major customers could have a material effect on Libbey. Sales for
premium applications tend to be more unpredictable from year to year and Libbey
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 Libbey's
ten largest customers.
COMPETITORS
Libbey's business is highly competitive, with the principal competitive factors
being price, brand name, product quality, delivery time and customer service.
Principal competitors in domestic glass tableware 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 Libbey believes is the second leading supplier of glass
beverageware in the U.S.; Indiana Glass Company (a unit of Lancaster Colony
Corporation), which participates in various aspects of the U.S. market; and
Oneida, LTD., which expanded its glassware offering in 1998 through an import
arrangement. The principal competitors in U.S. ceramic dinnerware are Homer
Laughlin (a private U. S. company) and Rego China and Buffalo China (units of
Oneida, LTD.). The principal competitors in metal flatware are Oneida, LTD. and
Delco. Some of Libbey's competitors have substantially greater financial and
other resources than Libbey.
In recent years, Libbey has experienced increasing competition from foreign
manufacturers, including Durand International (France) and Kedaung (Indonesia),
principally in retail. Libbey's joint venture investment in,
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and distribution agreement with, Vitrocrisa are expected to enhance Libbey's
ability to compete against foreign competitors.
PATENTS, TRADEMARKS AND LICENSES
Based upon market research and market surveys, Libbey believes its Libbey trade
name as well as product shapes and styles enjoy a high degree of consumer
recognition and are valuable assets. Libbey believes that the Libbey, Syracuse
China and World Tableware trade names are material to its business.
Libbey has rights under a number of patents which relate to a variety of
products and processes. Libbey 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 and production activity,
Libbey's profits tend to be strongest in the third quarter and weakest in the
first quarter of each year. As a consequence, with the exception of 1998,
profits typically range between 37% and 42% in the first half of each year and
58% to 63% in the second half of the year.
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ENVIRONMENTAL MATTERS
Libbey'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. Libbey has shipped, and continues to ship, waste materials
for off-site disposal. Although Libbey is not named as a potentially responsible
party in any waste disposal site matters pending prior to June 24, 1993, the
date of Libbey'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 Libbey may
also have shipped wastes and bears some responsibility. Owens-Illinois has
agreed to defend and hold harmless Libbey 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.
Libbey believes that if it is necessary to draw upon this indemnification,
collection is probable. Pursuant to the indemnification agreement Owens-Illinois
is defending Libbey in a suit instituted by the Board of Lucas County Ohio
Commissioners on January 4, 1999 against Owens-Illinois, Libbey and numerous
other defendants (59 companies have been named in the complaint as potentially
responsible parties) in the United States District Court for the Northern
District of Ohio seeking to recover past and future costs incurred in response
to the release or threatened release of hazardous substances at the King Road
landfill. Owens-Illinois also defended Libbey in certain other similar matters
including the Dura Landfill, which was settled in 1998 with Libbey's share
estimated to be between $150,000 and $300,000.
Subsequent to June 24, 1993, Libbey has been named a potentially responsible
party at three sites all of which have been settled for immaterial amounts. No
further sums are expected to be paid with respect to these sites unless unusual
and unanticipated contingencies occur.In addition, as further described below,
Libbey's Syracuse China subsidiary has been named a potentially responsible
party with respect to certain property adjoining its plant. Through its Syracuse
China subsidiary, Libbey 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
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$1,350,000. Notwithstanding the foregoing, Syracuse China Company is not a party
to the decree. The RI/FS is complete. A contract has been awarded for the design
of the remediation project. It is anticipated that in 1999 the design will be
completed and approved by the NYSDEC and that construction of the approved
remedy will begin. 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. Libbey believes
that any contamination of such sub-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 sub-site for which Syracuse China may be deemed responsible
would likely be shared with Pfaltzgraff pursuant to the Asset Purchase
Agreement.
Libbey regularly reviews the facts and circumstances of the various
environmental matters affecting Libbey, including those which are covered by
indemnification. Although not free of uncertainties, Libbey 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 Libbey. There can be no assurance, however, that
Libbey's future expenditures in such regard will not have a material adverse
effect on Libbey'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 Libbey on the exterior
surface of its decorated products. Capital expenditures for property, plant and
equipment for environmental control activities were not material during 1998.
Libbey believes that it is in material compliance with all federal, state and
local environmental laws, and Libbey is not aware of any regulatory initiatives
that would be expected to have a material effect on Libbey's products or
operations.
NUMBER OF EMPLOYEES
Libbey employed approximately 3,820 persons at December 31, 1998. A majority of
the glass tableware employees are U.S.-based hourly workers covered by six
collective bargaining agreements which were entered into in the fourth quarter
of 1998 and expire at various times during the fourth quarter of 2001. As a
result of the capacity realignment plan, Libbey will terminate the employment of
most of the approximately 560 Canadian based employees during 1999. The ceramic
dinnerware hourly employees are covered by a collective bargaining agreement
which expired in March 1999 and has subsequently been renegotiated to expire in
March 2002. Libbey considers its employee relations to be good.
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ITEM 2. PROPERTIES
The following table sets forth the location of the Company's principal
manufacturing and distribution facilities at December 31, 1998. The Company also
operates distribution facilities at or near each of its manufacturing facilities
as well as at the distribution centers set forth below:
Manufacturing Facilities
------------------------
Syracuse, New York
Toledo, Ohio
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.
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.
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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>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
John F. Meier 51 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 52 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 58 Vice President, General Sales Manager since November 1990
Vice President, General Sales Manager
Arthur H. Smith 63 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>
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<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Kenneth G. Wilkes 41 Vice President, Chief Financial Officer and Treasurer since
Vice President, Chief Financial Officer November 1995; Vice President and Treasurer since August 1993.
and Treasurer Previously employed as Senior Corporate Banker, Vice President
with The First National Bank of Chicago from 1981.
John A. Zarb 47 Vice President , Chief Information Officer since April 1996.
Vice President, Chief Information Officer Previously from 1991 to April 1996 employed by Allied Signal,
Inc. in Information Technology management positions.
Daniel P. Ibele 38 Vice President, Marketing and Specialty Operations since
Vice President, Marketing and Specialty September 1997; Vice President and Director of Marketing at
Operations Libbey since 1995. From 1983 to 1995 held various marketing and
sales positions.
Timothy T. Paige 41 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>
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PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
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>
- ----------------------------------------------------------------------------
1998 1997
High Low High Low
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $39 1/4 $32 1/4 $33 1/2 $26 3/4
Second Quarter $39 1/2 $35 3/4 $35 1/2 $28
Third Quarter $38 7/16 $28 1/4 $39 3/8 $32 1/2
Fourth Quarter $33 5/8 $28 3/8 $42 1/4 $35 3/8
- ----------------------------------------------------------------------------
</TABLE>
On March 1, 1999, there were 1,168 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 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.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Dollars in thousands, except per-share data 1998 1997(a) 1996 1995 1994
- ---------------------------------------------------------- -------------------------------------------
OPERATING RESULTS
<S> <C> <C> <C> <C> <C>
Net sales $436,522 $411,966 $397,656 $357,546 $333,988
Total revenues 439,548 415,053 400,354 360,082 335,880
Cost of sales 321,949 295,009 288,538 257,945 238,885
Selling, general and administrative expenses 54,191 49,585 44,620 38,953 37,772
Capacity realignment charge 20,046 -- -- -- --
Income from operations 43,362 70,459 67,196 63,184 59,223
Equity earnings 8,880 3,570 -- -- --
Other income (expenses) -- net 1,493 (732) 1,302 499 (230)
Earnings before interest and income taxes 53,735 73,297 68,498 63,683 58,993
Interest expense -- net 12,674 14,840 14,962 13,974 13,797
Income before income taxes 41,061 58,457 53,536 49,709 45,196
Provision for income taxes 15,618 22,331 20,986 19,685 18,509
Net income 25,443 36,126 32,550 30,024 26,687
PER-SHARE DATA:
Basic net income 1.45 2.33 2.16 2.00 1.78
Diluted net income 1.42 2.27 2.12 1.97 1.76
Dividends paid 0.30 0.30 0.30 0.30 0.30
OTHER INFORMATION
EBIT 53,735 73,297 68,498 63,683 58,993
EBITDA 73,241 93,193 89,983 81,841 75,269
Depreciation 15,852 16,826 19,275 16,885 15,077
Amortization 3,654 3,070 2,210 1,273 1,199
Capital expenditures 17,486 18,408 15,386 20,198 17,361
Dividends paid 5,253 4,550 4,511 4,501 4,500
Employees (average) 3,969 4,136 4,110 3,870 3,463
BALANCE SHEET DATA
Total assets 439,671 449,600 315,733 321,815 255,981
Working capital (b) 75,930 89,942 65,823 74,795 41,263
Long-term debt 176,300 200,350 202,851 248,721 213,999
Shareholders' equity (deficit) 94,860 99,989 (18,447) (47,116) (73,073)
(a) Includes the results of the Vitro Transactions beginning in September.
(b) Current assets less current liabilities excluding short-term debt.
</TABLE>
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<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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) 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $436,522 $411,966 $397,656
Gross profit $114,573 $116,957 109,118
As a percentage of sales 26.2% 28.4% 27.4%
Income from operations -excluding
capacity realignment charge $ 63,408 $ 70,459 $ 67,196
As a percentage of sales 14.5% 17.1% 16.9%
Income from operations -
after capacity realignment charge $ 43,362 $ 70,459 $ 67,196
As a percentage of sales 9.9% 17.1% 16.9%
Earnings before interest
and income taxes $ 53,735 $ 73,297 $ 68,498
As a percentage of sales 12.3% 17.8% 17.2%
Net income $ 25,443 $ 36,126 $ 32,550
As a percentage of sales 5.8% 8.8% 8.2%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Management is not aware of any events or uncertainties that are likely to have a
material impact on the Company's 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 1998 WITH 1997 Net sales for 1998 of $436.5 million were 6.0%
higher than the net sales of $412.0 million reported in 1997. 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 for the full year. These businesses were acquired on August 29, 1997,
and 1997 results reflect only four months of operation. Sales of the Company's
glassware products were approximately the same as last year, as the inclusion of
a full year's sales of glassware pursuant to the Vitrocrisa distribution
agreement offset declines in the Company's sales to export, retail and
foodservice customers. The Company experienced higher unit sales in glassware,
which were offset by lower average unit selling prices. Sales at Syracuse China
were higher because of higher average unit
15
<PAGE> 19
sales prices resulting from a change in sales mix to larger dinnerware items.
Libbey's export sales, which include sales to Libbey's customers in Canada,
decreased to $51.9 million from $57.5 million in 1997. The decrease was partly
the result of lower sales to customers in the Far East and South America
primarily due to increases in prices resulting from the strength of the U.S.
dollar.
GROSS PROFIT decreased 2.0% to $114.6 in 1998 from $117.0 million in 1997 and
declined as a percentage of sales to 26.2% from 28.4% over this period. Gross
margins declined because of higher manufacturing expenses, the impact of lower
production levels to reduce inventories and the inclusion of the sales for a
full year of glassware pursuant to the Vitrocrisa distribution agreement and
World Tableware, both of which experience gross margins less than the Company's
average. Expense increases were partly attributable to higher maintenance
expenses and the write off of redundant assets late in the year.
INCOME FROM OPERATIONS was $43.4 million in 1998 compared with $70.5 million in
1997 and declined as a percentage of net sales to 9.9% from 17.1% in the
year-ago period. Lower gross profit margins and the impact of a $20.0 million
capacity realignment charge in the fourth quarter were factors contributing to
the decrease in the margin. Before this charge, income from operations as a
percentage of sales was 14.5%. In addition, the decrease is attributable to
higher selling, general and administrative expenses partly related to the
inclusion of the expenses of World Tableware for a full year.
CAPACITY REALIGNMENT CHARGE
On December 31, 1998 the Board of Directors of the Company approved a capacity
realignment plan, which includes reallocating a portion of the current
production of the Company's Wallaceburg, Ontario facility to its glassware
facilities in the United States to improve its cost structure and more fully
utilize available capacity. A portion of Wallaceburg's production will be
absorbed by the Company's joint venture, Vitrocrisa. The Company will service
its Canadian glass tableware customers from its remaining manufacturing and
distribution network, which includes locations in Toledo, Ohio; Shreveport,
Louisiana and City of Industry, California. The Company also announced that it
will exit the production of bottleware, a niche, low-margin business for the
Company. In connection with this plan, the Company recorded a capacity
realignment charge in the fourth quarter of 1998 of $20.0 million which includes
$10.0 million for severance and related employee costs, $7.6 million for write
off of fixed assets (primarily equipment) and $2.4 million for supply
inventories, repair parts and other costs.
The Wallaceburg facility is expected to cease production on or around May 31,
1999, and the warehouse operations will terminate later in 1999. The fixed
assets, supply inventories and repair parts not being transferred have been
written down to a nominal amount. The Wallaceburg facility is presently held for
sale; however, if a buyer is not located, it will be abandoned. The Company will
terminate the employment of virtually all of its 560 salary and hourly employees
and included severance and related employee costs in its capacity realignment
charge based on benefits known by the employees. These severance and
16
<PAGE> 20
related employee costs will be paid primarily when production ceases. The
Company may incur an additional $2.0 million of severance and related employee
costs in 1999 as a result of enhanced benefits for the salary employees.
The capacity realignment offers promise in reducing the Company's cost structure
and improving its profitability by adding an expected $4.5 to $5.0 million to
operating income in 1999, or 16 to 18 cents per share after tax. Productivity
improvements at its glassware facilities, opportunities to improve profitability
at these facilities by better leveraging existing infrastructure and the
availability of capacity at the Company's joint venture enable these changes. In
addition, this decision tightens the Company's focus on its key glass tableware
customers while exiting the manufacturing of niche glass containers.
EARNINGS BEFORE INTEREST AND INCOME TAXES (EBIT) were $53.7 million in 1998,
compared with $73.3 million in 1997, and declined as a percentage of net sales
to 12.3% from 17.8% in the year-ago period. Excluding the impact of the $20.0
million capacity realignment charge, EBIT as a percentage of net sales would
have been 16.9%. The reduction is attributable to the lower income from
operations as a percentage of sales, which more than offset an increase in
equity earnings to $8.9 million from $3.6 million in 1997. The higher equity
earnings resulted primarily from the inclusion of a full year of earnings from
the Company's investment in Vitrocrisa, which occurred on August 29, 1997.
NET INCOME was $25.4 million, compared with $36.1 million in 1997 and declined
as a percentage of net sales to 5.8% from 8.8% in the year-ago period. The
decline is attributable to lower income from operations as a percentage of
sales, which more than offset lower interest expenses and a lower effective tax
rate of 38.0% compared with 38.2% in the year-ago period. The reduction in the
Company's effective tax rate is primarily attributable to an increase in tax
credits.
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, which includes sales to customers in Canada,
decreased to $57.5 million in 1997 from $59.4 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
17
<PAGE> 21
warehouse space requirements due 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.
CAPITAL RESOURCES AND LIQUIDITY
Libbey's financial condition at year-end 1998 reflects the effects of the
Company's improved cash flow, share repurchases and the capacity realignment
reserve. Net cash provided by operating activities increased to $51.3 million
from $38.6 million in 1997. Lower net income was more than offset by the $20.0
million non-cash capacity realignment charge and lower inventories and
receivables. Reductions in inventories were experienced primarily in the
Company's glassware operations and are attributable to the Company's efforts to
improve asset utilization.
Capital expenditures were $17.5 million in 1998 compared with $18.4 million in
1997 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. Capital expenditures for
1999 are expected to be in the range of $17.0 to $19.0 million. Cash of $27.3
million was used by the Company to repurchase 875,000 shares of its common
stock.
18
<PAGE> 22
Libbey had total debt of $191.2 million at December 31, 1998, compared with
$210.7 million at December 31, 1997. The decrease was primarily attributable to
the net cash provided from operations and a dividend of $14.2 million received
by the Company from its joint venture in Mexico. Libbey had additional debt
capacity of $198.4 million at December 31, 1998, under the Bank Credit
Agreement. Libbey has entered into interest rate protection agreements with
respect to $100.0 million of its debt. The average interest rate for the
Company's borrowings related to the interest rate protection agreements is 6.48%
with an average maturity of 2.7 years at December 31, 1998.
Of Libbey's outstanding indebtedness, $91.2 million is subject to fluctuating
interest rates at December 31, 1998. A change of one percentage point in such
rates would result in a change in interest expense of approximately $0.9 million
on an annual basis.
On August 29, 1997, the Company completed a series of transactions with Vitro
S.A. (collectively the "Vitro Transactions") for a cash purchase price of
approximately $104.4 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
that will result or that 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.
19
<PAGE> 23
YEAR 2000
Libbey 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.
Organizational Effort
Since August 1997, a corporate committee comprised of key information systems,
financial and operations managers meet bimonthly to review the state of
readiness of the Company's systems for the year 2000. The Company has appointed
the Chief Information Officer (CIO), reporting to and with the full support of
the Chairman and Chief Executive Officer, to provide oversight to the
implementation of the Year 2000 compliance program. The CIO has appointed a Year
2000 project manager, who has been engaged in determining compliance and
remediation requirements Company-wide since 1997. Key financial and operational
systems have been assessed and detailed plans have been implemented to address
modifications required prior to December 31, 1999. The Company's Year 2000
compliance and remediation efforts have not resulted in the deferral of any
projects material to the operation of the business.
Independent Review
In addition, the Company has engaged an independent consultant to assist in
assessing Year 2000 readiness and remediation plans at its manufacturing
facilities. The independent consultant is validating the Company's Year 2000
compliance process and findings to-date, utilizing its Year 2000 review process
and systems. The review has been completed at one of the Company's manufacturing
facilities and no material compliance issues were reported.
Contingency Plans
Each of the Company's manufacturing facilities and other operations material to
the functioning of the business has established Year 2000 compliance steering
committees to address the issue. Each committee is establishing contingency
plans should the Company experience business interruption due to the Year 2000
issue. Target date for completion of contingency plans is May 15, 1999.
State of Readiness
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:
20
<PAGE> 24
<TABLE>
<CAPTION>
Project Assessment Remediation Testing Implementation
- ------- ---------- ----------- ------- --------------
Segment
- -------
<S> <C> <C> <C> <C>
IT areas:
Mainframe 100% complete 95% complete 50% complete 95% complete
Other 100% complete 90% complete 75% complete 80% complete
Non-IT areas 100% complete 90% complete 75% complete 80% complete
Suppliers 100% complete 60% complete - -
</TABLE>
Assessment = an inventory of Information Technology (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 or vendor-certified Year 2000 compliant
software into production. Further testing is anticipated with respect to
implemented software that has been certified by the vendor to be Year 2000
compliant but has not yet been independently tested.
The estimated percentage of completion is based upon the level of effort spent
to date on the task compared with 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. In 1998, the Company upgraded its enterprise resource
planning system to a version certified by the vendor as Year 2000 compliant. In
addition, the main computer systems supporting the Company's Syracuse China and
World Tableware operations, which were acquired in 1995 and 1997, respectively,
have been also converted to the upgraded software. The remaining portions of the
Company's other systems are planned to be migrated or converted by mid-year
1999.
Financial Impact
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
21
<PAGE> 25
normal course of business, is expected to be less than $500,000, representing a
small portion of the budget for information technology expenses, and has been
and will be charged to expense as incurred and funded from internally generated
cash flow. To-date, approximately $145,000 has been expensed. Additionally,
approximately $1.7 million has been spent in capital on upgrades to the
Company's enterprise resource planning system and laptop computers that also
achieved Year 2000 compliance.
Suppliers
The Company has communicated with its significant suppliers and 40% responded
they are currently Year 2000 compliant, 55% expected compliance by December 31,
1999, and 5% 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. As noted, contingency plans are
being developed to cover any major failures of suppliers, customers and/or
systems. However, certain risk factors may affect 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 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. The Company is dependent
upon the availability of electricity, natural gas, certain raw materials,
including sand and soda ash for glassware and clay for ceramic dinnerware
manufacturing, to operate its factories. In addition, to operate its business,
the Company is dependent upon the availability of transportation services and
packaging. Any interruptions in the availability of these or other key materials
or services could have a material impact on the Company.
ITEM 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks due to changes in currency values,
although the majority of the Company's revenues and expenses are denominated in
the U.S. dollar. The currency market risks 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 exchange rate changes to the value of the Mexican peso relative to
the U.S. dollar and the impact of those changes on the earnings and cash flow of
the Company's joint venture in Mexico, Vitrocrisa, expressed under U.S. GAAP.
22
<PAGE> 26
The Company is exposed to market risk associated with changes in interest rates
in the U.S. However, the Company has entered into Interest Rate Protection
Agreements ("Rate Agreements") with respect to $100.0 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, 1998, was 6.48% for an average remaining
period of 2.7 years. Total remaining debt not covered by the Rate Agreements has
fluctuating interest rates with a weighted average rate of 5.34% at December 31,
1998. The Company had $91.2 million of debt subject to fluctuating interest
rates at December 31, 1998. A change of one percentage point in such rates would
result in a change in interest expense of approximately $.9 million on an annual
basis.
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 protected from interest rate fluctuations by
these Rate Agreements. However, the Company does not anticipate nonperformance
by the counterparts. At December 31, 1998, the carrying value of the long-term
debt approximates its fair value based on the Company's current incremental
borrowing rates. There was a negative fair market value for the Company's
Interest Rate Protection Agreements at December 31, 1998 of $2.6 million. 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.
OTHER INFORMATION
This document and supporting schedules contain "forward-looking" statements as
defined in the Private Securities Litigation Reform Act of 1995. Such statements
only reflect the Company's best assessment at this time, and are indicated by
words or phrases such as "expects," " believes," "will," "estimates,"
"anticipates," or similar phrases.
Investors are cautioned that forward-looking statements involve risks and
uncertainty, that actual results may differ materially from such statements, and
that investors should not place undue reliance on such statements.
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; the effect of high inflation in Mexico and exchange rate changes to
the value of the Mexican peso and the earnings and cash flow of the Company's
joint venture in Mexico, Vitrocrisa, expressed under U.S. GAAP; the inability to
achieve savings and profit improvements at targeted levels in the Company's
glassware sales from its capacity realignment efforts and re-engineering
programs, or within
23
<PAGE> 27
the intended time periods; inability to achieve targeted 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 costs and per unit increases in the costs for
natural gas, corrugated packaging, and other purchased materials; protracted
work stoppages related to collective bargaining agreements; increased
competition from foreign suppliers endeavoring to sell glass tableware in the
United States; major slowdowns in the retail, travel or entertainment industries
in the United States or Canada; and whether the Company completes any
significant acquisition, and whether such acquisitions can operate profitably.
24
<PAGE> 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
Report of Independent Auditors 26
Consolidated Balance Sheets at December 31, 1998 and 1997 27
For the years ended December 31, 1998, 1997 and 1996:
Consolidated Statements of Income 29
Consolidated Statements of Shareholders' Equity 30
Consolidated Statements of Cash Flows 31
Notes to Consolidated Financial Statements 32
Selected Quarterly Financial Data 48
25
<PAGE> 29
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, 1998 and 1997, and the related consolidated statements of
income, shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 1998. 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 based on our audits. We
did not audit the 1998 financial statements of Vitrocrisa, S.A. DE C.V., a
corporation in which the Company has a 49% equity interest which statements
reflect total assets of $193.4 million. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to data included for Vitrocrisa, S.A. DE C.V.,is based solely on the
report of the other auditors.
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, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Libbey Inc. at December 31, 1998 and
1997, and the consolidated results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998, 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 a whole, present fairly in all material respects
the information set forth therein.
ERNST & YOUNG LLP
Toledo, Ohio
January 30, 1999
26
<PAGE> 30
<TABLE>
<CAPTION>
LIBBEY INC.
CONSOLIDATED BALANCE SHEETS
=============================================================================================
December 31,
Dollars in thousands 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 3,312 $ 2,634
Accounts receivable:
Trade, less allowances of $3,636 and $3,103 48,474 49,982
Other 1,323 1,975
- ---------------------------------------------------------------------------------------------
49,797 51,957
Inventories:
Finished goods 81,770 91,897
Work in process 5,763 5,056
Raw materials 3,134 3,545
Operating supplies 695 800
- ---------------------------------------------------------------------------------------------
91,362 101,298
Prepaid expenses and deferred taxes 11,108 5,575
- ---------------------------------------------------------------------------------------------
Total current assets 155,579 161,464
Other assets:
Repair parts inventories 8,633 7,148
Intangibles, net of accumulated amortization of $2,343 and $2,039 9,862 10,202
Pension assets 10,701 8,805
Deferred software, net of accumulated amortization
of $3,974 and $2,153 6,299 6,027
Other assets 754 1,136
Equity investments 80,437 85,789
Goodwill, net of accumulated amortization of $13,126 and $11,635 47,935 48,828
- ---------------------------------------------------------------------------------------------
164,621 167,935
Property, plant and equipment at cost 235,713 236,427
Less accumulated depreciation 116,242 116,226
- ---------------------------------------------------------------------------------------------
Net property, plant and equipment 119,471 120,201
- ---------------------------------------------------------------------------------------------
Total assets $439,671 $449,600
=============================================================================================
See accompanying notes
</TABLE>
27
<PAGE> 31
<TABLE>
<CAPTION>
LIBBEY INC.
CONSOLIDATED BALANCE SHEETS
(Continued)
=============================================================================================
December 31,
Dollars in thousands 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 14,932 $ 10,385
Accounts payable 22,605 29,472
Salaries and wages 14,413 10,808
Capacity realignment reserve 19,929 --
Accrued liabilities 22,702 28,031
Income taxes -- 3,211
- ---------------------------------------------------------------------------------------------
Total current liabilities 94,581 81,907
Long-term debt 176,300 200,350
Deferred taxes 16,184 9,659
Other long-term liabilities 6,689 5,221
Nonpension retirement benefits 51,057 52,474
Shareholders' equity:
Common stock, par value $.01 per share, 50,000,000 shares authorized,
17,707,570 shares issued and outstanding, less 875,000 treasury
shares (17,580,931 shares issued and outstanding in 1997) 168 175
Capital in excess of par value 281,956 279,208
Treasury stock (27,250) --
Deficit (158,602) (178,792)
Accumulated other comprehensive loss (1,412) (602)
- ---------------------------------------------------------------------------------------------
Total shareholders' equity 94,860 99,989
- ---------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $439,671 $449,600
=============================================================================================
See accompanying notes.
</TABLE>
28
<PAGE> 32
<TABLE>
<CAPTION>
LIBBEY INC.
CONSOLIDATED STATEMENTS OF INCOME
=============================================================================================
Year ended December 31,
Dollars in thousands, except per-share amounts 1998 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Net sales $436,522 $411,966 $397,656
Royalties and net technical assistance income 3,026 3,087 2,698
- ----------------------------------------------------------------------------------------------
Total revenues 439,548 415,053 400,354
Costs and expenses:
Cost of sales 321,949 295,009 288,538
Selling, general and administrative expenses 54,191 49,585 44,620
Capacity realignment charge 20,046 -- --
- ----------------------------------------------------------------------------------------------
396,186 344,594 333,158
- ----------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 43,362 70,459 67,196
Other income (expense):
Equity earnings 8,880 3,570 --
Other - net 1,493 (732) 1,302
- ----------------------------------------------------------------------------------------------
10,373 2,838 1,302
- ----------------------------------------------------------------------------------------------
Earnings before interest and income taxes 53,735 73,297 68,498
Interest expense - net (12,674) (14,840) (14,962)
- ----------------------------------------------------------------------------------------------
Income before income taxes 41,061 58,457 53,536
Provision for income taxes 15,618 22,331 20,986
- ----------------------------------------------------------------------------------------------
NET INCOME $ 25,443 $ 36,126 $ 32,550
=============================================================================================
NET INCOME PER SHARE
Basic $ 1.45 $ 2.33 $ 2.16
Diluted $ 1.42 $ 2.27 $ 2.12
=============================================================================================
See accompanying notes
</TABLE>
29
<PAGE> 33
LIBBEY INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
==================================================================================================================================
Accumulated
Common Capital in Other
Dollars in thousands, except Stock Excess of Treasury Comprehensive
per-share data Shares Amount Par Value Stock Deficit Loss Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1996 15,023,500 $150 $191,226 $(238,407) $(85) $ (47,116)
Net income 32,550 32,550
Effect of exchange rate fluctuation (54) (54)
-----------
Comprehensive income 32,496
Stock options exercised 37,731 1 683 684
Dividend -- $0.30 per share (4,511) (4,511)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1996 15,061,231 151 191,909 (210,368) (139) (18,447)
Net income 36,126 36,126
Effect of exchange rate fluctuation (463) (463)
-----------
Comprehensive income 35,663
Stock options exercised 219,700 1 4,704 4,705
Stock offering net of $573
expenses 2,300,000 23 82,595 82,618
Dividend -- $0.30 per share (4,550) (4,550)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1997 17,580,931 175 279,208 (178,792) (602) 99,989
Net income 25,443 25,443
Effect of exchange rate fluctuation (810) (810)
-----------
Comprehensive income 24,633
Stock options exercised 126,639 1 2,748 2,749
Purchase of shares for
treasury (875,000) (8) (27,250) (27,258)
Dividend -- $0.30 per share (5,253) (5,253)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1998 16,832,570 $168 $281,956 ($27,250) $(158,602) $(1,412) $94,860
==================================================================================================================================
See accompanying notes
</TABLE>
30
<PAGE> 34
<TABLE>
<CAPTION>
LIBBEY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
=================================================================================================================
Year ended December 31,
Dollars in thousands 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 25,443 $ 36,126 $ 32,550
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 15,852 16,826 19,275
Amortization 3,654 3,070 2,210
Equity earnings (8,880) (3,570) --
Capacity realignment charge 20,046 -- --
Nonpension retirement benefit cost in excess of payments (1,417) 1,309 2,220
Deferred income taxes 498 2,028 (201)
Other 1,468 316 (177)
Changes in operating assets and liabilities:
Accounts receivable 1,566 (5,226) (1,786)
Inventories 8,693 (9,558) 2,731
Prepaid expenses 9 (506) (573)
Other assets (5,126) (3,534) (4,800)
Accounts payable (2,859) 647 2,463
Accrued liabilities (5,499) 2,274 311
Other liabilities (2,171) (1,586) 5,990
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 51,277 38,616 60,213
INVESTING ACTIVITIES
Additions to property, plant and equipment (17,486) (18,408) (15,386)
Vitro acquisition and equity investments -- (106,750) --
Dividends received from equity investments 14,232 -- --
Other 1,639 654 170
- -----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,615) (124,504) (15,216)
FINANCING ACTIVITIES
Net bank credit facility activity (23,751) (2,097) (45,801)
Other net borrowings 4,547 5,860 4,525
Stock offering -- 82,618 --
Stock options exercised 2,749 4,705 684
Treasury shares purchased (27,258) -- --
Dividends (5,253) (4,550) (4,511)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (48,966) 86,536 (45,103)
Effect of exchange rate fluctuations on cash (18) (4) 1
- -----------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 678 644 (105)
Cash at beginning of year 2,634 1,990 2,095
- -----------------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR $ 3,312 $ 2,634 $ 1,990
=================================================================================================================
See accompanying notes
</TABLE>
31
<PAGE> 35
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"). 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 operates in one business segment, tableware products. 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. 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 $11,203, $11,720 and
$10,978 at December 31, 1998, 1997 and 1996, respectively. The remaining
inventories are valued at either standard or average cost which approximate
current costs.
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.
INTANGIBLES Intangibles, which resulted from valuations assigned by independent
appraisers for future revenues from technical assistance agreements and
trademarks acquired, are amortized over 40 years. The Company periodically
reviews intangibles to assess recoverability, generally based upon expectations
of nondiscounted cash flows.
DEFERRED SOFTWARE Deferred software is the cost of software packages purchased
and the cost associated with the installation of the software. This cost is
amortized over 5 years.
32
<PAGE> 36
The Company periodically reviews the software to assess plans to replace the
existing programs before the 5 years.
PROPERTY, PLANT AND EQUIPMENT 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 bases of assets and liabilities and are
measured using the tax rates and laws that are expected to 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 wholly owned
foreign subsidiary are translated at current exchange rates and any related
translation adjustments are recorded directly in shareholders' equity. The 49%
investment in Vitrocrisa is accounted for using the equity method with the U.S.
dollar being the functional currency.
OTHER COMPREHENSIVE INCOME In 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" which requires
that comprehensive income or loss, the total of net income and other
comprehensive loss, to be reported in the financial statements. Other
comprehensive loss for the Company consists of foreign currency translation
adjustment. Disclosure of comprehensive loss is incorporated into the Statement
of Shareholders' Equity for all years presented.
NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board
issued Statement No.133, "Accounting for Derivative Instruments and Hedging
Activities" (Statement 133) which establishes new procedures for accounting for
derivatives and hedging activities and supersedes and amends a number of
existing standards. Statement 133 is effective for fiscal years beginning after
June 15, 1999, and the Company has not determined its impact.
33
<PAGE> 37
INCOME PER SHARE OF COMMON STOCK The following table sets forth the computation
of basic and diluted earnings per share:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator for diluted earnings per share --
net income that is available to
common stockholders $25,443 $36,126 $32,550
-------------------------------------------------
Denominator for basic earnings per share --
weighted-average shares
outstanding 17,523,564 15,479,704 15,037,453
Effect of dilutive securities --
employee stock options 392,132 457,353 324,030
Denominator for diluted earnings per share --
adjusted weighted-average
shares and assumed conversions 17,915,696 15,937,057 15,361,483
-------------------------------------------------
Basic earnings per share $ 1.45 $ 2.33 $ 2.16
-------------------------------------------------
Diluted earnings per share $ 1.42 $ 2.27 $ 2.12
-------------------------------------------------
</TABLE>
2. ACQUISITION AND EQUITY INVESTMENTS
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 $104.4 million and the assumption of certain liabilities, financed
through borrowings under the Bank Credit Agreement. The primary components of
the Vitro Transactions included the Company becoming: (i) a 49% equity owner in
Vitrocrisa; (ii) the exclusive distributor of Vitrocrisa's glass tableware
products in the U.S. and Canada and Vitrocrisa becoming the exclusive
distributor of Libbey glass tableware products in Latin America; (iii) the owner
of substantially all of the assets and certain liabilities of the business
formerly known as WorldCrisa, renamed World Tableware; and (iv) the owner of a
49% interest in the business of Crisa Industrial, L.L.C., which distributes
industrial glassware in the U.S. and Canada for Vitrocrisa. As a result of the
Vitro Transactions, the Company consolidates the financial results of World
Tableware and includes in its financial results sales of Vitrocrisa's glass
tableware in the U.S. and Canada pursuant to the distribution agreement.
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
34
<PAGE> 38
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.
Summarized combined financial information for equity investments beginning at
the date of investment is as follows:
<TABLE>
<CAPTION>
December 31, 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 61,457 $ 65,540
Non-current assets 134,208 129,960
--------------- --------------
Total assets 195,665 195,500
Current liabilities 90,037 78,849
Other liabilities and deferred items 96,068 79,703
--------------- --------------
Total liabilities and deferred items 186,105 158,552
--------------- --------------
Net assets $ 9,560 $ 36,948
===================================================================================================
Year ended December 31, 1998 1997
- ---------------------------------------------------------------------------------------------------
Net sales $ 183,886 $ 71,413
Gross profit $ 69,504 $ 27,241
Net income $ 21,586 $ 8,440
===================================================================================================
</TABLE>
35
<PAGE> 39
<TABLE>
<CAPTION>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
December 31, 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Land $ 15,184 $ 15,364
Buildings 31,495 33,097
Machinery and equipment 169,249 167,574
Furniture and fixtures 11,961 11,449
Construction in progress 7,824 8,943
- ------------------------------------------------------------------------------
235,713 236,427
Less accumulated depreciation 116,242 116,226
- ------------------------------------------------------------------------------
Net property, plant and equipment $119,471 $120,201
==============================================================================
</TABLE>
5. OTHER ACCRUED LIABILITIES
Other accrued liabilities include accruals for insurance of $6,109 and $5,733
and various incentive programs of $11,865 and $9,537 at December 31, 1998 and
1997 respectively.
6. INCOME TAXES
The provision(credit) for income taxes consists of the following:
- --------------------------------------------------------------------------------
Year ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------
Current:
Federal $ 11,383 $ 15,906 $ 16,567
Foreign 3,330 2,345 1,878
State and local 1,403 2,052 2,742
- --------------------------------------------------------------------------------
16,116 20,303 21,187
- --------------------------------------------------------------------------------
Deferred:
Federal 5,874 1,500 (644)
Foreign (7,049) 368 385
State and local 677 160 58
- --------------------------------------------------------------------------------
(498) 2,028 (201)
- --------------------------------------------------------------------------------
Total:
Federal 17,257 17,406 15,923
Foreign (3,719) 2,713 2,263
State and local 2,080 2,212 2,800
- --------------------------------------------------------------------------------
$ 15,618 $ 22,331 $ 20,986
- --------------------------------------------------------------------------------
36
<PAGE> 40
The provision for income taxes was calculated based on the following components
of earnings (loss) before income taxes:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $ 52,091 $ 50,734 $ 46,101
Foreign (11,030) 7,723 7,435
- --------------------------------------------------------------------------------
$ 41,061 $ 58,457 $ 53,536
================================================================================
</TABLE>
A reconciliation from the statutory U.S. federal tax rate of 35% to the
consolidated effective tax rate is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------
<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 3.3 2.5 3.4
Amortization of goodwill 2.0 0.9 0.7
Other (2.3) (0.2) 0.1
- --------------------------------------------------------------------------------
Consolidated effective tax rate 38.0% 38.2% 39.2%
================================================================================
</TABLE>
Income taxes paid in cash amounted to $17,078, $16,570 and $18,727 for the years
ended December 31, 1998, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
Significant components of the Company's deferred tax liabilities and assets are
as follows:
December 31, 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment $22,600 $20,042
Inventories 4,105 2,784
Pension 3,531 2,988
Intangibles and other assets 12,125 7,448
- --------------------------------------------------------------------------------
Total deferred tax liabilities 42,361 33,262
Deferred tax assets:
Accrued nonpension retirement benefits 19,206 19,986
Other accrued liabilities 6,611 6,452
Receivables 321 --
Capacity realignment reserve 7,451 --
Other 523 328
- --------------------------------------------------------------------------------
Total deferred tax assets 34,112 26,766
- --------------------------------------------------------------------------------
Net deferred tax liabilities $ 8,249 $ 6,496
================================================================================
</TABLE>
37
<PAGE> 41
<TABLE>
<CAPTION>
Net deferred tax liabilities are included in the consolidated balance sheets as
follows:
December 31, 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Noncurrent deferred taxes $ 16,184 $ 9,659
Prepaid expenses (7,935) (3,163)
- --------------------------------------------------------------------------------
Net deferred tax liabilities $ 8,249 $ 6,496
================================================================================
</TABLE>
7. PENSION PLANS AND NONPENSION RETIREMENT BENEFITS
In 1998, the Company adopted Statement of Financial Accounting Standards No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits"
(Statement 132) for all years presented which supersedes the disclosure
requirements of Statement Nos. 87, 88 and 106. Statement 132 addresses
disclosure issues only and does not change the measurement or recognition
specified in Statement Nos. 87, 88 and 106.
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 components of the benefit obligation, plan assets and funded status of the
plans are as follows:
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
---- ----
Change in benefit obligation:
<S> <C> <C>
Benefit obligation, beginning of year $ 162,526 $ 143,683
Service cost 3,799 3,373
Interest cost 11,395 11,479
Plan amendments 6,793 (1,141)
Actuarial (gain) loss (2,748) 17,050
Benefits paid (13,199) (11,918)
-----------------------
Benefit obligation, end of year $ 168,566 $ 162,526
-----------------------
Change in plan assets:
Fair value of plan assets, beginning of year $ 201,424 $ 180,039
Actual return on plan assets 31,210 33,304
Benefits paid (13,199) (11,919)
-----------------------
Fair value of plan asset, end of year $ 219,435 $ 201,424
-----------------------
Funded status of plan: $ 50,869 $ 38,898
Unrecognized net gain (45,728) (29,026)
Unrecognized prior year service cost 5,560 (1,067)
-----------------------
Prepaid pension benefit cost $ 10,701 $ 8,805
-----------------------
</TABLE>
38
<PAGE> 42
The actuarial present value of benefit obligations is based on a discount rate
of 7.0% in 1998 and 7.25% in 1997. The expected long-term rate of return on
assets is 10% in 1998 and 1997. A salary growth rate of 4.5% was used in 1998
and 1997. Future benefits are assumed to increase in a manner consistent with
past experience. Plan assets primarily include marketable equity securities and
government and corporate debt securities.
The components of the net pension expense are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 3,799 $ 3,373 $ 3,812
Interest cost on projected benefit obligation 11,395 11,479 11,177
Expected return on plan assets (17,256) (16,013) (15,217)
Prior service cost amortization 166 (75) (28)
Actuarial gain recognized -- (275) --
- -------------------------------------------------------------------------------------------------------
Net pension credit $ (1,896) $ (1,511) $ (256)
=======================================================================================================
</TABLE>
The Company also sponsors certain other employee retirement benefit plans which
in the aggregate resulted in an expense of $1,977, $1,975 and $1,768 in 1998,
1997 and 1996, respectively.
The Company also 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 June 18, 1993.
39
<PAGE> 43
The components of the nonpension retirement benefit obligation and amounts
accrued are as follows:
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
---- ----
Change in accumulated postretirement benefit
obligation:
<S> <C> <C>
Benefit obligation, beginning of year $ 30,699 $ 32,592
Service cost 698 1,236
Interest cost 1,485 2,408
Plan amendments (12,413) 0
Actuarial gain (2,124) (4,635)
Benefits paid (874) (902)
----------------------
Benefit obligation, end of year $ 17,471 $ 30,699
======================
Funded status of plan $(17,471) $(30,699)
Unrecognized actuarial gain (16,464) (14,288)
Unrecognized prior year service cost (17,122) (7,487)
----------------------
Prepaid (accrued) benefit cost $(51,057) $(52,474)
======================
</TABLE>
The provision for nonpension retirement benefit costs consists of the following:
<TABLE>
<CAPTION>
Year ended December 31,
- ----------------------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 698 $ 1,236 $ 1,463
Amortization (2,517) (1,639) (1,276)
Interest cost on nonpension retirement benefit obligation 1,485 2,408 2,484
- ----------------------------------------------------------------------------------------------------------
Net nonpension retirement benefit cost (credit) $ (334) $ 2,005 $ 2,671
==========================================================================================================
</TABLE>
Assumed health care cost inflation is based on a gradual decrease to an ultimate
rate of 5%. A one percentage point increase in these rates would have increased
the nonpension retirement benefit obligation by $575. A one percentage point
decrease in these rates would have decreased the net nonpension retirement
benefit obligation by $542. The assumed discount rate used in determining the
accumulated nonpension retirement benefit obligation was 7.0% for 1998 and 7.25%
for 1997. The reduction in the accumulated postretirement benefit obligation
related to plan amendments which provided for retiree contributions and annual
cost limits. 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 $443, $388 and $357 was charged to expense for the years
ended December 31, 1998, 1997 and 1996, respectively.
40
<PAGE> 44
8. LONG-TERM DEBT
The Company and its Canadian subsidiary have an unsecured agreement ("Bank
Credit Agreement" or "Agreement") with a group of banks that provides for a
Revolving Credit and Swing Line Facility ("Facility") permitting borrowings up
to an aggregate total of $380.0 million, maturing May 1, 2002. Swing Line
borrowings are limited to $25.0 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 vary depending on the
Company's performance against certain financial ratios. The Commitment Fee
Percentage and the Applicable Eurodollar Margin were .125% and .225%,
respectively, at December 31, 1998. The Company may also elect to borrow up to a
maximum of $190.0 million under a Bid Rate loan alternative of the Facility at
floating rates of interest. The Company had $176.3 and $200.4 million
outstanding under the Facility at December 31, 1998 and 1997, respectively. The
Facility also provides for the issuance of $38.0 million of letters of credit,
with such usage applied against the $380.0 million limit. At December 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 $100.0 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, 1998, was 6.48% for an average remaining period of
2.7 years. Total remaining debt not covered by the Rate Agreements has
fluctuating interest rates with a weighted average rate of 5.34% at December 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. If 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.
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: 1999 through 2001 - none; 2002 - $176.3 million.
At December 31, 1998, the carrying value of the long-term debt approximates its
fair value based on the Company's current incremental borrowing rates. There was
a negative fair
41
<PAGE> 45
market value for the Company's Interest Rate Protection Agreements at December
31, 1998 of $2.6 million. 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 paid in cash amounted to $12,392, $14,337 and $14,362 for the years
ended December 31, 1998, 1997 and 1996.
9. 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
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 that 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
42
<PAGE> 46
the date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions by year:
<TABLE>
<CAPTION>
Assumption 1998 1997 1996
- ---------- ---- ---- ----
<S> <C> <C> <C>
Risk-free interest rates 5.5% 5.8% 6.0%
Dividend yield 0.8% 0.8% 1.1%
Volatility .29 .26 .27
</TABLE>
The weighted average fair value of options granted in 1998, 1997 and 1996 was
$15.22, $13.59 and $9.90, 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>
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income:
Reported $ 25,443 $ 36,126 $ 32,550
Pro forma $ 24,435 $ 35,466 $ 32,080
Earnings per share:
Basic
Reported $ 1.45 $ 2.33 $ 2.16
Pro forma $ 1.39 $ 2.29 $ 2.13
Diluted
Reported $ 1.42 $ 2.27 $ 2.12
Pro forma $ 1.36 $ 2.23 $ 2.09
- --------------------------------------------------------------------------------
</TABLE>
Pro forma effect on net income for 1998, 1997 and 1996 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.
43
<PAGE> 47
Stock option activity is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Weighted-Average Price Range
Number of Shares Exercise Price Per Share
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
January 1, 1997
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
Granted 159,200 38.33
Canceled 500 38.44
Exercised 126,639 14.17
- ------------------------------------------------------------------------------------------
DECEMBER 31, 1998
OUTSTANDING 1,383,346 19.17 $13.00--$38.4375
EXERCISABLE 1,112,447 15.46
==========================================================================================
</TABLE>
The following information is as of December 31, 1998
<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 806,235 577,111
Weighted-average exercise price $ 13.00 $ 27.79
Remaining contractual life 4.4 7.5
Options exercisable 806,235 306,212
Weighted-average exercise price $ 13.00 $ 21.93
- --------------------------------------------------------------------------------
</TABLE>
10. SHAREHOLDERS' RIGHTS PLAN
The Company has 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. The Plan defines Existing Holder to
mean Baron Capital Group, Inc. together with all of its Affiliates and
Associates (including without limitation, Ronald Baron, BAMCO, Inc, Baron
Capital Management, Inc. and Baron Asset Fund). 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
44
<PAGE> 48
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% (or in the case of an Existing
Holder, 25%) of the Company's common shares or makes a tender offer for at least
20% (or in the case of an Existing Holder, 25%) of its common shares. After the
time that a person acquires beneficial ownership of 20% (or in the case of an
Existing Holder, 25%) 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 in the case of an Existing Holder, 25%) 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.
11. OPERATING LEASES
Rental expense for all operating leases, primarily for warehouses, was $5,684,
$5,983 and $4,670 for the years ended December 31, 1998, 1997 and 1996,
respectively. Future minimum rentals under operating leases are as follows:
1999--$5,197; 2000--$3,661; 2001--$2,991; 2002--$2,474 ; 2003--$1,875 and 2004
and thereafter--$6,819.
12. CAPACITY REALIGNMENT CHARGE
On December 31, 1998 the Board of Directors of the Company approved a capacity
realignment plan, which includes reallocating a portion of the current
production of the Company's Wallaceburg, Ontario facility to its glassware
facilities in the United States to improve its cost structure and more fully
utilize available capacity. A portion of Wallaceburg's production will be
absorbed by the Company's joint venture, Vitrocrisa. The Company will service
its Canadian glass tableware customers from its remaining manufacturing and
distribution network, which includes locations in Toledo, Ohio; Shreveport,
Louisiana and City of Industry, California. The Company also announced that it
will exit the production of bottleware, a niche, low-margin business for the
Company. In connection with this plan, the Company recorded a capacity
realignment charge in the fourth quarter of 1998 of $20.0 million which includes
$10.0 million for severance and related employee costs, $7.6 million for write
off of fixed assets (primarily equipment) and $2.4 million for supply
inventories, repair parts and other costs.
The Wallaceburg facility is expected to cease production on or around May 31,
1999, and the warehouse operations will terminate later in 1999. The fixed
assets, supply inventories and repair parts not being transferred have been
written down to a nominal amount. The Wallaceburg facility is presently held for
sale; however if a buyer is not located it will be abandoned. The Company will
terminate the employment of virtually all of its 560 salary and
45
<PAGE> 49
hourly employees and included severance and related employee costs in its
capacity realignment charge based on benefits known by the employees. These
severance and related employee costs will be paid primarily when production
ceases.
13. INDUSTRY SEGMENT INFORMATION
Effective the fourth quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (Statement 131) which superseded Statement No. 14,
"Financial Reporting for Segments of a Business Enterprise." Statement 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim and annual financial reports. Statement 131 also establishes standards
for related disclosures about products and services, geographic areas and major
customers. The adoption of Statement 131 did not affect results of operations or
financial position.
The Company's revenues from external customers are derived from tabletop
products. The Company does not have any customers who represent 10% or more of
total sales. The Company's operations by geographic areas for 1998, 1997 and
1996 are presented below. Intercompany sales to affiliates represent products
that are transferred between geographic areas on a basis intended to reflect as
nearly as possible the market value of the products. The long-lived assets
include net fixed assets, goodwill and equity investments.
46
<PAGE> 50
<TABLE>
<CAPTION>
United
States Foreign Eliminations Consolidated
------ ------- ------------ ------------
<S> <C> <C> <C> <C>
1998
Net sales:
Customers $384,664 $51,858 $ 436,522
Intercompany 25,429 12,853 (38,282) --
====================================================
Total 410,093 64,711 (38,282) 436,522
Long-lived assets 161,105 86,738 247,843
1997
Net sales:
Customers 354,501 57,465 411,966
Intercompany 26,291 15,530 (41,821) --
----------------------------------------------------
Total 380,792 72,995 (41,821) 411,966
Long-lived assets 161,256 93,562 254,818
1996
Net sales:
Customers 338,214 59,442 397,656
Intercompany 22,435 15,707 (38,142) --
----------------------------------------------------
Total 360,649 75,149 (38,142) 397,656
Long-lived assets 147,196 9,905 157,101
</TABLE>
47
<PAGE> 51
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables present selected quarterly financial data for the years
ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dollars in thousands, except
per-share data
Net sales $90,088 $113,673 $ 109,604 $ 123,157
Cost of sales 67,360 79,569 76,801 98,219
Gross profit 22,728 34,104 32,803 24,938
Earnings (loss) before interest
and income taxes(1) 13,351 25,612 26,247 (11,475)
Net income (loss)(1) 6,105 13,747 14,254 (8,663)
- -----------------------------------------------------------------------------------------------
Net income per share
Basic $ 0.35 $ 0.78 $ 0.81 $ (0.50)
Diluted $ 0.34 $ 0.76 $ 0.79 $ (0.49)
===============================================================================================
(1) In the fourth quarter of 1998, the Company recorded a capacity realignment
charge of $20.0 million pre-tax and $12.4 million after-tax.
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
1998 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
===============================================================================================
</TABLE>
48
<PAGE> 52
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.
49
<PAGE> 53
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 26
Consolidated Balance Sheets at December 31, 1998 and 1997 27
For the years ended December 31, 1998, 1997 and 1996:
Consolidated Statements of Income 29
Consolidated Statements of Shareholders' Equity 30
Consolidated Statements of Cash Flows 31
Notes to Consolidated Financial Statements 32
Selected Quarterly Financial Data 48
Financial statement schedule for the years ended December 31, 1998, 1997 and
1996:
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.
50
<PAGE> 54
b) A form 8-K was filed during the fourth quarter, dated December 15, 1998
with respect to the press release announcing the authorization to
repurchase up to 875,000 shares of the Company's common stock in open
market and negotiated purchases.
d) Vitrocrisa, S.A. DE C.V. Financial Statements as of December 31, 1998 and
1997 and for the years ended December 31, 1998, 1997 and 1996 and
Independent Auditors' Report are filed as a part of this Annual Report
pursuant to Rule 3.09 of Regulation S-X.
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 31, 1999
51
<PAGE> 55
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
Peter C. McC. Howell Director
Gary L. Moreau Director
Terence P. Stewart Director
Carol B. Morerdyk Director
Richard 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 31, 1999
52
<PAGE> 56
INDEX TO FINANCIAL STATEMENT SCHEDULE AND SEPARATE FINANCIAL
STATEMENTS OF AFFILIATE
Page
----
Financial Statement Schedule of Libbey Inc. for the years
ended December 31, 1998 1997, and 1996: II Valuation and
Qualifying Accounts (Consolidated) S-1
Vitrocrisa, S.A. DE C.V. Financial Statements as of
December 31, 1998 and 1997 and for the years ended
December 31, 1998, 1997 and 1996 and Independent
Auditors' Report S-2
53
<PAGE> 57
LIBBEY INC.
SCHEDULE II -- VALUATION AND QUALIFYING
ACCOUNTS (Consolidated) Years ended
December 31, 1998, 1997 and 1996
(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
------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Allowances for Losses and
Discounts on Receivables:
1998 $3,103 $1,212 $ 132 $ 811 $3,636
1997 $2,279 $ 439 $ 551 $ 166 $3,103
1996 $3,289 $ (206) $ 35 $ 839 $2,279
</TABLE>
(1) The amounts in "Other" represent recoveries of accounts previously charged
off as uncollectible and in 1997 amounts established through purchase price
accounting for acquisition of World Tableware for Allowances for Losses and
Discounts on Receivables.
(2) Deductions from allowances for losses and discounts on receivables
represent uncollectible notes and accounts written off.
S-1
<PAGE> 58
DELOITTE &
TOUCHE
[LOGO] GALAZ, GOMEZ MORFIN,
CHAVERO, YAMAZAKI, S.C.
VITROCRISA, S.A. DE C.V.
Financial Statements as of December 31, 1998
and 1997 and for the years ended December 31, 1998,
1997 and 1996 and Independent Auditors' Report
S-2
DELOITTE TOUCHE
TOHMATSU
<PAGE> 59
DELOITTE &
TOUCHE
[LOGO] GALAZ, GOMEZ MORFIN,
CHAVERO, YAMAZAKI, S.C.
[LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Vitrocrisa, S.A. de C.V.
Monterrey, N.L.
We have audited the accompanying balance sheets of Vitrocrisa, S.A. de C.V. as
of December 31, 1998 and 1997, and the related statements of income, changes in
stockholders' equity and changes in financial position for each of the three
years in the period ended December 31, 1998, all expressed in thousands of
constant Mexican pesos as of December 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in Mexico, which are substantially the same as those followed in the United
States. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement and that they are prepared in accordance with accounting principles
generally accepted in Mexico. 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 financial position of Vitrocrisa, S.A. de C.V. as of
December 31, 1998 and 1997, and the results of its operations, changes in its
stockholders' equity and changes in its financial position for the years ended
December 31, 1998, 1997 and 1996, in conformity with accounting principles
generally accepted in Mexico.
Accounting principles generally accepted in Mexico differ in certain significant
respects from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of net income
for the years ended December 31, 1998, 1997 and 1996 and the determination of
stockholders' equity at December 31, 1998 and 1997 to the extent summarized in
note 14.
The accompanying financial statements and the independent auditors' report have
been translated into English language for the convenience of readers.
/s/ DELOITTE & TOUCHE
February 26, 1999
DELOITTE TOUCHE
TOHMATSU
S-3
<PAGE> 60
<TABLE>
<CAPTION>
VITROCRISA, S.A. DE C.V.
BALANCE SHEETS
(Thousands of constant Mexican pesos as of December 31, 1998)
- ----------------------------------------------------------------------------------------------------------------------
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents Ps. 14,584 Ps. 14,279
Trade receivables, net of allowance for doubtful accounts
of Ps. 14,327 and Ps. 14,265 at December 31, 1998 and 1997,
respectively 229,443 242,787
Other receivables 24,052 23,617
Accounts receivable from affiliates 5,973 29,064
Notes receivable from affiliates 12,161 8,316
Inventories (note 3) 195,163 175,029
------------ -------------
Current assets 481,376 493,092
Investment in shares 9,310 11,043
Deferred income tax and profit sharing to workers 134,286 128,416
Land and buildings (note 4) 354,401 373,234
Machinery and equipment (note 4) 842,525 784,431
Construction in progress 5,782 8,506
Intangible seniority premium and pension asset 84,144 76,029
Other assets 2,402 255
------------ -------------
Total assets Ps.1,914,226 Ps. 1,875,006
============ =============
LIABILITIES
Short-term debt Ps. 64,326
Current portion of long-term debt 79,170 Ps. 4,371
Trade payables 134,210 118,816
Notes payable to affiliates 97,349 182,845
Accounts payable to affiliates 19,324 18,783
Accrued expenses 85,935 34,046
Dividends payable 100,671
Other current liabilities 32,695 46,696
------------ -------------
Current liabilities 513,009 506,228
------------ -------------
Long-term debt (note 5) 814,932 666,140
Seniority premium and pension plans (note 6) 134,560 95,039
------------ -------------
Long-term liabilities 949,492 761,179
------------ -------------
Total liabilities 1,462,501 1,267,407
------------ -------------
STOCKHOLDERS' EQUITY
Capital stock: 1,000,000 shares issued and outstanding at December
31, 1998 and 1997 2,382,987 2,382,987
Paid-in capital 80,532 80,532
Shortfall in restatement of capital (2,226,889) (2,195,090)
Minimum pension liability adjustment (21,918)
Retained earnings 32,834
Net income for the year 204,179 339,170
------------- -------------
Stockholders' equity (note 8) 451,725 607,599
------------- -------------
Total liabilities and stockholders' equity Ps. 1,914,226 Ps. 1,875,006
============= =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
ING. SALVADOR MINARRO LIC. CARLOS NAVARRO LEAL
Administrative Director Manager of comptrollership
S-4
<PAGE> 61
<TABLE>
<CAPTION>
VITROCRISA, S.A. DE C.V.
STATEMENTS OF INCOME
(Thousands of constant Mexican pesos as of December 31, 1998 )
- ----------------------------------------------------------------------------------------------------------------------
Year ended Year ended Year ended
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net sales Ps. 1,680,519 Ps. 1,727,845 Ps. 1,675,757
Cost of sales 1,020,627 1,027,178 1,082,975
General, administrative and selling expenses 290,596 306,825 296,141
--------------- -------------- ---------------
Operating income 369,296 393,842 296,641
--------------- -------------- ---------------
Interest expense 130,544 161,465 317,810
Interest income (4,549) (3,498) (7,317)
Exchange loss, net (note 7-c) 209,948 22,863 16,759
Gain from monetary position (175,894) (147,113) (346,032)
--------------- -------------- ---------------
Total financing cost (benefit), net 160,049 33,717 (18,780)
--------------- -------------- ---------------
Income after financing 209,247 360,125 315,421
Severance payments (22,736)
Other income, net 493 502 5,525
--------------- -------------- ---------------
Income before income tax, profit
sharing to workers and
extraordinary item 209,740 360,627 298,210
Income and asset tax (note 10) 62,185 120,773 104,327
Profit sharing to workers 9,473 11,646 955
Income before extraordinary item 138,082 228,208 192,928
Extraordinary item (note 11) 66,097 110,962 101,430
--------------- -------------- ---------------
Net income Ps. 204,179 Ps. 339,170 Ps. 294,358
=============== ============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-5
<PAGE> 62
<TABLE>
<CAPTION>
VITROCRISA, S.A. DE C.V.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Thousands of constant Mexican pesos as of December 31, 1998 except per share amounts)
- ----------------------------------------------------------------------------------------------------------------------------------
Minimum (Accumulated
Shortfall in pension deficit)
Paid-in restatement liability Retained
Capital stock capital of capital adjustment earnings
------------- ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 Ps. 2,668,294 Ps. 80,532 Ps.(1,597,203) Ps.(15,455) Ps. (823,712)
Appropriation of net loss from prior year (128,387)
Merger 366,840 (469,315) 107,090
Loss from holding non-monetary assets (81,602)
Minimum pension liability adjustment (952)
Net income
------------- ---------- ------------- ----------- -------------
Balance at December 31, 1996 3,035,134 80,532 (2,148,120) (16,407) (845,009)
Appropriation of net income from prior year 294,358
Recapitalization (550,651) 550,651
Capital stock redemption (101,496)
Loss from holding non-monetary assets (46,970)
Minimum pension liability adjustment 16,407
Net income
------------- ---------- ------------- ----------- -------------
Balance at December 31, 1997 2,382,987 80,532 (2,195,090)
Appropriation of net income from prior year 339,170
Dividends (Ps. 306.34 per share) (306,336)
Loss from holding non-monetary assets (31,799)
Minimum pension liability adjustment (21,918)
Net income
------------- ---------- ------------- ----------- -------------
Balance at December 31, 1998 Ps. 2,382,987 Ps. 80,532 Ps.(2,226,889) Ps. (21,918) Ps. 32,834
============= ========== ============= =========== =============
</TABLE>
<TABLE>
<CAPTION>
Stockholders'
Net income equity
------------ ------------
<S> <C> <C>
Balance at December 31, 1995 Ps.(128,387) Ps. 184,069
Appropriation of net loss from prior year 128,387
Merger 4,615
Loss from holding non-monetary assets (81,602)
Minimum pension liability adjustment (952)
Net income 294,358 294,358
------------ ------------
Balance at December 31, 1996 294,358 400,488
Appropriation of net income from prior year (294,358)
Recapitalization
Capital stock redemption (101,496)
Loss from holding non-monetary assets (46,970)
Minimum pension liability adjustment 16,407
Net income 339,170 339,170
------------ ------------
Balance at December 31, 1997 339,170 607,599
Appropriation of net income from prior year (339,170)
Dividends (Ps. 306.34 per share) (306,336)
Loss from holding non-monetary assets (31,799)
Minimum pension liability adjustment (21,918)
Net income 204,179 204,179
------------ ------------
Balance at December 31, 1998 Ps. 204,179 Ps. 451,725
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-6
<PAGE> 63
<TABLE>
<CAPTION>
VITROCRISA, S.A. DE C.V.
STATEMENTS OF CHANGES IN FINANCIAL POSITION (Thousands of constant Mexican pesos
as of December 31, 1998)
- ------------------------------------------------------------------------------------------------------------------------
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income Ps. 204,179 Ps.339,170 Ps.294,358
Add (deduct) non-cash items:
Depreciation and amortization 104,278 84,261 114,823
Provision for seniority premium and pension
plans 9,489 5,377 (22,480)
(Gain) loss from sale of fixed assets (11,875) 533 (3,591)
Deferred income tax and profit sharing to
workers (6,138) 8,401 3,318
------------ ----------- -----------
299,933 437,742 386,428
Increase (decrease) in trade payables 15,394 (6,048) 15,100
Decrease (increase) in trade and receivables
from affiliates 36,435 (15,238) 71,005
Increase in inventories (50,550) (8,162) 18,227
Other current assets and liabilities, net 34,149 (36,035) (70,989)
Effect of merger in operating activities (79,227)
------------ ----------- -----------
Resources generated from operations 335,361 372,259 340,544
------------ ----------- -----------
FINANCING ACTIVITIES:
Short-term debt 82,338 27,617
Notes payable to affiliates (53,522) (72,553) (29,581)
Long-term debt 701,274 191,217 69,761
Monetary effect on liabilities with financing cost (188,763) (154,175) (297,409)
Payment of short-term loans (144,537)
Payment of long-term debt (338,906) (312,775) (141,299)
Dividends (407,007) 100,671
Capital stock redemption (101,497)
Effect of merger in financing activities 91,004
------------ ----------- -----------
Resources used in financing activities (204,586) (349,112) (424,444)
------------ ----------- -----------
INVESTMENT ACTIVITIES:
Investment in shares (14) (982) (4,992)
Sales of fixed assets 18,161 830 120,299
Investment in land, buildings, machinery and (146,399) (27,324) (15,312)
equipment
Other (2,218) 5,275 1,935
Effect of merger in investment activities (11,777)
------------ ----------- -----------
Resources (used in) generated from
investment activities (130,470) (22,201) 90,153
------------ ----------- -----------
Net increase in cash and cash equivalents 305 946 6,253
Cash and cash equivalents at beginning of year 14,279 13,333 7,080
------------ ----------- -----------
Cash and cash equivalents at end of year Ps. 14,584 Ps. 14,279 Ps. 13,333
============ =========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
S-7
<PAGE> 64
VITROCRISA, S.A. DE C.V.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Thousands of constant Mexican pesos as of December 31, 1998)
- --------------------------------------------------------------------------------
1. ACTIVITIES OF THE COMPANY AND BASIS OF PRESENTATION:
a) Activities of the Company
Vitrocrisa, S.A. de C.V. (the "Company"), a wholly-owned subsidiary of
Vitrocrisa Holding, S.A. de C.V. which is 51% owned by Vitro, S.A. de
C.V. ("Vitro") and 49% by Libbey Inc. ("Libbey"), is a company whose
activity is the manufacture and distribution of glass articles. Prior
to August 29, 1997, the Company was a wholly-owned subsidiary of
Vitro.
b) Basis of presentation
The financial statements presented herein are expressed in thousands
of constant Mexican pesos as of December 31, 1998.
2. PRINCIPAL ACCOUNTING POLICIES:
a) Accounting method for the treatment of the effects of inflation
The financial statements of the Company have been prepared in
accordance with Bulletin B-10, "Recognition of the Effects of
Inflation in the Financial Information", as amended, issued by the
Mexican Institute of Public Accountants ("IMCP"), which recognizes the
effects of inflation. The Third Amendment to Bulletin B-10, requires
the restatement of all comparative financial statements to constant
pesos as of the date of the most recent balance sheet presented. For
that purpose, the Company uses the "Indice Nacional de Precios al
Consumidor" (Mexican National Consumer Price Index: "INPC"), published
by Banco de Mexico.
Bulletin B-12 sets the rules related to the statement of changes in
financial position. This statement presents the sources and uses of
funds during the period measured as the differences, in constant
pesos, between the beginning and ending balances of balance sheet
items adjusted by the excess (shortfall) in restatement of capital. As
regulated by Bulletin B-12, the monetary effect and the effect of
changes in exchange rates are not considered non-cash items in the
determination of funds generated from operations due to the fact they
affect the purchasing power of the entity.
The following is a description of the items that have been restated
and of the methods used:
* Inventories and cost of sales
Inventories are valued at the price of the last purchase made
during the period, or at standard cost, without exceeding the net
realizable value. Cost of sales is determined by using the
standard cost at the time of sale.
S-8
<PAGE> 65
* Land, buildings, machinery and equipment
Investments in land, buildings, machinery and equipment
(collectively "fixed assets"), including expenditures for
renewals and improvements which extend useful lives, are
capitalized. The Company has followed the principles of the fifth
Amendment to Bulletin B-10, issued by the IMCP and which became
effective on January 1, 1997 under which, fixed assets are
restated under the method of consumer price index adjustment,
using the INPC. The starting balance to apply the INPC is the net
replacement value as of December 31, 1996. For machinery and
equipment purchased in a foreign country, the restatement is
based on a general price index from the country of origin and the
exchange rate at the end of each period.
Depreciation is calculated using the straight-line method, taking
into consideration the useful life of the asset, in order to
depreciate the original cost and the revaluation. The
depreciation begins in the month in which the asset comes into
service. The useful lives of the assets are as follows:
Years
-----
Buildings 24
Machinery and equipment 3 to 13
* Investment in shares
The investment in shares in which the Company hold less than 10%
of the capital stock, are accounted for at their acquisition
cost.
* Shortfall in restatement of capital
This item, which is an element of stockholders' equity, reflects
the accumulated effect of holding non-monetary assets and the
effect of the initial monetary position gain or loss. The
accumulated effect of holding non-monetary assets represents the
increase in the specific values of non-monetary assets in excess
of or below the increase attributable to general inflation as
measured by the INPC.
* Restatement of capital stock and retained earnings
Capital stock and retained earnings are restated using the INPC
from the respective dates such capital was contributed or income
generated to the date of the most recent balance sheet presented.
* Exchange fluctuations
Exchange gains or losses included in the cost of financing are
calculated by translating monetary assets and liabilities
denominated in foreign currencies at the exchange rate in effect
at the end of each month.
* Gain (loss) from monetary position
The monetary position reflects the result of holding monetary
assets and liabilities during periods of inflation. Values stated
in current monetary units represent a decreasing purchasing power
as time goes by. This means that losses are incurred by holding
monetary assets over time, whereas gains are realized by
maintaining monetary liabilities. The net effect is presented in
the statement of income for the year as part of the total
financing cost.
S-9
<PAGE> 66
b) Cash and cash equivalents.
Highly liquid short-term investment with original maturities of ninety
days or less, consisting primarily of Mexican Government Treasury
Bonds and money market instruments, are classified as cash
equivalents.
c) Maintenance expenses
Maintenance and repair expenses are recorded as costs and expenses in
the period when they are incurred.
d) Seniority premiums, pension plans and severance payments
Statutory seniority premiums and pension plans for all personnel are
considered as costs in the periods in which services are rendered.
Periodic costs are calculated in accordance with the accounting
pronouncement Bulletin D-3, issued by the IMCP and the actuarial
computations were made by independent actuaries using estimates of the
salaries that will be in effect at the time of payment. Personnel not
yet eligible for seniority premiums are also taken into account, with
any necessary adjustments made in accordance with the probability of
their acquiring the required seniority. The cost of past service is
amortized over the average period required for workers to reach their
retirement age. The actuarial method used is the projected unit
credit.
e) Income tax and profit sharing to workers
Income tax and profit sharing to workers expense are computed in
accordance with the partial liability method, as required by Bulletin
D-4 issued by the IMCP, under which deferred taxes are provided for
identifiable, non-recurring timing differences and that are expected
to reverse over a definite period of time, at the tax rates in effect
at the end of each period.
f) Use of estimates
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 these financial
statements and its disclosures. Actual results could differ from those
estimated.
3. INVENTORIES:
The breakdown is summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Finished products Ps. 174,115 Ps. 149,050
Raw materials 6,457 5,609
Packaging materials 5,798 2,450
--------------- ---------------
186,370 157,109
Spare parts 3,722 4,184
Refractory 5,071 13,736
--------------- ---------------
Ps. 195,163 Ps. 175,029
=============== ===============
</TABLE>
S-10
<PAGE> 67
4. LAND, BUILDINGS, MACHINERY AND EQUIPMENT:
Land, buildings, machinery and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Land Ps. 122,081 Ps. 124,426
Buildings 465,639 480,787
Accumulated depreciation (233,319) (231,979)
--------------- ---------------
Ps. 354,401 Ps. 373,234
=============== ===============
Machinery and equipment Ps. 2,397,883 Ps. 2,231,001
Accumulated depreciation (1,555,358) (1,446,570)
--------------- ---------------
Ps. 842,525 Ps. 784,431
=============== ===============
</TABLE>
As mentioned in note 2a), machinery and equipment purchased in a foreign
country, in the amount of Ps 503,409, was restated using the index of
inflation of the country of origin and translated into Mexican pesos using
the corresponding exchange rate at December 31, 1998.
5. LONG TERM DEBT:
Long-term debt consists of the following notes payable to banks, net of
their respective current maturities:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1998 1997
---------------- --------------
<S> <C> <C>
Unsecured loan guaranteed by Vitro, in
U.S. dollars, semiannual interest
based on LIBOR plus 1.5 points,
principal payable in 2000. Ps. 29,689 Ps. 23,722
Unsecured loan guaranteed by Vitro in
Mexican pesos, interest based on the
Investments Units (UDIS) plus 8.75
points payable monthly, principal
payable in several installments
through 2006. 72,709 73,034
Unsecured loan guaranteed by Vitro in US
dollars, semiannual interest based on
LIBOR plus 2.25 points, principal
payable in 296,889 23,922 several
installments through 2001. 296,889 23,922
Unsecured loan guaranteed by Vitro in US
dollars, semiannual interest based on
LIBOR plus 1.25 points, principal
payable in several installments
through 2001. 415,645 545,462
------------ ------------
Ps. 814,932 Ps. 666,140
============ ============
</TABLE>
S-11
<PAGE> 68
Maturity of long-term debt is as follows:
December 31,
Year 1998
------- ----------------
2000 Ps. 228,827
2001 536,623
2002 12,118
2003 12,118
2004 12,118
2005 12,118
2006 1,010
----------------
Ps. 814,932
================
As of December 31, 1998, short-term bank loans in the amount of US $ 3
million used to finance export sales of the Company have been reclassified
as long-term debt, because the Company expects to obtain similar financing
in the future to finance export sales. In addition, the Company has a
committed long-term standby credit line with certain commercial banks
available to finance such export sales.
In some of the Company's long-term debt agreements certain restrictions
and covenants are set forth that require the maintenance of various
financial ratios, which were fulfilled.
6. SENIORITY PREMIUM AND PENSION PLANS:
The disclosures relating to the Company's seniority premium and pension
plans required by Bulletin D-3, issued by IMCP, calculated as described in
note 2d), together with certain actuarial assumptions utilized are
presented below as of December 31, 1998 and 1997.
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
Accumulated benefit obligation Ps. 134,560 Ps. 95,039
Projected benefit obligation 137,606 102,572
Unrecognized transition obligation 72,285 81,222
Unrecognized net (gain) or loss 36,823
Projected net liability 28,498 21,350
Additional minimum liability 106,062 76,028
Net periodic cost 21,254 15,495
Assumptions:
Discount rate 5% 5%
Compensation increase 1% 1%
</TABLE>
7. FOREIGN CURRENCY BALANCES AND OPERATIONS:
a) Assets and liabilities denominated in foreign currency consist of the
following:
S-12
<PAGE> 69
<TABLE>
<CAPTION>
Thousands of
US dollars Mexican pesos
December 31, December 31,
1998 1998
------------ -------------
<S> <C> <C>
Monetary assets $ 6,555.1 Ps. 64,870.9
Fixed assets 50,868.4 503,409.1
Monetary liabilities-short term 23,407.4 231,646.7
Inventories 1,665.5 16,482.2
Monetary liabilities-long term 75,000.0 742,222.5
b) Foreign operations during the year of 1998.
Exports $ 58,785.0 Ps. 581,754.0
Imports 20,271.2 187,333.3
Interest expense, net 7,482.1 69,339.1
</TABLE>
c) The exchange rates used for purposes of these financial statements
were: Ps 9.8963 per one US dollar at December 31, 1998 and Ps 8.0681
per one US dollar at December 31, 1997. On February 26, 1999, date of
issuance of these financial statements, the exchange rate was Ps. 9.94
per one U.S. dollar.
8. STOCKHOLDERS' EQUITY:
a) At the stockholders' meeting held on August 31, 1998 it was agreed to
declare dividends in the amount of Ps. 271,658 (thousands of nominal
pesos).
b) At the stockholders' meeting held on August 8, 1997 the following was
agreed:
1) To increase the variable portion of the capital stock by Ps 443,662
(thousands of nominal pesos) through the capitalization of
restatement of capital stock.
2) To offset the accumulated deficit in the amount of Ps 443,662
(thousands of nominal pesos) by reducing the capital stock in the
same amount.
3) To declare dividends in the amount of US $ 10,520 (thousands) from
the restatement of capital stock. For accounting purposes this
dividend was treated as a capital stock redemption.
c) At the extraordinary stockholders' meeting held on August 14, 1997 it
was agreed to change the capital stock of the Company from 166,682,900
nominal common shares with a par value of one peso each to 1,000,000
nominal common shares, without par value, divided into the following:
<TABLE>
<CAPTION>
Fixed Capital Variable Capital Total
------------- ---------------- ----------
<S> <C> <C> <C>
Series "C" shares 35,900 35,900
Series "C" shares 964,000 964,000
Series "A" shares 51 51
Series "B" shares 49 49
------------- ---------------- ----------
35,900 964,100 1,000,000
</TABLE>
S-13
<PAGE> 70
d) Stockholders' equity includes accrued profits and results from the
restating of assets which, in case of distribution, will be subject,
under certain circumstances, to the payment of income tax by the
Company. Effective January 1, 1999, after a change made to the Income
Tax Law in Mexico, the taxable rate for those distributions will be 35%
; and in all cases, when dividends are paid to individuals or foreign
residents, an additional 5% withholding tax will be paid.
9. UNAMORTIZED TAX LOSSES
At December 31, 1998 the Company had tax loss carry forwards in the
amount of Ps. 8,970 and asset tax to be recovered in the future in the
amount of Ps. 58,476. The income tax benefit resulting from their
utilization will be recognized in the period in which they are utilized.
The maturities are as follows:
<TABLE>
<CAPTION>
Tax loss
Year carry Asset
of Expiration forwards Tax
------------- -------------- -----------
<S> <C> <C>
1999 Ps. 6,758
2000 4,963
2001 6,758
2002 4,963
2003 6,759
2004 4,963
2005 Ps. 8,970 4,467
2006 8,293
2007 6,084
2008 4,468
-------------- -----------
Ps. 8,970 Ps. 58,476
============== ===========
</TABLE>
10. INCOME AND ASSET TAX :
a) The income and asset tax included in the results are:
<TABLE>
<CAPTION>
Year ended
December 31,
---------------------------------------------------------------
1998 1997 1996
----------------- --------------- -----------------
<S> <C> <C> <C>
Tax benefit that results from the
utilization of tax loss carry forwards Ps. 66,097 Ps. 110,962 Ps. 101,430
Deferred income tax:
Provision of furnace repair (11,801) (233) (6,858)
Benefit from the deduction of
inventories held on December 31, 1986
3,417 3,570 3,248
Asset tax 4,472 6,474 6,507
----------------- --------------- -----------------
Ps. 62,185 Ps. 120,773 Ps. 104,327
</TABLE>
b) At December 31, 1998, there were Ps 195,163 of previously deducted
inventories and Ps. 28,498 of non-deductible provisions related to
seniority premium and pension payments for which no deferred taxes have
been provided in accordance with generally accepted accounting
principles.
S-14
<PAGE> 71
c) The reconciliation between the company's effective income tax rate and
the statutory income tax rate is as follows:
<TABLE>
<CAPTION>
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Effective income tax rate 29.65% 33.49% 34.98%
Add (deduct) quantity corresponding to:
Purchase deductions 7.72 (6.85) (1.04)
Difference between tax and financial accounting
for depreciation .31 (2.68) (0.74)
Difference between tax and financial accounting
for monetary gain 3.89 6.35 4.92
Provisions (8.20)
Other .63 3.69 (4.12)
------------ ------------ ------------
Statutory income tax rate 34.00% 34.00% 34.00%
============ ============ ============
</TABLE>
d) Effective January 1, 1999, the Mexican income tax law was changed in
several respects. In addition to the changes described in note 8 d),
the overall tax rate increased from 34% to 35%; however, in 1999 income
taxes will be currently payable based on a 32% rate and the remaining
3% will be paid when such amounts are paid out as dividends. The 32%
rate will decrease to 30% effective January 1, 2000 and the remaining
5% will be paid when such amounts are paid out as dividends. Tax payers
have the option to pay 35% currently rather than deferring a remainder
until dividends are paid.
11. EXTRAORDINARY ITEM:
The extraordinary item in 1998, 1997 and 1996 is the tax benefit that
resulted from the utilization of tax loss carry forwards.
12. BALANCES AND TRANSACTIONS WITH AFFILIATED COMPANIES:
The main balances and transactions with affiliated companies not shown
separately in the financial statements are as follows:
<TABLE>
<CAPTION>
As of and for the As of and for the As of and for the
year ended year ended year ended
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Cash equivalents Ps. 344 Ps. 1,178
Unsecured long-term loan payable 72,708 96,956
Net sales 241,747 263,624 328,413
Other income 2,585 13,114 31,020
Purchases of inventory 13,014 12,907 32,201
Operating expenses 39,151 36,639 32,821
Interest expense 92,447 52,895 6,121
</TABLE>
S-15
<PAGE> 72
The balances of cash equivalents and unsecured long-term loan payable
disclosed above result from deposits and loan transactions with
subsidiaries of Grupo Financiero Serfin, S.A. (GFS), a Mexican financial
group, in which Vitro holds an equity interest. Interest expense relates
to loan transactions with GFS and Vitro's subsidiaries. Net sales
disclosed above were primarily to Crisa Corporation, a US corporation
owned 100% by Vitro, and to Crisa Industrial L.L.C., a US Corporation
owned 51% by Vitro and 49% by Libbey, for purposes of facilitating export
sales. Other income, purchases of inventory and operating expenses, as
well as the balances due to/from affiliates reflected separately in the
financial statements, all consist of transactions with subsidiaries of
Vitro and are of a normal and recurring nature.
13. YEAR 2000
During 1997 the Company began a project to identify and correct the
systems applications affected by the year 2000 compliance issue. As part
of such project the Company is working with vendors, suppliers, banks and
other institutions to determine their status with respect to this issue.
Although the Company is planning to finish this project by the end of
March 1999, using the remaining of the year for testing and minor
adjustments, no assurance can be made of the final outcome.
The Company has incurred approximately Ps. 4,919 and Ps. 2,914 in 1998 and
1997, respectively, in connection with this project. Costs relating to
achieving Year 2000 compliance are expensed as incurred.
14. DIFFERENCES BETWEEN MEXICAN AND UNITED STATES ACCOUNTING PRINCIPLES:
The Company's statements are prepared in accordance with Mexican GAAP,
which vary in certain significant respects from accounting principles
generally accepted in the United States (U.S. GAAP).
The principal differences between Mexican GAAP and U.S. GAAP and their
effects on net income and total stockholders' equity are presented below
with an explanation of the adjustments:
Reconciliation of net income
<TABLE>
<CAPTION>
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1997 1996
-------------- -------------- -------------
<S> <C> <C> <C>
Net income under Mexican GAAP Ps. 204,179 Ps. 339,170 Ps. 294,358
U.S. GAAP adjustments for:
Effects of inflationary accounting (104,092) (115,319) (188,696)
Deferred income taxes (51,258) (60,248) (17,630)
Deferred employees' profit sharing 4,732 (12,542) 28,120
Effects of merger (7,406)
-------------- -------------- -------------
Net income under U.S. GAAP Ps. 53,561 Ps. 151,061 Ps. 108,746
============== ============== ==============
</TABLE>
Adjustments for pension costs and accrued vacation cost were not material
individually or in the aggregate, for any of the periods presented.
S-16
<PAGE> 73
<TABLE>
<CAPTION>
Reconciliation of stockholders' equity
Year ended Year ended Year ended
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Total stockholders' equity reported under
Mexican GAAP Ps. 451,725 Ps. 607,599 Ps. 400,488
U.S. GAAP adjustments for:
Effects of inflationary accounting (951,861) (917,685) (861,504)
Deferred income tax 96,395 147,653 207,901
Deferred employees' profit sharing 34,469 29,737 42,279
----------------- ----------------- -----------------
Stockholders' equity (deficiency in assets)
under U.S. GAAP Ps. (369,272) Ps. (132,696) Ps. (210,836)
================= ================= =================
</TABLE>
Adjustments for pension costs and accrued vacation cost were not material
individually or in the aggregate, for any of the periods presented.
a) Effects of inflationary accounting
A significant difference between Mexican and U.S. GAAP relates to the
formal adoption in Mexico of inflationary accounting, which mitigates
the effects of inflation on financial information. Under Mexican GAAP,
all basic financial statements (including those of prior years) and
related notes are presented in pesos of purchasing power at the end of
the latest period presented. Inventories are valued at replacement cost
and fixed assets are restated under the method of consumer price index
adjustment, using the INPC. Stockholders' equity components are
restated by applying INPC growth factors from the date on which the
component was contributed or generated.
b) Deferred Income Tax:
Under Mexican GAAP, deferred taxes are provided only for identifiable,
nonrecurring timing differences which are expected to reverse over a
definite period of time. For U.S. GAAP purposes, the Company has
applied Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes".
Under SFAS No. 109, deferred tax assets and liabilities are recognized
for future tax consequences of temporary differences between the
financial statement carrying amounts of assets and liabilities and
their tax bases. Deferred tax assets are also recognized for the
estimated future effects of tax loss carry forwards. Deferred tax
assets are reduced by any tax benefits that are not expected to be
realized.
S-17
<PAGE> 74
The significant components of the deferred tax assets for purposes of U.S.
GAAP reconciliation are as follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
DEFERRED TAX ASSETS
Reserves Ps. 39,278 Ps. 22,278 Ps. 18,680
Tax loss carry forwards 3,140 63,619 141,728
Inventories 10,585 19,025 19,128
Seniority premium and pension plans 9,975 5,450 3,377
Tax on assets 58,476 45,533 34,919
Fixed assets 33,491 37,106 35,063
Other 1,194
--------------- --------------- ---------------
Total deferred tax assets Ps. 154,945 Ps. 193,011 Ps. 254,089
=============== =============== ===============
</TABLE>
c) Deferred employees' profit sharing
The Company calculates a deferred employees' profit sharing asset for
U.S. GAAP purposes based on temporary differences between the financial
reporting bases and employees' profit sharing bases of assets and
liabilities. Under U.S. GAAP, employee profit sharing expense would be
considered as a component of operating expenses.
The significant components of the deferred employees' profit sharing
for purposes of U.S. GAAP reconciliation are as follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Inventories Ps. 3,025 Ps. 5,595 Ps. 5,626
Exchange fluctuation 32,973 31,402 43,961
Reserves 11,222 6,552 5,494
Fixed assets (8,260) (7,581) (5,986)
Seniority premium and pension plans 2,850 1,603 993
Other 352
--------------- --------------- ---------------
Net deferred profit sharing assets Ps. 41,810 Ps. 37,571 Ps. 50,440
=============== =============== ===============
</TABLE>
d) Effects of merge
For U.S. GAAP purposes the business combination of Proveedora del
Hogar, S.A. de C.V. was accounted for as an enterprise under common
control similar to a pooling of interest and the financial information
is consolidated as of January 1, 1996.
e) Other Differences and Supplemental U.S. GAAP Disclosures
S-18
<PAGE> 75
1) Extraordinary Items.- Mexican GAAP requires that utilization of tax
loss carry forwards be classified as extraordinary items in the
statement of income, whereas U.S. GAAP requires the benefit from
utilization of tax loss carry forwards to be classified as a
component of income tax expense attributable to continuing
operations. The benefits from utilization of tax loss carry
forwards in constant peso terms were Ps. 66,096 for the year ended
December 31, 1998 and Ps. 110,962 for the year ended December 31,
1997. For U.S. GAAP purposes, such amounts, in thousands of nominal
pesos, were Ps. 66,096 and Ps. 93,553, respectively.
2) Post-retirement Benefits.- Under U.S. GAAP, SFAS No. 106,
"Employer's Accounting for Post-retirement Benefits Other Than
Pensions" requires accrual of post-retirement benefits other than
pensions (such as health care benefits) during the years an
employee provides services. The Company does not and is not
required to provide post-retirement benefits.
3) Pension Disclosures.- The Company maintains pension plans and
seniority premium plans and has adopted Bulletin D-3 issued by the
IMCP. The accounting treatment for pensions set forth in this
Bulletin is substantially the same as those set forth in SFAS No.
87 "Employer's Accounting For Pensions". The Company records the
pension cost determined by actuarial computations, as described in
notes 2d) and 6. The differences between principles applied by the
Company under Mexican GAAP and requirements of SFAS No.
87 are not material.
For purposes of determining pension and seniority premium cost
under U.S. GAAP the Company applies SFAS No. 87. The disclosures
under SFAS No. 132, "Employers' Disclosures about Pensions and
Other Post-retirement Benefits", are presented below.
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year Ps. 80,128 Ps. 34,583 Ps. 41,409
Service cost 4,277 2,075 1,966
Interest cost 6,281 3,937 7,997
Net amortization and deferral 10,696 7,052 1,867
Intangible asset 20,045 51,404 (684)
Minimum pension liability adjustment 21,918 (11,954) 694
Benefits paid (8,785) (6,969) (18,664)
------------- ------------- ------------
Benefit obligation at end of year Ps. 134,560 Ps. 80,128 Ps. 34,585
============= ============= ============
Amounts recognized in the balance
sheet consists of:
Projected net liability Ps. 28,498 Ps. 16,028 Ps. 9,935
Intangible asset 84,144 64,100 12,696
Minimum pension liability adjustment 21,918 0 11,954
------------- ------------- ------------
Ps. 134,560 Ps. 80,128 Ps. 34,585
============= ============= ============
</TABLE>
S-19
<PAGE> 76
<TABLE>
<CAPTION>
Pension and seniority premium costs are summarized below:
Year ended Year ended Year ended
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Service costs Ps. 4,277 Ps. 2,075 Ps. 1,966
Interest cost 6,281 3,937 7,997
Net amortization and deferral 10,696 7,052 1,867
----------------- ----------------- -----------------
Net period pension cost Ps. 21,254 Ps. 13,064 Ps. 11,830
================= ================= =================
</TABLE>
4) Weighted Average Interest Rates - The weighted average interest
rates on short-term debt and short-term accounts payable to
affiliates outstanding as of December 31, 1998 and 1997 were
approximately 8.5% and 21.10%, respectively.
5) Supplement Cash flow Information Required by U.S. GAAP
<TABLE>
<CAPTION>
Year ended Year ended Year ended
December 31, December 31, December 31,
1998 1997 1996
--------------- -------------- --------------
<S> <C> <C> <C>
Netcash provided by operating
activities reflects net cash
payments of interest and income
taxes as follows:
Interest Ps. 80,832 Ps. 89,744 Ps. 200,518
Income taxes, net 4,078 4,817 4,506
</TABLE>
Under Mexican GAAP the financial statements of the Company are
prepared in accordance with Bulletin B-10, which requires the
recognition of the effects of inflation in a comprehensive manner.
The statement of changes in financial position is prepared in
accordance with Bulletin B-12 and is in constant pesos, which means
pesos of the same purchasing power as of the date of the last
balance sheet presented. Therefore all the resources generated or
used are measured in constant pesos. Additionally, the monetary
effect and the effect of changes in exchange rates are considered
as cash items for purposes of this statement because these items do
affect the purchasing power of the entity. U.S. GAAP requires a
statement of cash flows prepared in accordance with SFAS No. 95,
"Statement of Cash Flows". In order to reconcile to U.S. GAAP, the
exchange loss and the monetary gain of all monetary assets and
liabilities must be excluded from resources generated from
operations and resources generated from financing activities.
The Company has presented a cash flow statement in a manner that
comprehensively segregates the effects of inflation currency
devaluation from the cash flows from operating, investing and
financing activities as follows:
S-20
<PAGE> 77
<TABLE>
<CAPTION>
NDENSED STATEMENTS OF CASH FLOWS US GAAP BASIS
Year ended Year ended Year ended
December 31, December 31, December 31,
OPERATING ACTIVITIES: 1998 1997 1996
------------- -------------- --------------
<S> <C> <C> <C>
Net income Ps. 53,561 Ps. 151,061 Ps. 108,746
Add (deduct) non-cash items:
Depreciation and amortization 32,042 12,995 11,390
Provision for seniority premium and
pension plans 12,495 6,095 (6,834)
(Gain) loss from sale of fixed assets (16,479) 306 (87,201)
Deferred income tax and profit sharing to
workers 33,827 73,947 (13,607)
------------- -------------- --------------
115,446 244,404 12,494
Increase (decrease) in trade payables 34,036 9,200 35,237
Decrease (increase) in trade and receivables
from affiliates (6,217) (42,235) (46,815)
(Increase) decrease in inventories (46,188) (18,954) (25,920)
Other current assets and liabilities, net 44,752 (18,513) 4,835
------------- -------------- --------------
Cash generated (used in) from
operations 141,829 173,902 (20,169)
------------- -------------- --------------
FINANCING ACTIVITIES:
Short-term debt 64,326 (31,012)
Notes payable to affiliates (56,809) (57,880) 31,203
Long-term debt 639,171 152,866 47,380
Payment of long-term debt (310,381) (251,011) (99,793)
Dividends (356,534) 84,876
Capital stock redemption (84,876)
------------- -------------- --------------
Cash used in financing activities (20,227) (156,025) (52,222)
------------- -------------- --------------
INVESTMENT ACTIVITIES:
Investment in shares (3,554)
Sales of fixed assets 16,816 769 87,654
Investment in land, buildings, machinery and
equipment (133,685) (19,758) (7,336)
Other (2,187) 3,437 1,301
------------- -------------- --------------
Cash (used in) generated from
investment activities (119,056) (15,552) 78,065
------------- -------------- --------------
Net increase in cash and cash
equivalents 2,546 2,325 5,674
Cash and cash equivalents at beginning of year 12,038 9,713 4,039
------------- -------------- --------------
Cash and cash equivalents at end of year Ps. 14,584 Ps. 12,038 Ps. 9,713
============= ============== ==============
</TABLE>
S-21
<PAGE> 78
6) Fair value of financial instruments.- SFAS No. 107, "Disclosures
about Fair Value of Financial Instruments", requires disclosure of
the estimated fair values of certain financial instruments. The
estimated fair value amounts have been determined using available
market information or other appropriate valuation methodologies
that require considerable judgment in interpreting market data and
developing estimates. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Company
could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts. The carrying
amount of the Company's financial instruments approximate their
estimated fair values.
The fair value information presented herein is based on information
available to management as of December 31, 1998 and 1997. Although
management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements
since that date and, therefore, the current estimates of fair value
may differ significantly form the amounts presented herein.
7) Comprehensive income - Under US GAAP, SFAS No. 130, "Reporting
Comprehensive Income", establishes standards for reporting and
display of comprehensive income and its components. The Company's
only item of other comprehensive income is minimum pension
liability adjustment.
Additional required disclosures under SFAS No. 130 are as follows:
Disclosure of accumulated other comprehensive income balances:
Minimum
Pension
Liability
Adjustment
-------------
Balance at December 31, 1995 Ps. 11,260
Change for the year 694
-------------
Balance at December 31, 1996 11,954
Change for the year (11,954)
-------------
Balance at December 31, 1997 0
Change for the year 21,918
-------------
Balance at December 31, 1998 Ps. 21,918
=============
There were no reclassification adjustments for any of the periods
presented.
8) Derivative instruments and hedging activities - SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities",
which will become effective in 1999, addresses both the accounting
for and disclosures related to the use of derivatives and hedging
activities. Since the Company has not historically used derivative
instruments or participated in hedging activities, its financial
statements are not expected to be impacted significantly by SFAS
No. 133.
* * * * *
S-22
<PAGE> 79
EXHIBIT INDEX
S-K Item
601No. Document
- --------------------------------------------------------------------------------
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 as Exhibit 2.0 to 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 as Exhibit 2.1 to
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).
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).
E-1
<PAGE> 80
EXHIBIT INDEX
S-K Item
601No. Document
- --------------------------------------------------------------------------------
4.4 -- First Amendment to Rights Agreement, dated
February 3, 1999, between Libbey Inc. and The Bank
of New York (filed herewith)
10.1 -- 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).
10.2 -- 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).
*10.3 -- 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).
10.4 -- 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).
*10.5 -- 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).
E-2
<PAGE> 81
EXHIBIT INDEX
S-K Item
601No. Document
- --------------------------------------------------------------------------------
*10.5 (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).
*10.6 -- 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 Exhibit 10.8 to
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993 and incorporated
herein by reference).
*10.7 -- Description of Libbey Inc. Senior Executive Life
Insurance Plan (filed as Exhibit 10.9 to
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993 and incorporated
herein by reference).
*10.8 -- Libbey Inc. Senior Management Incentive Plan
(filed as Exhibit 10.10 to Registrant's Annual
Report on Form 10-K for the year ended December
31, 1993 and incorporated herein by reference).
*10.9 -- Libbey Inc. Deferred Compensation Plan for Outside
Directors (filed as Exhibit 10.11 to Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1993 and incorporated herein by
reference).
E-3
<PAGE> 82
EXHIBIT INDEX
-------------
S-K Item
601No. Document
- --------------------------------------------------------------------------------
*10.10 -- Libbey Inc. Executive Savings Plan (filed as
Exhibit 10.13 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference).
*10.11 -- The Amended and Restated Libbey Inc. Stock Option
Plan for Key Employees (filed as Exhibit 10.14
to Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995 and incorporated
herein by reference).
*10.12 -- 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 as Exhibit 10.16 to the
Registrant's current Report on Form 8-K dated
October 10, 1995 and incorporated herein by
reference).
10.13 -- 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 as Exhibit 10.17 to the
Registrant's Current Report on Form 8-K dated
October 10, 1995 and incorporated herein by
reference).
10.14 -- 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 as Exhibit 10.18 to the Registrant's
Current Report on Form 8-K dated October 10, 1995
and incorporated herein by reference).
E-4
<PAGE> 83
EXHIBIT INDEX
-------------
S-K Item
601No. Document
- --------------------------------------------------------------------------------
10.15 -- 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 as Exhibit 10.19 to the Registrant's
Current Report on Form 8-K dated October 10, 1995
and incorporated herein by reference).
*10.16 -- 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).
*10.17 -- The Amended and Restated Libbey Inc. Senior
Management Incentive Plan (filed as Exhibit
10.22 to Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996 and
incorporated herein by reference).
*10.18 -- First Amended and Restated Libbey Inc. Executive
Savings Plan (filed as Exhibit 10.23 to
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996 and incorporated
herein by reference).
E-5
<PAGE> 84
EXHIBIT INDEX
S-K Item
601No. Document
- --------------------------------------------------------------------------------
*10.19 -- Employment Agreement dated as of January 1, 1997
between Libbey Inc. and Timothy T. Paige (filed as
Exhibit 10.24 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference).
10.20 -- 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).
10.21 -- 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).
10.22 -- 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).
E-6
<PAGE> 85
EXHIBIT INDEX
S-K Item
601No. Document
- --------------------------------------------------------------------------------
10.23 -- 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).
10.24 -- 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).
10.25 -- 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).
10.26 -- 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).
10.27 -- 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).
*10.28 -- 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).
*10.29 -- Change of Control Agreement dated as of May 27,
1998 between Libbey Inc. and L. Frederick Ashton
(filed as Exhibit 10.35 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 and incorporated herein by
reference).
E-7
<PAGE> 86
EXHIBIT INDEX
S-K Item
601No. Document
- --------------------------------------------------------------------------------
*10.30 -- Change of Control Agreement dated as of May 27,
1998 between Libbey Inc. and Kenneth A. Boerger
(filed as Exhibit 10.36 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 and incorporated herein by
reference).
*10.31 -- Change of Control Agreement dated as of May 27,
1998 between Libbey Inc. and Dave F. Brown (filed
as Exhibit 10.37 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1998 and incorporated herein by reference).
*10.32 -- Change of Control Agreement dated as of May 27,
1998 between Libbey Inc. and Rob A. Bules (filed
as Exhibit 10.38 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1998 and incorporated herein by reference).
*10.33 -- Change of Control Agreement dated as of May 27,
1998 between Libbey Inc. and Robert A. Dunton
(filed as Exhibit 10.39 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 and incorporated herein by
reference).
*10.34 -- Change of Control Agreement dated as of May 27,
1998 between Libbey Inc. and Terry E. Hartman
(filed as Exhibit 10.40 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 and incorporated herein by
reference).
*10.35 -- Change of Control Agreement dated as of May 27,
1998 between Libbey Inc. and William M. Herb
(filed as Exhibit 10.41 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 and incorporated herein by
reference).
*10.36 -- Change of Control Agreement dated as of May 27,
1998 between Libbey Inc. and Daniel P. Ibele
(filed as Exhibit 10.42 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 and incorporated herein by
reference).
*10.37 -- Change of Control Agreement dated as of May 27,
1998 between Libbey Inc. and Pete D. Kasper (filed
as Exhibit 10.43 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1998 and incorporated herein by reference).
E-8
<PAGE> 87
*10.38 -- Change of Control Agreement dated as of May 27,
1998 between Libbey Inc. and John F. Meier (filed
as Exhibit 10.44 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1998 and incorporated herein by reference).
*10.39 -- Change of Control Agreement dated as of May 27,
1998 between Libbey Inc. and Timothy T. Paige
(filed as Exhibit 10.45 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 and incorporated herein by
reference).
*10.40 -- Change of Control Agreement dated as of May 27,
1998 between Libbey Inc. and John P. Pranckun
(filed as Exhibit 10.46 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 and incorporated herein by
reference).
*10.41 -- Change of Control Agreement dated as of May 27,
1998 between Libbey Inc. and Willie B. Purvis
(filed as Exhibit 10.47 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 and incorporated herein by
reference).
*10.42 -- Change of Control Agreement dated as of May 27,
1998 between Libbey Inc. and Richard I. Reynolds
(filed as Exhibit 10.48 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 and incorporated herein by
reference).
*10.43 -- Change of Control Agreement dated as of May 27,
1998 between Libbey Inc. and Scott M. Sellick
(filed as Exhibit 10.49 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 and incorporated herein by
reference).
*10.44 -- Change of Control Agreement dated as of May 27,
1998 between Libbey Inc. and Arthur H. Smith
(filed as Exhibit 10.50 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 and incorporated herein by
reference).
*10.45 -- Change of Control Agreement dated as of May 27,
1998 between Libbey Inc. and Kenneth G. Wilkes
(filed as Exhibit 10.51 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 and incorporated herein by
reference).
E-9
<PAGE> 88
*10.46 -- Change of Control Agreement dated as of May 27,
1998 between Libbey Inc. and John A. Zarb (filed
as Exhibit 10.52 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1998 and incorporated herein by reference).
*10.47 -- Change of Control Agreement dated as of May 27,
1998 between Libbey Inc. and Wayne J. Zitkus
(filed as Exhibit 10.53 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 and incorporated herein by
reference).
13 -- 1998 Annual Report to Shareholders for the year
ended December 31, 1998. 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 -- Financial Data Schedule -- year 1998
(filed herewith)
99 -- Safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (filed herewith).
* Management Contract or Compensation Plan or Arrangement.
E-10
<PAGE> 1
EXHIBIT 4.4
FIRST AMENDMENT TO RIGHTS AGREEMENT
FIRST AMENDMENT, dated as of February 3, 1999 ("First Amendment"), to
Rights Agreement dated as of January 5, 1995 (the "Rights Agreement"), between
Libbey Inc., a Delaware corporation (the "Company"), and The Bank of New York
(the "Rights Agent"). Capitalized terms used but not otherwise defined herein
shall have the meanings ascribed to them in the Rights Agreement.
WHEREAS, the Company and the Rights Agent previously entered into the
Rights Agreement; and
WHEREAS, pursuant to Section 26 of the Rights Agreement, the Company
and the Rights Agent may from time to time supplement or amend any provision of
the Rights Agreement in accordance with the terms of such Section 26.
NOW, THEREFORE, in consideration of the foregoing premises and mutual
agreements set forth in this Amendment, the parties hereby amend the Rights
Agreement as follows:
1. Section 1.1 of the Rights Agreement is hereby amended as follows:
(a) the following two sentences are added immediately after the first
sentence:
"Acquiring Person" shall also not include any Existing Holder, unless
and until such time as such Existing Holder shall become the
Beneficial Owner of 25% or more of the Common Shares of the Company
then outstanding. "Existing Holder" shall mean Baron Capital Group,
Inc., together with all of its Affiliates and Associates (including,
without limitation, Ronald Baron, BAMCO, Inc., Baron Capital
Management, Inc. and Baron Asset Fund)."
(b) the penultimate sentence is amended to add the parenthetical "(or,
in the case of an Existing Holder, 25%)" after each of the two references to
"20%".
2. Section 1.7 of the Rights Agreement is hereby deleted in its
entirety.
3. The second sentence of Section 1.11 of the Rights Agreement is
hereby amended to (a) add the parenthetical "(or, in the case of an Existing
Holder, 25%)" after the reference to "20%," (b) add the words "prior to the time
that any Person has become an Acquiring Person and" after the word "determines,"
and before the word "after" and (c) delete the words "; PROVIDED, HOWEVER, that
there must be Continuing Directors then in office and any such determination
shall require the concurrence of a majority of such Continuing Directors".
4. Section 3.1 of the Rights Agreement is hereby amended by (a)
amending the second sentence thereof to replace the words "beyond the earlier of
the dates set forth in such preceding sentence; provided, however, there must be
Continuing Directors then in office
<PAGE> 2
and any such postponement shall require the approval of at least a majority of
such Continuing Directors" with the words: "specified as a result of an event
described in clause (ii) beyond the date set forth in such clause (ii)" and (b)
adding as the third sentence thereof "Nothing herein shall permit such a
postponement of a Distribution Date after a Person becomes an Acquiring Person."
5. The first sentence of Section 11.1.2 is hereby amended to (a)
delete the parenthetical "(or, if applicable, the Continuing Directors)" and (b)
delete the words "or to extend the period during which the Rights may be
redeemed pursuant to Section 23.1".
6. The last sentence of Section 11.4.1 of the Rights Agreement and the
penultimate sentence of Section 11.4.2 of the Rights Agreement are hereby
amended, in each case, by deleting the words ", by a majority of the Continuing
Directors then in office, or if there are no Continuing Directors".
7. The second sentence of Section 22 of the Rights Agreement is hereby
amended and restated in its entirety as follows:
"In addition, in connection with the issuance or sale of Common Shares
following the Distribution Date and prior to the redemption, exchange,
termination or expiration of the Rights, the Company shall, with respect to
Common Shares so issued or sold pursuant to the exercise of stock options
or under any employee plan or arrangement, granted or awarded, or upon
exercise, conversion or exchange of securities hereinafter issued by the
Company, in each case existing prior to the Distribution Date, issue Right
Certificates representing the appropriate number of Rights in connection
with such issuance or sale; PROVIDED, HOWEVER, that (i) no such Right
Certificate shall be issued if, and to the extent that, the Company shall
be advised by counsel that such issuance would create a significant risk of
material adverse tax consequences to the Company or the Person to whom such
Right Certificate would be issued and (ii) no such Right Certificate shall
be issued if, and to the extent that, appropriate adjustment shall
otherwise have been made in lieu of the issuance thereof."
8. Section 23.1 of the Rights Agreement is hereby amended and restated
in its entirety as follows:
"23.1 Right to Redeem. The Board of Directors of the Company may, at
its option, at any time prior to a Trigger Event, redeem all but not less
than all of the then outstanding Rights at a redemption price of $.01 per
Right, appropriately adjusted to reflect any stock split, stock dividend,
recapitalization or similar transaction occurring after the date hereof
(such redemption price being hereinafter referred to as the "Redemption
Price"), and the Company may, at its option, pay the Redemption Price in
Common Shares (based on the "current per share market price," determined
pursuant to Section 11.4, of the Common Shares at the time of redemption),
cash or any other form of consideration deemed
2
<PAGE> 3
appropriate by the Board of Directors. The redemption of the Rights by the
Board of Directors may be made effective at such time, on such basis and
subject to such conditions as the Board of Directors in its sole discretion
may establish."
9. Section 26 of the Rights Agreement is hereby amended by deleting
clause (ii) of the second sentence thereof in its entirety, renumbering clause
(iii) of the second sentence to (ii), adding the word "or" immediately prior to
the new clause (ii), and deleting the words "or Redemption Date" and
substituting therefor the words "pursuant to the second sentence of Section
3(a)" in the proviso.
10. The fourth paragraph of Exhibit B to the Rights Agreement ("Form
of Right Certificate) is hereby amended and restated in its entirety as follows:
"Subject to the provisions of the Agreement, the Board of Directors
may, at its option, (i) redeem the Rights evidenced by this Right
Certificate at a redemption price of $.001 per Right or (ii) exchange
Common Shares for the Rights evidenced by this Certificate, in whole or in
part."
11. The second paragraph of Exhibit C to the Rights Agreement (SUMMARY
OF RIGHTS TO PURCHASE PREFERRED SHARES) is hereby amended to add the
parenthetical "(or, in the case of an Existing Holder, 25%)" after the first
reference to "20%" therein.
12. The third paragraph of Exhibit C to the Rights Agreement (SUMMARY
OF RIGHTS TO PURCHASE PREFERRED SHARES) is hereby amended to delete the words
"the Board of Directors, with the concurrence of a majority of the Continuing
Directors (as defined below), may postpone the Distribution Date and that."
13. The seventh paragraph of Exhibit C to the Rights Agreement
(SUMMARY OF RIGHTS TO PURCHASE PREFERRED SHARES) is hereby amended to add the
parenthetical "(or, in the case of an Existing Holder, 25%) after the reference
to "20%" in the first sentence thereof.
14. The eleventh paragraph of Exhibit C to the Rights Plan (SUMMARY OF
RIGHTS TO PURCHASE PREFERRED SHARES) is hereby deleted in its entirety.
15. The thirteenth paragraph of Exhibit C to the Rights Plan (SUMMARY
OF RIGHTS TO PURCHASE PREFERRED SHARES) is hereby amended to delete the words ",
to shorten or lengthen any time period under the Rights Agreement (so long as,
under certain circumstances, a majority of Continuing Directors approve such
shortening or lengthening)" in the second sentence thereof.
16. This First Amendment shall be effective as of the date hereof and,
except as expressly set forth herein, the Rights Agreement shall remain in full
force and effect and be otherwise unaffected hereby.
3
<PAGE> 4
17. This First Amendment may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original
and all such counterparts shall together constitute one and the same document.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this First Amendment as
of the date first written above.
LIBBEY INC.
By: /s/ Arthur H. Smith
-------------------------------
Name: Arthur H. Smith
Title: Vice President, General Counsel
and Secretary
THE BANK OF NEW YORK
By: /s/ Jeffery Grosse
-------------------------------
Name: Jeffery Grosse
Title: Vice President
5
<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
LGFE Inc. - Incorporated in Delaware
L1, 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, 1999, 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, 1998.
Ernst & Young LLP
Toledo, Ohio
March 30, 1999
<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 attorneys, to
execute, 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
or 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, 1998
or any 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 5th day of March, 1999.
/s/ John F. Meir
- -------------------------------- Director, Chairman of the Board and
John F. Meier Chief Executive Officer
/s/ Richard I. Reynolds
- -------------------------------- Director, Executive Vice President and Chief
Richard I. Reynolds Operating Officer
/s/ Kenneth G. Wilkes
- -------------------------------- Vice President, Chief Financial Officer
Kenneth G. Wilkes and Treasurer
/s/ William A. Foley
- --------------------------------
William A. Foley Director
/s/ Peter C. McC. Howell
- --------------------------------
Peter C. McC. Howell Director
/s/ Carol B. Moerdyk
- --------------------------------
Carol B. Moerdyk Director
/s/ Gary L. Moreau
- --------------------------------
Gary L. Moreau Director
/s/ Terence P. Stewart
- --------------------------------
Terence P. Stewart Director
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,312
<SECURITIES> 0
<RECEIVABLES> 49,797
<ALLOWANCES> 0
<INVENTORY> 91,362
<CURRENT-ASSETS> 155,579
<PP&E> 235,713
<DEPRECIATION> 116,242
<TOTAL-ASSETS> 439,671
<CURRENT-LIABILITIES> 94,581
<BONDS> 0
0
0
<COMMON> 168
<OTHER-SE> 94,692
<TOTAL-LIABILITY-AND-EQUITY> 439,671
<SALES> 436,522
<TOTAL-REVENUES> 439,548
<CGS> 321,949
<TOTAL-COSTS> 396,186
<OTHER-EXPENSES> (1,493)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,674
<INCOME-PRETAX> 41,061
<INCOME-TAX> 15,618
<INCOME-CONTINUING> 25,443
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,443
<EPS-PRIMARY> 1.45
<EPS-DILUTED> 1.42
</TABLE>
<PAGE> 1
EXHIBIT 99
SAFE HARBOR PROVISION OF THE PRIVATE SECURITIES LITIGATION
----------------------------------------------------------
REFORM ACT OF 1995
------------------
Libbey desires to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995.
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.
The Company is exposed to market risks due to changes in currency values,
although the majority of the Company's revenues and expenses are denominated in
the U.S. dollar. The currency market risks 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 exchange rate changes to the value of the Mexican peso relative to
the U.S. dollar and the impact of those changes on the earnings and cash flow of
the Company's joint venture in Mexico, Vitrocrisa, expressed under U.S. GAAP.
The Company is exposed to market risk associated with changes in interest rates
in the U.S. However, the Company has entered into Interest Rate Protection
Agreements ("Rate Agreements") with respect to $100.0 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, 1998, was 6.48% for an average remaining
period of 2.7 years. Total remaining debt not covered by the Rate Agreements has
fluctuating interest rates with a weighted average rate of 5.34% at December 31,
1998. The Company had $91.2 million of debt subject to fluctuating interest
rates at December 31, 1998. A change of one percentage point in such rates would
result in a change in interest expense of approximately $.9 million on an annual
basis.
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 protected from interest rate fluctuations by
these Rate Agreements. However, the Company does not anticipate nonperformance
by the counterparts. At December 31, 1998, the
<PAGE> 2
carrying value of the long-term debt approximates its fair value based on the
Company's current incremental borrowing rates. There was a negative fair market
value for the Company's Interest Rate Protection Agreements at December 31, 1998
of $2.6 million. 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.
Other 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; the inability to achieve savings and profit improvements at
targeted levels in the Company's glassware sales from its capacity realignment
efforts and re-engineering programs, or within the intended time periods;
inability to achieve targeted manufacturing efficiencies at Syracuse China and
cost synergies between World Tableware and the Company's other operations and
per unit increases in the costs for natural gas, corrugated packaging, and other
purchased materials; protracted work stoppages related to collective bargaining
agreements; increased competition from foreign suppliers endeavoring to sell
glass tableware in the United States; major slowdowns in the retail, travel or
entertainment industries in the United States or Canada; and whether the Company
completes any significant acquisition, and whether such acquisitions can operate
profitably.
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 affect 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 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. The Company is dependent
upon the availability of electricity, natural gas, certain raw materials,
including sand and soda ash for glassware and clay for ceramic dinnerware
manufacturing, to operate its factories. In addition, to operate its business,
the Company is dependent upon the availability of transportation services and
packaging. Any interruptions in the availability of these or other key materials
or services could have a material impact on the Company.
