<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark one)
(X)Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended March 31, 1999
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)
<TABLE>
<S> <C> <C>
Delaware 1-12084 34-1559357
- -------- ------- ----------
(State or other (Commission (IRS Employer
jurisdiction of File No.) Identification No.)
incorporation or
organization)
</TABLE>
300 Madison Avenue, Toledo, Ohio 43604
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
419-325-2100
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Common Stock, $.01 par value - 16,246,270 shares at April 30, 1999
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The Condensed Consolidated Financial Statements presented herein are unaudited
but, in the opinion of management, reflect all adjustments necessary to present
fairly such information for the periods and at the dates indicated. Since the
following condensed unaudited financial statements have been prepared in
accordance with Article 10 of Regulation S-X, they do not contain all
information and footnotes normally contained in annual consolidated financial
statements; accordingly, they should be read in conjunction with the
Consolidated Financial Statements and notes thereto appearing in the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1998.
The interim results of operations are not necessarily indicative of results for
the entire year.
2
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LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per-share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
Revenues: 1999 1998
---- ----
<S> <C> <C>
Net sales $ 95,280 $ 90,088
Royalties and net technical
assistance income 765 769
----------- ----------
Total revenues 96,045 90,857
Costs and expenses:
Cost of sales 71,344 67,360
Selling, general and administrative
expenses 13,468 12,709
Capacity realignment charge 2,227 --
----------- ----------
87,039 80,069
----------- ----------
Income from operations 9,006 10,788
Other income:
Equity earnings 476 2,308
Other - net (8) 255
----------- ----------
468 2,563
----------- ----------
Earnings before interest and income taxes 9,474 13,351
Interest expense - net (3,101) (3,423)
----------- ----------
Income before income taxes 6,373 9,928
Provision for income taxes 2,390 3,823
----------- ----------
Net income $ 3,983 $ 6,105
=========== ==========
Net income per share
Basic $ 0.24 $ 0.35
=========== ==========
Diluted $ 0.24 $ 0.34
=========== ==========
Dividends per share $ 0.075 $ 0.075
=========== ==========
</TABLE>
See accompanying notes.
3
<PAGE> 4
LIBBEY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
(unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,857 $ 3,312
Accounts receivable:
Trade, less allowances of $3,242 and $3,636 47,166 48,474
Other 1,283 1,323
----------- -----------
48,449 49,797
Inventories:
Finished goods 87,630 81,770
Work in process 5,910 5,763
Raw materials 3,094 3,134
Operating supplies 640 695
----------- -----------
97,274 91,362
Prepaid expenses and deferred taxes 10,512 11,108
----------- -----------
Total current assets 158,092 155,579
Other assets:
Repair parts inventories 8,377 8,633
Intangibles, net of accumulated
amortization of $2,419 and $2,343 9,786 9,862
Pension assets 11,291 10,701
Deferred software, net of accumulated
amortization of $4,479 and $3,974 6,007 6,299
Other assets 731 754
Equity investments 80,396 80,437
Goodwill, net of accumulated
amortization of $13,507 and $13,126 47,554 47,935
----------- -----------
164,142 164,621
Property, plant and equipment, at cost 237,180 235,713
Less accumulated depreciation 120,180 116,242
----------- -----------
Net property, plant and equipment 117,000 119,471
----------- -----------
Total assets $ 439,234 $ 439,671
=========== ===========
</TABLE>
Note: The condensed consolidated balance sheet at December 31, 1998 has been
derived from the audited consolidated financial statements at that date but does
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See accompanying notes.
4
<PAGE> 5
LIBBEY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
(unaudited) (Note)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 737 $ 14,932
Accounts payable 17,699 22,605
Salaries and wages 9,492 14,413
Capacity realignment reserve 21,744 19,929
Accrued liabilities 26,749 22,702
Income taxes 1,549 --
Long-term debt due within one year 29,600 --
----------- -----------
Total current liabilities 107,570 94,581
Long-term debt 176,300 176,300
Deferred taxes and other liabilities 15,813 16,184
Other long-term liabilities 6,425 6,689
Nonpension retirement benefits 50,644 51,057
Shareholders' equity:
Common stock, par value $.01
per share, 50,000,000 shares
authorized, 17,719,070 shares
issued and outstanding, less
1,472,800 treasury shares
(17,707,570 shares issued
and outstanding, less 875,000 treasury
shares in 1998) 162 168
Capital in excess of par value 282,172 281,956
Treasury stock (42,707) (27,250)
Deficit (155,841) (158,602)
Accumulated other comprehensive loss (1,304) (1,412)
----------- -----------
Total shareholders' equity 82,482 94,860
=========== ===========
Total liabilities and shareholders' equity $ 439,234 $ 439,671
=========== ===========
</TABLE>
Note: The condensed consolidated balance sheet at December 31, 1998 has been
derived from the audited consolidated financial statements at that date but does
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See accompanying notes.
5
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LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998
---- ----
<S> <C> <C>
Operating activities
Net income $ 3,983 $ 6,105
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation 3,976 4,508
Amortization 962 866
Other non-cash charges (1,444) 164
Equity earnings (476) (2,308)
Capacity realignment charge 2,227 --
Net change in components of working
capital and other assets (8,706) (15,833)
--------- ---------
Net cash provided by (used in) operating activities 522 (6,498)
Investing activities
Additions to property, plant and equipment (1,470) (4,178)
Dividends received from equity investment 517 14,232
--------- ---------
Net cash provided by (used in) investing activities (953) 10,054
Financing activities
Net bank credit facility activity 29,600 (3,702)
Other net borrowings (14,195) 26
Stock options exercised 216 402
Treasury shares purchased (15,463) --
Dividends (1,221) (1,319)
--------- ---------
Net cash used in financing activities (1,063) (4,593)
--------- ---------
Effect of exchange rate fluctuations on cash 39 15
--------- ---------
Decrease in cash (1,455) (1,022)
Cash at beginning of year 3,312 2,634
--------- ---------
Cash at end of period $ 1,857 $ 1,612
========= =========
</TABLE>
See accompanying notes.
6
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LIBBEY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dollars in thousands, except per share data
(unaudited)
1. LONG-TERM DEBT
The Company and its Canadian subsidiary have an unsecured agreement ("Bank
Credit Agreement" or "Agreement") with a group of banks which provides for a
Revolving Credit and Swing Line Facility ("Facility") permitting borrowings up
to an aggregate total of $380 million, maturing May 1, 2002. Swing Line
borrowings are limited to $25 million with interest calculated at the prime rate
minus the Commitment Fee Percentage. Revolving Credit borrowings bear interest
at the Company's option at either the prime rate minus the Commitment Fee
Percentage, or a Eurodollar rate plus the Applicable Eurodollar Margin. The
Commitment Fee Percentage and Applicable Eurodollar Margin will vary depending
on the Company's performance against certain financial ratios. The Commitment
Fee Percentage and the Applicable Eurodollar Margin were 0.125% and 0.225%,
respectively, at March 31, 1999. The Company may also elect to borrow under a
Negotiated Rate Loan alternative of the Revolving Credit and Swing Line Facility
at floating rates of interest, up to a maximum of $190 million. The Revolving
Credit and Swing Line Facility also provides for the issuance of $35 million of
letters of credit, with such usage applied against the $380 million limit. At
March 31, 1999 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 million of debt under its Bank Credit
Agreement as a means to manage its exposure to fluctuating interest rates. The
Rate Agreements effectively convert this portion of the Company's Bank Credit
Agreement borrowings from variable rate debt to a fixed rate basis, thus
reducing the impact of interest rate changes on future income. The average
interest rate for the Company's borrowings related to the Rate Agreements at
March 31, 1999 was 6.48% for an average remaining period of 2.4 years. The
remaining debt not covered by the Rate Agreements has fluctuating interest rates
with a weighted average rate of 5.2% at March 31, 1999.
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.
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However, the Company does not anticipate nonperformance by the counterparts.
The Company must pay a commitment fee ("Commitment Fee Percentage") on the total
credit provided under the Bank Credit Agreement. No compensating balances are
required by the Agreement. The Agreement requires the maintenance of certain
financial ratios, restricts the incurrence of indebtedness and other contingent
financial obligations, and restricts certain types of business activities and
investments.
2. SIGNIFICANT SUBSIDIARY
Summarized combined financial information for equity investments, which includes
the 49% ownership in Vitrocrisa, which manufactures, markets and sells glass
tableware (e.g. beverageware, plates, bowls, serveware and accessories) and
industrial glassware glassware (e.g. coffee pots, blender jars, meter covers,
glass covers for cooking ware and lighting fixtures sold to original equipment
manufacturers) and the 49% ownership in Crisa Industrial, L.L.C., which
distributes industrial glassware in the U.S. and Canada for Vitrocrisa, for 1999
and 1998 is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
<S> <C> <C>
Current assets $ 78,091 $ 61,457
Non-current assets 129,518 134,208
---------- ---------
Total assets 207,609 195,665
Current liabilities 76,695 90,037
Other liabilities and deferred items 106,608 96,068
---------- ---------
Total liabilities and deferred items 183,303 186,105
---------- ---------
Net assets $ 24,306 $ 9,560
========== =========
</TABLE>
<TABLE>
<CAPTION>
For three months ending
March 31,
1999 1998
---- ----
<S> <C> <C>
Net sales $ 41,356 $ 40,618
Cost of sales 29,945 22,700
---------- ---------
Gross profit 11,411 17,918
General expenses 4,324 8,296
---------- ---------
Earnings before finance costs 7,087 9,623
Integral financing costs 3,516 2,128
Other income (loss) (644) 154
Income taxes and profit sharing 1,091 2,228
---------- ---------
Net income $ 1,836 $ 5,421
========== =========
</TABLE>
8
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The 1998 numbers reflect Crisa Industrial, L.L.C. results as of January 31,
1998.
3. CASH FLOW INFORMATION
Interest paid in cash aggregated $2,951 and $3,203 for the first three months of
1999 and 1998, respectively. Income taxes paid in cash aggregated $963 and
$1,713 for the first three months of 1999 and 1998, respectively.
4. NET INCOME PER SHARE OF COMMON STOCK
Basic net income per share of common stock is computed using the weighted
average number of shares of common stock outstanding. Diluted net income per
share of common stock is computed using the weighted average number of shares of
common stock outstanding and includes common share equivalents.
The following table sets forth the computation of basic and diluted earnings per
share (dollars in thousands, except per-share amounts):
<TABLE>
<CAPTION>
Quarter ended March 31, 1999 1998
- ----------------------- ---- ----
<S> <C> <C>
Numerator for basic and diluted
earnings per share--net income
which is available to common
shareholders $ 3,983 $ 6,105
Denominator for basic earnings per
share--weighted-average shares
outstanding 16,401,293 17,585,664
Effect of dilutive securities--
employee stock options 325,055 449,889
------------ ------------
Denominator for diluted earnings
per share--adjusted weighted-
average shares and assumed
conversions 16,726,348 18,035,553
Basic earnings per share $ 0.24 $ 0.35
Diluted earnings per share $ 0.24 $ 0.34
</TABLE>
9
<PAGE> 10
5. COMPREHENSIVE INCOME
The Company's components of comprehensive income are net income and foreign
currency translation adjustments. During the first quarter of 1999 and 1998,
total comprehensive income amounted to $4,091 and $6,208 respectively.
6. 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.
7. 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 in Mexico, 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. An additional charge was recorded in
the first quarter 1999 of $2.2 million, which includes $1.5 million for enhanced
severance, and related employee costs, $.3 million for write-off of fixed assets
(primarily equipment) and $.4 million for write-off of inventories 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
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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
when the benefits were known by the employees. These severance and related
employee costs will be paid primarily when production ceases.
The following table sets forth the details and activity of the various
components of the capacity realignment reserve for the first quarter 1999.
<TABLE>
<CAPTION>
Balance Provision Balance
as of charged Effect of as of
December to Cash Translation March 31,
Activity 31, 1998 Expense Payments Adjustments 1999
- -------- -------- --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Severance
and related
employee
cost $ 9,946 $ 1,502 $ (678) $ 141 $ 10,911
Asset write-
downs:
Fixed
assets 7,619 323 -- 101 8,043
Inventories
and other 2,364 402 -- 24 2,790
--------- --------- --------- -------- ---------
Total $ 19,929 $ 2,227 $ (678) $ 266 $ 21,744
========= ========= ========= ======== =========
</TABLE>
11
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - FIRST QUARTER 1999 COMPARED WITH FIRST QUARTER 1998
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998
---- ----
(dollars in thousands)
<S> <C> <C>
Net sales $ 95,280 $ 90,088
Gross profit 23,936 22,728
As a percentage of sales 25.1% 25.2%
Income from operations - excluding
capacity realignment charge 11,233 10,788
As a percentage of sales 11.8% 12.0%
Income from operations $ 9,006 $ 10,788
As a percentage of sales 9.5% 12.0%
Earnings before interest and
income taxes $ 9,474 $ 13,351
As a percentage of sales 9.9% 14.8%
Net income $ 3,983 $ 6,105
As a percentage of sales 4.1% 6.8%
</TABLE>
Net sales for the first quarter of 1999 of $95.3 million increased 5.8% from net
sales of $90.1 million reported in the comparable period in 1998. Strong growth
in glassware sales to foodservice and retail customers was the major
contributor. In addition, Syracuse China experienced higher sales and sales of
Libbey-branded dinnerware and flatware to retail customers made a contribution.
Export sales, which include sales to Libbey's customers in Canada, were up 9.9%,
increasing to $13.9 million from $12.6 million in the year-ago period
reflecting, in part, recovery in some key export markets
Gross profit increased 5.3% to $23.9 million in the first quarter of 1999
compared to $22.7 million in the first quarter of 1998, and remained essentially
the same as a percentage of sales of 25.1% from 25.2%.
Income from operations declined to $9.0 million from $10.8 million in the
year-ago period. The reason for the decline was a $2.2 million capacity
realignment charge related to the Company's plan to realign its glass tableware
production. Excluding the capacity realignment charge, income from operations
increased 4.1%. The increase was attributable to higher sales more than
offsetting higher planned
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maintenance and selling expenses resulting from higher commission expense due to
the addition of over 100 independent manufacturers' representatives announced in
late 1998.
The capacity realignment charge primarily related to costs associated with the
closure of the Company's Wallaceburg, Ontario, glassware plant, including
employee severance payments and the disposition of assets. On December 31, 1998
the Board of Directors of the Company approved the capacity realignment plan,
and established a reserve in the fourth quarter of 1998 of $20.0 for expenses
related to the plan. The Company also announced, its expectation to add
approximately $2.0 million to the reserve in the quarter ending March 31, 1999,
primarily related to enhanced severance benefits. The additional charge actually
recorded in the first quarter 1999 was $2.2 million, which includes $1.5 million
for enhanced severance, and related employee costs, $.3 million for the
write-off of fixed assets (primarily equipment) and $.4 million for the
write-off of inventories and other costs. The Company expects the capacity
realignment will provide savings of approximately $4.5 million in 1999,
primarily as a result of lower costs and improved capacity utilization.
Earnings before interest and income taxes (EBIT) decreased 29.0% to $9.5 million
from $13.4 million in the first quarter last year. Equity earnings declined to
$0.5 from $2.3 million, primarily due to a strong year-ago period, translation
losses from a stronger Mexican peso and a shift in sales to lower margin
products for the Company's joint venture, Vitrocrisa. The lower equity earnings
in addition to the capacity realignment charge were the principal contributors
to the decline in EBIT.
Net income decreased by $2.1 million due to items discussed above partially
offset by a decrease in the Company's effective tax rate from 38.5% in 1998 to
37.5% reflecting lower state income taxes and lower interest expense from lower
debt levels.
CAPITAL RESOURCES AND LIQUIDITY
The Company had total debt of $206.6 million at March 31, 1999, compared to
$176.3 million at December 31, 1998. Seasonal increases in accounts receivable
and inventory in 1999 were less than 1998 reducing the borrowings necessary to
fund working capital. During the quarter, the Company purchased 597,800 shares
pursuant to its share repurchase plan for $15.5 million. Since mid 1998, the
Company has repurchased 1,472,800 shares for $42.7 million. Board authorization
remains for the purchase of an additional 277,200 shares. In addition, Libbey
received a dividend from its investment in Crisa Industrial of $.5 million in
first quarter 1999 compared to a
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dividend from Vitrocrisa of $14.2 million late in first quarter 1998. The
Company had additional debt capacity at March 31, 1999 under the Bank Credit
Agreement of $168.8 million. Of Libbey's outstanding indebtedness, $106.6
million is subject to fluctuating interest rates at March 31, 1999. A change of
one percentage point in such rates would result in a change in interest expense
of approximately $1.1 million on an annual basis as of March 31, 1999 and a
change in interest expense.
The Company is not aware of any trends, demands, commitments, or uncertainties
which will result or which are reasonably likely to result in a material change
in Libbey's liquidity. The Company believes that its cash from operations and
available borrowings under the Bank Credit Agreement will be sufficient to fund
its operating requirements, capital expenditures and all other obligations
(including debt service and dividends) throughout the remaining term of the Bank
Credit Agreement.
In addition, the Company anticipates refinancing the Bank Credit Agreement at or
prior to the maturity date of May 1, 2002 to meet the Company's longer term
funding requirements.
YEAR 2000
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
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<PAGE> 15
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. A review of a second
facility is completed and a report is currently pending. No material compliance
issues are expected.
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 31, 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:
<TABLE>
<CAPTION>
Project
Segment Assessment Remediation Testing Implementation
------- ---------- ----------- ------- --------------
<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>
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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 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 $155,000 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.
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<PAGE> 17
Suppliers
The Company has communicated with its significant suppliers and 72% responded
they are currently Year 2000 compliant, 96% expected compliance by December 31,
1999, and 4% 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.
The Company cannot predict the ability of its equity investments, Vitrocrisa
and/or Crisa Industrial L.L.C., to achieve Year 2000 compliance by the end of
1999, nor the impact on the future operating results of the Company. Vitrocrisa
and Crisa Industrial L.L.C. currently have plans and programs in place to review
and address Year 2000 compliance as part of the Vitro S.A., our partner in the
equity investments, program. This program is being conducted independently from
Libbey.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
27 Other Financial Information
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
(b.) A form 8-K was filed during the first quarter, dated January
4, 1999, with respect to an announcement that on December
31, 1998 the Board of Directors authorized the plans to
realign production capacity with an expected restructuring
charge of $20 million in the fourth quarter 1998 and an
expected change of $2 million in the first quarter 1999.
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LIBBEY INC.
Date May 14, 1999 By /s/ Kenneth G. Wilkes
-------------------------- --------------------------------
Kenneth G. Wilkes,
Vice President, Chief Financial
Officer and Treasurer
(Principal Accounting Officer)
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-- -----------
<S> <C>
27 Other Financial Information
</TABLE>
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,857
<SECURITIES> 0
<RECEIVABLES> 48,449
<ALLOWANCES> 0
<INVENTORY> 97,274
<CURRENT-ASSETS> 158,092
<PP&E> 237,180
<DEPRECIATION> 120,180
<TOTAL-ASSETS> 439,234
<CURRENT-LIABILITIES> 107,570
<BONDS> 0
<COMMON> 162
0
0
<OTHER-SE> 82,320
<TOTAL-LIABILITY-AND-EQUITY> 439,234
<SALES> 95,280
<TOTAL-REVENUES> 96,045
<CGS> 71,344
<TOTAL-COSTS> 87,039
<OTHER-EXPENSES> 8
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,101
<INCOME-PRETAX> 6,373
<INCOME-TAX> 2,390
<INCOME-CONTINUING> 3,913
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,913
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
