<PAGE> 1
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, 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)
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, 2000) of the voting stock beneficially held by non-affiliates of the
registrant was approximately $399,858,461. 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, 2000 was 15,220,126.
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 4,
2000 ("Proxy Statement").
(Cover page 2 of 2 pages)
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TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS..................................................... 1
ITEM 2. PROPERTIES................................................... 9
ITEM 3. LEGAL PROCEEDINGS............................................ 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......... 9
EXECUTIVE OFFICERS OF THE REGISTRANT..................................10
PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER
MATTERS......................................................12
ITEM 6. SELECTED FINANCIAL DATA......................................13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..................................14
ITEM 7a. Qualitative and quantitative disclosures about market RISK...18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE..........................46
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...........46
ITEMS 11. and 13. EXECUTIVE COMPENSATION AND CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS.......................46
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT...............................................46
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS
ON FORM 8-K..................................................47
SIGNATURES............................................................48
INDEX TO FINANCIAL STATEMENT SCHEDULE AND SEPARATE
FINANCIAL STATEMENTS OF AFFILIATE............................50
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. Through its joint
venture, Vitrocrisa, the Company has established 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.
Libbey also has an agreement to be the exclusive distributor of Luigi Bormioli
glassware in the U.S. and Canada for foodservice users. Luigi Bormioli is a
highly regarded supplier of high-end glassware which is used in the finest
eating and drinking establishments.
Acquisitions have been and will be a critical part of the strategy to grow the
top line and bottom line. The Company's strategy is to be a more global provider
of glass tableware and a provider of a broader supply of products to the
foodservice industry. This strategy is primarily focused on two fronts: 1)
acquiring foodservice supply companies, enabling Libbey to become a broader
supplier of products to its foodservice distributors and 2) leveraging its
proprietary glass-making technology internationally through joint ventures,
outright acquisitions or new green meadow facilities.
The acquisitions of Libbey Canada and joint venture investment in Vitrocrisa
have made Libbey the leader in glass tableware in North America. The Company's
manufacturing capabilities are more competitive today than they have ever been.
We plan to grow this capability with further expansion overseas. South America
is of particular interest, given the growth in trade in the Western Hemisphere
and the growing demand in key markets.
PRODUCTS
Libbey's tabletop products consist of glass tableware, ceramic dinnerware, metal
flatware and metal holloware. Libbey's glass tableware includes tumblers,
stemware, mugs, plates, bowls, ashtrays, bud vases, salt and pepper shakers,
canisters, candle holders and various other items.
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Vitrocrisa's product assortment includes, in addition to the product types
produced by Libbey, glass bakeware and handmade 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 distribution agreement with Luigi Bormioli, Libbey is a supplier of
high-end glassware, which is used in the finest eating and drinking
establishments.
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 and utilizes both a direct
sales force and manufacturers' representatives. 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. foodservice
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. 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 are 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.
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Libbey also sells 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 World Tableware products for foodservice
applications. Libbey operates 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. Fast-food
restaurant chains use glassware as incentives or premiums as an example. 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.
Libbey also sells its tabletop products to supermarket chains for continuity
programs. In 1999, Libbey sold tabletop products through continuity programs to
over 5,600 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 sales in Canada is estimated by
management at 70%.
Libbey's export sales, which include sales to customers in Canada, represent
approximately 12% of total sales in 1999. Libbey believes that expanding its
sales to export markets represents an important growth opportunity for the
future.
Libbey currently has technical assistance agreements with companies covering
operations in various countries. In 1999, Libbey performed services for
licensees in seven 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 1999,
Libbey's
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technical assistance agreements and licenses produced royalties of $4.4 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. A glass tableware manufacturing plant in Wallaceburg,
Ontario, Canada ceased operation in May 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 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, Thailand,
Indonesia 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
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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. In late 1998, Libbey
expanded its sales force by retaining the services of 25 manufacturing
representatives organizations. These manufacturing representatives organizations
are in addition to over 80 Libbey sales professionals located in various
metropolitan areas throughout the U.S. and Canada. The majority of Libbey's
tabletop sales to foodservice end users are made through 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, retail distributors, 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.
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COMPETITORS
Libbey's business is highly competitive, with the principal competitive factors
being customer service, brand name, product quality, delivery time and price.
Principal competitors in domestic glass tableware are Anchor Hocking (a unit of
Newell Rubbermaid Inc.), a supplier of glass beverageware and one of the
leading suppliers of glass bakeware to retail markets in the U.S.; Arc
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 Arc International (France) and Kedaung (Indonesia),
principally in retail. Libbey's joint venture investment in, and distribution
agreement with, Vitrocrisa are expected to continue 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 approximately $151,000.
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.
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
$1,350,000. Notwithstanding the foregoing, Syracuse China Company is not a
party to the decree. The RI/FS is complete and the design of the remediation
project prepared by an independent environmental remediation engineering firm
is currently being reviewed by the NYSDEC. It is anticipated that a final
design will be approved so that construction of the approved remedy will begin
in 2000.
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In addition, Syracuse China Company has been named as a potentially responsible
party by reason of its potential ownership of the sub-site 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.
Such other parties have acquired ownership of the sub-site which should end any
responsibility of Syracuse China with respect to the sub-site. 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 1999.
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 3,287 persons at December 31, 1999. 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 terminated 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 information sets forth the location of the Company's principal
manufacturing and distribution facilities at December 31, 1999. 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
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.
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.
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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 52 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 53 Executive Vice President and Chief Operating Officer since
Executive Vice President and November 1995; Vice President and Chief Financial Officer from
Chief Operating Officer June 1993 to November 1995; Vice President and Director of
Finance and Administration from January 1989 to June 1993.
L. Frederick Ashton 59 Vice President, General Sales Manager since November 1990.
Vice President, General Sales
Manager
Arthur H. Smith 64 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.
Kenneth G. Wilkes 42 Vice President and Chief Financial Officer since July 1999 after
Vice President and Chief serving as Vice President, Chief Financial Officer and Treasurer
Financial Officer of the company since November 1995. From August 1993 to November 1995
he was Vice President and Treasurer. Previously employed as Senior
Corporate Banker, Vice President with The First National Bank
of Chicago from 1981.
</TABLE>
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<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Kenneth A. Boerger 42 Vice President and Treasurer since July 1999. Previously, from
Vice President and Treasurer 1994 to July 1999 was Corporate Controller and Assistant
Treasurer. From 1980 to 1994 held various financial and
accounting positions.
John A. Zarb 48 Vice President and Chief Information Officer since April 1996.
Vice President and Chief Previously from 1991 to April 1996 employed by AlliedSignal Inc.
Information Officer in information technology senior management positions in Europe
and the U.S.
Daniel P. Ibele 39 Vice President, Marketing and Specialty Operations since
Vice President, Marketing and September 1997; Vice President and Director of Marketing at
Specialty Operations Libbey since 1995. From 1983 to 1995 held various marketing and
sales positions.
Timothy T. Paige 42 Vice President and Director of Human Resources since January 1997;
Vice President and 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>
-------------------------------------------------------------------------------
1999 1998
High Low High Low
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $33 $24 1/8 $39 1/4 $32 1/4
Second Quarter $33 3/4 $27 1/8 $39 1/2 $35 3/4
Third Quarter $31 15/16 $28 3/8 $38 7/16 $28 1/4
Fourth Quarter $29 3/4 $24 5/8 $33 5/8 $28 3/8
-------------------------------------------------------------------------------
</TABLE>
On March 1, 2000, there were 1,222 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 1999 1998 1997(a) 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales $460,592 $436,522 $411,966 $397,656 $357,546
Total revenues 464,989 439,548 415,053 400,354 360,082
Cost of sales 321,633 321,949 295,009 288,538 257,945
Selling, general and administrative expenses 64,131 54,191 49,585 44,620 38,953
Capacity realignment charges 991 20,046 -- -- --
Income from operations 78,234 43,362 70,459 67,196 63,184
Equity earnings 2,915 8,880 3,570 -- --
Other income (expenses) -- net 13 1,493 (732) 1,302 499
Earnings before interest and income taxes 81,162 53,735 73,297 68,498 63,683
Interest expense -- net 12,501 12,674 14,840 14,962 13,974
Income before income taxes 68,661 41,061 58,457 53,536 49,709
Provision for income taxes 25,233 15,618 22,331 20,986 19,685
Net income 43,428 25,443 36,126 32,550 30,024
PER-SHARE DATA:
Basic net income 2.69 1.45 2.33 2.16 2.00
Diluted net income 2.64 1.42 2.27 2.12 1.97
Dividends paid 0.30 0.30 0.30 0.30 0.30
OTHER INFORMATION
EBIT 81,162 53,735 73,297 68,498 63,683
EBITDA 99,915 73,241 93,193 89,983 81,841
Depreciation 14,717 15,852 16,826 19,275 16,885
Amortization 4,036 3,654 3,070 2,210 1,273
Capital expenditures 9,428 17,486 18,408 15,386 20,198
Dividends paid 4,821 5,253 4,550 4,511 4,501
Employees (average) 3,552 3,969 4,136 4,110 3,870
BALANCE SHEET DATA
Total assets 434,395 439,671 449,600 315,733 321,815
Working capital (b) 77,794 75,930 89,942 65,823 74,795
Long-term debt 170,000 176,300 200,350 202,851 248,721
Shareholders' equity (deficit) 91,843 94,860 99,989 (18,447) (47,116)
</TABLE>
(a) Includes the results of the Vitro Transactions beginning in September.
(b) Current assets less current liabilities excluding short-term debt.
13
<PAGE> 17
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) 1999 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $460,592 $436,522 $411,966
Gross profit $138,959 $114,573 $116,957
As a percentage of sales 30.2% 26.2% 28.4%
Income from operations - excluding
capacity realignment charge $ 79,225 $ 63,408 $ 70,459
As a percentage of sales 17.2% 14.5% 17.1%
Income from operations -
after capacity realignment charge $ 78,234 $ 43,362 $ 70,459
As a percentage of sales 17.0% 9.9% 17.1%
Earnings before interest
and income taxes $ 81,162 $ 53,735 $ 73,297
As a percentage of sales 17.6% 12.3% 17.8%
Net income $ 43,428 $ 25,443 $ 36,126
As a percentage of sales 9.4% 5.8% 8.8%
- -------------------------------------------------------------------------------------
</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 1999 WITH 1998 Net sales for 1999 of $460.6 million were 5.5%
higher than the net sales of $436.5 million reported in 1998. Sales increases
were recorded in all of the company's operations, with Syracuse China
experiencing double-digit sales growth as well as a record performance in total
foodservice glassware sales. Both glassware and dinnerware sales were positively
impacted by sales associated with the millennium. In 1998, the company expanded
its sales resources by retaining a network of manufacturing representative
organizations to complement its factory sales force. Management believes this
greater sales coverage also contributed to sales growth. Libbey's export sales,
which include sales to Libbey's customers in Canada, decreased to $56.2 million
from $58.1 million
14
<PAGE> 18
in 1998. The decrease was the result of the decision to exit the production of
bottleware in Canada, which reduced sales by $4.5 million.
GROSS PROFIT increased 21.3% to $139.0 million in 1999 from $114.6 million in
1998 and increased as a percentage of sales to 30.2% from 26.2% over this
period. Gross margin increased due to higher sales of more profitable products
and lower costs due to improved utilization of the company's glassware plants.
INCOME FROM OPERATIONS was $78.2 million in 1999 compared with $43.4 million in
1998 and increased as a percentage of net sales to 17.0% from 9.9% in the
year-ago period. Excluding the effect of the capacity realignment charge, income
from operations would have totaled $79.2 million in 1999 compared with $63.4
million in the year-ago period, or an improvement of 24.9%. The higher operating
income was primarily the result of improved utilization of the company's
glassware plants and record sales.
EARNINGS BEFORE INTEREST AND INCOME TAXES (EBIT) increased 51.0% to $81.2
million in 1999 compared with $53.7 million in 1998, and increased as a
percentage of net sales to 17.6% from 12.3% in the year-ago period. Excluding
the capacity realignment charge, EBIT would have been $82.2 million in 1999
compared with $73.8 million in 1998, an increase of 11.3%. The increase was
attributable to higher operating income which more than offset lower equity
earnings at the company's joint venture in Mexico.
NET INCOME increased 70.7% to $43.4 million compared with $25.4 million in 1998,
and increased as a percentage of net sales to 9.4% from 5.8% in the year-ago
period. Excluding the impact of the capacity realignment charge, net income
would have been $44.1 million in 1999 compared with $37.9 million in 1998, an
increase of 16.3%. The increase is attributable to higher income from operations
combined with a lower effective tax rate of 36.75% compared with 38.0% in the
year-ago period. The reduction in the company's effective tax rate is primarily
attributable to lower state income taxes.
CAPACITY REALIGNMENT CHARGE
On December 31, 1998, the Board of Directors of the company approved a capacity
realignment plan, which included 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. In 1999, a portion of Wallaceburg's production was
absorbed by the company's joint venture in Mexico, Vitrocrisa. The company is
servicing 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 has
exited the production of bottleware, a niche, low-margin business for the
company. In addition to the recorded capacity realignment charge in the fourth
quarter of 1998 of $20.0 million, the company recorded an additional charge in
1999 of approximately $1.0 million, which included $1.4 million for cost related
to the disposition of fixed assets and $0.4 million for
15
<PAGE> 19
write-off of inventories and other costs partly offset by a $0.8 million
reduction for severance and related employee costs.
The Wallaceburg facility ceased production in May 1999, and the limited
warehouse operations that remain will terminate in early 2000. The fixed assets,
supply inventories and repair parts not transferred have been written down to a
nominal amount. The Wallaceburg property is presently held for sale; however, if
a buyer is not located, it will be abandoned. The company terminated the
employment of virtually all of its 560 salary and hourly employees and included
severance and related employee costs in its capacity realignment charge at the
time when such severance amounts were disclosed to the employees. These
severance and related employee costs were paid primarily when production ceased.
The capacity realignment was instrumental in reducing the company's cost
structure and improving its profitability. Productivity improvements and better
leveraging existing infrastructure at its glassware facilities and the
availability of cost-effective capacity at the company's joint venture enabled
these changes.
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 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 $58.1 million from $60.2
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 million 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
16
<PAGE> 20
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.
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.
CAPITAL RESOURCES AND LIQUIDITY
Libbey's financial condition at year-end 1999 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 $68.7 million
from $51.3 million in 1998. Higher net income and lower inventories more than
offset $11.1 million in capacity realignment payments and higher receivables.
Reductions in inventories were experienced in all the company's operations and
are attributable to the company's efforts to improve asset utilization.
Capital expenditures were $9.4 million in 1999 compared with $17.5 million in
1998 and included scheduled maintenance and investment in higher-productivity
machinery and equipment. Capital expenditures for 2000 are expected to be in the
range of $20.0 to $22.0 million. Cash of $42.8 million was used by the company
to repurchase 1,623,000 shares of its common stock. Since mid-1998, the company
has repurchased 2,498,000 shares for $70.1 million. Board authorization remains
for the purchase of an additional 1,127,000 shares. Before the use of $42.8
million in cash to repurchase shares, the company generated $55.9 million of
free cash flow, the strongest operating cash flow performance in the company's
history.
Libbey had total debt of $178.7 million at December 31, 1999, compared with
$191.2 million at December 31, 1998. The decrease was primarily attributable to
the net cash provided from operations. Libbey had additional debt capacity of
$204.8 million at December 31, 1999, under the Bank Credit Agreement. Libbey has
entered into interest rate protection
17
<PAGE> 21
agreements with respect to $75.0 million of its debt. The average interest rate
for the company's borrowings related to the interest rate protection agreements
is 6.68% with an average maturity of 2.3 years at December 31, 1999.
Of Libbey's outstanding indebtedness, $103.7 million is subject to fluctuating
interest rates at December 31, 1999. A change of one percentage point in such
rates would result in a change in interest expense of approximately $1.0 million
on an annual basis.
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
YEAR 2000
Libbey developed and initiated plans that addressed the possible exposures
related to the impact of the Year 2000 on its computer systems, equipment,
business and operations. The company completed all Year 2000 readiness work on
time and experienced no significant problems. The company expensed approximately
$235,000 in connection with this project. With respect to capital expenditures,
approximately an additional $2.0 million was spent on upgrades to the company's
enterprise resource planning system, other systems and desktop and laptop
computers that also address Year 2000 compliance. There are no material
expenditures expected to be incurred in the future related to the Year 2000
issue. The company sees no continued exposure to the Year 2000 problem.
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.
The company is exposed to market risks associated with changes in interest rates
in the U.S. However, the company has entered into Interest Rate Protection
Agreements ("Rate
18
<PAGE> 22
Agreements") with respect to $75.0 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, 1999, was 6.68% for an average remaining period of
2.3 years. Total remaining debt not covered by the Rate Agreements has
fluctuating interest rates with a weighted average rate of 6.42% at December 31,
1999. The company had $103.7 million of debt subject to fluctuating interest
rates at December 31, 1999. A change of one percentage point in such rates would
result in a change in interest expense of approximately $1.0 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, 1999, the carrying value of the long-term
debt approximates its fair value based on the company's current incremental
borrowing rates. The fair market value for the company's Interest Rate
Protection Agreements at December 31, 1999, was $0.9 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 "goal," "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 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
19
<PAGE> 23
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; whether the
company completes any significant acquisition, and whether such acquisitions can
operate profitably.
20
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
Report of Independent Auditors 22
Consolidated Balance Sheets at December 31, 1999 and 1998 23
For the years ended December 31, 1999, 1998 and 1997:
Consolidated Statements of Income 25
Consolidated Statements of Shareholders' Equity 26
Consolidated Statements of Cash Flows 27
Notes to Consolidated Financial Statements 28
Selected Quarterly Financial Data 45
21
<PAGE> 25
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, 1999 and 1998, and the related consolidated statements of
income, shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 1999. Our audits also included the financial statement
schedule listed in the index at Item 14(a). These financial statements and
schedule are the responsibility of the company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits. We did not audit the 1999 and 1998 financial statements of Vitrocrisa,
S. de R.L. de C.V. (formerly Vitrocrisa, S.A. de C.V.), a corporation in which
Libbey Inc. has a 49% equity interest, which statements reflect total assets of
$220.9 million and $193.4 million as of December 31, 1999 and 1998,
respectively. 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. de R.L. de C.V., is based solely on the report of the other
auditors.
We conducted our audits in accordance with auditing standards generally accepted
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. 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, 1999 and
1998, and the consolidated results of its operations and its cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
Toledo, Ohio
January 28, 2000
22
<PAGE> 26
LIBBEY INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
===============================================================================================================
December 31,
Dollars in thousands 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 3,918 $ 3,312
Accounts receivable:
Trade, less allowances of $3,869 and $3,636 59,492 48,474
Other 2,837 1,323
- ---------------------------------------------------------------------------------------------------------------
62,329 49,797
Inventories:
Finished goods 80,547 81,770
Work in process 5,829 5,763
Raw materials 2,844 3,134
Operating supplies 669 695
- ---------------------------------------------------------------------------------------------------------------
89,889 91,362
Prepaid expenses and deferred taxes 8,028 11,108
- ---------------------------------------------------------------------------------------------------------------
Total current assets 164,164 155,579
Other assets:
Repair parts inventories 5,684 8,633
Intangibles, net of accumulated amortization of $2,647 and $2,343 9,558 9,862
Pension assets 14,625 10,701
Deferred software, net of accumulated amortization of $6,181 and $3,974 5,728 6,299
Other assets 379 754
Equity investments 82,835 80,437
Goodwill, net of accumulated amortization of $14,651 and $13,126 46,328 47,935
- ---------------------------------------------------------------------------------------------------------------
165,137 164,621
Property, plant and equipment at cost 217,584 235,713
Less accumulated depreciation 112,490 116,242
- ---------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 105,094 119,471
- ---------------------------------------------------------------------------------------------------------------
Total assets $434,395 $439,671
===============================================================================================================
</TABLE>
See accompanying notes.
23
<PAGE> 27
LIBBEY INC.
Consolidated Balance Sheets
(Continued)
<TABLE>
<CAPTION>
===============================================================================================================
December 31,
Dollars in thousands 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 8,655 $ 14,932
Accounts payable 29,126 22,605
Salaries and wages 22,804 14,413
Capacity realignment reserve 3,692 19,929
Accrued liabilities 24,777 22,702
Income taxes 5,971 --
- ---------------------------------------------------------------------------------------------------------------
Total current liabilities 95,025 94,581
Long-term debt 170,000 176,300
Deferred taxes 18,392 16,184
Other long-term liabilities 6,594 6,689
Nonpension retirement benefits 52,541 51,057
Shareholders' equity:
Common stock, par value $.01 per share, 50,000,000 shares authorized,
17,747,753 shares issued including 2,498,000 Treasury shares (17,707,570
shares issued including 875,000 Treasury shares in 1998) 152 168
Capital in excess of par value 282,734 281,956
Treasury stock (70,061) (27,250)
Deficit (119,995) (158,602)
Cumulative foreign currency translation adjustment (987) (1,412)
- ---------------------------------------------------------------------------------------------------------------
Total shareholders' equity 91,843 94,860
- ---------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $434,395 $439,671
===============================================================================================================
See accompanying notes.
</TABLE>
24
<PAGE> 28
LIBBEY INC.
Consolidated Statements of Income
<TABLE>
<CAPTION>
=======================================================================================================
Year ended December 31,
Dollars in thousands, except per-share amounts 1999 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Net sales $460,592 $436,522 $411,966
Royalties and net technical assistance income 4,397 3,026 3,087
- -------------------------------------------------------------------------------------------------------
Total revenues 464,989 439,548 415,053
Costs and expenses:
Cost of sales 321,633 321,949 295,009
Selling, general and administrative expenses 64,131 54,191 49,585
Capacity realignment charges 991 20,046 --
- -------------------------------------------------------------------------------------------------------
386,755 396,186 344,594
- -------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 78,234 43,362 70,459
Other income (expense):
Equity earnings 2,915 8,880 3,570
Other - net 13 1,493 (732)
- -------------------------------------------------------------------------------------------------------
2,928 10,373 2,838
- -------------------------------------------------------------------------------------------------------
Earnings before interest and income taxes 81,162 53,735 73,297
Interest expense - net (12,501) (12,674) (14,840)
- -------------------------------------------------------------------------------------------------------
Income before income taxes 68,661 41,061 58,457
Provision for income taxes 25,233 15,618 22,331
- -------------------------------------------------------------------------------------------------------
NET INCOME $ 43,428 $ 25,443 $ 36,126
=======================================================================================================
NET INCOME PER SHARE:
Basic $2.69 $1.45 $2.33
Diluted $2.64 $1.42 $2.27
=======================================================================================================
</TABLE>
See accompanying notes
25
<PAGE> 29
LIBBEY INC.
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
==================================================================================================================================
Accumulated
Common Capital in Other
Dollars in thousands, Stock Excess of Treasury Comprehensive
except per-share data Shares Amount Par Value Stock Deficit Income/(Loss) Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1997 15,061,231 $151 $191,909 $(210,368) $(139) $(18,447)
Comprehensive income:
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
Comprehensive income:
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
Comprehensive income:
Net income 43,428 43,428
Effect of exchange rate
fluctuation 425 425
--------
Comprehensive income 43,853
Stock options exercised 40,183 1 778 779
Purchase of shares for
treasury (1,623,000) (17) (42,811) (42,828)
Dividend -- $0.30 per share (4,821) (4,821)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1999 15,249,753 $152 $282,734 $(70,061) $(119,995) $(987) $91,843
==================================================================================================================================
</TABLE>
See accompanying notes
26
<PAGE> 30
LIBBEY INC.
Consolidated Statements of Cash Flow
<TABLE>
<CAPTION>
===============================================================================================================================
Year ended December 31,
Dollars in thousands 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $43,428 $25,443 $36,126
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 14,717 15,852 16,826
Amortization 4,036 3,654 3,070
Equity earnings (2,915) (8,880) (3,570)
Capacity realignment charge 991 20,046 --
Nonpension retirement benefit cost in excess of payments 1,419 (1,417) 1,309
Deferred income taxes 4,274 (498) 2,028
Other 1,579 1,468 316
Changes in operating assets and liabilities:
Accounts receivable (10,202) 1,566 (5,226)
Inventories 1,404 8,693 (9,558)
Prepaid expenses 640 9 (506)
Other assets (3,141) (5,126) (3,534)
Accounts payable 6,313 (2,859) 647
Accrued liabilities 8,342 (5,499) 2,274
Other liabilities (2,174) (1,175) (1,586)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 68,711 51,277 38,616
INVESTING ACTIVITIES
Additions to property, plant and equipment (9,428) (17,486) (18,408)
Vitro acquisition and equity investments -- -- (106,750)
Dividends received from equity investments 517 14,232 --
Other 94 1,639 654
- -------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (8,817) (1,615) (124,504)
FINANCING ACTIVITIES
Net bank credit facility activity (6,300) (23,751) (2,097)
Other net borrowing activity (6,217) 4,547 5,860
Stock offering -- -- 82,618
Stock options exercised 779 2,749 4,705
Treasury shares purchased (42,828) (27,258) --
Dividends (4,821) (5,253) (4,550)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (59,387) (48,966) 86,536
Effect of exchange rate fluctuations on cash 99 (18) (4)
- -------------------------------------------------------------------------------------------------------------------------------
Increase in cash 606 678 644
Cash at beginning of year 3,312 2,634 1,990
- -------------------------------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR $ 3,918 $ 3,312 $ 2,634
===============================================================================================================================
</TABLE>
See accompanying notes
27
<PAGE> 31
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. 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 $9,726, $11,203 and
$11,720 at December 31, 1999, 1998 and 1997, 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 resulted from valuations assigned by independent
appraisers for future revenues from technical assistance agreements and
trademarks acquired.
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.
28
<PAGE> 32
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.
REVENUE RECOGNITION Revenue is recognized when the product is shipped. The
Company generally does not accept a return unless it is preauthorized.
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 Company's 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/(LOSS) Other comprehensive income/(loss) for the
Company consists of foreign currency translation adjustment. Disclosure of
comprehensive income/(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, 2000, and the Company has not determined its impact.
TREASURY STOCK Treasury stock purchases are recorded at cost. During 1999 and
1998 the Company purchased 1,623,000 and 875,000 shares of treasury stock at an
average cost of $26.39 and $31.15, respectively.
29
<PAGE> 33
INCOME PER SHARE OF COMMON STOCK The following table sets forth the computation
of basic and diluted earnings per share:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator for diluted earnings per share -- net income that
is available to common shareholders $43,428 $25,443 $36,126
--------------------------------------------------
Denominator for basic earnings per share -- weighted-average
shares outstanding 16,151,169 17,523,564 15,479,704
Effect of dilutive securities -- employee stock options 325,834 392,132 457,353
--------------------------------------------------
Denominator for diluted earnings per share -- adjusted
weighted-average shares and assumed conversions 16,477,003 17,915,696 15,937,057
--------------------------------------------------
Basic earnings per share $ 2.69 $ 1.45 $ 2.33
--------------------------------------------------
Diluted earnings per share $ 2.64 $ 1.42 $ 2.27
--------------------------------------------------
</TABLE>
3. 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
30
<PAGE> 34
purchase price over the fair value of assets acquired of approximately $11.8
million was recorded as goodwill and is being amortized over 40 years. The
operating results of World Tableware and the equity earnings of Vitrocrisa and
Crisa Industrial, L.L.C. have been included in the consolidated financial
statements since the date of acquisition.
The following unaudited pro forma results of operations assume the acquisition
and equity investments occurred as of January 1, 1996 (in thousands, except
per-share amounts):
Year ended December 31, 1997
------------------------------------------------------------
Net revenues $455,453
Net income $ 36,901
Net income per share:
Basic $2.38
Diluted $2.32
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 is as follows:
<TABLE>
<CAPTION>
December 31, 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 77,462 $ 61,457
Non-current assets 129,915 134,208
--------------------------
Total assets 207,377 195,665
Current liabilities 93,431 90,037
Other liabilities and deferred items 96,389 96,068
--------------------------
Total liabilities and deferred items 189,820 186,105
--------------------------
Net assets $ 17,557 $ 9,560
================================================================================
</TABLE>
31
<PAGE> 35
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998 1997(1)
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $189,699 $172,562 $ 71,413
Cost of sales 129,667 114,250 44,172
-----------------------------------------
Gross profit 60,032 58,312 27,241
Operating expenses 21,260 19,765 10,651
-----------------------------------------
Income from operations 38,772 38,547 16,590
Other income (loss) (1,058) 1,003 217
-----------------------------------------
Earnings before finance costs and taxes 37,714 39,550 16,807
Interest expense 10,871 14,061 4,327
Translation gain (loss) (1,392) 4,433 1,500
-----------------------------------------
Earnings before income taxes and profit sharing 25,451 29,922 13,980
-----------------------------------------
Income taxes and profit sharing 16,040 8,336 5,540
-----------------------------------------
Net income $ 9,411 $ 21,586 $ 8,440
====================================================================================================
</TABLE>
(1)Results after the investment date of August 29, 1997
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, 1999 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 15,184 $ 15,184
Buildings 33,047 31,495
Machinery and equipment 154,406 169,249
Furniture and fixtures 11,577 11,961
Construction in progress 3,370 7,824
------------------------------------
217,584 235,713
Less accumulated depreciation 112,490 116,242
Net property, plant and equipment $105,094 $119,471
====================================================================================================
</TABLE>
5. OTHER ACCRUED LIABILITIES
Other accrued liabilities include accruals for insurance of $5,510 and $6,109
and various incentive programs of $14,510 and $11,865 at December 31, 1999 and
1998, respectively.
32
<PAGE> 36
6. INCOME TAXES
The provision (credit) for income taxes consists of the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Year ended December 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 21,062 $ 11,383 $ 15,906
Foreign (2,498) 3,330 2,345
State and local 2,395 1,403 2,052
- ---------------------------------------------------------------------------------------------------
20,959 16,116 20,303
Deferred:
Federal 1,154 5,874 1,500
Foreign 3,530 (7,049) 368
State and local (410) 677 160
- ---------------------------------------------------------------------------------------------------
4,274 (498) 2,028
Total:
Federal 22,216 17,257 17,406
Foreign 1,032 (3,719) 2,713
State and local 1,985 2,080 2,212
- ---------------------------------------------------------------------------------------------------
$ 25,233 $ 15,618 $22,331
===================================================================================================
</TABLE>
The provision for income taxes was calculated based on the following components
of earnings (loss) before income taxes:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Year ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $65,996 $ 52,091 $50,734
Foreign 2,665 (11,030) 7,723
- --------------------------------------------------------------------------------------------------
$68,661 $ 41,061 $58,457
==================================================================================================
</TABLE>
A reconciliation from the statutory U.S. federal tax rate of 35% to the
consolidated effective tax rate is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Year ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------------------------
<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, 1.9 3.3 2.5
net of related federal taxes
Amortization of goodwill 1.2 2.0 0.9
Other (1.35) (2.3) (0.2)
- --------------------------------------------------------------------------------------------------
Consolidated effective tax rate 36.75% 38.0% 38.2%
==================================================================================================
</TABLE>
33
<PAGE> 37
Income taxes paid in cash amounted to $13,849, $17,078 and $16,570 for the
years ended December 31, 1999, 1998 and 1997, respectively.
Significant components of the Company's deferred tax liabilities and assets are
as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
December 31, 1999 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment $ 20,055 $ 22,600
Inventories 5,677 4,105
Pension 4,835 3,531
Intangibles and other assets 14,508 12,125
- -----------------------------------------------------------------------------------------
Total deferred tax liabilities 45,075 42,361
Deferred tax assets:
Accrued nonpension retirement benefits 19,683 19,206
Other accrued liabilities 9,814 6,611
Receivables 803 321
Capacity realignment reserve 1,346 7,451
Other 1,301 523
- -----------------------------------------------------------------------------------------
Total deferred tax assets 32,947 34,112
- -----------------------------------------------------------------------------------------
Net deferred tax liabilities $ 12,128 $8,249
=========================================================================================
</TABLE>
<TABLE>
<CAPTION>
Net deferred tax liabilities are included in the consolidated balance sheets as
follows:
- ----------------------------------------------------------------------------------------
December 31, 1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Noncurrent deferred taxes $ 18,392 $ 16,184
Prepaid expenses (6,264) (7,935)
- ----------------------------------------------------------------------------------------
Net deferred tax liabilities $ 12,128 $ 8,249
========================================================================================
</TABLE>
7. PENSION PLANS AND NONPENSION RETIREMENT BENEFITS
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.
34
<PAGE> 38
The components of the benefit obligation, plan assets and funded status of the
plans are as follows:
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
<S> <C> <C>
Change in benefit obligation:
Benefit obligation, beginning of year $168,566 $162,526
Service cost 3,825 3,799
Interest cost 11,836 11,395
Plan amendments 544 6,793
Actuarial (gain) loss (14,735) (2,748)
Benefits paid (11,795) (13,199)
-------- --------
Benefit obligation, end of year $158,241 $168,566
-------- --------
Change in plan assets:
Fair value of plan assets, beginning of year $219,435 $201,424
Actual return on plan assets 38,764 31,210
Benefits paid (11,795) (13,199)
--------
Fair value of plan asset, end of year $246,404 $219,435
-------- --------
Funded status of plan $ 88,163 $ 50,869
Unrecognized net gain (79,294) (45,728)
Unrecognized prior year service cost 5,756 5,560
-------- --------
Prepaid pension benefit cost $ 14,625 $ 10,701
-------- --------
</TABLE>
The actuarial present value of benefit obligations is based on a discount rate
of 7.75% in 1999 and 7.0% in 1998. The expected long-term rate of return on
assets is 10.0% in 1999 and 1998. A salary growth rate of 5.0% was used in 1999
and 4.5% in 1998. 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,
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 3,825 $ 3,799 $ 3,373
Interest cost on projected benefit obligation 11,836 11,395 11,479
Expected return on plan assets (19,248) (17,256) (16,013)
Prior service cost amortization 348 166 (75)
Actuarial gain recognized (685) -- (275)
- ----------------------------------------------------------------------------------------------------------------
Net pension credit $ (3,924) $ (1,896) $ (1,511)
================================================================================================================
</TABLE>
35
<PAGE> 39
The Company also sponsors certain other employee retirement benefit plans which
in the aggregate resulted in an expense of $2,082, $1,977 and $1,975 in 1999,
1998 and 1997, 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.
The components of the nonpension retirement benefit obligation and amounts
accrued are as follows:
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
<S> <C> <C>
Change in accumulated postretirement benefit
obligation:
Benefit obligation, beginning of year $ 17,471 $ 30,699
Service cost 532 698
Interest cost 1,475 1,485
Plan amendments 3,863 (12,413)
Actuarial gain (1,869) (2,124)
Benefits paid (1,151) (874)
--------------------------
Benefit obligation, end of year $ 20,321 $ 17,471
--------------------------
Funded status of plan $(20,321) $(17,471)
Unrecognized actuarial gain (16,758) (16,464)
Unrecognized prior year service cost (15,462) (17,122)
--------------------------
Prepaid (accrued) benefit cost $(52,541) $(51,057)
==========================
</TABLE>
The provision for nonpension retirement benefit costs consists of the following:
<TABLE>
<CAPTION>
Year ended December 31,
- --------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 533 $ 698 $ 1,236
Amortization 933 (2,517) (1,639)
Interest cost on nonpension retirement benefit obligation
1,475 1,485 2,408
- --------------------------------------------------------------------------------------------------------------------
Net nonpension retirement benefit cost (credit) $2,941 $ (334) $ 2,005
====================================================================================================================
</TABLE>
Assumed health care cost inflation is based on a gradual decrease to an ultimate
rate of 5.0%. A one percentage point increase in these rates would have
increased the nonpension
36
<PAGE> 40
retirement expense by $75 and the benefit obligation by $941. A one percentage
point decrease in these rates would have decreased the net nonpension retirement
expense by $83 and the benefit obligation by $1,050. The assumed discount rate
used in determining the accumulated nonpension retirement benefit obligation was
7.75% for 1999 and 7.0% for 1998. The increase in 1999 in the accumulated
postretirement benefit obligation related to coverage of additional employees
for medical expense. The reduction in 1998 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 also provides retiree health care benefits to certain union hourly
employees through participation in a multi-employer retiree health care benefit
plan. Approximately $400, $443 and $388 was charged to expense for the years
ended December 31, 1999, 1998 and 1997, respectively.
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 .15% and .275%,
respectively, at December 31, 1999. 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 $170.0 and $176.3 million
outstanding under the Facility at December 31, 1999 and 1998, 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, 1999,
the Company had $5.2 million in letters of credit outstanding under the
Facility.
The Company has entered into Interest Rate Protection Agreements ("Rate
Agreements") with respect to $75.0 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, 1999, was 6.68% for an average remaining period of
2.3 years. Total remaining debt not covered by the Rate Agreements has
fluctuating interest rates with a weighted average rate of 6.47% at December 31,
1999.
37
<PAGE> 41
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: 2000 through 2001 - none; 2002 - $170.0 million.
At December 31, 1999, the carrying value of the long-term debt approximates its
fair value based on the Company's current incremental borrowing rates. The fair
market value for the Company's Rate Agreements at December 31, 1999 was $0.9
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.
The Company guarantees $25.0 million of Vitrocrisa Holdings' debt as of December
31, 1999.
Interest paid in cash amounted to $12,297, $12,392 and $14,337 for the years
ended December 31, 1999, 1998 and 1997.
9. STOCK OPTIONS
The Company has two stock option plans for key employees: (1) the Libbey Inc.
Amended and Restated Stock Option Plan for Key Employees and (2) the 1999 Equity
Participation Plan of Libbey Inc. The plans provide for the granting of
Incentive Stock Options and Nonqualified Options to purchase 2,800,000 shares of
the Company's common stock 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 the grant by the
Compensation 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 the grant and Nonqualified Options expire ten years and a day after the
grant.
38
<PAGE> 42
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 the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions by year:
<TABLE>
<CAPTION>
Assumption 1999 1998 1997
- ---------- ---- ---- ----
<S> <C> <C> <C>
Risk-free interest rates 6.0% 5.5% 5.8%
Dividend yield 1.0% 0.8% 0.8%
Volatility .29 .29 .26
</TABLE>
The weighted average fair value of options granted in 1999, 1998 and 1997 was
$12.22, $15.22 and $13.59, respectively.
39
<PAGE> 43
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>
Year ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income:
Reported $43,428 $25,443 $36,126
Pro forma $42,365 $24,435 $35,466
Earnings per share:
Basic
Reported $2.69 $1.45 $2.33
Pro forma $2.62 $1.39 $2.29
Diluted
Reported $2.64 $1.42 $2.27
Pro forma $2.57 $1.36 $2.23
===========================================================================================
</TABLE>
Pro forma effect on net income for 1999, 1998 and 1997 is not representative of
the pro forma effect on net income in future years because it does not take into
consideration pro forma compensation expense related to grants made prior to
1995.
Stock option activity is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Weighted-Average Price Range Per
Number of Shares Exercise Price Share
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
January 1, 1998
Outstanding 1,351,285 16.45 $13.00-$36.63
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-$38.44
Exercisable 1,112,447 15.46
Granted 164,450 31.25
Canceled 500 38.44
Exercised 40,183 13.27
- -----------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999
Outstanding 1,507,113 20.64 $13.00-$38.44
Exercisable 1,196,708 17.32
- -----------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE> 44
The following information is as of December 31, 1999:
<TABLE>
<CAPTION>
Options with an
Options with an exercise price
exercise price of greater than
$13.00 per share $13.00 per share
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding 767,352 739,761
Weighted-average exercise price $13.00 $28.57
Remaining contractual life 3.4 7.2
Options exercisable 767,352 429,356
Weighted-average exercise price $13.00 $25.05
- ----------------------------------------------------------------------------------------------------
</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 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. Percentage
increases resulting from share repurchases by the Company or inadvertence do not
cause the rights to become exercisable. 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.
41
<PAGE> 45
11. OPERATING LEASES
Rental expense for all operating leases, primarily for warehouses, was $5,299,
$5,684 and $5,983 for the years ended December 31, 1999, 1998 and 1997,
respectively. Future minimum rentals under operating leases are as follows:
2000--$3,872; 2001--$2,784; 2002--$2,211; 2003--$2,018; 2004--$1,637; and 2005
and thereafter--$6,060.
12. CAPACITY REALIGNMENT CHARGE
On December 31, 1998, the Company, with the approval of the Board of Directors,
adopted a formal, written and specific plan to realign the production capacity
of the Company. The primary thrust of the plan was the closing of the
Wallaceburg, Ontario, manufacturing and distribution facility, the realignment
of its production and distribution activities to other facilities and the
Company's Mexican joint venture partner and the exiting of the glass bottle
business serviced out of Wallaceburg. The Company recorded a capacity
realignment charge of approximately $20.0 million in the fourth quarter of 1998,
which included $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 of 1999 of $2.2 million, which included $1.5
million for enhanced severance and related employee costs, $0.3 million for
write-off of fixed assets (primarily equipment) and $0.4 million for write-off
of inventories and other costs.
The Wallaceburg facility ceased production in May 1999, and the limited
remaining warehouse operations will terminate in early 2000. The fixed assets,
supply inventories and repair parts not transferred have been written down to a
nominal amount. The Wallaceburg property is presently held for sale; however, if
a buyer is not located, it will be abandoned. The Company terminated the
employment of virtually all of its 560 salary and hourly employees and included
severance and related employee costs in its capacity realignment charge at the
time when such severance benefits were disclosed to the employees. These
severance and related employee costs were paid primarily when production ceased.
During the fourth quarter of 1999, the Company assessed the capacity realignment
reserve by activity and reduced it by approximately $1.2 million, primarily for
a reduction in severance and related costs. This resulted in a net provision for
1999 of approximately $1.0 million. The majority of the capacity realignment
reserve balance at December 31, 1999 is for the demolition of glass furnaces and
the related costs to ready the plant facility for sale or abandonment and the
remaining disposition of certain fixed assets and inventories.
42
<PAGE> 46
The following table sets forth the details and activity of the various
components of the capacity realignment reserve during 1999:
<TABLE>
<CAPTION>
Balance Provision Balance
as of Charged Write-off of Effect of as of
January to Assets to Cash Translation December
Activity 1, 1999 Expense Reserve Payments Adjustment 31, 1999
- -------- ------- ------- ------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Severance and
related
employee
costs $ 9,946 $(758) $ (9,243) $330 $ 275
Asset write-
downs:
Fixed assets 7,619 1,367 $(5,891) (326) 223 2,992
Inventories
and other 2,364 382 (988) (1,508) 175 425
- --------------------------------------------------------------------------------------------------------------------
Total $19,929 $ 991 $(6,879) $(11,077) $728 $3,692
====================================================================================================================
</TABLE>
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 the Company's 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 1999, 1998 and
1997 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.
43
<PAGE> 47
<TABLE>
<CAPTION>
United States Foreign Eliminations Consolidated
------------- ------- ------------ ------------
<S> <C> <C> <C> <C>
1999
Net sales:
Customers $404,355 $56,237 $460,592
Intercompany 17,962 4,040 $(22,002) --
------------------------------------------------------------------
Total $422,317 $60,277 $(22,002) $460,592
Long-lived assets $154,909 $79,348 $234,257
1998
Net sales:
Customers $378,420 $58,102 $436,522
Intercompany 25,429 12,853 $(38,282) --
------------------------------------------------------------------
Total $403,849 $70,955 $(38,282) $436,522
Long-lived assets $161,105 $86,738 $247,843
1997
Net sales:
Customers $351,768 $60,198 $411,966
Intercompany 26,291 15,530 $(41,821) --
------------------------------------------------------------------
Total $378,059 $75,728 $(41,821) $411,966
Long-lived assets $161,256 $93,562 $254,818
</TABLE>
44
<PAGE> 48
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables present selected quarterly financial data for the years
ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999
Dollars in thousands, except First Second Third Fourth
per-share data Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $95,280 $112,923 $112,017 $140,372
Cost of sales 71,344 72,694 74,808 102,787
Gross profit 23,936 40,229 37,209 37,585
Earnings before interest and income
taxes(1) 9,474 24,947 24,983 21,758
Net income(1) 3,983 13,639 13,888 11,918
- -----------------------------------------------------------------------------------------------------------------------
Net income per share
Basic $0.24 $0.84 $0.85 $0.76
Diluted $0.24 $0.82 $0.84 $0.74
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In the first quarter of 1999, the Company recorded a capacity realignment
charge of $2.2 million pre-tax and $1.4 million after-tax. In the fourth
quarter of 1999, the Company recorded a capacity realignment credit of $1.2
million pre-tax and $0.8 million after-tax.
<TABLE>
<CAPTION>
1998
Dollars in thousands, except First Second Third Fourth
per-share data Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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(2) 13,351 25,612 26,247 (11,475)
Net income (loss)(2) 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)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(2) 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.
45
<PAGE> 49
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.
46
<PAGE> 50
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 22
Consolidated Balance Sheets at December 31, 1999 and 1998 23
For the years ended December 31, 1999, 1998 and 1997:
Consolidated Statements of Income 25
Consolidated Statements of Shareholders' Equity 26
Consolidated Statements of Cash Flows 27
Notes to Consolidated Financial Statements 28
Selected Quarterly Financial Data 45
Financial statement schedule for the years ended December 31, 1999, 1998 and
1997:
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.
b) A form 8-K was filed during the fourth quarter, dated October 25, 1999,
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. de R. L. de C.V. Financial Statements as of December 31,
1999 and 1998 and for the years ended December 31, 1999, 1998 and 1997 and
Independent Auditors' Report are filed as a part of this Annual Report
pursuant to Rule 3.09 of Regulation S-X S-2
47
<PAGE> 51
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 and Chief
Financial Officer
Date: March 27, 2000
48
<PAGE> 52
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. Moerdyk 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 and Chief Financial Officer
(Principal Accounting Officer)
Date: March 27, 2000
49
<PAGE> 53
INDEX TO FINANCIAL STATEMENT SCHEDULE AND SEPARATE FINANCIAL
STATEMENTS OF AFFILIATE
Page
----
Financial Statement Schedule of Libbey Inc. for the years ended
December 31, 1999, 1998, and 1997 for Schedule II Valuation
and Qualifying Accounts (Consolidated) S-1
Vitrocrisa, S. de R. L. de C.V. Financial Statements as of December 31,
1999 and 1998 and for the years ended December 31, 1999,
1998 and 1997 and Independent Auditors' Report S-2
50
<PAGE> 54
LIBBEY INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (Consolidated)
Years ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Additions
Charged
Balance at (Credited) to
Beginning Costs and Other Deductions Balance at
Of Year Expenses (Note 1) (Note 2) End of Year
------- -------- -------- -------- -----------
Allowances for Losses and
Discounts on Receivables:
<S> <C> <C> <C> <C> <C>
1999 $3,636 $1,648 $ 79 $1,494 $3,869
====== ====== ===== ====== ======
1998 $3,103 $1,212 $132 $ 811 $3,636
====== ====== ===== ====== ======
1997 $2,279 $ 439 $551 $ 166 $3,103
====== ====== ===== ====== ======
</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> 55
DELOITTE &
TOUCHE
[LOGO] GALAZ, GOMEZ MORFIN,
CHAVERO, YAMAZAKI, S.C.
[LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners of
Vitrocrisa, S. de R.L. de C.V.
Monterrey, N.L.
We have audited the accompanying balance sheets of Vitrocrisa, S. de R.L. de
C.V. (the "Company") (formerly Vitrocrisa, S.A. de C.V.) as of December 31, 1999
and 1998, and the related statements of income, changes in partners' equity and
changes in financial position for each of the three years in the period ended
December 31, 1999, all expressed in thousands of constant Mexican pesos as of
December 31, 1999. 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. de R.L. de C.V.
as of December 31, 1999 and 1998, and the results of its operations, changes in
its partners' equity and changes in its financial position for each of the three
years in the period ended December 31, 1999, 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 of
America. The application of the latter would have affected the determination of
net income for each of the three years in the period ended December 31, 1999,
and the determination of partners' equity at December 31, 1999 and 1998 to the
extent summarized in note 15.
The accompanying financial statements and the independent auditors' report have
been translated into English language for the convenience of readers.
/s/ DELOITTE & TOUCHE
February 25, 2000
DELOITTE TOUCHE
TOHMATSU
S-2
<PAGE> 56
VITROCRISA, S. DE R.L. DE C.V. (FORMERLY VITROCRISA, S.A. DE C.V.)
BALANCE SHEETS
(Thousands of constant Mexican pesos as of December 31, 1999)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
ASSETS 1999 1998
<S> <C> <C>
Cash and cash equivalents (note 11) Ps. 1,398 Ps. 16,380
Trade receivables, net of allowance for doubtful accounts of
Ps. 20,237 and Ps. 16,091 at December 31, 1999 and 1998,
respectively (note 11) 270,161 264,416
Notes receivable from affiliates (note 11) 30,511
Refundable income taxes and value added tax 48,269 3,609
Other receivables (note 11) 43,528 37,065
Inventories (note 3) 213,832 219,204
------------- -------------
Current assets 607,699 540,674
Investment in shares 9,310 10,457
Deferred income tax and profit sharing to workers (note 9b) 158,610 150,828
Land and buildings (note 4) 387,186 398,059
Machinery and equipment (note 4) 804,744 946,313
Construction in progress 34,870 6,494
Intangible seniority premium and pension asset 91,506 94,510
Other assets 3,850 2,698
------------- -------------
Total assets Ps. 2,097,775 Ps. 2,150,033
============= =============
LIABILITIES
Short-term debt Ps. 75,989 Ps. 72,250
Current portion of long-term debt 12,563 88,923
Trade payables 172,792 150,743
Notes payable to affiliates (note 11) 212,864 109,341
Accounts payable to affiliates (note 11) 34,320 21,705
Accrued expenses 60,012 96,522
Other current liabilities 27,795 36,722
------------- -------------
Current liabilities 596,335 576,206
------------- -------------
Long-term debt (note 5) 753,564 915,320
Seniority premium and pension plans (note 6) 160,821 151,136
------------- -------------
Long-term liabilities 914,385 1,066,456
------------- -------------
Total liabilities 1,510,720 1,642,662
------------- -------------
Commitments (note 14)
PARTNERS' EQUITY
Contributed capital 2,676,538 2,676,538
Paid-in capital 90,452 90,452
Shortfall in restatement of capital (2,579,220) (2,501,211)
Minimum pension liability adjustment (25,372) (24,617)
Retained earnings 60,348 36,878
Net income for the year 364,309 229,331
------------- -------------
Partners' equity (note 8) 587,055 507,371
------------- -------------
Total liabilities and partners' equity Ps. 2,097,775 Ps. 2,150,033
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
ING. SALVADOR MINARRO LIC. CARLOS NAVARRO LEAL
Administrative Director Manager of Comptrollership
S-3
<PAGE> 57
VITROCRISA, S. DE R.L. DE C.V. (FORMERLY VITROCRISA, S.A. DE C.V.)
STATEMENTS OF INCOME
(Thousands of constant Mexican pesos as of December 31, 1999)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
<S> <C> <C> <C>
Net sales (note 11) Ps. 1,867,739 Ps. 1,887,537 Ps. 1,940,692
Cost of sales (note 11) 1,299,478 1,270,716 1,293,496
General, administrative and selling expenses (note 11) 197,013 202,032 204,839
------------- ------------- -------------
Operating income 371,248 414,789 442,357
------------- ------------- -------------
Interest expense 118,662 146,624 181,355
Interest income (6,842) (5,108) (3,929)
Exchange (gain) loss, net (note 7-c) (44,441) 235,811 25,679
Gain from monetary position (125,662) (197,562) (165,235)
------------- ------------- -------------
Total financing (benefit) cost, net (58,283) 179,765 37,870
------------- ------------- -------------
Income after financing 429,531 235,024 404,487
Other (expense) income, net (24,817) 553 564
------------- ------------- -------------
Income before income tax, profit sharing to
workers and extraordinary item 404,714 235,577 405,051
Income and asset tax (note 9) 109,287 69,845 135,650
Profit sharing to workers 9,342 10,639 13,081
------------- ------------- -------------
Income before extraordinary item 286,085 155,093 256,320
Extraordinary item (note 10) 78,224 74,238 124,631
------------- ------------- -------------
Net income Ps. 364,309 Ps. 229,331 Ps. 380,951
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-4
<PAGE> 58
VITROCRISA, S. DE R.L. DE C.V. (FORMERLY VITROCRISA, S.A. DE C.V.)
STATEMENTS OF CHANGES IN PARTNERS' EQUITY (NOTE 8)
(Thousands of constant Mexican pesos as of December 31, 1999, except per share
amounts)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MINIMUM (ACCUMULATED
SHORTFALL IN PENSION DEFICIT)
CONTRIBUTED PAID-IN RESTATEMENT OF LIABILITY RETAINED PARTNERS'
CAPITAL CAPITAL CAPITAL ADJUSTMENT EARNINGS NET INCOME EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>>
Balance at December 31, 1996 Ps. 3,409,022 Ps. 90,452 Ps. (2,412,740) Ps. (18,428) Ps. (949,103) Ps. 330,619 Ps. 449,822
Appropriation of net loss 330,619 (330,619)
from prior year
Recapitalization (618,484) 618,484
Capital stock redemption (114,000) (114,000)
Loss from holding non-
monetary assets (52,756) (52,756)
Minimum pension liability
adjustment 18,428 18,428
Net income 380,951 380,951
------------- ---------- -------------- ----------- ------------ ----------- -----------
Balance at December 31, 1997 2,676,538 90,452 (2,465,496) 0 0 380,951 682,445
Appropriation of net income
from prior year 380,951 (380,951)
Dividends (Ps. 344.07 per
share) (344,073) (344,073)
Loss from holding non-
monetary assets (35,715) (35,715)
Minimum pension liability
adjustment (24,617) (24,617)
Net income 229,331 229,331
------------- ---------- -------------- ----------- ------------ ----------- -----------
Balance at December 31, 1998 2,676,538 90,452 (2,501,211) (24,617) 36,878 229,331 507,371
Appropriation of net income
from prior year 229,331 (229,331)
Dividends (Ps. 205.86 per
share) (205,861) (205,861)
Loss from holding non-monetary
assets (78,009) (78,009)
Minimum pension liability
adjustment (755) (755)
Net income 364,309 364,309
------------- ---------- -------------- ----------- ------------ ----------- -----------
Balance at December 31, 1999 Ps. 2,676,538 Ps. 90,452 Ps. (2,579,220) Ps. (25,372) Ps. 60,348 Ps. 364,309 Ps. 587,055
============= ========== ============== =========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-5
<PAGE> 59
VITROCRISA, S. DE R.L. DE C.V. (FORMERLY VITROCRISA, S.A. DE C.V.)
STATEMENTS OF CHANGES IN FINANCIAL POSITION
(Thousands of constant Mexican pesos as of December 31, 1999)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
OPERATING ACTIVITIES: 1999 1998 1997
<S> <C> <C> <C>
Net income Ps. 364,309 Ps. 229,331 Ps. 380,951
Add (deduct) non-cash items:
Depreciation and amortization 122,645 117,123 94,641
Provision for seniority premium and pension plans 11,934 10,658 6,038
(Gain) loss from sale of fixed assets 507 (13,338) 599
Deferred income tax and profit sharing to workers (7,707) (6,894) 9,436
----------- ----------- -----------
491,688 336,880 491,665
Increase (decrease) in trade payables 22,049 17,290 (6,793)
(Increase) decrease in trade and receivables from affiliates
(5,745) 40,923 (17,115)
Increase in inventories (10,978) (56,777) (9,167)
Other operating assets and liabilities (83,945) 38,356 (40,474)
----------- ----------- -----------
Resources generated from operations 413,069 376,672 418,116
----------- ----------- -----------
FINANCING ACTIVITIES:
Short-term debt 12,223 92,481
Notes receivable from affiliates (30,511)
Notes payable to affiliates 125,070 (60,115) (81,491)
Long-term debt 404,009 787,662 214,772
Monetary effect on liabilities with financing cost (145,765) (212,016)
Payment of short-term debt (173,167)
Payment of long-term debt (526,391) (380,655) (351,303)
Dividends (paid) accrued (205,861) (457,145) 113,072
Capital stock redemption (114,000)
----------- ----------- -----------
Resources used in financing activities (367,226) (229,788) (392,117)
----------- ----------- -----------
INVESTMENT ACTIVITIES:
Investment in shares (16) (1,103)
Sales of fixed assets 725 20,398 932
Investment in land, buildings, machinery and equipment (60,503) (164,433) (30,690)
Other (1,047) (2,491) 5,925
----------- ----------- -----------
Resources used in investment activities (60,825) (146,542) (24,936)
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (14,982) 342 1,063
Cash and cash equivalents at beginning of year 16,380 16,038 14,975
----------- ----------- -----------
Cash and cash equivalents at end of year Ps. 1,398 Ps. 16,380 Ps. 16,038
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements
S-6
<PAGE> 60
VITROCRISA, S. DE R.L. DE C.V. (FORMERLY VITROCRISA, S.A. DE C.V.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Thousands of constant Mexican pesos as of December 31, 1999)
- --------------------------------------------------------------------------------
1. ACTIVITIES OF THE COMPANY :
Vitrocrisa, S. de R.L. de C.V. (the "Company"), a wholly-owned subsidiary
of Vitrocrisa Holding, S. de R.L. 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.
The Company changed its corporate name from Vitrocrisa, S.A. de C.V. to
Vitrocrisa, S. de R.L. de C.V.
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
required 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:
o 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.
o 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.
S-7
<PAGE> 61
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 23
Machinery and equipment 3 to 12
o Investment in shares
The investment in shares in which the Company holds less than 10%
of the capital stock, are accounted for at their acquisition cost.
o Shortfall in restatement of capital
This item, which is an element of partners' 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.
o Restatement of contributed capital and retained earnings
Contributed capital 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.
o Exchange fluctuations
Exchange gains or losses included in the (benefit) 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.
o 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 experience a decrease in 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 (benefit) cost.
b) Cash and cash equivalents
Highly liquid short-term investments 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.
S-8
<PAGE> 62
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.
Severance payments are expensed in the period in which such payments
are made.
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 that are expected to
reverse over a definite period of time, at the tax rates in effect at
the end of each period (see note 13).
f) Reclassification of selling, general and administrative expenses to
cost of goods sold
In order to improve comparative analysis with other companies, to
reflect ongoing changes in Company's management of production
facilities, and to facilitate the control of such expenses, a change
in classification of certain costs and expenses is reflected in the
1999 results. Expenses related to the production of goods have been
reclassified, from selling, general and administrative expenses to
cost of goods sold. Those expenses include, among others,
supervisors' salaries, packing materials, certain freight expenses,
and warehousing costs. For comparison purposes, historical figures
for the years 1998 and 1997 have been reclassified in the amount of
Ps. 124,362 and Ps. 139,783, respectively. Additionally, as a result
of the reclassification, Ps. 13,879 was capitalized in ending
inventory at December 31, 1999 and operating income for the year then
ended was increased by the same amount.
g) 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:
DECEMBER 31,
1999 1998
Finished products Ps.172,801 Ps.195,563
Raw materials 7,428 7,252
Packaging materials 10,784 6,512
---------- ----------
191,013 209,327
Spare parts 3,416 4,181
Refractory 19,403 5,696
---------- ----------
Ps.213,832 Ps.219,204
========== ==========
S-9
<PAGE> 63
4. LAND, BUILDINGS, MACHINERY AND EQUIPMENT:
Land, buildings, machinery and equipment are summarized as follows:
DECEMBER 31,
1999 1998
Land Ps.136,590 Ps.137,120
Buildings 520,140 523,000
Accumulated depreciation (269,544) (262,061)
---------- ----------
Ps.387,186 Ps.398,059
========== ==========
Machinery and equipment 2,537,658 2,693,271
Accumulated depreciation (1,732,914) (1,746,958)
---------- ----------
Ps.804,744 Ps.946,313
========== ==========
As mentioned in note 2a), machinery and equipment purchased in a foreign
country, in the amount of Ps. 470,642, 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, 1999.
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,
1999 1998
<S> <C> <C>
Unsecured loan guaranteed by Vitro in Mexican pesos, interest based on
Investments Units (UDIS) plus 8.75 points, payable monthly, principal
payable in several installments through 2006. Ps. 69,665 Ps. 81,666
Unsecured loan in U.S. dollars, semiannual interest based on LIBOR plus 1.5
points, principal payable in 2000. 33,346
Unsecured loan in U.S. dollars, semiannual interest based on LIBOR plus
2.25 points, principal payable in several installments through 2001. 284,958 333,462
Unsecured loan in U.S. dollars, semiannual interest based on LIBOR plus
1.35 points, principal payable in several installments through 2001. 398,941 466,846
----------- -----------
Ps. 753,564 Ps. 915,320
=========== ===========
</TABLE>
Maturity of long-term debt is as follows:
YEAR DECEMBER 31, 1999
2001 Ps. 697,603
2002 13,705
2003 13,705
2004 13,705
2005 13,705
2006 1,141
-----------
Ps. 753,564
===========
S-10
<PAGE> 64
Certain of the Company's long-term debt agreements contain restrictions
and covenants that require the maintenance of various financial ratios.
The Company has complied with the restrictions and covenants during 1999.
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, together with certain
actuarial assumptions utilized are presented below as of December 31,
1999 and 1998.
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
<S> <C> <C>
Accumulated benefit obligation Ps. 160,821 Ps. 151,136
----------- -----------
Projected benefit obligation 165,350 154,558
Unrecognized transition obligation 73,971 81,190
Changes in assumptions and adjustments from experience 28,081 27,217
Unrecognized net loss 19,355 14,142
----------- -----------
Projected net liability 43,943 32,009
----------- -----------
Additional minimum liability 116,878 119,127
Net periodic cost (Ps. 17,404 in 1997) 26,112 23,872
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 at December 31, 1999:
<TABLE>
<CAPTION>
THOUSANDS OF U.S.
DOLLARS MEXICAN PESOS
<S> <C> <C>
Monetary assets $ 3,661 Ps. 34,770
Fixed assets 49,548 470,642
Monetary liabilities-short term 41,817 397,207
Inventories 353 3,349
Monetary liabilities-long term 72,000 683,899
b) Foreign operations during 1999 were as follows:
</TABLE>
<TABLE>
<CAPTION>
THOUSANDS OF U.S.
DOLLARS MEXICAN PESOS
<S> <C> <C>
Exports $ 65,036 Ps. 620,021
Imports 18,882 180,455
Interest expense, net 8,328 79,608
</TABLE>
c) The exchange rates used for purposes of these financial statements
were Ps 9.4986 per one U.S. dollar at December 31, 1999 and Ps 9.8963
per one U.S. dollar at December 31, 1998. On February 25, 2000, date
of issuance of these financial statements, the exchange rate was
Ps.9.41 per one U.S. dollar.
8. PARTNERS' EQUITY:
a) At the stockholders' meeting held on September 27, 1999 it was
agreed to change the corporate name from Vitrocrisa, S.A. de C.V. to
Vitrocrisa, S. de R.L. de C.V.. Since that date, contributed capital
is analyzed as follows:
S-11
<PAGE> 65
<TABLE>
<CAPTION>
CLASS I CLASS II
FIXED CAPITAL VARIABLE CAPITAL
NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF
SERIE SHARES SHARES SHARES SHARES TOTAL
<S> <C> <C> <C> <C> <C>
A 1 0.0051% 0.0051%
B 1 0.0049% 0.0049%
C (limited vote) 1 3.59% 1 96.4000% 99.9900%
-------- ----------- --------- ---------- --------
1 3.59% 3 96.4100% 100.0000%
======== =========== ========= ========== ========
</TABLE>
b) At the stockholders' meeting held on April 30, 1999 it was agreed
to declare dividends in the amount of Ps. 193,970 (thousands of
nominal pesos).
c) 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).
d) 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 U.S. $10,520 (thousands)
from the restatement of capital stock. For accounting purposes this
dividend was treated as a capital stock redemption.
e) At December 31, 1998 and 1997 the capital stock of the Company is
comprised of 1,000,000 nominal common shares, without par value,
divided into the following series of shares:
<TABLE>
<CAPTION>
VARIABLE
FIXED CAPITAL 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>
f) Partners' 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 is 35%,
and when dividends are paid to individuals or foreign residents, an
additional 5% withholding tax will be paid.
S-12
<PAGE> 66
9. INCOME AND ASSET TAX :
a) The income and asset tax included in the results are:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
<S> <C> <C> <C>
Tax benefit that results from the utilization of tax
loss carry forwards and asset tax Ps.78,224 Ps.74,238 Ps.124,631
Current income tax 38,216
Deferred income tax:
Provision for furnace repair (8,542) (13,256) (262)
Benefit from the deduction of inventories held
on December 31, 1986 1,389 3,839 4,010
Asset tax 5,024 7,271
---------- --------- ----------
Ps.109,287 Ps.69,845 Ps.135,650
========== ========= ==========
</TABLE>
b) Deferred tax assets presented on the balance sheet result from
the following:
<TABLE>
DECEMBER 31,
1999 1998
<S> <C> <C>
Deferred tax benefit from provision for furnace repair Ps. 47,127 Ps. 36,900
Deferred tax benefit from the future deduction of inventories held on
December 31, 1986 111,483 113,928
---------- ----------
Ps.158,610 Ps.150,828
========== ==========
</TABLE>
c) At December 31, 1999, there were Ps 212,155 of previously
deducted inventories and Ps. 43,943 of non-deductible provisions
related to seniority premium and pension plans for which no deferred
taxes have been provided in accordance with generally accepted
accounting principles in Mexico.
d) The reconciliation between the Company's effective income tax
rate and the statutory income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
<S> <C> <C> <C>
Effective income tax rate 27.00% 29.65% 33.49%
Add (deduct):
Purchase deductions 1.72 7.72 (6.85)
Difference between tax and financial accounting for
depreciation .11 .31 (2.68)
Difference between tax and financial accounting for
monetary gain 3.42 3.89 6.35
Provisions .37 (8.20)
Other 2.38 .63 3.69
-------- ------- -------
Statutory income tax rate 35.00% 34.00% 34.00%
======== ======= =======
</TABLE>
S-13
<PAGE> 67
e) Effective January 1, 1999, the Mexican income tax law was changed
in several respects. In addition to the changes described in note
8 f), the overall tax rate increased from 34% to 35%; however, in 1999
income taxes are 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 decreased 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.
10. EXTRAORDINARY ITEM:
The extraordinary items in 1999, 1998 and 1997 are the tax benefits that
resulted from the utilization of tax loss carry forwards and recovery of
asset tax paid in previous years.
11. BALANCES AND TRANSACTIONS WITH AFFILIATED COMPANIES:
The principal balances and transactions with affiliated companies not
shown separately in the financial statements are as follows:
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
1999 1998 1997
<S> <C> <C> <C>
Cash equivalents Ps. 386
Trade receivables Ps. 4,157 6,709
Other receivables 32,325
Unsecured long-term loan payable 81,665
Net sales 316,423 271,527 Ps.296,900
Other income 4,167 2,903 14,729
Purchases of inventory 31,122 14,618 14,497
Operating expenses 35,045 43,974 41,152
Interest expense 11,258 103,836 59,411
</TABLE>
The balances of cash equivalents and unsecured long-term loan payable in
1998 and 1997, disclosed above result from deposits and loan transactions
with subsidiaries of Grupo Financiero Serfin, S.A. (GFS), a Mexican
financial group, in which Vitro held an equity interest. Interest expense
relates to loan transactions with Vitro's subsidiaries and GFS in 1998
and 1997. Net sales disclosed above were primarily to Crisa Corporation,
a U.S. corporation owned 100% by Vitro, and to Crisa Industrial L.L.C., a
U.S. Corporation owned 51% by Vitro and 49% by Libbey, for purposes of
facilitating export sales. Notes receivables (payable) from (to)
affiliates are interest bearing loans with market interest rates. Trade
receivables, other receivables, other income, purchases of inventory,
operating expenses, and accounts payable to affiliates, all consist of
transactions with subsidiaries of Vitro and are of a normal and recurring
nature.
12. YEAR 2000
The Company's year 2000 project to identify and correct the systems
applications affected by the year 2000 issue was completed according to
schedule. The Company achieved the objective of maintaining continuous
operations in all its manufacturing plants and information systems
according to the plan. During the transition period to the year 2000, all
the operations performed normally and in the following months the Company
will continue to monitor the performance of all year 2000 sensitive
elements in all its operations.
13. NEW ACCOUNTING STANDARD
On January 1, 2000 a new accounting standard became effective, new
Bulletin D-4, issued by the IMCP, which defines the accounting treatment
for income taxes and workers' profit sharing ("WPS"). In accordance with
this new bulletin the financial statements should recognize deferred
income taxes for all temporary differences between accounting and tax
bases for all assets and liabilities and deferred WPS for temporary
differences between tax and accounting results, which are expected to
reverse in the future. Additionally, net operating losses and asset tax
paid are recognized as assets.
S-14
<PAGE> 68
The initial cumulative effect at January 1, 2000, from the application of
the new Bulletin D-4 will increase liabilities by Ps. 215,853, decrease
total assets by Ps. 123,363 and decrease partners' equity by Ps. 339,216.
The cumulative effect as of January 1, 2000 will be charged directly to
partners' equity and will have no effect on cash flow.
14. COMMITMENTS
The Company leases warehouses under noncancelable operating lease
agreements. Under those agreements the Company might sub-lease such
premises. As of December 31, 1999, future minimum lease payments are as
follows:
YEAR AMOUNT
2000 Ps. 33,488
2001 21,993
2002 21,993
2003 21,462
2004 14,315
Additionally to these payments, the Company has negotiated to make an
advanced payment of Ps. 156,432 on June 1, 2000 to freeze future
increases by inflation or other factors.
Rental expense for the years 1999, 1998 and 1997 were Ps. 40,546, Ps.
26,815 and Ps. 24,787, respectively.
15. DIFFERENCES BETWEEN MEXICAN AND UNITED STATES ACCOUNTING PRINCIPLES:
The Company's financial 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 partners' equity are presented below with an
explanation of the adjustments:
Reconciliation of net income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
<S> <C> <C> <C>
Net income under Mexican GAAP Ps.364,309 Ps.229,331 Ps.380,951
U.S. GAAP adjustments for:
Effects of inflationary accounting (54,277) (129,244) (157,100)
Deferred income taxes (86,121) (51,258) (60,248)
Deferred workers' profit sharing (26,740) 4,732 (12,542)
---------- ----------- ----------
Net income under U.S. GAAP Ps.197,171 Ps. 53,561 Ps.151,061
========== =========== ==========
</TABLE>
S-15
<PAGE> 69
Reconciliation of partners' equity
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
<S> <C> <C> <C>
Total partners' equity reported under Mexican GAAP Ps. 587,055 Ps. 507,371 Ps. 682,445
U.S. GAAP adjustments for:
Effects of inflationary accounting (973,902) (1,007,507) (992,531)
Deferred income taxes 10,274 96,395 147,653
Deferred workers' profit sharing 7,729 34,469 29,737
------------ ----------- -----------
Partners' equity (deficiency in assets) under U.S. GAAP Ps. (368,844) Ps.(369,272) Ps.(132,696)
============ =========== ===========
</TABLE>
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. Partners' 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 (see note 13). 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.
The significant components of the deferred tax assets for purposes of
U.S. GAAP reconciliation are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998 1997
<S> <C> <C> <C>
Reserves Ps.33,733 Ps.39,278 Ps.22,278
Tax loss carry forwards 3,140 63,619
Inventories 11,868 10,585 19,025
Seniority premium and pension plans 15,380 9,975 5,450
Tax on assets 58,476 45,533
Fixed assets 33,528 33,491 37,106
Other (11,971)
--------- ---------- ----------
Total deferred tax assets Ps.82,538 Ps.154,945 Ps.193,011
========= ========== ==========
</TABLE>
S-16
<PAGE> 70
c) Deferred workers' profit sharing
The Company calculates a deferred workers' profit sharing asset for U.S.
GAAP purposes based on temporary differences between the financial
reporting bases and workers' profit sharing bases of assets and
liabilities. Under U.S. GAAP, workers' profit sharing expense would be
classified as a component of operating expenses.
The significant components of the deferred workers profit sharing for
purposes of U.S. GAAP reconciliation are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998 1997
<S> <C> <C> <C>
Inventories Ps. 3,391 Ps. 3,025 Ps. 5,595
Exchange fluctuation 9,623 32,973 31,402
Reserves 9,638 11,222 6,552
Fixed assets (8,716) (8,260) (7,581)
Seniority premium and pension plans 4,394 2,850 1,603
Other (3,420)
--------- --------- ---------
Net deferred profit sharing assets Ps.14,910 Ps.41,810 Ps.37,571
========= ========= =========
</TABLE>
d) Other Differences and Supplemental U.S. GAAP Disclosures
1. Extraordinary Items.- Mexican GAAP requires that utilization of tax
loss carry forwards and the recovery of the asset tax paid in previous
years 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. 11,973 for the
year ended December 31, 1999, Ps. 74,238 for the year ended December 31,
1998 and Ps. 124,631 for the year ended December 31, 1997. For U.S. GAAP
purposes, such amounts, in thousands of nominal pesos, were Ps. 11,190,
Ps. 66,096 and Ps. 93,553, respectively. The benefit from the recovery of
the asset tax in 1999 was Ps. 66,251 in constant peso terms and Ps.
62,633 in thousands of nominal pesos.
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 is not required to provide for 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.
S-17
<PAGE> 71
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year Ps.134,560 Ps. 80,128 Ps.34,583
Service cost 3,865 4,277 2,075
Interest cost 7,153 6,281 3,937
Net amortization and deferral 13,736 10,696 7,052
Intangible asset 7,362 20,045 51,404
Minimum pension liability adjustment 3,454 21,918 (11,954)
Benefits paid (9,309) (8,785) (6,969)
---------- ---------- ---------
Benefit obligation at end of year Ps.160,821 Ps.134,560 Ps.80,128
Amounts recognized in the balance sheet consists of:
Projected net liability Ps.43,943 Ps. 28,498 Ps.16,028
Intangible asset 91,506 84,144 64,100
Minimum pension liability adjustment 25,372 21,918 0
========== ========== =========
Ps.160,821 Ps.134,560 Ps.80,128
========== ========== =========
</TABLE>
Pension and seniority premium costs are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
<S> <C> <C> <C>
Service costs Ps. 3,865 Ps. 4,277 Ps. 2,075
Interest cost 7,153 6,281 3,937
Net amortization and deferral 13,736 10,696 7,052
--------- --------- ---------
Net periodic pension cost Ps.24,754 Ps.21,254 Ps.13,064
========= ========= =========
</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, 1999 and 1998 were approximately 8% and
8.5%, respectively.
5. Supplement Cash flow Information Required by U.S. GAAP
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
<S> <C> <C> <C>
Cash payments for interest and income tax follows:
Interest Ps. 80,169 Ps.80,832 Ps.89,744
Income tax 71,429 4,078 4,817
</TABLE>
S-18
<PAGE> 72
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 and currency
devaluation from the cash flows from operating, investing and
financing activities as follows:
CONDENSED STATEMENTS OF CASH FLOWS U.S. GAAP BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
OPERATING ACTIVITIES: 1999 1998 1997
<S> <C> <C> <C>
Net income Ps.197,171 Ps.53,561 Ps.151,061
Add (deduct) non-cash items:
Depreciation and amortization 47,338 32,042 12,995
Provision for seniority premium and pension plans
13,170 12,495 6,095
(Gain) loss from sale of fixed assets (505) (16,479) 306
Deferred income tax and profit sharing to workers
99,289 33,827 73,947
---------- --------- ----------
356,463 115,446 244,404
Increase in trade payables 38,582 34,036 9,200
Increase in trade and receivables from affiliates (34,746) (6,217) (42,235)
Increase in inventories (18,526) (46,188) (18,954)
Other current assets and liabilities, net (71,412) 44,752 (18,513)
---------- --------- ----------
Cash provided by operating activities 270,361 141,829 173,902
---------- --------- ----------
FINANCING ACTIVITIES:
Borrowing of short-term debt 11,662 64,326
Borrowing (payments) of notes payable to affiliates 115,514 (56,809) (57,880)
Notes receivable from affiliates (30,511)
Long-term debt 379,951 639,171 152,866
Payment of long-term debt (507,925) (310,381) (251,011)
Dividends (193,970) (356,534)
---------- --------- ----------
Cash used in financing activities (225,279) (20,227) (156,025)
---------- --------- ----------
INVESTING ACTIVITIES:
Sale of fixed assets 679 16,816 769
Investment in land, buildings, machinery and equipment
(57,848) (133,685) (19,758)
Other (1,099) (2,187) 3,437
---------- --------- ----------
Cash used in investing activities (58,268) (119,056) (15,552)
---------- --------- ----------
Net (decrease) increase in cash and cash (13,186) 2,546 2,325
equivalents
Cash and cash equivalents at beginning of year 14,584 12,038 9,713
---------- --------- ----------
Cash and cash equivalents at end of year Ps.1,398 Ps.14,584 Ps.12,038
========== ========= ==========
</TABLE>
S-19
<PAGE> 73
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 amounts 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, 1999 and 1998. 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 from the amounts presented herein.
7. Comprehensive income - Under U.S. 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 the 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, 1996 Ps. 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 21,918
Change for the year 3,454
------------
Balance at December 31, 1999 Ps. 25,372
============
* * * * *
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- --------------------------------------------------------------------------------
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<CAPTION>
<S> <C> <C>
2.0 -- Asset Purchase Agreement dated as of September 22, 1995 by and among The
Pfaltzgraff Co., The Pfaltzgraff Outlet Co., Syracuse China Company of Canada
Ltd., LG Acquisition Corp. and Libbey Canada Inc., Acquisition of Syracuse
China Company (filed 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).
</TABLE>
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<TABLE>
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<S> <C> <C>
4.4 -- First Amendment to Rights Agreement, dated February 3, 1999, between Libbey
Inc. and the Bank of New York (filed as Exhibit 4.4 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1998 and incorporated
herein by reference).
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).
*10.6 -- Employment Agreement dated as of August 1, 1993 between Libbey Inc. and Kenneth
G. Wilkes (filed as an Exhibit 10.6(a) to Registrant's Annual Report on Form
10-K for the year ended December 31, 1993 and incorporated herein by reference).
*10.7 -- 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).
</TABLE>
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<TABLE>
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*10.8 -- 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).
*10.9 -- 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).
*10.10 -- 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).
*10.11 -- 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).
10.12 -- 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).
10.13 -- 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).
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
10.14 -- 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).
*10.15 -- 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).
*10.16 -- 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).
*10.17 -- 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).
*10.18 -- 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).
</TABLE>
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<PAGE> 78
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601 No. Document
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
10.19 -- 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).
10.20 -- 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 -- Vitrocrisa S.A. de C.V. Shareholders Agreement dated to be effective as of
August 29,1997 by and among Libbey Inc., LGA3 Corp., Vitro S.A., Vitrocrisa
Holding S.A. de C.V. and Vitrocrisa S.A. de C.V. (filed as Exhibit 10.28 to
Registrant's Current Report on Form 8-K /A dated August 29, 1997 Amendment No.
1 and incorporated herein by reference).
10.22 -- 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).
10.23 -- 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).
</TABLE>
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<TABLE>
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<S> <C> <C>
10.24 -- 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).
10.25 -- 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).
10.26 -- 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).
*10.27 -- 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).
*10.28 -- 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).
*10.29 -- 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).
*10.30 -- 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).
</TABLE>
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601 No. Document
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
*10.31 -- 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).
*10.32 -- 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).
*10.33 -- 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).
*10.34 -- 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).
*10.35 -- 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).
*10.36 -- 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).
*10.37 -- 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).
*10.38 -- 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).
</TABLE>
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- --------------------------------------------------------------------------------
<TABLE>
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<S> <C> <C>
*10.39 -- 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).
*10.40 -- 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).
*10.41 -- 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).
*10.42 -- 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).
*10.43 -- 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).
*10.44 -- 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).
*10.45 -- 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).
*10.46 -- Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May
27, 1998 between Libbey Inc. and L. F. Ashton (filed as Exhibit 10.48 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
and incorporated herein by reference).
</TABLE>
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601 No. Document
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
*10.47 -- Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May
27, 1998 between Libbey Inc. and J. F. Meier (filed as Exhibit 10.49 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
and incorporated herein by reference).
*10.48 -- Amendment dated May 21, 1999 to the 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, 1999
and incorporated herein by reference).
*10.49 -- Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May
27, 1998 between Libbey Inc. and Richard I. Reynolds (filed as Exhibit 10.51 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
and incorporated herein by reference).
*10.50 -- Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May
27, 1998 between Libbey Inc. and Kenneth G. Wilkes (filed as Exhibit 10.52 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
and incorporated herein by reference).
*10.51 -- Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May
27, 1998 between Libbey Inc. and Timothy T. Paige (filed as Exhibit 10.53 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
and incorporated herein by reference).
*10.52 -- Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May
27, 1998 between Libbey Inc. and John A. Zarb (filed as Exhibit 10.54 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
and incorporated herein by reference).
*10.53 -- Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May
27, 1998 between Libbey Inc. and Daniel P. Ibele (filed as Exhibit 10.55 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
and incorporated herein by reference).
</TABLE>
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<TABLE>
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<S> <C> <C>
*10.54 -- Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May
27, 1998 between Libbey Inc. and Dave Brown (filed as Exhibit 10.56 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
and incorporated herein by reference).
*10.55 -- Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May
27, 1998 between Libbey Inc. and Willie Purvis (filed as Exhibit 10.57 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
and incorporated herein by reference).
*10.56 -- Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May
27, 1998 between Libbey Inc. and Robert Dunton (filed as Exhibit 10.58 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
and incorporated herein by reference).
*10.57 -- Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May
27, 1998 between Libbey Inc. and William Herb (filed as Exhibit 10.59 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
and incorporated herein by reference).
*10.58 -- Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May
27, 1998 between Libbey Inc. and Wayne Zitkus (filed as Exhibit 10.60 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
and incorporated herein by reference).
*10.59 -- Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May
27, 1998 between Libbey Inc. and John P. Pranckun (filed as Exhibit 10.61 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
and incorporated herein by reference).
*10.60 -- Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May
27, 1998 between Libbey Inc. and Pete Kasper (filed as Exhibit 10.63 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
and incorporated herein by reference).
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
*10.61 -- Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May
27, 1998 between Libbey Inc. and Scott Sellick (filed as Exhibit 10.64 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
and incorporated herein by reference).
*10.62 -- Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May
27, 1998 between Libbey Inc. and Rob Bules (filed as Exhibit 10.65 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
and incorporated herein by reference).
*10.63 -- Amendment dated May 21, 1999 to the Change of Control Agreement dated as of May
27, 1998 between Libbey Inc. and Terry Hartman (filed as Exhibit 10.66 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
and incorporated herein by reference).
*10.64 -- Employment Agreement dated as of August 1, 1999 between Libbey Inc. and Kenneth
A. Boerger (filed as Exhibit 10.67 to Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999 and incorporated herein by
reference).
*10.65 -- Change of Control Agreement dated as of August 1, 1999 between Libbey Inc. and
Kenneth A. Boerger (filed as Exhibit 10.68 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999 and incorporated herein by
reference).
*10.66 -- Form of Non-Qualified Stock Option Agreement between Libbey Inc. and certain
key employees participating in The 1999 Equity Participation Plan of Libbey Inc.
(filed as Exhibit 10.69 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999 and incorporated herein by reference).
*10.67 -- The 1999 Equity Participation Plan of Libbey Inc. (filed herewith).
13 -- 1999 Annual Report to Shareholders for the year ended December 31, 1999.
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.
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
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 1999 (filed herewith)
99 -- Safe harbor provisions of the Private Securities Litigation Reform Act of 1995
(filed herewith).
</TABLE>
* Management Contract or Compensation Plan or Arrangement.
E-12
<PAGE> 1
Exhibit 10.67
THE 1999 EQUITY PARTICIPATION PLAN
OF
LIBBEY INC.
Libbey Inc., a Delaware corporation, has adopted The 1999 Equity
Participation Plan of Libbey Inc. (the "Plan"), effective May 6, 1999, for the
benefit of its eligible employees.
The purposes of the Plan are as follows:
(1) To provide an additional incentive for key Employees (as such
terms are defined below) to further the growth, development and financial
success of the Company by personally benefiting through the ownership of
Company stock and/or rights which recognize such growth, development and
financial success.
(2) To enable the Company to obtain and retain the services of key
Employees considered essential to the long range success of the Company by
offering them an opportunity to own stock in the Company and/or rights
which will reflect the growth, development and financial success of the
Company.
ARTICLE I.
DEFINITIONS
1.1. General. Wherever the following terms are used in the Plan they shall
have the meanings specified below, unless the context clearly indicates
otherwise.
1.2. Administrator. "Administrator" shall mean the Committee unless the
Board has assumed the authority for administration of the Plan generally as
provided in Section 10.1.
1.3. Award. "Award" shall mean an Option, a Restricted Stock award, a
Performance Award, a Dividend Equivalents award, a Deferred Stock award, a Stock
Payment award or a Stock Appreciation Right which may be awarded or granted
under the Plan (collectively, "Awards").
1.4. Award Agreement. "Award Agreement" shall mean a written agreement
executed by an authorized officer of the Company and the Holder which shall
contain such terms and conditions with respect to an Award as the Administrator
shall determine, consistent with the Plan.
1.5. Award Limit. "Award Limit" shall mean Seventy Five Thousand (75,000)
shares of Common Stock, as adjusted pursuant to Section 11.3 of the Plan.
1.6. Board. "Board" shall mean the Board of Directors of the Company.
1.7. Change in Control.
(a) any Person (as defined below) is or becomes the Beneficial Owner (as
defined below), directly or indirectly, of securities of the Company
representing twenty percent (20%) or more of the combined voting power of the
Company's then outstanding securities. For purposes of this Agreement, (A) the
term "Person" is used as such term is used in Sections 13(d) and 14(d) of the
Exchange Act; provided, however, that the term shall not include the Company,
any trustee or other fiduciary holding securities under an employee benefit plan
of the Company, and any corporation owned, directly or indirectly, by the
shareholders of the Company, in substantially the same proportions as their
ownership of stock of the Company, and (B) the term "Beneficial Owner" shall
have the meaning given to such term in Rule 13d-3 under the Exchange Act; and
provided, further, that this subsection (a) shall not apply to any Person who is
the Beneficial Owner, directly or indirectly, of securities of the Company
representing twenty percent (20%) or more of the combined voting power of the
Company's then outstanding securities as of the effective date of this Plan so
long
<PAGE> 2
as such Person does not beneficially own, or increase such beneficial ownership
to, twenty-five percent (25%) or more of the combined voting power of the
Company's then outstanding securities;
(b) during any period of two (2) consecutive years (not including any
period prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the Board, and any new director (other than
a director designated by a person who has entered into an agreement with the
Company to effect a transaction described in Sections 2(a), (c) or (d)) whose
election by the Board or nomination for election by the Company's shareholders
was approved by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved (hereinafter
referred to as "Continuing Directors"), cease for any reason to constitute at
least a majority thereof;
(c) the shareholders of the Company approve a merger or consolidation of
the Company with any other corporation (or other entity), other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 66 2/3% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation;
(d) the shareholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets; or
(e) any Person is or becomes the Beneficial Owner, directly or indirectly,
of securities of the Company representing ten percent (10%) or more of the
combined voting power of the Company's then outstanding securities (a "10%
Owner") and (A) the identity of the Chief Executive Officer of the Company is
changed during the period beginning sixty (60) days before the attainment of the
ten percent (10%) beneficial ownership and ending two (2) years thereafter, or
(B) individuals constituting at least one-third (1/3) of the members of the
Board at the beginning of such period shall cease for any reason to serve on the
Board during the period beginning sixty (60) days before the attainment of the
ten percent (10%) beneficial ownership and ending two (2) years thereafter;
provided, however, that this subsection (e) shall not apply to any Person who is
a 10% Owner as of the effective date of this Plan so long as such Person does
not increase such beneficial ownership by five percent (5%) or more over the
percentage so owned by such Person as of the effective date of the Plan.
1.8 Code. "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.9 Committee. "Committee" shall mean the Compensation Committee of the
Board, or another committee or subcommittee of the Board, appointed as provided
in Section 10.1.
1.10. Common Stock. "Common Stock" shall mean the common stock of the
Company, par value $.01 per share, and any equity security of the Company issued
or authorized to be issued in the future, but excluding any preferred stock and
any warrants, options or other rights to purchase Common Stock.
1.11. Company. "Company" shall mean Libbey Inc., a Delaware corporation.
1.12. Deferred Stock. "Deferred Stock" shall mean Common Stock awarded
under Article VIII of the Plan.
1.13. Dividend Equivalent. "Dividend Equivalent" shall mean a right to
receive the equivalent value (in cash or Common Stock) of dividends paid on
Common Stock, awarded under Article VIII of the Plan.
1.14. DRO. "DRO" shall mean a domestic relations order as defined by the
Code or Title I of the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder.
<PAGE> 3
1.15. Employee. "Employee" shall mean any officer or other employee (as
defined in accordance with Section 3401(c) of the Code) of the Company, or of
any corporation which is a Subsidiary.
1.16. Exchange Act. "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
1.17. Fair Market Value. "Fair Market Value" of a share of Common Stock as
of a given date shall be (a) the closing price of a share of Common Stock on the
principal exchange on which shares of Common Stock are then trading, if any (or
as reported on any composite index which includes such principal exchange), on
the trading day previous to such date, or if shares were not traded on the
trading day previous to such date, then on the next preceding date on which a
trade occurred, or (b) if Common Stock is not traded on an exchange but is
quoted on NASDAQ or a successor quotation system, the mean between the closing
representative bid and asked prices for the Common Stock on the trading day
previous to such date as reported by NASDAQ or such successor quotation system;
or (c) if Common Stock is not publicly traded on an exchange and not quoted on
NASDAQ or a successor quotation system, the Fair Market Value of a share of
Common Stock as established by the Administrator acting in good faith.
1.18. Holder. "Holder" shall mean a person who has been granted or awarded
an Award.
1.19. Incentive Stock Option. "Incentive Stock Option" shall mean an option
which conforms to the applicable provisions of Section 422 of the Code and which
is designated as an Incentive Stock Option by the Administrator.
1.20. Non-Qualified Stock Option. "Non-Qualified Stock Option" shall mean
an Option which is not designated as an Incentive Stock Option by the
Administrator.
1.21. Option. "Option" shall mean a stock option granted under Article IV
of the Plan. An Option granted under the Plan shall, as determined by the
Administrator, be either a Non-Qualified Stock Option or an Incentive Stock
Option.
1.22. Performance Award. "Performance Award" shall mean a cash bonus, stock
bonus or other performance or incentive award that is paid in cash, Common Stock
or a combination of both, awarded under Article VIII of the Plan.
1.23. Performance Criteria. "Performance Criteria" shall mean the following
business criteria with respect to the Company, any Subsidiary or any division or
operating unit: (a) net income, (b) pre-tax income, (c) operating income, (d)
cash flow, (e) earnings per share, (f) return on equity, (g) return on invested
capital or assets, (h) cost reductions or savings, (i) funds from operations,
(j) appreciation in the fair market value of Common Stock, (k) earnings before
any one or more of the following items: interest, taxes, depreciation or
amortization, (l) performance against operating budget goals, and (m) economic
value added.
1.24. Plan. "Plan" shall mean The 1999 Equity Participation Plan of Libbey
Inc.
1.25. Restricted Stock. "Restricted Stock" shall mean Common Stock awarded
under Article VII of the Plan.
1.26. Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3 under the
Exchange Act, as such Rule may be amended from time to time.
1.27. Section 162(m) Participant. "Section 162(m) Participant" shall mean
any key Employee designated by the Administrator as a key Employee whose
compensation for the fiscal year in which the key Employee is so designated or a
future fiscal year may be subject to the limit on deductible compensation
imposed by Section 162(m) of the Code.
1.28. Securities Act. "Securities Act" shall mean the Securities Act of
1933, as amended.
<PAGE> 4
1.29. Stock Appreciation Right. "Stock Appreciation Right" shall mean a
stock appreciation right granted under Article IX of the Plan.
1.30. Stock Payment. "Stock Payment" shall mean (a) a payment in the form
of shares of Common Stock, or (b) an option or other right to purchase shares of
Common Stock, as part of a deferred compensation arrangement, made in lieu of
all or any portion of the compensation, including without limitation, salary,
bonuses and commissions, that would otherwise become payable to a key Employee
in cash, awarded under Article VIII of the Plan.
1.31. Subsidiary. "Subsidiary" shall mean any corporation in an unbroken
chain of corporations beginning with the Company if each of the corporations
other than the last corporation in the unbroken chain then owns stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
1.32. Substitute Award. "Substitute Award" shall mean an Option granted
under this Plan upon the assumption of, or in substitution for, outstanding
equity awards previously granted by a company or other entity in connection with
a corporate transaction, such as a merger, combination, consolidation or
acquisition of property or stock; provided, however, that in no event shall the
term "Substitute Award" be construed to refer to an award made in connection
with the cancellation and repricing of an Option.
1.33. Termination of Employment. "Termination of Employment" shall mean the
time when the employee-employer relationship between a Holder and the Company or
any Subsidiary is terminated for any reason, with or without cause, including,
but not by way of limitation, a termination by resignation, discharge, death,
disability or retirement; but excluding (a) terminations where there is a
simultaneous reemployment or continuing employment of a Holder by the Company or
any Subsidiary, (b) at the discretion of the Administrator, terminations which
result in a temporary severance of the employee-employer relationship, and (c)
at the discretion of the Administrator, terminations which are followed by the
simultaneous establishment of a consulting relationship by the Company or a
Subsidiary with the former employee. The Administrator, in its absolute
discretion, shall determine the effect of all matters and questions relating to
Termination of Employment, including, but not by way of limitation, the question
of whether a Termination of Employment resulted from a discharge for good cause,
and all questions of whether a particular leave of absence constitutes a
Termination of Employment; provided, however, that, with respect to Incentive
Stock Options, unless otherwise determined by the Administrator in its
discretion, a leave of absence, change in status from an employee to an
independent contractor or other change in the employee-employer relationship
shall constitute a Termination of Employment if, and to the extent that, such
leave of absence, change in status or other change interrupts employment for the
purposes of Section 422(a)(2) of the Code and the then applicable regulations
and revenue rulings under said Section.
ARTICLE II.
SHARES SUBJECT TO PLAN
2.1. Shares Subject to Plan.
(a) The shares of stock subject to Awards shall be Common Stock,
initially shares of the Company's Common Stock, par value $.01 per share.
The aggregate number of such shares which may be issued upon exercise of
such Options or rights or upon any such awards under the Plan shall not
exceed One Million (1,000,000), of which no more than One Hundred Thousand
(100,000) shares may be issued as Restricted Stock, Performance Awards or
Deferred Stock or any combination thereof. The shares of Common Stock
issuable upon exercise of such Options or rights or upon any such awards
may be either previously authorized but unissued shares or treasury shares.
<PAGE> 5
(b) The maximum number of shares which may be subject to Awards,
granted under the Plan to any individual in any fiscal year shall not
exceed the Award Limit. To the extent required by Section 162(m) of the
Code, shares subject to Options which are canceled continue to be counted
against the Award Limit.
2.2 Add-back of Options and Other Rights. If any Option, or other right to
acquire shares of Common Stock under any other Award under the Plan, expires or
is canceled without having been fully exercised, or is exercised in whole or in
part for cash as permitted by the Plan, the number of shares subject to such
Option or other right but as to which such Option or other right was not
exercised prior to its expiration, cancellation or exercise may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Furthermore, any shares subject to Awards which are adjusted pursuant to
Section 11.3 and become exercisable with respect to shares of stock of another
corporation shall be considered canceled and may again be optioned, granted or
awarded hereunder, subject to the limitations of Section 2.1. Shares of Common
Stock which are delivered by the Holder or withheld by the Company upon the
exercise of any Award under the Plan, in payment of the exercise price thereof
or tax withholding thereon, may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. If any shares of Restricted Stock are
surrendered by the Holder or repurchased by the Company pursuant to Section 7.4
or 7.5 hereof, such shares may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. Notwithstanding the provisions of
this Section 2.2, no shares of Common Stock may again be optioned, granted or
awarded if such action would cause an Incentive Stock Option to fail to qualify
as an incentive stock option under Section 422 of the Code.
ARTICLE III.
GRANTING OF AWARDS
3.1. Award Agreement. Each Award shall be evidenced by an Award Agreement.
Award Agreements evidencing Awards intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall contain such
terms and conditions as may be necessary to meet the applicable provisions of
Section 162(m) of the Code. Award Agreements evidencing Incentive Stock Options
shall contain such terms and conditions as may be necessary to meet the
applicable provisions of Section 422 of the Code.
3.2. Provisions Applicable to Section 162(m) Participants.
(a) The Committee, in its discretion, may determine whether an Award
is to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code.
(b) Notwithstanding anything in the Plan to the contrary, the
Committee may grant any Award to a Section 162(m) Participant, including
Restricted Stock, the restrictions with respect to which lapse upon the
attainment of performance goals which are related to one or more of the
Performance Criteria and any performance or incentive award described in
Article VIII that vests or becomes exercisable or payable upon the
attainment of performance goals which are related to one or more of the
Performance Criteria.
(c) To the extent necessary to comply with the performance-based
compensation requirements of Section 162(m)(4)(C) of the Code, with respect
to any Award granted under Articles VII and VIII which may be granted to
one or more Section 162(m) Participants, no later than ninety (90) days
following the commencement of any fiscal year in question or any other
designated fiscal period or period of service (or such other time as may be
required or permitted by Section 162(m) of the Code), the Committee shall,
in writing, (i) designate one or more Section 162(m) Participants, (ii)
select the Performance Criteria applicable to the fiscal year or other
designated fiscal period or period of service, (iii) establish the various
performance targets, in terms of an objective formula or standard, and
amounts of such Awards, as applicable, which may be earned for such fiscal
year or other designated fiscal period or period of service and
<PAGE> 6
(iv) specify the relationship between Performance Criteria and the
performance targets and the amounts of such Awards, as applicable, to be
earned by each Section 162(m) Participant for such fiscal year or other
designated fiscal period or period of service. Following the completion of
each fiscal year or other designated fiscal period or period of service,
the Committee shall certify in writing whether the applicable performance
targets have been achieved for such fiscal year or other designated fiscal
period or period of service. In determining the amount earned by a Section
162(m) Participant, the Committee shall have the right to reduce (but not
to increase) the amount payable at a given level of performance to take
into account additional factors that the Committee may deem relevant to the
assessment of individual or corporate performance for the fiscal year or
other designated fiscal period or period of service.
(d) Furthermore, notwithstanding any other provision of the Plan any
Award which is granted to a Section 162(m) Participant and is intended to
qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code shall be subject to any additional limitations set
forth in Section 162(m) of the Code (including any amendment to Section
162(m) of the Code) or any regulations or rulings issued thereunder that
are requirements for qualification as performance-based compensation as
described in Section 162(m)(4)(C) of the Code, and the Plan shall be deemed
amended to the extent necessary to conform to such requirements.
3.3. Limitations Applicable to Section 16 Persons.
Notwithstanding any other provision of the Plan, the Plan, and any Award
granted or awarded to any individual who is then subject to Section 16 of the
Exchange Act, shall be subject to any additional limitations set forth in any
applicable exemptive rule under Section 16 of the Exchange Act (including any
amendment to Rule 16b-3 of the Exchange Act) that are requirements for the
application of such exemptive rule. To the extent permitted by applicable law,
the Plan and Awards granted or awarded hereunder shall be deemed amended to the
extent necessary to conform to such applicable exemptive rule.
3.4. Consideration. In consideration of the granting of an Award under the
Plan, the Holder shall agree, in the Award Agreement, to remain in the employ of
(or, as applicable, to consult for) the Company or any Subsidiary for a period
of at least one year (or such shorter period as may be fixed in the Award
Agreement or by action of the Administrator following grant of the Award) after
the Award is granted.
3.5. At-Will Employment. Nothing in the Plan or in any Award Agreement
hereunder shall confer upon any Holder any right to continue in the employ of
the Company or any Subsidiary, or shall interfere with or restrict in any way
the rights of the Company and any Subsidiary, which are hereby expressly
reserved, to discharge any Holder at any time for any reason whatsoever, with or
without cause, except to the extent expressly provided otherwise in a written
employment agreement between the Holder and the Company and any Subsidiary.
ARTICLE IV.
GRANTING OF OPTIONS
4.1. Eligibility. Any Employee selected by the Committee pursuant to
Section 4.4(a)(i) shall be eligible to be granted an Option.
4.2. Disqualification for Stock Ownership. No person may be granted an
Incentive Stock Option under the Plan if such person, at the time the Incentive
Stock Option is granted, owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
then existing Subsidiary or parent corporation (within the meaning of Section
422 of the Code) unless such Incentive Stock Option conforms to the applicable
provisions of Section 422 of the Code.
<PAGE> 7
4.3. Qualification of Incentive Stock Options. No Incentive Stock Option
shall be granted to any person who is not an Employee.
4.4. Granting of Options.
(a) The Committee shall from time to time, in its absolute discretion,
and subject to applicable limitations of the Plan:
(i) Determine which Employees are key Employees and select from
among them (including Employees who have previously received Awards
under the Plan) those who in its opinion should be granted Options;
(ii) Subject to the Award Limit, determine the number of shares to
be subject to such Options granted to the selected key Employees;
(iii) Subject to Section 4.3, determine whether such Options are to
be Incentive Stock Options or Non-Qualified Stock Options and whether
such Options are to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code; and
(iv) Determine the terms and conditions of such Options, consistent
with the Plan; provided, however, that the terms and conditions of
Options intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code shall include, but not be
limited to, such terms and conditions as may be necessary to meet the
applicable provisions of Section 162(m) of the Code.
(b) Upon the selection of a key Employee to be granted an Option, the
Committee shall instruct the Secretary of the Company to issue the Option
and may impose such conditions on the grant of the Option as it deems
appropriate.
(c) Any Incentive Stock Option granted under the Plan may be modified
by the Committee, with the consent of the Holder, to disqualify such Option
from treatment as an "incentive stock option" under Section 422 of the
Code.
4.5. Options in Lieu of Cash Compensation. Options may be granted under the
Plan to Employees in lieu of cash bonuses which would otherwise be payable to
such Employees, pursuant to such policies which may be adopted by the
Administrator from time to time.
ARTICLE V.
TERMS OF OPTIONS
5.1. Option Price. The price per share of the shares subject to each Option
shall not be less than one hundred percent (100%) of the Fair Market Value of a
share of Common Stock on the date the Option is granted and in the case of
Incentive Stock Options granted to an individual then owning (within the meaning
of Section 424(d) of the Code) more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any Subsidiary or parent
corporation thereof (within the meaning of Section 422 of the Code), such price
shall not be less than one hundred ten percent (110%) of the Fair Market Value
of a share of Common Stock on the date the Option is granted (or the date the
Option is modified, extended or renewed for purposes of Section 424(h) of the
Code).
5.2. Option Term. The maximum term of each Non-Qualified Stock Option shall
be ten (10) years and one (1) day from the date the Non-Qualified Stock Option
is granted. The maximum term of each Incentive Stock Option shall be ten (10)
years from the date the Incentive Stock Option is granted, or five (5) years
from the date the Incentive Stock Option is granted if the Incentive Stock
Option is granted to an individual then owning (within the meaning of Section
424(d) of the Code) more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Subsidiary or parent
corporation thereof (within the meaning of Section 422 of the
<PAGE> 8
Code). Except as limited by requirements of Section 422 of the Code and
regulations and rulings thereunder applicable to Incentive Stock Options, the
Committee may extend the term of any outstanding Option in connection with any
Termination of Employment of the Holder, or amend any other term or condition of
such Option relating to such a termination.
5.3. Option Vesting
(a) The period during which the right to exercise, in whole or in
part, an Option granted to an Employee vests in the Holder shall be set by
the Committee and the Committee may determine that an Option may not be
exercised in whole or in part for a specified period after it is granted;
provided, however, that, unless the Committee otherwise provides in the
terms of the Award Agreement or otherwise, no Option shall be exercisable
by any Holder who is then subject to Section 16 of the Exchange Act within
the period ending six months and one day after the date the Option is
granted. At any time after grant of an Option, the Committee may, in its
sole and absolute discretion and subject to whatever terms and conditions
it selects, accelerate the period during which an Option granted to an
Employee vests.
(b) No portion of an Option which is unexercisable at Termination of
Employment shall thereafter become exercisable, except as may be otherwise
provided by the Committee either in the Award Agreement or by action of the
Committee following the grant of the Option.
(c) To the extent that the aggregate Fair Market Value of stock with
respect to which "incentive stock options" (within the meaning of Section
422 of the Code, but without regard to Section 422(d) of the Code) are
exercisable for the first time by a Holder during any calendar year (under
the Plan and all other incentive stock option plans of the Company and any
parent or subsidiary corporation, within the meaning of Section 422 of the
Code) of the Company, exceeds $100,000, such Options shall be treated as
Non-Qualified Options to the extent required by Section 422 of the Code.
The rule set forth in the preceding sentence shall be applied by taking
Options into account in the order in which they were granted. For purposes
of this Section 5.3(c), the Fair Market Value of stock shall be determined
as of the time the Option with respect to such stock is granted.
5.5. Substitute Awards.
Notwithstanding the foregoing provisions of this Article V to the contrary,
in the case of an Option that is a Substitute Award, the price per share of the
shares subject to such Option may be less than the Fair Market Value per share
on the date of grant, provided, that the excess of:
(a) the aggregate Fair Market Value (as of the date such Substitute
Award is granted) of the shares subject to the Substitute Award; over
(b) the aggregate exercise price thereof; does not exceed the excess
of;
(c) the aggregate fair market value (as of the time immediately
preceding the transaction giving rise to the Substitute Award, such fair
market value to be determined by the Committee) of the shares of the
predecessor entity that were subject to the grant assumed or substituted
for by the Company; over
(d) the aggregate exercise price of such shares.
ARTICLE VI.
EXERCISE OF OPTIONS
6.1. Partial Exercise. An exercisable Option may be exercised in whole or
in part. However, an Option shall not be exercisable with respect to fractional
shares and the Administrator may require that, by the terms of the Option, a
partial exercise be with respect to a minimum number of shares.
<PAGE> 9
6.2. Manner of Exercise. All or a portion of an exercisable Option shall be
deemed exercised upon delivery of all of the following to the Secretary of the
Company or his office:
(a) A written notice complying with the applicable rules established
by the Administrator stating that the Option, or a portion thereof, is
exercised. The notice shall be signed by the Holder or other person then
entitled to exercise the Option or such portion of the Option;
(b) Such representations and documents as the Administrator, in its
absolute discretion, deems necessary or advisable to effect compliance with
all applicable provisions of the Securities Act and any other federal or
state securities laws or regulations. The Administrator may, in its
absolute discretion, also take whatever additional actions it deems
appropriate to effect such compliance including, without limitation,
placing legends on share certificates and issuing stop-transfer notices to
agents and registrars;
(c) In the event that the Option shall be exercised pursuant to
Section 11.1 by any person or persons other than the Holder, appropriate
proof of the right of such person or persons to exercise the Option; and
(d) Full cash payment to the Secretary of the Company for the shares
with respect to which the Option, or portion thereof, is exercised.
However, the Administrator, may in its discretion (i) allow a delay in
payment up to thirty (30) days from the date the Option, or portion
thereof, is exercised; (ii) allow payment, in whole or in part, through the
delivery of shares of Common Stock which have been owned by the Holder for
at least six months, duly endorsed for transfer to the Company with a Fair
Market Value on the date of delivery equal to the aggregate exercise price
of the Option or exercised portion thereof; (iii) allow payment, in whole
or in part, through the surrender of shares of Common Stock then issuable
upon exercise of the Option having a Fair Market Value on the date of
Option exercise equal to the aggregate exercise price of the Option or
exercised portion thereof; (iv) allow payment, in whole or in part, through
the delivery of property of any kind which constitutes good and valuable
consideration; (v) allow payment, in whole or in part, through the delivery
of a full recourse promissory note bearing interest (at no less than such
rate as shall then preclude the imputation of interest under the Code) and
payable upon such terms as may be prescribed by the Administrator; (vi)
allow payment, in whole or in part, through the delivery of a notice that
the Holder has placed a market sell order with a broker with respect to
shares of Common Stock then issuable upon exercise of the Option, and that
the broker has been directed to pay a sufficient portion of the net
proceeds of the sale to the Company in satisfaction of the Option exercise
price, provided that payment of such proceeds is then made to the Company
upon settlement of such sale; or (vii) allow payment through any
combination of the consideration provided in the foregoing subparagraphs
(ii), (iii), (iv), (v) and (vi). In the case of a promissory note, the
Administrator may also prescribe the form of such note and the security to
be given for such note. The Option may not be exercised, however, by
delivery of a promissory note or by a loan from the Company when or where
such loan or other extension of credit is prohibited by law.
6.3. Conditions to Issuance of Stock Certificates. The Company shall not be
required to issue or deliver any certificate or certificates for shares of stock
purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed;
(b) The completion of any registration or other qualification of such
shares under any state or federal law, or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental
regulatory body which the Administrator shall, in its absolute discretion,
deem necessary or advisable;
<PAGE> 10
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Administrator shall, in its absolute
discretion, determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the exercise
of the Option as the Administrator may establish from time to time for
reasons of administrative convenience; and
(e) The receipt by the Company of full payment for such shares,
including payment of any applicable withholding tax, which in the
discretion of the Administrator may be in the form of consideration used by
the Holder to pay for such shares under Section 6.2(d).
6.4. Rights as Stockholders. Holders shall not be, nor have any of the
rights or privileges of, stockholders of the Company in respect of any shares
purchasable upon the exercise of any part of an Option unless and until
certificates representing such shares have been issued by the Company to such
Holders.
6.5. Ownership and Transfer Restrictions. The Administrator, in its
absolute discretion, may impose such restrictions on the ownership and
transferability of the shares purchasable upon the exercise of an Option as it
deems appropriate. Any such restriction shall be set forth in the respective
Award Agreement and may be referred to on the certificates evidencing such
shares. The Holder shall give the Company prompt notice of any disposition of
shares of Common Stock acquired by exercise of an Incentive Stock Option within
(a) two years from the date of granting (including the date the Option is
modified, extended or renewed for purposes of Section 424(h) of the Code) such
Option to such Holder or (b) one year after the transfer of such shares to such
Holder.
6.6. Limitations on Exercise of Options. Holders may be required to comply
with any timing or other restrictions with respect to the settlement or exercise
of an Option, including a window-period limitation, as may be imposed in the
discretion of the Administrator.
ARTICLE VII.
AWARD OF RESTRICTED STOCK
7.1. Eligibility. Subject to the Award Limit and the limitation on the
number of shares available for grant as Restricted Stock set forth in Section
2.1, Restricted Stock may be awarded to any Employee who the Committee
determines is a key Employee and who should receive such an Award.
7.2. Award of Restricted Stock.
(a) The Committee may from time to time, in its absolute discretion:
(i) Determine which Employees are key Employees and select from
among them (including Employees who have previously received other
awards under the Plan) as in its opinion should be awarded Restricted
Stock; and
(ii) Determine the purchase price, if any, and other terms and
conditions applicable to such Restricted Stock, consistent with the
Plan.
(b) The Committee shall establish the purchase price, if any, and form
of payment for Restricted Stock; provided, however, that such purchase
price shall be no less than the par value of the Common Stock to be
purchased, unless otherwise permitted by applicable state law. In all
cases, legal consideration shall be required for each issuance of
Restricted Stock.
(c) Upon the selection of a key Employee to be awarded Restricted
Stock, the Committee shall instruct the Secretary of the Company to issue
such Restricted Stock and may impose such conditions on the issuance of
such Restricted Stock as it deems appropriate.
7.3. Rights as Stockholders. Subject to Section 7.4, upon delivery of the
shares of Restricted Stock to the escrow holder pursuant to Section 7.6, the
Holder shall have, unless otherwise provided
<PAGE> 11
by the Committee, all the rights of a stockholder with respect to said shares,
subject to the restrictions in his or her Award Agreement, including the right
to receive all dividends and other distributions paid or made with respect to
the shares; provided, however, that in the discretion of the Committee, any
extraordinary distributions with respect to the Common Stock shall be subject to
the restrictions set forth in Section 7.4.
7.4. Restriction. All shares of Restricted Stock issued under the Plan
(including any shares received by holders thereof with respect to shares of
Restricted Stock as a result of stock dividends, stock splits or any other form
of recapitalization) shall, in the terms of each individual Award Agreement, be
subject to such restrictions as the Committee shall provide, which restrictions
may include, without limitation, restrictions concerning voting rights and
transferability and restrictions based on duration of employment with the
Company, Company performance and individual performance; provided, however,
that, unless the Committee otherwise provides in the terms of the Award
Agreement or otherwise, no share of Restricted Stock granted to a person subject
to Section 16 of the Exchange Act shall be sold, assigned or otherwise
transferred until at least six months and one day have elapsed from the date on
which the Restricted Stock was issued, and provided, further, that, except with
respect to shares of Restricted Stock granted to Section 162(m) Participants, by
action taken after the Restricted Stock is issued, the Committee may, on such
terms and conditions as it may determine to be appropriate, remove any or all of
the restrictions imposed by the terms of the Award Agreement. Restricted Stock
may not be sold or encumbered until all restrictions are terminated or expire.
If no consideration was paid by the Holder upon issuance, a Holder's rights in
unvested Restricted Stock shall lapse, and such Restricted Stock shall be
surrendered to the Company without consideration, upon Termination of Employment
with the Company; provided, however, except with respect to shares of Restricted
Stock granted to Section 162(m) Participants, the Committee in its sole and
absolute discretion may provide that no such lapse or surrender shall occur in
the event of a Termination of Employment without cause or following any Change
in Control of the Company or because of the Holder's retirement, or otherwise.
7.5. Repurchase of Restricted Stock. The Committee shall provide in the
terms of each individual Award Agreement that the Company shall have the right
to repurchase from the Holder the Restricted Stock then subject to restrictions
under the Award Agreement immediately upon a Termination of Employment between
the Holder and the Company, at a cash price per share equal to the price paid by
the Holder for such Restricted Stock; provided, however, that, except with
respect to shares of Restricted Stock granted to Section 162(m) Participants,
the Committee in its sole and absolute discretion may provide that no such right
of repurchase shall exist in the event of a Termination of Employment without
cause or following any Change in Control of the Company or because of the
Holder's retirement, death or disability or otherwise.
7.6. Escrow. The Secretary of the Company or such other escrow holder as
the Committee may appoint shall retain physical custody of each certificate
representing Restricted Stock until all of the restrictions imposed under the
Award Agreement with respect to the shares evidenced by such certificate expire
or shall have been removed.
7.7. Legend. In order to enforce the restrictions imposed upon shares of
Restricted Stock hereunder, the Committee shall cause a legend or legends to be
placed on certificates representing all shares of Restricted Stock that are
still subject to restrictions under Award Agreements, which legend or legends
shall make appropriate reference to the conditions imposed thereby.
7.8. Section 83(b) Election. If a Holder makes an election under Section
83(b) of the Code, or any successor section thereto, to be taxed with respect to
the Restricted Stock as of the date of transfer of the Restricted Stock rather
than as of the date or dates upon which the Holder would otherwise be taxable
under Section 83(a) of the Code, the Holder shall deliver a copy of such
election to the Company immediately after filing such election with the Internal
Revenue Service.
<PAGE> 12
ARTICLE VIII.
PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS, DEFERRED STOCK, STOCK PAYMENTS
8.1. Eligibility. Subject to the Award Limit, one or more Performance
Awards, Dividend Equivalents, awards of Deferred Stock, and/or Stock Payments
may be granted to any Employee whom the Committee determines is a key Employee
and who should receive such an Award.
8.2. Performance Awards. Any key Employee selected by the Committee may be
granted one or more Performance Awards. The value of such Performance Awards may
be linked to any one or more of the Performance Criteria or other specific
performance criteria determined appropriate by the Committee, in each case on a
specified date or dates or over any period or periods determined by the
Committee. In making such determinations, the Committee shall consider (among
such other factors as it deems relevant in light of the specific type of award)
the contributions, responsibilities and other compensation of the particular key
Employee.
8.3. Dividend Equivalents.
(a) Any key Employee selected by the Committee may be granted Dividend
Equivalents based on the dividends declared on Common Stock, to be credited
as of dividend payment dates, during the period between the date a Stock
Appreciation Right, Deferred Stock or Performance Award is granted, and the
date such Stock Appreciation Right, Deferred Stock or Performance Award is
exercised, vests or expires, as determined by the Committee. Such Dividend
Equivalents shall be converted to cash or additional shares of Common Stock
by such formula and at such time and subject to such limitations as may be
determined by the Committee.
(b) Any Holder of an Option may be granted Dividend Equivalents based
on the dividends declared on Common Stock, to be credited as of dividend
payment dates, during the period between the date an Option is granted, and
the date such Option is exercised, vests or expires, as determined by the
Committee. Such Dividend Equivalents shall be converted to cash or
additional shares of Common Stock by such formula and at such time and
subject to such limitations as may be determined by the Committee.
(d) Dividend Equivalents granted with respect to Options intended to
be qualified performance-based compensation for purposes of Section 162(m)
of the Code shall be payable, with respect to pre-exercise periods,
regardless of whether such Option is subsequently exercised. Stock
Payments.
8.4. Stock Payments Any key Employee selected by the Committee may receive
Stock Payments in the manner determined from time to time by the Committee. The
number of shares shall be determined by the Committee and may be based upon the
Performance Criteria or other specific performance criteria determined
appropriate by the Committee, determined on the date such Stock Payment is made
or on any date thereafter.
8.5. Deferred Stock. Any key Employee selected by the Committee may be
granted an award of Deferred Stock in the manner determined from time to time by
the Committee. The number of shares of Deferred Stock shall be determined by the
Committee and may be linked to the Performance Criteria or other specific
performance criteria determined to be appropriate by the Committee, in each case
on a specified date or dates or over any period or periods determined by the
Committee. Common Stock underlying a Deferred Stock award will not be issued
until the Deferred Stock award has vested, pursuant to a vesting schedule or
performance criteria set by the Committee. Unless otherwise provided by the
Committee, a Holder of Deferred Stock shall have no rights as a Company
stockholder with respect to such Deferred Stock until such time as the Award has
vested and the Common Stock underlying the Award has been issued.
8.6. Term. The term of a Performance Award, Dividend Equivalent, award of
Deferred Stock and/or Stock Payment shall be set by the Committee in its
discretion.
<PAGE> 13
8.7. Exercise or Purchase Price. The Committee may establish the exercise
or purchase price of a Performance Award, shares of Deferred Stock, or shares
received as a Stock Payment; provided, however, that such price shall not be
less than the par value for a share of Common Stock, unless otherwise permitted
by applicable state law.
8.8. Exercise Upon Termination of Employment. A Performance Award, Dividend
Equivalent, award of Deferred Stock and/or Stock Payment is exercisable or
payable only while the Holder is an Employee; provided, however, that except
with respect to Performance Awards granted to Section 162(m) Participants, that
the Administrator in its sole and absolute discretion may provide that the
Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock
Payment may be exercised or paid subsequent to a Termination of Employment
without cause, or following a Change in Control of the Company, or because of
the Holder's retirement, death or disability, or otherwise.
8.9. Form of Payment. Payment of the amount determined under Section 8.2 or
8.3 above shall be in cash, in Common Stock or a combination of both, as
determined by the Committee. To the extent any payment under this Article VIII
is effected in Common Stock, it shall be made subject to satisfaction of all
provisions of Section 6.3.
ARTICLE IX.
STOCK APPRECIATION RIGHTS
9.1. Grant of Stock Appreciation Rights. A Stock Appreciation Right may be
granted to any key Employee selected by the Committee. A Stock Appreciation
Right may be granted (a) in connection and simultaneously with the grant of an
Option, (b) with respect to a previously granted Option, or (c) independent of
an Option. A Stock Appreciation Right shall be subject to such terms and
conditions not inconsistent with the Plan as the Committee shall impose and
shall be evidenced by an Award Agreement.
9.2. Coupled Stock Appreciation Rights.
(a) A Coupled Stock Appreciation Right ("CSAR") shall be related to a
particular Option and shall be exercisable only when and to the extent the
related Option is exercisable.
(b) A CSAR may be granted for no more than the number of shares
subject to the simultaneously or previously granted Option to which it is
coupled.
(c) A CSAR shall entitle the Holder (or other person entitled to
exercise the Option pursuant to the Plan) to surrender to the Company
unexercised a portion of the Option to which the CSAR relates (to the
extent then exercisable pursuant to its terms) and to receive from the
Company in exchange therefor an amount determined by multiplying the
difference obtained by subtracting the Option exercise price from the Fair
Market Value of a share of Common Stock on the date of exercise of the CSAR
by the number of shares of Common Stock with respect to which the CSAR
shall have been exercised, subject to any limitations the Committee may
impose.
9.3. Independent Stock Appreciation Rights.
(a) An Independent Stock Appreciation Right ("ISAR") shall be
unrelated to any Option and shall have a term set by the Committee. An ISAR
shall be exercisable in such installments as the Committee may determine.
An ISAR shall cover such number of shares of Common Stock as the Committee
may determine; provided, however, that unless the Committee otherwise
provides in the terms of the ISAR or otherwise, no ISAR granted to a person
subject to Section 16 of the Exchange Act shall be exercisable until at
least six months have elapsed from (but excluding) the date on which the
Option was granted. The exercise price per share of Common Stock subject to
each ISAR shall be set by the Committee. An ISAR is exercisable only while
the Holder is an Employee; provided that the Committee may determine that
the ISAR may be exercised
<PAGE> 14
subsequent to Termination of Employment without cause, or following a
Change in Control of the Company, or because of the Holder's retirement,
death or disability, or otherwise.
(b) An ISAR shall entitle the Holder (or other person entitled to
exercise the ISAR pursuant to the Plan) to exercise all or a specified
portion of the ISAR (to the extent then exercisable pursuant to its terms)
and to receive from the Company an amount determined by multiplying the
difference obtained by subtracting the exercise price per share of the ISAR
from the Fair Market Value of a share of Common Stock on the date of
exercise of the ISAR by the number of shares of Common Stock with respect
to which the ISAR shall have been exercised, subject to any limitations the
Committee may impose.
9.4. Payment and Limitations on Exercise.
(a) Payment of the amounts determined under Section 9.2(c) and
9.3(b) above shall be in cash, in Common Stock (based on its Fair Market
Value as of the date the Stock Appreciation Right is exercised) or a
combination of both, as determined by the Committee. To the extent such
payment is effected in Common Stock it shall be made subject to
satisfaction of all provisions of Section 6.3 above pertaining to Options.
(b) Holders of Stock Appreciation Rights may be required to comply
with any timing or other restrictions with respect to the settlement or
exercise of a Stock Appreciation Right, including a window-period
limitation, as may be imposed at the discretion of the Committee.
ARTICLE X.
ADMINISTRATION
10.1. Compensation Committee. The Compensation Committee (or another
committee or a subcommittee of the Board assuming the functions of the Committee
under the Plan) shall consist solely of two or more Independent Directors
appointed by and holding office at the pleasure of the Board, each of whom is
both a "non-employee director" as defined by Rule 16b-3 and an "outside
director" for purposes of Section 162(m) of the Code. Appointment of Committee
members shall be effective upon acceptance of appointment. Committee members may
resign at any time by delivering written notice to the Board. Vacancies in the
Committee may be filled by the Board.
10.2. Duties and Powers of Committee. It shall be the duty of the Committee
to conduct the general administration of the Plan in accordance with its
provisions. The Committee shall have the power to interpret the Plan and the
Award Agreements, and to adopt such rules for the administration,
interpretation, and application of the Plan as are consistent therewith, to
interpret, amend or revoke any such rules and to amend any Award Agreement
provided that the rights or obligations of the Holder of the Award that is the
subject of any such Award Agreement are not affected adversely. Any such grant
or award under the Plan need not be the same with respect to each Holder. Any
such interpretations and rules with respect to Incentive Stock Options shall be
consistent with the provisions of Section 422 of the Code. In its absolute
discretion, the Board may at any time and from time to time exercise any and all
rights and duties of the Committee under the Plan except with respect to matters
which under Rule 16b-3 or Section 162(m) of the Code, or any regulations or
rules issued thereunder, are required to be determined in the sole discretion of
the Committee.
10.3. Majority Rule; Unanimous Written Consent. The Committee shall act by
a majority of its members in attendance at a meeting at which a quorum is
present or by a memorandum or other written instrument signed by all members of
the Committee.
10.4. Compensation; Professional Assistance; Good Faith Actions. Members of
the Committee shall receive such compensation for their services as members as
may be determined by the Board. All expenses and liabilities which members of
the Committee incur in connection with the administration of the Plan shall be
borne by the Company. The Committee may, with the approval of the Board, employ
attorneys, consultants, accountants, appraisers, brokers, or other persons. The
Committee, the
<PAGE> 15
Company and the Company's officers and Directors shall be entitled to rely upon
the advice, opinions or valuations of any such persons. All actions taken and
all interpretations and determinations made by the Committee or the Board in
good faith shall be final and binding upon all Holders, the Company and all
other interested persons. No members of the Committee or Board shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan or Awards, and all members of the Committee and
the Board shall be fully protected by the Company in respect of any such action,
determination or interpretation.
10.5. Delegation of Authority to Grant Awards. The Committee may, but need
not, delegate from time to time some or all of its authority to grant Awards
under the Plan to a committee consisting of one or more members of the Committee
or of one or more officers of the Company; provided, however, that the Committee
may not delegate its authority to grant Awards to individuals (i) who are
subject on the date of the grant to the reporting rules under Section 16(a) of
the Exchange Act, (ii) who are Section 162(m) Participants or (iii) who are
officers of the Company who are delegated authority by the Committee hereunder.
Any delegation hereunder shall be subject to the restrictions and limits that
the Committee specifies at the time of such delegation of authority and may be
rescinded at any time by the Committee. At all times, any committee appointed
under this Section 10.5 shall serve in such capacity at the pleasure of the
Committee.
ARTICLE XI.
MISCELLANEOUS PROVISIONS
11.1. Not Transferable. No Award under the Plan may be sold, pledged,
assigned or transferred in any manner other than by will or the laws of descent
and distribution or, subject to the consent of the Administrator, pursuant to a
DRO, unless and until such Award has been exercised, or the shares underlying
such Award have been issued, and all restrictions applicable to such shares have
lapsed. No Award or interest or right therein shall be liable for the debts,
contracts or engagements of the Holder or his or her successors in interest or
shall be subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be voluntary
or involuntary or by operation of law by judgment, levy, attachment, garnishment
or any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect, except to
the extent that such disposition is permitted by the preceding sentence.
During the lifetime of the Holder, only he or she may exercise an Option or
other Award (or any portion thereof) granted to him or her under the Plan,
unless it has been disposed of with the consent of the Administrator pursuant to
a DRO. After the death of the Holder, any exercisable portion of an Option or
other Award may, prior to the time when such portion becomes unexercisable under
the Plan or the applicable Award Agreement, be exercised by his or her personal
representative or by any person empowered to do so under the deceased Holder's
will or under the then applicable laws of descent and distribution.
Notwithstanding the foregoing provisions of this Section 11.1, the
Administrator, in its sole discretion, may determine to grant to any Holder an
Award which, by its terms as set forth in the applicable Award Agreement, may be
transferred by the Holder, in writing and with prior written notice to the
Administrator, by gift, without the receipt of any consideration, to a member of
the Holder's immediate family, as defined in Rule 16a-1 under the Exchange Act,
or to a trust for the exclusive benefit of, or any other entity owned solely by,
such members, provided that an Award that has been so transferred shall continue
to be subject to all of the terms and conditions of the Award as applicable to
the original Holder, and the transferee shall execute any and all such documents
requested by the Administrator in connection with the transfer, including
without limitation to evidence the transfer and to satisfy any requirements for
an exemption for the transfer under applicable federal and state securities
laws.
11.2. Amendment, Suspension or Termination of the Plan. Except as otherwise
provided in this Section 11.2, the Plan may be wholly or partially amended or
otherwise modified, suspended or
<PAGE> 16
terminated at any time or from time to time by the Administrator. However,
without approval of the Company's stockholders given within twelve months before
or after the action by the Administrator, no action of the Administrator may,
except as provided in Section 11.3, increase the limits imposed in Section 2.1
on the maximum number of shares which may be issued under the Plan. No
amendment, suspension or termination of the Plan shall, without the consent of
the Holder, alter or impair any rights or obligations under any Award
theretofore granted or awarded, unless the Award itself otherwise expressly so
provides. No Awards may be granted or awarded during any period of suspension or
after termination of the Plan, and in no event may any Incentive Stock Option be
granted under the Plan after the first to occur of the following events:
(a) The expiration of ten years from the date the Plan is adopted by
the Board; or
(b) The expiration of ten years from the date the Plan is approved by
the Company's stockholders under Section 11.4.
11.3. Changes in Common Stock or Assets of the Company, Acquisition or
Liquidation of the Company and Other Corporate Events.
(a) Subject to Section 11.3(d), in the event that the Administrator
determines that any dividend or other distribution (whether in the form of
cash, Common Stock, other securities, or other property), recapitalization,
reclassification, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, liquidation,
dissolution, or sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, or exchange of Common Stock
or other securities of the Company, issuance of warrants or other rights to
purchase Common Stock or other securities of the Company, or other similar
corporate transaction or event, in the Administrator's sole discretion,
affects the Common Stock such that an adjustment is determined by the
Administrator to be appropriate in order to prevent dilution or enlargement
of the benefits or potential benefits intended to be made available under
the Plan or with respect to an Award, then the Administrator shall, in such
manner as it may deem equitable, adjust any or all of
(i) the number and kind of shares of Common Stock (or other
securities or property) with respect to which Awards may be granted or
awarded (including, but not limited to, adjustments of the limitations
in Section 2.1 on the maximum number and kind of shares which may be
issued and adjustments of the Award Limit),
(ii) the number and kind of shares of Common Stock (or other
securities or property) subject to outstanding Awards, and
(iii) the grant or exercise price with respect to any Award.
(b) Subject to Sections 11.3(b)(vii) and 11.3(d), in the event of any
transaction or event described in Section 11.3(a) or any unusual or
nonrecurring transactions or events affecting the Company, any affiliate of
the Company, or the financial statements of the Company or any affiliate,
or of changes in applicable laws, regulations, or accounting principles,
the Administrator, in its sole and absolute discretion, and on such terms
and conditions as it deems appropriate, either by the terms of the Award or
by action taken prior to the occurrence of such transaction or event and
either automatically or upon the Holder's request, is hereby authorized to
take any one or more of the following actions whenever the Administrator
determines that such action is appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made
available under the Plan or with respect to any Award under the Plan, to
facilitate such transactions or events or to give effect to such changes in
laws, regulations or principles:
(i) To provide for either the purchase of any such Award for an
amount of cash equal to the amount that could have been attained upon
the exercise of such Award or realization of the Holder's rights had
such Award been currently exercisable or payable or fully vested or
<PAGE> 17
the replacement of such Award with other rights or property selected by
the Administrator in its sole discretion;
(ii) To provide that the Award cannot vest, be exercised or become
payable after such event;
(iii) To provide that such Award shall be exercisable as to all
shares covered thereby, notwithstanding anything to the contrary in
Section 5.3 or 5.4 or the provisions of such Award;
(iv) To provide that such Award be assumed by the successor or
survivor corporation, or a parent or subsidiary thereof, or shall be
substituted for by similar options, rights or awards covering the stock
of the successor or survivor corporation, or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kind of
shares and prices; and
(v) To make adjustments in the number and type of shares of Common
Stock (or other securities or property) subject to outstanding Awards,
and in the number and kind of outstanding Restricted Stock or Deferred
Stock and/or in the terms and conditions of (including the grant or
exercise price), and the criteria included in, outstanding options,
rights and awards and options, rights and awards which may be granted in
the future.
(vi) To provide that, for a specified period of time prior to such
event, the restrictions imposed under an Award Agreement upon some or
all shares of Restricted Stock or Deferred Stock may be terminated, and,
in the case of Restricted Stock, some or all shares of such Restricted
Stock may cease to be subject to repurchase under Section 7.5 or
forfeiture under Section 7.4 after such event.
(vii) Notwithstanding any other provision of the Plan, in the event
of a Change in Control, each outstanding Award shall, immediately prior
to the effective date of the Change in Control, automatically become
fully exercisable for all of the shares of Common Stock at the time
subject to such rights and may be exercised for any or all of those
shares as fully vested shares of Common Stock.
(viii) In the event of any transaction described in
Section 11.3(a), each outstanding Award shall, immediately prior to the
effective date of such transaction, automatically become fully
exercisable for all of the shares of Common Stock at the time subject to
such rights or fully vested, as applicable, and may be exercised for any
or all of those shares as fully-vested shares of Common Stock. However,
an outstanding right shall not so accelerate if and to the extent:
(i) such right is, in connection with such transaction, either to be
assumed by the successor or survivor corporation (or parent thereof) or
to be replaced with a comparable right with respect to shares of the
capital stock of the successor or survivor corporation (or parent
thereof) or (ii) the acceleration of exercisability of such right is
subject to other limitations imposed by the Administrator at the time of
grant. The determination of comparability of rights under clause
(i) above shall be made by the Administrator, and its determination
shall be final, binding and conclusive.
(c) Subject to Sections 11.3(d), 3.2 and 3.3, the Administrator may,
in its discretion, include such further provisions and limitations in any
Award, agreement or certificate, as it may deem equitable and in the best
interests of the Company.
(d) With respect to Awards which are granted to Section 162(m)
Participants and are intended to qualify as performance-based compensation
under Section 162(m)(4)(C), no adjustment or action described in this
Section 11.3 or in any other provision of the Plan shall be authorized to
the extent that such adjustment or action would cause such Award to fail to
so qualify under Section 162(m)(4)(C), or any successor provisions thereto.
No adjustment or action described in this Section 11.3 or in any other
provision of the Plan shall be authorized to the extent that such
adjustment or action would cause the Plan to violate Section 422(b)(1) of
<PAGE> 18
the Code. Furthermore, no such adjustment or action shall be authorized to
the extent such adjustment or action would result in short-swing profits
liability under Section 16 or violate the exemptive conditions of
Rule 16b-3 unless the Administrator determines that the Award is not to
comply with such exemptive conditions. The number of shares of Common Stock
subject to any Award shall always be rounded to the next whole number.
(e) Notwithstanding the foregoing, in the event that the Company
becomes a party to a transaction that is intended to qualify for "pooling
of interests" accounting treatment and, but for one or more of the
provisions of this Plan or any Award Agreement, would so qualify, then this
Plan and any Award Agreement shall be interpreted so as to preserve such
accounting treatment, and to the extent that any provision of the Plan or
any Award Agreement would disqualify the transaction from pooling of
interests accounting treatment (including, if applicable, an entire Award
Agreement), then such provision shall be null and void. All determinations
to be made in connection with the preceding sentence shall be made by the
independent accounting firm whose opinion with respect to "pooling of
interests" treatment is required as a condition to the Company's
consummation of such transaction.
(f) The existence of the Plan, the Award Agreement and the Awards
granted hereunder shall not affect or restrict in any way the right or
power of the Company or the shareholders of the Company to make or
authorize any adjustment, recapitalization, reorganization or other change
in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of stock or of options, warrants or
rights to purchase stock or of bonds, debentures, preferred or prior
preference stocks whose rights are superior to or affect the Common Stock
or the rights thereof or which are convertible into or exchangeable for
Common Stock, or the dissolution or liquidation of the Company, or any sale
or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.
11.4. Approval of Plan by Stockholders. The Plan will be submitted for the
approval of the Company's stockholders within twelve months after the date of
the Board's initial adoption of the Plan. Awards may be granted or awarded prior
to such stockholder approval, provided that such Awards shall not be exercisable
nor shall such Awards vest prior to the time when the Plan is approved by the
stockholders, and provided further that if such approval has not been obtained
at the end of said twelve-month period, all Awards previously granted or awarded
under the Plan shall thereupon be canceled and become null and void. In
addition, if the Board determines that Awards other than Options or Stock
Appreciation Rights which may be granted to Section 162(m) Participants should
continue to be eligible to qualify as performance-based compensation under
Section 162(m)(4)(C) of the Code, the Performance Criteria must be disclosed to
and approved by the Company's stockholders no later than the first stockholder
meeting that occurs in the fifth year following the year in which the Company's
stockholders previously approved the Performance Criteria.
11.5. Tax Withholding. The Company shall be entitled to require payment in
cash or deduction from other compensation payable to each Holder of any sums
required by federal, state or local tax law to be withheld with respect to the
issuance, vesting, exercise or payment of any Award. The Administrator may in
its discretion and in satisfaction of the foregoing requirement allow such
Holder to elect to have the Company withhold shares of Common Stock otherwise
issuable under such Award (or allow the return of shares of Common Stock) having
a Fair Market Value equal to the sums required to be withheld.
11.6. Loans. The Committee may, in its discretion, extend one or more loans
to key Employees in connection with the exercise or receipt of an Award granted
or awarded under the Plan, or the issuance of Restricted Stock or Deferred Stock
awarded under the Plan. The terms and conditions of any such loan shall be set
by the Committee.
11.7. Forfeiture Provisions. Pursuant to its general authority to determine
the terms and conditions applicable to Awards under the Plan, the Administrator
shall have the right to provide, in the
<PAGE> 19
terms of Awards made under the Plan, or to require a Holder to agree by separate
written instrument, that (a) (i) any proceeds, gains or other economic benefit
actually or constructively received by the Holder upon any receipt or exercise
of the Award, or upon the receipt or resale of any Common Stock underlying the
Award, must be paid to the Company, and (ii) the Award shall terminate and any
unexercised portion of the Award (whether or not vested) shall be forfeited, if
(b)(i) a Termination of Employment occurs prior to a specified date, or within a
specified time period following receipt or exercise of the Award, or (ii) the
Holder at any time, or during a specified time period, engages in any activity
in competition with the Company, or which is inimical, contrary or harmful to
the interests of the Company, as further defined by the Administrator or (iii)
the Holder incurs a Termination of Employment for cause.
11.8. Effect of Plan Upon Options and Compensation Plans. The adoption of
the Plan shall not affect any other compensation or incentive plans in effect
for the Company or any Subsidiary. Nothing in the Plan shall be construed to
limit the right of the Company (a) to establish any other forms of incentives or
compensation for Employees of the Company or any Subsidiary or (b) to grant or
assume options or other rights or awards otherwise than under the Plan in
connection with any proper corporate purpose including, but not by way of
limitation, the grant or assumption of options in connection with the
acquisition by purchase, lease, merger, consolidation or otherwise, of the
business, stock or assets of any corporation, partnership, limited liability
company, firm or association.
11.9. Compliance with Laws. The Plan, the granting and vesting of Awards
under the Plan and the issuance and delivery of shares of Common Stock and the
payment of money under the Plan or under Awards granted or awarded hereunder are
subject to compliance with all applicable federal and state laws, rules and
regulations (including but not limited to state and federal securities law and
federal margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. Any securities delivered under
the Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Company, provide such assurances and
representations to the Company as the Company may deem necessary or desirable to
assure compliance with all applicable legal requirements. To the extent
permitted by applicable law, the Plan and Awards granted or awarded hereunder
shall be deemed amended to the extent necessary to conform to such laws, rules
and regulations.
11.10. Titles. Titles are provided herein for convenience only and are not
to serve as a basis for interpretation or construction of the Plan.
11.11. Governing Law. The Plan and any agreements hereunder shall be
administered, interpreted and enforced under the internal laws of the State of
Delaware without regard to conflicts of laws thereof.
* * *
I hereby certify that the foregoing Plan was duly adopted by the Board of
Directors of Libbey, Inc. on March 27, 1999.
Executed on this 31st day of March, 1999.
Arthur H. Smith
--------------------------------------
Secretary
<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
LGFE2 Inc. - Incorporated in Delaware
Libbey.com LLC - Formed in Delaware
LGMH, S. de R.L. de C.V. - Formed in Mexico
<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 Retirement Savings Plan and the Libbey Inc. Stock
Purchase and 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 28, 2000, 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, 1999.
ERNST & YOUNG LLP
Toledo, Ohio
March 23, 2000
<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, 1999
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 1st day of February, 2000.
/s/ John F. Meier Director, Chairman of the Board and
------------------------------ Chief Executive Officer
John F. Meier
/s/ Richard I. Reynolds Director, Executive Vice President and
------------------------------ Chief Operating Officer
Richard I. Reynolds
/s/ Kenneth G. Wilkes Vice President, Chief Financial Officer
------------------------------
Kenneth G. Wilkes
/s/ William A. Foley Director
------------------------------
William A. Foley
/s/ Peter C. McC. Howell Director
------------------------------
Peter C. McC. Howell
/s/ Carol B. Moerdyk Director
------------------------------
Carol B. Moerdyk
/s/ Gary L. Moreau Director
------------------------------
Gary L. Moreau
/s/ Terence P. Stewart Director
------------------------------
Terence P. Stewart
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,918
<SECURITIES> 0
<RECEIVABLES> 62,329
<ALLOWANCES> 0
<INVENTORY> 89,889
<CURRENT-ASSETS> 164,164
<PP&E> 217,584
<DEPRECIATION> 112,490
<TOTAL-ASSETS> 434,395
<CURRENT-LIABILITIES> 95,025
<BONDS> 0
0
0
<COMMON> 152
<OTHER-SE> 91,691
<TOTAL-LIABILITY-AND-EQUITY> 434,395
<SALES> 460,592
<TOTAL-REVENUES> 464,989
<CGS> 321,633
<TOTAL-COSTS> 386,755
<OTHER-EXPENSES> (2,928)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,501
<INCOME-PRETAX> 68,661
<INCOME-TAX> 25,233
<INCOME-CONTINUING> 43,428
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,428
<EPS-BASIC> 2.69
<EPS-DILUTED> 2.64
</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 $75.0 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, 1999, was 6.68% for an average remaining
period of 2.3 years. Total remaining debt not covered by the Rate Agreements has
fluctuating interest rates with a weighted average rate of 6.42% at December 31,
1999. The Company had $103.7 million of debt subject to fluctuating interest
rates at December 31, 1999. A change of one percentage point in such rates would
result in a change in interest expense of approximately $1.0 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, 1999, the
<PAGE> 2
carrying value of the long-term debt approximates its fair value based on the
Company's current incremental borrowing rates. The fair market value for the
Company's Interest Rate Protection Agreements at December 31, 1999 was $0.9
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 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 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.
