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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark one)
(X)Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended June 30, 2000
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 (Commission (IRS Employer
of incorporation or organization) File No.) Identification No.)
300 Madison Avenue, Toledo, Ohio 43604
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(Address of principal executive offices) (Zip Code)
419-325-2100
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Common Stock, $.01 par value - 15,237,321 shares at July 31, 2000
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The Condensed Consolidated Financial Statements presented herein are unaudited
but, in the opinion of management, reflect all adjustments necessary to present
fairly such information for the periods and at the dates indicated. Since the
following condensed unaudited financial statements have been prepared in
accordance with Article 10 of Regulation S-X, they do not contain all
information and footnotes normally contained in annual consolidated financial
statements; accordingly, they should be read in conjunction with the
Consolidated Financial Statements and notes thereto appearing in the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1999.
The interim results of operations are not necessarily indicative of results for
the entire year.
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LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per-share amounts)
(unaudited)
Three months ended June 30,
Revenues: 2000 1999
---- ----
Net sales $ 113,293 $ 112,923
Prepaid freight billed to customers 529 528
Royalties and net technical
assistance income 1,942 578
--------- ---------
Total revenues 115,764 114,029
Costs and expenses:
Cost of sales 75,851 73,222
Selling, general and administrative
expenses 15,605 16,915
--------- ---------
91,456 90,137
--------- ---------
Income from operations 24,308 23,892
Other income:
Equity earnings 1,299 676
Other - net 219 379
--------- ---------
1,518 1,055
--------- ---------
Earnings before interest and income taxes 25,826 24,947
Interest expense - net (3,155) (3,124)
--------- ---------
Income before income taxes 22,671 21,823
Provision for income taxes 8,332 8,184
--------- ---------
Net income $ 14,339 $13,639
========= =========
Net income per share
Basic $ 0.94 $ 0.84
========= =========
Diluted $ 0.92 $ 0.82
========= =========
Dividends per share $ 0.075 $ 0.075
========= =========
See accompanying notes.
2
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LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per-share amounts)
(unaudited)
Six months ended June 30,
Revenues: 2000 1999
---- ----
Net sales $ 210,054 $ 208,203
Prepaid freight billed to customers 987 960
Royalties and net technical
assistance income 2,575 1,343
--------- ---------
Total revenues 213,616 210,506
Costs and expenses:
Cost of sales 145,456 144,998
Selling, general and administrative
expenses 30,974 30,383
Capacity realignment charge -- 2,227
--------- ---------
176,430 177,608
--------- ---------
Income from operations 37,186 32,898
Other income:
Equity earnings 1,870 1,152
Other - net (74) 371
--------- ---------
1,796 1,523
--------- ---------
Earnings before interest and income taxes 38,982 34,421
Interest expense - net (6,190) (6,225)
--------- ---------
Income before income taxes 32,792 28,196
Provision for income taxes 12,051 10,574
--------- ---------
Net income $ 20,741 $ 17,622
========= =========
Net income per share
Basic $ 1.36 $ 1.08
========= =========
Diluted $ 1.34 $ 1.06
========= =========
Dividends per share $ 0.15 $ 0.15
========= =========
See accompanying notes.
3
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LIBBEY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
June 30, December 31,
2000 1999
---- ----
(unaudited) (Note)
ASSETS
Current assets:
Cash $ 3,035 $ 3,918
Accounts receivable:
Trade, less allowances of $5,653
and $3,869 48,617 59,492
Other 5,886 2,837
-------- --------
54,503 62,329
Inventories:
Finished goods 93,630 80,547
Work in process 6,026 5,829
Raw materials 3,000 2,844
Operating supplies 625 669
-------- --------
103,281 89,889
Prepaid expenses and deferred taxes 7,551 8,028
-------- --------
Total current assets 168,370 164,164
Other assets:
Repair parts inventories 5,708 5,684
Intangibles, net of accumulated
amortization of $2,799 and $2,647 9,406 9,558
Pension assets 17,250 14,625
Deferred software, net of accumulated
amortization of $7,380 and $6,181 4,813 5,728
Other assets 457 379
Equity investments 81,828 82,835
Goodwill, net of accumulated
amortization of $15,413 and $14,651 45,566 46,328
-------- --------
165,028 165,137
Property, plant and equipment, at cost 220,521 217,584
Less accumulated depreciation 118,475 112,490
-------- --------
Net property, plant and equipment 102,046 105,094
-------- --------
Total assets $435,444 $434,395
======== ========
Note: The condensed consolidated balance sheet at December 31, 1999 has been
derived from the audited consolidated financial statements at that date but does
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See accompanying notes.
4
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LIBBEY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
June 30, December 31,
2000 1999
---- ----
(unaudited) (Note)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 3,271 $ 8,655
Accounts payable 22,986 29,126
Salaries and wages 10,964 22,804
Capacity realignment reserve 2,177 3,692
Accrued liabilities 30,618 24,777
Income taxes 4,319 5,971
Long-term debt due within one year 5,696 --
--------- ---------
Total current liabilities 80,031 95,025
Long-term debt 170,000 170,000
Deferred taxes 19,236 18,392
Other long-term liabilities 5,404 6,594
Nonpension retirement benefits 51,234 52,541
Shareholders' equity:
Common stock, par value $.01
per share, 50,000,000 shares
authorized, 17,804,921 shares
issued and outstanding, less
2,575,800 treasury shares
(17,747,753 shares issued and
outstanding, less 2,498,000 treasury
shares in 1999) 152 152
Capital in excess of par value 283,844 282,734
Treasury stock (72,137) (70,061)
Deficit (101,538) (119,995)
Accumulated other comprehensive
loss (782) (987)
--------- ---------
Total shareholders' equity 109,539 91,843
--------- ---------
Total liabilities and shareholders'
equity $ 435,444 $ 434,395
========= =========
Note: The condensed consolidated balance sheet at December 31, 1999 has been
derived from the audited consolidated financial statements at that date but does
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See accompanying notes.
5
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LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Six months ended June 30,
2000 1999
---- ----
Operating activities
Net income $ 20,741 $ 17,622
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation 7,643 8,178
Amortization 2,113 1,922
Other non-cash charges (1,239) (1,807)
Equity earnings (1,870) (1,152)
Capacity realignment charge -- 2,227
Net change in components of working
capital and other assets (22,920) (11,501)
-------- --------
Net cash provided by operating activities 4,468 15,489
Investing activities
Additions to property, plant and
equipment (5,255) (4,299)
Other (63) --
Dividends received from equity
investment 2,940 517
-------- --------
Net cash used in investing activities (2,378) (3,782)
Financing activities
Net bank credit facility activity 5,696 7,052
Other net borrowings (5,384) (2,216)
Stock options exercised 1,110 361
Treasury shares purchased (2,076) (15,463)
Dividends (2,283) (2,441)
-------- --------
Net cash used in financing activities (2,937) (12,707)
-------- --------
Effect of exchange rate fluctuations
on cash (36) 40
-------- --------
Decrease in cash (883) (960)
Cash at beginning of year 3,918 3,312
-------- --------
Cash at end of period $ 3,035 $ 2,352
======== ========
See accompanying notes.
6
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LIBBEY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dollars in thousands, except per share data
(unaudited)
1. LONG-TERM DEBT
The Company and its Canadian subsidiary have an unsecured agreement ("Bank
Credit Agreement" or "Agreement") with a group of banks which provides for a
Revolving Credit and Swing Line Facility ("Facility") permitting borrowings up
to an aggregate total of $380 million, maturing May 1, 2002. Swing Line
borrowings are limited to $25 million with interest calculated at the prime rate
minus the Commitment Fee Percentage. Revolving Credit borrowings bear interest
at the Company's option at either the prime rate minus the Commitment Fee
Percentage, or a Eurodollar rate plus the Applicable Eurodollar Margin. The
Commitment Fee Percentage and Applicable Eurodollar Margin will vary depending
on the Company's performance against certain financial ratios. The Commitment
Fee Percentage and the Applicable Eurodollar Margin were 0.125% and 0.225%,
respectively, at June 30, 2000. The Company may also elect to borrow under a
Negotiated Rate Loan alternative of the Revolving Credit and Swing Line Facility
at floating rates of interest, up to a maximum of $190 million. The Revolving
Credit and Swing Line Facility also provides for the issuance of $35 million of
letters of credit, with such usage applied against the $380 million limit. At
June 30, 2000 the Company had $5.4 million in letters of credit outstanding
under the Facility.
The Company has entered into interest rate protection agreements ("Rate
Agreements") with respect to $50 million of debt under its Bank Credit Agreement
as a means to manage its exposure to fluctuating interest rates. The Rate
Agreements effectively converts this portion of the Company's Bank Credit
Agreement borrowings from variable rate debt to a fixed rate basis, thus
reducing the impact of interest rate changes on future income. The average
interest rate for the Company's borrowings related to the Rate Agreements at
June 30, 2000 was 6.46% for an average remaining period of 2.8 years. The
remaining debt not covered by the Rate Agreements has fluctuating interest rates
with a weighted average rate of 6.97% at June 30, 2000.
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
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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.
The Company guarantees $30.0 million of Vitrocrisa Holdings' debt as of June 30,
2000.
2. SIGNIFICANT SUBSIDIARY
Summarized combined financial information for equity investments, which includes
the 49% ownership in Vitrocrisa, which manufactures, markets and sells glass
tableware (e.g. beverageware, plates, bowls, serveware and accessories) and
industrial glassware (e.g. coffee pots, blender jars, meter covers, glass covers
for cooking ware and lighting fixtures sold to original equipment manufacturers)
and the 49% ownership in Crisa Industrial, L.L.C., which distributes industrial
glassware in the U.S. and Canada for Vitrocrisa, for 2000 and 1999 is as
follows:
June 30, December 31,
2000 1999
---- ----
Current assets $ 83,006 $ 77,462
Non-current assets 145,590 129,915
--------------------------------------------------------------------------------
Total assets 228,596 207,377
Current liabilities 95,651 93,431
Other liabilities and deferred items 115,955 96,389
--------------------------------------------------------------------------------
Total liabilities and deferred items 211,606 189,820
--------------------------------------------------------------------------------
Net assets $ 16,990 $ 17,557
================================================================================
8
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For three months ended
June 30,
--------------------------
2000 1999
---- ----
Net sales $ 55,553 $ 45,755
Cost of sales 39,197 30,976
--------------------------
Gross profit 16,356 14,779
Operating expenses 5,962 5,424
--------------------------
Income from operations 10,394 9,355
Other income (loss) 519 (306)
--------------------------
Earnings before finance costs and taxes 10,913 9,049
Interest expense 2,396 2,730
Translation gain (loss) 1,184 (333)
--------------------------
Earnings before income taxes and profit sharing
9,701 5,986
--------------------------------------------------------------------------------
Income taxes and profit sharing 6,183 3,741
--------------------------------------------------------------------------------
Net income $ 3,518 $ 2,245
================================================================================
For six months ended
June 30,
------------------------
2000 1999
---- ----
Net sales $101,180 $ 84,501
Cost of sales 71,850 58,311
------------------------
Gross profit 29,330 26,190
Operating expenses 11,220 9,927
------------------------
Income from operations 18,110 16,263
Other income (loss) 890 (771)
------------------------
Earnings before finance costs and taxes 19,000 15,492
Interest expense 5,086 5,876
Translation gain (loss) 479 (703)
------------------------
Earnings before income taxes and profit sharing
14,393 8,913
--------------------------------------------------------------------------------
Income taxes and profit sharing 8,844 4,832
--------------------------------------------------------------------------------
Net income $ 5,549 $ 4,081
================================================================================
3. CASH FLOW INFORMATION
Interest paid in cash aggregated $5,626 and $5,802 for the first six months of
2000 and 1999, respectively. Income taxes paid in cash aggregated $13,007 and
$1,272 for the first six months of 2000 and 1999, respectively.
4. NET INCOME PER SHARE OF COMMON STOCK
Basic net income per share of common stock is computed using the weighted
average number of shares of common stock outstanding. Diluted net income per
share of common stock is computed using the
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weighted average number of shares of common stock outstanding and includes
common share equivalents.
The following table sets forth the computation of basic and diluted earnings per
share (dollars in thousands, except share and per-share amounts):
<TABLE>
<CAPTION>
Quarter ended June 30, 2000 1999
-------------------------------------------------------------- ---- ----
<S> <C> <C>
Numerator for basic and diluted earnings per share--net
income which is available to common shareholders
$14,339 $13,639
Denominator for basic earnings per share--weighted-average
shares outstanding
15,214,911 16,247,497
Effect of dilutive securities--employee stock options
314,162 345,486
----------- -----------
Denominator for diluted earnings per share--adjusted
weighted-average shares and assumed conversions
15,529,073 16,592,983
Basic earnings per share $ 0.94 $ 0.84
Diluted earnings per share $ 0.92 $ 0.82
Six Months ended June 30, 2000 1999
------------------------------------------------------------- ----------- -----------
Numerator for basic and diluted earnings per share--net
income which is available to common shareholders
$20,741 $17,622
Denominator for basic earnings per share--weighted-average
shares outstanding
15,242,324 16,323,970
Effect of dilutive securities--employee stock options
293,704 334,966
---------- ----------
Denominator for diluted earnings per share--adjusted
weighted-average shares and assumed conversions
15,536,028 16,658,936
Basic earnings per share $ 1.36 $ 1.08
Diluted earnings per share $ 1.34 $ 1.06
</TABLE>
10
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5. COMPREHENSIVE INCOME
The Company's components of comprehensive income are net income and foreign
currency translation adjustments. During the second quarter of 2000 and 1999,
total comprehensive income amounted to $14,578 and $13,743 respectively. For the
first six months of 2000 and 1999 comprehensive income amounted to $20,946 and
$17,834 respectively.
6. NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (Statement 133)
which establishes new procedures for accounting for derivatives and hedging
activities and supersedes and amends a number of existing standards. Statement
133 is effective for fiscal years beginning after June 15, 2000, and the Company
has not determined its impact.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101) which
summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. SAB 101 is
effective for the fourth quarter of fiscal years beginning after December 15,
1999. The Company does not expect the adoption of SAB 101 to have a material
effect on 2000 revenue.
In May 2000, the Emerging Issues Task Force reached a consensus on Issue 00-10,
"Accounting for Shipping and Handling Fees and Costs." The Task Force concluded
that all amounts billed to a customer in a sale transaction represent the fees
earned for the goods provided and, accordingly, amounts billed related to
shipping and handling should be classified as revenue. Costs incurred by the
seller for shipping and handling should be classified as a cost of goods sold.
It has no impact on net income. The consensus is to be followed in the next set
of financial statements issued by an entity, with prior periods reclassified to
conform to the consensus unless it is impractical to do so, in which case that
fact should be disclosed. The Company has adopted the consensus and has restated
the prior period presented.
7. 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
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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 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 2000. The fixed assets, supply
inventories and repair parts not being 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, was 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. During the
first and second quarters of 2000, cash was used primarily in connection with
preparing the facility for sale or abandonment.
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The following table sets forth the details and activity of the various
components of the capacity realignment reserve for the first six months of 2000.
<TABLE>
<CAPTION>
Write-
Balance off of Balance
as of Assets Effect of as of
December to Cash Translation June 30,
Activity 31, 1999 Reserve Payments Adjustments 2000
-------- -------- ------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Severance and related
employee cost $ 275 -- $ 30 $ 6 $ 239
Asset write-downs:
Fixed assets 2,992 418 730 53 1,791
Inventories and other 425 192 78 8 147
--------------------------------------------------------------------------------------------
Total $ 3,692 $610 $838 $ 67 $ 2,177
============================================================================================
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - SECOND QUARTER 2000 COMPARED WITH SECOND QUARTER 1999
Three months ended
June 30,
(dollars in thousands)
2000 1999
-------- ------
Net sales $113,293 $112,923
Gross profit 37,971 40,229
As a percentage of sales 33.5% 35.6%
Income from operations $ 24,308 $ 23,892
As a percentage of sales 21.5% 21.2%
Earnings before interest and
income taxes $ 25,826 $ 24,947
As a percentage of sales 22.8% 22.1%
Net income $ 14,339 $ 13,639
As a percentage of sales 12.7% 12.1%
Net sales for the second quarter of 2000 of $113.3 million increased 0.3% from
net sales of $112.9 million reported in the comparable period in 1999. Growth in
dinnerware and flatware sales to foodservice customers and glassware sales to
industrial customers were major contributors. Sales growth was limited by the
Company's decision last year to exit low margin bottleware and certain low
margin retail business, which totaled approximately $4.3 million in the second
quarter last year. Export sales, including sales to Libbey's customers in
Canada, were down 5.0%, decreasing to $13.4 million from $14.1 million in the
year-ago period reflecting the lower bottleware sales to Canadian customers.
Gross profit (defined as net sales including prepaid freight billed to customers
less cost of sales) decreased 5.6% to $38.0 million in the second quarter of
2000 compared to $40.2 million in the second quarter of 1999, and decreased as a
percentage of sales to 33.5% from 35.6%. Increases in the costs for natural gas
and corrugated packaging contributed to the decline.
Income from operations increased 1.7% to $24.3 million from $23.9 million in the
year-ago period. Lower selling, general and administrative expense more than
offset the lower gross profit. In addition, technical assistance income
increased as the Company entered into a new agreement.
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Earnings before interest and income taxes (EBIT) increased 3.5% to $25.8 million
compared with $24.9 million in the second quarter last year. Equity earnings
increased to $1.3 million from $0.7 million as a result of higher operating
profits at the Company's joint venture in Mexico and the impact of a weaker
Mexican peso.
Net income increased 5.1% to $14.3 million, or 92 cents per diluted share,
compared with $13.6 million, or 82 cents per diluted share, in the year-ago
period. A reduction in the Company's effective tax rate to 36.75 percent from
37.5 percent in the year-ago quarter contributed to the higher net income. In
addition, diluted shares outstanding declined to 15.5 million from 16.6 million
shares in the year-ago period primarily due to the Company's share repurchase
program.
RESULTS OF OPERATIONS - SIX MONTHS 2000 COMPARED WITH SIX MONTHS 1999
Six months ended
June 30,
---------------------------
(dollars in thousands)
2000 1999
-------- --------
Net sales $210,054 $208,203
Gross profit 65,585 64,165
As a percentage of sales 31.2% 30.8%
Income from operations - excluding
capacity realignment charge $ 37,186 $ 35,125
As a percentage of sales 17.7% 16.9%
Income from operations $ 37,186 $ 32,898
As a percentage of sales 17.7% 15.8%
Earnings before interest and
income taxes $ 38,982 $ 34,421
As a percentage of sales 18.6% 16.5%
Net income $ 20,741 $ 17,622
As a percentage of sales 9.9% 8.5%
Net sales for the first six months of 2000 of $210.1 million increased 0.9% from
net sales of $208.2 million reported in the comparable period in 1999. Export
sales, including sales to Libbey's customers in Canada, were down 8.3%,
decreasing to $25.1 million from $27.3 million in the year-ago period reflecting
lower bottleware sales to Canadian customers.
Gross profit (defined as net sales including prepaid freight billed to customers
less cost of sales) increased 2.2% to $65.6 million in the first six months of
2000 compared to $64.2 million in the first six
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months of 1999, and increased as a percentage of sales to 31.2% from 30.8% due
to improved sales mix and the continued benefits of lower operating costs
associated with capacity realignment efforts. Partially offsetting these gains
were higher manufacturing costs, including increases in natural gas and
corrugated packaging costs.
Income from operations increased 13.0% to $37.2 million from $32.9 million in
the year-ago period. The reasons for the increase were improved sales mix, the
continued benefits of lower operating costs associated with capacity realignment
efforts and a charge in last year's first quarter of $2.2 million related to the
Company's realignment of its glass tableware production. In addition, technical
assistance income increased as the Company entered into a new agreement.
Partially offsetting these gains were higher manufacturing costs, including
increases in natural gas and corrugated packaging costs. Excluding the impact of
the $2.2 million restructuring charge in the first quarter of 1999, income from
operations increased 5.9%.
Earnings before interest and income taxes (EBIT) increased $13.3% to $39.0
million from $34.4 million due to the increased operating income and higher
equity earnings resulting from higher operating profits at the Company's joint
venture in Mexico and the impact of a weaker Mexican peso. Excluding the impact
of the restructuring charge in 1999, EBIT increased 6.4%.
Net income increased 17.7% to $20.7 million, or $1.34 per diluted share,
compared to $17.6 million, or $1.06 per diluted share, in the year-ago period. A
reduction in the Company's effective tax rate to 36.75 percent from 37.5 percent
in the year-ago quarter contributed to the higher net income. In addition,
diluted shares outstanding declined to 15.5 million from 16.6 million shares in
the year-ago period primarily due to the Company's share repurchase program.
Excluding the impact of the restructuring charge in 1999, net income increased
9.1%.
CAPITAL RESOURCES AND LIQUIDITY
The Company had total debt of $179.0 million at June 30, 2000, compared to
$178.7 million at December 31, 1999. Seasonal increases in inventory through
June 30, 2000, were mostly offset by lower accounts receivable. During the first
quarter, the Company purchased 77,800 shares pursuant to its share repurchase
plan for $2.1 million. No additional shares were repurchased during the second
quarter. Since mid 1998, the Company has repurchased 2,575,800 shares for $72.1
million. Board authorization remains for the purchase of an additional 1,049,200
shares. In addition, Libbey received a dividend from its investment in Crisa
Industrial, part of the Company's
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investment in Vitrocrisa and related companies, of $2.9 million in the second
quarter 2000 compared to a dividend of $0.5 million in the first quarter 1999.
The Company had additional debt capacity at June 30, 2000 under the Bank Credit
Agreement of $198.9 million. Of Libbey's outstanding indebtedness, $129.0
million is subject to fluctuating interest rates at June 30, 2000. A change of
one percentage point in such rates would result in a change in interest expense
of approximately $1.3 million on an annual basis as of June 30, 2000.
The Company is not aware of any trends, demands, commitments or uncertainties
which will result or which are reasonably likely to result in a material change
in Libbey's liquidity. The Company believes that its cash from operations and
available borrowings under the Bank Credit Agreement will be sufficient to fund
its operating requirements, capital expenditures and all other obligations
(including debt service and dividends) throughout the remaining term of the Bank
Credit Agreement.
In addition, the Company anticipates refinancing the Bank Credit Agreement at or
prior to the maturity date of May 1, 2002 to meet the Company's longer term
funding requirements.
ITEM 3. 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 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 $50.0 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 June 30, 2000, was 6.46% for an average remaining period
of 2.8 years. Total remaining debt not covered by the Rate Agreements has
fluctuating interest rates with a weighted average rate of 6.98% at June 30,
2000. The Company had
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$129.0 million of debt subject to fluctuating interest rates at June 30, 2000. A
change of one percentage point in such rates would result in a change in
interest expense of approximately $1.3 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
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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; whether the Company completes any significant
acquisition, and whether such acquisitions can operate profitably.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 4, 2000, at the annual meeting of stockholders, Messrs.
John F. Meier and Gary L. Moreau and Ms. Carol B. Moerdyk were
elected as members of Class I of the board of directors for
three-year terms expiring on the date of the 2003 annual meeting.
The results of the voting were:
Directors
Name for Withheld
---- --- --------
Mr. Meier 11,137,296 151,743
Mr. Moreau 11,137,183 151,856
Ms. Moerdyk 11,136,901 152,138
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibits
Exhibit
Number Description
------ -----------
27 Other Financial Information
(b.) A form 8-K was filed during the second quarter, dated May
18, 2000, with respect to an announcement that at a meeting
in Monterrey, Mexico, with security analysts and investors,
John F. Meier, chairman and chief executive officer reviewed
the Company's operational strategies and plans to achieve
sales and net income growth over the next three years.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LIBBEY INC.
Date AUGUST 14, 2000 By /s/ KENNETH G. WILKES
------------------------ ----------------------------
Kenneth G. Wilkes,
Vice President, Chief
Financial Officer
(Principal Accounting Officer)
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EXHIBIT INDEX
Exhibit
No. Description
--- -----------
27 Other Financial Information
1
