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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
|X| Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 2002
or
| | Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 1-12084
LIBBEY INC.
(Exact name of registrant as specified in its charter)
Delaware 34-1559357
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) 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)
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|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes |X| No | |
The aggregate market value (based on the consolidated tape closing price on June
30, 2002) of the voting stock beneficially held by non-affiliates of the
registrant was approximately $533,227,292. 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 25, 2003 was 13,132,277.
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 1,
2003 ("Proxy Statement").
(Cover page 2 of 2 pages)
TABLE OF CONTENTS
-----------------
PART I
ITEM 1. BUSINESS............................................................................................... 1
ITEM 2. PROPERTIES............................................................................................. 10
ITEM 3. LEGAL PROCEEDINGS...................................................................................... 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................................................... 10
EXECUTIVE OFFICERS OF THE REGISTRANT............................................................................... 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS............................................................................ 12
ITEM 6. SELECTED FINANCIAL DATA................................................................................ 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................................................... 15
ITEM 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT
MARKET RISK............................................................................................ 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................................................ 24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE................... 62
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................................................... 62
ITEM 11. EXECUTIVE COMPENSATION................................................................................. 62
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS......... 62
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................................................... 62
ITEM 14. CONTROLS AND PROCEDURES................................................................................ 63
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND
REPORTS ON FORM 8-K.................................................................................... 64
SIGNATURES......................................................................................................... 65
CERTIFICATIONS .................................................................................................... 67
INDEX TO FINANCIAL STATEMENT SCHEDULE.............................................................................. 71
EXHIBIT INDEX...................................................................................................... E-1
PART I
ITEM 1. BUSINESS
GENERAL
Libbey Inc. (the Company) is a leading supplier of tableware products in the
U.S. and Canada. The products are also exported to more than 75 countries.
Libbey designs and markets, under the LIBBEY(R) brand name, an extensive line of
high-quality glass tableware, ceramic dinnerware and metal flatware. Through its
subsidiary Royal Leerdam (B.V. Koninklijke Nederlandsche Glasfabriek Leerdam),
Libbey manufactures and markets high-quality glass stemware under the Royal
Leerdam(R) brand name. Libbey also manufactures and markets ceramic dinnerware
under the Syracuse(R) China brand name through its subsidiary Syracuse China.
Through its World Tableware subsidiary, Libbey imports and sells flatware,
holloware and ceramic dinnerware. Libbey designs, manufactures and distributes
an extensive line of plastic items for the foodservice industry under the
Traex(R) brand name through its subsidiary Traex Company. Through its joint
venture, Vitrocrisa, the Company has established reciprocal distribution
agreements giving Libbey exclusive distribution rights for Vitrocrisa's glass
tableware products under the Crisa(R) brand name 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 to 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 an important part of the strategy to grow
sales and profits. 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 through joint ventures, outright
acquisitions and new green meadow facilities for international glass tableware
manufacturing.
In December 2002, the Company completed two acquisitions. Libbey acquired Traex
Company, a manufacturer and marketer of a wide-range of plastic products,
including glassware washing and storage racks, trays, dispensers and organizers
for the foodservice industry. In a separate transaction, the Company acquired
Royal Leerdam (B.V. Koninklijke Nederlandsche Glasfabriek Leerdam) a
manufacturer and marketer of high quality glass stemware. Royal Leerdam is a
leading producer of stemware in the world.
The acquisitions of the business of Libbey Canada (1993) and the joint venture
investment in Vitrocrisa (1997) have made Libbey a leading supplier of glass
tableware in North America.
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The acquisitions of Syracuse China (1995), World Tableware (1997) and Traex
(2002) have expanded the Company's portfolio of foodservice supply products. The
acquisition of Royal Leerdam (2002) will increase Libbey's global presence for
glass stemware.
PRODUCTS
Libbey's tableware products consist of glass tableware, ceramic dinnerware,
metal flatware, metal holloware and plastic items. Libbey's glass tableware
includes tumblers, stemware (which includes wine glasses), mugs, plates, bowls,
ashtrays, bud vases, salt and pepper shakers, canisters, candle holders and
various other items. The Company's plastic items include trays, dispensers,
beverage pitchers and various other items.
Vitrocrisa's glass tableware product assortment includes, in addition to the
product types produced by Libbey, glass bakeware and handmade glass tableware.
In addition, Vitrocrisa products include glass coffee pots, blender jars, meter
covers and other industrial glassware sold principally to original equipment
manufacturers.
Libbey sells high-quality stemware, including wine glasses, through its
subsidiary, Royal Leerdam. In addition, 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
tableware accessories. Its World Tableware subsidiary provides Libbey 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 tableware
accessories. Through its Traex subsidiary, Libbey sells a wide range of plastic
products. These include glassware washing and storage racks, trays, dispensers
and organizers for the foodservice industry.
DOMESTIC SALES
Approximately 89% of Libbey's sales are to domestic customers and are sold
domestically for a broad range of uses (see Note 13 to the consolidated
financial statements). 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, handmade glassware and lead crystal valued at less than
$5 per piece. Libbey has, according to management
2
estimates, the leading market share in glass tableware sales in U.S. foodservice
applications. The majority of Libbey's tableware sales to foodservice end users
are made through a network of approximately 500 foodservice distributors. The
distributors, in turn, sell to a wide variety of foodservice establishments,
including national and regional hotel chains, national restaurant chains,
independently 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 leading customers in retail are national discount retailers. 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. 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 a major supplier 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.
INTERNATIONAL EXPANSION AND EXPORT SALES
Libbey exports its products through independent agents and distributors to over
75 countries around the world, competing in the tableware markets of Latin
America, Asia and Europe. Through its export operation, Libbey sells its
tableware product to foodservice, retail and premium customers internationally.
3
Libbey's export sales, which include sales to customers in Canada, represent
approximately 11% of total sales in 2002. Libbey believes that expanding its
sales to export markets represents an important growth opportunity for the
future. The information set forth in Note 13 to the Consolidated Financial
Statements under "Industry Segment Information" on page 60.
The acquisition of Royal Leerdam is expected to increase Libbey's penetration in
the global market for glass stemware and, in addition, expand the selection of
glass tableware products offered by Libbey to customers world-wide.
Libbey currently has technical service agreements with foreign glass tableware
companies. These agreements cover areas ranging from manufacturing and
engineering assistance to support in functions such as marketing, sales and
administration. During 2002, Libbey's technical assistance agreements and
licenses produced royalties of $2.4 million. Libbey also sells machinery,
primarily glass-forming machinery, to various parties.
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 and a glass tableware manufacturing plant in Leerdam,
Netherlands. Libbey owns and operates a ceramic dinnerware plant in Syracuse,
New York, and a plastics plant in Dane, Wisconsin. 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. During 2002, Libbey
fully installed new production equipment that uses new technology in the
glassmaking arena. In addition, Libbey has installed robotics technology in
certain of its labor-intensive manufacturing and warehousing processes. Libbey
believes that its production machinery and equipment continue to be adequate for
its needs in the foreseeable future. The Company continues to invest in
equipment to further increase its production and distribution efficiency and
streamline its cost profile. In addition, the Company invested $60.9 million in
the acquisitions of Traex and Royal Leerdam.
4
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 primarily from China,
Malaysia and Bangladesh. Libbey installed a new fast-fire kiln technology at
Syracuse China during 2001, resulting in increased production speeds and yields,
lower operating costs and a faster new product development cycle. The investment
was the single largest capital project at Syracuse China since Libbey purchased
the business in 1995. All metal flatware and metal holloware are sourced by
Libbey's World Tableware subsidiary primarily from China. Plastic products are
also produced through the forming of raw materials into the desired shape and
are manufactured at Libbey's Dane, Wisconsin production facility or imported
primarily from Taiwan, China and Malaysia.
Libbey employs a team of engineers whose responsibilities include efforts to
improve and upgrade Libbey's manufacturing facilities, equipment and processes.
In addition, they provide engineering required to manufacture new products and
implement the large number of innovative changes continuously being made to
Libbey's product designs, sizes and shapes.
The raw materials used by Libbey, which are principally, sand, lime, soda ash,
clay, resins and colorants, 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. Natural gas is a primary
source of energy in Libbey's production processes, and variability in the price
for natural gas can have an impact on its profitability. Historically, the
Company has used natural gas hedging contracts to partially mitigate this
impact.
SALES AND MARKETING
Libbey has its own sales staff of over 80 Libbey sales professionals located in
various metropolitan areas throughout the U.S., Canada and the Netherlands who
call on customers and distributors. In addition, Libbey retains the services of
manufacturing representatives' organizations to assist in selling its products.
Libbey also maintains an export sales group covering other geographic markets.
The vast majority of Libbey's tableware sales to foodservice end users are made
through approximately 500 distributors, who serve a vital function in the
distribution of Libbey's products and
5
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 tableware 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
accounts for 10% or more of Libbey's sales, although the loss of any of Libbey's
major customers could have a meaningful effect on Libbey. Sales for premium
applications, which totaled 2% of net sales in 2002, tend to be more
unpredictable from year to year; and Libbey is less dependent on such business
than it is on sales to foodservice, retail and industrial customers.
COMPETITORS
Libbey's business is highly competitive, with the principal competitive factors
being customer service, brand name, product quality, new product development,
delivery time and price. Competitors in glass tableware include among others Arc
International, a private French company; Indiana Glass Company (a unit of
Lancaster Colony Corporation); Oneida Ltd., Anchor Hocking (a unit of Newell
Rubbermaid Inc.) and Bormioli Rocco Group. Arc International distributes glass
tableware to U.S. foodservice customers through Cardinal International, Inc.
Indiana Glass Company manufactures in the United States and sells a wide variety
of glassware. Oneida Ltd. operates by sourcing glass tableware from foreign
manufacturers, including Pasabahce (Turkey), Schott (Germany) and Calp (Italy).
Anchor Hocking is primarily a supplier of glass beverageware and bakeware to
retail markets in the U.S. Bormioli Rocco Group manufactures glass tableware in
Europe and most of its sales are to retail and foodservice customers in Europe.
In recent years, Libbey has experienced increasing competition from foreign
glass tableware manufacturers, including Arc International (France), Kedaung
(Indonesia), and Pasabahce (Turkey) as well as various factories from the
People's Republic of China. In addition, other materials, such as plastics, also
compete with glassware.
Competitors in U.S. ceramic dinnerware include among others Homer Laughlin (a
private U.S. company) and Rego China and Buffalo China (units of Oneida Ltd.).
Competitors in metal flatware are Oneida Ltd. and various importing companies.
Competitors in plastic products are among others Cambro Manufacturing Company (a
private U.S. company) and Carlisle Companies
6
Incorporated. Some of Libbey's competitors have substantially greater financial
and other resources than Libbey.
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, World Tableware, Royal Leerdam and Traex 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, profits typically range between
32% and 47% in the first half of each year and 53% to 68% in the second half of
the year.
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. However, Libbey is not named as a potentially responsible
party with respect to any waste disposal site matters pending prior to June 24,
1993, the date of Libbey's initial public offering and separation from
Owens-Illinois, Inc. ("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 the
Company against any costs or liabilities it may incur in connection with any
such matters identified and pending as of June 24, 1993 and to indemnify it for
any liability which results from these matters in excess of $3 million. Libbey
believes that if it is necessary to draw upon this indemnification, collection
is probable.
Pursuant to this indemnification agreement, Owens-Illinois is defending the
Company with respect to the King Road landfill. In January 1999, a suit was
instituted by the Board of Lucas County Ohio
7
Commissioners against Owens-Illinois, the Company and numerous other defendants
(59 companies named in the complaint as potentially responsible parties) in the
United States District Court for the Northern District of Ohio seeking to
recover contribution for past and future costs incurred by the County in
response to the release or threatened release of hazardous substances at the
King Road landfill formerly operated and closed by the County. The complaint was
dismissed without prejudice in October 2000; and at the time of the dismissal,
it was anticipated the suit would be refiled at a future date when more
information as to the appropriate environmental remedy becomes available.
However, as of this date, refiling of the suit does not appear imminent, and the
attorneys for the Lucas County Commissioners and the attorneys for the Ohio
Environmental Protection Agency are still discussing remedies. In view of the
uncertainty as to refiling of the suit, the numerous defenses which may be
available against the County on the merits of its claim for contribution, the
uncertainty as to the environmental remedy, and the uncertainty as to the number
of potentially responsible parties, at the present time it is not possible to
quantify any exposure the Company may have at King Road.
Subsequent to June 24, 1993, Libbey has been named a potentially responsible
party at four other 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.
On October 10, 1995, Syracuse China Company, a wholly owned subsidiary of the
Company, acquired from The Pfaltzgraff Co. and certain of its subsidiary
corporations, the assets operated by them as Syracuse China. The Pfaltzgraff Co.
entered into an Order on Consent effective November 1, 1994, with the New York
State Department of Environmental Conservation (DEC) which requires Pfaltzgraff
to prepare a Remedial Investigation and Feasibility Study (RI/FS) to develop a
remedial action plan for the site (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 that has
been paid. Notwithstanding the foregoing Syracuse China Company is not a party
to the decree. Construction of the approved remedy began in 2000 and is expected
to be completed in 2003.
In addition, Syracuse China Company has been named as a potentially responsible
party by reason of its potential ownership of 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.
8
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 2002.
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 3,800 persons at December 31, 2002. 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 2001 and expire at various times during the fourth quarter of 2004 at two
manufacturing locations and the fourth quarter of 2006 at a third manufacturing
location. Substantially all Royal Leerdam employees are covered by a collective
bargaining agreement expiring in July 2004. The ceramic dinnerware hourly
employees are covered by a collective bargaining agreement, which expires in
March 2006. Libbey considers its employee relations to be good.
PUBLIC FILINGS
Copies of the Company's annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and amendments to those reports are available
for no charge through the Company's website at www.libbey.com.
9
ITEM 2. PROPERTIES
The following information sets forth the location of the Company's principal
manufacturing and distribution facilities at December 31, 2002. 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 and Distribution Facilities
-----------------------------------------
Syracuse, New York
Toledo, Ohio
Shreveport, Louisiana
City of Industry, California
Dane, Wisconsin
Leerdam, Netherlands
Distribution Centers
--------------------
Laredo, Texas
West Chicago, Illinois
The Company's headquarters, some warehouses, sales offices and an outlet store
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. No pending legal proceeding is deemed to be
material to the Company.
On May 9, 2002, the Federal Trade Commission commenced an administrative
proceeding challenging the Company's proposed acquisition of a portion of the
Anchor Hocking business of Newell Rubbermaid Inc. The parties agreed upon a
consent decree that became final on October 15, 2002, following formal approval
by the Federal Trade Commission. The consent decree requires Libbey to provide
advance notice to the Federal Trade Commission of any acquisition, direct or
indirect, of any interest in the stock of Anchor Hocking or the assets of the
Anchor Hocking Food Service Business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
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.
NAME AGE POSITION
John F. Meier 55 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.
56 Executive Vice President and Chief Operating Officer since
Richard I. Reynolds November 1995; Vice President and Chief Financial Officer from
Executive Vice President and June 1993 to November 1995; Vice President and Director of
Chief Operating Officer Finance and Administration from January 1989 to June 1993.
Arthur H. Smith 67 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 45 Vice President, Chief Financial Officer and Head-International
Vice President, Chief Financial Operations since January 2003; Vice President and Chief
Officer and Head-International Financial Officer from November 1995 to January 2003; Vice
Operations President and Treasurer from August 1993 to November 1995.
Previously employed as Senior Corporate Banker, Vice President
with The First National Bank of Chicago from 1981.
Kenneth A. Boerger 45 Vice President and Treasurer since July 1999. From 1994 to July
Vice President and Treasurer 1999 was Corporate Controller and Assistant Treasurer. From
1980 to 1994 held various financial and accounting positions.
11
John A. Zarb 51 Vice President and Chief Information Officer since April 1996.
Vice President and Chief From 1991 to April 1996 employed by AlliedSignal Inc. in
Information Officer information technology senior management positions in Europe
and the U.S.
Daniel P. Ibele 42 Vice President, General Sales Manager since March 2002; Vice
Vice President, General Sales Manager President, Marketing and Specialty Operations from September
1997 to March 2002; Vice President and Director of Marketing
from 1995 to 1997. From 1983 to 1995 held various marketing and
sales positions.
Timothy T. Paige 45 Vice President-Administration since December 2002; Vice President and
Vice President-Administration Director of Human Resources from January 1997 to December 2002;
Director of Human Resources from May 1995 to January 1997. From 1985
to May 1995 employed by Frito-Lay, Inc. in human resources management
positions.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
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:
--------------------- ------------------------- ----------------------------
2002 2001
High Low High Low
--------------------- ------------ ----------- ------------- -------------
First Quarter $40.10 $31.35 $33.56 $27.80
Second Quarter $40.00 $32.88 $42.20 $27.80
Third Quarter $34.08 $26.80 $39.95 $28.20
Fourth Quarter $31.86 $23.72 $35.60 $27.00
--------------------- ------------ ----------- ------------- -------------
12
On March 1, 2003, there were 1,055 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. On January 10, 2003, the Company announced that
it has increased its regular quarterly dividend from $.075 per share to $.10 per
share in 2003. However, 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.
EQUITY COMPENSATION PLAN INFORMATION:
------------------------------------ ---------------------------- ------------------------------- ---------------------------
Plan Category Number of securities to be
issued upon exercise of Weighted average exercise Number of securities
outstanding options, price of outstanding options, remaining available for
warrants and rights warrants and rights future issuance
------------------------------------ ---------------------------- ------------------------------- ---------------------------
(a) (b) (c)
------------------------------------ ---------------------------- ------------------------------- ---------------------------
Equity compensation plans approved
by security holders 1,646,799 $25.73 546,924*
Equity compensation plans not
approved by security holders 0 0 0
------------------------------------ ---------------------------- ------------------------------- ---------------------------
Total 1,646,799 $25.73 546,924*
------------------------------------ ---------------------------- ------------------------------- ---------------------------
* This total includes 350,000 securities available for future issuance under the
Libbey Inc 2002. Employee Stock Purchase Plan (ESPP) as of December 31, 2002.
The amount of securities available for issue under this plan will increase each
year by up to 100,000 common shares commencing January 1, 2003 and ending
January 1, 2012 to an aggregate maximum of 1,350,000 common shares subject to
issuance under the plan. At of December 31, 2002, there were no options,
warrants or rights outstanding to purchase securities under this plan.
13
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations and Item 8. Financial Statements and Supplementary
Data.
Dollars in thousands, except per-share amounts 2002(d) 2001 2000 1999 1998
- ------------------------------------------------- --------- --------- --------- -------- --------
Operating Results
Net sales $433,761 $419,594 $441,828 $460,592 $436,522
Freight billed to customers 1,732 2,085 2,274 2,609 1,191
Total revenues 437,897 425,420 448,786 467,598 440,739
Cost of sales 327,565 307,255 306,003 324,242 323,140
Selling, general and administrative expenses 56,631 55,716 61,185 64,131 54,191
Capacity realignment charges -- -- -- 991 20,046
Income from operations 53,701 62,449 81,598 78,234 43,362
Equity earnings - pretax 6,379 6,384 12,016 8,857 12,300
Expenses related to abandoned acquisition (13,634) -- -- -- --
Other income (expenses) -- net (1,510) (241) (919) 13 1,493
Earnings before interest and income taxes (EBIT) 44,936 68,592 92,695 87,104 57,155
Interest expense -- net 8,263 9,360 12,216 12,501 12,674
Income before income taxes 36,673 59,232 80,479 74,603 44,481
Provision for income taxes 8,618 19,840 33,613 31,175 19,038
Net income (loss) (d) 28,055 39,392 46,866 43,428 25,443
Net cash provided by operating activities 54,205 51,308 36,898 68,956 52,232
Per-Share Amounts
Basic net income 1.84 2.58 3.07 2.69 1.45
Diluted net income 1.82 2.53 3.01 2.64 1.42
Dividends paid 0.30 0.30 0.30 0.30 0.30
Other Information
EBIT 44,936 68,592 92,695 87,104 57,155
EBITDA 64,079 87,435 111,047 105,857 76,661
Depreciation 17,262 15,157 14,055 14,717 15,852
Amortization (d) 1,881 3,686 4,297 4,036 3,654
Capital expenditures 16,739 35,241 18,096 9,428 17,486
Dividends paid 4,574 4,588 4,569 4,821 5,253
Employees (average) (c) 3,510 3,218 3,270 3,552 3,969
Balance Sheet Data
Total assets 524,527 468,082 446,707 434,395 439,671
Working capital (a) 83,260 83,421 95,177 77,794 75,930
Long-term debt (b) 188,403 2,517 151,404 170,000 176,300
Shareholders' equity 140,218 165,365 133,271 91,843 94,860
(a) Current assets less current liabilities excluding short-term debt.
(b) At December 31, 2001, the company classified $143.0 million of debt
outstanding under its bank facility as short term which was refinanced on a
long-term basis in April 2002.
(c) In 2002, includes Traex and Royal Leerdam employees.
(d) Effective January 1, 2002, the company adopted SFAS 142, "Goodwill and
Other Intangible Assets." The detail of the impact of the adoption are
identified in Footnote 2 of the Notes to Consolidated Financial Statements.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
HISTORICAL FINANCIAL DATA
- -------------------------
The following table presents certain results of operations data for Libbey for
the periods indicated:
YEAR ENDED DECEMBER 31,
(dollars in thousands) 2002 2001 2000
- ---------------------------------------------- ------------- -------------- --------------
Net sales $433,761 $419,594 $441,828
Gross profit $107,928 $114,424 $138,099
As a percent of sales 24.9% 27.3% 31.3%
Income from operations $53,701 $62,449 $81,598
As a percent of sales 12.4% 14.9% 18.5%
Earnings before interest and
income taxes before write off of
acquisition related expenses $58,570 $68,592 $92,695
As a percent of sales 13.5% 16.3% 21.0%
Earnings before interest
and income taxes $44,936 $68,592 $92,695
As a percent of sales 10.4% 16.3% 21.0%
Net income $28,055 $39,392 $46,866
As a percent of sales 6.5% 9.4% 10.6%
- ---------------------------------------------- ------------- -------------- --------------
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; however, major slowdowns in the retail, travel, or entertainment
industries could result from the impact of armed hostilities or any other
international or national calamity, including any act of terrorism. Additional
risk factors are discussed in Other Information in the section "Qualitative and
Quantitative Disclosures about Market Risk."
RESULTS OF OPERATIONS
COMPARISON OF 2002 WITH 2001 Net sales for 2002 increased 3.4% to $433.8 million
from $419.6 million in 2001. A 19% increase in sales to retail customers was a
key contributor. This increase more than offset lower sales to industrial
customers which are primarily candle companies. Foodservice sales were up
slightly for the year and showed solid growth in the fourth quarter. Libbey's
export sales, which include sales to Canada, were $46.1 million, a decrease of
3.4% compared to 2001.
GROSS PROFIT (defined as net sales plus freight billed to customers less cost of
sales) declined 5.7% to $107.9 million compared to $114.4 million in 2001 and as
a percent of net sales was 24.9% in
15
2002 as compared to 27.3% in 2001. The decline in gross profit margin is
primarily due to greater sales of products with lower profit margins, lower
pension income, higher nonpension postretirement expense and higher
manufacturing labor expenses. Lower pension income and higher nonpension
postretirement expense reduced gross profit by $4.1 million in 2002 compared to
the prior year.
INCOME FROM OPERATIONS decreased to $53.7 million in 2002 from $62.4 million in
2001 and as a percent of net sales was 12.4% in 2002 compared to 14.9% in 2001.
This reduction was the result of lower gross profit, higher lease cost of $1.2
million related to the company's corporate offices in 2002 and higher general
and administrative expenses. Lower pension income and an increase in nonpension
postretirement expense were the primary factors in the increase in general and
administrative expenses which reduced income from operations by $0.3 million. In
2002, the company recorded lower expenses related to the amortization of
intangibles pursuant to the adoption of Statement of Financial Accounting
Standards (SFAS) No. 142 "Goodwill and Other Intangible Assets" (SFAS No. 142)
of $1.1 million, which partially offset the higher general and administration
expenses.
EARNINGS BEFORE INTEREST AND INCOME TAXES (EBIT) were $44.9 million compared to
$68.6 million in 2001 and as a percent of net sales were 10.4% as compared to
16.3% in the year-ago period. In addition to the lower income from operations,
the most significant factor in the reduction was a $13.6 million pretax expense
related to the legal, advisory and financing fees associated with the abandoned
acquisition of Anchor Hocking. Excluding these expenses, the company's EBIT, as
a percent of net sales, would have been 13.5% compared to 16.3% in 2001. Due to
the unusual nature and magnitude of these expenses related to the abandoned
acquisition, management believes exclusion of these expenses is necessary for a
more meaningful comparison of EBIT as a percent of net sales in 2001. The
company's earnings from equity affiliates remained flat at $6.4 million pretax
compared to 2001. The company's equity affiliates are primarily its investment
in Vitrocrisa, the company's joint venture in Mexico. Vitrocrisa's performance
was impacted by a sluggish economy in Mexico and increased competition from
foreign markets. Other expenses increased to $1.5 million from $0.2 million in
the prior-year period, largely as a result of a write-down in the value of an
advance made to a supplier.
NET INCOME was $28.1 million, or $1.82 per share on a diluted basis, compared to
$39.4 million or $2.53 per share on a diluted basis in the year-ago period. As a
percent of net sales, net income was 6.5% in 2002 compared to 9.4% in 2001.
Excluding the expenses related to the abandoned acquisition, net income and
diluted earnings per share for 2002 would have been $36.6 million and $2.37,
respectively. Due to the unusual nature and magnitude of the expenses related to
the abandoned acquisition, management believes exclusion of these expenses is
necessary for a more meaningful comparison of net income to 2001. The company
experienced lower interest expense and income taxes in 2002 compared to prior
year. Interest expense was due to lower average debt levels and a decline in
interest rates. The company's effective tax rate declined to 23.5% in 2002 from
33.5% in 2001. The reduction was primarily attributable to lower Mexican tax,
the elimination
16
of non-deductible goodwill amortization and an adjustment to estimated U.S.
income tax accruals. The reduction in Mexican tax is primarily attributable to
deferred tax adjustments and reduced statutory tax rates in Mexico.
COMPARISON OF 2001 WITH 2000 Net sales for 2001 were $419.6 million compared to
net sales of $441.8 million in 2000. Solid growth in retail sales only partially
offset lower sales to industrial customers, as a result of sluggish economic
conditions, and the negative impact on sales to foodservice customers related to
the events of September 11, 2001. Libbey's export sales, which include sales in
Canada, decreased to $47.7 million from $51.8 million in 2000. This decrease was
the result of the impact of a strong U.S. dollar on the price competitiveness of
the company's products and weak economic conditions in key export markets.
GROSS PROFIT (defined as net sales plus freight billed to customers less cost of
sales) was $114.4 million in 2001 compared to $138.1 million in 2000 and as a
percent of net sales was 27.3% in 2001 compared to 31.3% in 2000. Reduced sales,
an unfavorable sales mix, higher energy costs and lower utilization of the
company's glassware plants related to efforts to control inventories were the
primary contributors to lower gross profit.
INCOME FROM OPERATIONS was $62.4 million in 2001 compared to $81.6 million in
2000 and as a percent of net sales was 14.9% compared to 18.5% in the year-ago
period. An 8.9% reduction in selling, general and administrative expenses to
$55.7 million from $61.2 million only partially offset the reduction in gross
profit.
EARNINGS BEFORE INTEREST AND INCOME TAXES (EBIT) was $68.6 million in 2001
compared to $92.7 million in 2000 and as a percent of net sales was 16.3%
compared to 21.0% in the year-ago period. The decrease was attributable to a
decline in income from operations and lower equity earnings due to lower
operating profits at Vitrocrisa, the company's joint venture in Mexico.
Vitrocrisa's lower profits were attributable to lower sales resulting from a
weaker economy in Mexico and the negative impact of a strong Mexican peso on
domestic and international sales, higher energy costs and lower factory
utilization.
NET INCOME was $39.4 million in 2001 compared with $46.9 million in 2000, and as
a percent of net sales was 9.4% compared to 10.6% in the year-ago period. Lower
interest expense and a reduction in the effective tax rate to 33.5% from 41.8%
in the year-ago period only partially offset reduced income from operations and
lower equity earnings. The reduction in the company's effective tax rate is
primarily attributable to lower foreign taxes and state tax credits related to
capital expansion programs.
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
Libbey's financial condition at year-end 2002 reflects the effects of the
company's strong cash flow from operations. Net cash provided by operating
activities increased to $54.2 million from $51.3 million in 2001. The company
recorded another year of efficient use of working capital. Excluding
17
the
acquisitions, inventories remained at $96.9 million in 2002, equal to the 2001
year-end balance and accounts receivable were $41.5 million in 2002 compared to
$44.1 million in 2001. Compared to the year-ago period, inventories increased by
$12.7 million and accounts receivable increased by $5.9 million, both entirely
attributable to the acquisitions of Traex and Royal Leerdam in 2002. Accounts
payable decreased by $1.5 million compared to 2001.
Capital expenditures were $16.7 million in 2002 compared with $35.2 million in
2001. Capital expenditures for 2003 are expected to be in the range of $35 to
$40 million as the company increases its investment in higher productivity and
labor saving machinery and equipment. The company repurchased 935,600 shares of
its common stock in 2002 for $26.8 million. Since mid-1998, the company has
repurchased 3,625,000 shares for $102.2 million. At year-end 2002, authorization
from the company's Board of Directors remained for the purchase of an additional
2,500,000 shares. On February 18, 2003, the company announced commencement of a
modified Dutch Auction tender offer to purchase up to 1,500,000 shares of its
outstanding common stock pursuant to the previously mentioned 2,500,000 share
authorization. The company purchased 1,500,000 shares at a purchase price of
$25.50 per share. This purchase was funded through the company's Amended and
Restated Revolving Credit Agreement (Revolving Credit Agreement or Agreement).
Libbey had total debt of $191.2 million at December 31, 2002, compared with
$148.0 million at December 31, 2001. The increase was primarily attributable to
the purchase of Traex and Royal Leerdam partially offset by the net cash
provided from operations. Libbey had additional debt capacity of $59.3 million
at December 31, 2002, under its Revolving Credit Agreement. Libbey has entered
into interest rate protection agreements with respect to $100 million of its
debt. The average fixed rate of interest under these interest rate protection
agreements is 5.8% and the total interest rate, including applicable fees, is
6.8%. The average maturity of these interest rate protection agreements is 2.3
years at December 31, 2002.
Of Libbey's outstanding indebtedness, $88.7 million is subject to fluctuating
interest rates at December 31, 2002. A change of one percentage point in such
rates would result in a change in interest expense of approximately $0.9 million
on an annual basis. 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 Revolving Credit Agreement and
other short-term lines of credit 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 Revolving Credit
Agreement.
In September 2001, the company issued a $2.7 million promissory note in
connection with the purchase of a warehouse facility. At December 31, 2002, the
company had $2.5 million outstanding on the promissory note. During 2003, $0.1
million of the principal is payable.
18
The following table presents the company's existing contractual obligations and
commercial commitments:
Payments Due by Period
Contractual 2 - 3 4 - 5 After 5
Obligations Total 1 Year Years Years Years
----------- ------ ------ ------ ----- ------
Debt $188.5 $0.1 $186.3 $0.3 $1.8
Operating Leases 15.3 4.4 5.4 2.5 3.0
------ ------ ------ ----- ------
Total Obligations $203.8 $4.5 $191.7 $2.8 $4.8
CRITICAL ACCOUNTING POLICIES
- ----------------------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
company believes that of its significant accounting policies (see Note 2 to the
consolidated financial statements), the following may involve a higher degree of
judgment and complexity. As part of the Audit Committee of the Board of
Directors' regular review of the financial reporting of the company, senior
management has reviewed the Critical Accounting Policies and Management's
Discussion and Analysis of Financial Condition and Results of Operations with
the Audit Committee of the Board of Directors.
DERIVATIVES
The company holds derivative financial instruments to hedge certain of its
interest rate risks associated with long-term debt, commodity price risks
associated with forecasted future natural gas requirements and foreign exchange
rate risks associated with transactions denominated in a currency other than the
U.S. dollar. These derivatives have been designated as cash flow hedges and
qualify for hedge accounting as discussed in detail in Notes 2 and 9 to the
consolidated financial statements. As such, the fair value of these cash flow
hedges are recorded on the balance sheet at fair value with a corresponding
change in accumulated other comprehensive income (loss), net of related tax
effects. The company does not participate in speculative derivatives trading.
While the company intends to continue to meet the conditions for hedge
accounting, if hedges do not qualify as highly effective or if the company does
not believe that forecasted transactions would occur, the changes in the fair
value of the derivatives used as hedges would be reflected in earnings.
Information about fair values, notional amounts and contractual terms of these
instruments can be found in Notes 2 and 9 to the company's consolidated
financial statements and the section titled "Qualitative and Quantitative
Disclosures About Market Risk."
19
The company does not believe it is exposed to more than a nominal amount of
credit risk in its interest rate, natural gas and foreign currency hedges as the
counterparts are established financial institutions.
PENSION PLANS AND NONPENSION POSTRETIREMENT BENEFITS
The company accounts for its defined benefit pension plans in accordance with
SFAS No. 87, "Employers' Accounting for Pensions" (SFAS No. 87), which requires
that amounts recognized in financial statements be determined on an actuarial
basis.
A significant element in determining the company's pension expense (income) in
accordance with SFAS No. 87 is the expected return on plan assets. The company
assumes that the expected long-term rate of return on plan assets will be 9.0%.
Since the pension plans' inception in 1993, the company's pension plan assets
have earned an average annual return of 9.2%. A change of .50% in the expected
long-term rate of return on plan assets will change pension expense (income) by
approximately $1.0 million based on year-end data. The assumed long-term rate of
return on assets is applied to a calculated value of plan assets, which
recognizes gains and losses in the fair value of plan assets compared to
expected returns over the next five years. This produces the expected return on
plan assets that is included in pension expense (income). The difference between
the expected return and the actual return on plan assets is deferred and
amortized over five years. The net deferral of past asset gains (losses) affects
the calculated value of plan assets and, ultimately, future pension expense
(income). The plan assets have earned an actual rate of return of less than 9.0%
in the last two years. Pension expense (income) in 2003 is expected to be $2.2
million (excluding expenses for Royal Leerdam which was acquired in December
2002) compared to $(3.7) million in 2002 and $(7.1) million in 2001. This is a
result of the lower return on plan assets, additional benefits granted to
unionized employees during labor negotiations in 2001 and a change in the
discount rate discussed below.
At the end of each year, the company determines the discount rate to be used to
discount plan liabilities. The discount rate reflects the current rate at which
the pension liabilities could be effectively settled at the end of the current
year. In estimating this rate, the company reviews rates of return on high
quality, fixed-income investments as a benchmark. At December 31, 2002, the
company determined this rate to be 6.75%. The discount rate used in 2001 was
7.50%. The effect of each .25% change in the discount rate would effect pension
expense by approximately $0.2 million.
The company has not made contributions to the pension plans since their
inception in 1993. And the company does not anticipate making cash contributions
in 2003. However, if weak investment returns related to depressed global stock
markets and historically low discount rates persist, cash contributions may be
required after 2003. It is difficult to estimate potential cash contributions,
as such amounts are a function of actual investment returns, withdrawals from
the plans, changes in interest rates and other factors uncertain at this time.
However, the company believes it is likely that any cash contribution in 2004
would not be material.
20
At December 31, 2002, the fair value of the company's pension assets was $172.8
million down from $198.4 million at the end of 2001.
The company also provides certain postretirement health care and life insurance
benefits covering substantially all salaried and hourly employees which are
accounted for in accordance with SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions." 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, Inc.
assumed liability for the nonpension postretirement benefits of company retirees
who had retired as of June 18, 1993.
The company uses various actuarial assumptions including the discount rate and
the expected trend in health care costs to estimate the costs and benefit
obligations for its retiree health plan. In estimating the discount rate, the
company reviews rates of return on high quality, fixed-income investments as a
benchmark. At December 31, 2002, the company determined this rate to be 6.75%.
The discount rate used in 2001 was 7.50%. The effect of a .25% change in the
discount rate would have no material change to health care expense. Assumed
health care cost inflation is based on an initial rate of 10.0% decreasing to an
ultimate rate of 5.0% over five years. A 1% percent change in these rates would
have changed the nonpension postretirement expense by $0.1 million.
In 2002, the company recorded expense (income) for nonpension postretirement
benefit costs of $0.9 million, as compared to $(0.04) million in 2001. The
company expects to record an expense of $2.0 million (excluding expenses for
Royal Leerdam which was acquired in December 2002) in 2003 for nonpension
postretirement benefit costs.
SALES INCENTIVE PROGRAMS
The company offers various sales incentive programs to a broad base of
customers. These programs typically offer incentives for purchase activities by
customers that include growth objectives. The company records accruals for these
incentives as sales occur. Criteria for payment include customers achieving
certain purchase targets and purchasing particular product types. Management
regularly reviews the adequacy of the accruals based on current customer
purchases, targeted purchases and payout levels. The majority of amounts paid to
customers typically occur in the third quarter.
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, euro or
21
Mexican peso that could reduce the cost competitiveness of the company's
products or that of Vitrocrisa compared to foreign competition; the effect of
high inflation in Mexico and exchange rate changes to the value of the Mexican
peso and impact of those changes on the earnings and cash flow of Vitrocrisa,
expressed under accounting principles generally accepted in the United States.
The company is exposed to market risk associated with changes in interest rates
in the U.S. and has entered into Interest Rate Protection Agreements (Rate
Agreements) with respect to $100 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 fixed rate of interest for the company's borrowings related to the Rate
Agreements at December 31, 2002 is 5.8% and the total interest rate, including
applicable fees, is 6.8%. The average maturity of these Rate Agreements is 2.3
years at December 31, 2002. Total remaining debt not covered by the Rate
Agreements has fluctuating interest rates with a weighted average rate of 2.4%
at December 31, 2002. The company had $88.7 million of debt subject to
fluctuating interest rates at December 31, 2002. A change of one percentage
point in such rates would result in a change in interest expense of
approximately $0.9 million on an annual basis. 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 fair value of the company's Rate Agreements is determined using the market
standard methodology of netting the discounted expected future variable cash
receipts and the discounted future fixed cash payments. The variable cash
receipts are based on an expectation of future interest rates derived from
observed market interest rate forward curves. The company does not expect to
cancel these agreements and expects them to expire as originally contracted. The
fair market value for the company's Rate Agreements at December 31, 2002, was
$(8.8) million.
In addition to the Rate Agreements, the company has other derivatives as
discussed below and in Note 2 to the consolidated financial statements. The
company has designated these derivative instruments as cash flow hedges. As
such, the changes in fair value of these derivative instruments are recorded in
accumulated other comprehensive income (loss) and reclassified into earnings as
the underlying hedged transaction or item affects earnings. At December 31,
2002, approximately $5.2 million of unrealized net loss was recorded in
accumulated other comprehensive income (loss).
OTHER INFORMATION
- -----------------
This document and supporting schedules contains statements that are not
historical facts and constitute projections, forecasts or forward-looking
statements. Such statements only reflect the
22
company's best assessment at this time, and may be identified by the use of
forward-looking words or phrases such as "anticipate," "believe," "expect,"
"intend," "may," "planned," "potential," "should," "will," "would" or similar
phrases. Such forward-looking statements involve risks and uncertainty and
actual results may differ materially from such statements and undue reliance
should not be placed on such statements. Important factors potentially affecting
the company's performance include, but are not limited to:
- - major slowdowns in the retail, travel, restaurant and bar or entertainment
industries, including the impact of armed hostilities or any other
international or national calamity, including any act of terrorism, on the
retail, travel, restaurant and bar or entertainment industries;
- - significant increases in interest rates that increase the company's
borrowing costs;
- - significant increases in per-unit costs for natural gas, electricity,
corrugated packaging and other purchased materials; - increases in
expenses associated with higher medical costs, reduced pension income
associated with lower returns on pension investments and increased pension
obligations;
- - devaluations and other major currency fluctuations relative to the U.S.
dollar, euro or Mexican peso that could reduce the cost competitiveness of
the company's or Vitrocrisa'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 expressed under accounting
principles generally accepted in the United States and cash flow
Vitrocrisa;
- - the inability to achieve savings and profit improvements at targeted
levels at the company and Vitrocrisa from capacity realignment,
re-engineering and operational restructuring programs or within the
intended time periods;
- - protracted work stoppages related to collective bargaining agreements; -
increased competition from foreign suppliers endeavoring to sell glass
tableware in the United States and Mexico, including the impact of lower
duties for imported products;
- - whether the company completes any significant acquisitions and whether
such acquisitions can operate profitably.
23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
Report of Management 25
Report of Independent Auditors 26
Consolidated Balance Sheets at December 31, 2002 and 2001 27
For the years ended December 31, 2002, 2001 and 2000
Consolidated Statements of Income 29
Consolidated Statements of Shareholders' Equity 30
Consolidated Statements of Cash Flows 31
Notes to Consolidated Financial Statements 32
Selected Quarterly Financial Data 61
24
REPORT OF MANAGEMENT
The management of Libbey Inc. is responsible for the contents of the financial
statements, which are prepared in conformity with accounting principles
generally accepted in the United States. The consolidated financial statements
necessarily include amounts based on judgments and estimates. Financial
information elsewhere in the Form 10-K is consistent with that in the financial
statements.
The company maintains a comprehensive accounting system, which includes controls
designed to provide reasonable assurance as to the integrity and reliability of
the financial records and the protection of assets. However, there are inherent
limitations in the effectiveness of any system of internal controls, and,
therefore, the company takes other steps to maintain an effective internal
control structure. These steps include an organization with clearly defined
lines of responsibility and delegation of authority and comprehensive systems
and control procedures. The role of the independent auditors is to provide an
objective review of the financial statements and the underlying transactions in
accordance with auditing standards generally accepted in the United States.
The Audit Committee of the Board of Directors, comprised solely of Directors who
are not members of management, meets regularly with management and the
independent auditors to ensure that their respective responsibilities are
properly discharged. The independent auditors have full and free access to the
Audit Committee.
/s/ John F. Meier
John F. Meier
Chairman of the Board and
Chief Executive Officer
/s/ Kenneth G. Wilkes
Kenneth G. Wilkes
Vice President, Chief Financial Officer and
Head-International Operations
February 10, 2003
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, 2002 and 2001, and the related consolidated statements of
income, shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 2002. Our audits also included the financial statement
schedule listed in the index at Item 15(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 consolidated and combined financial statements of
Vitrocrisa Holding, S. de R.L. de C.V. and Subsidiaries and Crisa Libbey, S.A.
de C.V. (companies in which the Company has 49% equity interests) which have
been audited by other auditors whose report has been furnished to us; insofar as
our opinion on the consolidated financial statements relates to the amounts
included for Vitrocrisa Holding, S. de R.L. de C.V. and Subsidiaries and Crisa
Libbey, S.A. de C.V., it is based solely on their report.
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 and the reports of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports 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, 2002 and
2001, and the consolidated results of its operations and its cash flows for each
of the three years in the period ended December 31, 2002 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.
As discussed in Note 2 to the financial statements, in 2002 the company changed
its method of accounting for goodwill.
/s/ ERNST & YOUNG LLP
Toledo, Ohio
January 31, 2003 except for Notes 9 and 14 as to which the date is February 18,
2003.
26
Libbey Inc. Consolidated Balance Sheets
- ------------------------------------------------------------------------------------------------------
December 31, 2002 2001
- ------------------------------------------------------------------------------------------------------
Dollars in thousands
ASSETS
Current assets:
Cash $1,683 $3,860
Accounts receivable:
Trade, less allowances of $6,310 and $5,962 46,308 38,516
Other, less allowances of $1,482 in 2002 3,636 5,550
- ------------------------------------------------------------------------------ --------- --------
49,944 44,066
Inventories:
Finished goods 100,405 88,686
Work in process 4,512 5,095
Raw materials 3,169 2,627
Operating supplies 1,548 528
- ------------------------------------------------------------------------------ --------- --------
109,634 96,936
Prepaid expenses and deferred taxes 13,487 9,068
- ------------------------------------------------------------------------------ --------- --------
Total current assets 174,748 153,930
Other assets:
Repair parts inventories 5,603 5,248
Intangibles, net of accumulated amortization of $3,380 and $2,668 26,375 9,232
Pension assets -- 29,506
Deferred software, net of accumulated amortization of $11,679 and $10,510 2,585 3,639
Other assets 4,453 11,090
Investments 87,847 84,357
Goodwill 59,795 43,282
- ------------------------------------------------------------------------------ --------- --------
186,658 186,354
Property, plant and equipment at cost 300,690 254,479
Less accumulated depreciation 137,569 126,681
- ------------------------------------------------------------------------------ --------- --------
Net property, plant and equipment 163,121 127,798
- ------------------------------------------------------------------------------ --------- --------
Total assets $524,527 $468,082
- ------------------------------------------------------------------------------ --------- --------
See accompanying notes.
27
Libbey Inc. Consolidated Balance Sheets (cont.)
- ------------------------------------------------------------------------------------------------
December 31, 2002 2001
- ------------------------------------------------------------------------------------------------
Dollars in thousands
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $2,660 $2,400
Accounts payable 31,633 33,125
Salaries and wages 14,670 11,671
Accrued liabilities 39,687 23,809
Income taxes 5,498 1,904
Long-term debt due within one year 115 143,115
- ------------------------------------------------------------------------ -------- --------
Total current liabilities 94,263 216,024
Long-term debt 188,403 2,517
Deferred taxes 11,780 23,512
Pension liability 28,655 --
Other long-term liabilities 14,015 12,533
Nonpension postretirement benefits 47,193 48,131
Shareholders' equity:
Common stock, par value $.01 per share, 50,000,000 shares authorized,
18,256,277 shares issued (18,025,843 shares issued in 2001) 183 180
Capital in excess of par value 293,537 288,418
Treasury stock, at cost, 3,625,000 shares (2,689,400 in 2001) (102,206) (75,369)
Deficit (19,413) (42,894)
Accumulated other comprehensive loss (31,883) (4,970)
- ------------------------------------------------------------------------ -------- --------
Total shareholders' equity 140,218 165,365
- ------------------------------------------------------------------------ -------- --------
Total liabilities and shareholders' equity $524,527 $468,082
- ------------------------------------------------------------------------ -------- --------
See accompanying notes.
28
Libbey Inc. Consolidated Statements of Income
- -----------------------------------------------------------------------------------
December 31, 2002 2001 2000
- -----------------------------------------------------------------------------------
Dollars in thousands, except per-share amounts
REVENUES
Net sales $433,761 $419,594 $441,828
Freight billed to customers 1,732 2,085 2,274
Royalties and net technical assistance income 2,404 3,741 4,684
- ------------------------------------------------ -------- -------- --------
Total revenues 437,897 425,420 448,786
Costs and expenses:
Cost of sales 327,565 307,255 306,003
Selling, general and administrative expenses 56,631 55,716 61,185
- ------------------------------------------------ -------- -------- --------
384,196 362,971 367,188
- ------------------------------------------------ -------- -------- --------
INCOME FROM OPERATIONS 53,701 62,449 81,598
Other income (expense):
Equity earnings - pretax 6,379 6,384 12,016
Expenses related to abandoned acquisition (13,634) -- --
Other - net (1,510) (241) (919)
- ------------------------------------------------ -------- -------- --------
(8,765) 6,143 11,097
- ------------------------------------------------ -------- -------- --------
Earnings before interest and income taxes 44,936 68,592 92,695
Interest expense - net (8,263) (9,360) (12,216)
- ------------------------------------------------ -------- -------- --------
Income before income taxes 36,673 59,232 80,479
Provision for income taxes 8,618 19,840 33,613
- ------------------------------------------------ -------- -------- --------
NET INCOME $28,055 $39,392 $46,866
================================================ ======== ======== ========
NET INCOME PER SHARE
Basic $1.84 $2.58 $3.07
Diluted $1.82 $2.53 $3.01
================================================ ======== ======== =========
See accompanying notes
29
LIBBEY INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulated
Common Capital in Cost of Other
Dollars in thousands, except Stock Excess of Treasury Comprehensive
per-share amounts Shares Amount Par Value Stock Deficit Income (Loss) Total
- -------------------------------------------------------------------------------------------------------------------------------
Balance January 1, 2000 17,747,753 $178 $282,734 $(70,087) $ (119,995) $(987) $91,843
Comprehensive income:
Net income 46,866 46,866
Effect of exchange rate fluctuation (154) (154)
Closure of exchange rate fluctuation 1,141 1,141
--------
Total comprehensive income 47,853
Stock options exercised 110,349 1 1,602 1,603
Income tax benefit on stock options 594 594
Purchase of 149,400 shares for
treasury (4,053) (4,053)
Dividends -- $0.30 per share (4,569) (4,569)
- --------------------------------------------------- ------ ---------- --------- ----------- -------------- --------
Balance December 31, 2000 17,858,102 179 284,930 (74,140) (77,698) -- 133,271
Comprehensive income:
Net income 39,392 39,392
Effect of derivatives, net
of $2,292 tax effect (4,742) (4,742)
Minimum pension liability, net
of $137 tax effect (228) (228)
--------
Total comprehensive income 34,422
Stock options exercised 167,741 1 2,344 2,345
Income tax benefit on stock options 1,144 1,144
Purchase of 42,000 shares for
treasury (1,229) (1,229)
Dividends -- $0.30 per share (4,588) (4,588)
- --------------------------------------------------- ------ ---------- --------- ----------- -------------- --------
Balance December 31, 2001 18,025,843 180 288,418 (75,369) (42,894) (4,970) 165,365
Comprehensive income:
Net income 28,055 28,055
Effect of derivatives, net
of $297 tax effect (493) (493)
Minimum pension liability, net
of $15,919 tax effect (26,419) (26,419)
Effect of exchange rate fluctuation (1) (1)
--------
Total comprehensive income 1,142
Stock options exercised 230,434 3 3,298 3,301
Income tax benefit on stock options 1,821 1,821
Purchase of 935,600 shares for
treasury (26,837) (26,837)
Dividends -- $0.30 per share (4,574) (4,574)
- --------------------------------------------------- ------ ---------- --------- ----------- -------------- --------
BALANCE DECEMBER 31, 2002 18,256,277 $183 $293,537 $(102,206) $ (19,413) $(31,883) $140,218
=================================================== ====== ========== ========= =========== ============== ========
See accompanying notes
30
Libbey Inc. Consolidated Statements of Cash Flows
- -------------------------------------------------------------------------------------------------------
December 31, 2002 2001 2000
- -------------------------------------------------------------------------------------------------------
Dollars in thousands
OPERATING ACTIVITIES
Net income $28,055 $39,392 $46,866
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 17,262 15,157 14,055
Amortization 1,881 3,686 4,297
Net equity earnings (9,774) (2,665) (4,769)
Nonpension postretirement benefit cost in excess of payments (938) (1,545) (2,735)
Gain on sale of land (381) -- --
Deferred income taxes, less equity earnings portion 4,040 7,394 6,349
Other 354 (385) 3,189
Changes in operating assets and liabilities:
Accounts receivable 3,495 7,673 10,440
Inventories (91) 7,570 (15,185)
Prepaid expenses (186) (469) (329)
Other assets 5,330 (16,976) (10,420)
Accounts payable (6,095) 3,264 762
Accrued liabilities 5,886 (7,117) (2,474)
Other liabilities 5,367 (3,671) (13,148)
- ---------------------------------------------------------------------- ------- ------- --------
Net cash provided by operating activities 54,205 51,308 36,898
INVESTING ACTIVITIES
Additions to property, plant and equipment (16,739) (35,241) (18,096)
Dividends received from equity investments 4,659 4,918 2,940
Acquisitions (including acquisition-related costs, less cash acquired) (62,046) -- --
Other 3,523 (1,563) (63)
- ---------------------------------------------------------------------- ------- ------- --------
Net cash used in investing activities (70,603) (31,886) (15,219)
FINANCING ACTIVITIES
Net bank credit facility activity 43,001 (8,404) (18,596)
Payment of finance fees (815) -- --
Other net borrowings 145 (4,968) 1,345
Stock options exercised 3,301 2,345 1,603
Treasury shares purchased (26,837) (1,229) (4,053)
Dividends (4,574) (4,588) (4,569)
- ---------------------------------------------------------------------- ------- ------- --------
Net cash provided by (used in) financing activities 14,221 (16,844) (24,270)
Effect of exchange rate fluctuations on cash -- -- (45)
- ---------------------------------------------------------------------- ------- ------- --------
(Decrease) increase in cash (2,177) 2,578 (2,636)
Cash at beginning of year 3,860 1,282 3,918
- ---------------------------------------------------------------------- ------- ------- --------
CASH AT END OF YEAR $1,683 $3,860 $1,282
- ---------------------------------------------------------------------- ------- ------- --------
See accompanying notes
31
LIBBEY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA AND PER-SHARE AMOUNTS)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Libbey Inc. and
all wholly owned subsidiaries (the Company). The Company records its 49%
interest in certain companies using the equity method. All material intercompany
accounts and transactions have been eliminated. The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States 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, ceramic dinnerware and
plastic items 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 Vitrocrisa, a glass tableware manufacturer in
Mexico.
ALLOWANCE FOR DOUBTFUL ACCOUNTS The allowance for doubtful accounts is
established through charges to the provision for bad debts. The Company
evaluates the adequacy of the allowance for doubtful accounts on a periodic
basis. The evaluation includes historical trends in collections and write-offs,
management's judgement of the probability of collecting accounts and
management's evaluation of business risk. This evaluation is inherently
subjective, as it requires estimates that are susceptible to revision as more
information becomes available. Accounts are determined to be uncollectible when
the debt is deemed to be worthless or only recoverable in part, and are written
off at that time through a charge against the allowance.
INVENTORY VALUATION The Company uses the last-in, first-out (LIFO) cost method
of inventory valuation for 57.1% of its inventories in 2002 and 61.1% in 2001.
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 $9,632 and $10,535 at December 31, 2002 and 2001, respectively. The
remaining inventories are valued at either standard or average cost, which
approximate current costs.
32
GOODWILL AND INTANGIBLES Goodwill results from the excess of purchase cost over
the fair value of net assets acquired. Goodwill resulting from business
combinations completed prior to December 31, 2001 was being amortized over 40
years.
Intangibles result from valuations assigned by independent appraisers for future
revenues from technical assistance agreements and trademarks acquired, as well
as the pension intangible assets discussed in Note 8.
Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142)
and SFAS No. 141, "Business Combinations" (SFAS No. 141). SFAS No. 142 requires
goodwill and indefinite-lived intangible assets to no longer be amortized but
reviewed annually for impairment, or more frequently if impairment indicators
arise. Accounting Principles Board (APB) Opinion No. 18, "The Equity Method of
Accounting for Investments in Common Stock" (APB 18), requires the Company's
goodwill associated with equity method investees to be reviewed for impairment.
Intangible assets with lives restricted by contractual, legal or other means
will continue to be amortized over their useful lives. As required by SFAS No.
142, the Company determined that certain trademarks had an indefinite life and
ceased amortization of these intangibles on January 1, 2002, and evaluated these
indefinite-lived intangible assets as not being impaired. The Company also
determined that certain technical assistance agreements should have their useful
lives reduced to five years.
At December 31, 2002, the carrying value and accumulated amortization of
amortized intangible assets totaled $3,183 and $3,380, respectively, and the
carrying value of indefinite-lived intangible assets totaled $5,984. Future
estimated amortization expense of amortizable intangibles is as follows: 2003 --
$775; 2004 -- $762; 2005 -- $762; 2006 -- $762 and 2007 -- $55.
Goodwill and other intangible assets were evaluated for impairment as of January
1, 2002 and October 1, 2002, and no impairment was indicated at either date.
33
The following table reflects the consolidated results adjusted as though the
adoption of SFAS No. 142 occurred as of January 1, 2000.
- --------------------------------------------- ------------- ------------ -----------
Year ended December 31, 2002 2001 2000
- --------------------------------------------- ------------- ------------ -----------
Net Income:
Reported net income $28,055 $39,392 $46,866
Goodwill amortization related to
equity investments -- 1,698 1,698
Goodwill and trademark amortization -- 1,684 1,684
Change in amortization of technical
assistance agreements -- (564) (564)
Tax effect -- (38) (38)
- --------------------------------------------- ------------- ------------ -----------
Adjusted net income $28,055 $42,172 $49,646
- --------------------------------------------- ------------- ------------ -----------
Basic earnings per share:
Reported net income $1.84 $2.58 $3.07
Goodwill amortization related to
equity investments -- 0.11 0.11
Goodwill and trademark amortization -- 0.11 0.11
Change in amortization of technical
assistance agreements -- (0.04) (0.04)
Tax effect -- -- --
- --------------------------------------------- ------------- ------------ -----------
Adjusted basic earnings per share $1.84 $2.76 $3.25
- --------------------------------------------- ------------- ------------ -----------
Diluted earnings per share:
Reported net income $1.82 $2.53 $3.01
Goodwill amortization related to
equity investments -- 0.11 0.11
Goodwill and trademark amortization -- 0.11 0.11
Change in amortization of technical
assistance agreements -- (0.04) (0.04)
Tax effect -- -- --
- --------------------------------------------- ------------- ------------ -----------
Adjusted diluted earnings per share $1.82 $2.71 $3.19
- --------------------------------------------- ------------- ------------ -----------
DEFERRED SOFTWARE Deferred software represents the costs of internally developed
and purchased software packages for internal use plus the costs associated with
the installation of software. These costs are amortized over five years. The
Company periodically reviews software to assess plans to replace the existing
programs before the five years, in which case the amortization would be
accelerated.
34
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are recorded at
cost. Major improvements are capitalized. Maintenance and repairs are expensed
as incurred. Depreciation is provided on the straight-line method over the
estimated useful lives of the assets, generally 3 to 14 years for equipment and
furnishings and 10 to 40 years for buildings and improvements.
SELF-INSURANCE RESERVES Self-Insurance reserves reflect the estimated cost for
group health and workers' compensation claims not covered by third-party
insurance. Workers' compensation accruals are recorded at the estimated ultimate
payout amounts based on individual case estimates and estimates of
incurred-but-not-reported losses developed from past experience. Group health
accruals are based on estimates of incurred-but-not-reported estimates received
from a third party administrator of the plan.
35
STOCK OPTIONS The Company has two stock-based employee compensation plans, which
are described more fully in Note 10. The Company accounts for the plans under
the recognition and measurement principles of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and related
Interpretations. No stock-based employee compensation cost is reflected in net
income, as all options granted under those plans had an exercise price equal to
the market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net income and earnings per share if
the Company had applied the fair value recognition provision of SFAS No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123), to stock-based
employee compensation.
- --------------------------------------------------- ------------- ------------- -------------
Year ended December 31, 2002 2001 2000
- --------------------------------------------------- ------------- ------------- -------------
Net Income:
Reported net income $28,055 $39,392 $46,866
Stock-based employee compensation
expense determined under fair value
based method for all awards, net of
related tax effects 1,511 1,277 1,241
- --------------------------------------------------- ------------- ------------- -------------
Pro forma net income $26,544 $38,115 $45,625
- --------------------------------------------------- ------------- ------------- -------------
Basic earnings per share:
Reported net income $1.84 $2.58 $3.07
Stock-based employee compensation
expense determined under fair value
based method for all awards, net of
related tax effects 0.10 0.09 0.08
- --------------------------------------------------- ------------- ------------- -------------
Adjusted basic earnings per share $1.74 $2.49 $2.99
- --------------------------------------------------- ------------- ------------- -------------
Diluted earnings per share:
Reported net income $1.82 $2.53 $3.01
Stock-based employee compensation
expense determined under fair value
based method for all awards, net of
related tax effects 0.10 0.08 0.08
- --------------------------------------------------- ------------- ------------- -------------
Adjusted diluted earnings per share $1.72 $2.45 $2.93
- --------------------------------------------------- ------------- ------------- -------------
36
INCOME TAXES Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for estimated future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled.
REVENUE RECOGNITION Revenue is recognized when products are shipped and title
and risk of loss has passed to the customer. Revenue is recorded net of returns
and discounts and allowances offered to customers. The Company estimates returns
and discounts at the time of sale based on the terms of the agreements and
historical experience. The Company continually evaluates the adequacy of these
methods used to estimate returns and discounts.
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. On January 1, 2002, the Company reduced the
useful lives of certain technical assistance agreements to five years based on
the implementation of SFAS No. 142.
DERIVATIVES The Company holds derivative financial instruments to hedge certain
of its interest rate risks associated with long-term debt, commodity price risks
associated with forecasted future natural gas requirements and foreign exchange
rate risks associated with occasional transactions denominated in a currency
other than the U.S. dollar. These derivatives qualify for hedge accounting since
the hedges are highly effective, and the Company has designated
contemporaneously and documented the hedging relationships involving these
derivative instruments. While the Company intends to continue to meet the
conditions for hedge accounting, if hedges do not qualify as highly effective or
if the Company does not believe that forecasted transactions would occur, the
changes in the fair value of the derivatives used as hedges would be reflected
in earnings.
The Company uses Interest Rate Protection Agreements (Rate Agreements) to manage
its exposure to fluctuating interest rates, which effectively convert a 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. These instruments
are valued using the market standard methodology of netting the discounted
expected future variable cash receipts and the discounted future fixed cash
payments. The variable cash receipts are based on an expectation of future
interest rates derived from observed market interest rate forward curves. The
Company also uses commodity futures contracts related to forecasted future
natural gas requirements. The objective of these futures contracts and other
derivatives is to limit the fluctuations in prices paid and potential losses in
earnings or cash flows from adverse price movements in the underlying commodity.
The
37
Company considers its forecasted natural gas requirements in determining the
quantity of its natural gas to hedge. The Company combines the forecasts with
historical observations to establish the percentage of its forecast eligible to
be hedged, typically ranging from 40% to 60% of the anticipated requirements,
generally two or more months in the future. In some cases hedges are for
requirements as long as two years into the future. The fair values of these
instruments are determined from market quotes. The Company's foreign currency
exposures arise from occasional transactions denominated in a currency other
than the U.S. dollar primarily associated with anticipated purchases of new
equipment or net investment in a foreign operation. The fair values of these
instruments are determined from market quotes. The Company has not changed its
methods of calculating these values or developing underlying assumptions. The
values of these derivatives will change over time as cash receipts and payments
are made and as market conditions change.
As of December 31, 2002, the Company has Rate Agreements for $100.0 million of
its variable rate debt, commodity futures contracts for 0.8 million British
Thermal Units (BTUs) of natural gas, and foreign currency forward contracts for
42.3 million euros. The fair value of these derivatives are included on the
balance sheet in prepaid expenses for the natural gas futures and accrued
liabilities for the Rate Agreements and foreign currency forwards.
The Company does not believe it is exposed to more than a nominal amount of
credit risk in its interest rate, natural gas and foreign currency hedges as the
counterparts are established financial institutions.
The effective portion of changes in the fair value of a derivative that is
designated as and meets the required criteria for a cash flow hedge is recorded
in accumulated other comprehensive income (loss) and reclassified into earnings
in the same period or periods during which the underlying hedged item affects
earnings. Amounts reclassified into earnings related to Rate Agreements are
included in interest expense, natural gas futures contracts in natural gas
expense included in cost of sales, and foreign currency forward contracts for
the purchase of new equipment in capital expenditures and for net investments in
foreign operations in other income (expense).
All of the Company's derivatives qualify and are designated as cash flow hedges
at December 31, 2002. Hedge accounting is only applied when the derivative is
deemed to be highly effective at offsetting changes in fair values or
anticipated cash flows of the hedged item or transaction. For hedged forecasted
transactions, hedge accounting is discontinued if the forecasted transaction is
no longer probable to occur, and any previously deferred gains or losses would
be recorded to earnings immediately. The ineffective portion of the change in
the fair value of a derivative designated as a cash flow hedge is recognized in
current earnings. Ineffectiveness recognized in earnings during 2002 was not
material.
Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" as amended by SFAS Nos. 137 and
138. The Company recorded a cumulative transition adjustment to decrease other
comprehensive income (loss) by
38
$1,044 less tax of $371 to recognize the fair value of its derivative
instruments at January 1, 2001. During 2001, the Company decreased other
comprehensive income (loss) by an additional $5,990 for net changes in the fair
value of derivatives less tax of $1,921, which results in accumulated other
comprehensive income (loss) related to derivatives at December 31, 2001, of
$(7,034) less tax of $2,292, or $(4,742). During 2002, the Company decreased
other comprehensive income (loss) by an additional $(790) for net changes in the
fair value of derivatives less tax of $297 or $(493). This results in
accumulated other comprehensive income (loss) related to derivatives at December
31, 2002, of $(7,824) less tax of $2,589, or $(5,235).
The following table identifies the detail of cash flow hedges in Other
Comprehensive income (loss) as of December 31:
- ---------------------------------------------------------------- ---------- ----------
Year ended December 31, 2002 2001
- ---------------------------------------------------------------- ---------- ----------
Balance at beginning of year $(4,742) -
Cumulative effect of adoption of SFAS No. 133 (net of
taxes)
Rate Agreements - $(832)
Natural Gas - 51
Foreign Currency - 108
- ---------------------------------------------------------------- ---------- ----------
Subtotal - (673)
Current year impact of changes in value (net of taxes)
Rate Agreements (2,460) $(2,215)
Natural Gas 2,174 (1,746)
Foreign Currency (207) (108)
- ---------------------------------------------------------------- ---------- ----------
Subtotal (493) (4,069)
- ---------------------------------------------------------------- ---------- ----------
Balance at end of year $(5,235) $(4,742)
- ---------------------------------------------------------------- ---------- ----------
RESEARCH AND DEVELOPMENT Research and development expenses are fully charged to
the Consolidated Statements of Income when incurred. Expenses for 2002, 2001 and
2000 respectively were $2,124, $2,394, and $2,263.
FOREIGN CURRENCY TRANSLATION Effective January 1, 2001, the remaining activities
of the Company's wholly owned Canadian sales subsidiary are recorded with the
U.S. dollar as the functional currency. The 49% investments in Vitrocrisa, S. de
R.L. de C.V. and related Mexican companies are accounted for using the equity
method with the U.S. dollar as the functional currency. The assets and
liabilities of the wholly owned foreign subsidiary, Royal Leerdam (B.V.
Koninklijke Nederlandsche Glasfabriek Leerdam), are translated at current
exchange rates and any related translation adjustments are recorded directly in
shareholders' equity with the euro being the functional currency.
39
OTHER COMPREHENSIVE INCOME (LOSS) Other comprehensive income (loss) for the
Company consisted of foreign currency translation adjustment prior to 2001. In
2001, other comprehensive income (loss) includes fair value changes of
derivatives and a net minimum pension liability in connection with pension
obligations, net of tax. Disclosure of comprehensive income (loss) is
incorporated into the Consolidated Statements of Shareholders' Equity for all
years presented. Accumulated other comprehensive loss primarily includes $5,235
and $4,742 for effect of derivatives and $26,647 and $228 for minimum pension
liability as of December 31, 2002 and 2001, respectively.
LONG-LIVED ASSETS Effective January 1, 2002, the Company adopted SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No. 144),
which supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," and provides a single
accounting model for long-lived assets which are to be disposed. The adoption of
SFAS No. 144 had no effect on the Company's consolidated results of operations
or financial position.
TREASURY STOCK Treasury stock purchases are recorded at cost. During 2002, 2001
and 2000, the Company purchased 935,600, 42,000 and 149,400 shares of stock at
an average cost of $28.68, $29.26 and $27.13, respectively.
INCOME PER SHARE OF COMMON STOCK The following table sets forth the computation
of basic and diluted earnings per share:
- -------------------------------------------------- ---------------- -------------- ---------------
Year ended December 31, 2002 2001 2000
- -------------------------------------------------- ---------------- -------------- ---------------
Numerator for earnings per share -- net
income that is available to common
shareholders $28,055 $39,392 $46,866
Denominator for basic earnings per share --
weighted-average shares outstanding 15,240,429 15,296,289 15,253,726
Effect of dilutive securities - employee stock
options and employee stock purchase
plan (ESPP) in 2002 190,693 247,996 293,327
Denominator for diluted earnings per share
- adjusted weighted-average shares and
assumed conversions 15,431,122 15,544,285 15,547,053
Basic earnings per share $1.84 $2.58 $3.07
Diluted earnings per share $1.82 $2.53 $3.01
- -------------------------------------------------- ---------------- -------------- ---------------
40
NEW ACCOUNTING STANDARDS In June 2002, the FASB issued SFAS No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities" (SFAS No. 146). This
statement addresses financial accounting and reporting for costs associated with
exit or disposal activities and nullifies Emerging Issues Task Force Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS No. 146 requires that costs associated with an exit or
disposal activity be recognized when the liability is incurred and establishes
fair value as the objective for initial measurement of the liability. The
pronouncement becomes effective for fiscal years beginning after December 15,
2002.
In December 2002, the FASB issued a SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" (SFAS No. 148). This statement
addresses the transition methods for entities that adopt the fair value method
of accounting for stock-based employee compensation and also improves the
prominence and clarity of the pro forma disclosures required by SFAS No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123), by prescribing a
specific tabular format and by requiring disclosure in the Significant
Accounting Policies note to the financial statement. In addition, this statement
requires disclosures in financial reports for interim periods. The Company
adopted the disclosure requirements of SFAS No. 148 in December 2002, the
effective date of the Standard.
In November 2002, the FASB issued Interpretation No. 45, "Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." This interpretation will significantly change current
practices in the accounting for and disclosure of guarantees. Guarantees meeting
the characteristics described in the Interpretation are required to be initially
recorded at fair value. The Interpretation's initial recognition and initial
measurement provisions are applicable on prospective basis to guarantees issues
or modified after December 31, 2002. The Interpretation also requires a
guarantor to make significant new disclosures for virtually all guarantees even
if the likelihood of the guarantor's having to make payments under the guarantee
is remote. The Interpretation's disclosure requirements are effective for this
year's financial statements. Libbey Inc. guarantees the debt of Libbey Glass
Inc. and Libbey Glass Inc. guarantees the debt of Libbey Europe B.V. (all
related parties which are included in the Consolidated Financial Statements).
41
3. ACQUISITIONS
Abandoned Anchor Hocking Acquisition
- ------------------------------------
In June of 2001, the Company entered into an agreement to acquire the Anchor
Hocking operations of Newell Rubbermaid Inc. On June 10, 2002, the Company
abandoned its proposed acquisition of the Anchor Hocking business in light of
the challenge to the acquisition by the United States Federal Trade Commission
(FTC). As a result, the Company expensed costs of $13,634 in 2002 directly
related to the abandoned acquisition. These costs, consisting primarily of
professional and financing fees, represent all of the costs incurred in
connection with the acquisition and due to the unusual nature of this event have
been classified in the Other income (expense) in the 2002 Consolidated Statement
of Income.
Traex Acquisition
- -----------------
On December 2, 2002, the Company acquired substantially all the assets of the
Traex business (Traex) from Menasha Corporation for $16.8 million in cash. Traex
manufactures and markets a wide-range of plastic products, including glassware
washing and storage racks, trays, dispensers and organizers for the foodservice
industry. Traex is located in Dane, Wisconsin. The operating results of Traex
have been included in the 2002 Consolidated Statements of Income since the date
of acquisition.
Royal Leerdam Acquisition
- -------------------------
On December 31, 2002, the Company acquired the stock of Royal Leerdam (B.V.
Koninklijke Nederlandsche Glasfabriek Leerdam) for $44.1 million in cash from
BSN Glasspack N.V. Royal Leerdam manufactures and markets high-quality glass
stemware. Royal Leerdam is located in Leerdam, Netherlands. Since the
acquisition was completed on December 31, 2002, there were no operating results
included in the Consolidated Statements of Income.
As part of the stock acquisition of Royal Leerdam (B. V. Koninklijke
Nederlandsche Glasfabriek Leerdam), the Company obtained an option, for a price
of one euro, to put the stock of B.V. Leerdam Crystal (a wholly owned subsidiary
of Royal Leerdam) back to BSN Glasspack N.V. Leerdam Crystal manufactures and
markets various hand-made crystal items. The option expires on April 1, 2003,
and is available to be extended to June 30, 2003.
If the option to put the business back to BSN Glasspack N.V is not exercised and
the Company retains the business of B.V. Leerdam Crystal, the Company will
assume 1.6 million euros of debt. The debt would be interest free and would be
payable in three equal installments due on December 31 of each year beginning in
2003. Since, as of December 31, 2002, the option has not been exercised, the
December 31, 2002 Consolidated Balance Sheet only reflects the value of the
option of one euro.
The purchase price allocations for the acquisitions have been prepared on a
preliminary basis. Reasonable changes are expected as additional information
becomes available and the asset
42
valuations are finalized. Following is a summary of the estimated fair values of
the assets acquired and liabilities assumed as of the date of acquisitions:
-------------------------------------------------- -------------
2002
-------------------------------------------------- -------------
Current assets (including cash of $382) $22,728
Property, plant and equipment 38,679
Intangible assets - amortizable (7.5
weighted average life) 363
Goodwill & intangible assets (indefinite life) 17,112
Other assets 1,975
-------------------------------------------------- -------------
Total assets acquired 80,857
-------------------------------------------------- -------------
Less liabilities assumed:
Current liabilities 12,474
Long-term liabilities 5,957
-------------------------------------------------- -------------
Total liabilities assumed 18,431
-------------------------------------------------- -------------
Less acquisition-related costs 1,549
-------------------------------------------------- -------------
-------------------------------------------------- -------------
Net cash paid to seller $60,877
-------------------------------------------------- -------------
The pro forma unaudited results of operations for the years ended December 31,
2001 and 2002, assuming the acquisitions had been consummated as of January 1,
2001, are as follows:
- ------------------------------------------ ------------ -----------
Year ended December 31, 2002 2001
- ------------------------------------------ ------------ -----------
Total revenues $505,216 $490,072
Net Income 30,227 42,072
Net income per share
Basic $1.98 $2.75
Diluted $1.96 $2.71
- ------------------------------------------ ------------ -----------
The unaudited pro forma information is not necessarily indicative either of the
results of operations that would have occurred had the acquisition been
consummated as of January 1, 2001 or of future operating results.
4. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company is a 49% equity owner in Vitrocrisa, S. de R.L. de C.V. and related
Mexican companies (Vitrocrisa), which manufacture, market and sell glass
tableware (beverageware, plates, bowls, serveware and accessories) and
industrial glassware (coffee pots, blender jars, meter
43
covers, glass covers for cooking ware and lighting fixtures sold to original
equipment manufacturers) and a 49% equity owner in Crisa Industrial, L.L.C., a
domestic distributor of industrial glassware for Vitrocrisa in the U.S. and
Canada.
Summarized combined financial information for the Company's investments,
accounted for by the equity method, is as follows:
------------------------------------------------ ---------- ----------
December 31, 2002 2001
------------------------------------------------ ---------- ----------
Current assets $93,311 $102,599
Non-current assets 115,054 130,295
------------------------------------------------ ---------- ----------
Total assets 208,365 232,894
------------------------------------------------ ---------- ----------
Current liabilities 78,547 74,924
Other liabilities and deferred items 100,063 135,396
------------------------------------------------ ---------- ----------
Total liabilities and deferred items 178,610 210,320
------------------------------------------------ ---------- ----------
Net assets $29,755 $22,574
------------------------------------------------ ----------- ---------
---------------------------------------------- ----------- ------------ ------------
Year ended December 31, 2002 2001 2000
---------------------------------------------- ----------- ------------ ------------
Net sales $193,152 $199,373 $217,477
Cost of sales 158,801 157,011 154,248
---------------------------------------------- ----------- ------------ ------------
Gross profit 34,351 42,362 63,229
Operating expenses 21,108 21,250 22,817
---------------------------------------------- ----------- ------------ ------------
Income from operations 13,243 21,112 40,412
Other income (loss) 2,872 5,014 (2,420)
---------------------------------------------- ----------- ------------ ------------
Earnings before finance costs and taxes 16,115 26,126 37,992
Interest expense 6,127 7,855 10,296
Translation gain (loss) 3,030 (1,780) 289
----------- ------------ ------------
Earnings before income taxes 13,018 16,491 27,985
Income taxes (6,928) 7,588 14,788
---------------------------------------------- ----------- ------------ ------------
Net income $ 19,946 $ 8,903 $ 13,197
---------------------------------------------- ----------- ------------ ------------
44
The Company reports pretax equity earnings in the consolidated statements of
income with related Mexican taxes included in the provision for income taxes.
The equity earnings are as follows:
-------------------------------------- ------------- ------------- ------------
Year ended December 31, 2002 2001 2000
-------------------------------------- ------------- ------------- ------------
Pretax equity earnings $6,379 $6,384 $12,016
Mexican taxes (3,395) 3,719 7,247
-------------------------------------- ------------- ------------- ------------
Net equity earnings $9,774 $2,665 $4,769
-------------------------------------- ------------- ------------- ------------
As required by SFAS No. 142, the Company ceased amortization of goodwill
included in its equity investments, effective January 1, 2002. APB 18, "The
Equity Method of Accounting for Investments in Common Stock" requires the
Company's goodwill associated with equity method investees to be reviewed for
impairment. The Company has determined that the goodwill of $60.5 million at
December 31, 2002, is not impaired. The difference between total earnings before
income taxes in the combined information above and the Company's pretax equity
earnings in 2001 and 2000 is $1,698 due to amortization of goodwill related to
these investments.
The carrying value of the equity investments is greater than the underlying
shareholders' equity of those entities due to the use of purchase accounting at
the time of the Company's acquisition of its 49% interest in 1997.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
- -------------------------------------- ----------------- ----------------
December 31, 2002 2001
- -------------------------------------- ----------------- ----------------
Land $15,614 $15,433
Buildings 47,578 36,703
Machinery and equipment 218,375 179,909
Furniture and fixtures 13,851 14,285
Construction in progress 5,272 8,149
- -------------------------------------- ----------------- ----------------
300,690 254,479
Less accumulated depreciation 137,569 126,681
- -------------------------------------- ----------------- ----------------
Net property, plant and equipment $163,121 $127,798
- -------------------------------------- ----------------- ----------------
45
6. OTHER ACCRUED LIABILITIES
Other accrued liabilities include accruals for employee medical and workers'
compensation self-insurance of $5,652 and $4,694 and various customer incentive
programs totaling $12,917 and $9,709 at December 31, 2002 and 2001,
respectively.
7. INCOME TAXES
The provision for income taxes was calculated based on the following components
of earnings before income taxes:
- ------------------------------------------------------------------ -------- -------- -------
Year ended December 31, 2002 2001 2000
- ------------------------------------------------------------------ -------- -------- -------
United States $31,202 $51,139 $66,223
Foreign 5,471 8,093 14,256
- ------------------------------------------------------------------ -------- -------- -------
Total earnings before tax $36,673 $59,232 $80,479
- ------------------------------------------------------------------ -------- -------- -------
The provision (credit) for income taxes consists of the following:
- ------------------------------------------------------------------ -------- -------- -------
Year ended December 31, 2002 2001 2000
- ------------------------------------------------------------------ -------- -------- -------
Current:
Federal $7,146 $7,880 $19,111
Foreign 740 679 1,925
State and local 645 560 2,436
- ------------------------------------------------------------------ -------- -------- -------
Total current tax provision 8,531 9,119 23,472
- ------------------------------------------------------------------ -------- -------- -------
Deferred:
Federal 3,439 8,228 3,963
Foreign (3,854) 3,275 5,703
State and local 502 (782) 475
- ------------------------------------------------------------------ -------- -------- -------
Total deferred tax provision 87 10,721 10,141
- ------------------------------------------------------------------ -------- -------- -------
Total:
Federal 10,585 16,108 23,074
Foreign (3,114) 3,954 7,628
State and local 1,147 (222) 2,911
- ------------------------------------------------------------------ -------- -------- -------
Total tax provision $8,618 $19,840 $33,613
- ------------------------------------------------------------------ -------- -------- -------
46
Significant components of the Company's deferred tax liabilities and assets are
as follows:
December 31, 2002 2001
- -------------------------------------------------------------------------------- -------- --------
Deferred tax liabilities:
Property, plant and equipment $24,110 $21,714
Inventories 6,151 5,773
Pension -- 9,775
Intangibles and other assets 16,711 18,789
- -------------------------------------------------------------------------------- -------- --------
Total deferred tax liabilities 46,972 56,051
- -------------------------------------------------------------------------------- -------- --------
Deferred tax assets:
Accrued nonpension postretirement benefits 17,802 18,130
Other accrued liabilities 13,146 11,512
Pension 4,633 --
Receivables 2,791 2,203
Tax credits 6,176 7,396
- -------------------------------------------------------------------------------- -------- --------
Total deferred tax assets 44,548 39,241
- -------------------------------------------------------------------------------- -------- --------
Net deferred tax liability before valuation 2,424 16,810
allowance
Valuation allowance 195 195
- -------------------------------------------------------------------------------- -------- --------
Net deferred tax liability $2,619 $17,005
- -------------------------------------------------------------------------------- -------- --------
The net deferred tax liability is included in the consolidated balance sheets as
follows:
December 31, 2002 2001
- -------------------------------------------------------------------------------- -------- --------
Noncurrent deferred taxes $11,780 $23,512
Prepaid expenses and deferred taxes (9,161) (6,507)
- -------------------------------------------------------------------------------- -------- --------
Net deferred tax liability $2,619 $17,005
- -------------------------------------------------------------------------------- -------- --------
47
A reconciliation from the statutory U.S. federal tax rate of 35% to the
consolidated effective tax rate is as follows:
Year ended December 31, 2002 2001 2000
- ------------------------------------------------------ ------ ------ ------
Statutory U.S. federal tax rate 35.0% 35.0% 35.0%
Increase (decrease) in rate due to:
Foreign tax differential (10.5) 4.2 11.0
State and local income taxes, net of related
federal taxes 2.0 (0.2) 2.4
Amortization of goodwill -- 1.4 1.0
Federal credits (1.5) (5.8) (6.3)
Other (1.5) (1.1) (1.3)
- ------------------------------------------------------ ------ ------ ------
Consolidated effective tax rate 23.5% 33.5% 41.8%
- ------------------------------------------------------ ------ ------ ------
The lower effective tax rate in 2002 is primarily attributable to lower Mexican
tax, the elimination of non-deductible goodwill amortization and an adjustment
to estimated U.S. income tax accruals. The reduction in Mexican tax is primarily
attributable to deferred tax adjustments and reduced statutory tax rates in
Mexico.
Income taxes paid in cash (net of refunds received) amounted to $3,555, $7,632
and $29,288 for the years ended December 31, 2002, 2001 and 2000, respectively.
U.S. deferred income taxes, net of foreign tax credit, were provided on all
undistributed earnings of the Company's Mexican and Canadian subsidiaries, as
the earnings are not expected to be permanently reinvested in such companies.
Income tax benefits related to employee stock option transactions of $1,821,
$1,144 and $594 for the years ended December 31, 2002, 2001 and 2000,
respectively, were allocated to shareholders' equity. In addition, income tax
benefits related to minimum pension liability of $15,919 and $137 for the years
ended December 31, 2002 and 2001, respectively, and income tax benefits related
to derivatives of $297 and $2,292 for the years ended December 31, 2002 and 2001
respectively, were allocated to shareholders' equity.
48
The deferred tax credit consist of the following:
December 31, 2002 2001
- ----------------------------------------------- ------------ -------------
State tax credits $2,623 $ 2,841
Federal foreign tax credits 3,152 3,813
Federal research and experimentation credits 401 742
- ----------------------------------------------- ------------ -------------
Total deferred tax credits $6,176 $7,396
- ----------------------------------------------- ------------ -------------
The valuation allowance of $195 recorded at December 31, 2002 and 2001 is
related to state tax credits. The state tax credits will expire between 2005 and
2017. The federal foreign tax credits are not available for utilization until
earnings are distributed from the non-U.S. subsidiaries. The federal research
and experimentation credits represent a receivable for credits that have been
earned, but due to federal procedural matters have not been received as of
December 31, 2002.
49
8. PENSION PLANS AND NONPENSION POSTRETIREMENT 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. In
addition, the Company has a supplemental employee retirement plan (SERP)
covering certain employees. The 2001 and 2000 pension disclosure information has
been restated to include the SERP.
The changes in the projected benefit obligations and fair value of plan assets
are as follows:
- ----------------------------------------------------------------- --------- ---------
December 31, 2002 2001
- ----------------------------------------------------------------- --------- ---------
Change in projected benefit obligation:
Projected benefit obligation, beginning of year $190,562 $164,373
Service cost 4,819 3,969
Interest cost 14,373 13,199
Plan amendments 1,445 11,014
Actuarial loss 12,803 9,967
Benefits paid (13,619) (11,960)
- ----------------------------------------------------------------- --------- ---------
Projected benefit obligation, end of year $210,383 $190,562
- ----------------------------------------------------------------- --------- ---------
Change in fair value of plan assets:
Fair value of plan assets, beginning of year $198,392 $222,648
Actual return on plan assets (12,016) (12,296)
Benefits paid (13,619) (11,960)
- ----------------------------------------------------------------- --------- ---------
Fair value of plan asset, end of year $172,757 $198,392
- ----------------------------------------------------------------- --------- ---------
Reconciliation of prepaid (accrued) cost:
Funded Status of the plans $(37,626) $7,830
Unrecognized net loss 51,816 2,613
Unrecognized prior year service cost 16,257 16,340
Estimated accrued Royal Leerdam pension
cost (4,601) --
Adjustment to recognize additional minimum
liability (60,052) (829)
- ----------------------------------------------------------------- --------- ---------
(Accrued) prepaid pension benefit cost $(34,206) $25,954
- ----------------------------------------------------------------- --------- ---------
50
The pension plans are reflected in the consolidated balance sheets as follows:
- --------------------------------------------------------- -------- --------
December 31, 2002 2001
- --------------------------------------------------------- -------- --------
Pension (liability) asset $(28,655) $29,506
Other long-term liabilities (SERP liability) (5,551) (3,552)
- --------------------------------------------------------- -------- --------
(Accrued) prepaid pension benefit cost $(34,206) $25,954
- --------------------------------------------------------- -------- --------
- --------------------------------------------------------- -------- --------
December 31, 2002 2001
- --------------------------------------------------------- -------- --------
Intangibles (intangible pension asset) $17,168 $282
- --------------------------------------------------------- -------- --------
The plan amendments in 2001 resulted from additional benefits granted to certain
of the Company's unionized workforce in labor negotiations.
The Company recorded an additional minimum pension liability of $59,223 and $829
as of December 31, 2002 and 2001, respectively, representing the amount required
to bring the Company's recorded pension liability to equal the excess of the
accumulated benefit obligation over fair value of plan assets for the applicable
plans. An intangible pension asset of $16,886 and $282 as of December 31, 2002
and 2001, respectively, was recorded to the extent of the plans' unrecognized
prior service cost. The difference between the additional minimum pension
liability and intangible pension asset was included as a reduction of other
comprehensive income of $42,338 less income tax benefit of $15,919, and $365
less income tax benefit of $137 for the years ended December 31, 2002 and 2001,
respectively.
The actuarial present value of benefit obligations is based on the following:
- -------------------------------------------------- -------- --------- ---------
Year ended December 31, 2002 2001 2000
- -------------------------------------------------- -------- --------- ---------
Discount rate 6.75% 7.50% 7.75%
Expected long-term rate of return on assets 9.00% 10.00% 10.00%
Salary growth rate 4.00% 5.00% 5.00%
- -------------------------------------------------- -------- --------- ---------
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.
51
The components of the net pension credit (including the SERP) are as follows:
- ---------------------------------------------------- -------- -------- --------
Year ended December 31, 2002 2001 2000
- ---------------------------------------------------- -------- -------- --------
Service cost (benefits earned during the period) $ 4,819 $ 3,969 $ 3,911
Interest cost on projected benefit obligation 14,373 13,199 12,471
Expected return on plan assets (23,158) (22,669) (21,245)
Prior service cost amortization 1,527 536 536
Actuarial gain recognized (1,245) (2,120) (2,168)
- ---------------------------------------------------- -------- -------- --------
Net pension credit $(3,684) $(7,085) $(6,495)
- ---------------------------------------------------- -------- -------- --------
In addition to the above plans, U.S. employees are eligible to contribute to a
401(k) plan. The Company matches a portion of these contributions. Contributions
were an expense of $2,138, $2,024 and $1,996 in 2002, 2001 and 2000,
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, Inc. assumed liability for the nonpension postretirement
benefits of Company retirees who had retired as of June 18, 1993.
52
The components of the nonpension postretirement benefit obligation and amounts
accrued are as follows:
- ----------------------------------------------------------------- -------- --------
December 31, 2002 2001
- ----------------------------------------------------------------- -------- --------
Change in accumulated nonpension
postretirement benefit obligation:
Benefit obligation, beginning of year $26,693 $20,855
Currency loss (gain) 27 (153)
Service cost 736 590
Interest cost 2,360 1,911
Actuarial loss 9,665 4,845
Benefits paid (1,934) (1,355)
- ----------------------------------------------------------------- -------- --------
Benefit obligation, end of year $37,547 $26,693
- ----------------------------------------------------------------- -------- --------
Reconciliation of funded status of plans:
Funded Status $(37,547) $(26,693)
Unrecognized actuarial gain (187) (10,064)
Unrecognized prior year service cost (9,459) (11,374)
- ----------------------------------------------------------------- -------- --------
Accrued benefit cost $(47,193) $(48,131)
- ----------------------------------------------------------------- -------- --------
The provision for net nonpension postretirement benefit cost (credit) consists
of the following:
- -------------------------------------------------------------------- ------- ------- -------
Year ended December 31, 2002 2001 2000
- -------------------------------------------------------------------- ------- ------- -------
Service cost (benefits earned during the period) $736 $590 $439
Interest cost on nonpension postretirement
benefit obligation 2,360 1,911 1,549
Prior service cost amortization (2,162) (2,543) (2,883)
- -------------------------------------------------------------------- ------- ------- -------
Net nonpension postretirement benefit cost (credit) $934 $(42) $(895)
- -------------------------------------------------------------------- ------- ------- -------
Assumed health care cost inflation is based on an initial rate of 10.0%
decreasing to an ultimate rate of 5.0% over 5 years. A 1% increase in these
rates would have increased the nonpension postretirement expense by $76 and the
benefit obligation by $854. A 1% decrease in these rates would have decreased
the net nonpension postretirement expense by $91 and the benefit obligation by
$870. The assumed discount rate used in determining the accumulated nonpension
postretirement benefit obligation was 6.75% for 2002, 7.5% for 2001 and 7.75%
for 2000. The Company continues to fund these nonpension postretirement benefit
obligations as claims are incurred.
53
The Company also provides retiree health care benefits to certain union hourly
employees through participation in a multi-employer retiree health care benefit
plan. Related to these plans, approximately $312, $365 and $377 was charged to
expense for the years ended December 31, 2002, 2001 and 2000, respectively.
9. LONG-TERM DEBT
On February 10, 2003, the Company entered into an unsecured agreement for an
Amended and Restated Revolving Credit Agreement (Revolving Credit Agreement or
Agreement) among Libbey Glass Inc. and Libbey Europe B.V., as borrowers. This
amended the previous Revolving Credit and Swing Line Facility naming Libbey
Glass Inc. as borrower. The amendment was primarily for the Company to borrow
euros. The Agreement is with a group of banks that provides for a Revolving
Credit and Swing Line Facility (Facility) permitting borrowings up to an
aggregate total of $250 million, maturing April 23, 2005, with an option to
extend for two additional one-year periods. Swing Line borrowings are limited to
$25 million with interest calculated at the prime rate minus the facility fee
percentage (Facility Fee Percentage) as defined in the Agreement. Revolving
Credit Agreement U.S. dollar borrowings bear interest at the Company's option at
either the prime rate minus the Facility Fee Percentage or a Eurodollar rate
plus the Applicable Eurodollar Margin (Applicable Eurodollar Margin) as defined
in the Agreement. The Facility Fee Percentage and Applicable Eurodollar Margin
vary depending on the Company's performance against certain financial ratios.
The Facility Fee Percentage and the Applicable Eurodollar Margin were 0.25% and
0.75%, respectively, at December 31, 2002.
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 $125 million. The Company had $186 million outstanding under the
Facility at December 31, 2002, and $143 million outstanding at December 31,
2001. The Facility also provides for the issuance of $30 million of letters of
credit, with such usage applied against the $250 million limit. At December 31,
2002, the Company had $4.7 million in letters of credit outstanding under the
Facility.
Libbey Europe B.V. may have euro-denominated borrowings under the Revolving
Credit Agreement in an amount not to exceed the Offshore Currency equivalent of
$60 million. Offshore Currency Swing Line borrowings are currently limited to
$10 million of the $25 million total Swing Line borrowing. Interest is
calculated at the Offshore Currency Swing Line rate plus applicable Offshore
Currency Swing Line Margin, as defined in the Agreement. Revolving Offshore
Currency Borrowings bear interest at the Offshore Currency Rate plus applicable
spread, as defined in the Agreement.
In September 2001, the Company issued a $2.7 million promissory note in
connection with the purchase of a warehouse facility. At December 31, 2002, the
Company had $2.5 million outstanding on the promissory note.
54
Annual maturities for all the Company's long-term debt are as follows: 2003 -
$0.1 million; 2004 - $0.1 million; 2005 - $186.1 million; 2006 - $0.1 million;
and 2007 - $0.2 million.
The Company has Rate Agreements with respect to $100 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 fixed interest rate for the Company's borrowings related to
the Rate Agreements at December 31, 2002, is 5.8% and the total interest rate,
including applicable fees, is 6.8%. The average maturity of these Rate
Agreements is 2.3 years at December 31, 2002. Total remaining debt not covered
by the Rate Agreements has fluctuating interest rates with a weighted average
rate of 2.4% at December 31, 2002. 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 pays the Commitment Fee Percentage on the total credit provided
under the Bank Credit Agreement. No compensating balances are required by the
Agreement, which does require 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.
At December 31, 2002, the carrying value of the Company's variable-rate debt
approximates its fair value based on the Company's current incremental borrowing
rates and term to the maturity of the Bank Credit Agreement. The fair market
value for the Company's Rate Agreements at December 31, 2002, was $(8.8)
million. The fair value of the Company's Rate Agreements is based on the market
standard methodology of netting the discounted expected future variable cash
receipts and the discounted future fixed cash payments. The variable cash
receipts are based on an expectation of future interest rates derived from
observed market interest rate forward curves. The Company does not expect to
cancel these agreements and expects them to expire as originally contracted.
Interest paid in cash amounted to $8,115, $10,785, and $12,001 for the years
ended December 31, 2002, 2001 and 2000.
10. STOCK COMPENSATION
On May 10, 2001 the shareholders approved the 2002 Employee Stock Purchase Plan
(ESPP) which allows employees through payroll withholdings to purchase up to
350,000 shares of common stock at the lower of 85% of the market price at the
beginning or the end of the option period. The Libbey Inc. 2002 ESPP started
June 1, 2002 and continues through May 31, 2003. The market price of stock at
the beginning of the period was $34.60. There have been no shares purchased yet
under this plan. Up to 350,000 shares of common stock may currently be purchased
under the ESPP.
55
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.
The Company has elected to follow APB No. 25, "Accounting for Stock Issued to
Employees" (APB 25) in accounting for employee stock options. The alternative
fair value accounting provided for under SFAS No. 123 requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 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
SFAS No. 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:
- ---------------------------------------- ------- ------- -------
Assumption 2002 2001 2000
- ---------------------------------------- ------- ------- -------
Risk-free interest rates 3.7% 4.2% 6.0%
Dividend yield 1.2% 0.9% 0.9%
Volatility .31 .30 .29
- ---------------------------------------- ------- ------- -------
56
The weighted average fair value of options granted in 2002, 2001 and 2000 was
$9.11, $13.25 and $14.12, respectively.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
- ---------------------------------------- ---------- ---------- ----------
Year ended December 31, 2002 2001 2000
- ---------------------------------------- ---------- ---------- ----------
Net income:
Reported $28,055 $39,392 $46,866
Pro forma $26,544 $38,115 $45,625
Earnings per share:
Basic
Reported $1.84 $2.58 $3.07
Pro forma $1.74 $2.49 $2.99
Diluted
Reported $1.82 $2.53 $3.01
Pro forma $1.72 $2.45 $2.93
- ---------------------------------------- ---------- ---------- ----------
57
Stock option activity is as follows:
- ----------------------- ---------------------- -------------------- ---------------------
Weighted-Average Price Range Per
Number of Shares Exercise Price Share
- ----------------------- ---------------------- -------------------- ---------------------
January 1, 2000
Outstanding 1,507,113 $20.64 $13.00-$38.44
Exercisable 1,196,708 17.32
Granted 175,750 32.31
Canceled 4,190 30.02
Exercised 110,349 14.53
- ----------------------- ---------------------- -------------------- ---------------------
December 31, 2000
Outstanding 1,568,324 $22.35 $13.00-$38.44
Exercisable 1,219,882 19.25
Granted 230,450 30.56
Canceled 1,250 31.94
Exercised 167,741 13.97
- ----------------------- ---------------------- -------------------- ---------------------
December 31, 2001
Outstanding 1,629,783 $24.37 $13.00-$38.44
Exercisable 1,198,163 21.75
Granted 247,950 24.11
Canceled 200 32.31
Exercised 230,434 14.32
- ----------------------- ---------------------- -------------------- ---------------------
DECEMBER 31, 2002
OUTSTANDING 1,646,799 $25.73 $13.00-$38.44
EXERCISABLE 1,158,489 24.95
- ----------------------- ---------------------- -------------------- ---------------------
The following information is as of December 31, 2002:
Options with an
Options with an exercise price
exercise price of greater than
$13.00 per share $13.00 per share
- ------------------------------------------------ ------------------------ -----------------------
Options outstanding 339,678 1,307,121
Weighted-average exercise price $13.00 $29.04
Remaining contractual life .48 6.63
Options exercisable 339,678 818,811
Weighted-average exercise price $13.00 $29.91
- ------------------------------------------------ ------------------------ -----------------------
58
11. 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 would declare 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.
12. OPERATING LEASES
Rental expense for all operating leases, primarily for warehouses, was $6,823,
$5,235 and $4,705 for the years ended December 31, 2002, 2001 and 2000,
respectively. Future minimum rentals under operating leases are as follows:
2003--$4,386; 2004--$3,268; 2005--$2,149; 2006--$1,425; 2007--$1,101; and 2008
and thereafter--$3,025. In 2002, the Company recorded a $1.2 million expense
related to the operating lease for the Company's corporate offices.
59
13. INDUSTRY SEGMENT INFORMATION
The Company has one reportable segment, tableware products, from which the
Company's revenues from external customers are derived. The Company does not
have any customer who represents 10% or more of total sales. The Company's
operations by geographic areas for 2002, 2001 and 2000 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. During 2003, the Company will re-evaluate its reportable
segment disclosures due to the acquisitions that took place in December 2002.
United States Foreign Eliminations Consolidated
- ----------------------- ------------------ ------------------- ------------------- -------------------
2002
Net sales:
Customers $387,662 $46,099 $433,761
Intercompany -- -- --
- ----------------------- ------------------ ------------------- ------------------- -------------------
Total $387,662 $46,099 -- $433,761
- ----------------------- ------------------ ------------------- ------------------- -------------------
Long-lived assets $223,644 $87,119 $310,763
2001
Net sales:
Customers $371,865 $47,729 $419,594
Intercompany -- -- -- --
- ----------------------- ------------------ ------------------- ------------------- -------------------
Total $371,865 $47,729 -- $419,594
- ----------------------- ------------------ ------------------- ------------------- -------------------
Long-lived assets $172,924 $82,513 $255,437
2000
Net sales:
Customers $389,990 $ 51,838 $441,828
Intercompany 740 -- (740) --
- ----------------------- ------------------ ------------------- ------------------- -------------------
Total $390,730 $51,838 $(740) $441,828
- ----------------------- ------------------ ------------------- ------------------- -------------------
Long-lived assets $155,328 $82,309 $237,637
14. SUBSEQUENT EVENTS
On February 18, 2003, the Company announced that it commenced a modified Dutch
Auction tender offer to purchase up to 1,500,000 shares of its outstanding
common stock at a price determined by the Company that is not greater than
$26.50 nor less than $23.50 per share.
60
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables present selected quarterly financial data for the years
ended December 31, 2002 and 2001:
2002
Dollars in thousands, except First Second Third Fourth
per-share amounts Quarter Quarter Quarter Quarter
- ------------------------------------- ------------------- ------------------- ------------------- ------------------
Net sales $98,669 $114,086 $103,607 $117,399
Freight billed to customers 418 434 344 536
Cost of sales 77,016 83,491 74,883 92,175
Gross profit 22,071 31,029 29,068 25,760
Earnings before interest and income
taxes 8,058 9,346 14,142 13,390
Net income 3,952 4,900 10,780 8,423
- ------------------------------------- ------------------- ------------------- ------------------- ------------------
Net income per share
Basic $0.26 $0.32 $0.70 $0.57
Diluted $0.25 $0.31 $0.69 $0.56
- ------------------------------------- ------------------- ------------------- ------------------- ------------------
2001
Dollars in thousands, except First Second Third Fourth
per-share amounts Quarter Quarter Quarter Quarter
- ------------------------------------- ------------------- ------------------- ------------------- ------------------
Net sales $92,515 $108,100 $106,896 $112,083
Freight billed to customers 446 553 482 604
Cost of sales 70,289 73,864 76,092 87,010
Gross profit 22,672 34,789 31,286 25,677
Earnings before interest and income
taxes 9,905 24,901 22,632 11,154
Net income 4,207 14,143 14,057 6,985
- ------------------------------------- ------------------- ------------------- ------------------- ------------------
Net income per share
Basic $0.28 $0.92 $0.92 $0.46
Diluted $0.27 $0.91 $0.90 $0.45
- ------------------------------------- ------------------- -------------------- ------------------ ------------------
61
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 l. 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 - Section 16(a) Beneficial
Ownership Reporting Compliance" is also incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION
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
AND RELATED STOCKHOLDER MATTERS
The section entitled "Security Ownership of Certain Beneficial Owners and
Management," which is included in the Proxy Statement, is incorporated herein by
this reference. Information regarding equity compensation plans is incorporated
herein by reference to Item 5 of this report under the caption "Equity
Compensation Information" on page 13.
ITEM 13. 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.
62
ITEM 14. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures: Based on their
evaluation as of a date within 90 days of the filing date of this Report on Form
10-K, the company's principal executive officer and principal financial officer
have concluded that the company's disclosure controls and procedures (as defined
in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the
"Exchange Act")) are effective to ensure that information required to be
disclosed by the company in reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms.
(b) Changes in internal controls: There were no significant changes in the
company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation. There were no
significant deficiencies or material weaknesses, and therefore there were no
corrective actions taken.
63
PART IV
ITEM 15. 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 Management 25
Report of Independent Auditors 26
Consolidated Balance Sheets at December 31, 2002 and 2001 27
For the years ended December 31, 2002, 2001 and 2000:
Consolidated Statements of Income 29
Consolidated Statements of Shareholders' Equity 30
Consolidated Statements of Cash Flows 31
Notes to Consolidated Financial Statements 32
Selected Quarterly Financial Data (Unaudited) 61
Financial statement schedule for the years ended December 31, 2002, 2001 and
2000:
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 2, 2002, with
respect to the press release announcing earnings expectations for the third
and fourth quarters of 2002.
64
A form 8-K was filed during the fourth quarter, dated December 2, 2002,
with respect to the press release announcing that the Company through a
subsidiary acquired substantially all of the assets of the Traex business
of Menasha Corporation pursuant to an Asset Purchase Agreement between the
Company and Menasha Corporation.
A form 8-K was filed during the fourth quarter, dated December 10, 2002,
with respect to the press release announcing that the Board of Directors
authorized the repurchase of up to 2,500,000 shares of the Company's common
stock in the open market and negotiated purchases.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LIBBEY INC.
by: /s/ Kenneth G. Wilkes
------------------------
Kenneth G. Wilkes
Vice President, Chief Financial
Officer and Head-International Operations
Date: March 27, 2003
65
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 the registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE
- --------- -----
William A. Foley Director
Peter C. McC. Howell Director
Carol B. Moerdyk Director
Gary L. Moreau Director
Terence P. Stewart 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 Date: March 27, 2003
- --------------------------------
Kenneth G. Wilkes
Vice President, Chief Financial Officer
and Head-International Operations
(Principal Accounting Officer)
Date: March 27, 2003
66
CERTIFICATIONS
I, John F. Meier, certify that:
1. I have reviewed this annual report on Form 10-K of Libbey Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation
Date"); and
c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weakness in internal
controls; and
67
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date March 27, 2003 By /s/ John F. Meier
----------------------- ------------------------------
John F. Meier,
Chief Executive Officer
68
I, Kenneth G. Wilkes, certify that:
1. I have reviewed this annual report on Form 10-K of Libbey Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation
Date"); and
c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weakness in internal
controls; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
69
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date March 27, 2003 By /s/ Kenneth G. Wilkes
--------------------- -------------------------
Kenneth G. Wilkes,
Vice President, Chief Financial
Officer and Head-International
Operations
70
INDEX TO FINANCIAL STATEMENT SCHEDULE
Page
----
Financial Statement Schedule of Libbey Inc. for the years ended
December 31, 2002, 2001, and 2000 for Schedule II Valuation
and Qualifying Accounts (Consolidated) S-1
71
LIBBEY INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (Consolidated)
Years ended December 31, 2002, 2001 and 2000
(Dollars in thousands)
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:
2002 $5,962 $2,728 $436 $1,334 $7,792
============= ========= ========= ============ ============
2001 $6,788 $279 $2 $1,107 $5,962
============= ========= ========= ============ ===========
2000 $3,869 $3,631 $293 $1,005 $6,788
============= ========= ========= ============ ===========
(1) The amounts in "Other" represent recoveries of accounts previously
charged off as uncollectible and in 2002 amounts established through
purchase accounting for acquisition of Traex and Royal Leerdam 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
72
EXHIBIT INDEX
S-K Item
601No. Document
- -------------------------------------------------------------------------------------------------------------------------
2.0 -- Asset Purchase Agreement dated as of September 22, 1995 by and among The Pfaltzgraff Co., The
Pfaltzgraff Outlet Co., Syracuse China Company of Canada Ltd., LG Acquisition Corp. and
Libbey Canada Inc., Acquisition of Syracuse China Company (filed as Exhibit 2.0 to the
Registrant's Current Report on Form 8-K dated September 22, 1995 and incorporated herein by
reference).
2.1 -- Master Investment Agreement, dated to be effective as of August 15, 1997, entered into by and
between Libbey Inc., Libbey Glass Inc., LGA2 Corp., LGA3 Corp., LGA4 Corp., Vitro S.A.,
Vitrocrisa Holding, S.A. de C.V., Vitro Corporativo, S.A., Vitrocrisa S.A. de C.V. Crisa
Corporation, and WorldCrisa Corporation (filed as Exhibit 2.1 to the Registrant's Current
Report on Form 8-K dated August 29, 1997 and incorporated herein by reference).
2.2 -- Asset Purchase Agreement dated as of December 2, 2002 by and between Menasha Corporation and Libbey
Inc. (filed herein).
2.3 -- Stock Purchase Agreement dated as of December 31, 2002 between BSN Glasspack N.V. and Saxophone B.V.
(filed herein).
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).
E-1
EXHIBIT INDEX
S-K Item
601No. Document
- -------------------------------------------------------------------------------------------------------------------------
4.1 -- Restated Certificate of Incorporation of Libbey Inc. (incorporated by reference herein to
Exhibit 3.1).
4.2 -- Amended and Restated By-Laws of Libbey Inc. (incorporated by reference herein to 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).
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).
E-2
EXHIBIT INDEX
S-K Item
601No. Document
- -------------------------------------------------------------------------------------------------------------------------
*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).
*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 -- 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).
E-3
EXHIBIT INDEX
S-K Item
601No. Document
- -------------------------------------------------------------------------------------------------------------------------
10.12 -- 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).
10.13 -- 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).
*10.14 -- 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).
*10.15 -- 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).
*10.16 -- 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).
*10.17 -- 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).
E-4
EXHIBIT INDEX
S-K Item
601No. Document
- -------------------------------------------------------------------------------------------------------------------------
10.18 -- 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).
10.19 -- 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).
10.20 -- 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).
10.21 -- 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).
10.22 -- 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).
E-5
EXHIBIT INDEX
S-K Item
601No. Document
- -------------------------------------------------------------------------------------------------------------------------
10.23 -- 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).
10.24 -- 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).
10.25 -- 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).
*10.26 -- 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).
*10.27 -- Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and Rob A. Bules
(filed as Exhibit 10.38 to Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998 and incorporated herein by reference).
*10.28 -- 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).
*10.29 -- 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).
E-6
EXHIBIT INDEX
S-K Item
601No. Document
- -------------------------------------------------------------------------------------------------------------------------
*10.30 -- 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).
*10.31 -- 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).
*10.32 -- 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).
*10.33 -- 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).
*10.34 -- 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).
*10.35 -- Change of Control Agreement dated as of May 27, 1998 between Libbey Inc. and John P. Pranckun
(filed as Exhibit 10.46 to Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998 and incorporated herein by reference).
*10.36 -- 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).
*10.37 -- 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).
E-7
EXHIBIT INDEX
S-K Item
601No. Document
- -------------------------------------------------------------------------------------------------------------------------
*10.38 -- 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).
*10.39 -- 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).
*10.40 -- 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).
*10.41 -- 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).
*10.42 -- 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).
*10.43 -- 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).
*10.44 -- 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).
E-8
EXHIBIT INDEX
S-K Item
601No. Document
- -------------------------------------------------------------------------------------------------------------------------
*10.45 -- 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).
*10.46 -- 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).
*10.47 -- 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).
*10.48 -- 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).
*10.49 -- 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).
*10.50 -- 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).
*10.51 -- 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).
E-9
EXHIBIT INDEX
S-K Item
601No. Document
- -------------------------------------------------------------------------------------------------------------------------
*10.52 -- 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).
*10.53 -- 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).
*10.54 -- 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).
*10.55 -- 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).
*10.56 -- 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).
*10.57 -- 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).
*10.58 -- 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).
E-10
EXHIBIT INDEX
S-K Item
601No. Document
- -------------------------------------------------------------------------------------------------------------------------
*10.59 -- 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).
*10.60 -- 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).
*10.61 -- 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).
*10.62 -- The 1999 Equity Participation Plan of Libbey Inc. (filed as Exhibit 10.67 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by
reference).
*10.63 -- The Libbey Inc. Long-Term Incentive Compensation Plan effective as of January 1, 2001 (filed
as Exhibit 10.66 to Registrant's Annual Report on Form 10-K for the year ended December 31,
2001 and incorporated herein by reference).
*10.64 -- Amended and Restated Credit Agreement, dated February 10, 2003, among Libbey Glass Inc. and
Libbey Europe B.V., as the borrowers, Bank of America, N.A., as the administrative agent,
swing line lender and letter of credit issuer, Bank One, N.A. and Fleet National Bank, as
syndication agents and the other lenders party thereto (filed as Exhibit (b) to Registrant's
Tender Offer Statement on Schedule TO incorporated herein by reference).
E-11
EXHIBIT INDEX
S-K Item
601No. Document
- -------------------------------------------------------------------------------------------------------------------------
21 -- Subsidiaries of the Registrant (filed herewith).
23 -- Consent of Independent Auditors (filed herewith).
24 -- Power of Attorney (filed herewith).
99.1 -- Safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (filed
herewith).
99.2 -- Certifications Pursuant Section 1350 of Chapter 63 of Title 18 of the United States Code
(filed herewith).
99.3 -- Certifications Pursuant Section 1350 of Chapter 63 of Title 18 of the United States Code
(filed herewith).
* Management Contract or Compensation Plan or Arrangement.
E-12