Attached files
file | filename |
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EX-32.1 - EX-32.1 - LIBBEY INC | l42641exv32w1.htm |
EX-32.2 - EX-32.2 - LIBBEY INC | l42641exv32w2.htm |
EX-31.2 - EX-31.2 - LIBBEY INC | l42641exv31w2.htm |
EX-31.1 - EX-31.1 - LIBBEY INC | l42641exv31w1.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
OR
o | 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 incorporation or organization) | (IRS Employer Identification No.) |
300 Madison Avenue, Toledo, Ohio 43604
(Address of principal executive offices) (Zip Code)
(Address of principal executive offices) (Zip Code)
419-325-2100
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer o | Accelerated Filer þ | Non-Accelerated Filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
Common Stock, $.01 par value 19,833,046 shares at April 29, 2011.
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2
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying unaudited Condensed Consolidated Financial Statements of Libbey Inc. and all
majority-owned subsidiaries (collectively, Libbey or the Company) have been prepared in accordance
with U.S. Generally Accepted Accounting Principles (U.S. GAAP) for interim financial information
and with the instructions to Form 10-Q and Item 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by U.S. GAAP for complete financial
statements. In the opinion of management, all adjustments (including normal recurring accruals)
considered necessary for a fair presentation have been included. Operating results for the
three-month period ended March 31, 2011 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2011.
The balance sheet at December 31, 2010 has been derived from the audited financial statements at
that date but does not include all of the information and footnotes required by U.S. GAAP for
complete financial statements.
For further information, refer to the consolidated financial statements and footnotes thereto
included in the Companys Annual Report on Form 10-K for the year ended December 31, 2010.
3
Table of Contents
LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per-share amounts)
(unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per-share amounts)
(unaudited)
Three months ended March 31, | ||||||||
2011 | 2010 | |||||||
Net sales |
$ | 181,015 | $ | 173,904 | ||||
Freight billed to customers |
411 | 434 | ||||||
Total revenues |
181,426 | 174,338 | ||||||
Cost of sales |
145,280 | 140,461 | ||||||
Gross profit |
36,146 | 33,877 | ||||||
Selling, general and administrative expenses |
25,402 | 22,824 | ||||||
Special charges |
51 | 232 | ||||||
Income from operations |
10,693 | 10,821 | ||||||
(Loss) gain on redemption of debt |
(2,803 | ) | 56,792 | |||||
Other income (expense) |
3,006 | (763 | ) | |||||
Earnings before interest and income taxes |
10,896 | 66,850 | ||||||
Interest expense |
11,583 | 9,620 | ||||||
(Loss) income before income taxes |
(687 | ) | 57,230 | |||||
Provision for income taxes |
314 | 1,820 | ||||||
Net (loss) income |
$ | (1,001 | ) | $ | 55,410 | |||
Net (loss) income per share: |
||||||||
Basic |
$ | (0.05 | ) | $ | 3.44 | |||
Diluted |
$ | (0.05 | ) | $ | 2.76 | |||
Dividends per share |
$ | | $ | | ||||
See accompanying notes
4
Table of Contents
LIBBEY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share amounts)
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share amounts)
March 31, 2011 | December 31, 2010 | |||||||
(unaudited) | ||||||||
Assets |
||||||||
Cash and cash equivalents |
$ | 13,112 | $ | 76,258 | ||||
Accounts receivable net |
94,222 | 92,101 | ||||||
Inventories net |
165,081 | 148,146 | ||||||
Prepaid and other current assets |
10,185 | 6,437 | ||||||
Total current assets |
282,600 | 322,942 | ||||||
Pension asset |
13,969 | 12,767 | ||||||
Purchased intangible assets net |
23,095 | 23,134 | ||||||
Goodwill |
169,340 | 169,340 | ||||||
Derivative asset |
1,999 | 2,589 | ||||||
Other assets |
16,109 | 17,802 | ||||||
Total other assets |
224,512 | 225,632 | ||||||
Property, plant and equipment net |
271,761 | 270,397 | ||||||
Total assets |
$ | 778,873 | $ | 818,971 | ||||
Liabilities and Shareholders Equity |
||||||||
Accounts payable |
$ | 60,164 | $ | 59,095 | ||||
Salaries and wages |
28,816 | 32,087 | ||||||
Accrued liabilities |
42,991 | 51,211 | ||||||
Accrued special charges |
623 | 768 | ||||||
Accrued income taxes |
| 3,121 | ||||||
Pension liability (current portion) |
2,372 | 2,330 | ||||||
Non-pension postretirement benefits (current portion) |
5,017 | 5,017 | ||||||
Derivative liability |
3,222 | 3,392 | ||||||
Long-term debt due within one year |
3,329 | 3,142 | ||||||
Total current liabilities |
146,534 | 160,163 | ||||||
Long-term debt |
408,742 | 443,983 | ||||||
Pension liability |
116,427 | 115,521 | ||||||
Non-pension postretirement benefits |
68,697 | 67,737 | ||||||
Deferred income taxes |
8,661 | 8,376 | ||||||
Other long-term liabilities |
9,525 | 11,925 | ||||||
Total liabilities |
758,586 | 807,705 | ||||||
Shareholders equity |
||||||||
Common stock, par value $.01 per share, 50,000,000 shares authorized,
19,833,046
shares issued at March 31, 2011 and 19,682,506 at December 31, 2010 |
198 | 197 | ||||||
Capital in excess of par value (includes warrants of $1,034 based on
485,309
shares at March 31, 2011 and at December 31, 2010) |
301,391 | 300,692 | ||||||
Retained deficit |
(179,678 | ) | (178,677 | ) | ||||
Accumulated other comprehensive loss |
(101,624 | ) | (110,946 | ) | ||||
Total shareholders equity |
20,287 | 11,266 | ||||||
Total liabilities and shareholders equity |
$ | 778,873 | $ | 818,971 | ||||
See accompanying notes
5
Table of Contents
LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Three months ended March 31, | ||||||||
2011 | 2010 | |||||||
Operating activities: |
||||||||
Net (loss) income |
$ | (1,001 | ) | $ | 55,410 | |||
Adjustments to reconcile net (loss) income to net cash used in operating activities: |
||||||||
Depreciation and amortization |
10,881 | 10,386 | ||||||
(Gain) loss on asset sales |
(3,360 | ) | 80 | |||||
Change in accounts receivable |
(586 | ) | (6,516 | ) | ||||
Change in inventories |
(14,741 | ) | (10,904 | ) | ||||
Change in accounts payable |
(667 | ) | (4,402 | ) | ||||
Accrued interest and amortization of discounts, warrants and finance fees |
(8,653 | ) | 5,206 | |||||
Gain on redemption of new PIK notes |
| (70,193 | ) | |||||
Payment of interest on new PIK notes |
| (29,400 | ) | |||||
Call premium on senior notes and floating rate notes |
1,203 | 8,415 | ||||||
Write-off of finance fees & discounts on senior notes, old ABL & floating rate notes |
1,600 | 4,986 | ||||||
Pension & non-pension postretirement benefits |
3,451 | 3,005 | ||||||
Restructuring charges |
(145 | ) | (431 | ) | ||||
Accrued liabilities & prepaid expenses |
(8,267 | ) | (9,307 | ) | ||||
Accrued income taxes |
(4,303 | ) | (3,644 | ) | ||||
Share-based compensation expense |
827 | 446 | ||||||
Other operating activities |
681 | 698 | ||||||
Net cash used in operating activities |
(23,080 | ) | (46,165 | ) | ||||
Investing activities: |
||||||||
Additions to property, plant and equipment |
(8,506 | ) | (4,148 | ) | ||||
Call premium on senior notes and floating rate notes |
(1,203 | ) | (8,415 | ) | ||||
Proceeds from asset sales and other |
4,602 | | ||||||
Net cash used in investing activities |
(5,107 | ) | (12,563 | ) | ||||
Financing activities: |
||||||||
Net borrowings on ABL credit facility |
4,350 | | ||||||
Other repayments |
(48 | ) | (45 | ) | ||||
Other borrowings |
| 801 | ||||||
Floating rate note payments |
| (306,000 | ) | |||||
Senior note payments |
(40,000 | ) | | |||||
PIK note payment |
| (51,031 | ) | |||||
Proceeds from senior secured notes |
| 392,328 | ||||||
Stock options exercised |
475 | | ||||||
Debt issuance costs |
(116 | ) | (14,033 | ) | ||||
Net cash (used in) provided by financing activities |
(35,339 | ) | 22,020 | |||||
Effect of exchange rate fluctuations on cash |
380 | (354 | ) | |||||
Decrease in cash |
(63,146 | ) | (37,062 | ) | ||||
Cash at beginning of period |
76,258 | 55,089 | ||||||
Cash at end of period |
$ | 13,112 | $ | 18,027 | ||||
Supplemental disclosure of cash flows information: |
||||||||
Cash paid during the period for interest |
$ | 20,171 | $ | 5,017 | ||||
Cash paid during the period for income taxes |
$ | 4,480 | $ | 4,934 |
Supplemental disclosure of non-cash financing activities:
During the first quarter of 2010, our PIK notes were redeemed, resulting in the recognition of a
gain of $70.2 million. The gain was offset by $13.4 million of expenses related to the
transaction, resulting in a net gain of $56.8 million on the Condensed Consolidated Statement of
Operations. See note 4 for further information on this
transaction.
See accompanying notes
6
Table of Contents
LIBBEY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dollars in thousands, except per share data
(unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dollars in thousands, except per share data
(unaudited)
1. Description of the Business
Libbey is the leading producer of glass tableware products in the Western Hemisphere, in addition
to supplying key markets throughout the world. We produce glass tableware in five countries and
sell to customers in over 100 countries. We have the largest manufacturing, distribution and
service network among glass tableware manufacturers in the Western Hemisphere and are one of the
largest glass tableware manufacturers in the world. We design and market an extensive line of
high-quality glass tableware, ceramic dinnerware, metal flatware, hollowware and serveware, and
plastic items to a broad group of customers in the foodservice, retail and business-to-business
markets. We own and operate two glass tableware manufacturing plants in the United States as well
as glass tableware manufacturing plants in the Netherlands, Portugal, China and Mexico. We also
owned and operated a plastics plant in Wisconsin. On April 28, 2011, we sold substantially all of
the assets of our plastics plant, Traex, to the Vollrath Company. See note 15 for a further
discussion of this subsequent event. In addition, we import products from overseas in order to
complement our line of manufactured items. The combination of manufacturing and procurement allows
us to compete in the global tableware market by offering an extensive product line at competitive
prices.
Our website can be found at www.libbey.com. We make available, free of charge, at this
website all of our reports filed or furnished pursuant to Section 13(a) or 15(d) of Securities
Exchange Act of 1934, including our annual report on Form 10-K, our quarterly reports on Form 10-Q,
our current reports on Form 8-K, as well as amendments to those reports. These reports are made
available on our website as soon as reasonably practicable after their filing with, or furnishing
to, the Securities and Exchange Commission and can also be found at
www.sec.gov.
Our shares are traded on the NYSE Amex exchange under the ticker symbol LBY.
2. Significant Accounting Policies
See our Form 10-K for the year ended December 31, 2010 for a description of significant accounting
policies not listed below.
Basis of Presentation
The Condensed Consolidated Financial Statements include Libbey Inc. and its majority-owned
subsidiaries (collectively, Libbey or the Company). Our fiscal year end is December
31st. All material intercompany accounts and transactions have been eliminated. The
preparation of financial statements and related disclosures in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the amounts reported in the Condensed
Consolidated Financial Statements and accompanying notes. Actual results could differ materially
from managements estimates.
Condensed Consolidated Statements of Operations
Net sales in our Condensed Consolidated Statements of Operations include revenue earned when
products are shipped and title and risk of loss have passed to the customer. Revenue is recorded
net of returns, discounts and incentives offered to customers. Cost of sales includes cost to
manufacture and/or purchase products, warehouse, shipping and delivery costs and other costs.
Foreign Currency Translation
Assets and liabilities of non-U.S. subsidiaries that operate in a local currency environment, where
that local currency is the functional currency, are translated to U.S. dollars at exchange rates in
effect at the balance sheet date, with the resulting translation adjustments directly recorded to a
separate component of accumulated other comprehensive loss. Income and expense accounts are
translated at average exchange rates during the year. The effect of exchange rate changes on
transactions denominated in currencies other than the functional currency is recorded in other
income (expense).
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Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred income 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 attribute carry-forwards. Deferred income 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. Financial Accounting Standards Board Accounting Standards
Codification (FASB ASC) Topic 740, Income Taxes, requires that a valuation allowance be recorded
when it is more likely than not that some portion or all of the deferred income tax assets will not
be realized. Deferred income tax assets and liabilities are determined separately for each tax
jurisdiction in which we conduct our operations or otherwise incur taxable income or losses. In the
United States, China, the Netherlands and Portugal we have recorded valuation allowances against
our deferred income tax assets.
Stock-Based Compensation Expense
We account for stock-based compensation expense in accordance with FASB ASC Topic 718,
Compensation Stock Compensation, and FASB ASC Topic 505-50, Equity Equity-Based Payments
to Non-Employees. Stock-based compensation cost is measured based on the fair value of the
equity instruments issued. FASB ASC Topics 718 and 505-50 apply to all of our outstanding unvested
stock-based payment awards. Stock-based compensation expense charged to the Condensed Consolidated
Statement of Operations for the three months ended March 31, 2011 and March 31, 2010 was $0.8
million and $0.4 million, respectively.
New Accounting Standards
In January 2010, the FASB issued Accounting Standards Update 2010-06, Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements (ASU 2010-06). ASU
2010-06 requires new disclosures regarding the amounts transferring between the various Levels
within the fair value hierarchy, and increased disclosures regarding the activities impacting the
balance of items classified in Level 3 of the fair value hierarchy. See note 13 for a description
of the levels. In addition, ASU 2010-06 clarifies increases in existing disclosure requirements
for classes of assets and liabilities carried at fair value, and regarding the inputs and valuation
techniques used to arrive at the fair value measurements for items classified as Level 2 or Level 3
in the fair value hierarchy. The new disclosure requirements of ASU 2010-06 were effective for
Libbey in the first quarter of 2010, except for certain disclosures regarding the activities within
Level 3 fair value measurements, which were effective for Libbey in the first quarter of 2011. The
adoption of ASU 2010-06 did not impact our disclosures to our Condensed Consolidated Financial
Statements, as we do have any items classified as Level 3 nor amounts transferring between the
various Levels.
In April 2010, the FASB issued Accounting Standards Update 2010-13, Compensation Stock
Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award
in the Currency of the Market in Which the Underlying Equity Security Trades A consensus of the
FASB Emerging Issues Task Force (ASU 2010-13). The provisions of ASU 2010-13 affect entities
with equity awards that, because of their characteristics, have been classified as liabilities.
This guidance applies to interim and annual periods beginning after December 15, 2010, and did not
impact our Condensed Consolidated Financial Statements as our stock awards are classified as
equity.
In July 2010, the FASB issued Accounting Standards Update 2010-20, Receivables (Topic 310):
Disclosure about the Credit Quality of Financing Receivables and the Allowance for Credit Losses
(ASU 2010-20). The amendments in this update affect all entities with financing receivables,
generally excluding short-term trade accounts receivable or receivables measured at fair value or
lower of cost or fair value. This update also requires additional disclosure of certain types of
receivables, and disclosures of policies related to measurement and valuation of the receivables
and related reserves. The effectiveness of this update was delayed until periods ending after June
15, 2011 by Update No. 2011-01. We do not expect the provisions of this update to have any impact
on our Condensed Consolidated Financial Statements.
In December 2010, the FASB issued Accounting Standards Update 2010-28, Intangibles
Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for
Reporting Units with Zero or Negative Carrying Amounts (a consensus of the FASB Emerging Issues
Task Force) (ASU 2010-28). ASU 2010-28 addresses the decision process involved in testing for
impairment of goodwill when the carrying value of a reporting unit is zero or less. The provisions
of this update are effective for periods beginning after December 15, 2010. We do not expect the
provisions of this update to have any impact on our Condensed Consolidated Financial Statements or
on our process of testing for potential impairment of goodwill.
In December 2010, the FASB issued Accounting Standards Update 2010-29, Business Combinations
(Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations (a
consensus of the FASB Emerging Issues Task Force) (ASU
8
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2010-29). ASU 2010-29 clarifies the extent to which pro forma historical information must be
prepared and presented in comparative financial statements for periods following a merger or
acquisition. The amendments in this update specify that if a public entity presents comparative
financial statements, the entity should disclose revenue and earnings of the combined entity as
though the business combination(s) that occurred during the current year had occurred as of the
beginning of the comparable prior annual reporting period only. ASU 2010-29 also expands the
supplemental pro forma disclosures under Topic 805 to include a description of the nature and
amount of material, nonrecurring pro forma adjustments directly attributable to the business
combination included in the reported pro forma revenue and earnings. For Libbey, the required
disclosures are effective for combinations with acquisition dates during or after 2011. The impact
on our Condensed Consolidated Financial Statements will depend on the nature and timing of any
potential future business combinations.
Reclassifications
Certain amounts in the prior years financial statements may have been reclassified to conform to
the presentation used in the current year financial statements.
9
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3. Balance Sheet Details
The following table provides detail of selected balance sheet items:
(dollars in thousands) | March 31, 2011 | December 31, 2010 | ||||||
Accounts receivable: |
||||||||
Trade receivables |
$ | 93,642 | $ | 90,899 | ||||
Other receivables |
580 | 1,202 | ||||||
Total accounts receivable, less allowances of $5,399 and $5,518 |
$ | 94,222 | $ | 92,101 | ||||
Inventories: |
||||||||
Finished goods |
$ | 148,164 | $ | 132,169 | ||||
Work in process |
752 | 653 | ||||||
Raw materials |
4,643 | 4,444 | ||||||
Repair parts |
9,932 | 9,496 | ||||||
Operating supplies |
1,590 | 1,384 | ||||||
Total inventories, less allowances of $4,769 and $4,658 |
$ | 165,081 | $ | 148,146 | ||||
Prepaid and other current assets: |
||||||||
Value added tax |
$ | 2,113 | $ | 1,332 | ||||
Prepaid expenses |
4,313 | 4,822 | ||||||
Refundable, deferred and prepaid income taxes |
3,759 | 283 | ||||||
Total prepaid and other current assets |
$ | 10,185 | $ | 6,437 | ||||
Other assets: |
||||||||
Deposits |
$ | 914 | $ | 904 | ||||
Finance fees net of amortization |
11,293 | 13,012 | ||||||
Other assets |
3,902 | 3,886 | ||||||
Total other assets |
$ | 16,109 | $ | 17,802 | ||||
Accrued liabilities: |
||||||||
Accrued incentives |
$ | 17,142 | $ | 15,060 | ||||
Workers compensation |
9,244 | 9,608 | ||||||
Medical liabilities |
3,461 | 3,785 | ||||||
Interest |
4,555 | 14,416 | ||||||
Commissions payable |
981 | 904 | ||||||
Other accrued liabilities |
7,608 | 7,438 | ||||||
Total accrued liabilities |
$ | 42,991 | $ | 51,211 | ||||
Other long-term liabilities: |
||||||||
Deferred liability |
$ | 5,000 | $ | 4,622 | ||||
Other long-term liabilities |
4,525 | 7,303 | ||||||
Total other long-term liabilities |
$ | 9,525 | $ | 11,925 | ||||
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4. Borrowings
As previously announced, on March 25, 2011, Libbey Glass redeemed an aggregate principal amount of
$40.0 million of its outstanding 10.0 percent Senior Secured Notes due 2015, on a pro rata basis in
accordance with the terms of the New Notes Indenture. Pursuant to the terms of the New Notes
Indenture, the redemption price for the Senior Secured Notes was 103.0 percent of the principal
amount of the redeemed Senior Secured Notes, plus accrued and unpaid interest. At completion of the
redemption, the aggregate principal amount of the Senior Secured Notes outstanding was $360.0
million. In conjunction with this redemption, we recorded $2.8 million of expense, representing
$1.2 million of an early call premium and $1.6 million for the write off of a pro rata amount of
financing fees and discounts.
On February 8, 2010, we completed the refinancing of substantially all of the existing indebtedness
of our wholly-owned subsidiaries Libbey Glass and Libbey Europe B.V. The refinancing included:
| the entry into an amended and restated credit agreement with respect to our ABL Facility; | |
| the issuance of $400.0 million in aggregate principal amount of 10.0 percent Senior Secured Notes of Libbey Glass due 2015; | |
| the repurchase and cancellation of all of Libbey Glasss then outstanding $306.0 million in aggregate principal amount of floating rate notes; and | |
| the redemption of all of Libbey Glasss then outstanding $80.4 million in aggregate principal amount 16.0 percent New PIK notes. |
We used the proceeds of the offering of the Senior Secured Notes, together with cash on hand, to
fund the repurchase of the floating rate notes, the redemption of the New PIK notes and to pay
certain related fees and expenses. Upon completion of the refinancing, we recorded a gain of $71.7
million related to the redemption of the New PIK notes, of which $70.2 million of this gain was
recorded in the three months ended March 31, 2010. This gain was partially offset by $13.4 million
representing a write-off of bank fees, discounts and a call premium on the floating rate notes,
resulting in a net gain of $58.3 million, of which $56.8 million of this gain was recorded in the
three months ended March 31, 2010 as shown on the Condensed Consolidated Statement of Operations.
Borrowings consist of the following:
March 31, | December 31, | |||||||||||||||
(dollars in thousands) | Interest Rate | Maturity Date | 2011 | 2010 | ||||||||||||
Borrowings under ABL facility |
floating | April 8, 2014 | $ | 4,350 | $ | | ||||||||||
Senior Secured Notes |
10.00% | (1) | February 15, 2015 | 360,000 | 400,000 | |||||||||||
Promissory note |
6.00 | % | April, 2011 to September, 2016 | 1,260 | 1,307 | |||||||||||
RMB loan contract |
floating | July, 2012 to January, 2014 | 38,175 | 37,925 | ||||||||||||
BES Euro line |
floating | December, 2011 to December, 2013 | 11,632 | 10,934 | ||||||||||||
Total borrowings |
415,417 | 450,166 | ||||||||||||||
Less unamortized discount |
5,332 | 6,307 | ||||||||||||||
Plus Carrying value adjustment on debt related to the Interest Rate Agreement (1) | 1,986 | 3,266 | ||||||||||||||
Total borrowings net |
412,071 | 447,125 | ||||||||||||||
Less long term debt due within one year |
3,329 | 3,142 | ||||||||||||||
Total long-term portion of borrowings net | $ | 408,742 | $ | 443,983 | ||||||||||||
(1) | See Interest Rate Agreements under Senior Secured Notes below and in note 9. |
Amended and Restated ABL Credit Agreement
Pursuant to the refinancing, Libbey Glass and Libbey Europe entered into an Amended and Restated
Credit Agreement, dated as of February 8, 2010 (ABL Facility), with a group of five financial
institutions. The ABL Facility provides for borrowings of up to $110.0 million, subject to certain
borrowing base limitations, reserves and outstanding letters of credit.
All borrowings under the ABL Facility are secured by:
| a first-priority security interest in substantially all of the existing and future real and personal property of Libbey Glass and its domestic subsidiaries (the Credit Agreement Priority Collateral); | |
| a first-priority security interest in: |
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| 100 percent of the stock of Libbey Glass and 100 percent of the stock of substantially all of Libbey Glass present and future direct and indirect domestic subsidiaries; | ||
| 100 percent of the non-voting stock of substantially all of Libbey Glass first-tier present and future foreign subsidiaries; and | ||
| 65 percent of the voting stock of substantially all of Libbey Glass first-tier present and future foreign subsidiaries |
| a first priority security interest in substantially all proceeds and products of the property and assets described above; and | |
| a second-priority security interest in substantially all of the owned real property, equipment and fixtures in the United States of Libbey Glass and its domestic subsidiaries, subject to certain exceptions and permitted liens (the New Notes Priority Collateral). |
Additionally, borrowings by Libbey Europe under the ABL Facility are secured by:
| a first-priority lien on substantially all of the existing and future real and personal property of Libbey Europe and its Dutch subsidiaries; and | |
| a first-priority security interest in: |
| 100 percent of the stock of Libbey Europe and 100 percent of the stock of substantially all of the Dutch subsidiaries; and | ||
| 100 percent (or a lesser percentage in certain circumstances) of the outstanding stock issued by the first tier foreign subsidiaries of Libbey Europe and its Dutch subsidiaries. |
Swing line borrowings are limited to $15.0 million, with swing line borrowings for Libbey Europe
being limited to the US equivalent of $7.5 million. Loans comprising each CBFR (CB Floating Rate)
Borrowing, including each Swingline Loan, bear interest at the CB Floating Rate plus the Applicable
Rate, and euro-denominated swing line borrowings (Eurocurrency Loans) bear interest calculated at
the Netherlands swing line rate, as defined in the ABL Facility. The Applicable Rates for CBFR
Loans and Eurocurrency Loans vary depending on our aggregate remaining availability. The Applicable
Rates for CBFR Loans and Eurocurrency Loans were 2.5 percent and 3.5 percent, respectively, at
March 31, 2011. Libbey pays a quarterly Commitment Fee, as defined by the ABL Facility, on the
total credit provided under the ABL Facility. The Commitment Fee was 0.75 percent at March 31,
2011. No financial covenants or compensating balances are required by the Agreement. Libbey Europe
had no borrowings under the facility at March 31, 2011, while Libbey Glass had outstanding
borrowings of $4.4 million, at an interest rate of 6.50 percent. There were no Libbey Glass or
Libbey Europe borrowings under the facility at December 31, 2010. Interest is payable on the last
day of the interest period, which can range from one month to six months depending on the maturity
of each individual borrowing on the facility.
The borrowing base under the ABL Facility is determined by a monthly analysis of the eligible
accounts receivable and inventory. The borrowing base is the sum of (a) 85 percent of eligible
accounts receivable and (b) the lesser of (i) 85 percent of the net orderly liquidation value
(NOLV) of eligible inventory, (ii) 65 percent of eligible inventory, or (iii) $75.0 million.
The available total borrowing base is offset by ERISA, rent and tax reserves totaling $3.7 million
and mark-to-market reserves for natural gas contracts of $1.8 million. The ABL Facility also
provides for the issuance of $30.0 million of letters of credit, which are applied against the
$110.0 million limit. At March 31, 2011, we had $10.4 million in letters of credit outstanding
under the ABL Facility. Remaining unused availability on the new ABL Facility was $64.9 million at
March 31, 2011 compared to $65.2 million under the ABL Facility at December 31, 2010.
We amended the ABL Facility on April 29, 2011. See note 15 for a further discussion of this
subsequent event.
Senior Secured Notes
On February 8, 2010, Libbey Glass closed its offering of the $400.0 million Senior Secured Notes.
The net proceeds of the offering of Senior Secured Notes were approximately $379.8 million, after
the 1.918 percent original issue discount of $7.7 million, $10.0 million of commissions payable to
the initial purchasers and $2.5 million of fees related to the offering. These fees will be
amortized to interest expense over the life of the notes.
The Senior Secured Notes were issued pursuant to an Indenture, dated February 8, 2010 (the New
Notes Indenture), between Libbey Glass, the Company, the domestic subsidiaries of Libbey Glass
listed as guarantors therein (the Subsidiary Guarantors and together with the Company, the
Guarantors), and The Bank of New York Mellon Trust Company, N.A., as trustee (the New Notes
Trustee), and collateral agent. Under the terms of the New Notes Indenture, the Senior Secured
Notes bear interest at a rate of 10.0 percent per year and will mature on February 15, 2015. The
New Notes Indenture contains covenants that could restrict the ability of Libbey Glass and the
Guarantors to, among other things:
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| incur or guarantee additional indebtedness; | ||
| pay dividends or make certain investments or other restricted payments; | ||
| create liens; | ||
| enter into affiliate transactions; | ||
| merge or consolidate, or otherwise dispose of all or substantially all the assets of Libbey Glass and the Guarantors; and | ||
| transfer or sell assets. |
The New Notes Indenture provides for customary events of default. In the case of an event of
default arising from bankruptcy or insolvency as defined in the New Notes Indenture, all
outstanding Senior Secured Notes will become due and payable immediately without further action or
notice. If any other event of default under the Indenture occurs or is continuing, the New Notes
Trustee or holders of at least 25 percent in aggregate principal amount of the then outstanding
Senior Secured Notes may declare all the Senior Secured Notes to be due and payable immediately.
The Senior Secured Notes and the related guarantees under the New Notes Indenture are secured by
(i) first priority liens on the New Notes Priority Collateral and (ii) second priority liens on the
Credit Agreement Priority Collateral.
In connection with the sale of the Senior Secured Notes, Libbey Glass and the Guarantors entered
into a registration rights agreement, dated February 8, 2010 (the Registration Rights Agreement),
under which they agreed to make an offer to exchange the Senior Secured Notes and the related
guarantees for registered, publicly tradable notes and guarantees that have substantially identical
terms to the Senior Secured Notes and the related guarantees, and in certain limited circumstances,
to file a shelf registration statement that would allow certain holders of Senior Secured Notes to
resell their respective Senior Secured Notes to the public. On January 25, 2011, we exchanged
$400.0 million aggregate principal amount of 10.0 percent Senior Secured Notes due 2015 for an
equal principal amount of a new issue of 10.0 percent Senior Secured Notes due 2015, which have
been registered under the Securities act of 1933, as amended.
Prior to August 15, 2012, we may redeem in the aggregate up to 35 percent of the original principal
amount of the Senior Secured Notes with the net cash proceeds of one or more equity offerings at a
redemption price of 110 percent of the principal amount, provided that at least 65 percent of the
original principal amount of the Senior Secured Notes must remain outstanding after each redemption
and that each redemption occurs within 90 days of the closing of the equity offering. In addition,
prior to August 15, 2012, but not more than once in any twelve-month period, we may redeem up to 10
percent of the Senior Secured Notes at a redemption price of 103 percent plus accrued and unpaid
interest. The Senior Secured Notes are redeemable at our option, in whole or in part, at any time
on or after August 15, 2012 at set redemption prices together with accrued and unpaid interest.
As previously announced, on March 25, 2011, Libbey Glass redeemed an aggregate principal amount of
$40.0 million of its outstanding 10.0 percent Senior Secured Notes Due 2015, on a pro rata basis in
accordance with the terms of the New Notes Indenture. Pursuant to the terms of the New Notes
Indenture, the redemption price for the Senior Secured Notes was 103.0 percent of the principal
amount of the redeemed Senior Secured Notes, plus accrued and unpaid interest. At completion of the
redemption, the aggregate principal amount of the Senior Secured Notes outstanding was $360.0
million. In conjunction with this redemption, we recorded $2.8 million of expense, representing
$1.2 million of an early call premium and $1.6 million for the write off of a pro rata amount of
financing fees and discounts.
We have an Interest Rate Agreement (Rate Agreement) in place with respect to $90.0 million of debt
as a means to manage our fixed to variable interest rate ratio. The Rate Agreement effectively
converts this portion of our long-term borrowings from fixed rate debt to variable rate debt. The
variable interest rate for our borrowings related to the Rate Agreement at March 31, 2011,
excluding applicable fees, is 7.60 percent. This Rate Agreement expires on February 15, 2015. Total
remaining Senior Secured Notes not covered by the Rate Agreement have a fixed interest rate of 10.0
percent per year through February 15, 2015. If the counterparty to this Rate Agreement were to fail
to perform, this Rate Agreement would no longer afford us a variable rate. However, we do not
anticipate non-performance by the counterparty. The interest rate swap counterparty was rated AA-,
as of March 31, 2011, by Standard and Poors.
The fair market value for the Rate Agreement at March 31, 2011 and December 31, 2010 was a $1.9
million asset and a $2.5 million asset, respectively. An adjustment of $2.0 million and $3.3
million was recorded to increase the carrying value of the related long-term debt as of March 31,
2011 and December 31, 2010, respectively. The net impact of $0.6 million income and $0.2 million
expense is
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recorded in other income (expense) on the Condensed Consolidated Statement of Operations
for the three months ended March 31, 2011 and March 31, 2010, respectively. See note 9 for further
discussion. The fair value of the Rate Agreement is based on the market standard methodology of netting the discounted expected future fixed cash receipts and the
discounted future variable cash payments. The variable cash payments are based on an expectation of
future interest rates derived from observed market interest rate forward curves. We expect this
agreement to expire as originally contracted.
Promissory Note
In September 2001, we issued a $2.7 million promissory note at an interest rate of 6.0 percent
in connection with the purchase of our Laredo, Texas warehouse facility. At March 31, 2011, we had
$1.3 million outstanding on the promissory note. Interest with respect to the promissory note is
paid monthly.
Notes Payable
We have an overdraft line of credit for a maximum of 1.0 million. At March 31, 2011, there were no
borrowings under the facility, which has an interest rate of 5.80 percent. Interest with respect
to the note payable is paid monthly.
RMB Loan Contract
On January 23, 2006, Libbey Glassware (China) Co., Ltd. (Libbey China), an indirect wholly owned
subsidiary of Libbey Inc., entered into an RMB Loan Contract (RMB Loan Contract) with China
Construction Bank Corporation Langfang Economic Development Area Sub-Branch (CCB). Pursuant to the
RMB Loan Contract, CCB agreed to lend to Libbey China RMB 250.0 million, or the equivalent of
approximately $38.2 million, for the construction of our production facility in China and the
purchase of related equipment, materials and services. The loan has a term of eight years and bears
interest at a variable rate as announced by the Peoples Bank of China. As of the date of the
initial advance under the Loan Contract, the annual interest rate was 5.51 percent, and as of March
31, 2011, the annual interest rate was 5.42 percent. As of March 31, 2011, the outstanding balance
was RMB 250.0 million (approximately $38.2 million). Interest is payable quarterly. Payments of
principal in the amount of RMB 30.0 million (approximately $4.6 million) and RMB 40.0 million
(approximately $6.1 million) must be made on July 20, 2012, and December 20, 2012, respectively,
and three payments of principal in the amount of RMB 60.0 million (approximately $9.2 million) each
must be made on July 20, 2013, December 20, 2013, and January 20, 2014, respectively. The
obligations of Libbey China are secured by a guarantee executed by Libbey Inc. for the benefit of
CCB and a mortgage lien on the Libbey China facility.
BES Euro Line
In January 2007, Crisal entered into a seven year, 11.0 million line of credit (approximately
$15.5 million) with Banco Espírito Santo, S.A. (BES). The $11.6 million outstanding at March 31,
2011 was the U.S. dollar equivalent of the 8.3 million outstanding under the line at an interest
rate of 3.77 percent. Payment of principal in the amount of 2.2 million (approximately $3.1
million) is due in December 2011, payment of 2.8 million (approximately $3.9 million) is due in
December 2012 and payment of 3.3 million (approximately $4.6 million) is due in December 2013.
Interest with respect to the line is paid every six months.
Fair Value of Borrowings
The fair value of our debt has been calculated based on quoted market prices for the same or
similar issues. Our $360.0 million Senior Secured Notes due February 15, 2015 had an estimated
fair value of $391.5 million at March 31, 2011. The fair value of the remainder of our debt
approximates carrying value at March 31, 2011 due to variable interest rates.
Capital Resources and Liquidity
Historically, cash flows generated from operations and our borrowing capacity under our ABL
Facility have enabled us to meet our cash requirements, including capital expenditures and working
capital requirements. As of March 31, 2011 we had $4.4 million outstanding under our ABL Facility,
and we had $10.4 million of letters of credit issued under that facility. As a result, we had
$64.9 million of unused availability remaining under the ABL Facility at March 31, 2011. In
addition, we had $13.1 million of cash on hand at March 31, 2011.
Based on our operating plans and current forecast expectations, we anticipate that our level of
cash on hand, cash flows from operations and our borrowing capacity under our ABL Facility will
provide sufficient cash availability to meet our ongoing liquidity needs.
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5. Special Charges
Facility Closures
In December 2008, we announced that our Syracuse China manufacturing facility and our Mira Loma,
California distribution center would be shut down in early to mid-2009 in order to reduce costs.
The Syracuse China facility was closed on April 9, 2009 and the Mira Loma distribution center was
closed on May 31, 2009. See Form 10-K for the year ended December 31, 2010 for further discussion.
We incurred additional charges of approximately $0.1 million in the three months ended March 31,
2011 related to our Syracuse China facility closure, primarily related to other costs net of
building site clean-up adjustments in connection with the sale of the property in Syracuse, New
York in March 2011. This amount was included in special charges on the Condensed Consolidated
Statements of Operations in the Other Operations segment as detailed in the table below.
We incurred additional charges of approximately $0.4 million in the three months ended March 31,
2010 related to these closures. Special charges of $0.2 million were primarily related to employee
termination and building site clean up costs. This amount was included in special charges on the
Condensed Consolidated Statement of Operations in the Glass Operations and Other Operations
segments as detailed in the table below.
Other
income (expense) on the Condensed Consolidated Statement of Operations included a charge of $0.1
million for the first quarter of 2010, for the change in fair value of ineffective natural gas
hedges related to our Syracuse China operation. This amount was included in the Other Operations
segment.
The following table summarizes the facility closure charges in the first quarter of 2011 and 2010:
Three months ended March 31, 2011 | Three months ended March 31, 2010 | |||||||||||||||||||||||
Glass | Other | Glass | Other | |||||||||||||||||||||
(dollars in thousands) | Operations | Operations | Total | Operations | Operations | Total | ||||||||||||||||||
Employee termination cost & other |
$ | | $ | 167 | $ | 167 | $ | 29 | $ | 76 | $ | 105 | ||||||||||||
Building site clean-up & fixed asset write-down |
| (116 | ) | (116 | ) | | 127 | 127 | ||||||||||||||||
Included in special charges |
| 51 | 51 | 29 | 203 | 232 | ||||||||||||||||||
Ineffectiveness of natural gas hedge |
| | | | 130 | 130 | ||||||||||||||||||
Included in other (income) expense |
| | | | 130 | 130 | ||||||||||||||||||
Total pretax charge |
$ | | $ | 51 | $ | 51 | $ | 29 | $ | 333 | $ | 362 | ||||||||||||
The following reflects the balance sheet activity related to the facility closure charge for
the quarter ended March 31, 2011:
Reserve | Reserve | |||||||||||||||||||||||
Balances | Total | Inventory & | Balances | |||||||||||||||||||||
at December 31, | Charge to | Cash | Fixed Asset | Non-cash | at March 31 | |||||||||||||||||||
(dollars in thousands) | 2010 | Earnings | Payments | Write Downs | Utilization | 2011 | ||||||||||||||||||
Building site clean-up & fixed
asset write-down |
$ | 151 | $ | (116 | ) | $ | (5 | ) | $ | 21 | $ | | $ | 51 | ||||||||||
Employee termination cost & other |
301 | 167 | (140 | ) | | (72 | ) | 256 | ||||||||||||||||
Total |
$ | 452 | $ | 51 | $ | (145 | ) | $ | 21 | $ | (72 | ) | $ | 307 | ||||||||||
The ending balance of $0.3 million at March 31, 2011 was included in accrued special charges on the
Condensed Consolidated Balance Sheets. The carrying value of this balance approximates its fair
value.
The following reflects the total cumulative expenses to date (incurred from the fourth quarter of
2008 through the
Balance Sheet date) related to the facility closure activity:
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Glass | Other | Charges | ||||||||||
(dollars in thousands) | Operations | Operations | To Date | |||||||||
Inventory write-down |
$ | 192 | $ | 10,541 | $ | 10,733 | ||||||
Pension & postretirement welfare |
| 4,448 | 4,448 | |||||||||
Fixed asset depreciation |
| 966 | 966 | |||||||||
Included in cost of sales |
192 | 15,955 | 16,147 | |||||||||
Employee termination cost & other |
548 | 6,149 | 6,697 | |||||||||
Building site clean-up & fixed asset write-down |
177 | 10,418 | 10,595 | |||||||||
Included in special charges |
725 | 16,567 | 17,292 | |||||||||
Ineffectiveness of natural gas hedge |
| 745 | 745 | |||||||||
Included in other (income) expense |
| 745 | 745 | |||||||||
Total pretax charge to date |
$ | 917 | $ | 33,267 | $ | 34,184 | ||||||
We expect the total expenses for each of these activities to approximate the expenses incurred to
date.
Fixed Asset and Inventory Write-down
In August 2010, we wrote down decorating assets in our Shreveport, Louisiana facility as a result
of our decision to outsource our U.S. decorating business. See Form 10-K for the year ended
December 31, 2010 for further discussion.
There were no additional charges for the three months ended March 31, 2011.
There was no balance sheet activity for the three months ended March 31, 2011. The ending balance
of $0.3 million at March 31, 2011 was included in accrued special charges on the Condensed
Consolidated Balance Sheets and we expect this to result in cash payments during the remainder of
2011.
6. Income Taxes
The Companys effective tax rate differs from the United States statutory tax rate primarily due to
changes in the mix of earnings in countries with differing statutory tax rates, changes in accruals
related to uncertain tax positions, and tax planning structures. At March 31, 2011 and December
31, 2010, we had $1.3 million and $1.1 million, respectively, of gross unrecognized tax benefits,
exclusive of interest and penalties.
FASB ASC 740-20, Income Taxes Intraperiod Tax Allocation, requires that the provision for
income taxes be allocated between continuing operations and other categories of earnings (such as
discontinued operations or other comprehensive income) for each tax jurisdiction. In periods in
which there is a year-to-date pre-tax loss from continuing operations and pre-tax income in other
categories of earnings, the tax provision is first allocated to the other categories of earnings. A
related tax benefit is then recorded in continuing operations. Included in our income tax provision
is a tax benefit of $0.9 million for the three months ended March 31, 2011. There was no tax
benefit recorded for the three months ended March 31, 2010. Depending upon the level of our future
earnings and losses and their impact on other comprehensive income, it is possible that these tax
adjustments may change or even reverse in future periods.
Further, our current and future provision for income taxes for 2011 is significantly impacted by
valuation allowances. In the United States, China, the Netherlands and Portugal we have recorded
valuation allowances against our deferred income tax assets. For the three months ended March 31,
2011 we did not release any valuation allowance. For the three months ended March 31, 2010, we
reduced our valuation allowance by $1.1 million. The release of valuation in 2010 was related to
net operating losses in Mexico that were utilized. In assessing the need for recording a valuation
allowance we weigh all available positive and negative evidence. Examples of the
evidence we consider are cumulative losses in recent years, losses expected in early future years,
a history of potential tax benefits expiring unused, and whether there are unusual, infrequent, or
extraordinary items to be considered. We intend to maintain these allowances until it is more
likely than not that the deferred income tax assets will be realized.
Total income tax payments at March 31, 2011, were $6.6 million, which consisted of $4.5 million in
cash and $2.1 million in credits or offsets. Total income tax payments at March 31, 2010, were
$5.6 million, which consisted of $4.9 million in cash and $0.7 million in credits or offsets.
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7. Pension and Non-pension Postretirement Benefits
We have pension plans covering the majority of our employees. Benefits generally are based on
compensation for salaried employees and job grade and length of service for hourly employees. Our
policy is to fund pension plans such that sufficient assets will be available to meet future
benefit requirements. In addition, we have an unfunded supplemental employee retirement plan (SERP)
that covers salaried U.S.-based employees of Libbey hired before January 1, 2006. The U.S. pension
plans cover the salaried U.S.-based employees of Libbey hired before January 1, 2006 and most
hourly U.S.-based employees (excluding employees hired at Shreveport after 2008 and employees hired
at Toledo after September 30, 2010). The non-U.S. pension plans cover the employees of our wholly
owned subsidiaries Royal Leerdam and Crisa. The Crisa plan is not funded.
The components of our net pension expense, including the SERP, are as follows:
Three months ended March 31, | U.S. Plans | Non-U.S. Plans | Total | |||||||||||||||||||||
(dollars in thousands) | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||||
Service cost |
$ | 1,432 | $ | 1,450 | $ | 428 | $ | 396 | $ | 1,860 | $ | 1,846 | ||||||||||||
Interest cost |
4,088 | 4,061 | 1,260 | 1,162 | 5,348 | 5,223 | ||||||||||||||||||
Expected return on plan assets |
(4,313 | ) | (4,186 | ) | (565 | ) | (665 | ) | (4,878 | ) | (4,851 | ) | ||||||||||||
Amortization of unrecognized: |
||||||||||||||||||||||||
Prior service cost |
541 | 582 | 82 | 30 | 623 | 612 | ||||||||||||||||||
Loss |
1,218 | 978 | 126 | 101 | 1,344 | 1,079 | ||||||||||||||||||
Pension expense |
$ | 2,966 | $ | 2,885 | $ | 1,331 | $ | 1,024 | $ | 4,297 | $ | 3,909 | ||||||||||||
We provide certain retiree health care and life insurance benefits covering our U.S and Canadian
salaried and non-union hourly employees hired before January 1, 2004 and a majority of our union
hourly employees (excluding employees hired at Shreveport after 2008 and employees hired at Toledo
after September 30, 2010). 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. The U.S. non-pension postretirement plans cover the hourly
and salaried U.S.-based employees of Libbey (excluding those mentioned above). The non-U.S.
non-pension postretirement plans cover the retirees and active employees of Libbey who are located
in Canada. The postretirement benefit plans are not funded.
The provision for our non-pension postretirement benefit expense consists of the following:
Three months ended March 31, | U.S. Plans | Non-U.S. Plans | Total | |||||||||||||||||||||
(dollars in thousands) | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||||
Service cost |
$ | 373 | $ | 389 | $ | | $ | | $ | 373 | $ | 389 | ||||||||||||
Interest cost |
925 | 918 | 29 | 31 | 954 | 949 | ||||||||||||||||||
Amortization of unrecognized: |
||||||||||||||||||||||||
Prior service loss (gain) |
105 | (2 | ) | | | 105 | (2 | ) | ||||||||||||||||
Loss / (gain) |
290 | 236 | (4 | ) | (7 | ) | 286 | 229 | ||||||||||||||||
Non-pension postretirement benefit expense |
$ | 1,693 | $ | 1,541 | $ | 25 | $ | 24 | $ | 1,718 | $ | 1,565 | ||||||||||||
In 2011,
we expect to utilize approximately $31.5 million to fund our pension plans and pay for
non-pension
postretirement benefits. Of that amount, $3.6 million was utilized in the three months ended March
31, 2011.
In March 2010, the Patient Protection and Affordable Care Act and the Health Care Education and
Affordability Reconciliation Act (the Acts) were signed into law. The Acts contain provisions
which could impact our accounting for retiree medical benefits in future periods. Based on the
analysis to date, the impact of provisions in the Acts which are reasonably determinable is not
expected to have a material impact on our postretirement benefit plans. We will continue to assess
the provisions of the Acts and may consider plan amendments in future periods to better align these
plans with the provisions of the Acts.
8. Net (Loss) Income per Share of Common Stock
The following table sets forth the computation of basic and diluted earnings per share:
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Three Months Ended March 31, | ||||||||
(dollars in thousands, except earnings per share) | 2011 | 2010 | ||||||
Numerators for earnings per share |
||||||||
Net (loss) income that is available to common
shareholders |
$ | (1,001 | ) | $ | 55,410 | |||
Denominator for basic earnings per share |
||||||||
Weighted average shares outstanding |
19,955,188 | 16,123,555 | ||||||
Effect of stock options and restricted stock units |
| 497,689 | ||||||
Effect of warrants |
| 3,463,664 | ||||||
Total effect of dilutive securities (1) |
| 3,961,353 | ||||||
Denominator for diluted earnings per share |
||||||||
Adjusted weighted average shares and assumed
conversions |
19,955,188 | 20,084,908 | ||||||
Basic (loss) income per share: |
$ | (0.05 | ) | $ | 3.44 | |||
Diluted (loss) income per share: |
$ | (0.05 | ) | $ | 2.76 | |||
(1) | The effect of employee stock options, warrants and restricted stock units (796,949 shares for the three months ended March 31, 2011), was anti-dilutive and thus not included in the earnings per share calculation. This amount would have been dilutive if not for the net loss. |
In October 2009, we entered into a transaction with Merrill Lynch PCG, Inc. (the Investor) to
exchange the existing 16.0 percent Old PIK Notes due in December 2011, for a combination of debt
and equity securities (Exchange Transaction). As part of the Exchange Transaction, we issued
warrants conveying the right to purchase, for $0.01 per share, 3,466,856 shares of Libbey Inc.
common stock. These warrants were exercised and shares were issued in August, 2010.
When applicable, diluted shares outstanding include the dilutive impact of warrants and restricted
stock units. Diluted shares also include the impact of in-the-money employee stock options, which
are calculated, based on the average share price for each fiscal period using the treasury stock
method. Under the treasury stock method, the tax-effected proceeds that hypothetically would be
received from the exercise of all in-the-money options are assumed to be used to repurchase shares.
9. Derivatives
We utilize derivative financial instruments to manage our interest rate exposure associated with
our long-term debt, to hedge 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. Most of these derivatives, except for certain natural gas contracts
originally designated to hedge expected purchases at Syracuse China and the foreign currency
contracts, qualify for hedge accounting since the hedges are highly effective, and we have
designated and documented contemporaneously the hedging relationships involving these derivative
instruments. While we intend to continue to meet the conditions for hedge accounting, if hedges do
not qualify as highly effective
or if we do not believe that forecasted transactions would occur, the changes in the fair value of
the derivatives used as hedges would be reflected in our earnings. All of these contracts were
accounted for under FASB ASC 815, Derivatives and Hedging.
Fair Values
The following table provides the fair values of our derivative financial instruments for the
periods presented:
Asset Derivatives: | ||||||||||||||||
(dollars in thousands) | March 31, 2011 | December 31, 2010 | ||||||||||||||
Derivatives designated as | Balance | Balance | ||||||||||||||
hedging instruments | Sheet | Fair | Sheet | Fair | ||||||||||||
under FASB ASC 815: | Location: | Value | Location: | Value | ||||||||||||
Interest rate contracts |
Derivative asset | $ | 1,891 | Derivative asset | $ | 2,536 | ||||||||||
Natural gas contracts |
Derivative asset | 108 | Derivative asset | 53 | ||||||||||||
Total designated |
$ | 1,999 | $ | 2,589 | ||||||||||||
18
Table of Contents
Liability Derivatives: | ||||||||||||||||
(dollars in thousands) | March 31, 2011 | December 31, 2010 | ||||||||||||||
Derivatives designated as | Balance | Balance | ||||||||||||||
hedging instruments | Sheet | Fair | Sheet | Fair | ||||||||||||
under FASB ASC 815: | Location | Value | Location | Value | ||||||||||||
Natural gas contracts |
Derivative liability | $ | 2,491 | Derivative liability | $ | 3,117 | ||||||||||
Total designated |
2,491 | 3,117 | ||||||||||||||
Derivatives not designated as | ||||||||||||||||
hedging instruments | ||||||||||||||||
under FASB ASC 815: | ||||||||||||||||
Natural gas contracts |
Derivative liability | 126 | Derivative liability | 124 | ||||||||||||
Currency contracts |
Derivative liability | 605 | Derivative liability | 151 | ||||||||||||
Total undesignated |
731 | 275 | ||||||||||||||
Total |
$ | 3,222 | $ | 3,392 | ||||||||||||
Interest Rate Swaps as Fair Value Hedges
In the first quarter of 2010, we entered into an interest rate swap agreement with a notional
amount of $100.0 million that is to mature in 2015. The swap was executed in order to convert a
portion of the Senior Secured Note fixed rate debt into floating rate debt and maintain a capital
structure containing appropriate amounts of fixed and floating rate debt. In August 2010, $10.0
million of the swap was called for a premium of $0.3 million. As of March 31, 2011 the notional
amount of the interest rate swap agreement is $90.0 million.
Our fixed-to-floating interest rate swap is designated and qualifies as a fair value hedge. The
change in the fair value of the derivative instrument related to the future cash flows (gain or
loss on the derivative), as well as the offsetting change in the fair value of the hedged long-term
debt attributable to the hedged risk are recognized in current earnings. We include the gain or
loss on the hedged long-term debt in other income (expense) on the Condensed Consolidated
Statements of Operations along with the offsetting loss or gain on the related interest rate swap.
Amount of gain (loss) recognized in other income (expense)
Three months ended March 31, | ||||||||
(dollars in thousands) | 2011 | 2010 | ||||||
Interest rate swap |
$ | (644 | ) | $ | (885 | ) | ||
Related long-term debt |
1,280 | 722 | ||||||
Net impact on other income (expense) |
$ | 636 | $ | (163 | ) | |||
Commodity Future Contracts Designated as Cash Flow Hedges
We use commodity futures contracts related to forecasted future North American natural gas
requirements. The objective of these futures contracts and other derivatives is to limit the
fluctuations in prices paid due to price movements in the underlying commodity. We consider our
forecasted natural gas requirements in determining the quantity of natural gas to hedge. We
combine the forecasts with historical observations to establish the percentage of forecast eligible
to be hedged, typically ranging from 40 percent to 70 percent of our anticipated requirements, up
to eighteen months in the future. The fair values of these instruments are determined from market
quotes. Certain of our natural gas futures contracts are now classified as ineffective, as the
forecasted transactions are not probable of occurring due to the closure of our Syracuse China
facility in April 2009. Under FASB ASC 815, Derivatives and Hedging, when the forecasted
transactions of a hedging relationship become not probable of occurring, the gains or losses that
have been classified in accumulated other comprehensive loss in prior periods for those contracts
affected should be reclassified into earnings. We recognized an immaterial amount and $0.1 million
for the three months ended March 31, 2011 and 2010, respectively, in other income (expense) on the
Condensed Consolidated Statements of Operations relating to these contracts. As of March 31,
19
Table of Contents
2011,
we had commodity contracts for 2,910,000 million British Thermal Units (BTUs) of natural gas. At
December 31, 2010, we had commodity contracts for 3,090,000 million BTUs of natural gas.
Most of our natural gas derivatives qualify and are designated as cash flow hedges (except certain
contracts originally designated to expected purchases at Syracuse China) at March 31, 2011. Hedge
accounting is applied only 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. Changes in the effective portion of the fair value of these hedges are recorded in
other comprehensive income (loss). The ineffective portion of the change in the fair value of a
derivative designated as a cash flow hedge is recognized in current earnings. As the natural gas
contracts mature, the accumulated gains (losses) for the respective contracts are reclassified from
accumulated other comprehensive loss to current expense in cost of sales in our Condensed
Consolidated Statements of Operations. We paid additional cash of $0.8 million and $1.3 million in
the three months ended March 31, 2011 and 2010, respectively, due to the difference between the
fixed unit rate of our natural gas contracts and the variable unit rate of our natural gas cost
from suppliers. Based on our current valuation, we estimate that accumulated losses currently
carried in accumulated other comprehensive loss that will be reclassified into earnings over the
next twelve months will result in $2.5 million of expense in our Condensed Consolidated Statements
of Operations.
Amount of derivative gain/(loss) recognized in OCI (effective portion)
Three months ended March 31, | ||||||||
(dollars in thousands) | 2011 | 2010 | ||||||
Derivatives in Cash Flow Hedging relationships: |
||||||||
Natural gas contracts |
$ | (149 | ) | $ | (4,421 | ) | ||
Total |
$ | (149 | ) | $ | (4,421 | ) | ||
Gain / (loss) reclassified from Accumulated Other Comprehensive Loss
to Condensed Consolidated Statements of Operations (effective portion)
to Condensed Consolidated Statements of Operations (effective portion)
Three months ended March 31, | ||||||||||||
(dollars in thousands) | 2011 | 2010 | ||||||||||
Derivative: |
Location: | |||||||||||
Natural gas contracts |
Cost of sales | $ | (829 | ) | $ | (759 | ) | |||||
Total impact on net (loss) income | $ | (829 | ) | $ | (759 | ) | ||||||
The following table provides the impact on the Condensed Consolidated Statements of Operations from
derivatives no longer designated as cash flow hedges related to the closure of our Syracuse China
facility:
Gain (loss) recognized in income
(ineffective portion and amount excluded from effectiveness testing)
(ineffective portion and amount excluded from effectiveness testing)
Three months ended March 31, | ||||||||||||
(dollars in thousands) | 2011 | 2010 | ||||||||||
Derivative: |
Location: | |||||||||||
Natural gas contracts |
Other income (expense) | $ | (1 | ) | $ | (130 | ) | |||||
Total |
$ | (1 | ) | $ | (130 | ) | ||||||
Currency Contracts
Our foreign currency exposure arises from transactions denominated in a currency other than the
U.S. dollar, primarily associated with our Canadian dollar denominated accounts receivable. The
fair values of these instruments are determined from market quotes. The values of these
derivatives will change over time as cash receipts and payments are made and as market conditions
change. During 2010, we entered into a series of foreign currency contracts to sell Canadian
dollars. As of March 31, 2011 and December 31, 2010, we had contracts for $21.9 million Canadian
dollars and $18.7 million Canadian dollars, respectively.
20
Table of Contents
Gains and losses for derivatives that were not designated as hedging instruments are recorded in
current earnings as follows:
Three months ended | ||||||||||||
March 31, | ||||||||||||
(dollars in thousands) | 2011 | 2010 | ||||||||||
Derivative: |
Location: | |||||||||||
Currency contracts |
Other income (expense) | $ | (454 | ) | $ | | ||||||
Total |
$ | (454 | ) | $ | | |||||||
We do not believe we are exposed to more than a nominal amount of credit risk in our interest rate
and natural gas hedges, as the counterparties are established financial institutions. The
counterparty is rated AA- for the Interest Rate Agreement and BBB+ or better for counterparties to
the other derivative agreements as March 31, 2011, by Standard and Poors.
10. Comprehensive Income
Components of comprehensive income (net of tax) are as follows:
Three months ended | ||||||||
March 31, | ||||||||
(dollars in thousands) | 2011 | 2010 | ||||||
Net (loss) income |
$ | (1,001 | ) | $ | 55,410 | |||
Effect of derivatives, net of tax |
614 | (2,158 | ) | |||||
Minimum pension and non-pension
retirement liability and
intangible pension asset, net of tax |
2,112 | 1,578 | ||||||
Effect of exchange rate fluctuations |
6,596 | (6,514 | ) | |||||
Total comprehensive income |
$ | 8,321 | $ | 48,316 | ||||
Accumulated other comprehensive loss (net of tax) is as follows:
Minimum Pension | ||||||||||||||||
Effect of | and Non-Pension | Total | ||||||||||||||
Exchange | Retirement Liability | Accumulated | ||||||||||||||
Rate | Cash Flow | and Intangible | Comprehensive | |||||||||||||
(dollars in thousands) | Fluctuation | Derivatives | Pension Asset | Loss | ||||||||||||
Balance on December 31, 2010 |
$ | (2,661 | ) | $ | (1,121 | ) | $ | (107,164 | ) | $ | (110,946 | ) | ||||
2011 change |
6,596 | 716 | 2,362 | 9,674 | ||||||||||||
Translation effect |
| (36 | ) | (412 | ) | (448 | ) | |||||||||
Tax effect |
| (66 | ) | 162 | 96 | |||||||||||
Balance on March 31, 2011 |
$ | 3,935 | $ | (507 | ) | $ | (105,052 | ) | $ | (101,624 | ) | |||||
11. Condensed Consolidated Guarantor Financial Statements
Libbey Glass is a direct, 100 percent owned subsidiary of Libbey Inc. and the issuer of the Senior
Secured Notes. The obligations of Libbey Glass under the Senior Secured Notes are fully and
unconditionally and jointly and severally guaranteed by Libbey Inc. and by certain indirect, 100
percent owned domestic subsidiaries of Libbey Inc., as described below. All are related parties
that are included in the Condensed Consolidated Financial Statements for the three month periods
ended March 31, 2011 and March 31, 2010.
21
Table of Contents
At March 31, 2011, December 31, 2010 and March 31, 2010, Libbey Inc.s indirect, 100 percent owned
domestic subsidiaries were Syracuse China Company, World Tableware Inc., LGA4 Corp., LGA3 Corp.,
The Drummond Glass Company, LGC Corp., Traex Company, Libbey.com LLC, LGFS Inc. and LGAC LLC
(collectively, the Subsidiary Guarantors). The following tables contain Condensed Consolidating
Financial Statements of (a) the parent, Libbey Inc., (b) the issuer, Libbey Glass, (c) the
Subsidiary Guarantors, (d) the indirect subsidiaries of Libbey Inc. that are not Subsidiary
Guarantors (collectively, Non-Guarantor Subsidiaries), (e) the consolidating elimination entries,
and (f) the consolidated totals.
22
Table of Contents
Libbey Inc.
Condensed Consolidating Statement of Operations
(dollars in thousands)
(unaudited)
Condensed Consolidating Statement of Operations
(dollars in thousands)
(unaudited)
Three months ended March 31, 2011 | ||||||||||||||||||||||||
Libbey | Libbey | Non- | ||||||||||||||||||||||
Inc. | Glass | Subsidiary | Guarantor | |||||||||||||||||||||
(Parent) | (Issuer) | Guarantors | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Net sales |
$ | | 90,569 | 19,756 | 83,344 | (12,654 | ) | $ | 181,015 | |||||||||||||||
Freight billed to customers |
| 151 | 194 | 66 | | 411 | ||||||||||||||||||
Total revenues |
| 90,720 | 19,950 | 83,410 | (12,654 | ) | 181,426 | |||||||||||||||||
Cost of sales |
74,863 | 14,870 | 68,201 | (12,654 | ) | 145,280 | ||||||||||||||||||
Gross profit |
| 15,857 | 5,080 | 15,209 | | 36,146 | ||||||||||||||||||
Selling, general and administrative
expenses |
| 13,940 | 2,282 | 9,180 | | 25,402 | ||||||||||||||||||
Special charges |
| | 51 | | | 51 | ||||||||||||||||||
Income from operations |
| 1,917 | 2,747 | 6,029 | | 10,693 | ||||||||||||||||||
Other (expense) income |
| (2,555 | ) | 34 | 2,724 | | 203 | |||||||||||||||||
Earnings before interest and income
taxes |
| (638 | ) | 2,781 | 8,753 | | 10,896 | |||||||||||||||||
Interest expense |
| 8,793 | | 2,790 | | 11,583 | ||||||||||||||||||
Earnings before income taxes |
| (9,431 | ) | 2,781 | 5,963 | | (687 | ) | ||||||||||||||||
Provision (benefit) for income
taxes |
| (622 | ) | 72 | 864 | | 314 | |||||||||||||||||
Net income |
| (8,809 | ) | 2,709 | 5,099 | | (1,001 | ) | ||||||||||||||||
Equity in net (loss) income of
subsidiaries |
(1,001 | ) | 7,808 | | | (6,807 | ) | | ||||||||||||||||
Net income (loss) |
$ | (1,001 | ) | $ | (1,001 | ) | $ | 2,709 | $ | 5,099 | $ | (6,807 | ) | $ | (1,001 | ) | ||||||||
The following represents the total special items included in the above Condensed Consolidated
Statement of Operations (see notes 4, 5 and 14):
Three months ended March 31, 2011 | ||||||||||||||||||||||||
Libbey | Libbey | Non- | ||||||||||||||||||||||
Inc. | Glass | Subsidiary | Guarantor | |||||||||||||||||||||
(Parent) | (Issuer) | Guarantors | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Special charges |
$ | | $ | | $ | 51 | $ | | $ | | $ | 51 | ||||||||||||
Other expense (income) |
| 2,803 | | (3,445 | ) | | (642 | ) | ||||||||||||||||
Total pretax special items |
| 2,803 | 51 | (3,445 | ) | | (591 | ) | ||||||||||||||||
Provision for income taxes |
| | | 922 | | 922 | ||||||||||||||||||
Special items net of tax |
$ | | $ | 2,803 | $ | 51 | $ | (2,523 | ) | $ | | $ | 331 | |||||||||||
23
Table of Contents
Libbey Inc.
Condensed Consolidating Statement of Operations
(dollars in thousands)
(unaudited)
Condensed Consolidating Statement of Operations
(dollars in thousands)
(unaudited)
Three months ended March 31, 2010 | ||||||||||||||||||||||||
Libbey | Libbey | Non- | ||||||||||||||||||||||
Inc. | Glass | Subsidiary | Guarantor | |||||||||||||||||||||
(Parent) | (Issuer) | Guarantors | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Net sales |
$ | | $ | 86,163 | $ | 19,562 | $ | 81,067 | $ | (12,888 | ) | $ | 173,904 | |||||||||||
Freight billed to customers |
| 166 | 214 | 54 | | 434 | ||||||||||||||||||
Total revenues |
| 86,329 | 19,776 | 81,121 | (12,888 | ) | 174,338 | |||||||||||||||||
Cost of sales |
| 71,556 | 14,107 | 67,686 | (12,888 | ) | 140,461 | |||||||||||||||||
Gross profit |
| 14,773 | 5,669 | 13,435 | | 33,877 | ||||||||||||||||||
Selling, general and administrative
expenses |
| 12,406 | 2,166 | 8,252 | | 22,824 | ||||||||||||||||||
Special charges |
| 29 | 203 | | | 232 | ||||||||||||||||||
Income (loss) from operations |
| 2,338 | 3,300 | 5,183 | | 10,821 | ||||||||||||||||||
Other income (expense) |
| 55,992 | (148 | ) | 185 | | 56,029 | |||||||||||||||||
Earnings (loss) before interest and
income taxes |
| 58,330 | 3,152 | 5,368 | | 66,850 | ||||||||||||||||||
Interest expense |
| 8,478 | | 1,142 | | 9,620 | ||||||||||||||||||
Earnings (loss) before income taxes |
| 49,852 | 3,152 | 4,226 | | 57,230 | ||||||||||||||||||
Provision (benefit) for income
taxes |
| 20 | 144 | 1,656 | | 1,820 | ||||||||||||||||||
Net income (loss) |
| 49,832 | 3,008 | 2,570 | | 55,410 | ||||||||||||||||||
Equity in net income (loss) of
subsidiaries |
55,410 | 5,578 | | | (60,988 | ) | | |||||||||||||||||
Net income (loss) |
$ | 55,410 | $ | 55,410 | $ | 3,008 | $ | 2,570 | $ | (60,988 | ) | $ | 55,410 | |||||||||||
The following represents the total special items included in the above Condensed Consolidated
Statement of Operations (see notes 4 and 5):
Three months ended March 31, 2010 | ||||||||||||||||||||||||
Libbey | Libbey | Non- | ||||||||||||||||||||||
Inc. | Glass | Subsidiary | Guarantor | |||||||||||||||||||||
(Parent) | (Issuer) | Guarantors | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Special charges |
$ | | $ | 29 | $ | 203 | $ | | $ | | $ | 232 | ||||||||||||
Other expense (income) |
| (56,792 | ) | 130 | | | (56,662 | ) | ||||||||||||||||
Total pretax special items |
$ | | $ | (56,763 | ) | $ | 333 | $ | | $ | | $ | (56,430 | ) | ||||||||||
Special items net of tax |
$ | | $ | (56,763 | ) | $ | 333 | $ | | $ | | $ | (56,430 | ) | ||||||||||
24
Table of Contents
Libbey Inc.
Condensed Consolidating Balance Sheets
(dollars in thousands)
Condensed Consolidating Balance Sheets
(dollars in thousands)
March 31, 2011 (unaudited) | ||||||||||||||||||||||||
Libbey | Libbey | Non- | ||||||||||||||||||||||
Inc. | Glass | Subsidiary | Guarantor | |||||||||||||||||||||
(Parent) | (Issuer) | Guarantors | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Cash and equivalents |
$ | | $ | (229 | ) | $ | 187 | $ | 13,154 | $ | | $ | 13,112 | |||||||||||
Accounts receivable net |
| 36,756 | 6,585 | 50,881 | | 94,222 | ||||||||||||||||||
Inventories net |
| 55,624 | 20,906 | 88,551 | | 165,081 | ||||||||||||||||||
Other current assets |
| 19,710 | 3,375 | 9,506 | (22,406 | ) | 10,185 | |||||||||||||||||
Total current assets |
| 111,861 | 31,053 | 162,092 | (22,406 | ) | 282,600 | |||||||||||||||||
Other non-current assets |
| 17,746 | | 33,333 | (19,002 | ) | 32,077 | |||||||||||||||||
Investments in and advances to subsidiaries |
20,287 | 362,737 | 190,278 | (30,711 | ) | (542,591 | ) | | ||||||||||||||||
Goodwill and purchased intangible assets net |
| 26,833 | 15,759 | 149,843 | | 192,435 | ||||||||||||||||||
Total other assets |
20,287 | 407,316 | 206,037 | 152,465 | (561,593 | ) | 224,512 | |||||||||||||||||
Property, plant and equipment net |
| 70,790 | 4,170 | 196,801 | | 271,761 | ||||||||||||||||||
Total assets |
$ | 20,287 | $ | 589,967 | $ | 241,260 | $ | 511,358 | $ | (583,999 | ) | $ | 778,873 | |||||||||||
Accounts payable |
$ | | $ | 11,384 | $ | 3,207 | $ | 45,573 | $ | | $ | 60,164 | ||||||||||||
Accrued and other current liabilities |
| 48,262 | 24,855 | 33,946 | (24,022 | ) | 83,041 | |||||||||||||||||
Notes payable and long-term debt due within one
year |
| 227 | | 3,102 | | 3,329 | ||||||||||||||||||
Total current liabilities |
| 59,873 | 28,062 | 82,621 | (24,022 | ) | 146,534 | |||||||||||||||||
Long-term debt |
| 362,036 | | 46,706 | | 408,742 | ||||||||||||||||||
Other long-term liabilities |
| 150,191 | 14,232 | 56,273 | (17,386 | ) | 203,310 | |||||||||||||||||
Total liabilities |
| 572,100 | 42,294 | 185,600 | (41,408 | ) | 758,586 | |||||||||||||||||
Total shareholders equity (deficit) |
20,287 | 17,867 | 198,966 | 325,758 | (542,591 | ) | 20,287 | |||||||||||||||||
Total liabilities and shareholders equity (deficit) |
$ | 20,287 | $ | 589,967 | $ | 241,260 | $ | 511,358 | $ | (583,999 | ) | $ | 778,873 | |||||||||||
December 31, 2010 | ||||||||||||||||||||||||
Libbey | Libbey | Non- | ||||||||||||||||||||||
Inc. | Glass | Subsidiary | Guarantor | |||||||||||||||||||||
(Parent) | (Issuer) | Guarantors | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Cash and equivalents |
$ | | $ | 58,277 | $ | 293 | $ | 17,688 | $ | | $ | 76,258 | ||||||||||||
Accounts receivable net |
| 37,099 | 5,360 | 49,642 | | 92,101 | ||||||||||||||||||
Inventories net |
| 52,398 | 19,902 | 75,846 | | 148,146 | ||||||||||||||||||
Other current assets |
| (2,634 | ) | 10,960 | 10,518 | (12,407 | ) | 6,437 | ||||||||||||||||
Total current assets |
| 145,140 | 36,515 | 153,694 | (12,407 | ) | 322,942 | |||||||||||||||||
Other non-current assets |
| 8,344 | 2,779 | 41,169 | (19,134 | ) | 33,158 | |||||||||||||||||
Investments in and advances to subsidiaries |
11,266 | 360,784 | 189,171 | (32,151 | ) | (529,070 | ) | | ||||||||||||||||
Goodwill and purchased intangible assets net |
| 26,833 | 15,761 | 149,880 | | 192,474 | ||||||||||||||||||
Total other assets |
11,266 | 395,961 | 207,711 | 158,898 | (548,204 | ) | 225,632 | |||||||||||||||||
Property, plant and equipment net |
| 72,892 | 4,862 | 192,643 | | 270,397 | ||||||||||||||||||
Total assets |
$ | 11,266 | $ | 613,993 | $ | 249,088 | $ | 505,235 | $ | (560,611 | ) | $ | 818,971 | |||||||||||
Accounts payable |
$ | | $ | 13,514 | $ | 2,926 | $ | 42,655 | $ | | $ | 59,095 | ||||||||||||
Accrued and other current liabilities |
| 48,092 | 27,811 | 34,430 | (12,407 | ) | 97,926 | |||||||||||||||||
Notes payable and long-term debt due within one
year |
| 227 | | 2,915 | | 3,142 | ||||||||||||||||||
Total current liabilities |
| 61,833 | 30,737 | 80,000 | (12,407 | ) | 160,163 | |||||||||||||||||
Long-term debt |
| 398,039 | | 45,944 | | 443,983 | ||||||||||||||||||
Other long-term liabilities |
| 131,100 | 21,964 | 69,629 | (19,134 | ) | 203,559 | |||||||||||||||||
Total liabilities |
| 590,972 | 52,701 | 195,573 | (31,541 | ) | 807,705 | |||||||||||||||||
Total shareholders equity (deficit) |
11,266 | 23,021 | 196,387 | 309,662 | (529,070 | ) | 11,266 | |||||||||||||||||
Total liabilities and shareholders equity (deficit) |
$ | 11,266 | $ | 613,993 | $ | 249,088 | $ | 505,235 | $ | (560,611 | ) | $ | 818,971 | |||||||||||
25
Table of Contents
Libbey Inc.
Condensed Consolidating Statement of Cash Flows
(dollars in thousands)
(unaudited)
Condensed Consolidating Statement of Cash Flows
(dollars in thousands)
(unaudited)
Three months ended March 31, 2011 | ||||||||||||||||||||||||
Libbey | Libbey | Non- | ||||||||||||||||||||||
Inc. | Glass | Subsidiary | Guarantor | |||||||||||||||||||||
(Parent) | (Issuer) | Guarantors | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Net income (loss) |
$ | (1,001 | ) | $ | (1,001 | ) | $ | 2,709 | $ | 5,099 | $ | (6,807 | ) | $ | (1,001 | ) | ||||||||
Depreciation and amortization |
3,808 | 198 | 6,875 | 10,881 | ||||||||||||||||||||
Other operating activities |
1,001 | (22,959 | ) | (3,510 | ) | (14,299 | ) | 6,807 | (32,960 | ) | ||||||||||||||
Net cash provided by (used in)
operating activities |
| (20,152 | ) | (603 | ) | (2,325 | ) | | (23,080 | ) | ||||||||||||||
Additions to property, plant &
equipment |
| (1,812 | ) | (3 | ) | (6,691 | ) | | (8,506 | ) | ||||||||||||||
Other investing activities |
| (1,203 | ) | 500 | 4,102 | | 3,399 | |||||||||||||||||
Net cash (used in) investing
activities |
| (3,015 | ) | 497 | (2,589 | ) | | (5,107 | ) | |||||||||||||||
Net borrowings |
| (35,698 | ) | | | | (35,698 | ) | ||||||||||||||||
Other financing activities |
| 359 | | | | 359 | ||||||||||||||||||
Net cash provided by (used in)
financing activities |
| (35,339 | ) | | | | (35,339 | ) | ||||||||||||||||
Exchange effect on cash |
| | | 380 | | 380 | ||||||||||||||||||
Increase (decrease) in cash |
| (58,506 | ) | (106 | ) | (4,534 | ) | | (63,146 | ) | ||||||||||||||
Cash at beginning of period |
| 58,277 | 293 | 17,688 | | 76,258 | ||||||||||||||||||
Cash at end of period |
$ | | $ | (229 | ) | $ | 187 | $ | 13,154 | $ | | $ | 13,112 | |||||||||||
Three months ended March 31, 2010 | ||||||||||||||||||||||||
Libbey | Libbey | Non- | ||||||||||||||||||||||
Inc. | Glass | Subsidiary | Guarantor | |||||||||||||||||||||
(Parent) | (Issuer) | Guarantors | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Net income (loss) |
$ | 55,410 | $ | 55,410 | $ | 3,008 | $ | 2,570 | $ | (60,988 | ) | $ | 55,410 | |||||||||||
Depreciation and amortization |
| 3,849 | 194 | 6,343 | | 10,386 | ||||||||||||||||||
Other operating activities |
(55,410 | ) | (96,710 | ) | (3,351 | ) | (17,478 | ) | 60,988 | (111,961 | ) | |||||||||||||
Net cash provided by (used in)
operating activities |
| (37,451 | ) | (149 | ) | (8,565 | ) | | (46,165 | ) | ||||||||||||||
Additions to property, plant &
equipment |
| (1,099 | ) | | (3,049 | ) | | (4,148 | ) | |||||||||||||||
Other investing activities |
| (8,415 | ) | | | | (8,415 | ) | ||||||||||||||||
Net cash (used in) investing
activities |
| (9,514 | ) | | (3,049 | ) | | (12,563 | ) | |||||||||||||||
Net borrowings |
| 35,252 | | 801 | | 36,053 | ||||||||||||||||||
Other financing activities |
| (14,033 | ) | | | | (14,033 | ) | ||||||||||||||||
Net cash provided by (used in)
financing activities |
| 21,219 | | 801 | | 22,020 | ||||||||||||||||||
Exchange effect on cash |
| | | (354 | ) | | (354 | ) | ||||||||||||||||
Increase (decrease) in cash |
| (25,746 | ) | (149 | ) | (11,167 | ) | | (37,062 | ) | ||||||||||||||
Cash at beginning of period |
| 37,386 | 419 | 17,284 | | 55,089 | ||||||||||||||||||
Cash at end of period |
$ | | $ | 11,640 | $ | 270 | $ | 6,117 | $ | | $ | 18,027 | ||||||||||||
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12. Segments
We have revised our segment structure to reflect our reorganization from geographical regions to
one global company. Under this new structure, we have two reportable segments: Glass Operations
and Other Operations. The classifications are defined as follows:
Glass Operationsincludes worldwide sales of glass tableware and other glass products from
domestic and international subsidiaries.
Other Operationsincludes worldwide sales of ceramic dinnerware, metal tableware, hollowware and
serveware and plastic items.
Our measure of profit for our reportable segments is Segment Earnings before Interest and
Taxes (EBIT) and excludes amounts related to certain items we consider not representative of
ongoing operations as well as certain retained corporate costs. We use Segment EBIT, along with
net sales and selected cash flow information, to evaluate performance and to allocate resources.
Segment EBIT for reportable segments includes an allocation of some corporate expenses based on
both a percentage of sales and direct billings based on the costs of services performed.
Certain activities not related to any particular reportable segment are reported within retained
corporate costs. These costs include certain headquarters administrative and facility costs and
other costs that are global in nature and are not allocable to the reporting segments. Corporate
assets primarily include finance fees, capitalized software and income tax assets.
The accounting policies of the reportable segments are the same as those described in note 2. We
do not have any customers who represent 10 percent or more of total sales. Inter-segment sales are
consummated at arms length and are reflected in eliminations below.
Three months ended March 31, | ||||||||
(dollars in thousands) | 2011 | 2010 | ||||||
Net Sales: |
||||||||
Glass Operations |
$ | 162,053 | $ | 155,144 | ||||
Other Operations |
19,161 | 18,874 | ||||||
Eliminations |
(199 | ) | (114 | ) | ||||
Consolidated Net Sales |
$ | 181,015 | $ | 173,904 | ||||
Segment EBIT: |
||||||||
Glass Operations |
$ | 17,391 | $ | 15,426 | ||||
Other Operations |
2,879 | 3,485 | ||||||
Total Segment EBIT |
$ | 20,270 | $ | 18,911 | ||||
Reconciliation of Segment EBIT to Net (Loss) Income: |
||||||||
Segment EBIT |
$ | 20,270 | $ | 18,911 | ||||
Retained corporate costs |
(9,965 | ) | (8,491 | ) | ||||
(Loss) gain on redemption of debt (note 4) |
(2,803 | ) | 56,792 | |||||
Gain on sale of land (1) |
3,445 | | ||||||
Restructuring and other charges (note 5) |
(51 | ) | (362 | ) | ||||
Interest expense |
(11,583 | ) | (9,620 | ) | ||||
Tax provision |
(314 | ) | (1,820 | ) | ||||
Net (loss) income |
$ | (1,001 | ) | $ | 55,410 | |||
Depreciation & Amortization: |
||||||||
Glass Operations |
$ | 10,249 | $ | 9,844 | ||||
Other Operations |
192 | 187 | ||||||
Corporate |
440 | 355 | ||||||
Consolidated |
$ | 10,881 | $ | 10,386 | ||||
Capital Expenditures: |
||||||||
Glass Operations |
$ | 8,422 | $ | 3,839 | ||||
Other Operations |
3 | | ||||||
Corporate |
81 | 309 | ||||||
Consolidated |
$ | 8,506 | $ | 4,148 | ||||
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March 31, | December 31, | |||||||
(dollars in thousands) | 2011 | 2010 | ||||||
Segment Assets: |
||||||||
Glass Operations |
$ | 710,156 | $ | 752,058 | ||||
Other Operations |
47,076 | 45,944 | ||||||
Corporate |
21,641 | 20,969 | ||||||
Total Assets |
$ | 778,873 | $ | 818,971 | ||||
(1) | Net gain on the sale of land at our Royal Leerdam facility. |
13. Fair Value
FASB ASC 820 defines fair value as the price that would be received to sell an asset or paid to
transfer a liability in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants at the measurement date. FASB ASC 820 establishes a
fair value hierarchy, which prioritizes the inputs used in measuring fair value into three broad
levels as follows:
| Level 1 Quoted prices in active markets for identical assets or liabilities. | ||
| Level 2 Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly. | ||
| Level 3 Unobservable inputs based on our own assumptions. |
Asset / (Liability) | Fair Value at March 31, 2011 | Fair Value at December 31, 2010 | ||||||||||||||||||||||||||||||
(dollars in thousands) | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
Commodity futures natural gas contracts |
$ | | $ | (2,509 | ) | $ | | $ | (2,509 | ) | $ | | $ | (3,188 | ) | $ | | $ | (3,188 | ) | ||||||||||||
Currency contracts |
| (605 | ) | | (605 | ) | | (151 | ) | | (151 | ) | ||||||||||||||||||||
Interest rate agreement |
| 1,891 | | 1,891 | | 2,536 | | 2,536 | ||||||||||||||||||||||||
Net derivative liability |
$ | | $ | (1,223 | ) | $ | | $ | (1,223 | ) | $ | | $ | (803 | ) | $ | | $ | (803 | ) | ||||||||||||
The fair values of our commodity futures natural gas contracts and currency contracts are
determined using observable market inputs. The fair value of our interest rate agreement is based
on the market standard methodology of netting the discounted expected future fixed cash receipts
and the discounted future variable cash payments. The variable cash payments are based on an
expectation of future interest rates derived from observed market interest rate forward curves.
Since these inputs are observable in active markets over the terms that the instruments are held,
the derivatives are classified as Level 2 in the hierarchy. We also evaluate Company and
counterparty risk in determining fair values. The total derivative position is recorded on the
Condensed Consolidated Balance Sheets with $2.0 million in derivative asset and $3.2 million in
derivative liability as of March 31, 2011. As of December 31, 2010, $2.6 million was recorded in
derivative asset and $3.4 million in derivative liability on the Condensed Consolidated Balance
Sheets.
The commodity futures natural gas contracts and interest rate agreements are hedges of either
recorded assets or liabilities or anticipated transactions. Changes in values of the underlying
hedged assets and liabilities or anticipated transactions are not reflected in the above table.
14. Other Income (Expense)
Items included in other income (expense) in the Condensed Consolidated Statements of Operations are
as follows:
Three months ended | ||||||||
March 31, | ||||||||
(dollars in thousands) | 2011 | 2010 | ||||||
Gain on sale of land at Royal Leerdam |
$ | 3,445 | $ | | ||||
Loss on currency translation |
(1,166 | ) | (530 | ) | ||||
Income (expense) on hedging activities |
635 | (293 | ) | |||||
Other non-operating income |
92 | 60 | ||||||
Other income (expense) |
$ | 3,006 | $ | (763 | ) | |||
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15. Subsequent Events
Sale of Traex Unit
On April 28, 2011, we closed on the sale of substantially all of the assets of our Traex subsidiary
to the Vollrath Company. We expect to receive net proceeds of approximately $13.0 million and to
record a gain on the sale of between $2.5 million and $3.5 million during the second quarter of
2011.
ABL Facility Amendment
On April 29, 2011, Libbey Glass and Libbey Europe amended the ABL Facility dated February 8, 2010.
The amendment, among other things:
| reduces the amount of commitments available for revolving loans from $110.0 million, but allows Libbey Glass and Libbey Europe the option to increase the loan facility by $10.0 million; | |
| extends the maturity from April 8, 2014 to April 29, 2016, and provides for a springing maturity date with respect to the credit facility to the extent that Libbey Glass 10 percent Senior Secured Notes due 2015 are not refinanced by November 17, 2014, subject to certain exceptions; | |
| reduces pricing for all loans by 1.5 percent to 1.75 percent making the applicable margin spread for Eurocurrency Loans 1.75 percent to 2.0 percent and CBFR Loans 0.75 percent to 1.0 percent; and | |
| provides for a springing fixed charge coverage ratio covenant, requiring Libbey Glass and Libbey Europe to maintain an EBITDA to fixed charges ratio above 1.10:1.00 during periods when the amount of available commitments plus the loan parties cash and permitted investments falls below a certain threshold. |
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should
be read in conjunction with our Condensed Consolidated Financial Statements and the related notes
thereto appearing elsewhere in this report and in our Annual Report filed with the Securities and
Exchange Commission. This discussion and analysis contains forward-looking statements that involve
risks, uncertainties and assumptions. Our actual results may differ from those anticipated in these
forward-looking statements as a result of many factors. These factors are discussed in Risk
Factors under Item 1A of Part II Other Information.
Overview
Economic market conditions continued to be challenging during the first quarter of 2011. Our sales
have improved compared to the same period last year and our U.S. and Canadian retail glassware
business has continued its strong performance. In addition, we have experienced solid net sales
growth in our China sales region. Our U.S. and Canadian foodservice glassware business was
negatively impacted by the severe winter weather in January and early February. On March 25, 2011,
we redeemed an aggregate principal amount of $40.0 million of our outstanding 10.0 percent Senior
Secured Notes due 2015. Please see note 4 to the Condensed Consolidated Financial Statements for a
further discussion of this transaction. Effective the first quarter of 2011, we reorganized from
geographical regions to one global company. Under this new structure, we have two operating
segments: Glass Operations and Other Operations. These operating segments are defined as follows:
Glass Operationsincludes worldwide sales of glass tableware and other glass operations from
domestic and international subsidiaries.
Other Operationsincludes worldwide sales of ceramic dinnerware, metal tableware, hollowware and
serveware and plastic items.
Results of Operations First Quarter 2011 Compared with First Quarter 2010
Three months ended March 31, | Variance | |||||||||||||||
(dollars in thousands, except percentages and per-share amounts) | 2011 | 2010 | In dollars | In percent | ||||||||||||
Net sales |
$ | 181,015 | $ | 173,904 | $ | 7,111 | 4.1 | % | ||||||||
Gross profit |
$ | 36,146 | $ | 33,877 | $ | 2,269 | 6.7 | % | ||||||||
Gross profit margin |
20.0 | % | 19.5 | % | ||||||||||||
Income from operations (IFO)(2) |
$ | 10,693 | $ | 10,821 | $ | (128 | ) | (1.2 | )% | |||||||
IFO margin |
5.9 | % | 6.2 | % | ||||||||||||
Earnings before interest and income taxes |
||||||||||||||||
(EBIT)(1)(2)(3) |
$ | 10,896 | $ | 66,850 | $ | (55,954 | ) | (83.7 | )% | |||||||
EBIT margin |
6.0 | % | 38.4 | % | ||||||||||||
Earnings before interest, taxes, depreciation and
amortization (EBITDA)(1)(2)(3) |
$ | 21,777 | $ | 77,236 | $ | (55,459 | ) | (71.8 | )% | |||||||
EBITDA margin |
12.0 | % | 44.4 | % | ||||||||||||
Adjusted EBITDA(1) |
$ | 21,186 | $ | 20,806 | $ | 380 | 1.8 | % | ||||||||
Adjusted EBITDA margin |
11.7 | % | 12.0 | % | ||||||||||||
Net (loss) income (2)(3) |
$ | (1,001 | ) | $ | 55,410 | $ | (56,411 | ) | (101.8 | )% | ||||||
Net (loss) income margin |
(0.6 | )% | 31.9 | % | ||||||||||||
Diluted net (loss) income per share |
$ | (0.05 | ) | $ | 2.76 | $ | (2.81 | ) | (101.8 | )% |
(1) | We believe that EBIT, EBITDA and Adjusted EBITDA, non-GAAP financial measures, are useful metrics for evaluating our financial performance, as they are measures that we use internally to assess our performance. See Table 1 for a reconciliation of net (loss) income to EBIT, EBITDA and Adjusted EBITDA and a further discussion as to the reasons we believe these non-GAAP financial measures are useful. | |
(2) | Includes pre-tax restructuring charges of $0.1 million in 2011 and $0.2 million in 2010 related to the closing of our Syracuse China manufacturing facility and our Mira Loma distribution center. (See note 5 to the Condensed Consolidated Financial Statements). | |
(3) | In addition to item (2) above, 2011 includes a pre-tax loss of $2.8 million related to the loss on redemption of the Senior Secured Notes and pre-tax income of $3.4 million related to the gain on the sale of land at our Royal Leerdam facility and 2010 includes pre-tax income of $56.8 million related to the gain on redemption of the New PIK Notes and pre-tax restructuring charges of $0.1 million related to the closing of our Syracuse China manufacturing facility. (See notes 4 and 5 to the Condensed Consolidated Financial Statements). |
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Net Sales
For the three months ended March 31, 2011, net sales increased 4.1 percent to $181.0 million from
first quarter sales of $173.9 million in the year-ago quarter. The improvement was primarily
attributable to our Glass Operations, where net sales increased 4.5 percent to $162.1 million from
$155.1 million in the year-ago quarter. Other Operations segment
sales were $19.2 million, compared to $18.9 million in the
prior-year quarter. Currency positively impacted consolidated net sales by approximately 1.0 percent.
Gross Profit
For the quarter ended March 31, 2011, gross profit increased by $2.3 million, or 6.7 percent, to
$36.1 million, compared to $33.9 million in the year-ago quarter. Gross profit as a percentage of
net sales increased to 20.0 percent, compared to 19.5 percent in the year-ago quarter. The primary
contributor to the increase in gross profit and gross profit margin was the increase in sales of
$5.5 million, excluding the impact of currency. This increase was offset by slightly lower
production activity, net of volume-related production and sales costs of $3.9 million, excluding
the impact of currency. Favorable currency impact contributed
$0.7 million to gross profit, primarily from the Mexican peso.
Income From Operations
Income from operations for the quarter ended March 31, 2011 decreased $0.1 million, or 1.2 percent,
to $10.7 million, compared to $10.8 million in the year-ago quarter. Income from operations as a
percentage of net sales decreased to 5.9 percent in the first quarter of 2011, compared to 6.2
percent in the year-ago quarter. Contributing to the small decline in income from operations were
higher selling, general and administrative expenses, offset by higher gross profit and higher gross
profit margin (discussed above). Selling, general and administrative costs increased $2.6 million
in the first quarter of 2011 as compared to the year-ago quarter, as we incurred comparatively
higher expenses related to incentive compensation, share-based compensation and legal and
professional fees.
Earnings Before Interest and Income Taxes (EBIT)
Earnings before Interest and Income Taxes (EBIT) for the quarter ended March 31, 2011 decreased by
$56.0 million, to $10.9 million in 2011 from $66.9 million in 2010. EBIT as a percentage of net
sales decreased to 6.0 percent in the first quarter 2011, compared to 38.4 percent in the year-ago
quarter. Key contributors to the decrease in EBIT compared to the year-ago quarter are the same as
those discussed above under Income From Operations. In addition, we recorded a $56.8 million gain
on redemption of debt in 2010, net of certain transaction expenses. In 2011, we redeemed $40.0
million of our Senior Secured Notes and recorded a $2.8 million write-off of unamortized finance
fees and discounts and call premium payments. See note 4 for a further discussion of these two
debt transactions. Other income (expense) increased by $3.8 million, primarily related to a gain
on the sale of land at our Royal Leerdam facility.
Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA)
EBITDA decreased by $55.5 million in the first quarter of 2011, to $21.8 million, compared to $77.2
million in the year-ago quarter. As a percentage of net sales, EBITDA was 12.0 percent for the
first quarter 2011, compared to 44.4 percent in the year-ago quarter. The key contributors to the
decrease in EBITDA were those factors discussed above under Earnings Before Interest and Income
Taxes (EBIT).
Adjusted EBITDA
Adjusted EBITDA increased by $0.4 million in the first quarter of 2011, to $21.2 million, compared
to $20.8 million in the year-ago quarter. As a percentage of net sales, Adjusted EBITDA was 11.7
percent for the first quarter 2011, compared to 12.0 percent in the year-ago quarter. The key
contributors to the increase in Adjusted EBITDA were those factors discussed above under Earnings
Before Interest, Taxes, Depreciation and Amortization (EBITDA), and the exclusion of a $3.4 million
gain on the sale of land at our Royal
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Leerdam facility and a $2.8 million loss on redemption of debt in 2011, $56.8 million gain on
redemption of debt and a $0.4 million facility closure charge in 2010.
Net (Loss) Income and Diluted Net (Loss) Income Per Share
We recorded a net loss of $(1.0) million, or $(0.05) per diluted share, in the first quarter of
2011, compared to net income of $55.4 million, or $2.76 per diluted share, in the year-ago quarter.
Net (loss) income as a percentage of net sales was (0.6) percent in the first quarter 2011,
compared to 31.9 percent in the year-ago quarter. The decline in Net (loss) income and diluted net
(loss) income per share is generally due to the factors discussed in EBIT above, and a $2.0 million
increase in interest expense. This increase in interest expense was primarily attributable to the
fact that a portion of our debt carried a low effective interest rate in January 2010, prior to the
debt refinancing completed in February 2010. Lower debt levels in 2011 partially offset the change
in interest rates. The effective tax rate was a negative 45.7 percent for the quarter, compared to
a 3.2 percent benefit in the year-ago quarter, due to the reversal of a portion of our valuation
allowance in Mexico in 2010, in addition to changes in the mix of earnings in countries with
differing statutory tax rates, changes in accruals related to uncertain tax positions and tax
planning structures.
Segment Results of Operations
Three months ended | ||||||||||||||||
March 31, | Variance | |||||||||||||||
(dollars in thousands) | 2011 | 2010 | In dollars | In percent | ||||||||||||
Net Sales: |
||||||||||||||||
Glass Operations |
$ | 162,053 | $ | 155,144 | $ | 6,909 | 4.5 | % | ||||||||
Other Operations |
19,161 | 18,874 | 287 | 1.5 | % | |||||||||||
Eliminations |
(199 | ) | (114 | ) | ||||||||||||
Consolidated |
$ | 181,015 | $ | 173,904 | $ | 7,111 | 4.1 | % | ||||||||
Segment EBIT(1): |
||||||||||||||||
Glass Operations |
$ | 17,391 | $ | 15,426 | $ | 1,965 | 12.7 | % | ||||||||
Other Operations |
2,879 | 3,485 | (606 | ) | (17.4 | )% | ||||||||||
Total Segment EBIT |
$ | 20,270 | $ | 18,911 | $ | 1,359 | 7.2 | % | ||||||||
Segment EBIT Margin: |
||||||||||||||||
Glass Operations |
10.7 | % | 9.9 | % | ||||||||||||
Other Operations |
15.0 | % | 18.5 | % | ||||||||||||
Reconciliation of Segment EBIT to Net
(Loss) Income: |
||||||||||||||||
Segment EBIT |
$ | 20,270 | $ | 18,911 | ||||||||||||
Retained corporate costs(2) |
(9,965 | ) | (8,491 | ) | ||||||||||||
(Loss) gain on redemption of debt (note 4) |
(2,803 | ) | 56,792 | |||||||||||||
Gain on sale of land |
3,445 | | ||||||||||||||
Restructuring and other charges (note 5) |
(51 | ) | (362 | ) | ||||||||||||
Interest expense |
(11,583 | ) | (9,620 | ) | ||||||||||||
Tax provision |
(314 | ) | (1,820 | ) | ||||||||||||
Net (loss) income |
$ | (1,001 | ) | $ | 55,410 | |||||||||||
(1) | Segment EBIT represents earnings before interest and taxes and excludes amounts related to certain items we consider not representative of ongoing operations as well as certain retained corporate costs. | |
(2) | Retained corporate costs include certain headquarter administrative and facility costs that are not allocable to the reporting segments. |
Segment Results of Operations First Quarter 2011 Compared to First Quarter 2010
Glass Operations
For the quarter ended March 31, 2011, net sales increased 4.5 percent to $162.1 million from $155.1
million in the year-ago quarter.
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Currency positively impacted net sales by approximately 1.0 percent.
Segment EBIT increased to $17.4 million for the first quarter of 2011, compared to $15.4 million
for the year-ago quarter. Segment EBIT as a percentage of net sales increased to 10.7 percent in
the first quarter of 2011, compared to 9.9 percent in the year-ago quarter. The key factor in the
$2.0 million increase in Segment EBIT was an increase in sales of $5.3 million, excluding the
impact of currency. This increase was offset by slightly lower production activity, net of
volume-related production and sales costs of $2.9 million, excluding the impact of currency.
Favorable currency impact contributed $0.5 million to the Segment EBIT, primarily from the Mexican
peso. Other income (expense) includes an unfavorable swing of $0.5 million primarily related to
larger foreign currency translation losses versus the prior-year quarter.
Other Operations
For the quarter ended March 31, 2011, net sales increased 1.5 percent to $19.2 million from $18.9
million in the year-ago quarter.
Segment EBIT decreased by $0.6 million, or 17.4 percent, to $2.9 million for the first quarter of
2011, compared to $3.5 million in the year-ago quarter. Segment EBIT as a percentage of net sales
decreased to 15.0 percent in the first quarter of 2011, compared to 18.5 percent in the year-ago
quarter. The key contributor to the decreased Segment EBIT was an increase in costs of purchased
finished goods of $0.6 million.
Capital Resources and Liquidity
Balance Sheet and Cash Flows
Cash and Equivalents
At March 31, 2011, our cash balance was $13.1 million, a decrease of $63.2 million from $76.3
million at December 31, 2010. The decrease was primarily due to the cash interest payment made on
our Senior Secured Notes in February, 2011 and the use of cash to redeem $40.0 million of Senior
Secured Notes in March, 2011.
Working Capital
The following table presents our working capital components:
(dollars in thousands, except percentages | Variance | |||||||||||||||
and DSO, DIO, DPO and DWC) | March 31, 2011 | December 31, 2010 | In dollars | In percent | ||||||||||||
Accounts receivable net |
$ | 94,222 | $ | 92,101 | $ | 2,121 | 2.3 | % | ||||||||
DSO (1) |
42.6 | 42.0 | ||||||||||||||
Inventories net |
$ | 165,081 | $ | 148,146 | $ | 16,935 | 11.4 | % | ||||||||
DIO (2) |
74.6 | 67.6 | ||||||||||||||
Accounts payable |
$ | 60,164 | $ | 59,095 | $ | 1,069 | 1.8 | % | ||||||||
DPO (3) |
27.2 | 27.0 | ||||||||||||||
Working capital (4) |
$ | 199,139 | $ | 181,152 | $ | 17,987 | 9.9 | % | ||||||||
DWC (5) |
90.0 | 82.6 | ||||||||||||||
Percentage of net sales |
24.7 | % | 22.6 | % | ||||||||||||
DSO, DIO, DPO and DWC are calculated using net sales as the denominator and are based on a 365-day calendar year. | ||
(1) | Days sales outstanding (DSO) measures the number of days it takes to turn receivables into cash. |
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(2) | Days inventory outstanding (DIO) measures the number of days it takes to turn inventory into cash. | |
(3) | Days payable outstanding (DPO) measures the number of days it takes to pay the balances of our accounts payable. | |
(4) | Working capital is defined as net accounts receivable plus net inventories less accounts payable. See Table 3 for the calculation of this non-GAAP financial measure and for further discussion as to the reasons we believe this non-GAAP financial measure is useful. | |
(5) | Days working capital (DWC) measures the number of days it takes to turn our working capital into cash. |
Working capital, defined as net accounts receivable plus net inventories less accounts payable, was
$199.1 million at March 31, 2011, an increase of $18.0 million from December 31, 2010. Our working
capital normally increases during the first quarter of the year due to the seasonality of our
business. In particular, inventory normally increases to prepare for seasonally higher orders
which typically exceed production levels in the latter part of the year. This quarter, our
increase is primarily driven by higher inventories resulting from a planned growth of inventories
in Mexico to accommodate scheduled furnace rebuilds and a $4.0 million currency impact. As a
result, working capital as a percentage of last twelve-month net sales increased to 24.7 percent at
March 31, 2011 from 22.6 percent at December 31, 2010. Working capital as a percentage of last
twelve-month net sales at March 31, 2011 is below that of March 31, 2010, which was 24.9 percent.
Borrowings
The following table presents our total borrowings:
(dollars in thousands) | Interest Rate | Maturity Date | 2011 | 2010 | ||||||||||||
Borrowings under ABL facility |
floating | April 8, 2014 | $ | 4,350 | $ | | ||||||||||
Senior Secured Notes |
10.0 | %(1) | February 15, 2015 | 360,000 | 400,000 | |||||||||||
Promissory note |
6.00 | % | April, 2011 to September, 2016 | 1,260 | 1,307 | |||||||||||
RMB loan contract |
floating | July, 2012 to January, 2014 | 38,175 | 37,925 | ||||||||||||
BES Euro line |
floating | December, 2011 to December, 2013 | 11,632 | 10,934 | ||||||||||||
Total borrowings |
415,417 | 450,166 | ||||||||||||||
Less unamortized discount |
5,332 | 6,307 | ||||||||||||||
Plus Carrying value adjustment on
debt related to the Interest Rate Agreement (1) |
1,986 | 3,266 | ||||||||||||||
Total borrowings net (2) |
$ | 412,071 | $ | 447,125 | ||||||||||||
(1) | See Derivatives below and note 9 to the Condensed Consolidated Financial Statements. | |
(2) | The total borrowings net include long-term debt due within one year and long-term debt as stated in our Condensed Consolidated Balance Sheets. |
We had total borrowings of $415.4 million at March 31, 2011, compared to total borrowings of $450.2
million at December 31, 2010. The $34.8 million decrease in borrowings was the result of the March
25, 2011 $40.0 million redemption of Senior Secured Notes, offset by an increase in our borrowings
under the ABL facility.
Of our total borrowings, $144.2 million, or approximately 34.7 percent, was subject to
variable interest rates at March 31, 2011. A change of one percentage point in such rates would
result in a change in interest expense of approximately $1.4 million on an annual basis.
Included in interest expense is the amortization of discounts, warrants and financing fees. These
items amounted to $1.2 million and $1.0 million for the three months ended March 31, 2011 and 2010,
respectively.
Cash Flow
The following table presents key drivers of our free cash flow for the first quarter.
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Three months ended March 31, | Variance | |||||||||||||||
(dollars in thousands, except percentages) | 2011 | 2010 | In dollars | In percent | ||||||||||||
Net cash used in operating activities |
$ | (23,080 | ) | $ | (46,165 | ) | $ | 23,085 | 50.0 | % | ||||||
Capital expenditures |
(8,506 | ) | (4,148 | ) | (4,358 | ) | 105.1 | % | ||||||||
Proceeds from asset sales and other |
4,602 | | 4,602 | NM | ||||||||||||
Payment of interest on New PIK Notes |
| 29,400 | (29,400 | ) | 100.0 | % | ||||||||||
Free cash flow (1) |
$ | (26,984 | ) | $ | (20,913 | ) | $ | (6,071 | ) | (29.0 | )% | |||||
NM | = not meaningful | |
(1) | We believe that Free cash flow [net cash used in operating activities, less capital expenditures, plus proceeds from assets sales and other; further adjusted for payment of interest on New PIK Notes] is a useful metric for evaluating our financial performance, as it is a measure we use internally to assess performance. See Table 2 for a reconciliation of net cash used in operating activities to Free cash flow and a further discussion as to the reasons we believe this non-GAAP financial measure is useful. |
Our net cash used in operating activities was $(23.1) million in the first quarter of 2011,
compared to net cash used in operating activities of $(46.2) million in the year-ago quarter, or an
improvement of $23.1 million. The major factors impacting cash flow from operations were the $56.4
million reduction in net (loss) income offset by $86.2 million of items related to our February
2010 debt refinancing. In addition, we generated lower uses of cash related to accounts receivable
and accounts payable as compared to the year-ago quarter of $9.7 million. This was partially
offset by a larger use of cash of $3.8 million from increased inventory primarily related to a
planned increase in inventory in Mexico to accommodate scheduled furnace rebuilds. We also had a
$13.9 million increase in cash interest payments resulting from a change in the timing of payments
as a result of the February 2010 debt refinancing.
Our net cash used in investing activities decreased to $(5.1) million in the first quarter of 2011,
compared to $(12.6) million in the year-ago period, primarily as a result of a reduction of $7.2
million in payments of call premiums on our senior secured and floating rate notes between periods
and cash proceeds received of $4.6 million on the sale of land at our Royal Leerdam facility and
the vacant property in Syracuse, New York. Offsetting these amounts were the increase of $4.4
million compared to the prior year first quarter in capital expenditures.
Net cash (used in) provided by financing activities was a $(35.3) million use of cash in the first
quarter of 2011, compared to a $22.0 million source of cash in the year-ago quarter. During the
first quarter of 2011, we redeemed $40.0 million of our Senior Secured Notes offset by $4.4 million
of borrowings on our ABL facility. During the first quarter of 2010, our proceeds from the Senior
Secured Notes were only partially offset by the repurchase of our floating rate notes, the
redemption of the PIK notes and payment of debt issuance costs. The increase in cash provided by
financing activities, along with cash on hand, were used to pay the interest on the PIK notes and
the call premium on the floating rate notes.
Our Free cash flow was $(27.0) million during the first quarter of 2011, compared to $(20.9)
million in the year-ago quarter, a decrease of $6.1 million. The primary contributors to this
change were a larger use of cash from operating activities compared to the year-ago quarter,
excluding the interest on the PIK Notes; and an increase in capital expenditures, offset by the
cash proceeds on the sale of land, as discussed above.
Derivatives
We have an Interest Rate Agreement (Rate Agreement) with respect to $90.0 million of debt in order
to convert a portion of the Senior Secured Note fixed rate debt into floating rate debt, maintain a
capital structure containing appropriate amounts of fixed and floating rate debt and reduce net
interest payments and expenses in the near-term. The interest rate for our borrowings related to
the Rate Agreement at March 31, 2011 is 7.60 percent per year. This Rate Agreement expires on
February 15, 2015. Total remaining Senior Secured Notes not covered by the Rate Agreement have a
fixed interest rate of 10.0 percent. If the counterparty to this Rate Agreement were to fail to
perform, the Rate Agreement would no longer provide the desired results. However, we do not
anticipate nonperformance by the counterparty. The counterparty was rated AA- as of March 31,
2011, by Standard and Poors.
The fair market value for the Rate Agreement at March 31, 2011, was a $1.9 million asset. The fair
value of the Rate Agreement is based on the market standard methodology of netting the discounted
expected future fixed cash receipts and the discounted future variable cash payments. The variable
cash payments are based on an expectation of future interest rates derived from observed market
interest rate forward curves. We do not expect to cancel this agreement and expect it to mature as
originally contracted.
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We also use commodity futures contracts related to forecasted future North American natural gas
requirements. The objective of these futures contracts is to reduce the effects of fluctuations and
price movements in the underlying commodity. We consider our forecasted natural gas requirements in
determining the quantity of natural gas to hedge. We combine the forecasts with historical
observations to establish the percentage of forecast eligible to be hedged, typically ranging from
40 percent to 70 percent of our anticipated requirements up to eighteen months in the future. The
fair values of these instruments are determined from market quotes. At March 31, 2011, we had
commodity futures contracts for 2,910,000 million British Thermal Units (BTUs) of natural gas with
a fair market value of an $(2.5) million liability. We have hedged a portion of our forecasted
transactions through June 2012. At December 31, 2010, we had commodity futures contracts for
3,090,000 million BTUs of natural gas with a fair market value of a $(3.2) million liability. The
counterparties for these derivatives were rated BBB+ or better as of March 31, 2011, by Standard &
Poors.
Capital Resources and Liquidity
Historically, cash flows generated from operations and our borrowing capacity under our ABL
Facility have enabled us to meet our cash requirements, including capital expenditures and working
capital requirements. As of March 31, 2011 we had $4.4 million outstanding under our ABL Facility,
and we had $10.4 million of letters of credit issued under that facility. As a result, we had
$64.9 million of unused availability remaining under the ABL Facility at March 31, 2011. In
addition, we had $13.1 million of cash on hand at March 31, 2011.
Based on our operating plans and current forecast expectations, we anticipate that our level of
cash on hand, cash flows from operations and our borrowing capacity under our ABL Facility will
provide sufficient cash availability to meet our ongoing liquidity needs.
Reconciliation of Non-GAAP Financial Measures
We sometimes refer to data derived from condensed consolidated financial information but not
required by GAAP to be presented in financial statements. Certain of these data are considered
non-GAAP financial measures under Securities and Exchange Commission (SEC) Regulation G. We
believe that non-GAAP data provide investors with a more complete understanding of underlying
results in our core business and trends. In addition, we use non-GAAP data internally to assess
performance. Although we believe that the non-GAAP financial measures presented enhance investors
understanding of our business and performance, these non-GAAP measures should not be considered an
alternative to GAAP.
Table 1
Reconciliation of net (loss) income to EBIT, EBITDA and | Three months ended | |||||||
Adjusted EBITDA | March 31, | |||||||
(dollars in thousands) | 2011 | 2010 | ||||||
Net (loss) income |
$ | (1,001 | ) | $ | 55,410 | |||
Add: Interest expense |
11,583 | 9,620 | ||||||
Add: Provision for income taxes |
314 | 1,820 | ||||||
Earnings before interest and income taxes (EBIT) |
10,896 | 66,850 | ||||||
Add: Depreciation and amortization |
10,881 | 10,386 | ||||||
Earnings before interest, taxes, deprecation and amortization
(EBITDA) |
21,777 | 77,236 | ||||||
Add: Special items before interest and taxes: |
||||||||
Loss (gain) on redemption of debt (see note 4)(1) |
2,803 | (56,792 | ) | |||||
Facility closure charges (see note 5)(2) |
51 | 362 | ||||||
Gain on sale of land at our Royal Leerdam facility |
(3,445 | ) | | |||||
Adjusted EBITDA |
$ | 21,186 | $ | 20,806 | ||||
(1) | Loss (gain) on redemption of debt relates to the write-off of finance fees, discounts and a call premium on the redemption of $40.0 million of the Senior Secured Notes in March 2011 and the net gain recorded upon redeeming $80.4 million of New PIK Notes, repurchasing $306.0 million of floating rate notes and writing off finance fees, discounts and a call premium on the floating rate notes in February 2010. | |
(2) | Facility closure charges are related to the closure of our Syracuse, New York ceramic dinnerware manufacturing facility and our Mira Loma, California distribution center. |
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We define EBIT as net (loss) income before interest expense and income taxes. The most directly
comparable U.S. GAAP financial measure is net (loss) income.
We believe that EBIT is an important supplemental measure for investors in evaluating operating
performance in that it provides insight into company profitability. Libbeys senior management uses
this measure internally to measure profitability. EBIT also allows for a measure of comparability
to other companies with different capital and legal structures, which accordingly may be subject to
different interest rates and effective tax rates.
The non-GAAP measure of EBIT does have certain limitations. It does not include interest expense,
which is a necessary and ongoing part of our cost structure resulting from debt incurred to expand
operations. Because this is a material and recurring item, any measure that excludes it has a
material limitation. EBIT may not be comparable to similarly titled measures reported by other
companies.
We define EBITDA as net (loss) income before interest expense, income taxes, depreciation and
amortization. The most directly comparable U.S. GAAP financial measure is net (loss) income.
We believe that EBITDA is an important supplemental measure for investors in evaluating operating
performance in that it provides insight into company profitability and cash flow. Libbeys senior
management uses this measure internally to measure profitability and to set performance targets for
managers. It also has been used regularly as one of the means of publicly providing guidance on
possible future results. EBITDA also allows for a measure of comparability to other companies with
different capital and legal structures, which accordingly may be subject to different interest
rates and effective tax rates, and to companies that may incur different depreciation and
amortization expenses or impairment charges.
The non-GAAP measure of EBITDA does have certain limitations. It does not include interest expense,
which is a necessary and ongoing part of our cost structure resulting from debt incurred to expand
operations. EBITDA also excludes depreciation and amortization expenses. Because these are material
and recurring items, any measure that excludes them has a material limitation. EBITDA may not be
comparable to similarly titled measures reported by other companies.
We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our
performance across reporting periods on a consistent basis by excluding items that we do not
believe are indicative of our core operating performance. In addition, we use Adjusted EBITDA
internally to measure profitability and to set performance targets for managers.
Adjusted EBITDA has limitations as an analytical tool. Some of these limitations are:
| Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; | ||
| Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; | ||
| Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; | ||
| although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; | ||
| Adjusted EBITDA does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and | ||
| other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. |
Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a
substitute for performance measures calculated in accordance with GAAP.
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Table 2
Reconciliation of net cash used in operating | Three months ended | |||||||
activities to free cash flow | March 31, | |||||||
(dollars in thousands) | 2011 | 2010 | ||||||
Net cash used in operating activities |
$ | (23,080 | ) | $ | (46,165 | ) | ||
Capital expenditures |
(8,506 | ) | (4,148 | ) | ||||
Proceeds from asset sales and other |
4,602 | | ||||||
Payment of interest on New PIK Notes |
| 29,400 | ||||||
Free cash flow |
$ | (26,984 | ) | $ | (20,913 | ) | ||
We define Free cash flow as net cash used in operating activities less capital expenditures,
adjusted for proceeds from asset sales and other and for the payment of interest on the New PIK
Notes. The most directly comparable U.S. GAAP financial measure is net cash used in operating
activities.
We believe that Free cash flow is important supplemental information for investors in evaluating
cash flow performance in that it provides insight into the cash flow available to fund such things
as discretionary debt service, acquisitions and other strategic investment opportunities. It is a
measure of performance we use to internally evaluate the overall performance of the business.
Free cash flow is used in conjunction with and in addition to results presented in accordance with
U.S. GAAP. Free cash flow is neither intended to represent nor be an alternative to the measure of
net cash used in operating activities recorded under U.S. GAAP. Free cash flow may not be
comparable to similarly titled measures reported by other companies.
Table 3
Reconciliation of working capital | March 31, | December 31, | ||||||
(dollars in thousands) | 2011 | 2010 | ||||||
Accounts receivable (net) |
$ | 94,222 | $ | 92,101 | ||||
Plus: Inventories (net) |
165,081 | 148,146 | ||||||
Less: Accounts payable |
60,164 | 59,095 | ||||||
Working capital |
$ | 199,139 | $ | 181,152 | ||||
We define working capital as net accounts receivable plus net inventories less accounts payable.
We believe that working capital is important supplemental information for investors in evaluating
liquidity in that it provides insight into the availability of net current resources to fund our
ongoing operations. Working capital is a measure used by management in internal evaluations of cash
availability and operational performance.
Working capital is used in conjunction with and in addition to results presented in accordance with
U.S. GAAP. Working capital is neither intended to represent nor be an alternative to any measure of
liquidity and operational performance recorded under U.S. GAAP. Working capital may not be
comparable to similarly titled measures reported by other companies.
Item 3. Qualitative and Quantitative Disclosures about Market Risk
Currency
We are exposed to market risks due to changes in currency values, although the majority of our
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, RMB or
Mexican peso that could reduce the cost competitiveness of our products compared to foreign
competition.
Interest Rates
We have an Interest Rate Agreement (Rate Agreement) with respect to $90.0 million of debt in order
to convert a portion of the Senior Secured Note fixed rate debt into floating rate debt and
maintain a capital structure containing appropriate amounts of fixed and floating rate debt. The
interest rate for our borrowings related to the Rate Agreement at March 31, 2011 is 7.60 percent
per year. The Rate Agreement expires on February 15, 2015. Total remaining Senior Secured Notes
not covered by the Rate Agreement have a fixed interest rate of 10.0 percent. If the counterparty
to the Rate Agreement were to fail to perform, the Rate Agreement would no
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longer provide the desired results. However, we do not anticipate nonperformance by the
counterparty. The counterparty was rated AA- as of March 31, 2011, by Standard and Poors.
Natural Gas
We are also exposed to market risks associated with changes in the price of natural gas due to
either general market forces, or in the case of our operations in China, by government mandate. We
use commodity futures contracts related to forecasted future North American natural gas
requirements of our manufacturing operations. The objective of these futures contracts is to limit
the fluctuations in prices paid and potential volatility in earnings or cash flows from price
movements in the underlying natural gas commodity. We consider the forecasted natural gas
requirements of our manufacturing operations in determining the quantity of natural gas to hedge.
We combine the forecasts with historical observations to establish the percentage of forecast
eligible to be hedged, typically ranging from 40 percent to 70 percent of our anticipated
requirements up to eighteen months in the future. For our natural gas requirements that are not
hedged, we are subject to changes in the price of natural gas, which affect our earnings and cash
flows. If the counterparties to these futures contracts were to fail to perform, we would no longer
be protected from natural gas fluctuations by the futures contracts. However, we do not anticipate
nonperformance by these counterparties. All counterparties were rated BBB+ or better by Standard
and Poors as of March 31, 2011.
Retirement Plans
We are exposed to market risks associated with changes in the various capital markets. Changes in
long-term interest rates affect the discount rate that is used to measure our benefit obligations
and related expense. Changes in the equity and debt securities markets affect the performance of
our pension plans asset performance and related pension expense. Sensitivity to these key market
risk factors is as follows:
| A change of 1.0 percent in the discount rate would change our total annual pension and nonpension postretirement expense by approximately $4.5 million. | ||
| A change of 1.0 percent in the expected long-term rate of return on plan assets would change annual pension expense by approximately $2.4 million. |
Item 4. Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in our Securities Exchange Act of 1934 (the Exchange Act) reports are
recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commissions rules and forms and that such information is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow for timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well-designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and our Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure controls and procedures
as of the end of the quarter covered by this report. Based on the foregoing, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and procedures were
effective at the reasonable assurance level.
There has been no change in our controls over financial reporting during our most recent fiscal
quarter that has materially affected, or is reasonably likely to materially affect, our internal
controls over financial reporting.
PART II OTHER INFORMATION
This document and supporting schedules contain statements that are not historical facts and
constitute projections, forecasts or forward-looking statements. These forward-looking statements
reflect only our best assessment at this time, and may be identified by the use of 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;
actual results may differ materially from such statements, and undue reliance should not be placed
on such statements. Readers are cautioned that these forward-looking statements are only
predictions and are subject to risks, uncertainties and assumptions that are difficult to predict.
Therefore, actual results may differ materially and adversely from those expressed in any
forward-looking statements. We undertake no obligation to revise or update any forward-looking
statements for any reason.
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Table of Contents
Item 1A. Risk Factors
The following factors are the most significant factors that can impact period-to-period comparisons
and may affect the future performance of our businesses. New risks may emerge, and management
cannot predict those risks or estimate the extent to which they may affect our financial
performance.
| Slowdowns in the retail, travel, restaurant and bar or entertainment industries, such as those caused by general economic downturns, terrorism or political or social unrest, health concerns or strikes or bankruptcies within those industries, could reduce our revenues and production activity levels. | ||
| Our high level of debt, as well as incurrence of additional debt, may limit our operating flexibility, which could adversely affect our results of operations and financial condition. | ||
| International economic and political factors could affect demand for imports and exports, and our financial condition and results of operations could be adversely impacted as a result. | ||
| Fluctuation of the currencies in which we conduct operations could adversely affect our financial condition and results of operations or reduce the cost competitiveness of our products or those of our subsidiaries. | ||
| Our business requires us to maintain a large fixed-cost base that can affect our profitability. | ||
| We may not be able to achieve the international growth contemplated by our strategy. | ||
| We face intense competition and competitive pressures, which could adversely affect our results of operations and financial condition. | ||
| We conduct significant operations at our facility in Monterrey, Mexico, which could be materially adversely affected as a result of the increased levels of drug-related violence in that city. | ||
| We may not be able to renegotiate collective bargaining agreements successfully when they expire; organized strikes or work stoppages by unionized employees may have an adverse effect on our operating performance. | ||
| The inability to extend or refinance debt of our foreign subsidiaries, or the calling of that debt before scheduled maturity, could adversely impact our liquidity and financial condition. | ||
| Our cost-reduction projects may not result in anticipated savings in operating costs. | ||
| We are subject to risks associated with operating in foreign countries. These risks could adversely affect our results of operations and financial condition. | ||
| If we have a fair value impairment in a business segment, our net earnings and net worth could be materially and adversely affected by a write-down of goodwill, intangible assets or fixed assets. | ||
| A severe outbreak, epidemic or pandemic of the H1N1 virus or other contagious disease in a location where we have a facility could adversely impact our results of operations and financial condition. | ||
| We are subject to various environmental legal requirements and may be subject to new legal requirements in the future; these requirements could have a material adverse effect on our operations. | ||
| If we are unable to obtain raw materials or sourced products or utilities at favorable prices, or at all, our operating performance may be adversely affected. | ||
| Unexpected equipment failures may lead to production curtailments or shutdowns. | ||
| High levels of inflation and high interest rates in Mexico and China could adversely affect the operating results and cash flows of our operations there. |
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| Charges related to our employee pension and postretirement welfare plans resulting from market risk and headcount realignment may adversely affect our results of operations and financial condition. | ||
| If our hedges do not qualify as highly effective or if we do not believe that forecasted transactions would occur, the changes in the fair value of the derivatives used as hedges would be reflected in our earnings. | ||
| If counterparties to our hedge agreements fail to perform, the hedge agreements would not protect us from fluctuations in certain commodity pricing. | ||
| Our business may suffer if we do not retain our senior management. | ||
| We rely on increasingly complex information systems for management of our manufacturing, distribution, sales and other functions. If our information systems fail to perform these functions adequately, or if we experience an interruption in their operation, our business and results of operations could suffer. | ||
| We may not be able to effectively integrate future businesses we acquire or joint ventures we enter into. | ||
| Our business requires significant capital investment and maintenance expenditures that we may be unable to fulfill. | ||
| Natural gas, the principal fuel we use to manufacture our products, is subject to fluctuating prices; fluctuations in natural gas prices could adversely affect our results of operations and financial condition. | ||
| If our investments in new technology and other capital expenditures do not yield expected returns, our results of operations could be reduced. | ||
| Our failure to protect our intellectual property or prevail in any intellectual property litigation could materially and adversely affect our competitive position, reduce revenue or otherwise harm our business. | ||
| Devaluation or depreciation of, or governmental conversion controls over, the foreign currencies in which we operate could affect our ability to convert the earnings of our foreign subsidiaries into U.S. dollars. | ||
| Payment of severance or retirement benefits earlier than anticipated could strain our cash flow. | ||
| We are involved in litigation from time to time in the ordinary course of business. | ||
| Our products are subject to various health and safety requirements and may be subject to new health and safety requirements in the future; these requirements could have a material adverse effect on our operations. |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuers Purchases of Equity Securities
Total Number of | ||||||||||||||||
Shares Purchased as | Maximum Number of | |||||||||||||||
Part of Publicly | Shares that May Yet Be | |||||||||||||||
Total Number of | Average Price | Announced Plans or | Purchased Under the | |||||||||||||
Period | Shares Purchased | Paid per Share | Programs | Plans or Programs (1) | ||||||||||||
January 1 to January 31, 2011 |
| | | 1,000,000 | ||||||||||||
February 1 to February 28, 2011 |
| | | 1,000,000 | ||||||||||||
March 1 to March 31, 2011 |
| | | 1,000,000 | ||||||||||||
Total |
| | | 1,000,000 | ||||||||||||
(1) | We announced on December 10, 2002, that our Board of Directors authorized the purchase of up to 2,500,000 shares of our common stock in the open market and negotiated purchases. There is no expiration date for this plan. In 2003, 1,500,000 shares of our common stock were purchased for $38.9 million. No additional shares were purchased in 2010, 2009, 2008, 2007, 2006, 2005 or 2004. Our ABL Facility and the indentures governing the Senior Secured Notes significantly restrict our ability to repurchase additional shares. |
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Item 6. Exhibits
Exhibits: The exhibits listed in the accompanying Exhibit Index are filed as part of this report.
EXHIBIT INDEX
Exhibit | ||
Number | Description | |
3.1
|
Restated Certificate of Incorporation of Libbey Inc. (filed as Exhibit 3.1 to Registrants 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 Libbey Inc.s Current Report on Form 8-K filed February 22, 2011, and incorporated herein by reference). | |
4.1
|
Warrant, issued June 16, 2006. (filed as Exhibit 4.7 to Registrants Form 8-K filed June 21, 2006 and incorporated herein by reference). | |
4.2
|
Amended and Restated Registration Rights Agreement, dated October 29, 2009, among Libbey Inc. and Merrill Lynch PCG, Inc. (filed as Exhibit 4.4 to Registrants Form 8-K filed October 29, 2009 and incorporated herein by reference). | |
4.3
|
Amended and Restated Credit Agreement, dated February 8, 2010, among Libbey Glass Inc. and Libbey Europe B.V., as borrowers, Libbey Inc., as a loan guarantor, the other loan parties party thereto as guarantors, JPMorgan Chase Bank, N.A., as administrative agent with respect to the U.S. loans, J.P. Morgan Europe Limited, as administrative agent with respect to the Netherlands loans, Bank of America, N.A. and Barclays Capital, as Co-Syndication Agents, Wells Fargo Capital Finance, LLC, as Documentation Agent and the other lenders and agents party thereto (filed as Exhibit 4.1 to Libbey Inc.s Current Report on Form 8-K filed on February 12, 2010 and incorporated herein by reference). | |
4.4
|
New Notes Indenture, dated February 8, 2010, among Libbey Glass Inc., Libbey Inc., the domestic subsidiaries of Libbey Glass Inc. listed as guarantors therein, and The Bank of New York Mellon Trust Company, N.A., as trustee and collateral agent (filed as Exhibit 4.2 to Libbey Inc.s Current Report on Form 8-K filed on February 12, 2010 and incorporated herein by reference). | |
4.5
|
Registration Rights Agreement, dated February 8, 2010, among Libbey Glass Inc., Libbey Inc., and the domestic subsidiaries of Libbey Glass Inc. listed as guarantors (filed as Exhibit 4.4 to Libbey Inc.s Current Report on Form 8-K filed on February 12, 2010 and incorporated herein by reference). | |
4.6
|
Intercreditor Agreement, dated February 8, 2010, among Libbey Glass Inc., Libbey Inc., and the domestic subsidiaries of Libbey Glass Inc. listed as guarantors (filed as Exhibit 4.5 to Libbey Inc.s Current Report on Form 8-K filed on February 12, 2010 and incorporated herein by reference). | |
4.7
|
Amendment No. 2 to the Amended and Restated Credit Agreement dated as of April 29, 2011 (filed as Exhibit 10.1 to Libbey Inc.s Current Report on Form 8-K filed on May 3, 2011 and incorporated herein by reference). | |
10.1
|
Pension and Savings Plan Agreement dated as of June 17, 1993 between Owens-Illinois, Inc. and Libbey Inc. (filed as Exhibit 10.4 to Libbey Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 and incorporated herein by reference). | |
10.2
|
Cross-Indemnity Agreement dated as of June 24, 1993 between Owens-Illinois, Inc. and Libbey Inc. (filed as Exhibit 10.5 to Libbey Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 and incorporated herein by reference). | |
10.3
|
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 Libbey Inc.s Current Report on Form 8-K dated October 10, 1995 and incorporated herein by reference). | |
10.4
|
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 Libbey Inc.s Current Report on Form 8-K dated October 10, 1995 and incorporated herein by reference). | |
10.5
|
First Amended and Restated Libbey Inc. Executive Savings Plan (filed as Exhibit 10.23 to Libbey Inc.s Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference). | |
10.6
|
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 Libbey Inc.s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 and incorporated herein by reference). | |
10.7
|
The 1999 Equity Participation Plan of Libbey Inc. (filed as Exhibit 10.67 to Libbey Inc.s Annual Report on Form 10-K for the year ended December 31, 1999 and incorporated herein by reference). | |
10.8
|
Stock Promissory Sale and Purchase Agreement between VAA Vista Alegre Atlantis SGPS, SA and Libbey Europe B.V. dated January 10, 2005 (filed as Exhibit 10.76 to Libbey Inc.s Annual Report on Form 10-K for the year ended December 31, 2004 and incorporated herein by reference). |
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Exhibit | ||
Number | Description | |
10.9
|
RMB Loan Contract between Libbey Glassware (China) Company Limited and China Construction Bank Corporation Langfang Economic Development Area Sub-branch entered into January 23, 2006 (filed as exhibit 10.75 to Libbey Inc.s Annual Report on Form 10-K for the year ended December 31, 2005 and incorporated herein by reference). | |
10.10
|
Guarantee Contract executed by Libbey Inc. for the benefit of China Construction Bank Corporation Langfang Economic Development Area Sub-branch (filed as exhibit 10.76 to Libbey Inc.s Annual Report on Form 10-K for the year ended December 31, 2005 and incorporated herein by reference). | |
10.11
|
Guaranty, dated May 31, 2006, executed by Libbey Inc. in favor of Fondo Stiva S.A. de C.V. (filed as exhibit 10.2 to Libbey Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 and incorporated herein by reference). | |
10.12
|
Guaranty Agreement, dated June 16, 2006, executed by Libbey Inc. in favor of Vitro, S.A. de C.V. (filed as exhibit 10.3 to Libbey Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 and incorporated herein by reference). | |
10.13
|
Libbey Inc. Amended and Restated Deferred Compensation Plan for Outside Directors (incorporated by reference to Exhibit 10.61 to Libbey Glass Inc.s Registration Statement on Form S-4; File No. 333-139358). | |
10.14
|
2009 Director Deferred Compensation Plan (filed as Exhibit 10.51 to Libbey Incs Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 and incorporated herein by reference). | |
10.15
|
Executive Deferred Compensation Plan (filed as Exhibit 10.52 to Libbey Incs Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 and incorporated herein by reference). | |
10.16
|
Amended and Restated Employment Agreement dated as of December 31, 2008 between Libbey Inc. and John F. Meier (filed as exhibit 10.29 to Libbey Inc.s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference). | |
10.17
|
Amended and Restated Employment Agreement dated as of December 31, 2008 between Libbey Inc. and Richard I. Reynolds (filed as exhibit 10.30 to Libbey Inc.s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference). | |
10.18
|
Amended and Restated Employment Agreement dated as of December 31, 2008 between Libbey Inc. and Gregory T. Geswein (filed as exhibit 10.31 to Libbey Inc.s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference). | |
10.19
|
Form of Amended and Restated Employment Agreement dated as of December 31, 2008 between Libbey Inc. and the respective executive officers identified on Appendix 1 thereto (filed as exhibit 10.32 to Libbey Inc.s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference). | |
10.20
|
Amended and restated change in control agreement dated as of December 31, 2008 between Libbey Inc. and John F. Meier (filed as exhibit 10.33 to Libbey Inc.s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference). | |
10.21
|
Form of amended and restated change in control agreement dated as of December 31, 2008 between Libbey Inc. and the respective executive officers identified on Appendix 1 thereto (filed as exhibit 10.34 to Libbey Inc.s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference). | |
10.22
|
Form of amended and restated change in control agreement dated as of December 31, 2008 between Libbey Inc. and the respective individuals identified on Appendix 1 thereto (filed as exhibit 10.35 to Libbey Inc.s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference). | |
10.23
|
Form of Amended and Restated Indemnity Agreement dated as of December 31, 2008 between Libbey Inc. and the respective officers identified on Appendix 1 thereto (filed as exhibit 10.36 to Libbey Inc.s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference). | |
10.24
|
Form of Amended and Restated Indemnity Agreement dated as of December 31, 2008 between Libbey Inc. and the respective outside directors identified on Appendix 1 thereto (filed as exhibit 10.37 to Libbey Inc.s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference). | |
10.25
|
Amended and Restated Libbey Inc. Supplemental Retirement Benefit Plan effective December 31, 2008 (filed as exhibit 10.38 to Libbey Inc.s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference). | |
10.26
|
Amendment to the First Amended and Restated Libbey Inc. Executive Savings Plan effective December 31, 2008 (filed as exhibit 10.39 to Libbey Inc.s Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference). | |
10.27
|
Employment Agreement dated as of January 1, 2010 between Libbey Inc. and Roberto B. Rubio (filed as exhibit 10.39 to Libbey Inc.s Annual Report on Form 10-K for the year ended December 31, 2009 and incorporated herein by reference). | |
10.28
|
Change in control agreement dated as of January 1, 2010 between Libbey Inc. and Roberto B. Rubio (filed as exhibit 10.40 to Libbey Inc.s Annual Report on Form 10-K for the year ended December 31, 2009 and incorporated herein by reference). | |
10.29
|
Amended and Restated 2006 Omnibus Incentive Plan of Libbey Inc. (filed as Exhibit 10.29 to Libbey Inc.s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 and incorporated herein by reference.) | |
31.1
|
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) (filed herein). |
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Exhibit | ||
Number | Description | |
31.2
|
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) (filed herein). | |
32.1
|
Chief Executive Officer Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act of 2002 (filed herein). | |
32.2
|
Chief Financial Officer Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act of 2002 (filed herein). |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
LIBBEY INC. |
||||
Date: May 10, 2011 | By | /s/ Richard I. Reynolds | ||
Richard I. Reynolds, | ||||
Executive Vice President, Chief Financial Officer | ||||
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