e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
þ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2006
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)
419-325-2100
(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 X No
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).
Large Accelerated Filer Accelerated Filer X Non-Accelerated Filer
Indicate by check mark whether the registrant is a shell company.
Yes No X
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 14,084,826 shares at April 28, 2006.
1
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 (Libbey or the Company) have been prepared in accordance with U.S.
generally accepted accounting principles 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. generally accepted accounting principles 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, 2006, are not necessarily indicative of the
results that may be expected for the year ended December 31, 2006.
The balance sheet at December 31, 2005, 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. generally
accepted accounting principles 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, 2005.
2
LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per-share amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
Revenues: |
|
2006 |
|
2005 |
Net sales |
|
$ |
134,866 |
|
|
$ |
129,784 |
|
Freight billed to customers |
|
|
457 |
|
|
|
497 |
|
|
|
|
Total revenues |
|
|
135,323 |
|
|
|
130,281 |
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
113,177 |
|
|
|
109,242 |
|
|
|
|
Gross profit |
|
|
22,146 |
|
|
|
21,039 |
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
19,086 |
|
|
|
17,954 |
|
Special charges(1) |
|
|
|
|
|
|
2,997 |
|
|
|
|
Income from operations |
|
|
3,060 |
|
|
|
88 |
|
Equity earnings pretax |
|
|
1,065 |
|
|
|
554 |
|
Other income |
|
|
396 |
|
|
|
301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest and income taxes and minority interest |
|
|
4,521 |
|
|
|
943 |
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
3,609 |
|
|
|
3,378 |
|
|
|
|
Income (loss) before income taxes and minority interest |
|
|
912 |
|
|
|
(2,435 |
) |
Provision (credit) for income taxes |
|
|
301 |
|
|
|
(803 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority interest |
|
|
611 |
|
|
|
(1,632 |
) |
Minority interest (2) |
|
|
(96 |
) |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
515 |
|
|
$ |
(1,647 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
.04 |
|
|
$ |
(.12 |
) |
|
|
|
Diluted |
|
$ |
.04 |
|
|
$ |
(.12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share |
|
$ |
.025 |
|
|
$ |
0.10 |
|
|
|
|
See accompanying notes
|
|
|
(1) |
|
Refer to Note 6 of the Notes to Condensed Consolidated Financial Statements |
|
(2) |
|
Refer to Note 2 of the Notes to Condensed Consolidated Financial Statements |
3
LIBBEY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
|
2006 |
|
2005 |
|
|
(unaudited) |
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
6,502 |
|
|
$ |
3,242 |
|
Accounts receivable net |
|
|
72,244 |
|
|
|
79,042 |
|
Inventories net |
|
|
121,388 |
|
|
|
122,572 |
|
Deferred taxes |
|
|
8,744 |
|
|
|
8,270 |
|
Prepaid and other current assets |
|
|
5,494 |
|
|
|
10,787 |
|
|
|
|
Total current assets |
|
|
214,372 |
|
|
|
223,913 |
|
Other assets: |
|
|
|
|
|
|
|
|
Repair parts inventories |
|
|
8,457 |
|
|
|
6,322 |
|
Intangible pension asset |
|
|
17,251 |
|
|
|
17,251 |
|
Software net |
|
|
4,536 |
|
|
|
4,561 |
|
Deferred taxes |
|
|
|
|
|
|
952 |
|
Other assets |
|
|
5,483 |
|
|
|
4,397 |
|
Investments |
|
|
77,489 |
|
|
|
76,657 |
|
Purchased intangible assets net |
|
|
10,440 |
|
|
|
10,778 |
|
Goodwill net |
|
|
51,068 |
|
|
|
50,825 |
|
|
|
|
Total other assets |
|
|
174,724 |
|
|
|
171,743 |
|
Property, plant and equipment net |
|
|
215,118 |
|
|
|
200,128 |
|
|
|
|
Total assets |
|
$ |
604,214 |
|
|
$ |
595,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Notes payable |
|
$ |
11,167 |
|
|
$ |
11,475 |
|
Accounts payable |
|
|
40,070 |
|
|
|
47,020 |
|
Salaries and wages |
|
|
14,344 |
|
|
|
16,043 |
|
Accrued liabilities |
|
|
40,746 |
|
|
|
36,968 |
|
Special charges reserve |
|
|
1,138 |
|
|
|
2,002 |
|
Accrued Income taxes |
|
|
|
|
|
|
7,131 |
|
Long-term debt due within one year |
|
|
825 |
|
|
|
825 |
|
|
|
|
Total current liabilities |
|
|
108,290 |
|
|
|
121,464 |
|
Long-term debt |
|
|
272,343 |
|
|
|
249,379 |
|
Pension liability |
|
|
56,097 |
|
|
|
54,760 |
|
Nonpension postretirement benefits |
|
|
45,330 |
|
|
|
45,081 |
|
Other long-term liabilities |
|
|
5,204 |
|
|
|
5,461 |
|
|
|
|
Total liabilities |
|
|
487,264 |
|
|
|
476,145 |
|
Minority interest |
|
|
130 |
|
|
|
34 |
|
|
|
|
Total liabilities including minority interest |
|
|
487,394 |
|
|
|
476,179 |
|
Shareholders equity: |
|
|
|
|
|
|
|
|
Common stock, par value $.01 per share,
50,000,000 shares authorized, 18,689,710
shares issued (18,689,710 shares issued
in 2005) |
|
|
187 |
|
|
|
187 |
|
Capital in excess of par value |
|
|
301,165 |
|
|
|
301,025 |
|
Treasury stock, at cost, 4,624,497
shares (4,681,721 shares issued in 2005) |
|
|
(131,960 |
) |
|
|
(132,520 |
) |
Retained deficit |
|
|
(17,805 |
) |
|
|
(17,966 |
) |
Accumulated other comprehensive loss |
|
|
(34,767 |
) |
|
|
(31,121 |
) |
|
|
|
Total shareholders equity |
|
|
116,820 |
|
|
|
119,605 |
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
604,214 |
|
|
$ |
595,784 |
|
|
|
|
See accompanying notes
4
LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
2006 |
|
2005 |
Operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
515 |
|
|
$ |
(1,647 |
) |
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
8,335 |
|
|
|
8,385 |
|
Equity earnings net of tax |
|
|
(832 |
) |
|
|
(415 |
) |
Minority interest |
|
|
96 |
|
|
|
15 |
|
Change in accounts receivable |
|
|
7,238 |
|
|
|
(1,894 |
) |
Change in inventories |
|
|
1,788 |
|
|
|
(3,720 |
) |
Change in accounts payable |
|
|
(7,335 |
) |
|
|
(11,634 |
) |
Special charges |
|
|
(864 |
) |
|
|
1,256 |
|
Pension & nonpension postretirement |
|
|
1,639 |
|
|
|
1,587 |
|
Income taxes |
|
|
(8,046 |
) |
|
|
(5,106 |
) |
Other operating activities |
|
|
2,264 |
|
|
|
2,022 |
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
4,798 |
|
|
|
(11,151 |
) |
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
|
|
(21,439 |
) |
|
|
(10,405 |
) |
Crisal acquisition and related costs |
|
|
|
|
|
|
(28,948 |
) |
|
|
|
Net cash used in investing activities |
|
|
(21,439 |
) |
|
|
(39,353 |
) |
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Net bank credit facility activity |
|
|
13,363 |
|
|
|
41,636 |
|
Other net borrowings |
|
|
6,889 |
|
|
|
6,142 |
|
Stock options exercised |
|
|
|
|
|
|
99 |
|
Dividends |
|
|
(351 |
) |
|
|
(1,382 |
) |
Other |
|
|
|
|
|
|
(40 |
) |
|
|
|
Net cash provided by financing activities |
|
|
19,901 |
|
|
|
46,455 |
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash |
|
|
3,260 |
|
|
|
(4,049 |
) |
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period |
|
|
3,242 |
|
|
|
6,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period |
|
$ |
6,502 |
|
|
$ |
2,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flows information: |
|
|
|
|
|
|
|
|
Cash paid during the quarter for interest |
|
$ |
1,981 |
|
|
$ |
1,817 |
|
|
|
|
|
|
|
|
|
|
|
Cash paid (net of refunds received) during the
quarter for income taxes |
|
$ |
6,269 |
|
|
$ |
5,106 |
|
See accompanying notes
5
LIBBEY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dollars in thousands, except per share data
(unaudited)
1. Description of the Business
Libbey is the leading supplier of tableware products in the U.S. and Canada, in addition to
supplying to other key export markets. We operate in one business segment: tableware products.
Established in 1818, we have the largest manufacturing, distribution and service network among
North American glass tableware manufacturers. We design and market an extensive line of
high-quality glass tableware, ceramic dinnerware, metal flatware, holloware and serveware, and
plastic items to a broad group of customers in the foodservice, retail and industrial markets. We
also import and distribute various products and have a 49% interest in Vitrocrisa Holding, S. de
R.L. de C.V. and related companies (Crisa), one of the largest glass
tableware manufacturers in Latin
America, based in Monterrey, Mexico.
We own and operate two glass tableware manufacturing plants in the United States; glass tableware
manufacturing plants in the Netherlands and in Portugal; and during the third quarter of 2005, we
began construction of our new green-meadow production facility in China that is expected to begin
production in 2007. We also own and operate a ceramic dinnerware plant in New York and a plastics
plant in Wisconsin. In addition, we import products from overseas in order to complement our line
of manufactured items. The combination of manufacturing and procurement, and our investment in
Crisa allows us to compete in the 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
the 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 the website as soon as reasonably practicable after their
filing with, or furnishing to, the Securities and Exchange Commission.
2. Significant Accounting Policies
See our Form 10-K for the year ended December 31, 2005 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 (Libbey or the Company). Our fiscal year end is December 31st. We record
our 49% interest in Crisa using the equity method. We own 95% of Crisal-Cristalaria Automatica
S.A. (Crisal). Our 95% controlling interest requires that Crisals operations be included in the
Condensed Consolidated Financial Statements. The 5% equity interest of Crisal that is not owned by
us is shown as minority interest in the Condensed Consolidated Financial Statements. All material
intercompany accounts and transactions have been eliminated. The preparation of financial
statements and related disclosures in conformity with United States generally accepted accounting
principles (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.
6
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 has 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, royalty expense and
other costs.
New Accounting Standards
In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (SFAS No.
123-R). This is an amendment to SFAS No. 123, Accounting for Stock-Based Compensation. This new
standard replaces SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123) and
supersedes APB No. 25 and requires share-based compensation transactions to be accounted for using
a fair-value-based method and the resulting cost recognized in our financial statements. This new
standard is effective for interim and annual periods beginning January 1, 2006. On January 1,
2006, Libbey adopted Financial Accounting Standards Board (FASB) SFAS No. 123-R. Share based
compensation cost is measured based on the fair value of the equity or liability instruments
issued. SFAS No. 123-R applies to all of Libbeys outstanding unvested share-based payment awards
as of January 1, 2006 and all prospective awards using the modified prospective transition method
without restatement of prior periods. The estimated impact of applying the provisions of SFAS No.
123-R is an after-tax charge of $0.4 million for 2006. See Note 10.
In May 2005, the FASB issued Statement No. 154, Accounting Changes and Error Corrections, a
replacement of APB Opinion No. 20, Accounting Changes, and Statement No. 3, Reporting Accounting
Changes in Interim Financial Statements. Statement 154 changes the requirements for the accounting
for and reporting of a change in accounting principle. Previously, most voluntary changes in
accounting principles were required to be recognized via a cumulative effect adjustment within net
income of the period of change. Statement 154 requires retrospective application to prior periods
financial statements, unless it is impracticable to determine either the period-specific effects or
the cumulative effect of the change. Statement 154 is effective for accounting changes made in
fiscal years beginning after December 15, 2005. The adoption of Statement 154 had no effect on our
consolidated financial position, results of operations or cash flows.
7
3. Balance Sheet Details
The
following table provides detail of selected balance sheet items:
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
|
2006 |
|
2005 |
|
Accounts receivable: |
|
|
|
|
|
|
|
|
Trade receivables |
|
$ |
67,603 |
|
|
$ |
75,470 |
|
Other receivables |
|
|
4,641 |
|
|
|
3,572 |
|
|
Total accounts receivable, less allowances of $9,049 and $8,342 |
|
$ |
72,244 |
|
|
$ |
79,042 |
|
|
|
|
|
|
|
|
|
|
|
|
Inventories: |
|
|
|
|
|
|
|
|
Finished goods |
|
$ |
112,261 |
|
|
$ |
112,058 |
|
Work in process |
|
|
4,434 |
|
|
|
4,456 |
|
Raw materials |
|
|
3,893 |
|
|
|
5,442 |
|
Operating supplies |
|
|
800 |
|
|
|
616 |
|
|
Total inventories |
|
$ |
121,388 |
|
|
$ |
122,572 |
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid and other current assets: |
|
|
|
|
|
|
|
|
Prepaid expenses |
|
$ |
3,927 |
|
|
$ |
3,142 |
|
Derivative assets |
|
|
1,567 |
|
|
|
7,645 |
|
|
Total prepaid and other current assets |
|
$ |
5,494 |
|
|
$ |
10,787 |
|
|
|
|
|
|
|
|
|
|
|
|
Other assets: |
|
|
|
|
|
|
|
|
Deposits |
|
$ |
1,314 |
|
|
$ |
1,386 |
|
Finance fees net of amortization |
|
|
1,973 |
|
|
|
2,003 |
|
Other |
|
|
2,196 |
|
|
|
1,008 |
|
|
Total other assets |
|
$ |
5,483 |
|
|
$ |
4,397 |
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities: |
|
|
|
|
|
|
|
|
Accrued incentives |
|
$ |
16,006 |
|
|
$ |
14,306 |
|
Derivative liabilities |
|
|
67 |
|
|
|
67 |
|
Workers compensation |
|
|
9,297 |
|
|
|
9,134 |
|
Medical liabilities |
|
|
2,811 |
|
|
|
3,019 |
|
Interest |
|
|
2,713 |
|
|
|
1,843 |
|
Commissions payable |
|
|
640 |
|
|
|
858 |
|
Accrued taxes |
|
|
538 |
|
|
|
432 |
|
Other |
|
|
8,674 |
|
|
|
7,309 |
|
|
Total accrued liabilities |
|
$ |
40,746 |
|
|
$ |
36,968 |
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities: |
|
|
|
|
|
|
|
|
Deferred liability |
|
|
846 |
|
|
|
877 |
|
Guarantee of Crisa debt |
|
|
421 |
|
|
|
421 |
|
Other |
|
|
3,937 |
|
|
|
4,163 |
|
|
Total other long-term liabilities |
|
$ |
5,204 |
|
|
$ |
5,461 |
|
|
8
4. Investments in Unconsolidated Affiliates
We are a 49% equity owner in Vitrocrisa Holding, S. de R.L. de C.V. and related companies (Crisa),
which manufacture, market and sell glass tableware (beverageware, plates, bowls, serveware and
accessories) and industrial glassware (coffee pots, blender jars, meter covers, glass covers for
cooking ware and lighting fixtures sold to original equipment manufacturers). We record our 49%
interest in Crisa using the equity method.
Condensed unaudited balance sheet information for Crisa is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
|
2006 |
|
2005 |
|
Current assets |
|
$ |
89,487 |
|
|
$ |
80,102 |
|
Non-current assets |
|
|
94,485 |
|
|
|
95,642 |
|
|
Total assets |
|
|
183,972 |
|
|
|
175,654 |
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
97,864 |
|
|
|
72,549 |
|
Other liabilities |
|
|
73,427 |
|
|
|
92,275 |
|
|
Total liabilities |
|
|
171,291 |
|
|
|
164,824 |
|
|
Net assets |
|
$ |
12,681 |
|
|
$ |
10,830 |
|
|
Condensed unaudited statements of operations for Crisa are as follows:
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
2006 |
|
2005 |
|
Total revenues |
|
$ |
47,566 |
|
|
$ |
49,834 |
|
Cost of sales |
|
|
38,180 |
|
|
|
45,007 |
|
|
Gross profit |
|
|
9,386 |
|
|
|
4,827 |
|
Selling, general and administrative expenses |
|
|
5,721 |
|
|
|
6,477 |
|
|
Income (loss) from operations |
|
|
3,665 |
|
|
|
(1,650 |
) |
Remeasurement gain (loss) |
|
|
878 |
|
|
|
(357 |
) |
Earnings (loss) before interest and taxes |
|
|
4,543 |
|
|
|
(2,007 |
) |
Interest expense |
|
|
2,367 |
|
|
|
1,289 |
|
|
Earnings (loss) before income taxes |
|
|
2,176 |
|
|
|
(3,296 |
) |
Income taxes |
|
|
479 |
|
|
|
2,764 |
|
|
Net income |
|
$ |
1,697 |
|
|
$ |
(6,060 |
) |
|
9
5. Borrowings
Borrowings consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
|
Interest Rate |
|
Maturity Date |
|
2006 |
|
2005 |
|
Borrowings under credit facility |
|
|
floating |
|
June 24, 2009 |
|
$ |
158,834 |
|
|
$ |
143,814 |
|
Senior notes |
|
|
4.19% |
|
March 31, 2008 |
|
|
25,000 |
|
|
|
25,000 |
|
Senior notes |
|
|
5.58% |
|
March 31, 2013 |
|
|
55,000 |
|
|
|
55,000 |
|
Senior notes |
|
|
floating |
|
March 31, 2010 |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
April 2006 to |
|
|
|
|
|
|
|
|
Promissory note |
|
|
6.00% |
|
September 2016 |
|
|
2,096 |
|
|
|
2,131 |
|
Notes payable |
|
|
floating |
|
April 2006 |
|
|
11,167 |
|
|
|
11,475 |
|
|
|
|
|
|
|
July 2012 to |
|
|
|
|
|
|
|
|
RMB Loan contract |
|
|
floating |
|
December 2012 |
|
|
7,469 |
|
|
|
|
|
|
|
|
|
|
|
April 2006 to |
|
|
|
|
|
|
|
|
Obligations under capital leases |
|
|
floating |
|
May 2007 |
|
|
1,868 |
|
|
|
2,203 |
|
Other debt |
|
|
floating |
|
September 2009 |
|
|
2,901 |
|
|
|
2,056 |
|
|
Total borrowings |
|
|
|
|
|
|
|
|
|
|
284,335 |
|
|
|
261,679 |
|
Less current portion of borrowings |
|
|
|
|
|
|
|
|
|
|
11,992 |
|
|
|
12,300 |
|
|
Total long-term portion of
borrowings |
|
|
|
|
|
|
|
|
|
$ |
272,343 |
|
|
$ |
249,379 |
|
|
Revolving Credit Facility
In June 2004, we entered into an unsecured agreement for an Amended and Restated Revolving Credit
Agreement (Revolving Credit Agreement or Agreement) with Libbey Glass Inc. and Libbey Europe B.V.
as borrowers. We entered into an amendment to the Agreement in December 2004. The Agreement is
with a group of banks and provides for a Revolving Credit and Swing Line Facility (Facility)
permitting borrowings up to an aggregate total of $195 million, maturing June 24, 2009. Swing Line
borrowings are limited to $25 million. Swing Line U.S. dollar borrowings bear interest calculated
at the prime rate plus the Applicable Rate for Base Rate Loans as defined in the Agreement.
Revolving Credit Agreement U.S. dollar borrowings bear interest at our option at either the prime
rate plus the Applicable Rate for Base Rate Loans or a Eurodollar rate plus the Applicable Rate for
Eurodollar Loans as defined in the Agreement. The Applicable Rates for Base Rate Loans and
Eurodollar Loans vary depending on our performance against certain financial ratios. The
Applicable Rates for Base Rate Loans and Eurodollar Loans were 0.75% and 1.75%, respectively, at
March 31, 2006. The weighted average annual interest rate on these borrowings at March 31, 2006,
was 5.5%.
Libbey Europe B.V. may have euro-denominated swing line or revolving borrowings under the Revolving
Credit Agreement in an aggregate amount not to exceed the Offshore Currency Equivalent, as defined
in the Revolving Credit Agreement, of $105 million. Offshore Currency Swing Line borrowings are
currently limited to $15 million of the $25 million total Swing Line borrowings permitted under the
Agreement. Interest is calculated at the Offshore Currency Swing Line rate plus the Applicable
Rate for Swing Line Loans in euros. Revolving Offshore Currency Borrowings bear interest at the
Offshore Currency Rate plus the Applicable Rate for Offshore Currency Rate Loans, as defined in the
Agreement. The Applicable Rates for Swing Line Loans in euros and Offshore Currency Rate Loans
vary depending on our performance against certain financial ratios. The Applicable Rates for Swing
Line Loans in euros and Offshore Currency Rate Loans were 2.25% and 1.75%, respectively, at March 31, 2006.
10
Under the Agreement, we may also elect to borrow up to a maximum of $125 million under a
Negotiated Rate Loan alternative of the Facility at negotiated rates of interest. The Agreement
also provides for the issuance of $30 million of letters of credit, which are applied against the
$195 million limit. At March 31, 2006, we had $8.4 million in letters of credit outstanding under
the Facility.
We pay a Facility Fee, as defined in the Agreement, on the total credit provided under the
Facility. The Facility Fee varies depending on our performance against certain financial ratios.
The Facility Fee was 0.50% at March 31, 2006.
No compensating balances are required by the Agreement. The Agreement does require the maintenance
of certain financial ratios, restricts the incurrence of indebtedness and other contingent
financial obligations, and restricts certain types of business activities and investments.
We were in
compliance with all covenants as of March 31, 2006 and December 31, 2005.
Senior Notes
We issued $100 million of privately placed senior notes in March 2003. Eighty million dollars of
the notes have an average annual interest rate of 5.15%, with an initial average maturity of 8.4
years and a remaining average maturity of 5.4 years. Twenty million dollars of the senior notes
have a floating interest rate at a margin over the London Interbank Offer Rate (LIBOR) that is set
quarterly. The floating interest rate at March 31, 2006, on the $20 million debt was 6.08% per
year.
We were in
compliance with all covenants as of March 31, 2006 and December 31, 2005.
Promissory Note
In September 2001, we issued a $2.7 million promissory note in connection with the purchase of our
Laredo, Texas warehouse facility. At March 31, 2006 and December 31, 2005 we had $2,096 and
$2,131, respectively outstanding on the promissory note.
Notes Payable
We have a working capital line of credit for a maximum of 10 million. The $11,166 outstanding at
March 31, 2006, was the U.S. dollar equivalent under the euro-based working capital line and the
interest rate was 3.6%. The balance outstanding of $11,475 at December 31, 2005 was also under the
euro-based working capital line and the interest rate was 3.4%.
11
RMB Loan Contract
On January 23, 2006, Libbey Glassware (China) Co., Ltd. (Libbey China), an indirect wholly-owned
subsidiary of Libbey, entered into an RMB Loan Contract (Loan Contract) with China Construction
Bank Corporation Langfang Economic Development Area Sub-Branch (CCB). Pursuant to the Loan
Contract, CCB agreed to lend to Libbey China RMB 250 million, or the equivalent of approximately
$31 million for the construction of the production facility and 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%. As of March 31, 2006, the outstanding balance was
RMB 60 million (approximately $7.5 million). Interest is payable quarterly. Payments of principal
in the amount of RMB 30 million (approximately $3.8 million) and RMB 40 million (approximately $5.0
million) must be made on July 20, 2012 and December 20, 2012, respectively, and three payments of
principal in the amount of RMB 60 million (approximately $7.5 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.
Obligations Under Capital Leases
We lease certain machinery and equipment under agreements that are classified as capital leases.
These leases were acquired in the Crisal acquisition. The cost of the equipment under capital
leases is included in the Condensed Consolidated Balance Sheet as property, plant and equipment and
the related depreciation expense is included in the Condensed Consolidated Statements of
Operations.
The future minimum lease payments required under the capital leases as of March 31, 2006, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
Total |
|
1 Year |
|
2-3 Years |
|
4-5 Years |
|
Capital leases |
|
$ |
1,868 |
|
|
$ |
710 |
|
|
$ |
1,158 |
|
|
|
|
|
|
Other Debt
The other debt of $2,901 primarily consists of governmental subsidized loans for equipment
purchases at Crisal.
Interest Rate Protection Agreements
We have an Interest Rate Protection Agreement (Rate Agreement) with respect to $25 million of debt
as a means to manage our exposure to fluctuating interest rates. The Rate Agreement effectively
converts $25 million of our borrowings from variable rate debt to fixed-rate debt, thus reducing
the impact of interest rate changes on future income. The fixed interest rate for our borrowings
related to the Rate Agreement at March 31, 2006, excluding applicable fees, is 5.3% per year and
the total interest rate, including applicable fees, is 7.6% per year. The maturity date is May 9,
2006. Our total remaining debt that has fluctuating interest rates and is not covered by the Rate
Agreement has a weighted average rate of 5.3% per year at March 31, 2006. If the counterparties to
the Rate Agreement were to fail to perform, the Rate Agreement would no longer protect us from
interest rate fluctuations. However, we do not anticipate nonperformance by the counterparties.
12
The fair market value of the Rate Agreement at March 31, 2006, was ($.07) million. The fair value
of the Rate Agreement is based on the market standard methodology of netting the discounted
expected future variable cash receipts and the discounted future fixed cash payments. The variable
cash receipts are based on an expectation of future interest rates derived from observed market
interest rate forward curves.
6. Special Charges
Capacity Realignment
In August 2004, we announced that we were realigning our production capacity in order to improve
our cost structure. In mid-February 2005, we ceased operations at our manufacturing facility in
City of Industry, California, and realigned production amongst our other domestic glass manufacturing
facilities. See Form 10-K for the year ended December 31, 2005 for further discussion.
As a result, we recorded the following special charges:
|
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
Three months |
|
|
ended March 31, |
|
ended March 31, |
|
|
|
2006 |
|
|
|
2005 |
|
|
Fixed asset removal costs |
|
$ |
|
|
|
$ |
148 |
|
Employee termination costs
& other |
|
|
|
|
|
|
2,849 |
|
|
Included in special charges |
|
$ |
|
|
|
$ |
2,997 |
|
|
The following reflects the balance sheet activity related to the capacity realignment for the three
months ended March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
Balance at |
|
|
December 31, |
|
Cash |
|
March 31, |
|
|
|
2005 |
|
|
payments |
|
|
2006 |
|
|
Land proceeds
received |
|
$ |
1,055 |
|
|
$ |
(530 |
) |
|
|
$525 |
|
Employee
termination costs &
other |
|
|
70 |
|
|
|
(28 |
) |
|
|
42 |
|
|
Total |
|
$ |
1,125 |
|
|
$ |
(558 |
) |
|
|
$567 |
|
|
Balance sheet classification is as follows: $567 is included in the line item special charges
reserve on the Condensed Consolidated Balance Sheets.
Salary
Workforce Reduction Program
In the second quarter of 2005, we announced a ten percent reduction of our North American salaried
workforce, or approximately 70 employees, in order to reduce our overall costs. See Form 10-K for the year ended December 31, 2005 for further discussion.
There were no charges for the three months ended in March 31, 2006.
13
The following reflects the balance sheet activity related to the salaried workforce reduction
program for the three months ended March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
Balance at |
|
|
December 31, |
|
Cash |
|
March 31, |
|
|
|
2005 |
|
|
payments |
|
|
2006 |
|
|
Employee
termination costs |
|
|
$877 |
|
|
$ |
(306 |
) |
|
|
$571 |
|
|
Total |
|
|
$877 |
|
|
$ |
(306 |
) |
|
|
$571 |
|
|
The employee termination costs of $571 are included in the special charges reserve on the Condensed
Consolidated Balance Sheets.
7. Pension
We have pension plans covering the majority of our employees. Benefits generally are based on
compensation and length of service for salaried employees and job grade and length of service only
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 a supplemental employee
retirement plan (SERP) covering certain employees. The U.S. pension plans, including the SERP,
which is an unfunded liability, cover the hourly and salaried U.S.-based employees of Libbey. The
non-U.S. pension plans cover the employees of our wholly owned subsidiaries, Royal Leerdam and
Leerdam Crystal, both located in the Netherlands.
Effect on Operations
The components of our net pension expense (credit), including the SERP, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans |
|
Non-U.S. Plans |
|
Total |
|
Three months ended March 31, |
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
Service cost |
|
$ |
1,633 |
|
|
$ |
1,673 |
|
|
$ |
168 |
|
|
$ |
236 |
|
|
$ |
1,801 |
|
|
$ |
1,909 |
|
Interest cost |
|
|
3,519 |
|
|
|
3,621 |
|
|
|
370 |
|
|
|
405 |
|
|
|
3,889 |
|
|
|
4,026 |
|
Expected return on plan
assets |
|
|
(3,881 |
) |
|
|
(4,333 |
) |
|
|
(565 |
) |
|
|
(545 |
) |
|
|
(4,446 |
) |
|
|
(4,878 |
) |
Amortization of unrecognized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
|
521 |
|
|
|
565 |
|
|
|
(86 |
) |
|
|
(99 |
) |
|
|
435 |
|
|
|
466 |
|
Gain |
|
|
809 |
|
|
|
518 |
|
|
|
10 |
|
|
|
|
|
|
|
819 |
|
|
|
518 |
|
|
Pension expense (credit) |
|
$ |
2,601 |
|
|
$ |
2,044 |
|
|
$ |
(103 |
) |
|
$ |
(3 |
) |
|
$ |
2,498 |
|
|
$ |
2,041 |
|
|
We expect to contribute $656 to our U.S. pension plans and $1,492 to our non-U.S. plan in
2006. Through the first quarter of 2006, there have been no contributions to the U.S. plans and
contributions totaling $293 for the non-U.S. plans.
14
8. Nonpension Postretirement Benefits
We provide certain retiree health care and life
insurance benefits covering a majority of our
salaried and non-union hourly (hired before January 1, 2004) and union hourly employees.
Employees are generally eligible for benefits upon retirement and completion of a specified number
of years of creditable service. Benefits for most hourly retirees are determined by collective
bargaining. The U.S. nonpension postretirement plans cover the hourly and salaried U.S.-based
employees of Libbey. The non-U.S. nonpension postretirement plans cover the retirees and active
employees of Libbey who are located in Canada. Under a cross-indemnity agreement, Owens-Illinois,
Inc. assumed liability for the nonpension postretirement benefits of Libbey retirees who had
retired as of June 24, 1993.
Effect on Operations
The provision for our nonpension postretirement benefit expense consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans |
|
Non-U.S. Plans |
|
Total |
|
Three months ended March 31, |
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
Service cost |
|
$ |
208 |
|
|
$ |
217 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
208 |
|
|
$ |
217 |
|
Interest cost |
|
|
494 |
|
|
|
544 |
|
|
|
34 |
|
|
|
37 |
|
|
|
528 |
|
|
|
581 |
|
Amortization of unrecognized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
|
(220 |
) |
|
|
(220 |
) |
|
|
|
|
|
|
|
|
|
|
(220 |
) |
|
|
(220 |
) |
Gain (loss) |
|
|
(8 |
) |
|
|
24 |
|
|
|
|
|
|
|
(2 |
) |
|
|
(8 |
) |
|
|
22 |
|
|
Nonpension postretirement
benefit expense |
|
$ |
474 |
|
|
$ |
565 |
|
|
$ |
34 |
|
|
$ |
35 |
|
|
$ |
508 |
|
|
$ |
600 |
|
|
15
9. Employee Stock Benefit Plans
We have two stock-based employee compensation plans. We also have an Employee Stock Purchase Plan
(ESPP) under which eligible employees may purchase a limited number of shares of Libbeys common
stock at a discount.
Prior to January 1, 2006, we accounted for stock-based awards under the intrinsic value method of
Accounting Principles Board (APB) No. 25, Accounting for Stock Issued to Employees (APB No. 25).
This method under APB No. 25 resulted in no expense being recorded for stock option grants for
which the strike price was equal to the fair value of the underlying stock on the date of grant,
which had been the situation for all years prior to 2006. On January 1, 2006, we adopted Financial
Accounting Standards Board (FASB) SFAS No. 123-R. SFAS No. 123-R requires that compensation cost
relating to share-based payment transactions be recognized in the financial statements. Share
based compensation cost is measured based on the fair value of the equity or liability instruments
issued. SFAS No. 123-R applies to all of our outstanding unvested share-based payment awards as of
January 1, 2006 and all prospective awards using the modified prospective transition method without
restatement of prior periods.
Employee Stock Purchase Plan (ESPP)
We have an ESPP under which 650,000 shares of common stock have been reserved for issuance.
Eligible employees may purchase a limited number of shares of common stock at a discount of up to
15% of the market value at certain plan-defined dates. The ESPP terminates on May 31, 2012. In
the first quarter 2006 no shares were issued under the ESPP, as ESPP grants normally occur annually
on May 31st. At December 31, 2005, 470,062 shares were available for issuance under the ESPP. At
March 31, 2006, the same number of shares were available for issuance under the ESPP. Starting in
2003, repurchased common stock is being used to fund the ESPP. A participant may elect to have
payroll deductions made during the offering period in an amount not less than 2% and not more than
20% of such participants compensation during the option period. The option period starts on the
offering date (June 1st) and ends on the exercise date (May 31st). In no event may the option
price per share be less than the par value per share ($.01) of common stock. All options and
rights to participate in the ESPP are nontransferable and subject to forfeiture in accordance with
the ESPP guidelines. In the event of certain corporate transactions, each option outstanding under
the ESPP will be assumed or the successor corporation or a parent or subsidiary of such successor
corporation will substitute an equivalent option.
16
No ESPP
awards were granted during the three months ending March 31, 2006. The following
are weighted-average assumptions used for ESPP grants in the three months ended March 31, 2005:
|
|
|
|
|
For the quarter ended March 31, 2005 |
|
Risk-free interest rate |
|
|
3.23 |
% |
Expected term |
|
12 months |
Expected volatility |
|
|
36.0 |
% |
Expected dividend yield |
|
|
2.10 |
% |
|
Employee Stock Option and Restricted Stock Plan Program Description
We have two stock option plans for key employees: (1) the Libbey Inc. Amended and Restated Stock
Option Plan for Key Employees and (2) the Amended and Restated 1999 Equity Participation Plan of
Libbey Inc. Stock option grants are designed to reward employees for their long-term
contributions to the Company and provide incentives for them to remain with Libbey, Inc. The
maximum number of shares issuable over the term of the Libbey Inc. Amended and Restated Stock
Option Plan for Key Employees is limited to 1,800,000 shares. Options granted under the Libbey
Inc. Amended and Restated Stock Option Plan for Key Employees have an exercise price equal to the
fair market value of the underlying stock on the grant date and expire no later than 10 years and a
day from the grant date. The options will generally become exercisable for 40% of the option
shares one year from the date of grant and then 20% on the second, third and fourth anniversary
dates. In addition, the Board of Directors, or other committee administering the plan, has the
discretion to use a different vesting schedule and has done so from time to time. Since the
inception of the Libbey Inc. Amended and Restated Stock Option Plan for Key Employees, we have
granted options to key employees. In 2004, we adopted the Amended and Restated 1999 Equity
Participation Plan of Libbey Inc., under which options can be granted or shares can be directly
issued to eligible employees. Under the Amended and Restated 1999 Equity Participation Plan of
Libbey Inc. up to a total of 2,000,000 shares of common stock are authorized for issuance upon
exercise of options or grants of restricted stock or other awards. Of those shares, 10,000 options
have been granted in the first quarter of 2006. All option grants have an exercise price equal to
the fair market value of the underlying stock on the grant date. The vesting period of options
outstanding as of March 31, 2006 is generally four years. Stock options are amortized over the
vesting period using the FIN 28 expense attribution methodology.
Pro forma Information
Compensation expense for stock options is recorded based on the estimated fair value of the stock
options using an option-pricing model. Compensation expense continues to be recorded for
restricted stock grants over their vesting periods based on fair value, which is equal to the
market price of our common stock on the date of grant. The following information summarizes the
effects of implementing this standard on our net income (loss) and earning (loss) per share for
stock option expense.
17
Pro forma information regarding option grants relating to our two options plans is based on
specified valuation techniques that produce estimated compensation charges. The table below shows
the effect on our net income and earnings per share for the three months ended March 31, 2005:
|
|
|
|
|
|
Three months ended March 31, |
|
2005 |
|
|
Net (loss) income: |
|
|
|
|
Reported net (loss) income |
|
$ |
(1,647 |
) |
Less: Stock-based employee compensation expense determined
under fair value-based method for all awards, net of related
tax effects |
|
|
205 |
|
Add: Stock-based employee compensation expense included in
reported net (loss) income, net of related tax effects |
|
|
16 |
|
|
Pro forma net loss |
|
$ |
(1,836 |
) |
|
Basic (loss) earnings per share: |
|
|
|
|
Reported basic loss per share |
|
$ |
(0.12 |
) |
Pro forma basic loss per share |
|
$ |
(0.13 |
) |
|
Diluted earnings loss per share: |
|
|
|
|
Reported diluted loss per share |
|
$ |
(0.12 |
) |
Pro forma diluted loss per share |
|
$ |
(0.13 |
) |
|
Since all outstanding options have an exercise price in excess of the March 31, 2006 closing stock
price, the effects of the employee stock options and employee stock purchase plan (ESPP) are
anti-dilutive and thus will have no effect on earnings per share. The effect of employee stock
options and the employee stock purchase plan (ESPP), 17,800 shares at March 31, 2005 and 1,521,406
shares at March 31, 2006, was anti-dilutive and was not included in the earnings per share
calculation. Diluted shares outstanding include the dilutive impact of in-the-money 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-affected proceeds that would be hypothetically
received from the exercise of all in-the-money options are assumed to be used to repurchase shares.
General Stock Option Information
Stock
option compensation expense of $.14 million included in the selling, general and administrative expense line in the
Condensed Consolidated Statements of Operations at March 31, 2006. The total
income tax benefit recognized in the Condensed Consolidated Statements of Operations for
share-based payment transactions is $.05 million at March 31, 2006.
18
The Black-Scholes option pricing model was developed for use in estimating the value of traded
options that have no vesting restrictions and are fully transferable. Under the Black-Scholes
option pricing model, the weighted-average grant-date fair value of options granted during the
three months ended March 31, 2006 is $3.31. The fair value of each option is estimated on the date
of grant with the following weighted-average assumptions used for grants in the three months ended
March 31, 2006 and 2005, respectively:
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
2006 |
|
|
2005 |
|
|
Stock option grants: |
|
|
|
|
|
|
|
|
Risk-free interest rate |
|
|
4.57 |
% |
|
|
4.29 |
% |
Expected term (years) |
|
|
6.1 |
|
|
|
6.1 |
|
Expected volatility |
|
|
38.6 |
% |
|
|
34.6 |
% |
Expected dividend yield |
|
|
3.19 |
% |
|
|
2.3 |
% |
|
|
|
The risk-free rate is based on the U.S. Treasury yield curve at the time of grant and
has a term equal to the expected life. The rate for the period within the contractual life
of the option is based on the U.S. Treasury yield curve in effect at the grant date. |
|
|
The expected term represents the period of time the options are expected to be
outstanding and is based on historical trends. Additionally, we use historical data to
estimate option exercises and employee forfeitures. We review the actual and estimated
forfeitures on a quarterly basis and record an adjustment, if necessary. Employees
expected exercises and post-vesting employment termination behavior was also incorporated
into the fair value of an option. We project the expected life of our stock options based
upon historical and other economic data trended into future years. The Company uses SAB
107 Simplified Method to estimate the expected term of the option, representing the period
of time that options granted are expected to be outstanding. |
|
|
The expected volatility was developed considering our historical experience. The range
of expected volatilities used is 33.34%-38.56% and the average expected volatility 34.55%.
We use projected data for expected volatility of our stock options based on the average of
daily, weekly and monthly historical volatility of our stock price, over the expected life
of the option and other economic data trended into future years. |
|
|
The dividend yield is calculated as the ratio based on our most recent historical
dividend payments per share of common stock at the grant date to the stock price on the
date of grant. |
No significant modifications occurred during the first quarter of 2006.
The policy for issuing shares upon exercise is for the shares to be issued from Treasury in order
to fulfill exercises. We currently have a sufficient number of treasury shares on hand to fund
options and ESPP in the following period.
19
Information with respect to the stock options at March 31, 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average |
|
|
Weighted average |
|
|
|
|
|
|
|
|
|
|
exercise price (per |
|
|
remaining |
|
|
Aggregate Intrinsic |
|
|
|
Shares |
|
|
share) |
|
|
contractual life |
|
|
Value |
|
|
Balance at December 31,
2005 |
|
|
1,555,556 |
|
|
$ |
28.04 |
|
|
|
5.76 |
|
|
|
|
|
Options granted |
|
|
10,000 |
|
|
|
10.20 |
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options cancelled |
|
|
(47,900 |
) |
|
|
31.53 |
|
|
|
|
|
|
|
|
|
Balance at March 31, 2006 |
|
|
1,517,656 |
|
|
$ |
27.81 |
|
|
|
5.85 |
|
|
|
|
|
Exercisable at March 31,
2006 |
|
|
1,236,356 |
|
|
$ |
30.00 |
|
|
|
|
|
|
|
|
|
|
Intrinsic value for share-based instruments is defined as the difference between the current market
value and the exercise price. SFAS No. 123-R requires the benefits of tax deductions in excess of
the compensation cost recognized for those stock options (excess tax benefits) to be classified as
financing cash flows. Excess tax benefits are included as a financing cash inflow in the March 31,
2006 Condensed Consolidated Statement of Cash Flow .
|
|
|
|
|
For the quarter ended March 31, 2006: |
|
|
|
|
|
Intrinsic value of options exercised |
|
$ |
|
|
Cash received for options exercised |
|
|
|
|
Excess tax benefits realized from tax deductions from
options exercised |
|
$ |
|
|
|
The aggregate intrinsic value in the preceding table represents the total pretax intrinsic
value, based on our closing stock price of $7.08 as of March 31, 2006, which would have been
received by the option holders had all option holders exercised their options as of that date.
There are no in-the-money options exercisable as of March 31, 2006.
As of
March 31, 2006, $.4 million of total unrecognized
compensation expense related to nonvested
stock options are expected to be recognized within the next four years on a weighted-average basis.
The total fair value of shares vested during the three months ended March 31, 2006 is $0.
The following table summarizes our nonvested stock option activity for the three months ended March
31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average |
|
|
|
Shares |
|
|
fair value |
|
|
Nonvested at December 31,
2005: |
|
|
145,260 |
|
|
$ |
3.81 |
|
Granted |
|
|
10,000 |
|
|
|
3.31 |
|
Vested |
|
|
|
|
|
|
|
|
Cancelled |
|
|
(300 |
) |
|
|
3.81 |
|
Nonvested at March 31, 2006 |
|
|
154,960 |
|
|
$ |
3.78 |
|
|
20
10. Derivatives
As of March 31, 2006, we had Interest Rate Protection Agreements for $25.0 million of our variable
rate debt, and commodity contracts for 2.25 million British Thermal Units (BTUs) of natural gas,
with a fair value of $1.6 million, accounted for under hedge accounting. The fair value of these
derivatives is included in accrued liabilities and other assets on the Condensed Consolidated
Balance Sheet for the Rate Agreements and commodity contracts, respectively. At March 31, 2005, we
had Rate Agreements for $50.0 million of our variable rate debt and commodity contracts for 3.2
million BTUs of natural gas.
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.
All of our derivatives qualify and are designated as cash flow hedges at March 31, 2006. Hedge
accounting is applied only when the derivative is deemed to be highly effective at offsetting
changes in anticipated cash flows of the hedged item or transaction. The ineffective portion of the
change in the fair value of a derivative designated as a cash flow hedge is recognized in current
earnings. Ineffectiveness recognized in earnings during the first quarter of 2006 and 2005 was not
material.
11. Comprehensive Income
Components of comprehensive income are as follows:
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
2006 |
|
|
2005 |
|
|
Net income (loss) |
|
$ |
515 |
|
|
$ |
(1,647 |
) |
Change in fair value of derivative instruments
(see detail below) |
|
|
(3,756 |
) |
|
|
3,030 |
|
Effect of exchange rate fluctuation |
|
|
110 |
|
|
|
(141 |
) |
|
Comprehensive (loss) income |
|
$ |
(3,131 |
) |
|
$ |
1,242 |
|
|
Accumulated other comprehensive loss (net of tax) includes:
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006 |
|
|
December 31, 2005 |
|
|
Minimum pension liability and
intangible pension
assets |
|
$ |
(34,770 |
) |
|
$ |
(34,770 |
) |
Derivatives |
|
|
(13 |
) |
|
|
3,743 |
|
Exchange rate fluctuation |
|
|
16 |
|
|
|
(94 |
) |
|
Total |
|
$ |
(34,767 |
) |
|
$ |
(31,121 |
) |
|
The change in other comprehensive income for derivative instruments for the Company is as follows:
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
2006 |
|
|
2005 |
|
|
Change in fair value of derivative instruments |
|
$ |
(5,957 |
) |
|
$ |
4,855 |
|
Less: |
|
|
|
|
|
|
|
|
Income tax effect |
|
|
2,201 |
|
|
|
(1,825 |
) |
|
Other comprehensive income related to derivatives |
|
$ |
(3,756 |
) |
|
$ |
3,030 |
|
|
21
12. Guarantees
The paragraphs below describe our guarantees, in accordance with Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others.
The debt of Libbey Glass Inc. and Libbey Europe B.V, pursuant to the Amended and Restated Revolving
Credit Agreement and the privately placed senior notes, is guaranteed by Libbey Inc. and by certain
subsidiaries of Libbey Glass Inc. Also, Libbey Glass Inc. guarantees a 10 million working capital
facility of Libbey Europe B.V. and Royal Leerdam. All are related parties that are included in the
Condensed Consolidated Financial Statements. See note 6 for further disclosure on debt of Libbey.
In addition, Libbey Inc. guarantees the payment by Crisa of its obligation to purchase electricity.
The guarantee is based on the provisions of a Power Purchase Agreement to which Crisa is a party.
The guarantee is limited to 49% of any such obligation of Crisa and limited to an aggregate amount
of $5.0 million. The guarantee was entered into in October 2000 and continues for 15 years from
the initial date of electricity generation, which commenced on April 12, 2003.
In October 1995, Libbey Inc. guaranteed the obligations of Syracuse China Company and Libbey Canada
Inc. under the Asset Purchase Agreement for the acquisition of Syracuse China. The guarantee is
limited to $5.0 million and expires on the fifteenth anniversary of the Closing Date (October 10,
1995). The guarantee is in favor of The Pfaltzgraff Co., The Pfaltzgraff Outlet Co. and Syracuse
China Company of Canada Ltd.
On April 2, 2004, Libbey Inc. and Libbey Glass Inc. guaranteed the obligations of Vitrocrisa
Comercial, S. de R.L. de C.V. (Comercial) and Crisa under Tranche B loans pursuant to a Credit
Agreement to which they are a party. Our portion of the guarantee is for 31% of the total $75
million Credit Agreement, up to a maximum amount of $23.0 million. At March 31, 2006 and December
31, 2005, $23.0 million was outstanding. The term of the Tranche B loans of the Credit Agreement
is three years, expiring April 2007. We would be obligated to pay in the event of default by
Comercial or Crisa, as outlined in the guarantee agreement. In exchange for the guarantee, we
receive a fee. The guarantee was recorded during the second quarter of 2004 at the fair market
value of $0.4 million in the Condensed Consolidated Balance Sheet as an increase in other long-term
liabilities with an offset to Investments.
In connection with our acquisition of Crisal-Cristalaria Automática, S.A. (Crisal), Libbey Inc.
agreed to guarantee the payment, if and when such payment becomes due and payable, by Libbey Europe
B.V. of the Earn-Out Payment, as defined in the Stock Promissory Sale and Purchase Agreement dated
January 10, 2005 between Libbey Europe B.V., as purchaser, and VAA-Vista Alegre Atlantis SGPS, SA,
as seller. The obligation of Libbey Europe B.V., and ultimately Libbey Inc., to pay the Earn-Out
Payment (which is equal to 5.5 million euros) is contingent upon Crisal achieving certain targets
relating to earnings before interest, taxes, depreciation and amortization and net sales. In no
event will the Earn-Out Payment be due prior to the third anniversary of the closing date, which
was January 10, 2005.
22
On March 30, 2005, Libbey Inc. entered into a Guarantee pursuant to which it has guaranteed to BP
Energy Company the obligation of Libbey Glass Inc. to pay for natural gas supplied by BP Energy
Company to Libbey Glass Inc. Libbey Glass Inc. currently purchases natural gas from BP Energy
Company under an agreement that expires on December 31, 2006. Libbey Inc.s guarantee with respect
to purchases by Libbey Glass Inc. under that agreement is limited to $3.0 million, including costs
of collection, if any.
On July 29, 2005, Libbey Inc. entered into a guarantee for the benefit of FR Caddo Parish, LLC
pursuant to which Libbey Inc. guarantees the payment and performance by Libbey Glass Inc. of its
obligation under an Industrial Building Sublease Agreement with respect to the development of a new
distribution center in Shreveport, Louisiana. The underlying lease is for a term of 20 years .
On January 23, 2006, Libbey Inc. entered into a guarantee for the benefit of China
Construction Bank Corporation Langfang Economic Development Area Sub-Branch (CCB) pursuant to which
Libbey Inc. guarantees the payment by Libbey China of its obligation under an RMB Loan Contract,
entered into in connection with the construction of our production facility in China.
13. Subsequent Events
Proposed Acquisition of Remaining Equity Interest in Crisa
On April 3, 2006 we entered into a definitive purchase agreement with Vitro, S.A. de C.V. (Vitro),
to acquire the remaining 51 percent of Vitrocrisa Holdings, S de R.L. de C.V. and related companies
(Crisa), in an $80 million cash transaction. The transaction, which is expected to close in the
second quarter of 2006, will bring our ownership of Crisa to 100 percent.
On May 4, 2006, our stockholders, at the Annual Meeting of Stockholders, elected John F. Meier,
Carol B. Moerdyk and Gary L. Moreau to our Board of Directors for a three-year term ending at the
annual meeting of stockholders in 2009. Our stockholders also approved the 2006 Omnibus Incentive
Plan of Libbey Inc., which is attached as Exhibit 10.1, and ratified the appointment of Ernst & Young
LLP as our auditors for 2006.
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 Other
Information in the section Qualitative and Quantitative Disclosures About Market Risk.
23
Results of Operations First Quarter 2006 compared with First Quarter 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands, except percentages and per-share amounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
Three months ended March 31, |
|
2006 |
|
|
2005(2) |
|
|
in dollars |
|
|
in percent |
|
|
Net sales |
|
$ |
134,866 |
|
|
$ |
129,784 |
|
|
$ |
5,082 |
|
|
|
3.9 |
% |
Gross profit |
|
$ |
22,146 |
|
|
$ |
21,039 |
|
|
$ |
1,107 |
|
|
|
5.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit margin |
|
|
16.4 |
% |
|
|
16.2 |
% |
|
|
|
|
|
|
|
|
Income from operations (IFO) |
|
$ |
3,060 |
|
|
$ |
88 |
|
|
$ |
2,972 |
|
|
|
3,377.3 |
% |
IFO margin |
|
|
2.3 |
% |
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest and
income taxes
(EBIT)(1) |
|
$ |
4,521 |
|
|
$ |
943 |
|
|
$ |
3,578 |
|
|
|
379.4 |
% |
EBIT margin |
|
|
3.4 |
% |
|
|
0.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest, taxes,
depreciation and amortization
(EBITDA)(1) |
|
$ |
12,856 |
|
|
$ |
9,328 |
|
|
$ |
3,528 |
|
|
|
37.8 |
% |
EBITDA margin |
|
|
9.5 |
% |
|
|
7.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
515 |
|
|
$ |
(1,647 |
) |
|
$ |
2,162 |
|
|
|
131.3 |
% |
Net income margin |
|
|
0.4 |
% |
|
|
(1.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share |
|
$ |
.04 |
|
|
$ |
(0.12 |
) |
|
$ |
0.16 |
|
|
|
133.3 |
% |
|
(1)We believe that Earnings before interest and taxes (EBIT) and Earnings
before interest, taxes, depreciation and amortization (EBITDA), non-GAAP financial measures, are
useful metrics for evaluating our financial performance because they provide a more complete
understanding of the underlying results of our core business. See Table 1 for a reconciliation of
income before income taxes to EBIT and EBITDA.
(2)Includes
special charges of $3.0 million related to capacity realignment
due to the closure of our City of Industry facility.
Net Sales
For the quarter-ended March 31, 2006, net sales increased 3.9 percent to $134.9 million from $129.8
million in the year-ago quarter. The increase in net sales was primarily attributable to
a more than 10 percent increase in net sales to foodservice glassware customers. Shipments of
Syracuse® China products, Traex® products, Crisal Glass® products and retail glassware were also higher than
in the year-ago period. Net sales in the industrial channel of distribution decreased over $2
million compared to the year-ago quarter, as the result of decreased demand and exiting some
low-margin products. In addition, net sales of World® Tableware and Royal Leerdam® products
decreased slightly as compared to the prior-year quarter.
Gross Profit
For the quarter-ended March 31, 2006, gross profit increased by $1.1 million, or 5.3%, compared to
the year-ago quarter. For the quarter ended March 31, 2006, gross profit as a percentage of net
sales increased to 16.4% compared to 16.2% in the year-ago quarter. The increase in gross profit
is primarily attributable to higher net sales discussed above. Also contributing to the increase in
gross profit was higher machine activity at our domestic glass plants. Partially offsetting gross
profit was substantially higher manufacturing expenses at Syracuse
China, a $1.1 million
increase in natural gas costs and a $0.5 million increase in pension and nonpension postretirement benefit
expenses.
24
Income From Operations
Income
from operations was $3.1 million for the quarter ending
March 31, 2006, compared to income
from operations of $0.1 million for the quarter ended
March 31, 2005. Income from operations during the first
quarter of 2005 included special charges of $3.0 million,
related to our capacity realignment due to the closure of our City of
Industry facility, as
detailed in the attached Table 2. Excluding the impact of the special charges in the first quarter
2005, our income from operations in the first quarter 2006 was relatively unchanged compared to the
year ago quarter, due to higher selling, general and administrative costs arising from higher sales
activity and China start-up costs. These costs offset the $1.1 million increase in gross
profit described above.
Earnings Before Interest and Income Taxes (EBIT)
EBIT
increased by $3.6 million in the first quarter of 2006 compared to the year ago quarter.
EBIT as a percentage of net sales increased to 3.4% in the first
quarter 2006, compared to 0.7% in
the year ago quarter. EBIT and EBIT margin increased due to special charges related to our
capacity realignment in the first quarter 2005 and a $0.5 million increase in equity earnings from
Crisa. The increase in Crisa equity earnings is due to an increase in sales and higher translation
gains, partially offset by lower machine activity and other manufacturing costs.
Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA)
EBITDA
increased by $3.5 million, or 37.8%, for the quarter-ended March 31, 2006, compared to the
year ago quarter. As a percentage of net sales, EBITDA was 9.5% in the quarter-ended March 31,
2006, compared to 7.2% in the prior period. The increases in EBITDA
and EBITDA margin were attributable to
the factors described above in EBIT.
Net Income (Loss)
We
reported net income of $0.5 million in the first quarter 2006, compared to a net loss of $1.6
million in the first quarter 2005. Net income as a percentage of net
sales was 0.4% in the first
quarter 2006, compared to (1.3)% the year ago quarter. Net income increased due to the improvement
in EBIT, partially offset by a $0.2 million increase in interest expense due to higher average
interest rates. The effective tax rate remained unchanged at 33%
during the first quarters of 2006 and 2005.
Diluted Net Income (Loss) Per Share
Diluted
net income per share was $0.5 million, or $0.04 in the first
quarter of 2006, compared with diluted loss per share of
$0.12 in the first quarter of 2005. Diluted earnings per share for the first quarter of 2005 as
detailed in the attached Table 3, excluding special charges associated with the shutdown of our
City of Industry, California, facility in February 2005, was $0.03 per share.
25
Capital Resources and Liquidity
Working Capital
The following table presents working capital items.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands, except percentages and DSO, DIO, DPO and DWC |
|
|
|
|
Variance |
|
|
|
March 31, 2006 |
|
|
December 31, 2005 |
|
|
in dollars |
|
|
in percent |
|
|
Accounts receivable |
|
$ |
72,244 |
|
|
$ |
79,042 |
|
|
$ |
6,798 |
|
|
|
8.6 |
% |
DSO (1) |
|
|
46.0 |
|
|
|
50.8 |
|
|
|
|
|
|
|
|
|
Inventories |
|
|
121,388 |
|
|
|
122,572 |
|
|
|
1,184 |
|
|
|
1.0 |
% |
DIO (2) |
|
|
77.3 |
|
|
|
78.7 |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
40,070 |
|
|
|
47,020 |
|
|
|
6,950 |
|
|
|
14.8 |
% |
DPO (3) |
|
|
25.5 |
|
|
|
30.2 |
|
|
|
|
|
|
|
|
|
|
Working capital (4) |
|
$ |
153,562 |
|
|
$ |
154,594 |
|
|
$ |
1,032 |
|
|
|
1.0 |
% |
DWC (5) |
|
|
97.8 |
|
|
|
99.3 |
|
|
|
|
|
|
|
|
|
Percentage of net sales |
|
|
27.0 |
% |
|
|
27.7 |
% |
|
|
|
|
|
|
|
|
|
(1) Days sales outstanding (DSO) measures the number of days it takes, based on a 90-day average, to turn receivables into cash.
(2) Days inventory outstanding (DIO) measures the number of times per year, based on a 90-day average, 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 inventories and accounts receivable less accounts payable.
(5) Days working capital (DWC) measures the number of days it takes to turn our working capital into cash.
Cash Flow
The following table presents key drivers to free cash flow.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands, except percentages |
|
|
|
|
|
|
|
|
|
Variance |
|
Three months ended March 31, |
|
2006 |
|
|
2005 |
|
|
in dollars |
|
|
in percent |
|
|
Net cash provided by (used in)
operating activities |
|
$ |
4,798 |
|
|
$ |
(11,151 |
) |
|
$ |
15,949 |
|
|
|
143.0 |
% |
Capital expenditures |
|
|
21,439 |
|
|
|
10,405 |
|
|
|
11,034 |
|
|
|
106.1 |
% |
Acquisitions and related costs |
|
|
|
|
|
|
28,948 |
|
|
|
(28,948 |
) |
|
|
(100.00 |
)% |
|
Free cash flow (a) |
|
$ |
(16,641 |
) |
|
$ |
(50,504 |
) |
|
$ |
33,863 |
|
|
|
67.1 |
% |
|
(a) We believe that Free Cash Flow (net cash (used in) provided by operating activities, less
capital expenditures and acquisitions and related costs) is a useful metric for evaluating our financial
performance as it is a measure on which we internal assessments of our performance.
Free cash flow was $(16.6) million in the first quarter 2006, compared to $(50.5) million in
the first quarter 2005. The improvement is primarily due to the acquisition of Crisal in January 2005
for $28.9 million. Net cash flow from operations increased to $4.8 million in the first quarter
2006, compared to $(11.2) million in the first quarter 2005,
primarily due to an increase in net
income and decreases in inventory. Partially offsetting the increase in
net cash provided by operating activities was an $11.0 million increase in capital expenditures, primarily
attributable to the construction of our plant in China.
26
Borrowings
The following table presents our total borrowings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
in |
|
|
in |
|
|
|
Interest Rate |
|
Maturity Date |
|
2006 |
|
|
2005 |
|
|
dollars |
|
|
percent |
|
|
Borrowings under credit facility |
|
floating |
|
June 24, 2009 |
|
$ |
158,834 |
|
|
$ |
143,814 |
|
|
$ |
15,020 |
|
|
|
10.4 |
% |
Senior notes |
|
4.19% |
|
March 31, 2008 |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
0.0 |
% |
Senior notes |
|
5.58% |
|
March 31, 2013 |
|
|
55,000 |
|
|
|
55,000 |
|
|
|
|
|
|
|
0.0 |
% |
Senior notes |
|
floating |
|
March 31, 2010 |
|
|
20,000 |
|
|
|
20,000 |
|
|
|
|
|
|
|
0.0 |
% |
Promissory note |
|
6.00% |
|
April 2006 to September 2016 |
|
|
2,096 |
|
|
|
2,131 |
|
|
|
(35 |
) |
|
|
(1.6 |
)% |
Notes payable |
|
floating |
|
April 2006 |
|
|
11,167 |
|
|
|
11,475 |
|
|
|
(308 |
) |
|
|
(2.7 |
)% |
RMB loan contract |
|
floating |
|
July 20, 2012 |
|
|
7,469 |
|
|
|
|
|
|
|
7,469 |
|
|
|
100.0 |
% |
Obligations under capital leases |
|
floating |
|
April 2006 to May 2007 |
|
|
1,868 |
|
|
|
2,203 |
|
|
|
(335 |
) |
|
|
(15.2 |
)% |
Other debt |
|
floating |
|
September 2009 |
|
|
2,901 |
|
|
|
2,056 |
|
|
|
845 |
|
|
|
41.1 |
% |
|
Total borrowings |
|
|
|
|
|
$ |
284,335 |
|
|
$ |
261,679 |
|
|
$ |
22,656 |
|
|
|
8.7 |
% |
|
We had total borrowings of $284.3 million at March 31, 2006, compared to total borrowings
$261.7 million at December 31, 2005. The increase of $22.6 million in borrowings is primarily a
result of the negative free cash flow discussed above.
On March 31, 2003, we issued $100 million of privately placed senior notes (Senior Notes). Eighty
million dollars of the notes have an average interest rate of 5.15% per year, with an initial
average maturity of 8.4 years and a remaining average maturity of 5.4 years. Twenty million dollars
of the Senior Notes have a floating interest rate at a margin over the London Interbank Offer Rate
(LIBOR) that is set quarterly. The floating interest rate at March 31, 2006 on the $20 million debt
was 6.08% per year.
In June 2004, Libbey Glass Inc. and Libbey Europe B.V. entered into an Amended and Restated
Revolving Credit Agreement (Revolving Credit Agreement or Agreement) with a group of banks that
provided a Revolving Credit and Swing Line Facility. The Agreement has a five-year term, maturing
June 24, 2009. We had additional borrowing capacity at March 31, 2006, of $39.0 million. Note 5 to
the Consolidated Financial Statements provides additional information regarding the Agreement.
On December 30, 2005, we amended the terms of the Agreement and our Senior Notes. Pursuant to the
amendments, we agreed to reduce the maximum amount that we may borrow under the Agreement from $250
million to $195 million. We also agreed that the maximum permissible leverage ratio under both the
Agreement and Senior Notes would be increased to 4.5 to 1.0 as of December 31, 2005, 4.85 to 1.00
for the period January 1, 2006 through September 30, 2006, 4.00 to 1.00 for the period October 1,
2006 through December 31, 2006, and 3.25 to 1.00 from and after January 1, 2007. In addition, we
agreed to a 50 basis point increase in the applicable interest rate and an additional 50 basis
point increase in the applicable rate if our actual consolidated leverage ratio exceeds 4.25 to
1.0. We also granted to the lenders a security interest in substantially all of our assets and
pledged equity interests in certain subsidiaries.
27
We have entered into interest rate protection agreements with respect to $25 million of debt. The
average fixed rate of interest under these interest rate protection agreements, excluding
applicable fees, is 5.3% per year, and the total interest rate, including fees, is 7.6% per year.
The average maturity of these interest rate protection agreements is 0.2 years at March 31, 2006.
Note 5 to the Condensed Consolidated Financial Statements provides additional information regarding the
interest rate protection agreements.
Of our total indebtedness, $177.2 million is subject to fluctuating interest rates at March 31,
2006. A change in one percentage point in such rates would result in a change in interest expense
of approximately $1.8 million on an annual basis.
Reconciliation of Non-GAAP Financial Measures
We sometimes refer to data derived from 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, it is the basis on which we internally assess performance, and
certain non-GAAP measures are relevant to our determination of compliance with financial covenants
included in our debt agreements. 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.
28
Table 1
Reconciliation of Income before income taxes to EBIT and EBITDA
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
Three months ended March 31, |
|
2006 |
|
|
2005 |
|
|
(Loss) income before income taxes |
|
$ |
912 |
|
|
$ |
(2,435 |
) |
Add: Interest expense |
|
|
3,609 |
|
|
|
3,378 |
|
|
Earnings before interest and income taxes (EBIT) |
|
|
4,521 |
|
|
|
943 |
|
Add: Depreciation and amortization |
|
|
8,335 |
|
|
|
8,385 |
|
|
Earning before interest, taxes, deprecation and
amortization (EBITDA) |
|
$ |
12,856 |
|
|
$ |
9,328 |
|
|
Table 2
Summary of Special Charges
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
Three months ended March 31, |
|
2006 |
|
|
2005 |
|
|
Fixed asset write-down |
|
$ |
|
|
|
$ |
148 |
|
Employee termination costs & other |
|
|
|
|
|
|
2,849 |
|
|
Total pretax special charges |
|
$ |
|
|
|
$ |
2,997 |
|
|
Table 3
Reconciliation of Non-GAAP Financial Measures for Special Charges
|
|
|
|
|
|
|
|
|
(Dollars in thousands except per-share amounts) |
|
|
|
|
|
|
|
Three months ended March 31, |
|
2006 |
|
|
2005 |
|
|
Reported net (loss) income |
|
$ |
515 |
|
|
$ |
(1,647 |
) |
Special charges net of tax |
|
|
|
|
|
|
2,008 |
|
|
Net income excluding special charges |
|
$ |
515 |
|
|
$ |
361 |
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
Reported net (loss) income |
|
$ |
0.04 |
|
|
$ |
(0.12 |
) |
Special charges net of tax |
|
|
|
|
|
|
0.15 |
|
|
Net income per diluted share excluding special charges |
|
$ |
0.04 |
|
|
$ |
0.03 |
|
|
Table 4
Reconciliation of net cash provided by operating activities to free cash flow
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
Three months ended March 31, |
|
2006 |
|
|
2005 |
|
|
Net cash (used in) provided by operating activities |
|
$ |
4,798 |
|
|
$ |
(11,151 |
) |
Less: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
21,439 |
|
|
|
10,405 |
|
Acquisition and related costs |
|
|
|
|
|
|
28,948 |
|
|
Free flow cash |
|
$ |
(16,641 |
) |
|
$ |
(50,504 |
) |
|
Table 5
Reconciliation of working capital
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
Three months ended March 31, |
|
2006 |
|
|
2005 |
|
|
Accounts receivable |
|
$ |
72,244 |
|
|
$ |
73,919 |
|
Plus: |
|
|
|
|
|
|
|
|
Inventories |
|
|
121,388 |
|
|
|
141,022 |
|
Less: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
40,070 |
|
|
|
43,887 |
|
|
Working capital |
|
$ |
153,562 |
|
|
$ |
171,054 |
|
|
29
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 or Mexican
peso that could reduce the cost competitiveness of our products or those of Crisa compared to
foreign competition and the impact of exchange rate changes in the
Mexican peso relative to the U.S. dollar on the earnings of Crisa expressed under accounting principles
generally accepted in the United States.
Natural Gas
We are also exposed to market risks associated with changes in the price of natural gas. We use
commodity futures contracts related to forecasted future natural gas requirements of our domestic
manufacturing operations. The objective of these futures contracts is to limit the fluctuations in
prices paid and potential losses in earnings or cash flows from adverse price movements in the
underlying natural gas commodity. We consider our forecasted natural gas requirements of our
domestic 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% to 60% of our anticipated requirements, generally six or more
months in the future. For our natural gas requirements that are note hedged, we are subject to
changes in the price of natural gas, which affect our earnings.
The fair value of our natural gas futures contracts are determined from market quotes, and are
reflected on our consolidated balance sheets in other current assets. At March 31, 2006, we had
commodity futures contracts for 2.25 million British Thermal Units (BTUs) of natural gas with a
fair market value of approximately $1.6 million. All of our derivatives qualify and are designated
as cash flow hedges. We apply hedge accounting to these instruments 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 occurrence of the forecasted transaction is no longer probable, and any previously deferred
gains or losses re recorded to earnings. We recognize the ineffective portion of the change in
fair value of a derivative designated as a cash flow hedge in current earnings. For March 31,
2006, we recognized a loss of approximately $.2 million related to these instruments, which
represented the total ineffectiveness of all cash flow hedges.
The effective portion of changes in the fair value of a derivative that is designated as and meets
the required criteria for a cash flow hedge is recorded in other comprehensive income (loss) and
reclassified into earnings in the same period or periods during which the underlying hedges item
affects earnings. Amounts reclassified into earnings related to natural gas futures contracts of
natural gas expense are included in cost of sales.
30
Pension
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 pension benefit
obligations and related pension expense. Changes in the equity and debt securities markets affect
the performance of our pension plan asset performance and related pension expense. Sensitivity to
these key market risk factors is as follows:
|
|
|
A change of 1% in the expected long-term rate of return on plan assets would change
total pension expense by approximately $2.2 million based on year-end data. |
|
|
|
|
A change of 1% in the discount rate would change our total pension expense by
approximately $3.8 million. |
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.
Important factors potentially affecting our performance include, but are not limited to:
|
|
|
major slowdowns in the retail, travel, restaurant and bar or entertainment industries,
including the impact of armed hostilities or any other international or national calamity,
including any act of terrorism, on the retail, travel, restaurant and bar or entertainment
industries; |
|
|
|
|
significant increases in interest rates that increase our borrowing costs; |
|
|
|
|
significant increases in per-unit costs for natural gas, electricity, corrugated
packaging, aragonite, resins and other purchased materials; |
|
|
|
|
protracted work stoppages related to collective bargaining agreements; |
|
|
|
|
increases in expenses associated with higher medical costs, increased pension expense
associated with lower returns on pension investments and lower interest rates on pension
obligations; |
|
|
|
|
currency fluctuations relative to the U.S. dollar, euro or Mexican peso that could
reduce the cost competitiveness of our or Crisas products compared to foreign competition; |
|
|
|
|
the effect of high inflation in Mexico on the operating results and cash flows of Crisa; |
|
|
|
|
the impact of exchange rate changes in the Mexican peso relative to the U.S. dollar on
the earnings of Crisa expressed under accounting principles generally accepted in the
United States; |
31
|
|
|
the inability to achieve savings and profit improvements at targeted levels at Libbey
and Crisa from capacity realignment, re-engineering and operational restructuring programs
or within the intended time periods; |
|
|
|
|
protracted work stoppages related to collective bargaining agreements; |
|
|
|
|
increased competition from foreign suppliers endeavoring to sell glass tableware in the
United States, Mexico, Europe and other key markets worldwide, including the impact of
lower duties for imported products; and |
|
|
|
|
whether we complete any significant acquisitions, including the acquisition of the
remaining 51% of Crisa that we do not currently own, and whether such acquisitions can
operate profitably. |
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. Also, we have
investments in certain unconsolidated entities. As we do not control or manage these entities, our
disclosure controls and procedures with respect to such entities are necessarily substantially more
limited than those we maintain with respect to our consolidated subsidiaries.
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
Item 5. Other Information
|
(b) |
|
There has been no material change to the procedures by which security holders
may recommend nominees to the Companys board of directors. |
Item 6. Exhibits
|
|
|
Exhibits: |
|
The exhibits listed in the accompanying Exhibit Index are filed as part of this report. |
32
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 3.01 to Registrants Form 8-K filed February 7, 2005 and incorporated
herein by reference). |
|
|
|
10.1
|
|
2006 Omnibus Incentive Plan of Libbey Inc. (filed herein) |
|
|
|
31.1
|
|
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or
Rule 15d-14(a) (filed herein). |
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31.2
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Certification of Chief Financial Officer Pursuant to Rule
13a-14(a) or Rule 15d-14(a) (filed herein). |
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32.1
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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). |
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32.2
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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). |
33
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.
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LIBBEY INC.
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Date May 10, 2006 |
By /s/ Scott M. Sellick
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Scott M. Sellick, |
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Vice President, Chief Financial Officer
(duly authorized principal financial officer) |
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34