UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2008
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission File Number 1-12084
LIBBEY INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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34-1559357
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(IRS Employer
Identification No.)
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300 Madison Avenue, Toledo, Ohio
(Address of Principal
Executive Offices)
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43604
(Zip
Code)
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(419) 325-2100
(Registrant’s telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $.01 par value
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
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No
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Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of
1934. Yes
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No
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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
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No
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K.
þ
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. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act. Yes
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No
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The aggregate market value (based on the consolidated tape
closing price on June 30, 2008) of the voting stock
beneficially held by non-affiliates of the registrant was
approximately $107,136,156. For the sole purpose of making this
calculation, the term “non-affiliate” has been
interpreted to exclude directors and executive officers of the
registrant. Such interpretation is not intended to be, and
should not be construed to be, an admission by the registrant or
such directors or executive officers that any such persons are
“affiliates” of the registrant, as that term is
defined under the Securities Act of 1934.
The number of shares of common stock, $.01 par value, of
the registrant outstanding as of February 28, 2009 was
14,741,087.
DOCUMENTS
INCORPORATED BY REFERENCE
Certain information required by Items 10, 11, 12, 13 and 14
of
Form 10-K
is incorporated by reference into Part III hereof from the
registrant’s Proxy Statement for the Annual Meeting of
Shareholders to be held May 7, 2009 (“Proxy
Statement”).
Certain information required by Part II of this
Form 10-K
is incorporated by reference from registrant’s 2008 Annual
Report to Shareholders where indicated.
This Annual Report on
Form 10-K,
including “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” contains
forward-looking statements regarding future events and future
results that are subject to the safe harbors created under the
Securities Act of 1933 and the Securities Exchange Act of 1934.
Libbey desires to take advantage of the “safe harbor”
provisions of the Private Securities Litigation Reform Act of
1995. These statements are based on current expectations,
estimates, forecasts and projections, and the beliefs and
assumptions of our management. Words such as “expect,”
“anticipate,” “target,” “believe,”
“intend,” “may,” “planned,”
“potential,” “should,” “will,”
“would,” variations of such words, and similar
expressions are intended to identify these forward-looking
statements. In addition, any statements that refer to
projections of our future financial performance, our anticipated
growth and trends in our businesses, and other characterizations
of future events or circumstances, are forward-looking
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.
PART I
General
Libbey Inc. (Libbey or the Company) is the leading producer of
glass tableware products in the Western Hemisphere, in addition
to supplying to key markets throughout the world. 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 produce glass tableware in five countries and sell to over
100 countries. We design and market, under our
LIBBEY
®
,
Crisa
®
,
Royal
Leerdam
®
,
World
®
Tableware,
Syracuse
®
China and
Traex
®
brand names, an extensive line of high-quality glass tableware,
ceramic dinnerware, metal flatware, hollowware and serveware,
and plastic items for sale primarily in the foodservice, retail
and business-to-business markets. Our global sales force
presents all of our products to the global marketplace in a
coordinated fashion. Through our subsidiary B.V. Koninklijke
Nederlandsche Glasfabriek Leerdam (Royal Leerdam), we
manufacture high-quality glass stemware under the Royal
Leerdam
®
brand name. Through our subsidiary Crisal-Cristalaria
Automátic S.A. (Crisal), we manufacture glass tableware in
Portugal for our worldwide customer base. We also market ceramic
dinnerware under the
Syracuse
®
China brand name through our subsidiary Syracuse China. Through
our World Tableware subsidiary, we import metal flatware,
hollowware, serveware and ceramic dinnerware for resale. We
design, manufacture and distribute an extensive line of plastic
items for the foodservice industry under the
Traex
®
brand name through our subsidiary Traex Company. We are the
largest glass tableware manufacturer in Latin America through
our subsidiary Crisa Libbey Commercial, S. de R.L. de C.V.
(Crisa) which goes to market under the
Crisa
®
brand name. We have a state-of-the-art glass tableware
manufacturing facility in China that has been operational since
the first quarter of 2007. See note 20 to the Consolidated
Financial Statements for segment information. Libbey was
incorporated in Delaware in 1987, but traces its roots back to
The W. L. Libbey & Son Company, an Ohio corporation
formed in 1888, when it began operations in Toledo, Ohio.
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
and 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.
Growth
Strategy
Our vision is to be the premier provider of tabletop glassware
and related products worldwide. To achieve this vision, we have
a growth strategy that emphasizes internal growth as well as
growth in low-cost countries through acquired businesses and
green meadow facilities. Having completed the acquisition of
Crisa in 2006 and
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manufacturing at our glass tableware manufacturing facility in
China in 2007, our focus for 2008 was on internal growth and
improving our liquidity and capital structure.
We continue to focus on our strong brand recognition and
identity. We understand that our customers are key to our
success. Therefore, we continue to assist our customers by
providing new product development and improved service and
support. New product development continues to be an essential
competency of the Company, creating excitement for our customers
in all trade areas, around the world. Libbey introduced over 250
distinct new shapes worldwide in 2008, coupled with many
additional sizes, decorations, color variations and packaging
alternatives for our discriminating customers. In addition, our
expanded manufacturing platform in Mexico, Portugal and China
provides a cost-competitive source of glass tableware, enabling
us to grow our tableware business in North American and
International markets, including in Asia-Pacific markets, where
we expect to continue to grow.
Products
Our tableware products consist of glass tableware, ceramic
dinnerware, metal flatware, hollowware and serveware, and
plastic items. Our glass tableware includes tumblers, stemware
(including wine glasses), mugs, bowls, ashtrays, bud vases, salt
and pepper shakers, shot glasses, canisters, candleholders and
various other items. Royal Leerdam produces high-quality
stemware. Crisal produces glass tableware, mainly tumblers,
stemware and glassware accessories. Crisa’s glass tableware
product assortment includes the product types produced by
Libbey, as well as glass bakeware and handmade glass tableware.
In addition, Crisa products include blender jars, washing
machine windows, meter covers and other glass products sold
principally to original equipment manufacturers. Through our
Syracuse China and World Tableware subsidiaries, we offer a wide
range of ceramic dinnerware products. These include plates,
bowls, platters, cups, saucers and other tableware accessories.
Our World Tableware subsidiary provides an extensive selection
of metal flatware, including knives, forks, spoons and serving
utensils. In addition, World Tableware sells metal hollowware,
including serving trays, chafing dishes, pitchers and other
metal tableware accessories. Through our Traex subsidiary, we
sell a wide range of plastic products. These include warewashing
and storage racks, trays, dispensers and organizers for the
foodservice industry. Our global sales force presents all of our
products to the global marketplace in a coordinated fashion.
We also have an agreement to be the exclusive distributor of
Luigi Bormioli glassware in the U.S. and Canada to
foodservice users. Luigi Bormioli, based in Italy, is a highly
regarded supplier of high-end glassware used in many of the
finest eating and drinking establishments.
Customers
The customers for our tableware products include approximately
500 foodservice distributors in the U.S. and Canada. In the
retail market, we sell to mass merchants, department stores,
retail distributors, national retail chains and specialty
housewares stores. In addition, our business-to-business market
primarily includes customers that use glass containers for
candle and floral applications, gourmet food packaging
companies, and various OEM applications. In Mexico, we sell to
retail mass merchants and wholesale distributors, as well as
candle and food packers, and various OEM users of custom molded
glass. In Europe, we market glassware to retailers and
approximately 150 distributors and decorators that service the
retail, foodservice and highly developed business-to-business
channel, which includes large breweries and distilleries, for
which products are decorated with company logos for promotional
and resale purposes. We also have other customers who use our
products for promotional or other private uses. In China, we
sell to distributors and wholesalers. No single customer
accounts for 10 percent or more of our sales, although the
loss of any of our major customers could have a meaningful
effect on us.
Sales,
Marketing and Distribution
Approximately 70 percent of our sales are to customers
located in North America, and 30 percent of our sales are
to customers located outside of North America. For segment
information for the last three fiscal years, see note 20 to
the Consolidated Financial Statements. We sell our products to
over 100 countries around the world, competing in the tableware
markets of Latin America, Asia and Europe, as well as North
America.
We have our own sales staff of professionals who call on
customers and distributors. In addition, we retain the services
of manufacturing representative organizations to assist in
selling our products.
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We also have a marketing staff located at our corporate
headquarters in Toledo, Ohio, as well as in Mexico, the
Netherlands and China. They engage in developing strategies
relating to product development, pricing, distribution,
advertising and sales promotion.
We operate distribution centers located at or near each of our
manufacturing facilities (see Properties section). In addition,
we operate distribution centers for our Crisa-supplied products
in Laredo, Texas; and for our World Tableware and Traex products
in West Chicago, Illinois. Our Syracuse China products will
begin moving through the West Chicago distribution center
throughout 2009. We also operate a distribution center for many
of our products at Gorinchem, in the Netherlands. The glass
tableware manufacturing and distribution centers are
strategically located (geographically) to enable us to supply
significant quantities of our product to virtually all of our
customers on a timely and cost effective basis.
The majority of our sales are in the foodservice, retail and
business-to-business markets, which are further detailed below.
Foodservice
We have, according to our estimates, the leading market share in
glass tableware sales in the U.S. and Canadian foodservice
market. Syracuse China, World Tableware and Traex are recognized
as long-established suppliers of high-quality ceramic
dinnerware, metal flatware, hollowware and serveware, and
plastic items, respectively. They are among the leading
suppliers of their respective product categories to foodservice
end users. The majority of our tableware sales to foodservice
end users are made through a network of foodservice
distributors. The distributors, in turn, sell to a wide variety
of foodservice establishments, including national and regional
hotel chains, national and regional restaurant chains,
independently owned bars and restaurants, and casinos.
Retail
Our primary customers in the retail market are national and
international mass merchants. In recent years, we have been able
to increase our retail sales by increasing our sales to
specialty housewares stores and value-oriented retailers. This
year, we were recognized for increasing our overall
U.S. market share in the casual glass beverageware market
to over 40%. Royal Leerdam and Crisa sell to similar retail
clients in Europe and Mexico, while Crisal is increasingly
positioned with retailers on the Iberian Peninsula. With this
retail representation, we are positioned to successfully
introduce profitable new products. We also operate outlet stores
located at or near the majority of our manufacturing locations.
In addition, we sell selected items on the internet at
www.libbey.com.
Business-to-Business
Royal Leerdam and Crisal supply glassware to the
business-to-business channel of distribution in Europe.
Customers in this channel include marketers who decorate our
glassware with company logos and resell these products to large
breweries and distilleries, which redistribute the glassware for
promotional purposes and resale. Our business-to-business
channel in North America includes candle, floral applications
and blender jars, as well as washing machine windows and meter
covers. The craft industries and gourmet food packing companies
are also business-to-business consumers of glassware.
Seasonality
Primarily due to the impact of consumer buying patterns and
production activity, our sales and operating income, excluding
special charges, tends to be stronger in the second and fourth
quarters and weaker in the first and third quarters of each
year. In addition, our cash flow from operations tends to be
stronger in the second half of the year and weaker in the first
half of the year due to seasonal working capital needs.
Backlog
As of December 31, 2008, our backlog was approximately
$31.1 million, compared to approximately $41.4 million
at December 31, 2007. The decrease was the result of the
significant de-stocking by our distributors that took place in
the fourth quarter of 2008 as well as the Company’s ability
to turn incoming orders at a faster pace
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given the overall slower business conditions we experienced in
the fourth quarter. Backlog includes orders confirmed with a
purchase order for products scheduled to be shipped to customers
in a future period. Because orders may be changed
and/or
cancelled, we do not believe that our backlog is necessarily
indicative of actual sales for any future period.
Manufacturing
and Sourcing
In North America, we currently own and operate three glass
tableware manufacturing plants — two in the United
States (one in Toledo, Ohio and one in Shreveport, Louisiana)
and one in Monterrey, Mexico. We also own and operate two
non-glass facilities in the USA, including a plastics plant in
Dane, Wisconsin and a ceramic dinnerware plant in Syracuse, New
York. The Syracuse manufacturing plant will cease production in
April 2009. In Europe, we own and operate two glass tableware
manufacturing plants — one in Leerdam, the
Netherlands, and the other in Marinha Grande, Portugal. In Asia,
we own and operate a glass tableware production facility in
Langfang, China.
The manufacture of our tableware products involves the use of
automated processes and technologies. We design much of our
glass tableware production machinery, and we continuously refine
it to incorporate technological advances to create a competitive
advantage. We believe that our production machinery and
equipment continue to be adequate for our needs in the
foreseeable future, but we continue to invest in ways to further
improve our production efficiency and reduce our cost profile.
Our glass tableware products generally are produced using one of
two manufacturing methods or, in the case of certain stemware, a
combination of such methods. Most of our tumblers, stemware and
other glass tableware products are produced by forming molten
glass in molds with the use of compressed air. These products
are known as “blown” glass products. Our other glass
tableware products and the stems of certain stemware are
“pressware” products, which are produced by pressing
molten glass into the desired product shape.
Ceramic dinnerware is also produced through the forming of raw
materials into the desired product shape and is either
manufactured at our Syracuse, New York, production facility
(through April, 2009) or imported primarily from China and
Bangladesh. We source all metal flatware and metal hollowware
through our World Tableware subsidiary, primarily from China.
Plastic products are also produced through the injection molding
of raw materials into the desired shape and are manufactured at
our Dane, Wisconsin, production facility or imported primarily
from Taiwan and China.
To assist in the manufacturing process, we employ a team of
engineers whose responsibilities include efforts to improve and
upgrade our manufacturing facilities, equipment and processes.
In addition, they provide engineering required to manufacture
new products and implement the large number of innovative
changes continuously being made to our product designs, sizes
and shapes. See “Research and Development” below for
additional information.
Materials
Our primary materials are sand, lime, soda ash, corrugated
packaging, clay, resins and colorants. Historically, these
materials have been available in adequate supply from multiple
sources. However, there may be temporary shortages of certain
materials due to weather or other factors, including disruptions
in supply caused by material transportation or production
delays. Such shortages have not previously had, and are not
expected in the future to have, a material adverse effect on our
operations. Natural gas is a primary source of energy in most of
our production processes, and variability in the price for
natural gas has had and could continue to have an impact on our
profitability. Historically, we have used natural gas hedging
contracts to partially mitigate this impact. In addition, resins
are a primary source of materials for our Traex operation, and,
historically, the price for resins has fluctuated, directly
impacting our profitability. We also experience fluctuations in
the cost to deliver materials to our facilities, and such
changes may affect our earnings and cash flow.
Research
and Development
Our core competencies include our engineering excellence and
world-class manufacturing techniques. Our focus is to increase
the quality of our products and enhance the profitability of our
business through research and
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development. We will continue to invest in strategic research
and development projects that will further enhance our ability
to compete in our core business.
We employ a team of engineers, in addition to external
consultants, to conduct research and development. Our
expenditures on research and development activities related to
new
and/or
improved products and processes were $1.7 million in 2008,
$1.5 million in 2007, and $2.3 million in 2006. These
costs were expensed as incurred.
Patents,
Trademarks and Licenses
Based upon market research and surveys, we believe that our
trade names and trademarks, as well as our product shapes and
styles, enjoy a high degree of consumer recognition and are
valuable assets. We believe that the
Libbey
®
,
Syracuse
®
China,
World
®
Tableware,
Crisa
®
,
Royal
Leerdam
®
and
Traex
®
trade names and trademarks are material to our business.
We have rights under a number of patents that relate to a
variety of products and processes. However, we do not consider
that any patent or group of patents relating to a particular
product or process is of material importance to our business as
a whole.
Competitors
Our business is highly competitive, with the principal
competitive factors being customer service, price, product
quality, new product development, brand name, and delivery time.
Competitors in glass tableware include, among others:
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Arc International (a private French company), which manufactures
and distributes glass tableware worldwide;
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Pasabahce (a unit of Sisecam, a Turkish Company), which
manufactures glass tableware at various sites throughout the
world and sells to retail, foodservice and business-to-business
customers worldwide;
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The Anchor Hocking Company (which is owned by Monomoy Capital
Partners, L.P.), which manufactures and distributes glass
beverageware, industrial products and bakeware primarily to
retail, industrial and foodservice markets in the U.S. and
Canada.
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Oneida Ltd., which sources glass tableware from foreign
manufacturers;
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Bormioli Rocco group, which manufactures glass tableware in
Europe, where the majority of its sales are to retail and
foodservice customers; and
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Various sourcing companies.
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Other materials such as plastics also compete with glassware.
Competitors in U.S. ceramic dinnerware include, among
others:
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Homer Laughlin;
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Oneida Ltd.;
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Steelite; and
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Various sourcing companies.
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Competitors in metalware include:
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Oneida Ltd.;
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Walco, Inc.; and
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Various sourcing companies.
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Competitors in plastic products are, among others:
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Cambro Manufacturing Company;
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Carlisle Companies Incorporated; and
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Various sourcing companies.
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Environmental
Matters
Our operations, in common with those of industry generally, are
subject to numerous existing laws and governmental regulations
designed to protect the environment, particularly regarding
plant wastes and emissions and solid waste disposal. We also may
be subject to proposed laws and governmental regulations as they
become finalized. We have shipped, and we continue to ship,
waste materials for off-site disposal. However, we are not named
as a potentially responsible party with respect to any waste
disposal site matters pending prior to June 24, 1993, the
date of Libbey’s initial public offering and separation
from Owens-Illinois, Inc. (Owens-Illinois). Owens-Illinois has
been named as a potentially responsible party or other
participant in connection with certain waste disposal sites to
which we also may have shipped wastes prior to June 24,
1993. We may bear some responsibility in connection with those
shipments. Pursuant to an indemnification agreement between
Owens-Illinois and Libbey, Owens-Illinois has agreed to defend
and hold us harmless against any costs or liabilities we may
incur in connection with any such matters identified and pending
as of June 24, 1993, and to indemnify us for any liability
that results from these matters in excess of $3 million. We
believe that if it is necessary to draw upon this
indemnification, collection is probable.
Pursuant to the indemnification agreement referred to above,
Owens-Illinois is defending us with respect to the King Road
landfill. In January 1999, the Board of Commissioners of Lucas
County, Ohio instituted a lawsuit against Owens-Illinois, Libbey
and numerous other defendants. (Fifty-nine companies were named
in the complaint as potentially responsible parties.) In the
lawsuit, which was filed in the United States District Court for
the Northern District of Ohio, the Board of Commissioners sought
to recover contribution for past and future costs incurred by
the County in response to the release or threatened release of
hazardous substances at the King Road landfill formerly operated
and closed by the County. The Board of Commissioners dismissed
the lawsuit without prejudice in October 2000. At the time of
the dismissal, the parties to the lawsuit anticipated that the
Board of Commissioners would re-file the lawsuit after obtaining
more information as to the appropriate environmental remedy. As
of this date, it does not appear that re-filing of the lawsuit
is imminent. In view of the uncertainty as to re-filing of the
suit, the numerous defenses that may be available against the
County on the merits of its claim for contribution, the
uncertainty as to the environmental remedy, and the uncertainty
as to the number of potentially responsible parties, it
currently is not possible to quantify any exposure that Libbey
may have with respect to the King Road landfill.
Subsequent to June 24, 1993, we have been named a
potentially responsible party at four other sites. In each case,
the claims have been settled for immaterial amounts. We do not
anticipate that we will be required to pay any further sums with
respect to these sites unless unusual and unanticipated
contingencies occur.
On October 10, 1995, Syracuse China Company, our wholly
owned subsidiary, acquired from The Pfaltzgraff Co. and certain
of its subsidiary corporations, the assets operated by them as
Syracuse China, The Pfaltzgraff Co. and the New York State
Department of Environmental Conservation (DEC) entered into an
Order on Consent effective November 1, 1994, that required
Pfaltzgraff to prepare a Remedial Investigation and Feasibility
Study (RI/FS) to develop a remedial action plan for the site
(which includes among other items a landfill and wastewater and
sludge ponds and adjacent wetlands located on the property
purchased by Syracuse China Company) and to remediate the site.
Although Syracuse China Company was not a party to the Order on
Consent, as part of the Asset Purchase Agreement with The
Pfaltzgraff Co. Syracuse China Company agreed to share a part of
the remediation and related expense up to the lesser of
50 percent of such costs or $1,350,000. Construction of the
approved remedy began in 2000 and was substantially completed in
2003. Accordingly, Syracuse China Company’s obligation with
respect to the associated costs has been satisfied.
In addition, Syracuse China Company has been named as a
potentially responsible party by reason of its potential
ownership of certain property that adjoins its plant and that
has been designated a sub-site of a superfund site. We believe
that any contamination of the sub-site was caused by and will be
remediated by other parties at no
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cost to Syracuse China Company. Those other parties have
acquired ownership of the sub-site, and their acquisition of the
sub-site should end any responsibility of Syracuse China with
respect to the sub-site. We believe that, even if Syracuse China
Company were deemed to be responsible for any expense in
connection with the contamination of the sub-site, it is likely
the expense would be shared with Pfaltzgraff pursuant to the
Asset Purchase Agreement.
By letter dated October 31, 2008, the DEC and United States
Environmental Protection Agency (EPA) made a demand upon
Syracuse China Company and several other companies for recovery
of approximately $12.5 million of direct and indirect costs
allegedly expended by the DEC and EPA in connection with the
clean-up
of
the Onondaga Lake Superfund site. The numerous recipients of the
demand are in the process of reviewing information provided by
DEC and EPA to substantiate the demand. At this time it is not
certain that the operations on Syracuse China’s Court
Street property had any connection with the problems at this
Superfund site. There is an indemnification agreement with The
Pfaltzgraff Co. that contemplates that the parties will share
any costs for off-premise liability up to an aggregate of
$7,500,000. The Company has no reason to believe that the
indemnification would not be honored if it became necessary for
the Company to draw upon that indemnification.
In connection with the closure of our City of Industry,
California, glassware manufacturing facility, on
December 30, 2004, we sold the property on which the
facility was located to an entity affiliated with Sares-Regis
Group, a large real estate development and investment firm.
Pursuant to the purchase agreement, the buyer leased the
property back to us in order to enable us to cease operations,
to relocate equipment to our other glassware manufacturing
facilities, to demolish the improvements on the property and to
remediate certain environmental conditions affecting the
property. All demolition and required remediation were completed
by December 31, 2005, and the lease was terminated on that
date. We have agreed to indemnify the buyer for hazardous
substances located on, in, or under, or migrating from, the
property prior to December 31, 2005. We do not expect to
incur any significant future losses related to this site.
We regularly review the facts and circumstances of the various
environmental matters affecting us, including those covered by
indemnification. Although not free of uncertainties, we believe
that our share of the remediation costs at the various sites,
based upon the number of parties involved at the sites and the
estimated cost of undisputed work necessary for remediation
based upon known technology and the experience of others, will
not be material to us. There can be no assurance, however, that
our future expenditures in such regard will not have a material
adverse effect on our financial position or results of
operations.
In addition, occasionally the federal government and various
state authorities have investigated possible health issues that
may arise from the use of lead or other ingredients in enamels
such as those used by us on the exterior surface of our
decorated products. In that connection, Libbey Glass Inc. and
numerous other glass tableware manufacturers, distributors and
importers entered into a consent judgment on August 31,
2004 in connection with an action,
Leeman v. Arc
International North America, Inc. et al,
Case
No. CGC-003-418025
(Superior Court of California, San Francisco County)
brought under California’s so-called “Proposition
65.” Proposition 65 requires businesses with ten or more
employees to give a “clear and reasonable warning”
prior to exposing any person to a detectable amount of a
chemical listed by the state as covered by this statute. Lead is
one of the chemicals covered by that statute. Pursuant to the
consent judgment, Libbey Glass Inc. and the other defendants
(including Anchor Hocking and Arc International North America,
Inc.) agreed, over a period of time, to reformulate the enamels
used to decorate the external surface of certain glass tableware
items to reduce the lead content of those enamels.
Capital expenditures for property, plant and equipment for
environmental control activities were not material during 2008.
We believe that we are in material compliance with applicable
federal, state and local environmental laws, and we are not
aware of any regulatory initiatives that are expected to have a
material effect on our products or operations.
Employees
Our employees are vital to achieving our vision to be “the
premier provider of tabletop glassware and related products
worldwide” and our mission “to create value by
delivering quality products, great service and strong financial
results through the power of our people worldwide.” We
strive to achieve our vision and mission through our values of
customer focus, performance, continuous improvement, teamwork,
respect and development.
9
We employed 7,306 persons at December 31, 2008.
Approximately 60 percent of our employees are employed
outside the U.S., and the majority of our employees are paid
hourly and covered by collective bargaining agreements. The
agreement with our unionized employees in Shreveport, Louisiana
expires on December 15, 2011. Agreements with our unionized
employees in Toledo, Ohio expire on September 30, 2010.
Crisa’s collective bargaining agreements with its unionized
employees have no expiration, but wages are reviewed annually
and benefits are reviewed every two years. Crisal does not have
a written collective bargaining agreement with its unionized
employees but does have an oral agreement that is revisited
annually. Royal Leerdam’s collective bargaining agreement
with its unionized employees expires on July 1, 2009.
The following factors are the most significant factors that can
impact year-to-year 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.
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 and
prevent us from fulfilling our obligations.
We have a high degree of financial leverage. As of
December 31, 2008, we had $550.3 million of debt
outstanding, net of unamortized discounts and warrants, of which
approximately $34.5 million consisted of debt secured by a
first-priority lien on our assets and $450.3 million
consisted of the Senior Secured Notes, which are secured by a
second-priority lien on our collateral, and the PIK Notes, which
are secured by a third-priority lien on our collateral. Our ABL
Facility provides for borrowings up to $150.0 million by
Libbey Glass and Libbey Europe B.V. (a non-guarantor
subsidiary), of which, as of December 31, 2008, we had
borrowed $34.5 million, with another $8.4 million of
availability being used for outstanding letters of credit. As a
result of borrowing base limitations, an additional
$44.6 million was immediately available for borrowing. We
have a loan (“RMB Loan Contract”) in the amount of RMB
250 million (approximately $36.7 million) from China
Construction Bank Corporation Langfang Economic Development Area
Sub-Branch (“CCBC”). We used the proceeds of the RMB
Loan Contract to finance the construction of our greenfield
facility in China. As of December 31, 2008, we had borrowed
the entire amount available under that line of credit. We also
have a loan in the amount of RMB 50 million (approximately
$7.3 million) from CCBC to finance the working capital
needs of our China facility (“RMB Working Capital
Loan”). As of December 31, 2008, we had borrowed the
entire amount available under that line of credit. In January
2007, we entered into an 11 million euro loan
(approximately $15.5 million) with Banco Espirito Santo,
S.A. (“BES Euro Line”). As of December 31, 2008,
we had borrowed the entire amount available under that line of
credit. Our ABL Facility, the indenture governing the Senior
Secured Notes and the indenture governing the PIK Notes require
us to comply with certain covenants, including limits on
additional indebtedness, certain business activities and
investments and, under certain circumstances in the case of our
ABL Facility, the maintenance of financial ratios. See
“Management’s Discussion and Analysis; Capital
Resources and Liquidity — Borrowings” below. We
may incur additional debt in the future.
Our high degree of leverage, as well as the incurrence of
additional debt, could have important consequences for our
business, such as:
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making it more difficult for us to satisfy our financial
obligations, including with respect to the Senior Secured Notes
and the PIK Notes;
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limiting our ability to make capital investments in order to
expand our business;
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limiting our ability to obtain additional debt or equity
financing for working capital, capital expenditures, product
development, debt service requirements, acquisitions or other
purposes;
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limiting our ability to invest operating cash flow in our
business and future business opportunities, because we use a
substantial portion of these funds to service debt and because
our covenants restrict the amount of our investments;
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limiting our ability to withstand business and economic
downturns
and/or
place
us at a competitive disadvantage compared to our competitors
that have less debt, because of the high percentage of our
operating cash flow that is dedicated to servicing our
debt; and
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limiting our ability to reinstate dividends, which we suspended
in February 2009.
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limiting our ability to obtain additional financing in
sufficient amounts
and/or
on
acceptable terms in the near future or when our debt obligations
reach maturity. Our ABL Facility expires in December 2010, the
Senior Notes expire in June 2011, and the PIK notes expire in
December 2011.
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If we cannot service our debt or if we fail to meet our
covenants, we could have substantial liquidity problems. In
those circumstances, we might have to sell assets, delay planned
investments, obtain additional equity capital or restructure our
debt. Depending on the circumstances at the time, we may not be
able to accomplish any of these actions on favorable terms or at
all.
In addition, the indenture governing the Senior Secured Notes
and the indenture governing the PIK Notes contain restrictive
covenants that limit our ability to engage in activities that
may be in our long-term best interests. Our failure to comply
with those covenants could result in an event of default that,
if not cured or waived, could result in the acceleration of all
of our indebtedness.
Our
cost-reduction projects may not result in anticipated savings in
operating costs.
We may not be able to achieve anticipated cost reductions. Our
ability to achieve cost savings and other benefits within
expected time frames is subject to many estimates and
assumptions. These estimates and assumptions are subject to
significant economic, competitive and other uncertainties, some
of which are beyond our control. If these estimates and
assumptions are incorrect, if we experience delays, or if other
unforeseen events occur, our business, financial condition and
results of operations could be adversely impacted.
Slowdowns
in the retail, travel, restaurant and bar, or entertainment
industries, such as those caused by general economic downturns,
terrorism, health concerns or strikes or bankruptcies within
those industries, could reduce our revenues and production
activity levels.
Our business is affected by the health of the retail, travel,
restaurant, bar or entertainment industries. Expenditures in
these industries are sensitive to business and personal
discretionary spending levels and may decline during general
economic downturns. Additionally, travel is sensitive to safety
concerns, and thus may decline after incidents of terrorism,
during periods of geopolitical conflict in which travelers
become concerned about safety issues, or when travel might
involve health-related risks. For example, demand for our
products in the foodservice industry, which is critical to our
success, was significantly impacted by the events of
September 11, 2001 and the global economic recession of
2008, particularly in the fourth quarter.
Recent volatility in financial markets and the deterioration of
national and global economic conditions could materially
adversely impact our operations, financial results
and/or
liquidity including as follows:
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the financial stability of our customers or suppliers may be
compromised, which could result in additional bad debts for the
Company or non-performance by suppliers;
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it may become more costly or difficult to obtain financing or
refinance our debt in the future;
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the value of our assets held in pension plans may decline; and/or
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our assets may be impaired or subject to write down or write off.
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Uncertainty about current global economic conditions may cause
consumers of our products to postpone spending in response to
tighter credit, negative financial news
and/or
declines in income or asset values. This could have a material
adverse impact on the demand for our products and on our
financial condition and operating results. A further
deterioration of economic conditions would likely exacerbate
these adverse effects and could result in a wide-ranging and
prolonged impact on general business conditions, thereby
negatively impacting our operations, financial results
and/or
liquidity.
11
If we
have a fair value impairment in a business segment, net earnings
and net worth could be materially adversely affected by a write
down of goodwill or intangible assets.
We have $192.9 million of goodwill and intangible assets
recorded on the Consolidated Balance Sheets as of
December 31, 2008. We are required to periodically
determine if our goodwill or intangible assets have become
impaired, in which case we would write down the impaired portion
of these assets. We recorded a charge of $11.9 million in
2008 to write down a portion of our goodwill and intangible
assets. If we were required to write down all or a significant
portion of our goodwill or intangible assets, our net earnings
and net worth could be materially adversely affected.
We
face intense competition and competitive pressures that could
adversely affect our results of operations and financial
condition.
Our business is highly competitive, with the principal
competitive factors being customer service, price, product
quality, new product development, brand name, and delivery time.
Advantages or disadvantages in any of these competitive factors
may be sufficient to cause the customer to consider changing
manufacturers.
Competitors in glass tableware include, among others:
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Imports from around the world, including varied and numerous
factories from China;
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Arc International (a private French company), which manufactures
and distributes glass tableware worldwide;
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Pasabahce (a unit of Sisecam, a Turkish company), which
manufactures glass tableware at various sites throughout the
world and sells to all sectors of the glass industry worldwide;
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Oneida Ltd., which sources glass tableware from foreign
manufacturers;
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The Anchor Hocking Company (which is owned by Monomoy Capital
Partners, L.P.), which manufactures and distributes glass
beverageware, industrial products and bakeware to primarily to
the retail, industrial and foodservice markets;
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Bormioli Rocco Group, which manufactures glass tableware in
Europe, where the majority of its sales are to retail and
foodservice customers; and
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Numerous other sourcing companies.
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In addition, tableware made of other materials such as plastics
competes with glassware.
Some of our competitors have greater financial and capital
resources than we do and continue to invest heavily to achieve
increased production efficiencies. Competitors may have
incorporated more advanced technology in their manufacturing
processes, including more advanced automation techniques. Our
labor and energy costs may also be higher than those of some
foreign producers of glass tableware. We may not be successful
in managing our labor and energy costs or gaining operating
efficiencies that may be necessary to remain competitive. In
addition, our products may be subject to competition from
low-cost imports that intensify the price competition we face in
our markets. Finally, we may need to increase incentive payments
in our marketing incentive programs in order to remain
competitive. Increases in these payments would adversely affect
our operating margins.
Competitors in the U.S. market for ceramic dinnerware
include, among others: Homer Laughlin; Oneida Ltd.; Steelite;
and various sourcing companies. Competitors in metalware
include, among others: Oneida Ltd.; Walco, Inc.; and various
sourcing companies. Competitors in plastic products include,
among others: Cambro Manufacturing Company; Carlisle Companies
Incorporated; and various sourcing companies. In Mexico, where a
larger portion of our sales are in the retail market, our
primary competitors include imports from foreign manufacturers
located in countries such as China, France, Italy and Colombia,
and Vidriera Santos and Vitro Par in the candle category.
Competitive pressures from these competitors and producers could
adversely affect our results of operations and financial
condition.
12
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.
Our operations may be affected by actions of foreign governments
and global or regional economic developments. Global economic
events, such as changes in foreign import/export policy, the
cost of complying with environmental regulations or currency
fluctuations, could also affect the level of U.S. imports
and exports, thereby affecting our sales. Foreign subsidies,
foreign trade agreements and each country’s adherence to
the terms of these agreements can raise or lower demand for our
products. National and international boycotts and embargoes of
other countries’ or U.S. imports
and/or
exports, together with the raising or lowering of tariff rates,
could affect the level of competition between our foreign
competitors and us. Foreign competition has, in the past, and
may, in the future, result in increased low-cost imports that
drive prices downward. The World Trade Organization met in
November 2001 in Doha, Qatar, where members launched new
multilateral trade negotiations aimed at improving market
access, reducing and eventually phasing out all forms of export
subsidies and substantially reducing trade-distorting domestic
support. The current trade-weighted tariff rate applicable to
glass tableware products that are imported into the
U.S. and are of the type we manufacture in North America is
approximately 18.4 percent. However, any negative changes
to international agreements that lower duties or improve access
to U.S. markets for our competitors, particularly changes
arising out of the World Trade Organization’s Doha round of
negotiations (although none are expected in 2009), could have an
adverse effect on our financial condition and results of
operations. As we execute our strategy of acquiring
manufacturing platforms in lower cost regions and increasing our
volume of sales in overseas markets, our dependence on
international markets and our ability to effectively manage
these risks has increased and will continue to increase
significantly.
We may
not be able to effectively integrate future businesses we
acquire.
Any future acquisitions are subject to various risks and
uncertainties, including:
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the inability to integrate effectively the operations, products,
technologies and personnel of the acquired companies (some of
which are spread out in different geographic regions) and to
achieve expected synergies;
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the potential disruption of existing business and diversion of
management’s attention from day-to-day operations;
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the inability to maintain uniform standards, controls,
procedures and policies or correct deficient standards,
controls, procedures and policies, including internal controls
and procedures sufficient to satisfy regulatory requirements of
a public company in the U.S.;
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the incurrence of contingent obligations that were not
anticipated at the time of the acquisitions;
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the failure to obtain necessary transition services such as
management services, information technology services and others;
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the need or obligation to divest portions of the acquired
companies; and
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the potential impairment of relationships with customers.
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In addition, we cannot assure you that the integration and
consolidation of newly acquired businesses will achieve any
anticipated cost savings and operating synergies. The inability
to integrate and consolidate operations and improve operating
efficiencies at newly acquired businesses could have a material
adverse effect on our business, financial condition and results
of operations.
We may
not be able to achieve the international growth contemplated by
our strategic plan.
Our strategy contemplates significant growth in international
markets in which we have significantly less experience than we
have in our domestic operations. Since we intend to benefit from
our international initiatives primarily by expanding our sales
in the local markets of other countries, our success depends on
continued growth in these markets, including Europe, Latin
America and Asia-Pacific.
13
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.
Natural gas is the primary source of energy in most of our
production processes. We do not have long-term contracts for
natural gas and are therefore subject to market variables and
widely fluctuating prices. Consequently, our operating results
are strongly linked to the cost of natural gas. As of
December 31, 2008, we had forward contracts in place to
hedge approximately 76 percent of our estimated 2009
natural gas needs with respect to our North American
manufacturing facilities and approximately 44 percent of
our estimated 2009 natural gas needs with respect to our
International manufacturing facilities. For the years ended
December 31, 2008 and 2007, we spent approximately
$69.6 million and $60.6 million, respectively, on
natural gas. We have no way of predicting to what extent natural
gas prices will rise in the future. To the extent that we are
not able to offset increases in natural gas prices, such as by
passing along the cost to our customers, these increases could
adversely impact our margins and operating performance.
If we
are unable to obtain sourced products or materials at favorable
prices, our operating performance may be adversely
affected.
Sand, soda ash, lime, corrugated packaging and resins are the
principal materials we use. In addition, we obtain glass
tableware, ceramic dinnerware, metal flatware and hollowware
from third parties. We may experience temporary shortages due to
disruptions in supply caused by weather, transportation,
production delays or other factors that would require us to
secure our sourced products or raw materials from sources other
than our current suppliers. If we are forced to procure sourced
products or materials from alternative suppliers, we may not be
able to do so on terms as favorable as our current terms or at
all. In addition, resins are a primary material for our Traex
operation and, historically, the price for resins has fluctuated
with the price of oil, directly impacting our profitability.
Material increases in the cost of any of these items on an
industry-wide basis may have an adverse impact on our operating
performance and cash flows if we are unable to pass on these
increased costs to our customers.
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.
In connection with our employee pension and postretirement
welfare 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 obligations and related expense. Our total pension and
postretirement welfare expense, including pension settlement and
curtailment charges, for all U.S. and
non-U.S. plans
was $19.0 million and $14.4 million for the years
ended December 31, 2008 and 2007, respectively. Changes in
the equity and debt securities markets affect our pension plan
asset performance and related pension expense. Based on year-end
data, sensitivity to these key market risk factors is as follows:
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A change of 1.0 percent in the discount rate would change
our total pension and postretirement welfare expense by
approximately $1.9 million.
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A change of 1.0 percent in the expected long-term rate of
return on plan assets would change total pension expense by
approximately $2.2 million.
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As part of our total expense, we incurred pension curtailment
charges of $1.1 million and nonpension postretirement
impairment charges of $3.1 million during 2008. The charges
in 2008 were triggered by our announcement in December 2008 that
our Syracuse China manufacturing plant will be shut down in
April 2009. For further discussion, see notes 9, 11 and 12
to our Consolidated Financial Statements. To the extent that we
experience additional headcount shifts or changes as we continue
to implement our capacity realignment programs, we may incur
further expenses related to our employee pension and
postretirement welfare plans, which could have a material
adverse effect on our results of operations and financial
condition.
14
Our
business requires significant capital investment and maintenance
expenditures that we may be unable to fulfill.
Our operations are capital intensive, requiring us to maintain a
large fixed cost base. Our total capital expenditures were
$45.7 million for the year ended December 31, 2008,
and $43.1 million for the year ended December 31, 2007.
Our business may not generate sufficient operating cash flow,
and external financing sources may not be available in an amount
sufficient to enable us to make anticipated capital expenditures.
Our
business requires us to maintain a large fixed cost base that
can affect our profitability.
The high levels of fixed costs associated with operating glass
production plants encourage high levels of output, even during
periods of reduced demand, which can lead to excess inventory
levels and exacerbate the pressure on profit margins. Our
profitability is dependent, in part, on our ability to spread
fixed costs over an increasing number of products sold and
shipped, and if we reduce our rate of production, our costs per
unit increase, negatively impacting our gross margins. Decreased
demand or the need to reduce inventories can lower our ability
to absorb fixed costs and materially impact our results of
operations.
Unexpected
equipment failures may lead to production curtailments or
shutdowns.
Our manufacturing processes are dependent upon critical
glass-producing equipment, such as furnaces, forming machines
and lehrs. This equipment may incur downtime as a result of
unanticipated failures. We may in the future experience facility
shutdowns or periods of reduced production as a result of these
equipment failures. Unexpected interruptions in our production
capabilities would adversely affect our productivity and results
of operations for the affected period. We also may face
shutdowns if we are unable to obtain enough energy in the peak
heating seasons.
If our
investments in new technology and other capital expenditures do
not yield expected returns, our results of operations could be
reduced.
The manufacture of our tableware products involves the use of
automated processes and technologies. We designed much of our
glass tableware production machinery internally and have
continued to develop and refine this equipment to incorporate
advancements in technology. We will continue to invest in
equipment and make other capital expenditures to further improve
our production efficiency and reduce our cost profile. To the
extent that these investments do not generate targeted levels of
returns in terms of efficiency or improved cost profile, our
financial condition and results of operations could be adversely
affected.
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.
All of our major operations, including manufacturing,
distribution, sales and accounting, are dependent upon our
complex information systems. Our information systems are
vulnerable to damage or interruption from:
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earthquake, fire, flood, hurricane and other natural disasters;
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power loss, computer systems failure, internet and
telecommunications or data network failure; and
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hackers, computer viruses, software bugs or glitches.
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Any damage or significant disruption in the operation of such
systems or the failure of our information systems to perform as
expected could disrupt our business, result in decreased sales,
increased overhead costs, excess inventory and product
shortages, and otherwise adversely affect Libbey’s
operations, financial performance and condition. We take
significant steps to mitigate the potential impact of each of
these risks, but there can be no assurance that these procedures
would be completely successful.
15
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.
We are party to collective bargaining agreements that cover most
of our manufacturing employees. The agreement with our unionized
employees in Shreveport, Louisiana expires on December 15,
2011. Agreements with our unionized employees in Toledo, Ohio
expire on September 30, 2010. Crisa’s collective
bargaining agreements with its unionized employees have no
expiration, but wages are reviewed annually and benefits are
reviewed every two years. Crisal does not have a written
collective bargaining agreement with its unionized employees but
does have an oral agreement that is revisited annually. Royal
Leerdam’s collective bargaining agreement with its
unionized employees expires on July 1, 2009.
We may not be able to successfully negotiate new collective
bargaining agreements without any labor disruption. If any of
our unionized employees were to engage in a strike or work
stoppage prior to expiration of their existing collective
bargaining agreements, or if we are unable in the future to
negotiate acceptable agreements with our unionized employees in
a timely manner, we could experience a significant disruption of
operations. In addition, we could experience increased operating
costs as a result of higher wages or benefits paid to union
members upon the execution of new agreements with our labor
unions. We could also experience operating inefficiencies as a
result of preparations for disruptions in production, such as
increasing production and inventories. Finally, companies upon
which we are dependent for raw materials, transportation or
other services could be affected by labor difficulties. These
factors and any such disruptions or difficulties could have an
adverse impact on our operating performance and financial
condition.
In addition, we are dependent on the cooperation of our largely
unionized workforce to implement and adopt the LEAN initiatives
that are critical to our ability to improve our production
efficiency. The effect of strikes and other slowdowns may
adversely affect the degree and speed with which we can adopt
LEAN optimization objectives and the success of that program.
We are
subject to risks associated with operating in foreign countries.
These risks could adversely affect our results of operations and
financial condition.
We operate manufacturing and other facilities throughout the
world. As a result of our international operations, we are
subject to risks associated with operating in foreign countries,
including:
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political, social and economic instability;
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war, civil disturbance or acts of terrorism;
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taking of property by nationalization or expropriation without
fair compensation;
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changes in government policies and regulations, including with
respect to environmental matters;
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devaluations and fluctuations in currency exchange rates;
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imposition of limitations on conversions of foreign currencies
into dollars or remittance of dividends and other payments by
foreign subsidiaries;
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imposition or increase of withholding and other taxes on
remittances and other payments by foreign subsidiaries;
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ineffective intellectual property protection;
|
|
|
|
|
•
|
hyperinflation in certain foreign countries; and
|
|
|
|
|
•
|
impositions or increase of investment and other restrictions or
requirements by foreign governments.
|
The risks associated with operating in foreign countries may
have a material adverse effect on our results of operations and
financial condition.
16
High
levels of inflation and high interest rates in Mexico could
adversely affect the operating results and cash flows of
Crisa.
Although the annual rate of inflation, as measured by changes in
the Mexican National Consumer Price Index, was only
5.1 percent for 2008 and 3.8 percent for 2007, Mexico
has historically experienced high levels of inflation and high
domestic interest rates. If Mexico experiences high levels of
inflation, Crisa’s operating results and cash flows could
be adversely affected, and, more generally, high inflation might
result in lower demand or lower growth in demand for our
products, thereby adversely affecting our results of operations
and financial condition.
Fluctuation
of the currencies in which we conduct operations could adversely
affect our financial condition and results of
operations.
Changes in the value of the various currencies in which we
conduct operations relative to the U.S. dollar, including
the euro, the Mexican peso and the Chinese Yuan
(“RMB”), may result in significant changes in the
indebtedness of our
non-U.S. subsidiaries.
Currency fluctuations between the U.S. dollar and the
currencies of our
non-U.S. subsidiaries
affect our results as reported in U.S. dollars,
particularly the earnings of Crisa as expressed under
U.S. GAAP, and will continue to affect our financial income
and expense, our revenues from international settlements.
Fluctuations
in the value of the foreign currencies in which we operate
relative to the U.S. dollar could reduce the cost
competitiveness of our products or those of our
subsidiaries.
Major fluctuations in the value of the euro, the Mexican peso or
the RMB relative to the U.S. dollar and other major
currencies could reduce the cost competitiveness of our products
or those of our subsidiaries, as compared to foreign
competition. For example, if the U.S. dollar has
appreciated relative to the euro, the Mexican peso or the RMB,
reducing the purchasing power of those currencies compared to
the U.S. dollar and making our
U.S.-manufactured
products more expensive in the euro zone, Mexico and China,
respectively, compared to the products of local competitors. An
appreciation of the U.S. dollar against the euro, the
Mexican peso or the RMB also increases the cost of
U.S. dollar-denominated purchases for our operations in the
euro zone, Mexico and China, respectively, including purchases
of raw materials. We would be forced to deduct these cost
increases from our profit margin or attempt to pass them along
to consumers. These fluctuations could adversely affect our
results of operations and financial condition.
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.
Major devaluation or depreciation of the Mexican peso could
result in disruption of the international foreign exchange
markets and may limit our ability to transfer or to convert
Crisa’s Mexican peso earnings into U.S. dollars and
other currencies upon which we will rely in part to satisfy our
debt obligations. While the Mexican government does not
currently restrict, and for many years has not restricted, the
right or ability of Mexican or foreign persons or entities to
convert pesos into U.S. dollars or to transfer other
currencies out of Mexico, the government could institute
restrictive exchange rate policies in the future; restrictive
exchange rate policies could adversely affect our results of
operations and financial condition.
In addition, the government of China imposes controls on the
convertibility of RMB into foreign currencies and, in certain
cases, the remittance of currency out of China. Shortages in the
availability of foreign currency may restrict the ability of our
Chinese subsidiaries to remit sufficient foreign currency to
make payments to us. Under existing Chinese foreign exchange
regulations, payments of current account items, including profit
distributions, interest payments and expenditures from
trade-related transactions, can be made in foreign currencies
without prior approval from the Chinese State Administration of
Foreign Exchange by complying with certain procedural
requirements. However, approval from appropriate government
authorities is required where RMB are to be converted into
foreign currencies and remitted out of China to pay capital
expenses such as the repayment of bank loans denominated in
foreign currencies. In the future, the Chinese government could
institute restrictive exchange rate policies for current account
transactions. These policies could adversely affect our results
of operations and financial condition.
17
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.
In order to mitigate variation in our operating results due to
commodity price fluctuations, we have derivative financial
instruments that hedge certain of our interest rate risks
associated with long-term debt, commodity price risks associated
with forecasted future natural gas requirements and foreign
exchange rate risks associated with transactions denominated in
a currency other than the U.S. dollar. The results of our
hedging practices could be positive, neutral or negative in any
period depending on price changes of the hedged exposures. We
account for derivatives in accordance with
SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” as amended by
SFAS Nos. 137 and 138. These derivatives qualify for hedge
accounting if the hedges are highly effective and we have
designated and documented contemporaneously the hedging
relationships involving these derivative instruments. 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 will impact our
results of operations and could significantly impact our
earnings.
We are
subject to various environmental and legal requirements and may
be subject to new legal requirements in the future; these
requirements could have a material adverse effect on our
operations.
Our operations and properties, both in the U.S. and abroad,
are subject to extensive laws, ordinances, regulations and other
legal requirements relating to environmental protection,
including legal requirements governing investigation and
clean-up
of
contaminated properties as well as water discharges, air
emissions, waste management and workplace health and safety.
These legal requirements frequently change and vary among
jurisdictions. Compliance with these legal requirements, or the
failure to comply with these requirements, may have a material
adverse effect on our operations.
We have incurred, and expect to incur, costs to comply with
environmental legal requirements, and these costs could increase
in the future. Many environmental legal requirements provide for
substantial fines, orders (including orders to cease operations)
and criminal sanctions for violations. These legal requirements
may apply to conditions at properties that we presently or
formerly owned or operated, as well as at other properties for
which we may be responsible, including those at which wastes
attributable to the Company were disposed. A significant order
or judgment against us, the loss of a significant permit or
license or the imposition of a significant fine may have a
material adverse effect on operations.
We
have received notice from the New York Stock Exchange (NYSE)
that we are not in compliance with the exchange’s continued
listing standards because our market capitalization and
stockholders’ equity are less than
$75 million.
The listing of our common stock on the NYSE is at risk because
we do not comply with the NYSE’s continued listing
standards. Those standards require that our average market
capitalization not be less than $75 million over a
consecutive 30
trading-day
period and that our stockholders’ equity not be less than
$75 million. We were notified by the NYSE on
February 17, 2009 that Libbey’s market capitalization
and stockholders’ equity are below those criteria. While
Libbey has a period of eighteen months from the date it received
notice to cure this non-compliance, and we have a number of
options to cure under consideration, there can be no assurance
that we will be able to cure this deficiency in the time
permitted. In addition, there can be no guarantee that the
Company will remain in compliance with other continued listing
requirements related to market capitalization and minimum stock
price.
In the current environment there can be no assurance that we
will not be in violation of other NYSE listing standards, some
of which may not be curable.
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.
Our success depends in part on our ability to protect our
intellectual property rights. We rely on a combination of
patent, trademark, copyright and trade secret laws, licenses,
confidentiality and other agreements to protect our intellectual
property rights. However, this protection may not be fully
adequate. Our intellectual property rights may be challenged or
invalidated, an infringement suit by us against a third party
may not be successful
and/or
third
18
parties could adopt trademarks similar to our own. In
particular, third parties could design around or copy our
proprietary furnace, manufacturing and mold technologies, which
are important contributors to our competitive position in the
glass tableware industry. We may be particularly susceptible to
these challenges in countries where protection of intellectual
property is not strong. In addition, we may be accused of
infringing or violating the intellectual property rights of
third parties. Any such claims, whether or not meritorious,
could result in costly litigation and divert the efforts of our
personnel. 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.
Our
business may suffer if we do not retain our senior
management.
We depend on our senior management. The loss of services of any
of the members of our senior management team could adversely
affect our business until a suitable replacement can be found.
There may be a limited number of persons with the requisite
skills to serve in these positions, and we may be unable to
locate or employ such qualified personnel on acceptable terms.
Payment
of severance or retirement benefits earlier than anticipated
could strain our cash flow.
Certain members of our senior management have employment and
change in control agreements that provide for substantial
severance payments and retirement benefits. We are required to
fund a certain portion of these payments according to a
predetermined schedule, but some of our nonqualified obligations
are currently unfunded. Should these senior managers leave our
employ under circumstances entitling them to severance or
retirement benefits, or become disabled or die, before we have
funded these payments, the need to pay these severance or
retirement benefits ahead of their anticipated schedule could
put a strain on our cash flow and have a material adverse effect
on our financial condition.
We may
face a risk when we return to the market to refinance our debt
as a result of the recent downgrade of the Company’s debt
by Moody’s Investor Service.
In February 2009 Moody’s Investors Service downgraded
Libbey Glass Inc.’s (“Libbey Glass”) debt
ratings, including its corporate family and probability of
default ratings to B3 from B2, and the rating on its second lien
senior secured notes to B3 from B2. Libbey’s SGL-3
speculative grade liquidity rating was unchanged.
According to Moody’s, the SGL-3 rating reflects adequate
liquidity, supported by the expectation that planned cash flow
improvement, moderate cash balances, and availability under its
asset-based revolver, although declining, should be sufficient
to fund internal needs over the next twelve months.
|
|
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
19
At December 31, 2008 the Company had the following square
footage at plants and warehouse/distribution facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Glass
|
|
|
North American Other
|
|
|
International
|
|
|
Location
|
|
Owned
|
|
|
Leased
|
|
|
Owned
|
|
|
Leased
|
|
|
Owned
|
|
|
Leased
|
|
|
|
|
Toledo, Ohio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
|
974,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warehousing/Distribution
|
|
|
988,000
|
|
|
|
590,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shreveport, Louisiana:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
|
525,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warehousing/Distribution
|
|
|
166,000
|
|
|
|
646,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Syracuse, New York(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
|
|
|
|
|
|
|
|
|
549,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Warehousing/Distribution
|
|
|
|
|
|
|
|
|
|
|
104,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Dane, Wisconsin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
|
|
|
|
|
|
|
|
|
56,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Warehousing/Distribution
|
|
|
|
|
|
|
|
|
|
|
62,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Monterrey, Mexico:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
|
543,000
|
|
|
|
122,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warehousing/Distribution
|
|
|
228,000
|
|
|
|
627,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leerdam, Netherlands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141,000
|
|
|
|
—
|
|
|
Warehousing/Distribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127,000
|
|
|
|
326,000
|
|
|
Mira Loma, California(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warehousing/Distribution
|
|
|
—
|
|
|
|
351,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laredo, Texas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warehousing/Distribution
|
|
|
149,000
|
|
|
|
117,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Chicago, Illinois:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warehousing/Distribution
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
249,000
|
|
|
|
|
|
|
|
|
|
|
Marinha Grande, Portugal:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
217,000
|
|
|
|
—
|
|
|
Warehousing/Distribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
193,000
|
|
|
|
13,000
|
|
|
Langfang, China:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
195,000
|
|
|
|
—
|
|
|
Warehousing/Distribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
232,000
|
|
|
|
—
|
|
|
|
|
|
|
(1)
|
|
We have announced our intention to cease production at our
Syracuse China ceramic dinnerware manufacturing facility in
April 2009 and to cease operations at our Mira Loma distribution
center in June 2009, when the current lease expires.
|
These facilities have an aggregate floor space of
8.5 million square feet. We own approximately 64% and lease
approximately 36% of this floor space. In addition to the
facilities listed above, our headquarters (Toledo, Ohio), some
warehouses (various locations), sales offices (various
locations), showrooms (various locations) and various outlet
stores are located in leased space. We also utilize various
warehouses as needed on a month-to-month basis.
All of our properties are currently being utilized for their
intended purpose. In the opinion of management, all of our
facilities are well maintained and adequate for our planned
operational requirements.
20
|
|
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
We are involved in various routine legal proceedings arising in
the ordinary course of our business. No pending legal proceeding
is deemed to be material.
|
|
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
None
EXECUTIVE
OFFICERS OF THE REGISTRANT
Our executive officers have a wealth of business knowledge,
experience and commitment to Libbey. In 2008, each of
Mr. Meier, Chairman of the Board and Chief Executive
Officer, and Mr. Reynolds, Executive Vice President and
Chief Operating Officer, celebrated 38 years of service
with Libbey. In addition, the average years of service of all of
our executive officers is 18 years.
|
|
|
|
|
Name and Title
|
|
Professional Background
|
|
|
|
John F. Meier
Chairman and Chief
Executive Officer
|
|
Mr. Meier, 61, has been Chairman of the Board and Chief
Executive Officer of Libbey since the Company went public in
June 1993. Since joining the Company in 1970, Mr. Meier has
served in various marketing positions, including a five-year
assignment with Durobor, S.A., Belgium. In 1990, Mr. Meier was
named General Manager of Libbey and a corporate Vice President
of Owens-Illinois, Inc., Libbey’s former parent company.
Mr. Meier is a member of the Board of Directors of Cooper Tire
& Rubber Company (NYSE: CTB) and Applied Industrial
Technologies (NYSE: AIT). Mr. Meier has been a director of the
Company since 1987.
|
|
Richard I. Reynolds
Executive Vice President
and Chief Operating Officer
|
|
Mr. Reynolds, 62, has served as Libbey’s Executive Vice
President and Chief Operating Officer since 1995. Mr. Reynolds
was Libbey’s Vice President and Chief Financial Officer
from June 1993 to 1995. From 1989 to June 1993, Mr. Reynolds
was Director of Finance and Administration. Mr. Reynolds has
been with Libbey since 1970 and has been a director of the
Company since 1993.
|
|
Gregory T. Geswein
Vice President and
Chief Financial Officer
|
|
Mr. Geswein, 54, joined Libbey Inc. as Vice President, Chief
Financial Officer on May 23, 2007. Prior to joining Libbey, Mr.
Geswein was Senior Vice President, Chief Financial Officer of
Reynolds & Reynolds Company in Dayton, Ohio, from 2005
through April 2007. Before joining Reynolds & Reynolds, Mr.
Geswein was Senior Vice President, Chief Financial Officer for
Diebold, Inc. from 2000 to 2005 and Senior Vice President, Chief
Financial Officer of Pioneer-Standard Electronics Inc. from 1999
to 2000. Prior to joining Pioneer-Standard Electronics, Mr.
Geswein spent 14 years at Mead Corporation (now
MeadWestvaco) in successive financial management positions,
including Vice President and Controller, and Treasurer.
|
|
Jonathan S. Freeman
Vice President, Global Supply
Chain
|
|
Mr. Freeman, 47, joined Libbey Inc. as Vice President, Global
Supply Chain on May 7, 2007. Prior to joining Libbey, Mr.
Freeman was with Delphi Corporation and Packard Electric
Systems, a division of General Motors (the former parent of
Delphi), since 1985, serving most recently as Director of Global
Logistics. Mr. Freeman has worked in a wide range of operations
and supply chain assignments in the United States, Mexico and
Europe.
|
21
|
|
|
|
|
Name and Title
|
|
Professional Background
|
|
|
|
Kenneth G. Wilkes
Vice President,
General Manager
International Operations
|
|
Mr. Wilkes, 51, has served as Vice President, General Manager
International Operations since May 2003. He served as Vice
President and Chief Financial Officer of the Company from
November 1995 to May 2003. From August 1993 to November 1995,
Mr. Wilkes was Vice President and Treasurer of the Company.
Prior to joining the Company, Mr. Wilkes was a Senior Corporate
Banker, Vice President of The First National Bank of Chicago.
|
|
Scott M. Sellick
Vice President and
Chief Accounting Officer
|
|
Mr. Sellick, 46, has served as Vice President, Chief Accounting
Officer since May 2007. He served as Vice President, Chief
Financial Officer from May 2003 to May 2007. From May 2002 to
May 2003, Mr. Sellick was Libbey’s Director of Tax and
Accounting. From August 1997 to May 2002, he served as Director
of Taxation. Before joining the Company in August 1997, Mr.
Sellick was Tax Director for Stant Corporation and worked in
public accounting for Deloitte & Touche in the audit and
tax areas.
|
|
Kenneth A. Boerger
Vice President
and Treasurer
|
|
Mr. Boerger, 50, has been Vice President and Treasurer since
July 1999. From 1994 to July 1999, Mr. Boerger was
Corporate Controller and Assistant Treasurer. Since joining the
Company in 1984, Mr. Boerger has held various financial and
accounting positions. He has been involved in the Company’s
financial matters since 1980, when he joined Owens-Illinois,
Inc., Libbey’s former parent company.
|
|
Daniel P. Ibele
Vice President,
General Sales Manager, North America
|
|
Mr. Ibele, 48, has served as Vice President, General Sales
Manager, North America since June 2006. From March 2002 to June
2006 he was Vice President, General Sales Manager of the
Company. Previously, Mr. Ibele had been Vice President,
Marketing and Specialty Operations since September 1997. Mr.
Ibele was Vice President and Director of Marketing at Libbey
from 1995 to September 1997. From the time he joined Libbey in
1983 until 1995, Mr. Ibele held various marketing and sales
positions.
|
|
Timothy T. Paige
Vice President-
Administration
|
|
Mr. Paige, 51, has been Vice President-Administration since
December 2002. From January 1997 until December 2002, Mr. Paige
was Vice President and Director of Human Resources of the
Company. From May 1995 to January 1997, Mr. Paige was Director
of Human Resources of the Company. Prior to joining the
Company, Mr. Paige was employed by Frito-Lay, Inc. in human
resources management positions.
|
|
Susan A. Kovach
Vice President,
General Counsel
and Secretary
|
|
Ms. Kovach, 49, has been Vice President, General Counsel and
Secretary of the Company since July 2004. She joined Libbey in
December 2003 as Vice President, Associate General Counsel and
Assistant Secretary. Prior to joining Libbey, Ms. Kovach was Of
Counsel to Dykema, LLP from 2001 through November 2003. She
served from 1997 to 2001 as Vice President, General Counsel and
Corporate Secretary of Omega Healthcare Investors, Inc. (NYSE:
OHI). From 1998 to 2000 she held the same position for Omega
Worldwide, Inc., a NASDAQ-listed firm providing management
services and financing to the aged care industry in the United
Kingdom and Australia. Prior to joining Omega Healthcare
Investors, Inc., Ms. Kovach was a partner in Dykema LLP from
1995 through November 1997 and an associate in Dykema LLP from
1985 to 1995.
|
22
PART II
|
|
|
|
ITEM 5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Common
Stock and Dividends
Libbey Inc. common stock is listed for trading on the New York
Stock Exchange under the symbol
LBY.
The price range for
the Company’s common stock as reported by the New York
Stock Exchange and dividends declared for our common stock were
as follows:
|
|
|
|
|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
Cash
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|
|
|
|
Price Range
|
|
|
Dividend
|
|
|
Price Range
|
|
|
Dividend
|
|
|
|
|
High
|
|
|
Low
|
|
|
Declared
|
|
|
High
|
|
|
Low
|
|
|
Declared
|
|
|
|
|
First Quarter
|
|
$
|
17.60
|
|
|
$
|
12.96
|
|
|
$
|
0.025
|
|
|
$
|
14.28
|
|
|
$
|
11.17
|
|
|
$
|
0.025
|
|
|
Second Quarter
|
|
$
|
17.81
|
|
|
$
|
7.43
|
|
|
$
|
0.025
|
|
|
$
|
24.65
|
|
|
$
|
13.98
|
|
|
$
|
0.025
|
|
|
Third Quarter
|
|
$
|
11.25
|
|
|
$
|
6.44
|
|
|
$
|
0.025
|
|
|
$
|
24.06
|
|
|
$
|
13.76
|
|
|
$
|
0.025
|
|
|
Fourth Quarter
|
|
$
|
8.63
|
|
|
$
|
1.04
|
|
|
$
|
0.025
|
|
|
$
|
19.32
|
|
|
$
|
14.28
|
|
|
$
|
0.025
|
|
The closing market price of our common stock on March 2,
2009 was $0.81 per share.
On March 2, 2009, there were 829 registered common
shareholders of record. We paid a regular quarterly cash
dividend from the time of Initial Public Offering in 1993 until
we suspended the dividend in February 2009. The declaration of
future dividends is within the discretion of the Board of
Directors of Libbey and depends upon, among other things,
business conditions, earnings and the financial condition of
Libbey.
Comparison
of Cumulative Total Returns
The graph below compares the total stockholder return on our
common stock to the cumulative total return for the
Standard & Poor’s SmallCap 600 Index
(“S&P SmallCap 600”), a broad market index; the
Russell 2000 Index (“Russell 2000”), a small-cap index
to which Libbey was added as component in June 2007; the
Standard & Poor’s Housewares &
Specialties Index, a capitalization-weighted index that measures
the performance of the housewares’ sector of the
Standard & Poor’s SmallCap Index
(“Housewares-Small”); and our peer group. The indices
reflect the year-end market value of an investment in the stock
of each company in the index, including additional shares
assumed to have been acquired with cash dividends, if any.
There are no other glass tableware manufacturers with stock that
is publicly traded in the United States. Accordingly, we chose
the companies in our peer group because they are manufacturers
with revenues comparable to ours. The peer group is limited to
those companies for whom market quotations are available and
consists of Ameron International Corporation, Ametek Inc., Blyth
Inc., Brady Corporation, Church & Dwight Inc., EnPro
Industries Inc., ESCO Technologies Inc., Graco Inc., Jarden
Corporation, Johnson Outdoors, Inc., Lancaster Colony
Corporation, Milacron Inc., Polaris Industries Inc., Sypris
Solutions Inc., Teradyne Inc., Thermadyne Holdings Corporation,
Tupperware Brands Corporation, Waters Corporation, and Woodward
Governor Company.
23
The graph assumes a $100 investment in our common stock on
January 1, 2004, and also assumes investments of $100 in
each of the S&P SmallCap 600, the Russell 2000, the
Housewares-Small index and the peer group, respectively, on
January 1, 2004. The value of these investments on December
31 of each year from 2004 through 2008 is shown in the table
below the graph.
TOTAL
SHAREHOLDER RETURN
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Return Percentage Years Ending
|
|
Company Name/Index
|
|
Dec 04
|
|
Dec 05
|
|
Dec 06
|
|
Dec 07
|
|
Dec 08
|
|
Libbey Inc.
|
|
|
(20.64
|
)
|
|
|
(52.89
|
)
|
|
|
21.97
|
|
|
|
29.12
|
|
|
|
(92.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S&P SmallCap 600 Index
|
|
|
22.65
|
|
|
|
7.68
|
|
|
|
15.12
|
|
|
|
(0.30
|
)
|
|
|
(31.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Russell 2000 Index
|
|
|
18.33
|
|
|
|
4.55
|
|
|
|
18.37
|
|
|
|
(1.57
|
)
|
|
|
(33.79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S&P 600 Housewares & Specialties
|
|
|
(2.68
|
)
|
|
|
(37.48
|
)
|
|
|
10.07
|
|
|
|
8.57
|
|
|
|
(40.75
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peer Group
|
|
|
22.07
|
|
|
|
(5.85
|
)
|
|
|
14.43
|
|
|
|
17.05
|
|
|
|
(35.61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indexed Returns Years Ending
|
|
|
|
Base
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
|
Company Name/Index
|
|
Dec 03
|
|
Dec 04
|
|
Dec 05
|
|
Dec 06
|
|
Dec 07
|
|
Dec 08
|
|
Libbey Inc.
|
|
|
100
|
|
|
|
79.36
|
|
|
|
37.38
|
|
|
|
45.60
|
|
|
|
58.88
|
|
|
|
4.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S&P SmallCap 600 Index
|
|
|
100
|
|
|
|
122.65
|
|
|
|
132.07
|
|
|
|
152.04
|
|
|
|
151.59
|
|
|
|
104.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Russell 2000 Index
|
|
|
100
|
|
|
|
118.33
|
|
|
|
123.72
|
|
|
|
146.44
|
|
|
|
144.15
|
|
|
|
95.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S&P 600 Housewares & Specialties
|
|
|
100
|
|
|
|
97.32
|
|
|
|
60.84
|
|
|
|
66.97
|
|
|
|
72.71
|
|
|
|
43.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peer Group
|
|
|
100
|
|
|
|
122.07
|
|
|
|
114.93
|
|
|
|
131.51
|
|
|
|
153.93
|
|
|
|
99.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
Equity
Compensation Plan Information
Following are the number of securities and weighted average
exercise price thereof under our compensation plans approved and
not approved by security holders as of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
Securities to be
|
|
|
|
|
|
Securities
|
|
|
|
|
Issued Upon
|
|
|
Weighted Average
|
|
|
Remaining Available
|
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
|
for Future Issuance
|
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
Under Equity
|
|
|
|
|
Options, Warrants
|
|
|
Options, Warrants
|
|
|
Compensation Plans
|
|
|
Plan Category
|
|
and Rights
|
|
|
and Rights
|
|
|
(1)
|
|
|
|
|
Equity compensation plans approved by security holders
|
|
|
1,473,977
|
|
|
$
|
22.37
|
|
|
|
1,207,798
|
|
|
Equity compensation plans not approved by security holders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,473,977
|
|
|
$
|
22.37
|
|
|
|
1,207,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
This total includes 751,598 securities that are available for
grant under the Libbey Inc. 2006 Omnibus Incentive Plan and
456,200 securities that are available under the Libbey Inc. 2002
Employee Stock Purchase Plan (ESPP). See note 14 to the
Consolidated Financial Statements for further disclosure with
respect to these plans.
|
Issuer
Purchases of Equity Securities
Following is a summary of the 2008 fourth quarter activity in
our share repurchase program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Maximum Number
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
|
of Shares that May
|
|
|
|
|
|
|
|
|
|
|
as Part of Publicly
|
|
|
Yet Be Purchased
|
|
|
|
|
Total Number of
|
|
|
Average Price Paid
|
|
|
Announced Plans
|
|
|
Under the Plans or
|
|
|
Period
|
|
Shares Purchased
|
|
|
per Share
|
|
|
or Programs
|
|
|
Programs(1)
|
|
|
|
|
October 1 to October 31, 2008
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,000,000
|
|
|
November 1 to November 30, 2008
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,000,000
|
|
|
December 1 to December 31, 2008
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
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 2008,
2007, 2006, 2005 or 2004. Our ABL Facility and the indentures
governing the Senior Secured Notes and the PIK Notes
significantly restrict our ability to repurchase additional
shares.
|
|
|
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
Information with respect to Selected Financial Data is
incorporated by reference to our 2008 Annual Report to
Shareholders.
|
|
|
|
ITEM 7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
FORWARD
LOOKING STATEMENTS
This document and supporting schedules contain statements that
are not historical facts and constitute projections, forecasts
or forward-looking statements. For a description of the
forward-looking statements and risk factors that may affect our
performance, see the “Risk Factors” section above.
25
Additionally, for an understanding of the significant factors
that influenced our performance during the past three years, the
following should be read in conjunction with the audited
Consolidated Financial Statements and Notes.
OVERVIEW
GENERAL
Headquartered in Toledo, Ohio, Libbey has the largest
manufacturing, distribution and service network among glass
tableware manufacturers in the Western Hemisphere and is one of
the largest glass tableware manufacturers in the world. We also
import metal flatware, hollowware, serveware and ceramic
dinnerware for resale. In addition, we design, manufacture and
distribute an extensive line of plastic items for the
foodservice industry.
EXECUTIVE
OVERVIEW
Through the third quarter, we experienced strong net sales and
operating earnings. However, the growing global economic and
financial crisis in the later part of 2008 resulted in
considerable weakening in overall consumer confidence. This
reached beyond our North American markets and affected the
global markets for our products as well. Our net sales for 2008
were $810.2 million as compared to $814.2 million for
2007 and income from operations was a loss of $5.5 million
as compared to $66.1 million for 2007. The
$71.6 million reduction in income from operations was
primarily driven by the following factors:
|
|
|
|
|
|
•
|
Lower production activity and an unfavorable mix of sales.
|
|
|
|
|
•
|
Higher natural gas, electricity and cartons costs.
|
|
|
|
|
•
|
Special charges of $45.1 million related to the announced
closures of our ceramic dinnerware manufacturing facility in
Syracuse, New York and distribution center in Mira Loma,
California, goodwill and other intangible asset impairment
charges related to our International reporting segment and fixed
asset impairment charges in our North American Glass reporting
segment.
|
Despite the difficult year we had a number of highlights in 2008
among them are the following:
|
|
|
|
|
|
•
|
Our leading U.S. retail market share gained 600 basis
points. We now have 40.6 percent of the casual beverage
ware market in the U.S.
|
|
|
|
|
•
|
Our U.S. retail business grew 4.0 percent.
|
|
|
|
|
•
|
Our leading U.S. foodservice position of approximately
56.0 percent was solidified with no less than seven vendor
of the year awards from the most prominent players in our
foodservice industry.
|
|
|
|
|
•
|
Our Crisa business in Mexico continued its leading market share
with approximately 60.0 percent of the overall Mexican
market.
|
|
|
|
|
•
|
Our newest business, Libbey China, serviced 55 countries from
our state-of-the- art factory near Beijing, which opened in
2007. In the domestic Chinese market, we are shipping product to
every province.
|
|
|
|
|
•
|
Our businesses in Europe are the third largest producer of
casual beverage ware within the 27 member countries of the
European Union.
|
|
|
|
|
•
|
Our factory in Shreveport, Louisiana, is now transformed into a
LEAN facility and organized along Value Streams. Productivity
improvements for the year were 3.3 percent, a strong
performance.
|
|
|
|
|
•
|
Our Toledo, Ohio, factory is in its fifth year as a LEAN
enterprise. Notable results have been achieved in this, our most
complicated factory, with a 45.0 percent reduction in
changeover time on our machines.
|
We have taken the following actions to reduce our costs, right
size our capacity and conserve cash to withstand the global
economic downturn:
|
|
|
|
|
|
•
|
In December of 2008, we announced the closing of our Syracuse
China ceramic dinnerware factory, in Syracuse, New York, and the
closing of our Mira Loma, California distribution center.
|
26
|
|
|
|
|
|
•
|
We have implemented a salary hiring freeze.
|
|
|
|
|
•
|
The salaries of officers of the Company were reduced by
7.5 percent, and the salaries of most other
U.S. salaried employees were reduced by 5.0 percent.
|
|
|
|
|
•
|
We suspended the Company matching contributions to our salaried
employees’ 401(k) accounts.
|
|
|
|
|
•
|
We suspended the dividend on Libbey stock until conditions
warrant reinstatement.
|
|
|
|
|
•
|
We reduced our capital expenditures budget to $20.0 million
for 2009.
|
|
|
|
|
•
|
We reduced our International workforce by 500 employees
since October 2008.
|
If, in 2009, consumer confidence and the global economy continue
to weaken, additional actions may be necessary. Conversely, if
the global economy recovers, we are well positioned to respond
to increased demand.
RESULTS
OF OPERATIONS
The following table presents key results of our operations for
the years 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
|
|
|
|
|
|
|
|
|
Variance
|
|
|
|
|
|
|
|
|
|
|
In
|
|
|
In
|
|
|
|
|
|
|
|
|
In
|
|
|
In
|
|
|
Year End December 31,
|
|
2008(2)
|
|
|
2007
|
|
|
Dollars
|
|
|
Percent
|
|
|
2007
|
|
|
2006(3)
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
Dollars in thousands, except percentages and per-share
amounts
|
|
|
|
|
Net sales
|
|
$
|
810,207
|
|
|
$
|
814,160
|
|
|
$
|
(3,953
|
)
|
|
|
(0.5
|
)%
|
|
$
|
814,160
|
|
|
$
|
689,480
|
|
|
$
|
124,680
|
|
|
|
18.1
|
%
|
|
Gross profit
|
|
$
|
109,337
|
|
|
$
|
157,669
|
|
|
$
|
(48,332
|
)
|
|
|
(30.7
|
)%
|
|
$
|
157,669
|
|
|
$
|
123,164
|
|
|
$
|
34,505
|
|
|
|
28.0
|
%
|
|
Gross profit margin
|
|
|
13.5
|
%
|
|
|
19.4
|
%
|
|
|
|
|
|
|
|
|
|
|
19.4
|
%
|
|
|
17.9
|
%
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations (IFO)
|
|
$
|
(5,548
|
)
|
|
$
|
66,101
|
|
|
$
|
(71,649
|
)
|
|
|
(108.4
|
)%
|
|
$
|
66,101
|
|
|
$
|
19,264
|
|
|
$
|
46,837
|
|
|
|
243.1
|
%
|
|
IFO margin
|
|
|
(0.7
|
)%
|
|
|
8.1
|
%
|
|
|
|
|
|
|
|
|
|
|
8.1
|
%
|
|
|
2.8
|
%
|
|
|
|
|
|
|
|
|
|
(Loss) earnings before interest and income taxes after minority
interest (EBIT)(1)
|
|
$
|
(4,429
|
)
|
|
$
|
74,879
|
|
|
$
|
(79,308
|
)
|
|
|
(105.9
|
)%
|
|
$
|
74,879
|
|
|
$
|
17,948
|
|
|
$
|
56,931
|
|
|
|
317.2
|
%
|
|
EBIT margin
|
|
|
(0.5
|
)%
|
|
|
9.2
|
%
|
|
|
|
|
|
|
|
|
|
|
9.2
|
%
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
Earnings before interest, taxes, depreciation and amortization
(EBITDA)(1)
|
|
$
|
40,001
|
|
|
$
|
116,451
|
|
|
$
|
(76,450
|
)
|
|
|
(65.6
|
)%
|
|
$
|
116,451
|
|
|
$
|
53,504
|
|
|
$
|
62,947
|
|
|
|
117.6
|
%
|
|
EBITDA margin
|
|
|
4.9
|
%
|
|
|
14.3
|
%
|
|
|
|
|
|
|
|
|
|
|
14.3
|
%
|
|
|
7.8
|
%
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(80,463
|
)
|
|
$
|
(2,307
|
)
|
|
$
|
(78,156
|
)
|
|
|
NM
|
|
|
$
|
(2,307
|
)
|
|
$
|
(20,899
|
)
|
|
$
|
18,592
|
|
|
|
89.0
|
%
|
|
Net loss margin
|
|
|
(9.9
|
)%
|
|
|
(0.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)%
|
|
|
(3.0
|
)%
|
|
|
|
|
|
|
|
|
|
Diluted net loss per share
|
|
$
|
(5.48
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(5.32
|
)
|
|
|
NM
|
|
|
$
|
(0.16
|
)
|
|
$
|
(1.47
|
)
|
|
$
|
1.31
|
|
|
|
89.1
|
%
|
NM = Not meaningful
27
|
|
|
|
|
(1)
|
|
We believe that EBIT and 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. For reconciliation from net loss to EBIT and
EBITDA, see the “Reconciliation of Non-GAAP Financial
Measures” section below.
|
|
|
|
(2)
|
|
Includes pre-tax special charges of $45.5 million related
to the closing of Syracuse China manufacturing facility, the
closing of Mira Loma distribution center, fixed asset
impairments related to the North American segment and impairment
of goodwill and other intangibles in the International segment
(see note 9 to the Consolidated Financial Statements ).
|
|
|
|
(3)
|
|
Includes pre-tax special charges of $23.4 million related
to Crisa’s capacity rationalization and write-off of
finance fees (see note 9 to the Consolidated Financial
Statements).
|
Discussion
of 2008 vs. 2007 Results of Operations
Net
Sales
In 2008, net sales decreased 0.5 percent including a
favorable currency impact of 1.2 percent, to
$810.2 million from $814.2 million in 2007. The
decrease in net sales was primarily attributable to decreased
sales within the North American Glass and North American Other
segments. Within North American Glass, shipments to foodservice
customers declined over 10.0 percent and net sales of Crisa
product in Mexican pesos experienced an unfavorable currency
impact of $2.1 million. Partially offsetting the decrease
in net sales was an increase of more than 4.0 percent in
shipments to U.S. retail glassware customers. Within North
American Other, shipments of Syracuse China products declined
17.9 percent, shipments of World Tableware products
declined 3.9 percent and Traex net sales were flat compared
to the prior year period. International net sales grew
12.3 percent on the strength of increased shipments of
Libbey China product of 171.3 percent, a 7.5 percent
increase of Crisal product, a modest increase in shipments at
Royal Leerdam and a favorable currency impact of
7.9 percent.
Gross
Profit
Gross profit decreased in 2008 by $48.3 million, or
30.7 percent, compared to 2007. Gross profit as a
percentage of net sales decreased to 13.5 percent in 2008,
compared to 19.4 percent in 2007. Contributing to the
decrease in gross profit and gross profit margin were
$18.7 million of special charges (see note 9 to the
Consolidated Financial Statements). Of that amount,
$14.0 million of special charges related to the announced
closing of our Syracuse China manufacturing facility,
$0.2 million related to the announced closure of our Mira
Loma distribution center and $4.5 million related to fixed
asset impairment charges in our North American Glass segment. In
addition, 2008 gross profit includes $13.9 million for
higher natural gas and electricity costs, $4.9 million for
increased carton costs, $3.4 million of additional
depreciation and an unfavorable mix of net sales. Partially
offsetting these higher costs were lower distribution costs.
(Loss)
Income from operations
Income from operations was a loss of $(5.5) million in
2008, compared to income from operations of $66.1 million
in 2007. Income from operations as a percentage of net sales
decreased to (0.7) percent in 2008, compared to 8.1 percent
in 2007. Contributing to the decrease in income from operations
and income from operations margin are the lower gross profit and
gross profit margin (discussed above), the special charges
related to the announced closure of our Syracuse China
manufacturing facility ($13.9 million) and the closure of
our Mira Loma distribution center ($0.7 million) and the
impairment charge on goodwill and other intangibles within our
International segment of $11.9 million (see note 9 to
the Consolidated Financial Statements). Partially offsetting
these were lower selling, general and administrative expenses.
(Loss)
earnings before interest and income taxes after minority
interest (EBIT)
Earnings before interest and income taxes decreased by
$79.3 million, or 105.9 percent, from earnings of
$74.9 million in 2007 to a loss of $(4.4) million in
2008. EBIT as a percentage of net sales decreased to (0.5)
percent in 2008, compared to 9.2 percent in 2007. The
reduced EBIT was mostly a result of the reduction in income from
operations (discussed above), $5.5 million non-recurring
gain on the land sales at Royal Leerdam and Syracuse China in
2007, and higher prior-year foreign currency translation gains
of $1.3 million.
28
Earnings
before interest, taxes, depreciation and amortization
(EBITDA)
EBITDA decreased by $76.5 million, or 65.6 percent,
from $116.5 million in 2007 to $40.0 million in 2008.
As a percentage of net sales, EBITDA was 4.9 percent in
2008, compared to 14.3 percent in 2007. The key
contributors to the reduction in EBITDA were those factors
discussed above under “(Loss) earnings before interest and
income taxes after minority interest (EBIT).” Depreciation
and amortization increased $2.9 million to
$44.4 million, primarily due to a full year of depreciation
related to our facility in China.
Net
loss and diluted loss per share
We reported a net loss of $80.5 million, or loss of $5.48
per diluted share, in 2008, compared to a net loss of
$2.3 million, or loss of $0.16 per diluted share, in 2007.
The net loss as a percentage of net sales was 9.9 percent,
compared to 0.3 percent in 2007. The increase in net loss
was driven primarily by the items discussed above under
“(Loss) earnings before interest and income taxes after
minority interest (EBIT),” in addition to a
$3.8 million increase in interest expense. These were
partially offset by a $5.0 million decrease in income tax
provision. The $3.8 million increase in interest expense is
the result of higher debt, partially offset by slightly lower
variable interest rates compared to 2007. Income tax provision
decreased $5.0 million and the effective tax rate decreased
from 125.7 percent in 2007 to a negative 8.5 percent
in 2008. The change in the effective tax rate is primarily due
to our provision for income taxes being significantly impacted
by the recognition of valuation allowances in the United States,
the Netherlands and Portugal. Changes in the mix of earnings in
countries with differing statutory tax rates, changes in
accruals related to uncertain tax positions, tax planning
structures and changes in tax laws have also impacted the
effective tax rate.
Discussion
of 2007 vs. 2006 Results of Operations
Net
Sales
In 2007, net sales increased 18.1 percent, including a
favorable currency impact of 1.4 percent, to
$814.2 million from $689.5 million in 2006. The
increase in net sales was primarily attributable to the full
year consolidation of Crisa, the Company’s former joint
venture in Mexico, and an 11.3 percent increase in
shipments to U.S. and Canadian retail glassware customers
in North American Glass. International net sales grew
28.0 percent, reflecting the commencement of shipments from
Libbey’s new factory in China. Net sales from Royal Leerdam
and Crisal customers increased over 21.0 percent compared
to 2006, including a favorable currency impact of
9.1 percent. North American Other net sales increased
5.8 percent, as shipments of World Tableware products
increased 9.0 percent while shipments of Syracuse China
products were up 5.0 percent.
Gross
Profit
Gross profit increased in 2007 by $34.5 million, or
28.0 percent, compared to 2006. Gross profit as a
percentage of net sales increased to 19.4 percent in 2007,
compared to 17.9 percent in 2006. Contributing to the
increase in gross profit and gross profit margin were the full
year consolidation of Crisa, higher sales and higher production
activity, including the benefit of Crisa’s capacity
rationalization — “Project Tiger.” In
addition, 2006 gross profit included an inventory
write-down of $2.2 million related to “Project
Tiger.” Partially offsetting these improvements were higher
distribution expenses, higher natural gas expense and expenses
related to the
start-up
of
our new facility in China.
Income
from operations
Income from operations was $66.1 million in 2007, compared
to income from operations of $19.3 million in 2006. Income
from operations as a percentage of net sales increased to
8.1 percent in 2007, compared to 2.8 percent in 2006.
Contributing to the increase in income from operations and
income from operations margin is the higher gross profit and
gross profit margin (discussed above), the non-recurrence of
$16.3 million of special charges related to “Project
Tiger,” offset by an increase in selling, general and
administrative expenses primarily due to the full year
consolidation of Crisa.
29
Earnings
before interest and income taxes (EBIT)
Earnings before interest and income taxes increased by
$56.9 million, or 317.2 percent, from
$17.9 million in 2006 to $74.9 million in 2007. EBIT
as a percentage of net sales increased to 9.2 percent in
2007, compared to 2.6 percent in 2006. The contributors to
the improvement in EBIT compared to the prior period are the
same as those discussed above under “Income from
Operations.” In addition, we recognized a $4.3 million
gain on the sale of land in the Netherlands and a
$1.1 million gain on the sale of excess land in Syracuse,
N.Y. We also recorded a currency translation gain of
$2.0 million in 2007, compared to a currency translation
loss of $1.0 million in 2006, and a decrease of
approximately $2.8 million in charges related to the
ineffectiveness on our natural gas contracts as compared to 2006.
Earnings
before interest, taxes, depreciation and amortization
(EBITDA)
EBITDA increased by $62.9 million, or 117.6 percent,
from $53.5 million in 2006 to $116.5 million in 2007.
As a percentage of net sales, EBITDA was 14.3 percent in
2007, compared to 7.8 percent in 2006. The key contributors
to the increase in EBITDA were those factors discussed above
under “Earnings before interest and income taxes
(EBIT).” Depreciation and amortization, adjusted for
minority interest in 2006, increased $5.9 million to
$41.6 million, primarily due to the consolidation of Crisa
and depreciation related to our new facility in China.
Net
loss and diluted loss per share
We reported a net loss of $2.3 million, or loss of $0.16
per diluted share, in 2007, compared to a net loss of
$20.9 million, or loss of $1.47 per diluted share, in 2006.
The net loss as a percentage of net sales was 0.3 percent,
compared to 3.0 percent in 2006. The decrease in net loss
was driven primarily by the items discussed above under
“Earnings before interest and income taxes (EBIT),”
offset by a $19.3 million increase in interest expense and
a $19.0 million increase in income taxes. The
$19.3 million increase in interest expense is the result of
the refinancing consummated on June 16, 2006, which
resulted in higher debt and higher average interest rates.
Income taxes increased $19.0 million and the effective tax
rate increased from 27.1 percent in 2006 to
125.7 percent in 2007. The increase in income taxes and the
effective tax rate was primarily driven by a non-cash tax charge
of $15.3 million to establish a full valuation allowance
against the net deferred income tax asset balance in the U.S.
30
SEGMENT
RESULTS OF OPERATIONS
The following table summarizes the results of operations for our
three segments described as follows:
|
|
|
|
|
|
•
|
North American Glass-includes sales of glass tableware from
subsidiaries throughout the United States, Canada and Mexico.
|
|
|
|
|
•
|
North American Other-includes sales of ceramic dinnerware; metal
tableware, hollowware and serveware; and plastic items from
subsidiaries in the United States.
|
|
|
|
|
•
|
International-includes worldwide sales of glass tableware from
subsidiaries outside the United States, Canada and Mexico.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
|
|
|
|
|
|
|
|
|
Variance
|
|
|
|
|
|
|
|
|
|
|
In
|
|
|
In
|
|
|
|
|
|
|
|
|
In
|
|
|
In
|
|
|
Year End December 31,
|
|
2008
|
|
|
2007
|
|
|
Dollars
|
|
|
Percent
|
|
|
2007
|
|
|
2006
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
Amounts in thousands, except percentages and per-share
amounts
|
|
|
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Glass
|
|
$
|
554,128
|
|
|
$
|
568,495
|
|
|
$
|
(14,367
|
)
|
|
|
(2.5
|
)%
|
|
$
|
568,495
|
|
|
$
|
476,696
|
|
|
$
|
91,799
|
|
|
|
19.3
|
%
|
|
North American Other
|
|
|
111,029
|
|
|
|
121,217
|
|
|
|
(10,188
|
)
|
|
|
(8.4
|
)%
|
|
|
121,217
|
|
|
|
114,581
|
|
|
|
6,636
|
|
|
|
5.8
|
%
|
|
International
|
|
|
153,532
|
|
|
|
136,727
|
|
|
|
16,805
|
|
|
|
12.3
|
%
|
|
|
136,727
|
|
|
|
106,798
|
|
|
|
29,929
|
|
|
|
28.0
|
%
|
|
Eliminations
|
|
|
(8,482
|
)
|
|
|
(12,279
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,279
|
)
|
|
|
(8,595
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
810,207
|
|
|
$
|
814,160
|
|
|
$
|
(3,953
|
)
|
|
|
(0.5
|
)%
|
|
$
|
814,160
|
|
|
$
|
689,480
|
|
|
$
|
124,680
|
|
|
|
18.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before interest and taxes (EBIT):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Glass
|
|
$
|
25,495
|
|
|
$
|
54,492
|
|
|
$
|
(28,997
|
)
|
|
|
(53.2
|
)%
|
|
$
|
54,492
|
|
|
$
|
5,471
|
|
|
$
|
49,021
|
|
|
|
896.0
|
%
|
|
North American Other
|
|
|
(17,696
|
)
|
|
|
15,670
|
|
|
|
(33,366
|
)
|
|
|
(212.9
|
)%
|
|
|
15,670
|
|
|
|
9,382
|
|
|
|
6,288
|
|
|
|
67.0
|
%
|
|
International
|
|
|
(12,228
|
)
|
|
|
4,717
|
|
|
|
(16,945
|
)
|
|
|
(359.2
|
)%
|
|
|
4,717
|
|
|
|
3,161
|
|
|
|
1,556
|
|
|
|
49.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
(4,429
|
)
|
|
$
|
74,879
|
|
|
$
|
(79,308
|
)
|
|
|
(105.9
|
)%
|
|
$
|
74,879
|
|
|
$
|
18,014
|
|
|
$
|
56,865
|
|
|
|
315.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT Margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Glass
|
|
|
4.6
|
%
|
|
|
9.6
|
%
|
|
|
|
|
|
|
|
|
|
|
9.6
|
%
|
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
North American Other
|
|
|
(15.9
|
)%
|
|
|
12.9
|
%
|
|
|
|
|
|
|
|
|
|
|
12.9
|
%
|
|
|
8.2
|
%
|
|
|
|
|
|
|
|
|
|
International
|
|
|
(8.0
|
)%
|
|
|
3.4
|
%
|
|
|
|
|
|
|
|
|
|
|
3.4
|
%
|
|
|
3.0
|
%
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
(0.5
|
)%
|
|
|
9.2
|
%
|
|
|
|
|
|
|
|
|
|
|
9.2
|
%
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
Special Charges (excluding write-off of financing fees):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Glass
|
|
$
|
5,356
|
|
|
$
|
—
|
|
|
$
|
5,356
|
|
|
|
100.0
|
%
|
|
$
|
—
|
|
|
$
|
18,534
|
|
|
$
|
(18,534
|
)
|
|
|
100.0
|
%
|
|
North American Other
|
|
|
28,252
|
|
|
|
—
|
|
|
|
28,252
|
|
|
|
100.0
|
%
|
|
|
—
|
|
|
|
(42
|
)
|
|
|
42
|
|
|
|
100.0
|
%
|
|
International
|
|
|
11,890
|
|
|
|
—
|
|
|
|
11,890
|
|
|
|
100.0
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
45,498
|
|
|
$
|
—
|
|
|
$
|
45,498
|
|
|
|
100.0
|
%
|
|
$
|
—
|
|
|
$
|
18,492
|
|
|
$
|
(18,492
|
)
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discussion
of 2008 vs. 2007 Segment Results of Operations
North
American Glass
Net sales decreased 2.5 percent from $568.5 million in
2007 to $554.1 million in 2008. Of the total decrease in
net sales, approximately 4.5 percent is attributable to
reduced shipments to foodservice and business-to-business
glassware customers. Partially offsetting this decline are
increased shipments to U.S. and Canadian retail glassware
customers, representing 1.0 percent of the change, and
increased shipments of Crisa products to Crisa customers,
representing 0.8 percent of the change offset by an
unfavorable currency impact of 0.3 percent.
31
EBIT decreased by $29.0 million to $25.5 million in
2008, compared to $54.5 million in 2007. EBIT as a
percentage of net sales decreased to 4.6 percent in 2008,
compared to 9.6 percent in 2007. The key contributors to
the reduction in EBIT were special charges recorded in 2008
related to the announced closing of the Mira Loma distribution
center of $0.9 million and the fixed asset impairment
charges of $4.5 million (see note 9 to the
consolidated financial statements); the impact of lower net
sales and reduced operating activity in North American Glass
operations of $16.6 million; higher natural gas and
electricity charges of $8.5 million; increased carton costs
of $1.5 million; and an approximately $2.3 million
decrease in non-operating income primarily related to foreign
currency translation losses and non-recurring gains on the
prior-year sale of environmental credits. Partially offsetting
the EBIT reduction is a decrease of $5.3 million in North
American Glass selling, general and administrative expense
primarily resulting from lower incentive-based compensation and
favorable rulings in connection with an outstanding dispute
regarding a warehouse lease in Mexico.
North
American Other
Net sales decreased 8.4 percent to $111.0 million in
2008 from $121.2 million in 2007. Of the total decline in
net sales, approximately 6.4 percent is attributed to a
reduction in shipments of Syracuse China products and
1.7 percent is attributed to a reduction in shipments of
World Tableware products. Shipments of Traex products were flat
in 2008 as compared to 2007.
EBIT declined by $33.4 million to a loss of
$(17.7) million in 2008, compared to income of
$15.7 million in 2007. EBIT as a percentage of net sales
decreased to (15.9) percent in 2008, compared to
12.9 percent in 2007. The key contributors to the reduction
in EBIT were lower net sales and operating activity at Syracuse
China of $4.4 million and special charges recorded related
to the announced closing of the Syracuse China manufacturing
facility in early April 2009 of $28.3 million (see
note 9 to the Consolidated Financial Statements). A
non-recurring gain on the sale of excess land at Syracuse China
was recorded in 2007 in other income (expense) of
$1.1 million. Partially offsetting these were lower North
American Other selling, general and administrative expenses of
$0.4 million primarily resulting from lower incentive-based
compensation.
International
In 2008, net sales increased 12.3 percent to
$153.5 million from $136.7 million in 2007. Of the
total increase in net sales, approximately 8.8 percent is
attributed to an increase in shipments to Libbey China customers
and a favorable currency impact of 1.2 percent. On a
constant currency basis, shipments to Royal Leerdam and Crisal
customers declined by 4.2 percent offset by a favorable
currency impact of 6.8 percent.
EBIT decreased by $16.9 million to a loss of
$(12.2) million in 2008, compared to income of
$4.7 million in 2007. EBIT as a percentage of net sales
decreased to (8.0) percent in 2008, compared to 3.4 percent
in 2007. The key contributors to the reduction in EBIT were the
goodwill and other intangibles impairment charge of
$11.9 million (see note 9 to the Consolidated
Financial Statements); increased natural gas and electricity
costs of approximately $5.7 million; increased carton costs
of $3.4 million; increased depreciation expense of
$2.8 million (a result of Libbey China having a full year
of production in 2008); and a $2.2 million increase in
selling, general and administrative expenses primarily related
to the increased net sales. A non-recurring gain on the sale of
excess land at Royal Leerdam was recorded in 2007 in other
income (expense) of $4.3 million. Partially offsetting
these costs was the impact of higher net sales and operating
activity of $8.6 million at our Libbey China facility and
$3.9 million at our European facilities.
Discussion
of 2007 vs. 2006 Segment Results of Operations
North
American Glass
Net sales increased 19.3 percent from $476.7 million
in 2006 to $568.5 million in 2007. Of the total increase in
net sales, approximately 14.5 percent is attributable to
the consolidation of Crisa, 2.7 percent relates to
shipments to retail glassware customers, approximately
1.1 percent relates to shipments to foodservice and
industrial glassware customers and approximately
0.7 percent relates to shipments to export customers
outside of North America.
32
EBIT increased by $49.0 million to $54.5 million in
2007, compared to $5.5 million in 2006. EBIT as a
percentage of net sales increased to 9.6 percent in 2007,
compared to 1.1 percent in 2006. The key contributors to
the improvement in EBIT were the impact of higher net sales and
operating activity in North American Glass operations of
$11.6 million, the full year consolidation of Crisa of
approximately $9.1 million and an approximately
$6.2 million increase in non-operating income primarily
related to foreign currency translation gains, non-recurring
charges on Crisa’s prior year natural gas contracts and the
sale of environmental credits. In addition, EBIT increased due
to a $4.7 million reduction in North American Glass
selling, general and administrative expense primarily resulting
from lower incentive-based compensation. The prior year included
a fixed asset charge and inventory write-down of
$18.5 million related to Crisa’s capacity
rationalization (“Project Tiger”). Offsetting these
improvements was an increase in natural gas expense of
$1.9 million.
North
American Other
Net sales increased 5.8 percent to $121.2 million in
2007 from $114.6 million in 2006. Of the total increase in
net sales, approximately 3.7 percent is attributed to an
increase in shipments of World Tableware products and
approximately 1.8 percent is attributed to an increase in
shipments of Syracuse China products.
EBIT increased by $6.3 million to $15.7 million in
2007, compared to $9.4 million in 2006. EBIT as a
percentage of net sales increased to 12.9 percent in 2007,
compared to 8.2 percent in 2006. The key contributors to
the increased EBIT were higher net sales and operating activity
at Syracuse China of $3.6 million, higher net sales of
World Tableware products of approximately $2.7 million,
higher net sales and operating activity at Traex of
$0.3 million and a $1.1 million gain on the sale of
excess land at Syracuse China. Partially offsetting these
improvements were higher North American Other selling, general
and administrative expenses of $1.8 million primarily
resulting from the increased net sales.
International
In 2007, net sales increased 28.0 percent to
$136.7 million from $106.8 million in 2006. Of the
total increase in net sales, approximately 12.7 percent is
attributed to an increase in shipments to Royal Leerdam and
Crisal customers, approximately 7.4 percent relates to
shipments from Libbey China, and approximately 9.1 percent
relates to a stronger euro compared to the prior year.
EBIT increased by $1.6 million to $4.7 million in
2007, compared to $3.2 million in 2006. EBIT as a
percentage of net sales increased to 3.4 percent in 2007,
compared to 3.0 percent in 2006. The key contributors to
the increased EBIT were increased net sales and operating
activity at Royal Leerdam and Crisal of $5.8 million and a
$4.3 million gain on the sale of excess land in the
Netherlands. Partially offsetting these improvements were
start-up
costs at Libbey China of approximately $2.4 million, higher
natural gas expense in Europe of approximately
$3.4 million, a $2.0 million reduction in equity
earnings from our 49 percent ownership of Crisa prior to
the acquisition of the remaining 51 percent in June of 2006
and a $0.7 million increase in selling, general and
administrative expenses primarily related to the increased net
sales.
CAPITAL
RESOURCES AND LIQUIDITY
Balance
Sheet and Cash flows
Cash and
Equivalents
At December 31, 2008, our cash balance decreased to
$13.3 million from $36.5 million at December 31,
2007. The $23.2 million decrease was primarily due to a
$19.6 million payment to Vitro S.A. de C.V in January, 2008
and to fund our operating requirements.
33
Working
Capital
The following table presents working capital components for 2008
and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
|
|
|
December 31,
|
|
2008
|
|
|
2007
|
|
|
In Dollars
|
|
|
In Percent
|
|
|
|
|
Amounts in thousands, except percentages, DSO, DIO, DPO and
DWC
|
|
|
|
|
Accounts receivable — net
|
|
$
|
76,072
|
|
|
$
|
93,333
|
|
|
$
|
(17,261
|
)
|
|
|
(18.5
|
)%
|
|
DSO(1)
|
|
|
34.3
|
|
|
|
41.8
|
|
|
|
|
|
|
|
|
|
|
Inventories — net
|
|
$
|
185,242
|
|
|
$
|
194,079
|
|
|
$
|
(8,837
|
)
|
|
|
(4.6
|
)%
|
|
DIO(2)
|
|
|
83.5
|
|
|
|
87.1
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
54,428
|
|
|
$
|
73,593
|
|
|
$
|
(19,165
|
)
|
|
|
(26.0
|
)%
|
|
DPO(3)
|
|
|
24.5
|
|
|
|
33.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital(4)
|
|
$
|
206,886
|
|
|
$
|
213,819
|
|
|
$
|
(6,933
|
)
|
|
|
(3.2
|
)%
|
|
DWC(5)
|
|
|
93.3
|
|
|
|
95.9
|
|
|
|
|
|
|
|
|
|
|
Percentage of net sales
|
|
|
25.5
|
%
|
|
|
26.3
|
%
|
|
|
|
|
|
|
|
|
DSO, DIO, DPO and DWC are all calculated using net sales as the
denominator and a
365-day
calendar year.
|
|
|
|
|
(1)
|
|
Days sales outstanding (DSO) measures the number of days it
takes to turn receivables into cash.
|
|
|
|
(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 “Reconciliation of
Non-GAAP Financial Measures” below 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, decreased by
$6.9 million in 2008, compared to 2007. As a percentage of
net sales, working capital decreased to 25.5 percent in
2008, compared to 26.3 percent in 2007. The decrease in
working capital is primarily the result of our continued efforts
to increase cash flow through reductions in working capital.
34
Borrowings
The following table presents our total borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
Rate
|
|
|
Maturity Date
|
|
2008
|
|
|
2007
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Borrowings under ABL facility
|
|
|
floating
|
|
|
December 16, 2010
|
|
$
|
34,538
|
|
|
$
|
7,366
|
|
|
Senior notes
|
|
|
floating(1
|
)
|
|
June 1, 2011
|
|
|
306,000
|
|
|
|
306,000
|
|
|
PIK notes(2)
|
|
|
16.00
|
%
|
|
December 1, 2011
|
|
|
148,946
|
|
|
|
127,697
|
|
|
Promissory note
|
|
|
6.00
|
%
|
|
January, 2009 to September, 2016
|
|
|
1,666
|
|
|
|
1,830
|
|
|
Notes payable
|
|
|
floating
|
|
|
January 2009
|
|
|
3,284
|
|
|
|
622
|
|
|
RMB loan contract
|
|
|
floating
|
|
|
July 2012 to January 2014
|
|
|
36,675
|
|
|
|
34,275
|
|
|
RMB working capital loan
|
|
|
floating
|
|
|
March, 2010
|
|
|
7,335
|
|
|
|
6,855
|
|
|
Obligations under capital leases
|
|
|
floating
|
|
|
January, 2009 to May, 2009
|
|
|
302
|
|
|
|
1,018
|
|
|
BES Euro line
|
|
|
floating
|
|
|
January, 2010 to January, 2014
|
|
|
15,507
|
|
|
|
15,962
|
|
|
Other debt
|
|
|
floating
|
|
|
September, 2009
|
|
|
630
|
|
|
|
1,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings
|
|
|
|
|
|
|
|
|
554,883
|
|
|
|
503,057
|
|
|
Less — unamortized discounts and warrants
|
|
|
|
|
|
|
|
|
4,626
|
|
|
|
6,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings — net(3)(4)
|
|
|
|
|
|
|
|
$
|
550,257
|
|
|
$
|
496,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
See “Derivatives” below and Note 8 to the
Consolidated Financial Statements.
|
|
|
|
(2)
|
|
Additional PIK notes were issued each June 1 and
December 1, commencing December 1, 2006, to pay the
semi-annual interest. During the first three years, interest is
payable by the issuance of additional PIK notes.
|
|
|
|
(3)
|
|
Total borrowings includes notes payable, long-term debt due
within one year and long-term debt as stated in our Consolidated
Balance Sheets.
|
|
|
|
(4)
|
|
See “Contractual Obligations” below for scheduled
payments by period.
|
We had total net borrowings of $550.3 million at
December 31, 2008, compared to total net borrowings of
$496.6 million at December 31, 2007. The
$53.6 million increase in borrowings was the result of
additional PIK notes issued on June 1 and December 1 and
additional borrowings under our ABL facility.
Of our total indebtedness, $204.3 million is subject to
fluctuating interest rates at December 31, 2008. A change
of one percentage point in such rates would result in a change
in interest expense of approximately $2.0 million on an
annual basis.
Included in interest expense is the amortization of discounts
and warrants on the Senior Notes and PIK Notes and financing
fees of $5.0 million, $5.1 million and
$1.6 million for December 31, 2008, December 31,
2007 and December 31, 2006, respectively.
35
Cash
Flow
The following table presents key drivers to free cash flow for
2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
|
|
|
|
|
|
|
|
|
Variance
|
|
|
Year Ended December 31,
|
|
2008
|
|
|
2007
|
|
|
In Dollars
|
|
|
In Percent
|
|
|
2007
|
|
|
2006
|
|
|
In Dollars
|
|
|
In Percent
|
|
|
|
|
(Dollars in thousands, except percentages)
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(1,040
|
)
|
|
$
|
51,457
|
|
|
$
|
(52,497
|
)
|
|
|
(102.0
|
)%
|
|
$
|
51,457
|
|
|
$
|
54,858
|
|
|
$
|
(3,401
|
)
|
|
|
(6.2
|
)%
|
|
Capital expenditures
|
|
|
(45,717
|
)
|
|
|
(43,121
|
)
|
|
|
2,596
|
|
|
|
6.0
|
%
|
|
|
(43,121
|
)
|
|
|
(73,598
|
)
|
|
|
(30,477
|
)
|
|
|
(41.4
|
)%
|
|
Acquisitions and related costs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(78,434
|
)
|
|
|
(78,434
|
)
|
|
|
(100.0
|
)%
|
|
Proceeds from asset sales and other
|
|
|
117
|
|
|
|
8,213
|
|
|
|
(8,096
|
)
|
|
|
(98.6
|
)%
|
|
|
8,213
|
|
|
|
—
|
|
|
|
8,213
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow(1)
|
|
$
|
(46,640
|
)
|
|
$
|
16,549
|
|
|
$
|
(63,189
|
)
|
|
|
(381.8
|
)%
|
|
$
|
16,549
|
|
|
$
|
(97,174
|
)
|
|
$
|
113,723
|
|
|
|
117.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
We believe that free cash flow (net cash (used in) provided by
operating activities, less capital expenditures and acquisitions
and related costs, plus proceeds from asset sales and other) is
a useful metric for evaluating our financial performance, as it
is a measure we use internally to assess performance. See
“Reconciliation of Non-GAAP Financial Measures”
below for a reconciliation of net cash provided by (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.
|
Discussion
of 2008 vs. 2007 Cash Flow
Our net cash used in operating activities was $1.0 million
in 2008, compared to net cash provided by operating activities
of $51.5 million in 2007, or a decrease of
$52.5 million. The decrease is primarily related to a
decrease in earnings, higher uses of cash for pension
contributions and a $19.6 million payment to Vitro related
to the 2006 acquisition of Crisa, offset by improved working
capital management.
Net cash used in investing activities was $45.6 million in
2008, compared to $34.9 million in 2007, or an increase of
$10.7 million. The primary contributors to this increase
were the non-recurring proceeds from asset sales and other items
of $8.2 million in 2007, primarily attributable to the sale
of excess land in Syracuse, N.Y. and the Netherlands.
Free cash flow was $(46.6) million in 2008, compared to
16.5 million in 2007, a decrease of $63.2 million. The
primary contributors to this decrease are the result of the
changes in net cash (used in) provided by operating activities
and the non-recurring proceeds from asset sales and other items
of $8.2 million in 2007 as discussed above.
Net cash provided by financing activities was $25.8 million
in 2008, compared to $22.4 million net cash used in
financing activities in 2007. The 2008 net cash provided by
financing activities resulted from the reduction in free cash
flow and the change in cash and cash equivalents discussed above.
Discussion
of 2007 vs. 2006 Cash Flow
Our net cash provided by operating activities was
$51.5 million in 2007, compared to net cash provided by
operating activities of $54.9 million in 2006, or a
decrease of $3.4 million. The decrease is primarily related
to an increase in earnings more than offset by higher uses of
cash for inventory and pension contributions.
Net cash used in investing activities was $34.9 million in
2007, compared to $152.0 million in 2006, or a decrease of
$117.1 million. The primary contributors to this reduction
were the purchase of Crisa in 2006 for $78.4 million, a
$30.5 million decrease in capital expenditures (driven by a
reduction in spending resulting from the completion of the
construction of our new facility in China in 2006), and proceeds
from asset sales and other items of $8.2 million in 2007,
primarily attributable to the sale of excess land in Syracuse,
N.Y. and the Netherlands.
Net cash used by financing activities was $22.4 million in
2007, compared to $135.3 million net cash provided by
financing activities in 2006. The net cash used by financing
activities in 2007 is primarily attributable to the
36
repayment of borrowings under our ABL facility, partially offset
by new working capital facilities in Europe and China. The
2006 net cash provided by financing activities resulted
from the additional debt incurred in connection with the
acquisition of Crisa and the construction of our production
facility in China.
Free cash flow was $16.5 million in 2007, compared to
$(97.2) million in 2006, an improvement of
$113.7 million. The primary contributors to this
improvement are the result of the changes in net cash used in
investing activities discussed above. These were partially
offset by a decrease in cash flow from operating activities as
discussed above.
Derivatives
We have Interest Rate Protection Agreements (Rate Agreements)
with respect to $200 million of debt as a means to manage
our exposure to variable interest rates. The Rate Agreements
effectively convert this portion of our long-term borrowings
from variable rate debt to fixed-rate debt, thus reducing the
impact of interest rate changes on future results. The fixed
interest rate for our borrowings related to the Rate Agreements
at December 31, 2008, excluding applicable fees, is
5.24 percent per year and the total interest rate,
including applicable fees, is 12.24 percent per year. The
average maturity of these Rate Agreements is 0.9 years at
December 31, 2008. Total remaining debt not covered by the
Rate Agreements has fluctuating interest rates with a weighted
average rate of 9.57 percent per year at December 31,
2008. The fair market value for the Rate Agreements at
December 31, 2008 and 2007, respectively, was
$(6.8) million and $(5.3) million.
We also use commodity futures contracts related to forecasted
future natural gas requirements. The objective of these futures
contracts is to limit the fluctuations in prices paid from
adverse 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, generally six
or more months in the future. At December 31, 2008, we had
commodity futures contracts for 5,280,000 million British
Thermal Units (BTU’s) of natural gas with a fair market
value of $(14.9) million. We have hedged a portion of our
forecasted transactions through December 2011. At
December 31, 2007, we had commodity futures contracts for
2,820,000 million BTU’s of natural gas with a fair
market value of $(1.8) million.
During December 2008, we announced the closing of the Syracuse
China facility in early April 2009 (see note 9 to the
Consolidated Financial Statements). At the time of the
announcement we held natural gas contracts for the Syracuse
China facility with a settlement date after March 2009 of
165,000 million British Thermal Units (BTU’s). The
closure of this facility has rendered the forecasted
transactions related to these contracts not probable of
occurring. Under FASB Statement No. 133,
Accounting for
Derivative Instrument and Hedging Activities
(FAS 133),
when the forecasted transactions of a hedging relationship
become not probable of occurring, the gains or losses that have
been classified in Other Comprehensive Income in prior periods
for those contracts effected should be reclassified into
earnings. We recognized $0.4 million in other income
(expense) on the Consolidated Statement of Operations relating
to these contracts.
In January 2008, we entered into a series of foreign currency
contracts to sell Canadian dollars. As of December 31,
2008, all of these contracts have expired. During 2007, we
entered into a foreign currency contract for 212.0 million
pesos for a contractual payment due to Vitro in January 2008,
related to the Crisa acquisition. The fair market value of the
foreign currency contract at December 31, 2007 was
$0.4 million.
Share
Repurchase Program
Since mid-1998, we have repurchased 5,125,000 shares for
$140.7 million, as authorized by our Board of Directors. As
of December 31, 2008, authorization remains for the
purchase of an additional 1,000,000 shares. During 2008 and
2007, we did not repurchase any common stock. Our ABL Facility
and the indentures governing the Senior Secured Notes and the
PIK Notes significantly restrict our ability to repurchase
additional shares.
We are using a portion of the repurchased common stock to fund
our Employee Stock Benefit Plans. See note 14 to the
Consolidated Financial Statements for further discussion.
37
Contractual
Obligations
The following table presents our existing contractual
obligations at December 31, 2008 and related future cash
requirements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
Contractual Obligations(3)
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
|
|
Dollars in thousands
|
|
|
|
|
Borrowings
|
|
$
|
554,883
|
|
|
$
|
4,401
|
|
|
$
|
501,049
|
|
|
$
|
35,355
|
|
|
$
|
14,078
|
|
|
Interest payments(2)
|
|
|
171,162
|
|
|
|
53,614
|
|
|
|
112,442
|
|
|
|
5,024
|
|
|
|
82
|
|
|
Long term operating leases
|
|
|
120,863
|
|
|
|
16,809
|
|
|
|
26,805
|
|
|
|
19,693
|
|
|
|
57,556
|
|
|
Pension and nonpension(1)
|
|
|
263,900
|
|
|
|
20,900
|
|
|
|
73,300
|
|
|
|
74,100
|
|
|
|
95,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations
|
|
$
|
1,110,808
|
|
|
$
|
95,724
|
|
|
$
|
713,596
|
|
|
$
|
134,172
|
|
|
$
|
167,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
It is difficult to estimate future cash contributions as such
amounts are a function of actual investment returns, withdrawals
from the plan, changes in interest rates, and other factors
uncertain at this time. However, we have included our best
estimate for contributions through 2016.
|
|
|
|
(2)
|
|
The obligations for interest payments are based on
December 31, 2008 debt levels and interest rates.
|
|
|
|
(3)
|
|
Amounts reported in local currencies have been translated at
2008 exchange rates.
|
In addition to the above, we have commercial commitments secured
by letters of credit and guarantees. Our letters of credit
outstanding at December 31, 2008, totaled $8.4 million.
The Company is unable to make a reasonably reliable estimate as
to when cash settlement with taxing authorities may occur for
our unrecognized tax benefits. Therefore, our liability for
unrecognized tax benefits is not included in the table above.
See note 10 to the Consolidated Financial Statements for
additional information.
Capital
Resources and Liquidity
Historically, cash flows generated from operations and our
borrowing capacity under our ABL facility have allowed us to
meet our cash requirements, including capital expenditures and
working capital needs. Remaining unused availability on the ABL
Facility was $44.6 million at December 31, 2008 and
$89.7 million at December 31, 2007. However, we were
greatly impacted by recessionary pressures in 2008, especially
during the fourth quarter of the year, and we anticipate that
the global economic recession will continue throughout 2009 and
perhaps beyond. In addition, interest on our PIK Notes will be
payable in cash beginning December 1, 2009. Although we
have taken a number of steps to enhance our liquidity in 2008
and to date in 2009 (including those announced in February,
2009), if cash generated from operations is insufficient to
satisfy our liquidity requirements, we may seek to sell
additional equity or arrange additional debt financing. Global
financial markets and economic conditions have been, and
continue to be, disrupted and volatile. The credit and capital
markets have become exceedingly distressed. These issues, along
with significant write-offs in the financial services sector,
the re-pricing of credit risk and the current weak economic
conditions, have made it difficult, and will likely continue to
make it difficult, to obtain funding in future periods. If cash
from operations and cash available from our ABL Facility are not
sufficient to meet our needs, we cannot assure you that we will
be able to obtain additional financing in sufficient amounts
and/or
on
acceptable terms in the near future or when our ABL Facility
expires in December 2010. Furthermore, because of the current
price of our stock, we cannot anticipate that it would be
desirable to sell additional equity, even if we were able to do
so.
Off-Balance
Sheet Arrangements
Until June 16, 2006, we were a joint venture partner owning
49% in Vitrocrisa Holding, S. de R.L. de C.V. and related
companies, the largest glass tableware manufacturer in Latin
America. On June 16, 2006, we purchased the remaining
51 percent equity interest in the joint venture (see
note 4 to the Consolidated Financial Statements). Through
June 15, 2006, we recorded our 49 percent interest in
the joint venture using the equity method of accounting. From
this joint venture, we recorded equity earnings (loss),
dividends and certain technical assistance
38
income. We also had a reciprocal distribution agreement with our
joint venture partner that gave us exclusive distribution rights
with respect to the joint venture’s glass tableware
products in the U.S. and Canada, and gave the joint venture
the exclusive distribution rights with respect to our glass
tableware products in Latin America. In addition, we guaranteed
a portion of the joint venture’s bank debt. While we owned
49 percent of the joint venture, we evaluated this
investment and related arrangements in accordance with Financial
Accounting Standards Board (FASB) Interpretation No. 46R,
“Consolidation of Variable Interest Entities”
(FIN 46R), and determined that the joint venture was a
Variable Interest Entity (VIE), as defined by FIN 46R;
however, we were not considered the primary beneficiary, as we
did not absorb the majority of expected losses or receive the
majority of expected residual returns. Therefore, the joint
venture was not consolidated in our Consolidated Financial
Statements through June 15, 2006. Since we acquired the
remaining 51 percent of the joint venture on June 16,
2006, we have consolidated its financial results. See
notes 4 and 5 to the Consolidated Financial Statements for
disclosure regarding financial information relating to Crisa.
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, 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.
Reconciliation
of net loss to EBIT and EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Dollars in thousands
|
|
|
|
|
Net loss
|
|
$
|
(80,463
|
)
|
|
$
|
(2,307
|
)
|
|
$
|
(20,899
|
)
|
|
Add: Interest expense
|
|
|
69,720
|
|
|
|
65,888
|
|
|
|
46,594
|
|
|
Add: Provision (benefit) for income taxes
|
|
|
6,314
|
|
|
|
11,298
|
|
|
|
(7,747
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Earnings before interest and income taxes after minority
interest (EBIT)
|
|
|
(4,429
|
)
|
|
|
74,879
|
|
|
|
17,948
|
|
|
Add: Depreciation and amortization (adjusted for minority
interest)
|
|
|
44,430
|
|
|
|
41,572
|
|
|
|
35,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest, taxes, deprecation and amortization,
after minority interest adjustment (EBITDA)
|
|
$
|
40,001
|
|
|
$
|
116,451
|
|
|
$
|
53,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We define EBIT as net income before interest expense and income
taxes, after minority interest adjustment. The most directly
comparable U.S. GAAP financial measure is earnings before
interest, income taxes and minority interest.
We believe that EBIT is an important supplemental measure for
investors in evaluating operating performance in that it
provides insight into company profitability. Libbey’s
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 income before interest expense, income
taxes, depreciation and amortization, after minority interest
adjustment. The most directly comparable U.S. GAAP
financial measure is earnings before interest, income taxes and
minority interest.
39
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.
Libbey’s 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.
Reconciliation
of net cash provided by operating activities to free cash
flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Dollars in thousands
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(1,040
|
)
|
|
$
|
51,457
|
|
|
$
|
54,858
|
|
|
Less: Capital expenditures
|
|
|
(45,717
|
)
|
|
|
(43,121
|
)
|
|
|
(73,598
|
)
|
|
Less: Acquisition and related costs
|
|
|
—
|
|
|
|
—
|
|
|
|
(78,434
|
)
|
|
Plus: Proceeds from asset sales and other
|
|
|
117
|
|
|
|
8,213
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$
|
(46,640
|
)
|
|
$
|
16,549
|
|
|
$
|
(97,174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We define free cash flow as net cash (used in) provided by
operating activities, less capital expenditures and acquisition
related costs, adjusted for proceeds from asset sales and other.
The most directly comparable U.S. GAAP financial measure is
net cash (used in) provided by 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 provided by operating activities
recorded under U.S. GAAP. Free cash flow may not be
comparable to similarly titled measures reported by other
companies.
Reconciliation
of working capital
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2008
|
|
|
2007
|
|
|
|
|
Dollars in thousands
|
|
|
|
|
Accounts receivable — net
|
|
$
|
76,072
|
|
|
$
|
93,333
|
|
|
Plus: Inventories — net
|
|
|
185,242
|
|
|
|
194,079
|
|
|
Less: Accounts payable
|
|
|
54,428
|
|
|
|
73,593
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
206,886
|
|
|
$
|
213,819
|
|
|
|
|
|
|
|
|
|
|
|
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
40
performance recorded under U.S. GAAP. Working capital may
not be comparable to similarly titled measures reported by other
companies.
CRITICAL
ACCOUNTING ESTIMATES
The preparation of financial statements and related disclosures
in conformity with U.S. generally accepted accounting
principles requires us to make judgments, estimates and
assumptions that affect the reported amounts in the Consolidated
Financial Statements and accompanying notes. Note 2 to the
Consolidated Financial Statements describes the significant
accounting policies and methods used in their preparation. The
areas described below are affected by critical accounting
estimates and are impacted significantly by judgments and
assumptions in the preparation of the Consolidated Financial
Statements. Actual results could differ materially from the
amounts reported based on these critical accounting estimates.
Revenue
Recognition
Revenue is recognized when products are shipped and title and
risk of loss have passed to the customer. Revenue is recorded
net of returns, discounts and sales incentive programs offered
to customers. We offer various incentive programs to a broad
base of customers, and we record accruals for these as sales
occur. These programs typically offer incentives for purchase
activities by customers that include growth objectives. Criteria
for payment include the achievement by customers of certain
purchase targets and the purchase by customers of particular
product types. Management regularly reviews the adequacy of the
accruals based on current customer purchases, targeted purchases
and payout levels.
Allowance
for Doubtful Accounts
Our accounts receivable balance, net of reserves, was
$76.1 million in 2008, compared to $93.3 million in
2007. The reserve balance was $10.5 million in 2008,
compared to $11.7 million in 2007. The allowance for
doubtful accounts is established through charges to the
provision for bad debts. We regularly evaluate the adequacy of
the allowance for doubtful accounts based on historical trends
in collections and write-offs, our judgment as to the
probability of collecting accounts and our evaluation of
business risk. This evaluation is inherently subjective, as it
requires estimates that are susceptible to revision as more
information becomes available. Accounts are determined to be
uncollectible when the debt is deemed to be worthless or only
recoverable in part and are written off at that time through a
charge against the allowance.
Allowance
for Slow-Moving and Obsolete Inventory
We identify slow-moving or obsolete inventories and estimate
appropriate allowance provisions accordingly. We provide
inventory allowances based upon excess and obsolete inventories
driven primarily by future demand forecasts. At
December 31, 2008, our inventories were
$185.2 million, with loss provisions of $6.6 million,
compared to inventories of $194.1 million and loss
provisions of $6.4 million at December 31, 2007.
Asset
Impairment
Fixed
Assets
We review fixed assets for impairment whenever events or changes
in circumstances indicate that the related carrying amounts may
not be recoverable. Determining whether impairment has occurred
typically requires various estimates and assumptions. In 2008,
we wrote down certain assets to fair value at our Syracuse China
manufacturing facility based upon appraisals. We also wrote down
certain fixed assets within our North American Glass segment.
These write-downs are further disclosed in notes 7 and 9 to
the Consolidated Financial Statements.
Goodwill
and Indefinite Life Intangible Assets
Goodwill impairment tests are completed for each reporting unit
on an annual basis, or more frequently in certain circumstances
where impairment indicators arise. When performing our test for
impairment, we use the discounted cash flow method, which
incorporates the weighted average cost of capital of a
hypothetical third party
41
buyer to compute the fair value of each reporting unit. The fair
value is then compared to the carrying value. To the extent that
fair value exceeds the carrying value, no impairment exists.
However, to the extent the carrying value exceeds fair value, we
compare the implied fair value of goodwill to its book value to
determine if an impairment should be recorded. This was done as
of October 1st for each year presented. As of
October 1, 2008, our review did not indicate an impairment
of goodwill. During the fourth quarter of 2008, the global
economic environment weakened, causing an adverse effect on our
business environment. This was a trigger event, which caused us
to test for goodwill impairment as of December 31, 2008. As
a result of the December 31, 2008 testing, we recorded a
goodwill impairment charge of $9.4 million at our
International segment. This impairment is further disclosed in
notes 5, 6 and 9 to the Consolidated Financial Statements.
Individual indefinite life intangible assets are also evaluated
for impairment on an annual basis, or more frequently in certain
circumstances where impairment indicators arise. When performing
our test for impairment, we use the discounted cash flow method
to compute the fair value, which is then compared to the
carrying value of the indefinite life intangible asset. To the
extent that fair value exceeds the carrying value, no impairment
exists. This was done as of October 1st for each year
presented. As of October 1, 2008, our review did not
indicate an impairment of indefinite life intangible assets.
During the fourth quarter of 2008, the global economic
environment weakened, causing an adverse effect on our business
environment. This was a trigger event, which caused us to test
for impairment on our indefinite life intangible assets as of
December 31, 2008. As a result of the December 31,
2008 testing, we recorded an indefinite life intangible asset
impairment charge of $2.5 million at our International
segment. The announcement in December, 2008 that we will be
closing our Syracuse China manufacturing facility in April 2009
was an impairment trigger event for the Syracuse China reporting
unit. An impairment loss for intangible assets of
$0.3 million was recorded in 2008 for our Syracuse China
facility. These impairments are further disclosed in
notes 5, 6 and 9 to the Consolidated Financial Statements.
If the Company’s projected future cash flows were lower, or
if the assumed weighted average cost of capital were higher, the
testing performed as of October 1, 2008 and
December 31, 2008, may have indicated an impairment of one
or more of the Company’s other reporting units and, as a
result, the related goodwill at other reporting units would have
been impaired.
Self-Insurance
Reserves
We use self-insurance mechanisms to provide for potential
liabilities related to workers’ compensation and employee
health care benefits that are not covered by third-party
insurance. Workers’ compensation accruals are recorded at
the estimated ultimate payout amounts based on individual case
estimates. In addition, we record estimates of
incurred-but-not-reported losses based on actuarial models.
Although we believe that the estimated liabilities for
self-insurance are adequate, the estimates described above may
not be indicative of current and future losses. In addition, the
actuarial calculations used to estimate self-insurance
liabilities are based on numerous assumptions, some of which are
subjective. We will continue to adjust our estimated liabilities
for self-insurance, as deemed necessary, in the event that
future loss experience differs from historical loss patterns.
Pension
Assumptions
The following are the assumptions used to determine the benefit
obligations and pretax income effect for our pension plan
benefits for 2008, 2007 and 2006:
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U.S. Plans
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Non-U.S. Plans
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2008
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2007
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2006
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2008
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2007
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2006
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Discount rate
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6.41% to 6.48%
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|
6.16% to 6.32%
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5.82% to 5.91%
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5.70% to 8.50%
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5.50% to 8.50%
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|
4.50% to 8.75%
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Expected long-term rate of return on plan assets
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8.25%
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8.50%
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8.75%
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6.00%
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6.50%
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6.50%
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Rate of compensation increase
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2.63% to 5.25%
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3.00% to 6.00%
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3.00% to 6.00%
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2.00% to 4.30%
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2.00% to 4.30%
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2.00 to 3.50%
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42
Two critical assumptions, discount rate and expected long-term
rate of return on plan assets, are important elements of plan
expense and asset/liability measurement. We evaluate these
critical assumptions on our annual measurement date of
December 31. Other assumptions involving demographic
factors such as retirement age, mortality and turnover are
evaluated periodically and are updated to reflect our
experience. Actual results in any given year often will differ
from actuarial assumptions because of demographic, economic and
other factors.
The discount rate enables us to estimate the present value of
expected future cash flows on the measurement date. The rate
used reflects a rate of return on high-quality fixed income
investments that match the duration of expected benefit payments
at our December 31 measurement date. The discount rate at
December 31 is used to measure the year-end benefit obligations
and the earnings effects for the subsequent year. A lower
discount rate increases the present value of benefit obligations
and increases pension expense.
To determine the expected long-term rate of return on plan
assets, we consider the current and expected asset allocations,
as well as historical and expected returns on various categories
of plan assets. The expected long-term rate of return on plan
assets at December 31 is used to measure the earnings effects
for the subsequent year.
Sensitivity to changes in key assumptions based on year-end data
is as follows:
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•
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A change of 1.0 percent in the discount rate would change
our total pension expense by approximately $1.6 million.
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•
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A change of 1.0 percent in the expected long-term rate of
return on plan assets would change total pension expense by
approximately $2.2 million.
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Nonpension
Postretirement Assumptions
We use various actuarial assumptions, including the discount
rate and the expected trend in health care costs, to estimate
the costs and benefit obligations for our retiree welfare plan.
The discount rate is determined based on high-quality fixed
income investments that match the duration of expected retiree
medical benefits at our December 31 measurement date. The
discount rate at December 31 is used to measure the year-end
benefit obligations and the earnings effects for the subsequent
year. The following are the actuarial assumptions used to
determine the benefit obligations and pretax income effect for
our nonpension postretirement benefits:
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U.S. Plans
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Non-U.S. Plans
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2008
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2007
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2006
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2008
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2007
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2006
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Discount rate
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6.36
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%
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|
6.16
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%
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5.77
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%
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5.98
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%
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5.14
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%
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|
|
4.87
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%
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|
Initial health care trend
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|
7.50
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%
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|
8.00
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%
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|
8.50
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%
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|
7.50
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%
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|
|
8.00
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%
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|
8.50
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%
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Ultimate health care trend
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|
|
5.00
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%
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|
5.00
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%
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|
5.00
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%
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|
5.00
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%
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|
|
5.00
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%
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|
5.00
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%
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|
Years to reach ultimate trend rate
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|
5
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7
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7
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5
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7
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7
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|
Sensitivity to changes in key assumptions is as follows:
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|
•
|
A change of 1.0 percent in the discount rate would change
the nonpension postretirement expense by $0.3 million.
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•
|
A change of 1.0 percent in the health care trend rate would
not have a material impact upon the nonpension postretirement
expense.
|
Income
Taxes
The company is subject to income taxes in the U.S. and
various foreign jurisdictions. Management judgment is required
in evaluating our tax positions and determining our provision
for income taxes. Throughout the course of business, there are
numerous transactions and calculations for which the ultimate
tax determination is uncertain. When management believes certain
tax positions may be challenged despite our belief that the tax
return positions are supportable, the company establishes
reserves for tax uncertainties based on estimates of whether
additional taxes will be due. We adjust these reserves taking
into consideration changing facts and circumstances, such as an
outcome of a tax audit. The income tax provision includes the
impact of reserve provisions and changes to reserves
43
that are considered appropriate. Accruals for tax contingencies
are provided for in accordance with the requirements of
FIN 48.
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. FAS No. 109, “Accounting
for 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 the Company
conducts its operations or otherwise incurs taxable income or
losses. We have recorded valuation allowances against our U.S.,
Netherlands, Portugal and China deferred income tax assets and
against certain deferred income tax assets in Mexico.
Derivatives
and Hedging
We use derivatives to manage a variety of risks, including risks
related to interest rates and commodity prices. Accounting for
derivatives as hedges requires that, at inception and over the
term of the arrangement, the hedged item and related derivative
meet the requirements for hedge accounting. The rules and
interpretations related to derivatives accounting are complex.
Failure to apply this complex guidance will result in all
changes in the fair value of the derivative being reported in
earnings, without regard to the offsetting in the fair value of
the hedged item. The accompanying financial statements reflect
consequences of loss hedge accounting for certain positions.
In evaluating whether a particular relationship qualifies for
hedge accounting, we first determine whether the relationship
meets the strict criteria to qualify for exemption from ongoing
effectiveness testing. For a relationship that does not meet
these criteria, we test effectiveness at inception and quarterly
thereafter by determining whether changes in the fair value of
the derivative offset, within a specified range, change the fair
value of the hedged item. If the fair value changes fail this
test, we discontinue applying hedge accounting to that
relationship prospectively.
Stock-Based
Compensation Expense
On January 1, 2006, we adopted
SFAS 123-R,
which requires the measurement and recognition of compensation
expense for all share-based payment awards made to our employees
and directors. Stock-based compensation expense recognized under
SFAS 123-R
for fiscal 2008 was $3.5 million.
Upon adoption of
SFAS 123-R,
we began estimating the value of employee share-based
compensation on the date of grant using the Black-Scholes model.
The determination of fair value of share-based payment awards on
the date of grant using an option-pricing model is affected by
our stock price as well as assumptions regarding a number of
highly complex and subjective variables. These variables
include, but are not limited to, the expected stock price
volatility over the term of the award, and actual and projected
employee stock option exercise behaviors. The use of the
Black-Scholes model requires extensive actual employee exercise
behavior data and a number of complex assumptions including
expected volatility, risk-free interest rate, and expected
dividends. See note 14 of the Consolidated Financial
Statements for additional information.
New
Accounting Standards
In September 2006, the FASB issued SFAS No. 157,
“Fair Value Measurements” (“SFAS 157”).
SFAS 157 defines fair value, establishes a framework for
measuring fair value, and expands disclosure about fair value
measurements. This statement clarifies how to measure fair value
as permitted under other accounting pronouncements but does not
require any new fair value measurements. In February 2008, the
FASB issued FASB Staff Position
157-2,
“Effective Date of FASB Statement No. 157,”
(“FSP157-2”) which delays until January 1, 2009
the effective date of SFAS 157 for nonfinancial assets and
liabilities, except for those that are recognized or disclosed
at fair value in the financial statements on a recurring basis.
In October 2008, the FASB issued FASB Staff Position
157-3,
“Determining the Fair Value of a Financial Asset when the
Market for That Asset is Not Active”
(“FSP 157-3”),
which clarifies the application of SFAS 157 as it relates
to the valuation of financial assets in a market that is not
active for those financial assets.
FSP 157-3
was effective upon issuance. We adopted SFAS 157 as
44
of January 1, 2008, but have not applied it to
non-recurring, nonfinancial assets and liabilities. The adoption
of SFAS 157 and its related FSP’s
(FSP 157-2
and
FSP 157-3)
had no impact on our consolidated results of operations and
financial condition. We will be required to adopt SFAS 157
for nonfinancial assets and liabilities effective beginning on
January 1, 2009. We do not believe adoption of
SFAS 157 for nonfinancial assets and liabilities will have
a material impact on our consolidated financial statements. See
note 17 of the Consolidated Financial Statements for
additional information.
In February 2007, the FASB issued SFAS No. 159,
“The Fair Value Option of Financial Assets and Financial
Liabilities — Including an Amendment of
SFAS No. 115” (“SFAS 159”), which
is effective for fiscal years beginning after November 15,
2007. This statement permits an entity to choose to measure many
financial instruments and certain other items at fair value at
specified election dates. Subsequent unrealized gains and losses
on items for which the fair value option has been elected will
be reported in earnings. We adopted SFAS 159 as of
January 1, 2008. The adoption of SFAS 159 had no
impact on our consolidated results of operations and financial
condition, as we did not elect to apply the provisions of
SFAS 159 to any financial instruments as of January 1,
2008.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), “Business Combinations”
(“SFAS 141R”), which changes how business
combinations are accounted for and will impact financial
statements both on the acquisition date and in subsequent
periods. SFAS 141R is effective January 1, 2009 for
Libbey and will be applied prospectively. The impact of adopting
SFAS 141R will depend on the nature and terms of future
acquisitions.
In December 2007, the FASB issued SFAS No. 160,
“Noncontrolling Interests in Consolidated Financial
Statements” (“SFAS 160”), which changes the
accounting and reporting standards for the noncontrolling
interests in a subsidiary in consolidated financial statements.
SFAS 160 recharacterizes minority interests as
noncontrolling interests and requires noncontrolling interests
to be classified as a component of shareholders equity.
SFAS 160 is effective January 1, 2009 for Libbey, and
requires retroactive adoption of the presentation and disclosure
requirements for existing minority interests. We do not believe
adoption of SFAS 160 will have a material impact on our
consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161,
“Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133”
(“SFAS 161”), which requires additional
disclosures about the objectives of the derivative instruments
and hedging activities, the method of accounting for such
instruments under SFAS No. 133 and its related
interpretations, and a tabular disclosure of the effects of such
instruments and related hedged items on our financial position,
financial performance, and cash flows. SFAS 161 is
effective for Libbey beginning January 1, 2009. We are
currently evaluating the potential impact, if any, of adoption
of SFAS 161 on our consolidated financial statements.
In April 2008, the FASB issued Staff Position
No. FAS 142-3,
“Determination of the Useful Life of Intangible
Assets”
(“FSP 142-3”),
which amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under FASB Statement
No. 142, “Goodwill and Other Intangible Assets.”
FSP 142-3
is effective beginning on January 1, 2009. We are currently
evaluating the potential impact, if any, of the adoption of
FSP 142-3
on our consolidated financial statements.
In May 2008, the FASB issued SFAS No. 162, “The
Hierarchy of Generally Accepted Accounting Principles”
(“SFAS 162”), which identifies the sources of
accounting principles and the framework for selecting the
principles to be used in the preparation of financial
statements. The implementation of this standard will not have a
material impact on our consolidated financial statements.
In June 2008, the FASB ratified EITF Issue
No. 07-5,
“Determining Whether an Instrument (or an Embedded Feature)
Is Indexed to an Entity’s Own Stock”
(“EITF 07-5”).
EITF 07-5
provides that an entity should use a two-step approach to
evaluate whether an equity-linked financial instrument (or
embedded feature) is indexed to its own stock, including
evaluating the instrument’s contingent exercise and
settlement provisions. It also clarifies the impact of foreign
currency denominated strike prices and market-based employee
stock option valuation instruments on the evaluation.
EITF 07-5
is effective for fiscal years beginning after December 15,
2008. We are currently evaluating the impact of
EITF 07-5,
if any, on our consolidated financial statements.
In June 2008, the FASB issued FASB Staff Position
No. EITF 03-6-1,
“Determining Whether Instruments Granted in Share-Based
Payment Transactions are Participating Securities”
(“FSP 03-6-1”).
FSP 03-6-1
addresses
45
whether instruments granted in share-based payment transactions
are participating securities prior to vesting and, therefore,
need to be included in the earnings allocation in computing
earnings per share (EPS) under the two-class method described in
paragraphs 60 and 61 of SFAS No. 128,
“Earnings per Share.”
FSP 03-6-1
is effective for financial statements issued for fiscal years
beginning after December 15, 2008, with all prior period
EPS data being adjusted retrospectively. Early adoption is not
permitted. We are currently evaluating the potential impact, if
any, of the adoption of
FSP 03-6-1
on our consolidated financial statements.
In December 2008, the FASB issued FASB Staff Position 132(R)-1,
“Employers’ Disclosures about Postretirement Benefit
Plan Assets”, (“FSP 132(R)-1”).
FSP 132(R)-1 amends FASB Statement No. 132 (revised
2003) “Employers’ Disclosures about Pensions and
Other Postretirement Benefits” to provide guidance on an
employer’s disclosures about plan assets of a defined
benefit pension or other postretirement plan. FSP 132(R)-1
is effective for financial statements issued for fiscal years
ending after December 15, 2009. We are currently evaluating
the potential impact of the adoption of FSP 132(R)-1, and
it is likely that the adoption of this guidance will increase
the disclosures in the financial statements related to the
assets of our pension and other postretirement benefit plans.
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|
ITEM 7A.
|
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 are exposed to market risk associated with changes in
interest rates on our floating debt and have entered into
Interest Rate Protection Agreements (Rate Agreements) with
respect to $200.0 million of debt as a means to manage our
exposure to fluctuating interest rates. The Rate Agreements
effectively convert this portion of our long-term borrowings
from variable rate debt to fixed-rate debt, thus reducing the
impact of interest rate changes on future income. We had
$204.3 million of debt subject to fluctuating interest
rates at December 31, 2008. A change of one percentage
point in such rates would result in a change in interest expense
of approximately $2.0 million on an annual basis. If the
counterparties to these Rate Agreements were to fail to perform,
we would no longer be protected from interest rate fluctuations
by these Rate Agreements. However, we do not anticipate
nonperformance by the counterparties. All interest rate swap
counterparties were rated AA- or better as of December 31,
2008, 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
natural gas requirements of our manufacturing operations. The
objective of these futures contracts is to limit the
fluctuations in prices paid on 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, generally six
or more 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
46
do not anticipate nonperformance by these counterparties. All
counterparties were rated A and AA- as of December 2008 by
Standard and Poors.
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 and related pension expense and cash funding
requirements. Sensitivity to these key market risk factors is as
follows:
|
|
|
|
|
|
•
|
A change of 1.0 percent in the discount rate would change
our total expense by approximately $1.9 million.
|
|
|
|
|
•
|
A change of 1.0 percent in the expected long-term rate of
return on plan assets would change total pension expense by
approximately $2.2 million.
|
47
|
|
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
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Page
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|
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|
|
|
|
49
|
|
|
|
|
|
51
|
|
|
For the years ended December 31, 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
53
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
55
|
|
|
|
|
|
60
|
|
|
|
|
|
61
|
|
|
|
|
|
62
|
|
|
|
|
|
64
|
|
|
|
|
|
65
|
|
|
|
|
|
66
|
|
|
|
|
|
71
|
|
|
|
|
|
75
|
|
|
|
|
|
79
|
|
|
|
|
|
83
|
|
|
|
|
|
86
|
|
|
|
|
|
86
|
|
|
|
|
|
93
|
|
|
|
|
|
94
|
|
|
|
|
|
95
|
|
|
|
|
|
96
|
|
|
|
|
|
96
|
|
|
|
|
|
96
|
|
|
|
|
|
99
|
|
|
|
|
|
108
|
|
48
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Libbey Inc.
We have audited the accompanying consolidated balance sheets of
Libbey Inc. as of December 31, 2008 and 2007, and the
related consolidated statements of operations,
shareholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2008. Our audits
also included the financial statement schedule included at
Item 15. These financial statements and schedule are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Libbey Inc. at December 31, 2008 and
2007, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
December 31, 2008, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
As discussed in Note 2 to the consolidated financial
statements, the Company changed its method for accounting for
stock-based compensation and defined benefit pension plans and
other postretirement plans, respectively, in 2006.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Libbey Inc.’s internal control over financial reporting as
of December 31, 2008, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our
report dated March 16, 2009 expressed an unqualified
opinion thereon.
Toledo, Ohio
March 16, 2009
49
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Libbey Inc.
We have audited Libbey Inc.’s internal control over
financial reporting as of December 31, 2008 based on
criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). Libbey Inc.’s
management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting
included in the accompanying Report of Management. Our
responsibility is to express an opinion on the company’s
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Libbey Inc. maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2008, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Libbey Inc. as of
December 31, 2008 and 2007, and the related consolidated
results of operations, shareholders’ equity, and cash flows
for each of the three years in the period ended
December 31, 2008 and our report dated March 16, 2009
expressed an unqualified opinion thereon.
Toledo, Ohio
March 16, 2009
50
Libbey
Inc.
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Footnote Reference
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Dollars in thousands, except per-share amounts
|
|
|
|
|
ASSETS
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash & equivalents
|
|
|
|
|
|
$
|
13,304
|
|
|
$
|
36,539
|
|
|
Accounts receivable — net
|
|
|
(note 3
|
)
|
|
|
76,072
|
|
|
|
93,333
|
|
|
Inventories — net
|
|
|
(note 3
|
)
|
|
|
185,242
|
|
|
|
194,079
|
|
|
Prepaid and other current assets
|
|
|
(notes 3 & 15
|
)
|
|
|
17,167
|
|
|
|
20,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
291,785
|
|
|
|
344,382
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension asset
|
|
|
(note 11
|
)
|
|
|
9,351
|
|
|
|
3,253
|
|
|
Deferred income taxes
|
|
|
(note 10
|
)
|
|
|
—
|
|
|
|
855
|
|
|
Purchased intangible assets — net
|
|
|
(notes 4, 6 & 9
|
)
|
|
|
26,121
|
|
|
|
30,731
|
|
|
Goodwill
|
|
|
(notes 4, 6 & 9
|
)
|
|
|
166,736
|
|
|
|
177,360
|
|
|
Other assets
|
|
|
(note 3
|
)
|
|
|
9,975
|
|
|
|
13,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
|
|
|
|
212,183
|
|
|
|
225,312
|
|
|
Property, plant, and equipment — net
|
|
|
(notes 7 & 9
|
)
|
|
|
317,586
|
|
|
|
329,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
$
|
821,554
|
|
|
$
|
899,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
(note 8
|
)
|
|
$
|
3,284
|
|
|
$
|
622
|
|
|
Accounts payable
|
|
|
|
|
|
|
54,428
|
|
|
|
73,593
|
|
|
Salaries and wages
|
|
|
|
|
|
|
22,597
|
|
|
|
28,659
|
|
|
Accrued liabilities
|
|
|
(note 3
|
)
|
|
|
39,675
|
|
|
|
41,415
|
|
|
Accrued special charges
|
|
|
(note 9
|
)
|
|
|
4,248
|
|
|
|
38
|
|
|
Payable to Vitro
|
|
|
|
|
|
|
—
|
|
|
|
19,575
|
|
|
Pension liability (current portion)
|
|
|
(note 11
|
)
|
|
|
1,778
|
|
|
|
1,883
|
|
|
Nonpension postretirement benefits (current portion)
|
|
|
(note 12
|
)
|
|
|
4,684
|
|
|
|
3,528
|
|
|
Derivative liability
|
|
|
(notes 15 & 17
|
)
|
|
|
17,936
|
|
|
|
1,847
|
|
|
Deferred income taxes
|
|
|
(note 10
|
)
|
|
|
1,279
|
|
|
|
4,462
|
|
|
Long-term debt due within one year
|
|
|
(note 8
|
)
|
|
|
1,117
|
|
|
|
913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
151,026
|
|
|
|
176,535
|
|
|
Long-term debt
|
|
|
(note 8
|
)
|
|
|
545,856
|
|
|
|
495,099
|
|
|
Pension liability
|
|
|
(note 11
|
)
|
|
|
109,505
|
|
|
|
71,709
|
|
|
Nonpension postretirement benefits
|
|
|
(note 12
|
)
|
|
|
57,197
|
|
|
|
45,667
|
|
|
Deferred income taxes
|
|
|
(note 10
|
)
|
|
|
3,648
|
|
|
|
—
|
|
|
Other long-term liabilities
|
|
|
(notes 3, 15 & 17
|
)
|
|
|
12,211
|
|
|
|
17,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
879,443
|
|
|
|
806,356
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, par value $.01 per share, 50,000,000 shares
authorized, 18,697,630 shares issued
(18,697,630 shares issued in 2007)
|
|
|
|
|
|
|
187
|
|
|
|
187
|
|
|
Capital in excess of par value (includes warrants of $1,034 and
485,309 shares in 2008 and 2007)
|
|
|
|
|
|
|
309,275
|
|
|
|
306,874
|
|
|
Treasury stock, at cost, 3,967,486 shares (4,133,074 in
2007)
|
|
|
|
|
|
|
(106,411
|
)
|
|
|
(110,780
|
)
|
|
Retained deficit
|
|
|
|
|
|
|
(145,154
|
)
|
|
|
(60,689
|
)
|
|
Accumulated other comprehensive loss
|
|
|
(note 16
|
)
|
|
|
(115,786
|
)
|
|
|
(42,477
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
|
|
|
|
(57,889
|
)
|
|
|
93,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
|
|
|
|
$
|
821,554
|
|
|
$
|
899,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
51
Libbey
Inc.
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Footnote Reference
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Dollars in thousands, except per-share amounts
|
|
|
|
|
Net sales
|
|
|
(note 2
|
)
|
|
$
|
810,207
|
|
|
$
|
814,160
|
|
|
$
|
689,480
|
|
|
Freight billed to customers
|
|
|
|
|
|
|
2,422
|
|
|
|
2,207
|
|
|
|
2,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
|
|
|
812,629
|
|
|
|
816,367
|
|
|
|
692,401
|
|
|
Cost of sales
|
|
|
(notes 2 & 9
|
)
|
|
|
703,292
|
|
|
|
658,698
|
|
|
|
569,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
109,337
|
|
|
|
157,669
|
|
|
|
123,164
|
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
88,451
|
|
|
|
91,568
|
|
|
|
87,566
|
|
|
Impairment of goodwill
|
|
|
(note 9
|
)
|
|
|
9,434
|
|
|
|
—
|
|
|
|
—
|
|
|
Special charges
|
|
|
(note 9
|
)
|
|
|
17,000
|
|
|
|
—
|
|
|
|
16,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
|
|
|
|
(5,548
|
)
|
|
|
66,101
|
|
|
|
19,264
|
|
|
Equity earnings — pretax
|
|
|
(note 5
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
1,986
|
|
|
Other income (expense)
|
|
|
(notes 9 & 19
|
)
|
|
|
1,119
|
|
|
|
8,778
|
|
|
|
(3,236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings before interest, income taxes and minority
interest
|
|
|
|
|
|
|
(4,429
|
)
|
|
|
74,879
|
|
|
|
18,014
|
|
|
Interest expense
|
|
|
(note 8
|
)
|
|
|
69,720
|
|
|
|
65,888
|
|
|
|
46,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes and minority interest
|
|
|
|
|
|
|
(74,149
|
)
|
|
|
8,991
|
|
|
|
(28,580
|
)
|
|
Provision (benefit) for income taxes
|
|
|
(note 10
|
)
|
|
|
6,314
|
|
|
|
11,298
|
|
|
|
(7,747
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before minority interest
|
|
|
|
|
|
|
(80,463
|
)
|
|
|
(2,307
|
)
|
|
|
(20,833
|
)
|
|
Minority interest
|
|
|
(note 2
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
$
|
(80,463
|
)
|
|
$
|
(2,307
|
)
|
|
$
|
(20,899
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(note 13
|
)
|
|
$
|
(5.48
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(1.47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
(note 13
|
)
|
|
$
|
(5.48
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(1.47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
(note 13
|
)
|
|
|
14,672
|
|
|
|
14,472
|
|
|
|
14,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
(note 13
|
)
|
|
|
14,672
|
|
|
|
14,472
|
|
|
|
14,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
52
Libbey
Inc.
Consolidated
Statements of Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
Common
|
|
|
Capital in
|
|
|
Treasury
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
Stock
|
|
|
Excess of
|
|
|
Stock
|
|
|
Retained
|
|
|
Loss
|
|
|
|
|
|
|
|
Amount(1)
|
|
|
Par Value
|
|
|
Amount(1)
|
|
|
Deficit
|
|
|
(note 16)
|
|
|
Total
|
|
|
|
|
|
|
|
Dollars in thousands, except per-share amounts
|
|
|
|
|
|
|
|
Balance December 31, 2005
|
|
$
|
187
|
|
|
$
|
301,025
|
|
|
$
|
(132,520
|
)
|
|
$
|
(17,966
|
)
|
|
$
|
(31,121
|
)
|
|
$
|
119,605
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,899
|
)
|
|
|
|
|
|
|
(20,899
|
)
|
|
Effect of derivatives — net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,829
|
)
|
|
|
(6,829
|
)
|
|
Net minimum pension liability (including equity
investments) — net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,650
|
|
|
|
10,650
|
|
|
Effect of exchange rate fluctuation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,070
|
|
|
|
3,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
(note 16)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,008
|
)
|
|
Adoption of FAS 158 — net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,779
|
)
|
|
|
(21,779
|
)
|
|
Stock compensation expense
|
|
|
|
|
|
|
1,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,322
|
|
|
Issuance of warrants
|
|
|
|
|
|
|
1,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,034
|
|
|
Stock issued from treasury
|
|
|
|
|
|
|
|
|
|
|
3,093
|
|
|
|
|
|
|
|
|
|
|
|
3,093
|
|
|
Dividends — $0.10 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,417
|
)
|
|
|
|
|
|
|
(1,417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2006
|
|
|
187
|
|
|
|
303,381
|
|
|
|
(129,427
|
)
|
|
|
(40,282
|
)
|
|
|
(46,009
|
)
|
|
|
87,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,307
|
)
|
|
|
|
|
|
|
(2,307
|
)
|
|
Effect of derivatives — net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,224
|
)
|
|
|
(3,224
|
)
|
|
Net minimum pension liability — net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,956
|
)
|
|
|
(2,956
|
)
|
|
Effect of exchange rate fluctuation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,712
|
|
|
|
9,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
(note 16)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,225
|
|
|
Stock options exercised
|
|
|
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88
|
|
|
Income tax benefit on stock options
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
Stock compensation expense
|
|
|
|
|
|
|
3,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,385
|
|
|
Stock issued from treasury
|
|
|
|
|
|
|
|
|
|
|
18,647
|
|
|
|
(16,654
|
)
|
|
|
|
|
|
|
1,993
|
|
|
Dividends — $0.10 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,446
|
)
|
|
|
|
|
|
|
(1,446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2007
|
|
|
187
|
|
|
|
306,874
|
|
|
|
(110,780
|
)
|
|
|
(60,689
|
)
|
|
|
(42,477
|
)
|
|
|
93,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(80,463
|
)
|
|
|
|
|
|
|
(80,463
|
)
|
|
Effect of derivatives — net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,300
|
)
|
|
|
(10,300
|
)
|
|
Net minimum pension liability — net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58,607
|
)
|
|
|
(58,607
|
)
|
|
Effect of exchange rate fluctuation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,402
|
)
|
|
|
(4,402
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
(note 16)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(153,772
|
)
|
|
Stock compensation expense
|
|
|
|
|
|
|
3,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,466
|
|
|
Stock issued from treasury
|
|
|
|
|
|
|
(1,065
|
)
|
|
|
4,369
|
|
|
|
(2,536
|
)
|
|
|
|
|
|
|
768
|
|
|
Dividends — $0.10 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,466
|
)
|
|
|
|
|
|
|
(1,466
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2008
|
|
$
|
187
|
|
|
$
|
309,275
|
|
|
$
|
(106,411
|
)
|
|
$
|
(145,154
|
)
|
|
$
|
(115,786
|
)
|
|
$
|
(57,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Share amounts are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Treasury
|
|
|
|
|
|
|
|
Shares
|
|
|
Stock Shares
|
|
|
Total
|
|
|
|
|
Balance December 31, 2005
|
|
|
18,689,710
|
|
|
|
4,681,721
|
|
|
|
14,007,989
|
|
|
Stock issued from treasury
|
|
|
—
|
|
|
|
(323,546
|
)
|
|
|
323,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2006
|
|
|
18,689,710
|
|
|
|
4,358,175
|
|
|
|
14,331,535
|
|
|
Stock options exercised
|
|
|
7,920
|
|
|
|
—
|
|
|
|
7,920
|
|
|
Stock issued from treasury
|
|
|
—
|
|
|
|
(225,101
|
)
|
|
|
225,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2007
|
|
|
18,697,630
|
|
|
|
4,133,074
|
|
|
|
14,564,556
|
|
|
Stock issued from treasury
|
|
|
—
|
|
|
|
(165,588
|
)
|
|
|
165,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2008
|
|
|
18,697,630
|
|
|
|
3,967,486
|
|
|
|
14,730,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
53
Libbey
Inc.
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Footnote Reference
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
$
|
(80,463
|
)
|
|
$
|
(2,307
|
)
|
|
$
|
(20,899
|
)
|
|
Adjustments to reconcile net loss to net cash (used in) provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(notes 6 & 7
|
)
|
|
|
44,430
|
|
|
|
41,572
|
|
|
|
35,720
|
|
|
Loss (gain) on sale of assets
|
|
|
|
|
|
|
101
|
|
|
|
(4,923
|
)
|
|
|
—
|
|
|
Equity earnings — net of tax
|
|
|
(note 5
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,493
|
)
|
|
Change in accounts receivable
|
|
|
|
|
|
|
16,518
|
|
|
|
3,951
|
|
|
|
9,745
|
|
|
Change in inventories
|
|
|
|
|
|
|
(2,027
|
)
|
|
|
(22,949
|
)
|
|
|
10,545
|
|
|
Change in accounts payable
|
|
|
|
|
|
|
(19,460
|
)
|
|
|
5,726
|
|
|
|
(739
|
)
|
|
PIK interest
|
|
|
(note 8
|
)
|
|
|
21,249
|
|
|
|
18,217
|
|
|
|
—
|
|
|
Income taxes
|
|
|
(note 10
|
)
|
|
|
9,275
|
|
|
|
10,271
|
|
|
|
(30,995
|
)
|
|
Special charges
|
|
|
(note 9
|
)
|
|
|
46,326
|
|
|
|
(920
|
)
|
|
|
20,023
|
|
|
Change in Vitro payable
|
|
|
(note 4
|
)
|
|
|
(19,575
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Pension and postretirement
|
|
|
(notes 11 & 12
|
)
|
|
|
(18,604
|
)
|
|
|
(3,061
|
)
|
|
|
9,885
|
|
|
Accrued interest and amortization of discounts, warrants and
financing fees
|
|
|
|
|
|
|
4,165
|
|
|
|
4,578
|
|
|
|
5,868
|
|
|
Accrued liabilities and prepaid expenses
|
|
|
|
|
|
|
(6,634
|
)
|
|
|
(2,004
|
)
|
|
|
13,706
|
|
|
Other operating activities
|
|
|
|
|
|
|
3,659
|
|
|
|
3,306
|
|
|
|
3,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
|
|
|
|
(1,040
|
)
|
|
|
51,457
|
|
|
|
54,858
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
|
|
|
|
(45,717
|
)
|
|
|
(43,121
|
)
|
|
|
(73,598
|
)
|
|
Acquisition and related costs, net of cash acquired
|
|
|
(note 4
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(78,434
|
)
|
|
Proceeds from asset sales and other
|
|
|
|
|
|
|
117
|
|
|
|
8,213
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(45,600
|
)
|
|
|
(34,908
|
)
|
|
|
(152,032
|
)
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings/(repayments) on ABL credit facility
|
|
|
|
|
|
|
30,601
|
|
|
|
(41,122
|
)
|
|
|
43,968
|
|
|
Net revolving credit facility
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(149,078
|
)
|
|
Other net borrowings (repayments)
|
|
|
|
|
|
|
(3,307
|
)
|
|
|
20,272
|
|
|
|
(81,030
|
)
|
|
Other borrowings
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31,393
|
|
|
Note payments
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(100,000
|
)
|
|
Note proceeds
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
407,260
|
|
|
Debt financing fees
|
|
|
|
|
|
|
—
|
|
|
|
(219
|
)
|
|
|
(15,798
|
)
|
|
Stock options exercised
|
|
|
(note 14
|
)
|
|
|
—
|
|
|
|
108
|
|
|
|
—
|
|
|
Dividends paid
|
|
|
|
|
|
|
(1,466
|
)
|
|
|
(1,446
|
)
|
|
|
(1,417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
|
|
|
|
25,828
|
|
|
|
(22,407
|
)
|
|
|
135,298
|
|
|
Effect of exchange rate fluctuations on cash
|
|
|
|
|
|
|
(2,423
|
)
|
|
|
631
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash
|
|
|
|
|
|
|
(23,235
|
)
|
|
|
(5,227
|
)
|
|
|
38,524
|
|
|
Cash & equivalents at beginning of year
|
|
|
|
|
|
|
36,539
|
|
|
|
41,766
|
|
|
|
3,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash & equivalents at end of year
|
|
|
|
|
|
$
|
13,304
|
|
|
$
|
36,539
|
|
|
$
|
41,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flows information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for interest
|
|
|
|
|
|
$
|
42,888
|
|
|
$
|
43,340
|
|
|
$
|
28,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash (refunded) paid during the year for income taxes
|
|
|
|
|
|
$
|
(2,276
|
)
|
|
$
|
(6,128
|
)
|
|
$
|
12,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
54
LIBBEY
INC.
Notes to
Consolidated Financial Statements
(Dollars
in thousands, except share data and per-share amounts)
|
|
|
|
1.
|
Description
of the Business
|
Libbey is the leading producer of glass tableware products in
the Western Hemisphere, in addition to supplying to 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 own and
operate a ceramic dinnerware plant in New York (see note 9
on closure effective April, 2009) 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 allows us to
compete in the global tableware market by offering an extensive
product line at competitive prices.
|
|
|
|
2.
|
Significant
Accounting Policies
|
Basis of Presentation
The Consolidated
Financial Statements include Libbey Inc. and its majority-owned
subsidiaries (collectively, Libbey or the Company). Our fiscal
year end is December 31st. Prior to June 16, 2006, we
recorded our 49 percent interest in Crisa using the equity
method. On June 16, 2006, we acquired the remaining
51 percent of Crisa; as a result, effective that date
Crisa’s results are included in the Consolidated Financial
Statements. Prior to October 13, 2006, we owned
95 percent of Crisal-Cristalaria Automatica S.A. (Crisal).
The 5 percent equity interest of Crisal that we did not own
prior to October 13, 2006 is shown as minority interest in
the Consolidated Financial Statements. On October 13, 2006,
we acquired the remaining 5 percent of Crisal. 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 Consolidated Financial Statements and accompanying notes.
Actual results could differ materially from management’s
estimates.
Consolidated Statements of
Operations
Net sales in our 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,
royalty expense and other costs.
Revenue Recognition
Revenue is
recognized 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. We estimate
returns, discounts and incentives at the time of sale based on
the terms of the agreements, historical experience and
forecasted sales. We continually evaluate the adequacy of these
methods used to estimate returns, discounts and incentives.
Cash and cash equivalents
The Company
considers all highly liquid investments purchased with an
original or remaining maturity of less than three months at the
date of purchase to be cash equivalents. Cash and cash
equivalents are maintained with various financial institutions.
Accounts Receivable and Allowance for Doubtful
Accounts
We record trade receivables when
revenue is recorded in accordance with our revenue recognition
policy and relieve accounts receivable when payments are
received from customers. The allowance for doubtful accounts is
established through charges to the provision for bad debts. We
regularly evaluate the adequacy of the allowance for doubtful
accounts based on historical trends in collections and
write-offs, our judgment as to the probability of collecting
accounts and our evaluation of business risk. This evaluation is
inherently subjective, as it requires estimates that are
susceptible to revision as more information becomes available.
Accounts are determined to be uncollectible when the debt is
deemed to be worthless or only recoverable in part and are
written off at that time through a charge against the allowance.
55
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Inventory Valuation
Inventories are
valued at the lower of cost or market. The
last-in,
first-out (LIFO) method was used for 34.5 percent and
40.7 percent of our inventories in 2008 and 2007,
respectively. The remaining inventories are valued using either
the
first-in,
first-out (FIFO) or average cost method. For those inventories
valued on the LIFO method, the excess of FIFO, or weighted
average cost over LIFO, was $18.3 million and
$17.4 million for 2008 and 2007, respectively.
Purchased Intangible Assets and
Goodwill
Statement of Financial Accounting
Standards (SFAS) No. 142, “Goodwill and Other
Intangible Assets” (SFAS No. 142), requires
goodwill and purchased indefinite life intangible assets to be
reviewed for impairment annually, or more frequently if
impairment indicators arise. Intangible assets with lives
restricted by contractual, legal or other means will continue to
be amortized over their useful lives. As of
October 1st of each year, we update our separate
impairment evaluations for both goodwill and indefinite life
intangible assets. In 2008 and 2007, our
October 1st assessment did not indicate any impairment
of goodwill or indefinite life intangibles. However, in the
fourth quarter of 2008, we identified certain indicators of
impairment and we updated our review as of December 31st.
Our December 31st assessment resulted in an impairment
of goodwill and purchased intangible assets of
$11.9 million in our International segment and
$0.3 million related to our Syracuse China subsidiary. For
further disclosure on goodwill and intangibles, see note 6.
Software
We account for software in
accordance with Statement of Position (SOP)
98-1,
“Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use.” Software represents the costs
of internally developed and purchased software packages for
internal use. Capitalized costs include software packages,
installation
and/or
internal labor costs. These costs generally are amortized over a
five-year period.
Property, Plant and Equipment
Property,
plant and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets, generally
3 to 14 years for equipment and furnishings and 10 to
40 years for buildings and improvements. Maintenance and
repairs are expensed as incurred.
Long-lived assets to be held and used are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable.
Measurement of an impairment loss for long-lived assets that we
expect to hold and use is based on the fair value of the asset.
Long-lived assets to be disposed of are reported at the lower of
carrying amount or fair value less costs to sell. Due to the
announcement of our closure of our Syracuse China manufacturing
facility and our Mira Loma distribution center, we wrote down
the values of certain assets to fair value. See note 9 for
further disclosure.
Self-Insurance Reserves
Self-Insurance
reserves reflect the estimated liability for group health and
workers’ compensation claims not covered by third-party
insurance. We accrue estimated losses based on actuarial models
and assumptions as well as our historical loss experience.
Workers’ compensation accruals are recorded at the
estimated ultimate payout amounts based on individual case
estimates. In addition, we record estimates of
incurred-but-not-reported losses based on actuarial models.
Pension and Nonpension Postretirement
Benefits
Effective January 1, 2006, we
adopted SFAS No. 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans — an
amendment of FASB Statements No. 87, 88, 106 and 132 R
(effective December 31, 2006). SFAS 158 requires
recognition of the over-funded or under-funded status of pension
and other postretirement benefit plans on the balance sheet.
Under SFAS 158, gains and losses, prior service costs and
credits and any remaining prior transaction amounts under
SFAS 87 and SFAS 106 that have not yet been recognized
through net periodic benefit cost are recognized in accumulated
other comprehensive income, net of tax effect where appropriate.
The U.S. pension plans cover our hourly employees and those
salaried
U.S.-based
employees hired before January 1, 2006. The
non-U.S. pension
plans cover the employees of our wholly-owned subsidiaries Royal
Leerdam, located in the Netherlands, and Crisa, located in
Mexico, and our active Canadian employees. For further
discussion see note 11.
56
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
We also provide certain postretirement health care and life
insurance benefits covering substantially all U.S. and
Canadian salaried employees hired before January 1, 2004.
Employees are generally eligible for benefits upon reaching a
certain age and completion of a specified number of years of
creditable service. Benefits for most hourly retirees are
determined by collective bargaining. Under a cross-indemnity
agreement, Owens-Illinois, Inc. assumed liability for the
nonpension postretirement benefit of our retirees who had
retired as of June 24, 1993. Therefore, the benefits
related to these retirees are not included in our liability.
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.
FAS No. 109, “Accounting for 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 the Company
conducts its operations or otherwise incurs taxable income or
losses. In the United States, the Company has recorded a full
valuation allowance against its deferred income tax assets. In
addition, valuation allowances have been recorded in the
Netherlands, Portugal, Mexico and China.
Effective January 1, 2007, we adopted FASB Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes an
Interpretation of FASB Statement No. 109”
(“FIN 48”). FIN 48 clarifies the accounting
for uncertainty in income taxes by establishing minimum
standards for the recognition and measurement of tax positions
taken or expected to be taken in a tax return. Under the
requirements of FIN 48, we must review all of our tax
positions and make a determination as to whether our position is
more likely than not to be sustained upon examination by taxing
authorities. If a tax position meets the more likely than not
standard, then the related tax benefit is measured based on a
cumulative probability analysis of the amount that is more
likely than not to be realized upon ultimate settlement or
disposition of the underlying issue. See note 10 for
further disclosure.
Derivatives
We account for derivatives
in accordance with SFAS No. 133, “Accounting for
Derivative Instruments and Hedging Activities,” as amended
by SFAS Nos. 137 and 138. We hold derivative financial
instruments to hedge certain of our interest rate risks
associated with long-term debt, commodity price risks associated
with forecasted future natural gas requirements and foreign
exchange rate risks associated with occasional transactions
denominated in a currency other than the U.S. dollar. These
derivatives (except for all natural gas contracts entered into
by Crisa before our June 16, 2006 acquisition of the
remaining 51 percent of Crisa, the foreign currency
contracts and some natural gas contracts at Syracuse China)
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 earnings. See
additional discussion at note 15.
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 income. 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).
Stock-Based Compensation
Expense
Effective January 1, 2006, we
adopted SFAS No. 123 (revised 2004), “Share-Based
Payment”
(SFAS No. 123-R)
“Accounting for Stock-Based Compensation”
(SFAS No. 123), which requires share-based
compensation transactions to be accounted for using a
fair-value-based method and the resulting cost recognized in our
financial statements. Share-based compensation cost is measured
based on the fair value of the
57
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
equity 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. The impact of applying the
provisions of
SFAS No. 123-R
was a pre-tax charge of $3.5 million, $3.4 million and
$1.3 million, respectively for 2008, 2007 and 2006. See
note 14 for additional information.
Research and Development
Research and
development costs are charged to the Consolidated Statements of
Operations when incurred. Expenses for 2008, 2007 and 2006,
respectively, were $1.7 million, $1.5 million and
$2.3 million.
Advertising Costs
We expense all
advertising costs as incurred, and the amounts were immaterial
for all periods presented.
Computation of Income Per Share of Common
Stock
Basic net income per share of common
stock is computed using the weighted average number of shares of
common stock outstanding during the period. Diluted net income
per share of common stock is computed using the weighted average
number of shares of common stock outstanding and dilutive
potential common share equivalents during the period.
Treasury Stock
Treasury stock purchases
are recorded at cost. During 2008, 2007 and 2006, we did not
purchase any treasury stock. During 2008, 2007, and 2006, we
issued 165,588, 225,101 and 323,546 shares from treasury
stock at an average cost of $26.39, $28.68, and $31.15
respectively.
Reclassifications
Certain amounts in
prior years’ financial statements have been reclassified to
conform to the presentation used in the year ended
December 31, 2008.
New Accounting Standards
In September
2006, the FASB issued SFAS No. 157, “Fair Value
Measurements”
(“SFAS 157”). SFAS 157 defines
fair value, establishes a framework for measuring fair value,
and expands disclosure about fair value measurements. This
statement clarifies how to measure fair value as permitted under
other accounting pronouncements but does not require any new
fair value measurements. In February 2008, the FASB issued FASB
Staff Position
157-2,
“Effective Date of FASB Statement No. 157,”
(“FSP157-2”) which delays until January 1, 2009
the effective date of SFAS 157 for nonfinancial assets and
liabilities, except for those that are recognized or disclosed
at fair value in the financial statements on a recurring basis.
In October 2008, the FASB issued FASB Staff Position
157-3,
“Determining the Fair Value of a Financial Asset when the
Market for That Asset is Not Active”
(“FSP 157-3”),
which clarifies the application of SFAS 157 as it relates
to the valuation of financial assets in a market that is not
active for those financial assets.
FSP 157-3
was effective upon issuance. We adopted SFAS 157 as of
January 1, 2008, but have not applied it to non-recurring,
nonfinancial assets and liabilities. The adoption of
SFAS 157 and its related FSP’s
(FSP 157-2
and
FSP 157-3)
had no impact on our consolidated results of operations and
financial condition. We will be required to adopt SFAS 157
for nonfinancial assets and liabilities effective beginning on
January 1, 2009. We do not believe adoption of
SFAS 157 for financial assets and liabilities will have a
material impact on our consolidated financial statements. See
note 17 of the Consolidated Financial Statements for
additional information.
In February 2007, the FASB issued SFAS No. 159,
“The Fair Value Option of Financial Assets and Financial
Liabilities — Including an Amendment of
SFAS No. 115” (“SFAS 159”), which
is effective for fiscal years beginning after November 15,
2007. This statement permits an entity to choose to measure many
financial instruments and certain other items at fair value at
specified election dates. Subsequent unrealized gains and losses
on items for which the fair value option has been elected will
be reported in earnings. We adopted SFAS 159 as of
January 1, 2008. The adoption of SFAS 159 had no
impact on our consolidated results of operations and financial
condition, as we did not elect to apply the provisions of
SFAS 159 to any financial instruments as of January 1,
2008.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), “Business Combinations”
(“SFAS 141R”), which changes how business
combinations are accounted for and will impact financial
statements both on the acquisition date and in subsequent
periods. SFAS 141R is effective January 1, 2009 for
Libbey and will be applied prospectively. The impact of adopting
SFAS 141R will depend on the nature and terms of future
acquisitions.
58
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
In December 2007, the FASB issued SFAS No. 160,
“Noncontrolling Interests in Consolidated Financial
Statements” (“SFAS 160”), which changes the
accounting and reporting standards for the noncontrolling
interests in a subsidiary in consolidated financial statements.
SFAS 160 recharacterizes minority interests as
noncontrolling interests and requires noncontrolling interests
to be classified as a component of shareholders equity.
SFAS 160 is effective January 1, 2009 for Libbey, and
requires retroactive adoption of the presentation and disclosure
requirements for existing minority interests. We do not believe
adoption of SFAS 160 will have a material impact on our
consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161,
“Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133”
(“SFAS 161”), which requires additional
disclosures about the objectives of the derivative instruments
and hedging activities, the method of accounting for such
instruments under SFAS No. 133 and its related
interpretations, and a tabular disclosure of the effects of such
instruments and related hedged items on our financial position,
financial performance, and cash flows. SFAS 161 is
effective for Libbey beginning January 1, 2009. We are
currently evaluating the potential impact, if any, of adoption
of SFAS 161 on our consolidated financial statements.
In April 2008, the FASB issued Staff Position
No. FAS 142-3,
“Determination of the Useful Life of Intangible
Assets”
(“FSP 142-3”),
which amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under FASB Statement
No. 142, “Goodwill and Other Intangible Assets.”
FSP 142-3
is effective beginning on January 1, 2009. We are currently
evaluating the potential impact, if any, of the adoption of
FSP 142-3
on our consolidated financial statements.
In May 2008, the FASB issued SFAS No. 162, “The
Hierarchy of Generally Accepted Accounting Principles”
(“SFAS 162”), which identifies the sources of
accounting principles and the framework for selecting the
principles to be used in the preparation of financial
statements. The implementation of this standard will not have a
material impact on our consolidated financial statements.
In June 2008, the FASB ratified EITF Issue
No. 07-5,
“Determining Whether an Instrument (or an Embedded Feature)
Is Indexed to an Entity’s Own Stock”
(“EITF 07-5”).
EITF 07-5
provides that an entity should use a two-step approach to
evaluate whether an equity-linked financial instrument (or
embedded feature) is indexed to its own stock, including
evaluating the instrument’s contingent exercise and
settlement provisions. It also clarifies the impact of foreign
currency denominated strike prices and market-based employee
stock option valuation instruments on the evaluation.
EITF 07-5
is effective for fiscal years beginning after December 15,
2008. We are currently evaluating the impact of
EITF 07-5,
if any, of the adoption of
EITF 07-5
on our consolidated financial statements.
In June 2008, the FASB issued FASB Staff Position
No. EITF 03-6-1,
“Determining Whether Instruments Granted in Share-Based
Payment Transactions are Participating Securities”
(“FSP 03-6-1”).
FSP 03-6-1
addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting and,
therefore, need to be included in the earnings allocation in
computing earnings per share (EPS) under the two-class method
described in paragraphs 60 and 61 of
SFAS No. 128, “Earnings per Share.”
FSP 03-6-1
is effective for financial statements issued for fiscal years
beginning after December 15, 2008, with all prior period
EPS data being adjusted retrospectively. Early adoption is not
permitted. We are currently evaluating the potential impact, if
any, of the adoption of
FSP 03-6-1
on our consolidated financial statements.
In December 2008, the FASB issued FASB Staff Position 132(R)-1,
“Employers’ Disclosures about Postretirement Benefit
Plan Assets” (“FSP 132(R)-1”).
FSP 132(R)-1 amends FASB Statement No. 132 (revised
2003), “Employers’ Disclosures about Pensions and
Other Postretirement Benefits,” to provide guidance on an
employer’s disclosures about plan assets of a defined
benefit pension or other postretirement plan. FSP 132(R)-1
is effective for financial statements issued for fiscal years
ending after December 15, 2009. We are currently evaluating
the potential impact of the adoption of FSP 132(R)-1, and
it is likely that the adoption of this guidance will increase
the disclosures in the financial statements related to the
assets of our pension and other postretirement benefit plans.
59
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
The following tables provide detail of selected balance sheet
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
$
|
74,393
|
|
|
$
|
91,435
|
|
|
Other receivables
|
|
|
1,679
|
|
|
|
1,898
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accounts receivable, less allowances of $10,479 and $11,711
|
|
$
|
76,072
|
|
|
$
|
93,333
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories:
|
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$
|
163,817
|
|
|
$
|
170,386
|
|
|
Work in process
|
|
|
2,805
|
|
|
|
4,052
|
|
|
Raw materials
|
|
|
5,748
|
|
|
|
5,668
|
|
|
Repair parts
|
|
|
10,271
|
|
|
|
11,137
|
|
|
Operating supplies
|
|
|
2,601
|
|
|
|
2,836
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventories, less allowances of $6,582 and $6,435
|
|
$
|
185,242
|
|
|
$
|
194,079
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid and other current assets:
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
$
|
14,865
|
|
|
$
|
13,551
|
|
|
Derivative asset
|
|
|
—
|
|
|
|
359
|
|
|
Refundable and prepaid income taxes
|
|
|
2,302
|
|
|
|
6,521
|
|
|
|
|
|
|
|
|
|
|
|
|
Total prepaid and other current assets
|
|
$
|
17,167
|
|
|
$
|
20,431
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
43
|
|
|
$
|
596
|
|
|
Finance fees — net of amortization
|
|
|
8,183
|
|
|
|
11,194
|
|
|
Other
|
|
|
1,749
|
|
|
|
1,323
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
$
|
9,975
|
|
|
$
|
13,113
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
|
Accrued incentives
|
|
$
|
12,760
|
|
|
$
|
14,236
|
|
|
Workers compensation
|
|
|
9,384
|
|
|
|
9,485
|
|
|
Medical liabilities
|
|
|
2,736
|
|
|
|
2,450
|
|
|
Interest
|
|
|
4,575
|
|
|
|
5,218
|
|
|
Commissions payable
|
|
|
1,135
|
|
|
|
1,381
|
|
|
Accrued liabilities
|
|
|
9,085
|
|
|
|
8,645
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accrued liabilities
|
|
$
|
39,675
|
|
|
$
|
41,415
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities:
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
3,693
|
|
|
$
|
5,249
|
|
|
Deferred liability
|
|
|
1,566
|
|
|
|
1,254
|
|
|
Other
|
|
|
6,952
|
|
|
|
10,843
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other long-term liabilities
|
|
$
|
12,211
|
|
|
$
|
17,346
|
|
|
|
|
|
|
|
|
|
|
|
60
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Crisa
On June 16, 2006, we purchased from Vitro, S.A. de C.V. the
remaining 51 percent of the shares of Vitrocrisa Holding,
S. de R.L. de C.V. and related companies (Crisa), located in
Monterrey, Mexico, that we did not previously own. The purchase
price was $80.0 million in addition to $4.9 million of
acquisition costs. In addition, we refinanced approximately
$71.9 million of Crisa’s existing indebtedness,
$23.0 million of which we guaranteed prior to our purchase
of the remaining 51 percent of the shares of Crisa. In
connection with the acquisition, Crisa transferred to Vitro the
pension liability for Crisa employees who had retired as of the
closing date. Vitro also agreed to forgive $0.4 million of
net intercompany payables owed to it and to defer receipt of
approximately $9.4 million of net intercompany payables
until August 15, 2006, and approximately $19.6 million
of net intercompany payables until January 15, 2008. In
addition, Vitro waived its right to receive profit sharing
payments of approximately $1.3 million from Libbey under
the now-terminated distribution agreement. Crisa transferred to
Vitro real estate (land and buildings) on which one of
Crisa’s two manufacturing facilities is located, but Crisa
retained the right to occupy the facility transferred to Vitro
for up to three years. Concurrently, Vitro transferred to Crisa
ownership of the land on which a leased, state-of-the-art
distribution center is located, along with racks and conveyors
that Crisa leased from an affiliate of Vitro. Also, Vitro agreed
not to compete with Crisa anywhere in the world (with limited
exceptions) for five years.
Crisa is the largest glass tableware manufacturers in Latin
America and has a significant percentage of the glass tableware
market in Mexico. This acquisition is consistent with our
strategy to expand our manufacturing platform into low-cost
countries in order to become a more cost-competitive source of
high-quality glass tableware.
In establishing the opening balance sheet under step acquisition
accounting, we recorded 49 percent of the historical book
value of the assets acquired and liabilities assumed of Crisa
due to our existing 49 percent ownership of Crisa, and
51 percent of the fair values of the assets acquired and
liabilities assumed as of the date of acquisition. The following
is a summary of 51 percent of the assigned fair values of
the assets acquired and liabilities assumed as of the date of
acquisition.
|
|
|
|
|
|
|
Current assets and other assets
|
|
$
|
40,639
|
|
|
Property, plant and equipment
|
|
|
37,190
|
|
|
Intangible assets
|
|
|
21,675
|
|
|
Goodwill
|
|
|
56,115
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
155,619
|
|
|
|
|
|
|
|
|
Less liabilities assumed:
|
|
|
|
|
|
Current liabilities
|
|
|
42,181
|
|
|
Long-term liabilities
|
|
|
28,547
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
70,728
|
|
|
|
|
|
|
|
|
Cash purchase price, including acquisition costs
|
|
|
84,891
|
|
|
Less: Cash acquired
|
|
|
6,429
|
|
|
|
|
|
|
|
|
Cash purchase price, net of cash acquired
|
|
$
|
78,462
|
|
|
|
|
|
|
|
The purchase price allocation for the Crisa acquisition was
finalized in the second quarter of 2007. The primary changes
relate to the initial restructuring cost estimates and estimated
tax receivables. The impact of these items did not materially
change the initial purchase price allocation from
December 31, 2006.
61
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
The following table is a summary of the goodwill associated with
the excess of the purchase price over the fair value of assets
acquired and liabilities assumed as a result of the purchase
price allocation. This table provides the details for
100 percent of the goodwill created by the purchase of the
remaining 51 percent interest in Crisa, which is included
in the North American Glass reporting segment:
|
|
|
|
|
|
|
Inferred Enterprise purchase price ($80.0 million divided
by 51)%
|
|
$
|
156,863
|
|
|
Less: assets received/liabilities forgiven
|
|
|
(4,457
|
)
|
|
Add: acquisition costs
|
|
|
4,891
|
|
|
Add: adjustment to reflect 49% of inferred purchase price to
actual
|
|
|
1,855
|
|
|
|
|
|
|
|
|
Aggregate enterprise purchase price
|
|
|
159,152
|
|
|
Add: fair value liabilities assumed
|
|
|
156,256
|
|
|
Less: fair value assets acquired
|
|
|
(189,946
|
)
|
|
|
|
|
|
|
|
Total enterprise goodwill
|
|
$
|
125,462
|
|
|
|
|
|
|
|
Intangible assets acquired of approximately $21.7 million
consist of trademarks and trade names, patented technologies,
customer lists and non-compete covenants. The patented
technologies, customer lists and non-compete covenants are being
amortized over an average life of 7.7 years. Amortization
of these intangible assets was $1.1 million,
$1.1 million, and $0.6 million for 2008, 2007 and
2006, respectively. Trademarks and trade names are valued at
approximately $8.9 million and are not subject to
amortization.
Crisa’s results of operations are included in our
Consolidated Financial Statements starting June 16, 2006.
Prior to June 16, 2006, 49 percent of Crisa’s
earnings were accounted for under the equity method.
The pro forma unaudited results of operations, assuming we
consummated the acquisition of Crisa as of January 1, 2006,
are as follows:
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
Net sales
|
|
$
|
763,553
|
|
|
Earnings before interest and taxes
|
|
$
|
29,791
|
|
|
Net loss
|
|
$
|
(15,258
|
)
|
|
Net loss per share:
|
|
|
|
|
|
Basic
|
|
$
|
(1.08
|
)
|
|
Diluted
|
|
$
|
(1.08
|
)
|
|
Depreciation and amortization
|
|
$
|
41,806
|
|
In June 2006, we announced plans to consolidate Crisa’s two
principal manufacturing facilities into a single facility in
order to reduce fixed costs (“Project Tiger”). In
connection with this consolidation, we recognized special
charges of approximately $18.9 million in 2006,
representing our existing 49 percent indirect ownership
interest in the fixed assets related to the facility closed and
the inventory related to product lines discontinued. For the
additional 51 percent ownership interest acquired, the
write down of the fixed assets and inventory was included in the
purchase price allocation. These special charges are described
in note 9. In addition, a $3.2 million reserve related
to statutory severance for approximately 650 hourly
employees of Crisa was recognized as additional acquisition cost
in accordance with Emerging Issues Task Force
No. 95-3,
“Recognition of Liabilities in Connection with a Purchase
Business Combination.” We substantially completed the
consolidation in 2007.
|
|
|
|
5.
|
Investments
in Unconsolidated Affiliates
|
Prior to June 16, 2006, we were a 49 percent equity
owner in Crisa. On June 16, 2006, we purchased the
remaining 51 percent of Crisa. See note 4 for
additional information. We recorded our 49 percent interest
in Crisa using the equity method for the periods prior to
June 15, 2006.
62
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
A condensed statement of operations for Crisa (including
adjustments for U.S. GAAP equity method accounting) for the
period ended June 15, 2006 follows:
|
|
|
|
|
|
|
Period Ended June 15,
|
|
2006
|
|
|
|
|
Total revenues
|
|
$
|
87,520
|
|
|
Cost of sales
|
|
|
71,204
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
16,316
|
|
|
Selling, general and administrative expenses
|
|
|
10,993
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
5,323
|
|
|
Remeasurement gain
|
|
|
2,934
|
|
|
Other expense
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
Earnings before interest and taxes
|
|
|
8,154
|
|
|
Interest expense
|
|
|
4,099
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
4,055
|
|
|
Income taxes
|
|
|
1,006
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,049
|
|
|
|
|
|
|
|
For periods prior to June 16, 2006, we recorded
49 percent of Crisa’s income before income taxes in
the line “equity earnings-pretax” in our Consolidated
Statements of Operations. We recorded 49 percent of
Crisa’s income taxes in the line “provision (benefit)
for income taxes” in our Consolidated Statements of
Operations. These items are shown below:
|
|
|
|
|
|
|
Period Ended June 15,
|
|
2006
|
|
|
|
|
Equity earnings — pretax
|
|
$
|
1,986
|
|
|
Provision for income taxes
|
|
|
493
|
|
|
|
|
|
|
|
|
Net equity earnings
|
|
$
|
1,493
|
|
|
|
|
|
|
|
On our Consolidated Statements of Cash Flows, we recorded the
net equity earnings (loss) amount as a component of operating
activities.
Interpretation No. 46 “Consolidation of Variable
Interest Entities” (FIN 46R), requires a company that
holds a variable interest in an entity to consolidate the entity
if the company’s interest in the variable interest entity
(VIE) is such that the company will absorb a majority of the
VIE’s expected losses
and/or
receive a majority of the VIE’s expected residual returns,
and therefore is the primary beneficiary. Our 49 percent
equity ownership in Crisa began in 1997. We determined that,
prior to our acquisition of the remaining 51 percent of
Crisa on June 16, 2006, Crisa was a VIE. Our analysis was
based upon our agreements with the former joint venture,
specifically, our 49 percent participation in equity
earnings, dividends, certain contractual technical assistance
arrangements, and a distribution agreement giving us exclusive
distribution rights to sell Crisa’s glass tableware
products in the U.S. and Canada, and giving Crisa the
exclusive distribution rights for our glass tableware products
in Latin America. In addition, we guaranteed a portion of
Crisa’s bank debt. We evaluated this investment and related
arrangements, and we determined that we were not the primary
beneficiary and should not consolidate Crisa into our
Consolidated Financial Statements for any period prior to
June 16, 2006.
63
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
|
|
|
|
6.
|
Purchased
Intangible Assets and Goodwill
|
Purchased
Intangibles
Changes in purchased intangibles balances are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Beginning balance
|
|
$
|
30,731
|
|
|
$
|
31,492
|
|
|
Impairment
|
|
|
(2,756
|
)
|
|
|
—
|
|
|
Amortization
|
|
|
(1,344
|
)
|
|
|
(1,650
|
)
|
|
Foreign currency impact
|
|
|
(510
|
)
|
|
|
889
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
26,121
|
|
|
$
|
30,731
|
|
|
|
|
|
|
|
|
|
|
|
Purchased intangible assets are composed of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2008
|
|
|
2007
|
|
|
|
|
Indefinite life intangible assets
|
|
$
|
13,056
|
|
|
$
|
16,143
|
|
|
Definite life intangible assets, net of accumulated amortization
of $11,971 and $10,447
|
|
|
13,065
|
|
|
|
14,588
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
26,121
|
|
|
$
|
30,731
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for definite life intangible assets was
$1.3 million, $1.7 million and $1.8 million for
years 2008, 2007 and 2006, respectively.
Indefinite life intangible assets are composed of trade names
and trademarks that have an indefinite life and are therefore
individually tested for impairment on an annual basis, or more
frequently in certain circumstances where impairment indicators
arise, in accordance with SFAS No. 142. Our
measurement date for impairment testing is
October 1st of each year. When performing our test for
impairment of individual indefinite life intangible assets, we
use a relief from royalty method to determine the fair market
value that is compared to the carrying value of the indefinite
life intangible asset. Our October 1st review for 2008
and 2007 did not indicate impairment of our indefinite life
intangible assets. As of December 31, 2008, we performed
another impairment test as the severe global economic downturn
represented a significant adverse condition in our business
environment, which was an indicator of impairment. As a result
of this analysis, we concluded that intangibles of
$2.5 million associated with our International segment were
impaired. We also announced in December, 2008 that our Syracuse
China manufacturing facility will be shut down by early April,
2009. This was an indicator of impairment for the Syracuse China
reporting unit (part of our North American Other segment), and,
based on our analysis, we concluded that intangibles of
$0.3 million were impaired. These impairment charges were
included in Special charges on the Consolidated Statement of
Operations.
The definite life intangible assets primarily consist of
technical assistance agreements, noncompete agreements, customer
relationships and patents. The definite life assets are
generally amortized over a period ranging from 3 to
20 years. The weighted average remaining life on the
definite life intangible assets is 9.7 years at
December 31, 2008.
Future estimated amortization expense of definite life
intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
|
|
$1,353
|
|
$1,353
|
|
$1,214
|
|
$1,098
|
|
$1,098
|
64
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Goodwill
Changes in goodwill balances are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
North
|
|
|
North
|
|
|
|
|
|
|
|
|
North
|
|
|
North
|
|
|
|
|
|
|
|
|
|
|
American
|
|
|
American
|
|
|
|
|
|
|
|
|
American
|
|
|
American
|
|
|
|
|
|
|
|
|
|
|
Glass
|
|
|
Other
|
|
|
International
|
|
|
Total
|
|
|
Glass
|
|
|
Other
|
|
|
International
|
|
|
Total
|
|
|
|
|
Beginning balance
|
|
$
|
153,239
|
|
|
$
|
14,317
|
|
|
$
|
9,804
|
|
|
$
|
177,360
|
|
|
$
|
151,120
|
|
|
$
|
14,317
|
|
|
$
|
9,443
|
|
|
$
|
174,880
|
|
|
Impairment
|
|
|
—
|
|
|
|
—
|
|
|
|
(9,434
|
)
|
|
|
(9,434
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Other
|
|
|
(820
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(820
|
)
|
|
|
2,119
|
|
|
|
—
|
|
|
|
(731
|
)
|
|
|
1,388
|
|
|
Foreign currency impact
|
|
|
—
|
|
|
|
—
|
|
|
|
(370
|
)
|
|
|
(370
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
1,092
|
|
|
|
1,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
152,419
|
|
|
$
|
14,317
|
|
|
$
|
—
|
|
|
$
|
166,736
|
|
|
$
|
153,239
|
|
|
$
|
14,317
|
|
|
$
|
9,804
|
|
|
$
|
177,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, in the table above, relates to adjustments to the fair
value of assets acquired and liabilities assumed and to income
tax adjustments affecting the fair value of assets acquired and
liabilities assumed related to the Crisa acquisition, and
adjustments to the fair value of assets acquired and liabilities
assumed related to the Royal Leerdam acquisition.
Goodwill impairment tests are completed for each reporting unit
on an annual basis, or more frequently in certain circumstances
where impairment indicators arise. When performing our test for
impairment, we use the discounted cash flow method, which
incorporates the weighted average cost of capital of a
hypothetical third party buyer to compute the fair value of each
reporting unit. The fair value is then compared to the carrying
value. To the extent that fair value exceeds the carrying value,
no impairment exists. However, to the extent the carrying value
exceeds the fair value, we compare the implied fair value of
goodwill to its book value to determine if an impairment should
be recorded. Our annual review was performed as of
October 1st for each year presented, and our review
for 2008 and 2007 did not indicate an impairment of goodwill.
However, the severe global economic downturn during the later
part of the fourth quarter of 2008 represented a significant
adverse change in our business environment, which was considered
an indicator of impairment. An updated goodwill impairment
analysis was performed as of December 31, 2008. As a result
of this analysis, goodwill impairment of $9.4 million was
recorded in our International operations, and was included in
Impairment of goodwill on the Consolidated Statement of
Operations.
|
|
|
|
7.
|
Property,
Plant and Equipment
|
Property, plant and equipment consists of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2008
|
|
|
2007
|
|
|
|
|
Land
|
|
$
|
23,744
|
|
|
$
|
23,859
|
|
|
Buildings
|
|
|
82,496
|
|
|
|
81,010
|
|
|
Machinery and equipment
|
|
|
417,544
|
|
|
|
410,183
|
|
|
Furniture and fixtures
|
|
|
14,296
|
|
|
|
13,735
|
|
|
Software
|
|
|
21,241
|
|
|
|
21,381
|
|
|
Construction in progress
|
|
|
20,763
|
|
|
|
14,783
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross property, plant and equipment
|
|
|
580,084
|
|
|
|
564,951
|
|
|
Less accumulated depreciation
|
|
|
262,498
|
|
|
|
235,174
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
$
|
317,586
|
|
|
$
|
329,777
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using the
straight-line method over the estimated useful lives of the
assets, generally 3 to 14 years for equipment and 10 to
40 years for buildings and improvements. Software consists
of internally developed and purchased software
65
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
packages for internal use. Capitalized costs include software
packages, installation,
and/or
certain internal labor costs. These costs are generally
amortized over a five-year period. Depreciation expense was
$42.9 million, $39.9 million and $33.8 million
for the years 2008, 2007, and 2006, respectively.
During 2008, we recorded $9.7 million of reductions in the
carrying value of our long-lived assets in accordance with
SFAS No. 144. This charge was included in Special
charges on the Consolidated Statement of Operations. Under
SFAS No. 144, long-lived assets are tested for
recoverability if certain events or changes in circumstances
indicate that the carrying value of the long-lived assets may
not be recoverable. The announcement of the closure of the
Syracuse China reporting unit indicated that the carrying value
of our long-lived assets may not be recoverable and we performed
an impairment review. We then recorded impairment charges for
property, plant and equipment to the extent the amounts by which
the carrying amounts of these assets exceeded their fair values.
Fair value was determined by appraisals. See note 9 for
further discussion of these and other special charges.
In addition, we wrote off certain fixed assets within our North
American Glass reporting segment that had become idled and were
no longer being used in our production process. A non-cash
charge of $4.5 million was recorded in cost of sales on the
Consolidated Statement of Operations. See note 9 for
further discussion of these special charges.
On June 16, 2006, Libbey Glass Inc. issued
$306.0 million aggregate principal amount of floating rate
senior secured notes (Senior Notes) due June 1, 2011, and
$102.0 million aggregate principal amount of senior
subordinated secured
pay-in-kind
notes (PIK Notes), due December 1, 2011. Concurrently,
Libbey Glass Inc. entered into a new $150 million Asset
Based Loan facility (ABL Facility) expiring December 16,
2010.
Historically, cash flows generated from operations and our
borrowing capacity under our ABL facility have allowed us to
meet our cash requirements, including capital expenditures and
working capital needs. Remaining unused availability on the ABL
Facility was $44.6 million at December 31, 2008 and
$89.7 million at December 31, 2007. However, we were
greatly impacted by recessionary pressures in 2008, especially
during the fourth quarter of the year, and we anticipate that
the global economic recession will continue throughout 2009 and
perhaps beyond. In addition, interest on our PIK Notes will be
payable in cash beginning December 1, 2009. Although we
have taken a number of steps to enhance our liquidity in 2008
and to date in 2009 (including those announced in February,
2009), if cash generated from operations is insufficient to
satisfy our liquidity requirements, we may seek to sell
additional equity or arrange additional debt financing. Global
financial markets and economic conditions have been, and
continue to be, disrupted and volatile. The credit and capital
markets have become exceedingly distressed. These issues, along
with significant write-offs in the financial services sector,
the re-pricing of credit risk and the current weak economic
conditions, have made it difficult, and will likely continue to
make it difficult, to obtain funding in future periods. If cash
from operations and cash available from our ABL Facility are not
sufficient to meet our needs, we cannot assure you that we will
be able to obtain additional financing in sufficient amounts
and/or
on
acceptable terms in the near future or when our debt obligations
reach maturity. Our ABL Facility expires in December 2010, the
Senior Notes expire in June 2011, and the PIK notes expire in
December 2011. Furthermore, because of the current price of our
stock, we cannot anticipate that it would be desirable to sell
additional equity, even if we were able to do so. However, based
upon our operating plans and current forecast expectations
including that the global economy does not deteriorate further,
we anticipate that we will generate positive cash flow from
operations and, if necessary, have sufficient cash availability
from our ABL Facility to meet our liquidity needs for at least
one year beyond December 31, 2008.
66
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Borrowings consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
Rate
|
|
|
Maturity Date
|
|
2008
|
|
|
2007
|
|
|
|
|
Borrowings under ABL facility
|
|
|
Floating
|
|
|
December 16, 2010
|
|
$
|
34,538
|
|
|
$
|
7,366
|
|
|
Senior notes
|
|
|
Floating(1
|
)
|
|
June 1, 2011
|
|
|
306,000
|
|
|
|
306,000
|
|
|
PIK notes(2)
|
|
|
16.00
|
%
|
|
December 1, 2011
|
|
|
148,946
|
|
|
|
127,697
|
|
|
Promissory note
|
|
|
6.00
|
%
|
|
January 2009 to September 2016
|
|
|
1,666
|
|
|
|
1,830
|
|
|
Notes payable
|
|
|
Floating
|
|
|
January 2009
|
|
|
3,284
|
|
|
|
622
|
|
|
RMB loan contract
|
|
|
Floating
|
|
|
July 2012 to January 2014
|
|
|
36,675
|
|
|
|
34,275
|
|
|
RMB working capital loan
|
|
|
Floating
|
|
|
March 2010
|
|
|
7,335
|
|
|
|
6,855
|
|
|
Obligations under capital leases
|
|
|
Floating
|
|
|
January 2009 to May 2009
|
|
|
302
|
|
|
|
1,018
|
|
|
BES Euro line
|
|
|
Floating
|
|
|
January 2010 to January 2014
|
|
|
15,507
|
|
|
|
15,962
|
|
|
Other debt
|
|
|
Floating
|
|
|
September 2009
|
|
|
630
|
|
|
|
1,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings
|
|
|
|
|
|
|
|
|
554,883
|
|
|
|
503,057
|
|
|
Less — unamortized discounts and warrants
|
|
|
|
|
|
|
|
|
4,626
|
|
|
|
6,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings — net
|
|
|
|
|
|
|
|
|
550,257
|
|
|
|
496,634
|
|
|
Less — current portion of borrowings
|
|
|
|
|
|
|
|
|
4,401
|
|
|
|
1,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term portion of borrowings — net
|
|
|
|
|
|
|
|
$
|
545,856
|
|
|
$
|
495,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
See Interest Rate Protection Agreements below.
|
|
|
|
(2)
|
|
Additional PIK notes were issued each June 1 and
December 1, commencing on December 1, 2006, to pay the
semi-annual interest. During the first three years, interest is
payable by the issuance of additional PIK notes.
|
Annual maturities for all of our total borrowings for the next
five years and beyond are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
Thereafter
|
|
|
|
$4,401
|
|
$43,638
|
|
$457,411
|
|
$13,590
|
|
$21,765
|
|
$14,078
|
ABL
Facility
The ABL Facility is with a group of six banks and provides for a
revolving credit and swing line facility permitting borrowings
for Libbey Glass and Libbey Europe up to an aggregate of
$150.0 million, with Libbey Europe’s borrowings being
limited to $75.0 million. Borrowings under the ABL Facility
mature December 16, 2010. Swing line borrowings are limited
to $15.0 million, with swing line borrowings for Libbey
Europe being limited to €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 0.0 percent and
1.75 percent, respectively, at December 31, 2008.
There were no Libbey Glass borrowings under the facility at
December 31, 2008 and December 31, 2007, while Libbey
Europe had outstanding borrowings of $34.5 million and
$7.4 million at December 31, 2008 and
December 31, 2007, respectively. The interest rate was
5.02 percent and 6.63 percent at
67
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
December 31, 2008 and December 31, 2007, respectively.
Interest is payable on the last day of the interest period,
which can range from one month to six months.
All borrowings under the ABL Facility are secured by a first
priority security interest in (i) substantially all assets
of (a) Libbey Glass and (b) substantially all of
Libbey Glass’s present and future direct and indirect
domestic subsidiaries, (ii) (a) 100 percent of the
stock of Libbey Glass, (b) 100 percent of the stock of
substantially all of Libbey Glass’s present and future
direct and indirect domestic subsidiaries,
(c) 100 percent of the non-voting stock of
substantially all of Libbey Glass’s first-tier present and
future foreign subsidiaries and (d) 65 percent of the
voting stock of substantially all of Libbey Glass’s
first-tier present and future foreign subsidiaries, and
(iii) substantially all proceeds and products of the
property and assets described in clauses (i) and
(ii) of this sentence. Additionally, borrowings by Libbey
Europe under the ABL Facility are secured by a first priority
security interest in (i) substantially all of the assets of
Libbey Europe, the parent of Libbey Europe and certain of its
subsidiaries, (ii) 100 percent of the stock of Libbey
Europe and certain subsidiaries of Libbey Europe, and
(iii) substantially all proceeds and products of the
property and assets described in clauses (i) and
(ii) of this sentence.
We pay a Commitment Fee, as defined by the ABL Facility, on the
total credit provided under the Facility. The Commitment Fee
varies depending on our aggregate availability. The Commitment
Fee was 0.25 percent at December 31, 2008. No
compensating balances are required by the Agreement. The
Agreement does not require compliance with a fixed charge
coverage ratio covenant, unless aggregate unused availability
falls below $15.0 million. If our aggregate unused ABL
availability falls below $15.0 million, the fixed charge
coverage ratio requirement would be 1:10 to 1:00. The fixed
charge coverage ratio is defined as earnings before interest,
taxes, depreciation, amortization and minority interest (EBITDA)
minus capital expenditures to fixed charges (EBITDA minus
capital expenditures / fixed charges). Among the items
included in the calculation of fixed charges are: cash interest
expense, scheduled principal payments on outstanding debt and
capital lease obligations, taxes paid in cash, dividends paid in
cash and required cash contributions to our pension plans in
excess of expense.
The borrowing base under the ABL Facility is determined by a
monthly analysis of the eligible accounts receivable, inventory
and fixed assets. The borrowing base is the sum of
(a) 85 percent of eligible accounts receivable,
(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 and (c) the lesser of
$25.0 million and the aggregate of (i) 75 percent
of the NOLV of eligible equipment and (ii) 50 percent
of the fair market value of eligible real property.
The available total borrowing base is offset by real estate and
ERISA reserves totaling $9.2 million and mark-to-market
reserves for natural gas and interest rate swaps of
$15.2 million. The ABL Facility also provides for the
issuance of $30.0 million of letters of credit, which are
applied against the $150.0 million limit. At
December 31, 2008, we had $8.4 million in letters of
credit outstanding under the ABL Facility. Remaining unused
availability on the ABL Facility was $44.6 million at
December 31, 2008 and $89.7 million at
December 31, 2007.
Senior
Notes
Libbey Glass and Libbey Inc. entered into a purchase agreement
pursuant to which Libbey Glass agreed to sell
$306.0 million aggregate principal amount of floating rate
senior secured notes due 2011 to the initial purchasers named in
a private placement. The net proceeds, after deducting a
discount and the estimated expenses and fees, were approximately
$289.8 million. On February 15, 2007, we exchanged
$306.0 million aggregate principal amount of our floating
rate senior secured notes due 2011, which have been registered
under the Securities Act of 1933, as amended (Senior Notes), for
the notes sold in the private placement. The Senior Notes bear
interest at a rate equal to six-month LIBOR plus
7.0 percent and were offered at a discount of
2 percent of face value. Interest with respect to the
Senior Notes is payable semiannually on June 1 and
December 1. The stated interest rate was 9.57 percent
at December 31, 2008.
We have Interest Rate Protection Agreements (Rate Agreements)
with respect to $200.0 million of debt as a means to manage
our exposure to fluctuating interest rates. The Rate Agreements
effectively convert this portion of
68
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
our long-term 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 Agreements at December 31, 2008,
excluding applicable fees, is 5.24 percent per year and the
total interest rate, including applicable fees, is
12.24 percent per year. The average maturity of these Rate
Agreements is 0.9 years at December 31, 2008. Total
remaining Senior Notes not covered by the Rate Agreements have
fluctuating interest rates with a weighted average rate of
9.57 percent per year at December 31, 2008. If the
counterparties to these Rate Agreements were to fail to perform,
these Rate Agreements would no longer protect us from interest
rate fluctuations. However, we do not anticipate nonperformance
by the counterparties. All interest rate swap
counterparties’ credit ratings were rated AA- or better as
of December 2008, by Standard and Poors.
The fair market value for the Rate Agreements at
December 31, 2008, was a $6.8 million liability. The
fair value of the Rate Agreements is based on the market
standard methodology of netting the discounted expected future
variable cash receipts and the discounted future fixed cash
payments. The variable cash receipts are based on an expectation
of future interest rates derived from observed market interest
rate forward curves. We do not expect to cancel these agreements
and expect them to expire as originally contracted.
The Senior Notes are guaranteed by Libbey Inc. and all of Libbey
Glass’s existing and future domestic subsidiaries that
guarantee any of Libbey Glass’s debt or debt of any
subsidiary guarantor (see Note 21). The Senior Notes and
related guarantees have the benefit of a second-priority lien,
subject to permitted liens, on collateral consisting of
substantially all the tangible and intangible assets of Libbey
Glass and its domestic subsidiary guarantors that secure all of
the indebtedness under Libbey Glass’s ABL Facility. The
Collateral does not include the assets of non-guarantor
subsidiaries that secure the ABL Facility.
PIK
Notes
Concurrently with the execution of the purchase agreement with
respect to the Senior Notes, Libbey Glass and Libbey Inc.
entered into a purchase agreement (Unit Purchase Agreement)
pursuant to which Libbey Glass agreed to sell, to a purchaser
named in the private placement, units consisting of
$102.0 million aggregate principal amount 16.0 percent
senior subordinated secured
pay-in-kind
notes due 2011 (PIK Notes) and detachable warrants to purchase
485,309 shares of Libbey Inc. common stock (Warrants)
exercisable on or after June 16, 2006 and expiring on
December 1, 2011. The warrant holders do not have voting
rights. The net proceeds, after deducting a discount and
estimated expenses and fees, were approximately
$97.0 million. The proceeds were allocated between the
Warrants and the underlying debt based on their respective fair
values at the time of issuance. The amount allocated to the
Warrants has been recorded in equity, with the offset recorded
as a discount on the underlying debt. Each Warrant is
exercisable at $11.25. The PIK Notes were offered at a discount
of 2 percent of face value. Interest is payable
semiannually on June 1 and December 1, but during the first
three years interest is payable by issuance of additional PIK
Notes. Interest on PIK notes is payable in cash beginning on
December 1, 2009. At December 31, 2008, the total
principal balance of the PIK Notes, including additional PIK
Notes issued as payment for interest, was $148.9 million.
The obligations of Libbey Glass under the PIK Notes are
guaranteed by Libbey Inc. and all of Libbey Glass’s
existing and future domestic subsidiaries that guarantee any of
Libbey Glass’s debt or debt of any subsidiary guarantor
(see Note 21). The PIK Notes and related guarantees are
senior subordinated obligations of Libbey Glass and the
guarantors of the PIK Notes and are entitled to the benefit of a
third-priority lien, subject to permitted liens, on the
collateral that secures the Senior Notes.
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 December 31, 2008, and December 31, 2007,
we had $1.7 million and $1.8 million, respectively,
outstanding on the promissory note. Interest with respect to the
promissory note is paid monthly.
69
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Notes
Payable
We have an overdraft line of credit for a maximum of
€2.3 million. The $3.3 million outstanding at
December 31, 2008, was the U.S. dollar equivalent
under the euro-based overdraft line and the interest rate was
5.58 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
$36.7 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
People’s 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 December 31, 2008, the annual
interest rate was 7.01 percent. As of December 31,
2008, the outstanding balance was RMB 250.0 million
(approximately $36.7 million). Interest is payable
quarterly. Payments of principal in the amount of RMB
30.0 million (approximately $4.4 million) and RMB
40.0 million (approximately $5.9 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 $8.8 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.
RMB
Working Capital Loan
In March 2007, Libbey China entered into a RMB 50.0 million
working capital loan with CCB. The
3-year
term
loan matures on March 14, 2010, has a current interest rate
of 7.56 percent, and is secured by a Libbey Inc. guarantee.
At December 31, 2008, the U.S. dollar equivalent on
the line was $7.3 million. Interest is payable quarterly.
Obligations
Under Capital Leases
We lease certain machinery and equipment under agreements that
are classified as capital leases. These leases were assumed in
the Crisal acquisition. The cost of the equipment under capital
leases is included in the Consolidated Balance Sheets as
property, plant and equipment, and the related depreciation
expense is included in the Consolidated Statements of Operations.
The future minimum lease payments required under the capital
leases as of December 31, 2008 are $0.3 million, all
due within one year.
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 $15.5 million outstanding at December 31, 2008,
was the U.S. dollar equivalent under the line at an
interest rate of 6.75 percent. Payment of principal in the
amount of €1.1 million (approximately
$1.6 million) is due in January 2010, payment of
€1.6 million (approximately $2.3 million) is due
in January 2011, payment of €2.2 million
(approximately $3.1 million) is due in January 2012,
payment of €2.8 million (approximately
$3.9 million) is due in January 2013 and payment of
€3.3 million (approximately $4.6 million) is due
in January 2014. Interest with respect to the line is paid every
six months.
Other
Debt
The other debt of $0.6 million consists primarily of
government-subsidized loans for equipment purchases at Crisal.
70
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Fair
Value of Borrowings
The fair value of the Company’s debt has been calculated
based on quoted market prices for the same or similar issues.
Our floating rate $306 million Senior Notes due June, 2011
had an estimated fair value of $104.0 million at
December 31, 2008. The $148.9 million PIK notes have
been held by a single holder since inception, and there is no
active market from which a fair value could be derived. The
value of the remainder of our debt approximates carrying value.
At December 31, 2007, we believed that the carrying amounts
reasonably approximated the fair values of the outstanding debt
issues for all of our borrowings.
Capacity
Realignment
In August, 2004, we announced that we were re-aligning 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 began realignment
of production among our other domestic glass manufacturing
facilities.
The following table summarizes the capacity realignment charge
incurred in 2006:
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2006
|
|
|
|
|
Net gain on land sale
|
|
$
|
(359
|
)
|
|
Employee termination cost & other
|
|
|
61
|
|
|
|
|
|
|
|
|
Included in special charges
|
|
|
(298
|
)
|
|
|
|
|
|
|
|
Total pretax capacity realignment charge
|
|
$
|
(298
|
)
|
|
|
|
|
|
|
The 2006 activity reflects changes in accounting estimate of the
reserves on the employee termination costs and the site clean up
costs. These charges were recorded in the North American Glass
reporting segment. There were no special charges incurred in
2008 or 2007 related to the capacity realignment.
Salaried
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.
The following table summarizes the salaried workforce reduction
charge incurred in 2006:
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2006
|
|
|
|
|
Employee termination costs
|
|
$
|
(70
|
)
|
|
|
|
|
|
|
|
Included in special charges
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
Total pretax salaried workforce reduction charge
|
|
$
|
(70
|
)
|
|
|
|
|
|
|
The 2006 activity represents a change in accounting estimate of
our employee termination reserve as of December 31, 2006.
There were no special charges incurred in 2008 or 2007 related
to the salaried workforce reduction program.
71
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
The following reflects the balance sheet activity related to the
salaried workforce reduction program for the years ended
December 31, 2008 and December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
January 1,
|
|
Total Credit
|
|
Cash
|
|
Non-cash
|
|
December 31,
|
|
|
|
2008
|
|
to Earnings
|
|
Payments
|
|
Utilization
|
|
2008
|
|
|
|
Employee termination costs
|
|
$
|
38
|
|
|
$
|
—
|
|
|
$
|
(38
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
38
|
|
|
$
|
—
|
|
|
$
|
(38
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
January 1,
|
|
Total Credit
|
|
Cash
|
|
Non-cash
|
|
December 31,
|
|
|
|
2007
|
|
to Earnings
|
|
Payments
|
|
Utilization
|
|
2007
|
|
|
|
Employee termination costs
|
|
$
|
219
|
|
|
$
|
—
|
|
|
$
|
(181
|
)
|
|
$
|
—
|
|
|
$
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
219
|
|
|
$
|
—
|
|
|
$
|
(181
|
)
|
|
$
|
—
|
|
|
$
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The employee termination costs for 2007 are included in accrued
special charges on the Consolidated Balance Sheets. These
charges were recorded in the North American Glass and North
American Other reporting segments.
Crisa
Restructuring
In June 2006, we announced plans to consolidate Crisa’s two
principal manufacturing facilities into one facility and to
discontinue certain product lines in order to reduce fixed costs
(“Project Tiger”). As part of the consolidation plan,
a $3.2 million severance reserve was established related to
statutory severance obligations for approximately
650 employees.
The following table summarizes the Crisa restructuring charge
incurred in 2006 within the North American Glass segment:
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2006
|
|
|
|
|
Inventory write-down
|
|
$
|
2,158
|
|
|
|
|
|
|
|
|
Included in cost of sales
|
|
|
2,158
|
|
|
Fixed asset write-down
|
|
|
16,702
|
|
|
|
|
|
|
|
|
Included in special charges
|
|
|
16,702
|
|
|
|
|
|
|
|
|
Total Crisa restructuring charge
|
|
$
|
18,860
|
|
|
|
|
|
|
|
There were no special charges incurred in 2008 or 2007 related
to the Crisa restructuring program.
The employee termination costs and other of $3.2 million in
2006, relates to severance reserves established in step
acquisition accounting for Crisa explained in note 4.
Write-off
of Finance Fees
In June 2006, we wrote off unamortized finance fees of
$4.9 million related to debt of Libbey and Crisa that we
refinanced. These charges were recorded as interest expense on
the Consolidated Statement of Operations and are reflected in
the North American Glass reporting segment.
Facility
Closures
In December 2008, we announced that the 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, and we accordingly recorded a pretax
charge of $29.1 million. The principal components of the
charge included fixed asset write-
72
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
downs, inventory write-downs, employee severance related costs
for the approximately 305 employees impacted by the
closures and pension and postretirement charges.
We performed an analysis to determine the appropriate carrying
value of inventory located at Syracuse China and Mira Loma. A
lower of cost or market adjustment was recorded in the fourth
quarter of 2008 in the amount of $9.8 to properly state our
ending inventory values. This charge was included in cost of
sales on the Consolidated Statements of Operations.
In the fourth quarter of 2008, we recorded a $9.7 million
reduction in the carrying value of our long-lived assets in
accordance with SFAS No. 144. Under
SFAS No. 144, long-lived assets are tested for
recoverability if certain events or changes in circumstances
indicate that the carrying value of the long-lived assets may
not be recoverable. The announcement of the closure of the
Syracuse China reporting unit indicated that the carrying value
of our long-lived assets may not be recoverable and we performed
an impairment review. We then recorded impairment charges, for
property, plant and equipment, based upon the amounts by which
the carrying amounts of these assets exceeded their fair values.
Fair value was determined by independent outside appraisals.
This charge was included in special charges on the Consolidated
Statements of Operations.
We recorded a charge of $9.0 million related to the
announced closures for employee-related costs and other. Of this
amount, $4.2 million was included in cost of sales in the
Consolidated Statements of Operations for pension and
non-pension postretirement welfare costs. An additional
$4.8 million included primarily severance, medical benefits
and outplacement services for the employees. This amount was
included in special charges in the Consolidated Statements of
Operations.
Further, depreciation expense was increased by $0.3 million
at Syracuse in 2008 to reflect the shorter remaining life of the
assets. This was recorded in cost of sales on the Consolidated
Statements of Operations, in the North American Other reporting
segment.
In addition, natural gas hedges in place for the Syracuse China
facility are no longer deemed effective, as the forecasted
transactions related to these contracts are not probable of
occurring. This resulted in a charge of $0.4 million to
other income (expense) on the Consolidated Statements of
Operations, in the North American Other reporting segment. See
note 15 for further discussion of derivatives.
The following table summarizes the facility closure charge in
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
North
|
|
|
North
|
|
|
|
|
|
|
|
American
|
|
|
American
|
|
|
|
|
|
|
|
Glass
|
|
|
Other
|
|
|
Total
|
|
|
|
|
Inventory write-down
|
|
$
|
192
|
|
|
$
|
9,576
|
|
|
$
|
9,768
|
|
|
Pension & postretirement welfare
|
|
|
—
|
|
|
|
4,170
|
|
|
|
4,170
|
|
|
Fixed asset depreciation
|
|
|
—
|
|
|
|
261
|
|
|
|
261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in cost of sales
|
|
|
192
|
|
|
|
14,007
|
|
|
|
14,199
|
|
|
Fixed asset write-down
|
|
|
65
|
|
|
|
9,660
|
|
|
|
9,725
|
|
|
Employee termination cost & other
|
|
|
618
|
|
|
|
4,202
|
|
|
|
4,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in special charges
|
|
|
683
|
|
|
|
13,862
|
|
|
|
14,545
|
|
|
Ineffectiveness of natural gas hedge
|
|
|
—
|
|
|
|
(383
|
)
|
|
|
(383
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in other income(expense)
|
|
|
—
|
|
|
|
(383
|
)
|
|
|
(383
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pretax charge
|
|
$
|
875
|
|
|
$
|
28,252
|
|
|
$
|
29,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
The following reflects the balance sheet activity related to the
facility closure charge for the year ended December 31,
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve
|
|
|
|
|
Balances
|
|
|
Total
|
|
|
|
|
|
Inventory &
|
|
|
|
|
|
Balances at
|
|
|
|
|
at January 1,
|
|
|
Charge to
|
|
|
Cash
|
|
|
Fixed Asset
|
|
|
Non-Cash
|
|
|
December 31,
|
|
|
|
|
2008
|
|
|
Earnings
|
|
|
Payments
|
|
|
Write Downs
|
|
|
Utilization
|
|
|
2008
|
|
|
|
|
Inventory write-down
|
|
$
|
—
|
|
|
$
|
9,768
|
|
|
$
|
—
|
|
|
$
|
(9,768
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Pension & postretirement welfare
|
|
|
—
|
|
|
|
4,170
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,170
|
)
|
|
|
—
|
|
|
Fixed asset depreciation
|
|
|
—
|
|
|
|
261
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(261
|
)
|
|
|
—
|
|
|
Fixed asset write-down
|
|
|
—
|
|
|
|
9,725
|
|
|
|
—
|
|
|
|
(9,725
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Employee termination cost & other
|
|
|
—
|
|
|
|
4,820
|
|
|
|
(8
|
)
|
|
|
—
|
|
|
|
(564
|
)
|
|
|
4,248
|
|
|
Ineffectiveness of natural gas hedges
|
|
|
—
|
|
|
|
383
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(383
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
—
|
|
|
$
|
29,127
|
|
|
$
|
(8
|
)
|
|
$
|
(19,493
|
)
|
|
$
|
(5,378
|
)
|
|
$
|
4,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The ending balance of $4.2 million for 2008 was included in
accrued special charges on the Consolidated Balance Sheets and
we expect this to result in cash payments in 2009. These charges
were recorded in the North American Other and North American
Glass reporting segments in 2008.
Intangible
Asset Impairment
Goodwill and intangible assets were tested for impairment in
accordance with SFAS No. 142 and an impairment charge
was incurred in the amount of $11.9 million for both
goodwill and intangibles associated with Royal Leerdam and
Crisal, which are in our International reporting segment. $9.4
million of this charge was included in impairment of goodwill
and $2.5 million was recorded in special charges on the
Consolidated Statements of Operations. For further discussion of
goodwill and intangibles impairment, see note 6.
Fixed
asset Impairment
During 2008, we wrote down certain fixed assets within our North
American Glass segment that had become idled and no longer were
being used in our production process. The non-cash charge of
$4.5 million was included in cost of sales on the
Consolidated Statements of Operations.
Summary
of Total Special Charges
The following table summarizes the special charges mentioned
above and their classifications in the Consolidated Statements
of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Cost of sales
|
|
$
|
18,681
|
|
|
$
|
—
|
|
|
$
|
2,158
|
|
|
Impairment of goodwill
|
|
|
9,434
|
|
|
|
—
|
|
|
|
—
|
|
|
Special charges
|
|
|
17,000
|
|
|
|
—
|
|
|
|
16,334
|
|
|
Other income (expense)
|
|
|
(383
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Interest expense
|
|
|
—
|
|
|
|
—
|
|
|
|
4,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total special charges
|
|
$
|
45,498
|
|
|
$
|
—
|
|
|
$
|
23,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
The provisions (benefits) for income taxes were calculated based
on the following components of earnings (loss) before income
taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
United States
|
|
$
|
(79,496
|
)
|
|
$
|
(11,871
|
)
|
|
$
|
(13,295
|
)
|
|
Non-U.S.
|
|
|
5,347
|
|
|
|
20,862
|
|
|
|
(15,285
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (loss) earnings before tax
|
|
$
|
(74,149
|
)
|
|
$
|
8,991
|
|
|
$
|
(28,580
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The current and deferred provisions (benefits) for income taxes
were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
(724
|
)
|
|
$
|
(6,768
|
)
|
|
$
|
(7,502
|
)
|
|
Non-U.S.
|
|
|
2,798
|
|
|
|
3,207
|
|
|
|
3,059
|
|
|
U.S. state and local
|
|
|
181
|
|
|
|
132
|
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current income tax provision (benefit)
|
|
|
2,255
|
|
|
|
(3,429
|
)
|
|
|
(4,528
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
1,855
|
|
|
|
16,752
|
|
|
|
1,409
|
|
|
Non-U.S.
|
|
|
2,204
|
|
|
|
(2,183
|
)
|
|
|
(4,199
|
)
|
|
U.S. state and local
|
|
|
—
|
|
|
|
158
|
|
|
|
(429
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax provision (benefit)
|
|
|
4,059
|
|
|
|
14,727
|
|
|
|
(3,219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
1,131
|
|
|
|
9,984
|
|
|
|
(6,093
|
)
|
|
Non-U.S.
|
|
|
5,002
|
|
|
|
1,024
|
|
|
|
(1,140
|
)
|
|
U.S. state and local
|
|
|
181
|
|
|
|
290
|
|
|
|
(514
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision (benefit)
|
|
$
|
6,314
|
|
|
$
|
11,298
|
|
|
$
|
(7,747
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
The significant components of our deferred income tax assets and
liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2008
|
|
|
2007
|
|
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
|
Pension
|
|
$
|
31,305
|
|
|
$
|
18,099
|
|
|
Nonpension postretirement benefits
|
|
|
22,244
|
|
|
|
18,181
|
|
|
Other accrued liabilities
|
|
|
30,733
|
|
|
|
21,542
|
|
|
Receivables
|
|
|
2,414
|
|
|
|
1,843
|
|
|
Net operating loss carry forwards
|
|
|
30,379
|
|
|
|
8,923
|
|
|
Tax credits
|
|
|
8,862
|
|
|
|
8,016
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax assets
|
|
|
125,937
|
|
|
|
76,604
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
23,102
|
|
|
|
29,032
|
|
|
Inventories
|
|
|
7,400
|
|
|
|
9,360
|
|
|
Intangibles and other assets
|
|
|
12,920
|
|
|
|
12,964
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax liabilities
|
|
|
43,422
|
|
|
|
51,356
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset before valuation allowance
|
|
|
82,515
|
|
|
|
25,248
|
|
|
Valuation allowance
|
|
|
(87,442
|
)
|
|
|
(28,855
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax liability
|
|
$
|
(4,927
|
)
|
|
$
|
(3,607
|
)
|
|
|
|
|
|
|
|
|
|
|
The net deferred income tax assets at December 31 of the
respective year-ends were included in the Consolidated Balance
Sheet as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2008
|
|
|
2007
|
|
|
|
|
Noncurrent deferred income tax asset
|
|
$
|
—
|
|
|
$
|
855
|
|
|
Current deferred income tax liability
|
|
|
(1,279
|
)
|
|
|
(4,462
|
)
|
|
Noncurrent deferred income tax liability
|
|
|
(3,648
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax (liability) asset
|
|
$
|
(4,927
|
)
|
|
$
|
(3,607
|
)
|
|
|
|
|
|
|
|
|
|
|
The 2008 deferred income tax asset for net operating loss carry
forwards of $30.4 million relates to pre-tax losses
incurred in the Netherlands of $17.7 million, in Mexico of
$5.0 million, in Portugal of $14.3 million, in China
of $8.8 million, in U.S. federal jurisdiction of
$51.4 million and in U.S. state jurisdictions of
$11.9 million. During 2008, we wrote off $14.0 million
in U.S. state net operating loss carry forwards, which
carried a full valuation allowance, due to the closure of
facilities or changes in state law. Our foreign net operating
loss carry forwards of $45.8 million will expire before
2019. Our federal U.S. net operating loss carry forward of
$51.4 million will expire before 2029. The U.S. state
net operating loss carry forward of $11.9 million will
expire by 2023. The 2007 deferred asset for net operating loss
carry forwards of $8.9 million relates to pre-tax losses
incurred in the Netherlands of $14.9 million, in Mexico of
$6.9 million, in Portugal of $11.7 million, and in
U.S. state jurisdictions of $23.1 million. The 2007
U.S. federal net operating loss was carried back to offset
taxable income reported in previous years; therefore, no
deferred income tax asset was established.
The Company has a tax holiday in China, which will expire in
2013. The Company recognized no benefit from the tax holiday in
2008 or 2007.
The 2008 deferred tax credits of $8.9 million consist of
$2.0 million of U.S. federal tax credits and
$6.9 million of foreign credits. During 2008 we wrote off
$1.7 million in U.S. state credits, which carried a
full valuation allowance, due to the closure of facilities or
changes in state law. The U.S. federal tax credits are
foreign tax credits associated with undistributed earnings of
our Canadian operations, which are not permanently reinvested,
general
76
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
business credits and alternative minimum tax credits. The
foreign credits of $6.9 million can be carried forward
indefinitely. The 2007 deferred tax credits of $8.0 million
consist of $1.7 million of U.S. federal tax credits,
$1.7 million of U.S. state tax credits and
$4.6 million of foreign credits.
In assessing the need for a valuation allowance, management
considers whether it is more likely than not that some portion
or all of the deferred income tax assets will be realized on a
quarterly basis or whenever events indicate that a review is
required. The ultimate realization of deferred income tax assets
is dependent upon the generation of future taxable income
(including reversals of deferred income tax liabilities) during
the periods in which those temporary differences reverse. As a
result, we consider the historical and projected financial
results of the legal entity or consolidated group recording the
net deferred income tax asset as well as all other positive and
negative evidence.
The valuation allowance activity for the years ended December 31
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Beginning balance
|
|
$
|
28,855
|
|
|
$
|
6,575
|
|
|
$
|
3,033
|
|
|
Charged to provision for income taxes
|
|
|
37,247
|
|
|
|
18,917
|
|
|
|
2,942
|
|
|
Charged (credited) to other accounts
|
|
|
21,340
|
(1)
|
|
|
3,363
|
(1)
|
|
|
600
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
87,442
|
|
|
$
|
28,855
|
|
|
$
|
6,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Increase relates principally to changes in Accumulated Other
Comprehensive Income.
|
|
|
|
(2)
|
|
Increase relates to valuation allowance recorded through
acquisition goodwill.
|
The valuation allowance increased to $87.4 million at
December 31, 2008 from $28.9 million at
December 31, 2007. This increase was primarily attributable
to increases in net operating loss carry forwards, long-lived
asset impairment charges and pension and non-pension
postretirement benefits. Furthermore, a valuation allowance was
recorded for the net deferred tax assets in Portugal. The
valuation allowance increased to $28.9 million at
December 31, 2007 from $6.6 million at
December 31, 2007. The increase was primarily attributable
to the increase of our U.S. valuation allowance to record a
full valuation allowance against these assets due to the near
term effects on U.S. profitability of increasing interest
expense and the general softening of the U.S. economy and
its related impact on consumer demand. The valuation allowance
increased to $6.6 million at December 31, 2006 from
$3.0 at December 31, 2005. The increase is primarily due to
the valuation allowances placed against the
non-U.S. net
operating losses in the Netherlands and certain legal entities
in Mexico.
Reconciliation from the statutory U.S. federal income tax
rate of 35.0% to the consolidated effective income tax rate was
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Statutory U.S. federal income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
Increase (decrease) in rate due to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
income tax differential
|
|
|
4.7
|
|
|
|
(73.2
|
)
|
|
|
3.9
|
|
|
U.S. state and local income taxes, net of related U.S. federal
income taxes
|
|
|
(0.2
|
)
|
|
|
6.2
|
|
|
|
1.7
|
|
|
U.S. federal credits
|
|
|
1.0
|
|
|
|
(5.9
|
)
|
|
|
0.5
|
|
|
Foreign permanent adjustments
|
|
|
(2.6
|
)
|
|
|
32.1
|
|
|
|
1.7
|
|
|
Foreign federal credits
|
|
|
4.8
|
|
|
|
(69.2
|
)
|
|
|
—
|
|
|
Valuation allowance
|
|
|
(50.3
|
)
|
|
|
210.5
|
|
|
|
(10.8
|
)
|
|
Other
|
|
|
(0.9
|
)
|
|
|
(9.8
|
)
|
|
|
(4.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated effective income tax rate
|
|
|
(8.5
|
)%
|
|
|
125.7
|
%
|
|
|
27.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Significant components of our refundable and prepaid income
taxes, classified in the Consolidated Balance Sheet as prepaid
and other current assets, are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2008
|
|
|
2007
|
|
|
|
|
U.S. federal
|
|
$
|
1,102
|
|
|
$
|
5,804
|
|
|
Non-U.S.
|
|
|
1,276
|
|
|
|
(167
|
)
|
|
U.S. state and local
|
|
|
(76
|
)
|
|
|
884
|
|
|
|
|
|
|
|
|
|
|
|
|
Total prepaid income taxes
|
|
$
|
2,302
|
|
|
$
|
6,521
|
|
|
|
|
|
|
|
|
|
|
|
U.S. income taxes and
non-U.S. withholding
taxes were not provided for on a cumulative total of
approximately $53.3 million at December 31, 2008 and
$35.0 million in 2007 of undistributed earnings for certain
non-U.S. subsidiaries.
We intend to reinvest these earnings indefinitely in the
non-U.S. operations.
Determination of the net amount of unrecognized U.S. income
tax and potential foreign withholdings with respect to these
earnings is not practicable.
The company is subject to income taxes in the U.S. and
various foreign jurisdictions. Management judgment is required
in evaluating our tax positions and determining our provision
for income taxes. Throughout the course of business, there are
numerous transactions and calculations for which the ultimate
tax determination is uncertain. When management believes certain
tax positions may be challenged despite our belief that the tax
return positions are supportable, the company establishes
reserves for tax uncertainties based on estimates of whether
additional taxes will be due. We adjust these reserves taking
into consideration changing facts and circumstances, such as an
outcome of a tax audit. The income tax provision includes the
impact of reserve provisions and changes to reserves that are
considered appropriate. Accruals for tax contingencies are
provided for in accordance with the requirements of FIN 48.
At December 31, 2008 and 2007, we had $2.3 million and
$2.7 million, respectively, of total gross unrecognized tax
benefits, of which approximately $0.9 million and
$1.3 million, respectively, would impact the effective tax
rate, if recognized. A reconciliation of the beginning and
ending amount of gross unrecognized tax benefits, excluding
interest and penalties, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Beginning balance
|
|
$
|
2,729
|
|
|
$
|
7,162
|
|
|
Additions based on tax positions related to the current year
|
|
|
29
|
|
|
|
143
|
|
|
Additions for tax positions of prior years
|
|
|
1,567
|
|
|
|
1,090
|
|
|
Reductions for tax positions of prior years
|
|
|
(1,020
|
)
|
|
|
(2,754
|
)
|
|
Reductions due to lapse of statute of limitations
|
|
|
(1,004
|
)
|
|
|
(2,201
|
)
|
|
Reductions due to settlements with tax authorities
|
|
|
—
|
|
|
|
(711
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
2,301
|
|
|
$
|
2,729
|
|
|
|
|
|
|
|
|
|
|
|
We recognize interest and penalties accrued related to
unrecognized tax benefits in the provision for income taxes. We
recognized a $0.5 benefit in 2008 and a $0.2 benefit in 2007 in
our Consolidated Statements of Operations from a reduction in
interest and penalties for uncertain tax positions. At
December 31, 2008, we had $2.5 million and
$3.0 million accrued for interest and penalties
respectively, net of tax benefit at December 31, 2008 and
December 31, 2007, respectively.
78
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
We file income tax returns in the U.S. federal
jurisdiction, and various states and foreign jurisdictions. As
of December 31, 2008, the tax years that remained subject
to examination by major tax jurisdictions were as follows:
|
|
|
|
|
|
|
Jurisdiction
|
|
Open Years
|
|
|
|
|
Canada
|
|
|
2005-2008
|
|
|
China
|
|
|
2006-2008
|
|
|
Mexico
|
|
|
2003-2008
|
|
|
Netherlands
|
|
|
2006-2008
|
|
|
Portugal
|
|
|
2005-2008
|
|
|
United States
|
|
|
2004-2008
|
|
We are currently under examination by the U.S. Internal
Revenue Service for our 2006 and 2007 tax years but, due to the
status of the exam, it is not practicable to estimate the impact
of potential settlement. We do not anticipate a significant
change in the total amount of unrecognized income tax benefits
within the next twelve months.
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. The
non-U.S. pension
plans cover the employees of our wholly owned subsidiaries Royal
Leerdam and Crisa. The Crisa plan is not funded.
Effect
on Operations
The components of our net pension expense, including the SERP,
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
Total
|
|
|
Year Ended December 31,
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Service cost (benefits earned during the period)
|
|
$
|
5,388
|
|
|
$
|
5,923
|
|
|
$
|
5,998
|
|
|
$
|
1,669
|
|
|
$
|
1,849
|
|
|
$
|
1,479
|
|
|
$
|
7,057
|
|
|
$
|
7,772
|
|
|
$
|
7,477
|
|
|
Interest cost on projected benefit obligation
|
|
|
15,634
|
|
|
|
14,606
|
|
|
|
13,824
|
|
|
|
4,729
|
|
|
|
4,013
|
|
|
|
2,727
|
|
|
|
20,363
|
|
|
|
18,619
|
|
|
|
16,551
|
|
|
Expected return on plan assets
|
|
|
(17,567
|
)
|
|
|
(16,039
|
)
|
|
|
(15,732
|
)
|
|
|
(3,265
|
)
|
|
|
(2,750
|
)
|
|
|
(2,287
|
)
|
|
|
(20,832
|
)
|
|
|
(18,789
|
)
|
|
|
(18,019
|
)
|
|
Amortization of unrecognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost (credit)
|
|
|
2,381
|
|
|
|
2,086
|
|
|
|
2,083
|
|
|
|
(212
|
)
|
|
|
(187
|
)
|
|
|
(177
|
)
|
|
|
2,169
|
|
|
|
1,899
|
|
|
|
1,906
|
|
|
Actuarial loss
|
|
|
1,308
|
|
|
|
2,140
|
|
|
|
2,552
|
|
|
|
293
|
|
|
|
347
|
|
|
|
151
|
|
|
|
1,601
|
|
|
|
2,487
|
|
|
|
2,703
|
|
|
Transition obligations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
142
|
|
|
|
143
|
|
|
|
185
|
|
|
|
142
|
|
|
|
143
|
|
|
|
185
|
|
|
Curtailment charge
|
|
|
1,070
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,070
|
|
|
|
—
|
|
|
|
—
|
|
|
Settlement charge
|
|
|
—
|
|
|
|
—
|
|
|
|
2,045
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension expense
|
|
$
|
8,214
|
|
|
$
|
8,716
|
|
|
$
|
10,770
|
|
|
$
|
3,356
|
|
|
$
|
3,415
|
|
|
$
|
2,078
|
|
|
$
|
11,570
|
|
|
$
|
12,131
|
|
|
$
|
12,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We incurred a pension curtailment charge of $1.1 million in
the fourth quarter of 2008 related to the announced closing of
our Syracuse China plant. See note 9 for further
discussion. We incurred pension settlement charges of
$2.0 million during December, 2006. The pension settlement
charges were triggered by excess lump sum distributions taken by
employees, which required us to record unrecognized gains and
losses in our pension plan accounts.
79
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Actuarial
Assumptions
Following are the assumptions used to determine the financial
statement impact for our pension plan benefits for 2008, 2007
and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Discount rate
|
|
|
6.41% to 6.48%
|
|
|
|
6.16% to 6.32%
|
|
|
|
5.82% to 5.91%
|
|
|
|
5.70% to 8.50%
|
|
|
|
5.50% to 8.50%
|
|
|
|
4.50% to 8.75%
|
|
|
Expected long-term rate of return on plan assets
|
|
|
8.25%
|
|
|
|
8.50%
|
|
|
|
8.75%
|
|
|
|
6.00%
|
|
|
|
6.50%
|
|
|
|
6.50%
|
|
|
Rate of compensation increase
|
|
|
2.63% to 5.25%
|
|
|
|
3.00% to 6.00%
|
|
|
|
3.00 to 6.00%
|
|
|
|
2.00% to 4.30%
|
|
|
|
2.00% to 4.30%
|
|
|
|
2.00% to 3.50%
|
|
We account for our defined benefit pension plans on an expense
basis that reflects actuarial funding methods. Two critical
assumptions, discount rate and expected long-term rate of return
on plan assets, are important elements of plan expense and
asset/liability measurement. We evaluate these critical
assumptions on our annual measurement date of
December 31st. Other assumptions involving demographic
factors such as retirement age, mortality and turnover are
evaluated periodically and are updated to reflect our
experience. Actual results in any given year often will differ
from actuarial assumptions because of demographic, economic and
other factors.
The discount rate enables us to estimate the present value of
expected future cash flows on the measurement date. The rate
used reflects a rate of return on high-quality fixed income
investments that match the duration of expected benefit payments
at our December 31 measurement date. The discount rate at
December 31 is used to measure the year-end benefit obligations
and the earnings effects for the subsequent year. A higher
discount rate decreases the present value of benefit obligations
and decreases pension expense.
To determine the expected long-term rate of return on plan
assets for our funded plans, we consider the current and
expected asset allocations, as well as historical and expected
returns on various categories of plan assets. The expected
long-term rate of return on plan assets at December 31st is used
to measure the earnings effects for the subsequent year. The
assumed long-term rate of return on assets is applied to a
calculated value of plan assets that recognizes gains and losses
in the fair value of plan assets compared to expected returns
over the next five years. This produces the expected return on
plan assets that is included in pension expense. The difference
between the expected return and the actual return on plan assets
is deferred and amortized over five years. The net deferral of
past asset gains (losses) affects the calculated value of plan
assets and, ultimately, future pension expense (income).
Sensitivity to changes in key assumptions, based on year-end
data, is as follows:
|
|
|
|
|
|
•
|
A change of 1.0 percent in the discount rate would change
our total pension expense by approximately $1.6 million.
|
|
|
|
|
•
|
A change of 1.0 percent in the expected long-term rate of
return on plan assets would change total pension expense by
approximately $2.2 million.
|
80
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Projected
Benefit Obligation (PBO) and Fair Value of Assets
The changes in the projected benefit obligations and fair value
of plan assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
Total
|
|
|
December 31,
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation, beginning of year
|
|
$
|
253,814
|
|
|
$
|
253,301
|
|
|
$
|
72,772
|
|
|
$
|
65,743
|
|
|
$
|
326,586
|
|
|
$
|
319,044
|
|
|
Service cost
|
|
|
5,388
|
|
|
|
5,923
|
|
|
|
1,669
|
|
|
|
1,849
|
|
|
|
7,057
|
|
|
|
7,772
|
|
|
Interest cost
|
|
|
15,634
|
|
|
|
14,606
|
|
|
|
4,729
|
|
|
|
4,013
|
|
|
|
20,363
|
|
|
|
18,619
|
|
|
Plan amendments
|
|
|
688
|
|
|
|
2,537
|
|
|
|
—
|
|
|
|
—
|
|
|
|
688
|
|
|
|
2,537
|
|
|
Exchange rate fluctuations
|
|
|
—
|
|
|
|
—
|
|
|
|
(7,897
|
)
|
|
|
4,593
|
|
|
|
(7,897
|
)
|
|
|
4,593
|
|
|
Actuarial (gains) loss
|
|
|
(5,040
|
)
|
|
|
(7,057
|
)
|
|
|
(7,089
|
)
|
|
|
(2,427
|
)
|
|
|
(12,129
|
)
|
|
|
(9,484
|
)
|
|
Plan participants’ contributions
|
|
|
—
|
|
|
|
—
|
|
|
|
1,090
|
|
|
|
1,099
|
|
|
|
1,090
|
|
|
|
1,099
|
|
|
Curtailments
|
|
|
(258
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(258
|
)
|
|
|
—
|
|
|
Benefits paid
|
|
|
(13,355
|
)
|
|
|
(15,496
|
)
|
|
|
(4,377
|
)
|
|
|
(2,098
|
)
|
|
|
(17,732
|
)
|
|
|
(17,594
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation, end of year
|
|
$
|
256,871
|
|
|
$
|
253,814
|
|
|
$
|
60,897
|
|
|
$
|
72,772
|
|
|
$
|
317,768
|
|
|
$
|
326,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year
|
|
$
|
206,943
|
|
|
$
|
199,023
|
|
|
$
|
49,304
|
|
|
$
|
41,458
|
|
|
$
|
256,247
|
|
|
$
|
240,481
|
|
|
Actual return on plan assets
|
|
|
(44,671
|
)
|
|
|
12,376
|
|
|
|
(3,362
|
)
|
|
|
1,046
|
|
|
|
(48,033
|
)
|
|
|
13,422
|
|
|
Exchange rate fluctuations
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,039
|
)
|
|
|
5,108
|
|
|
|
(2,039
|
)
|
|
|
5,108
|
|
|
Employer contributions
|
|
|
21,437
|
|
|
|
11,040
|
|
|
|
4,866
|
|
|
|
2,691
|
|
|
|
26,303
|
|
|
|
13,731
|
|
|
Plan participants’ contributions
|
|
|
—
|
|
|
|
—
|
|
|
|
1,090
|
|
|
|
1,099
|
|
|
|
1,090
|
|
|
|
1,099
|
|
|
Benefits paid
|
|
|
(13,355
|
)
|
|
|
(15,496
|
)
|
|
|
(4,377
|
)
|
|
|
(2,098
|
)
|
|
|
(17,732
|
)
|
|
|
(17,594
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, end of year
|
|
$
|
170,354
|
|
|
$
|
206,943
|
|
|
$
|
45,482
|
|
|
$
|
49,304
|
|
|
$
|
215,836
|
|
|
$
|
256,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded ratio
|
|
|
66.3
|
%
|
|
|
81.5
|
%
|
|
|
74.7
|
%
|
|
|
67.8
|
%
|
|
|
67.9
|
%
|
|
|
78.5
|
%
|
|
Funded status and net accrued pension benefit cost
|
|
$
|
(86,517
|
)
|
|
$
|
(46,871
|
)
|
|
$
|
(15,415
|
)
|
|
$
|
(23,468
|
)
|
|
$
|
(101,932
|
)
|
|
$
|
(70,339
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 2008 net accrued pension benefit cost of
$101.9 million is represented by a non current asset in the
amount of $9.4 million, a current liability in the amount
of $1.8 million and a long-term liability in the amount of
$109.5 million on the Consolidated Balance Sheet. The
2007 net accrued pension benefit cost of $70.3 million
is represented by a non current asset in the amount of
$3.3 million, a current liability in the amount of
$1.9 million and a long-term liability in the amount of
$71.7 million on the Consolidated Balance Sheet. The
current portion reflects the amount of expected benefit payments
that are greater than the plan assets on a
plan-by-plan
basis.
The pre-tax amounts recognized in accumulated other
comprehensive loss as of December 31, 2008 and 2007, are as
follows
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Net loss
|
|
$
|
87,771
|
|
|
$
|
31,933
|
|
|
$
|
6,483
|
|
|
$
|
9,765
|
|
|
$
|
94,254
|
|
|
$
|
41,698
|
|
|
Prior service cost
|
|
|
12,306
|
|
|
|
15,275
|
|
|
|
1,905
|
|
|
|
1,809
|
|
|
|
14,211
|
|
|
|
17,084
|
|
|
Transition obligation
|
|
|
—
|
|
|
|
—
|
|
|
|
574
|
|
|
|
861
|
|
|
|
574
|
|
|
|
861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost
|
|
$
|
100,077
|
|
|
$
|
47,208
|
|
|
$
|
8,962
|
|
|
$
|
12,435
|
|
|
$
|
109,039
|
|
|
$
|
59,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
The pre-tax amounts in accumulated other comprehensive loss as
of December 31, 2008, that are expected to be recognized as
components of net periodic benefit cost during 2009 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
Total
|
|
|
|
|
Net loss
|
|
$
|
1,268
|
|
|
$
|
376
|
|
|
$
|
1,644
|
|
|
Prior service cost (credit)
|
|
|
2,242
|
|
|
|
(207
|
)
|
|
|
2,035
|
|
|
Transition obligation
|
|
|
—
|
|
|
|
113
|
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost
|
|
$
|
3,510
|
|
|
$
|
282
|
|
|
$
|
3,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We contributed $21.4 million to the U.S. pension plans
in 2008, compared to $11.0 million in 2007. We contributed
$4.9 million in 2008 to the
non-U.S. pension
plan compared to $2.7 million in 2007. It is difficult to
estimate future cash contributions, as such amounts are a
function of actual investment returns, withdrawals from the
plans, changes in interest rates and other factors uncertain at
this time. However, at this time, we anticipate making cash
contributions of approximately $12.8 million into the
U.S. pension plans and $3.4 million into the
non-U.S. pension
plans in 2009.
Pension benefit payment amounts are anticipated to be paid from
the plans as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
Total
|
|
|
|
|
2009
|
|
$
|
16,890
|
|
|
$
|
2,525
|
|
|
$
|
19,415
|
|
|
2010
|
|
$
|
16,402
|
|
|
$
|
2,577
|
|
|
$
|
18,979
|
|
|
2011
|
|
$
|
16,906
|
|
|
$
|
2,809
|
|
|
$
|
19,715
|
|
|
2012
|
|
$
|
17,656
|
|
|
$
|
2,849
|
|
|
$
|
20,505
|
|
|
2013
|
|
$
|
18,597
|
|
|
$
|
3,146
|
|
|
$
|
21,743
|
|
|
2014-2018
|
|
$
|
100,952
|
|
|
$
|
22,436
|
|
|
$
|
123,388
|
|
Accumulated
Benefit Obligation in Excess of Plan Assets
The projected benefit obligation, accumulated benefit obligation
and fair value of plan assets for pension plans with an
accumulated benefit obligation in excess of plan asset at
December 31, 2008 and 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
Total
|
|
|
|
|
Projected benefit obligation
|
|
$
|
256,871
|
|
|
$
|
24,767
|
|
|
$
|
281,638
|
|
|
Accumulated benefit obligation
|
|
$
|
252,228
|
|
|
$
|
20,832
|
|
|
$
|
273,060
|
|
|
Fair value of plan assets
|
|
$
|
170,354
|
|
|
$
|
—
|
|
|
$
|
170,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
Total
|
|
|
|
|
Projected benefit obligation
|
|
$
|
253,814
|
|
|
$
|
26,720
|
|
|
$
|
280,534
|
|
|
Accumulated benefit obligation
|
|
$
|
246,532
|
|
|
$
|
21,980
|
|
|
$
|
268,512
|
|
|
Fair value of plan assets
|
|
$
|
206,943
|
|
|
$
|
—
|
|
|
$
|
206,943
|
|
Plan
Asset Allocation
The asset allocation for our U.S. pension plans at the end
of 2008 and 2007 and the target allocation for 2009, by asset
category, are as follows.
82
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target
|
|
|
|
|
|
|
|
|
|
|
Allocation
|
|
|
Percentage of Plan Assets at Year End
|
|
|
U.S. Plans Asset Category
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Equity securities
|
|
|
55
|
%
|
|
|
44
|
%
|
|
|
59
|
%
|
|
Debt securities
|
|
|
25
|
%
|
|
|
37
|
%
|
|
|
26
|
%
|
|
Real estate
|
|
|
5
|
%
|
|
|
4
|
%
|
|
|
4
|
%
|
|
Other
|
|
|
15
|
%
|
|
|
15
|
%
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The asset allocation for our Royal Leerdam pension plans at the
end of 2008 and 2007 and the target allocation for 2009, by
asset category, are as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target
|
|
|
|
|
|
|
|
|
|
|
Allocation
|
|
|
Percentage of Plan Assets at Year End
|
|
|
Non-U.S. Plans Asset Category
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Equity securities
|
|
|
34
|
%
|
|
|
24
|
%
|
|
|
29
|
%
|
|
Debt securities
|
|
|
51
|
%
|
|
|
58
|
%
|
|
|
53
|
%
|
|
Real estate
|
|
|
10
|
%
|
|
|
12
|
%
|
|
|
13
|
%
|
|
Other
|
|
|
5
|
%
|
|
|
6
|
%
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our investment strategy is to control and manage investment risk
through diversification across asset classes and investment
styles. Assets will be diversified among traditional investments
in equity and fixed income instruments, as well as alternative
investments including real estate and hedge funds. It would be
anticipated that a modest allocation to cash would exist within
the plans, since each investment manager is likely to hold some
cash in its portfolio.
|
|
|
|
12.
|
Nonpension
Postretirement Benefits
|
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. Employees are
generally eligible for benefits upon retirement and completion
of a specified number of years of creditable service. Benefits
for most hourly retirees are determined by collective
bargaining. Under a cross-indemnity agreement, Owens-Illinois,
Inc. assumed liability for the nonpension postretirement
benefits of Libbey retirees who had retired as of June 24,
1993. Accordingly, obligations for these employees are excluded
from the Company’s financial statements. 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. The postretirement benefit
plans are not funded.
83
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Effect
on Operations
The provision for our nonpension postretirement benefit expense
consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
Total
|
|
|
Year Ended December 31,
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Service cost (benefits earned during the period)
|
|
$
|
1,099
|
|
|
$
|
795
|
|
|
$
|
743
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
1,100
|
|
|
$
|
796
|
|
|
$
|
745
|
|
|
Interest cost on projected benefit obligation
|
|
|
2,979
|
|
|
|
2,245
|
|
|
|
2,050
|
|
|
|
129
|
|
|
|
94
|
|
|
|
95
|
|
|
|
3,108
|
|
|
|
2,339
|
|
|
|
2,145
|
|
|
Amortization of unrecognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Prior service cost (credit)
|
|
|
2,967
|
|
|
|
(884
|
)
|
|
|
(884
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,967
|
|
|
|
(884
|
)
|
|
|
(884
|
)
|
|
(Gain) loss
|
|
|
239
|
|
|
|
79
|
|
|
|
45
|
|
|
|
(33
|
)
|
|
|
(51
|
)
|
|
|
(64
|
)
|
|
|
206
|
|
|
|
28
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonpension postretirement benefit expense
|
|
$
|
7,284
|
|
|
$
|
2,235
|
|
|
$
|
1,954
|
|
|
$
|
97
|
|
|
$
|
44
|
|
|
$
|
33
|
|
|
$
|
7,381
|
|
|
$
|
2,279
|
|
|
$
|
1,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost for 2008 includes a charge of
$3.1 million to write off unrecognized prior service cost
related to the announced closure of our Syracuse China
manufacturing operation. See note 9 for further discussion.
Actuarial
Assumptions
The following are the actuarial assumptions used to determine
the benefit obligations and pretax income effect for our
nonpension postretirement benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Discount rate
|
|
|
6.36
|
%
|
|
|
6.16
|
%
|
|
|
5.77
|
%
|
|
|
5.89
|
%
|
|
|
5.14
|
%
|
|
|
4.87
|
%
|
|
Initial health care trend
|
|
|
7.50
|
%
|
|
|
8.00
|
%
|
|
|
8.50
|
%
|
|
|
7.50
|
%
|
|
|
8.00
|
%
|
|
|
8.50
|
%
|
|
Ultimate health care trend
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
|
Years to reach ultimate trend rate
|
|
|
5
|
|
|
|
7
|
|
|
|
7
|
|
|
|
5
|
|
|
|
7
|
|
|
|
7
|
|
We use various actuarial assumptions, including the discount
rate and the expected trend in health care costs, to estimate
the costs and benefit obligations for our retiree health plan.
The discount rate is determined based on high-quality fixed
income investments that match the duration of expected retiree
medical benefits at our December 31 measurement date to
establish the discount rate. The discount rate at December 31 is
used to measure the year-end benefit obligations and the
earnings effects for the subsequent year.
The health care cost trend rate represents our expected annual
rates of change in the cost of health care benefits. The trend
rate noted above represents a forward projection of health care
costs as of the measurement date.
Sensitivity to changes in key assumptions is as follows:
|
|
|
|
|
|
•
|
A 1.0 percent change in the health care trend rate would
not have a material impact upon the nonpension postretirement
expense.
|
|
|
|
|
•
|
A 1.0 percent change in the discount rate would change the
nonpension postretirement expense by $0.3 million.
|
84
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Accumulated
Postretirement Benefit Obligation
The components of our nonpension postretirement benefit
obligation are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
Total
|
|
|
December 31,
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Change in accumulated nonpension postretirement benefit
obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
$
|
46,878
|
|
|
$
|
39,802
|
|
|
$
|
2,317
|
|
|
$
|
1,945
|
|
|
$
|
49,195
|
|
|
$
|
41,747
|
|
|
Service cost
|
|
|
1,099
|
|
|
|
795
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1,100
|
|
|
|
796
|
|
|
Interest cost
|
|
|
2,979
|
|
|
|
2,245
|
|
|
|
129
|
|
|
|
94
|
|
|
|
3,108
|
|
|
|
2,339
|
|
|
Plan participants’ contributions
|
|
|
1,092
|
|
|
|
1,235
|
|
|
|
70
|
|
|
|
212
|
|
|
|
1,162
|
|
|
|
1,447
|
|
|
Plan amendments
|
|
|
3,429
|
|
|
|
4,209
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,429
|
|
|
|
4,209
|
|
|
Actuarial (gain) loss
|
|
|
8,292
|
|
|
|
4,240
|
|
|
|
240
|
|
|
|
13
|
|
|
|
8,532
|
|
|
|
4,253
|
|
|
Exchange rate fluctuations
|
|
|
—
|
|
|
|
—
|
|
|
|
(560
|
)
|
|
|
419
|
|
|
|
(560
|
)
|
|
|
419
|
|
|
Benefits paid
|
|
|
(3,915
|
)
|
|
|
(5,648
|
)
|
|
|
(170
|
)
|
|
|
(367
|
)
|
|
|
(4,085
|
)
|
|
|
(6,015
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, end of year
|
|
$
|
59,854
|
|
|
$
|
46,878
|
|
|
$
|
2,027
|
|
|
$
|
2,317
|
|
|
$
|
61,881
|
|
|
$
|
49,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status and accrued benefit cost
|
|
$
|
(59,854
|
)
|
|
$
|
(46,878
|
)
|
|
$
|
(2,027
|
)
|
|
$
|
(2,317
|
)
|
|
$
|
(61,881
|
)
|
|
$
|
(49,195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 2008 net accrued postretirement benefit cost of
$61.9 million is represented by a current liability in the
amount of $4.7 million and a long-term liability in the
amount of $57.2 million on the Consolidated Balance Sheet.
The 2007 net accrued postretirement benefit cost of
$49.2 million is represented by a current liability in the
amount of $3.5 million and a long-term liability in the
amount of $45.7 million on the Consolidated Balance Sheet.
The pre-tax amounts recognized in accumulated other
comprehensive loss as of December 31, 2008, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
Total
|
|
|
December 31,
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Net loss (gain)
|
|
$
|
15,347
|
|
|
$
|
6,962
|
|
|
$
|
(597
|
)
|
|
$
|
(1,015
|
)
|
|
$
|
14,750
|
|
|
$
|
5,947
|
|
|
Prior service cost (credit)
|
|
|
2,091
|
|
|
|
1,960
|
|
|
|
|
|
|
|
—
|
|
|
|
2,091
|
|
|
|
1,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost (credit)
|
|
$
|
17,438
|
|
|
$
|
8,922
|
|
|
$
|
(597
|
)
|
|
$
|
(1,015
|
)
|
|
$
|
16,841
|
|
|
$
|
7,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The pre-tax amounts in accumulated other comprehensive loss of
December 31, 2008, that are expected to be recognized as a
credit to net periodic benefit cost during 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non U.S. Plans
|
|
|
Total
|
|
|
|
|
Net loss (gain)
|
|
$
|
821
|
|
|
$
|
(30
|
)
|
|
$
|
791
|
|
|
Prior service credit
|
|
|
(512
|
)
|
|
|
|
|
|
|
(512
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total credit
|
|
$
|
309
|
|
|
$
|
(30
|
)
|
|
$
|
279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Nonpension postretirement benefit payments net of estimated
future Medicare Part D subsidy payments and future retiree
contributions, are anticipated to be paid as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
U.S. Plans
|
|
|
Non U.S. Plans
|
|
|
Total
|
|
|
|
|
2009
|
|
$
|
4,527
|
|
|
$
|
157
|
|
|
$
|
4,684
|
|
|
2010
|
|
$
|
4,872
|
|
|
$
|
159
|
|
|
$
|
5,031
|
|
|
2011
|
|
$
|
5,263
|
|
|
$
|
160
|
|
|
$
|
5,423
|
|
|
2012
|
|
$
|
5,736
|
|
|
$
|
157
|
|
|
$
|
5,893
|
|
|
2013
|
|
$
|
5,734
|
|
|
$
|
155
|
|
|
$
|
5,889
|
|
|
2014-2018
|
|
$
|
27,732
|
|
|
$
|
740
|
|
|
$
|
28,472
|
|
Prior to September 1, 2008, we also provided retiree health
care benefits to certain union hourly employees through
participation in a multi-employer retiree health care benefit
plan. This was an insured, premium-based arrangement. Related to
this plan, approximately $0.5 million, $0.5 million
and $0.7 million were charged to expense for the years
ended December 31, 2008, 2007 and 2006, respectively.
During the second quarter of 2008, we amended our
U.S. non-pension postretirement plans to cover employees
and retirees previously covered under the multi-employer plan.
This plan amendment was effective September 1, 2008 and
resulted in a charge of $3.4 million to other comprehensive
loss during the second quarter of 2008.
|
|
|
|
13.
|
Net
Income per Share of Common Stock
|
The following table sets forth the computation of basic and
diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Numerator for earnings per share — net (loss) income
that is available to common shareholders
|
|
$
|
(80,463
|
)
|
|
$
|
(2,307
|
)
|
|
$
|
(20,899
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share —
weighted-average shares outstanding
|
|
|
14,671,500
|
|
|
|
14,472,011
|
|
|
|
14,182,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share — adjusted
weighted-average shares and assumed conversions
|
|
|
14,671,500
|
|
|
|
14,472,011
|
|
|
|
14,182,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share
|
|
$
|
(5.48
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(1.47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share
|
|
$
|
(5.48
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(1.47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The effect of employee stock options, warrants, restricted stock
units, performance shares and the employee stock purchase plan
(ESPP), 237,802, 283,009 and 11,584 shares for the years
ended December 31, 2008, 2007 and 2006, respectively, were
anti-dilutive and thus not included in the earnings per share
calculation. These amounts would have been dilutive if not for
the net loss.
|
When applicable, 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-effected proceeds that
hypothetically would be received from the exercise of all
in-the-money
options are assumed to be used to repurchase shares.
|
|
|
|
14.
|
Employee
Stock Benefit Plans
|
We have three 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 Libbey Inc.
common stock at a discount. As a cost savings initiative, we
have announced that the ESPP will be terminated effective
May 31, 2009.
86
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
On January 1, 2006, the Company 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.
On December 6, 2005, the Company’s Board of Directors,
acting as the Compensation Committee of the whole, accelerated
the vesting of all outstanding and unvested nonqualified stock
options granted through 2004 under the Company’s 1999
Equity Participation Plan and Amended and Restated 1999 Equity
Participation Plan. As a result, options to purchase
258,731 shares of the Company’s common stock became
exercisable on December 6, 2005. Of that amount, options
that were granted through 2004 to the Company’s named
executive officers became immediately exercisable. In the case
of each of the stock options in question, the exercise price
greatly exceeded the fair market value of the Company’s
common stock on December 6, 2005. The decision to
accelerate vesting of these options was made primarily to avoid
recognition of compensation expense related to these underwater
stock options in financial statements relating to future fiscal
periods. By accelerating these underwater stock options, the
Company has reduced the stock option expense it otherwise would
have been required to record by approximately $0.4 million
in 2006, $0.1 million in 2007 and $0.04 million in
2008 on a pre-tax basis.
Equity
Participation Plan Program Description
We have three equity participation plans: (1) the Libbey
Inc. Amended and Restated Stock Option Plan for Key Employees,
(2) the Amended and Restated 1999 Equity Participation Plan
of Libbey Inc. and (3) the Libbey Inc. 2006 Omnibus
Incentive Plan. Although options previously granted under the
Libbey Inc. Amended and Restated Stock Option Plan for Key
Employees and the Amended and Restated 1999 Equity Participation
Plan of Libbey Inc. remain outstanding, no further grants of
equity-based compensation may be made under those plans.
However, up to a total of 1,500,000 shares of Libbey Inc.
common stock are available for issuance as equity-based
compensation under the Libbey Inc. 2006 Omnibus Incentive Plan.
Under the Libbey Inc. 2006 Omnibus Incentive Plan, grants of
equity-based compensation may take the form of stock options,
stock appreciation rights, performance shares or units,
restricted stock or restricted stock units or other stock-based
awards. Employees and directors are eligible for awards under
this plan. During 2008, there were grants of 147,976 stock
options, 80,368 performance shares, 100,725 restricted stock
units and 1,500 stock appreciation rights. During 2007, there
were grants of 284,122 stock options, 71,644 performance shares,
190,304 restricted stock units and 4,500 stock appreciation
rights. 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, stock appreciation rights and
restricted stock units outstanding as of December 31, 2008,
is generally four years. Stock options are amortized over the
vesting period using the FASB Interpretation No. 28,
“Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Award Plans, an interpretation of APB
Opinions No. 15 and 25” (FIN 28), expense
attribution methodology. The impact of applying the provisions
of
SFAS No. 123-R
is a pre-tax compensation expense of $3.5 million,
$3.4 million and $1.3 million in selling, general and
administrative expenses in the Consolidated Statement of
Operations for 2008, 2007 and 2006, respectively.
Non-Qualified
Stock Option and Employee Stock Purchase Plan (ESPP)
Information
We have an ESPP under which 950,000 shares of common stock
have been reserved for issuance. Eligible employees may purchase
a limited number of shares of common stock at a discount of up
to 15 percent of the market value at certain plan-defined
dates. The ESPP terminates on May 31, 2009. In 2008 and
2007, shares issued under the ESPP totaled 113,247 and 105,453,
respectively. At December 31, 2008, 456,200 shares
were available for issuance under the ESPP. At December 31,
2007, 469,447 shares were available for issuance under the
ESPP. Repurchased common stock is being used to fund the ESPP.
87
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
A participant may elect to have payroll deductions made during
the offering period in an amount not less than 2 percent
and not more than 20 percent of the participant’s
compensation during the option period. The option period starts
on the offering date (June 1st) and ends on the exercise
date (May 31st). In no event may the option price per share
be less than the par value per share ($.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.
Compensation expense for 2008, 2007 and 2006 related to the ESPP
is $0.6 million, $0.5 million and $0.4 million,
respectively.
Stock option compensation expense of $1.1 million,
$0.8 million and $0.3 million is included in the
Consolidated Statements of Operations for 2008, 2007 and 2006,
respectively.
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. There were 147,976
stock option grants made during 2008. Under the Black-Scholes
option-pricing model, the weighted-average grant-date fair value
of options granted during 2008 is $7.34. There were 284,132 and
10,000 stock option grants made during 2007 and 2006,
respectively. Under the Black-Scholes option-pricing model, the
weighted-average grant-date fair value of option granted during
2007 and 2006 was $7.22 and $3.32, respectively. The fair value
of each option is estimated on the date of grant with the
following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Stock option grants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest
|
|
|
3.30
|
%
|
|
|
4.64
|
%
|
|
|
4.57
|
%
|
|
Expected term
|
|
|
6.3 years
|
|
|
|
6.1 years
|
|
|
|
6.5 years
|
|
|
Expected volatility
|
|
|
48.20
|
%
|
|
|
47.40
|
%
|
|
|
37.90
|
%
|
|
Dividend yield
|
|
|
0.65
|
%
|
|
|
0.71
|
%
|
|
|
3.19
|
%
|
|
Employee Stock Purchase Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest
|
|
|
2.18
|
%
|
|
|
4.91
|
%
|
|
|
4.99
|
%
|
|
Expected term
|
|
|
12 months
|
|
|
|
12 months
|
|
|
|
12 months
|
|
|
Expected volatility
|
|
|
57.30
|
%
|
|
|
60.04
|
%
|
|
|
58.30
|
%
|
|
Dividend yield
|
|
|
0.89
|
%
|
|
|
0.43
|
%
|
|
|
2.20
|
%
|
|
|
|
|
|
|
•
|
The risk-free interest 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 expected term represents the period of time the options are
expected to be outstanding. Additionally, we use historical data
to estimate option exercises and employee forfeitures. The
Company uses the Simplified Method defined by the SEC Staff
Accounting Bulletin No. 107, “Share-Based
Payment” (SAB 107), 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 based on historic stock
prices commensurate with the expected term of the option. We use
projected data for expected volatility of our stock options
based on the average of daily, weekly and monthly historical
volatilities of our stock price over the expected term 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.
|
88
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Information with respect to our stock option activity for 2008,
2007, and 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Exercise Price per
|
|
|
Contractual life
|
|
|
Intrinsic
|
|
|
Options
|
|
Shares
|
|
|
Share
|
|
|
(In years)
|
|
|
Value
|
|
|
|
|
Outstanding balance at December 31, 2005
|
|
|
1,555,556
|
|
|
$
|
28.04
|
|
|
|
6
|
|
|
$
|
—
|
|
|
Granted
|
|
|
10,000
|
|
|
|
10.20
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(153,930
|
)
|
|
|
28.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding balance at December 31, 2006
|
|
|
1,411,626
|
|
|
|
27.43
|
|
|
|
5
|
|
|
$
|
100
|
|
|
Granted
|
|
|
284,132
|
|
|
|
14.60
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(7,920
|
)
|
|
|
11.11
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(167,542
|
)
|
|
|
31.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding balance at December 31, 2007
|
|
|
1,520,296
|
|
|
|
24.67
|
|
|
|
5
|
|
|
$
|
1,181
|
|
|
Granted
|
|
|
147,976
|
|
|
|
15.08
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(194,295
|
)
|
|
|
34.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding balance at December 31, 2008
|
|
|
1,473,977
|
|
|
$
|
22.37
|
|
|
|
5
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2008
|
|
|
1,076,152
|
|
|
$
|
25.16
|
|
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
benefit) to be classified as financing cash flows. There were no
stock options exercised during 2008, 7,920 stock options
exercised in 2007 and no stock options exercised in 2006.
The aggregate intrinsic value in the preceding table represents
the total pretax intrinsic value, based on the Libbey Inc.
closing stock price of $1.25 as of December 31, 2008, which
would have been received by the option holders had all option
holders exercised their options as of that date. As of
December 31, 2008, 1,076,527 outstanding options were
exercisable, and the weighted average exercise price was $25.16.
As of December 31, 2007, 1,183,286 outstanding options were
exercisable, and the weighted average exercise price was $27.70.
As of December 31, 2006, 1,315,790 outstanding options were
exercisable, and the weighted average exercise price was $28.58.
As of December 31, 2008, $1.0 million of total
unrecognized compensation expense related to nonvested stock
options is expected to be recognized within the next three years
on a weighted-average basis. The total fair value of shares
vested during 2008 is $0.5 million. Shares issued for
exercised options are issued from treasury stock.
89
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
The following table summarizes our nonvested stock option
activity for 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
Shares
|
|
|
Value (per Share)
|
|
|
|
|
Nonvested at January 1, 2006
|
|
|
145,260
|
|
|
$
|
3.82
|
|
|
Granted
|
|
|
10,000
|
|
|
$
|
3.32
|
|
|
Vested
|
|
|
(57,644
|
)
|
|
$
|
3.82
|
|
|
Canceled
|
|
|
(1,780
|
)
|
|
$
|
3.82
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2006
|
|
|
95,836
|
|
|
$
|
3.82
|
|
|
Granted
|
|
|
284,132
|
|
|
$
|
7.22
|
|
|
Vested
|
|
|
(34,172
|
)
|
|
$
|
3.75
|
|
|
Canceled
|
|
|
(8,786
|
)
|
|
$
|
4.57
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2007
|
|
|
337,010
|
|
|
$
|
6.67
|
|
|
Granted
|
|
|
147,976
|
|
|
$
|
7.34
|
|
|
Vested
|
|
|
(87,536
|
)
|
|
$
|
5.54
|
|
|
Canceled
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2008
|
|
|
397,450
|
|
|
$
|
7.17
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Share Information
Performance share compensation expense of $0.2 million,
$0.6 million and $0.3 million for 2008, 2007 and 2006,
respectively, is included in our Statement of Operations.
Under the Libbey Inc. 2006 Omnibus Incentive Plan, we grant
select executives and key employees performance shares. The
number of performance shares granted to an executive is
determined by dividing the value to be transferred to the
executive, expressed in U.S. dollars and determined as a
percentage of the executive’s long-term incentive target
(which in turn is a percentage of the executive’s base
salary on January 1 of the year in which the performance shares
are granted), by the average closing price of Libbey Inc. common
stock over a period of 60 consecutive trading days ending on the
date of the grant.
The performance shares are settled by issuance to the executive
of one share of Libbey Inc. common stock for each performance
share earned. Performance shares are earned only if and to the
extent we achieve certain company-wide performance goals over
performance cycles of between 1 and 3 years.
90
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
A summary of the activity for performance shares under the
Libbey Inc. 2006 Omnibus Incentive Plan for 2008, 2007 and 2006
is presented below:
|
|
|
|
|
|
|
Performance Shares
|
|
Shares
|
|
|
|
|
Outstanding balance at January 1, 2006
|
|
|
—
|
|
|
Granted
|
|
|
71,139
|
|
|
Issued
|
|
|
—
|
|
|
Canceled
|
|
|
—
|
|
|
|
|
|
|
|
|
Outstanding balance at December 31, 2006
|
|
|
71,139
|
|
|
Granted
|
|
|
71,644
|
|
|
Issued
|
|
|
(29,185
|
)
|
|
Canceled
|
|
|
—
|
|
|
|
|
|
|
|
|
Outstanding balance at December 31, 2007
|
|
|
113,598
|
|
|
Granted
|
|
|
80,368
|
|
|
Issued
|
|
|
(14,626
|
)
|
|
Canceled
|
|
|
—
|
|
|
|
|
|
|
|
|
Outstanding balance at December 31, 2008
|
|
|
179,340
|
|
|
|
|
|
|
|
Of this amount, 14,387 performance shares were earned as of
December 31, 2008, and as a result, 14,387 shares of
Libbey Inc. common stock were issued in February 2009 to the
executives in settlement of these performance shares.
The weighted-average grant-date fair value of the performance
shares granted during 2008, 2007 and 2006 was $15.35, $12.97 and
$9.88, respectively. As of December 31, 2008, there was
$0.6 million of total unrecognized compensation cost
related to nonvested performance shares granted. That cost is
expected to be recognized over a period of 2 years. Shares
issued for performance share awards are issued from treasury
stock.
Stock
and Restricted Stock Unit Information
Compensation expense of $1.6 million, $1.5 million and
$0.3 million for 2008, 2007 and 2006, respectively, is
included in our Statement of Operations to reflect grants of
restricted stock units and of stock.
Under the Libbey Inc. 2006 Omnibus Incentive Plan, we grant
members of our Board of Directors restricted stock units or
shares of unrestricted stock. The restricted stock units or
shares granted to Directors are immediately vested and all
compensation expense is recognized in our Statement of
Operations in the year the grants are made. In addition, we
grant restricted stock units to select executives, and we grant
shares of restricted stock to key employees. The restricted
stock units granted to select executives vest generally over
four years. The restricted stock units granted to key employees
generally vest on the first anniversary of the grant date.
91
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
A summary of the activity for restricted stock units under the
Libbey Inc. 2006 Omnibus Incentive Plan for 2008 and 2007 is
presented below:
|
|
|
|
|
|
|
Restricted Stock Units
|
|
Shares
|
|
|
|
|
Outstanding balance at January 1, 2007
|
|
|
—
|
|
|
Granted
|
|
|
190,304
|
|
|
Awarded
|
|
|
(20,146
|
)
|
|
Canceled
|
|
|
—
|
|
|
|
|
|
|
|
|
Outstanding balance at December 31, 2007
|
|
|
170,158
|
|
|
Granted
|
|
|
100,725
|
|
|
Awarded
|
|
|
(67,972
|
)
|
|
Canceled
|
|
|
(300
|
)
|
|
|
|
|
|
|
|
Outstanding balance at December 31, 2008
|
|
|
202,611
|
|
|
|
|
|
|
|
The weighted-average grant-date fair value of the restricted
stock units granted during 2008 and 2007 was $14.63 and $13.91,
respectively. As of December 31, 2008, there was
$1.1 million of total unrecognized compensation cost
related to nonvested restricted stock units granted. That cost
is expected to be recognized over a period of 3 years.
Shares issued for restricted stock unit awards are issued from
treasury stock.
Employee
401(k) Plan Retirement Fund and Non-Qualified Executive Savings
Plan
We sponsor the Libbey Inc. Salary and Hourly 401(k) Plans (the
Plan) to provide retirement benefits for our employees. As
allowed under Section 401(k) of the Internal Revenue Code,
the Plan provides tax-deferred salary contributions for eligible
employees.
For the Salary Plan, employees can contribute from
1 percent to 50 percent of their annual salary on a
pre-tax basis, up to the annual IRS limits. During 2008 and
2007, we matched 100 percent on the first 1 percent
and matched 50 percent on the next two to five percent of
pretax contributions to a maximum of 3.5 percent of
compensation. During 2006, we matched an amount equal to
50 percent of employee pretax contributions up to the first
6 percent of eligible earnings that are contributed by
employees. For the Hourly Plan, employees can contribute from
1 percent to 25 percent of their annual pay up to the
annual IRS limits. We match 50 percent of the first
6 percent of eligible earnings that are contributed by
employees on a pretax basis. Therefore, the maximum matching
contribution that we may allocate to each participant’s
account did not exceed $8,050 for the Salary Plan or $6,900 for
the Hourly Plan for the 2008 calendar year due to the $230,000
annual limit on eligible earnings imposed by the Internal
Revenue Code. Starting in 2003, we used treasury stock for the
company match contributions to the Plans; however, we
discontinued that practice as to salaried positions beginning
January 1, 2007, and effective January 1, 2008 we
discontinued that practice with hourly positions also. All
matching contributions are now made in cash and vest immediately.
Effective January 1, 2005, employees who meet the age
requirements and reach the Plan contribution limits can make a
catch-up
contribution not to exceed the lesser of 50 percent of
their eligible compensation or the limit of $5,000 set forth in
the Internal Revenue Code for the 2008 calendar year. The
catch-up
contributions are not eligible for matching contributions.
We have a non-qualified Executive Savings Plan (ESP) for those
employees whose salaries exceed the IRS limit. Libbey matched
employee contributions under the ESP. Libbey’s matching
contribution during 2008 equaled 100 percent of the first
one percent and 50 percent of the next two to five percent
of eligible earnings that were contributed on a pretax basis by
the employees.
92
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Our matching contributions to both Plans totaled
$2.6 million, $2.6 million, and $2.2 million in
2008, 2007, and 2006, respectively. The company suspended
matching contributions under the Plans for salaried and
non-union employees effective March 16, 2009.
We hold derivative financial instruments to hedge certain
interest rate risks associated with our long-term debt,
commodity price risks associated with forecasted future natural
gas requirements and foreign exchange rate risks associated with
transactions denominated in a currency other than the
U.S. dollar. Most of these derivatives, except for certain
natural gas contracts 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.
During December 2008, we announced the closing of the Syracuse
China facility in early April 2009 (see note 9). At the
time of the announcement we held natural gas contracts for the
Syracuse China facility with a settlement date after March 2009
of 165,000 million British Thermal Units (BTU’s). The
closure of this facility has rendered the forecasted
transactions related to these contracts not probable of
occurring. Under FASB Statement No. 133,
Accounting for
Derivative Instrument and Hedging Activities
(FAS 133),
when the forecasted transactions of a hedging relationship
becomes not probable of occurring, the gains or losses that have
been classified in Other Comprehensive Income in prior periods
for those contracts effected should be reclassified into
earnings. We recognized $0.4 million in other income
(expense) on the Consolidated Statement of Operations relating
to these contracts.
We use commodity futures contracts related to forecasted future
natural gas requirements. The objective of these futures
contracts and other derivatives is to limit the fluctuations in
prices paid from adverse 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, generally six or more months in the future. The
fair values of these instruments are determined from market
quotes. At December 31, 2008, we had commodity futures
contracts for 5,280,000 million BTU’s of natural gas
with a fair market value of $(14.9) million. We have hedged
a portion of forecasted transactions through December 2011. At
December 31, 2007, we had commodity futures contracts for
2,820,000 million BTU’s of natural gas with a fair
market value of $(1.8) million.
We also use Interest Rate Protection Agreements (Rate
Agreements) to manage our exposure to variable interest rates.
These Rate Agreements effectively convert a portion of our
borrowings from variable rate debt to fixed-rate debt, thus
reducing the impact of interest rate changes on future results.
These instruments are valued using the market standard
methodology of netting the discounted expected future variable
cash receipts and the discounted future fixed cash payments. The
variable cash receipts are based on an expectation of future
interest rates derived from observed market interest rate
forward curves. At December 31, 2008, we had Rate
Agreements for $200.0 million of variable rate debt with a
fair market value of $(6.8) million. At December 31,
2007, we had Rate Agreements for $200.0 million of variable
rate debt with a fair market value of $(5.3) million.
Our foreign currency exposure arises from transactions
denominated in a currency other than the U.S. dollar,
primarily associated with anticipated purchases of new equipment
or net investment in a foreign operation. The fair values of
these instruments are determined from market quotes. We have not
changed our methods of calculating these values or developing
underlying assumptions. The values of these derivatives will
change over time as cash receipts and payments are made and as
market conditions change. In January 2008, we entered into a
series of foreign currency contracts to sell Canadian dollars.
As of December 31, 2008 all of these contracts have
expired. During April 2007, we entered into a foreign currency
contract for 212.0 million pesos for a contractual payment
93
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
due to Vitro in January 2008, related to the Crisa acquisition.
The fair value of this contract was $0.4 million as of
December 31, 2007.
The fair values of the Rate Agreements, commodity contracts and
foreign currency contracts are included in our Consolidated
Balance Sheets in derivative liability, other long term
liabilities and prepaid and other current assets.
We do not believe we are exposed to more than a nominal amount
of credit risk in our interest rate, natural gas and foreign
currency hedges, as the counterparties are established financial
institutions. All counterparties were rated A or better as of
December 31, 2008, by Standard and Poors.
Most of our derivatives qualify and are designated as cash flow
hedges (except certain natural gas contracts at Syracuse China)
at December 31, 2008. 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. The
ineffective portion of the change in the fair value of a
derivative designated as a cash flow hedge is recognized in
other income (expense) on the Consolidated Statement of
Operations. We recognized a loss of $0.5 million and
$0.4 million for December 31, 2008 and 2007,
respectively, representing 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 hedged item affects
earnings. Amounts reclassified into earnings related to rate
agreements are included in interest expense and natural gas
futures contracts in natural gas expense included in cost of
sales.
|
|
|
|
16.
|
Comprehensive
Income (Loss)
|
Total comprehensive (loss) income (net of tax) includes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Net loss
|
|
$
|
(80,463
|
)
|
|
$
|
(2,307
|
)
|
|
$
|
(20,899
|
)
|
|
Effect of derivatives, net of tax benefit of $3,390, $0 and
$1,263
|
|
|
(10,300
|
)
|
|
|
(3,224
|
)
|
|
|
(6,829
|
)
|
|
Minimum pension liability and intangible pension asset
(including equity investments for 2006), net of tax provision of
$282, $0 and $4,733
|
|
|
(58,607
|
)
|
|
|
(2,956
|
)
|
|
|
10,650
|
|
|
Effect of exchange rate fluctuation
|
|
|
(4,402
|
)
|
|
|
9,712
|
|
|
|
3,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive (loss) income
|
|
$
|
(153,772
|
)
|
|
$
|
1,225
|
|
|
$
|
(14,008
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss (net of tax) includes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Minimum pension liability and intangible pension asset
(including equity investments for 2006)
|
|
$
|
(103,407
|
)
|
|
$
|
(44,800
|
)
|
|
$
|
(20,065
|
)
|
|
Adoption of SFAS 158
|
|
|
—
|
|
|
|
—
|
|
|
|
(21,779
|
)
|
|
Derivatives
|
|
|
(16,610
|
)
|
|
|
(6,310
|
)
|
|
|
(3,086
|
)
|
|
Exchange rate fluctuation
|
|
|
4,231
|
|
|
|
8,633
|
|
|
|
(1,079
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(115,786
|
)
|
|
$
|
(42,477
|
)
|
|
$
|
(46,009
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
The change in other comprehensive loss related to cash flow
hedges is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Change in fair value of derivative instruments
|
|
$
|
(13,690
|
)
|
|
$
|
(3,224
|
)
|
|
$
|
(8,092
|
)
|
|
Less: Income tax benefit
|
|
|
3,390
|
|
|
|
—
|
|
|
|
1,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss related to derivatives
|
|
$
|
(10,300
|
)
|
|
$
|
(3,224
|
)
|
|
$
|
(6,829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table identifies the detail of cash flow hedges in
accumulated other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Balance at beginning of year
|
|
$
|
(6,310
|
)
|
|
$
|
(3,086
|
)
|
|
$
|
3,743
|
|
|
Current year impact of changes in value (net of tax):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate agreements
|
|
|
(1,077
|
)
|
|
|
(6,423
|
)
|
|
|
1,015
|
|
|
Natural gas
|
|
|
(9,223
|
)
|
|
|
3,199
|
|
|
|
(7,844
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
(10,300
|
)
|
|
|
(3,224
|
)
|
|
|
(6,829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
(16,610
|
)
|
|
$
|
(6,310
|
)
|
|
$
|
(3,086
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We adopted SFAS 157 as of January 1, 2008, but we have
not applied the statement to non-recurring, nonfinancial assets
and liabilities. The adoption of SFAS 157 did not have a
material impact on our fair value measurements. SFAS 157
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. SFAS 157 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2008
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
Commodity futures natural gas contracts
|
|
$
|
—
|
|
|
$
|
(14,868
|
)
|
|
$
|
—
|
|
|
$
|
(14,868
|
)
|
|
Interest rate protection agreements
|
|
$
|
—
|
|
|
$
|
(6,761
|
)
|
|
$
|
—
|
|
|
$
|
(6,761
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liability
|
|
$
|
—
|
|
|
$
|
(21,629
|
)
|
|
$
|
—
|
|
|
$
|
(21,629
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of our interest rate protection agreements are
based on the market standard methodology of netting the
discounted expected future variable cash receipts and the
discounted future fixed cash payments. The variable cash
receipts are based on an expectation of future interest rates
derived from observed market interest rate forward curves. The
fair values of our commodity futures natural gas contracts are
determined using observable market inputs. 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 liability is recorded on the Consolidated Balance
Sheets with $17.4 million in derivative liability and
$3.7 million in other long term liabilities.
95
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
The commodity futures natural gas contracts and interest rate
protection 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.
Rental expense for all non-cancelable operating leases,
primarily for warehouses, was $18.5 million,
$15.8 million and $10.1 million for the years ended
December 31, 2008, 2007 and 2006, respectively.
Future minimum rentals under operating leases are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 and
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
Thereafter
|
|
|
|
$16,809
|
|
$14,296
|
|
$12,509
|
|
$10,334
|
|
$9,359
|
|
$57,556
|
|
|
|
|
19.
|
Other
Income (Expense)
|
Items included in other income (expense) in the Consolidated
Statements of Operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Gain on sales of land at Syracuse and Royal Leerdam
|
|
$
|
—
|
|
|
$
|
5,457
|
|
|
$
|
—
|
|
|
Gain (loss) on currency translation
|
|
|
668
|
|
|
|
1,962
|
|
|
|
(1,021
|
)
|
|
Hedge ineffectiveness(1)
|
|
|
(461
|
)
|
|
|
423
|
|
|
|
(2,406
|
)
|
|
Other
|
|
|
912
|
|
|
|
936
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
$
|
1,119
|
|
|
$
|
8,778
|
|
|
$
|
(3,236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes $(0.4) million related to gas hedges at Syracuse
China in 2008. See note 9.
|
With the acquisition of Crisa and our growing focus on the
global market, effective for the quarter ended
September 30, 2006, we formed three reportable segments
from which we derive revenue from external customers. We have
reclassified prior period amounts to conform to the current
presentation. Some operating segments were aggregated to arrive
at the disclosed reportable segments. The segments are
distinguished as follows:
|
|
|
|
|
|
•
|
North American Glass — includes sales of glass
tableware from subsidiaries throughout the United States, Canada
and Mexico.
|
|
|
|
|
•
|
North American Other — includes sales of ceramic
dinnerware; metal tableware, hollowware and serveware; and
plastic items from subsidiaries in the United States.
|
|
|
|
|
•
|
International — includes worldwide sales of glass
tableware from subsidiaries outside the United States, Canada
and Mexico.
|
96
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
The accounting policies of the segments are the same as those
described in note 2 of the Notes to Consolidated Financial
Statements. We do not have any customers who represent
10 percent or more of total sales. We evaluate the
performance of our segments based upon sales and Earnings Before
Interest and Taxes and Minority Interest (EBIT). Intersegment
sales are consummated at arm’s length and are reflected in
eliminations in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Glass
|
|
$
|
554,128
|
|
|
$
|
568,495
|
|
|
$
|
476,696
|
|
|
North American Other
|
|
|
111,029
|
|
|
|
121,217
|
|
|
|
114,581
|
|
|
International
|
|
|
153,532
|
|
|
|
136,727
|
|
|
|
106,798
|
|
|
Eliminations
|
|
|
(8,482
|
)
|
|
|
(12,279
|
)
|
|
|
(8,595
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
810,207
|
|
|
$
|
814,160
|
|
|
$
|
689,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Glass
|
|
$
|
25,495
|
|
|
$
|
54,492
|
|
|
$
|
5,471
|
|
|
North American Other
|
|
|
(17,696
|
)
|
|
|
15,670
|
|
|
|
9,382
|
|
|
International
|
|
|
(12,228
|
)
|
|
|
4,717
|
|
|
|
3,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
(4,429
|
)
|
|
$
|
74,879
|
|
|
$
|
18,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special charges (excluding write-off of financing fees) (see
note 9):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Glass
|
|
$
|
5,356
|
|
|
$
|
—
|
|
|
$
|
18,534
|
|
|
North American Other
|
|
|
28,252
|
|
|
|
—
|
|
|
|
(42
|
)
|
|
International
|
|
|
11,890
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
45,498
|
|
|
$
|
—
|
|
|
$
|
18,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Glass
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
North American Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
International
|
|
|
—
|
|
|
|
—
|
|
|
|
1,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation & amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Glass
|
|
$
|
26,004
|
|
|
$
|
25,558
|
|
|
$
|
22,102
|
|
|
North American Other
|
|
|
3,123
|
|
|
|
3,328
|
|
|
|
3,450
|
|
|
International
|
|
|
15,303
|
|
|
|
12,686
|
|
|
|
10,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
44,430
|
|
|
$
|
41,572
|
|
|
$
|
35,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Glass
|
|
$
|
21,170
|
|
|
$
|
25,711
|
|
|
$
|
30,286
|
|
|
North American Other
|
|
|
611
|
|
|
|
1,474
|
|
|
|
1,173
|
|
|
International
|
|
|
23,936
|
|
|
|
15,936
|
|
|
|
42,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
45,717
|
|
|
$
|
43,121
|
|
|
$
|
73,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Glass
|
|
$
|
840,403
|
|
|
$
|
927,431
|
|
|
$
|
849,751
|
|
|
North American Other
|
|
|
54,089
|
|
|
|
83,064
|
|
|
|
86,795
|
|
|
International
|
|
|
429,749
|
|
|
|
443,132
|
|
|
|
421,315
|
|
|
Eliminations
|
|
|
(502,687
|
)
|
|
|
(554,156
|
)
|
|
|
(479,730
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
821,554
|
|
|
$
|
899,471
|
|
|
$
|
878,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of EBIT to net loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment EBIT
|
|
$
|
(4,429
|
)
|
|
$
|
74,879
|
|
|
$
|
18,014
|
|
|
Interest Expense
|
|
|
(69,720
|
)
|
|
|
(65,888
|
)
|
|
|
(46,594
|
)
|
|
Income Taxes
|
|
|
(6,314
|
)
|
|
|
(11,298
|
)
|
|
|
7,747
|
|
|
Minority Interest
|
|
|
—
|
|
|
|
—
|
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(80,463
|
)
|
|
$
|
(2,307
|
)
|
|
$
|
(20,899
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets for our North American Other reporting segment
previously reported for 2007 and 2006 were overstated by
$285.4 million and $282.3 million for 2007 and 2006,
respectively. Total assets previously included holding companies
with inter-company investments which should have been reported
on the eliminations line in this footnote disclosure. The
reclassification had no impact on our previously reported
consolidated balance sheets, consolidated statements of
operations, including net income and earnings per share,
consolidated statements of shareholders’ equity or
consolidated statements of cash flows for any period.
Our operations by geographic areas for 2008, 2007 and 2006 are
presented below. Intercompany sales to affiliates represent
products that are transferred between geographic areas on a
basis intended to reflect as nearly as possible the market value
of the products. Net sales to customers located in the U.S.,
Mexico, and Other regions are shown in the table below. The
long-lived assets include net fixed assets, goodwill and equity
investments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
Mexico
|
|
|
All Other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers
|
|
$
|
451,794
|
|
|
$
|
131,383
|
|
|
$
|
227,030
|
|
|
|
|
|
|
$
|
810,207
|
|
|
Intercompany
|
|
|
50,825
|
|
|
|
9,402
|
|
|
|
3,555
|
|
|
$
|
(63,782
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
502,619
|
|
|
$
|
140,785
|
|
|
$
|
230,585
|
|
|
$
|
(63,782
|
)
|
|
$
|
810,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets
|
|
$
|
139,673
|
|
|
$
|
199,583
|
|
|
$
|
145,066
|
|
|
$
|
—
|
|
|
$
|
484,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers
|
|
$
|
459,294
|
|
|
$
|
123,966
|
|
|
$
|
230,900
|
|
|
|
|
|
|
$
|
814,160
|
|
|
Intercompany
|
|
|
52,617
|
|
|
|
8,774
|
|
|
|
2,925
|
|
|
$
|
(64,316
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
511,911
|
|
|
$
|
132,740
|
|
|
$
|
233,825
|
|
|
$
|
(64,316
|
)
|
|
$
|
814,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets
|
|
$
|
160,662
|
|
|
$
|
202,924
|
|
|
$
|
143,551
|
|
|
$
|
—
|
|
|
$
|
507,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers
|
|
$
|
437,159
|
|
|
$
|
65,322
|
|
|
$
|
186,999
|
|
|
|
|
|
|
$
|
689,480
|
|
|
Intercompany
|
|
|
22,817
|
|
|
|
3,921
|
|
|
|
1,187
|
|
|
$
|
(27,925
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
459,976
|
|
|
$
|
69,243
|
|
|
$
|
188,186
|
|
|
$
|
(27,925
|
)
|
|
$
|
689,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets
|
|
$
|
167,156
|
|
|
$
|
194,876
|
|
|
$
|
129,793
|
|
|
$
|
—
|
|
|
$
|
491,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
|
|
|
|
21.
|
Condensed
Consolidated Guarantor Financial Statements
|
Libbey Glass is a direct, 100 percent owned subsidiary of
Libbey Inc. and the issuer of the Senior Notes and the PIK
Notes. The obligations of Libbey Glass under the Senior Notes
and the PIK 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 Consolidated Financial Statements for the year ended
December 31, 2008.
At December 31, 2008, December 31, 2007 and
December 31, 2006, 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., LGAC LLC and Crisa Industrial 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.
99
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Libbey
Inc.
Condensed
Consolidating Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Libbey
|
|
|
Libbey
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Glass
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
(Parent)
|
|
|
(Issuer)
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Net sales
|
|
$
|
—
|
|
|
$
|
392,738
|
|
|
$
|
111,029
|
|
|
$
|
363,625
|
|
|
$
|
(57,185
|
)
|
|
$
|
810,207
|
|
|
Freight billed to customers
|
|
|
—
|
|
|
|
743
|
|
|
|
1,220
|
|
|
|
459
|
|
|
|
—
|
|
|
|
2,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
—
|
|
|
|
393,481
|
|
|
|
112,249
|
|
|
|
364,084
|
|
|
|
(57,185
|
)
|
|
|
812,629
|
|
|
Cost of sales
|
|
|
—
|
|
|
|
345,669
|
|
|
|
104,683
|
|
|
|
310,125
|
|
|
|
(57,185
|
)
|
|
|
703,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
—
|
|
|
|
47,812
|
|
|
|
7,566
|
|
|
|
53,959
|
|
|
|
—
|
|
|
|
109,337
|
|
|
Selling, general and administrative expenses
|
|
|
—
|
|
|
|
44,269
|
|
|
|
11,265
|
|
|
|
32,917
|
|
|
|
—
|
|
|
|
88,451
|
|
|
Special charges
|
|
|
—
|
|
|
|
683
|
|
|
|
13,861
|
|
|
|
11,890
|
|
|
|
—
|
|
|
|
26,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
—
|
|
|
|
2,860
|
|
|
|
(17,560
|
)
|
|
|
9,152
|
|
|
|
—
|
|
|
|
(5,548
|
)
|
|
Other income (expense)
|
|
|
—
|
|
|
|
(2,332
|
)
|
|
|
(504
|
)
|
|
|
3,955
|
|
|
|
—
|
|
|
|
1,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before interest and income taxes and minority
interest
|
|
|
—
|
|
|
|
528
|
|
|
|
(18,064
|
)
|
|
|
13,107
|
|
|
|
—
|
|
|
|
(4,429
|
)
|
|
Interest expense
|
|
|
—
|
|
|
|
62,730
|
|
|
|
1
|
|
|
|
6,989
|
|
|
|
—
|
|
|
|
69,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes and minority interest
|
|
|
—
|
|
|
|
(62,202
|
)
|
|
|
(18,065
|
)
|
|
|
6,118
|
|
|
|
—
|
|
|
|
(74,149
|
)
|
|
Provision (benefit) for income taxes
|
|
|
—
|
|
|
|
(7,380
|
)
|
|
|
9,284
|
|
|
|
4,410
|
|
|
|
—
|
|
|
|
6,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before minority interest
|
|
|
—
|
|
|
|
(54,822
|
)
|
|
|
(27,349
|
)
|
|
|
1,708
|
|
|
|
—
|
|
|
|
(80,463
|
)
|
|
Minority interest and equity in net income (loss) of subsidiaries
|
|
|
(80,463
|
)
|
|
|
(25,641
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
106,104
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(80,463
|
)
|
|
$
|
(80,463
|
)
|
|
$
|
(27,349
|
)
|
|
$
|
1,708
|
|
|
$
|
106,104
|
|
|
$
|
(80,463
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following represents the total
special charges included in the above Statement of Operations
(see note 9):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special charges included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
$
|
—
|
|
|
$
|
3,795
|
|
|
$
|
14,007
|
|
|
$
|
879
|
|
|
$
|
—
|
|
|
$
|
18,681
|
|
|
Special charges
|
|
|
—
|
|
|
|
683
|
|
|
|
13,861
|
|
|
|
11,890
|
|
|
|
—
|
|
|
|
26,434
|
|
|
Other income (expense)
|
|
|
—
|
|
|
|
—
|
|
|
|
(383
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(383
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pretax special charges
|
|
$
|
—
|
|
|
$
|
4,478
|
|
|
$
|
28,251
|
|
|
$
|
12,769
|
|
|
$
|
—
|
|
|
$
|
45,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special charges net of tax
|
|
$
|
—
|
|
|
$
|
4,478
|
|
|
$
|
28,251
|
|
|
$
|
12,523
|
|
|
$
|
—
|
|
|
$
|
45,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Libbey
Inc.
Condensed
Consolidating Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Libbey
|
|
|
Libbey
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Glass
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
(Parent)
|
|
|
(Issuer)
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Net sales
|
|
$
|
—
|
|
|
$
|
409,788
|
|
|
$
|
121,217
|
|
|
$
|
341,799
|
|
|
$
|
(58,644
|
)
|
|
$
|
814,160
|
|
|
Freight billed to customers
|
|
|
—
|
|
|
|
566
|
|
|
|
1,341
|
|
|
|
300
|
|
|
|
—
|
|
|
|
2,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
—
|
|
|
|
410,354
|
|
|
|
122,558
|
|
|
|
342,099
|
|
|
|
(58,644
|
)
|
|
|
816,367
|
|
|
Cost of sales
|
|
|
—
|
|
|
|
335,575
|
|
|
|
96,934
|
|
|
|
284,833
|
|
|
|
(58,644
|
)
|
|
|
658,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
—
|
|
|
|
74,779
|
|
|
|
25,624
|
|
|
|
57,266
|
|
|
|
—
|
|
|
|
157,669
|
|
|
Selling, general and administrative expenses
|
|
|
—
|
|
|
|
46,551
|
|
|
|
11,442
|
|
|
|
33,575
|
|
|
|
—
|
|
|
|
91,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
—
|
|
|
|
28,228
|
|
|
|
14,182
|
|
|
|
23,691
|
|
|
|
—
|
|
|
|
66,101
|
|
|
Other income (expense)
|
|
|
—
|
|
|
|
4,284
|
|
|
|
1,334
|
|
|
|
3,160
|
|
|
|
—
|
|
|
|
8,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before interest and income taxes and minority
interest
|
|
|
—
|
|
|
|
32,512
|
|
|
|
15,516
|
|
|
|
26,851
|
|
|
|
—
|
|
|
|
74,879
|
|
|
Interest expense
|
|
|
—
|
|
|
|
60,090
|
|
|
|
—
|
|
|
|
5,798
|
|
|
|
—
|
|
|
|
65,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes and minority interest
|
|
|
—
|
|
|
|
(27,578
|
)
|
|
|
15,516
|
|
|
|
21,053
|
|
|
|
—
|
|
|
|
8,991
|
|
|
Provision (benefit) for income taxes
|
|
|
—
|
|
|
|
(34,654
|
)
|
|
|
19,497
|
|
|
|
26,455
|
|
|
|
—
|
|
|
|
11,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before minority interest
|
|
|
—
|
|
|
|
7,076
|
|
|
|
(3,981
|
)
|
|
|
(5,402
|
)
|
|
|
—
|
|
|
|
(2,307
|
)
|
|
Minority interest and equity in net income (loss) of subsidiaries
|
|
|
(2,307
|
)
|
|
|
(9,383
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
11,690
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,307
|
)
|
|
$
|
(2,307
|
)
|
|
$
|
(3,981
|
)
|
|
$
|
(5,402
|
)
|
|
$
|
11,690
|
|
|
$
|
(2,307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Libbey
Inc.
Condensed
Consolidating Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Libbey
|
|
|
Libbey
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Glass
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
(Parent)
|
|
|
(Issuer)
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Net sales
|
|
$
|
—
|
|
|
$
|
386,924
|
|
|
$
|
114,581
|
|
|
$
|
211,041
|
|
|
$
|
(23,066
|
)
|
|
$
|
689,480
|
|
|
Freight billed to customers
|
|
|
—
|
|
|
|
765
|
|
|
|
1,382
|
|
|
|
774
|
|
|
|
—
|
|
|
|
2,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
—
|
|
|
|
387,689
|
|
|
|
115,963
|
|
|
|
211,815
|
|
|
|
(23,066
|
)
|
|
|
692,401
|
|
|
Cost of sales
|
|
|
—
|
|
|
|
314,342
|
|
|
|
96,715
|
|
|
|
181,246
|
|
|
|
(23,066
|
)
|
|
|
569,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
—
|
|
|
|
73,347
|
|
|
|
19,248
|
|
|
|
30,569
|
|
|
|
—
|
|
|
|
123,164
|
|
|
Selling, general and administrative expenses
|
|
|
—
|
|
|
|
59,172
|
|
|
|
7,614
|
|
|
|
20,780
|
|
|
|
—
|
|
|
|
87,566
|
|
|
Special charges
|
|
|
—
|
|
|
|
(326
|
)
|
|
|
(42
|
)
|
|
|
16,702
|
|
|
|
—
|
|
|
|
16,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
—
|
|
|
|
14,501
|
|
|
|
11,676
|
|
|
|
(6,913
|
)
|
|
|
—
|
|
|
|
19,264
|
|
|
Equity earnings (loss) — pretax
|
|
|
—
|
|
|
|
—
|
|
|
|
612
|
|
|
|
1,374
|
|
|
|
—
|
|
|
|
1,986
|
|
|
Other income (expense)
|
|
|
—
|
|
|
|
(803
|
)
|
|
|
26
|
|
|
|
(2,459
|
)
|
|
|
—
|
|
|
|
(3,236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before interest and income taxes and minority
interest
|
|
|
—
|
|
|
|
13,698
|
|
|
|
12,314
|
|
|
|
(7,998
|
)
|
|
|
—
|
|
|
|
18,014
|
|
|
Interest expense
|
|
|
—
|
|
|
|
36,577
|
|
|
|
2
|
|
|
|
10,015
|
|
|
|
—
|
|
|
|
46,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes and minority interest
|
|
|
—
|
|
|
|
(22,879
|
)
|
|
|
12,312
|
|
|
|
(18,013
|
)
|
|
|
—
|
|
|
|
(28,580
|
)
|
|
Provision (benefit) for income taxes
|
|
|
—
|
|
|
|
(12,821
|
)
|
|
|
5,298
|
|
|
|
(224
|
)
|
|
|
—
|
|
|
|
(7,747
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before minority interest
|
|
|
—
|
|
|
|
(10,058
|
)
|
|
|
7,014
|
|
|
|
(17,789
|
)
|
|
|
—
|
|
|
|
(20,833
|
)
|
|
Minority interest and equity in net income (loss) of subsidiaries
|
|
|
(20,899
|
)
|
|
|
(10,841
|
)
|
|
|
—
|
|
|
|
(66
|
)
|
|
|
31,740
|
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(20,899
|
)
|
|
$
|
(20,899
|
)
|
|
$
|
7,014
|
|
|
$
|
(17,855
|
)
|
|
$
|
31,740
|
|
|
$
|
(20,899
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following represents the total
special charges included in the above Statement of Operations
(see note 9):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special charges included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,158
|
|
|
$
|
—
|
|
|
$
|
2,158
|
|
|
Special charges
|
|
|
—
|
|
|
|
(326
|
)
|
|
|
(42
|
)
|
|
|
16,702
|
|
|
|
—
|
|
|
|
16,334
|
|
|
Interest expense
|
|
|
—
|
|
|
|
3,490
|
|
|
|
—
|
|
|
|
1,416
|
|
|
|
—
|
|
|
|
4,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pretax special charges
|
|
$
|
—
|
|
|
$
|
3,164
|
|
|
$
|
(42
|
)
|
|
$
|
20,276
|
|
|
$
|
—
|
|
|
$
|
23,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special charges net of tax
|
|
$
|
|
|
|
$
|
2,307
|
|
|
$
|
(31
|
)
|
|
$
|
14,779
|
|
|
$
|
—
|
|
|
$
|
17,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Libbey
Inc.
Condensed
Consolidating Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Libbey
|
|
|
Libbey
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Glass
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
(Parent)
|
|
|
(Issuer)
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Cash and equivalents
|
|
$
|
—
|
|
|
$
|
6,453
|
|
|
$
|
413
|
|
|
$
|
6,438
|
|
|
$
|
—
|
|
|
$
|
13,304
|
|
|
Accounts receivable — net
|
|
|
—
|
|
|
|
32,789
|
|
|
|
6,076
|
|
|
|
37,207
|
|
|
|
—
|
|
|
|
76,072
|
|
|
Inventories — net
|
|
|
—
|
|
|
|
58,924
|
|
|
|
26,892
|
|
|
|
99,426
|
|
|
|
—
|
|
|
|
185,242
|
|
|
Other current assets
|
|
|
—
|
|
|
|
4,731
|
|
|
|
316
|
|
|
|
12,120
|
|
|
|
—
|
|
|
|
17,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
—
|
|
|
|
102,897
|
|
|
|
33,697
|
|
|
|
155,191
|
|
|
|
—
|
|
|
|
291,785
|
|
|
Other non-current assets
|
|
|
—
|
|
|
|
6,723
|
|
|
|
43
|
|
|
|
12,560
|
|
|
|
—
|
|
|
|
19,326
|
|
|
Investments in and advances to subsidiaries
|
|
|
(57,889
|
)
|
|
|
406,812
|
|
|
|
272,761
|
|
|
|
143,459
|
|
|
|
(765,143
|
)
|
|
|
—
|
|
|
Goodwill and purchased intangible assets — net
|
|
|
—
|
|
|
|
28,216
|
|
|
|
15,780
|
|
|
|
148,861
|
|
|
|
—
|
|
|
|
192,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
(57,889
|
)
|
|
|
441,751
|
|
|
|
288,584
|
|
|
|
304,880
|
|
|
|
(765,143
|
)
|
|
|
212,183
|
|
|
Property, plant and equipment — net
|
|
|
—
|
|
|
|
91,367
|
|
|
|
7,697
|
|
|
|
218,522
|
|
|
|
—
|
|
|
|
317,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
(57,889
|
)
|
|
$
|
636,015
|
|
|
$
|
329,978
|
|
|
$
|
678,593
|
|
|
$
|
(765,143
|
)
|
|
$
|
821,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
—
|
|
|
$
|
9,370
|
|
|
$
|
2,794
|
|
|
$
|
42,264
|
|
|
$
|
—
|
|
|
$
|
54,428
|
|
|
Accrued and other current liabilities
|
|
|
—
|
|
|
|
36,589
|
|
|
|
19,700
|
|
|
|
35,908
|
|
|
|
—
|
|
|
|
92,197
|
|
|
Notes payable and long-term debt due within one year
|
|
|
—
|
|
|
|
215
|
|
|
|
—
|
|
|
|
4,186
|
|
|
|
—
|
|
|
|
4,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
—
|
|
|
|
46,174
|
|
|
|
22,494
|
|
|
|
82,358
|
|
|
|
—
|
|
|
|
151,026
|
|
|
Long-term debt
|
|
|
—
|
|
|
|
451,772
|
|
|
|
—
|
|
|
|
94,084
|
|
|
|
—
|
|
|
|
545,856
|
|
|
Other long-term liabilities
|
|
|
—
|
|
|
|
140,936
|
|
|
|
14,185
|
|
|
|
27,440
|
|
|
|
—
|
|
|
|
182,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
—
|
|
|
|
638,882
|
|
|
|
36,679
|
|
|
|
203,882
|
|
|
|
—
|
|
|
|
879,443
|
|
|
Total shareholders’ equity
|
|
|
(57,889
|
)
|
|
|
(2,867
|
)
|
|
|
293,299
|
|
|
|
474,711
|
|
|
|
(765,143
|
)
|
|
|
(57,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
(57,889
|
)
|
|
$
|
636,015
|
|
|
$
|
329,978
|
|
|
$
|
678,593
|
|
|
$
|
(765,143
|
)
|
|
$
|
821,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Libbey
Inc.
Condensed
Consolidating Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Libbey
|
|
|
Libbey
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Glass
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
(Parent)
|
|
|
(Issuer)
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Cash and equivalents
|
|
$
|
—
|
|
|
$
|
20,834
|
|
|
$
|
532
|
|
|
$
|
15,173
|
|
|
$
|
—
|
|
|
$
|
36,539
|
|
|
Accounts receivable — net
|
|
|
—
|
|
|
|
39,249
|
|
|
|
9,588
|
|
|
|
44,496
|
|
|
|
—
|
|
|
|
93,333
|
|
|
Inventories — net
|
|
|
—
|
|
|
|
71,856
|
|
|
|
37,890
|
|
|
|
84,333
|
|
|
|
—
|
|
|
|
194,079
|
|
|
Other current assets
|
|
|
—
|
|
|
|
9,243
|
|
|
|
467
|
|
|
|
10,721
|
|
|
|
—
|
|
|
|
20,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
—
|
|
|
|
141,182
|
|
|
|
48,477
|
|
|
|
154,723
|
|
|
|
—
|
|
|
|
344,382
|
|
|
Other non-current assets
|
|
|
—
|
|
|
|
12,955
|
|
|
|
596
|
|
|
|
3,670
|
|
|
|
—
|
|
|
|
17,221
|
|
|
Investments in and advances to subsidiaries
|
|
|
93,115
|
|
|
|
346,905
|
|
|
|
277,576
|
|
|
|
130,751
|
|
|
|
(848,347
|
)
|
|
|
—
|
|
|
Goodwill and purchased intangible assets — net
|
|
|
—
|
|
|
|
26,833
|
|
|
|
16,089
|
|
|
|
165,169
|
|
|
|
—
|
|
|
|
208,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
93,115
|
|
|
|
386,693
|
|
|
|
294,261
|
|
|
|
299,590
|
|
|
|
(848,347
|
)
|
|
|
225,312
|
|
|
Property, plant and equipment — net
|
|
|
—
|
|
|
|
100,742
|
|
|
|
19,389
|
|
|
|
209,646
|
|
|
|
—
|
|
|
|
329,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
93,115
|
|
|
$
|
628,617
|
|
|
$
|
362,127
|
|
|
$
|
663,959
|
|
|
$
|
(848,347
|
)
|
|
$
|
899,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
—
|
|
|
$
|
20,126
|
|
|
$
|
7,246
|
|
|
$
|
46,221
|
|
|
$
|
—
|
|
|
$
|
73,593
|
|
|
Accrued and other current liabilities
|
|
|
—
|
|
|
|
46,184
|
|
|
|
7,614
|
|
|
|
47,609
|
|
|
|
—
|
|
|
|
101,407
|
|
|
Notes payable and long-term debt due within one year
|
|
|
—
|
|
|
|
209
|
|
|
|
—
|
|
|
|
1,326
|
|
|
|
—
|
|
|
|
1,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
—
|
|
|
|
66,519
|
|
|
|
14,860
|
|
|
|
95,156
|
|
|
|
—
|
|
|
|
176,535
|
|
|
Long-term debt
|
|
|
—
|
|
|
|
428,896
|
|
|
|
—
|
|
|
|
66,203
|
|
|
|
—
|
|
|
|
495,099
|
|
|
Other long-term liabilities
|
|
|
—
|
|
|
|
96,622
|
|
|
|
5,496
|
|
|
|
32,604
|
|
|
|
—
|
|
|
|
134,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
—
|
|
|
|
592,037
|
|
|
|
20,356
|
|
|
|
193,963
|
|
|
|
—
|
|
|
|
806,356
|
|
|
Total shareholders’ equity
|
|
|
93,115
|
|
|
|
36,580
|
|
|
|
341,771
|
|
|
|
469,996
|
|
|
|
(848,347
|
)
|
|
|
93,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
93,115
|
|
|
$
|
628,617
|
|
|
$
|
362,127
|
|
|
$
|
663,959
|
|
|
$
|
(848,347
|
)
|
|
$
|
899,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Libbey
Inc.
Condensed
Consolidating Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Libbey
|
|
|
Libbey
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Glass
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
(Parent)
|
|
|
(Issuer)
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Net income (loss)
|
|
$
|
(80,463
|
)
|
|
$
|
(80,463
|
)
|
|
$
|
(27,349
|
)
|
|
$
|
1,708
|
|
|
$
|
106,104
|
|
|
$
|
(80,463
|
)
|
|
Depreciation and amortization
|
|
|
—
|
|
|
|
14,904
|
|
|
|
3,123
|
|
|
|
26,403
|
|
|
|
—
|
|
|
|
44,430
|
|
|
Other operating activities
|
|
|
80,463
|
|
|
|
65,694
|
|
|
|
24,718
|
|
|
|
(29,778
|
)
|
|
|
(106,104
|
)
|
|
|
34,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
—
|
|
|
|
135
|
|
|
|
492
|
|
|
|
(1,667
|
)
|
|
|
—
|
|
|
|
(1,040
|
)
|
|
Additions to property, plant & equipment
|
|
|
—
|
|
|
|
(13,003
|
)
|
|
|
(611
|
)
|
|
|
(32,103
|
)
|
|
|
—
|
|
|
|
(45,717
|
)
|
|
Other investing activities
|
|
|
—
|
|
|
|
117
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
—
|
|
|
|
(12,886
|
)
|
|
|
(611
|
)
|
|
|
(32,103
|
)
|
|
|
—
|
|
|
|
(45,600
|
)
|
|
Net borrowings
|
|
|
—
|
|
|
|
(164
|
)
|
|
|
—
|
|
|
|
27,458
|
|
|
|
—
|
|
|
|
27,294
|
|
|
Other financing activities
|
|
|
—
|
|
|
|
(1,466
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,466
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
—
|
|
|
|
(1,630
|
)
|
|
|
—
|
|
|
|
27,458
|
|
|
|
—
|
|
|
|
25,828
|
|
|
Exchange effect on cash
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,423
|
)
|
|
|
—
|
|
|
|
(2,423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
|
|
|
—
|
|
|
|
(14,381
|
)
|
|
|
(119
|
)
|
|
|
(8,735
|
)
|
|
|
—
|
|
|
|
(23,235
|
)
|
|
Cash at beginning of period
|
|
|
—
|
|
|
|
20,834
|
|
|
|
532
|
|
|
|
15,173
|
|
|
|
—
|
|
|
|
36,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
—
|
|
|
$
|
6,453
|
|
|
$
|
413
|
|
|
$
|
6,438
|
|
|
$
|
—
|
|
|
$
|
13,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Libbey
Inc.
Condensed
Consolidating Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Libbey
|
|
|
Libbey
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Glass
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
(Parent)
|
|
|
(Issuer)
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,307
|
)
|
|
$
|
(2,307
|
)
|
|
$
|
(3,981
|
)
|
|
$
|
(5,402
|
)
|
|
$
|
11,690
|
|
|
$
|
(2,307
|
)
|
|
Depreciation and amortization
|
|
|
—
|
|
|
|
15,143
|
|
|
|
3,329
|
|
|
|
23,100
|
|
|
|
—
|
|
|
|
41,572
|
|
|
Other operating activities
|
|
|
2,307
|
|
|
|
606
|
|
|
|
648
|
|
|
|
20,321
|
|
|
|
(11,690
|
)
|
|
|
12,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
—
|
|
|
|
13,442
|
|
|
|
(4
|
)
|
|
|
38,019
|
|
|
|
—
|
|
|
|
51,457
|
|
|
Additions to property, plant & equipment
|
|
|
—
|
|
|
|
(10,508
|
)
|
|
|
(1,474
|
)
|
|
|
(31,139
|
)
|
|
|
—
|
|
|
|
(43,121
|
)
|
|
Other investing activities
|
|
|
—
|
|
|
|
(3,237
|
)
|
|
|
1,501
|
|
|
|
9,949
|
|
|
|
—
|
|
|
|
8,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
—
|
|
|
|
(13,745
|
)
|
|
|
27
|
|
|
|
(21,190
|
)
|
|
|
—
|
|
|
|
(34,908
|
)
|
|
Net borrowings (repayments)
|
|
|
—
|
|
|
|
(155
|
)
|
|
|
—
|
|
|
|
(20,695
|
)
|
|
|
—
|
|
|
|
(20,850
|
)
|
|
Other financing activities
|
|
|
—
|
|
|
|
(1,557
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
—
|
|
|
|
(1,712
|
)
|
|
|
—
|
|
|
|
(20,695
|
)
|
|
|
—
|
|
|
|
(22,407
|
)
|
|
Exchange effect on cash
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
631
|
|
|
|
—
|
|
|
|
631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
|
|
|
—
|
|
|
|
(2,015
|
)
|
|
|
23
|
|
|
|
(3,235
|
)
|
|
|
—
|
|
|
|
(5,227
|
)
|
|
Cash at beginning of period
|
|
|
—
|
|
|
|
22,849
|
|
|
|
509
|
|
|
|
18,408
|
|
|
|
—
|
|
|
|
41,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
—
|
|
|
$
|
20,834
|
|
|
$
|
532
|
|
|
$
|
15,173
|
|
|
$
|
—
|
|
|
$
|
36,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106
LIBBEY
INC.
Notes to
Consolidated Financial
Statements — (Continued)
Libbey
Inc.
Condensed
Consolidating Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Libbey
|
|
|
Libbey
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Glass
|
|
|
Subsidiary
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
(Parent)
|
|
|
(Issuer)
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Net income (loss)
|
|
$
|
(20,899
|
)
|
|
$
|
(20,899
|
)
|
|
$
|
7,014
|
|
|
$
|
(17,855
|
)
|
|
$
|
31,740
|
|
|
$
|
(20,899
|
)
|
|
Depreciation and amortization
|
|
|
—
|
|
|
|
16,841
|
|
|
|
3,364
|
|
|
|
15,515
|
|
|
|
—
|
|
|
|
35,720
|
|
|
Other operating activities
|
|
|
20,899
|
|
|
|
26,297
|
|
|
|
(7,699
|
)
|
|
|
32,280
|
|
|
|
(31,740
|
)
|
|
|
40,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
—
|
|
|
|
22,239
|
|
|
|
2,679
|
|
|
|
29,940
|
|
|
|
—
|
|
|
|
54,858
|
|
|
Additions to property, plant & equipment
|
|
|
—
|
|
|
|
(8,537
|
)
|
|
|
(1,173
|
)
|
|
|
(63,888
|
)
|
|
|
—
|
|
|
|
(73,598
|
)
|
|
Other investing activities
|
|
|
—
|
|
|
|
(229,009
|
)
|
|
|
(1,297
|
)
|
|
|
151,872
|
|
|
|
—
|
|
|
|
(78,434
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing activities
|
|
|
—
|
|
|
|
(237,546
|
)
|
|
|
(2,470
|
)
|
|
|
87,984
|
|
|
|
—
|
|
|
|
(152,032
|
)
|
|
Net borrowings
|
|
|
—
|
|
|
|
248,554
|
|
|
|
—
|
|
|
|
(96,041
|
)
|
|
|
—
|
|
|
|
152,513
|
|
|
Other financing activities
|
|
|
—
|
|
|
|
(13,215
|
)
|
|
|
—
|
|
|
|
(4,000
|
)
|
|
|
—
|
|
|
|
(17,215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
—
|
|
|
|
235,339
|
|
|
|
—
|
|
|
|
(100,041
|
)
|
|
|
—
|
|
|
|
135,298
|
|
|
Exchange effect on cash
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
400
|
|
|
|
—
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
|
|
|
—
|
|
|
|
20,032
|
|
|
|
209
|
|
|
|
18,283
|
|
|
|
—
|
|
|
|
38,524
|
|
|
Cash at beginning of period
|
|
|
—
|
|
|
|
2,817
|
|
|
|
300
|
|
|
|
125
|
|
|
|
—
|
|
|
|
3,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
—
|
|
|
$
|
22,849
|
|
|
$
|
509
|
|
|
$
|
18,408
|
|
|
$
|
—
|
|
|
$
|
41,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107
Selected
Quarterly Financial Data (unaudited)
The following tables present selected quarterly financial data
for the years ended December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Net sales
|
|
$
|
187,276
|
|
|
$
|
179,496
|
|
|
$
|
224,828
|
|
|
$
|
207,123
|
|
|
$
|
211,536
|
|
|
$
|
202,431
|
|
|
$
|
186,567
|
|
|
$
|
225,110
|
|
|
Gross profit
|
|
$
|
30,337
|
|
|
$
|
32,415
|
|
|
$
|
42,168
|
|
|
$
|
44,189
|
|
|
$
|
37,934
|
|
|
$
|
38,250
|
|
|
$
|
(1,102
|
)
|
|
$
|
42,815
|
|
|
Gross profit margin
|
|
|
16.2
|
%
|
|
|
18.1
|
%
|
|
|
18.8
|
%
|
|
|
21.3
|
%
|
|
|
17.9
|
%
|
|
|
18.9
|
%
|
|
|
(0.6
|
)%
|
|
|
19.0
|
%
|
|
Selling, general & administrative expenses
|
|
$
|
20,859
|
|
|
$
|
22,034
|
|
|
$
|
23,451
|
|
|
$
|
23,667
|
|
|
$
|
23,377
|
|
|
$
|
23,571
|
|
|
$
|
20,764
|
|
|
$
|
22,296
|
|
|
Special charges
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
26,434
|
|
|
$
|
—
|
|
|
Income (loss) from operations (IFO)
|
|
$
|
9,478
|
|
|
$
|
10,381
|
|
|
$
|
18,717
|
|
|
$
|
20,522
|
|
|
$
|
14,557
|
|
|
$
|
14,679
|
|
|
$
|
(48,300
|
)
|
|
$
|
20,519
|
|
|
IFO margin
|
|
|
5.1
|
%
|
|
|
5.8
|
%
|
|
|
8.3
|
%
|
|
|
9.9
|
%
|
|
|
6.9
|
%
|
|
|
7.3
|
%
|
|
|
(25.9
|
)%
|
|
|
9.1
|
%
|
|
Earnings (loss) before interest and income taxes (EBIT)
|
|
$
|
10,231
|
|
|
$
|
12,226
|
|
|
$
|
19,303
|
|
|
$
|
21,161
|
|
|
$
|
13,557
|
|
|
$
|
16,240
|
|
|
$
|
(47,520
|
)
|
|
$
|
25,252
|
|
|
EBIT margin
|
|
|
5.5
|
%
|
|
|
6.8
|
%
|
|
|
8.6
|
%
|
|
|
10.2
|
%
|
|
|
6.4
|
%
|
|
|
8.0
|
%
|
|
|
(25.5
|
)%
|
|
|
11.2
|
%
|
|
Earnings before interest, taxes, depreciation and amortization
(EBITDA)
|
|
$
|
21,527
|
|
|
$
|
21,442
|
|
|
$
|
30,541
|
|
|
$
|
31,871
|
|
|
$
|
24,456
|
|
|
$
|
28,025
|
|
|
$
|
(36,523
|
)
|
|
$
|
35,113
|
|
|
EBITDA margin
|
|
|
11.5
|
%
|
|
|
11.9
|
%
|
|
|
13.6
|
%
|
|
|
15.4
|
%
|
|
|
11.6
|
%
|
|
|
13.8
|
%
|
|
|
(19.6
|
)%
|
|
|
15.6
|
%
|
|
Net income (loss)
|
|
$
|
(3,477
|
)
|
|
$
|
(1,754
|
)
|
|
$
|
(2,119
|
)
|
|
$
|
3,956
|
|
|
$
|
(5,958
|
)
|
|
$
|
445
|
|
|
$
|
(68,909
|
)
|
|
$
|
(4,954
|
)
|
|
Net income margin
|
|
|
(1.9
|
)%
|
|
|
(1.0
|
)%
|
|
|
(0.9
|
)%
|
|
|
1.9
|
%
|
|
|
(2.8
|
)%
|
|
|
0.2
|
%
|
|
|
(36.9
|
)%
|
|
|
(2.2
|
)%
|
|
Diluted earnings (loss) per share
|
|
$
|
(0.24
|
)
|
|
$
|
(0.12
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
0.27
|
|
|
$
|
(0.40
|
)
|
|
$
|
0.03
|
|
|
$
|
(4.70
|
)
|
|
$
|
(0.34
|
)
|
|
Accounts receivable — net
|
|
$
|
95,096
|
|
|
$
|
94,384
|
|
|
$
|
111,849
|
|
|
$
|
103,423
|
|
|
$
|
102,781
|
|
|
$
|
108,993
|
|
|
$
|
76,072
|
|
|
$
|
93,333
|
|
|
DSO
|
|
|
42.2
|
|
|
|
44.9
|
|
|
|
48.6
|
|
|
|
48.2
|
|
|
|
44.2
|
|
|
|
49.6
|
|
|
|
34.3
|
|
|
|
41.8
|
|
|
Inventories — net
|
|
$
|
208,180
|
|
|
$
|
179,807
|
|
|
$
|
202,464
|
|
|
$
|
188,636
|
|
|
$
|
204,485
|
|
|
$
|
199,294
|
|
|
$
|
185,242
|
|
|
$
|
194,079
|
|
|
DIO
|
|
|
92.5
|
|
|
|
85.5
|
|
|
|
88.0
|
|
|
|
87.9
|
|
|
|
87.9
|
|
|
|
90.7
|
|
|
|
83.5
|
|
|
|
87.1
|
|
|
Accounts payable
|
|
$
|
66,080
|
|
|
$
|
62,792
|
|
|
$
|
70,246
|
|
|
$
|
63,704
|
|
|
$
|
58,468
|
|
|
$
|
56,045
|
|
|
$
|
54,428
|
|
|
$
|
73,593
|
|
|
DPO
|
|
|
29.4
|
|
|
|
29.9
|
|
|
|
30.5
|
|
|
|
29.7
|
|
|
|
25.1
|
|
|
|
25.5
|
|
|
|
24.5
|
|
|
|
33.2
|
|
|
Working capital
|
|
$
|
237,196
|
|
|
$
|
211,399
|
|
|
$
|
244,067
|
|
|
$
|
228,355
|
|
|
$
|
248,798
|
|
|
$
|
252,242
|
|
|
$
|
206,886
|
|
|
$
|
213,819
|
|
|
DWC
|
|
|
105.3
|
|
|
|
100.5
|
|
|
|
106.1
|
|
|
|
106.4
|
|
|
|
107.0
|
|
|
|
114.7
|
|
|
|
93.3
|
|
|
|
95.7
|
|
|
Percent of net sales
|
|
|
28.9
|
%
|
|
|
27.5
|
%
|
|
|
29.1
|
%
|
|
|
29.2
|
%
|
|
|
29.3
|
%
|
|
|
31.4
|
%
|
|
|
25.5
|
%
|
|
|
26.3
|
%
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(28,139
|
)
|
|
$
|
(37
|
)
|
|
$
|
5,080
|
|
|
$
|
4,362
|
|
|
$
|
13,309
|
|
|
$
|
11,352
|
|
|
$
|
8,710
|
|
|
$
|
35,780
|
|
|
Free cash flow
|
|
$
|
(37,450
|
)
|
|
$
|
(7,761
|
)
|
|
$
|
(3,175
|
)
|
|
$
|
(8,587
|
)
|
|
$
|
990
|
|
|
$
|
2,664
|
|
|
$
|
(7,005
|
)
|
|
$
|
30,233
|
|
|
Total borrowings — net
|
|
$
|
511,060
|
|
|
$
|
488,359
|
|
|
$
|
536,701
|
|
|
$
|
493,317
|
|
|
$
|
525,702
|
|
|
$
|
491,742
|
|
|
$
|
550,257
|
|
|
$
|
496,634
|
|
108
The following table represents special charges (see
note 9) included in the above quarterly data for the
years ended December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Special charges included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
18,681
|
|
|
$
|
—
|
|
|
Special charges
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,434
|
|
|
|
—
|
|
|
Other income (expense)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(383
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pre-tax special charges
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
45,498
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special charges — net of tax
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
45,252
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Market Information
Libbey Inc. common stock is listed for trading on the New York
Stock Exchange under the symbol
LBY.
The price range for
the Company’s common stock as reported by the New York
Stock Exchange and dividends declared for our common stock were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
Price Range
|
|
|
Dividend
|
|
|
Price Range
|
|
|
Dividend
|
|
|
|
|
High
|
|
|
Low
|
|
|
Declared
|
|
|
High
|
|
|
Low
|
|
|
Declared
|
|
|
|
|
First Quarter
|
|
$
|
17.60
|
|
|
$
|
12.96
|
|
|
$
|
0.025
|
|
|
$
|
14.28
|
|
|
$
|
11.17
|
|
|
$
|
0.025
|
|
|
Second Quarter
|
|
$
|
17.81
|
|
|
$
|
7.43
|
|
|
$
|
0.025
|
|
|
$
|
24.65
|
|
|
$
|
13.98
|
|
|
$
|
0.025
|
|
|
Third Quarter
|
|
$
|
11.25
|
|
|
$
|
6.44
|
|
|
$
|
0.025
|
|
|
$
|
24.06
|
|
|
$
|
13.76
|
|
|
$
|
0.025
|
|
|
Fourth Quarter
|
|
$
|
8.63
|
|
|
$
|
1.04
|
|
|
$
|
0.025
|
|
|
$
|
19.32
|
|
|
$
|
14.28
|
|
|
$
|
0.025
|
|
109
|
|
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
The Company maintains disclosure controls and procedures that
are designed to ensure that information required to be disclosed
in the Company’s 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 Commission’s rules and forms and
that such information is accumulated and communicated to the
Company’s management, including its 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),
the Company carried out an evaluation, under the supervision and
with the participation of the Company’s management,
including the Company’s Chief Executive Officer and the
Company’s Chief Financial Officer, of the effectiveness of
the design and operation of the Company’s disclosure
controls and procedures as of the end of the quarter covered by
this report. Based on the foregoing, the Company’s Chief
Executive Officer and Chief Financial Officer concluded that the
Company’s disclosure controls and procedures were effective
at the reasonable assurance level.
Report of
Management
The management of the Company is responsible for establishing
and maintaining adequate internal control over financial
reporting. Internal control over financial reporting refers to
the process designed by, or under the supervision of, our Chief
Executive Officer and Chief Financial Officer, and effected by
our board of directors, management and other personnel, to
provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles, and includes those policies and
procedures that:
(1) Pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the transactions
and dispositions of the assets of the Company;
(2) Provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with U.S. generally accepted
accounting principles, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of
management and directors of the Company; and
(3) Provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition
of the Company’s assets that could have a material effect
on the financial statements.
Internal control over financial reporting cannot provide
absolute assurance of achieving financial reporting objectives
because of its inherent limitations. Internal control over
financial reporting is a process that involves human diligence
and compliance and is subject to lapses in judgment and
breakdowns resulting from human failures. Internal control over
financial reporting also can be circumvented by collusion or
improper management override. Because of such limitations, there
is a risk that material misstatements may not be prevented or
detected on a timely basis by internal control over financial
reporting. However, these inherent limitations are known
features of the financial reporting process. Therefore, it is
possible to design into the process safeguards to reduce, though
not eliminate, this risk. Management is responsible for
establishing and maintaining adequate internal control over
financial reporting for the Company.
110
Management has used the framework set forth in the report
entitled “Internal Control — Integrated
Framework” published by the Committee of Sponsoring
Organizations (COSO) of the Treadway Commission to evaluate the
effectiveness of the Company’s internal control over
financial reporting. Management has concluded that the
Company’s internal control over financial reporting was
effective as of the end of the most recent fiscal year. The
Company’s independent registered public accounting firm,
Ernst & Young LLP, that audited the Company’s
Consolidated Financial Statements, has issued an attestation
report on the Company’s internal control over financial
reporting.
Changes
in Internal Control
There has been no change in the Company’s internal controls
over financial reporting during the Company’s most recent
fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the Company’s internal
controls over financial reporting.
|
|
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
PART III
|
|
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Information with respect to executive officers of Libbey is
incorporated herein by reference to Item 4 of this report
under the caption “Executive Officers of the
Registrant.” Information with respect to directors of
Libbey is incorporated herein by reference to the information
set forth under the caption “Libbey Corporate
Governance-Who are the current members of Libbey’s Board of
Directors?” in the Proxy Statement. Certain information
regarding compliance with Section 16(a) of the Exchange Act
is incorporated herein by reference to the information set forth
under the caption “Stock Ownership —
Section 16(a) Beneficial Ownership Reporting
Compliance” in the Proxy Statement. Information with
respect to the Audit Committee members, the Audit Committee
financial experts, and material changes in the procedures by
which shareholders can recommend nominees to the Board of
Directors is incorporated herein by reference to the information
set forth under the captions “Libbey Corporate
Governance-Who are the current members of Libbey’s Board of
Directors?”, “— What is the role of the
Board’s Committees?” and “— How does
the Board select nominees for the Board?” in the Proxy
Statement.
Libbey’s Code of Business Ethics and Conduct applicable to
its Directors, Officers (including Libbey’s principal
executive officer and principal financial & accounting
officer) and employees, along with the Audit Committee Charter,
Nominating and Governance Committee Charter, Compensation
Committee Charter and Corporate Governance Guidelines is posted
on Libbey’s website at
www.libbey.com
. Libbey’s
Code of Business Ethics and Conduct is also available to any
shareholder who submits a request in writing addressed to Susan
A. Kovach, Vice President, General Counsel and Secretary, Libbey
Inc., 300 Madison Avenue, P.O. Box 10060, Toledo, Ohio
43699-0060.
In the event that Libbey amends or waives any of the provisions
of the Code of Business Ethics and Conduct applicable to the
principal executive officer or principal financial &
accounting officer, Libbey intends to disclose the subsequent
information on Libbey’s website.
|
|
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
Information regarding executive compensation is incorporated
herein by reference to the information set forth under the
captions “Compensation Discussion and Analysis” in the
Proxy Statement.
|
|
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
Information regarding security ownership of certain beneficial
owners and management is incorporated herein by reference to the
information set forth under the captions “Stock
Ownership — Who are the largest owners of Libbey
stock?” and “— How much stock do
Libbey’s directors and officers own?” in the Proxy
Statement.
111
Information regarding equity compensation plans is incorporated
herein by reference to Item 5 of this report under the
caption “Equity Compensation Plan Information.”
|
|
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Information regarding certain relationships and related
transactions is incorporated herein by reference to the
information set forth under the caption “Libbey Corporate
Governance-Certain Relationships and Related
Transactions — What related party transactions
involved directors or related parties?” and
‘‘— How does the Board determine which
directors are considered independent?” in the Proxy
Statement.
|
|
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
Information regarding principal accounting fees and services is
incorporated herein by reference to the information set forth
under the caption “Audit-Related Matters — Who
are Libbey’s auditors?” and “— What
fees has Libbey paid to its auditors for fiscal year 2008 and
2007?” in the Proxy Statement.
PART IV
|
|
|
|
ITEM 15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
|
a) Index of Financial Statements and Financial Statement
Schedule Covered by Report of Independent Auditors.
|
|
|
|
|
|
|
|
|
Page
|
|
|
|
Reports of Independent Registered Public Accounting Firms
|
|
|
49
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheets at December 31, 2008 and 2007
|
|
|
51
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Operations
|
|
|
52
|
|
|
Consolidated Statements of Shareholders’ Equity
|
|
|
53
|
|
|
Consolidated Statements of Cash Flows
|
|
|
54
|
|
|
|
|
|
|
|
|
Notes to Consolidated Financial Statements
|
|
|
55
|
|
|
|
|
|
|
|
|
Selected Quarterly Financial Data (Unaudited)
|
|
|
107
|
|
|
|
|
|
|
|
|
Financial Statement Schedule of Libbey Inc. for the years ended
December 31, 2008, 2007 and 2006 for Schedule II
Valuation and Qualifying Accounts (Consolidated)
|
|
|
S-1
|
|
All other schedules have been omitted since the required
information is not present or not present in amounts sufficient
to require submission of the schedule or because the information
required is included in the Consolidated Financial Statements or
the accompanying notes.
b) The accompanying Exhibit Index is hereby
incorporated by reference. The exhibits listed in the
accompanying Exhibit Index are filed or incorporated by
reference as part of this report.
112
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
LIBBEY INC.
|
|
|
|
|
|
by:
|
/s/ Gregory
T. Geswein
|
Gregory T. Geswein
Vice President and Chief Financial Officer
Date: March 16, 2009
113
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
|
|
|
William A. Foley
|
|
Director
|
|
|
|
|
|
Peter C. McC. Howell
|
|
Director
|
|
|
|
|
|
Carol B. Moerdyk
|
|
Director
|
|
|
|
|
|
Jean-René Gougelet
|
|
Director
|
|
|
|
|
|
Terence P. Stewart
|
|
Director
|
|
|
|
|
|
Carlos V. Duno
|
|
Director
|
|
|
|
|
|
Deborah G. Miller
|
|
Director
|
|
|
|
|
|
John C. Orr
|
|
Director
|
|
|
|
|
|
Richard I. Reynolds
|
|
Director, Executive Vice President,
Chief Operating Officer
|
|
|
|
|
|
John F. Meier
|
|
Chairman of the Board of Directors,
Chief Executive Officer
|
|
|
|
|
|
|
By:
|
/s/ Gregory
T. Geswein
|
Gregory T. Geswein
Attorney-In-Fact
Date: March 16, 2009
Gregory T. Geswein
Vice President and Chief
Financial Officer (Principal Accounting Officer)
Date: March 16, 2009
114
EXHIBIT INDEX
|
|
|
|
|
|
|
|
S-K Item
|
|
|
|
|
|
601 No.
|
|
|
|
Document
|
|
|
|
|
2
|
.0
|
|
—
|
|
Asset Purchase Agreement dated as of September 22, 1995 by and
among The Pfaltzgraff Co., The Pfaltzgraff Outlet Co., Syracuse
China Company of Canada Ltd., LG Acquisition Corp. and Libbey
Canada Inc., Acquisition of Syracuse China Company (filed as
Exhibit 2.0 to Libbey Inc.’s Current Report on Form 8-K
dated September 22, 1995 and incorporated herein by reference).
|
|
|
2
|
.1
|
|
—
|
|
Asset Purchase Agreement dated as of December 2, 2002 by and
between Menasha Corporation and Libbey Inc. (filed as Exhibit
2.2 to Libbey Inc.’s Annual Report on Form 10-K for the
year-ended December 31, 2002, and incorporated herein by
reference).
|
|
|
2
|
.2
|
|
—
|
|
Stock Purchase Agreement dated as of December 31, 2002 between
BSN Glasspack N.V. and Saxophone B.V. (filed as Exhibit 2.3 to
Libbey Inc.’s Annual Report on Form 10-K for the year-ended
December 31, 2002, and incorporated herein by reference).
|
|
|
3
|
.1
|
|
—
|
|
Restated Certificate of Incorporation of Libbey Inc. (filed as
Exhibit 3.1 to Libbey Inc.’s Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993 and incorporated herein by
reference).
|
|
|
3
|
.2
|
|
—
|
|
Amended and Restated By-Laws of Libbey Inc. (filed as Exhibit
3.2 to Libbey Inc.’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993 and incorporated herein by
reference).
|
|
|
3
|
.3
|
|
—
|
|
Certificate of Incorporation of Libbey Glass Inc. (incorporated
by reference to Exhibit 3.3 to Libbey Glass Inc.’s
Registration Statement on Form S-4; File No. 333-139358).
|
|
|
3
|
.4
|
|
—
|
|
Amended and Restated By-Laws of Libbey Glass Inc. (incorporated
by reference to Exhibit 3.4 to Libbey Glass Inc.’s
Registration Statement on Form S-4; File No. 333-139358).
|
|
|
4
|
.1
|
|
—
|
|
Certificate of Incorporation of Libbey Glass Inc.
(incorporated by reference to Exhibit 3.3).
|
|
|
4
|
.2
|
|
—
|
|
Amended and Restated By-Laws of Libbey Glass Inc.
(incorporated by reference to Exhibit 3.4).
|
|
|
4
|
.3
|
|
—
|
|
Indenture, dated as of June 16, 2006, by and among Libbey Glass
Inc., Libbey Inc., and all of the Libbey Glass Inc.’s
direct and indirect Domestic Subsidiaries existing on the
Issuance Date and The Bank of New York Trust Company, N.A., with
respect to $306.0 million aggregate principal amount of Floating
Rate Senior Secured Notes due 2011 (filed as Exhibit 4.2 to
Libbey Inc.’s Current Report on Form 8-K filed on June 21,
2006 and incorporated herein by reference).
|
|
|
4
|
.4
|
|
—
|
|
Form of Floating Rate Senior Secured Note due 2011 (filed as
Exhibit 4.4 to Libbey Glass Inc.’s Registration Statement
on Form S-4; File No. 333-139358).
|
|
|
4
|
.5
|
|
—
|
|
Registration Rights Agreement, dated June 16, 2006, by and among
Libbey Glass Inc., as issuer, Libbey Inc., as Parent Guarantor,
and the Guarantors named in Schedule 1 thereto and
J.P. Morgan Securities Inc., Bear, Stearns & Co. Inc.,
and BNY Capital Markets, Inc., as initial purchasers (filed as
Exhibit 4.4 to Libbey Inc.’s Current Report on Form 8-K
filed on June 21, 2006 and incorporated herein by reference).
|
|
|
4
|
.6
|
|
—
|
|
Credit Agreement, dated June 16, 2006, among Libbey Glass Inc.
and Libbey Europe B.V., Libbey Inc., the other loan parties
thereto, the lenders party thereto, JPMorgan Chase Bank, N.A.,
J.P. Morgan Europe Limited, LaSalle Bank Midwest National
Association, Wells Fargo Foothill, LLC, Fifth Third Bank, and
J.P. Morgan Securities Inc., as Sole Bookrunner and Sole
Lead Arranger (filed as Exhibit 4.1 to Libbey Inc.’s
Current Report on Form 8-K filed on June 12, 2006 and
incorporated herein by reference).
|
|
|
4
|
.7
|
|
—
|
|
Indenture, dated June 16, 2006, among Libbey Glass Inc., Libbey
Inc., the Subsidiary Guarantors party thereto and Merrill Lynch
PCG, Inc. (filed as Exhibit 4.5 to Libbey Inc.’s Current
Report on Form 8-K filed June 21, 2006 and incorporated herein
by reference).
|
|
|
4
|
.8
|
|
—
|
|
Form of 16% Senior Subordinated Secured Pay-in-Kind Note
due 2011 (filed as Exhibit 4.6 to Libbey Inc.’s Current
Report on Form 8-K filed June 21, 2006 and incorporated herein
by reference).
|
|
|
4
|
.9
|
|
—
|
|
Warrant, issued June 16, 2006 (filed as Exhibit 4.7 to Libbey
Inc.’s Current Report on Form 8-K filed June 21, 2006 and
incorporated herein by reference).
|
|
|
4
|
.10
|
|
—
|
|
Registration Rights Agreement, dated June 16, 2006, among Libbey
Inc. and Merrill Lynch PCG, Inc. (filed as Exhibit 4.8 to Libbey
Inc.’s Current Report on Form 8-K filed June 21, 2006 and
incorporated herein by reference).
|
115
|
|
|
|
|
|
|
|
S-K Item
|
|
|
|
|
|
601 No.
|
|
|
|
Document
|
|
|
|
|
4
|
.11
|
|
—
|
|
Intercreditor Agreement, dated June 16, 2006, among Libbey Glass
Inc., JP Morgan Chase Bank, N.A., The Bank of New York Trust
Company, N.A., Merrill Lynch PCG, Inc. and the Loan Parties
party thereto (filed as Exhibit 4.9 to Libbey Inc.’s
Current Report on Form 8-K filed on June 21, 2006 and
incorporated herein by reference).
|
|
|
4
|
.12
|
|
—
|
|
Amendment and Waiver, dated as of November 7, 2008, to the
Credit Agreement, dated as of June 16, 2006, among Libbey
Glass Inc. and Libbey Europe B.V., each as a Borrower and
together, the Borrowers, Libbey Inc., as a Loan Guarantor, the
other Loan Parties party thereto, the Lenders party thereto,
JPMorgan Chase Bank, N.A., as Administrative Agent with respect
to the US Loans, J.P. Morgan Europe Limited, as
Administrative Agent with respect to the Netherlands Loans, Bank
of America, N.A. (f/k/a LaSalle Bank Midwest National
Association), as Syndication Agent, Wells Fargo Foothill, LLC
and Fifth Third Bank, as Co-Documentation Agents and
J.P. Morgan Securities Inc., as Sole Bookrunner and Sole
Lead Arranger (filed as Exhibit 4.10 to Libbey Inc’s
Quarterly Report on Form 10-Q for the quarter ended September
30, 2008 and incorporated herein by this reference).
|
|
|
10
|
.1
|
|
—
|
|
Management Services Agreement dated as of June 24, 1993 between
Owens-Illinois General Inc. and Libbey Glass Inc. (filed as
Exhibit 10.2 to Libbey Inc.’s Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993 and incorporated herein by
reference).
|
|
|
10
|
.2
|
|
—
|
|
Tax Allocation and Indemnification Agreement dated as of May 18,
1993 by and among
Owens-Illinois,
Inc., Owens-Illinois Group, Inc. and Libbey Inc. (filed as
Exhibit 10.3 to Libbey Inc.’s Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993 and incorporated herein by
reference).
|
|
|
10
|
.3
|
|
—
|
|
Pension and Savings Plan Agreement dated as of June 17, 1993
between Owens-Illinois, Inc. and Libbey Inc. (filed as Exhibit
10.4 to Libbey Inc.’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993 and incorporated herein by
reference).
|
|
|
10
|
.4
|
|
—
|
|
Cross-Indemnity Agreement dated as of June 24, 1993 between
Owens-Illinois, Inc. and Libbey Inc. (filed as Exhibit 10.5 to
Libbey Inc.’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993 and incorporated herein by reference).
|
|
|
10
|
.5
|
|
—
|
|
Form of Non-Qualified Stock Option Agreement between Libbey Inc.
and certain key employees participating in the Libbey Inc. Stock
Option Plan for Key Employees (filed as Exhibit 10.8 to Libbey
Inc.’s Annual Report on Form 10-K for the year ended
December 31, 1993 and incorporated herein by reference).
|
|
|
10
|
.6
|
|
—
|
|
Description of Libbey Inc. Senior Executive Life Insurance Plan
(filed as Exhibit 10.9 to Libbey Inc.’s Annual Report
on Form 10-K for the year ended December 31, 1993 and
incorporated herein by reference).
|
|
|
10
|
.7
|
|
—
|
|
The Amended and Restated Libbey Inc. Stock Option Plan for Key
Employees (filed as Exhibit 10.14 to Libbey Inc.’s
Quarterly Report on Form 10-Q for the quarter ended June 30,
1995 and incorporated herein by reference).
|
|
|
10
|
.8
|
|
—
|
|
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
|
.9
|
|
—
|
|
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).
|
116
|
|
|
|
|
|
|
|
S-K Item
|
|
|
|
|
|
601 No.
|
|
|
|
Document
|
|
|
|
|
10
|
.10
|
|
—
|
|
Letter Agreement dated as of October 10, 1995 by and between The
Pfaltzgraff Co., The Pfaltzgraff Outlet Co., Syracuse China
Company of Canada Ltd., LG Acquisition Corp. and Libbey Canada
Inc., amending the Letter Agreement dated September 22, 1995
filed as part of the Asset Purchase Agreement for the
Acquisition of Syracuse China (Exhibit 2.0) (filed as Exhibit
10.19 to Libbey Inc.’s Current Report on Form 8-K dated
October 10, 1995 and incorporated herein by reference).
|
|
|
10
|
.11
|
|
—
|
|
The Amended and Restated Libbey Inc. Senior Management Incentive
Plan (filed as Exhibit 10.22 to Registrant’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996 and
incorporated herein by reference).
|
|
|
10
|
.12
|
|
—
|
|
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
|
.13
|
|
—
|
|
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
|
.14
|
|
—
|
|
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
|
.15
|
|
—
|
|
First Amendment to Parent Guaranty Agreement Dated December 21,
2004 (filed as Exhibit 10.74 to Libbey Inc.’s Annual Report
on Form 10-K for the year ended December 31, 2004 and
incorporated herein by reference).
|
|
|
10
|
.16
|
|
—
|
|
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).
|
|
|
10
|
.17
|
|
—
|
|
Libbey Inc. 2006 Deferred Compensation Plan for Outside
Directors (filed as Exhibit 99.1 to the Libbey Inc.’s
Current Report on Form 8-K filed December 12, 2005, and as
exhibit 10.74 to Libbey Inc.’s Annual Report on Form 10-K
for the year ended December 31, 2005 and incorporated herein by
reference).
|
|
|
10
|
.18
|
|
—
|
|
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
|
.19
|
|
—
|
|
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
|
.20
|
|
—
|
|
Limited Waiver and Second Amendment to Purchase Agreement, dated
June 16, 2006, among Vitro, S.A. de C.V., Crisa Corporation,
Crisa Libbey S.A. de C.V., Vitrocrisa Holdings, S. de R.L. de
C.V., Vitrocrisa S. de R.L. de C.V., Vitrocrisa Comercial S. de
R.L. de C.V., Crisa Industrial, L.L.C., Libbey Mexico, S. de
R.L. de C.V., Libbey Europe B.V., and LGA3 Corp. (filed as
exhibit 10.1 to Libbey Inc.’s Quarterly Report on Form 10-Q
for the quarter ended June 30, 2006 and incorporated herein by
reference).
|
|
|
10
|
.21
|
|
—
|
|
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
|
.22
|
|
—
|
|
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
|
.23
|
|
—
|
|
Transition Services Agreement, dated June 16, 2006, among Crisa
Libbey S.A. de C.V., Vitrocrisa Holding, S. de R.L. de C.V.,
Vitrocrisa S. de R.L. de C.V., Vitrocrisa Comercial, S. de R.L.
de C.V., Crisa Industrial, L.L.C. and Vitro S.A. de C.V. (filed
as exhibit 10.1 to Libbey Inc.’s Current Report on Form 8-K
filed June 21, 2006 and incorporated herein by reference).
|
117
|
|
|
|
|
|
|
|
S-K Item
|
|
|
|
|
|
601 No.
|
|
|
|
Document
|
|
|
|
|
10
|
.24
|
|
—
|
|
2006 Omnibus Incentive Plan of Libbey Inc. (filed as Exhibit
10.1 to Libbey Inc.’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006 and incorporated herein by
reference).
|
|
|
10
|
.25
|
|
—
|
|
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
|
.26
|
|
—
|
|
Form of Registered Global Floating Rate Senior Secured Note,
Series B, due 2011 (filed as exhibit 10.55 to Libbey Inc.’s
Annual Report on Form 10-K for the year ended December 31, 2006
and incorporated herein by reference).
|
|
|
10
|
.27
|
|
—
|
|
2009 Director Deferred Compensation Plan (filed as Exhibit
10.51 to Libbey Inc’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2008 and incorporated herein by this
reference).
|
|
|
10
|
.28
|
|
—
|
|
Executive Deferred Compensation Plan (filed as Exhibit 10.52 to
Libbey Inc’s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2008 and incorporated herein by this
reference).
|
|
|
10
|
.29
|
|
—
|
|
Amended and Restated Employment Agreement dated as of December
31, 2008 between Libbey Inc. and John F. Meier.
|
|
|
10
|
.30
|
|
—
|
|
Amended and Restated Employment Agreement dated as of December
31, 2008 between Libbey Inc. and Richard I. Reynolds.
|
|
|
10
|
.31
|
|
—
|
|
Amended and Restated Employment Agreement dated as of December
31, 2008 between Libbey Inc. and Gregory T. Geswein.
|
|
|
10
|
.32
|
|
—
|
|
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.
|
|
|
10
|
.33
|
|
—
|
|
Amended and restated change in control agreement dated as of
December 31, 2008 between Libbey Inc. and John F. Meier.
|
|
|
10
|
.34
|
|
—
|
|
Form of amended and restated change in control agreement dated
as of December 31, 2008 and the respective executive officers
identified on Appendix 1 thereto.
|
|
|
10
|
.35
|
|
—
|
|
Form of amended and restated change in control agreement dated
as of December 31, 2008 and the respective individuals
identified on Appendix 1 thereto.
|
|
|
10
|
.36
|
|
—
|
|
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.
|
|
|
10
|
.37
|
|
—
|
|
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.
|
|
|
10
|
.38
|
|
—
|
|
Amended and Restated Libbey Inc. Supplemental Retirement Benefit
Plan effective December 31, 2008.
|
|
|
10
|
.39
|
|
—
|
|
Amendment to the First Amended and Restated Libbey Inc.
Executive Savings Plan effective December 31, 2008.
|
|
|
12
|
.1
|
|
—
|
|
Statement Regarding Computation of Ratios (incorporated by
reference to Exhibit 12.1 to Libbey Glass Inc.’s
Registration Statement on Form S-4; File No. 333-139358).
|
|
|
13
|
.1
|
|
—
|
|
Selected Financial Information included in Registrant’s
2008 Annual Report to Shareholders (filed herein).
|
|
|
21
|
|
|
—
|
|
Subsidiaries of the Registrant (filed herein).
|
|
|
23
|
|
|
—
|
|
Consent of Ernst & Young LLP (filed herein).
|
|
|
24
|
|
|
—
|
|
Power of Attorney (filed herein).
|
|
|
31
|
.1
|
|
—
|
|
Certification of Chief Executive Officer Pursuant to Rule
13a-14(a) or Rule 15d-14(a) (filed herein).
|
|
|
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).
|
118
LIBBEY
INC.
Years
ended December 31, 2008, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for
|
|
|
Valuation
|
|
|
|
|
|
|
|
Slow Moving
|
|
|
Allowance
|
|
|
|
|
Allowance for
|
|
|
and Obsolete
|
|
|
for Deferred
|
|
|
|
|
Doubtful Accounts
|
|
|
Inventory
|
|
|
Tax Asset
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Balance at December 31, 2005
|
|
$
|
13,396
|
|
|
$
|
7,590
|
|
|
$
|
3,033
|
|
|
Charged to expense or other accounts
|
|
|
3,602
|
|
|
|
6,215
|
|
|
|
3,542
|
|
|
Deductions
|
|
|
(5,491
|
)
|
|
|
(8,026
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
11,507
|
|
|
|
6,139
|
|
|
|
6,575
|
|
|
Charged to expense or other accounts
|
|
|
1,760
|
|
|
|
2,285
|
|
|
|
22,280
|
|
|
Deductions
|
|
|
(1,556
|
)
|
|
|
(1,989
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
11,711
|
|
|
|
6,435
|
|
|
|
28,855
|
|
|
Charged to expense or other accounts
|
|
|
181
|
|
|
|
2,391
|
|
|
|
58,587
|
|
|
Deductions
|
|
|
(1,413
|
)
|
|
|
(2,244
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
10,479
|
|
|
$
|
6,582
|
|
|
$
|
87,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-1
